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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: | September 30, 2024 |
OR
| | | | | |
☐ | 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
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) |
| | |
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 31.3 million shares of Class A Common Stock outstanding as of October 15, 2024.
ALBANY INTERNATIONAL CORP.
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net revenues | $ | 298,386 | | | $ | 281,106 | | | $ | 943,710 | | | $ | 824,325 | |
Cost of goods sold | 208,002 | | | 179,271 | | | 632,257 | | | 520,468 | |
| | | | | | | |
Gross profit | 90,384 | | | 101,835 | | | 311,453 | | | 303,857 | |
Selling, general, and administrative expenses | 52,097 | | | 51,975 | | | 162,447 | | | 147,214 | |
Technical and research expenses | 10,844 | | | 9,708 | | | 35,369 | | | 30,303 | |
Restructuring expenses, net | 2,272 | | | 82 | | | 6,584 | | | 227 | |
| | | | | | | |
Operating income | 25,171 | | | 40,070 | | | 107,053 | | | 126,113 | |
Interest expense/(income), net | 2,411 | | | 3,653 | | | 8,680 | | | 10,049 | |
| | | | | | | |
Other (income)/expense, net | 3,257 | | | 56 | | | 5,932 | | | (4,910) | |
| | | | | | | |
Income before income taxes | 19,503 | | | 36,361 | | | 92,441 | | | 120,974 | |
Income tax expense | 1,282 | | | 9,207 | | | 22,131 | | | 39,908 | |
| | | | | | | |
Net income | 18,221 | | | 27,154 | | | 70,310 | | | 81,066 | |
Net income attributable to the noncontrolling interest | 192 | | | 45 | | | 366 | | | 396 | |
Net income attributable to the Company | $ | 18,029 | | | $ | 27,109 | | | $ | 69,944 | | | $ | 80,670 | |
| | | | | | | |
Earnings per share attributable to Company shareholders - Basic | $ | 0.58 | | | $ | 0.87 | | | $ | 2.24 | | | $ | 2.59 | |
| | | | | | | |
Earnings per share attributable to Company shareholders - Diluted | $ | 0.57 | | | $ | 0.87 | | | $ | 2.23 | | | $ | 2.58 | |
| | | | | | | |
Shares of the Company used in computing earnings per share: | | | | | | | |
Basic | 31,251 | | | 31,185 | | | 31,234 | | | 31,163 | |
| | | | | | | |
Diluted | 31,367 | | | 31,283 | | | 31,333 | | | 31,256 | |
| | | | | | | |
Dividends declared per Class A share | $ | 0.26 | | | $ | 0.25 | | | $ | 0.78 | | | $ | 0.75 | |
The accompanying notes are an integral part of the consolidated financial statements
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income | $ | 18,221 | | | $ | 27,154 | | | $ | 70,310 | | | $ | 81,066 | |
| | | | | | | |
Other comprehensive income/(loss), before tax: | | | | | | | |
Foreign currency translation | 16,211 | | | (15,131) | | | (12,757) | | | (4,509) | |
| | | | | | | |
Amortization of pension liability adjustments: | | | | | | | |
Prior service credit | (37) | | | (1,031) | | | (113) | | | (3,092) | |
Net actuarial loss | 176 | | | 349 | | | 530 | | | 1,042 | |
Payments and amortization related to interest rate swaps included in earnings | (2,675) | | | (3,990) | | | (10,893) | | | (10,891) | |
Derivative valuation adjustment | (1,238) | | | 996 | | | 395 | | | 4,533 | |
| | | | | | | |
Income taxes related to items of other comprehensive income/(loss): | | | | | | | |
| | | | | | | |
Amortization of prior service credit | 13 | | | 315 | | | 35 | | | 946 | |
Amortization of net actuarial loss | (55) | | | (107) | | | (162) | | | (319) | |
Payments and amortization related to interest rate swaps included in earnings | 658 | | | 1,009 | | | 2,681 | | | 2,755 | |
Derivative valuation adjustment | 305 | | | (252) | | | (97) | | | (1,147) | |
Comprehensive income | 31,579 | | | 9,312 | | | 49,929 | | | 70,384 | |
Comprehensive income attributable to the noncontrolling interest | (127) | | | (99) | | | (273) | | | 669 | |
Comprehensive income attributable to the Company | $ | 31,706 | | | $ | 9,411 | | | $ | 50,202 | | | $ | 69,715 | |
The accompanying notes are an integral part of the consolidated financial statements
ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Assets | | | |
Cash and cash equivalents | $ | 127,222 | | | $ | 173,420 | |
Accounts receivable, net | 271,975 | | | 287,781 | |
Contract assets, net | 195,782 | | | 182,281 | |
Inventories | 160,617 | | | 169,567 | |
Income taxes prepaid and receivable | 8,316 | | | 11,043 | |
Prepaid expenses and other current assets | 40,399 | | | 53,872 | |
Total current assets | 804,311 | | | 877,964 | |
| | | |
Property, plant and equipment, net | 583,455 | | | 601,989 | |
Intangibles, net | 40,996 | | | 44,646 | |
Goodwill | 180,912 | | | 180,181 | |
Deferred income taxes | 26,979 | | | 22,941 | |
Noncurrent receivables, net | — | | | 4,392 | |
Other assets | 116,548 | | | 102,901 | |
Total assets | $ | 1,753,201 | | | $ | 1,835,014 | |
| | | |
Liabilities and Shareholders' Equity | | | |
Accounts payable | $ | 77,873 | | | $ | 87,104 | |
Accrued liabilities | 138,700 | | | 142,988 | |
Current maturities of long-term debt | 555 | | | 4,218 | |
Income taxes payable | 1,593 | | | 14,369 | |
Total current liabilities | 218,721 | | | 248,679 | |
| | | |
Long-term debt | 361,639 | | | 452,667 | |
Other noncurrent liabilities | 154,634 | | | 139,385 | |
Deferred taxes and other liabilities | 21,531 | | | 26,963 | |
Total liabilities | 756,525 | | | 867,694 | |
| | | |
Commitments and Contingencies (Note 16) | | | |
| | | |
Shareholders' Equity: | | | |
Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none issued | — | | | — | |
Class A Common Stock, par value $0.001 per share; authorized 100,000,000 shares; 40,916,568 issued in 2024 and 40,856,910 in 2023 | 41 | | | 41 | |
| | | |
Additional paid in capital | 452,656 | | | 448,218 | |
Retained earnings | 1,056,514 | | | 1,010,942 | |
Accumulated items of other comprehensive income: | | | |
Translation adjustments | (137,373) | | | (124,901) | |
Pension and postretirement liability adjustments | (17,341) | | | (17,346) | |
Derivative valuation adjustment | 1,165 | | | 9,079 | |
Treasury stock (Class A), at cost; 9,661,845 shares in 2024 and 2023 | (364,665) | | | (364,665) | |
Total shareholders' equity | 990,997 | | | 961,368 | |
Noncontrolling interest | 5,679 | | | 5,952 | |
Total equity | 996,676 | | | 967,320 | |
Total liabilities and shareholders' equity | $ | 1,753,201 | | | $ | 1,835,014 | |
The accompanying notes are an integral part of the consolidated financial statements
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | | | 2024 | | 2023 |
Cash flows from operating activities: | | | | | | | |
Net income | | | | | $ | 70,310 | | | $ | 81,066 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation | | | | | 61,813 | | | 50,164 | |
Amortization | | | | | 5,190 | | | 4,614 | |
Change in deferred taxes and other liabilities | | | | | (7,552) | | | (1,264) | |
Impairment of property, plant and equipment | | | | | 1,425 | | | 577 | |
Non-cash interest expense | | | | | 769 | | | 1,148 | |
| | | | | | | |
Compensation and benefits paid or payable in Class A Common Stock | | | | | 4,438 | | | 5,189 | |
Provision/(recovery) for credit losses from uncollected receivables and contract assets | | | | | 40 | | | 641 | |
Foreign currency remeasurement loss/(gain) on intercompany loans | | | | | 2,263 | | | (4,704) | |
Fair value adjustment on foreign currency contracts | | | | | 1,105 | | | 581 | |
Gain on sale of assets | | | | | (515) | | | — | |
| | | | | | | |
Changes in operating assets and liabilities that provided/(used) cash, net of impact of business acquisition: | | | | | | | |
Accounts receivable | | | | | 17,980 | | | (18,172) | |
Contract assets | | | | | (15,194) | | | (16,550) | |
Inventories | | | | | 5,918 | | | (293) | |
Prepaid expenses and other current assets | | | | | 2,768 | | | (3,030) | |
Income taxes prepaid and receivable | | | | | 2,602 | | | 1,597 | |
Accounts payable | | | | | 7,316 | | | (6,661) | |
Accrued liabilities | | | | | (8,320) | | | (16,454) | |
Income taxes payable | | | | | (11,995) | | | (5,810) | |
Noncurrent receivables | | | | | (579) | | | 2,276 | |
Other noncurrent liabilities | | | | | (17) | | | (3,602) | |
Other, net | | | | | 220 | | | 2,499 | |
Net cash provided by operating activities | | | | | 139,985 | | | 73,812 | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchase of business, net of cash acquired | | | | | — | | | (133,470) | |
Purchases of property, plant and equipment | | | | | (61,985) | | | (48,850) | |
Purchased software | | | | | (101) | | | (276) | |
Proceeds received from sale of assets | | | | | 1,033 | | | — | |
Net cash used in investing activities | | | | | (61,053) | | | (182,596) | |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Proceeds from borrowings | | | | | 48,106 | | | 71,249 | |
Principal payments on debt | | | | | (142,691) | | | (51,479) | |
| | | | | | | |
Debt acquisition costs | | | | | — | | | (4,108) | |
| | | | | | | |
Taxes paid in lieu of share issuance | | | | | (2,832) | | | (3,136) | |
| | | | | | | |
Dividends paid | | | | | (24,356) | | | (23,365) | |
Net cash (used in)/provided by financing activities | | | | | (121,773) | | | (10,839) | |
| | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | | | (3,357) | | | (647) | |
| | | | | | | |
(Decrease)/increase in cash and cash equivalents | | | | | (46,198) | | | (120,270) | |
Cash and cash equivalents at beginning of period | | | | | 173,420 | | | 291,776 | |
Cash and cash equivalents at end of period | | | | | $ | 127,222 | | | $ | 171,506 | |
The accompanying notes are an integral part of the consolidated financial statements
ALBANY INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Significant Accounting Policies
Basis of Presentation
In the opinion of management, the accompanying consolidated financial information reflects all adjustments necessary for a fair presentation of Albany International Corp.'s ("Albany", the "Registrant", the "Company", "we", "us", or "our") financial position, results of operations and cash flows for the interim periods presented, but does not include all disclosures required by the accounting principles generally accepted in the United States ("GAAP"). All such adjustments are of a normal recurring nature, unless otherwise disclosed in this report. Certain amounts in prior year financial statements and notes thereto have been reclassified to conform to current year presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in the accounting for, among others, revenue recognition, contract profitability, allowances for doubtful accounts, rebates and sales allowances, inventory allowances, financial instruments, including derivatives, pension and other postretirement benefits, goodwill and intangible assets, contingencies, income taxes, and other accruals. Our estimates are based on historical experience and on various other assumptions, which are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of any revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Recent Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In March 2024, the FASB issued Accounting Standards Update No. 2024-01, "Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards" (ASU 2024-01), which clarifies how an entity determines whether profits interest or similar awards should be considered within the scope of ASC 718 as a share-based payment arrangement or under ASC 710 or other ASC topics in a manner similar to a cash bonus or profit-sharing arrangement. The guidance is effective for annual periods beginning after December 15, 2024, and interim periods beginning within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. ASU 2024-01 should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. We are
currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In March 2024, the U.S. Securities and Exchange Commission ("SEC") adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule would require registrants to disclose certain climate-related information in registration statements and annual reports. In April 2024, the SEC voluntarily stayed the final rule as a result of legal challenges that are pending judicial review. The disclosure requirements would apply to the Company's fiscal year beginning January 1, 2025, pending resolution of the stay. The Company is currently evaluating the final rule to determine its impact on the Company's disclosures.
2. Reportable Segments and Revenue Recognition
The Company is organized based on the nature of its products and is composed of two reportable segments, Machine Clothing ("MC") and Albany Engineered Composites ("AEC"), each overseen by a Segment President. These segments are reflective of how the Company's Chief Executive Officer, who is its Chief Operating Decision Maker ("CODM"), reviews operating results for the purpose of allocating resources and assessing performance. The Company has not aggregated operating segments for purposes of identifying reportable segments.
Machine Clothing:
The Machine Clothing segment supplies permeable and impermeable belts used in the manufacture of paper, paperboard, tissue and towel products, nonwovens, fiber cement and for several other industrial applications. Paper machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a complex structure. We manufacture belts for each section of the paper machine and for every grade of paper. We sell our MC products directly to customer end-users in countries across the globe. MC's products, manufacturing processes, and distribution channels are substantially the same in each region of the world in which we operate.
On August 31, 2023, the Company completed the acquisition of Heimbach GmbH (“Heimbach”), a privately-held manufacturer of paper machine clothing and technical textiles. The financial results of the acquired company are included in the Machine Clothing reportable segment.
Albany Engineered Composites:
The Albany Engineered Composites segment 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, the SAFRAN Group (“SAFRAN”) owns a 10 percent noncontrolling interest. AEC, through ASC, is the exclusive supplier to the LEAP program of advanced composite fan blades and fan cases under a long-term supply contract, where revenue is determined by a cost-plus-fee agreement. The LEAP engine is used on the Airbus A320neo, Boeing 737 MAX, and COMAC 919 aircraft. AEC's largest aerospace customer is the SAFRAN Group and sales to SAFRAN (consisting primarily of fan blades and cases for CFM International's LEAP engine) accounted for approximately 16 percent of the Company's consolidated Net revenues in 2023.
AEC net sales to SAFRAN were $142.2 million and $140.8 million in the first nine months of 2024 and 2023, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from SAFRAN amounted to $89.9 million and $93.8 million as of September 30, 2024 and December 31, 2023, respectively.
Other significant programs for AEC include the Sikorsky CH-53K, F-35, JASSM, and Boeing 787 programs. AEC also supplies vacuum waste tanks for the Boeing commercial programs, and specialty components for the Rolls Royce lift fan on the F-35, as well as the fan case for the GE9X engine. For the year ended December 31, 2023, approximately 39 percent of AEC revenues were related to U.S. government contracts or programs.
The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in thousands) | 2024 | 2023 | 2024 | 2023 |
Net revenues | | | | |
Machine Clothing | $ | 183,033 | | $ | 166,588 | | $ | 561,828 | | $ | 479,027 | |
Albany Engineered Composites | 115,353 | | 114,518 | | 381,882 | | 345,298 | |
Consolidated revenues | $ | 298,386 | | $ | 281,106 | | $ | 943,710 | | $ | 824,325 | |
Operating income/(loss) | | | | |
Machine Clothing | $ | 51,481 | | $ | 50,710 | | $ | 153,276 | | $ | 153,400 | |
Albany Engineered Composites | (10,293) | | 9,374 | | 8,329 | | 27,460 | |
Corporate expenses | (16,017) | | (20,014) | | (54,552) | | (54,747) | |
Consolidated Operating income | $ | 25,171 | | $ | 40,070 | | $ | 107,053 | | $ | 126,113 | |
Reconciling items: | | | | |
Interest income | (1,019) | | (1,826) | | (3,101) | | (4,770) | |
Interest expense | 3,430 | | 5,479 | | 11,781 | | 14,819 | |
| | | | |
| | | | |
Other (income)/expense, net | 3,257 | | 56 | | 5,932 | | (4,910) | |
Income before income taxes | $ | 19,503 | | $ | 36,361 | | $ | 92,441 | | $ | 120,974 | |
Results for 2024 include Heimbach, which was acquired August 31, 2023. Heimbach contributed $27.8 million and $105.5 million of net revenues and $(4.3) million and $(6.7) million of operating loss for the three and nine months ended September 30, 2024, respectively. Heimbach contributed $15.6 million of Net revenues and an operating loss of $(0.5) million for the three and nine months ended September 30, 2023, respectively.
Corporate expenses include global information system costs of $7.8 million and $6.3 million for the three months ended September 30, 2024 and 2023, respectively, and $24.2 million and $19.3 million for the nine months ended September 30, 2024 and 2023, respectively.
Revenue Recognition:
Products and services provided under long-term contracts represent a significant portion of revenues in the Albany Engineered Composites segment and we account for these contracts over time, primarily 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. The cumulative changes in the estimated profitability of long-term contracts decreased operating income by $22.4 million for the third quarter of 2024 and decreased operating income by $28.3 million for the first nine months of 2024. The negative change in the estimated profitability in the third quarter of 2024 was driven by a few large complex programs, including approximately $13.3 million for various CH-53K programs, approximately $6.5 million on our Gulfstream program, approximately $2.2 million on our F-35 program, and $0.4 million, net, on all other programs. Adjustments in the estimated profitability of long-term contracts increased operating incomes by $0.9 million and decreased operating income by $4.1 million for the third quarter and first nine months of 2023, respectively.
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 for the three months ended September 30, 2024:
| | | | | | | | | | | |
| Three months ended September 30, 2024 |
(in thousands) | Point in Time Revenue Recognition | Over Time Revenue Recognition | Total |
Machine Clothing | $ | 182,050 | | $ | 983 | | $ | 183,033 | |
| | | |
Albany Engineered Composites: | | | |
ASC | — | | 40,115 | | 40,115 | |
Other AEC | 4,142 | | 71,096 | | 75,238 | |
Total Albany Engineered Composites | 4,142 | | 111,211 | | 115,353 | |
| | | |
Total revenues | $ | 186,192 | | $ | 112,194 | | $ | 298,386 | |
The following table disaggregates revenue for each product group by timing of revenue recognition for the three months ended September 30, 2023:
| | | | | | | | | | | |
| Three months ended September 30, 2023 |
(in thousands) | Point in Time Revenue Recognition | Over Time Revenue Recognition | Total |
Machine Clothing | $ | 165,643 | | $ | 945 | | $ | 166,588 | |
| | | |
Albany Engineered Composites: | | | |
ASC | — | | 46,654 | | 46,654 | |
Other AEC | 4,955 | | 62,909 | | 67,864 | |
Total Albany Engineered Composites | 4,955 | | 109,563 | | 114,518 | |
| | | |
Total revenues | $ | 170,598 | | $ | 110,508 | | $ | 281,106 | |
| | | |
The following table disaggregates revenue for each product group by timing of revenue recognition for the nine months ended September 30, 2024:
| | | | | | | | | | | |
| Nine months ended September 30, 2024 |
(in thousands) | Point in Time Revenue Recognition | Over Time Revenue Recognition | Total |
Machine Clothing | $ | 558,881 | | $ | 2,947 | | $ | 561,828 | |
| | | |
Albany Engineered Composites: | | | |
ASC | — | | 140,146 | | 140,146 | |
Other AEC | 15,908 | | 225,828 | | 241,736 | |
Total Albany Engineered Composites | 15,908 | | 365,974 | | 381,882 | |
| | | |
Total revenues | $ | 574,789 | | $ | 368,921 | | $ | 943,710 | |
| | | |
The following table disaggregates revenue for each product group by timing of revenue recognition for the nine months ended September 30, 2023:
| | | | | | | | | | | |
| Nine months ended September 30, 2023 |
(in thousands) | Point in Time Revenue Recognition | Over Time Revenue Recognition | Total |
Machine Clothing | $ | 476,194 | | $ | 2,833 | | $ | 479,027 | |
| | | |
Albany Engineered Composites: | | | |
ASC | — | | 138,603 | | 138,603 | |
Other AEC | 14,259 | | 192,436 | | 206,695 | |
Total Albany Engineered Composites | 14,259 | | 331,039 | | 345,298 | |
| | | |
Total revenues | $ | 490,453 | | $ | 333,872 | | $ | 824,325 | |
| | | |
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 September 30, | Nine months ended September 30, |
(in thousands) | 2024 | 2023 | 2024 | 2023 |
Americas PMC | $ | 86,408 | | $ | 84,405 | | $ | 258,442 | | $ | 261,937 | |
Eurasia PMC | 70,083 | | 64,493 | | 224,792 | | 164,771 | |
Engineered Fabrics | 26,542 | | 17,690 | | 78,594 | | 52,319 | |
Total Machine Clothing Net revenues | $ | 183,033 | | $ | 166,588 | | $ | 561,828 | | $ | 479,027 | |
| | | | |
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Contracts in the MC segment are generally for periods of less than a year and certain contracts in the AEC segment are relatively short duration firm-fixed-price orders. Remaining performance obligations on contracts that had an original duration of greater than one year totaled $1.1 billion and $759 million as of September 30, 2024 and 2023, respectively, and related primarily to firm fixed price contracts in the AEC segment. Of the remaining performance obligations as of September 30, 2024, we expect to recognize as revenue approximately $40 million during 2024, $167 million during 2025, $147 million during 2026, and the remainder thereafter.
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/(income) for the nine months ended September 30, 2024 and 2023, was as follows:
| | | | | | | | | | | | | | |
| Pension plans | Other postretirement benefits |
(in thousands) | 2024 | 2023 | 2024 | 2023 |
Components of net periodic benefit cost/(income): | | | | |
Service cost | $ | 1,473 | | $ | 986 | | $ | 35 | | $ | 45 | |
Interest cost | 4,545 | | 3,447 | | 1,063 | | 1,405 | |
Expected return on assets | (4,030) | | (3,063) | | — | | — | |
Amortization of prior service cost/(income) | (20) | | (24) | | (93) | | (3,068) | |
Amortization of net actuarial loss | 556 | | 421 | | (26) | | 621 | |
Net periodic benefit cost/(credit) | $ | 2,524 | | $ | 1,767 | | $ | 979 | | $ | (997) | |
| | | | |
| | | | |
The amount of net benefit cost/(credit) 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 material curtailments or settlements during the first nine months of 2024 or 2023.
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
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. 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. Restructuring expenses incurred at MC during 2023 were not significant.
At AEC, restructuring activities were related to reductions in the workforce at various AEC locations, which resulted in restructuring expenses of $3.1 million for the first nine months of 2024. Restructuring expenses incurred at AEC during 2023 were not significant.
The following table summarizes charges reported in the Consolidated Statements of Income under "Restructuring expenses, net":
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in thousands) | 2024 | 2023 | 2024 | 2023 |
Machine Clothing | $ | 2,207 | | $ | 82 | | $ | 3,294 | | $ | 227 | |
Albany Engineered Composites | 34 | | — | | 3,144 | | — | |
Corporate expenses | 31 | | — | | 146 | | — | |
Total | $ | 2,272 | | $ | 82 | | $ | 6,584 | | $ | 227 | |
| | | | |
The following tables summarizes charges by type of expense reported in the Consolidated Statements of Income under "Restructuring expenses, net" and "Cost of goods sold":
| | | | | | | | | | | |
Nine months ended September 30, 2024 | Total restructuring costs incurred | Termination and other costs | Impairment of assets |
(in thousands) | | | |
Machine Clothing | $ | 4,581 | | $ | 3,294 | | $ | 1,287 | |
Albany Engineered Composites | 3,144 | | 3,144 | | — | |
Corporate expenses | 146 | | 146 | | — | |
Total | $ | 7,871 | | $ | 6,584 | | $ | 1,287 | |
| | | | | | | | | | | |
Nine months ended September 30, 2023 | Total restructuring costs incurred | Termination and other costs | Impairment of assets |
(in thousands) | | | |
Machine Clothing | $ | 227 | | $ | 227 | | $ | — | |
Albany Engineered Composites | — | | — | | — | |
Corporate expenses | — | | — | | — | |
Total | $ | 227 | | $ | 227 | | $ | — | |
The table below presents the year-to-date changes in restructuring liabilities for 2024 and 2023:
| | | | | | | | | | | | | | | | | |
(in thousands) | December 31, 2023 | Restructuring charges accrued | Payments | Currency translation /other | September 30, 2024 |
Total termination and other costs | $ | — | | $ | 6,584 | | $ | (4,064) | | $ | 90 | | $ | 2,610 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
(in thousands) | December 31, 2022 | Restructuring charges accrued | Payments | Currency translation /other | September 30, 2023 |
Total termination and other costs | $ | — | | $ | 227 | | $ | (227) | | $ | — | | $ | — | |
| | | | | |
5. Other (Income)/Expense, net
The components of Other (income)/expense, net are:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in thousands) | 2024 | 2023 | 2024 | 2023 |
Currency transaction (gains)/losses | $ | 1,834 | | $ | 511 | | $ | 692 | | $ | (3,622) | |
Derivative instruments losses/(gains) | (485) | | 704 | | 3,788 | | 581 | |
Bank fees and amortization of debt issuance costs | 48 | | 49 | | 169 | | 140 | |
Components of net periodic pension and postretirement cost other than service cost | 663 | | (15) | | 1,995 | | (260) | |
Other | 1,197 | | (1,193) | | (712) | | (1,749) | |
Total other (income)/expense, net | $ | 3,257 | | $ | 56 | | $ | 5,932 | | $ | (4,910) | |
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. 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.
6. Income Taxes
The Company's effective income tax rate for the three and nine months ended September 30, 2024 and 2023, is as follows:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
| 2024 | 2023 | 2024 | 2023 |
Effective income tax rate | 6.6 | % | 25.3 | % | 23.9 | % | 33.0 | % |
| | | | |
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 calculation and their taxes will be recorded discretely in each quarter.
Our 2024 estimated annual effective tax rate primarily reflects the 21% federal tax rate, the impact of state and local taxation, the impact of taxation upon foreign operations, and forecasted permanent differences. Our actual effective tax rates were 6.6% and 25.3% for the three months ended September 30, 2024 and 2023, respectively. Our actual effective tax rates were 23.9% and 33.0% for the nine months ended September 30, 2024 and 2023, respectively.
The effective tax rate for the three months ended September 30, 2024 included a net discrete tax benefit of $8.5 million. This discrete tax benefit is mostly attributable to the true-up of prior year estimated taxes and the release of a valuation allowance in a non-U.S. jurisdiction due to positive evidence indicating that a full valuation allowance was no longer required. The rate for the third quarter of 2024 was lower than the third quarter of 2023 mainly due to favorable discrete tax adjustments in the current period compared to unfavorable discrete tax adjustments in the prior period, partially offset by an unfavorable change in the jurisdictional mix of earnings compared to the prior period.
The effective tax rate for the nine months ended September 30, 2024 included a net discrete tax benefit of $11.0 million. This discrete tax benefit is mostly attributable to the true-up for prior year estimated taxes, a net decrease in valuation allowances and a net decrease in uncertain tax positions. The rate for the nine months ended September 30, 2024 was lower than the nine months ended September 30, 2023 mainly due to favorable discrete tax adjustments in the current period compared to unfavorable discrete tax adjustments in the prior period, partially offset by an unfavorable change in the jurisdictional mix of earnings compared to the prior period.
The Company is subject to audit in the U.S. and various foreign jurisdictions. Our open tax years for major jurisdictions generally range from 2013-2024. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. It is reasonably possible that within the next 12 months, unrecognized tax benefits could decrease by up to $1.8 million based on current estimates.
7. 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 September 30, | Nine months ended September 30, |
(in thousands, except earnings per share) | 2024 | 2023 | 2024 | 2023 |
Net income attributable to the Company | $ | 18,029 | | $ | 27,109 | | $ | 69,944 | | $ | 80,670 | |
| | | | |
Weighted average number of shares: | | | | |
Weighted average number of shares used in calculating basic net income per share | 31,251 | | 31,185 | | 31,234 | | 31,163 | |
Effect of dilutive stock-based compensation plans: | | | | |
| | | | |
Restricted stock units and multi-year awards | 116 | | 98 | | 99 | | 93 | |
| | | | |
Weighted average number of shares used in calculating diluted net income per share | 31,367 | | 31,283 | | 31,333 | | 31,256 | |
| | | | |
| | | | |
| | | | |
Net income attributable to the Company per share: | | | | |
Basic | $ | 0.58 | | $ | 0.87 | | $ | 2.24 | | $ | 2.59 | |
Diluted | $ | 0.57 | | $ | 0.87 | | $ | 2.23 | | $ | 2.58 | |
..
8. Accumulated Other Comprehensive Income ("AOCI")
The table below presents changes in the components of AOCI for the period from December 31, 2023 to September 30, 2024:
| | | | | | | | | | | | | | |
(in thousands) | Translation adjustments | Pension and postretirement liability adjustments | Derivative valuation adjustment | Total Other Comprehensive Income |
December 31, 2023 | $ | (124,901) | | $ | (17,346) | | $ | 9,079 | | $ | (133,168) | |
Other comprehensive income/(loss) before reclassifications, net of tax | (12,472) | | (285) | | 298 | | (12,459) | |
| | | | |
Interest (expense)/income related to swaps reclassified to the Consolidated Statements of Income, net of tax | — | | — | | (8,212) | | (8,212) | |
Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax | — | | 290 | | — | | 290 | |
Net current period other comprehensive income | (12,472) | | 5 | | (7,914) | | (20,381) | |
September 30, 2024 | $ | (137,373) | | $ | (17,341) | | $ | 1,165 | | $ | (153,549) | |
The table below presents changes in the components of AOCI for the period from December 31, 2022 to September 30, 2023:
| | | | | | | | | | | | | | |
(in thousands) | Translation adjustments | Pension and postretirement liability adjustments | Derivative valuation adjustment | Total Other Comprehensive Income |
December 31, 2022 | $ | (146,851) | | $ | (15,783) | | $ | 17,707 | | $ | (144,927) | |
Other comprehensive income/(loss) before reclassifications, net of tax | (4,326) | | (183) | | 3,386 | | (1,123) | |
| | | | |
Interest (expense)/income related to swaps reclassified to the Consolidated Statements of Income, net of tax | — | | — | | (8,136) | | (8,136) | |
Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax | — | | (1,423) | | — | | (1,423) | |
Net current period other comprehensive income | (4,326) | | (1,606) | | (4,750) | | (10,682) | |
September 30, 2023 | $ | (151,177) | | $ | (17,389) | | $ | 12,957 | | $ | (155,609) | |
The components of AOCI that are reclassified to the Consolidated Statements of Income relate to our pension and postretirement plans and interest rate swaps.
The table below presents the expense/(income) amounts reclassified from AOCI, and the line items of the Consolidated Statements of Income that were affected for the three and nine ended September 30, 2024 and 2023:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in thousands) | 2024 | 2023 | 2024 | 2023 |
Pre-tax Derivative valuation reclassified from Accumulated Other Comprehensive Income: | | | | |
Interest expense/(income), net related to interest rate swaps included in Income before taxes | $ | (2,675) | | $ | (3,990) | | $ | (10,893) | | $ | (10,891) | |
Income tax effect | 658 | | 1,009 | | 2,681 | | 2,755 | |
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income | $ | (2,017) | | $ | (2,981) | | $ | (8,212) | | $ | (8,136) | |
| | | | |
Pre-tax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income: | | | | |
| | | | |
Amortization of prior service credit | $ | (37) | | $ | (1,031) | | $ | (113) | | $ | (3,092) | |
Amortization of net actuarial loss | 176 | | 349 | | 530 | | 1,042 | |
Total pre-tax amount reclassified (a) | 139 | | (682) | | 417 | | (2,050) | |
Income tax effect | (42) | | 208 | | (127) | | 627 | |
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income | $ | 97 | | $ | (474) | | $ | 290 | | $ | (1,423) | |
(a)These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 3. Pensions and Other Postretirement Benefit Plans).
9. Noncontrolling Interests
Effective October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in Albany Safran Composites, LLC ("ASC").
On August 31, 2023, the Company acquired all the outstanding shares of Heimbach, a privately held manufacturer of paper machine clothing with headquarters in Düren, Germany. In July 2021, Heimbach acquired 85% of Arcari, SRL (“Arcari”). Arcari is a manufacturer of textile and plastic industrial technical products and conveyor belts. For the nine months ended September 30, 2024, the net income/(loss) attributable to Arcari’s noncontrolling interest was less than $0.1 million and the noncontrolling interest balance at September 30, 2024 was $0.4 million.
The table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity in the Company’s subsidiaries:
| | | | | | | | |
ASC Noncontrolling Interest | Nine months ended September 30, |
(in thousands, except percentages) | 2024 | 2023 |
Net income of Albany Safran Composites (ASC) | $ | 3,754 | | $ | 4,929 | |
Less: Return attributable to the Company's preferred holding | 850 | | 974 | |
Net income of ASC available for common ownership | $ | 2,904 | | $ | 3,955 | |
Ownership percentage of noncontrolling shareholder | 10 | % | 10 | % |
Net income attributable to the noncontrolling interest | $ | 290 | | $ | 396 | |
| | |
Noncontrolling interest, beginning of year | $ | 5,423 | | $ | 4,494 | |
Net income attributable to noncontrolling interest | 290 | | 396 | |
Changes in other comprehensive income attributable to the noncontrolling interest | (481) | | 317 | |
ASC Noncontrolling interest, end of interim period | $ | 5,232 | | $ | 5,207 | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Arcari Noncontrolling interest, end of interim period | $ | 447 | | $ | 1,587 | |
| | |
| | |
Total Noncontrolling interest, end of interim period | $ | 5,679 | | $ | 6,794 | |
| | |
10. Accounts Receivable
Accounts receivable, net includes Trade and other accounts receivable and Bank promissory notes, net of Allowance for expected credit losses. In connection with certain revenues 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 September 30, 2024 and December 31, 2023, Accounts receivable consisted of the following:
| | | | | | | | |
(in thousands) | September 30, 2024 | December 31, 2023 |
Trade and other accounts receivable | $ | 254,194 | | $ | 272,351 | |
Bank promissory notes | 21,535 | | 20,690 | |
Allowance for expected credit losses | (3,754) | | (5,260) | |
Accounts receivable, net | $ | 271,975 | | $ | 287,781 | |
The Company had Noncurrent receivables in the AEC segment that represent revenue earned, which had extended payment terms. In 2023, the payment terms were amended and the Noncurrent receivables are now included in Trade and other accounts receivable. As of September 30, 2024 and December 31, 2023, Noncurrent receivables consisted of the following:
| | | | | | | | |
(in thousands) | September 30, 2024 | December 31, 2023 |
Noncurrent receivables | $ | — | | $ | 4,414 | |
Allowance for expected credit losses | — | | (22) | |
Noncurrent receivables, net | $ | — | | $ | 4,392 | |
11. Contract Assets and Liabilities
Contract assets include unbilled amounts typically resulting from revenues under contracts when the over time 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 and the customer is invoiced. 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 September 30, 2024 and December 31, 2023, Contract assets and Contract liabilities consisted of the following:
| | | | | | | | |
(in thousands) | September 30, 2024 | December 31, 2023 |
Contract assets | $ | 196,765 | | $ | 183,189 | |
Allowance for expected credit losses | (983) | | (908) | |
Contract assets, net | $ | 195,782 | | $ | 182,281 | |
| | |
Contract liabilities | $ | 7,122 | | $ | 7,127 | |
Contract assets, net increased $13.5 million during the nine months ended September 30, 2024. The increase was primarily due to an increase in unbilled revenue, primarily related to commercial and space programs. There were no impairment losses related to our Contract assets during the nine months ended September 30, 2024 and September 30, 2023.
Contract liabilities are essentially flat for the period ended September 30, 2024 compared to December 31, 2023, primarily due to revenue recognized from satisfied performance obligations were essentially offset by customer advance payments for commercial and defense programs. Revenue recognized for the nine months ended September 30, 2024 and 2023 that was included in the Contract liability balance at the beginning of the year was $3.7 million and $14.4 million, respectively.
12. 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 September 30, 2024 and December 31, 2023, Inventories consisted of the following:
| | | | | | | | |
(in thousands) | September 30, 2024 | December 31, 2023 |
Raw materials | $ | 84,257 | | $ | 79,611 | |
Work in process | 54,772 | | 67,743 | |
Finished goods | 21,588 | | 22,213 | |
Total inventories | $ | 160,617 | | $ | 169,567 | |
13. Goodwill and Other Intangible Assets
The following table sets forth the gross carrying value, accumulated amortization and net values of intangible assets and goodwill as of September 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | |
| September 30, 2024 |
(in thousands) | Amortization life in years | Gross carrying amount | Accumulated amortization | Net carrying amount |
| | | | |
Finite-lived assets: | | | | |
AEC Trademarks and trade names | 6-15 | $ | 208 | | $ | (194) | | $ | 14 | |
AEC Technology | 10-15 | 6,226 | | (3,201) | | 3,025 | |
AEC Intellectual property | 15 | 1,250 | | (402) | | 848 | |
AEC Customer relationships | 8-15 | 69,395 | | (46,500) | | 22,895 | |
Heimbach Developed technology | 9 | 9,166 | | (1,090) | | 8,076 | |
Total Finite-lived intangible assets | | $ | 86,245 | | $ | (51,387) | | $ | 34,858 | |
| | | | |
Indefinite-lived intangible assets: | | | | |
Heimbach Trade name | | $ | 6,138 | | $ | — | | $ | 6,138 | |
MC Goodwill | | 67,407 | | — | | 67,407 | |
AEC Goodwill | | 113,505 | | — | | 113,505 | |
Total Indefinite-lived intangible assets: | | $ | 187,050 | | $ | — | | $ | 187,050 | |
| | | | | | | | | | | | | | |
| December 31, 2023 |
(in thousands) | Amortization life in years | Gross carrying amount | Accumulated amortization | Net carrying amount |
| | | | |
Finite-lived assets: | | | | |
AEC Trademarks and trade names | 6-15 | $ | 208 | | $ | (186) | | $ | 22 | |
AEC Technology | 10-15 | 6,161 | | (2,735) | | 3,426 | |
AEC Intellectual property | 15 | 1,250 | | (339) | | 911 | |
AEC Customer relationships | 8-15 | 69,360 | | (43,875) | | 25,485 | |
Heimbach Developed technology | 9 | 9,042 | | (310) | | 8,732 | |
Total Finite-lived assets | | $ | 86,021 | | $ | (47,445) | | $ | 38,576 | |
| | | | |
Indefinite-lived intangible assets: | | | | |
Heimbach Trade name | | $ | 6,070 | | $ | — | | $ | 6,070 | |
MC Goodwill | | 66,873 | | — | | 66,873 | |
AEC Goodwill | | 113,308 | | — | | 113,308 | |
Total Indefinite-lived intangible assets: | | $ | 186,251 | | $ | — | | $ | 186,251 | |
The changes in intangible assets, net and goodwill from December 31, 2023 to September 30, 2024, were as follows:
| | | | | | | | | | | | | | | | | |
(in thousands) | December 31, 2023 | Other Changes | Amortization | Currency Translation | September 30, 2024 |
Finite-lived intangible assets: | | | | | |
AEC Trademarks and trade names | $ | 22 | | $ | — | | $ | (8) | | $ | — | | $ | 14 | |
AEC Technology | 3,426 | | — | | (428) | | 27 | | 3,025 | |
AEC Intellectual property | 911 | | — | | (63) | | — | | 848 | |
AEC Customer relationships | 25,485 | | — | | (2,611) | | 21 | | 22,895 | |
Heimbach Developed technology | 8,732 | | — | | (767) | | 111 | | 8,076 | |
Total Finite-lived intangible assets | $ | 38,576 | | $ | — | | $ | (3,877) | | $ | 159 | | $ | 34,858 | |
| | | | | |
Indefinite-lived intangible assets: | | | | | |
Heimbach Trade name | $ | 6,070 | | $ | — | | $ | — | | $ | 68 | | $ | 6,138 | |
MC Goodwill | 66,873 | | — | | — | | 534 | | 67,407 | |
AEC Goodwill | 113,308 | | — | | — | | 197 | | 113,505 | |
Total Indefinite-lived assets: | $ | 186,251 | | $ | — | | $ | — | | $ | 799 | | $ | 187,050 | |
In the second quarter of 2024, management performed the quantitative assessment approach in conducting its annual evaluation of goodwill and indefinite-lived trademark intangibles and concluded that no impairment provision was required. Our goodwill has been allocated to and is tested for impairment at a level referred to as the reporting unit, which management determined to be the business segment level. As part of the quantitative assessment, management used the income and market approach to determine fair value by considering projected cash flows and market multiples for the Machine Clothing reporting unit and the AEC reporting unit. Management performed the quantitative assessments and concluded that each reporting unit’s fair value continued to significantly exceed its carrying value. In addition, there were no amounts at risk due to the estimated spread between the fair and carrying values. Accordingly, no impairment charges were recorded.
In the third quarter, the Company revised its estimates and assumptions used in certain program estimates at completion of its AEC reporting unit. As a result, on October 3, 2024, the Company reported a preliminary update to its full year outlook to reflect revised revenue and profitability expectations for the AEC segment. As a result of the change in estimates of certain program revenues and profits, we performed a qualitative assessment of the AEC reporting unit’s goodwill for impairment and concluded that goodwill was not impaired. The excess of the fair value of the AEC reporting unit over its carrying value reduced approximately 26% from previous quarters; and fair value continues to exceed the carrying value by more than 20%.
14. Financial Instruments
Debt principally consists of a revolving credit agreement and foreign bank debt assumed in the 2023 acquisition of Heimbach. The following table represents the Company's outstanding debt:
| | | | | | | | | |
| (in thousands, except interest rates) | September 30, 2024 | December 31, 2023 |
| Borrowings under the Amended Credit Agreement (1) | $ | 360,000 | | $ | 446,000 | |
| Foreign bank debt | 2,194 | | 10,885 | |
| Total bank debt | 362,194 | | 456,885 | |
| Less: Current maturities of long-term debt | 555 | | 4,218 | |
| Long-term debt | $ | 361,639 | | $ | 452,667 | |
| (1) the credit facility matures in August 2028. At the end of September 30, 2024 and December 31, 2023, the interest rate in effect was 2.50% and 3.49%, respectively, including the effect of interest rate hedging transactions, as described below. |
Amended Credit Agreement
On August 16, 2023, we entered into a $800 million unsecured committed Five-Year Revolving Credit Facility Agreement (the “Amended Credit Agreement”), which matures in August of 2028. The applicable interest rate for borrowings under the Amended Credit Agreement is based on Term SOFR plus a spread, which is based on our leverage ratio (as defined in the Amended Credit Agreement) at the time of a borrowing as follows:
| | | | | | | | | | | |
Leverage Ratio | Commitment Fee | ABR Spread | Term Benchmark/ Daily Simple SOFR Spread |
<1.00:1.00 | 0.275% | 0.500% | 1.500% |
≥ 1.00:1.00 and < 2.00:1.00 | 0.300% | 0.625% | 1.625% |
≥ 2.00:1.00 and < 3.00:1.00 | 0.325% | 0.750% | 1.750% |
≥ 3.00:1.00 | 0.350% | 1.000% | 2.000% |
As of September 30, 2024, the applicable interest rate for borrowings under the Amended Credit Agreement was based on one-month term SOFR plus the spread, which was 1.50%.
As of September 30, 2024, there was $360 million of borrowings outstanding under the Amended Credit Agreement and we had borrowings available of $440 million, based on our maximum leverage ratio and our Consolidated EBITDA (as defined in the Amended Credit Agreement).
Under the Amended Credit Agreement, we are required to maintain a leverage ratio (as defined in the Credit Agreement) of not greater than 3.75 to 1.00, or 4.25 to 1.00 after a significant acquisition. We are also required to maintain a minimum interest coverage ratio (as defined in the Credit Agreement) of greater than 3.00 to 1.00. If our leverage ratio exceeds 3.50 to 1.00, we will be restricted in paying dividends to a maximum amount of $40 million in a calendar year.