Revenue from Contracts with Customers

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts from Customers. These revenues are generated from the design and manufacture of specialty engineered filtration media, industrial thermal insulating solutions, automotive thermal and acoustical barriers for filtration/separation and thermal/acoustical applications. The Company’s revenue recognition policies require the Company to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when control of products passes to the Company’s customers which can be either at a point in time or over time. Revenue is generally recognized at a point in time when control passes to customers upon shipment of the Company’s products and revenue is generally recognized over time when control of the Company’s products transfers to customers during the manufacturing process (see description below). The Company analyzes several factors, including but not limited to, the nature of the products being sold and contractual terms and conditions in contracts with customers to help the Company make such judgments about revenue recognition.

The Company accounts for revenue from contracts with customers when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is primarily derived from customer purchase orders, master sales agreements, and negotiated contracts, all of which represent contracts with customers.

The Company next identifies the performance obligations in the contract. A performance obligation is a promise to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue standard and therefore determines when and how revenue is recognized. The Company determines the performance obligations at contract inception based on the goods that are promised in a contract with a customer. Typical performance obligations include automotive parts, automotive tooling, rolled good media and filter bags.

The transaction price in the contract is determined based on the consideration to which the Company will be entitled in exchange for transferring products to the customer, excluding amounts collected on behalf of third parties (for example, sales taxes). The transaction price is typically stated on the purchase order or in a negotiated agreement. Certain contracts may include variable consideration in the transaction price, such as rebates, pricing discounts, price concessions, sales incentives, index pricing or other provisions that can decrease the transaction price. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on reasonably available information (customer historical, current and forecasted data). In certain circumstances where a particular outcome is probable, the Company utilizes the most likely amount to which the Company expects to be entitled. The Company accounts for consideration payable to a customer as a reduction of the transaction price thereby reducing the amount of revenue recognized. Consideration payable to a customer includes cash amounts that the Company pays, or expects to pay, to a customer based on certain contract requirements.

The Company recognizes revenue as performance obligations are satisfied, which can be either over time or at a point in time, depending on when control of the Company’s products transfers to its customers.

In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products to be provided. The Company generally uses the cost-to-cost measure of progress for contracts because it best depicts the transfer of control to the customer which occurs as costs are incurred on contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.

For tooling revenue recognized over time, the Company makes significant judgments which includes, but not limited to, estimated costs to completion, costs incurred to date, and assesses risks related to changes in estimates of revenues and costs. In doing so, management must make assumptions regarding the work required to fulfill the performance obligations, which is dependent upon the execution by the Company's subcontractors, among other variables and contract requirements.

Changes in estimates for revenue recognized over time are recorded by the Company in the period they become known. Changes are recognized on a cumulative catch-up basis in net sales, costs of sales, and operating income. The cumulative catch up adjustment recognizes in the current period the cumulative effect of changes in estimates on current and prior periods.

Performance Obligations

The following is a description of products and performance obligations, separated by reportable segments, from which the Company generates its revenue. For more detailed information about reportable segments, see Note 14 “Segment Information.”



Segment	Performance Materials

Products	Products for this segment include filtration media solutions primarily for air, fluid power, life science and industrial applications, gasket and sealing solutions, thermal insulation, energy storage, and other engineered products.

Performance Obligations	These contracts typically have distinct performance obligations, which is the promise to transfer the media solutions to the Company’s customers. The Company recognizes revenue at a point in time or over time, based upon when control of the underlying product transfers to the customer. If revenue is recognized at a point in time, the performance obligation is typically satisfied upon shipment and in accordance with shipping terms. In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Customer payment terms are negotiated on a contract-by-contract basis and typically range from 30 to 90 days.

Segment	Technical Nonwovens

Products	This segment produces needle punch nonwoven solutions including industrial filtration and advanced materials products. Industrial Filtration products include nonwoven rolled-good felt media and filter bags used primarily in industrial air and liquid filtration applications. Advanced materials products include nonwoven rolled good media used in commercial applications and predominantly serves the geosynthetic, automotive, industrial, medical, and safety apparel markets. The automotive media is provided to tier-one suppliers as well as the Company’s Thermal Acoustical Solutions segment.



Performance Obligations	These contracts typically have distinct performance obligations, which is the promise to transfer the industrial filtration or advanced materials products to the Company’s customers. The Company recognizes revenue at a point in time or over time, based upon when control transfers to the customer. If revenue is recognized at a point in time, the performance obligation is typically satisfied upon shipment and in accordance with shipping terms. In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Customer payment terms are negotiated on a contract-by-contract basis and typically range from 30 to 90 days. For filter bag sales, the Company may enter into warranty agreements that are implied or sold with the product to provide assurance that a product will function as expected and in accordance with certain specifications. Therefore, this type of warranty is not a separate performance obligation.

Segment	Thermal Acoustical Solutions

Products	Parts - The segment produces a full range of innovative engineered products tailored for the transportation sector to thermally shield sensitive components from high heat, improve exhaust gas treatment and lower harmful emissions as well as assist in the reduction of noise vibration and harshness. The majority of products are sold to original equipment manufacturers and tier-one suppliers. Tooling - The Company enters into contractual agreements with certain customers within the automotive industry, to design and develop molds, dies and tools (collectively, “tooling”).

Performance Obligations	Parts - Customer contracts typically have distinct performance obligations, which is the promise to transfer manufactured parts to these customers. The Company recognizes parts revenue at a point in time or over time, based upon when control transfers to the customer. If revenue is recognized at a point in time, the performance obligation is typically satisfied upon shipment and in accordance with shipping terms. In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Customer payment terms are negotiated on a contract-by-contract basis and typically range from 30 to 90 days. Tooling - Customer contracts typically have distinct performance obligations and are generally completed within one year. The Company periodically enters into multiple contracts with a customer at or near the same time which may be combined for purposes of determining the appropriate transaction price. The Company allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price using costs incurred plus expected margin. The corresponding revenues are recognized over time as the related performance obligations are satisfied. Tooling customer payment terms typically range from 30 to 90 days after title transfers to the customer. Occasionally customers make progress payments as the tool is constructed.

Practical Expedients and Exemptions

The Company has elected to adopt the contract cost practical expedient. This expedient allows the Company to recognize its incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred if the related contract revenue is expected to be recognized in one year or less. These costs are included in selling, product development and administrative expenses.

The Company has made an accounting policy election to record shipping and handling activities occurring after control has passed to the customer to be treated as a fulfillment cost rather than as a distinct performance obligation. Shipping and handling expenses consist primarily of costs incurred to deliver products to customers and internal costs related to preparing products for shipment and are recorded as a cost of sales. Amounts billed to customers as shipping and handling are classified as revenue when services are performed.

ASC 606 requires the disclosure of unsatisfied performance obligations related to contracts from customers at the end of each reporting period. The Company has elected the practical expedient because the Company’s contracts generally have a duration of one year or less, therefore no disclosure is required.

The Company has elected to adopt the practical expedient to disregard the need to adjust the promised amount of consideration for the effects of a significant financing component as the Company expects that the period of time between when the products are transferred to the customer and when the Company is paid for those products will be one year or less.

Contract Assets and Liabilities

The Company’s contract assets primarily include unbilled amounts typically resulting from sales under contracts when the over time method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. These unbilled accounts receivable in contract assets are transferred to accounts receivable upon invoicing, typically when the right to payment becomes unconditional in which case payment is due based only upon the passage of time.

The Company’s contract liabilities primarily relate to billings and advance payments received from customers, and deferred revenue. These contract liabilities represent the Company’s obligation to transfer its products to its customers for which the Company has received, or is owed consideration from its customers. Contract liabilities are included in other accrued liabilities on the Company’s Condensed Consolidated Balance Sheets.

Contract assets and liabilities consisted of the following (in thousands):



	September 30, 2018		January 1, 2018		Dollar Change
Contract assets	$	24,756	$	19,125	$	5,631
Contract liabilities	$	3,188	$	2,820	$	368

The $5.6 million increase in contract assets from January 1, 2018 to September 30, 2018 was primarily due to timing of billings to customers and contract assets increased $0.2 million relating to the acquisition of Interface. See Note 3 “Acquisitions."

The $0.4 million increase in contract liabilities from January 1, 2018 to September 30, 2018 was primarily due to an increase in customer deposits partially offset by revenue recognized of $2.5 million in the first nine months of 2018 related to contract liabilities at January 1, 2018.

Impacts on Financial Statements

The cumulative effect of the changes made to the Company’s Condensed Consolidated January 1, 2018 Balance Sheet for the adoption of ASC 606 was as follows:



In thousands	December 31, 2017		Adjustments for Adoption of ASC606			January 1, 2018

Assets:
Contract assets	$	—	$	19,125		$	19,125
Inventories	$	80,339	$	(15,184	)	$	65,155

Liabilities:
Accounts payable	$	71,931	$	663		$	72,594
Other accrued liabilities	$	11,690	$	1,209		$	12,899
Deferred tax liabilities	$	14,714	$	471		$	15,185

Stockholders' equity:
Retained earnings	$	374,783	$	1,598		$	376,381

The cumulative effect of the changes made to the Company’s Condensed Consolidated Balance Sheet for the adoption of ASC 606 was as follows:



	September 30, 2018
In thousands	Balances Without Adoption of ASC 606			ASC 606 Adjustments			As Reported

Assets:
Contract assets	$	—		$	24,756		$	24,756
Inventories	$	113,718		$	(21,839	)	$	91,879

Liabilities:
Accounts payable	$	86,502		$	1,693		$	88,195
Other accrued liabilities	$	16,655		$	(2,148	)	$	14,507
Deferred tax liabilities	$	40,306		$	758		$	41,064

Stockholders' equity:
Retained earnings	$	401,489		$	2,652		$	404,141
Accumulated other comprehensive loss	$	(28,688	)	$	(38	)	$	(28,726	)

The cumulative effect of the changes made to the Company’s Condensed Consolidated Statement of Operations for the adoption of ASC 606 for the quarter and nine months ended September 30, 2018 were as follows:



	Quarter Ended September 30, 2018
In thousands	Results Without Adoption of ASC606			Effect of Change Higher (Lower)			As Reported

Net sales	$	198,949		$	(1,063	)	$	197,886
Cost of sales	164,793			(2,046		)	162,747
Gross profit	34,156			983			35,139
Selling, product development and administrative expenses	25,406			—			25,406
Operating income	8,750			983			9,733
Interest expense	1,505			—			1,505
Other income, net	(40		)	—			(40		)
Income before income taxes	7,285			983			8,268
Income tax expense	1,846			230			2,076
Income from equity method investment	(64		)	—			(64		)
Net income	$	5,503		$	753		$	6,256
Earnings per share:
Basic	$	0.32		$	0.04		$	0.36
Diluted	$	0.32		$	0.04		$	0.36
Weighted average number of common shares outstanding:
Basic	17,216			—			17,216
Diluted	17,349			—			17,349

In the third quarter of 2018, ASC 606 had a negative impact to net sales of $1.1 million primarily due to tooling sales. However, ASC 606 had a positive impact to gross profit of $1.0 million as tooling sales had a minimal effect on gross profit. ASC 606 resulted in lower tooling net sales and cost of sales of approximately $5.0 million as tooling projects, with minimal gross profit and over time revenue recognition under ASC 606, were closed and invoiced to customers. The gross profit effect of $1.0 million was due to over time non-tooling sales recognized in the third quarter under ASC 606 of approximately $3.9 million at a gross profit of approximately $1.0 million.



	Nine Months Ended September 30, 2018
In thousands	Results Without Adoption of ASC606			Effect of Change Higher (Lower)		As Reported

Net sales	$	569,160		$	6,799	$	575,959
Cost of sales	459,728			5,458		465,186
Gross profit	109,432			1,341		110,773
Selling, product development and administrative expenses	74,755			—		74,755
Operating income	34,677			1,341		36,018
Interest expense	2,617			—		2,617
Other income, net	(93		)	—		(93		)
Income before income taxes	32,153			1,341		33,494
Income tax expense	5,567			287		5,854
Income from equity method investment	(120		)	—		(120		)
Net income	$	26,706		$	1,054	$	27,760
Earnings per share:
Basic	$	1.55		$	0.06	$	1.61
Diluted	$	1.54		$	0.06	$	1.60
Weighted average number of common shares outstanding:
Basic	17,189			—		17,189
Diluted	17,339			—		17,339

Disaggregated Revenue

The Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic factors. Disaggregated revenue by geographical region for the quarter and nine months ended September 30, 2018 were as follows:



	Quarter Ended September 30, 2018
In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Eliminations and Other			Consolidated Net Sales

North America	$	29,048	$	44,092	$	58,484	$	(4,891	)	$	126,733
Europe	12,120		18,757		24,183		(225		)	54,835
Asia	552		10,222		5,544		—			16,318
Total Net Sales	$	41,720	$	73,071	$	88,211	$	(5,116	)	$	197,886



	Nine Months Ended September 30, 2018
In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Eliminations and Other			Consolidated Net Sales

North America	$	69,088	$	128,788	$	190,385	$	(19,249	)	$	369,012
Europe	34,007		56,197		76,753		(580		)	166,377
Asia	552		27,339		12,679		—			40,570
Total Net Sales	$	103,647	$	212,324	$	279,817	$	(19,829	)	$	575,959