Reportable Segments

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Reportable Segments

2. Reportable Segments

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 designs and manufactures fabrics and process felts used in the manufacture of all grades of paper products and other industrial products. 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, is a designer and manufacturer of advanced materials-based engineered components for jet engine and airframe applications, and 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. The manufacturing spaces used for the production of parts under the long-term supply agreement are owned by Safran, and leased to the Company at either a market rent or a minimal cost. All lease expense is reimbursable by Safran to the Company due to the cost-plus nature of the supply agreement. AEC net sales to Safran were $175.2 million and $136.9 million in the first nine months of 2019 and 2018, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to $107.5 million and $96.2 million as of September 30, 2019 and December 31, 2018, respectively.

7

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)	2019	2018	2019	2018
Net sales
Machine Clothing	$151,324	$157,608	$450,673	$461,165
Albany Engineered Composites	119,809	94,281	345,781	269,701
Consolidated total	$271,133	$251,889	$796,454	$730,866
Operating income/(loss)
Machine Clothing	$51,906	$49,695	$145,688	$126,952
Albany Engineered Composites	17,345	3,613	44,598	9,980
Corporate expenses	(13,573)	(12,474)	(40,290)	(36,938)
Operating income	$55,678	$40,834	$149,996	$99,994
Reconciling items:
Interest income	(851)	(579)	(2,037)	(1,399)
Interest expense	4,838	5,200	15,072	14,929
Other income, net	(1,628)	(3,151)	(1,906)	(973)
Income before income taxes	$53,319	$39,364	$138,867	$87,437

The table below presents restructuring costs by reportable segment (also see Note 5):

	Three months ended September 30,		Nine months ended September 30,
(in thousands)	2019	2018	2019	2018
Machine Clothing	$(211)	$370	$1,125	$10,522
Albany Engineered Composites	(33)	2,189	18	2,968
Corporate expenses	—	(7)	(4)	224
Total	$(244)	$2,552	$1,139	$13,714

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. The sum of net adjustments to the estimated profitability of long-term contracts during the first three quarters increased AEC operating income by $8.8 million and $0.5 million in 2019 and 2018, respectively.

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

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The following table disaggregates revenue for each reporting unit by timing of revenue recognition:

	For the three months ended September 30, 2019
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$150,524	$800	$151,324
Albany Engineered Composites
ASC	—	56,414	56,414
Other AEC	6,708	56,687	63,395
Total Albany Engineered Composites	6,708	113,101	119,809
Total revenue	$157,232	$113,901	$271,133

	For the nine months ended September 30, 2019
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$448,273	$2,400	$450,673
Albany Engineered Composites
ASC	—	170,551	170,551
Other AEC	22,850	152,380	175,230
Total Albany Engineered Composites	22,850	322,931	345,781
Total revenue	$471,123	$325,331	$796,454

	For the three months ended September 30, 2018
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$156,808	$800	$157,608
Albany Engineered Composites
ASC	—	47,166	47,166
Other AEC	4,165	42,950	47,115
Total Albany Engineered Composites	4,165	90,116	94,281
Total revenue	$160,973	$90,916	$251,889

	For the nine months ended September 30, 2018
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$458,765	$2,400	$461,165
Albany Engineered Composites
ASC	—	134,972	134,972
Other AEC	15,909	118,820	134,729
Total Albany Engineered Composites	15,909	253,792	269,701
Total revenue	$474,674	$256,192	$730,866

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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:

	For the three months ended September 30,		For the nine months ended September 30,
(in thousands)	2019	2018	2019	2018
Americas PMC	$82,763	$79,246	$239,686	$229,072
Eurasia PMC	50,330	59,321	155,849	172,675
Engineered Fabrics	18,231	19,041	55,138	59,418
Total Machine Clothing Net sales	$151,324	$157,608	$450,673	$461,165

In accordance with ASC 606, 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. 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 $81 million and $95 million as of September 30, 2019 and 2018, respectively, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of September 30, 2019 we expect to recognize as revenue approximately $25 million during 2019, with the remainder to be recognized in between 2020 and 2021.

At the January 1, 2019 date of adoption of ASC 842, Leases, MC assets increased by $5.6 million, AEC assets increased by $0.5 million, and Corporate assets increased by $1.0 million. Other than the impact from adoption, noted above, there were no other material changes in the total assets of the reportable segments in the first nine months of 2019.