ALBANY INTERNATIONAL CORP DE

Previous wording

•Across the entire Company, increasing labor, raw material, energy, and logistics costs due to supply chain constraints and inflationary pressures. These challenges have only increased as a result of the ongoing Russia-Ukraine war and the conflict in the Middle East;

Current wording

•Across the entire Company, increasing labor, raw material, energy, or logistics costs due to supply chain constraints and inflationary pressures. These challenges have only increased as a result of the ongoing Russia-Ukraine war and the conflict in the Middle East;

Previous wording

•Expectations regarding our ability to attract, motivate, and retain the workforce necessary to execute our business strategy;

Current wording

•Expectations regarding our ability to attract, motivate, and retain the workforce necessary to execute our business strategy and other goals;

Previous wording

•In the Albany Engineered Composites segment, our contracts with government entities involve future funding and compliance risks;

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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 the “Business Environment Overview and Trends” sections of this quarterly report, as well as in the 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 perception of historical conditions, expected future developments, and other factors believed to be appropriate under the circumstances.

Previous wording

During the second quarter of 2024, the MC segment continued to see challenges in Europe, and, to a lesser degree, softness in North America and China. However, our global backlog remains stable. The integration of Heimbach continues to be on track with our internal plans. We transitioned Heimbach’s PMC businesses onto our SAP platform in July, an integral step to integrate Heimbach into the MC business.

Current wording

The MC segment global backlog is stable and profitability continues to improve despite challenges in Europe, and, to a lesser degree, softness in China. North America is stable. The integration of Heimbach is on track with our internal plans. We transitioned Heimbach’s Paper Machine Clothing (“PMC”) businesses onto our SAP platform in July, an integral step to integrate Heimbach into the MC business.

Previous wording

The AEC segment continues to increase production levels on commercial, defense, and space programs. For the first half of 2024, the AEC segment has been awarded over $900 million in awards mostly on defense programs, and modest awards on commercial and space programs. While both major large aircraft manufacturers, Boeing and Airbus SE, had earlier announced increases in build rates in 2024 compared to 2023, due to continued quality issues at Boeing, Boeing has slowed their production rate on 737 MAX. Additionally, Airbus SE has given indications that their expected ramp on the A320 will be pushed out beyond previous expectations. We have decreased our LEAP production forecast for the remainder of 2024 and we are working with our customer, Safran, to determine the appropriate production volumes for our LEAP production into 2025.

Current wording

Airbus SE has indicated that their expected ramp on the A320 will be pushed out beyond previous expectations. We have decreased our LEAP production forecast for the remainder of 2024; and we are working with our customer, Safran, to determine the appropriate production volumes for our LEAP production into 2025.

Previous wording

Also, please refer to the Business Environment Overview and Trends in the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023. The Annual Report on Form 10-K, along with the Company's other filings, can be found on the Securities and Exchange Commission's website, www.sec.gov, as well as on the Company's website: www.albint.com.

Current wording

Also, please refer to the Business Environment Overview and Trends in the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023 and in our Forms 10-Q previously filed with the SEC in 2024. The Annual Report on Form 10-K, along with the Company's other filings, can be found on the Securities and Exchange Commission's website, www.sec.gov, as well as on the Company's website: www.albint.com.

Previous wording

Net revenues increased 18.8% compared to the same period in 2023, driven by $77.7 million of Net revenues from the Heimbach acquisition and higher Net revenues in AEC, partially offset by lower organic Net revenues at MC.

Current wording

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

Previous wording

MC's Net revenues increased 21.6% compared to the second quarter of 2023, driven by Heimbach Net revenues of $39.8 million. This was partially offset by $4.3 million of lower Net revenues in the rest of the segment, due to decreased sales in pulp, packaging and publication grades, net of increased sales in tissue grades and engineered fabrics. Changes in currency translation rates had the effect of decreasing Net revenues $1.1 million.

Current wording

MC's Net revenues increased 9.9% compared to the third quarter of 2023 driven by an increase in Heimbach Net revenues of $17.4 million. This was partially offset by $1.7 million of lower Net Revenues in the rest of the segment, due to lower revenues in packaging and publication grades. In addition, changes in currency translation rates had the effect of increasing Net revenues $0.7 million.

Previous wording

AEC's Net revenues increased 20.5%, primarily driven by growth on CH-53K, Boeing 787 Frames, and other commercial and space programs. Changes in currency translation rates had had an insignificant effect on Net revenues.

Current wording

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

Previous wording

Net revenues increased 21.1% compared to the same period in 2023, driven by $39.8 million of Net revenues from the Heimbach acquisition and higher Net revenues in AEC, partially offset by lower organic Net revenues at MC.

Current wording

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

Previous wording

MC's Net revenues increased 21.2% compared to the same period in 2023, driven by Heimbach Net revenues of $77.7 million. This was partially offset by $9.6 million of lower Net revenues in the rest of the segment, driven primarily by weakness in publication globally, and in most grades in Europe, as well as decreased sales in packaging grades. Changes in currency translation rates had the effect of decreasing Net revenues $1.7 million.

Current wording

MC's Net revenues increased 17.3% compared to the same period in 2023 driven by an increase in Heimbach Net revenues of $95.0 million. This was partially offset by $11.2 million of lower Net revenues in the rest of the segment, driven primarily by weakness in publication globally, and in most grades in Europe, as well as decreased sales in packaging grades. Changes in currency translation rates had the effect of decreasing Net revenues $1.0 million.

Previous wording

The increase in 2024 Gross profit, as compared to the same period last year, was driven by higher sales in both segments. Gross profit as a percentage of revenues was as follows:

Current wording

The decrease in 2024 Gross profit, as compared to the same period last year, was driven by increased cost assumptions that adjusted the expected profitability of certain long-term contracts in the AEC segment. Gross profit as a percentage of revenues was as follows:

Previous wording

•AEC's gross profit margin decreased from 19.0% in 2023 to 17.0% in 2024, driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $5.0 million in 2024, as compared to a decrease of $1.9 million during the same period last year.

Current wording

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

Previous wording

The increase in Gross profit during the first half of 2024, as compared to the same period in 2023, was driven by higher sales in both segments. Gross profit as a percentage of revenues was as follows:

Current wording

The decrease in Gross profit during the first nine months of 2024, as compared to the same period in 2023, was driven by increased cost assumptions that adjusted the expected profitability of certain long-term contracts in the AEC segment. Gross profit as a percentage of revenues was as follows:

Previous wording

•MC's gross profit margin decreased from 50.8% in 2023 to 45.9% in 2024. This margin decrease was primarily attributable to lower gross margin at Heimbach. Excluding Heimbach, MC's gross profit margin increased to 51.7% in 2024.

Current wording

•MC's gross profit margin decreased from 49.7% in 2023 to 46.7% in 2024. This margin decrease was primarily attributable to lower gross margin at Heimbach.

Previous wording

•AEC's gross profit margin decreased from 18.7% in 2023 to 17.8% in 2024, driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $7.6 million in 2024, as compared to a decrease of $4.0 million during the same period last year, partially offset by a favorable shift in revenue mix.

Current wording

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

Previous wording

Consolidated SG&A expenses increased 15.9% as compared to 2023, however, as a percentage of Net revenues, SG&A expenses decreased from 17.5% in 2023 to 17.1% in 2024.

Current wording

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

Previous wording

Consolidated SG&A expenses increased 18.7% as compared to 2023, however, as a percentage of Net revenues, SG&A expenses decreased from 17.0% in 2023 to 16.7% in 2024.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

•MC SG&A expenses increased $5.9 million as compared to 2023, with a $7.4 million increase related to Heimbach, offset by a $1.5 million decrease due to changes in currency translation rates.

Current wording

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

Previous wording

•In AEC, SG&A expenses remained largely in line with the prior year, decreasing $0.4 million.

Current wording

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

Previous wording

Consolidated Technical and research expenses increased 14.9% as compared to 2023, and as a percentage of Net revenues decreased from 3.8% in 2023 to 3.6% in 2024.

Current wording

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

Previous wording

•MC Technical and research expenses increased $1.1 million as compared to 2023, of which $1.6 million was due to the addition of Heimbach. Excluding Heimbach, material and labor costs were lower as compared to the prior year, driving the decrease in expenses.

Current wording

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

Previous wording

Consolidated Technical and research expenses increased 19.1% as compared to 2023, but as a percentage of Net revenues remained unchanged at 3.8% in both 2023 and 2024.

Current wording

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

Previous wording

In addition to the items discussed above affecting Gross profit, SG&A and Technical and research expenses, Operating income was affected by restructuring expense, net, of $2.1 million in the three months ended June 30, 2024, compared to $0.1 million in in the same period of 2023; and $4.3 million in the six months ended June 30, 2024, compared to $0.1 million in the same period in 2024.

Current wording

In addition to the items discussed above affecting Gross profit, SG&A and Technical and research expenses, Operating income was affected by Restructuring expense, net, of $2.3 million in the three months ended September 30, 2024, compared to $0.1 million in in the same period of 2023; and $6.6 million in the nine months ended September 30, 2024, compared to $0.2 million in the same period in 2023.

Previous wording

Restructuring expenses, net in the second quarter of 2024 at MC were primarily related to actions taken to cease operations at the Company's MC forming fabric manufacturing facility in Chungju, South Korea. This led to a $1.0 million charge to Restructuring expenses, net related to workforce reductions, as well as a $0.5 million charge to Cost of goods sold for the write-off of inventory. We expect to incur additional restructuring expenses related to this action throughout the remainder of the year.

Current wording

At MC, restructuring actions were taken in the second and third quarters of 2024 to cease operations at the Company's MC forming fabric manufacturing facility in Chungju, South Korea, and at the Company's Heimbach engineered fabric manufacturing facility in Rochdale, UK. This was the principal driver of $3.3 million in Restructuring expenses, net for the first nine months of 2024 related to workforce reductions, fixed asset impairments and related costs, as well as charges of $1.3 million in Costs of goods sold for the write-off of inventory. We expect to incur additional restructuring expenses related to these actions throughout the remainder of the year.

Previous wording

At AEC, restructuring activities were related to reductions in the workforce at various AEC locations, which resulted in restructuring expenses of $0.9 million during the second quarter and $3.1 million during the first half of 2024.

Current wording

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

Previous wording

Interest expense/(income), net, was largely in line with the prior year. See Note 14. Financial Instruments in the Notes to Consolidated Financial Statements for further discussion of borrowings and interest rates.

Current wording

Interest expense/(income), net, decreased over the prior year primarily due to lower average debt balances, in part offset by less interest income earned on cash equivalents during the current year. See Note 14. Financial Instruments in the Notes to Consolidated Financial Statements for further discussion of borrowings and interest rates.

Previous wording

Other (income)/expense, net, included foreign currency related transactions which resulted in losses of $0.2 million and gains of $1.1 million in the three and six months ended June 30, 2024, respectively, as compared to gains of $4.2 million and $4.1 million in the same period last year. In addition, changes in the fair value of derivative instruments included losses of $4.4 million and $4.3 million in the three and six months ended June 30, 2024, as compared to gains of $0.1 million and $0.1 million in the same period last year, driven by currency rate movements, most notably the Brazilian Real and Mexican Peso. Net periodic pension and postretirement costs, other than service costs, were $0.7 million and $1.3 million in the three and six months ended June 30, 2024, respectively, as compared to benefits of $0.1 million and $0.2 million in the same period last year. Other (income)/expense, net, also included net proceeds of $0.5 million from the divestiture of assets related to Heimbach during the three and six months ended June 30, 2024, as well as bank fees, amortization of debt issuance costs, and rental income.

Current wording

Other (income)/expense, net, included foreign currency related transactions, which resulted in losses of $1.8 million and $0.7 million in the three and nine months ended September 30, 2024, respectively, as compared to losses of $0.5 million and gains of $3.6 million in the same periods last year. In addition, changes in the fair value of derivative instruments included gains of $0.5 million and losses of $3.8 million in the three and nine months ended September 30, 2024, as compared to losses of $0.7 million and $0.6 million in the same period last year, driven by currency rate movements, most notably the Brazilian Real and Mexican Peso. Net periodic pension and postretirement costs, other than service costs, were $0.7 million and $2.0 million in the three and nine months ended September 30, 2024, respectively, as compared to benefits of $0.1 million and $0.3 million in the same period last year. Other (income)/expense, net, also included net losses of $0.7 million from the divestiture of assets related to Heimbach during the nine months ended September 30, 2024, as well as bank fees, amortization of debt issuance costs, and rental income.

Previous wording

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 pre-tax income earned in those jurisdictions. The tax rate is also affected by U.S. tax costs on foreign pre-tax earnings, and by discrete items that may occur in any given year but are not consistent from year to year. The Company’s effective tax rate for the second quarter of 2024 was 27.9%, lower compared to 42.8% for the same period in 2023, mainly due to favorable discrete tax adjustments in the current period compared to unfavorable discrete tax adjustments in the prior period. For the first half of 2024, the Company's effective tax rate was 28.6%, lower compared to 36.3% for the same period in 2023, mainly due to favorable discrete tax adjustments in the current period compared to unfavorable discrete tax adjustments in the prior period. For more information, see Note 6, Income Taxes, in the Notes to the Consolidated Financial Statements.

Current wording

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 pre-tax income earned in those jurisdictions. The tax rate is also affected by U.S. tax costs on foreign pre-tax earnings, and by discrete items that may occur in any given year but are not consistent from year to year. The Company’s effective tax rate for the third quarter of 2024 was 6.6%, lower compared to 25.3% for the same period in 2023, mainly due to favorable discrete tax adjustments in the current period exceeding favorable discrete tax adjustments in the prior period. The favorable discrete benefits in the third quarter of 2024 were partially offset by an unfavorable change in the jurisdictional mix of earnings compared to the prior period. For the nine months ended September 30, 2024, the Company's effective tax rate was 23.9%, lower compared to 33.0% for the same period in 2023, mainly due to favorable discrete tax adjustments in the current period compared to unfavorable discrete tax adjustments in the prior period, partially offset by an unfavorable change in the jurisdictional mix of earnings compared to the prior period. For more information, see Note 6, Income Taxes, in the Notes to the Consolidated Financial Statements.

Previous wording

The MC segment accounted for 58% and 59% of our consolidated revenues during the three and six months ended June 30, 2024, respectively. A summary of selected financial results for MC is as follows:

Current wording

The MC segment accounted for 61% and 60% of our consolidated revenues during the three and nine months ended September 30, 2024, respectively. A summary of selected financial results for MC is as follows:

Previous wording

For the six months ended June 30, 2024, Net revenues increased by 21.2% as compared to the prior year, driven by Heimbach Net revenues of $77.7 million. This was partially offset by $9.6 million of lower Net revenues in the rest of the segment, driven primarily by weakness in publication globally, and in most grades in Europe, as well as decreased sales in packaging grades. Changes in currency translation rates had the effect of decreasing Net revenues $1.7 million.

Current wording

For the nine months ended September 30, 2024, Net revenues increased by 17.3% as compared to the prior year, driven by an increase in Heimbach Net revenues of $95.0 million. This was partially offset by $11.2 million of lower organic Net revenues in the rest of the segment, driven primarily by weakness in publication globally, and in most grades in Europe, as well as decreased sales in packaging grades. Changes in currency translation rates had the effect of decreasing Net revenues $1.0 million.

Previous wording

For the three months ended June 30, 2024, Gross profit increased by $8.0 million as compared to the same period in the prior year, driven by the higher sales noted above; however, gross profit margin decreased from 50.8% in 2023 to 45.9% in 2024. This margin decrease was primarily driven by lower gross margins at Heimbach. Excluding Heimbach, MC's gross profit margins increased to 51.7% in 2024.

Current wording

For the nine months ended September 30, 2024, Gross profit increased by $24.4 million as compared to the same period in the prior year, driven by the higher sales noted above; however, gross profit margin decreased from 49.7% in 2023 to 46.7% in 2024. This margin decrease was primarily driven by lower gross margins at Heimbach.

Previous wording

The AEC segment accounted for 42% and 41% of our consolidated revenues during the three and six months ended June 30, 2024, respectively. A summary of selected financial results for AEC is as follows:

Current wording

The AEC segment accounted for 39% and 40% of our consolidated revenues during the three and nine months ended September 30, 2024, respectively. A summary of selected financial results for AEC is as follows:

Previous wording

For the three months ended June 30, 2024, Net revenues increased 20.5% as compared to the prior year, driven by growth on CH-53K, Boeing 787 Frames, and other commercial and space programs. Changes in currency translation rates had an insignificant effect on Net revenues.

Current wording

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

Previous wording

AEC has contracts with certain customers, including its contract for the LEAP program, where revenue is determined by a cost-plus-fee agreement. Revenue earned under these arrangements accounted for approximately 40 percent of segment revenue for the first six months of 2024 and 2023.

Current wording

AEC has contracts with certain customers, including its contract for the LEAP program, where revenue is determined by a cost-plus-fee agreement. Revenue earned under these arrangements accounted for approximately 40 percent of segment revenue for the first nine months of 2024 and 2023.

Previous wording

For the three months ended June 30, 2024, Gross profit increased $1.7 million as compared to the same period last year, and as a percentage of revenues decreased from 19.0% in 2023 to 17.0% in 2024. The decrease in profit margin was driven primarily by unfavorable changes in the estimated profitability of long-term contracts as noted below.

Current wording

For the three months ended September 30, 2024, Gross profit decreased $21.1 million as compared to the same period last year, and as a percentage of revenues decreased from 19.7% in 2023 to 1.3% in 2024. This decrease in Gross profit was driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $22.4 million in 2024 due to increased cost assumptions as well as the impact of suspended production at a key customer. For the 2023 year, adjustments in the estimated profitability of long-term contracts increased Gross profit $0.9 million.

Previous wording

For the six months ended June 30, 2024, Gross profit increased $4.3 million as compared to the same period last year, and gross profit margin decreased from 18.7% in 2023 to 17.8% in 2024. The decrease in profit margin was driven primarily by unfavorable changes in the estimated profitability of long-term contracts as noted below, partially offset by a favorable shift in revenue mix.

Current wording

For the nine months ended September 30, 2024, Gross profit decreased $16.8 million as compared to the same period last year, and gross profit margin decreased from 19.1% in 2023 to 12.8% in 2024. This decrease in Gross profit was driven primarily by changes in the estimated profitability of long-term contracts, which decreased gross profit by $28.3 million in 2024 due to increased cost assumptions as well as the impact of suspended production at a key customer, partially offset by a favorable shift in revenue mix to commercial and space programs. For the 2023 year, adjustments in the estimated profitability of long-term contracts decreased Gross profit $4.1 million.