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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-26 · 180 added, 315 removed, 261 unchanged (65% of the section changed)

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Business Environment Overview and Trends

Our reportable segments, Machine Clothing (“MC”) and Albany Engineered Composites (“AEC”) draw on the same advanced textiles and materials processing capabilities, and compete on the basis of product-based advantage that is grounded in those core capabilities.

The MC segment is the Company’s long-established core business and primary generator of cash.

While it has been negatively impacted by declines in publication grades in the Company’s traditional markets, there has been some offsetting effect due to growth in demand for packaging and tissue grades, as well as the expansion of paper consumption and production in Asia and South America.

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

Some of the markets

in which our products are sold are expected to have low levels of growth and we face pricing pressures in all markets.

Despite these market pressures on revenue, the MC business retains the potential for maintaining stable earnings in the future.

MC has been a significant generator of cash, and we seek to maintain the cash-generating potential of this business by maintaining the low costs that we have achieved through continuous focus on cost-reduction initiatives, and competing vigorously by using our differentiated and technically superior products to reduce our customers’ total cost of operation and improve their paper quality.

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

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

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

Our strategy is to grow by focusing our proprietary 3D-woven technology, as well as our non-3D technology capabilities, on high-value aerospace (both commercial and defense) applications, while at the same time performing successfully on our portfolio of growth programs.

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

AEC’s largest aerospace customer is the SAFRAN Group ("SAFRAN") and sales to SAFRAN, through ASC, (consisting primarily of fan blades and cases for CFM International’s LEAP engine) accounted for approximately 16 percent of the Company’s consolidated Net revenues in 2023.

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

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

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

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

We conduct our business under two reportable segments:

Machine Clothing (“MC”) and Albany Engineered Composites (“AEC”) each rooted in similar materials sciences know-how that forms a common approach to customer

value proposition in design and manufacturability.

MC competes on the basis of its deep industry knowledge, customer reputation and customer service and global advanced textile manufacturing capabilities, which has enabled it to develop a robust and market leading product offering that can be tailored to customer specific requirements.

AEC competes on the basis of its innovative technology solutions, extensive composite manufacturing capabilities and capacity that enable it to offer high quality specific part and assembly solutions that achieve its customers’ application performance requirements.

Global, economic, and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, potential changes in U.S.

government policy positions, including changes in Department of Defense policies or priorities, geopolitical conflicts and strained intercountry relations, U.S.

tax law changes, foreign currency exchange rates, sanctions, tariffs, energy costs and supply, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses.

Machine Clothing

Prior to the acquisition of Heimbach, the MC segment experienced declining revenues due to changing global market consumption of publication grade paper.

The MC segment expects revenues to continue to decline for publication grade paper into 2025 and beyond, however, we see an offsetting effect due to growth in demand for packaging, and to a lesser degree, tissue grade products.

During 2024, the MC segment saw stronger revenue in tissue, pulp, and engineered fabrics, and weaker revenue in packaging and publication grades, with softness in Asia, particularly China, and Europe.

Going into 2025, the MC segment expects a modest recovery in Europe beginning in late 2025;

however, China's recovery remains unclear.

The MC segment's backlog continues to be stable going into 2025.

MC believes it is well-positioned in key markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology.

Some of the markets in which MC's products are sold are expected to have volume trends that are in line with global GDP.

MC continues to face pricing pressures in all markets.

Despite these market pressures on revenue growth, the MC segment is expected to improve earnings in the future through cost controls and manufacturing productivity efficiencies.

The MC segment has been a significant generator of cash for the Company.

The Company seeks to maintain the cash-generating potential of this business by maintaining lower costs through a continued focus on cost-reduction initiatives and strategic investment, and by vigorously using our differentiated and technically superior products to reduce our customers’ total cost of operation and improve their paper quality.

In August, 2023, the Company acquired Heimbach, a privately-held manufacturer of paper machine clothing headquartered in Düren, Germany, which provides the MC segment with an increase in scale and complementary technology that further drives MC's differentiated manufacturing sales and service network.

Unlocking the full benefits and value of Heimbach is a complex integration process that is well underway and tracking to expectations.

It is a multi-year program that started with harmonizing Heimbach operations with our legacy MRP systems and establishing a new global customer and operations organization.

There is a disciplined focus to realize not only the combined benefits from procurement and overhead, but also to leverage best practices in manufacturing and a deep realignment of our operational footprint.

During 2024, the Company announced several initiatives to further rationalize MC's operating footprint, including the closure of the South Korea facility, the consolidation of activities and facilities across the United Kingdom and the closure of Heimbach's Switzerland facility.

Albany Engineered Composites

The AEC segment's strategy is to continue to build on its global brand by leveraging its industry leading performance to drive future growth through technology differentiation.

This includes continued investment in AEC's proprietary 3D-woven technology to accelerate solutions that can be offered across a set of broader applications;

and by leveraging the AEC's non-3D technology capabilities and capacity, on high-value aerospace (both commercial and defense) applications, and other emerging markets such as space and advance air mobility ("AAM").

The AEC segment provides longer-term growth potential for the Company and the AEC segment continues to penetrate new programs and applications, as well as ramping up production on certain long-term programs, such as the CH-53K and other commercial aircraft programs that have not yet returned to pre-COVID production rates.

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

AEC’s largest aerospace customer is the SAFRAN Group ("SAFRAN") and sales to SAFRAN, through ASC, (consisting primarily of fan blades and cases for CFM International’s LEAP engine) accounted for approximately 14% of the Company’s consolidated Net revenues in 2024.

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

Outside of ASC, the AEC segment also supplies 3D-woven composite vanes for the F-35 liftfan.

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

In 2024, approximately 36% of AEC net revenues were related to U.S.

government contracts or programs.

The AEC segment is dependent on global supply chains and has experienced disruptions in recent years.

In addition, higher inflation levels increased material costs, higher labor rates and other supplier costs that have impacted the AEC segment’s results of operations.

The AEC segment attempts to mitigate raw material and supplier costs by entering into long-term supply agreements.

However, in some cases, higher raw material and supplier costs adversely impacted certain firm-fixed price programs resulting in lower program gross margins.

In addition, as the AEC segment ramps-up larger complex programs, such as CH-53K and Gulfstream, it continues to face challenges in staffing and training its workforce to support production rates, which has impacted operational productivity, particularly at its Salt Lake City facility, and contributed to increased labor and scrap costs.

As a result of the higher costs and operational challenges, the AEC segment updated labor, material input and scrap assumptions and estimates for certain long-term programs that resulted in negative cumulative changes in estimated profitability in the amount of $43.2 million in 2024, primarily related to the CH-53K, Gulfstream, F-35 and GE Platforms programs.

Although the AEC segment believes it has action plans to mitigate these cost increases, the AEC segment may continue to experience similar issues into 2025 as it ramps up production levels on key programs.

Consolidated Results of Operations

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7.2 % 10.9 % 11.4 %

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

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

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

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

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

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

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

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

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

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

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

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

Net revenues increased 7.2% compared to 2023, driven by an increase of Net revenues from the Heimbach acquisition in 2023 and marginally higher Net revenues in AEC, partially offset by lower organic Net revenues at MC.

MC's Net revenues increased 11.8% compared to 2023 driven by an increase in Heimbach Net revenues of $95.0 million as well as better performance in tissue, pulp, and engineered fabrics.

This was partially offset by $14.0 million of lower Net revenues in the rest of the segment, driven primarily by weakness in publication and packaging globally.

Changes in currency translation rates had the effect of decreasing Net revenues $1.9 million.

AEC's Net revenues increased 0.7%, primarily driven by growth on certain commercial and space programs, which were partially offset by lower revenues on the LEAP, F-35 and CH-53K programs.

Changes in currency translation rates had an insignificant effect on Net revenues.

The following table summarizes Gross profit by business segment:

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32.6 % 36.9 % 37.7 %

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

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

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

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

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

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

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

The decrease in Gross profit during 2024, as compared to 2023, was driven by increased cost assumptions that adjusted the expected profitability of certain long-term contracts in the AEC segment.

Gross profit as a percentage of revenues was as follows:

• MC's gross profit margin decreased from 49.4% in 2023 to 46.1% in 2024.

This margin decrease was primarily attributable to lower gross margin at Heimbach.

• AEC's gross profit margin decreased from 19.3% in 2023 to 11.6% in 2024, driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $43.2 million in 2024, as compared to a decrease of $4.1 million during 2023, partially offset by a favorable shift in program revenue mix.

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

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17.1 % 18.7 % 16.3 %

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

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

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

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

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

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

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

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

Certain prior year amounts have been reclassified in order to conform to current year presentation.

Global information system costs previously included in Corporate expenses are allocated to the segments in the above presentation.

Management believes this presentation better reflects the performance of the segments and is how management will review segment performance on a going forward basis.

Global information system costs were $31.9 million in 2024, $27.3 million in 2023, and $22.7 million in 2022.

Corporate expenses include global information system costs of $1.0 million in 2024, $2.1 million in 2023 and $1.0 million in 2022.

For more information on our segments, see Note 3, Reportable Segments and Geographic Data, of the Notes to the Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Consolidated SG&A expenses decreased 1.9% as compared to 2023 and as a percentage of Net revenues, SG&A expenses decreased from 18.7% in 2023 to 17.1% in 2024.

The overall decrease in SG&A expenses was due to the net effect of the following:

• MC SG&A expenses increased $4.9 million as compared to 2023, with a $13.5 million increase related to Heimbach, partially offset by a $8.2 million decrease due to changes in currency translation rates and a $0.5 million decrease due to personnel-related costs.

• In AEC, SG&A expenses decreased $1.4 million, driven by a $0.8 million decrease in marketing costs and a $0.6 million decrease in personnel-related costs, partially offset by an increase in global information systems costs.

• Corporate SG&A expenses decreased $7.5 million, driven by a $4.4 million decrease in personnel-related costs, a decrease of $1.9 million in professional fees, and a decrease of $1.1 million in global information system costs.

Technical and Research

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3.7 % 3.5 % 3.9 %

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

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

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

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

Consolidated Technical and research expenses increased 13.5% as compared to 2023 and as a percentage of Net revenues increased from 3.5% in 2023 to 3.7% in 2024.

• MC Technical and research expenses increased $5.2 million as compared to 2023, driven primarily by a $5.1 million increase related to Heimbach.

• AEC Technical and research expenses increased $0.3 million as compared to 2023, driven by increased research material and labor costs.

Restructuring

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

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

In addition to the items discussed above affecting Gross profit, SG&A and Technical and research expenses, Operating income was affected by Restructuring expense, net, of $13.4 million in 2024, as compared to $0.3 million in 2023.

The following table summarizes Restructuring expenses, net, by business segment:

(in thousands, except percentages)

Years ended December 31, 2024 2023 2022

Machine Clothing

$ 9,460 $ 282 $ 92

Albany Engineered Composites

Total restructuring expenses

$ 13,438 $ 282 $ 106

At MC, restructuring actions were taken throughout 2024 in order to cease operations at several facilities, including at the Company's MC forming fabric manufacturing facility in Chungju, South Korea, at the Company's Heimbach engineered fabric manufacturing facility in Rochdale, UK, and at the Company's Heimbach paper machine clothing facility in Olten, Switzerland.

These actions drove $11.2 million of restructuring charges during 2024, of which $9.5 million in Restructuring expenses, net was due to workforce reductions, fixed asset impairments, and related costs and $1.7 million in Costs of goods sold was due to the write-off of inventory.

We expect to incur additional restructuring expenses related to these actions into 2025.

At AEC, restructuring activities were related to reductions in the workforce at various AEC locations, which resulted in restructuring expenses of $3.6 million for the year ended 2024.

Restructuring expenses incurred at MC and AEC during 2023 were not significant.

During the first quarter of 2025, the Company decided to consolidate headquarters in Portsmouth, NH.

This change impacts approximately 100 employees, will take place over the next year and a half, and will cost an estimated $7 million over that period related to retention, relocation, severance, and professional costs.

Operating Income

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Pension settlement expense — — 49,128

AMJP grant — — (5,832)

Other (income)/expense, net

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Interest Expense/(income), net

Interest expense/(income), net, decreased over the prior year as a result of higher interest earned on Cash and cash equivalents, in addition to lower interest expense on finance leases.

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

Interest expense/(income), net, decreased over the prior year primarily due to lower average debt balances, in part offset by less interest income earned on cash equivalents during the current year.

In addition, our 2021 interest rate swap contracts expired in the fourth quarter of 2024.

Although we entered into new interest rate swap contracts in the fourth quarter, our interest cost will increase significantly in 2025 and beyond.

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

Pension settlement expense

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

No similar charges were incurred during 2023.

No similar charges were incurred during 2024 or 2023.

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

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

Department of Transportation.

No such award was granted during 2022 or 2023.

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

Other (income)/expense, net

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.

Other (income)/expense, net included foreign currency related transactions that resulted in gains of $3.9 million in 2024 and $2.9 million in 2023.

In addition, changes in the fair value of derivative instruments included losses of $3.5 million in 2024 and gains of $0.4 million in 2023, driven by currency rate movements, most notably the Brazilian Real and Mexican Peso.

Other (income)/expense also included bank fees, amortization of debt issuance costs, and rental income.

See Note 6, Other (Income)/Expense, net , of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for additional information.

Years ended December 31,

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

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

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

The Company has continuously monitored its ability to realize deferred tax assets as it pertains to Heimbach GmbH due to their existing net operating loss carryovers.

After reviewing the positive and negative evidence available as of December 31, 2024, we continue to assert that we will more likely than not be able to utilize the net deferred tax assets.

Net operating losses, which make up the majority of the deferred tax assets, have an unlimited carryforward period in Germany and we expect continued improvements in the business post-acquisition due to synergies and efficiencies that will be realized in the near future.

The current net deferred tax asset position at Heimbach GmbH as of December 31, 2024 is $8.4 million.

If it was determined that a valuation allowance was required, a deferred tax expense of $8.4 million as of December 31, 2024 would be required to create a reserve against those net deferred tax assets.

The assessment of the need for a valuation allowance could change in future periods if additional negative evidence is observed.

The amount of the tax expense needed to book the valuation allowance could also change depending on additional activities.

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

While the U.S.

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

has indicated that it will not adopt the Pillar Two rules, various other governments around the world are enacting legislation.

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

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

We have evaluated the impact of these rules and have determined that it did not materially increase our global tax costs in 2024.

We will continue to monitor U.S.

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

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

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

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

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

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

Segment Results of Operations

Machine Clothing Segment

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

The MC segment accounted for 61% of our consolidated revenues during 2024.

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

Review of Operations

(in thousands, except percentages)

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29,832 24,651 24,588

Restructuring expenses, net

Operating income

$ 183,632 $ 188,429 $ 196,212

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

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

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

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

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

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

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

% of net revenues

24.5 % 28.1 % 32.2 %

Net revenues increased 11.8% as compared to 2023, driven by the addition of Heimbach Net revenues of $95.0 million as well as better performance in tissue, pulp, and engineered fabrics.

This was partially offset by $14.0 million of lower Net revenues in the rest of the segment, driven primarily by weakness in publication and packaging globally.

Changes in currency translation rates had the effect of decreasing Net revenues $1.9 million.

Heimbach contributed total Net revenues of $141.6 million and $51.2 million in 2024 and 2023, respectively.

Heimbach reduced MC's Operating income by $20.0 million and $6.3 million in 2024 and 2023, respectively.

Included in Heimbach's 2024 operating loss is $8.8 million of non-recurring restructuring and acquisition-related costs.

Gross profit increased by $14.5 million as compared to 2023, driven by the higher sales noted above;

however, gross profit margin decreased from 49.4% in 2023 to 46.1% in 2024.

This margin decrease was primarily driven by lower gross margins at Heimbach.

Operating Income

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

Operating income decreased $4.8 million or 2.5% as compared to 2023.

The strong Gross profit performance noted above was more than offset by increased SG&A, Technical and Research, and Restructuring expenses.

SG&A expenses increased $4.9 million as compared to 2023, with a $13.5 million increase related to Heimbach, partially offset by a $8.2 million decrease due to changes in currency translation rates and a $0.5 million decrease due to personnel-related costs.

Technical and research expenses increased $5.2 million as compared to 2023, driven primarily by a $5.1 million increase related to Heimbach.

In addition, Restructuring expenses increased $9.2 million related to announcements during the year to cease operations at multiple manufacturing facilities, further reducing Operating income.

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

Backlog in the MC segment was $236 million at December 31, 2024.

All of the backlog in MC as of December 31, 2024 is expected to be recognized as revenues during the next 12 months.

Albany Engineered Composites Segment

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

The AEC segment accounted for 39% of our consolidated net revenues during 2024.

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

Review of Operations

(in thousands, except percentages)

9 unchanged sentences

16,265 15,976 15,353

Operating income/(loss)

Restructuring expenses, net

Operating income

$ (11,603) $ 27,351 $ 19,805

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

These increases amounted to approximately $63.0 million.

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

These net decreases amounted to approximately $11.0 million.

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

% of net revenues

-2.4 % 5.7 % 4.7 %

Net revenues increased 0.7%, primarily driven by growth on certain commercial and space programs, which were partially offset by lower revenues on the LEAP, F-35 and CH-53K programs.

Changes in currency translation rates had an insignificant effect on Net revenues.

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

Revenue earned under these arrangements accounted for approximately 40 percent of segment revenue for 2023 and 2022.

LEAP engines are currently used on the Airbus A320neo, Boeing 737 MAX, and COMAC 919 aircraft.

Revenue earned under these arrangements accounted for approximately 37% of segment revenue for 2024 and 2023.

In addition, AEC has long-term contracts in which the selling price is fixed.

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

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

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

2 unchanged sentences

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

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

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

Gross profit decreased $36.4 million as compared to last year and Gross profit margin decreased from 19.3% in 2023 to 11.6% in 2024.

The reduction was driven primarily by cumulative changes in the estimated profitability of long-term contracts, which decreased gross profit by $43.2 million in 2024, as compared to a decrease of $4.1 million during 2023.

The unfavorable effects in 2024 related to higher labor, material and scrap costs.

The negative change in estimated profitability in 2024 was primarily driven by a few large complex programs, including approximately $25.5 million for the various CH-53K programs, $11.4 million on our Gulfstream program, $3.9 million on our F-35 program, and $2.2 million on our GE Platforms program.

The unfavorable effects in 2023 related to additional reserves taken on certain contracts and inflationary factors decreasing anticipated margins.

Operating Income/(Loss)

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

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

Operating income decreased $39.0 million, principally due to reduced Gross profit as noted above.

This was partially offset by a decrease in SG&A expenses of $1.4 million, driven by a $0.8 million decrease in marketing costs and a $0.6 million decrease in personnel-related costs.

Technical and research expenses increased $0.3 million as compared to 2023, driven by increased research material and labor costs.

Restructuring activities were related to reductions in the workforce at various AEC locations and resulted in restructuring expenses of $3.6 million, further reducing Operating income.

Backlog at AEC represents the aggregate dollar value of products and services for the given term of our contracts with customers where we have enforceable rights, including both funded and unfunded contract scope, for which products have not been provided or services have not been performed, but excluding unexercised contract options and potential orders under ordering-type contracts.

For new contract awards, the initial backlog recorded may only reflect a portion of the total value of the contract award, particularly for ordering-type contracts.

Backlog may increase over time as the orders placed against a contract include enforceable rights.

For our ASC LEAP contract with our partner Safran, our backlog reflects the agreed business plan values with Safran for the subsequent full twelve-month calendar year.

Orders included in our backlog may be modified, canceled, or rescheduled by our customers, although customers may incur cancellation penalties as defined in the terms of such customer contracts;

and which such terms may vary from contract to contract.

If any of our enforceable contracts were to be terminated, our backlog would be reduced by the expected value of the unfilled orders of such contracts.

Backlog differs from unsatisfied performance obligations for contracts disclosed in Note 2, Revenue Recognition, of the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K, which excludes unsatisfied performance obligations with an original expected duration of one year or less.

Backlog at AEC was $1.4 billion as of December 31, 2024.

Working Capital, Liquidity and Capital Structure

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The AEC segment primarily serves customers in the commercial and defense aerospace market through both engine and airframe applications.

AEC's working capital levels rose sharply in the last few years in line with the segment's growth.

AEC's working capital levels rose sharply in the last several years in line with the segment's growth.

In the MC segment, the Chinese New Year, summer months, and the end of the year are often periods of lower production for some of our customers, which, in the past contributed to seasonal variation in sales and orders.

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(a) Includes Accounts receivable, Contract assets, Inventories, Accounts payable and Accrued liabilities.

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

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

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

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

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

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

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

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

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

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

Net cash provided by operating activities during 2024 was $218.4 million, compared to $148.1 million in the 2023.

The increase was primarily driven by improved levels of working capital at both segments, but was most pronounced at AEC, which invested a much more significant amount in working capital during 2023 related to the expanded CH-53K scope of work and the build-up of inventory in the LEAP program as compared to 2024.

Net cash used in investing activities included capital expenditures totaling $80.2 million and $84.4 million during 2024 and 2023, respectively, including investments in new aerospace programs and to improve productivity in our MC segment.

In addition, investing activities during the prior year included the acquisition of Heimbach, headquartered in Düren, Germany, for net cash of $133.5 million, funded using cash on hand.

Net cash used in financing activities was $183.8 million during 2024 as compared to $52.6 million during 2023.

The significant increase in net cash used during 2024 was due to increased principal payments on debt, increased share repurchases, and increased dividends paid to shareholders.

Liquidity and Capital Structure

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As of December 31, 2024, we had cash and cash equivalents of $115.3 million and availability under our Credit Agreement of $481.5 million, for a total liquidity of approximately $596.8 million.

Bank debt at the Company's Heimbach subsidiary was paid down to less than $0.1 million as of December 31, 2024.

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

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Our cash planning strategy includes repatriating current earnings in excess of working capital requirements from certain countries in which our subsidiaries operate.

While we have been successful in such endeavor to date, there can be no assurance that we will be able to cost effectively repatriate funds in the future.

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

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

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

While we have been successful in such endeavor to date, there

can be no assurance that we will be able to cost-effectively repatriate funds in the future.

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

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

We paid dividends of $32.5 million and $31.2 million during 2024 and 2023, respectively.

There were no share repurchases in 2023.

The Company repurchased 182,901 shares during 2024 for $14.2 million.

In total, the Company repurchased 1,490,904 shares for a total cost of $124.0 million since 2021.

On February 21, 2025, the Company's Board of Directors authorized the Company to repurchase shares up to $250 million, which replaces the 2021 authorization.

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

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There were no material changes in the Company’s off-balance sheet arrangements during 2024.

During the first quarter of 2025, the Company decided to consolidate headquarters in Portsmouth, NH.

Other Sources/Uses of Capital

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We estimate these contractual commitments amount to approximately $538 million as of December 31, 2024, of which we expect to pay $62 million within the next year.

Such commitments are not representative of all our future cash requirements, which will vary based on future needs.

Critical Accounting Policies and Estimates

Interest payments on debt are expected to be approximately $18 million in 2025, $18 million in 2026, $19 million in 2027, and $12 million in 2028, and principal payments on debt of $318 million are not due until 2028.

For more information on the revolving credit agreement, see Note 17, Financial Instruments , for payments related to leases see Note 20, Leases , and for payments related to pension and postretirement plans see Note 4, Pension, Postretirement, and Other Benefit Plans , as included in the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Payments for these commitments are not representative of all our future cash requirements, which will vary based on future needs.

Critical Accounting Estimates

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

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

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

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.

AEC has long-term aerospace contracts under which there are two phases:

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

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

The weighted average long-term rate of return on plan assets for our defined benefit pension plans is 4.98% for 2024.

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

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

Tax positions taken or expected to be taken in a tax return are recognized when it is more-likely-than-not, based on technical merits, to be sustained upon examination by taxing authorities.

The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement, including resolution of related appeals and/or litigation process, if any.

Business Combinations

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

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

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

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

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

The Heimbach acquisition did not result in any goodwill.

Goodwill and Intangible assets

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Recent Accounting Pronouncements

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

Non-GAAP Measures

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

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

EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin;

Net leverage ratio;

and Adjusted Diluted earnings per share (or Adjusted EPS).

Management believes that these non-GAAP measures provide additional useful information to investors regarding the Company’s operational performance.

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

Net revenues, or percent changes in net revenues,

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

dollars at the exchange rate of a prior period.

These amounts are then compared to the U.S.

dollar amount as reported in the current period.

EBITDA (calculated as net income excluding interest, income taxes, depreciation and amortization), Adjusted EBITDA, and Adjusted EPS are performance measures that relate to the Company’s continuing operations.

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

Such excluded costs or benefits do not consist of normal, recurring cash items necessary to generate revenues or operate our business.

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

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

The income tax effects are calculated using the applicable statutory income tax rate of the jurisdictions where such costs or benefits were incurred or the effective tax rate applicable to total Company results.

The Company’s Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted EPS may not be comparable to similarly titled measures of other companies.

Net debt aids investors in understanding the Company’s debt position if all available cash were applied to pay down indebtedness.

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

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

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

(in thousands)

Years ended December 31, 2023 2022 2021

Net income (GAAP)

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

Interest expense, net

13,601 14,000 14,891

Income tax expense

48,846 35,472 47,163

Depreciation and amortization expense

76,733 69,049 74,255

EBITDA (non-GAAP)

250,790 215,029 255,077

Restructuring expenses, net 282 106 1,331

Foreign currency revaluation (gains)/losses

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

CEO transition expenses 2,719 — —

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

Dissolution of business relationships in Russia — 2,275 —

Pension settlement expense — 49,128 —

IP address sales — (3,420) —

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

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

Pre-tax (income)/loss attributable to noncontrolling interest (665) (817) (510)

Adjusted EBITDA (non-GAAP)

$ 265,096 $ 253,529 $ 250,891

(in thousands)

Year ended December 31, 2023

Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company

Net income/(loss) (GAAP) $ 199,378 $ 41,587 $ (129,355) $ 111,610

Interest expense, net — — 13,601 13,601

Income tax expense — — 48,846 48,846

Depreciation and amortization expense 23,891 49,030 3,812 76,733

EBITDA (non-GAAP) 223,269 90,617 (63,096) 250,790

Restructuring expenses, net 282 — — 282

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

CEO transition expenses — — 2,719 2,719

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

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

Pre-tax (income) attributable to noncontrolling interest (24) (641) — (665)

Adjusted EBITDA (non-GAAP) $ 234,108 $ 91,120 $ (60,132) $ 265,096

(in thousands)

Year ended December 31, 2022

Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company

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

Interest expense, net — — 14,000 14,000

Income tax expense — — 35,472 35,472

Depreciation and amortization expense 19,483 46,202 3,364 69,049

EBITDA (non-GAAP) 225,697 77,781 (88,449) 215,029

Restructuring expenses, net 92 — 14 106

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

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

Pension settlement expense — — 49,128 49,128

IP address sales — — (3,420) (3,420)

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

Pre-tax (income) attributable to noncontrolling interest — (817) — (817)

Adjusted EBITDA (non-GAAP) $ 226,763 $ 78,693 $ (51,927) $ 253,529

(in thousands)

Year ended December 31, 2021

Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company

Net income/(loss) (GAAP)

$ 215,654 $ 16,160 $ (113,046) $ 118,768

Interest expense, net

— — 14,891 14,891

Income tax expense

— — 47,163 47,163

Depreciation and amortization expense

20,191 50,402 3,662 74,255

EBITDA (non-GAAP)

235,845 66,562 (47,330) 255,077

Restructuring expenses, net

1,202 32 97 1,331

Foreign currency revaluation (gains)/losses (a) (307) 50 (1,185) (1,442)

Former CEO termination costs — 1,101 (5,832) (4,731)

Acquisition/integration costs — 1,166 — 1,166

Pre-tax loss attributable to noncontrolling interest — (510) — (510)

Adjusted EBITDA (non-GAAP)

$ 236,740 $ 68,401 $ (54,250) $ 250,891

The Company discloses certain income and expense items on a per-share basis.

The Company believes that such disclosures provide important insight into the underlying earnings and are financial performance metrics commonly used by investors.

The Company calculates the per-share amount for items included in continuing operations by using the income tax rate based on either the tax rates in specific countries or the estimated tax rate applied to total Company results.

The after-tax amount is then divided by the weighted-average number of shares outstanding for each period.

Year-to-date earnings per-share effects are determined by adding the amounts calculated at each reporting period.

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

(in thousands, except per share amounts)

Year ended December 31, 2023

Effect After tax

Effect Per Share

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

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

CEO transition expenses 2,719 — 2,719 0.09

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

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

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

(in thousands, except per share amounts)

Year ended December 31, 2022

Effect After tax

Effect Per Share

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

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

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

Pension settlement expense 49,128 11,947 37,181 1.20

Tax impact of stranded OCI benefit from Tax Cuts and Job Act (TCJA) for pension liability — 5,217 (5,217) (0.17)

IP address sales (3,420) (872) (2,548) (0.08)

Acquisition/integration costs 1,057 316 741 0.04

(in thousands, except per share amounts)

Year ended December 31, 2021

Effect After tax

Effect Per Share

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

Foreign currency revaluation (gains)/losses (a) (1,442) (323) (1,119) (0.04)

AMJP grant (4,731) (1,404) (3,327) (0.11)

Acquisition/integration costs 1,166 349 817 0.04

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

Per share amounts

Years ended December 31, 2023 2022 2021

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

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

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

Adjustments, after tax:

Restructuring expenses, net 0.01 0.01 0.02

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

CEO transition expenses 0.09 — —

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

Dissolution of business relationships in Russia — 0.06 —

Pension settlement expense — 1.20 —

IP address sales — (0.08) —

Tax impact of stranded OCI benefit from TCJA for pension liability (b) — (0.17) —

AMJP grant — — (0.11)

Withholding tax related to internal restructuring 0.10 —

Acquisition/integration costs 0.14 0.04 0.04

Adjusted Diluted earnings per share (non-GAAP)

$ 4.06 $ 3.87 $ 3.56

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

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

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

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

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

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

The Company calculates Net debt by subtracting Cash and cash equivalents from Total debt.

Total debt is calculated by adding Long-term debt, Current maturities of long-term debt, and Notes and loans payable, if any.

The following table contains the calculation of consolidated net debt:

(in thousands)

As of December 31, 2023 2022 2021

Current maturities of long-term debt

$ 4,218 $ — $ —

Long-term debt

452,667 439,000 350,000

456,885 439,000 350,000

Cash and cash equivalents

173,420 291,776 302,036

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

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

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

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

(in thousands) December 31, 2023

Net income/(loss) (GAAP) $ 111,610

Interest expense, net 13,601

Income tax expense 48,846

Depreciation and amortization expense 76,733

EBITDA (non-GAAP) 250,790

Restructuring expenses, net 282

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

CEO transition expenses 2,719

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

Acquisition/integration costs 5,194

Pre-tax (income) attributable to noncontrolling interest (665)

Adjusted EBITDA (non-GAAP) $ 265,096

(in thousands, except for net leverage ratio) December 31, 2023

Net debt (non-GAAP) $ 283,465

Adjusted EBITDA (non-GAAP) 265,096

Net leverage ratio (non-GAAP) 1.07

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis