What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-07-30 compared with 2025-04-30 · 141 added, 70 removed, 224 unchanged (49% of the section changed)

35 unchanged sentences

• Costly and disruptive legal disputes and settlements and the Company's ability to provide adequate insurance coverage;

• Potential adverse outcomes from current or future patent infringement claims could materially affect our business operations and financial condition;

• Costs associated with defending or settling intellectual property disputes could be significant;

• Increasing operational and compliance costs associated with increasing environmental, social and governance regulatory requirements, as well as the risk of noncompliance;

4 unchanged sentences

• Disruptions or challenges arising from the implementation or upgrading of new information technology systems;

• Rapid advancements in artificial intelligence may introduce unforeseen regulatory, ethical, and operational challenges;

• Integration of AI technologies may involve data privacy, security, and compliance risks;

• Evolving legal frameworks around AI and IP protection could impact our competitive position and innovation strategies;

• Significant changes in critical estimates and assumptions related to pension and other post-retirement benefit costs and liabilities;

15 unchanged sentences

Machine Clothing Segment

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 across Europe for packaging, and to a lesser degree, tissue grade products and continued softness in Asia.

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

The MC segment's backlog continues to be stable.

5 unchanged sentences

The AEC segment continues to ramp-up production levels on commercial, defense, and space programs.

In the first quarter of 2025, the Company updated its labor, material input and scrap assumptions and estimates of certain long-term programs that resulted in a negative cumulative change in estimated profitability in the amount of $7.0 million.

The negative cumulative change in profitability was primarily driven by a few large complex programs, including $2.0 million for various CH-53K programs, $1.7 million on our Gulfstream program, $0.9 million on our F-35 program, and $2.4 million, net on all other programs.

Also, please refer to the Business Environment Overview and Trends in the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024.

In the first six months of 2025, the Company updated its labor, material input and scrap assumptions and estimates of certain long-term programs that resulted in a negative cumulative change in estimated profitability in the amount of $7.2 million for the second quarter of 2025 and $14.2 million for the six months June 30, 2025.

The negative cumulative change in profitability during the second quarter of 2025 was primarily driven by a few large complex programs, including $8.1 million for various CH-53K programs, $0.8 million on our F-35 program, offset by a gain of $1.6 million on our Gulfstream program and $0.1 million, net gain on all other programs.

The negative cumulative change in profitability during the six months ended June 2025 was driven by $10.1 million for various CH-53K programs, $2.1 million on our F-35 program, and $2.0 million, net on all other programs.

Also, please refer to the Business Environment Overview and Trends in the Management's Discussion and Analysis of

Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024.

The Annual Report on Form 10-K, along with the Company's other filings, can be found on the Securities and Exchange Commission's website, www.sec.gov, as well as on the Company's website:

2 unchanged sentences

The following table summarizes our Net revenues by business segment:

Three months ended March 31,

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

(in thousands, except percentages)

2025 2024 % Change

2025 2024 % Change 2025 2024 % Change

Machine Clothing $ 180,926 $ 193,578 (6.5) % $ 355,623 $ 378,795 (6.1) %

9 unchanged sentences

Total $ 311,399 $ (3,925) $ 307,474 $ 331,994 (7.4) %

Net revenues decreased 7.8% compared to the first quarter of 2024, driven by lower Net revenues in publication, tissue and pulp grades within MC and a decrease in Net revenues in AEC due to a reduction in certain commercial and space programs.

MC's Net revenues decreased 5.7% compared to the first quarter of 2024 driven by lower revenues in publications, tissue and pulp grades.

(in thousands, except percentages)

Net revenues as reported, YTD 2025 (Decrease)/ increase due to changes in currency translation rates YTD 2025 revenues on same basis as 2024 currency translation rates Net revenues as reported, YTD 2024 % Change compared to 2024, excluding currency rate effects

Machine Clothing $ 355,623 $ (509) $ 355,114 $ 378,795 (6.3) %

Albany Engineered Composites

244,550 (437) 244,113 266,529 (8.4) %

Total $ 600,173 $ (946) $ 599,227 $ 645,324 (7.1) %

Three Month Comparison

Net revenues for the three months ended June 30, 2025 decreased 6.2% compared to the three months ended June 30, 2024, primarily driven by reduced demand in Asia, an unplanned equipment downtime in one of our production facilities within MC and a decrease in Net revenues in AEC due to a reduction in certain commercial and space programs.

MC's Net revenues for the three months ended June 30, 2025 decreased 6.5% compared to the three months ended June 30, 2024 primarily driven by reduced demand in Asia and an unplanned equipment downtime in one of our production facilities.

In addition, changes in currency translation rates had the effect of decreasing Net revenues $3.0 million.

AEC's Net revenues decreased 11.0% compared to the first quarter of 2024, primarily driven by demand reductions on certain commercial and space programs, which was partially offset by higher revenues on CH-53K and other programs.

AEC's Net revenues for the three months ended June 30, 2025 decreased 5.7% compared to the three months ended June 30, 2024, primarily driven by reductions on certain commercial and space programs, which was partially offset by higher revenues on CH-53K and other programs.

Changes in currency translation rates had the effect of decreasing Net revenues $0.9 million.

Six Month Comparison

Net revenues for the six months ended June 30, 2025 decreased 7.0% as compared to the six months ended June 30, 2024, primarily driven by reduced demand in Asia, an unplanned equipment downtime in one of our production facilities within MC and a decrease in Net revenues in AEC due to a reduction in certain commercial and space programs.

MC's Net revenues for the six months ended June 30, 2025 decreased 6.1% as compared to the six months ended June 30, 2024, primarily driven by reduced demand in Asia and an unplanned equipment downtime in one of our production facilities.

In addition, changes in currency translation rates had the effect of decreasing Net revenues $0.5 million.

AEC's Net revenues for the six months ended June 30, 2025 decreased 8.2% as compared to the six months ended June 30, 2024, primarily driven by reductions on certain commercial and space programs, which was partially offset by higher revenues on CH-53K and other programs.

Changes in currency translation rates had the effect of decreasing Net revenues $0.4 million.

The following table summarizes Gross profit by business segment:

Three months ended March 31,

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

(in thousands, except percentages)

2025 2024 2025 2024

Machine Clothing $ 83,759 $ 88,873 $ 163,661 $ 173,528

3 unchanged sentences

% of Net revenues 31.3 % 33.9 % 32.3 % 34.3 %

The decrease in 2025 Gross profit, as compared to the same period last year, was driven by increased cost assumptions that adjusted the expected profitability of certain long-term contracts in the AEC segment.

Three Month Comparison

The decrease in gross profit for the three months ended June 30,2025, as compared to the three months ended June 30, 2024, 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 by segment was as follows:

• MC's gross profit margin remained consistent with the prior year, yielding 45.7% in both 2024 and 2025.

• AEC's gross profit margin decreased from 18.8% in 2024 to 14.5% in 2025, driven primarily by cumulative changes in the estimated profitability of long-term contracts, which decreased gross profit by $7.0 million in 2025, as compared to a decrease of $0.9 million during the same period last year.

• MC's gross profit margin increased slightly from 45.9% in 2024 to 46.3% in 2025.

• AEC's gross profit margin decreased from 17.0% in 2024 to 10.5% in 2025, driven primarily by cumulative changes in the estimated profitability of long-term contracts, which decreased gross profit by $7.0 million in 2025, as compared to a decrease of $5.0 million in 2024.

Six Month Comparison

The decrease in gross profit for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024, 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 by segment was as follows:

• MC's gross profit margin has increased slightly over the the prior year, from 45.8% in 2024 to 46.0% in 2025.

• AEC's gross profit margin decreased from 17.8% in 2024 to 12.4% in 2025, driven primarily by cumulative changes in the estimated profitability of long-term contracts, which decreased gross profit by $14.2 million in 2025, as compared to a decrease of $7.6 million during the six months ended June 30, 2024.

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

The following table summarizes SG&A expenses by business segment:

Three months ended March 31,

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

(in thousands, except percentages)

2025 2024 2025 2024

Machine Clothing $ 35,669 $ 30,569 $ 68,550 $ 63,336

4 unchanged sentences

% of Net revenues 18.8 % 16.7 % 18.7 % 17.1 %

Consolidated SG&A expenses decreased 1.9% as compared to the first quarter of 2024, however, as a percentage of Net revenues, SG&A expenses increased from 17.5% in 2024 to 18.6% in 2025.

• MC SG&A expenses increased $0.1 million as compared to the first quarter of 2024, with a $3.1 million increase due to changes in currency translation rates, offset by a $3.0 million decrease in travel, service, and personnel-related costs.

• In AEC, SG&A expenses decreased $1.4 million, compared to the first quarter of 2024 primarily driven by lower incentive compensation and personnel-related costs.

• Corporate SG&A expenses increased $0.3 million, compared to the first quarter of 2024 principally due to higher incentive compensation and personnel-related costs, offset by a decrease in professional fees and smaller impact from changes in currency translation rates.

Three Month Comparison

Consolidated SG&A expenses increased 5.4% as compared to the three months ended June 30, 2024, as a percentage of Net revenues, SG&A expenses increased from 16.7% in 2024 to 18.8% in 2025.

• MC SG&A expenses increased $5.1 million as compared to the three months ended June 30, 2024, primarily resulting from increases in unrealized gains and losses arising from the remeasurement of monetary assets and liabilities denominated in non-functional currencies (changes in currency translation rates), consulting costs and impacts of general inflationary pressures, offset by lower personnel-related costs.

• In AEC, SG&A expenses decreased $1.0 million, compared to the three months ended June 30, 2024 primarily driven by lower incentive compensation and personnel-related costs.

• Corporate SG&A expenses decreased $1.1 million, compared to the three months ended June 30, 2024 principally due to lower incentive compensation and personnel-related costs, offset by a increase in professional fees.

Six Month Comparison

Consolidated SG&A expenses increased 1.8% as compared to the six months ended June 30, 2024, as a percentage of Net revenues, SG&A expenses increased from 17.1% in 2024 to 18.7% in 2025.

• MC SG&A expenses increased $5.2 million as compared to the six months ended June 30, 2024, primarily resulting from increases in unrealized gains and losses arising from the remeasurement of monetary assets and liabilities denominated in non-functional currencies (changes in currency translation rates), consulting costs and impacts of general inflationary pressures, offset by lower personnel-related costs.

• In AEC, SG&A expenses decreased $2.4 million, compared to the six months ended June 30, 2024 primarily driven by lower incentive compensation and personnel-related costs.

• Corporate SG&A expenses decreased marginally $0.8 million, compared to the six months ended June 30, 2024 principally due lower incentive compensation and personnel-related costs, offset by a increase in professional fees and information technology costs.

Technical and Research

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

Three months ended March 31,

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

(in thousands, except percentages)

2025 2024 2025 2024

Machine Clothing $ 7,373 $ 7,504 $ 14,616 $ 15,024

Albany Engineered Composites

4,125 4,356 7,799 9,501

Corporate expenses 1,054 0 2,033 —

1 unchanged sentence

% of Net revenues 4.0 % 3.6 % 4.1 % 3.8 %

Consolidated Technical and research expenses decreased 6.1% as compared to the first quarter of 2024 and as a percentage of Net revenues increased from 4.0% in 2024 to 4.1% in 2025.

• MC Technical and research expenses decreased $0.3 million as compared to the first quarter of 2024 due to lower personnel and development related costs, in addition to increased allocated costs to Corporate.

• AEC Technical and research expenses decreased $1.5 million as compared to the first quarter of 2024, due to decreases in research material and labor costs, in addition to increased allocated costs to Corporate.

• Corporate expenses in the first quarter of 2025 relate primarily to new business ventures initiatives and allocated costs from MC and AEC in 2025.

Three Month Comparison

Consolidated Technical and research expenses increased 5.8% as compared to the three months ended June 30, 2024 and as a percentage of Net revenues increased from 3.6% in 2024 to 4.0% in 2025.

• MC Technical and research expenses decreased by $0.1 million as compared to the three months ended June 30, 2024 due to higher personnel and development related costs, offset by allocated costs to Corporate.

• AEC Technical and research expenses decreased by $0.2 million as compared to the three months ended June 30, 2024, due to increases in research material and labor costs, offset by allocated costs to Corporate.

• Corporate expenses in the three months ended June 30, 2025 relate primarily to new business ventures initiatives and allocated costs from MC and AEC in 2025.

Six Month Comparison

Consolidated Technical and research expenses remained relatively flat and increased by 0.3% compared to the six months ended June 30, 2024 and as a percentage of Net revenues increased from 3.8% in 2024 to 4.1% in 2025.

• MC Technical and research expenses decreased $0.4 million as compared to the six months ended June 30, 2024 primarily due to increased allocated costs to Corporate.

• AEC Technical and research expenses decreased $1.7 million as compared to the six months ended June 30, 2024, due to decreases in research material and labor costs and increased allocated costs to Corporate.

• Corporate expenses in the six months ended June 30, 2025 relate primarily to new business ventures initiatives and allocated costs from MC and AEC in 2025.

Restructuring Expense, net

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 $2.5 million in the three months ended March 31, 2025, compared to $2.2 million in the first quarter of 2024.

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 $4.2 million in the three months ended June 30, 2025, compared to $2.1 million in the three months ended June 30, 2024;

and $6.7 million in the six months ended June 30, 2025, compared to $4.3 million in the six months ended June 30, 2024.

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

Three months ended March 31,

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

(in thousands, except percentages) 2025 2024 2025 2024

3 unchanged sentences

Consolidated total $ 4,183 $ 2,103 $ 6,698 $ 4,312

At MC, restructuring actions were taken in 2024 and 2025 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, at the Company's Heimbach paper machine clothing facility in Olten, Switzerland and at the Company's MC manufacturing facility in Ballo, Italy.

These actions drove $3.3 million of restructuring charges during the first three months of 2025, of which $3.1 million in restructuring expenses related to workforce reductions, fixed asset impairments and related costs, as well as related charges of $0.2 million in Cost of goods sold for the write-off of inventory, offset by a $1.8 million pension curtailment gain.

We expect to incur additional restructuring expenses related to these actions throughout the remainder of the year.

At AEC, restructuring activities were related to reorganizational costs as well as a reduction in the workforce within AEC, which resulted in restructuring expenses of $1.2 million and $2.2 million for the first three months of 2025 and 2024, respectively.

At MC, restructuring actions were taken in 2025 and 2024 to cease operations at five facilities.

For the three month ended June 30, 2025, these actions related to workforce reductions.

For the three month ended June 30, 2024, these actions related to workforce reductions and inventory write-off costs.

For the six month ended June 30, 2025, these actions related to workforce reductions, fixed asset impairments and related costs and inventory write-off costs of $6.1 million offset by a $1.8 million pension curtailment gain.

For the six month ended June 30, 2024 these actions related to workforce reductions and write-off of inventory of $1.1 million.

At AEC, restructuring activities were related to reorganizational costs as well as a reduction in the workforce within AEC, which resulted in restructuring expenses of $0.5 million for the three months ended June 30, 2025 and $0.9 million for the three months ended June 30, 2024.

For the six months ended June 30, 2025 and June 30, 2024, restructuring expenses were related to reductions in workforce and totaled $1.7 million and $3.1 million, respectively.

Operating Income

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

Three months ended March 31,

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

(in thousands, except percentages) 2025 2024 2025 2024

6 unchanged sentences

Other Earnings Items

Three months ended March 31,

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

(in thousands) 2025 2024 2025 2024

2 unchanged sentences

Income tax expense 4,254 9,578 10,530 20,849

Net (loss)/income attributable to the noncontrolling interest

Interest Expense/(Income), net

Net income attributable to the noncontrolling interest

149 96 143 174

Interest Expense, net

Interest expense, net, increased over the prior year primarily due to higher average debt balances, in part offset by a larger amount of interest income earned on cash equivalents during the current year.

1 unchanged sentence

Other (Income)/Expense, net

Other (income)/expense, net, included foreign currency related transactions, which resulted in losses of $3.2 million in the three months ended March 31, 2025, as compared to losses of $1.3 million in the same period last year.

In addition, changes in the fair value of derivative instruments included gains of $2.5 million in the three months ended March 31, 2025, as compared to gains of $0.1 million in the same period last year, driven by currency rate movements, most notably the Brazilian Real and Mexican Peso.

Other (income)/expense, net, included foreign currency related transactions, which resulted in losses of $5.7 million and $8.8 million in the three and six months ended June 30, 2025, as compared to losses of $0.2 million and gains of $1.1 million in the same period last year.

These changes were the result of unrealized losses on intercompany loans.

In addition, changes in the fair value of derivative instruments included gains of $0.7 million and $3.3 million in the three and six months ended March 31, 2025, as compared to losses of $4.4 million and $4.3 million for the three and six months ended June 30, 2024, driven by currency rate movements, most notably the Brazilian Real and Mexican Peso.

Other (income)/expense, net, also included net gains of $1.6 million from the divestiture of Arcari during the three and six months ended June 30, 2025 along with amortization of debt issuance costs, and other non-operating expenses.

Effective Income Tax Rate

Three months ended March 31,

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

2025 2024 2025 2024

Effective income tax rate 31.3 % 27.9 % 28.3 % 28.6 %

9 unchanged sentences

tax costs on foreign pre-tax earnings, and by discrete items that may occur in any given year but are not consistent from year to year.

The Company’s effective tax rate for the first quarter of 2025 was 26.6%, lower compared to 29.2% for the same period in 2024, mainly due to favorable discrete tax adjustments in the current period exceeding favorable discrete tax adjustments in the prior period.

The Company’s effective tax rate for the second quarter of 2025 was 31.3%, higher compared to 27.9% for the same period in 2024, mainly due to favorable discrete tax adjustments in the prior period exceeding favorable discrete tax adjustments in the current period.

For more information, see Note 7, Income Taxes, in the Notes to the Consolidated Financial Statements.

6 unchanged sentences

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

On July 4, 2025, the One Big Beautiful Bill (OBBB) Act, which includes a broad range of tax reform provisions, was signed into law in the United States and we continue to assess its impact.

Segment Results of Operations

Machine Clothing Segment

The MC segment accounted for 60% of our consolidated revenues during the three months ended March 31, 2025.

The MC segment accounted for 58% and 59% of our consolidated revenues during the three and six months ended June 30, 2025.

A summary of selected financial results for MC is as follows:

Review of Operations

Three months ended March 31,

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

(in thousands, except percentages)

2025 2024 2025 2024

Net revenues $ 180,926 $ 193,578 $ 355,623 $ 378,795

4 unchanged sentences

Technical and research expenses

7,373 7,504 14,616 15,024

Operating income 37,702 49,734 76,133 94,081

For the three months ended March 31, 2025, Net revenues decreased $10.5 million or 5.7% as compared to the the first quarter of 2024, driven by a decrease in publication, tissue and pulp grades.

For the three months ended June 30, 2025, Net revenues decreased $12.7 million or 6.5% as compared to the three months ended June 30, 2024, driven by reduced demand in Asia, and an unplanned equipment downtime in one of our production facilities.

In addition, changes in currency translation rates had the effect of decreasing Net revenues $(3.0) million.

For the three months ended March 31, 2025, Gross profit decreased by $4.8 million, however the gross profit margin was unchanged at 45.7% for the first quarter of both 2024 and 2025.

For the six months ended June 30, 2025, Net revenues decreased $23.2 million or 6.1% as compared to the six months ended June 30, 2024, driven by reduced demand in Asia, and an unplanned equipment downtime in one of our production facilities.

In addition, changes in currency translation rates had the effect of decreasing Net revenues $0.5 million.

For the three months ended June 30, 2025, Gross profit decreased by $5.1 million primarily the result of lower revenues during the second quarter of 2025, however the gross profit margin increased to 46.3% compared to 45.9% for the three months ended June 30, 2024.

For the six months ended June 30, 2025, Gross profit decreased by $9.9 million primarily the result of lower revenues during the six months of 2025, however, the gross profit margin increased 46.0% compared to 45.8% for the six months ended June 30, 2024.

Operating Income

For the three months ended March 31, 2025, Operating income decreased as compared to the first three months of 2024, decreasing $5.9 million or 13.3%.

For the three months ended June 30, 2025, Operating income decreased as compared to the first three months of 2024, decreasing $12.0 million or 24.2%.

The weaker Gross profit performance was slightly offset by lower Technical and Research expenses.

SG&A expenses increased $0.1 million as compared to 2024, with a $3.1 million increase due to changes in currency translation rates, offset by a $3.0 million decrease in travel, service, and personnel-related costs.

SG&A expenses increased $5.1 million as compared to 2024, primarily due to increases in unrealized gains and losses arising from the remeasurement of monetary assets and liabilities denominated in non-functional currencies (changes in currency translation rates), consulting costs and impacts of general inflationary pressures, offset by lower personnel-related costs.

Technical and research expenses decreased $0.1 million as compared to 2024 due to lower personnel and development costs, along with an increase in allocated costs to Corporate.

For the six months ended June 30, 2025, Operating income decreased as compared to the first six months of 2024, decreasing $17.9 million.

The weaker Gross profit performance was impacted by higher SG&A expenses which increased $5.2 million as compared to 2024, primarily due to increases in unrealized gains and losses arising from the remeasurement of monetary assets and liabilities denominated in non-functional currencies (changes in currency translation rates), consulting costs and impacts of general inflationary pressures, offset by lower personnel-related costs.

Technical and research expenses decreased $0.4 million as compared to 2024 due to lower personnel and

development costs, along with an increase in allocated costs to Corporate.

In addition, Restructuring expenses increased $0.6 million related to recent announcements to cease operations at multiple manufacturing facilities, further reducing Operating income.

Albany Engineered Composites ("AEC") Segment

The AEC segment accounted for 40% of our consolidated revenues during the three months ended March 31, 2025, respectively.

The AEC segment accounted for 42% and 41% of our consolidated revenues during the three and six months ended June 30, 2025, respectively.

A summary of selected financial results for AEC is as follows:

Review of Operations

Three months ended March 31,

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

(in thousands, except percentages)

2025 2024 2025 2024

Net revenues $ 130,473 $ 138,416 $ 244,550 $ 266,529

4 unchanged sentences

Technical and research expenses

4,125 4,356 7,799 9,501

Operating income (2,674) 5,446 (1,058) 10,604

For the three months ended March 31, 2025, Net revenues decreased 14.0 million or 11.0% as compared to the first quarter of 2024.

This decrease is primarily driven by demand reductions on certain commercial and space programs, which was partially offset by higher revenues on CH-53K and other programs.

Changes in currency translation rates had the effect of Net revenues $0.5 million.

For the three months ended June 30, 2025, Net revenues decreased $7.9 million or 5.7% as compared to the three months ended June 30, 2024.

This decrease is primarily driven by reductions on certain commercial and space programs, which was partially offset by higher revenues on CH-53K and other programs.

Changes in currency translation rates had the effect of decreasing Net revenues $0.9 million.

For the six months ended June 30, 2025, Net revenues decreased $22.0 million or 8.2% as compared to the six months ended June 30, 2024.

This decrease is primarily driven by reductions on certain commercial and space programs, which was partially offset by higher revenues on CH-53K and other programs.

Changes in currency translation rates had the effect of decreasing Net revenues $0.4 million

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 32 percent and 36 percent of segment revenue for the first three months of 2025 and 2024, respectively.

Revenue earned under these arrangements accounted for approximately 34 percent and 40 pe rcent of segment revenue for the first six months of 2025 and 2024, respectively.

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

4 unchanged sentences

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

For the three months ended March 31, 2025, Gross profit decreased $7.4 million as compared to the same period last year, and as a percentage of revenues decreased from 18.8% in 2024 to 14.5% in 2025.

For the three months ended June 30, 2025, gross profit decreased $9.8 million as compared to the three months ended June 30, 2024, and as a percentage of revenues decreased from 17.0% in 2024 to 10.5% in 2025.

This decrease in gross profit was driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $7.0 million in 2025 due to increased cost assumptions.

For the three months ended March 31, 2024, adjustments in the estimated profitability of long-term contracts decreased Gross profit $0.9 million.

For the three months ended June 30, 2024, adjustments in the estimated profitability of long-term contracts decreased gross profit $5.0 million.

For the six months ended June 30, 2025, gross profit decreased $17.2 million as compared to the six months ended June 30, 2024, and as a percentage of revenues decreased from 17.8% in 2024 to 12.4% in 2025.

This decrease in gross profit was driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $14.2 million in 2025 due to increased cost assumptions.

For the six months ended June 30, 2024, adjustments in the estimated profitability of long-term contracts decreased gross profit $7.6 million.

Operating Income

For the three months ended March 31, 2025, Operating income decreased $3.5 million, principally due to reduced Gross profit as noted above.

For the three months ended June 30, 2025, Operating income decreased $8.1 million, principally due to reduced gross profit as noted above.

This was offset by a decrease in SG&A expenses of $1.0 million, primarily driven by decreased incentive compensation and personnel-related costs.

Technical and research expenses decreased $1.5 million compared to the first quarter of 2024, attributable to decreases in research and material costs, combined with allocations to Corporate.

Restructuring expenses decreased $1.0 million compared to the same period in the prior year.

Technical and research expenses decreased $0.2 million compared to the three months ended June 30, 2024, attributable to decreases in research and material costs, combined with allocations to Corporate.

Further, restructuring expenses decreased $0.4 million compared to the three months ended June 30, 2024.

For the six months ended June 30, 2025, Operating income decreased $11.7 million, principally due to reduced gross profit as noted above.

This was offset by a decrease in SG&A expenses of $2.4 million, primarily driven by decreased incentive compensation and personnel-related costs.

Technical and research expenses decreased $1.7 million compared to the six months ended June 30, 2024, attributable to decreases in research and material costs, combined with allocations to Corporate.

Further, restructuring expenses decreased $1.4 million compared to the six months ended June 30, 2024.

Working Capital, Liquidity and Capital Structure

Cash Flow Summary

Three months ended March 31,

Six months ended June 30,

(in thousands)

6 unchanged sentences

Net cash used in investing activities (27,288) (45,627)

Net cash provided/used in financing activities

Net cash used in financing activities

(24,508) (98,225)

6 unchanged sentences

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

Net cash provided by operating activities during the first three months of 2025 was $2.1 million, compared to $9.6 million in the same period last year.

The decrease was primarily driven by a reduction in the gross profit of both segments, resulting in a lower net income compared to the first three months of 2024.

This was offset by a slightly lower change in working capital, along with favorable changes in other noncurrent liabilities and deferred taxes.

Net cash used in investing activities included capital expenditures totaling $15.6 million and $26.9 million for the first three months of 2025 and 2024, respectively, with investments focused on aerospace program support, continued maintenance capex and capital designed to improve operating efficiencies across the Company.

Net cash provided in financing activities was $15.1 million for the first three months of 2025 as compared to net cash used of $28.1 million for the first three months of 2024.

The increase in net cash provided during 2025 was due to increased borrowings from the revolving credit facility and lesser principal payments on debt, partially offset by an increase in share repurchases.

Net cash provided by operating activities during the six months ended June 30, 2025 was $34.8 million, compared to $93.0 million in the six months ended June 30, 2024.

The decrease was primarily driven by a reduction in the gross profit of both segments, resulting in a lower net income compared to the first six months of 2024 and an increase in working capital.

Net cash used in investing activities included capital expenditures totaling $30.5 million and $46.6 million for the first six months ended June 30, 2025 and June 30, 2024, respectively, with investments focused on aerospace program support, continued maintenance capex and capital designed to improve operating efficiencies across the Company.

Net cash used in financing activities was $24.5 million for the six months ended June 30, 2025 as compared to net cash used of $98.2 million for the six months ended June 30, 2024.

During 2025 we had net borrowings of $113.9 million as compared to net repayments of $79.6 million in the prior year.

Additionally, the Company repurchased $120.4 million of share repurchases and paid dividends of $16.7 million in the first six months of 2025.

Liquidity and Capital Structure

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

Under our $800 million unsecured committed Amended Credit Agreement, $416.4 million of borrowings were outstanding as of March 31, 2025.

In addition, we have borrowings outstanding at our Heimbach subsidiary that are considered immaterial in the aggregate.

As of March 31, 2025, we had cash and cash equivalents of $119.4 million and available borrowings under our Amended Credit Agreement of $383.6 million, for a total liquidity of approximately $503.0 million.

Under our $800 million unsecured committed Amended Credit Agreement, $444.7 million of borrowings were outstanding as of June 30, 2025.

As of June 30, 2025, we had cash and cash equivalents of $106.7 million and borrowing capacity under our Amended Credit Agreement of $355.3 million, for a total liquidity of approximately $462.0 million.

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

1 unchanged sentence

Financial Instruments in the Notes to Consolidated Financial Statements.

As of March 31, 2025, $88.4 million of our total cash and cash equivalents were held by non-U.S.

As of June 30, 2025, $85.3 million of our total cash and cash equivalents were held by non-U.S.

subsidiaries.

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

in excess of $140.0 million, as of March 31, 2025 and are intended to remain indefinitely invested in foreign operations.

were in excess of $140.0 million, as of June 30, 2025 and are intended to remain indefinitely invested in foreign operations.

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

2 unchanged sentences

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

During the first three months of 2025, we paid $8.4 million in dividends and repurchased 925,443 shares for a total cost of $69.2 million.

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

During the six months ended June 30, 2025, we paid $16.7 million in dividends and repurchased 1,670,858 shares for a total cost i ncluding excise taxes and fees of $120.4 million.

Earlier this year, the Company announced that it will be consolidating its corporate 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 $7.0 million over that period related to retention, relocation, severance, and professional costs.

2 unchanged sentences

The Company provides financial assurance, such as payment guarantee and letters of credit and surety bonds, primarily to support workers’ compensation programs and customs clearance, of less than $10 million.

There were no material changes in the Company’s off-balance sheet arrangements during the first quarter of 2025.

There were no material changes in the Company’s off-balance sheet arrangements during the second quarter of 2025.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis