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Item 7. Management’s Discussion and Analysis

2026-02-27 compared with 2025-02-26 · 117 added, 181 removed, 260 unchanged (53% of the section changed)

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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.

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.

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.

government policy positions, including changes in Department of Defense policies or priorities, geopolitical conflicts and strained international 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.

During 2025, the MC segment delivered a resilient performance, with several areas performing well despite uneven market dynamics.

In Asia, softer demand—across Paper Machine Clothing & Engineered Fabrics—contributed to regional pressure, while EF also declined due to strategic divestment and planned plant consolidation in Europe.

Packaging and Tissue continued to perform well, supported by growth across most regions.

Publication grades remained under structural pressure, and the MC segment expects publication grade paper demand to continue declining into 2026 and beyond, offset by growing demand for tissue grade products.

Looking ahead to 2026, we expect Packaging and Tissue to remain positive contributors, with sales in Europe and the Americas holding broadly stable, while Asia’s trajectory remains uncertain.

We believe the MC segment 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.

Despite pricing and demand pressures on revenue growth, the MC segment is expected to improve earnings in the future through technological innovations, particularly within the pressing market, manufacturing productivity efficiencies and cost controls.

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.

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

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.

The Heimbach integration 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.

The Company made progress and realized significant synergies from these efforts during 2025, and announced additional closures of engineered fabrics facilities in Italy, France and the United Kingdom.

Albany Engineered Composites

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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 provides longer-term growth potential for the Company as it ramps current production programs and captures new commercial and defense opportunities.

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.

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 15% of the Company’s consolidated Net revenues in 2025.

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 2025, approximately 35% of AEC net revenues were related to U.S.

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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.

In addition, as the AEC segment ramps-up larger complex programs, such as those associated with the CH-53 program, 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.

This amount includes a $155.9 million change in estimated profitability associated with the performance of the CH-53K contracts, of which $147.3 million was recognized in the third quarter and was inclusive of a loss reserve adjustment of $98.0 million for greater than planned labor content and higher material inputs caused by inflation estimated for the duration of the contract.

This adjustment represents the estimated full loss anticipated over the remaining eight year life of the program, and we are engaging with our CH-53K customer to discuss potential solutions.

In spite of these ongoing discussions, subsequent to the end of the third quarter, we announced that we will commence a strategic review of the Amelia Earhart Drive facility in Salt Lake City.

Such review could result in a sale of the facility and would include an exit of the structures assembly portion of our business, including the CH-53K contract work.

As of December 31, 2025, we have determined that the assets of this group meet the held-for-sale criteria, and have been classified as such within our Consolidated Balance Sheet.

Consolidated Results of Operations

The following table summarizes our Net revenues by business segment:

(in thousands, except percentages)

Years ended December 31, 2024 2023 2022

Machine Clothing

$ 749,907 $ 670,768 $ 609,461

Albany Engineered Composites

480,708 477,141 425,426

Total net revenues

$ 1,230,615 $ 1,147,909 $ 1,034,887

7.2 % 10.9 % 11.4 %

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:

(in thousands, except percentages)

Years ended December 31, 2024 2023 2022

Machine Clothing

$ 346,044 $ 331,558 $ 312,285

Albany Engineered Composites

55,732 92,160 77,497

$ 401,776 $ 423,718 $ 389,782

% of net revenues

32.6 % 36.9 % 37.7 %

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")

Selling, general and administrative ("SG&A") expenses include segment selling, general and administrative expenses and corporate expenses.

The following table summarizes SG&A by business segment:

Net Revenues and Gross Profit

The following table summarizes our Consolidated Net revenues and Gross profit:

(in thousands, except percentages)

Years ended December 31, 2025 2024 2023

Machine Clothing

$ 123,120 $ 118,196 $ 91,393

Albany Engineered Composites

47,421 48,833 42,339

40,341 47,886 34,981

$ 210,882 $ 214,915 $ 168,713

% of net revenues

17.1 % 18.7 % 16.3 %

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

Technical and research expenses include technical, product engineering, internally funded research and development expenses.

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

Net revenues $ 1,182,813 $ 1,230,615 $ 1,147,909

Gross profit 243,920 401,776 423,718

Gross profit margin 20.6 % 32.6 % 36.9 %

% change in net revenues -3.9 % 7.2 % 10.9 %

Consolidated Net revenues decreased 4% compared to 2024, driven by reduced demand for MC products in Asia and AEC revenue adjustments primarily related to the CH-53K program based on our long-term contract estimates.

These decreases are partially offset by higher revenue on the AEC LEAP program.

The decrease in Consolidated Gross profit during 2025, as compared to 2024, was driven primarily by increased cost assumptions that adjusted the expected profitability of the AEC segments CH-53K long-term contracts.

Gross profit as a percentage of revenues was 21%.

Operating Expenses

The following table summarizes Consolidated Operating expenses by classification:

(in thousands, except percentages)

Years ended December 31, 2025 2024 2023

Machine Clothing

$ 29,832 $ 24,651 $ 24,588

Albany Engineered Composites

16,265 15,976 15,353

Total technical and research expenses

$ 46,097 $ 40,627 $ 39,941

% of net revenues

3.7 % 3.5 % 3.9 %

Selling, general and administrative expenses $ 218,326 $ 210,882 $ 214,915

Technical and research expenses 48,015 46,097 40,627

Restructuring expenses, net 13,682 13,438 282

Total operating expenses $ 280,023 $ 270,417 $ 255,824

Total operating expenses as a % of net revenues 23.7 % 22.0 % 22.3 %

Consolidated SG&A expenses increased 3.5% as compared to 2024 and as a percentage of Net revenues, SG&A expenses increased from 17.1% in 2024 to 18.5% in 2025.

The overall increase in Consolidated SG&A expenses was due to the net effect of a $4.4 million increase in personnel-related costs, an increase of $1.9 million in professional fees, and an increase of $3.2 million in global information system costs.

Consolidated Technical and research expenses increased 4.2% as compared to 2024 and as a percentage of Net revenues increased from 3.7% in 2024 to 4.1% in 2025.

• 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

This change is primarily driven by increased activity within our New Business Ventures group.

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 $13.7 million in 2025, as compared to $13.4 million in 2024.

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.

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

Prior year actions 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, concluded in 2025.

Additional actions were announced in 2025 to close engineered fabric facilities in Ballo, Italy and Saint Junien, France as well as a facility in Manchester, United Kingdom.

These actions drove $8.3 million of restructuring charges during 2025, compared to $11.2 million in 2024, a decrease that is primarily due to the timing of the announced actions, workforce reductions, and related costs.

We expect to incur additional restructuring expenses related to these actions into 2026.

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.

At AEC, restructuring activities were related to reductions in the workforce at various AEC locations, which resulted in restructuring expenses of $3.3 million for the year ended 2025 and $3.6 million for the year ended 2024.

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.

This change impacts approximately 100 employees and will continue through the first half of 2026.

Through December 31, 2025, this has resulted in expenses of $2.0 million related to retention, relocation, severance, and professional costs.

Operating Income

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(47,180) (40,670) (47,886)

Total operating income

$ 131,359 $ 167,894 $ 181,022

Total operating income (loss) $ (36,103) $ 131,359 $ 167,894

% of net revenues

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$ 20,605 $ 12,549 $ 13,601

Pension settlement expense — — 49,128

Other (income)/expense, net

5,079 1,721 (6,163)

Income tax expense

29,034 48,846 35,472

Income tax (benefit)/expense (4,828) 29,034 48,846

Net income/(loss) 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.

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.

Interest Expense, net

Interest expense, net increased by $8.1 million over the prior year primarily due to higher average borrowings, in part offset by $1.1 million of greater interest income earned on cash equivalents during the current year.

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 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.

Other (income)/expense, net

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.

Other (income)/expense, net included foreign currency related transactions that resulted in losses of $8.9 million in 2025 as compared to $3.9 million of gains in 2024.

In addition, changes in the fair value of derivative instruments included gains of $3.7 million in 2025 and losses of $3.5 million in 2024, driven by currency rate movements, most notably the Brazilian Real and Mexican Peso.

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.

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The current net deferred tax asset position at Heimbach GmbH as of December 31, 2025 is $16.5 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.

If it was determined that a valuation allowance was required, a deferred tax

expense of $16.5 million as of December 31, 2025 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.

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While the U.S.

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.

has indicated that it will not adopt the Pillar Two framework at this time, various jurisdictions in which we operate have enacted, or are in the process of enacting, legislation to implement these rules.

Based on their current design, the Pillar Two rules are expected to apply to our global operations.

We have evaluated the impact of these rules and have determined that it did not materially increase our global tax costs in 2025.

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Restructuring expenses, net

8,255 9,460 282

Operating income

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22.1 % 24.5 % 28.1 %

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.

Net revenues decreased 5.6% as compared to 2024, driven by reduced demand in Asia, most significantly in China, and by site consolidations, unplanned equipment downtime in one of our production facilities and lower than anticipated sales pricing.

This decline is slightly offset by a strong performance within the European market, particularly related to the drying and pressing programs.

Further, changes in currency translation rates had the effect of increasing Net revenues $1.2 million.

Gross profit decreased by $22.3 million as compared to 2024, primarily driven by the volume declines noted above;

with gross profit margin also decreasing slightly from 46.1% in 2024 to 45.7% in 2025.

Operating Income

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.

Operating income decreased $27.4 million or 14.9% as compared to 2024, primarily as a result of gross profit declines and increased SG&A costs.

Incremental SG&A expenses were primarily a result of increased revaluation losses on monetary operating assets.

Backlog at MC can include certain unconfirmed customer indications that may be cancelled prior to release into production.

Additionally, a significant amount of orders do not enter backlog due to short lead times.

As such, we believe that the segment’s backlog is not a strong indicator of expected future revenue.

Albany Engineered Composites Segment

The AEC segment accounted for 40.1% of our consolidated net revenues during 2025.

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 39% of segment revenue for 2025 and 2024.

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

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.

For contracts with anticipated losses, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known.

Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or

administrative cost allocations, which are treated as period expenses.

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

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

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Restructuring expenses, net

Operating income

3,259 3,649 —

Operating income/(loss) $ (145,135) $ (11,603) $ 27,351

% of net revenues

-30.6 % -2.4 % 5.7 %

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 37% of segment revenue for 2024 and 2023.

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

For contracts with anticipated losses, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known.

Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations, which are treated as period expenses.

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

Net revenues decreased 1.2%, primarily driven by $54.9 million of revenue adjustments to the CH-53K program based on our long-term contract estimates.

These reductions are partially offset by higher activity levels on various programs including LEAP.

Further, changes in currency translation rates had the effect of increasing Net revenues $1.4 million.

Gross profit decreased $135.5 million as compared to last year, and Gross profit margin decreased from 11.6% in 2024 to (16.8)% in 2025.

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.

The reduction was driven primarily by approximately $155.9 million of increased life of contract cost assumptions surrounding the estimated profitability of our CH-53K long-term contracts.

Operating Income/(Loss)

Operating income decreased $133.5 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.

This was slightly offset by a decrease in SG&A expenses of $1.0 million, driven by a $0.7 million decrease in personnel-related costs.

Technical and research expenses decreased $0.7 million as compared to 2024, driven by decreased research material and labor costs.

Lastly, restructuring activities were related to reductions in the workforce at various AEC locations and resulted in restructuring expenses of $3.3 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.

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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 several years in line with the segment's growth.

AEC's working capital levels rose steadily 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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(45,865) (23,033) (11,829)

Non-cash portion of pension settlement expense — — 42,657

Contract loss provision 139,665 — —

Other operating items

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

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 provided by operating activities during 2025 was $152.5 million, compared to $218.4 million in 2024.

The decrease was primarily driven by slower working capital turns at both segments much of which is driven by higher levels of year-end shipments at AEC, as well as lower net income adjusted for non-cash items.

Net cash used in investing activities included capital expenditures totaling $71.5 million and $81.2 million during 2025 and 2024, respectively, which include investments in new aerospace programs and productivity enhancements in our MC segment.

In addition to lower capital expenditures, the decrease from 2024 is due, in part, to proceeds from the sale of Arcari in April 2025.

Net cash used in financing activities was $96.1 million during 2025 as compared to $183.8 million during 2024.

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.

The change in cash used in finance activities is a result of increased borrowings and a decrease in principal debt payments versus prior year, partially offset by increased share repurchases.

Liquidity and Capital Structure

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As of December 31, 2025, we had cash and cash equivalents of $112.4 million and availability under our Credit Agreement of $344.3 million, for a total liquidity of approximately $456.7 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.

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.

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We paid dividends of $32.5 million and $32.5 million during 2025 and 2024, respectively.

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.

In total, the Company repurchased 2,841,036 shares in 2025 for a total cost of $187.9 million.

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

The Company has $76.7 million remaining under this authorization for future share repurchases.

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 2025.

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 $595.2 million as of December 31, 2025, of which we expect to pay $41.7 million within the next year.

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.

Interest payments on debt are expected to be approximately $17.6 million in 2026, $17.6 million in 2027, and $11.1 million in 2028, and principal payments on debt of $330.7 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

Critical Accounting Policies

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.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make assumptions and estimates that directly affect the amounts reported in the Consolidated Financial Statements.

in the Consolidated Financial Statements.

Each of these assumptions is subject to uncertainties and changes in those assumptions or judgments which can affect our results of operations.

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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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Measurement of our postretirement benefit obligations requires the use of several assumptions about factors that will affect the amount and timing of future benefit payments.

The assumed health care cost trend rates are the most critical estimates for measurement of the postretirement benefit obligation.

The assumed health care cost trend rates are the most

critical estimates for measurement of the postretirement benefit obligation.

Changes in the health care cost trend rates have a significant effect on the amounts reported for the health care benefit obligation.

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however, changes in these assumptions could impact the Company’s financial position, results of operations or cash flows.

We regularly assess the likelihood that deferred tax assets will be realized through the reversal of existing temporary differences and/or future taxable income.

To the extent we believe that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established.

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

We evaluate the realizability of deferred tax assets by assessing available positive and negative evidence, including the expected reversal of existing temporary differences and projections of future taxable income.

If, based on the weight of available evidence, we believe that it is more likely than not some portion of the deferred tax asset will not be realized, a valuation allowance is established.

The amount of a valuation allowance is based upon management’s best estimate of deferred tax assets that are not expected to be realized.

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.

The amount of tax benefit recognized is measured as the largest amount of benefit that has a greater than 50% likely of being realized upon ultimate settlement, including resolution of any administrative appeals or litigation process, where applicable.

These evaluations involve a high degree of uncertainty because they require us to make material assumptions about future events that are inherently difficult to predict.

Key judgments include projections of future taxable income across multiple tax jurisdictions, interpretations of continually evolving tax laws and regulations, expectations regarding audit outcomes, and assessments of the timing and reversals of temporary differences.

Changes in these assumptions or in actual outcomes could materially affect the amount of deferred tax assets we are able to realize, the valuation allowance recorded, and the recognition and measurement of uncertain tax positions

Business Combinations

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It is possible that these judgments and estimates could change in future periods.

Impairment assessments inherently involve management judgments regarding a number of assumptions such as those described.

Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions could have a material effect on the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period.

The determination of the fair value of intangible assets acquired in a business acquisition is subject to many estimates and assumptions.

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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