Reportable Segments

3 Months Ended

Mar. 31, 2020

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 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. 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. In the fourth quarter of 2019, Safran leased manufacturing space from AEC for the GE9X program. Rent paid by Safran under this lease amounted to $0.2 million for the first three months of 2020. AEC net sales to Safran were $38.0 million and $56.0 million in the first three months of 2020 and 2019, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to $112.1 million and $114.5 million as of March 31, 2020 and December 31, 2019, 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 2019, approximately 25 percent of AEC sales were related to U.S. government contracts or programs.

7

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

	Three months ended March 31,
(in thousands)	2020	2019
Net sales
Machine Clothing	$136,602	$144,334
Albany Engineered Composites	99,162	107,039
Consolidated total	$235,764	$251,373
Operating income/(loss)
Machine Clothing	$47,175	$44,243
Albany Engineered Composites	7,623	9,522
Corporate expenses	(15,204)	(13,672)
Operating income	$39,594	$40,093
Reconciling items:
Interest income	(447)	(599)
Interest expense	4,424	5,016
Other expense/(income), net	15,569	(1,208)
Income before income taxes	$20,048	$36,884

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

	Three months ended March 31,
(in thousands)	2020	2019
Machine Clothing	$642	$401
Albany Engineered Composites	-	83
Total	$642	$484

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 months increased AEC operating income by $0.9 million and $0.6 million in 2020 and 2019, respectively.

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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 March 31, 2020
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$135,754	$848	$136,602
Albany Engineered Composites
ASC	-	37,894	37,894
Other AEC	6,320	54,948	61,268
Total Albany Engineered Composites	6,320	92,842	99,162
Total revenue	$142,074	$93,690	$235,764

	Three months ended March 31, 2019
(in thousands)	Point in Time Revenue Recognition	Over Time Revenue Recognition	Total
Machine Clothing	$143,534	$800	$144,334
Albany Engineered Composites
ASC	-	55,442	55,442
Other AEC	6,245	45,352	51,597
Total Albany Engineered Composites	6,245	100,794	107,039
Total revenue	$149,779	$101,594	$251,373

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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:

	Three months ended March 31,
(in thousands)	2020	2019
Americas PMC	$73,677	$75,341
Eurasia PMC	45,131	51,438
Engineered Fabrics	17,794	17,555
Total Machine Clothing Net sales	$136,602	$144,334

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 $82 million and $90 million as of March 31, 2020 and 2019, respectively, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of March 31, 2020, we expect to recognize as revenue approximately $48 million during 2020 and the remainder during 2021.