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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-24 · 221 added, 220 removed, 355 unchanged (55% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“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 included under Item 8 of this Form 10-K.

MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes included under Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

The MD&A generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

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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.

While it has been negatively impacted by 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 believe 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 August 31, 2023, we acquired Heimbach, a privately-held manufacturer of paper machine clothing headquartered in Düren, Germany, which provides MC with an increase in scale and complementary technology that further drives MC's differentiated manufacturing sales and service network.

See Note 24, Business Combination, of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information.

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

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AEC (including Albany Safran Composites, LLC (“ASC”), in which our customer SAFRAN Group owns a 10 percent noncontrolling interest) supplies a number of customers in the aerospace industry.

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

AEC’s largest aerospace customer is the SAFRAN Group ("SAFRAN") and sales to SAFRAN, through ASC, (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 2023.

AEC, through ASC, also supplies 3D-woven composite fan cases for the GE9X engine.

AEC’s current portfolio of non-3D programs includes components for the CH-53K helicopter, components for the F-35, missile bodies for Lockheed Martin’s JASSM air-to-surface missiles, fuselage components for the Boeing 787, and vacuum waste tanks for Boeing 7-Series aircraft.

AEC’s current portfolio of non-3D programs includes components for the CH-53K helicopter, components for the F-35, missile bodies for Lockheed Martin’s JASSM air-to-surface missiles, fuselage components for the Boeing 787 aircraft, and vacuum waste tanks for Boeing commercial aircraft.

AEC is actively engaged in research to develop new applications in both commercial and defense aircraft engine and airframe markets.

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

In 2023, approximately 39 percent of AEC net revenues were related to U.S.

government contracts or programs.

Consolidated Results of Operations

The following table summarizes our Net sales by business segment:

The following table summarizes our Net revenues by business segment:

(in thousands, except percentages)

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477,141 425,426 310,225

Total net revenues

$ 1,147,909 $ 1,034,887 $ 929,240

10.9 % 11.4 % 3.2 %

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

Excluding the effect of changes in currency translation rates:

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

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

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

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

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

Changes in currency translation rates had the effect of decreasing 2023 Net revenues by $0.8 million, driven by the weaker Renminbi, which was partially offset by the stronger Euro, as compared to 2022.

Excluding the effect of changes in currency translation rates, consolidated Net revenues increased 11 percent.

Net revenues in MC increased 10.5 percent, excluding the effect of changes in currency translation rates, compared to 2022, driven by the acquisition of the Heimbach business in August 2023, which contributed Net revenues of $51.2 million.

MC net revenues also improved due to better performance in tissue and packaging grades, which was partially offset by lower revenues from engineered fabrics.

AEC's Net revenues increased 11.7 percent, excluding the effect of changes in currency translation rates, primarily due to revenue growth across AEC's portfolio of commercial programs including LEAP, Boeing 787 Frames, GE9X and other commercial programs.

Recurring production revenues for defense programs grew year-over-year, however, the defense growth was more than offset by lower non-recurring revenues associated with the start-up of the CH-53K aft transition program.

Backlog represents the summation of the value of all firm, open orders from customers at both segments.

Backlog in the MC segment was $256 million at December 31, 2023, which included $72 million related to Heimbach, and $172 million at December, 31 2022.

Backlog in the AEC segment increased to $494 million at December 31,

2023, compared to $414 million at December 31, 2022.

The increase in AEC’s backlog was primarily due to growth on the LEAP and CH-53K programs.

All of the backlog in MC and approximately 75 percent of the AEC backlog is expected to be invoiced during the next 12 months.

The following table summarizes Gross profit by business segment:

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$ 423,718 $ 389,782 $ 378,391

% of Net Sales

% of net revenues

36.9 % 37.7 % 40.7 %

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

Gross profit as a percentage of sales:

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

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

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

Selling, technical, general and research (STG&R) expenses include selling, general, administrative, technical, product engineering and research expenses.

The following table summarizes STG&R by business segment:

The increase in 2023 Gross profit, as compared to 2022, was principally due to increased Net revenues in both segments and the acquisition of Heimbach.

The change in gross profit as a percentage of revenues for each segment is as follows:

• MC gross profit margin decreased from 51.2 percent in 2022 to 49.4 percent in 2023 in MC.

This margin decrease was partially driven by increased cost of goods sold at Heimbach, which included the non-recurring amortization of the fair value step-up of acquired inventory of $5.5 million.

In addition, gross profit margin decreased as a result of increased input costs, mainly due to the inflationary environment, and lower overhead absorption.

• AEC gross profit margin increased from 18.2 percent in 2022 to 19.3 percent in 2023.

Growth in LEAP and other commercial programs contributed to improved overhead absorption, which improved gross profit margins.

Selling, General, and Administrative ("SG&A")

Selling, general and administrative ("SG&A") expenses include segment selling, general and administrative expenses and corporate expenses.

The following table summarizes SG&A by business segment:

(in thousands, except percentages)

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34,597 30,565 26,852

Corporate expenses

73,072 56,757 53,705

$ 214,915 $ 168,713 $ 160,127

% of Net Sales

% of net revenues

18.7 % 16.3 % 17.2 %

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

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

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

Research and Development

The following table is a subset of the STG&R table above and summarizes expenses associated with internally funded research and development by business segment:

(in thousands)

Consolidated SG&A expenses increased 27.4 percent as compared to 2022.

SG&A expenses also increased as a percentage of Net Revenues from 16.3 percent in 2022 to 18.7 percent in 2023.

The change in SG&A by segment is driven by the following:

• MC SG&A expenses increased $25.9 million as compared to 2022, of which $20.5 million of the increase relates to the acquisition of Heimbach and $4.6 million was due to changes in currency translation rates.

Excluding Heimbach and changes in currency translation rates, MC's SG&A increase was modest at $0.8 million driven primarily by higher wages.

• AEC SG&A expenses increased $4.0 million as compared to 2022, of which $1.7 million was due to increased incentive compensation and personnel-related costs and $0.9 was related to investments in business development, including increases in marketing and trade show activities.

• Corporate SG&A expenses increased $16.3 million principally due to non-recurring acquisition-related costs and other non-recurring strategic costs of $4.6 million, $2.7 million of vesting of retirement compensation

costs for the former CEO, $4.3 million in higher employee-related compensation and $3.1 million of IT-related costs.

Technical and Research

Technical and research expenses include technical, product engineering, internally funded research and development expenses.

The following table summarizes technical and research expenses by business segment:

(in thousands, except percentages)

Years ended December 31, 2023 2022 2021

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15,976 15,353 12,890

Total technical and research expenses

$ 40,627 $ 39,941 $ 38,922

% of net revenues

3.5 % 3.9 % 4.2 %

Consolidated Technical and research expenses increased 1.7 percent as compared to 2022, however, as a percentage of Net revenues, it decreased from 3.9 percent in 2022 to 3.5 percent in 2023.

The change in Technical and research expenses by segment is driven by the following:

• MC Technical and research expenses remained largely consistent with the prior year, increasing only marginally.

• AEC Technical and research expenses increased $0.6 million as compared to 2022, due to increases in research material and labor costs.

Restructuring

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

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

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

For more information on our restructuring charges, see Note 5, Restructuring, of the Notes to the Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Operating Income

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

(in thousands)

(in thousands, except percentages)

Years ended December 31, 2023 2022 2021

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41,587 31,579 16,160

Corporate expenses

(73,071) (56,771) (53,803)

Total operating income

$ 167,894 $ 181,022 $ 178,011

% of net revenues

14.6 % 17.5 % 19.2 %

See the Segment Results of Operations section of this Management Discussion and Analysis of Financial Condition and Results of Operations for significant drivers of Operating income/(loss) for each business segment.

Other Earnings Items

The following table summarizes other earnings items that are presented below Operating income:

(in thousands)

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Net income/(loss) attributable to the noncontrolling interest

746 290 (1,346)

Interest Expense

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

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 lower interest expense on finance leases.

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

Pension settlement expense

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

No similar charges were incurred in the prior year.

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

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

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

No similar charges were incurred during 2023.

See Note 4, Pension, Postretirement, and Other Benefit Plans, of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information.

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

Department of Transportation.

No such award was granted during 2022.

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

No such award was granted during 2022 or 2023.

See Government Grants under Note 1, Accounting Policies, of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information.

Other (income)/expense, net

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

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

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

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

Year Ended December 31,

Other (income)/expense, net included foreign currency related transactions that resulted in gains of $2.9 million during 2023 and gains of $10.0 million during 2022.

During 2023, the stronger Mexican Peso primarily drove transaction gains on nonfunctional currency monetary liabilities, while during 2022, the weaker Euro primarily drove transaction gains related to nonfunctional currency monetary assets.

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

There were no similar gains of this nature during 2023.

Years ended December 31,

2023 2022 2021

(in thousands, except percentages) Tax Amount % Tax Amount % Tax Amount %

Continuing Operations (Excluding Discrete Items) $ 40,497 30.7% $ 50,045 30.2% $ 39,544 28.4%

Changes in uncertain tax positions (780) (0.6) 232 0.1 252 0.2

Impact of amended tax returns (98) (0.1) (2,098) (1.2) 500 0.3

Tax effect of non-deductible foreign exchange loss on intercompany loan — — — — 3,801 2.7

Changes in opening valuation allowance — — — — — —

Provision for/adjustment to beginning of year valuation allowances (802) (0.6) 957 0.6 168 0.1

True-up of prior year estimated taxes (1,436) (1.1) (1,584) (1.0) (2,420) (1.8)

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

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

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

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

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

Effective tax rate

* Global Intangible Low-Taxed Income

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

and managing overall cash taxes in the short term.

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

Pension Plan and settlements of interest rate swaps.

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

30.4% 26.9% 28.4%

The effective tax rate represents the combined federal, state and foreign tax effects attributable to pretax earnings.

The Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum tax of 15 percent intended to be effective on January 1, 2024.

While the U.S.

has not yet adopted the Pillar Two rules, various other governments around the world are enacting legislation.

As currently designed, Pillar Two will ultimately apply to our worldwide operations.

Although we do not expect these rules to materially increase our global tax costs in 2024, there remains uncertainty as to the final Pillar Two model rules.

We will continue to monitor U.S.

and global legislative action related to Pillar Two for potential impacts.

On January 17, 2024, the House Ways and Means Committee announced a draft legislation called "The Tax Relief for American Families and Workers Act of 2024".

This act would restore 100% bonus depreciation for property placed in service after December 31, 2022 and before January 1, 2026;

and retroactively restore the ability to deduct domestic research and experimentation costs that were required to be capitalized beginning in 2022 under Section 174.

On January 31, 2024, the United States House of Representatives voted to approve this bill, which will now go to the United States Senate.

We will continue to monitor the status of this legislation and assess the potential impact, if passed.

For more information on income tax, see Note 7, Income Taxes, of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Segment Results of Operations

Machine Clothing Segment

Machine Clothing is our primary business segment and accounted for 59 percent of our consolidated revenues during 2022.

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

We believe we are well-positioned in these markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology.

Recent technological advances in paper machine clothing, while contributing to the papermaking efficiency of customers, have lengthened the useful life of many of our products and had an adverse impact on overall paper machine clothing demand.

Additionally, we face pricing pressures in all of our markets.

The Company’s manufacturing and product platforms position us well to meet these shifting demands across product grades and geographic regions.

Our strategy for meeting these challenges continues to be to grow share in

all markets, with new products and technology, and to maintain our manufacturing footprint to align with global demand, while we offset the effects of inflation through continuous productivity improvement.

The MC segment accounted for 58 percent of our consolidated revenues during 2023.

A summary of MC's selected financial results is as follows:

Review of Operations

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$ 670,768 $ 609,461 $ 619,015

% change from prior year

10.1 % -1.5 % 8.0 %

331,558 312,285 322,457

% of net sales

% of net revenues

49.4 % 51.2 % 52.1 %

STG&R expenses

SG&A expenses

107,246 81,391 79,570

Technical and research expenses

24,651 24,588 26,032

Operating income

199,378 206,214 215,654

Net sales decreased 1.5%.

Changes in currency translation rates, driven by a weaker Euro, had the effect of decreasing 2022 sales by $20.8 million compared to 2021.

Excluding the effect of changes in currency translation rates, Net sales in MC increased 1.8% compared to 2021, driven by growth in sales of packaging, pulp and tissue grades.

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

MC's Net revenues increased 10.1 percent in 2023, driven by the acquisition of the Heimbach business in August, which contributed Net revenues of $51.2 million.

Net revenues also increased due to better performance in tissue and packaging grades, which was partially offset by lower revenues in engineered fabrics.

Changes in currency translation rates had the effect of decreasing 2023 Net revenues by $2.6 million, driven by the weaker Renminbi, which was partially offset by the stronger Euro, as compared to 2022.

MC gross profit increased $19.3 million, driven by the additional gross profit from Heimbach's revenues and organic revenue growth.

Gross profit margin decreased from 51.2 percent in 2022 to 49.4 percent in 2023.

This margin decrease was partially driven by increased cost of goods sold at Heimbach, which included the non-recurring amortization of the fair value step-up of acquired inventory of $5.5 million.

In addition, gross profit margin decreased as a result of increased input costs, mainly due to the inflationary environment, and lower overhead absorption.

Operating Income

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

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

The decrease in Operating income as compared to 2022 was principally due to Heimbach's operating loss of $6.3 million and increases in SG&A expenses as discussed above.

Albany Engineered Composites Segment

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

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

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

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

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

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

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

government contracts or programs.

The AEC segment accounted for 42 percent of our consolidated net revenues during 2023.

A summary of AEC's selected financial results is as follows:

Review of Operations

2 unchanged sentences

$ 477,141 $ 425,426 $ 310,225

% change from prior year

12.2 % 37.1 % -5.3 %

92,160 77,497 55,934

% of net sales

% of net revenues

19.3 % 18.2 % 18.0 %

STG&R expenses

SG&A expenses

34,597 30,565 26,852

Technical and research expenses

15,976 15,353 12,890

Operating income/(loss)

41,587 31,579 16,160

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

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

AEC's Net revenues increased 12.2 percent primarily due to revenue growth across AEC's portfolio of commercial programs including LEAP, Boeing 787 Frames, GE9x and other commercial programs.

These increases amounted to approximately $63.0 million.

Recurring production revenues for defense programs grew year-over-year, however, the growth was more than offset by lower non-recurring revenues associated with the start-up of the CH-53K aft transition program.

These net decreases amounted to approximately $11.0 million.

Excluding the effect of changes in currency translation rates, the increase in Net revenues was 11.7 percent.

AEC has contracts with certain customers, including its contract for the LEAP program, where revenue is determined by a cost-plus-fee agreement.

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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.

In accounting for these contracts, we estimate the profit margin expected at the completion of the contract and recognize a pro-rata share of that profit during the course of the contract using a cost-to-cost approach.

Changes in estimated contract profitability will affect revenue and gross profit when the change occurs, which could have a significant favorable or unfavorable effect on revenue and gross profit in any reporting period.

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

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

Gross margin remained largely in line with the prior year.

Net revenues growth on key programs, as noted above, contributed to improved overhead absorption, driving a Gross profit increase of $14.7 million as compared to 2022.

Gross profit margin increased from 18.2 percent in 2022 to 19.3 percent in 2023.

Operating Income/(Loss)

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

Operating income increased $10.0 million in 2023, principally due to an increase in Gross profit, as described above, partially offset by a $4.0 million increase in SG&A expenses related to incentive compensation, personnel-related costs, and investments in business development activities.

The sum of net adjustments to the estimated profitability of long-term contracts decreased AEC operating income by $4.1 million in 2023, compared to an increase in AEC operating income of $0.5 million in 2022.

Working Capital, Liquidity and Capital Structure

15 unchanged sentences

$ 111,610 $ 96,508 $ 118,768

$ 96,508 $ 118,768 $ 97,243

Depreciation and amortization

23 unchanged sentences

Net cash provided by operating activities was $148.1 million in 2023, compared to $128.2 million in the same period last year.

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

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

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

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

In addition, the timing of customer and vendor invoice payments, as well as higher incentive compensation payouts during 2022 compared to the same period in 2021, contributed to reduced net cash provided by operating activities.

The increase was driven by higher Net income, improved levels of working capital at MC, and lower cash outflows related to other liabilities.

In the previous year, the Company made contributions of approximately $12.6 million to the U.S.

Pension plan, in line with the Company's plan to reduce pension obligations over time.

No similar payment was made during the current year (see discussion in Note 4, Pension, Postretirement, and Other Benefit Plans , of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K ) .

We strategically deploy our cash with a focus on investing in our business and new technologies to provide our customers with enhanced capabilities, increase shareholder value, and position ourselves to take advantage of new business opportunities as they arise.

Based on such strategy, we have continued to invest in our business and technologies through capital expenditures, research and development, and when appropriate, selective business acquisitions.

Our capital expenditures totaled $96.3 million and $53.7 million for 2022 and 2021, respectively, comprised of both sustaining and return seeking projects.

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

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

In the third quarter of 2023, the Company acquired Heimbach, a privately-held manufacturer of paper machine clothing with headquarters in Düren, Germany, for net cash of $133.5 million, funded using cash on hand.

Net cash used in investing activities also included capital expenditures totaling $84.4 million in 2023, compared to $96.3 million in the same period last year, including investments to improve productivity and produce a meaningful impact on energy and resource efficiency.

Net cash used in financing activities during 2023 was $52.6 million compared to $23.7 million in 2022, driven by increased principal payments on debt and increased dividends paid to shareholders during 2023.

Liquidity and Capital Structure

We finance our business activities primarily with cash generated from operations and borrowings, largely through our revolving credit agreement as discussed below.

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

Our subsidiaries outside of the United States may also maintain working capital lines with local banks.

Under our $800 million unsecured credit agreement, $446 million of borrowings were outstanding as of December 31, 2023.

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

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

As of December 31, 2023, we had cash and cash equivalents of $173.4 million and availability under our Credit Agreement of $354 million, for a total liquidity of approximately $527 million.

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

For more information on the revolving credit agreement, see Note 17, Financial Instruments, of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

As of December 31, 2023, $133 million of our total cash and cash equivalents was held by non-U.S.

subsidiaries.

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

repatriation to the U.S.

were in excess of $201 m illion at December 31, 2022, and are intended to remain indefinitely invested in foreign operations.

The Company has targeted for repatriation $160.8 million of current year and prior year earnings of the Company’s foreign operations.

The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation to the U.S.

were approximately $154.8 million, 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.

Repatriating such cash from certain jurisdictions, that is currently considered to be indefinitely reinvested in foreign operations, may also result in additional taxes.

Bank debt at the Company's Heimbach subsidiary, of which $32.7 million was assumed in the acquisition, is held by several European financial institutions.

Since August 31, 2023 the Company paid down approximately $22 million of this debt ($18.6 million during the fourth quarter of 2023), reducing outstanding debt borrowings at the Company's Heimbach subsidiary to approximately $11 million as of December 31, 2023, of which $4.2 million is classified as Current maturity on long-term debt (see Note 24 , Business Combination and Note 17, Financial Instruments , of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information).

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

During 2022, we paid $26.5 million in dividends and repurchased 1 million shares of our Class A Common shares at a cost of $85 million under the $200 million share repurchase program that our Board approved in October 2021.

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

We paid dividends of $31 million and $26 million during 2023 and 2022, respectively.

There were no share repurchases in 2023.

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

The Company provides financial assurance, such as payment guarantee and letters of credit and surety bonds, primarily to support workers’ compensation programs and customs clearance, of less than $7 million.

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

Other Sources/Uses of Capital

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

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Critical Accounting Policies and Estimates

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

For the discussion of our accounting policies, see Note 1, Accounting Policies , of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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

Each of these assumptions is subject to uncertainties and changes in those assumptions or judgments which can affect our results of operations.

In addition to the accounting policies stated in Item 8, financial statement amounts and disclosures are significantly influenced by market factors, judgments and estimates as described below.

In addition to the accounting policies stated in Note 1, Accounting Policies, of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, the financial statement amounts and disclosures are significantly influenced by market factors, judgments and estimates as described below.

Revenue Recognition

Contracts with customers in the Machine Clothing segment have various terms that can affect the point in time when revenue is recognized.

Contracts with customers in the MC segment have various terms that can affect the point in time when revenue is recognized.

The contractual terms are closely monitored in order to ensure revenue is recognized in the proper period.

Products and services provided under long-term contracts represent a significant portion of sales in the Albany Engineered Composites segment.

Products and services provided under long-term contracts represent a significant portion of net revenues in the AEC segment.

AEC’s largest source of revenue is derived from the LEAP contract under a cost-plus-fee agreement.

The fee is variable based on our success in achieving certain cost targets.

The fee may vary within a narrow range based on our success in achieving certain cost targets.

Revenue is recognized over time as costs are incurred.

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

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

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

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

We also have fixed price long-term contracts, for which revenue is generally recognized over time using an input method as the measure of progress.

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

When adjustments in estimated contract revenues or costs are required, any changes from prior estimates are included in earnings in the period the change occurs.

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however, the assumptions are primarily based on long-term, prospective rates of return.

The weighted average long-term rate of return on plan assets for our defined benefit pension plans is 3.2% for 2022.

The weighted average long-term rate of return on plan assets for our defined benefit pension plans is 5.2 percent for 2023.

Based on information provided by actuaries and other relevant sources, the Company believes that the assumptions used to estimate expenses, assets and liabilities of pensions and postretirement benefits are reasonable;

however, changes in these assumptions could impact the Company’s financial position, results of operations or cash flows.

We regularly assess the likelihood that deferred tax assets are expected to be realized through the reversal of existing temporary differences and/or future taxable income.

We regularly assess the likelihood that deferred tax assets will be realized through the reversal of existing temporary differences and/or future taxable income.

To the extent we believe that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established.

The amount of a valuation allowance is based upon our best estimate of our ability to realize the deferred tax assets.

Business Combinations

As we enter into business combinations, we perform acquisition accounting requirements including the following:

• Identifying the acquirer,

• Determining the acquisition date,

• Recognizing and measuring the identifiable assets acquired and the liabilities assumed, and

• Recognizing and measuring goodwill, as applicable

We complete valuation procedures and record the resulting fair value of the acquired assets and assumed liabilities in accordance with the acquisition method under ASC 805, Business Combinations.

The acquisition methodology requires management to make assumptions and apply judgment to determine the fair value of assets acquired and liabilities assumed.

If estimates or assumptions used to complete the enterprise valuation and estimates of the fair value of the acquired assets and assumed liabilities significantly differed from assumptions made, the resulting difference could materially affect the fair value of net assets.

In determining the fair value of the tangible assets, including property, plant and equipment, we consider the cost-approach and the market-approach, which estimates the cost to replace the asset, less accrued depreciation resulting from physical deterioration, functional obsolescence and external obsolescence.

In the determination of the fair value of the identified intangible assets, we use cash flow models following the income approach, specifically, a relief from royalty method methodology.

Inputs include estimated revenue growth rates, gross margins, operating expenses, and estimated attrition, royalty and discount rates.

Goodwill is recorded as the difference in the fair value of the acquired assets and assumed liabilities and the purchase price, as applicable.

The Heimbach acquisition did not result in any goodwill.

Goodwill and Intangible assets

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

Recent Pronouncements

In March 2022, the SEC issued a proposed rule to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies.

The proposed rules are intended to provide more consistent, comparable and decision-useful information so that investors can better evaluate the Company’s exposure to cybersecurity risks, incidents, and strategies to mitigate risks and incidents.

We will continue to monitor developments around this proposed rule.

Also in March 2022, the SEC issued a proposed rule that would enhance and standardize the climate-related disclosures provided by public companies.

Under the proposed rule, we would be required to provide quantitative and qualitative disclosures in registration statements and annual reports that include climate-related financial impact and expenditure metrics as well as a discussion of climate-related impacts on financial estimates and assumptions, all of

which would be presented in a footnote to the financial statements.

Such disclosures would also be subject to management's internal control over financial reporting ("ICFR") and external audit.

As a Company, we have long been committed to sustainable practices and corporate social responsibility and have more recently taken steps to articulate our values and goals, some of which are summarized in our published sustainability report that is included at our website www.albint.com.

In 2020, we began establishing more formalized and scalable approaches to our sustainability practices, reporting and systems, in order to ensure we prioritize efforts that are impactful to our business and stakeholders.

We have begun to incorporate certain climate-related disclosures and risk factors in our existing disclosures to this point.

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

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

executive compensation.

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

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

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

compensation was based on an erroneously reported financial reporting measure.

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

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

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

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

The proposed rule has a stated intent of prompting

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

transparency.

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

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

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

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

Major contractors

without existing targets would be required to establish them.

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

GHG emissions.

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

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

These thresholds are

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

There are also limited

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

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

Recent Accounting Pronouncements

See Note 1, Accounting Policies , of the Notes to the Consolidated Financial Statements for Recent Accounting Pronouncements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Non-GAAP Measures

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

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

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 leverage ratio;

and Adjusted earnings per share (or Adjusted EPS).

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

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

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

Net revenues, or percent changes in net revenues,

excluding currency rate effects, are calculated by converting amounts reported in local currencies into U.S.

dollars at the exchange rate of a prior period.

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

Such excluded costs or benefits do not consist of normal,

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

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

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

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 diluted 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.

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

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

Consolidated results

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

(in thousands)

Years ended December 31, 2023 2022 2021

2022 2021 2020

Net income (GAAP)

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1,296 (9,829) (1,442)

CEO transition expenses 2,719 — —

Inventory step-up impacting Cost of goods sold 5,480 — —

Dissolution of business relationships in Russia — 2,275 —

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

Former CEO termination costs — — 2,742

Acquisition/integration costs 5,194 1,057 1,166

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Foreign currency revaluation (gains)/losses (a) 4,117 63 (2,884) 1,296

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

Pension settlement expense — — 49,128 49,128

IP address sales — — (3,420) (3,420)

CEO transition expenses — — 2,719 2,719

Inventory step-up impacting Cost of goods sold 5,480 — — 5,480

Acquisition/integration costs 984 1,081 3,129 5,194

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Year ended December 31, 2022

Machine Clothing

Albany Engineered Composites

Corporate expenses and other

Total Company

Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company

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

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

AMJP grant — 1,101 (5,832) (4,731)

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

Pension settlement expense — — 49,128 49,128

IP address sales — — (3,420) (3,420)

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

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Year ended December 31, 2021

Machine Clothing

Albany Engineered Composites

Corporate expenses and other

Total Company

Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company

Net income/(loss) (GAAP)

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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:

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

(in thousands, except per share amounts)

Year ended December 31, 2023

Effect After tax

Effect Per Share

Restructuring expenses, net $ 282 $ 70 $ 212 $ 0.01

Foreign currency revaluation (gains)/losses (a) 1,296 416 880 0.03

CEO transition expenses 2,719 — 2,719 0.09

Inventory step-up impacting Cost of goods sold 5,480 1,211 4,269 0.14

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

Acquisition/integration costs 5,194 951 4,243 0.14

(in thousands, except per share amounts)

Year ended December 31, 2022

Effect After tax

Effect Per Share

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

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

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

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Year ended December 31, 2021

Effect After tax

Effect Per Share

Restructuring expenses, net $ 1,331 $ 399 $ 932 $ 0.02

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Acquisition/integration costs 1,166 349 817 0.04

(in thousands, except per share amounts)

Year ended December 31, 2020

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

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

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

Acquisition/integration costs 1,272 380 892 0.04

The following table contains the calculation of full-year Adjusted EPS, excluding adjustments:

Per share amounts (Basic)

The following table contains the calculation of full-year consolidated Adjusted EPS, excluding adjustments:

Per share amounts

Years ended December 31, 2023 2022 2021

2022 2021 2020

Earnings per share (GAAP)

$ 3.06 $ 3.66 $ 3.05

Adjustments, after tax (c):

Earnings per share attributable to Company shareholders - Basic (GAAP) $ 3.56 $ 3.06 $ 3.66

Effect of dilutive stock-based compensation plans (0.01) (0.02) (0.01)

Earnings per share attributable to Company shareholders - Diluted (GAAP) $ 3.55 $ 3.04 $ 3.65

Adjustments, after tax:

Restructuring expenses, net 0.01 0.01 0.02

Foreign currency revaluation (gains)/losses (a) 0.03 (0.23) (0.04)

CEO transition expenses 0.09 — —

Inventory step-up impacting Cost of goods sold 0.14 — —

Dissolution of business relationships in Russia — 0.06 —

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AMJP grant — — (0.11)

Former CEO termination costs — — 0.06

Withholding tax related to internal restructuring 0.10 —

Acquisition/integration costs 0.14 0.04 0.04

Adjusted earnings per share (non-GAAP)

Adjusted Diluted earnings per share (non-GAAP)

$ 4.06 $ 3.87 $ 3.56

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

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

(b) Our Adjusted EPS excluded the benefit from the reclassification of stranded income tax effects caused by the TCJA associated with the U.S.

pension plan liability that was eliminated in September 2022, a one-time event that would not recur in the future.

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

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

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

Net debt is, in the opinion of the Company, helpful to investors wishing to understand what the Company’s debt position would be if all available cash were applied to pay down indebtedness.

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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:

The following table contains the calculation of consolidated net debt:

(in thousands)

As of December 31, 2023 2022 2021

2022 2021 2020

Current maturities of long-term debt

$ 4,218 $ — $ —

Long-term debt

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$ 283,465 $ 147,224 $ 47,964

Net leverage ratio informs the investors of the Company's financial leverage at the end of the reporting period, providing an indicator of the Company's ability to repay its debt.

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

The calculation of net leverage ratio is as follows:

Total Company

Consolidated 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 consolidated net leverage ratio by subtracting Cash and cash equivalents from total debt, and then dividing by trailing twelve months Adjusted EBITDA.

The calculation of the consolidated net leverage ratio is as follows:

(in thousands) December 31, 2023

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Foreign currency revaluation (gains)/losses (a) 1,296

Dissolution of business relationships in Russia 2,275

Pension settlement expense 49,128

IP address sales (3,420)

CEO transition expenses 2,719

Inventory step-up impacting Cost of goods sold 5,480

Acquisition/integration costs 5,194

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

What changed 10-K

Item 7. Management’s Discussion and Analysis