Reportable Segments

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Reportable Segments

3. Reportable Segments

As described in Note 2, the Company adopted the provisions of ASC 606, “Revenue from contracts with customers”, effective January 1, 2018, using the cumulative effect method for transition. Periods prior to 2018 have not been restated. The following tables show data by reportable segment, reconciled to consolidated totals, and the impact that ASC 606 had on the three- and six-month periods ended June 30, 2018:

	Three months ended June 30,		Three months ended June 30, 2018
(in thousands)	2018	2017	Increase/(decrease) attributable to application of ASC 606
Net sales
Machine Clothing	$162,635	$146,572	$857
Albany Engineered Composites	93,590	68,999	(1,257)
Consolidated total	$256,225	$215,571	($400)
Operating income/(loss)
Machine Clothing	$50,843	$38,425	$1,786
Albany Engineered Composites	4,092	(17,828)	123
Corporate expenses	(12,251)	(10,742)
Operating income	$42,684	$9,855	$1,909
Reconciling items:
Interest income	(438)	(340)	-
Interest expense	5,059	4,625	-
Other expense, net	726	2,558	-
Income before income taxes	$37,337	$3,012	$1,909

	Six months ended June 30,		Six months ended June 30, 2018
(in thousands)	2018	2017	Increase/(decrease) attributable to application of ASC 606
Net sales
Machine Clothing	$310,786	$289,399	$5,068
Albany Engineered Composites	175,420	125,449	2,966
Consolidated total	$486,206	$414,848	$8,034
Operating income/(loss)
Machine Clothing	$81,613	$76,688	$2,765
Albany Engineered Composites	6,366	(22,942)	992
Corporate expenses	(24,464)	(21,213)	-
Operating income	$63,515	$32,533	$3,757
Reconciling items:
Interest income	(820)	(447)	-
Interest expense	9,729	9,060	-
Other expense, net	2,178	3,384	-
Income before income taxes	$52,428	$20,536	$3,757

At the January 1, 2018 date of adoption of ASC 606, Machine Clothing assets increased by $22 million, and AEC assets decreased by $13 million. Except for the effect of adopting ASC 606, there were no material changes in the total assets of the reportable segments for the six months ended June 30, 2018.

As described in Note 4, effective January 1, 2018, the Company adopted an accounting update that affects the classification of components of pension and postretirement benefit costs. As a result of adopting that update, some costs that were previously included in operating expenses shall now be included in Other expense, net. Periods prior to 2018 have been restated to conform to the current year presentation (see Note 4).

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 aerospace and defense 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 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 $88.4 million in the first six months of 2018 and $56.8 million in the first six months of 2017. The total of Accounts receivables, Contract assets and Noncurrent receivables due from Safran amounted to $96.8 million and $58.6 million as of June 30, 2018 and December 31, 2017, respectively.

In the second quarter of 2017, the Company recorded a charge to Cost of goods sold of approximately $15.8 million associated with revisions in the estimated profitability of two AEC contracts. The charge was principally due to second-quarter 2017 downward revisions of estimated customer demand for the components manufactured by AEC related to the BR 725 and A380 programs. The charge included a $4.0 million write-off of program inventory costs, and a reserve for future losses of $11.8 million, which is included in Accrued liabilities in the Consolidated Balance Sheets.

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

	Three months ended June 30,		Six months ended June 30,
(in thousands)	2018	2017	2018	2017
Machine Clothing	$1,800	$805	$10,152	$916
Albany Engineered Composites	558	1,231	779	3,801
Corporate expenses	231	-	231	-
Total	$2,589	$2,036	$11,162	$4,717