What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-30 compared with 2024-10-30 · 107 added, 165 removed, 187 unchanged (59% of the section changed)

8 unchanged sentences

• Conditions in the industries in which our Machine Clothing and Albany Engineered Composites segments compete, along with the general risks associated with macroeconomic conditions, including higher interest rates, inflationary pressures, or the effects of another pandemic, for an extended period of time;

• Across the entire Company, increasing labor, raw material, energy, or logistics costs due to supply chain constraints and inflationary pressures.

• Some of the Company’s competitors in the Machine Clothing segment have the capability to make and sell paper machines and papermaking equipment as well as other engineered fabrics;

• Machine Clothing and Albany Engineered Composites segments are subject to significant risks related to the potential manufacture and sale of defective or non-conforming products;

• Deterioration of global economic conditions could have an adverse impact on the Company's segments and overall business and results of operations;

• In the Albany Engineered Composites segment, new and unique risks introduced by the U.S.

Government's Department of Defense ("DoD") Cybersecurity Maturity Model Certification ("CMMC") program;

• Across the entire Company, increasing labor, raw material, energy, or logistics and costs due to supply chain constraints and inflationary pressures.

These challenges have only increased as a result of the ongoing Russia-Ukraine war and the conflict in the Middle East;

• Across both segments, potential ports strikes could cause additional disruptions to our supply chain;

• We may be unable to maintain effective systems of internal controls while consolidating dispersed corporate functions to our corporate headquarters in New Hampshire;

• Our ability to attract and retain business and employees may depend on our reputation in the marketplace;

• Across both segments, potential port strikes could cause additional disruptions to our supply chain;

• Harm caused by changes in our relationships or contracts with suppliers and customers;

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• Inability of our Machine Clothing or Albany Engineered Composite segments to create additional production capacity in a timely manner or the occurrence of other manufacturing or supply difficulties (including as a result of geopolitical crises, natural disaster, public health crises and epidemics/pandemics, regulatory or otherwise);

• Changes in geopolitical conditions impacting countries where the Company does or intends to do business;

• Changes in geopolitical conditions impacting countries where the Company does or intends to do business, including the effects of the implementation of trade tariffs on imported goods;

• Failure to achieve or maintain anticipated profitable growth;

• The Company's insurance coverage may be inadequate to cover significant risk exposures;

• Failure to achieve our strategic initiatives and other goals, including, but not limited to, our sustainability goals;

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• Adverse impacts from fluctuations in foreign currency exchange rates;

• Harm caused by large customer purchase reductions, payment defaults or contract non-renewal;

• Harm caused by customer purchase reductions, payment defaults or contract non-renewal;

• In the Albany Engineered Composites segment, future funding and compliance risks associated with our contracts with government entities, OEM customers or prime contractors on contracts with government entities;

• Costly and disruptive legal disputes and settlements;

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

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

• Future levels of indebtedness and capital expenditures;

• Impairment of goodwill and other intangible assets;

• Adverse impacts from changes in tax legislation or challenges to our tax positions;

• Cybersecurity incidents or significant computer system compromises or data breaches;

• Cybersecurity incidents or significant computer system compromises or data breaches to our information technology systems, processes, sites and cloud-based providers;

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

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

• Significant problems with information systems or networks;

• Failure to adequately integrate the Heimbach Group companies into our business systems and processes within the expected timeframe or, failure to or delayed realization of anticipated benefits of the acquisition could adversely impact the Company’s business, financial condition and results of operations;

• Failure to adequately integrate acquired companies into our business systems and processes within the expected timeframe or, failure to or delayed realization of anticipated benefits of the acquisition could adversely impact the Company’s business, financial condition and results of operations;

• Failure to adequately protect our proprietary technology or intellectual property, which would allow competitors or others to take advantage of our research and development efforts;

• Impacts on our stock price and trading volume if securities or industry analysis do not publish research or publish inaccurate or unfavorable research about our business, or by future sales of shares by our existing stockholders and the impact of any changes in cash dividend payments;

• The impact of shareholder activism on our operations, strategy, and overall performance;

• Other risks and uncertainties detailed in this report and other periodic reports.

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Business Environment Overview and Trends

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.

Machine Clothing Segment

During the third quarter of 2024, the Company announced that Merle Stein was appointed President of the Machine Clothing (“MC”) segment, after serving as the Segment’s Chief Operating Officer.

Stein has considerable experience in the paper and pulp industries, significant knowledge of the MC business, and a strategic understanding of the markets it serves.

Stein joined the Company in 2011.

The MC segment global backlog is stable and profitability continues to improve despite challenges in Europe, and, to a lesser degree, softness in China.

North America is stable.

The integration of Heimbach is on track with our internal plans.

We transitioned Heimbach’s Paper Machine Clothing (“PMC”) businesses onto our SAP platform in July, an integral step to integrate Heimbach into the MC business.

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's backlog continues to be stable.

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.

Albany Engineered Composites Segment

In the third quarter, the Company announced the appointment of Christopher Stone as President of the Albany Engineered Composites segment.

Stone brings a deep knowledge of the Aerospace and Defense industry, and considerable operational experiences to his new role.

He has held a wide range of leadership positions at public companies, with a focus in manufacturing and supply chain management, business operations, production control, logistics and organizational transformation.

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

In the third quarter of 2024, 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 $22.4

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.

Boeing and Airbus SE had earlier announced increases in build rates in 2024 compared to 2023.

During the year, both OEMs announced slower production rates than initially projected.

We are seeing lower production rates on our Boeing 787 program causing AEC to slow its production on its content for this program for the remainder of 2024.

Furthermore, although we have not yet experienced an adverse impact as a result of the Boeing Machinist strike, we are monitoring the strike and its potential impact on our future production rates.

Airbus SE has indicated that their expected ramp on the A320 will be pushed out beyond previous expectations.

We have decreased our LEAP production forecast for the remainder of 2024;

and we are working with our customer, Safran, to determine the appropriate production volumes for our LEAP production into 2025.

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, 2023 and in our Forms 10-Q previously filed with the SEC in 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:

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The following table summarizes our Net revenues by business segment:

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands, except percentages)

2024 2023 % Change 2024 2023 % Change

2025 2024 % Change

Machine Clothing $ 174,697 $ 185,217 (5.7) %

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Total $ 288,774 $ (3,002) $ 291,776 $ 313,330 (6.9) %

(in thousands, except percentages)

Net revenues as reported, YTD 2024 (Decrease)/ increase due to changes in currency translation rates YTD 2024 revenues on same basis as 2023 currency translation rates Net revenues as reported, YTD 2023 % Change compared to 2023, excluding currency rate effects

Machine Clothing $ 561,828 $ (999) $ 562,827 $ 479,027 17.5 %

Albany Engineered Composites

381,882 161 381,721 345,298 10.5 %

Total $ 943,710 $ (838) $ 944,548 $ 824,325 14.6 %

Three month comparison

Net revenues increased 6.1% compared to the same period in 2023, driven by an increase in Net revenues from the Heimbach acquisition and stable Net revenues in AEC in line with the prior year, partially offset by lower organic Net revenues at MC.

MC's Net revenues increased 9.9% compared to the third quarter of 2023 driven by an increase in Heimbach Net revenues of $17.4 million.

This was partially offset by $1.7 million of lower Net Revenues in the rest of the segment, due to lower revenues in packaging and publication grades.

In addition, changes in currency translation rates had the effect of increasing Net revenues $0.7 million.

AEC's Net revenues were largely in line with the prior year, increasing $0.8 million or 0.7%, primarily driven by growth on certain commercial and space programs, which was partially offset by lower revenues on CH-53K and other defense programs.

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

Nine month comparison

Net revenues increased 14.5% compared to the same period in 2023, driven by an increase of Net revenues from the Heimbach acquisition and higher Net revenues in AEC, partially offset by lower organic Net revenues at MC.

MC's Net revenues increased 17.3% compared to the same period in 2023 driven by an increase in Heimbach Net revenues of $95.0 million.

This was partially offset by $11.2 million of lower Net revenues in the rest of the segment, driven primarily by weakness in publication globally, and in most grades in Europe, as well as decreased sales in packaging grades.

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 addition, changes in currency translation rates had the effect of decreasing Net revenues $2.5 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.

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

AEC's Net revenues increased 10.6%, primarily driven by growth on certain commercial and space programs, which was partially offset by lower revenues on the F-35 program.

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

The following table summarizes Gross profit by business segment:

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands, except percentages)

2024 2023 2024 2023

Machine Clothing $ 79,902 $ 84,655

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% of Net revenues 33.4 % 34.7 %

Three month comparison

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.

Gross profit as a percentage of revenues was as follows:

• MC's gross profit margin increased from 47.6% in 2023 to 48.6% in 2024, primarily attributable to reduced input costs.

• AEC's gross profit margin decreased from 19.7% in 2023 to 1.3% in 2024, driven primarily by cumulative changes in the estimated profitability of long-term contracts, which decreased gross profit by $22.4 million in 2024, as compared to a increase of $0.9 million during the same period last year.

Nine month comparison

The decrease in Gross profit during the first nine months of 2024, as compared to the same period in 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 49.7% in 2023 to 46.7% in 2024.

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

• AEC's gross profit margin decreased from 19.1% in 2023 to 12.8% in 2024, driven primarily by cumulative changes in the estimated profitability of long-term contracts, which decreased gross profit by $28.3 million in

2024, as compared to a decrease of $4.1 million during the same period last year, partially offset by a favorable shift in revenue mix to commercial and space programs.

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.

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

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

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands, except percentages)

2024 2023 2024 2023

Machine Clothing $ 32,881 $ 32,767

4 unchanged sentences

% of Net revenues 18.6 % 17.5 %

Three month comparison

Consolidated SG&A expenses increased 0.2% as compared to 2023, however, as a percentage of Net revenues, SG&A expenses decreased from 18.5% in 2023 to 17.5% in 2024.

• MC SG&A expenses increased $5.7 million as compared to 2023, with a $3.9 million increase related to Heimbach, a $1.2 million increase due to changes in currency translation rates, and a $0.6 million increase in professional, consulting, and personnel-related costs.

• In AEC, SG&A expenses decreased $1.6 million, primarily driven by lower incentive compensation and personnel-related costs.

• Corporate SG&A expenses decreased $4.0 million, principally due to lower incentive compensation and personnel-related costs.

Nine month comparison

Consolidated SG&A expenses increased 10.3% as compared to 2023, however, as a percentage of Net revenues, SG&A expenses decreased from 17.9% in 2023 to 17.2% in 2024.

The overall increase in SG&A expenses in the first nine months of 2024, compared to the same period in 2023, was due to the net effect of the following:

• MC SG&A expenses increased $17.6 million as compared to 2023, with a $20.4 million increase related to Heimbach and a $0.9 million increase related to personnel-related and travel costs, partially offset by a $3.7 million decrease due to changes in currency translation rates.

• In AEC, SG&A expenses decreased $2.0 million, driven by a $0.8 million decrease in personnel-related costs, a $0.8 million decrease in marketing costs, and a $0.4 million decrease in professional and consulting fees.

• Corporate SG&A expenses remained largely in line with the prior year, decreasing $0.3 million.

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.

Technical and Research

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

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands, except percentages)

2024 2023 2024 2023

Machine Clothing $ 7,243 $ 7,520

Albany Engineered Composites

3,802 3,685 13,303 12,096

Corporate expenses 979 —

$ 11,896 $ 12,665

% of Net revenues 4.1 % 4.0 %

Three month comparison

Consolidated Technical and research expenses increased 11.7% as compared to 2023 and as a percentage of Net revenues increased from 3.5% in 2023 to 3.6% in 2024.

• MC Technical and research expenses increased $1.0 million as compared to 2023 due to the addition of Heimbach.

• AEC Technical and research expenses increased $0.1 million as compared to 2023, due to increases in research material and labor costs.

Nine month comparison

Consolidated Technical and research expenses increased 16.7% as compared to 2023, but as a percentage of Net revenues remained unchanged at 3.7% in both 2023 and 2024.

• MC Technical and research expenses increased $3.9 million as compared to 2023, with a $4.3 million increase related to Heimbach, which was partially offset by a $0.4 million decrease in personnel-related costs.

• AEC Technical and research expenses increased $1.2 million as compared to 2023 due to increases in research material and labor costs.

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.

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 $2.3 million in the three months ended September 30, 2024, compared to $0.1 million in in the same period of 2023;

and $6.6 million in the nine months ended September 30, 2024, compared to $0.2 million in the same period in 2023.

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.

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

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands, except percentages) 2025 2024

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Consolidated total $ 2,515 $ 2,209

At MC, restructuring actions were taken in the second and third quarters of 2024 to cease operations at the Company's MC forming fabric manufacturing facility in Chungju, South Korea, and at the Company's Heimbach engineered fabric manufacturing facility in Rochdale, UK.

This was the principal driver of $3.3 million in Restructuring expenses, net for the first nine months of 2024 related to workforce reductions, fixed asset impairments and related costs, as well as charges of $1.3 million in Costs of goods sold for the write-off of inventory.

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 reductions in the workforce at various AEC locations, which resulted in restructuring expenses of $3.1 million for the first nine months of 2024.

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

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.

Operating Income

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

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands, except percentages) 2025 2024

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Other Earnings Items

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands) 2025 2024

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Income tax expense 6,276 11,271

Net income attributable to the noncontrolling interest 192 45 366 396

Net (loss)/income attributable to the noncontrolling interest

Interest Expense/(Income), net

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.

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.

Financial Instruments in the Notes to Consolidated Financial Statements for further discussion of borrowings and interest rates.

Other (Income)/Expense, net

Other (income)/expense, net, included foreign currency related transactions, which resulted in losses of $1.8 million and $0.7 million in the three and nine months ended September 30, 2024, respectively, as compared to losses of $0.5 million and gains of $3.6 million in the same periods last year.

In addition, changes in the fair value of derivative instruments included gains of $0.5 million and losses of $3.8 million in the three and nine months ended September 30, 2024, as compared to losses of $0.7 million and $0.6 million in the same period last year, driven by currency rate movements, most notably the Brazilian Real and Mexican Peso.

Net periodic pension and postretirement costs, other than service costs, were $0.7 million and $2.0 million in the three and nine months ended September 30, 2024, respectively, as compared to benefits of $0.1 million and $0.3 million in the same period last year.

Other (income)/expense, net, also included net losses of $0.7 million from the divestiture of assets related to Heimbach during the nine months ended September 30, 2024, as well as bank fees, amortization of debt issuance costs, and rental income.

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.

Effective Income Tax Rate

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

Three months ended March 31,

Effective income tax rate 26.6 % 29.2 %

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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 third quarter of 2024 was 6.6%, lower compared to 25.3% for the same period in 2023, mainly due to favorable discrete tax adjustments in the current period exceeding favorable discrete tax adjustments in the prior period.

The favorable discrete benefits in the third quarter of 2024 were partially offset by an unfavorable change in the jurisdictional mix of earnings compared to the prior period.

For the nine months ended September 30, 2024, the Company's effective tax rate was 23.9%, lower compared to 33.0% for the same period in 2023, mainly due to favorable discrete tax adjustments in the current period compared to unfavorable discrete tax adjustments in the prior period, partially offset by an unfavorable change in the jurisdictional mix of earnings compared to the prior period.

The Company’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.

For more information, see Note 6 , Income Taxes, in the Notes to the Consolidated Financial Statements.

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Machine Clothing Segment

The MC segment accounted for 61% and 60% of our consolidated revenues during the three and nine months ended September 30, 2024, respectively.

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

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

Review of Operations

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands, except percentages)

2024 2023 2024 2023

Net revenues $ 174,697 $ 185,217

4 unchanged sentences

Technical and research expenses

7,042 6,023 22,066 18,207

Operating income 38,431 44,347

For the three months ended September 30, 2024, Net revenues increased by 9.9% as compared to the prior year, driven by an increase in Heimbach Net revenues of $17.4 million.

This was partially offset by $1.7 million of lower organic Net Revenues in the rest of the segment, due to decreased sales in packaging and publication grades.

In addition, changes in currency translation rates had the effect of increasing Net revenues $0.7 million.

For the nine months ended September 30, 2024, Net revenues increased by 17.3% as compared to the prior year, driven by an increase in Heimbach Net revenues of $95.0 million.

This was partially offset by $11.2 million of lower organic Net revenues in the rest of the segment, driven primarily by weakness in publication globally, and in most grades in Europe, as well as decreased sales in packaging grades.

Changes in currency translation rates had the effect of decreasing Net revenues $1.0 million.

For the three months ended September 30, 2024, Gross profit increased by $9.7 million and the gross profit margin increased from 47.6% in 2023 to 48.6% in 2024.

This margin increase was primarily attributable to reduced input costs.

For the nine months ended September 30, 2024, Gross profit increased by $24.4 million as compared to the same period in the prior year, driven by the higher sales noted above;

however, gross profit margin decreased from 49.7% in 2023 to 46.7% in 2024.

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

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.

In addition, changes in currency translation rates had the effect of decreasing Net revenues $2.5 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.

Operating Income

For the three months ended September 30, 2024, Operating income was largely in line with the prior year, increasing $0.8 million or 1.5%.

The strong Gross profit performance was largely offset by increased SG&A and Technical and Research expenses, primarily at Heimbach locations.

SG&A expenses increased $5.7 million as compared to 2023, with a $3.9 million increase related to Heimbach, a $1.2 million increase due to changes in currency translation rates, and a $0.6 million increase in professional, consulting, and personnel-related costs.

Technical and research expenses increased $1.0 million as compared to 2023 due to the addition of Heimbach.

In addition, Restructuring expenses increased $2.2 million related to recent announcements to cease operations at multiple manufacturing facilities, further reducing Operating income.

For the nine months ended September 30, 2024, Operating income was also largely in line with the prior year, decreasing $0.1 million or 0.1%.The strong Gross profit performance was largely offset by increased SG&A and Technical and Research expenses, primarily at Heimbach locations.

SG&A expenses increased $17.6 million as compared to 2023, with a $20.4 million increase related to Heimbach and a $0.9 million increase related to personnel-related and travel costs, partially offset by a $3.7 million decrease due to changes in currency translation rates.

Technical and research expenses increased $3.9 million as compared to 2023, with a $4.3 million increase related to Heimbach, which was offset by a $0.4 million decrease in personnel-related costs.

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%.

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.

Technical and research expenses decreased $0.3 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 $1.3 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 39% and 40% of our consolidated revenues during the three and nine months ended September 30, 2024, respectively.

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

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

Review of Operations

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands, except percentages)

2024 2023 2024 2023

Net revenues $ 114,077 $ 128,113

4 unchanged sentences

Technical and research expenses

3,802 3,685 13,303 12,096

Operating income 1,616 5,158

For the three months ended September 30, 2024, Net revenues increased 0.7% as compared to the prior year, primarily driven by growth on certain commercial and space programs, which was partially offset by lower revenues on CH-53K and other defense programs.

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

For the nine months ended September 30, 2024, Net revenues increased 10.6%, primarily driven by growth on certain commercial and space programs, which was partially offset by lower revenues on the F-35 program.

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

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.

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 the first nine months of 2024 and 2023.

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.

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

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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 September 30, 2024, Gross profit decreased $21.1 million as compared to the same period last year, and as a percentage of revenues decreased from 19.7% in 2023 to 1.3% in 2024.

This decrease in Gross profit was driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $22.4 million in 2024 due to increased cost assumptions as well as the impact of suspended production at a key customer.

For the 2023 year, adjustments in the estimated profitability of long-term contracts increased Gross profit $0.9 million.

For the nine months ended September 30, 2024, Gross profit decreased $16.8 million as compared to the same period last year, and gross profit margin decreased from 19.1% in 2023 to 12.8% in 2024.

This decrease in Gross profit was driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $28.3 million in 2024 due to increased cost assumptions as well as the impact of suspended production at a key customer, partially offset by a favorable shift in revenue mix to commercial and space programs.

For the 2023 year, adjustments in the estimated profitability of long-term contracts decreased Gross profit $4.1 million.

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.

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.

Operating Income

For the three months ended September 30, 2024, Operating income decreased $19.7 million, principally due to reduced Gross profit as noted above.

This was partially offset by a decrease in SG&A expenses of $1.6 million, primarily driven by decreased incentive compensation and personnel-related costs.

Technical and research expenses and Restructuring expenses remained largely in line with the prior year.

For the nine months ended September 30, 2024, Operating income decreased $19.1 million, principally due to reduced Gross profit as noted above.

This was partially offset by a decrease in SG&A expenses of $2.0 million, driven by a $0.8 million decrease in personnel-related costs, a $0.8 million decrease in marketing costs, and a $0.4 million decrease in professional and consulting fees.

Technical and research expenses increased $1.2 million as compared to 2023 due to increases in research material and labor costs.

Restructuring activities related to reductions in the workforce at various AEC locations resulted in restructuring expenses of $3.1 million, further reducing 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.

This was offset by a decrease in SG&A expenses of $1.4 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.

Working Capital, Liquidity and Capital Structure

Cash Flow Summary

Nine months ended September 30,

Three months ended March 31,

(in thousands)

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Net cash used in investing activities (15,597) (26,880)

Net cash used in financing activities

Net cash provided/used in financing activities

15,091 (28,069)

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

Net cash provided by operating activities during the first nine months of 2024 was $140.0 million, compared to $73.8 million in the same period last year.

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 $62.1 million and $49.1 million for the first nine months of 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 $121.8 million for the first nine months of 2024 as compared to $10.8 million for the first nine months of 2023.

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

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.

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.

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

Under our $800 million unsecured committed Amended Credit Agreement, $360.0 million of borrowings were outstanding as of September 30, 2024.

In addition, we have borrowings outstanding at our Heimbach subsidiary of $2.2 million, of which $0.6 million was considered current.

As of September 30, 2024, we had cash and cash equivalents of $127.2 million and available borrowings under our Amended Credit Agreement of $440.0 million, for a total liquidity of approximately $567.2 million.

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.

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.

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Financial Instruments in the Notes to Consolidated Financial Statements.

As of September 30, 2024, $106.5 million of our total cash and cash equivalents were held by non-U.S.

As of March 31, 2025, $88.4 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.

were in excess of $120.0 million, as of September 30, 2024 and are intended to remain indefinitely invested in foreign operations.

in excess of $140.0 million, as of March 31, 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.

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

During the first nine months of 2024, we paid $24.4 million in dividends and had no 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.

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.

Off-Balance Sheet Arrangements

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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 2024.

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