ALBANY INTERNATIONAL CORP /DE/ 10-Q

ITEM 1. FINANCIAL STATEMENTS ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net revenues $ 298,386 $ 281,106 $ 943,710 $ 824,325 Cost of goods sold 208,002 179,271 632,257 520,468 Gross profit 90,384 101,835 311,453 303,857 Selling, general, and administrative expenses 52,097 51,975 162,447 147,214 Technical and research expenses 10,844 9,708 35,369 30,303 Restructuring expenses, net 2,272 82 6,584 227 Operating income 25,171 40,070 107,053 126,113 Interest expense/(income), net 2,411 3,653 8,680 10,049 Other (income)/expense, net 3,257 56 5,932 ( 4,910 ) Income before income taxes 19,503 36,361 92,441 120,974 Income tax expense 1,282 9,207 22,131 39,908 Net income 18,221 27,154 70,310 81,066 Net income attributable to the noncontrolling interest 192 45 366 396 Net income attributable to the Company $ 18,029 $ 27,109 $ 69,944 $ 80,670 Earnings per share attributable to Company shareholders - Basic $ 0.58 $ 0.87 $ 2.24 $ 2.59 Earnings per share attributable to Company shareholders - Diluted $ 0.57 $ 0.87 $ 2.23 $ 2.58 Shares of the Company used in computing earnings per share: Basic 31,251 31,185 31,234 31,163 Diluted 31,367 31,283 31,333 31,256 Dividends declared per Class A share $ 0.26 $ 0.25 $ 0.78 $ 0.75 The accompanying notes are an integral part of the consolidated financial statements 1 Index ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (in thousands) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 18,221 $ 27,154 $ 70,310 $ 81,066 Other comprehensive income/(loss), before tax: Foreign currency translation 16,211 ( 15,131 ) ( 12,757 ) ( 4,509 ) Amortization of pension liability adjustments: Prior service credit ( 37 ) ( 1,031 ) ( 113 ) ( 3,092 ) Net actuarial loss 176 349 530 1,042 Payments and amortization related to interest rate swaps included in earnings ( 2,675 ) ( 3,990 ) ( 10,893 ) ( 10,891 ) Derivative valuation adjustment ( 1,238 ) 996 395 4,533 Income taxes related to items of other comprehensive income/(loss): Amortization of prior service credit 13 315 35 946 Amortization of net actuarial loss ( 55 ) ( 107 ) ( 162 ) ( 319 ) Payments and amortization related to interest rate swaps included in earnings 658 1,009 2,681 2,755 Derivative valuation adjustment 305 ( 252 ) ( 97 ) ( 1,147 ) Comprehensive income 31,579 9,312 49,929 70,384 Comprehensive income attributable to the noncontrolling interest ( 127 ) ( 99 ) ( 273 ) 669 Comprehensive income attributable to the Company $ 31,706 $ 9,411 $ 50,202 $ 69,715 The accompanying notes are an integral part of the consolidated financial statements 2 Index ALBANY INTERNATIONAL CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited) September 30, 2024 December 31, 2023 Assets Cash and cash equivalents $ 127,222 $ 173,420 Accounts receivable, net 271,975 287,781 Contract assets, net 195,782 182,281 Inventories 160,617 169,567 Income taxes prepaid and receivable 8,316 11,043 Prepaid expenses and other current assets 40,399 53,872 Total current assets 804,311 877,964 Property, plant and equipment, net 583,455 601,989 Intangibles, net 40,996 44,646 Goodwill 180,912 180,181 Deferred income taxes 26,979 22,941 Noncurrent receivables, net — 4,392 Other assets 116,548 102,901 Total assets $ 1,753,201 $ 1,835,014 Liabilities and Shareholders' Equity Accounts payable $ 77,873 $ 87,104 Accrued liabilities 138,700 142,988 Current maturities of long-term debt 555 4,218 Income taxes payable 1,593 14,369 Total current liabilities 218,721 248,679 Long-term debt 361,639 452,667 Other noncurrent liabilities 154,634 139,385 Deferred taxes and other liabilities 21,531 26,963 Total liabilities 756,525 867,694 Commitments and Contingencies (Note 16) Shareholders' Equity: Preferred stock, par value $ 5.00 per share; authorized 2,000,000 shares; none issued — — Class A Common Stock, par value $ 0.001 per share; authorized 100,000,000 shares; 40,916,568 issued in 2024 and 40,856,910 in 2023 41 41 Additional paid in capital 452,656 448,218 Retained earnings 1,056,514 1,010,942 Accumulated items of other comprehensive income: Translation adjustments ( 137,373 ) ( 124,901 ) Pension and postretirement liability adjustments ( 17,341 ) ( 17,346 ) Derivative valuation adjustment 1,165 9,079 Treasury stock (Class A), at cost; 9,661,845 shares in 2024 and 2023 ( 364,665 ) ( 364,665 ) Total shareholders' equity 990,997 961,368 Noncontrolling interest 5,679 5,952 Total equity 996,676 967,320 Total liabilities and shareholders' equity $ 1,753,201 $ 1,835,014 The accompanying notes are an integral part of the consolidated financial statements 3 Index ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net income $ 70,310 $ 81,066 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 61,813 50,164 Amortization 5,190 4,614 Change in deferred taxes and other liabilities ( 7,552 ) ( 1,264 ) Impairment of property, plant and equipment 1,425 577 Non-cash interest expense 769 1,148 Compensation and benefits paid or payable in Class A Common Stock 4,438 5,189 Provision/(recovery) for credit losses from uncollected receivables and contract assets 40 641 Foreign currency remeasurement loss/(gain) on intercompany loans 2,263 ( 4,704 ) Fair value adjustment on foreign currency contracts 1,105 581 Gain on sale of assets ( 515 ) — Changes in operating assets and liabilities that provided/(used) cash, net of impact of business acquisition: Accounts receivable 17,980 ( 18,172 ) Contract assets ( 15,194 ) ( 16,550 ) Inventories 5,918 ( 293 ) Prepaid expenses and other current assets 2,768 ( 3,030 ) Income taxes prepaid and receivable 2,602 1,597 Accounts payable 7,316 ( 6,661 ) Accrued liabilities ( 8,320 ) ( 16,454 ) Income taxes payable ( 11,995 ) ( 5,810 ) Noncurrent receivables ( 579 ) 2,276 Other noncurrent liabilities ( 17 ) ( 3,602 ) Other, net 220 2,499 Net cash provided by operating activities 139,985 73,812 Cash flows from investing activities: Purchase of business, net of cash acquired — ( 133,470 ) Purchases of property, plant and equipment ( 61,985 ) ( 48,850 ) Purchased software ( 101 ) ( 276 ) Proceeds received from sale of assets 1,033 — Net cash used in investing activities ( 61,053 ) ( 182,596 ) Cash flows from financing activities: Proceeds from borrowings 48,106 71,249 Principal payments on debt ( 142,691 ) ( 51,479 ) Debt acquisition costs — ( 4,108 ) Taxes paid in lieu of share issuance ( 2,832 ) ( 3,136 ) Dividends paid ( 24,356 ) ( 23,365 ) Net cash (used in)/provided by financing activities ( 121,773 ) ( 10,839 ) Effect of exchange rate changes on cash and cash equivalents ( 3,357 ) ( 647 ) (Decrease)/increase in cash and cash equivalents ( 46,198 ) ( 120,270 ) Cash and cash equivalents at beginning of period 173,420 291,776 Cash and cash equivalents at end of period $ 127,222 $ 171,506 The accompanying notes are an integral part of the consolidated financial statements 4 Index ALBANY INTERNATIONAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Significant Accounting Policies Basis of Presentation In the opinion of management, the accompanying consolidated financial information reflects all adjustments necessary for a fair presentation of Albany International Corp.'s ("Albany", the "Registrant", the "Company", "we", "us", or "our") financial position, results of operations and cash flows for the interim periods presented, but does not include all disclosures required by the accounting principles generally accepted in the United States ("GAAP"). All such adjustments are of a normal recurring nature, unless otherwise disclosed in this report. Certain amounts in prior year financial statements and notes thereto have been reclassified to conform to current year presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. 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. In March 2024, the FASB issued Accounting Standards Update No. 2024-01, "Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards" (ASU 2024-01), which clarifies how an entity determines whether profits interest or similar awards should be considered within the scope of ASC 718 as a share-based payment arrangement or under ASC 710 or other ASC topics in a manner similar to a cash bonus or profit-sharing arrangement. The guidance is effective for annual periods beginning after December 15, 2024, and interim periods beginning within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. ASU 2024-01 should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. We are 5 Index currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. In March 2024, the U.S. Securities and Exchange Commission ("SEC") adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule would require registrants to disclose certain climate-related information in registration statements and annual reports. In April 2024, the SEC voluntarily stayed the final rule as a result of legal challenges that are pending judicial review. The disclosure requirements would apply to the Company's fiscal year beginning January 1, 2025, pending resolution of the stay. The Company is currently evaluating the final rule to determine its impact on the Company's disclosures. 2. Reportable Segments and Revenue Recognition The Company is organized based on the nature of its products and is composed of two reportable segments, Machine Clothing ("MC") and Albany Engineered Composites ("AEC"), 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. Machine Clothing: The Machine Clothing segment supplies permeable and impermeable belts used in the manufacture of paper, paperboard, tissue and towel products, nonwovens, fiber cement and for several other industrial applications. Paper machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a complex structure. We manufacture belts for each section of the paper machine and for every grade of paper. We sell our MC products directly to customer end-users in countries across the globe. MC's products, manufacturing processes, and distribution channels are substantially the same in each region of the world in which we operate. On August 31, 2023, the Company completed the acquisition of Heimbach GmbH (“Heimbach”), a privately-held manufacturer of paper machine clothing and technical textiles. The financial results of the acquired company are included in the Machine Clothing reportable segment. Albany Engineered Composites: The Albany Engineered Composites 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, the 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, where revenue is determined by a cost-plus-fee agreement. The LEAP engine is used on the Airbus A320neo, Boeing 737 MAX, and COMAC 919 aircraft. AEC's largest aerospace customer is the SAFRAN Group and sales to SAFRAN (consisting primarily of fan blades and cases for CFM International's LEAP engine) accounted for approximately 16 percent of the Company's consolidated Net revenues in 2023. AEC net sales to SAFRAN were $ 142.2 million and $ 140.8 million in the first nine months of 2024 and 2023, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from SAFRAN amounted to $ 89.9 million and $ 93.8 million as of September 30, 2024 and December 31, 2023, respectively. Other significant programs for AEC include the Sikorsky CH-53K, F-35, JASSM, and Boeing 787 programs. AEC also supplies vacuum waste tanks for the Boeing commercial programs, and specialty components for the Rolls Royce lift fan on the F-35, as well as the fan case for the GE9X engine. For the year ended December 31, 2023, approximately 39 percent of AEC revenues were related to U.S. government contracts or programs. 6 Index The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Net revenues Machine Clothing $ 183,033 $ 166,588 $ 561,828 $ 479,027 Albany Engineered Composites 115,353 114,518 381,882 345,298 Consolidated revenues $ 298,386 $ 281,106 $ 943,710 $ 824,325 Operating income/(loss) Machine Clothing $ 51,481 $ 50,710 $ 153,276 $ 153,400 Albany Engineered Composites ( 10,293 ) 9,374 8,329 27,460 Corporate expenses ( 16,017 ) ( 20,014 ) ( 54,552 ) ( 54,747 ) Consolidated Operating income $ 25,171 $ 40,070 $ 107,053 $ 126,113 Reconciling items: Interest income ( 1,019 ) ( 1,826 ) ( 3,101 ) ( 4,770 ) Interest expense 3,430 5,479 11,781 14,819 Other (income)/expense, net 3,257 56 5,932 ( 4,910 ) Income before income taxes $ 19,503 $ 36,361 $ 92,441 $ 120,974 Results for 2024 include Heimbach, which was acquired August 31, 2023. Heimbach contributed $ 27.8 million and $ 105.5 million of net revenues and $( 4.3 ) million and $( 6.7 ) million of operating loss for the three and nine months ended September 30, 2024, respectively. Heimbach contributed $ 15.6 million of Net revenues and an operating loss of $( 0.5 ) million for the three and nine months ended September 30, 2023, respectively. Corporate expenses include global information system costs of $ 7.8 million and $ 6.3 million for the three months ended September 30, 2024 and 2023, respectively, and $ 24.2 million and $ 19.3 million for the nine months ended September 30, 2024 and 2023, respectively. Revenue Recognition: Products and services provided under long-term contracts represent a significant portion of revenues in the Albany Engineered Composites segment and we account for these contracts over time, primarily using the percentage of completion (actual cost to 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. Changes in the estimated profitability of long-term contracts could be caused by increases or decreases in the contract value, revisions to customer delivery requirements, updated labor or overhead rates, factors affecting the supply chain, changes in the evaluation of contract risks and opportunities, or other factors. The cumulative changes in the estimated profitability of long-term contracts decreased operating income by $ 22.4 million for the third quarter of 2024 and decreased operating income by $ 28.3 million for the first nine months of 2024. The negative change in the estimated profitability in the third quarter of 2024 was driven by a few large complex programs, including approximately $ 13.3 million for various CH-53K programs, approximately $ 6.5 million on our Gulfstream program, approximately $ 2.2 million on our F-35 program, and $ 0.4 million, net, on all other programs. Adjustments in the estimated profitability of long-term contracts increased operating incomes by $ 0.9 million and decreased operating income by $ 4.1 million for the third quarter and first nine months of 2023, respectively. We disaggregate revenue earned from contracts with customers for each of our business segments and product groups based on the timing of revenue recognition, and groupings used for internal review purposes. 7 Index The following table disaggregates revenue for each product group by timing of revenue recognition for the three months ended September 30, 2024: Three months ended September 30, 2024 (in thousands) Point in Time Revenue Recognition Over Time Revenue Recognition Total Machine Clothing $ 182,050 $ 983 $ 183,033 Albany Engineered Composites: ASC — 40,115 40,115 Other AEC 4,142 71,096 75,238 Total Albany Engineered Composites 4,142 111,211 115,353 Total revenues $ 186,192 $ 112,194 $ 298,386 The following table disaggregates revenue for each product group by timing of revenue recognition for the three months ended September 30, 2023: Three months ended September 30, 2023 (in thousands) Point in Time Revenue Recognition Over Time Revenue Recognition Total Machine Clothing $ 165,643 $ 945 $ 166,588 Albany Engineered Composites: ASC — 46,654 46,654 Other AEC 4,955 62,909 67,864 Total Albany Engineered Composites 4,955 109,563 114,518 Total revenues $ 170,598 $ 110,508 $ 281,106 The following table disaggregates revenue for each product group by timing of revenue recognition for the nine months ended September 30, 2024: Nine months ended September 30, 2024 (in thousands) Point in Time Revenue Recognition Over Time Revenue Recognition Total Machine Clothing $ 558,881 $ 2,947 $ 561,828 Albany Engineered Composites: ASC — 140,146 140,146 Other AEC 15,908 225,828 241,736 Total Albany Engineered Composites 15,908 365,974 381,882 Total revenues $ 574,789 $ 368,921 $ 943,710 8 Index The following table disaggregates revenue for each product group by timing of revenue recognition for the nine months ended September 30, 2023: Nine months ended September 30, 2023 (in thousands) Point in Time Revenue Recognition Over Time Revenue Recognition Total Machine Clothing $ 476,194 $ 2,833 $ 479,027 Albany Engineered Composites: ASC — 138,603 138,603 Other AEC 14,259 192,436 206,695 Total Albany Engineered Composites 14,259 331,039 345,298 Total revenues $ 490,453 $ 333,872 $ 824,325 The following table disaggregates MC segment revenue by significant product groupings (paper machine clothing ("PMC") and engineered fabrics); and for PMC, the geographical region to which the paper machine clothing was sold: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Americas PMC $ 86,408 $ 84,405 $ 258,442 $ 261,937 Eurasia PMC 70,083 64,493 224,792 164,771 Engineered Fabrics 26,542 17,690 78,594 52,319 Total Machine Clothing Net revenues $ 183,033 $ 166,588 $ 561,828 $ 479,027 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 and certain contracts in the AEC segment are relatively short duration firm-fixed-price orders. Remaining performance obligations on contracts that had an original duration of greater than one year totaled $ 1.1 billion and $ 759 million as of September 30, 2024 and 2023, respectively, and related primarily to firm fixed price contracts in the AEC segment. Of the remaining performance obligations as of September 30, 2024, we expect to recognize as revenue approximately $ 40 million during 2024, $ 167 million during 2025, $ 147 million during 2026, and the remainder thereafter. 9 Index 3 . Pensions and Other Postretirement Benefit Plans The Company has defined benefit pension plans covering certain U.S. and non-U.S. employees. The Company also provides certain postretirement benefits to retired employees in the U.S. and Canada. The Company accrues the cost of providing these benefits during the active service period of the employees. The composition of the net periodic benefit cost/(income) for the nine months ended September 30, 2024 and 2023, was as follows: Pension plans Other postretirement benefits (in thousands) 2024 2023 2024 2023 Components of net periodic benefit cost/(income): Service cost $ 1,473 $ 986 $ 35 $ 45 Interest cost 4,545 3,447 1,063 1,405 Expected return on assets ( 4,030 ) ( 3,063 ) — — Amortization of prior service cost/(income) ( 20 ) ( 24 ) ( 93 ) ( 3,068 ) Amortization of net actuarial loss 556 421 ( 26 ) 621 Net periodic benefit cost/(credit) $ 2,524 $ 1,767 $ 979 $ ( 997 ) The amount of net benefit cost/(credit) is determined at the beginning of each year and generally only varies from quarter to quarter when a significant event occurs, such as a curtailment or a settlement. There were no material curtailments or settlements during the first nine months of 2024 or 2023. Service cost for defined benefit pension and postretirement plans are reported in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net periodic benefit cost are included in the line item Other (income)/expense, net in the Consolidated Statements of Income. 4. Restructuring At MC, restructuring actions were taken in the second and third quarters of 2024 to cease operations at the Company's MC forming fabric manufacturing facility in Chungju, South Korea, and at the Company's Heimbach engineered fabric manufacturing facility in Rochdale, UK. The principal driver of $ 3.3 million in Restructuring expenses, net for the first nine months of 2024 related to workforce reductions, fixed asset impairments and related costs, as well as charges of $ 1.3 million in Costs of goods sold for the write-off of inventory. We expect to incur additional restructuring expenses related to these actions throughout the remainder of the year. Restructuring expenses incurred at MC during 2023 were not significant. At AEC, restructuring activities were related to reductions in the workforce at various AEC locations, which resulted in restructuring expenses of $ 3.1 million for the first nine months of 2024. Restructuring expenses incurred at AEC during 2023 were not significant. The following table summarizes charges reported in the Consolidated Statements of Income under "Restructuring expenses, net": Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Machine Clothing $ 2,207 $ 82 $ 3,294 $ 227 Albany Engineered Composites 34 — 3,144 — Corporate expenses 31 — 146 — Total $ 2,272 $ 82 $ 6,584 $ 227 10 Index The following tables summarizes charges by type of expense reported in the Consolidated Statements of Income under "Restructuring expenses, net" and "Cost of goods sold": Nine months ended September 30, 2024 Total restructuring costs incurred Termination and other costs Impairment of assets (in thousands) Machine Clothing $ 4,581 $ 3,294 $ 1,287 Albany Engineered Composites 3,144 3,144 — Corporate expenses 146 146 — Total $ 7,871 $ 6,584 $ 1,287 Nine months ended September 30, 2023 Total restructuring costs incurred Termination and other costs Impairment of assets (in thousands) Machine Clothing $ 227 $ 227 $ — Albany Engineered Composites — — — Corporate expenses — — — Total $ 227 $ 227 $ — The table below presents the year-to-date changes in restructuring liabilities for 2024 and 2023: (in thousands) December 31, 2023 Restructuring charges accrued Payments Currency translation /other September 30, 2024 Total termination and other costs $ — $ 6,584 $ ( 4,064 ) $ 90 $ 2,610 (in thousands) December 31, 2022 Restructuring charges accrued Payments Currency translation /other September 30, 2023 Total termination and other costs $ — $ 227 $ ( 227 ) $ — $ — 5. Other (Income)/Expense, net The components of Other (income)/expense, net are: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Currency transaction (gains)/losses $ 1,834 $ 511 $ 692 $ ( 3,622 ) Derivative instruments losses/(gains) ( 485 ) 704 3,788 581 Bank fees and amortization of debt issuance costs 48 49 169 140 Components of net periodic pension and postretirement cost other than service cost 663 ( 15 ) 1,995 ( 260 ) Other 1,197 ( 1,193 ) ( 712 ) ( 1,749 ) Total other (income)/expense, net $ 3,257 $ 56 $ 5,932 $ ( 4,910 ) Other (income)/expense, net, included foreign currency related transactions which resulted in losses of $ 1.8 million and $ 0.7 million in the three and nine months ended September 30, 2024, respectively, as compared to losses of $ 0.5 million and gains of $ 3.6 million in the same periods last year. In addition, changes in the fair value of derivative instruments included gains of $ 0.5 million and losses of $ 3.8 million in the three and nine months ended September 30, 2024, as compared to losses of $ 0.7 million and $ 0.6 million in the same period last year, driven by currency rate movements, most notably the Brazilian Real and Mexican Peso. Other (income)/expense, net, also included net losses of $ 0.7 million from the divestiture of assets related to Heimbach during the nine months ended September 30, 2024, as well as bank fees, amortization of debt issuance costs, and rental income. 11 Index 6. Income Taxes The Company's effective income tax rate for the three and nine months ended September 30, 2024 and 2023, is as follows: Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Effective income tax rate 6.6 % 25.3 % 23.9 % 33.0 % Income tax expense for the quarter was computed in accordance with ASC 740-270, Income Taxes – Interim Reporting. Under this method, loss jurisdictions which cannot recognize a tax benefit with regard to their generated losses are excluded from the annual effective tax rate calculation and their taxes will be recorded discretely in each quarter. Our 2024 estimated annual effective tax rate primarily reflects the 21% federal tax rate, the impact of state and local taxation, the impact of taxation upon foreign operations, and forecasted permanent differences. Our actual effective tax rates were 6.6 % and 25.3 % for the three months ended September 30, 2024 and 2023, respectively. Our actual effective tax rates were 23.9 % and 33.0 % for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate for the three months ended September 30, 2024 included a net discrete tax benefit of $ 8.5 million. This discrete tax benefit is mostly attributable to the true-up of prior year estimated taxes and the release of a valuation allowance in a non-U.S. jurisdiction due to positive evidence indicating that a full valuation allowance was no longer required. The rate for the third quarter of 2024 was lower than the third quarter of 2023 mainly due to favorable discrete tax adjustments in the current period compared to unfavorable discrete tax adjustments in the prior period, partially offset by an unfavorable change in the jurisdictional mix of earnings compared to the prior period. The effective tax rate for the nine months ended September 30, 2024 included a net discrete tax benefit of $ 11.0 million. This discrete tax benefit is mostly attributable to the true-up for prior year estimated taxes, a net decrease in valuation allowances and a net decrease in uncertain tax positions. The rate for the nine months ended September 30, 2024 was lower than the nine months ended September 30, 2023 mainly due to favorable discrete tax adjustments in the current period compared to unfavorable discrete tax adjustments in the prior period, partially offset by an unfavorable change in the jurisdictional mix of earnings compared to the prior period. The Company is subject to audit in the U.S. and various foreign jurisdictions. Our open tax years for major jurisdictions generally range from 2013-2024. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. It is reasonably possible that within the next 12 months, unrecognized tax benefits could decrease by up to $ 1.8 million based on current estimates. 12 Index 7. Earnings Per Share The amounts used in computing earnings per share and the weighted average number of shares of potentially dilutive securities are as follows: Three months ended September 30, Nine months ended September 30, (in thousands, except earnings per share) 2024 2023 2024 2023 Net income attributable to the Company $ 18,029 $ 27,109 $ 69,944 $ 80,670 Weighted average number of shares: Weighted average number of shares used in calculating basic net income per share 31,251 31,185 31,234 31,163 Effect of dilutive stock-based compensation plans: Restricted stock units and multi-year awards 116 98 99 93 Weighted average number of shares used in calculating diluted net income per share 31,367 31,283 31,333 31,256 Net income attributable to the Company per share: Basic $ 0.58 $ 0.87 $ 2.24 $ 2.59 Diluted $ 0.57 $ 0.87 $ 2.23 $ 2.58 .. 8. Accumulated Other Comprehensive Income ("AOCI") The table below presents changes in the components of AOCI for the period from December 31, 2023 to September 30, 2024: (in thousands) Translation adjustments Pension and postretirement liability adjustments Derivative valuation adjustment Total Other Comprehensive Income December 31, 2023 $ ( 124,901 ) $ ( 17,346 ) $ 9,079 $ ( 133,168 ) Other comprehensive income/(loss) before reclassifications, net of tax ( 12,472 ) ( 285 ) 298 ( 12,459 ) Interest (expense)/income related to swaps reclassified to the Consolidated Statements of Income, net of tax — — ( 8,212 ) ( 8,212 ) Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax — 290 — 290 Net current period other comprehensive income ( 12,472 ) 5 ( 7,914 ) ( 20,381 ) September 30, 2024 $ ( 137,373 ) $ ( 17,341 ) $ 1,165 $ ( 153,549 ) The table below presents changes in the components of AOCI for the period from December 31, 2022 to September 30, 2023: (in thousands) Translation adjustments Pension and postretirement liability adjustments Derivative valuation adjustment Total Other Comprehensive Income December 31, 2022 $ ( 146,851 ) $ ( 15,783 ) $ 17,707 $ ( 144,927 ) Other comprehensive income/(loss) before reclassifications, net of tax ( 4,326 ) ( 183 ) 3,386 ( 1,123 ) Interest (expense)/income related to swaps reclassified to the Consolidated Statements of Income, net of tax — — ( 8,136 ) ( 8,136 ) Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax — ( 1,423 ) — ( 1,423 ) Net current period other comprehensive income ( 4,326 ) ( 1,606 ) ( 4,750 ) ( 10,682 ) September 30, 2023 $ ( 151,177 ) $ ( 17,389 ) $ 12,957 $ ( 155,609 ) 13 Index The components of AOCI that are reclassified to the Consolidated Statements of Income relate to our pension and postretirement plans and interest rate swaps. The table below presents the expense/(income) amounts reclassified from AOCI, and the line items of the Consolidated Statements of Income that were affected for the three and nine ended September 30, 2024 and 2023: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Pre-tax Derivative valuation reclassified from Accumulated Other Comprehensive Income: Interest expense/(income), net related to interest rate swaps included in Income before taxes $ ( 2,675 ) $ ( 3,990 ) $ ( 10,893 ) $ ( 10,891 ) Income tax effect 658 1,009 2,681 2,755 Effect on net income due to items reclassified from Accumulated Other Comprehensive Income $ ( 2,017 ) $ ( 2,981 ) $ ( 8,212 ) $ ( 8,136 ) Pre-tax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income: Amortization of prior service credit $ ( 37 ) $ ( 1,031 ) $ ( 113 ) $ ( 3,092 ) Amortization of net actuarial loss 176 349 530 1,042 Total pre-tax amount reclassified (a) 139 ( 682 ) 417 ( 2,050 ) Income tax effect ( 42 ) 208 ( 127 ) 627 Effect on net income due to items reclassified from Accumulated Other Comprehensive Income $ 97 $ ( 474 ) $ 290 $ ( 1,423 ) (a) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 3. Pensions and Other Postretirement Benefit Plans ). 9. Noncontrolling Interests Effective October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in Albany Safran Composites, LLC ("ASC"). On August 31, 2023, the Company acquired all the outstanding shares of Heimbach, a privately held manufacturer of paper machine clothing with headquarters in Düren, Germany. In July 2021, Heimbach acquired 85 % of Arcari, SRL (“Arcari”). Arcari is a manufacturer of textile and plastic industrial technical products and conveyor belts. For the nine months ended September 30, 2024, the net income/(loss) attributable to Arcari’s noncontrolling interest was less than $ 0.1 million and the noncontrolling interest balance at September 30, 2024 was $ 0.4 million. 14 Index The table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity in the Company’s subsidiaries: ASC Noncontrolling Interest Nine months ended September 30, (in thousands, except percentages) 2024 2023 Net income of Albany Safran Composites (ASC) $ 3,754 $ 4,929 Less: Return attributable to the Company's preferred holding 850 974 Net income of ASC available for common ownership $ 2,904 $ 3,955 Ownership percentage of noncontrolling shareholder 10 % 10 % Net income attributable to the noncontrolling interest $ 290 $ 396 Noncontrolling interest, beginning of year $ 5,423 $ 4,494 Net income attributable to noncontrolling interest 290 396 Changes in other comprehensive income attributable to the noncontrolling interest ( 481 ) 317 ASC Noncontrolling interest, end of interim period $ 5,232 $ 5,207 Arcari Noncontrolling interest, end of interim period $ 447 $ 1,587 Total Noncontrolling interest, end of interim period $ 5,679 $ 6,794 10. Accounts Receivable Accounts receivable, net includes Trade and other accounts receivable and Bank promissory notes, net of Allowance for expected credit losses. In connection with certain revenues in Asia, 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. As of September 30, 2024 and December 31, 2023, Accounts receivable consisted of the following: (in thousands) September 30, 2024 December 31, 2023 Trade and other accounts receivable $ 254,194 $ 272,351 Bank promissory notes 21,535 20,690 Allowance for expected credit losses ( 3,754 ) ( 5,260 ) Accounts receivable, net $ 271,975 $ 287,781 The Company had Noncurrent receivables in the AEC segment that represent revenue earned, which had extended payment terms. In 2023, the payment terms were amended and the Noncurrent receivables are now included in Trade and other accounts receivable. As of September 30, 2024 and December 31, 2023, Noncurrent receivables consisted of the following: (in thousands) September 30, 2024 December 31, 2023 Noncurrent receivables $ — $ 4,414 Allowance for expected credit losses — ( 22 ) Noncurrent receivables, net $ — $ 4,392 15 Index 11. Contract Assets and Liabilities Contract assets include unbilled amounts typically resulting from revenues under contracts when the over time 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 pay becomes unconditional and the customer is invoiced. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract liabilities are included in Accrued liabilities in the Consolidated Balance Sheets. Contract assets and Contract liabilities are reported on the Consolidated Balance Sheets in a net position on a contract-by-contract basis at the end of each reporting period. As of September 30, 2024 and December 31, 2023, Contract assets and Contract liabilities consisted of the following: (in thousands) September 30, 2024 December 31, 2023 Contract assets $ 196,765 $ 183,189 Allowance for expected credit losses ( 983 ) ( 908 ) Contract assets, net $ 195,782 $ 182,281 Contract liabilities $ 7,122 $ 7,127 Contract assets, net increased $ 13.5 million during the nine months ended September 30, 2024. The increase was primarily due to an increase in unbilled revenue, primarily related to commercial and space programs. There were no impairment losses related to our Contract assets during the nine months ended September 30, 2024 and September 30, 2023. Contract liabilities are essentially flat for the period ended September 30, 2024 compared to December 31, 2023, primarily due to revenue recognized from satisfied performance obligations were essentially offset by customer advance payments for commercial and defense programs. Revenue recognized for the nine months ended September 30, 2024 and 2023 that was included in the Contract liability balance at the beginning of the year was $ 3.7 million and $ 14.4 million, respectively. 12. Inventories Costs included in inventories are raw materials, labor, supplies and allocable depreciation and overhead. Raw material inventories are 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. 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. As of September 30, 2024 and December 31, 2023, Inventories consisted of the following: (in thousands) September 30, 2024 December 31, 2023 Raw materials $ 84,257 $ 79,611 Work in process 54,772 67,743 Finished goods 21,588 22,213 Total inventories $ 160,617 $ 169,567 16 Index 13. Goodwill and Other Intangible Assets The following table sets forth the gross carrying value, accumulated amortization and net values of intangible assets and goodwill as of September 30, 2024 and December 31, 2023: September 30, 2024 (in thousands) Amortization life in years Gross carrying amount Accumulated amortization Net carrying amount Finite-lived assets: AEC Trademarks and trade names 6 - 15 $ 208 $ ( 194 ) $ 14 AEC Technology 10 - 15 6,226 ( 3,201 ) 3,025 AEC Intellectual property 15 1,250 ( 402 ) 848 AEC Customer relationships 8 - 15 69,395 ( 46,500 ) 22,895 Heimbach Developed technology 9 9,166 ( 1,090 ) 8,076 Total Finite-lived intangible assets $ 86,245 $ ( 51,387 ) $ 34,858 Indefinite-lived intangible assets: Heimbach Trade name $ 6,138 $ — $ 6,138 MC Goodwill 67,407 — 67,407 AEC Goodwill 113,505 — 113,505 Total Indefinite-lived intangible assets: $ 187,050 $ — $ 187,050 December 31, 2023 (in thousands) Amortization life in years Gross carrying amount Accumulated amortization Net carrying amount Finite-lived assets: AEC Trademarks and trade names 6 - 15 $ 208 $ ( 186 ) $ 22 AEC Technology 10 - 15 6,161 ( 2,735 ) 3,426 AEC Intellectual property 15 1,250 ( 339 ) 911 AEC Customer relationships 8 - 15 69,360 ( 43,875 ) 25,485 Heimbach Developed technology 9 9,042 ( 310 ) 8,732 Total Finite-lived assets $ 86,021 $ ( 47,445 ) $ 38,576 Indefinite-lived intangible assets: Heimbach Trade name $ 6,070 $ — $ 6,070 MC Goodwill 66,873 — 66,873 AEC Goodwill 113,308 — 113,308 Total Indefinite-lived intangible assets: $ 186,251 $ — $ 186,251 17 Index The changes in intangible assets, net and goodwill from December 31, 2023 to September 30, 2024, were as follows: (in thousands) December 31, 2023 Other Changes Amortization Currency Translation September 30, 2024 Finite-lived intangible assets: AEC Trademarks and trade names $ 22 $ — $ ( 8 ) $ — $ 14 AEC Technology 3,426 — ( 428 ) 27 3,025 AEC Intellectual property 911 — ( 63 ) — 848 AEC Customer relationships 25,485 — ( 2,611 ) 21 22,895 Heimbach Developed technology 8,732 — ( 767 ) 111 8,076 Total Finite-lived intangible assets $ 38,576 $ — $ ( 3,877 ) $ 159 $ 34,858 Indefinite-lived intangible assets: Heimbach Trade name $ 6,070 $ — $ — $ 68 $ 6,138 MC Goodwill 66,873 — — 534 67,407 AEC Goodwill 113,308 — — 197 113,505 Total Indefinite-lived assets: $ 186,251 $ — $ — $ 799 $ 187,050 In the second quarter of 2024, management performed the quantitative assessment approach in conducting its annual evaluation of goodwill and indefinite-lived trademark intangibles and concluded that no impairment provision was required. Our goodwill has been allocated to and is tested for impairment at a level referred to as the reporting unit, which management determined to be the business segment level. As part of the quantitative assessment, management used the income and market approach to determine fair value by considering projected cash flows and market multiples for the Machine Clothing reporting unit and the AEC reporting unit. Management performed the quantitative assessments and concluded that each reporting unit’s fair value continued to significantly exceed its carrying value. In addition, there were no amounts at risk due to the estimated spread between the fair and carrying values. Accordingly, no impairment charges were recorded. In the third quarter, the Company revised its estimates and assumptions used in certain program estimates at completion of its AEC reporting unit. As a result, on October 3, 2024, the Company reported a preliminary update to its full year outlook to reflect revised revenue and profitability expectations for the AEC segment. As a result of the change in estimates of certain program revenues and profits, we performed a qualitative assessment of the AEC reporting unit’s goodwill for impairment and concluded that goodwill was not impaired. The excess of the fair value of the AEC reporting unit over its carrying value reduced approximately 26 % from previous quarters; and fair value continues to exceed the carrying value by more than 20 %. 14. Financial Instruments Debt principally consists of a revolving credit agreement and foreign bank debt assumed in the 2023 acquisition of Heimbach. The following table represents the Company's outstanding debt: (in thousands, except interest rates) September 30, 2024 December 31, 2023 Borrowings under the Amended Credit Agreement (1) $ 360,000 $ 446,000 Foreign bank debt 2,194 10,885 Total bank debt 362,194 456,885 Less: Current maturities of long-term debt 555 4,218 Long-term debt $ 361,639 $ 452,667 (1) the credit facility matures in August 2028. At the end of September 30, 2024 and December 31, 2023, the interest rate in effect was 2.50 % and 3.49 %, respectively, including the effect of interest rate hedging transactions, as described below. 18 Index 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 matures in August of 2028. 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 % As of September 30, 2024, the applicable interest rate for borrowings under the Amended Credit Agreement was based on one-month term SOFR plus the spread, which was 1.50 %. As of September 30, 2024, there was $ 360 million of borrowings outstanding under the Amended Credit Agreement and we had borrowings available of $ 440 million, based on our maximum leverage ratio and our Consolidated EBITDA (as defined in the Amended Credit Agreement). Under the Amended Credit Agreement, we are required to maintain a leverage ratio (as defined in the Credit Agreement) of not greater than 3.75 to 1.00, or 4.25 to 1.00 after a significant acquisition. We are also required to maintain a minimum interest coverage ratio (as defined in the Credit Agreement) of greater than 3.00 to 1.00. 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 September 30, 2024, our leverage ratio was 0.99 to 1.00 and our interest coverage ratio was 15.39 to 1.00. As of September 30, 2024, 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, including all significant U.S. subsidiaries (subject to certain exceptions), 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). Interest Rate Swaps From time to time, the Company enters into interest rate swap contracts to manage the interest rate risk associated with its outstanding variable-interest rate borrowings. Such contracts are intended to economically hedge the reference rate component of future interest payments associated with outstanding borrowings under the Company’s Amended Credit Agreement. In 2021, we entered into interest rate swap agreements for the period of October 17, 2022 through October 27, 2024, to hedge $ 350 million of variable-interest rate indebtedness. The interest rate swaps are accounted for as a hedge of future cash flows, as further described in Note 15, Fair-Value Measurements . No cash collateral was received or pledged in relation to the swap agreements. As of September 30, 2024, the all-in rate on the $ 350 million of debt was 2.38 %. Upon the expiration of the interest rate swap on October 28, 2024, our interest cost will increase significantly. Beginning in October 2024, our interest cost will be calculated using a floating rate based on the one-month term SOFR. 15. 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. 19 Index • 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 September 30, 2024 or at December 31, 2023, other than certain pension assets as indicated in our December 31, 2023 Annual Report on Form 10-K. 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: September 30, 2024 December 31, 2023 Quoted prices in active markets Significant other observable inputs Quoted prices in active markets Significant other observable inputs (in thousands) (Level 1) (Level 2) (Level 1) (Level 2) Fair Value Assets: Cash equivalents $ 13,401 $ — $ 27,157 $ — Foreign currency option contracts — — — 1,725 Foreign currency forward contracts — — — 199 Other Assets: Common stock of unaffiliated foreign public company (a) 693 — 682 — Interest rate swaps — 1,722 — 12,214 Liabilities Foreign currency forward contracts — ( 1,105 ) — — (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 is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve, and is included in Other assets and/or Other noncurrent liabilities in the Consolidated Balance Sheets. Amounts determined to be due within one year are reclassified to Other current assets and/or Accrued liabilities in the Consolidated Balance Sheets. Unrealized gains and losses on the interest rate swaps flow through the caption Derivative valuation adjustment in the Shareholders’ equity section of the Consolidated Balance Sheets. Amounts accumulated in Other comprehensive income are reclassified as interest expense/(income), net when the related interest payments (that is, the hedged forecasted transactions), affect earnings. Interest expense/(income) related to payments under the active swap agreements totaled $( 10.9 ) million for the nine months ended September 30, 2024, and $( 10.9 ) million for the nine months ended September 30, 2023. 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 current assets and Accrued liabilities, 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 a risk from the possible inability of the financial institution to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates, which may reduce the value of the instruments. We seek to mitigate risk by evaluating the creditworthiness of counterparties and by monitoring the currency exchange and interest rate markets while reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and policies. 20 Index (Gains)/losses related to changes in fair value of derivative instruments that were recognized in Other (income)/expense, net in the Consolidated Statements of Income were as follows: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Derivatives not designated as hedging instruments: Foreign currency options (gains)/losses $ ( 485 ) $ 704 $ 3,788 $ 581 16. 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 3,642 claims as of September 30, 2024. 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: (in thousands, except number of claims) Opening Number of Claims Claims Dismissed, Settled, or Resolved New Claims Closing Number of Claims Amounts Paid to Settle or Resolve For the period ended December 31, 2023 3,598 19 27 3,606 $ 74 For the period ended September 30, 2024 3,606 9 45 3,642 $ 13 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 September 30, 2024, we had resolved, by means of settlement or dismissal, 38,050 claims at a total cost of $ 10.7 million. Of this amount, almost 100 % was paid by our insurance carrier, who has confirmed that we have approximately $ 140 million of remaining coverage under primary and excess policies that should be available with respect to current and future asbestos claims. The Company’s subsidiary, Brandon Drying Fabrics, Inc. (“Brandon”), is also a separate defendant in many of the asbestos cases in which Albany is named as a defendant, despite never having manufactured any fabrics containing asbestos. While Brandon was defending against 7,676 claims as of September 30, 2024, only twelve claims have been filed against Brandon since January 1, 2012, and only $ 15,000 in settlement costs have been incurred since 2001. Brandon was acquired by the Company in 1999 and has its own insurance policies covering periods prior to 1999. Since 2004, Brandon’s insurance carriers have covered 100 % of indemnification and defense costs, subject to policy limits and a standard reservation of rights. In some of these asbestos cases, the Company is named both as a direct defendant and as the “successor in interest” to Mount Vernon Mills (“Mount Vernon”). We acquired certain assets from Mount Vernon in 1993. Certain plaintiffs allege injury caused by asbestos-containing products alleged to have been sold by Mount Vernon many years prior to this acquisition. Mount Vernon is contractually obligated to indemnify the Company against any liability arising out of such products. We deny any liability for products sold by Mount Vernon prior to the acquisition of the Mount Vernon assets. Pursuant to its contractual indemnification obligations, Mount Vernon has assumed the defense of these claims. On this basis, we have successfully moved for dismissal in a number of actions. We currently do not anticipate, based on currently available information, that the ultimate resolution of the aforementioned proceedings will have a material adverse effect on the financial position, results of operations, or cash 21 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. 17. Changes in Shareholders’ Equity The following table summarizes changes in Shareholders’ Equity for the period December 31, 2023 to September 30, 2024: Class A Common Stock Additional paid-in capital Retained earnings Accumulated items of other comprehensive income Class A Treasury Stock Noncontrolling Interest Total Shareholders' Equity Shares Amount Shares Amount December 31, 2023 40,856 $ 41 $ 448,218 $ 1,010,942 $ ( 133,168 ) 9,662 $ ( 364,665 ) $ 5,952 $ 967,320 Net income — — — 27,291 — — — 78 27,369 Compensation and benefits paid or payable in shares 42 — 810 — — — — — 810 Dividends declared on Class A Common Stock, $ 0.26 per share — — — ( 8,122 ) — — — — ( 8,122 ) Cumulative translation adjustments — — — — ( 12,116 ) — — 46 ( 12,070 ) Pension and postretirement liability adjustments — — — — 382 — — — 382 Derivative valuation adjustment — — — — ( 2,124 ) — — — ( 2,124 ) March 31, 2024 40,898 $ 41 $ 449,028 $ 1,030,111 $ ( 147,026 ) 9,662 $ ( 364,665 ) $ 6,076 $ 973,565 Net income — — — 24,624 — — — 96 24,720 Compensation and benefits paid or payable in shares — — 2,530 — — — — — 2,530 Shares issued to Directors' 10 — 903 — — — — — 903 Dividends declared on Class A Common Stock, $ 0.26 per share — — — ( 8,123 ) — — — — ( 8,123 ) Cumulative translation adjustments — — — — ( 17,287 ) — — ( 366 ) ( 17,653 ) Pension and postretirement liability adjustments — — — — 246 — — — 246 Derivative valuation adjustment — — — — ( 2,840 ) — — — ( 2,840 ) June 30, 2024 40,908 $ 41 $ 452,461 $ 1,046,612 $ ( 166,907 ) 9,662 $ ( 364,665 ) $ 5,806 $ 973,348 Net income — — — 18,029 — — — 192 18,221 Compensation and benefits paid or payable in shares 9 — 195 — — — — — 195 Dividends declared on Class A Common Stock, $ 0.26 per share — — — ( 8,127 ) — — — — ( 8,127 ) Dividends paid to noncontrolling interests — — — — — — — ( 166 ) ( 166 ) Cumulative translation adjustments — — — — 16,931 — — ( 153 ) 16,778 Pension and postretirement liability adjustments — — — — ( 623 ) — — — ( 623 ) Derivative valuation adjustment — — — — ( 2,950 ) — — — ( 2,950 ) September 30, 2024 40,917 $ 41 $ 452,656 $ 1,056,514 $ ( 153,549 ) 9,662 $ ( 364,665 ) $ 5,679 $ 996,676 22 The following table summarizes changes in Shareholders’ Equity for the period December 31, 2022 to September 30, 2023: Class A Common Stock Additional paid-in capital Retained earnings Accumulated items of other comprehensive income Class A Treasury Stock Noncontrolling Interest Total Shareholders' Equity (in thousands) Shares Amount Shares Amount December 31, 2022 40,785 $ 41 $ 441,540 $ 931,318 $ ( 144,927 ) 9,675 $ ( 364,923 ) $ 4,494 $ 867,543 Net income — — — 26,889 — — — 197 27,086 Compensation and benefits paid or payable in shares 58 — 378 — — — — — 378 Dividends declared on Class A Common Stock, $ 0.25 per share — — — ( 7,792 ) — — — — ( 7,792 ) Cumulative translation adjustments — — — — 13,881 — — 238 14,119 Pension and postretirement liability adjustments — — — — ( 916 ) — — — ( 916 ) Derivative valuation adjustment — — — — ( 2,902 ) — — — ( 2,902 ) March 31, 2023 40,842 $ 41 $ 441,917 $ 950,415 $ ( 134,864 ) 9,675 $ ( 364,923 ) $ 4,929 $ 897,515 Net income — — — 26,672 — — — 154 26,826 Compensation and benefits paid or payable in shares — — 811 — — — — — 811 Shares issued to Directors' — — 828 — — ( 12 ) 258 — 1,086 Dividends declared on Class A Common Stock, $ 0.25 per share — — — ( 7,795 ) — — — — ( 7,795 ) Cumulative translation adjustments — — — — ( 2,568 ) — — 179 ( 2,389 ) Pension and postretirement liability adjustments — — — — ( 724 ) — — — ( 724 ) Derivative valuation adjustment — — — — 389 — — — 389 June 30, 2023 40,842 $ 41 $ 443,556 $ 969,292 $ ( 137,767 ) 9,663 $ ( 364,665 ) $ 5,262 $ 915,719 Net income — — — 27,109 — — — 45 27,154 Compensation and benefits paid or payable in shares 15 — 2,914 — — ( 1 ) — — 2,914 Dividends declared on Class A Common Stock, $ 0.25 per share — — — ( 7,799 ) — — — — ( 7,799 ) Initial equity related to Noncontrolling interest in Arcari — — — — — — — 1,632 1,632 Cumulative translation adjustments — — — — ( 15,639 ) — — ( 145 ) ( 15,784 ) Pension and postretirement liability adjustments — — — — 34 — — — 34 Derivative valuation adjustment — — — — ( 2,237 ) — — — ( 2,237 ) September 30, 2023 40,857 $ 41 $ 446,470 $ 988,602 $ ( 155,609 ) 9,662 $ ( 364,665 ) $ 6,794 $ 921,633 18. Business Combination On August 31, 2023, the Company acquired all the outstanding shares of Heimbach, a privately-held manufacturer of paper machine clothing with headquarters in Düren, Germany. For the three and nine months ended September 30, 2024, there were no material adjustments to the assets acquired and liabilities assumed. As of September 30, 2024, management’s review of the purchase price allocation has been completed. 19. Subsequent Events We evaluated subsequent events through the issuance date of these financial statements in Form 10-Q. No material subsequent events were identified that require disclosure. 23