Reportable Segments

6 Months Ended

Jun. 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, supporting both commercial and military platforms 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 $116.3 million and $88.4 million in the first six months of 2019 and 2018, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to $91.1 million and $96.8 million as of June 30, 2019 and December 31, 2018, respectively.

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The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:

	Three months ended June 30,		Six months ended June 30,
(in thousands)	2019	2018	2019	2018
Net sales
Machine Clothing	$155,016	$161,784	$299,349	$303,557
Albany Engineered Composites	118,933	93,590	225,972	175,420
Consolidated total	$273,949	$255,374	$525,321	$478,977
Operating income/(loss)
Machine Clothing	$49,538	$50,315	$93,781	$77,258
Albany Engineered Composites	17,732	4,092	27,254	6,366
Corporate expenses	(13,045)	(12,251)	(26,717)	(24,464)
Operating income	$54,225	$42,156	$94,318	$59,160
Reconciling items:
Interest income	(587)	(438)	(1,186)	(820)
Interest expense	5,218	5,059	10,234	9,729
Other (income)/expense, net	930	726	(278)	2,178
Income before income taxes	$48,664	$36,809	$85,548	$48,073

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)	2019	2018	2019	2018
Machine Clothing	$935	$1,800	$1,336	$10,152
Albany Engineered Composites	(32)	558	51	779
Corporate expenses	(4)	231	(4)	231
Total	$899	$2,589	$1,383	$11,162

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. In 2019, net adjustments to the estimated profitability of long-term contracts increased AEC operating income by $0.6 million in the first quarter, and $5.0 million in the second quarter. The amount recorded in the second quarter includes an immaterial out-of-period favorable adjustment of $1.8 million that the Company should have recorded in the first quarter of 2019. In 2018, net adjustments to the estimated profitability of long-term contracts had a negligible effect on AEC operating income in the first quarter, and reduced operating income by $1.6 million in the second quarter.

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 June 30, 2019
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$154,216	$800	$155,016
Albany Engineered Composites
ASC	—	58,694	58,694
Other AEC	9,897	50,342	60,239
Total Albany Engineered Composites	9,897	109,036	118,933
Total revenue	$164,113	$109,836	$273,949

	For the six months ended June 30, 2019
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$297,749	$1,600	$299,349
Albany Engineered Composites
ASC	—	114,137	114,137
Other AEC	16,142	95,693	111,835
Total Albany Engineered Composites	16,142	209,830	225,972
Total revenue	$313,891	$211,430	$525,321

	For the three months ended June 30, 2018
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$160,984	$800	$161,784
Albany Engineered Composites
ASC	—	47,025	47,025
Other AEC	5,704	40,861	46,565
Total Albany Engineered Composites	5,704	87,886	93,590
Total revenue	$166,688	$88,686	$255,374

	For the six months ended June 30, 2018
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$301,957	$1,600	$303,557
Albany Engineered Composites
ASC	—	87,806	87,806
Other AEC	11,744	75,870	87,614
Total Albany Engineered Composites	11,744	163,676	175,420
Total revenue	$313,701	$165,276	$478,977

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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 June 30,		For the six months ended June 30,
(in thousands)	2019	2018	2019	2018
Americas PMC	$81,583	$82,197	$156,923	$149,826
Eurasia PMC	54,081	59,543	105,519	113,354
Engineered Fabrics	19,352	20,044	36,907	40,377
Total Machine Clothing Net sales	$155,016	$161,784	$299,349	$303,557

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 $112 million and $105 million as of June 30, 2019 and 2018, respectively, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of June 30, 2019 we expect to recognize as revenue approximately $64 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.