Reportable Segments and Revenue Recognition

9 Months Ended

Sep. 30, 2021

Segment Reporting [Abstract]

Reportable Segments and Revenue Recognition

Reportable Segments and Revenue Recognition

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

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

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

The Albany Engineered Composites (“AEC”) segment, including Albany Safran Composites, LLC (“ASC”), in which our customer SAFRAN Group (“Safran”) owns a 10 percent noncontrolling interest, provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. AEC’s largest program relates to CFM International’s LEAP engine. Under this program, AEC through ASC, is the exclusive supplier of advanced composite fan blades and cases under a long-term supply contract. AEC net sales to Safran were $81.6 million and $73.6 million in the first nine months of 2021 and 2020, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to $103.4 million and $127.1 million as of

September 30, 2021 and December 31, 2020, respectively. Other significant programs by AEC include the F-35, Boeing 787, Sikorsky CH-53K and JASSM, as well as the fan case for the GE9X engine. In 2020, approximately 46 percent of AEC sales 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)	2021		2020		2021		2020
Net sales
Machine Clothing	$	154,171	$	138,747	$	462,298	$	428,782
Albany Engineered Composites	78,271		73,252		227,024		244,971
Consolidated total	$	232,442	$	211,999	$	689,322	$	673,753
Operating income/(loss)
Machine Clothing	$	55,467	$	45,699	$	161,731	$	149,418
Albany Engineered Composites	2,917		6,828		13,019		22,749
Corporate expenses	(13,898)		(13,754)		(38,479)		(41,073)
Operating income	$	44,486	$	38,773	$	136,271	$	131,094
Reconciling items:
Interest income	(654)		(1,485)		(1,584)		(2,280)
Interest expense	4,388		3,727		13,105		12,322
AMJP grant	(5,832)		—		(5,832)		—
Other expense/(income), net	2,753		(2,745)		4,215		13,915
Income before income taxes	$	43,831	$	39,276	$	126,367	$	107,137

There were no material changes to total assets of the reportable segments in the first nine months of 2021.

The table below presents restructuring costs by reportable segment:

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2021		2020		2021		2020
Machine Clothing	$	251	$	384	$	193	$	1,414
Albany Engineered Composites	(81)		358		(40)		2,606
Corporate expenses	17		(32)		77		169
Total	$	187	$	710	$	230	$	4,189

Restructuring costs in the first nine months of 2021 were not significant. Restructuring liabilities at quarter-end were less than $1 million, related to termination and other costs, which are expected to be substantially paid within one year.

In 2020, AEC reduced its workforce at various locations, principally in the U.S., leading to restructuring charges of $2.6 million for the first nine months of 2020. Machine Clothing restructuring charges for the first nine months of 2020 were principally related to the plant closure of its MC production facility in Sélestat, France that was announced in 2017.

Products and services provided under long-term contracts represent a significant portion of sales in the Albany Engineered Composites segment and we account for these contracts using the percentage of completion (actual cost to estimated cost) method. That method requires significant judgment and estimation, which could be considerably different if the underlying circumstances were to change. When adjustments in estimated contract revenues or costs are required, any changes from prior estimates are included in earnings in the period the change occurs. Changes in the estimated profitability of long-term contracts could be caused by increases or decreases in the contract value, revisions to customer delivery requirements, updated labor or overhead rates, factors affecting the supply chain, changes in the evaluation of contract risks and opportunities, or other factors. Changes in the estimated profitability of long-term contracts increased operating income by $2.1 million and $2.4 million for the three and nine month periods

ended September 30, 2021, respectively. Adjustments in the estimated profitability of long-term contracts increased operating income by $3.5 million and $9.5 million for the three and nine month periods ended September 30, 2020, 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:

	Three months ended September 30, 2021
(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total
Machine Clothing	$	153,306	$	865	$	154,171
Albany Engineered Composites
ASC	—		26,904		26,904
Other AEC	3,589		47,778		51,367
Total Albany Engineered Composites	3,589		74,682		78,271
Total revenue	$	156,895	$	75,547	$	232,442

	Nine months ended September 30, 2021
(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total
Machine Clothing	$	459,703	$	2,595	$	462,298
Albany Engineered Composites
ASC	—		80,158		80,158
Other AEC	11,901		134,965		146,866
Total Albany Engineered Composites	11,901		215,123		227,024
Total revenue	$	471,604	$	217,718	$	689,322

	Three months ended September 30, 2020
(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total
Machine Clothing	$	137,899	$	848	$	138,747
Albany Engineered Composites
ASC	—		17,301		17,301
Other AEC	4,479		51,472		55,951
Total Albany Engineered Composites	4,479		68,773		73,252
Total revenue	$	142,378	$	69,621	$	211,999

	Nine months ended September 30, 2020
(in thousands)	Point in Time Revenue Recognition		Over Time Revenue Recognition		Total
Machine Clothing	$	426,238	$	2,544	$	428,782
Albany Engineered Composites
ASC	—		72,771		72,771
Other AEC	14,942		157,258		172,200
Total Albany Engineered Composites	14,942		230,029		244,971
Total revenue	$	441,180	$	232,573	$	673,753

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)	2021		2020		2021		2020
Americas PMC	$	81,780	$	70,663	$	237,425	$	225,565
Eurasia PMC	53,277		50,923		164,320		150,220
Engineered Fabrics	19,114		17,161		60,553		52,997
Total Machine Clothing Net sales	$	154,171	$	138,747	$	462,298	$	428,782

Contracts in the MC segment are generally for periods of less than a year. Most contracts in the AEC segment are short duration firm-fixed-price orders representing performance obligations with an original maturity of less than one year. Remaining performance obligations on contracts that had an original duration of greater than one year totaled $155 million and $81 million as of September 30, 2021 and 2020, respectively, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of September 30, 2021, we expect to recognize as revenue approximately $29 million during 2021, $66 million during 2022, $37 million during 2023, and the remainder during 2024.