ALBANY INTERNATIONAL CORP /DE/ 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 52 Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 56 Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021 57 Consolidated Balance Sheets as of December 31, 2023 and 2022 58 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021 59 Notes to Consolidated Financial Statements 60 51 Index Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Albany International Corp.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Albany International Corp. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of estimated total contract costs at completion for Albany Engineered Composites revenue recognition for certain firm-fixed-price contracts As discussed in Note 2 to the consolidated financial statements, a portion of the Albany Engineered Composites (AEC) segment revenue is earned under firm-fixed-price orders that are placed under definitive agreements, with revenue recognized over time as costs are incurred. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recorded proportionally as costs are incurred. 52 Index We identified the evaluation of estimated total contract costs at completion for AEC revenue recognition for certain firm-fixed-price contracts as a critical audit matter. A high degree of auditor judgment was required to evaluate the estimates of total contract costs at completion because of the varied nature and inherent complexities of the contractual performance obligations. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the AEC revenue process. This included controls related to developing forecasted estimated total contract costs. For certain contracts, we compared the Company’s historical estimates of costs to actual costs incurred to assess the Company’s ability to estimate accurately. We read relevant agreements, including amendments, and inquired of financial and operational personnel of the Company to identify factors that should be considered within the cost to complete estimates. We inspected the Company’s analysis of contract status, including forecasted costs, which we compared against historical costs. /s/ KPMG LLP We have served as the Company’s auditor since 2014. Albany, New York February 26, 2024 53 Index Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Albany International Corp.: Opinion on Internal Control Over Financial Reporting We have audited Albany International Corp. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 26, 2024 expressed an unqualified opinion on those consolidated financial statements. The Company acquired Heimbach during 2023, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, Heimbach’s internal control over financial reporting associated with 14 percent of total consolidated assets (of which 8 percent related to property, plant, and equipment, net, and intangible assets included within the scope of the assessment) and 4 percent of total consolidated revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2023. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Heimbach. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting (Item 9A). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 54 Index Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Albany, New York February 26, 2024 55 Index Albany International Corp. CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, (in thousands, except per share amounts) 2023 2022 2021 Net revenues $ 1,147,909 $ 1,034,887 $ 929,240 Cost of goods sold 724,191 645,105 550,849 Gross profit 423,718 389,782 378,391 Selling, general and administrative expenses 214,915 168,713 160,127 Technical and research expenses 40,627 39,941 38,922 Restructuring expenses, net 282 106 1,331 Operating income 167,894 181,022 178,011 Interest income ( 6,566 ) ( 3,835 ) ( 2,500 ) Interest expense 20,167 17,835 17,391 Pension settlement expense — 49,128 — Aviation Manufacturing Jobs Protection (AMJP) grant — — ( 5,832 ) Other (income)/expense, net ( 6,163 ) ( 14,086 ) 3,021 Income before income taxes 160,456 131,980 165,931 Income tax expense 48,846 35,472 47,163 Net income 111,610 96,508 118,768 Net income attributable to the noncontrolling interest 490 746 290 Net income attributable to the Company $ 111,120 $ 95,762 $ 118,478 Earnings per share: Basic earnings per share attributable to Company shareholders $ 3.56 $ 3.06 $ 3.66 Diluted earnings per share attributable to Company shareholders $ 3.55 $ 3.04 $ 3.65 Dividends declared per share $ 1.01 $ 0.88 $ 0.81 Weighted average shares outstanding: Basic 31,171 31,339 32,348 Diluted 31,276 31,455 32,463 The accompanying notes are an integral part of the consolidated financial statements. 56 Index Albany International Corp. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, (in thousands) 2023 2022 2021 Net income $ 111,610 $ 96,508 $ 118,768 Other comprehensive income, before tax: Foreign currency translation and other adjustments 18,593 ( 40,971 ) ( 20,808 ) Reclassification of loss on pension settlement — 42,657 — Pension/postretirement plan remeasurement 4,302 ( 2,292 ) ( 2,259 ) Amortization of pension and postretirement liability adjustments: Prior service credit ( 4,122 ) ( 4,497 ) ( 4,475 ) Net actuarial loss 1,383 3,260 4,625 Payments and amortization related to interest rate swaps included in earnings ( 15,062 ) 468 6,852 Derivative valuation adjustment 3,512 25,396 3,764 Income taxes related to items of other comprehensive income: Reclassification of loss on pension settlement — ( 16,459 ) — Pension/postretirement plan remeasurement ( 673 ) ( 370 ) 1,463 Amortization of pension and postretirement liability adjustments 904 408 ( 52 ) Payments and amortization related to interest rate swaps included in earnings 3,811 ( 118 ) ( 1,734 ) Derivative valuation adjustment ( 889 ) ( 6,425 ) ( 952 ) Comprehensive income 123,369 97,565 105,192 Comprehensive income/(loss) attributable to the noncontrolling interest 949 856 ( 161 ) Comprehensive income attributable to the Company $ 122,420 $ 96,709 $ 105,353 The accompanying notes are an integral part of the consolidated financial statements. 57 Index Albany International Corp. CONSOLIDATED BALANCE SHEETS At December 31, (in thousands, except share data) 2023 2022 Assets Current assets: Cash and cash equivalents $ 173,420 $ 291,776 Accounts receivable, net 287,781 200,018 Contract assets, net 182,281 148,695 Inventories 169,567 139,050 Income taxes prepaid and receivable 11,043 7,938 Prepaid expenses and other current assets 53,872 50,962 Total current assets 877,964 838,439 Property, plant and equipment, net 601,989 445,658 Intangibles, net 44,646 33,811 Goodwill 180,181 178,217 Deferred income taxes 22,941 15,196 Noncurrent receivables, net 4,392 27,913 Other assets 102,901 103,021 Total assets $ 1,835,014 $ 1,642,255 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 87,104 $ 69,707 Accrued liabilities 142,988 126,385 Current maturities of long-term debt 4,218 — Income taxes payable 14,369 15,224 Total current liabilities 248,679 211,316 Long-term debt 452,667 439,000 Other noncurrent liabilities 139,385 108,758 Deferred taxes and other liabilities 26,963 15,638 Total liabilities 867,694 774,712 Commitments and Contingencies (Note 21) Shareholders’ Equity: Preferred stock, par value $ 5.00 per share; authorized 2,000,000 shares; no ne issued — — Class A Common Stock, par value $ 0.001 per share; authorized 100,000,000 shares; issued 40,856,910 in 2023 and 40,785,434 in 2022 41 41 Additional paid-in capital 448,218 441,540 Retained earnings 1,010,942 931,318 Accumulated items of other comprehensive income: Translation adjustments ( 124,901 ) ( 146,851 ) Pension and postretirement liability adjustments ( 17,346 ) ( 15,783 ) Derivative valuation adjustment 9,079 17,707 Treasury stock (Class A), at cost; 9,661,845 shares in 2023 and 9,674,542 in 2022 ( 364,665 ) ( 364,923 ) Total Company shareholders’ equity 961,368 863,049 Noncontrolling interest 5,952 4,494 Total shareholders' equity 967,320 867,543 Total liabilities and shareholders’ equity $ 1,835,014 $ 1,642,255 The accompanying notes are an integral part of the consolidated financial statements. 58 Index Albany International Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, (in thousands) 2023 2022 2021 OPERATING ACTIVITIES Net income $ 111,610 $ 96,508 $ 118,768 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 70,374 62,480 65,130 Amortization 6,359 6,569 9,125 Change in deferred taxes and other liabilities ( 2,046 ) ( 8,496 ) 12,181 Impairment of property, plant, equipment, and inventory 1,773 1,808 856 Non-cash interest expense 1,404 1,118 875 Non-cash portion of pension settlement expense — 42,657 — Compensation and benefits paid or payable in Class A Common Stock 6,936 4,527 3,146 Provision/(recovery) for credit losses from uncollected receivables and contract assets 640 1,408 ( 1,299 ) Foreign currency remeasurement (gain)/loss on intercompany loans ( 2,831 ) ( 4,434 ) ( 3,150 ) Fair value adjustment on foreign currency options ( 139 ) ( 509 ) 169 Changes in operating assets and liabilities that provided/(used) cash, net of impact of business acquisition: Accounts receivable ( 11,038 ) ( 14,301 ) ( 7,734 ) Contract assets ( 32,156 ) ( 36,434 ) 25,446 Inventories 15,093 ( 24,541 ) ( 9,942 ) Prepaid expenses and other current assets 1,530 ( 4,134 ) ( 998 ) Income taxes prepaid and receivable ( 2,897 ) ( 6,005 ) 3,944 Accounts payable ( 5,672 ) 8,572 9,492 Accrued liabilities ( 10,441 ) 3,226 ( 774 ) Income taxes payable ( 1,988 ) 183 ( 477 ) Noncurrent receivables 3,723 3,911 4,355 Other noncurrent liabilities ( 9,783 ) ( 10,133 ) ( 13,713 ) Other, net 7,605 4,234 2,075 Net cash provided by operating activities 148,056 128,214 217,475 INVESTING ACTIVITIES Purchase of business, net of cash acquired ( 133,470 ) — — Purchases of property, plant and equipment ( 83,560 ) ( 93,675 ) ( 52,793 ) Purchased software ( 869 ) ( 2,673 ) ( 906 ) Net cash used in investing activities ( 217,899 ) ( 96,348 ) ( 53,699 ) FINANCING ACTIVITIES Proceeds from borrowings 78,040 162,000 8,000 Principal payments on debt ( 92,274 ) ( 73,000 ) ( 56,009 ) Principal payments on finance lease liabilities — ( 654 ) ( 1,438 ) Debt acquisition costs ( 4,108 ) — — Purchase of Treasury shares — ( 84,780 ) ( 23,449 ) Taxes paid in lieu of share issuance ( 3,136 ) ( 770 ) ( 998 ) Proceeds from options exercised — 17 153 Dividends paid ( 31,163 ) ( 26,465 ) ( 25,894 ) Net cash used in financing activities ( 52,641 ) ( 23,652 ) ( 99,635 ) Effect of exchange rate changes on cash and cash equivalents 4,128 ( 18,474 ) ( 3,421 ) Increase/(decrease) in cash and cash equivalents ( 118,356 ) ( 10,260 ) 60,720 Cash and cash equivalents at beginning of period 291,776 302,036 241,316 Cash and cash equivalents at end of period $ 173,420 $ 291,776 $ 302,036 The accompanying notes are an integral part of the consolidated financial statements. 59 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies Basis of Consolidation The consolidated financial statements include the accounts of Albany International Corp. and its subsidiaries (the Company, Albany, we, us, or our) after elimination of intercompany transactions. 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 24, Business Combination , of the Notes to the Consolidated Financial Statements . The financial results of the acquired company are included in the Machine Clothing reportable segment since the date of the acquisition. The Company owns 90 percent of the common equity of Albany Safran Composites, LLC ("ASC") which is reported within the AEC segment. The Company also owns 85 percent of Arcari, SRL ("Arcari"), a manufacturer of textile and plastic industrial technical products and conveyor belts, which is a subsidiary of Heimbach GmbH, the paper machine clothing manufacturer recently acquired by the Company and reported within the MC segment. Additional information regarding noncontrolling interest is included in Note 10, Noncontrolling Interest , of the Notes to the Consolidated Financial Statements. A subsidiary within our Machine Clothing segment has held a 50 percent interest as partner in a joint venture (“JV”) that supplies paper machine clothing products to local papermakers in Russia. Our consolidated financial statements included our original investment in the entity, plus our share of undistributed earnings or losses, in the account “Other Assets.” In March 2022, we ceased doing business in Russia, including providing notice to our JV partner of our intent to exit the venture, resulting in the full write-off of the net book value of our investment. Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in the accounting for, among others, revenue recognition, contract profitability, allowances for doubtful accounts, rebates and sales allowances, inventory allowances, financial instruments, including derivatives, pension and other postretirement benefits, goodwill and intangible assets, contingencies, income taxes, and other accruals. Our estimates are based on historical experience and on various other assumptions, which are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of any revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Revenue Recognition In our MC business segment, we recognize revenue at the point in time when we satisfy our performance obligations related to the manufacture and delivery of products. In our AEC business segment, revenue from most long-term contracts is generally recognized over time using an input method as the measure of progress. The classification of revenue in excess of progress billings on long-term contracts is included in Contract assets, net, which are rights to consideration that are conditional on something other than the passage of time, such as completion of remaining performance obligations. We are required to limit our estimate of contract values to the period of the legally enforceable contract. While certain contracts are expected to be profitable over the course of the program life when including expected renewals, our estimate of contract revenues and costs is limited to the estimated value of enforceable rights and obligations, excluding anticipated renewals. This contract period may result in a loss contract provision at contract inception. Expected losses on projects include losses on contract options that are probable of exercise, excluding profitable 60 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies — (continued) options that often follow. For contracts with anticipated losses, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations, which are treated as period expenses. Products and services provided under long-term contracts represent a significant portion of Net revenues in the AEC segment. We have a contract with a major customer for which revenue is recognized under a cost-plus-fee agreement. 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. 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. The sum of net adjustments to the estimated profitability of long-term contracts decreased AEC Operating income by $ 4.1 million in 2023, and increased AEC Operating income by $ 0.5 million and $ 6.2 million in 2022 and 2021, respectively. The unfavorable effects in 2023 related to additional reserves taken on certain contracts and inflationary factors decreasing anticipated margins. The favorable effects in 2022 and 2021 were largely due to changes in customer demand and to a lesser extent, efficiency improvements during the ramp-up of several programs. Additional accounting policies related to revenue from contracts with customers are set forth in Note 2, Revenue Recognition , of the Notes to the Consolidated Financial Statements. We limit the concentration of credit risk in receivables by closely monitoring credit and collection policies. We record allowances for sales returns as a deduction in the computation of Net revenues. Such provisions are recorded on the basis of written communication with customers and/or historical experience. Any value added taxes that are imposed on sales transactions are excluded from Net revenues. Cost of Goods Sold Cost of goods sold includes the cost of materials, provisions for obsolete inventories, labor and supplies, shipping and handling costs, depreciation of manufacturing facilities and equipment, purchasing, receiving, warehousing, and other expenses. Cost of goods sold also includes provisions for loss contracts and charges for the write-off of inventories that result from an exit activity. Selling, General, and Administrative (SG&A) Expenses Selling, general, and administrative expenses are primarily comprised of wages, incentive compensation, benefits, travel, professional fees, revaluation of trade foreign currency balances, information system costs, and other costs, and are expensed as incurred. Selling expense includes costs related to contract acquisition and provisions for expected credit losses on financial assets measured at amortized cost. General and administrative expenses include corporate expenses of $ 73.1 million in 2023, $ 56.8 million in 2022 and $ 53.7 million in 2021. Corporate expenses include global information system costs of $ 27.3 million in 2023, $ 22.7 million in 2022 and $ 21.2 million in 2021. Technical and Research Expenses Technical and research expenses are charged to operations as incurred and consist primarily of compensation, supplies, and professional fees incurred in connection with intellectual property. Total company technical and research expense was $ 40.6 million in 2023, $ 39.9 million in 2022, and $ 38.9 million in 2021. The AEC segment participates in both company-sponsored, and customer-funded research and development. Some customer-funded research and development may be on a cost-sharing basis and considered to be a collaborative arrangement, in which case both parties are active participants and are exposed to the risks and rewards dependent on the success of the activity. In such cases, amounts charged to the collaborating entity are credited against research and development expense. For customer-funded research and development in which we anticipate funding to exceed expenses, we include amounts charged to the customer in Net revenues, while expenses are included in Cost of goods sold. 61 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies — (continued) Restructuring Expense We may incur expenses related to exiting a line of business or restructuring of our operations or organizational structure, which could include employee termination costs, costs to consolidate or close facilities, or costs to terminate contractual relationships. Restructuring expenses may also include impairment of Property, plant and equipment, as described below under “Property, Plant and Equipment”. Employee termination costs include severance pay and social costs for periods after employee service is completed. Termination costs related to an ongoing benefit arrangement are recognized when the amount becomes probable and estimable. Termination costs related to a one-time benefit arrangement are recognized at the communication date to employees. Costs related to contract termination, relocation of employees, outplacement and the consolidation or the closure of facilities, are recognized when incurred. Income Taxes Deferred income taxes are recognized for the tax consequences of temporary differences and tax attributes by applying enacted statutory tax rates applicable for future years to differences between existing assets and liabilities for financial reporting and income tax return purposes. The effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. A valuation allowance is established, as needed, to reduce net deferred tax assets to the amount expected to be realized. In the event it becomes more likely than not that some or all of the deferred tax asset valuation allowances will not be needed, the valuation allowance will be adjusted. In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have determined the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest and penalties have also been recognized. We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. We have not elected to reclassify stranded tax effects from Accumulated items of other comprehensive income (AOCI) to retained earnings. Earnings Per Share Basic net income or loss per share is computed using the weighted average number of shares of Class A Common Stock outstanding during each year. Diluted net income per share includes the effect of all potentially dilutive securities. If we report a net loss from continuing operations, the diluted loss per share is equal to the basic earnings per share calculation. Translation of Financial Statements Assets and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the income statement accounts are translated at average monthly exchange rates. Gains or losses resulting from translating non-U.S. currency financial statements into U.S. dollars are recorded in other comprehensive income and accumulated in Shareholders’ equity in the caption “Translation adjustments”. Selling, general, and administrative expenses include foreign currency gains and losses resulting from third party balances, such as receivables and payables, which are denominated in a currency other than the entity’s functional currency. Gains or losses resulting from cash and short-term intercompany loans and balances denominated in a currency other than the entity’s functional currency, and foreign currency options are generally included in Other expense, net. Gains and losses on long-term intercompany loans not intended to be repaid in the foreseeable future are recorded in other comprehensive income. 62 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies — (continued) The following table summarizes foreign currency transaction gains and losses recognized in the income statement: Years ended December 31, (in thousands) 2023 2022 2021 (Gains)/losses included in: Selling, general, and administrative expenses $ 4,181 $ ( 554 ) $ ( 263 ) Other (income)/expense, net ( 2,916 ) ( 9,996 ) ( 1,179 ) Total transaction (gains)/losses $ 1,265 $ ( 10,550 ) $ ( 1,442 ) The following table presents foreign currency gains on long-term intercompany loans that were recognized in Other comprehensive income: (in thousands) 2023 2022 2021 Loss/(gain), before tax, on long-term intercompany loan $ — $ — $ ( 66 ) Cash and Cash Equivalents Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less. Accounts Receivable Accounts receivable includes trade receivables and bank promissory notes. In connection with certain sales in Asia Pacific, the Company accepts a bank promissory note as customer payment. The notes may be presented for payment at maturity, which is less than one year. In accordance with ASC 326, Current Expected Credit Losses ("CECL"), the Company recognizes an allowance for expected credit losses on financial assets measured at amortized cost, such as Accounts receivable, Contract assets and Noncurrent receivables. The allowance is determined using a CECL model that is based on an historical average three-year loss rate and is measured by financial asset type on a collective (pool) basis when similar risk characteristics exist, at an amount equal to lifetime expected credit losses. The estimate reflects the risk of loss due to credit default, even when the risk is remote, and considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable expected future economic conditions. The Company also has Noncurrent receivables in the AEC segment that represent revenue earned which have extended payment terms. See additional information set forth in Note 11, Accounts Receivable , of the Notes to the Consolidated Financial Statements. Contract Assets and Contract Liabilities Contract assets includes unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is utilized, and revenue recognized exceeds the amount billed to the customer. Contract assets are transferred to Accounts receivable, net, when the entitlement to payment becomes unconditional. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract liabilities are included in Accrued liabilities in the Consolidated Balance Sheet. See additional information set forth in Note 12, Contract Assets and Liabilities , of the Notes to the Consolidated Financial Statements. 63 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies — (continued) Inventories Costs included in inventories are raw materials, labor, supplies and allocable depreciation and overhead. Raw materials inventory is valued on an average cost basis. Other inventory cost elements are valued at cost, using the first-in, first-out method. The Company writes down the inventories for estimated obsolescence, and to lower of cost or net realizable value based upon assumptions about future demand and market conditions. Write-downs of inventories are charged to Cost of goods sold. If actual demand or market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related write-down represents the new cost basis of such inventories. See additional information set forth in Note 2, Revenue Recognition , and Note 13, Inventories , of the Notes to the Consolidated Financial Statements. Leases We determine if an arrangement is a lease at inception. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we assess whether: • The contract involves the use of an identified asset. This may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset, • The lessee has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use, and • The lessee has the right to direct the use of the asset, which is demonstrated when the lessee has decision-making rights that are most relevant to changing how and for what purpose the asset is used. Judgment is required in the determination of whether a contract contains a lease, the appropriate classification, allocation of consideration, and the determination of the discount rate for the lease. Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments. We have certain lease agreements with lease and non-lease components. For most of these leases, we account for the lease and non-lease components as a single lease component, in accordance with the practical expedient that is available for ongoing accounting. Additionally, for certain other leases, such as for vehicles, we apply a portfolio approach. Such new leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Expenses related to operating leases are recognized on a straight-line basis, while those determined to be finance leases are recognized following a front-loaded expense profile, in which interest and amortization are presented separately in the income statement. Operating lease right of use asset ("ROU") assets are included in Other assets in the Consolidated Balance Sheets, while finance lease ROU assets are included in Property, plant, and equipment, net. Lease liabilities for both operating and finance leases are included in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets. See additional information set forth in Note 20, Leases , of the Notes to the Consolidated Financial Statements. Debt The Company relies on bank financing as an important source of liquidity for business activities. Outstanding debt is classified as current or long-term based on the maturity of the of the Company's financing arrangements. See additional information set forth in Note 17, Financial Instruments , of the Notes to the Consolidated Financial Statements. 64 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies — (continued) Property, Plant and Equipment Property, plant and equipment are recorded at cost, or if acquired as part of a business combination, at fair value. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. In some cases, accelerated methods are used for income tax purposes. Significant additions or improvements extending assets’ useful lives are capitalized; normal maintenance and repair costs are expensed as incurred. The cost of fully depreciated assets remaining in use is included in the respective asset and accumulated depreciation accounts. When items are sold or retired, related gains or losses are included in Net income. Computer software purchased for internal use, at cost, is amortized on a straight-line basis over five to eight years , depending on the nature of the asset, after being placed into service, and is included in Property, plant, and equipment. We capitalize internal and external costs incurred related to the software development stage. Capitalized salaries, travel, and consulting costs related to the software development were not material in 2023 and 2022. We review the carrying value of property, plant and equipment and other long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset group may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. See additional information set forth in Note 14, Property, Plant and Equipment, Net , of the Notes to the Consolidated Financial Statements. Business Combinations The total purchase consideration for an acquisition is measured at the fair value of the assets acquired and liabilities assumed as of the acquisition date. Costs that are directly attributable to the acquisition are expensed as incurred. Identifiable assets acquired, liabilities assumed, and noncontrolling interests in an acquisition are measured initially at their fair values at the acquisition date. We recognize goodwill if the fair value of the total purchase consideration and any noncontrolling interest is in excess of the net fair value of the identifiable assets acquired and the liabilities assumed. We include the results of operations of the acquired business in the consolidated financial statements beginning on the acquisition date. Goodwill, Intangibles, and Other Assets Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Intangible assets from acquired businesses are recognized at fair value on the acquisition date and consist of customer relationships, customer contracts, technology, intellectual property and other intangible assets. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually. We perform an impairment test of our goodwill at least annually in the second quarter or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators, competition, reorganizations of our business, or the disposal of all or a portion of a reporting unit. Our goodwill has been allocated to and is tested for impairment at a level referred to as the reporting unit, which is our business segment level or a level below the business segment. The level at which we test goodwill for impairment requires us to determine whether the operations below the business segment constitute a self-sustaining business for which discrete financial information is available and segment management regularly reviews the operating results. We may use qualitative or quantitative approaches when testing goodwill for impairment. When we use the qualitative approach, we perform a qualitative evaluation of events and circumstances impacting the reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if we determine it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. 65 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies — (continued) Otherwise, we perform a quantitative impairment test. To perform the quantitative impairment test, we compare the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. Determining the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates, and future market conditions, among others. 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. 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. In the second quarter of 2023, management applied the qualitative assessment approach in performing its annual evaluation of goodwill for the Company's MC reporting unit and two AEC reporting units and concluded that each reporting unit’s fair value continued to exceed its carrying value by a significant margin. In addition, there were no amounts at risk due to the estimated excess between the fair and carrying values. Accordingly, no impairment charges were recorded. Impairment assessments inherently involve management judgments regarding a number of assumptions such as those described above. Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions could have a material effect on the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period. See additional information set forth in Note 15, Goodwill and Other Intangible Assets , of the Notes to the Consolidated Financial Statements. For some AEC contracts, we perform pre-production or nonrecurring engineering services. These costs are normally considered a fulfillment activity, rather than a performance obligation. Fulfillment activities that create resources that will be used in satisfying performance obligations in the future, and are expected to be recovered, are capitalized to Other assets, which is classified as a noncurrent asset in the Consolidated Balance Sheets. The capitalized costs are amortized into Cost of goods sold over the period over which the asset is expected to contribute to future cash flows, which includes anticipated renewal periods. Included in Other assets is $ 19.3 million in 2023 and $ 16.2 million in 2022 for defined benefit pension plans where plan assets exceed the projected benefit obligations. Other assets also include financial assets of $ 0.7 million in 2023 and $ 0.6 million in 2022. See additional information set forth in Note 18, Fair-Value Measurements , of the Notes to the Consolidated Financial Statements. Stock-Based Compensation We have incentive compensation plans that authorize the issuance of stock-based awards for key employees, which are designed to reward short and long-term contributions and provide incentives for recipients to remain with the Company. We issue stock-based awards in the form of restricted stock units and performance stock units that generally vest between one and five years from the grant date and can be settled in cash or shares. Expenses associated with these awards are recognized over each respective vesting period. Liability based awards are settled in cash, while equity-based awards are settled in stock. See additional information for stock-based compensation plans in Note 22, Stock-Based Compensation , of the Notes to the Consolidated Financial Statements. Derivatives From time to time, we use derivatives to mitigate potentially large adverse effects from changes in currency exchange rates and interest rates. We monitor our exposure to these risks and evaluate, on an ongoing basis, the risk of potentially large adverse effects versus the costs associated with hedging such risks. We may use interest rate swaps in the management of interest rate exposures and foreign currency derivatives to manage foreign currency exposure related to assets and liabilities (including net investments in subsidiaries located 66 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies — (continued) outside the U.S.) denominated in foreign currencies. When we enter into a derivative contract, we make a determination whether the transaction is deemed to be a hedge for accounting purposes. For those contracts deemed to be a hedge, we formally document the relationship between the derivative instrument and the risk being hedged. In this documentation, we specifically identify the asset, liability, forecasted transaction, cash flow, or net investment that has been designated as the hedged item, and evaluate whether the derivative instrument is expected to reduce the risks associated with the hedged item. To the extent these criteria are not met, we do not use hedge accounting for the derivative. All derivative contracts are recorded at fair value, as a net asset or a net liability on the Consolidated Balance Sheets. The changes in fair values of derivative contracts are recorded each period in earnings or accumulated other comprehensive income, depending on whether a derivative is effective as part of the hedged transaction. Gains and losses on derivative contracts reported in accumulated other comprehensive income are subsequently included in earnings in the periods in which earnings are affected by the hedged item. For transactions that are designated as an effective hedge, we perform an evaluation of the effectiveness of the hedge on the date of inception and on an ongoing basis. The related gains and losses of derivative instruments, including those designated in hedge accounting relationships, are included as operating activities in the Consolidated Statements of Cash Flows. For derivatives that are designated and qualify as hedges of net investments in subsidiaries located outside the U.S., changes in the fair value of derivatives are reported in other comprehensive income as part of Translation adjustments. The Company does not engage in derivative instruments for speculative or trading purposes. See Note 17, Financial Instruments, of the Notes to the Consolidated Financial Statements for additional information. Pension, Postretirement, and Other Benefit Plans As described in Note 4, Pension, Postretirement, and Other Benefit Plans , of the Notes to the Consolidated Financial Statements, we have pension and postretirement benefit plans covering substantially all employees. The pension plans are generally trusteed or insured, and accrued amounts are funded as required in accordance with governing laws and regulations. The annual expense and liabilities recognized for defined benefit pension plans and postretirement benefit plans are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and expected return on plan assets, which are updated on an annual basis. We consider current market conditions, including changes in interest rates, in determining these assumptions. Discount rate assumptions are based on the population of plan participants and a mixture of high-quality fixed-income investments with durations that match expected future payments. The assumption for expected return on plan assets is based on historical and expected returns on various categories of plan assets. Government Grants The Company recognizes government grants only when there is reasonable assurance that we will comply with the conditions attached to them and the grants will be received. Government grants are recognized in the Consolidated Statements of Income on a systematic basis over the periods in which we recognize as expenses the related costs for which the grants are intended to compensate. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support with no future related costs is recognized in the Consolidated Statements of Income of the period in which it becomes receivable. During the third quarter of 2021, the Company was awarded an Aviation Manufacturing Jobs Protection Program ("AMJP") grant of $ 5.8 million, under the American Rescue Plan of the U.S. Department of Transportation. The AMJP grant is an income related grant, the purpose of which is to provide payroll assistance to eligible U.S. aircraft manufacturing/repair businesses who were impacted due to the COVID-19 pandemic downturn during 2020. In order to receive the grant, AEC was required to make several commitments, including a commitment that the Company would not involuntarily furlough or lay-off employees within this segment during the period the grant was intended to cover. All conditions were met and the Company recognized $ 5.8 million in its Consolidated Statements of Income for the year ended December 31, 2021. The Company received $ 2.9 million in cash during 2021 and the remainder 67 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 1. Accounting Policies — (continued) during 2022 and reflected cash received as an operating activity within the Consolidated Statements of Cash Flows over the periods cash was received. Recent Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. 2. Revenue Recognition We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Revenue is measured based on the consideration specified in the contract with the customer, and excludes any amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service, or a series of distinct goods or services, to the customer which occurs either at a point in time, or over time, depending on the performance obligation in the contract. A performance obligation is a promise in the contract to transfer a distinct good or service to the customer, and is the unit of account. “Control” refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from the product. A contract’s transaction price is allocated to each material distinct performance obligation and is recognized as revenue when, or as, the performance obligation is satisfied. In our MC segment, our primary performance obligation in most contracts is to provide solution-based, custom-designed fabrics and belts to the customer. We satisfy this performance obligation upon transferring control of the product to the customer at a specific point in time. Contracts with customers in the MC segment have various terms that can affect the point in time when revenue is recognized. Generally, the customer obtains control when the product has been received at the location specified by the customer, at which time the only remaining obligations under the contract may be fulfillment costs, in the form of shipping and handling, which are accrued when control of the product is transferred. In the MC segment, contracts with certain customers may also obligate us to provide various product-related services at no additional cost to the customer. When this obligation is material in the context of the contract with the customer, we recognize a separate performance obligation and allocate revenue to those services on a relative estimated standalone selling price basis. The standalone selling price for these services is determined based upon an analysis of the services offered and an assessment of the price we might charge for such services as a separate offering. As we typically provide such services on a stand-ready basis, we recognize this revenue over time. Revenue allocated to such service performance obligations is the only MC revenue that is recognized over time. 68 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 2. Revenue Recognition — (continued) In our AEC segment, we primarily enter into contracts to manufacture and deliver highly engineered advanced composite products to our customers. A significant portion of AEC revenue is earned under short duration, firm-fixed-price orders that are placed under a master agreement containing general terms and conditions applicable to all orders placed under the master agreement. We assess each contract at its inception to determine whether it should be combined with other contracts. When making this determination we consider factors such as whether two or more contracts were negotiated and executed at or near the same time or were negotiated with an overall profit objective. If combined, we treat the combined contracts as a single contract for revenue recognition purposes. We evaluate the products or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. For most AEC contracts, the nature of our promise (or our performance obligation) to the customer is to provide a significant service of integrating a complex set of tasks and components into a single project or capability, which will often result in the delivery of multiple highly interdependent and interrelated units. At the inception of a contract, we determine the transaction price based on the consideration we expect to receive for the products or services being provided under the contract. For contracts where a portion of the price may vary, we estimate variable consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. We analyze the risk of a significant revenue reversal and if necessary constrain the amount of variable consideration recognized in order to mitigate this risk. We estimate the transaction price based on our current rights, and do not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Many AEC contracts are subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract. Generally, we are able to conclude that such modifications are not distinct from the existing contract, due to the significant integration of the obligations, and the interrelated nature of tasks, provided for in the modification and the existing contract. Therefore, such modifications are accounted for as if they were part of the existing contract, and we accumulate the values of such modifications in our estimates of contract value. Revenue is recognized over time for substantially all of our contracts in AEC as most of our contracts have provisions that are deemed to transfer control to the customer over time. Revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of assets to the customer which occurs as we incur costs to produce the contract deliverables. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue, including profit, is recorded proportionally as costs are incurred. Accounting for long-term contracts requires significant judgment and estimation, which could be considerably different if the underlying circumstances were to change. When any adjustments of estimated contract revenue or costs are required, any changes from prior estimates are included in revenues or earnings in the period in which the change occurs. In other AEC contracts, revenue is recognized at a point in time because the products are offered to multiple customers, or we do not have an enforceable right to payment until the product is shipped or delivered to the location specified by the customer in the contract. AEC’s largest source of revenue is derived from the LEAP contract (see Note 10, Noncontrolling Interest , of the Notes to the Consolidated Financial Statements) under a cost-plus-fee agreement. 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 judgment involved in determining applicable contract costs and expected margin, and therefore, in determining the amount of revenue to be recognized. Payment terms granted to MC and AEC customers reflect general competitive practices. Terms vary with product, competitive conditions, and the country of operation. 69 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 2. Revenue Recognition — (continued) The following table provides a summary of the composition of each business segment: Segment Reporting Unit Principal Product or Service Principal Locations Machine Clothing (MC) Machine Clothing Paper machine clothing: Permeable and impermeable belts used in the manufacture of paper, paperboard, tissue and towel, and pulp Engineered fabrics: Belts used in the manufacture of nonwovens, fiber cement and several other industrial applications World-wide Albany Engineered Composites (AEC) Albany Safran Composites (ASC) Airframe and engine Components (Other AEC) 3D-woven, injected composite components for aircraft engines Composite airframe and engine components for military and commercial aircraft Rochester, NH Commercy, France Queretaro, Mexico Salt Lake City, UT Boerne, TX Queretaro, Mexico Kaiserslautern, Germany 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 presents disaggregated revenue for each product group by timing of revenue recognition: For the year ended December 31, 2023 (in thousands) Point in Time Revenue Recognition Over Time Revenue Recognition Total Machine Clothing $ 666,990 $ 3,778 $ 670,768 Albany Engineered Composites ASC — 184,184 184,184 Other AEC 20,546 272,411 292,957 Total Albany Engineered Composites 20,546 456,595 477,141 Total net revenues $ 687,536 $ 460,373 $ 1,147,909 For the year ended December 31, 2022 (in thousands) Point in Time Revenue Recognition Over Time Revenue Recognition Total Machine Clothing $ 605,863 $ 3,598 $ 609,461 Albany Engineered Composites ASC — 165,775 165,775 Other AEC 19,167 240,484 259,651 Total Albany Engineered Composites 19,167 406,259 425,426 Total net revenues $ 625,030 $ 409,857 $ 1,034,887 70 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 2. Revenue Recognition — (continued) For the year ended December 31, 2021 (in thousands) Point in Time Revenue Recognition Over Time Revenue Recognition Total Machine Clothing $ 615,556 $ 3,459 $ 619,015 Albany Engineered Composites ASC — 109,803 109,803 Other AEC 15,972 184,450 200,422 Total Albany Engineered Composites 15,972 294,253 310,225 Total net revenues $ 631,528 $ 297,712 $ 929,240 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: Years ended December 31, (in thousands) 2023 2022 2021 Americas PMC $ 349,544 $ 321,170 $ 317,907 Eurasia PMC 250,048 207,115 219,506 Engineered Fabrics 71,176 81,176 81,602 Total Machine Clothing net revenues $ 670,768 $ 609,461 $ 619,015 We do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Contracts in the MC segment are generally for periods of less than a year. Most contracts in the AEC segment are short duration firm-fixed-price orders representing performance obligations with an original maturity of less than one year. Remaining performance obligations on contracts that had an original duration of greater than one year totaled $ 1.2 billion as of December 31, 2023, $ 553 million as of December 31, 2022, and $ 278 million as of December 31, 2021, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of December 31, 2023 we expect to recognize as revenue approximately $ 179 million during 2024, $ 178 million during 2025, $ 156 million during 2026, and the remainder thereafter. 3. Reportable Segments and Geographic Data The Company is organized based on the nature of its products and is composed of two reportable segments each overseen by a Segment President. These segments are reflective of how the Company's Chief Executive Officer, who is its Chief Operating Decision Maker ("CODM"), reviews operating results for the purpose of allocating resources and assessing performance. The Company has not aggregated operating segments for purposes of identifying reportable segments. As of December 31, 2023, the operating segments were Machine Clothing (“MC”), and Albany Engineered Composites ("AEC”). The accounting policies of the segments are the same as those described in Note 1, Accounting Policies , of the Notes to the Consolidated Financial Statements. Corporate expenses include wages and benefits for corporate headquarters personnel, costs related to information systems development and support, and professional fees related to legal, audit, and other activities. These costs are not allocated to the reportable segments because the decision-making for these functions lies outside of the segments. Machine Clothing: 71 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 3. Reportable Segments and Geographic Data — (continued) The MC segment supplies permeable and impermeable belts used in the manufacture of paper, paperboard, tissue and towel, pulp, nonwovens, fiber cement and several other industrial applications. We sell our MC products directly to customer end-users in countries across the globe. Our products, manufacturing processes, and distribution channels for MC are substantially the same in each region of the world in which we operate. We design, manufacture, and market paper machine clothing (used in the manufacturing of paper, paperboard, tissue and towel) for each section of the paper machine and for every grade of paper. Paper machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a complex structure. Albany Engineered Composites : The AEC segment provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. The segment includes Albany Safran Composites, LLC (“ASC”), in which our customer, SAFRAN Group ("Safran"), 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 aircrafts. 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 revenues in 2023. In 2023, SAFRAN leased manufacturing space from AEC for the GE9X program. Rent paid by SAFRAN under this lease amounted to $ 1.0 million in 2023 and $ 0.9 million in 2022. AEC sales to SAFRAN were $ 187.6 million in 2023, $ 169.3 million in 2022, and $ 111.6 million in 2021. The total of Accounts receivable, Contract assets and Noncurrent receivable due from SAFRAN amounted to $ 93.8 million and $ 80.8 million as of December 31, 2023 and 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 Boeing commercial programs, and specialty components for the Rolls Royce lift fan on the F-35. In 2023, approximately 39 percent of AEC net revenues were related to U.S. government contracts or programs. 72 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 3. Reportable Segments and Geographic Data — (continued) The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements: Years ended December 31, (in thousands) 2023 2022 2021 Net revenues Machine Clothing $ 670,768 $ 609,461 $ 619,015 Albany Engineered Composites 477,141 425,426 310,225 Consolidated total $ 1,147,909 $ 1,034,887 $ 929,240 Depreciation and amortization Machine Clothing 23,891 19,483 20,191 Albany Engineered Composites 49,030 46,202 50,402 Corporate 3,812 3,364 3,662 Consolidated total $ 76,733 $ 69,049 $ 74,255 Operating income/(loss) Machine Clothing 199,378 206,214 215,654 Albany Engineered Composites 41,587 31,579 16,160 Corporate ( 73,071 ) ( 56,771 ) ( 53,803 ) Operating income $ 167,894 $ 181,022 $ 178,011 Reconciling items: Interest income ( 6,566 ) ( 3,835 ) ( 2,500 ) Interest expense 20,167 17,835 17,391 Pension settlement expense — 49,128 — AMJP grant — — ( 5,832 ) Other (income)/expense, net ( 6,163 ) ( 14,086 ) 3,021 Income before income taxes $ 160,456 $ 131,980 $ 165,931 Results for the year ended December 31, 2023 include the newly acquired Heimbach for the period of ownership, which began September 1, 2023. Heimbach contributed Net revenues of $ 51.2 million and reduced Operating income by $ 6.3 million, which included depreciation expense on Property, plant, and equipment, net of $ 4.0 million, and amortization expense on Intangibles, net of $ 0.3 million. In the third quarter of 2022, we took actions to settle certain pension plan liabilities in the U.S., leading to charges totaling $ 49.1 million, which were included as Corporate expenses and other. This led to a reduction of unfunded pension liabilities of $ 6.2 million. A subsidiary within our MC segment has been a partner in a JV that supplies paper machine clothing products to local papermakers in Russia. In March 2022, we decided to cease doing business in Russia, including giving notice to our JV partner of our intent to exit the venture. As a result, in 2022, we recognized $ 1.5 million expense in the consolidated statement of operations, representing reserves against the risk of uncollectible customer receivables and obsolescence of certain inventory destined for Russian customers. We also wrote down the net book value of our investment in the aforementioned JV to reflect our intent to exit such venture, resulting in $ 0.8 million impairment loss during the first quarter of 2022. 73 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 3. Reportable Segments and Geographic Data — (continued) The table below presents restructuring costs by reportable segment (also see Note 5, Restructuring , of the Notes to the Consolidated Financial Statements): Years ended December 31, (in thousands) 2023 2022 2021 Restructuring expenses, net Machine Clothing $ 282 $ 92 $ 1,202 Albany Engineered Composites — — 32 Corporate expenses — 14 97 Total restructuring expenses, net $ 282 $ 106 $ 1,331 In the measurement of assets utilized by each reportable segment, we include Inventories, Accounts receivable, net, Contract assets, net, Noncurrent receivables, net, Property, plant and equipment, net, Intangibles, net and Goodwill. The following table presents assets and capital expenditures by reportable segment: As of December 31, (in thousands) 2023 2022 2021 Segment assets Machine Clothing $ 669,907 $ 455,390 $ 459,182 Albany Engineered Composites 800,931 717,972 652,702 Reconciling items: Cash 173,420 291,776 302,036 Income taxes prepaid, receivable and deferred 33,984 23,134 28,334 Prepaid and Other assets 156,772 153,983 113,810 Total assets $ 1,835,014 $ 1,642,255 $ 1,556,064 Capital expenditures and purchased software Machine Clothing $ 25,258 $ 20,093 $ 20,177 Albany Engineered Composites 56,786 73,614 31,012 Corporate expenses 2,385 2,641 2,510 Total capital expenditures and purchased software $ 84,429 $ 96,348 $ 53,699 In 2022, the Company extended the lease of its primary manufacturing facility in Salt Lake City, Utah, which resulted in a lease classification change from Finance to Operating and included a non-cash increase of $ 37.1 million to both Other assets and to Other noncurrent liabilities in the Consolidated Balance Sheets. Due to the non-cash nature of the transaction, those increases are excluded from amounts reported in the Consolidated Statements of Cash Flows. 74 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 3. Reportable Segments and Geographic Data — (continued) The following table shows data by geographic area. Net revenues are based on the location of the operation recording the final sale to the customer. Net revenues recorded by our entity in Switzerland are derived from products sold throughout Europe and Asia, and are invoiced in various currencies. Years ended December 31, (in thousands) 2023 2022 2021 Net revenues United States $ 649,500 $ 586,779 $ 497,231 Switzerland 115,207 119,069 128,698 France 77,573 76,826 68,929 Brazil 69,527 66,175 62,925 China 65,135 63,914 67,098 Mexico 58,874 58,519 37,547 Germany 32,239 4,461 5,308 Other countries 79,854 59,144 61,504 Total Net revenues $ 1,147,909 $ 1,034,887 $ 929,240 Property, plant and equipment, net United States $ 303,578 $ 278,500 $ 258,453 China 57,070 33,432 41,039 Germany 52,934 9,562 9,652 Mexico 46,759 42,320 40,699 France 31,069 31,382 33,802 United Kingdom 18,306 9,699 10,156 Canada 15,318 14,264 14,139 Spain 14,804 — — Other countries 62,151 26,499 28,477 Total Property, plant and equipment, net $ 601,989 $ 445,658 $ 436,417 4. Pension, Postretirement, and Other Benefit Plans Voluntary Savings Plan The Company maintains a voluntary savings plan covering substantially all employees in the United States. The Plan, known as the Prosperity Plus Savings Plan, is a qualified plan under section 401(k) of the U.S. Internal Revenue Code. The Company matches, in the form of cash, between 50 percent and 100 percent of employee contributions up to a defined maximum. The investment of employee contributions to the plan is self-directed. The Company’s cost of the plan amounted to $ 7.3 million in 2023, $ 6.6 million in 2022, and $ 6.2 million in 2021. The plan allows for discretionary matching contributions. The Company uses such discretion to provide profit sharing contributions to eligible plan participants. Such contributions are based on Company performance and vary from year to year and contributions are generally made in the first quarter following the Company’s fiscal year-end. The Company’s profit-sharing plan covers substantially all employees in the United States. After the close of each year, the Board of Directors reviews and approves the amount of the profit-sharing contribution. Company contributions to the plan are in the form of cash. The expense recorded for this plan was $ 4.9 million in 2023, $ 4.6 million in 2022, and $ 4.8 million in 2021. 75 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 4. Pension, Postretirement, and Other Benefit Plans — (continued) Pension and Postretirement Plans The Company has defined benefit pension and postretirement plans covering certain U.S. and non-U.S. employees. The eligibility, benefit formulas, and contribution requirements for plans vary by location. As of December 31, 2023, U.S. benefit obligations exist through the U.S. Supplemental Executive Retirement Plan (“SERP”), a frozen unfunded pension plan, and the U.S. postretirement welfare plan ("PRW"), which provides various medical, dental, and life insurance benefits. The U.S. Pension Plus Plan, a qualified defined benefit pension plan was terminated in 2021 and settled during 2022, leading to charges totaling $ 49.1 million. Outside the U.S., the Company sponsors defined benefit pension plans covering certain employees, including employees at our newly acquired Heimbach GmbH, and certain postretirement life insurance benefits to retired employees in Canada. Accounting guidance requires the recognition of the funded status of each defined benefit and other postretirement benefit plan. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. Company pension plan data for U.S. and non-U.S. plans has been combined for both 2023 and 2022, except where indicated below. The Company’s pension and postretirement benefit costs and benefit obligations are based on actuarial valuations that are affected by many assumptions, the most significant of which are the assumed discount rate, expected rate of return on pension plan assets, and mortality. Each of the assumptions is reviewed and updated annually, as appropriate. The assumed rates of return for pension plan assets are determined for each major asset category based on historical rates of return for assets in that category and expectations of future rates of return based, in part, on simulated future capital market performance. The assumed discount rate is based on yields from a portfolio of currently available high-quality fixed-income investments with durations matching the expected future payments, based on the demographics of the plan participants and the plan provisions. Gains and losses arise from changes in the assumptions used to measure the benefit obligations, and experience different from what had been assumed, including asset returns different than what had been expected. The Company amortizes gains and losses in excess of a “corridor” over the average future service of the plan’s current participants. The corridor is defined as 10 percent of the greater of the plan’s projected benefit obligation or market-related value of plan assets. The market-related value of plan assets is also used to determine the expected return on plan assets component of net periodic cost. To the extent the Company’s unrecognized net losses and unrecognized prior service costs, including the amount recognized through accumulated other comprehensive income, are not reduced by future favorable plan experience, they will be recognized as a component of the net periodic cost in future years. 76 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 4. Pension, Postretirement, and Other Benefit Plans — (continued) The following table sets forth the plan benefit obligations: As of December 31, 2023 As of December 31, 2022 (in thousands, except percentages) Pension plans Other postretirement benefits Pension plans Other postretirement benefits Benefit obligation, beginning of year $ 83,730 $ 35,658 $ 230,790 $ 44,884 Service cost 1,478 60 1,371 114 Interest cost 5,151 1,874 4,917 1,221 Plan participants' contributions 281 — 132 — Actuarial (gain)/loss 6,317 ( 6,131 ) ( 46,995 ) ( 6,658 ) Benefits paid ( 6,388 ) ( 2,795 ) ( 7,946 ) ( 3,234 ) Acquisitions 64,947 — — — Settlements and curtailments — — ( 90,568 ) — Plan amendments and other ( 1,985 ) ( 25 ) ( 605 ) Foreign currency changes 4,792 18 ( 7,946 ) ( 64 ) Benefit obligation, end of year $ 158,323 $ 28,684 $ 83,730 $ 35,658 Accumulated benefit obligation $ 151,001 $ — $ 78,153 $ — Weighted average assumptions used to determine benefit obligations, end of year: Discount rate — U.S. plan 5.15 % 5.21 % 5.49 % 5.55 % Discount rate — non-U.S. plans 4.05 % 4.70 % 5.15 % 5.20 % Cash balance interest crediting rate - Switzerland pension plan 1.30 % — 2.15 % — Compensation increase — U.S. plan N/A N/A N/A N/A Compensation increase — non-U.S. plans 2.89 % 2.75 % 3.08 % 2.75 % During 2023, pension benefit obligations increase d by $ 74.6 million, largely related to the acquisition of Heimbach GmbH, which resulted in an increase of $ 64.9 million, in addition to net actuarial losses, which resulted in an increase of $ 6.3 million. Other postretirement benefit obligations decreased by $ 7.0 million in 2023, primarily driven by net actuarial gains and payments made by the Company to participants of the plan . During 2022, pension benefit obligations decreased by $ 147 million, $ 91.6 million of which was related to the U.S. Pension Plus plan settlement and $ 47.0 million of which was driven by net actuarial gains, principally resulting from higher discount rates, in addition to employer contributions of $ 7.9 million. Other postretirement benefit obligations decreased by $ 9.2 million in 2022, primarily driven by net actuarial gains and payments made by the Company to participants of the plan . 77 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 4. Pension, Postretirement, and Other Benefit Plans — (continued) The following sets forth information about plan assets: As of December 31, 2023 As of December 31, 2022 (in thousands) Pension plans Other postretirement benefits Pension plans Other postretirement benefits Fair value of plan assets, beginning of year $ 74,929 $ — $ 225,327 $ — Actual return on plan assets, net of expenses 6,285 — ( 57,868 ) — Employer contributions 3,629 2,795 15,071 3,234 Plan participants' contributions 281 — 132 — Benefits paid ( 6,388 ) ( 2,795 ) ( 7,946 ) ( 3,234 ) Acquisitions 30,941 — — — Settlements — — ( 90,568 ) — Other ( 832 ) — — — Foreign currency changes 3,843 — ( 9,219 ) — Fair value of plan assets, end of year $ 112,688 $ — $ 74,929 $ — The funded status of the plans was as follows: As of December 31, 2023 As of December 31, 2022 (in thousands) Pension plans Other postretirement benefits Pension plans Other postretirement benefits Fair value of plan assets $ 112,688 $ — $ 74,929 $ — Benefit obligation 158,323 28,684 83,730 35,658 Funded status $ ( 45,635 ) $ ( 28,684 ) $ ( 8,801 ) $ ( 35,658 ) Accrued benefit cost, end of year $ ( 45,635 ) $ ( 28,684 ) $ ( 8,801 ) $ ( 35,658 ) Amounts recognized in the consolidated balance sheets consist of the following: Noncurrent asset $ 19,296 $ — $ 16,234 $ — Current liability ( 5,500 ) ( 2,808 ) ( 1,974 ) ( 3,660 ) Noncurrent liability ( 59,431 ) ( 25,876 ) ( 23,061 ) ( 31,998 ) Net amount recognized $ ( 45,635 ) $ ( 28,684 ) $ ( 8,801 ) $ ( 35,658 ) Amounts recognized in accumulated other comprehensive income consist of: Net actuarial loss $ 22,512 $ 1,991 $ 17,915 $ 8,958 Prior service cost/(credit) ( 132 ) ( 484 ) ( 134 ) ( 4,574 ) Net amount recognized $ 22,380 $ 1,507 $ 17,781 $ 4,384 78 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 4. Pension, Postretirement, and Other Benefit Plans — (continued) The composition of the net pension plan funded status as of December 31, 2023 was as follows: (in thousands) U.S. plan Non-U.S. plans Total Pension plans with pension assets $ — $ 19,296 $ 19,296 Pension plans without pension assets ( 3,799 ) ( 61,132 ) ( 64,931 ) Total $ ( 3,799 ) $ ( 41,836 ) $ ( 45,635 ) The underfunded balance in the U.S. relates to the Supplemental Executive Retirement Plan. The composition of the net periodic benefit plan cost for the years ended December 31, 2023, 2022, and 2021, was as follows: Pension plans Other postretirement benefits (in thousands, except percentages) 2023 2022 2021 2023 2022 2021 Components of net periodic benefit cost: Service cost $ 1,478 $ 1,371 $ 2,192 $ 60 $ 114 $ 132 Interest cost 5,151 4,917 5,467 1,874 1,221 1,103 Expected return on assets ( 4,347 ) ( 5,979 ) ( 6,564 ) — — — Amortization of prior service cost/(credit) ( 32 ) ( 8 ) 13 ( 4,090 ) ( 4,488 ) ( 4,488 ) Amortization of net actuarial loss 555 1,377 2,365 828 1,883 2,260 Settlement — 49,128 — — — — Curtailment (gain)/loss — — — — — — Net periodic benefit cost $ 2,805 $ 50,806 $ 3,473 $ ( 1,328 ) $ ( 1,270 ) $ ( 993 ) Weighted average assumptions used to determine net cost: Discount rate — U.S. plan 5.49 % 2.63 % 2.65 % 5.55 % 2.83 % 2.38 % Discount rate — non-U.S. plans 5.15 % 2.41 % 1.91 % 5.20 % 3.05 % 2.75 % Cash balance interest crediting rate - Switzerland pension plan 2.15 % 0.25 % 0.05 % — — — Expected return on plan assets — U.S. plan N/A 3.07 % 2.74 % N/A N/A N/A Expected return on plan assets — non-U.S. plans 5.21 % 3.31 % 2.89 % N/A N/A N/A Rate of compensation increase — U.S. plan N/A N/A N/A N/A N/A N/A Rate of compensation increase — non-U.S. plans 3.08 % 2.70 % 2.71 % 2.75 % 2.75 % 2.75 % 79 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 4. Pension, Postretirement, and Other Benefit Plans — (continued) Pretax (gains)/losses on plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2023, 2022, and 2021, was as follows: Pension plans Other postretirement benefits (in thousands) 2023 2022 2021 2023 2022 2021 Settlements/curtailments $ — $ ( 49,128 ) $ — $ — $ — $ — Asset/liability loss/(gain) 4,365 16,828 1,927 ( 6,131 ) ( 6,658 ) ( 995 ) Amortization of actuarial (loss) ( 554 ) ( 1,377 ) ( 2,365 ) ( 828 ) ( 1,883 ) ( 2,260 ) Amortization of prior service cost/(credit) 32 8 ( 13 ) 4,090 3,884 4,488 Other — — — — — — Currency impact 757 ( 944 ) ( 612 ) ( 8 ) 15 2 Cost/(benefit) in Other comprehensive income $ 4,600 $ ( 34,613 ) $ ( 1,063 ) $ ( 2,877 ) $ ( 4,642 ) $ 1,235 Investment Strategy Our investment strategy for pension assets differs for the various countries in which we have defined benefit pension plans. Some of our defined benefit plans do not require funded trusts and, in those arrangements, the Company funds the plans on a “pay as you go” basis. The largest of the funded defined benefit plans are in Canada and the United Kingdom. For the countries in which the Company has funded pension trusts, the investment strategy may also be liability driven or, in other cases, to achieve a competitive, total investment return, achieving diversification between and within asset classes and managing other risks. Investment objectives for each asset class are determined based on specific risks and investment opportunities identified. Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions, and the timing of benefit payments and contributions. Fair-Value Measurements The following tables present plan assets as of December 31, 2023, and 2022, using the fair-value hierarchy, which has three levels based on the reliability of inputs used, as described in Note 18, Fair-Value Measurements , of the Notes to the Consolidated Financial Statements. Certain investments that are measured at fair value using net asset value ("NAV") as a practical expedient are not required to be categorized in the fair value hierarchy table. The total fair value of these investments is included in the table below to permit reconciliation of the fair value hierarchy to amounts presented in the funded status table above. As of December 31, 2023 and 2022, there were no investments expected to be sold at a value materially different than NAV. 80 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 4. Pension, Postretirement, and Other Benefit Plans — (continued) Assets at Fair Value as of December 31, 2023 (in thousands) Quoted prices in active markets Level 1 Significant other observable inputs Level 2 Significant unobservable inputs Level 3 Total Common Stocks and equity funds $ — $ 4,159 $ — $ 4,159 Debt securities — 56,838 — 56,838 Insurance contracts — — 3,478 3,478 Real Estate — — 3,451 3,451 Hedge Funds — — 668 668 Cash and short-term investments 5,740 — — 5,740 Total investments in the fair value hierarchy $ 5,740 $ 60,997 $ 7,597 74,334 Investments at net asset value: Common Stocks and equity funds 12,608 Fixed income funds 25,746 Limited partnerships — Total plan assets $ 112,688 Assets at Fair Value as of December 31, 2022 (in thousands) Quoted prices in active markets Level 1 Significant other observable inputs Level 2 Significant unobservable inputs Level 3 Total Common Stocks and equity funds $ — $ — $ — $ — Debt securities — 37,234 — 37,234 Insurance contracts — — 2,418 2,418 Real Estate — — — — Hedge Funds — — — — Cash and short-term investments 548 — — 548 Total investments in the fair value hierarchy $ 548 $ 37,234 $ 2,418 40,200 Investments at net asset value: Common Stocks and equity funds 13,069 Fixed income funds 21,660 Limited partnerships — Total plan assets $ 74,929 The following tables present a reconciliation of Level 3 assets held during the years ended December 31, 2023 and 2022: (in thousands) December 31, 2022 Net realized gains Net unrealized gains Net purchases, issuances and settlements Net transfers (out of) Level 3 December 31, 2023 Insurance contracts - total level 3 assets $ 2,418 $ — $ 18 $ 5,161 $ — $ 7,597 81 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 4. Pension, Postretirement, and Other Benefit Plans — (continued) (in thousands) December 31, 2021 Net realized gains Net unrealized gains Net purchases, issuances and settlements Net transfers (out of) Level 3 December 31, 2022 Insurance contracts - total level 3 assets $ 3,861 $ — $ 20 $ ( 1,463 ) $ — $ 2,418 The asset allocation for the Company’s U.S. and non-U.S. pension plans for 2023 and 2022, and the target allocation, by asset category, are as follows: United States Plan Non-U.S. Plans Target Allocation Percentage of plan assets at plan measurement date Target Allocation Percentage of plan assets at plan measurement date Asset category 2023 2022 2023 2022 Equity securities N/A N/A N/A 14 % 13 % 15 % Debt securities N/A N/A N/A 71 % 73 % 76 % Real estate N/A N/A N/A 3 % 3 % 1 % Other (1) N/A N/A N/A 12 % 11 % 8 % — % — % — % 100 % 100 % 100 % (1) Other includes hedged equity and absolute return strategies, as well as private equity. The Company has procedures to closely monitor the performance of these investments and compares asset valuations to audited financial statements of the funds. The targeted plan asset allocation is based on an analysis of the actuarial liabilities, a review of viable asset classes, and an analysis of the expected rate of return, risk, and other investment characteristics of various investment asset classes. At the end of 2023 and 2022, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with projected benefit obligation and an accumulated benefit obligation in excess of plan assets were as follows: Plans with projected benefit obligation in excess of plan assets (in thousands) 2023 2022 Projected benefit obligation $ 81,972 $ 28,458 Fair value of plan assets 17,041 3,422 Plans with accumulated benefit obligation in excess of plan assets (in thousands) 2023 2022 Accumulated benefit obligation $ 77,688 $ 25,941 Fair value of plan assets 17,041 3,422 82 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 4. Pension, Postretirement, and Other Benefit Plans — (continued) Information about expected cash flows for the pension and other benefit obligations are as follows: (in thousands) Pension plans Other postretirement benefits Expected employer contributions and direct employer payments in the next fiscal year $ 6,335 $ 2,808 Expected benefit payments 2024 10,716 2,808 2025 10,972 2,714 2026 10,938 2,626 2027 10,089 2,538 2028 10,333 2,448 2029 to 2033 50,314 10,873 83 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 5. Restructuring Restructuring activities have decreased in the last two years. Restructuring expense, net during this period has been related primarily to the winding down of restructuring actions taken in years previous. The following table summarizes charges reported in the Consolidated Statements of Income under “Restructuring expenses, net”: Year ended December 31, 2023 (in thousands) Total restructuring costs incurred Termination and other costs Impairment of assets Machine Clothing $ 282 $ 282 $ — Albany Engineered Composites — — — Corporate — — — Total restructuring expense $ 282 $ 282 $ — Year ended December 31, 2022 (in thousands) Total restructuring costs incurred Termination and other costs Impairment of assets Machine Clothing $ 92 $ 92 $ — Albany Engineered Composites — — — Corporate 14 14 — Total restructuring expense $ 106 $ 106 $ — Year ended December 31, 2021 (in thousands) Total restructuring costs incurred Termination and other costs Impairment of assets Machine Clothing $ 1,202 $ 1,202 $ — Albany Engineered Composites 32 32 — Corporate 97 97 — Total restructuring expense $ 1,331 $ 1,331 $ — As of December 31, 2023, there is no remaining balance in Accrued liabilities for restructuring. The table below presents the changes in restructuring liabilities for 2023 and 2022: (in thousands) December 31, 2022 Restructuring charges accrued Payments Currency translation/other December 31, 2023 Total termination and other costs $ — $ 282 $ ( 285 ) $ 3 $ — (in thousands) December 31, 2021 Restructuring charges accrued Payments Currency translation/other December 31, 2022 Total termination and other costs $ 1,045 $ 106 $ ( 1,079 ) $ ( 72 ) $ — 84 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 6. Other (income)/expense, net The components of Other expense/(income), net, are: Years ended December 31, (in thousands) 2023 2022 2021 Currency transactions $ ( 2,916 ) $ ( 9,996 ) $ ( 1,179 ) Sale of IP addresses — ( 3,420 ) — Bank fees and amortization of debt issuance costs 180 313 373 Components of net periodic pension and postretirement cost other than service ( 61 ) ( 1,077 ) 156 Other ( 3,366 ) 94 3,671 Total other (income)/expense, net $ ( 6,163 ) $ ( 14,086 ) $ 3,021 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. 7. Income Taxes Provision for income taxes consisted of the following: Years ended December 31, (in thousands) 2023 2022 2021 Income before income taxes: U.S. $ 68,872 $ 20,422 $ 63,708 Non-U.S. 91,584 111,558 102,223 $ 160,456 $ 131,980 $ 165,931 Income tax expense/(benefit) Current: Federal $ 17,005 $ 9,781 $ 3,348 State 2,030 5,126 2,663 Non-U.S. 34,110 28,605 29,319 $ 53,145 $ 43,512 $ 35,330 Deferred: Federal $ ( 1,700 ) $ ( 9,592 ) $ 9,911 State 863 ( 1,866 ) ( 24 ) Non-U.S. ( 3,462 ) 3,418 1,946 $ ( 4,299 ) $ ( 8,040 ) $ 11,833 Total income tax expense $ 48,846 $ 35,472 $ 47,163 85 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 7. Income Taxes — (continued) A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows: Years ended December 31, 2023 2022 2021 U.S. federal statutory tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 1.9 2.5 1.8 Non-U.S. local income taxes 1.4 3.8 2.5 U.S. permanent adjustments 0.8 1.4 1.1 Foreign permanent adjustments 0.7 ( 2.1 ) 0.3 Foreign rate differential 2.0 3.1 1.2 Net U.S. tax on non-U.S. earnings and foreign withholdings 5.1 3.5 2.1 Provision for/(resolution) of tax audits and contingencies, net 0.3 0.3 0.1 U.S. Pension Settlement - Release of Residual Tax Effect — ( 4.0 ) — Change in valuation allowances ( 1.2 ) ( 0.6 ) 0.6 Impact of amended tax returns — ( 0.1 ) ( 1.3 ) Return to provision ( 1.2 ) ( 1.1 ) ( 1.4 ) Other adjustments ( 0.4 ) ( 0.8 ) 0.4 Effective income tax rate 30.4 % 26.9 % 28.4 % In 2022, the Company recorded a net tax benefit of $ 5.2 million for the release of the residual tax effects that were stranded within other comprehensive income related to the U.S. pension settlement. The residual tax effects were created as a result of the remeasurement of deferred tax assets and liabilities originally established in other comprehensive income in accordance with the Tax Cuts and Jobs Act lowering the U.S. corporate tax rate from 35 percent to 21 percent as of December 31, 2017. No similar charges were incurred during 2023. The Company has operations which constitute a taxable presence in 22 countries outside of the United States. The Company is subject to audit in the U.S. and various foreign jurisdictions. Our open tax years for major jurisdictions generally range from 2009-2023. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years. During the periods reported, income outside of the U.S. was heavily concentrated within Brazil ( 34 percent tax rate), China ( 25 percent tax rate), and Mexico ( 30 percent tax rate). The foreign rate differential of these jurisdictions was partially offset by Switzerland ( 15.2 percent tax rate). As a result, the foreign income tax rate differential was primarily attributable to these tax rate differences. Cash payments for taxes amounted to $ 54.5 million in 2023, $ 50.0 million in 2022, and $ 32.5 million in 2021. 86 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 7. Income Taxes — (continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows: For the year ended December 31 U.S. Non-U.S. (in thousands) 2023 2022 2023 2022 Deferred tax assets: Accounts receivable, net $ 528 $ 436 $ 1,489 $ 1,300 Inventories 1,608 1,807 1,429 1,111 Incentive compensation 5,843 4,619 1,162 1,333 Property, plant, equipment and intangibles, net — — — 1,892 Pension, post retirement benefits - non-current 6,939 9,141 4,899 — Tax loss carryforwards 110 239 29,811 14,201 Tax credit carryforwards 3,167 2,635 19 — Leases 8,685 7,597 2,463 611 Reserves 877 721 — — Deferred revenue 244 761 — — Other — 47 1,050 1,707 Deferred tax assets before valuation allowance 28,001 28,003 42,322 22,155 Less: valuation allowance ( 118 ) ( 8 ) ( 9,730 ) ( 9,778 ) Total deferred tax assets $ 27,883 $ 27,995 $ 32,592 $ 12,377 Deferred tax liabilities: Unrepatriated foreign earnings $ 4,270 $ 5,827 $ — $ — Property, plant, equipment and intangibles, net 8,433 3,084 19,000 — Basis difference in partner capital 1,719 2,161 — — Basis difference in investment 4,192 4,173 — — Derivatives 3,009 5,941 109 — Leases 8,091 11,609 2,331 515 Deferred revenue — — 9,843 6,440 Other 117 — — 515 Total deferred tax liabilities 29,831 32,795 31,283 7,470 Net deferred tax (liability)/asset $ ( 1,948 ) $ ( 4,800 ) $ 1,309 $ 4,907 Deferred income tax assets, net of valuation allowances, are expected to be realized through the reversal of existing taxable temporary differences and future taxable income. In 2023, the Company recorded immaterial movements in its valuation allowance, which are included in Schedule II in Item 15, Exhibits and Financial Statement Schedules, of this Annual Report on Form 10-K. 87 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 7. Income Taxes — (continued) As of December 31, 2023, the Company's net operating loss, capital loss and tax credit carryforwards were as follows: (in thousands) Expiration Period Net Operating and Capital Loss Carryforwards Tax Credit Carryforwards Jurisdiction U.S. Federal 2025 - 2040 $ — $ 2,626 U.S. State 2027 - 2042 1,889 541 Non-U.S. 2025 - 2033 12,983 — Non-U.S. Indefinite 115,787 — Balance at end of year $ 130,659 $ 3,167 The Company records the residual U.S. and foreign taxes on certain amounts of foreign earnings that have been targeted for repatriation to the U.S. These amounts are not considered to be indefinitely reinvested, and the Company accrued for the tax cost on these earnings to the extent they cannot be repatriated in a tax-free manner. The Company has targeted for repatriation $ 160.8 million of current year and prior year earnings of the Company’s foreign operations. If these earnings were distributed, the Company would be subject to foreign withholding taxes of $ 3.6 million and U.S. income taxes of $ 0.6 million which have already been recorded. 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. No additional income taxes have been provided on the indefinitely invested foreign earnings at December 31, 2023. If these earnings were distributed, the Company could be subject to income taxes and additional foreign withholding taxes. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practical due to the complexities of the hypothetical calculation. The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits. If recognized, the $ 2.7 million would impact the effective tax rate as of December 31, 2023 as follows: (in thousands) 2023 2022 2021 Unrecognized tax benefits balance at January 1, $ 792 $ 1,459 $ 5,491 Increase in gross amounts of tax positions related to prior years 2,373 399 278 Decrease in gross amounts of tax positions related to prior years — ( 929 ) ( 4,236 ) Increase in gross amounts of tax positions related to current years 196 37 — Decrease due to lapse in statute of limitations ( 656 ) — ( 39 ) Currency translation 36 ( 174 ) ( 35 ) Unrecognized tax benefits balance at December 31, $ 2,741 $ 792 $ 1,459 Of the $ 2.7 million total unrecognized tax benefits balance as of December 31, 2023, $ 1.3 million is related to unrecognized tax benefits acquired in the Heimbach acquisition. The Company recognizes interest and penalties related to unrecognized tax benefits within its global operations as a component of income tax expense. The Company recognized $ 0.5 million, $ 0.1 million and $ 0.1 million interest and penalties related to the unrecognized tax benefits noted above, for the years 2023, 2022 and 2021, respectively. It is reasonably possible that within the next 12 months, unrecognized tax benefits related to international tax matters may decrease by up to $ 0.7 million based on current estimates. 88 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 8. 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: Years ended December 31, (in thousands, except market price and earnings per share) 2023 2022 2021 Net income attributable to the Company $ 111,120 $ 95,762 $ 118,478 Weighted average number of shares: Weighted average number of shares used in calculating basic net income per share 31,171 31,339 32,348 Effect of dilutive stock-based compensation plans: Stock options — — 2 Long-term incentive plans 105 116 113 Weighted average number of shares used in calculating diluted net income per share 31,276 31,455 32,463 Net income per share: Basic $ 3.56 $ 3.06 $ 3.66 Diluted $ 3.55 $ 3.04 $ 3.65 Shares outstanding, net of treasury shares, were 31.2 million as of December 31, 2023, 31.1 million as of December 31, 2022, and 32.1 million as of December 31, 2021. 89 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 9. Accumulated Other Comprehensive Income ("AOCI") The table below presents changes in the components of AOCI from January 1, 2021 to December 31, 2023: (in thousands) Translation adjustments Pension and postretirement liability adjustments Derivative valuation adjustment Total Other Comprehensive Income January 1, 2021 $ ( 83,203 ) $ ( 39,661 ) $ ( 9,544 ) $ ( 132,408 ) Other comprehensive income/(loss) before reclassifications ( 22,677 ) 1,869 2,812 ( 17,996 ) Pension/postretirement plan remeasurement, net of tax — ( 796 ) — ( 796 ) Interest expense related to swaps reclassified to the Statements of Income, net of tax — — 5,118 5,118 Pension and postretirement liability adjustments reclassified to Statements of Income, net of tax — 98 — 98 Net current period other comprehensive income ( 22,677 ) 1,171 7,930 ( 13,576 ) December 31, 2021 $ ( 105,880 ) $ ( 38,490 ) $ ( 1,614 ) $ ( 145,984 ) Other comprehensive income/(loss) before reclassifications ( 40,971 ) — 18,971 ( 22,000 ) Pension settlement expense, net of tax — 26,198 — 26,198 Pension/postretirement plan remeasurement, net of tax — ( 2,663 ) — ( 2,663 ) Interest expense related to swaps reclassified to the Statements of Income, net of tax — — 350 350 Pension and postretirement liability adjustments reclassified to Statements of Income, net of tax — ( 828 ) — ( 828 ) Net current period other comprehensive income ( 40,971 ) 22,707 19,321 1,057 December 31, 2022 $ ( 146,851 ) $ ( 15,783 ) $ 17,707 $ ( 144,927 ) Other comprehensive income/(loss) before reclassifications 21,950 ( 3,357 ) 2,623 21,216 Pension/postretirement plan remeasurement, net of tax — 3,629 — 3,629 Interest expense related to swaps reclassified to the Statements of Income, net of tax — — ( 11,251 ) ( 11,251 ) Pension and postretirement liability adjustments reclassified to Statements of Income, net of tax — ( 1,835 ) — ( 1,835 ) Net current period other comprehensive income 21,950 ( 1,563 ) ( 8,628 ) 11,759 December 31, 2023 $ ( 124,901 ) $ ( 17,346 ) $ 9,079 $ ( 133,168 ) The components of our Accumulated Other Comprehensive Income that are reclassified to the Statement of Income relate to our pension and postretirement plans and interest rate swaps. 90 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 9. Accumulated Other Comprehensive Income (AOCI) — (continued) The table below presents the expense/(income) amounts reclassified, and the line items of the Statement of Income that were affected for the years ended December 31, 2023, 2022, and 2021. (in thousands) 2023 2022 2021 Pretax Derivative valuation reclassified from Accumulated Other Comprehensive Income: (Income)/Expense related to interest rate swaps included in Income before taxes (a) $ ( 15,062 ) $ 468 $ 6,852 Income tax effect 3,811 ( 118 ) ( 1,734 ) Effect on net income due to items reclassified from Accumulated Other Comprehensive Income $ ( 11,251 ) $ 350 $ 5,118 Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income: Pension/postretirement settlements and curtailments $ — $ 42,657 $ — Amortization of prior service credit ( 4,122 ) ( 4,497 ) ( 4,475 ) Amortization of net actuarial loss 1,383 3,260 4,625 Total pretax amount reclassified (b) ( 2,739 ) 41,420 150 Income tax effect 904 ( 16,051 ) ( 52 ) Effect on net income due to items reclassified from Accumulated Other Comprehensive Income $ ( 1,835 ) $ 25,369 $ 98 ________________________ (a) Reported as Interest expense, net in our Consolidated Statements of Income, are payments related to the interest rate swap agreements and amortization of swap buyouts (see Note 17, Financial Instruments , and Note 18, Fair-Value Measurements , of the Notes to the Consolidated Financial Statements). (b) Reported as Other (income)/expense, net in our Consolidated Statements of Income, the accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 4, Pension, Postretirement, and Other Benefit Plans , of the Notes to the Consolidated Financial Statements). 10. Noncontrolling Interest Effective October 31, 2013, SAFRAN S.A. ("SAFRAN") acquired a 10 percent equity interest in a new Albany subsidiary, Albany Safran Composites, LLC ("ASC"). Under the terms of the transaction agreements, ASC will be the exclusive supplier to SAFRAN of advanced 3D-woven composite parts in accordance with agreed upon scope parameters defined between both companies, for use in aircraft and rocket engines, thrust reversers and nacelles, and aircraft landing and braking systems (the “SAFRAN Applications”). AEC may develop and supply parts other than advanced 3D-woven composite parts for all aerospace applications, as well as advanced 3D-woven composite parts for any aerospace applications that are not SAFRAN Applications (such as airframe applications) and any non-aerospace applications. The agreement provides SAFRAN an option to purchase Albany’s remaining 90 percent interest upon the occurrence of certain bankruptcy or performance default events, or if Albany’s Engineered Composites business is sold to a direct competitor of SAFRAN. The purchase price is based initially on the same valuation of ASC used to determine SAFRAN’s 10 percent equity interest, and increases over time as LEAP production increases. In accordance with the operating agreement, Albany received a $ 28 million preferred holding in ASC which includes a preferred return based on the Company’s revolving credit agreement. The common shares of ASC are owned 90 percent by Albany and 10 percent by SAFRAN. The Company also owns 85 percent of Arcari, SRL ("Arcari"), a manufacturer of textile and plastic industrial technical products and conveyor belts, which is a subsidiary of Heimbach GmbH, the paper machine clothing 91 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 10. Noncontrolling Interest — (continued) manufacturer recently acquired by the Company and reported within the MC segment. On August 31, 2023, the date of the Heimbach acquisition, the fair value of the noncontrolling interest in Arcari was $ 0.5 million. Net income/(loss) attributable to Arcari's noncontrolling interest was less than $ 0.1 million during 2023. The table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity in the Company’s subsidiaries: ASC Noncontrolling Interest: (in thousands, except percentages) 2023 2022 Net income/(loss) of Albany Safran Composites (ASC) $ 6,036 $ 8,720 Less: Return attributable to the Company's preferred holding 1,300 1,262 Net income/(loss) of ASC available for common ownership $ 4,736 $ 7,458 Ownership percentage of noncontrolling shareholder 10 % 10 % Net income/(loss) attributable to noncontrolling interest $ 474 $ 746 Noncontrolling interest, beginning of year $ 4,494 $ 3,638 Net income/(loss) attributable to noncontrolling interest 474 746 Changes in other comprehensive income attributable to noncontrolling interest 455 110 ASC noncontrolling interest, end of year $ 5,423 $ 4,494 Arcari Noncontrolling Interest: (in thousands, except percentages) 2023 2022 Initial equity related to Noncontrolling interest in Arcari 509 — Net income attributable to noncontrolling interest 16 — Changes in other comprehensive income attributable to noncontrolling interest 4 — Arcari noncontrolling interest, end of year $ 529 $ — Total noncontrolling interest, end of year $ 5,952 $ 4,494 11. Accounts Receivable As of December 31, 2023 and 2022, Accounts receivable consisted of the following: (in thousands) December 31, 2023 December 31, 2022 Trade and other accounts receivable $ 272,351 $ 179,676 Bank promissory notes 20,690 23,439 Allowance for expected credit losses ( 5,260 ) ( 3,097 ) Accounts receivable, net $ 287,781 $ 200,018 The Company had Noncurrent receivables in the AEC segment that represented revenue earned, for which the customer had extended payment terms beyond one year. In 2023, the payment terms were amended and a portion of the Noncurrent receivables are now included in Trade and other accounts receivable. The remaining Noncurrent receivables is expected to be collected in the first quarter of 2025. As of December 31, 2023 and December 31, 2022, Noncurrent receivables were as follows: 92 ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 11. Accounts Receivable— (continued) (in thousands) December 31, 2023 December 31, 2022 Noncurrent receivables $ 4,414 $ 28,053 Allowance for expected credit losses ( 22 ) ( 140 ) Noncurrent receivables, net $ 4,392 $ 27,913 Effective January 1, 2020, the Company adopted the provisions of ASC 326, Current Expected Credit Losses ("CECL"). This accounting update replaced the incurred loss impairment methodology under previous GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under this standard, the Company recognizes an allowance for expected credit losses on financial assets measured at amortized cost, such as Accounts receivable, Contract assets and Noncurrent receivables. The allowance is determined using a CECL model that is based on an historical average three-year loss rate and is measured by financial asset type on a collective (pool) basis when similar risk characteristics exist, at an amount equal to lifetime expected credit losses. The estimate reflects the risk of loss due to credit default, even when the risk is remote, and considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable expected future economic conditions. While an expected credit loss allowance is recorded at the same time the financial asset is recorded, the Company monitors financial assets for credit impairment events to assess whether there has been a significant increase in credit risk since initial recognition, and considers both quantitative and qualitative information. The risk of loss due to credit default increases when one or more events occur that can have a detrimental impact on estimated future cash flows of that financial asset. Evidence that a financial asset is subject to greater credit risk includes observable data about significant financial difficulty of the customer, a breach of contract, such as a default or past due event, or it becomes probable that the customer will enter bankruptcy or other financial reorganization, among other factors. It may not be possible to identify a single discrete event, but rather, the combined effect of several events that may cause an increase in risk of loss. The probability of default is driven by the relative financial health of our customer base and that of the industries in which we operate, as well as the broader macro-economic environment. A changing economic environment or forecasted economic scenario can lead to a different probability of default and can suggest that credit risk has changed. At each reporting period, the Company will recognize the amount of change in current expected credit losses as an allowance gain or loss in Selling, general, and administrative expenses in the Consolidated Statements of Income. Financial assets are written-off when the Company has no reasonable expectation of recovering the financial asset, either in its entirety, or a portion thereof. This is the case when the Company determines that the customer does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. The following tables present the (increases)/decreases in the allowance for credit losses for Accounts receivable: (in thousands) December 31, 2022 (Charge)/ benefit Currency translation Other December 31, 2023 Specific customer reserves $ ( 2,076 ) $ ( 424 ) $ ( 74 ) $ 90 $ ( 2,484 ) Incremental expected credit losses ( 1,021 ) ( 187 ) ( 40 ) ( 1,528 ) ( 2,776 ) Accounts receivable expected credit losses $ ( 3,097 ) $ ( 611 ) $ ( 114 ) $ ( 1,438 ) $ ( 5,260 ) 93 ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 11. Accounts Receivable— (continued) (in thousands) December 31, 2021 (Charge)/ benefit Currency translation Other December 31, 2022 Specific customer reserves $ ( 1,392 ) $ ( 1,331 ) $ 50 $ 597 $ ( 2,076 ) Incremental expected credit losses ( 953 ) ( 93 ) 25 — ( 1,021 ) Accounts receivable expected credit losses $ ( 2,345 ) $ ( 1,424 ) $ 75 $ 597 $ ( 3,097 ) The following tables present the (increases)/decreases in the allowance for credit losses for Noncurrent receivables: (in thousands) December 31, 2022 (Charge)/ benefit Currency translation Other December 31, 2023 Noncurrent receivables expected credit losses $ ( 140 ) $ 123 $ ( 5 ) $ — $ ( 22 ) (in thousands) December 31, 2021 (Charge)/ benefit Currency translation Other December 31, 2022 Noncurrent receivables expected credit losses $ ( 200 ) $ 62 $ ( 2 ) $ — $ ( 140 ) 12. Contract Assets and Liabilities Contract assets and Contract liabilities (included in Accrued liabilities) are reported in the Consolidated Balance Sheets in a net position, on a contract-by-contract basis at the end of each reporting period. Contract assets and contract liabilities are summarized as follows: (in thousands) December 31, 2023 December 31, 2022 Contract assets $ 183,189 $ 149,443 Allowance for expected credit losses ( 908 ) ( 748 ) Contract assets, net $ 182,281 $ 148,695 Contract liabilities $ 7,127 $ 15,176 Contract assets increased $ 33.6 million during the year ended December 31, 2023. The increase was primarily due to an increase in unbilled revenue related to the satisfaction of performance obligations, notably for the Sikorsky CH-53K program, in excess of the amounts billed. Other than the allowance for expected credit losses, there were no other provisions for losses related to our Contract assets during the years ended December 31, 2023 and 2022. 94 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 12. Contract Assets and Liabilities — (continued) The following tables present the (increases)/ decreases in the allowance for credit losses for Contract assets: (in thousands) December 31, 2022 (Charge)/ benefit Currency translation Other December 31, 2023 Contract assets expected credit losses $ ( 748 ) $ ( 152 ) $ ( 8 ) $ — $ ( 908 ) (in thousands) December 31, 2021 (Charge)/ benefit Currency translation Other December 31, 2022 Contract assets expected credit losses $ ( 703 ) $ ( 45 ) $ — $ — $ ( 748 ) Contract liabilities decreased $ 8.0 million during the year ended December 31, 2023, primarily due to revenue recognition from satisfied performance obligations exceeding the amounts invoiced to customers for contracts that were in a contract liability position. Revenue recognized for the years ended December 31, 2023 and 2022 that was included in the Contract liability balance at the beginning of the year was $ 15.2 million and $ 5.7 million, respectively. 13. Inventories As of December 31, 2023 and 2022, inventories consisted of the following: (in thousands) December 31, 2023 December 31, 2022 Raw materials $ 79,611 $ 74,631 Work in process 67,743 50,516 Finished goods 22,213 13,903 Total inventories $ 169,567 $ 139,050 On August 31, 2023, the Company completed the acquisition of Heimbach. Included in the fair value of assets acquired was $ 41.9 million of inventories. See Note 24, Business Combination , of the Notes to the Consolidated Financial Statements for additional information . 14. Property, Plant and Equipment, net The table below sets forth the components of property, plant and equipment as of December 31, 2023 and 2022: (in thousands) 2023 2022 Estimated useful life Land and land improvements $ 29,654 $ 14,059 25 years for improvements Buildings 302,086 247,136 15 to 40 years Machinery and equipment 1,207,504 1,053,700 5 to 15 years Furniture and fixtures 11,409 8,158 5 years Computer and other equipment 24,120 21,570 3 to 10 years Software 69,191 66,794 5 to 8 years Capital expenditures in progress 90,759 92,620 Property, plant and equipment, gross 1,734,723 1,504,037 Accumulated depreciation and amortization ( 1,132,734 ) ( 1,058,379 ) Property, plant and equipment, net $ 601,989 $ 445,658 95 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 14. Property, Plant and Equipment, net — (continued) On August 31, 2023, the Company completed the acquisition of Heimbach. Included in the fair value of assets acquired was $ 125.1 million of property, plant and equipment. See Note 24, Business Combination , of the Notes to the Consolidated Financial Statements for additional information . Depreciation expense was $ 70.4 million in 2023, $ 62.5 million in 2022, and $ 65.1 million in 2021. Software amortization is recorded in Selling, general, and administrative expense and was $ 1.9 million in 2023, $ 1.7 million in 2022, and $ 1.9 million in 2021. Capital expenditures, including purchased software, were $ 84.4 million in 2023, $ 96.3 million in 2022, and $ 53.7 million in 2021. Unamortized software cost was $ 6.6 million, $ 5.9 million, and $ 3.9 million in each of the years ended December 31, 2023, 2022, and 2021, respectively. Expenditures for maintenance and repairs are charged to income as incurred and amounted to $ 22.4 million in 2023, $ 20.7 million in 2022, and $ 19.3 million in 2021. 15. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Goodwill and intangible assets with indefinite useful lives are not amortized, however, these assets are tested for impairment at least annually at the reporting unit level, using either a qualitative or quantitative approach. Impairment is the condition that exists when the carrying amount of a reporting unit, including goodwill, exceeds its fair value. In the second quarter of 2023, management applied the qualitative assessment approach in performing its annual evaluation of goodwill for the Company's Machine Clothing reporting unit and two Engineered Composites reporting units and concluded that each reporting unit’s fair value continued to exceed its carrying value. In addition, there were no amounts at risk due to the estimated excess between the fair and carrying values. Accordingly, no impairment charges were recorded. In the third quarter of 2023, the Company acquired all the outstanding shares of Heimbach. The preliminary fair values of the identifiable intangible assets obtained totaled $ 14.9 million and consisted of the Heimbach trade name and developed technology. 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. The fair value of the developed technology was $ 8.9 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. See Note 24, Business Combination , of the Notes to the Consolidated Financial Statements, for additional information. 96 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 15. Goodwill and Other Intangible Assets — (continued) We amortize certain patents, trademarks and names, customer contracts, relationships and technology assets that have finite-lives. The changes in intangible assets and goodwill from December 31, 2021 to December 31, 2023, were as follows: (in thousands, except for years) Amortization life in years Balance at December 31, 2022 Acquisition Amortization Currency Translation Balance at December 31, 2023 Finite-lived intangible assets: AEC Trademarks and trade names 6 - 15 $ 34 $ — $ ( 12 ) $ — $ 22 AEC Technology 10 - 15 3,884 — ( 567 ) 109 3,426 AEC Intellectual property 15 994 — ( 83 ) — 911 AEC Customer relationships 8 - 15 28,899 — ( 3,480 ) 66 25,485 Heimbach Developed technology 9 — 8,918 ( 310 ) 124 8,732 Total Finite-Lived intangible assets, net $ 33,811 $ 8,918 $ ( 4,452 ) $ 299 $ 38,576 Indefinite-lived intangible assets: Heimbach Trade name $ — $ 5,982 $ — $ 88 $ 6,070 MC Goodwill 65,441 — — 1,432 66,873 AEC Goodwill 112,776 — — 532 113,308 Total Indefinite-lived intangible assets $ 178,217 $ 5,982 $ — $ 2,052 $ 186,251 (in thousands, except for years) Amortization life in years Balance at December 31, 2021 Other Changes Amortization Currency Translation Balance at December 31, 2022 Finite-lived intangible assets: AEC Trademarks and trade names 6 - 15 $ 45 $ — $ ( 11 ) $ — $ 34 AEC Technology 10 - 15 4,712 — ( 554 ) ( 274 ) 3,884 AEC Intellectual property 15 1,077 — ( 83 ) — 994 AEC Customer contracts 6 720 — ( 720 ) — — AEC Customer relationships 8 - 15 32,527 — ( 3,474 ) ( 154 ) 28,899 Total Finite-Lived intangible assets, net $ 39,081 $ — $ ( 4,842 ) $ ( 428 ) $ 33,811 Indefinite-lived intangible assets: MC Goodwill $ 68,329 $ — $ — $ ( 2,888 ) $ 65,441 AEC Goodwill 113,795 — — ( 1,019 ) 112,776 Total Indefinite-lived intangible assets $ 182,124 $ — $ — $ ( 3,907 ) $ 178,217 As of December 31, 2023, the gross carrying amount and accumulated amortization of Finite-lived intangible assets was $ 87.1 million and $ 48.5 million, respectively. 97 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 15. Goodwill and Other Intangible Assets — (continued) Amortization expense related to Finite-lived intangible assets was reported in the Consolidated Statement of Income as follows: $ 0.4 million in Cost of goods sold and $ 4.1 million in Selling, general and administrative expenses in 2023; $ 0.8 million in Cost of goods sold and $ 4.0 million in Selling, general and administrative expenses in 2022; and $ 3.0 million in Cost of goods sold and $ 4.2 million in Selling, general and administrative expenses in 2021. Estimated amortization expense of intangibles for the years ending December 31, 2024 through 2028, is as follows: Year Annual amortization (in thousands) 2024 $ 5,200 2025 5,200 2026 5,200 2027 5,100 2028 5,100 16. Accrued Liabilities Accrued liabilities as of December 31, 2023 and 2022 consist of the following: (in thousands) 2023 2022 Salaries, wages and benefits $ 72,373 $ 57,867 Contract liabilities 7,127 15,176 Returns and allowances 10,232 9,084 Dividends 8,111 7,778 Pension and postretirement 9,356 6,683 Operating and finance lease liabilities 7,335 5,929 Other tax 10,171 10,274 Contract loss reserve 2,721 2,359 Freight 1,979 1,966 Professional fees 3,912 3,439 Other 9,671 5,830 Total accrued liabilities $ 142,988 $ 126,385 98 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 17. Financial Instruments Debt principally consists of a revolving credit agreement and foreign bank debt assumed in the acquisition of Heimbach. The following table represents our outstanding debt as of December 31, 2023 and 2022: (in thousands, except interest rates) 2023 2022 Borrowings under the Amended Credit Agreement (1) $ 446,000 $ 439,000 Foreign bank debt 10,885 — Total bank debt 456,885 439,000 Less: Current maturities of long-term debt 4,218 — Long-term debt $ 452,667 $ 439,000 (1) The credit facility matures in August 2028. At the end of the December 31, 2023 and December 31, 2022, the interest rate in effect was 3.49 percent and 3.16 percent, respectively, including the effect of interest rate hedging transactions, as described below. Principal payments on long-term debt are due in amounts of $ 3.4 million in 2025, $ 1.3 million in 2026, $ 1.2 million in 2027, $ 446.4 million in 2028 and $ 0.4 million in 2029 and beyond. Cash payments of interest amounted to $ 18.7 million in 2023, $ 16.0 million in 2022 and $ 14.9 million in 2021. 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 0.0 %). 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, and 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 < 1.00 :1.00 0.275 % 0.500 % 1.500 % ≥ 1.00 :1.00 and < 2.00 :1.00 0.300 % 0.625 % 1.625 % ≥ 2.00 :1.00 and < 3.00 :1.00 0.325 % 0.750 % 1.750 % ≥ 3.00 :1.00 0.350 % 1.000 % 2.000 % 99 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements As of December 31, 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 December 31, 2023, there was $ 446 million of borrowings outstanding under the Amended Credit Agreement and we had borrowings available of $ 354 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 Amended 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 Amended Credit Agreement) of greater than 3.00 to 1.00. As of December 31, 2023, our leverage ratio was 1.25 to 1.00 (as defined in the Amended Credit Agreement) and our interest coverage ratio was 14.13 to 1.00. If our leverage ratio exceeds 3.50 to 1.00, we will be restricted in paying dividends to a maximum amount of $ 40 million in a calendar year. As of December 31, 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. Our ability to borrow additional amounts under the Amended Credit Agreement is conditional upon the absence of any defaults, as well as the absence of any material adverse change (as defined in the Amended Credit Agreement). Indebtedness under the Amended Credit Agreement is ranked equally in right of payment to all unsecured senior debt. On June 14, 2021, we entered into interest rate swap agreements for the period October 17, 2022 through October 27, 2024. 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. 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 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 pay a floating rate based on the one-month term SOFR at each monthly calculation date, which on December 18, 2023 was 5.36 %. The effective date of the amended Swap agreements was July 17, 2023. As of December 18, 2023, the all-in-rate on the $ 350 million of debt was 2.51 %. On October 17, 2022 our interest rate swap agreements that were in effect from December 18, 2017 terminated. These transactions had the effect of fixing the LIBOR portion of the effective interest rate (before the addition of the spread) on $ 350 million of indebtedness drawn under the Prior Agreement at the rate of 2.11 % during the period. Under the terms of those transactions, we paid the fixed rate of 2.11 % and the counterparties paid a floating rate based on the one-month LIBOR rate at each monthly calculation date. 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 18, Fair-Value Measurements , of the Notes to the Consolidated Financial Statements. No cash collateral was received or pledged in relation to the swap agreements. Indebtedness under the Amended Credit Agreement is ranked equally in right of payment to all unsecured debt. Assumed Foreign Bank Debt With the August 31, 2023 acquisition of Heimbach, the Company assumed bank debt in the amount of $ 32.7 million, held by several European financial institutions with interest rates ranging from 0.98 percent to 5.52 percent and maturity dates ranging from September 25, 2023 to June 30, 2031. Certain bank agreements allowed for 100 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements the repayment of the debt upon demand by certain financial institutions in the event of a change in control. As a result, $ 18.6 million of the debt was repaid in the fourth quarter of 2023. At December 31, 2023, the balance of Heimbach's debt was $ 10.9 million, of which $ 4.2 million was classified as Current maturities on long-term debt. 18. Fair-Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data. Level 3 - Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. 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 December 31, 2023, or at December 31, 2022, other than certain pension assets (see Note 4, Pension, Postretirement, and Other Benefit Plans , of the Notes to the Consolidated Financial Statements). 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: December 31, 2023 December 31, 2022 (in thousands) Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Fair Value Assets: Cash equivalents $ 27,157 $ — $ 6,533 $ — Foreign currency option contracts $ 1,725 — Foreign currency forward contracts 199 — Other Assets: Common stock of unaffiliated foreign public company (a) 682 — 602 — Interest rate swaps — 12,214 — 23,605 _____________________ (a) Original cost basis $ 0.5 million Cash equivalents include short-term securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities. 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 in the Consolidated Balance Sheets. Amounts determined to be due within one year are reclassified to Other current assets in the Consolidated Balance Sheets. Unrealized gains and losses on the 101 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements interest rate swaps flow through the caption Derivative valuation adjustment in the Shareholders’ equity section of the Consolidated Balance Sheets. On June 29, 2023, the Company amended each Swap agreement, in accordance with the practical expedients included in ASC 848, Reference Rate Reform, to replace the LIBOR Benchmark with a Term SOFR Benchmark (see Note 17, Financial Instruments , of the Notes to the Consolidated Financial Statements for additional information). As of December 31, 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 (income)/expense related to payments under the active swap agreements totaled $( 15.0 ) million in 2023, $ 0.5 million in 2022 and $ 7.1 million in 2021. Additionally, non-cash interest expense (income) related to the remaining amortization of swap buyouts was $( 0.3 ) million in 2021. We operate our business in many regions of the world, and currency rate movements can have a significant effect on operating results. Foreign currency instruments are entered into periodically, and consist of foreign currency option contracts and forward contracts that are valued using quoted prices in active markets obtained from independent pricing sources. These instruments are measured using market foreign exchange prices and are recorded in the Consolidated Balance Sheets as Other assets and Accounts payable, as applicable. Changes in fair value of these instruments are recorded as gains or losses within Other (income)/expense, net. 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. 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: (in thousands) 2023 2022 2021 Derivatives not designated as hedging instruments: Foreign currency options (gains)/losses $ ( 351 ) $ ( 509 ) $ 169 19. Other Noncurrent Liabilities As of December 31, 2023 and 2022, Other noncurrent liabilities consisted of the following: (in thousands) 2023 2022 Operating leases $ 50,637 $ 50,190 Postretirement benefits other than pensions 25,876 31,998 Pension liabilities 59,431 23,061 Incentive and deferred compensation 1,957 1,395 Other 1,484 2,114 Total other noncurrent liabilities $ 139,385 $ 108,758 On August 31, 2023, the Company completed the acquisition of Heimbach. Included in the fair value of liabilities assumed was $ 35.3 million of pension liabilities, net, of which $ 33.6 million was recorded to Other noncurrent 102 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements liabilities, and the remainder was recorded to Accrued liabilities in our Consolidated Balance Sheets. See Note 24, Business Combination , of the Notes to the Consolidated Financial Statements for additional information . 20. Leases We are generally the lessee in our lease transactions. Lessees are required to recognize a lease liability and a right of use ("ROU") asset for leases with terms greater than 12 months, in accordance with the practical expedient that is available for ongoing accounting. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term, using the rate implicit in the lease. If that rate is not readily determinable, the rate is based on the Company’s incremental borrowing rate. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease. Our ROU assets include the values associated with the additional periods when it is reasonably certain that we will exercise the option. We review the carrying value of ROU assets for impairment whenever events and circumstances indicate that the carrying value of an asset group may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. We have entered into operating and finance leases for offices, manufacturing facilities, warehouses, vehicles, and certain equipment. Our leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. 103 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements The components of lease expense were as follows: For the years ended (in thousands) December 31, 2023 December 31, 2022 December 31, 2021 Finance lease: Amortization of right-of-use asset $ — $ 416 $ 997 Interest on lease liabilities — 529 1,353 Operating lease: Fixed lease cost 9,591 6,036 5,283 Variable lease cost 108 438 ( 259 ) Short-term lease cost 2,060 1,025 1,037 Total lease expense $ 11,759 $ 8,444 $ 8,411 Supplemental cash flow information related to leases was as follows: For the years ended (in thousands) December 31, 2023 December 31, 2022 December 31, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 10,105 $ 6,612 $ 5,233 Operating cash outflows from finance leases — 529 1,353 Financing cash outflows from finance leases — 654 1,438 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 9,114 $ 38,559 $ 2,189 Finance leases — — — The initial recognition of each ROU asset and lease liability at lease commencement is a noncash transaction that is excluded from amounts reported in the Consolidated Statements of Cash Flows. In 2022, the Company extended the lease of its primary manufacturing facility in Salt Lake City, Utah, which resulted in a lease classification change from Finance to Operating and included a non-cash increase of $ 37.1 million to both Other assets and to Other noncurrent liabilities in the Consolidated Balance Sheets. Due to the non-cash nature of the transaction, those increases are excluded from amounts reported in the Consolidated Statements of Cash Flows. Supplemental balance sheet information related to leases was as follows: (in thousands) December 31, 2023 December 31, 2022 Operating leases Right of use assets included in Other assets $ 50,825 $ 48,475 Lease liabilities included in Accrued liabilities $ 7,335 $ 5,929 Other noncurrent liabilities 50,637 50,190 Total operating lease liabilities $ 57,972 $ 56,119 104 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements Additional information for leases existing at December 31, 2023 and 2022 was as follows: December 31, 2023 December 31, 2022 Weighted average remaining lease term Operating leases 10 years 11 years Weighted average discount rate Operating leases 5.4 % 5.3 % Maturities of lease liabilities as of December 31, 2023 were as follows: (in thousands) Operating leases Year ending December 31, 2024 $ 10,627 2025 9,505 2026 8,466 2027 7,691 2028 5,423 Thereafter 32,990 Total lease payments 74,702 Less imputed interest ( 16,730 ) Total $ 57,972 105 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 21. Commitments and Contingencies Asbestos Litigation Albany International Corp. 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 3,606 claims as of December 31, 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: Year ended December 31, Opening Number of Claims Claims Dismissed, Settled, or Resolved New Claims Closing Number of Claims Amounts Paid (thousands) to Settle or Resolve 2021 3,615 32 26 3,609 $ 93 2022 3,609 43 32 3,598 125 2023 3,598 19 27 3,606 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. Due to the fact that information sufficient to meaningfully estimate a range of possible loss of a particular claim is typically not available until late in the discovery process, we do not believe a meaningful estimate can be made regarding the range of possible loss with respect to pending or future claims and therefore are unable to estimate a range of reasonably possible loss in excess of amounts already accrued for pending or future claims. While we believe we have meritorious defenses to these claims, we have settled certain claims for amounts we consider reasonable given the facts and circumstances of each case. Our insurance carrier has defended each case and funded settlements under a standard reservation of rights. As of December 31, 2023 we had resolved, by means of settlement or dismissal, 38,043 claims. The total cost of resolving all claims was $ 10.7 million. Of this amount, almost 100 percent 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. 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. 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. 22. Stock-Based Compensation We have cash-based and stock-based incentive compensation plans that can be awarded for key employees, which are designed to reward short and long-term contributions and used as retention incentives for key senior management. We grant stock-based awards in the form of restricted stock units that are generally settled with the issuance of Class A shares. We grant performance phantom stock units that are treated as liability-based awards and are generally settled in cash. The vesting periods generally range between one and five years from the grant date. Expenses associated with these awards are recognized over each respective vesting period. Performance and Retention Awards The Albany International 2017 and 2023 Long-term Incentive Plans provide senior executive members of management with incentive compensation based on achieving certain performance or service measures. Awards can be settled in cash or shares of Class A Common Stock. If the settlement is in the form of Class A Common Stock, participants may elect to receive shares net of applicable income taxes. 106 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 22. Stock-Based Compensation — (continued) Annual Performance Period Awards Annual cash-based incentives were granted to executives as annual performance period ("APP") awards. Cash payments of $ 3.9 million in 2023, $ 4.5 million in 2022 and $ 3.1 million in 2021 were made as a result of the performance in the preceding year. In addition, due to the vesting of certain compensation costs for the former CEO who retired during 2023, an additional $ 0.9 million in cash payments were made. Multi-Year Performance Plan Awards Long-term performance incentives were granted to executives as multi-year performance plan ("MPP") awards in each of 2021, 2022 and 2023. Each of these awards vests three years after the grant date, and the extent of payout is dependent upon the achievement of certain performance metrics during the three-year performance period, as defined by the Compensation Committee of the Board of Directors. Settlement of the awards are scheduled to occur no later than 90 days after the end of the performance period. If a participant terminates employment prior to the award becoming fully vested, the participant forfeits a portion of the MPP award. The grant date share price is determined when the awards are approved by the Compensation Committee of the Board of Directors each year and that price is used to measure the cost for the share-based portion of an award. MPP awards are generally settled in shares. Expense associated with these awards is recognized over the vesting period. In connection with these awards, we recognized expense of $ 5.1 million in 2023, $ 3.9 million in 2022 and $ 3.7 million in 2021. The net impact to earnings for the respective years was $ 4.3 million, $ 2.7 million, and $ 2.6 million. Based on current estimates of achievement of certain performance metrics, we anticipate recognizing $ 1.6 million of expense in 2024 and $ 0.5 million of expense in 2025. Restricted Stock Unit Awards Long-term restricted stock unit awards (“RSU”) were granted to executives and vest annually and settle in shares no later than 90 days after the vesting period ends. The grant date share price is the date when the award is approved by the Compensation Committee of the Board of Directors and is used to measure the cost of the award. We recognized $ 4.2 million of expense in 2023 associated with these RSU’s which included $ 1.7 million as a result of accelerated vesting for the former CEO who retired during 2023. The net impact to earnings was $ 3.5 million. Expense recognized for RSU’s was $ 1.5 million in 2022 and $ 0.6 million in 2021, and the net impact to earnings during these respective years was $ 1.0 million and $ 0.4 million. Based on RSU’s outstanding at December 31, 2023, we expect to record approximately $ 1.8 million of expense in 2024 and $ 1.5 million of expense in 2025. In addition, during 2023, RSU awards with performance conditions were issued as special retention incentives to certain executives. The 2023 expense for these awards was $ 0.9 million, for which the net impact to earnings was $ 0.8 million. Based on awards outstanding at December 31, 2023, we expect to record approximately $ 2.1 million of expense in 2024. 107 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 22. Stock-Based Compensation — (continued) As of December 31, 2023, there were 1,631,328 shares of Company stock authorized for the payment of awards under these plans. Information with respect to these plans is presented below: (in thousands, except number of shares and weighted average grant date value per share) Number of shares Weighted average grant date value per share Year-end intrinsic value Shares potentially payable at January 1, 2021 97,840 $ 71.95 $ 7,040 Forfeitures — Payments ( 31,722 ) $ 66.25 Shares accrued based on 2021 performance 41,512 $ 78.06 Shares potentially payable at December 31, 2021 107,630 $ 75.99 $ 8,179 Forfeitures — Payments ( 35,897 ) $ 84.27 Shares accrued based on 2022 performance 64,208 $ 86.00 Shares potentially payable at December 31, 2022 135,941 $ 79.11 $ 10,754 Forfeitures ( 9,035 ) $ 92.02 Payments ( 112,279 ) $ 86.35 Shares accrued based on 2023 performance 124,181 $ 92.52 Shares potentially payable at December 31, 2023 138,808 $ 84.41 $ 11,717 Performance Phantom Stock Long-term cash retention incentives with a performance component were granted to members of management as Phantom Stock Plan ("PSP") awards. Awards under this plan vest over a 3 to 5 year period and are paid annually in cash based on current market prices of the Company’s stock. Under this program, employees may earn more or less than the target award based on the Company’s results in the year of the award. Expense recognized for this plan amounted to $ 7.8 million in 2023, $ 8.6 million in 2022, and $ 6.6 million in 2021. The net impact to earnings for the respective years was $ 5.5 million, $ 6.0 million, and $ 4.6 million. Based on awards outstanding at December 31, 2023, we expect to record approximately $ 12.3 million of compensation cost from 2024 to 2026. The weighted average period for recognition of that cost is approximately 2 years. Non-employee Director stock compensation The Company’s independent Directors are paid an annual retainer, of which a certain amount is required to be paid in shares. The total number of shares paid to each independent Director is determined by the share closing price on the day of the Annual Meeting at which the election of Directors occurs. This resulted in compensation expense of $ 1.1 million in 2023, $ 1.1 million in 2022, and $ 0.8 million in 2021 that was distributed in the form of shares. 23. Shareholders’ Equity We currently have one class of Common Stock, Class A Common Stock, with a par value of $ 0.001 . Each share is entitled to one vote on all matters submitted to shareholders, and will receive dividends as approved by the Board of Directors. 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. The program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company's discretion. The share repurchase program does not have an expiration date. The timing and amount of any share repurchases will be based on the Company’s liquidity, general business and market conditions, debt covenant restrictions and other factors, including alternative investment 108 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 23. Shareholders’ Equity — (continued) opportunities and capital structure. As of December 31, 2023, the Company has repurchased in total 1,308,003 shares for a total cost of $ 109.4 million. Of this, 1,022,717 shares were purchased in 2022 for $ 85.1 million and 285,286 shares were purchased in 2021 for $ 24.4 million. We are currently authorized to repurchase shares up to $ 90.6 million. Activity in Shareholders’ equity for 2021, 2022, and 2023 is presented below: (in thousands) Class A Common Stock Class B Common Stock Additional paid-in capital Retained earnings Accumulated items of other comprehensive income Class A Treasury Stock Noncontrolling Interest Total Equity Shares Amount Shares Amount Shares Amount January 1, 2021 39,115 $ 39 1,618 $ 2 $ 433,696 $ 770,746 $ ( 132,408 ) 8,391 $ ( 256,009 ) $ 3,799 $ 819,865 Net income — — — — — 118,478 — — — 290 118,768 Compensation and benefits paid or payable in shares 20 — — — 2,441 — — — — — 2,441 Options exercised 7 — — — 153 — — — — — 153 Shares issued to Directors' — — — — 706 — — ( 11 ) 241 — 947 Purchase of Treasury shares (a) — — — — — — — 285 ( 24,375 ) — ( 24,375 ) Dividends declared Class A Common Stock, $ 0.81 per share — — — — — ( 25,520 ) — — — — ( 25,520 ) Class B Common Stock, $ 0.81 per share — — — — — ( 647 ) — — — — ( 647 ) Conversion of Class B shares to Class A shares (b) 1,618 2 ( 1,618 ) ( 2 ) — — — — — — — Cumulative translation adjustments — — — — — — ( 22,677 ) — — ( 451 ) ( 23,128 ) Pension and postretirement liability adjustments — — — — — — 1,171 — — — 1,171 Derivative valuation adjustment — — — — — — 7,930 — — — 7,930 December 31, 2021 40,760 $ 41 — $ — $ 436,996 $ 863,057 $ ( 145,984 ) 8,665 $ ( 280,143 ) $ 3,638 $ 877,605 109 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 23. Shareholders’ Equity — (continued) (in thousands) Class A Common Stock Class B Common Stock Additional paid-in capital Retained earnings Accumulated items of other comprehensive income Class A Treasury Stock Noncontrolling Interest Total Equity Shares Amount Shares Amount Shares Amount January 1, 2022 40,760 $ 41 — $ — $ 436,996 $ 863,057 $ ( 145,984 ) 8,665 $ ( 280,143 ) $ 3,638 $ 877,605 Net income — — — — — 95,762 — — — 746 96,508 Compensation and benefits paid or payable in shares 24 — — — 3,727 — — — — — 3,727 Options exercised 1 — — — 17 — — — — — 17 Shares issued to Directors' — — — — 800 — — ( 13 ) 285 — 1,085 Purchase of Treasury shares (c) — — — — — — — 1,023 ( 85,065 ) — ( 85,065 ) Dividends declared Class A Common Stock, $ 0.81 per share — — — — — ( 27,501 ) — — — — ( 27,501 ) Cumulative translation adjustments — — — — — — ( 40,971 ) — — 110 ( 40,861 ) Pension and postretirement liability adjustments — — — — — — ( 3,491 ) — — — ( 3,491 ) Settlement of certain pension liabilities — — — — — — 26,198 26,198 Derivative valuation adjustment — — — — — — 19,321 — — — 19,321 December 31, 2022 40,785 $ 41 — $ — $ 441,540 $ 931,318 $ ( 144,927 ) 9,675 $ ( 364,923 ) $ 4,494 $ 867,543 (in thousands) Class A Common Stock Class B Common Stock Additional paid-in capital Retained earnings Accumulated items of other comprehensive income Class A Treasury Stock Noncontrolling Interest Total Equity Shares Amount Shares Amount Shares Amount January 1, 2023 40,785 $ 41 — $ — $ 441,540 $ 931,318 $ ( 144,927 ) 9,675 $ ( 364,923 ) $ 4,494 $ 867,543 Net income — — — — — 111,120 — — — 490 111,610 Compensation and benefits paid or payable in shares 71 — — — 5,851 — — — — — 5,851 Shares issued to Directors' — — — — 827 — — ( 13 ) 258 — 1,085 Dividends declared Class A Common Stock, $ 1.01 per share — — — — — ( 31,496 ) — — — — ( 31,496 ) Initial equity related to Noncontrolling interest in Arcari — — — — — — — — — 509 509 Cumulative translation adjustments — — — — — — 21,950 — — 459 22,409 Pension and postretirement liability adjustments — — — — — — ( 1,563 ) — — — ( 1,563 ) Derivative valuation adjustment — — — — — — ( 8,628 ) — — — ( 8,628 ) December 31, 2023 40,856 $ 41 — $ — $ 448,218 $ 1,010,942 $ ( 133,168 ) 9,662 $ ( 364,665 ) $ 5,952 $ 967,320 110 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 23. Shareholders’ Equity — (continued) (a) On October 25, 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. In 2021, the Company repurchased 285,286 shares totaling $ 24.4 million. (b) Class B Stock had a par value of $ 0.001 , was entitled to 10 votes on all matters submitted to shareholders, and received dividends as approved by the Board of Directors. In 2021, Standish Family Holdings, LLC executed a secondary offering of Albany shares. As a result of the offerings, 1.6 million shares of Class B Common Stock previously owned by Standish Family Holdings, LLC were converted to Class A Common Stock and then sold to third parties. Costs associated with the offering were charged directly to Standish Family Holdings, LLC. Since December 31, 2022, there were no Class B Common Stock outstanding nor will any Class B shares be issued. (c) In 2022, as part of the Share Repurchase program, the Company repurchased 1,022,717 shares totaling $ 85.1 million. 24. 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 MC segment's differentiated manufacturing, sales and service network. The acquisition was accounted for under the acquisition method in accordance with ASC 805, Business Combinations. 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 assets acquired and the liabilities assumed were recorded based on their preliminary fair values at the date of acquisition as follows: 111 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 24. Business Combination — (continued) (in thousands) August 31, 2023 Assets acquired: Cash and cash equivalents $ 12,347 Accounts receivable 51,569 Inventories 41,864 Property, plant and equipment 125,117 Other intangible assets 14,901 Other current assets 7,745 Other noncurrent assets $ 6,703 Total assets acquired $ 260,246 Liabilities assumed: Assumed debt $ 32,700 Accounts payable 8,243 Accrued liabilities 27,674 Other noncurrent liabilities 35,910 Income taxes payable 288 Deferred tax liabilities 10,856 Total liabilities assumed $ 115,671 Net assets acquired $ 144,575 Noncontrolling interest $ ( 509 ) Total consideration $ 144,066 For the period ended December 31, 2023, the Company incurred acquisition related costs of $ 4.1 million. These costs are included in Selling, general and administrative expenses in the Consolidated Statements of Income. The purchase price allocation for the acquisition was based upon a preliminary valuation and the Company’s estimates and assumptions are subject to change as the Company obtains additional information during the measurement period. During the fourth quarter of 2023, the Company identified immaterial measurement period adjustments primarily related to fair value estimates. The measurement period adjustments resulted from the refinement of inputs used to calculate the fair value of trade receivables, inventory, equipment, developed technologies, and accrued expenses based on facts and circumstances that existed as of the Acquisition Date. The Company is still completing the valuations of certain pension liabilities, which is expected to be completed during the first six months of 2024. The fair values of property, plant and equipment of $ 125.1 million were determined using the cost-approach because the cost-approach was considered appropriate for the valuation analysis, and because sufficient information was available for this use. Since August 31, 2023, the Company recorded $ 4.0 million of depreciation expense. The fair values of the identifiable intangible assets totaling $ 14.9 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 $ 8.9 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 112 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 24. Business Combination — (continued) amortization period represents the estimated useful life of the asset. Since August 31, 2023, the Company recorded $ 0.3 million of intangible amortization expense. The fair values of assets acquired included $ 3.4 million of operating lease right-of-use assets, as well as $ 3.4 million of operating lease liabilities assumed, of which $ 1.2 million was considered current and recorded to Accrued liabilities in our Consolidated Balance Sheets. Debt assumed included $ 32.7 million aggregate outstanding amount of bank debt with several European financial institutions with interest rates ranging from 0.98 percent to 5.52 percent 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. During the fourth quarter of 2023, we repaid $ 18.6 million of the debt assumed. At December 31, 2023, the balance of the foreign debt was $ 10.9 million, of which $ 4.2 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 $ 51.2 million of revenue and a $ 6.3 million operating loss for the period ended December 31, 2023. Pro Forma Information (Unaudited) The following table reflects the unaudited pro forma operating results of the Company for the years ended December 31, 2023 and 2022 which assumes the acquisition of Heimbach occurred on January 1, 2022. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition of Heimbach been effective January 1, 2022, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the historical results of the Company and Heimbach adjusted for certain items discussed below. The pro forma information does not include the effects of any synergies, cost reduction initiatives or anticipated integration costs related to the acquisition. Years ended December 31, (in thousands) 2023 2022 Net revenues $ 1,265,379 $ 1,206,420 Net income attributable to the Company $ 109,710 $ 91,583 These pro forma results include adjustments such as inventory step-up, amortization of acquired intangible assets, depreciation of acquired property, plant and equipment and the adoption of U.S. accounting standards. Material pro forma adjustments directly attributable to the acquisition of Heimbach for the year ended December 31, 2022 primarily include an increase in cost of goods sold of $ 5.5 million related to the step-up of acquired inventory. The pro forma information for the year ended December 31, 2023 includes an increase in selling, general and administrative costs of $ 4.1 million for acquisition-related costs. 25. Subsequent Events We evaluated subsequent events through the issuance date of these financial statements in Form 10-K. No material subsequent events were identified that require disclosure. 113 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.