UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended:	~~June 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from __________ to __________

Commission file number: 1-10026


ALBANY INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)

Delaware


(State or other jurisdiction of incorporation or organization)

216 Airport Drive, Rochester, New Hampshire


(Address of principal executive offices)

14-0462060


(IRS Employer Identification No.)

03867


(Zip Code)

603-330-5850


(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	AIN	The New York Stock Exchange (NYSE)
Class B Common Stock, $0.001 par value per share	AIN	The New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had ~~30.7~~31.5 million shares of Class A Common Stock and ~~1.6 million~~no shares of Class B Common Stock outstanding as of ~~July 16, 2021.~~April 15, 2022.

ALBANY INTERNATIONAL CORP.

TABLE OF CONTENTS


		Page No.
Part I Financial information
Item 1.	Financial Statements
	Consolidated statements of income – three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021	3
	Consolidated statements of comprehensive income/(loss) – three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021	4
	Consolidated balance sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	5
	Consolidated statements of cash flows – three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021	6
	Notes to consolidated financial statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2221
	Forward-looking statements	2221
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3632
Item 4.	Controls and Procedures	3632
Part II Other Information
Item 1.	Legal Proceedings	3733
Item 1A.	Risk Factors	3733
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3733
Item 3.	Defaults upon Senior Securities	3734
Item 4.	Mine Safety Disclosures	3734
Item 5.	Other Information	3734
Item 6.	Exhibits	3734

Index

ITEM 1. FINANCIAL STATEMENTS

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net sales	Net sales	$	234,519	$	225,990	$	456,880	$	461,754	Net sales	$	244,169	$	222,362
Cost of goods sold	Cost of goods sold	132,791		123,010		266,606		269,302		Cost of goods sold	152,565		133,816

Gross profit	Gross profit	101,728		102,980		190,274		192,452		Gross profit	91,604		88,546
Selling, general, and administrative expenses	Selling, general, and administrative expenses	42,009		38,543		79,203		78,649		Selling, general, and administrative expenses	42,707		37,195
Technical and research expenses	Technical and research expenses	9,762		8,873		19,243		18,003		Technical and research expenses	9,889		9,481
Restructuring expenses, net	Restructuring expenses, net	(9)		2,837		43		3,479		Restructuring expenses, net	254		52

Operating income	Operating income	49,966		52,727		91,785		92,321		Operating income	38,754		41,818
Interest expense, net	Interest expense, net	4,218		3,823		7,787		7,800		Interest expense, net	3,609		3,569
Other expense/(income), net	Other expense/(income), net	862		1,091		1,462		16,660		Other expense/(income), net	(3,928)		600

Income before income taxes	Income before income taxes	44,886		47,813		82,536		67,861		Income before income taxes	39,073		37,649
Income tax expense	Income tax expense	13,446		15,364		23,486		27,818		Income tax expense	10,998		10,040

Net income	Net income	31,440		32,449		59,050		40,043		Net income	$	28,075	$	27,609
Net income/(loss) attributable to the noncontrolling interest		43		95		70		(1,420)
Net income attributable to the noncontrolling interest										Net income attributable to the noncontrolling interest	338		27
Net income attributable to the Company	Net income attributable to the Company	$	31,397	$	32,354	$	58,980	$	41,463	Net income attributable to the Company	$	27,737	$	27,582

Earnings per share attributable to Company shareholders - Basic	Earnings per share attributable to Company shareholders - Basic	$	0.97	$	1.00	$	1.82	$	1.28	Earnings per share attributable to Company shareholders - Basic	$	0.87	$	0.85

Earnings per share attributable to Company shareholders - Diluted	Earnings per share attributable to Company shareholders - Diluted	$	0.97	$	1.00	$	1.82	$	1.28	Earnings per share attributable to Company shareholders - Diluted	$	0.87	$	0.85

Shares of the Company used in computing earnings per share:	Shares of the Company used in computing earnings per share:									Shares of the Company used in computing earnings per share:
Basic	Basic	32,375		32,328		32,363		32,320		Basic	31,877		32,352

Diluted	Diluted	32,422		32,336		32,411		32,328		Diluted	31,961		32,401

Dividends declared per share, Class A and Class B	Dividends declared per share, Class A and Class B	$	0.20	$	0.19	$	0.40	$	0.38	Dividends declared per share, Class A and Class B	$	0.21	$	0.20

The accompanying notes are an integral part of the consolidated financial statements

Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(in thousands)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net income	Net income	$	31,440	$	32,449	$	59,050	$	40,043	Net income	$	28,075	$	27,609

Other comprehensive income/(loss), before tax:	Other comprehensive income/(loss), before tax:									Other comprehensive income/(loss), before tax:
Foreign currency translation and other adjustments	Foreign currency translation and other adjustments	13,651		8,753		(1,788)		(16,202)		Foreign currency translation and other adjustments	(1,551)		(15,439)
Pension/postretirement settlements and curtailments		0		378		0		378
Amortization of pension liability adjustments:	Amortization of pension liability adjustments:									Amortization of pension liability adjustments:
Prior service credit	Prior service credit	(1,118)		(1,114)		(2,237)		(2,228)		Prior service credit	(1,123)		(1,119)
Net actuarial loss	Net actuarial loss	1,108		1,232		2,217		2,476		Net actuarial loss	971		1,109
Payments and amortization related to interest rate swaps included in earnings	Payments and amortization related to interest rate swaps included in earnings	1,770		1,116		3,246		1,523		Payments and amortization related to interest rate swaps included in earnings	1,696		1,476
Derivative valuation adjustment	Derivative valuation adjustment	125		(1,366)		(353)		(12,130)		Derivative valuation adjustment	11,721		(478)

Income taxes related to items of other comprehensive income/(loss):	Income taxes related to items of other comprehensive income/(loss):									Income taxes related to items of other comprehensive income/(loss):
Pension/postretirement settlements and curtailments		0		(113)		0		(113)
Amortization of prior service cost		335		278		671		557
Amortization of prior service credit										Amortization of prior service credit	344		336
Amortization of net actuarial loss	Amortization of net actuarial loss	(332)		(308)		(665)		(619)		Amortization of net actuarial loss	(297)		(333)
Payments and amortization related to interest rate swaps included in earnings	Payments and amortization related to interest rate swaps included in earnings	(457)		(286)		(838)		(390)		Payments and amortization related to interest rate swaps included in earnings	(430)		(381)
Derivative valuation adjustment	Derivative valuation adjustment	(44)		349		91		3,102		Derivative valuation adjustment	(2,969)		135
Comprehensive income/(loss)	Comprehensive income/(loss)	46,478		41,368		59,394		16,397		Comprehensive income/(loss)	36,437		12,915
Comprehensive income/(loss) attributable to the noncontrolling interest	Comprehensive income/(loss) attributable to the noncontrolling interest	226		247		43		(1,159)		Comprehensive income/(loss) attributable to the noncontrolling interest	394		(183)
Comprehensive income/(loss) attributable to the Company	Comprehensive income/(loss) attributable to the Company	$	46,252	$	41,121	$	59,351	$	17,556	Comprehensive income/(loss) attributable to the Company	$	36,043	$	13,098

The accompanying notes are an integral part of the consolidated financial statements

Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	253,330	$	241,316	Cash and cash equivalents	$	307,415	$	302,036
Accounts receivable, net	Accounts receivable, net	190,937		188,423		Accounts receivable, net	207,555		191,985
Contract assets, net	Contract assets, net	113,225		139,289		Contract assets, net	112,262		112,546
Inventories	Inventories	120,665		110,478		Inventories	123,835		117,882
Income taxes prepaid and receivable	Income taxes prepaid and receivable	6,236		5,940		Income taxes prepaid and receivable	126		1,958
Prepaid expenses and other current assets	Prepaid expenses and other current assets	33,089		31,830		Prepaid expenses and other current assets	37,387		32,394
Total current assets	Total current assets	$	717,482	$	717,276	Total current assets	$	788,580	$	758,801

Property, plant and equipment, net	Property, plant and equipment, net	438,392		448,554		Property, plant and equipment, net	431,860		436,417
Intangibles, net	Intangibles, net	42,998		46,869		Intangibles, net	37,170		39,081
Goodwill	Goodwill	185,293		187,553		Goodwill	180,785		182,124
Deferred income taxes	Deferred income taxes	33,102		38,757		Deferred income taxes	20,317		26,376
Noncurrent receivables, net	Noncurrent receivables, net	34,466		36,265		Noncurrent receivables, net	30,982		31,849
Other assets	Other assets	74,907		74,662		Other assets	90,367		81,416
Total assets	Total assets	$	1,526,640	$	1,549,936	Total assets	$	1,580,061	$	1,556,064

LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	Accounts payable	$	55,348	$	49,173	Accounts payable	$	64,501	$	68,954
Accrued liabilities	Accrued liabilities	108,007		125,459		Accrued liabilities	108,855		124,325
Current maturities of long-term debt	Current maturities of long-term debt	0		9		Current maturities of long-term debt	—		—
Income taxes payable	Income taxes payable	12,233		16,222		Income taxes payable	4,711		14,887
Total current liabilities	Total current liabilities	175,588		190,863		Total current liabilities	178,067		208,166

Long-term debt	Long-term debt	350,000		398,000		Long-term debt	427,000		350,000
Other noncurrent liabilities	Other noncurrent liabilities	121,333		130,424		Other noncurrent liabilities	99,498		107,794
Deferred taxes and other liabilities	Deferred taxes and other liabilities	11,660		10,784		Deferred taxes and other liabilities	11,244		12,499
Total liabilities	Total liabilities	658,581		730,071		Total liabilities	715,809		678,459

SHAREHOLDERS' EQUITY	SHAREHOLDERS' EQUITY					SHAREHOLDERS' EQUITY
Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; NaN issued		0		0
Class A Common Stock, par value $.001 per share; authorized 100,000,000 shares; 39,142,483 issued in 2021 and 39,115,405 in 2020		39		39
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 1,617,998 in 2021 and 2020		2		2
Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none issued						Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none issued	—		—
Class A Common Stock, par value $.001 per share; authorized 100,000,000 shares; 40,781,434 issued in 2022 and 40,760,577 in 2021						Class A Common Stock, par value $.001 per share; authorized 100,000,000 shares; 40,781,434 issued in 2022 and 40,760,577 in 2021	41		41
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; NaN issued and outstanding in 2022 and 104 in 2021						Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; NaN issued and outstanding in 2022 and 104 in 2021	—		—
Additional paid in capital	Additional paid in capital	435,230		433,696		Additional paid in capital	437,748		436,996
Retained earnings	Retained earnings	816,778		770,746		Retained earnings	884,133		863,057
Accumulated items of other comprehensive income:	Accumulated items of other comprehensive income:					Accumulated items of other comprehensive income:
Translation adjustments	Translation adjustments	(85,384)		(83,203)		Translation adjustments	(107,610)		(105,880)
Pension and postretirement liability adjustments	Pension and postretirement liability adjustments	(39,282)		(39,661)		Pension and postretirement liability adjustments	(38,416)		(38,490)
Derivative valuation adjustment	Derivative valuation adjustment	(7,398)		(9,544)		Derivative valuation adjustment	8,404		(1,614)
Treasury stock (Class A), at cost; 8,379,804 shares in 2021 and 8,391,011 shares in 2020		(255,768)		(256,009)
Treasury stock (Class A), at cost; 9,179,776 shares in 2022 and 8,665,090 shares in 2021						Treasury stock (Class A), at cost; 9,179,776 shares in 2022 and 8,665,090 shares in 2021	(324,080)		(280,143)
Total Company shareholders' equity	Total Company shareholders' equity	864,217		816,066		Total Company shareholders' equity	860,220		873,967
Noncontrolling interest	Noncontrolling interest	3,842		3,799		Noncontrolling interest	4,032		3,638
Total equity	Total equity	868,059		819,865		Total equity	864,252		877,605
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	1,526,640	$	1,549,936	Total liabilities and shareholders' equity	$	1,580,061	$	1,556,064

The accompanying notes are an integral part of the consolidated financial statements

Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
OPERATING ACTIVITIES	OPERATING ACTIVITIES									OPERATING ACTIVITIES
Net income	Net income	$	31,440	$	32,449	$	59,050	$	40,043	Net income	$	28,075	$	27,609
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:										Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Depreciation	Depreciation	15,971		15,498		32,560		31,004		Depreciation	15,597		16,589
Amortization	Amortization	2,280		2,456		4,573		5,020		Amortization	2,165		2,293
Change in deferred taxes and other liabilities	Change in deferred taxes and other liabilities	974		3,543		5,416		9,360		Change in deferred taxes and other liabilities	1,792		4,442
Impairment of property, plant and equipment		353		36		538		233
Impairment of property, plant, equipment, and inventory										Impairment of property, plant, equipment, and inventory	2,868		185
Non-cash interest expense	Non-cash interest expense	265		20		310		171		Non-cash interest expense	282		45
Compensation and benefits paid or payable in Class A Common Stock	Compensation and benefits paid or payable in Class A Common Stock	1,639		1,198		1,626		516		Compensation and benefits paid or payable in Class A Common Stock	745		(13)
Provision for credit losses from uncollected receivables and contract assets	Provision for credit losses from uncollected receivables and contract assets	27		114		(83)		1,769		Provision for credit losses from uncollected receivables and contract assets	1,858		(110)
Foreign currency remeasurement (gain)/loss on intercompany loans	Foreign currency remeasurement (gain)/loss on intercompany loans	(723)		194		(1,031)		15,581		Foreign currency remeasurement (gain)/loss on intercompany loans	(2,385)		(308)
Fair value adjustment on foreign currency options	Fair value adjustment on foreign currency options	1		0		140		64		Fair value adjustment on foreign currency options	(977)		139

Changes in operating assets and liabilities that provided/(used) cash:
Changes in operating assets and liabilities that (used)/provided cash:										Changes in operating assets and liabilities that (used)/provided cash:
Accounts receivable	Accounts receivable	(129)		11,511		(3,365)		8,117		Accounts receivable	(15,674)		(3,236)
Contract assets	Contract assets	9,539		(11,169)		25,643		(20,009)		Contract assets	272		16,104
Inventories	Inventories	(1,821)		(4,878)		(10,384)		(24,628)		Inventories	(7,549)		(8,563)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(606)		(301)		(1,505)		(2,457)		Prepaid expenses and other current assets	(1,976)		(899)
Income taxes prepaid and receivable	Income taxes prepaid and receivable	1,156		29		(309)		(208)		Income taxes prepaid and receivable	1,829		(1,465)
Accounts payable	Accounts payable	(4,580)		(9,337)		4,608		(10,383)		Accounts payable	(375)		9,188
Accrued liabilities	Accrued liabilities	2,062		4,171		(17,423)		(10,901)		Accrued liabilities	(19,350)		(19,485)
Income taxes payable	Income taxes payable	4,121		5,526		(3,956)		1,955		Income taxes payable	(10,890)		(8,077)
Noncurrent receivables	Noncurrent receivables	1,099		628		1,587		397		Noncurrent receivables	614		488
Other noncurrent liabilities	Other noncurrent liabilities	(2,166)		(464)		(4,263)		(524)		Other noncurrent liabilities	(1,914)		(2,097)
Other, net	Other, net	1,051		(552)		1,908		(1,086)		Other, net	(398)		857
Net cash provided by operating activities		61,953		50,672		95,640		44,034
Net cash (used in)/provided by operating activities										Net cash (used in)/provided by operating activities	(5,391)		33,686

INVESTING ACTIVITIES	INVESTING ACTIVITIES									INVESTING ACTIVITIES
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(10,302)		(9,212)		(22,836)		(21,971)		Purchases of property, plant and equipment	(15,719)		(12,534)
Purchased software	Purchased software	(286)		0		(288)		(46)		Purchased software	(35)		(2)
Net cash used in investing activities	Net cash used in investing activities	(10,588)		(9,212)		(23,124)		(22,017)		Net cash used in investing activities	(15,754)		(12,536)

FINANCING ACTIVITIES	FINANCING ACTIVITIES									FINANCING ACTIVITIES
Proceeds from borrowings	Proceeds from borrowings	0		0		8,000		70,000		Proceeds from borrowings	77,000		8,000
Principal payments on debt	Principal payments on debt	(34,002)		(56,005)		(56,009)		(59,011)		Principal payments on debt	—		(22,007)
Principal payments on finance lease liabilities	Principal payments on finance lease liabilities	(355)		(329)		(704)		(6,463)		Principal payments on finance lease liabilities	(390)		(349)
Purchase of Treasury shares										Purchase of Treasury shares	(42,230)		—
Taxes paid in lieu of share issuance	Taxes paid in lieu of share issuance	0		0		(998)		(490)		Taxes paid in lieu of share issuance	(770)		(998)
Proceeds from options exercised	Proceeds from options exercised	21		20		149		20		Proceeds from options exercised	7		128
Dividends paid	Dividends paid	(6,474)		(6,141)		(12,942)		(12,280)		Dividends paid	(6,742)		(6,468)
Net cash used in financing activities		(40,810)		(62,455)		(62,504)		(8,224)
Net cash provided by/(used in) financing activities										Net cash provided by/(used in) financing activities	26,875		(21,694)

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	4,904		2,352		2,002		(5,296)		Effect of exchange rate changes on cash and cash equivalents	(351)		(2,901)

Increase/(decrease) in cash and cash equivalents	Increase/(decrease) in cash and cash equivalents	15,459		(18,643)		12,014		8,497		Increase/(decrease) in cash and cash equivalents	5,379		(3,445)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	237,871		222,680		241,316		195,540		Cash and cash equivalents at beginning of period	302,036		241,316
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	253,330	$	204,037	$	253,330	$	204,037	Cash and cash equivalents at end of period	$	307,415	$	237,871

The accompanying notes are an integral part of the consolidated financial statements

Index

ALBANY INTERNATIONAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of results for such periods. Albany International Corp. (Albany, the Registrant, the Company, we, us, or our) consolidates the financial results of its subsidiaries for all periods presented. The results for any interim period are not necessarily indicative of results for the full year.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in Albany International Corp.’s Consolidated Financial Statements and accompanying Notes. Actual results could differ materially from those estimates.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Albany International Corp.’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

2. Reportable Segments and Revenue Recognition

In accordance with applicable disclosure guidance for enterprise segments and related information, the internal organization that is used by management for making operating decisions and assessing performance is used as the basis for our reportable segments.

Machine Clothing:

The Machine Clothing (“MC”) segment supplies permeable and impermeable belts used in the manufacture of paper, paperboard, tissue and towel, nonwovens, fiber cement and several other industrial applications. We sell our MC products directly to customer end-users in countries across the globe. Our products, manufacturing processes, and distribution channels for MC are substantially the same in each region of the world in which we operate.

We design, manufacture, and market paper machine clothing (used in the manufacturing of paper, paperboard, tissue and towel) for each section of the paper machine and for every grade of paper. Paper machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a complex structure.

Albany Engineered Composites:

The Albany Engineered Composites (“AEC”) segment ~~including~~provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. The segment includes Albany Safran Composites, LLC (“ASC”), in which our customer SAFRAN Group (“Safran”) owns a 10 percent noncontrolling interest, provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. AEC’s largest program relates to CFM International’s LEAP engine. Under this program,interest. AEC, through ASC, is the exclusive supplier of the LEAP program of advanced composite fan blades and fan cases under a long-term supply ~~contract.~~contract.The LEAP engine is used on the Airbus A320neo and Boeing 737 MAX family of jets. AEC's largest aerospace customer is the SAFRAN Group and sales to SAFRAN (consisting primarily of fan blades and cases for CFM's LEAP engine) accounted for approximately 12 percent of the Company's consolidated Net sales in 2021. AEC net sales to Safran were ~~$54.0~~$40.4 million and ~~$57.0~~$27.7 million in the first ~~six~~three months of ~~2021~~2022 and ~~2020,~~2021, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to ~~$105.1~~$83.7 million and ~~$127.1~~$79.6 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Other significant programs by AEC include the F-35, Boeing 787, Sikorsky CH-53K and JASSM programs. AEC also supplies vacuum waste tanks for the Boeing 7-Series programs, and specialty components for the Rolls Royce lift fan on the F-35, as well as the fan case for the GE9X engine. In ~~2020,~~2021, approximately 4647 percent of AEC sales were related to U.S. government contracts or programs.

Index

The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Net sales	Net sales									Net sales
Machine Clothing	Machine Clothing	$	159,921	$	153,433	$	308,127	$	290,035	Machine Clothing	$	154,062	$	148,206
Albany Engineered Composites	Albany Engineered Composites	74,598		72,557		148,753		171,719		Albany Engineered Composites	90,107		74,156
Consolidated total	Consolidated total	$	234,519	$	225,990	$	456,880	$	461,754	Consolidated total	$	244,169	$	222,362
Operating income/(loss)	Operating income/(loss)									Operating income/(loss)
Machine Clothing	Machine Clothing	$	55,902	$	56,543	$	106,264	$	103,718	Machine Clothing	$	49,644	$	50,363
Albany Engineered Composites	Albany Engineered Composites	7,164		8,299		10,102		15,922		Albany Engineered Composites	1,195		2,938
Corporate expenses	Corporate expenses	(13,100)		(12,115)		(24,581)		(27,319)		Corporate expenses	(12,085)		(11,483)
Operating income	Operating income	$	49,966	$	52,727	$	91,785	$	92,321	Operating income	$	38,754	$	41,818
Reconciling items:	Reconciling items:									Reconciling items:
Interest income	Interest income	(401)		(348)		(930)		(795)		Interest income	(652)		(529)
Interest expense	Interest expense	4,619		4,171		8,717		8,595		Interest expense	4,261		4,098
Other expense/(income), net	Other expense/(income), net	862		1,091		1,462		16,660		Other expense/(income), net	(3,928)		600
Income before income taxes	Income before income taxes	$	44,886	$	47,813	$	82,536	$	67,861	Income before income taxes	$	39,073	$	37,649

~~There were no material changes~~A subsidiary within our Machine Clothing segment has been a partner in a joint venture (“JV”) that supplies paper machine clothing products to ~~total assets~~local papermakers in Russia. In March 2022, we made the decision to cease doing business in Russia, including giving notice to our JV partner of our intent to exit the ~~reportable segments~~venture. As a result, we recognized $1.8 million expense in the consolidated statement of operations, representing reserves against the risk of uncollectible customer receivables and obsolescence of certain inventory destined for Russian customers. We also wrote down the net book value of our investment in the aforementioned JV to reflect our intent to exit such venture, resulting in $0.8 million impairment loss during the first ~~six months~~quarter of ~~2021.~~2022.

The table below presents restructuring costs by reportable ~~segment (also see Note 4):~~segment:


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Machine Clothing	Machine Clothing	$	10	$	388	$	(58)	$	1,030	Machine Clothing	$	243	$	(69)
Albany Engineered Composites	Albany Engineered Composites	(48)		2,248		41		2,248		Albany Engineered Composites	—		89
Corporate expenses	Corporate expenses	29		201		60		201		Corporate expenses	11		32
Total	Total	$	(9)	$	2,837	$	43	$	3,479	Total	$	254	$	52

Revenue Recognition:

Products and services provided under long-term contracts represent a significant portion of sales in the Albany Engineered Composites segment and we account for these contracts using the percentage of completion (actual cost to estimated cost) method. That method requires significant judgment and estimation, which could be considerably different if the underlying circumstances were to change. When adjustments in estimated contract revenues or costs are required, any changes from prior estimates are included in earnings in the period the change occurs. Changes in the estimated profitability of long-term contracts could be caused by increases or decreases in the contract value, revisions to customer delivery requirements, updated labor or overhead rates, factors affecting the supply chain, changes in the evaluation of contract risks and opportunities, or other factors. Changes in the estimated profitability of long-term contracts ~~increased~~decreased operating income by ~~$4.3~~$0.7 million ~~and $3.7 million for~~during the ~~second quarter and~~ first ~~half~~three months of ~~2021, respectively. Adjustments~~2022, compared to an insignificant effect in the ~~estimated profitability of long-term contracts increased operating income by $7.4 million and $6.4 million for the second quarter and first half of 2020, respectively.~~same period last year.

Index

We disaggregate revenue earned from contracts with customers for each of our business segments and product groups based on the timing of revenue recognition, and groupings used for internal review purposes.

The following table disaggregates revenue for each product group by timing of revenue recognition:


		Three months ended June 30, 2021							Three months ended March 31, 2022
(in thousands)	(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total		(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total
Machine Clothing	Machine Clothing	$	159,056	$	865	$	159,921	Machine Clothing	$	153,163	$	899	$	154,062

Albany Engineered Composites	Albany Engineered Composites							Albany Engineered Composites
ASC	ASC	0		26,170		26,170		ASC	—		39,712		39,712
Other AEC	Other AEC	4,432		43,996		48,428		Other AEC	3,913		46,482		50,395
Total Albany Engineered Composites	Total Albany Engineered Composites	4,432		70,166		74,598		Total Albany Engineered Composites	3,913		86,194		90,107

Total revenue	Total revenue	$	163,488	$	71,031	$	234,519	Total revenue	$	157,076	$	87,093	$	244,169


		Six months ended June 30, 2021							Three months ended March 31, 2021
(in thousands)	(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total		(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total
Machine Clothing	Machine Clothing	$	306,397	$	1,730	$	308,127	Machine Clothing	$	147,341	$	865	$	148,206

Albany Engineered Composites	Albany Engineered Composites							Albany Engineered Composites
ASC	ASC	0		53,254		53,254		ASC	—		27,084		27,084
Other AEC	Other AEC	8,312		87,187		95,499		Other AEC	3,880		43,192		47,072
Total Albany Engineered Composites	Total Albany Engineered Composites	8,312		140,441		148,753		Total Albany Engineered Composites	3,880		70,276		74,156

Total revenue	Total revenue	$	314,709	$	142,171	$	456,880	Total revenue	$	151,221	$	71,141	$	222,362

Three months ended June 30, 2020
(in thousands)
Point in Time Revenue
Recognition
Over Time Revenue
Recognition
Total
Machine Clothing $ 152,585 $ 848 $ 153,433
Albany Engineered Composites
ASC 0 17,576 17,576
Other AEC 4,143 50,838 54,981
Total Albany Engineered Composites 4,143 68,414 72,557
Total revenue $ 156,728 $ 69,262 $ 225,990

~~Index~~

Six months ended June 30, 2020
(in thousands) Point in Time Revenue
Recognition Over Time Revenue
Recognition Total
Machine Clothing $ 288,339 $ 1,696 $ 290,035
Albany Engineered Composites
ASC 0 55,470 55,470
Other AEC 10,463 105,786 116,249
Total Albany Engineered Composites 10,463 161,256 171,719
Total revenue $ 298,802 $ 162,952 $ 461,754

The following table disaggregates MC segment revenue by significant product groupings (paper machine clothing (PMC) and engineered fabrics), and, for PMC, the geographical region to which the paper machine clothing was sold:


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Americas PMC	Americas PMC	$	82,343	$	81,225	$	155,645	$	154,902	Americas PMC	$	76,616	$	73,302
Eurasia PMC	Eurasia PMC	55,900		54,166		111,043		99,297		Eurasia PMC	55,486		55,143
Engineered Fabrics	Engineered Fabrics	21,678		18,042		41,439		35,836		Engineered Fabrics	21,960		19,761
Total Machine Clothing Net sales	Total Machine Clothing Net sales	$	159,921	$	153,433	$	308,127	$	290,035	Total Machine Clothing Net sales	$	154,062	$	148,206

~~As permitted by ASC 606, we only~~We do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of ~~greater than~~ one ~~year.~~year or less. Contracts in the MC segment are generally for periods of less than a year. Most contracts in the AEC segment are short duration firm-fixed-price orders representing performance obligations with an original maturity of less than one year. Remaining performance obligations on contracts that had an original duration of greater than one year totaled ~~$149~~$263 million and ~~$85~~$76 million as of ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of ~~June 30, 2021,~~March 31, 2022, we expect to recognize as revenue approximately ~~$48 million during 2021, $62~~$79 million during 2022, ~~$24~~$45 million during 2023, $38 million during 2024, and the remainder ~~during 2024.~~thereafter.

109

Index

3. Pensions and Other Postretirement Benefit Plans

The Company has defined benefit pension plans covering certain U.S. and non-U.S. employees. The Company also provides certain postretirement benefits to retired employees in the U.S. and Canada. The Company accrues the cost of providing these benefits during the active service period of the employees.

The composition of the net periodic benefit cost for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ was as follows:


		Pension plans				Other postretirement benefits					Pension plans				Other postretirement benefits
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021
Components of net periodic benefit cost:	Components of net periodic benefit cost:									Components of net periodic benefit cost:
Service cost	Service cost	$	1,090	$	1,148	$	66	$	100	Service cost	$	355	$	545	$	29	$	33
Interest cost	Interest cost	2,674		3,071		551		857		Interest cost	1,417		1,338		305		276
Expected return on assets	Expected return on assets	(3,211)		(3,415)		0		0		Expected return on assets	(1,706)		(1,606)		—		—
Settlement		0		145		0		0
Curtailment		0		233		0		0
Amortization of prior service cost/(credit)	Amortization of prior service cost/(credit)	7		16		(2,244)		(2,244)		Amortization of prior service cost/(credit)	(1)		3		(1,122)		(1,122)
Amortization of net actuarial loss	Amortization of net actuarial loss	1,087		1,180		1,130		1,296		Amortization of net actuarial loss	500		544		471		565
Net periodic benefit cost	Net periodic benefit cost	$	1,647	$	2,378	$	(497)	$	9	Net periodic benefit cost	$	565	$	824	$	(317)	$	(248)

The amount of net periodic benefit cost is determined at the beginning of each year and generally only varies from quarter to quarter when a significant event occurs, such as a curtailment or a settlement. There were no such events in the first ~~six~~three months of 2022 or 2021. ~~In the second quarter of 2020, the Company recorded expense of $0.4 million related to curtailments and settlements.~~

Service cost for defined benefit pension and postretirement plans are reported in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net periodic benefit cost are included in the line item Other (income)/expense, net in the Consolidated Statements of Income.

~~4. Restructuring~~

Restructuring costs in the first six months of 2021 were not significant. Restructuring costs in the first six months of 2020 were related to reductions in workforce at various AEC locations, principally in the United States, as well as related to discontinued operations at the Machine Clothing production facility in Sélestat, France. Since 2017, we have recorded $13.9 million of restructuring charges related to this action. There were 0 charges related to the impairment of assets for the periods presented.

~~The following table summarizes charges reported in the Consolidated Statements of Income under “Restructuring expenses, net”:~~

Three months ended June 30, Six months ended June 30,
(in thousands) 2021 2020 2021 2020
Machine Clothing $ 10 $ 388 $ (58) $ 1,030
Albany Engineered Composites (48) 2,248 41 2,248
Corporate expenses 29 201 60 201
Total $ (9) $ 2,837 $ 43 $ 3,479

~~The table below presents the year-to-date changes in restructuring liabilities for 2021 and 2020, all of which are related to termination and other costs:~~

(in thousands) December 31,
2020
Restructuring
charges accrued
Payments
Currency
translation /other
June 30,
2021
Total termination and other costs $ 2,195 $ 43 $ (1,485) $ 11 $ 764

(in thousands) December 31,
2019
Restructuring
charges accrued
Payments
Currency
translation /other
June 30,
2020
Total termination and other costs $ 2,042 $ 3,479 $ (1,410) $ (5) $ 4,106

~~Index~~

~~We expect that approximately $0.6 million of Accrued liabilities for restructuring at June 30, 2021 will be paid within one year and approximately $0.2 million will be paid the following year.~~

5.4. Other (Income)/Expense, net

The components of Other (Income)/Expense, net are:


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Currency transaction (gains)/losses	Currency transaction (gains)/losses	$	175	$	17	$	341	$	14,851	Currency transaction (gains)/losses	$	(3,741)	$	166
Bank fees and amortization of debt issuance costs	Bank fees and amortization of debt issuance costs	104		93		210		168		Bank fees and amortization of debt issuance costs	96		107
Components of net periodic pension and postretirement cost other than service		(4)		754		(6)		1,139
Components of net periodic pension and postretirement cost other than service cost										Components of net periodic pension and postretirement cost other than service cost	(136)		(2)
Other	Other	587		227		917		502		Other	(147)		329
Total	Total	$	862	$	1,091	$	1,462	$	16,660	Total	$	(3,928)	$	600

Other (income)/expense, net, included ~~losses~~foreign currency related ~~to the revaluation~~transactions which resulted in gains of ~~nonfunctional-currency balances of $0.3~~$3.7 million ~~for~~in the first ~~six~~three months of ~~2021,~~2022, as compared to losses of ~~$14.9~~$0.2 million ~~for~~in the ~~first six months~~same period last year. Current year gains were primarily driven by the remeasurement of ~~2020, which principally resulted from an~~ intercompany demand ~~loan~~loans payable by a Mexican subsidiary. As a result of changes in business conditions that occurred in the first quarter of 2020, loan repayments on that intercompany loan are not expected in the foreseeable future and, beginning April 1, 2020, the revaluation effects are recorded in Other comprehensive income.

Index

5. Income Taxes

The following table presents components of income tax expense for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Three months ended June 30, Six months ended
June 30,
(in thousands, except percentages) 2021 2020 2021 2020
Income tax based on income from continuing operations (1) $ 13,251 $ 16,262 $ 24,583 $ 23,571
Provision for change in estimated tax rate (218) (490) (218) (490)
Income tax before discrete items 13,033 15,772 24,365 23,081
Discrete tax expense:
Exercise of U.S. stock options (14) 0 (156) 0
Adjustments to prior period tax liabilities 22 879 (1,421) 767
Revaluation of deferred tax assets due to tax rate change 352 0 352 0
Provision for/resolution of tax audits and contingencies, net 0 (1,489) 278 (1,733)
Write-off of net operating losses related to tax audit 0 0 0 1,830
Tax effect of non-deductible foreign exchange loss on intercompany loan 0 (13) 0 3,656
Creation of valuation allowance 0 222 0 222
Other 53 (7) 68 (5)
Total income tax expense $ 13,446 $ 15,364 $ 23,486 $ 27,818
(1) Calculated at estimated tax rates of 29.5% and 34.0%, respectively


	Three months ended March 31,
(in thousands, except percentages)	2022		2021
Income tax based on income from continuing operations (1)	$	10,942	$	11,332
Income tax before discrete items	10,942		11,332
Discrete tax expense:
Exercise of U.S. stock options	(9)		(142)
Impact of amended tax returns	(81)		(645)
Adjustments of prior year estimated taxes	104		(751)
Changes in uncertain tax positions	6		278
Other	36		(32)
Total income tax expense	$	10,998	$	10,040
(1) Calculated at estimated tax rates of 28.0% and 30.1%, respectively

Income tax expense for the quarter was computed in accordance with ASC 740-270, Income Taxes – Interim Reporting. Under this method, loss jurisdictions, which cannot recognize a tax benefit with regard to their generated losses, are excluded from the annual effective tax rate (AETR) calculation and their taxes will be recorded discretely in each quarter.

In the ~~second~~first quarter of ~~2020,~~2021, the Company recorded a net tax benefit of ~~$1.5~~$1.4 million asrelated to the impact of U.S. amended tax returns and a ~~result of a US state tax audit settlement; the Company also recorded a net deferred tax expense of $1.0 million due to an~~U.S. adjustment of ~~net operating losses related to settled audits. In the first quarter of 2020,~~prior year estimated taxes. Additionally, the Company recorded ~~a $1.8~~an expense of $0.3 million ~~out-of-period charge~~ related to ~~developments in ongoing~~the establishment of a foreign uncertain tax ~~audits, which resulted in a corresponding decrease in deferred tax assets.~~

~~Index~~

position.

7.6. Earnings Per Share

The amounts used in computing earnings per share and the weighted average number of shares of potentially dilutive securities are as follows:


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands, except market price and earnings per share)	(in thousands, except market price and earnings per share)	2021		2020		2021		2020		(in thousands, except market price and earnings per share)	2022		2021
Net income attributable to the Company	Net income attributable to the Company	$	31,397	$	32,354	$	58,980	$	41,463	Net income attributable to the Company	$	27,737	$	27,582

Weighted average number of shares:	Weighted average number of shares:									Weighted average number of shares:
Weighted average number of shares used in calculating basic net income per share	Weighted average number of shares used in calculating basic net income per share	32,375		32,328		32,363		32,320		Weighted average number of shares used in calculating basic net income per share	31,877		32,352
Effect of dilutive stock-based compensation plans		47		8		48		8
Effect of dilutive stock-based compensation plans:										Effect of dilutive stock-based compensation plans:
Stock options										Stock options	—		3
RSU and MPP shares										RSU and MPP shares	84		46

Weighted average number of shares used in calculating diluted net income per share	Weighted average number of shares used in calculating diluted net income per share	32,422		32,336		32,411		32,328		Weighted average number of shares used in calculating diluted net income per share	31,961		32,401

Average market price of common stock used for calculation of dilutive shares	Average market price of common stock used for calculation of dilutive shares	$	87.53	$	54.08	$	83.48	$	59.73	Average market price of common stock used for calculation of dilutive shares	$	86.09	$	79.30

Net income attributable to the Company per share:	Net income attributable to the Company per share:									Net income attributable to the Company per share:
Basic	Basic	$	0.97	$	1.00	$	1.82	$	1.28	Basic	$	0.87	$	0.85
Diluted	Diluted	$	0.97	$	1.00	$	1.82	$	1.28	Diluted	$	0.87	$	0.85

8.7. Accumulated Other Comprehensive Income (AOCI)

Index

The table below presents changes in the components of AOCI for the period December 31, ~~2020~~2021 to ~~June 30, 2021:~~March 31, 2022:

(in thousands)
Translation
adjustments
Pension and
postretirement
liability
adjustments
Derivative
adjustment
Total Other
Comprehensive
Income
December 31, 2020 $ (83,203) $ (39,661) $ (9,544) $ (132,408)
Other comprehensive income/(loss) before reclassifications, net of tax (2,181) 393 (262) (2,050)
Interest expense related to swaps reclassified to the Consolidated Statements of Income, net of tax 0 — 2,408 2,408
Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax 0 (14) 0 (14)
Net current period other comprehensive income (2,181) 379 2,146 344
June 30, 2021 $ (85,384) $ (39,282) $ (7,398) $ (132,064)

~~Index~~


(in thousands)	Translation adjustments		Pension and postretirement liability adjustments		Derivative valuation adjustment		Total Other Comprehensive Income
December 31, 2021	$	(105,880)	$	(38,490)	$	(1,614)	$	(145,984)
Other comprehensive income/(loss) before reclassifications, net of tax	(1,730)		179		8,752		7,201
Interest expense related to swaps reclassified to the Consolidated Statements of Income, net of tax	—		—		1,266		1,266
Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax	—		(105)		—		(105)
Net current period other comprehensive income	(1,730)		74		10,018		8,362
March 31, 2022	$	(107,610)	$	(38,416)	$	8,404	$	(137,622)

The table below presents changes in the components of AOCI for the period December 31, ~~2019~~2020 to ~~June 30, 2020:~~March 31, 2021:


(in thousands)	(in thousands)	Translation adjustments		Pension and postretirement liability adjustments		Derivative adjustment		Total Other Comprehensive Income		(in thousands)	Translation adjustments		Pension and postretirement liability adjustments		Derivative valuation adjustment		Total Other Comprehensive Income
December 31, 2019		$	(122,852)	$	(49,994)	$	(3,135)	$	(175,981)
December 31, 2020										December 31, 2020	$	(83,203)	$	(39,661)	$	(9,544)	$	(132,408)
Other comprehensive income/(loss) before reclassifications, net of tax	Other comprehensive income/(loss) before reclassifications, net of tax	(16,783)		581		(9,028)		(25,230)		Other comprehensive income/(loss) before reclassifications, net of tax	(15,955)		516		(343)		(15,782)
Pension/postretirement curtailment loss, net of tax		0		265		0		265
Interest expense related to swaps reclassified to the Consolidated Statements of Income, net of tax	Interest expense related to swaps reclassified to the Consolidated Statements of Income, net of tax	0		0		1,133		1,133		Interest expense related to swaps reclassified to the Consolidated Statements of Income, net of tax	—		—		1,095		1,095
Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax	Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax	0		186		0		186		Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax	—		(7)		—		(7)
Net current period other comprehensive income	Net current period other comprehensive income	(16,783)		1,032		(7,895)		(23,646)		Net current period other comprehensive income	(15,955)		509		752		(14,694)
June 30, 2020		$	(139,635)	$	(48,962)	$	(11,030)	$	(199,627)
March 31, 2021										March 31, 2021	$	(99,158)	$	(39,152)	$	(8,792)	$	(147,102)

The components of our Accumulated Other Comprehensive Income that are reclassified to the Statement of Income relate to our pension and postretirement plans and interest rate swaps.

Index

The table below presents the expense/(income) amounts reclassified from AOCI, and the line items of the Statement of Income that were affected for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Pretax Derivative valuation reclassified from Accumulated Other Comprehensive Income:	Pretax Derivative valuation reclassified from Accumulated Other Comprehensive Income:									Pretax Derivative valuation reclassified from Accumulated Other Comprehensive Income:
Expense/(income) related to interest rate swaps included in Income before taxes (a)	Expense/(income) related to interest rate swaps included in Income before taxes (a)	$	1,770	$	1,116	$	3,246	$	1,523	Expense/(income) related to interest rate swaps included in Income before taxes (a)	$	1,696	$	1,476
Income tax effect	Income tax effect	(457)		(286)		(838)		(390)		Income tax effect	(430)		(381)
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income	Effect on net income due to items reclassified from Accumulated Other Comprehensive Income	$	1,313	$	830	$	2,408	$	1,133	Effect on net income due to items reclassified from Accumulated Other Comprehensive Income	$	1,266	$	1,095

Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:	Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:									Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:
Pension/postretirement curtailment		0		378		0		378
Amortization of prior service credit	Amortization of prior service credit	(1,118)		(1,114)		(2,237)		(2,228)		Amortization of prior service credit	(1,123)		(1,119)
Amortization of net actuarial loss	Amortization of net actuarial loss	1,108		1,232		2,217		2,476		Amortization of net actuarial loss	971		1,109
Total pretax amount reclassified (b)	Total pretax amount reclassified (b)	(10)		496		(20)		626		Total pretax amount reclassified (b)	(152)		(10)
Income tax effect	Income tax effect	3		(143)		6		(175)		Income tax effect	47		3
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income	Effect on net income due to items reclassified from Accumulated Other Comprehensive Income	$	(7)	$	353	$	(14)	$	451	Effect on net income due to items reclassified from Accumulated Other Comprehensive Income	$	(105)	$	(7)

(a)Included in Interest expense, net are payments related to the interest rate swap agreements and amortization of swap buyouts (see Notes 1413 and ~~15)~~14).

(b)These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 3).

9.8. Noncontrolling Interest

Effective October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in a new Albany subsidiary, Albany Safran Composites, LLC (ASC). The table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity in the Company’s subsidiary Albany Safran Composites, LLC:

~~Index~~


		Six months ended June 30,							Three months ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020			(in thousands, except percentages)	2022			2021
Net income/(loss) of Albany Safran Composites (ASC)	Net income/(loss) of Albany Safran Composites (ASC)	$	1,343		$	(13,612)		Net income/(loss) of Albany Safran Composites (ASC)	$	3,702		$	585
Less: Return attributable to the Company's preferred holding	Less: Return attributable to the Company's preferred holding	647			587			Less: Return attributable to the Company's preferred holding	319			318
Net income/(loss) of ASC available for common ownership		$	696		$	(14,199)
Net /income/(loss) of ASC available for common ownership								Net /income/(loss) of ASC available for common ownership	$	3,383		$	267
Ownership percentage of noncontrolling shareholder	Ownership percentage of noncontrolling shareholder	10		%	10		%	Ownership percentage of noncontrolling shareholder	10		%	10		%
Net income/(loss) attributable to the noncontrolling interest		$	70		$	(1,420)
Net /income/(loss) attributable to the noncontrolling interest								Net /income/(loss) attributable to the noncontrolling interest	$	338		$	27

Noncontrolling interest, beginning of year	Noncontrolling interest, beginning of year	$	3,799		$	4,006		Noncontrolling interest, beginning of year	$	3,638		$	3,799
Net income/(loss) attributable to the noncontrolling interest		70			(1,420)
Net income/(loss) attributable to noncontrolling interest								Net income/(loss) attributable to noncontrolling interest	338			27
Changes in other comprehensive income attributable to the noncontrolling interest	Changes in other comprehensive income attributable to the noncontrolling interest	(27)			261			Changes in other comprehensive income attributable to the noncontrolling interest	56			(210)
Noncontrolling interest, end of interim period	Noncontrolling interest, end of interim period	$	3,842		$	2,847		Noncontrolling interest, end of interim period	$	4,032		$	3,616

~~10.~~9. Accounts Receivable

Accounts receivable includes trade receivables. In connection with certain sales in Asia, the Company accepts a bank promissory note as customer payment. The notes may be presented for payment at maturity, which is less than one year. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, Accounts receivable consisted of the following:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	March 31, 2022		December 31, 2021
Trade and other accounts receivable	Trade and other accounts receivable	$	170,029	$	167,370	Trade and other accounts receivable	$	186,462	$	168,046
Bank promissory notes	Bank promissory notes	24,847		24,860		Bank promissory notes	24,609		26,284
Allowance for expected credit losses	Allowance for expected credit losses	(3,939)		(3,807)		Allowance for expected credit losses	(3,516)		(2,345)
Accounts receivable, net	Accounts receivable, net	$	190,937	$	188,423	Accounts receivable, net	$	207,555	$	191,985

Index

The Company has Noncurrent receivables in the AEC segment that represent revenue earned, which has extended payment terms. The Noncurrent receivables will be invoiced to the customer over a 10-year period, which began in 2020. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, Noncurrent receivables consisted of the following:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	March 31, 2022		December 31, 2021
Noncurrent receivables	Noncurrent receivables	$	34,726	$	36,539	Noncurrent receivables	$	31,177	$	32,049
Allowance for expected credit losses	Allowance for expected credit losses	(260)		(274)		Allowance for expected credit losses	(195)		(200)
Noncurrent receivables, net	Noncurrent receivables, net	$	34,466	$	36,265	Noncurrent receivables, net	$	30,982	$	31,849

~~11.~~10. Contract Assets and Liabilities

Contract assets includes unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is utilized, and revenue recognized exceeds the amount billed to the customer. Contract assets are transferred to Accounts receivable, net when the entitlement to pay becomes unconditional. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract liabilities are included in Accrued liabilities in the Consolidated Balance Sheets.

Contract assets and Contract liabilities are reported on the Consolidated Balance Sheets in a net position on a contract-by-contract basis at the end of each reporting period.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, Contract assets and Contract liabilities consisted of the following:

~~Index~~


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	March 31, 2022		December 31, 2021
Contract assets	Contract assets	$	114,097	$	140,348	Contract assets	$	112,967	$	113,249
Allowance for expected credit losses	Allowance for expected credit losses	(872)		(1,059)		Allowance for expected credit losses	(705)		(703)
Contract assets, net	Contract assets, net	$	113,225	$	139,289	Contract assets, net	$	112,262	$	112,546

Contract liabilities	Contract liabilities	$	7,136	$	8,206	Contract liabilities	$	5,293	$	6,959

Contract assets decreased ~~$26.1~~$0.3 million during the ~~six-month~~three-month period ended ~~June 30, 2021.~~March 31, 2022. The decrease was primarily due to invoicing to customers exceeding revenue recognized for satisfied performance obligations for contracts that were in a contract asset position. There were ~~0 credit~~no impairment losses related to our Contract assets during the ~~six~~three month periods ended ~~June 30, 2021~~March 31, 2022 and ~~June 30, 2020.~~March 31, 2021.

Contract liabilities decreased ~~$1.1~~$1.7 million during the ~~six-month~~three-month period ended ~~June 30, 2021,~~March 31, 2022, primarily due to revenue recognized from satisfied performance obligations exceeding amounts invoiced to customers that were in a contract liability position. Revenue recognized for the ~~six-month~~three-month periods ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ that was included in the Contract liability balance at the beginning of the year was ~~$4.7~~$4.8 million and ~~$2.1~~$4.3 million, respectively.

~~12.~~11. Inventories

Costs included in inventories are raw materials, labor, supplies and allocable depreciation and overhead. Raw material inventories are valued on an average cost basis. Other inventory cost elements are valued at cost, using the first-in, first-out method. The Company writes down the inventories for estimated obsolescence, and to lower of cost or net realizable value based upon assumptions about future demand and market conditions. If actual demand or market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related write-down represents the new cost basis of such inventories.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, Inventories consisted of the following:

(in thousands) June 30, 2021 December 31, 2020
Raw materials $ 59,627 $ 57,789
Work in process 45,436 40,416
Finished goods 15,602 12,273
Total inventories $ 120,665 $ 110,478

Index


(in thousands)	March 31, 2022		December 31, 2021
Raw materials	$	58,493	$	58,689
Work in process	48,297		44,839
Finished goods	17,045		14,354
Total inventories	$	123,835	$	117,882

~~13.~~12. Goodwill and Other Intangible Assets

~~Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually.~~ Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually. Our reportable segments are consistent with our operating segments.

~~Determining~~In the second quarter of 2021, management applied the qualitative assessment approach in performing its annual evaluation of goodwill for the Company's Machine Clothing reporting unit and 3 AEC reporting units and concluded that each reporting unit’s fair value continued to exceed its carrying value. In addition, there were no amounts at risk due to the estimated excess between the fair and carrying values. Accordingly, no impairment charges were recorded.

When a quantitative assessment is performed, determining the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates, and future market conditions, among others. Goodwill and other long-lived assets are reviewed for impairment whenever events, such as significant changes in the business climate, plant closures, changes in product offerings, or other circumstances indicate that the carrying amount may not be recoverable.

To determine fair value, we utilize two market-based approaches and an income approach. Under the market-based approaches, we utilize information regarding the Company, as well as publicly available industry information, to determine earnings multiples and sales multiples. Under the income approach, we determine fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.

In the second quarter of 2021, management applied the qualitative assessment approach in performing its annual evaluation of goodwill for the Company's Machine Clothing reporting unit and three AEC reporting units and

~~Index~~

concluded that each reporting unit’s fair value continued to exceed its carrying value. In addition, there were no amounts at risk due to the estimated spread between the fair and carrying values. Accordingly, 0 impairment charges were recorded.

~~14.~~13. Financial Instruments

Long-term debt, principally to banks and noteholders, consists of:

(in thousands, except interest rates) June 30, 2021 December 31, 2020
Revolving credit agreement with borrowings outstanding at an end of period interest rate of 3.74% in 2021 and 3.50% in 2020 (including the effect of interest rate hedging transactions, as described below), due in 2024 $ 350,000 $ 398,000
Other debt, at an average end of period rate of 5.50% in 2020, paid in varying amounts through April 2021 0 9
Long-term debt 350,000 398,009
Less: current portion 0 (9)
Long-term debt, net of current portion $ 350,000 $ 398,000


(in thousands, except interest rates)	March 31, 2022		December 31, 2021
Revolving credit agreement with borrowings outstanding at an end of period interest rate of 3.42% in 2022 and 3.74% in 2021 (including the effect of interest rate hedging transactions, as described below), due in 2024	$	427,000	$	350,000

We had no current maturities of Long-term debt as of March 31, 2022 or December 31, 2021.

On October 27, 2020, we entered into a $700 million unsecured Four-Year Revolving Credit Facility Agreement (the “Credit Agreement”) which amended and restated the prior amended and restated $685 million Five-Year Revolving Credit Facility Agreement, which we had entered into on November 7, 2017 (the “Prior Agreement”). Under the Credit Agreement, ~~$350~~$427 million of borrowings were outstanding as of ~~June 30, 2021.~~March 31, 2022. The applicable interest rate for borrowings was LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At the time of the last borrowing on ~~June 30, 2021,~~March 31, 2022, the spread was 1.625%. The spread was based on a pricing grid, which ranged from 1.500% to 2.000%, based on our leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA, and without modification to any other credit agreements, as of ~~June 30, 2021,~~March 31, 2022, we would have been able to borrow an additional ~~$350~~$273 million under the Agreement.

The Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants and events of default that are comparable to those in the Prior Agreement. The Borrowings are guaranteed by certain of the Company’s subsidiaries.

Index

Our ability to borrow additional amounts under the Credit Agreement is conditional upon the absence of any defaults, as well as the absence of any material adverse change (as defined in the Credit Agreement).

On June 14, 2021, we entered into interest rate swap agreements for the period October 17, 2022 through October 27, 2024. These transactions have the effect of fixing the LIBOR portion of the effective interest rate (before addition of the spread) on $350 million of indebtedness drawn under the Credit Agreement at the rate of 0.838% during the period. Under the terms of these transactions, we pay the fixed rate of 0.838% and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date, which on ~~June~~March 16, ~~2021~~2022 was ~~0.08%~~0.44%.

On November 27, 2017, we terminated our interest rate swap agreements, originally entered into on May 9, 2016, that had effectively fixed the interest rate on $300 million of revolving credit borrowings, in order to enter into a new interest rate swap with a greater notional amount, and the same maturity as the Credit Agreement. We received $6.3 million when the swap agreements were terminated, which has been fully amortized into interest expense through March 2021.

On November 28, 2017, we entered into interest rate swap agreements for the period December 18, 2017 through October 17, 2022. These transactions have the effect of fixing the LIBOR portion of the effective interest rate (before addition of the spread) on $350 million of indebtedness drawn under the Credit Agreement at the rate of 2.11% during the period. Under the terms of these transactions, we pay the fixed rate of 2.11% and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date, which on ~~June~~March 16, ~~2021~~2022 was ~~0.08%~~0.44%, during the swap period. On ~~June~~March 16, ~~2021,~~2022, the all-in-rate on the $350 million of debt was 3.735%.

These interest rate swaps are accounted for as a hedge of future cash flows, as further described in Note ~~15.~~14. No cash collateral was received or pledged in relation to the swap agreements.

~~Index~~

Under the Credit Agreement, we are currently required to maintain a leverage ratio (as defined in the agreement) of not greater than 3.50 to 1.00 and minimum interest coverage (as defined) of 3.00 to 1.00.

As of ~~June 30, 2021,~~March 31, 2022, our leverage ratio was ~~1.08~~1.32 to 1.00 and our interest coverage ratio was ~~15.02~~14.80 to 1.00. We may purchase our Common Stock or pay dividends to the extent our leverage ratio remains at or below 3.50 to 1.00, and may make acquisitions with cash, provided our leverage ratio does not exceed the limits noted above.

Indebtedness under the Credit Agreement is ranked equally in right of payment to all unsecured senior debt.

We were in compliance with all debt covenants as of March 31, 2022.

Currently, our Credit Agreement and certain of our derivative instruments reference one-month USD LIBOR-based rates, which are set to discontinue after June 30, 2023. Regulators in the U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate (SOFR) for USD LIBOR. Our Credit Agreement contains provisions specifying alternative interest rate calculations to be employed when LIBOR ceases to be available as a benchmark and we have adhered to the ISDA IBOR Fallbacks Protocol, which will govern our derivatives upon the final cessation of USD LIBOR. ASU 2020-04, Reference Rate Reform, helps limit the accounting impact from contract modifications, including hedging relationships, due to the transition from LIBOR to alternative reference rates that are completed by December 31, 2022. We adopted certain provisions of ASU 2020-04 during 2021. While we currently do not expect a significant impact to our operating results, financial position or cash flows from the transition from LIBOR to alternative reference interest rates, we will continue to monitor the impact of this transition until it is completed.

~~15.~~14. Fair-Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting principles establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Level 3 inputs are unobservable data points for the asset or liability, and include situations in which there is little, if any, market activity for the asset or liability. We had no Level 3 financial assets or liabilities at ~~June 30, 2021,~~March 31, 2022, or at December 31, ~~2020.~~2021.

The following table presents the fair-value hierarchy for our Level 1 and Level 2 financial and non-financial assets and liabilities, which are measured at fair value on a recurring basis:

June 30, 2021 December 31, 2020
Quoted
prices in
active
markets
Significant
other
observable
inputs
Quoted
prices in
active
markets
Significant
other
observable
inputs
(in thousands) (Level 1) (Level 2) (Level 1) (Level 2)
Fair Value
Assets:
Cash equivalents $ 26,848 $ 0 $ 17,508 $ 0
Other Assets:
Common stock of unaffiliated foreign public company (a) 741 0 748 0
Interest rate swaps 0 261 0 0
Liabilities:
Other noncurrent liabilities:
Interest rate swaps 0 (9,270) 0 (12,714)

Index


	March 31, 2022				December 31, 2021
	Quoted prices in active markets		Significant other observable inputs		Quoted prices in active markets		Significant other observable inputs
(in thousands)	(Level 1)		(Level 2)		(Level 1)		(Level 2)
Fair Value
Assets:
Cash equivalents	$	19,058	$	—	$	20,665	$	—
Other Assets:
Common stock of unaffiliated foreign public company (a)	689		—		702		—
Interest rate swaps	0		13,519		—		3,328
Liabilities:
Interest rate swaps	—		(1,941)		—		(5,176)

(a)Original cost basis $0.5 million.

Cash equivalents include short-term securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities.

The interest rate swaps are accounted for as hedges of future cash flows. The fair value of our interest rate swaps are derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve, and is included in Other assets and/or Other noncurrent liabilities in the Consolidated Balance Sheets. Amounts determined to be due within one year are reclassified to Other current assets and/or Accrued liabilities in the Consolidated Balance Sheets. Unrealized gains and losses on the swaps flow through the caption Derivative valuation adjustment in the Shareholders’ equity section of the Consolidated Balance Sheets. As of ~~June 30, 2021,~~March 31, 2022, these interest rate swaps were determined to be highly effective hedges of interest rate cash flow risk. Amounts accumulated in Other comprehensive income are reclassified as Interest expense, net when the related interest payments (that is, the hedged forecasted transactions), and amortization related to the swap buyouts, affect earnings. Interest (income)/expense related to payments under the active swap agreements totaled ~~$3.5~~$1.7 million for the ~~six~~three month period ended ~~June 30, 2021,~~March 31, 2022, and ~~$1.9~~$1.7 million for the ~~six~~three month period ended ~~June 30, 2020.~~March 31, 2021. Additionally, non-cash interest income related to the amortization of swap buyouts totaled $0.0 million for the three month period ended March 31, 2022 and $0.3 million for the ~~six~~three month period ended ~~June 30, 2021~~March 31, 2021.

We operate our business in many regions of the world, and ~~$0.4 million for~~currency rate movements can have a significant effect on operating results. Foreign currency instruments are entered into periodically, and consist of foreign currency option contracts and forward contracts that are valued using quoted prices in active markets obtained from independent pricing sources. These instruments are measured using market foreign exchange prices and are recorded in the ~~six month period ended June 30, 2020.~~Consolidated Balance Sheets as Other current assets and Accounts payable, as applicable. Changes in fair value of these instruments are recorded as gains or losses within Other (income)/expense, net.

When exercised, the foreign currency instruments are net settled with the same financial institution that bought or sold them. For all positions, whether options or forward contracts, there is risk from the possible inability of the financial institution to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates, which may reduce the value of the instruments. We seek to mitigate risk by evaluating the creditworthiness of counterparties and by monitoring the currency exchange and interest rate markets while reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and policies.

~~16. Contingencies~~

1817

Index

(Gains)/losses related to changes in fair value of derivative instruments that were recognized in Other (income)/expense, net in the Consolidated Statements of Income were as follows:


	Three months ended March 31,
(in thousands)	2022		2021
Derivatives not designated as hedging instruments
Foreign currency options (gains)/losses	$	(977)	$	140

15. Contingencies

Asbestos Litigation

Albany International Corp. is a defendant in suits brought in various courts in the United States by plaintiffs who allege that they have suffered personal injury as a result of exposure to asbestos-containing paper machine clothing synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills.

We were defending ~~3,617~~3,616 claims as of ~~June 30, 2021.~~March 31, 2022.

The following table sets forth the number of claims filed, the number of claims settled, dismissed or otherwise resolved, and the aggregate settlement amount during the periods presented:

Year ended December 31,
Opening
Number of
Claims
Claims
Dismissed,
Settled, or
Resolved
New Claims
Closing
Number of
Claims
Amounts Paid
(thousands) to
Settle or
Resolve
2016 3,791 148 102 3,745 $ 758
2017 3,745 105 90 3,730 55
2018 3,730 152 106 3,684 100
2019 3,684 51 75 3,708 25
2020 3,708 152 59 3,615 57
2021 (As of June 30) 3,615 9 11 3,617 $ 0


Year ended December 31,	Opening Number of Claims	Claims Dismissed, Settled, or Resolved	New Claims	Closing Number of Claims	Amounts Paid (thousands) to Settle or Resolve
2021	3,615	32	26	3,609	93
2022 (As of March 31)	3,609	2	9	3,616	$	—

We anticipate that additional claims will be filed against the Company and related companies in the future but are unable to predict the number and timing of such future claims. Due to the fact that information sufficient to meaningfully estimate a range of possible loss of a particular claim is typically not available until late in the discovery process, we do not believe a meaningful estimate can be made regarding the range of possible loss with respect to pending or future claims and therefore are unable to estimate a range of reasonably possible loss in excess of amounts already accrued for pending or future claims.

While we believe we have meritorious defenses to these claims, we have settled certain claims for amounts we consider reasonable given the facts and circumstances of each case. Our insurance carrier has defended each case and funded settlements under a standard reservation of rights. As of ~~June 30, 2021,~~March 31, 2022, we had resolved, by means of settlement or dismissal, ~~37,957~~37,982 claims. The total cost of resolving all claims was ~~$10.4~~$10.5 million. Of this amount, almost 100% was paid by our insurance carrier, who has confirmed that we have approximately $140 million of remaining coverage under primary and excess policies that should be available with respect to current and future asbestos claims.

The Company’s subsidiary, Brandon Drying Fabrics, Inc. (“Brandon”), is also a separate defendant in many of the asbestos cases in which Albany is named as a defendant, despite never having manufactured any fabrics containing asbestos. While Brandon was defending against 7,709 claims as of ~~June 30, 2021,~~March 31, 2022, only 12 claims have been filed against Brandon since January 1, 2012, and ~~a negligible amount of~~only $15,000 in settlement costs have been incurred since 2001. Brandon was acquired by the Company in 1999 and has its own insurance policies covering periods prior to 1999. Since 2004, Brandon’s insurance carriers have covered 100% of indemnification and defense costs, subject to policy limits and a standard reservation of rights.

In some of these asbestos cases, the Company is named both as a direct defendant and as the “successor in interest” to Mount Vernon Mills (“Mount Vernon”). We acquired certain assets from Mount Vernon in 1993. Certain plaintiffs allege injury caused by asbestos-containing products alleged to have been sold by Mount Vernon many years prior to this acquisition. Mount Vernon is contractually obligated to indemnify the Company against any liability arising out of such products. We deny any liability for products sold by Mount Vernon prior to the acquisition of the

Index

Mount Vernon assets. Pursuant to its contractual indemnification obligations, Mount Vernon has assumed the defense of these claims. On this basis, we have successfully moved for dismissal in a number of actions.

We currently do not anticipate, based on currently available information, that the ultimate resolution of the aforementioned proceedings will have a material adverse effect on the financial position, results of operations, or cash flows of the Company. Although we cannot predict the number and timing of future claims, based on the foregoing factors, the trends in claims filed against us, and available insurance, we also do not currently anticipate that potential future claims will have a material adverse effect on our financial position, results of operations, or cash flows.

~~Index~~

~~17.~~16. Changes in Shareholders’ Equity

The following table summarizes changes in Shareholders’ Equity for the period December 31, ~~2020~~2021 to ~~June 30, 2021:~~March 31, 2022:

Class A
Common Stock
Class B
Common Stock
Additional paid-in capital Retained earnings Accumulated other comprehensive income
Class A
Treasury Stock
Noncontrolling Interest Total Equity
(in thousands) Shares Amount Shares Amount Shares Amount
December 31, 2020 39,115 $ 39 1,618 $ 2 $ 433,696 $ 770,746 $ (132,408) 8,391 $ (256,009) $ 3,799 $ 819,865
Net income — — — — — 27,582 — — — 27 27,609
Compensation and benefits paid or payable in shares 20 — — — (13) — — — — — (13)
Options exercised 6 — — — 128 — — — — — 128
Dividends declared
Class A Common Stock, $0.20 per share — — — — — (6,150) — — — — (6,150)
Class B Common Stock, $0.20 per share — — — — — (324) — — — — (324)
Cumulative translation adjustments — — — — — — (15,955) — — (210) (16,165)
Pension and postretirement liability adjustments — — — — — — 509 — — — 509
Derivative valuation adjustment — — — — — — 752 — — — 752
March 31, 2021 39,141 $ 39 1,618 $ 2 $ 433,811 $ 791,854 $ (147,102) 8,391 $ (256,009) $ 3,616 $ 826,211
Net income — — — — — 31,397 — — — 43 31,440
Compensation and benefits paid or payable in shares — — — — 692 — — — — — 692
Options exercised 1 — — — 21 — — — — — 21
Shares issued to Directors' — — — — 706 — — (11) 241 — 947
Dividends declared
Class A Common Stock, $0.20 per share — — — — — (6,150) — — — — (6,150)
Class B Common Stock, $0.20 per share — — — — — (323) — — — — (323)
Cumulative translation adjustments — — — — — — 13,774 — — 183 13,957
Pension and postretirement liability adjustments — — — — — — (130) — — — (130)
Derivative valuation adjustment — — — — — — 1,394 — — — 1,394
June 30, 2021 39,142 $ 39 1,618 $ 2 $ 435,230 $ 816,778 $ (132,064) 8,380 $ (255,768) $ 3,842 $ 868,059

~~Index~~


	Class A Common Stock			Class B Common Stock			Additional paid-in capital		Retained earnings		Accumulated items of other comprehensive income		Class A Treasury Stock			Noncontrolling Interest		Total Equity
(in thousands)	Shares	Amount		Shares	Amount								Shares	Amount
December 31, 2021	40,760	$	41	—	$	—	$	436,996	$	863,057	$	(145,984)	8,665	$	(280,143)	$	3,638	$	877,605
Net income	—	—		—	—		—		27,737		—		—	—		338		28,075
Compensation and benefits paid or payable in shares	21	—		—	—		745		—		—		—	—		—		745
Options exercised	—	—		—	—		7		—		—		—	—		—		7
Shares issued to Directors'	—	—		—	—		—		—		—		—	—		—		—
Purchase of Treasury shares (a)	—	—		—	—		—		—		—		515	(43,937)		—		(43,937)
Dividends declared
Class A Common Stock, $0.21 per share	—	—		—	—		—		(6,661)		—		—	—		—		(6,661)
Class B Common Stock, $0.21 per share	—	—		—	—		—		—		—		—	—		—		—
Cumulative translation adjustments	—	—		—	—		—		—		(1,730)		—	—		56		(1,674)
Pension and postretirement liability adjustments	—	—		—	—		—		—		74		—	—		—		74
Derivative valuation adjustment	—	—		—	—		—		—		10,018		—	—		—		10,018
March 31, 2022	40,781	$	41	—	$	—	$	437,748	$	884,133	$	(137,622)	9,180	$	(324,080)	$	4,032	$	864,252

The following table summarizes changes in Shareholders’ Equity for the period December 31, ~~2019~~2020 to ~~June 30, 2020:~~March 31, 2021:


		Class A Common Stock			Class B Common Stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive income		Class A Treasury Stock			Noncontrolling Interest		Total Equity			Class A Common Stock			Class B Common Stock			Additional paid-in capital		Retained earnings		Accumulated items of other comprehensive income		Class A Treasury Stock			Noncontrolling Interest		Total Equity
(in thousands)	(in thousands)	Shares	Amount		Shares	Amount								Shares	Amount						(in thousands)	Shares	Amount		Shares	Amount								Shares	Amount
December 31, 2019		39,099	$	39	1,618	$	2	$	432,518	$	698,496	$	(175,981)	8,409	$	(256,391)	$	4,006	$	702,689
Adoption of accounting standards (a)		—	—		—	—		—		(1,443)		—		—	—		—		(1,443)
December 31, 2020																					December 31, 2020	39,115	$	39	1,618	$	2	$	433,696	$	770,746	$	(132,408)	8,391	$	(256,009)	$	3,799	$	819,865
Net income	Net income	—	—		—	—		—		9,109		—		—	—		(1,515)		7,594		Net income	—	—		—	—		—		27,582		—		—	—		27		27,609
Compensation and benefits paid or payable in shares	Compensation and benefits paid or payable in shares	13	—		—	—		(682)		—		—		—	—		—		(682)		Compensation and benefits paid or payable in shares	20	—		—	—		(13)		—		—		—	—		—		(13)
Options exercised	Options exercised	—				—		—		—		—		—	—		—		—		Options exercised	6				—		128		—		—		—	—		—		128
Shares issued to Directors'	Shares issued to Directors'	—	—		—	—		—		—		—		—	—		—		—		Shares issued to Directors'	—	—		—	—		—		—		—		—	—		—		—
Dividends declared	Dividends declared																				Dividends declared
Class A Common Stock, $0.19 per share		—	—		—	—		—		(5,834)		—		—	—		—		(5,834)
Class B Common Stock, $0.19 per share		—	—		—	—		—		(307)		—		—	—		—		(307)
Class A Common Stock, $0.20 per share																					Class A Common Stock, $0.20 per share	—	—		—	—		—		(6,150)		—		—	—		—		(6,150)
Class B Common Stock, $0.20 per share																					Class B Common Stock, $0.20 per share	—	—		—	—		—		(324)		—		—	—		—		(324)
Cumulative translation adjustments	Cumulative translation adjustments	—	—		—	—		—		—		(25,747)		—	—		109		(25,638)		Cumulative translation adjustments	—	—		—	—		—		—		(15,955)		—	—		(210)		(16,165)
Pension and postretirement liability adjustments	Pension and postretirement liability adjustments	—	—		—	—		—		—		890		—	—		—		890		Pension and postretirement liability adjustments	—	—		—	—		—		—		509		—	—		—		509
Derivative valuation adjustment	Derivative valuation adjustment	—	—		—	—		—		—		(7,708)		—	—		—		(7,708)		Derivative valuation adjustment	—	—		—	—		—		—		752		—	—		—		752
March 31, 2020		39,112	$	39	1,618	$	2	$	431,836	$	700,021	$	(208,546)	8,409	$	(256,391)	$	2,600	$	669,561
Net income		—	—		—	—		—		32,354		—		—	—		95		32,449
Compensation and benefits paid or payable in shares		—	—		—	—		466		—		—		—	—		—		466
Options exercised		1	—		—	—		20		—		—		—	—		—		20
Shares issued to Directors'		—	—		—	—		416		—		—		(15)	317		—		733
Dividends declared
Class A Common Stock, $0.19 per share		—	—		—	—		—		(5,835)		—		—	—		—		(5,835)
Class B Common Stock, $0.19 per share		—	—		—	—		—		(307)		—		—	—		—		(307)
Cumulative translation adjustments		—	—		—	—		—		—		8,964		—	—		152		9,116
Pension and postretirement liability adjustments		—	—		—	—		—		—		142		—	—		—		142
Derivative valuation adjustment		—	—		—	—		—		—		(187)		—	—		—		(187)
June 30, 2020		39,113	$	39	1,618	$	2	$	432,738	$	726,233	$	(199,627)	8,394	$	(256,074)	$	2,847	$	706,158
March 31, 2021																					March 31, 2021	39,141	$	39	1,618	$	2	$	433,811	$	791,854	$	(147,102)	8,391	$	(256,009)	$	3,616	$	826,211

(a)~~The~~In October 2021, the Company's Board of Directors authorized the Company ~~adopted~~to repurchase shares of up to $200 million through open market purchases, privately negotiated transactions or otherwise, and to determine the ~~provisions of ASC 326, Current Expected Credit Losses (CECL) effective January 1, 2020, which resulted in a decrease to Retained earnings of $1.4~~prices, times and amounts. In 2021, the Company repurchased 285,286 shares totaling $24.4 million.

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During the three months period ending March 31, 2022, the Company repurchased 514,686 shares totaling $43.9 million.

~~18. Recent Accounting Pronouncements~~

As disclosed in our March 31, 2020 Form 10Q, in March 2020, ASU 2020-04, Reference Rate Reform, was issued to provide optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates such as LIBOR. The expedients and exceptions provided by this update will not be available after December 31, 2022, other than for certain hedging relationships entered into prior. For the Company’s cash flow hedges in which the designated hedged risk is LIBOR, the Company has adopted the portion of the guidance that allows it to assert that it remains probable that the hedged forecasted transaction will occur. The Company plans to adopt the remaining applicable provisions of this guidance beginning on July 1, 2021.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of the Company. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes.

Forward-looking statements

This quarterly report and the documents incorporated or deemed to be incorporated by reference in this quarterly report contain statements concerning our future results and performance and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” ”look for,” “will,” “should,” “guidance,” “guide” and similar expressions identify forward-looking statements, which generally are not historical in nature. Because forward-looking statements are subject to certain risks and uncertainties, (including, without limitation, those set forth in the Company’s most recent Annual Report on Form 10-K or prior Quarterly Reports on Form 10-Q) actual results may differ materially from those expressed or implied by such forward-looking statements.

There are a number of risks, uncertainties, and other important factors that could cause actual results to differ materially from the forward-looking statements, including, but not limited to:

•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 continuation of COVID-19 pandemic effects for an extended period of time;

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

•In the Machine Clothing segment, greater than anticipated declines in the demand for publication grades of paper, or lower than anticipated growth in other paper grades;

•In the Albany Engineered Composites segment, ~~longer than expected~~longer-than-expected timeframe for the aerospace industry to utilize existing inventories, and unanticipated reductions in demand, delays, technical difficulties, or cancellations in aerospace programs that are expected to generate revenue and drive long-term growth;

•Failure to achieve or maintain anticipated profitable growth in our Albany Engineered Composites segment; and

•Other risks and uncertainties detailed in this report.

General risks associated with macroeconomic conditions, as noted above, have changed during the first three months of 2022. The recent escalation in the Russia-Ukraine military conflict has had and may continue to have profound effects on macroeconomic business conditions around the world, including in our Machine Clothing and Albany Engineered Composites segments. Certain COVID-19 related disruptions and risks have persisted during the current year, causing inflationary pressure connected to global supply chain bottlenecks and elevated energy price pressures. These challenges have only increased as a result of the Russia-Ukraine military conflict, which also has quickly prompted a global imposition of stringent sanctions that have resulted in a sharp decline in trade with Russia. Correspondingly, and in union with the global community, we voluntarily decided to dissolve business relationships in Russia during the first three months of 2022, despite the associated cost to our investment and the loss of future revenue in the region. While our Albany Engineered Composites segment does not have significant direct exposure in this region of the world, and our Machine Clothing segment has now significantly reduced its exposure, the broader economic ramifications of this conflict will indirectly affect all sectors of the economy. This conflict, which may yet be in its early stages, including imposed sanctions, has amplified inflationary pressures, driving higher prices for global oil, natural gas, agricultural and metal prices, as well as causing additional supply-chain disruptions.

Further information concerning important factors that could cause actual events or results to be materially different from the forward-looking statements can be found in “Business Environment Overview and Trends” sections of this quarterly report, as well as in Item 1A-“Risk Factors” section of our most recent Annual Report on Form 10-K. Although we believe the expectations reflected in our other forward-looking statements are based on reasonable assumptions, it is not possible to foresee or identify all factors that could have a material and negative impact on our future performance. The forward-looking statements included or incorporated by reference in this report are made on the basis of our assumptions and analyses, as of the time the statements are made, in light of our experience and

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perception of historical conditions, expected future developments, and other factors believed to be appropriate under the circumstances.

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained or incorporated by reference in this report to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based.

Business Environment Overview and Trends

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

The MC segment is the Company’s long-established core business and primary generator of cash. While it has been negatively impacted by well-documented declines in publication grades in the Company’s traditional markets, there has been some offsetting effect due to growth in demand for packaging and tissue grades, as well as the expansion of paper consumption and production in Asia and South America. We feel we are well-positioned in key markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets,

~~Index~~

and continued strength in new product development, technical product support, and manufacturing technology. Some of the markets in which our products are sold are expected to have low levels of growth and we face pricing pressures in all markets. Despite these market pressures on revenue, the MC business retains the potential for maintaining stable earnings in the future. MC has been a significant generator of cash, and we seek to maintain the cash-generating potential of this business by maintaining the low costs that we have achieved through continuous focus on cost-reduction initiatives, and competing vigorously by using our differentiated and technically superior products to reduce our customers’ total cost of operation and improve their paper quality.

The AEC segment provides significant longer term growth potential for our Company. Our strategy is to grow by focusing our proprietary 3D-woven technology, as well as our non-3D technology capabilities, on high-value aerospace (both commercial and defense) applications, while at the same time performing successfully on our portfolio of growth programs. AEC (including Albany Safran Composites, LLC (“ASC”), in which our customer, SAFRAN Group, owns a 10 percent noncontrolling interest) supplies a number of customers in the aerospace industry. AEC’s largest aerospace customer is the SAFRAN Group and sales to SAFRAN, through ASC, (consisting primarily of fan blades and cases for CFM’s LEAP engine) accounted for approximately 1112 percent of the Company’s consolidated Net sales in ~~2020.~~2021. AEC, through ASC, also supplies 3D-woven composite fan cases for the GE9X engine. AEC’s current portfolio of non-3D programs includes components for the F-35, fuselage components for the Boeing 787, components for the CH-53K helicopter, vacuum waste tanks for Boeing 7-Series aircraft, and missile bodies for Lockheed Martin’s JASSM air-to-surface missiles. AEC is actively engaged in research to develop new applications in both commercial and defense aircraft engine and airframe markets. In ~~2020,~~2021, approximately 4647 percent of AEC sales were related to U.S. government contracts or programs.

Effect of Russia-Military Conflict

The war between Russia and Ukraine is affecting the economic and global financial markets and exacerbating ongoing economic challenges caused by impacts of the ongoing COVID-19 pandemic, including rising inflation and global supply chain disruptions.

Our MC segment generates approximately 2% of its annual net sales from customers in Russia and Ukraine. In addition, a subsidiary within our Machine Clothing segment has been a partner in a joint venture (“JV”) that supplies paper machine clothing products to local papermakers in Russia. In March 2022, we made the decision to cease doing business in Russia, including giving notice to our JV partner of our intent to exit the venture. As a result, we recognized $1.8 million expense in cost of goods sold and in Selling, Administrative, and General expense, representing reserves against the risk of obsolescence of certain inventory destined for Russian customers and uncollectible receivables from Russian customers, respectively. We also wrote down the net book value of our investment in the aforementioned JV to reflect our intent to exit such venture, resulting in $0.8 million impairment loss included in Other expense/income - net during the first quarter of 2022.

We anticipate approximately $10.0 million reduction in future annual net sales in the MC segment, due to our cessation of doing business in Russia.

During the first three months of 2022, energy costs soared, the supply market continued to tighten against strong demands and global logistics challenges persisted.

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Our MC segment has continued experiencing price increases in raw materials, indirect supply, and logistics. Moreover, the ongoing impact of the COVID-19 pandemic in certain regions, such as China where zero COVID tolerance policy is enforced, further limiting the availability of raw materials. The ultimate financial impact due to the war between Russia and Ukraine, the ongoing COVID-19 pandemic, and inflationary environment is difficult to predict. After consideration of possible offsets through corresponding price increases to our customers and productivity improvements, we currently estimate a net increase to the MC segment input costs of between $8.0 million and $10.0 million for the year ending December 31, 2022. We estimate such net cost increases to unfavorably affect the MC segment gross margin by between 100 and 140 basis points for the year ending December 31, 2022.

Our Albany Engineered Composites segment does not have significant direct exposure in Russia. However, it has not been immune from supply chain disruptions due to raw material shortages, abnormally high commodity prices, labor shortages, and logistic constraints. Due to the nature of AEC’s contracts with its customers, we currently anticipate being able to pass through such cost increases to the customers.

Until the effects of the war between Russia and Ukraine, as well as the COVID-19 pandemic, on the economic and global financial markets subside, there can be no assurance that our input costs will not continue to rise beyond our current estimate, thus unfavorably impacting our future results of operations, financial position and liquidity.

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~~Index~~

Consolidated Results of Operations

Net sales

The following table summarizes our Net sales by business segment:


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021	2020	% Change		2021	2020	% Change		(in thousands, except percentages)	2022	2021	% Change
Machine Clothing	Machine Clothing	$159,921	$153,433	4.2	%	$308,127	$290,035	6.2	%	Machine Clothing	$154,062	$148,206	4.0	%
Albany Engineered Composites	Albany Engineered Composites	74,598	72,557	2.8	%	148,753	171,719	-13.4	%	Albany Engineered Composites	90,107	74,156	21.5	%
Total	Total	$234,519	$225,990	3.8	%	$456,880	$461,754	-1.1	%	Total	$244,169	$222,362	9.8	%

The following tables provide a comparison of ~~2021~~2022 Net sales, excluding the impact of currency translation effects, to ~~2020~~2021 Net sales:


(in thousands, except percentages)	(in thousands, except percentages)	Net sales as reported, Q2 2021		Increase due to changes in currency translation rates		Q2 2021 sales on same basis as Q2 2020 currency translation rates		Net sales as reported, Q2 2020		% Change compared to Q2 2020, excluding currency rate effects		(in thousands, except percentages)	Net sales as reported, Q1 2022		Decrease due to changes in currency translation rates		Q1 2022 sales on same basis as Q1 2021 currency translation rates		Net sales as reported, Q1 2021		% Change compared to Q1 2021, excluding currency rate effects
Machine Clothing	Machine Clothing	$	159,921	$	5,281	$	154,640	$	153,433	0.8	%	Machine Clothing	$	154,062	$	(2,528)	$	156,590	$	148,206	5.7	%
Albany Engineered Composites	Albany Engineered Composites	74,598		1,088		73,510		72,557		1.3	%	Albany Engineered Composites	90,107		(1,158)		91,265		74,156		23.1	%
Consolidated total		$	234,519	$	6,369	$	228,150	$	225,990	1.0	%

(in thousands, except percentages)		Net sales as reported, YTD 2021		Increase due to changes in currency translation rates		YTD 2021 sales on same basis as 2020 currency translation rates		Net sales as reported, YTD 2020		% Change compared to 2020, excluding currency rate effects
Machine Clothing		$	308,127	$	10,142	$	297,985	$	290,035	2.7	%
Albany Engineered Composites		148,753		2,267		146,486		171,719		-14.7	%
Consolidated total		$	456,880	$	12,409	$	444,471	$	461,754	-3.7	%
Total												Total	$	244,169	$	(3,686)	$	247,855	$	222,362	11.5	%

~~Three month comparison~~

•Changes in currency translation rates had the effect of ~~increasing~~decreasing Net sales by ~~$6.4~~$3.7 million during the ~~second~~first quarter of ~~2021,~~2022, as compared to ~~2020,~~2021, principally due to ~~stronger~~a weaker Euro ~~and Chinese Yuan Renminbi~~ in ~~2021.~~

•2022. Excluding the effect of changes in currency translation rates:

•Net sales increased ~~1.0%~~11.5% compared to the same period in ~~2020.~~2021.

•Net sales in MC increased ~~0.8%~~5.7% compared to the ~~second~~first quarter of ~~2020, principally due to~~2021, driven by growth in sales for packaging ~~grades~~ and ~~engineered fabrics, partially offset by declines in other~~tissue grades.

•Net sales in AEC increased ~~1.3%~~23.1%, mainly due to ~~an increase in sales for the~~growth on LEAP and CH-53K programs, partially offset by a decline ~~in sales~~ on the ~~Boeing 787 program.~~

~~Six month comparison~~

•Changes in currency translation rates had the effect of increasing Net sales by $12.4 million during the first six months of 2021, as compared to 2020, principally due to stronger Euro and Chinese Yuan Renminbi in 2021.F-35 platform.

•~~Excluding the effect of changes in currency translation rates:~~

•~~Net sales decreased 3.7% compared to the same period in 2020.~~

•~~Net sales in MC increased 2.7% compared to the first six months of 2020, primarily due to growth in sales for packaging grades and Engineered Fabrics, partially offset by declines in other grades.~~

•~~Net sales in AEC decreased 14.7%, primarily due to declines in sales for the Boeing 787 program.~~

Gross Profit

The following table summarizes Gross profit by business segment:

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Three months ended June 30, Six months ended June 30,
(in thousands, except percentages) 2021 2020 2021 2020
Machine Clothing $ 84,597 $ 83,612 $ 160,990 $ 156,264
Albany Engineered Composites 17,131 19,368 29,284 36,188
Total $ 101,728 $ 102,980 $ 190,274 $ 192,452
% of Net sales 43.4 % 45.6 % 41.6 % 41.7 %

~~Three month comparison~~


	Three months ended March 31,
(in thousands, except percentages)	2022			2021
Machine Clothing	$	79,345		$	76,393
Albany Engineered Composites	12,259			12,153
Total	$	91,604		$	88,546
% of Net sales	37.5		%	39.8		%

The ~~decrease~~increase in ~~second quarter 2021~~2022 Gross profit, as compared to the same period in ~~2020,~~2021, was due to ~~a decline in AEC Gross profit, partially offset by~~the effect of higher ~~Gross profit~~Net sales in MC .and AEC business segments. Gross profit as a percentage of ~~sales:~~

•~~Decreased~~sales at Machine Clothing was flat at 51.5% as compared to the prior year, and at AEC decreased from ~~54.5% in 2020 to 52.9%~~16.4% in 2021 to 13.6% in ~~MC, due to higher input and fixed costs, partially offset~~2022, driven by ~~improved absorption.~~

•~~Decreased from 26.7% in 2020 to 23.0% in 2021 in AEC, principally due to a smaller impact from changes~~recognition of reserves recorded on inventory that was damaged at an off-site storage facility. We recognized $0.7 million net unfavorable change in the estimated profitability of long-term contracts ~~which increased Gross profit by $4.3 million for~~during the ~~second~~first quarter of ~~2021,~~2022, compared to an ~~increase of $7.4 million for the second quarter of 2020.~~

~~Six month comparison~~

~~Gross Profit for the first half of 2021 was slightly lower than the same period in 2020. Gross profit as a percentage of sales:~~

•~~Decreased from 53.9% in 2020 to 52.2% in 2021 in MC, due to an increase in production costs and lower cost absorption.~~

•~~Decreased from 21.1% in 2020 to 19.7% in 2021 in AEC, driven by changes in the estimated profitability of long-term contracts, which increased Gross profit by $3.7 million versus $6.4 million~~insignificant amount in the first ~~half~~quarter of ~~2021 and 2020, respectively.~~ 2021.

Selling, Technical, General, and Research ~~(STG&R)~~

~~Selling, Technical, General and Research (STG&R) expenses include selling, general, administrative, technical and research expenses.~~("STG&R")

The following table summarizes STG&R expenses by business segment:

Three months ended June 30, Six months ended June 30,
(in thousands, except percentages) 2021 2020 2021 2020
Machine Clothing $ 28,685 $ 26,682 $ 54,784 $ 51,517
Albany Engineered Composites 10,014 8,821 19,140 18,018
Corporate expenses 13,071 11,913 24,522 27,117
Total $ 51,770 $ 47,416 $ 98,446 $ 96,652
% of Net sales 22.1 % 21.0 % 21.5 % 20.9 %

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~~Three month comparison~~


	Three months ended March 31,
(in thousands, except percentages)	2022			2021
Machine Clothing	$	29,477		$	26,099
Albany Engineered Composites	11,064			9,126
Corporate expenses	12,055			11,451
Total	$	52,596		$	46,676
% of Net sales	21.5		%	21.0		%

The overall increase in STG&R expenses ~~in the second quarter of 2021, compared to the same period in 2020,~~ was driven by customer credit loss reserve increases related to our dissolution of business relationships in Russia, higher incentive compensation costs, and travel expense, as well as research and development spending. Additionally, revaluation of nonfunctional currency assets and liabilities in Machine Clothing resulted in a second-quarter loss of $1.9 million in 2021, compared to a loss of $1.1 million for the ~~same period in 2020.~~

~~Six month comparison~~

~~The overall increase in STG&R expenses in the first six months of 2021, compared to the same period in 2020, was due to the net~~unfavorable effect of the ~~following:~~

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•~~Revaluation~~revaluation of ~~nonfunctional~~foreign currency ~~assets and liabilities in Machine Clothing, which resulted in a loss of $1.4 million in 2021, compared to a gain of $2.6 million for the first six months of 2020~~

•~~Former CEO termination costs of $2.7 million were recorded in Corporate expenses during the first quarter of 2020~~

•~~Higher incentive compensation in all business segments in 2021~~balances.

Restructuring Expense, net

In addition to the items discussed above affecting Gross profit and STG&R expenses, ~~Operating~~operating income was ~~minimally~~ affected by restructuring ~~costs~~expenses, as summarized in the ~~first six months of 2021, but totaled $3.5 million for the same period in 2020.~~following table:

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


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Machine Clothing	Machine Clothing	$	10	$	388	$	(58)	$	1,030	Machine Clothing	$	243	$	(69)
Albany Engineered Composites	Albany Engineered Composites	(48)		2,248		41		2,248		Albany Engineered Composites	—		89
Corporate expenses	Corporate expenses	29		201		60		201		Corporate expenses	11		32
Total	Total	$	(9)	$	2,837	$	43	$	3,479	Total	$	254	$	52

~~Machine Clothing restructuring charges or credits~~Restructuring expense, net was insignificant in both ~~years mainly~~the current and prior year, and was related primarily to ~~discontinued operations at its production facility in Sélestat, France, announced in 2017. The restructuring program was driven by~~ the ~~Company’s need to balance manufacturing capacity with demand. Since 2017, we have recorded $13.9 million~~winding down of restructuring ~~charges related to this action.~~actions taken in prior periods.

Operating Income

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


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Machine Clothing	Machine Clothing	$	55,902	$	56,543	$	106,264	$	103,718	Machine Clothing	$	49,644	$	50,363
Albany Engineered Composites	Albany Engineered Composites	7,164		8,299		10,102		15,922		Albany Engineered Composites	1,195		2,938
Corporate expenses	Corporate expenses	(13,100)		(12,115)		(24,581)		(27,319)		Corporate expenses	(12,085)		(11,483)
Total	Total	$	49,966	$	52,727	$	91,785	$	92,321	Total	$	38,754	$	41,818

Other Earnings Items


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Interest expense, net	Interest expense, net	$	4,218	$	3,823	$	7,787	$	7,800	Interest expense, net	$	3,609	$	3,569
Other expense/(income), net	Other expense/(income), net	862		1,091		1,462		16,660		Other expense/(income), net	(3,928)		600
Income tax expense	Income tax expense	13,446		15,364		23,486		27,818		Income tax expense	10,998		10,040
Net income/(loss) attributable to the noncontrolling interest	Net income/(loss) attributable to the noncontrolling interest	43		95		70		(1,420)		Net income/(loss) attributable to the noncontrolling interest	338		27

Interest Expense, net

~~Year-to-date 2021~~ Interest expense, net, was ~~lower as compared to 2020, due to lower average debt outstanding.~~largely in line with the prior year. See the Working Capital, ~~Resources~~Liquidity and Capital Structure section for further discussion of borrowings and interest rates.

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Other (income)/expense, net

~~Index~~

~~Three and Six month comparison~~

Income Tax

The Company has operations which constitute a taxable presence in 18 countries outside of the United States. The majority of these countries had income tax rates that are above the United States federal tax rate of 21 percent during the periods reported. The jurisdictional location of earnings is a significant component of our effective tax rate each year. The rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of our total earnings. From period to period, the jurisdictional mix of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the extent and location of other income and expense items, such as pension settlement and restructuring charges.

~~Three and six month comparison~~

The Company’s effective tax rates for the ~~second~~first quarter of 2022 and 2021 were 28.1% and ~~2020 were 30.0% and 32.1%, respectively, and for the first half of 2021 and 2020, were 28.5% and 41.0%~~26.7%, respectively. The tax rate is affected by recurring items, such as the income tax rate in the U.S. and non-U.S. jurisdictions and the mix of income earned in those jurisdictions. The tax rate is also affected by U.S. tax costs on foreign earnings, and by discrete items that may occur in any given year but are not consistent from year to year. The decrease in the Q2 2021 income tax rate from continuing operations, excluding discrete items, was primarily driven by a decrease in losses in a foreign jurisdiction that were excluded in calculating the quarterly income tax provision. The effective tax rate for the six months ended June 30, 2020 was significantly affected by a non-recurring tax adjustment due to non-deductible foreign exchange losses, which occurred in the first quarter of 2020.

Significant items that impacted the effective tax rate in the second quarter of 2021 and 2020 included the following (percentages reflect the effect of each item as a percentage of income before income taxes):

Three months ended
June 30, Six months ended
June 30,
2021 2020 2021 2020
(in thousands, except percentages) Tax amount % Tax amount % Tax amount % Tax amount %
Continuing operations (excluding discrete items) 13,251 29.5 % 16,262 34.0 % 24,365 29.5 % 23,081 34.0 %
Exercise of U.S. stock options (14) — % — — % (156) (0.2) % — — %
Adjustments to prior period tax liabilities 22 — % 879 1.8 % (1,421) (1.7) % 767 1.1 %
Revaluation of deferred tax assets due to tax rate change 352 0.8 % — — % 352 0.4 % — — %
Provision for/resolution of tax audits and contingencies, net — — % (1,489) (3.1) % 278 0.3 % (1,733) (2.6) %
Write-off of net operating losses related to tax audit — — % — — % — — % 1,830 2.7 %
Tax effect of non-deductible foreign exchange loss on intercompany loan — — % (13) (0.1) % — — % 3,656 5.4 %
Changes in valuation allowance — — % 222 0.5 % — — % 222 0.4 %
Other adjustments (165) (0.3) % (497) (1.0) % 68 0.2 % (5) — %
Effective tax rate 13,446 30.0 % 15,364 32.1 % 23,486 28.5 % 27,818 41.0 %

For more information on income tax, see Note 65 to the Consolidated Financial Statements.

~~Index~~

Segment Results of Operations

Machine Clothing Segment

Machine Clothing is our primary business segment and accounted for ~~68%~~63% of our consolidated revenues during the ~~six~~first three months of ~~2021.~~2022. MC products are purchased primarily by manufacturers of paper and paperboard. We feel we are well-positioned in these 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. Recent technological advances in paper machine clothing, while contributing to the papermaking efficiency of customers, have lengthened the useful life of many of our products and had an adverse impact on overall paper machine clothing demand. Additionally, we face pricing pressures in all of our markets.

The Company’s manufacturing and product platforms position us well to meet these shifting demands across product grades and geographic regions. Our strategy for meeting these challenges continues to be to grow share in all markets, with new products and technology, and to maintain our manufacturing footprint to align with global demand, while we offset the effects of inflation through continuous productivity improvement.

We have incurred significant restructuring charges in recent years as we reduced MC manufacturing capacity and administrative positions in various countries.

Review of Operations


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020			2021			2020			(in thousands, except percentages)	2022			2021
Net sales	Net sales	$	159,921		$	153,433		$	308,127		$	290,035		Net sales	$	154,062		$	148,206
Gross profit	Gross profit	84,597			83,612			160,990			156,264			Gross profit	79,345			76,393
% of Net sales	% of Net sales	52.9		%	54.5		%	52.2		%	53.9		%	% of Net sales	51.5		%	51.5		%
STG&R expenses	STG&R expenses	28,685			26,682			54,784			51,517			STG&R expenses	29,477			26,099
Operating income	Operating income	55,902			56,543			106,264			103,718			Operating income	49,644			50,363

Net Sales

~~Three month comparison~~

•Net sales increased by ~~4.2%~~4.0%.

•Changes in currency translation rates, driven by a weaker Euro, had the effect of ~~increasing second-quarter 2021~~decreasing first-quarter 2022 sales by ~~$5.3 million compared to the same period in 2020. That currency translation effect was mainly due to stronger Euro and Chinese Yuan Renminbi in the second quarter of 2021, compared to 2020.~~

•$2.5 million. Excluding the effect of changes in currency translation rates, Net sales in MC increased ~~0.8%~~5.7% compared to the ~~second~~first quarter of ~~2020, principally due to~~2021, driven by growth in sales for packaging ~~grades~~ and ~~engineered fabrics, partially offset by declines in other~~tissue grades.

~~Six month comparison~~

•~~Net sales increased by 6.2%.~~

•Changes in currency translation rates had the effect of increasing 2021 sales by $10.1 million compared to the same period in 2020. That currency translation effect was principally due to stronger Euro and Chinese Yuan Renminbi in the first six months of 2021, compared to 2020.

•Excluding the effect of changes in currency translation rates, Net sales in MC increased 2.7% compared to 2020, as growth in sales for packaging grades and Engineered Fabrics partially offset the declines in other grades.

~~Gross Profit~~

~~Three month comparison~~

2926

Index

Gross Profit

The ~~decrease~~increase in MC Gross profit ~~margins~~ was primarily due to higher ~~input and fixed costs, partially offset by improved absorption, in the second quarter of 2021.~~

~~Six month comparison~~

~~The decrease in~~sales as noted above, while MC ~~Gross profit~~gross margins ~~was due to an increase in production costs and lower cost absorption compared to the same period in 2020.~~were maintained at 51.5% year over year.

Operating Income

~~Three month comparison~~

~~The slight decrease~~Operating income remained largely in line with the ~~second quarter of 2021 operating income, compared to the same period in 2020, was primarily due to a slight improvement in gross profit, partially offset by higher STG&R expenses.~~

~~Six month comparison~~

~~The increase in operating income in first half of 2021 was driven by higher gross profit, offset by~~prior year, as higher STG&R expenses, ~~compared~~driven by customer credit loss reserve increases related to our dissolution of business relationships in Russia, higher incentive compensation, and the ~~same period~~unfavorable effect of the revaluation of foreign currency balances, more than offset the increase in ~~2020.~~gross profit.

Albany Engineered Composites Segment

The Albany Engineered Composites ~~(AEC)~~ segment, including Albany Safran Composites, LLC, ~~(ASC),~~ in which our customer SAFRAN Group owns a 10 percent noncontrolling interest, provides highly engineered advanced composite structures to customers primarily in the aerospace (both commercial and defense) industry. AEC’s largest program relates to CFM International’s LEAP engine. AEC, through ASC, is the exclusive supplier of advanced composite fan blades and cases for this program under a long-term supply contract. The LEAP engine is used on the Airbus A320neo and Boeing 737 MAX family of jets. Other significant AEC programs include components for the F-35, ~~components for the CH-53K helicopter,~~ fuselage frames for the Boeing 787, components for the CH53-K helicopter, and the fan case for the GE9X engine.

Review of Operations


		Three months ended June 30,						Six months ended June 30,							Three months ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2021			2020			2021			2020			(in thousands, except percentages)	2022			2021
Net sales	Net sales	$	74,598		$	72,557		$	148,753		$	171,719		Net sales	$	90,107		$	74,156
Gross profit	Gross profit	17,131			19,368			29,284			36,188			Gross profit	12,259			12,153
% of Net sales	% of Net sales	23.0		%	26.7		%	19.7		%	21.1		%	% of Net sales	13.6		%	16.4		%
STG&R expenses	STG&R expenses	10,014			8,821			19,140			18,018			STG&R expenses	11,064			9,126
Operating income	Operating income	7,164			8,299			10,102			15,922			Operating income	1,195			2,938

Net Sales

~~Three month comparison~~

The increase in Net sales was mainly due to ~~higher sales in the~~growth on LEAP and CH-53K programs, partially offset by a decline ~~in sales in~~on the ~~Boeing 787 program.~~

~~Six month comparison~~

~~The decrease in Net sales was primarily due to lower sales in the Boeing 787 program.~~F-35 platform.

Gross Profit

~~Three and six month comparison~~

~~Index~~

The ~~decrease~~increase in Gross profit of $0.1 million was ~~principally due to smaller impact from changes~~primarily driven by the increase in Net sales, offset by reserves recorded on inventory that was damaged at an off-site storage facility. We recognized $0.7 million net unfavorable change in the estimated profitability of long-term ~~contracts.~~contracts during the first quarter of 2022, compared to an insignificant amount in the first quarter of 2021.

Long-term contracts

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 3540 percent of segment revenue for each of the first ~~six~~three months of ~~2021~~2022 and ~~40 percent for the same period of 2020.~~2021. LEAP engines are currently used on the Boeing 737 MAX, Airbus A320neo and COMAC aircraft.

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

Index

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.

Operating Income

~~Three and six month comparison~~

~~The decrease in~~ Operating income was ~~driven by~~ lower ~~gross~~for the three months ended March 31, 2022 compared to the same period in 2021, primarily due to lower profit margins and ~~higher~~increased STG&R ~~expenses, offset by lower restructuring~~ expenses.

Working Capital, Liquidity and Capital ~~Resources~~Structure

Cash Flow Summary


		Six months ended June 30,					Three months ended March 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Net income	Net income	$	59,050	$	40,043	Net income	$	28,075	$	27,609
Depreciation and amortization	Depreciation and amortization	37,133		36,024		Depreciation and amortization	17,762		18,882
Changes in working capital (a)	Changes in working capital (a)	(921)		(57,804)		Changes in working capital (a)	(42,676)		(5,992)
Changes in other noncurrent liabilities and deferred taxes	Changes in other noncurrent liabilities and deferred taxes	1,153		8,836		Changes in other noncurrent liabilities and deferred taxes	(122)		2,345
Other operating items	Other operating items	(775)		16,935		Other operating items	(8,430)		(9,158)
Net cash provided by/(used in) operating activities	Net cash provided by/(used in) operating activities	95,640		44,034		Net cash provided by/(used in) operating activities	(5,391)		33,686
Net cash used in investing activities	Net cash used in investing activities	(23,124)		(22,017)		Net cash used in investing activities	(15,754)		(12,536)
Net cash (used in)/provided by financing activities	Net cash (used in)/provided by financing activities	(62,504)		(8,224)		Net cash (used in)/provided by financing activities	26,875		(21,694)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	2,002		(5,296)		Effect of exchange rate changes on cash and cash equivalents	(351)		(2,901)
(Decrease)/increase in cash and cash equivalents	(Decrease)/increase in cash and cash equivalents	12,014		8,497		(Decrease)/increase in cash and cash equivalents	5,379		(3,445)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	241,316		195,540		Cash and cash equivalents at beginning of year	302,036		241,316
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	253,330	$	204,037	Cash and cash equivalents at end of period	$	307,415	$	237,871

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

~~Operating~~Cash used in operating activities

~~Cash flow~~ was $5.4 million in the first three months of 2022, compared to cash provided by operating activities ~~was $95.6~~of $33.7 million in the ~~first six months of 2021, compared to $44.0 million in the first six months of 2020. This improvement was due to improved~~same period last year. AEC experienced particularly strong working capital cash flows in ~~AEC~~Accounts receivable and ~~an increase in consolidated Net income.~~

~~Cash paid for income taxes was $22.8 million~~Contract assets during 2021, driven by significant deliveries of LEAP components throughout the year. In addition, timing of customer and ~~$16.5 million for~~vendor invoice payments, as well as higher incentive compensation payouts during the first ~~six~~three months ~~of 2021 and 2020, respectively. The increase is primarily due~~in 2022 compared to ~~an increase in corporate income tax payments in Brazil, China and Switzerland related to prior year tax liabilities.~~

~~Index~~

~~At June 30, 2021, we had $253.3 million of cash and cash equivalents, of which $215.2 million was held by subsidiaries outside of~~ the ~~United States.~~

~~Investing and Financing Activities~~

~~Capital expenditures for the first six months were $23.1 million~~same period in 2021, ~~and $22.0~~contributed to the net cash used in operating activities.

Net cash provided by financing activities during 2022 increased $48.6 million ~~in 2020.~~

~~Dividends have been declared each quarter since the fourth quarter~~compared to 2021, driven by increased borrowings, partially used to fund repurchases of 2001. Decisions with respect to whether a dividend will be paid, and the amount of the dividend, are made by the Board of Directors each quarter. Future cash dividends will also depend on debt covenants and on the Board’s assessment of our ability to generate sufficient cash flows.

~~Capital Resources~~shares.

We finance our business activities primarily 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, but borrowings under such local facilities tend not to be insignificant. The majority of our cash balance at June 30, 2021 was held by non-U.S. subsidiaries. Based on cash on hand and credit facilities, we anticipate that the Company has sufficient capital resources to operate for the foreseeable future. We were in compliance with all debt covenants as of June 30, 2021.significant.

Index

borrow an additional ~~$350~~$273 million under the Agreement. We were in compliance with all debt covenants as of March 31, 2022.

For more information, see Note 1413 to the Consolidated Financial Statements.

We believe cash flows from operations and availability under our Credit Agreement will be adequate to cover our operations and business needs over the next twelve months. As of March 31, 2022, we had cash and cash equivalents of approximately $307 million and availability under our Credit Agreement of $273 million, for a total liquidity of approximately $580 million.

As of March 31, 2022, $289.5 million of our total cash and cash equivalents was 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 approximately $190.2 million at March 31, 2022, 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. 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 may also result in additional withholding taxes.

We strategically deploy our cash with a focus on investing in our business and new technologies to provide our customers with enhanced capabilities, to increase shareholder value, and to position ourselves to take advantage of new business opportunities as they arise. Based on such strategy, we have continued to invest in our business and technologies through capital expenditures, research and development, and when appropriate, selective business acquisitions. Our capital expenditures totaled $15.8 million and $12.5 million for the first three months ended March 31, 2022 and 2021, respectively, comprised of both sustaining and return seeking projects. In the recent past, a portion of our capital expenditures consist of investments which improve operational productivity, in addition to producing a meaningful impact on energy and resource efficiency.

We have also returned cash to shareholders through dividends and share repurchases. During the first three months of 2022, we paid $6.7 million in dividends and repurchased 515 thousand shares of our Class A Common shares at a cost of $43.9 million under the $200 million share repurchase program that our Board approved in October 2021.

Off-Balance Sheet Arrangements

As of ~~June 30, 2021,~~March 31, 2022, we have no off-balance sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K.

Recent ~~Accounting~~ Pronouncements

On March 9, 2022, the SEC issued a proposed rule to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies. The proposed rules are intended to provide more consistent, comparable and decision-useful information ~~set forth under Note 18~~so that investors can better evaluate the Company’s exposure to cybersecurity risks, incidents, and strategies to mitigate risks and incidents. We will continue to monitor developments around this proposed rule.

On March 21, 2022, the SEC issued a proposed rule that would enhance and standardize the climate-related disclosures provided by public companies. Under the proposed rule, we would be required to provide quantitative and qualitative disclosures in registration statements and annual reports that include climate-related financial impact and expenditure metrics as well as a discussion of climate-related impacts on financial estimates and assumptions, all of which would be presented in a footnote to the ~~Consolidated Financial Statements.~~financials statements. Such disclosures would also be subject to management's internal control over financial reporting ("ICFR") and external audit. As a Company, we have long been committed to sustainable practices and corporate social responsibility and have more recently taken steps to articulate our values and goals, some of which are summarized in our published sustainability report that is included at our website www.albint.com. In 2020, we began establishing more formalized and scalable approaches to our sustainability practices, reporting and systems, in order to ensure we prioritize efforts that are impactful to our business and stakeholders. We have begun to incorporate certain climate-related disclosures and risk factors in our existing disclosures to this point, but recognize the benefit of clearly defined rules and metrics that may drive more measurable, consistent, comparable and reliable information for investors. We will continue to monitor developments around this proposed rule, which once finalized, is expected to allow for a multi-year phased transition to achieving compliance.

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Non-GAAP Measures

This Form 10-Q contains certain non-GAAP measures, including: Net sales, and percent change in Net sales, excluding the impact of currency translation effects (for each segment and on a consolidated basis); EBITDA and Adjusted EBITDA (for each segment and on a consolidated basis, represented in dollars or as a percentage of net sales); Net debt; and Adjusted earnings per share (or Adjusted EPS). Such items are provided because management believes that they provide additional useful information to investors regarding the Company’s operational performance.

Presenting Net sales and increases or decreases in Net sales, after currency effects are excluded, can give management and investors insight into underlying sales trends. EBITDA, Adjusted EBITDA and Adjusted EPS are performance measures that relate to the Company’s continuing operations. EBITDA, or net income with interest, taxes, depreciation, and amortization added back, is a common indicator of financial performance used, among other things, to analyze and compare core profitability between companies and industries because it eliminates effects due to differences in financing, asset bases and taxes. An understanding of the impact in a particular quarter of specific restructuring costs, former CEO termination costs, acquisition/integrations costs, currency revaluation, pension settlement/curtailment charges, inventory write-offs associated with discontinued businesses, or other gains and losses, on net income (absolute as well as on a per-share basis), operating income or EBITDA can give management and investors additional insight into core financial performance, especially when compared to quarters in which such items had a greater or lesser effect, or no effect. Restructuring expenses, while frequent in recent years, are reflective

~~Index~~

of significant reductions in manufacturing capacity and associated headcount in response to shifting markets, and not of the profitability of the business going forward as restructured.

Net sales, or percent changes in Net sales, excluding currency rate effects, are calculated by converting amounts reported in local currencies into U.S. dollars at the exchange rate of a prior period. These amounts are then compared to the U.S. dollar amount as reported in the current period. The Company calculates EBITDA by removing the following from Net income: Interest expense net, Income tax expense, and Depreciation and amortization expense. Adjusted EBITDA is calculated by: adding to EBITDA costs associated with restructuring, former CEO termination costs, and inventory write-offs associated with discontinued businesses; adding charges and credits related to pension plan settlements and curtailments; adding (or subtracting) revaluation losses (or gains); subtracting (or adding) gains (or losses) from the sale of buildings or investments; adding acquisition/integration costs and subtracting (or adding) Income (or loss) attributable to the non-controlling interest in Albany Safran Composites (ASC). Adjusted earnings per share (Adjusted EPS) is calculated by adding to (or subtracting from) net income attributable to the Company per share, on an after-tax basis: restructuring charges; former CEO severance costs; inventory write-offs associated with discontinued businesses; charges and credits related to pension settlements and curtailments; foreign currency revaluation losses (or gains); and acquisition-related expenses.

EBITDA, Adjusted EBITDA, and Adjusted earnings per share as defined by the Company may not be similar to similarly named measures of other companies. Such measures are not considered measurements under GAAP, and should be considered in addition to, but not as substitutes for, the information contained in the Company’s statements of income.

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


Three months ended June 30, 2021
Three months ended March 31, 2022										Three months ended March 31, 2022
(in thousands)	(in thousands)	Machine Clothing		Albany Engineered Composites		Corporate expenses and other		Total Company		(in thousands)	Machine Clothing		Albany Engineered Composites		Corporate expenses and other		Total Company
Operating income/(loss) (GAAP)	Operating income/(loss) (GAAP)	$	55,902	$	7,164	$	(13,100)	$	49,966	Operating income/(loss) (GAAP)	$	49,644	$	1,195	$	(12,085)	$	38,754
Interest, taxes, other income/(expense)	Interest, taxes, other income/(expense)	—		—		(18,526)		(18,526)		Interest, taxes, other income/(expense)	—		—		(10,679)		(10,679)
Net income/(loss) (GAAP)	Net income/(loss) (GAAP)	55,902		7,164		(31,626)		31,440		Net income/(loss) (GAAP)	49,644		1,195		(22,764)		28,075
Interest expense, net	Interest expense, net	—		—		4,218		4,218		Interest expense, net	—		—		3,609		3,609
Income tax expense	Income tax expense	—		—		13,446		13,446		Income tax expense	—		—		10,998		10,998
Depreciation and amortization expense	Depreciation and amortization expense	5,138		12,194		919		18,251		Depreciation and amortization expense	4,923		12,039		800		17,762
EBITDA (non-GAAP)	EBITDA (non-GAAP)	61,040		19,358		(13,043)		67,355		EBITDA (non-GAAP)	54,567		13,234		(7,357)		60,444
Restructuring expenses, net	Restructuring expenses, net	10		(48)		29		(9)		Restructuring expenses, net	243		—		11		254
Foreign currency revaluation (gains)/losses	Foreign currency revaluation (gains)/losses	1,908		(244)		174		1,838		Foreign currency revaluation (gains)/losses	1,057		423		(3,740)		(2,260)
Dissolution of business relationships in Russia										Dissolution of business relationships in Russia	1,787		—		781		2,568
Acquisition/integration costs	Acquisition/integration costs	—		300		—		300		Acquisition/integration costs	—		282		—		282
Pre-tax (income) attributable to noncontrolling interest	Pre-tax (income) attributable to noncontrolling interest	—		(65)		—		(65)		Pre-tax (income) attributable to noncontrolling interest	—		(252)		—		(252)
Adjusted EBITDA (non-GAAP)	Adjusted EBITDA (non-GAAP)	$	62,958	$	19,301	$	(12,840)	$	69,419	Adjusted EBITDA (non-GAAP)	$	57,654	$	13,687	$	(10,305)	$	61,036

~~Index~~

Three months ended June 30, 2020
(in thousands) Machine Clothing Albany Engineered
Composites Corporate expenses
and other Total Company
Operating income/(loss) (GAAP) $ 56,543 $ 8,299 $ (12,115) $ 52,727
Interest, taxes, other income/(expense) — — (20,278) (20,278)
Net income/(loss) (GAAP) 56,543 8,299 (32,393) 32,449
Interest expense, net — — 3,823 3,823
Income tax expense — — 15,364 15,364
Depreciation and amortization expense 4,981 11,971 1,002 17,954
EBITDA (non-GAAP) 61,524 20,270 (12,204) 69,590
Restructuring expenses, net 388 2,248 201 2,837
Foreign currency revaluation (gains)/losses 973 30 20 1,023
Acquisition/integration costs — 278 — 278
Pre-tax (income) attributable to noncontrolling interest — (58) — (58)
Adjusted EBITDA (non-GAAP) $ 62,885 $ 22,768 $ (11,983) $ 73,670

Six months ended June 30, 2021
(in thousands) Machine Clothing Albany Engineered
Composites Corporate expenses
and other Total Company
Operating income/(loss) (GAAP) $ 106,264 $ 10,102 $ (24,581) $ 91,785
Interest, taxes, other income/(expense) — — (32,735) (32,735)
Net income/(loss) (GAAP) 106,264 10,102 (57,316) 59,050
Interest expense, net — — 7,787 7,787
Income tax expense — — 23,486 23,486
Depreciation and amortization expense 10,258 25,061 1,814 37,133
EBITDA (non-GAAP) 116,522 35,163 (24,229) 127,456
Restructuring expenses, net (58) 41 60 43
Foreign currency revaluation (gains)/losses 1,415 332 341 2,088
Acquisition/integration costs — 614 — 614
Pre-tax (income) attributable to noncontrolling interest — (111) — (111)
Adjusted EBITDA (non-GAAP) $ 117,879 $ 36,039 $ (23,828) $ 130,090

~~Index~~


Six months ended June 30, 2020
Three months ended March 31, 2021										Three months ended March 31, 2021
(in thousands)	(in thousands)	Machine Clothing		Albany Engineered Composites		Corporate expenses and other		Total Company		(in thousands)	Machine Clothing		Albany Engineered Composites		Corporate expenses and other		Total Company
Operating income/(loss) (GAAP)	Operating income/(loss) (GAAP)	$	103,718	$	15,922	$	(27,319)	$	92,321	Operating income/(loss) (GAAP)	$	50,363	$	2,938	$	(11,483)	$	41,818
Interest, taxes, other income/(expense)	Interest, taxes, other income/(expense)	—		—		(52,278)		(52,278)		Interest, taxes, other income/(expense)	—		—		(14,209)		(14,209)
Net income/(loss) (GAAP)	Net income/(loss) (GAAP)	103,718		15,922		(79,597)		40,043		Net income/(loss) (GAAP)	50,363		2,938		(25,692)		27,609
Interest expense, net	Interest expense, net	—		—		7,800		7,800		Interest expense, net	—		—		3,569		3,569
Income tax expense	Income tax expense	—		—		27,818		27,818		Income tax expense	—		—		10,040		10,040
Depreciation and amortization expense	Depreciation and amortization expense	10,068		23,956		2,000		36,024		Depreciation and amortization expense	5,122		12,865		895		18,882
EBITDA (non-GAAP)	EBITDA (non-GAAP)	113,786		39,878		(41,979)		111,685		EBITDA (non-GAAP)	55,485		15,803		(11,188)		60,100
Restructuring expenses, net	Restructuring expenses, net	1,030		2,248		201		3,479		Restructuring expenses, net	(69)		89		32		52
Foreign currency revaluation (gains)/losses	Foreign currency revaluation (gains)/losses	(2,688)		727		14,850		12,889		Foreign currency revaluation (gains)/losses	(492)		575		167		250
Former CEO termination costs		—		—		2,742		2,742
Acquisition/integration costs	Acquisition/integration costs	—		576		—		576		Acquisition/integration costs	—		314		—		314
Pre-tax loss attributable to noncontrolling interest		—		1,434		—		1,434
Pre-tax (income) attributable to noncontrolling interest										Pre-tax (income) attributable to noncontrolling interest	—		(46)		—		(46)
Adjusted EBITDA (non-GAAP)	Adjusted EBITDA (non-GAAP)	$	112,128	$	44,863	$	(24,186)	$	132,805	Adjusted EBITDA (non-GAAP)	$	54,924	$	16,735	$	(10,989)	$	60,670

The Company discloses certain income and expense items on a per-share basis. The Company believes that such disclosures provide important insight into the underlying quarterly earnings and are financial performance metrics commonly used by investors. The Company calculates the quarterly per-share amount for items included in continuing operations by using the income tax rate based on either the tax rates in specific countries or the estimated tax rate applied to total company results. The after-tax amount is then divided by the weighted-average number of shares outstanding for each period. Year-to-date earnings per-share effects are determined by adding the amounts calculated at each reporting period.

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

Three months ended June 30, 2021
(in thousands, except per share amounts) Pre tax
Amounts Tax
Effect After tax
Effect Per share
Effect
Restructuring expenses, net $ (9) $ (3) $ (6) $ 0.00
Foreign currency revaluation (gains)/losses 1,838 781 1,057 0.03
Acquisition/integration costs 300 90 210 0.01

Three months ended June 30, 2020
(in thousands, except per share amounts) Pre tax
Amounts Tax
Effect After tax
Effect Per share
Effect
Restructuring expenses, net $ 2,837 $ 953 $ 1,884 $ 0.06
Foreign currency revaluation (gains)/losses 1,023 536 487 0.02
Acquisition/integration costs 278 83 195 0.01

3531

Index


Six months ended June 30, 2021 (in thousands, except per share amounts)		Pre tax Amounts		Tax Effect		After tax Effect		Per share Effect
Three months ended March 31, 2022 (in thousands, except per share amounts										Three months ended March 31, 2022 (in thousands, except per share amounts	Pre tax Amounts		Tax Effect		After tax Effect		Per share Effect
Restructuring expenses, net	Restructuring expenses, net	$	43	$	12	$	31	$	0.00	Restructuring expenses, net	$	254	$	73	$	181	$	0.01
Foreign currency revaluation (gains)/losses	Foreign currency revaluation (gains)/losses	2,088		646		1,442		0.04		Foreign currency revaluation (gains)/losses	(2,260)		(653)		(1,607)		(0.05)
Dissolution of business relationships in Russia										Dissolution of business relationships in Russia	2,568		332		2,236		0.07
Acquisition/integration costs	Acquisition/integration costs	614		184		430		0.02		Acquisition/integration costs	282		84		198		0.01


Six months ended June 30, 2020 (in thousands, except per share amounts)		Pre tax Amounts		Tax Effect		After tax Effect		Per share Effect
Three months ended March 31, 2021 (in thousands, except per share amounts)										Three months ended March 31, 2021 (in thousands, except per share amounts)	Pre tax Amounts		Tax Effect		After tax Effect		Per share Effect
Restructuring expenses, net	Restructuring expenses, net	$	3,479	$	1,145	$	2,334	$	0.07	Restructuring expenses, net	$	52	$	15	$	37	$	0.00
Foreign currency revaluation (gains)/losses ~~(a)~~	Foreign currency revaluation (gains)/losses ~~(a)~~	12,889		(1,009)		13,898		0.44		Foreign currency revaluation (gains)/losses ~~(a)~~	250		(135)		385		0.01
Former CEO termination costs		2,742		713		2,029		0.06
Acquisition/integration costs	Acquisition/integration costs	576		172		404		0.02		Acquisition/integration costs	314		94		220		0.01

~~(a)~~In Q1 2020, the company incurred losses of approximately $17 million in jurisdictions where it cannot record a tax benefit from the losses, which results in an unusual relationship between the pre-tax and after-tax amounts.

The following table ~~provides a reconciliation~~contains the calculation of ~~Earnings per share to~~ Adjusted ~~Earnings per share:~~EPS:


		Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
Per share amounts (Basic)	Per share amounts (Basic)	2021		2020		2021		2020		Per share amounts (Basic)	2022		2021
Earnings per share (GAAP)	Earnings per share (GAAP)	$	0.97	$	1.00	$	1.82	$	1.28	Earnings per share (GAAP)	$	0.87	$	0.85
Adjustments, after tax:	Adjustments, after tax:									Adjustments, after tax:
Restructuring expenses, net	Restructuring expenses, net	—		0.06		—		0.07		Restructuring expenses, net	0.01		—
Foreign currency revaluation (gains)/losses	Foreign currency revaluation (gains)/losses	0.03		0.02		0.04		0.44		Foreign currency revaluation (gains)/losses	(0.05)		0.01
Former CEO termination costs		—		—		—		0.06
Dissolution of business relationships in Russia										Dissolution of business relationships in Russia	0.07		—
Acquisition/integration costs	Acquisition/integration costs	0.01		0.01		0.02		0.02		Acquisition/integration costs	0.01		0.01
Adjusted Earnings per share (non-GAAP)	Adjusted Earnings per share (non-GAAP)	$	1.01	$	1.09	$	1.88	$	1.87	Adjusted Earnings per share (non-GAAP)	$	0.91	$	0.87

Net debt is, in the opinion of the Company, helpful to investors wishing to understand what the Company’s debt position would be if all available cash were applied to pay down indebtedness. The Company calculates Net debt by subtracting Cash and cash equivalents from Total debt. Total debt is calculated by adding Long-term debt, Current maturities of long-term debt, and Notes and loans payable, if any.

The following table contains the calculation of net debt:


(in thousands)	(in thousands)	June 30, 2021		March 31, 2021		December 31, 2020		(in thousands)	March 31, 2022		December 31, 2021		March 31, 2021
Current maturities of long-term debt	Current maturities of long-term debt	$	—	$	2	$	9	Current maturities of long-term debt	$	—	$	—	$	2
Long-term debt	Long-term debt	350,000		384,000		398,000		Long-term debt	427,000		350,000		384,000
Total debt	Total debt	350,000		384,002		398,009		Total debt	427,000		350,000		384,002
Cash and cash equivalents	Cash and cash equivalents	253,330		237,871		241,316		Cash and cash equivalents	307,415		302,036		237,871
Net debt (non GAAP)	Net debt (non GAAP)	$	96,670	$	146,131	$	156,693	Net debt (non GAAP)	$	119,585	$	47,964	$	146,131

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For discussion of our exposure to market risk, refer to “Quantitative and Qualitative Disclosures about Market Risk”, which is included as an exhibit to this Form 10-Q.

Item 4. Controls and Procedures

a) Disclosure controls and procedures.

The principal executive officer and principal financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this

~~Index~~

Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures are effective for ensuring that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the

Index

Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in filed or submitted reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

There was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The information set forth above under Note 1615 in Item 1, “Notes to Consolidated Financial ~~Statements.”~~Statements” is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes in risks since December 31, ~~2020.~~ 2021, except as discussed below.

The military invasion of Ukraine by Russia, and the ensuing sanctions are likely to continue to have an impact on our business. We have already stopped shipping our products to Russia and are in the process of winding down a small joint venture in that country which supplied dryer fabrics to local papermakers, resulting in lost sales and possible future write-offs. However, we also expect that there could be further indirect impacts. For instance, the conflict has already caused disruption in the availability of shipping options between Asia and Europe. Supply chain disruptions could make it more difficult to find favorable pricing and reliable sources for the raw materials we need, putting upward pressure on our costs and increasing the risk that we may be unable to acquire the materials or services we need to continue to make and deliver certain products. Moreover, these same pressures could hinder our customers’ ability to source materials needed for their own manufacturing efforts, thereby reducing or slowing their demand for our products. There can be no assurance that we will be able to pass through these cost increases to our customers or to fully offset them via operational efficiencies. If we are unsuccessful in managing such cost increases, they could have a material adverse effect on our business, financial position, results of operations, and liquidity.

For discussion of risk factors, refer to Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~We made no share purchases~~Issuer Purchases of Equity Securities during the ~~second quarter of 2021. We remain authorized by~~three months ended March 31, 2022


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced program	Approx. dollar value of shares that may yet be purchased under the program (thousands)


January 1 to January 31, 2022	140,879	$	85.24	140,879	$	163,722
February 1 to February 28, 2022	145,164	86.29		145,164	151,244
March 1 to March 31, 2022	228,643	85.51		228,643	131,688
Total	514,686			514,686	$	131,688

On October 25, 2021, the Company's Board of Directors authorized the Company to ~~purchase~~repurchase shares of up to 2$200 million through open market purchases, privately negotiated transactions or otherwise, and to determine the prices, times and amounts. The program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company's discretion. The share repurchase

Index

program does not have an expiration date. The timing and amount of any share repurchases will be based on the Company’s liquidity, general business and market conditions, debt covenant restrictions and other factors, including alternative investment opportunities and capital structure. We purchased 799,972 shares of our Class A Common ~~Stock.~~Stock since the Board repurchase authorization in 2021, 514,686 of which were purchased during the first three months of 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit No.			Description
31.1			Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act.
31.2			Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act.
32.1			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).
99.1			Quantitative and qualitative disclosures about market risks as reported at ~~June 30, 2021.~~March 31, 2022.
101.INS			XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			XBRL Taxonomy Extension Schema Document.
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover page formatted as Inline XBRL and contained in Exhibit 101

3734

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		ALBANY INTERNATIONAL CORP.
		(Registrant)

Date: ~~July 28, 2021~~April 26, 2022	By	/s/ Stephen M. Nolan
		Stephen M. Nolan Chief Financial Officer and Treasurer (Principal Financial Officer)

3835



	Three months ended June 30, 2020
(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total
Machine Clothing	$	152,585	$	848	$	153,433

Albany Engineered Composites
ASC	0		17,576		17,576
Other AEC	4,143		50,838		54,981
Total Albany Engineered Composites	4,143		68,414		72,557

Total revenue	$	156,728	$	69,262	$	225,990


(in thousands)	December 31, 2020		Restructuring charges accrued		Payments		Currency translation /other		June 30, 2021
Total termination and other costs	$	2,195	$	43	$	(1,485)	$	11	$	764


(in thousands)	December 31, 2019		Restructuring charges accrued		Payments		Currency translation /other		June 30, 2020
Total termination and other costs	$	2,042	$	3,479	$	(1,410)	$	(5)	$	4,106