What changed in this filing

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Item 1. Financial Statements

2023-11-06 compared with 2023-07-26 · 266 added, 115 removed, 523 unchanged (42% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

Interest expense/(income), net 3,653 3,794 10,049 11,336

Pension settlement expense — 49,128 — 49,128

Other (income)/expense, net 56 ( 6,918 ) ( 4,910 ) ( 17,891 )

Income before income taxes 36,361 7,640 120,974 100,540

Income tax expense 20,080 14,458 30,701 25,456

Income tax expense/(benefit) 9,207 ( 3,183 ) 39,908 22,273

Net income 27,154 10,823 81,066 78,267

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

2 unchanged sentences

Foreign currency translation ( 15,131 ) ( 38,971 ) ( 4,509 ) ( 79,841 )

Reclassification of loss on pension settlement — 42,657 — 42,657

Amortization of pension liability adjustments:

4 unchanged sentences

Income taxes related to items of other comprehensive income/(loss):

Reclassification of loss on pension settlement — ( 16,459 ) — ( 16,459 )

Amortization of prior service credit 315 344 946 1,031

9 unchanged sentences

(in thousands, except share and per share data)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 171,506 $ 291,776

29 unchanged sentences

40,856,910 issued in 2023 and 40,785,434 in 2022

Class B Common Stock, par value $ .001 per share;

authorized 25,000,000 shares;

none issued and outstanding in 2023 and 2022

Additional paid in capital 446,470 441,540

15 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

OPERATING ACTIVITIES

6 unchanged sentences

Non-cash interest expense 1,148 840

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

Compensation and benefits paid or payable in Class A Common Stock 5,189 3,282

2 unchanged sentences

Fair value adjustment on foreign currency options 581 ( 409 )

Changes in operating assets and liabilities that provided/(used) cash:

Changes in operating assets and liabilities that provided/(used) cash, net of impact of business acquisition:

Accounts receivable ( 18,172 ) ( 20,260 )

11 unchanged sentences

INVESTING ACTIVITIES

Purchase of business, net of cash acquired ( 133,470 ) —

Purchases of property, plant and equipment ( 48,850 ) ( 50,948 )

5 unchanged sentences

Principal payments on finance lease liabilities — ( 654 )

Debt acquisition costs ( 4,108 ) —

Purchase of Treasury shares — ( 84,780 )

2 unchanged sentences

Dividends paid ( 23,365 ) ( 19,932 )

Net cash provided by financing activities 29,294 35,404

Net cash used in financing activities ( 10,839 ) ( 9,119 )

Effect of exchange rate changes on cash and cash equivalents ( 647 ) ( 30,910 )

Increase in cash and cash equivalents 9,140 18,834

Decrease in cash and cash equivalents ( 120,270 ) ( 25,554 )

Cash and cash equivalents at beginning of period 291,776 302,036

13 unchanged sentences

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Albany International Corp.’s Annual Report on Form 10-K for the year ended December 31, 2022.

On June 14, 2023, the Company entered into an agreement to acquire Heimbach GmbH ("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 using cash on hand.

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

Reportable Segments and Revenue Recognition

6 unchanged sentences

Paper machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a complex structure.

On August 31, 2023, the Company completed the acquisition of Heimbach GmbH (“Heimbach”), a privately-held manufacturer of paper machine clothing and technical textiles, as further described in Note 17.

Business Combination .

The financial results of the acquired company are included in the Machine Clothing reportable segment.

Albany Engineered Composites:

1 unchanged sentence

The segment includes Albany Safran Composites, LLC (“ASC”), in which our customer, the SAFRAN Group (“SAFRAN”) owns a 10 percent noncontrolling interest.

AEC, through ASC, is the exclusive supplier of the LEAP program of advanced composite fan blades and fan cases under a long-term supply contract, where revenue is determined by a cost-plus-fee agreement.

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, where revenue is determined by a cost-plus-fee agreement.

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

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

AEC net sales to SAFRAN were $ 93.5 million and $ 83.1 million in the first six months of 2023 and 2022, respectively.

The total of Accounts receivable, Contract assets and Noncurrent receivables due from SAFRAN amounted to $ 88.9 million and $ 80.8 million as of June 30, 2023 and December 31, 2022, respectively.

AEC net sales to SAFRAN were $ 140.8 million and $ 125.4 million in the first nine months of 2023 and 2022, respectively.

The total of Accounts receivable, Contract assets and Noncurrent receivables due from SAFRAN amounted to $ 90.0 million and $ 80.8 million as of September 30, 2023 and December 31, 2022, respectively.

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.

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.

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

1 unchanged sentence

The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:

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

Three months ended September 30, Nine months ended September 30,

(in thousands)

14 unchanged sentences

5,479 4,759 14,819 13,799

Pension settlement expense — 49,128 — 49,128

Other (income)/expense, net 56 ( 6,918 ) ( 4,910 ) ( 17,891 )

Income before income taxes $ 36,361 $ 7,640 $ 120,974 $ 100,540

Third quarter results include newly acquired Heimbach for the period of ownership, which began September 1, 2023.

Heimbach's impact on third quarter results is described in Note 17.

Business Combination .

This acquisition impacted MC third quarter results by increasing Net revenues by $ 15.6 million and reducing Operating income by $( 0.5 ) million, which included depreciation expense on Property, plant, and equipment, net of $ 1.1 million, and amortization expense on Intangibles, net of $ 0.1 million.

Revenue Recognition:

3 unchanged sentences

Changes in the estimated profitability of long-term contracts could be caused by increases or decreases in the contract value, revisions to customer delivery requirements, updated labor or overhead rates, factors affecting the supply chain, changes in the evaluation of contract risks and opportunities, or other factors .

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.

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

Changes in the estimated profitability of long-term contracts increased operating income by $ 0.9 million for the third quarter of 2023 and decreased operating income $ 4.1 million for the first nine months of 2023.

Adjustments in the estimated profitability of long-term contracts increased operating income by $ 2.6 million and $ 2.0 million for the three and nine months ended September 30, 2022, respectively.

We disaggregate revenue earned from contracts with customers for each of our business segments and product groups based on the timing of revenue recognition, and groupings used for internal review purposes.

The following table disaggregates revenue for each product group by timing of revenue recognition for the three months ended June 30, 2023:

Three months ended June 30, 2023

The following table disaggregates revenue for each product group by timing of revenue recognition for the three months ended September 30, 2023:

Three months ended September 30, 2023

(in thousands)

8 unchanged sentences

Total revenues $ 170,598 $ 110,508 $ 281,106

The following table disaggregates revenue for each product group by timing of revenue recognition for the three months ended June 30, 2022:

Three months ended June 30, 2022

The following table disaggregates revenue for each product group by timing of revenue recognition for the three months ended September 30, 2022:

Three months ended September 30, 2022

(in thousands)

8 unchanged sentences

Total revenues $ 158,309 $ 102,254 $ 260,563

The following table disaggregates revenue for each product group by timing of revenue recognition for the six months ended June 30, 2023:

Six months ended June 30, 2023

The following table disaggregates revenue for each product group by timing of revenue recognition for the nine months ended September 30, 2023:

Nine months ended September 30, 2023

(in thousands)

8 unchanged sentences

Total revenues $ 490,453 $ 333,872 $ 824,325

The following table disaggregates revenue for each product group by timing of revenue recognition for the six months ended June 30, 2022:

Six months ended June 30, 2022

The following table disaggregates revenue for each product group by timing of revenue recognition for the nine months ended September 30, 2022:

Nine months ended September 30, 2022

(in thousands) Point in Time Revenue

7 unchanged sentences

Total revenues $ 471,173 $ 294,928 $ 766,101

The following table disaggregates MC segment revenue by significant product groupings (paper machine clothing ("PMC") and engineered fabrics), and, for PMC, the geographical region to which the paper machine clothing was sold:

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

The following table disaggregates MC segment revenue by significant product groupings (paper machine clothing ("PMC") and engineered fabrics);

and for PMC, the geographical region to which the paper machine clothing was sold:

Three months ended September 30, Nine months ended September 30,

(in thousands)

6 unchanged sentences

Contracts in the MC segment are generally for periods of less than a year and certain contracts in the AEC segment are relatively short duration firm-fixed-price orders.

Remaining performance obligations on contracts that had an original duration of greater than one year totaled $ 792 million and $ 579 million as of June 30, 2023 and 2022, respectively, and related primarily to firm contracts in the AEC segment.

Of the remaining performance obligations as of June 30, 2023, we expect to recognize as revenue approximately $ 78 million during 2023, $ 131 million during 2024, $ 148 million during 2025, and the remainder thereafter.

Remaining performance obligations on contracts that had an original duration of greater than one year totaled $ 759 million and $ 600 million as of September 30, 2023 and 2022, respectively, and related primarily to firm fixed price contracts in the AEC segment.

Of the remaining performance obligations as of September 30, 2023, we expect to recognize as revenue approximately $ 38 million during 2023, $ 146 million during 2024, $ 146 million during 2025, and the remainder thereafter.

Pensions and Other Postretirement Benefit Plans

2 unchanged sentences

The Company accrues the cost of providing these benefits during the active service period of the employees.

The composition of the net periodic benefit cost/ (income) for the six months ended June 30, 2023 and 2022, was as follows:

The composition of the net periodic benefit cost/ (income) for the nine months ended September 30, 2023 and 2022, was as follows:

Pension plans

10 unchanged sentences

421 1,493 621 1,412

Net periodic benefit cost/(income) $ 1,014 $ 1,127 $ ( 664 ) $ ( 635 )

The amount of net benefit cost/(income) is determined at the beginning of each year and generally only varies from quarter to quarter when a significant event occurs, such as a curtailment or a settlement.

There were no such events in the first six months of 2023 or 2022.

Net periodic benefit cost/(credit)

$ 1,767 $ 1,688 $ ( 997 ) $ ( 952 )

Settlement charge — 49,128 — —

Net benefit cost/(credit) $ 1,767 $ 50,816 $ ( 997 ) $ ( 952 )

The amount of net benefit cost/(credit) is determined at the beginning of each year and generally only varies from quarter to quarter when a significant event occurs, such as a curtailment or a settlement.

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

No similar charges were incurred during the current year.

The above reflects the acquisition of Heimbach, as further described in Note 17.

Business Combination.

Service cost for defined benefit pension and postretirement plans are reported in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period.

2 unchanged sentences

The components of Other (income)/expense, net are:

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

Three months ended September 30, Nine months ended September 30,

(in thousands)

2 unchanged sentences

Bank fees and amortization of debt issuance costs

49 76 140 252

Components of net periodic pension and postretirement cost other than service cost ( 15 ) ( 138 ) ( 260 ) ( 411 )

1 unchanged sentence

Total other (income)/expense, net $ 56 $ ( 6,918 ) $ ( 4,910 ) $ ( 17,891 )

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 the three and six months ended June 30, 2023 led to a lesser gain on foreign currency related transactions.

The following table presents components of income tax expense for the three and six months ended June 30, 2023 and 2022:

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

Other (income)/expense, net, included foreign currency related transactions which resulted in losses of $ 0.5 million and gains of $ 3.6 million in the three and nine months ended September 30, 2023, respectively, as compared to gains of $ 6.6 million and $ 17.7 million in the same period last year.

During 2023, the Mexican Peso weakened during the third quarter, but was overall stronger during the nine months ended September 30, 2023, driving the foreign currency gain in the period.

During 2022, the Euro remained weaker for the three and nine months ended September 30, 2022, resulting in a more significant foreign currency gain during those periods.

The following table presents components of income tax expense for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

(in thousands, except percentages) 2023 2022 2023 2022

6 unchanged sentences

Impact of amended tax returns — — — ( 98 )

True-up of prior year estimated taxes 1,941 ( 612 ) 1,396 ( 508 )

Reconciliation of prior year estimated taxes ( 1,833 ) ( 1,185 ) ( 437 ) ( 1,693 )

Enacted tax legislation and rate change — — 313 —

2 unchanged sentences

Withholding tax related to internal restructuring — — 3,026 —

US Pension Settlement - Release of Residual Tax Effect — ( 5,217 ) — ( 5,217 )

Impact of non-election of high tax exclusion under GILTI* 1,155 — 1,617 —

Other ( 125 ) 322 ( 47 ) 359

Total income tax expense/(benefit) $ 9,207 $ ( 3,183 ) $ 39,908 $ 22,273

(1) Income tax is calculated at estimated annualized effective tax rate of 29.7 % and 28.2 % for the three and six months ended June 30, 2023 and 2022, respectively.

(1) Income tax is calculated at estimated annualized effective tax rate of 29.5 % and 28.9 % for the three and nine months ended September 30, 2023 and 2022, respectively.

* Global Intangible Low-Taxed Income

Income tax expense for the quarter was computed in accordance with ASC 740-270, Income Taxes – Interim Reporting.

Under this method, loss jurisdictions which cannot recognize a tax benefit with regard to their generated losses are excluded from the annual effective tax rate calculation and their taxes will be recorded discretely in each quarter.

The Company's policy for releasing income tax effects from accumulated other comprehensive income is the specific identification approach, whereas these items are released to income tax expense when the individual items are disposed of, terminated or extinguished.

The Tax Cuts and Jobs Act lowered the U.S.

corporate tax rate from 35% to 21% as of December 31, 2017, creating residual tax effects as a result of the remeasurement of deferred tax assets and liabilities originally established in other comprehensive income.

As a result of the U.S.

pension liability settlement (see Note 3, Pensions and Other Postretirement Benefit Plans ), and consistent with the Company's policy, in the third quarter of 2022, the Company recorded a net tax benefit of $ 5.2 million for the release of the residual tax effects within other comprehensive income related to the U.S.

pension settlement.

Earnings Per Share

The amounts used in computing earnings per share and the weighted average number of shares of potentially dilutive securities are as follows:

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

Three months ended September 30, Nine months ended September 30,

(in thousands, except market price and earnings per share)

5 unchanged sentences

Effect of dilutive stock-based compensation plans:

RSU and MPP shares 95 110 91 97

Restricted stock units and multi-year awards 98 112 93 102

Weighted average number of shares used in calculating diluted net income per share 31,283 31,223 31,256 31,518

3 unchanged sentences

Accumulated Other Comprehensive Income ("AOCI")

The table below presents changes in the components of AOCI for the period from December 31, 2022 to June 30, 2023:

The table below presents changes in the components of AOCI for the period from December 31, 2022 to September 30, 2023:

(in thousands)

8 unchanged sentences

Net current period other comprehensive income ( 4,326 ) ( 1,606 ) ( 4,750 ) ( 10,682 )

June 30, 2023 $ ( 135,538 ) $ ( 17,423 ) $ 15,194 $ ( 137,767 )

The table below presents changes in the components of AOCI for the period from December 31, 2021 to June 30, 2022:

September 30, 2023 $ ( 151,177 ) $ ( 17,389 ) $ 12,957 $ ( 155,609 )

The table below presents changes in the components of AOCI for the period from December 31, 2021 to September 30, 2022:

(in thousands) Translation

3 unchanged sentences

Other comprehensive income/(loss) before reclassifications, net of tax ( 79,841 ) — 17,569 ( 62,272 )

Pension settlement expense, net of tax — 26,198 — 26,198

Interest (expense)/income related to swaps reclassified to the Consolidated Statements of Income, net of tax — — 2,006 2,006

1 unchanged sentence

Net current period other comprehensive income ( 79,841 ) 25,877 19,575 ( 34,389 )

June 30, 2022 $ ( 147,271 ) $ ( 38,182 ) $ 11,753 $ ( 173,700 )

September 30, 2022 $ ( 185,721 ) $ ( 12,613 ) $ 17,961 $ ( 180,373 )

The components of AOCI that are reclassified to the Consolidated Statements of Income relate to our pension and postretirement plans and interest rate swaps.

The table below presents the expense/(income) amounts reclassified from AOCI, and the line items of the Consolidated Statements of Income that were affected for the three and six months ended June 30, 2023 and 2022:

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

The table below presents the expense/(income) amounts reclassified from AOCI, and the line items of the Consolidated Statements of Income that were affected for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

(in thousands)

6 unchanged sentences

Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:

Pension settlement expense $ — $ 42,657 $ — $ 42,657

Amortization of prior service credit ( 1,031 ) ( 1,123 ) ( 3,092 ) ( 3,368 )

6 unchanged sentences

Pensions and Other Postretirement Benefit Plans ).

Noncontrolling Interest

Noncontrolling Interests

Effective October 31, 2013, Safran S.A.

(Safran) acquired a 10 percent equity interest in a new Albany subsidiary, Albany Safran Composites, LLC ("ASC").

The table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity in the Company’s subsidiary, Albany Safran Composites, LLC:

Six months ended June 30,

On August 31, 2023, the Company acquired all of the outstanding shares of Heimbach, a privately held manufacturer of paper machine clothing with headquarters in Düren, Germany.

In July 2021, Heimbach acquired 85 % of Arcari, SRL (“Arcari”).

Arcari is a manufacturer of textile and plastic industrial technical products and conveyor belts.

On the date of the acquisition, the fair value of the noncontrolling interest in Arcari was $ 1.6 million.

For the month ended September 30, 2023, the net income/(loss) attributable to Arcari’s noncontrolling interest was less than $ 0.1 million and the noncontrolling interest balance at September 30, 2023 was $ 1.6 million.

The table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity in the Company’s subsidiaries:

ASC Noncontrolling Interest Nine months ended September 30,

(in thousands, except percentages) 2023 2022

7 unchanged sentences

Changes in other comprehensive income attributable to the noncontrolling interest 317 ( 91 )

Noncontrolling interest, end of interim period $ 5,262 $ 4,109

ASC Noncontrolling interest, end of interim period

$ 5,207 $ 4,182

Arcari Noncontrolling Interest

Net income of Arcari available for common ownership

Ownership percentage of noncontrolling shareholder 15 % —

Net income attributable to the noncontrolling interest $ 5 $ —

Noncontrolling interest, beginning of year $ — $ —

Initial equity related to Noncontrolling interest in Arcari

Net income attributable to noncontrolling interest 5 —

Changes in other comprehensive income attributable to the noncontrolling interest ( 50 ) —

Arcari Noncontrolling interest, end of interim period

Total Noncontrolling interest, end of interim period $ 6,794 $ 4,182

Accounts Receivable

2 unchanged sentences

The notes may be presented for payment at maturity, which is less than one year.

As of June 30, 2023 and December 31, 2022, Accounts receivable consisted of the following:

(in thousands) June 30,

As of September 30, 2023 and December 31, 2022, Accounts receivable consisted of the following:

(in thousands) September 30,

2023 December 31,

3 unchanged sentences

Accounts receivable, net $ 270,487 $ 200,018

On August 31, 2023, the Company acquired all of the outstanding shares of Heimbach, which resulted in an increase of $ 52.7 million to Accounts receivable, based on preliminary fair values at the date of acquisition.

The Company has Noncurrent receivables in the AEC segment that represent revenue earned, which has extended payment terms.

The Noncurrent receivables will be invoiced to the customer over a 10-year period, which began in 2020.

As of June 30, 2023 and December 31, 2022, Noncurrent receivables consisted of the following:

(in thousands) June 30,

As of September 30, 2023 and December 31, 2022, Noncurrent receivables consisted of the following:

(in thousands) September 30,

2023 December 31,

9 unchanged sentences

Contract assets and Contract liabilities are reported on the Consolidated Balance Sheets in a net position on a contract-by-contract basis at the end of each reporting period.

As of June 30, 2023 and December 31, 2022, Contract assets and Contract liabilities consisted of the following:

(in thousands) June 30,

As of September 30, 2023 and December 31, 2022, Contract assets and Contract liabilities consisted of the following:

(in thousands) September 30,

2023 December 31,

4 unchanged sentences

Contract liabilities $ 3,645 $ 15,176

Contract assets, net decreased $ 3.4 million during the six months ended June 30, 2023.

The decrease was primarily due to invoicing to customers for satisfied performance obligations for contracts that were in a contract asset position.

There were no impairment losses related to our Contract assets during the six months ended June 30, 2023 and June 30, 2022.

Contract liabilities decreased $ 8.4 million during the six months ended June 30, 2023, primarily due to revenue recognized from satisfied performance obligations exceeding amounts invoiced to customers that were in a contract liability position.

Revenue recognized for the six months ended June 30, 2023 and 2022 that was included in the Contract liability balance at the beginning of the year was $ 11.7 million and $ 5.5 million, respectively.

Contract assets, net increased $ 17.1 million during the nine months ended September 30, 2023.

The increase was primarily due to an increase in unbilled revenue related to the satisfaction of performance obligations, in excess of the amounts billed to customers for contracts that were in a contract asset position.

There were no impairment losses related to our Contract assets during the nine months ended September 30, 2023 and September 30, 2022.

Contract liabilities decreased $ 11.5 million during the nine months ended September 30, 2023, primarily due to revenue recognized from satisfied performance obligations exceeding amounts invoiced to customers that were in a

contract liability position.

Revenue recognized for the nine months ended September 30, 2023 and 2022 that was included in the Contract liability balance at the beginning of the year was $ 14.4 million and $ 5.0 million, respectively.

Costs included in inventories are raw materials, labor, supplies and allocable depreciation and overhead.

4 unchanged sentences

Once established, the original cost of the inventory less the related write-down represents the new cost basis of such inventories.

As of June 30, 2023 and December 31, 2022, Inventories consisted of the following:

(in thousands) June 30, 2023 December 31, 2022

As of September 30, 2023 and December 31, 2022, Inventories consisted of the following:

(in thousands) September 30, 2023 December 31, 2022

Raw materials $ 84,835 $ 74,631

4 unchanged sentences

$ 180,991 $ 139,050

On August 31, 2023, the Company acquired all of the outstanding shares of Heimbach, which resulted in an increase of $ 41.5 million to Inventories, based on preliminary fair values at the date of acquisition.

Goodwill and Other Intangible Assets

7 unchanged sentences

To determine fair value, we utilize two market-based approaches and an income approach.

Under the market-based approaches, we utilize information regarding the Company, as well as publicly available industry information, to determine earnings multiples and revenues multiples.

Under the income approach, we determine fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.

Under the market-based approaches, we utilize information regarding the Company, as well as publicly available industry information, to determine earnings multiples and revenue multiples.

Under the income approach, we determine fair value based on the estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.

On August 31, 2023, the Company acquired Heimbach.

The assets acquired include intangible assets of $ 14.5 million consisting of the Heimbach trade name and developed technology.

The preliminary fair value of the Heimbach trade name of $ 6.0 million is considered an indefinite-lived asset.

The preliminary fair value of the developed technology of $ 8.5 million is being amortized over 9 years.

There was no excess purchase price over the fair value and therefore, there was no goodwill reported as part of the acquisition.

Business Combination for additional information.

Financial Instruments

Long-term debt, principally to banks and noteholders, consists of:

(in thousands, except interest rates) June 30, 2023 December 31, 2022

Revolving credit agreement with borrowings outstanding at an end of period interest rate of 3.68 % in 2023 and 3.16 % in 2022 (including the effect of interest rate hedging transactions, as described below), due in 2024

$ 487,000 $ 439,000

We had no current maturities of Long-term debt as of June 30, 2023 or December 31, 2022.

On October 27, 2020, we entered into a $ 700 million Amended and Restated unsecured Four-Year Revolving Credit Agreement (the “Credit Agreement”), which amended and restated the prior $ 685 million Five-Year Revolving Credit Facility Agreement, entered into on November 7, 2017.

On June 23, 2023, we entered into the first Amendment to the Credit Agreement (the Credit Agreement and the First Amendment, collectively, the "Amended Credit Agreement") to replace the LIBOR-based reference interest rate option with a reference interest rate option based on the Term Secured Overnight Financing Rate ("Term SOFR") plus an applicable credit spread adjustment (subject to a minimum floor of 0.00 %).

The Amendment did not make any other material changes to the terms and conditions of the Credit Agreement, including the representations and warranties, events of default, affirmative and negative covenants.

The applicable interest rate for borrowings is based on Term SOFR plus a spread, which is based on our leverage ratio (as defined in the Amended Credit Agreement) at the time of a borrowing as follows:

Leverage Ratio Commitment Fee ABR Spread Total Spread

Debt principally consists of a revolving credit agreement and foreign bank debt assumed in the acquisition of Heimbach.

The following table represents the Company's outstanding debt:

(in thousands, except interest rates) September 30, 2023 December 31, 2022

Borrowings under the Amended Credit Agreement(1) $ 461,000 $ 439,000

Foreign bank debt 29,585 —

Total bank debt 490,585 439,000

Current maturities of long-term debt 27,246 —

Long-term debt $ 463,339 $ 439,000

(1) the credit facility matures in August 2028.

At the end of the September 30, 2023 and December 31, 2022, the interest rate in effect was 3.60 % and 3.16 %, respectively, including the effect of interest rate hedging transactions, as described below.

Amended Credit Agreement

On August 16, 2023, we entered into a $ 800 million unsecured committed Five-Year Revolving Credit Facility Agreement (the “Amended Credit Agreement”), which amended and restated the prior $ 700 million committed Four-Year Revolving Credit Facility Agreement, entered into on October 27, 2020 (the “Prior Agreement”).

The Amended Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants and events of default that are substantially comparable to those in the Prior Agreement.

The Borrowings are guaranteed by certain of the Company's subsidiaries, including all significant U.S.

subsidiaries (subject to certain exceptions), as were borrowings under the Prior Agreement.

On June 23, 2023, we entered into the first Amendment to the Prior Agreement to replace the LIBOR-based reference interest rate option with a reference interest rate option based on the Term Secured Overnight Financing Rate ("Term SOFR") plus an applicable credit spread adjustment (subject to a minimum floor of 0.00 %).

The Amendment did not make any other material changes to the terms and conditions of the Prior Agreement, including the representations and warranties, events of default, affirmative and negative covenants.

These amendments are also reflected in the Amended Credit Agreement.

The applicable interest rate for borrowings under the Amended Credit Agreement is based on Term SOFR plus a spread, which is based on our leverage ratio (as defined in the Amended Credit Agreement) at the time of a borrowing as follows:

Leverage Ratio Commitment Fee ABR Spread Term Benchmark/ Daily

Simple SOFR Spread

0.275 % 0.500 % 1.500 %

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0.350 % 1.000 % 2.000 %

As of June 30, 2023, however, the applicable interest rate for borrowings was based on LIBOR plus the spread, which was 1.625 %.

As of June 30, 2023, there was $ 487 million of borrowings outstanding under the Amended Credit Agreement.

As of June 30, 2023, we had borrowings available of $ 213 million, based on our maximum leverage ratio and our Consolidated EBITDA (as defined in the Amended Credit Agreement).

The Amended Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants and events of default.

As of June 30, 2023, we were in compliance with all applicable covenants.

We anticipate continued compliance in each of the next four quarters while continuing to monitor its future compliance based on current and future economic conditions.

As of September 30, 2023, the applicable interest rate for borrowings under the Amended Credit Agreement was based on one-month term SOFR plus the spread, which was 1.625 %.

As of September 30, 2023, there was $ 461 million of borrowings outstanding under the Amended Credit Agreement.

As of September 30, 2023, we had borrowings available of $ 339 million, based on our maximum leverage ratio and our Consolidated EBITDA (as defined in the Amended Credit Agreement).

The Amended Credit Agreement contains customary terms including affirmative covenants, negative covenants and events of default.

Under the Amended Credit Agreement, we are required to maintain a leverage ratio (as defined in the Credit Agreement) of not greater than 3.75 to 1.00, or 4.25 to 1.00 after a significant acquisition.

We are also required to maintain a minimum interest coverage ratio (as defined in the Credit Agreement) of greater than 3.00 to 1.00.

As of September 30, 2023, our leverage ratio was 1.48 to 1.00 (as defined in the Amended Credit Agreement) and our interest coverage ratio was 13.95 to 1.00.

If our leverage ratio exceeds 3.50 to 1.00, then we are restricted in

paying dividends to a maximum amount of $ 40 million in a calendar year.

As of September 30, 2023, we were in compliance with all applicable covenants.

We anticipate continued compliance in each of the next four quarters while continuing to monitor future compliance based on current and future economic conditions.

The borrowings are guaranteed by certain of the Company’s subsidiaries as defined in the Amended Credit Agreement.

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On June 14, 2021, we entered into interest rate swap agreements for the period October 17, 2022 through October 27, 2024.

These transactions have the effect of fixing the LIBOR portion of the effective interest rate (before addition of the spread) on $ 350 million of indebtedness, drawn under the Amended Credit Agreement at the rate of 0.838 % during the period.

These transactions had the effect of fixing the LIBOR portion of the effective interest rate (before addition of the spread) on $ 350 million of indebtedness, drawn under the Prior Agreement at the rate of 0.838 % during the period.

Under the terms of these transactions, we paid the fixed rate of 0.838 % and the counterparties paid a floating rate based on the one-month LIBOR rate at each monthly calculation date.

The Amended Credit Agreement monthly calculation date is the 16th of each month, and on June 16, 2023, one-month LIBOR was 5.16 %.

As of June 16, 2023, the all-in-rate on the $ 350 million of debt was 2.463 %.

On June 29, 2023, the Company amended each Swap agreement, in accordance with the practical expedients included in Accounting Standards Codification (“ASC”) 848, Reference Rate Reform, to replace the LIBOR Benchmark with a Term SOFR Benchmark.

As a result of the amendments, we will pay a fixed blended rate of 0.7683 % (plus a credit spread adjustment as defined in the Amended Credit Agreement) through October 27, 2024 on $ 350 million of borrowings under the Amended Credit Agreement.

The effective date of the amended Swap agreements is July 17, 2023.

As a result of the amendments, we will pay a fixed blended rate of 0.7683 % (plus a credit spread adjustment as defined in the Swap Agreements) through October 27, 2024 on $ 350 million of borrowings under the Amended Credit Agreement and the counterparties will pay a floating rate based on the one-month term SOFR at each monthly calculation date, which on September 18, 2023 was 5.33 %.

The effective date of the amended Swap agreements was July 17, 2023.

As of September 18, 2023, the all-in-rate on the $ 350 M of debt was 2.51 %.

On October 17, 2022, our interest rate swap agreements that were in effect from December 18, 2017 terminated.

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The all-in-rate on the $ 350 million of debt was 3.735 % at the time the swap agreements terminated.

These interest rate swaps are accounted for as a hedge of future cash flows, as further described in Note 14.

The interest rate swaps are accounted for as a hedge of future cash flows, as further described in Note 14.

Fair-Value Measurements .

No cash collateral was received or pledged in relation to the swap agreements.

Under the Amended Credit Agreement, we are required to maintain leverage and minimum interest coverage ratios (as defined in the Credit Agreement) of not greater than 3.50 to 1.00 and greater than 3.00 to 1.00, respectively.

As of June 30, 2023, our leverage ratio was 1.49 to 1.00 and our interest coverage ratio was 14.36 to 1.00.

We may purchase our Common Stock or pay dividends to the extent our leverage ratio remains at or below 3.50 to 1.00, and may make acquisitions with cash, provided our leverage ratio does not exceed the limits noted above.

Indebtedness under the Amended Credit Agreement is ranked equally in right of payment to all unsecured senior debt.

Assumed Foreign Bank Debt

On August 31, 2023, the Company acquired Heimbach.

The Company assumed Heimbach’s bank debt in the amount of $ 32.7 million.

The bank debt is held by several European financial institutions, with fixed interest rates ranging from 0.9 % to 2.93 % and maturity dates ranging from September 25, 2023 to June 30, 2031.

Certain bank agreements allowed for the repayment of the debt upon demand by certain financial institutions in the event of a change in control.

Some or all of the assumed bank debt could become due upon notification by any of the financial institutions before the maturity date of the bank agreements.

At September 30, 2023, the foreign debt assumed was $ 29.6 million, of which $ 27.2 million was classified as Current maturities on long-term debt.

Fair-Value Measurements

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This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

We had no Level 3 financial assets or liabilities at June 30, 2023 or at December 31, 2022.

We had no Level 3 financial assets or liabilities at September 30, 2023 or at December 31, 2022.

The following table presents the fair-value hierarchy for our Level 1 and Level 2 financial and non-financial assets and liabilities, which are measured at fair value on a recurring basis:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

Cash equivalents $ 19,596 $ — $ 6,533 $ —

Foreign currency option contracts

— 1,465 — 1,788

Other Assets:

1 unchanged sentence

Interest rate swaps — 17,314 — 23,605

Foreign currency forward contracts

— ( 267 ) — —

(a) Original cost basis $ 0.5 million.

2 unchanged sentences

The interest rate swaps are accounted for as hedges of future cash flows.

The fair value of our interest rate swaps are derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve, and is

included in Other assets and/or Other noncurrent liabilities in the Consolidated Balance Sheets.

The fair value of our interest rate swaps are derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve, and is included in Other assets and/or Other noncurrent liabilities in the Consolidated Balance Sheets.

Amounts determined to be due within one year are reclassified to Other current assets and/or Accrued liabilities in the Consolidated Balance Sheets.

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Financial Instruments for additional information).

As of June 30, 2023, these interest rate swaps were determined to be highly effective hedges of interest rate cash flow risk.

As of September 30, 2023, these interest rate swaps were determined to be highly effective hedges of interest rate cash flow risk.

Amounts accumulated in Other comprehensive income are reclassified as interest expense/(income), net when the related interest payments (that is, the hedged forecasted transactions), affect earnings.

Interest expense/(income) related to payments under the active swap agreements totaled $( 6.9 ) million for the six months ended June 30, 2023, and $ 2.9 million for the six months ended June 30, 2022.

Interest expense/(income) related to payments under the active swap agreements totaled $( 10.9 ) million for the nine months ended September 30, 2023, and $ 2.8 million for the nine months ended September 30, 2022.

We operate our business in many regions of the world, and currency rate movements can have a significant effect on operating results.

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When exercised, the foreign currency instruments are net-settled with the same financial institution that bought or sold them.

For all positions, whether options or forward contracts, there is risk from the possible inability of the financial institution to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates, which may reduce the value of the instruments.

For all positions, whether options or forward contracts, there is a risk from the possible inability of the financial institution to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates, which may reduce the value of the instruments.

We seek to mitigate risk by evaluating the creditworthiness of counterparties and by monitoring the currency exchange and interest rate markets while reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and policies.

(Gains)/losses related to changes in fair value of derivative instruments that were recognized in Other (income)/expense, net in the Consolidated Statements of Income were as follows:

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

Three months ended September 30, Nine months ended September 30,

(in thousands) 2023 2022 2023 2022

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is a defendant in suits brought in various courts in the United States by plaintiffs who allege that they have suffered personal injury as a result of exposure to asbestos-containing paper machine clothing synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills.

We were defending 3,601 claims as of June 30, 2023.

We were defending 3,604 claims as of September 30, 2023.

The following table sets forth the number of claims filed, the number of claims settled, dismissed or otherwise resolved, and the aggregate settlement amount during the periods presented:

3 unchanged sentences

As of December 31, 2022 3,609 43 32 3,598 $ 125

As of June 30, 2023 3,598 4 7 3,601 $ 4

As of September 30, 2023 3,598 11 17 3,604 $ 74

We anticipate that additional claims will be filed against the Company and related companies in the future but are unable to predict the number and timing of such future claims.

2 unchanged sentences

Our insurance carrier has defended each case and funded settlements under a standard reservation of rights.

As of June 30, 2023, we had resolved, by means of settlement or dismissal, 38,032 claims at a total cost of $ 10.6 million.

As of September 30, 2023, we had resolved, by means of settlement or dismissal, 38,035 claims at a total cost of $ 10.7 million.

Of this amount, almost 100 % was paid by our insurance carrier, who has confirmed that we have approximately $ 140 million of remaining coverage under primary and excess policies that should be available with respect to current and future asbestos claims.

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(“Brandon”), is also a separate defendant in many of the asbestos cases in which Albany is named as a defendant, despite never having manufactured any fabrics containing asbestos.

While Brandon was defending against 7,702 claims as of June 30, 2023, only twelve claims have been filed against Brandon since January 1, 2012, and only $ 15,000 in settlement costs have been incurred since 2001.

While Brandon was defending against 7,690 claims as of September 30, 2023, only twelve claims have been filed against Brandon since January 1, 2012, and only $ 15,000 in settlement costs have been incurred since 2001.

Brandon was acquired by the Company in 1999 and has its own insurance policies covering periods prior to 1999.

7 unchanged sentences

On this basis, we have successfully moved for dismissal in a number of actions.

We currently do not anticipate, based on currently available information, that the ultimate resolution of the aforementioned proceedings will have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

flows of the Company.

Although we cannot predict the number and timing of future claims, based on the foregoing factors, the trends in claims filed against us, and available insurance, we also do not currently anticipate that potential future claims will have a material adverse effect on our financial position, results of operations, or cash flows.

Changes in Shareholders’ Equity

The following table summarizes changes in Shareholders’ Equity for the period December 31, 2022 to June 30, 2023:

The following table summarizes changes in Shareholders’ Equity for the period December 31, 2022 to September 30, 2023:

Additional paid-in capital

22 unchanged sentences

June 30, 2023 40,842 $ 41 $ 443,556 $ 969,292 $ ( 137,767 ) 9,663 $ ( 364,665 ) $ 5,262 $ 915,719

The following table summarizes changes in Shareholders’ Equity for the period December 31, 2021 to June 30, 2022:

Net income — — — 27,109 — — — 45 27,154

Compensation and benefits paid or payable in shares 15 — 2,914 — — ( 1 ) — — 2,914

Dividends declared on Class A Common Stock, $ 0.25 per share

— — — ( 7,799 ) — — — — ( 7,799 )

Initial equity related to Noncontrolling interest in Arcari — — — — — — — 1,632 1,632

Cumulative translation adjustments — — — — ( 15,639 ) — — ( 145 ) ( 15,784 )

Pension and postretirement liability adjustments — — — — 34 — — — 34

Derivative valuation adjustment — — — — ( 2,237 ) — — — ( 2,237 )

September 30, 2023 40,857 $ 41 $ 446,470 $ 988,602 $ ( 155,609 ) 9,662 $ ( 364,665 ) $ 6,794 $ 921,633

The following table summarizes changes in Shareholders’ Equity for the period December 31, 2021 to September 30, 2022:

Additional paid-in capital

25 unchanged sentences

June 30, 2022 40,785 $ 41 $ 439,450 $ 916,805 $ ( 173,700 ) 9,675 $ ( 364,923 ) $ 4,109 $ 821,782

Net income — — — 10,694 — — — 129 10,823

Compensation and benefits paid or payable in shares — — 835 — — — — — 835

Options exercised — — 10 — — — — — 10

Dividends declared on Class A Common Stock, $ 0.21 per share

— — — ( 6,533 ) — — — — ( 6,533 )

Cumulative translation adjustments — — — — ( 38,450 ) — — ( 56 ) ( 38,506 )

Pension and postretirement liability adjustments — — — — ( 629 ) — — — ( 629 )

Settlement of certain pension liabilities — — — — 26,198 — — — 26,198

Derivative valuation adjustment — — — — 6,208 — — — 6,208

September 30, 2022 40,785 $ 41 $ 440,295 $ 920,966 $ ( 180,373 ) 9,675 $ ( 364,923 ) $ 4,182 $ 820,188

(a) In October 2021, the Company's Board of Directors authorized the Company to repurchase shares of up to $ 200 million through open market purchases, privately negotiated transactions or otherwise, and to determine the prices, times and amounts.

During the six months ended June 30, 2022, the Company repurchased 1,022,717 shares totaling $ 85.1 million.

The Company did not repurchase shares during the six months ended June 30, 2023.

During the nine months ended September 30, 2022, the Company repurchased 1,022,717 shares totaling $ 85.1 million.

The Company did not repurchase shares during the nine months ended September 30, 2023.

Business Combination

On August 31, 2023, the Company acquired all of the outstanding shares of Heimbach, a privately-held manufacturer of paper machine clothing with headquarters in Düren, Germany.

Heimbach is a global supplier of paper machine clothing for the production of all grades of paper and cardboard on all machine types as well as high-tech textile products used in a variety of sectors, such as the food processing, chemicals, construction materials and automotive industries.

Heimbach is now a division under the MC segment.

The Paper Machine Clothing ("PMC") industry has attractive dynamics and the acquisition of Heimbach provides increased scale and complementary technology that further drives the Machine Clothing segment's differentiated manufacturing, sales and service network.

The acquisition was funded using cash on-hand.

The following table summarizes the total consideration paid, excluding debt assumed, for the acquisition of Heimbach:

(in thousands) August 31, 2023

Cash consideration $ 145,816

Indemnity release ( 1,750 )

Total consideration paid $ 144,066

The acquisition was accounted for under the acquisition method in accordance with ASC 805, Business Combinations.

The assets acquired and the liabilities assumed were recorded based on their preliminary fair values at the date of acquisition as follows:

(in thousands) August 31, 2023

Assets acquired:

Cash and cash equivalents $ 12,347

Accounts receivables 52,704

Inventories 41,538

Property, plant and equipment 126,057

Other intangible assets 14,464

Other current assets 7,452

Other noncurrent assets 6,694

Total assets acquired $ 261,256

Liabilities assumed:

Assumed debt $ 32,700

Accounts payable 8,243

Accrued liabilities 27,257

Other noncurrent liabilities 36,313

Income taxes payable 288

Deferred tax liabilities 10,757

Total liabilities assumed $ 115,558

Net assets acquired $ 145,698

Noncontrolling interest $ ( 1,632 )

Total consideration $ 144,066

For the three and nine months ended September 30, 2023, the Company incurred acquisition related costs of $ 1.6 million and $ 2 million, respectively.

These costs are included in Selling, general and administrative expenses in the Consolidated statements of income.

The preliminary fair values of the property, plant and equipment of $ 126.1 million were determined using the cost-approach and a market-approach because the selected approaches were appropriate for the valuation analysis and

sufficient information was available for their use.

The Company recorded $ 1.1 million of depreciation expense for the three and nine months ended September 30, 2023.

The preliminary fair values of the identifiable intangible assets totaling $ 14.5 million, consisting of the Heimbach trade name and developed technology, was determined using the income approach, specifically, a relief from royalty method.

The fair value of the trade name was $ 6.0 million and is considered an indefinite-lived asset because of Heimbach's rich brand heritage and customer service to the paper machine clothing industry dating back to 1811.

The fair value of the developed technology was $ 8.5 million and includes intellectual property-related technologies as well as know-how developed by Heimbach;

and is being amortized over its economic period of benefit, which is 9 years.

This amortization period represents the estimated useful life of the asset.

The Company recorded $ 0.1 million of intangible amortization for the three and nine months ended September 30, 2023.

The preliminary fair values of the assets acquired includes $ 3.2 million and $ 0.1 million of operating and finance lease right-of-use assets, respectively.

The preliminary fair values of the liabilities assumed includes $ 3.2 million and $ 0.1 million of operating and finance lease liabilities, respectively, of which, $ 1.1 million and $ 0.1 million of operating and finance lease liabilities, respectively, are current liabilities.

Debt assumed included $ 32.7 million aggregate outstanding amount of bank debt with several European financial institutions with fixed interest rates ranging from 0.9 % to 2.93 % and maturity dates ranging from September 25, 2023 to June 30, 2031.

Bank agreements allowed for the repayment of the debt upon demand by certain financial institutions in the event of a change in control.

Some of the assumed bank debt may become due upon notification by

those financial institutions before the maturity date of the bank agreements.

At September 30, 2023, the foreign debt assumed was $ 29.6 million, of which $ 27.2 million was classified as Current maturities on long-term debt.

The preliminary fair value of the liabilities assumed include $ 35.3 million of pension liabilities for various defined benefit plans.

Heimbach's results of operations have been included in the Company's financial statements for the period subsequent to the completion of the acquisition on August 31, 2023.

Heimbach contributed $ 15.6 million of revenue and a $( 0.5 ) million operating loss for the period ended September 30, 2023.

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 1. Financial Statements