SecProbe.io

CORRESP
1
filename1.htm

 Albany International Corp.

PO Box 1907

Albany, NY  12201-1907 USA

(1373 Broadway, Albany, NY 12204)

Tel:  518 445 2225

Fax: 518 445 2250

michael.nahl@albint.com

www.albint.com

Michael C. Nahl

Executive Vice President & Chief Financial Officer

November 11, 2008

Mr. H. Christopher Owings, Assistant Director

United States Securities and Exchange Commission

Washington, D.C. 20549

            Re:

            Albany International Corp. – Form 10-K for the Year Ended December 31, 2007,

            and Definitive Proxy Statement on Schedule14A  SEC File No. 1-10026

Dear Mr. Owings:

We are pleased to respond to your letter dated October 14, 2008.  For ease of review, we have set forth below the numbered comments from your letter and our responses thereto.

With respect to those responses that involve proposed revisions to the manner in which the related items were addressed in the 2007 10-K or June 30, 2008 10-Q, we have included in our response an illustration of how we expect the disclosure to appear in future filings.

Annual Report on Form 10-K for Fiscal Year Ended December 31, 2007

Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 36

Review of Operations, page 38

2007 vs. 2006, page 38

            1.

            We have reviewed your response to comment 7 in our letter dated May 5, 2008.  Since you finalized the contract negotiations during 2006, and the contract was retroactive to January 1, 2006, it is unclear to us why the change in timing of transfer of title would affect the change in your net sales for PMC for 2007 versus 2006, since we assume that, including your reversal of revenue in 2006 immediately following finalization of the new contract, revenues were recognized in the same manner for both annual periods.  Instead, given the January 1, 2006 effective date of this change, this would appear to solely impact your comparison of 2005 versus 2006.  Either further explain why the change in contract terms is used to explain fluctuations from 2006 to 2007, or advise us if our understanding or assumptions are incorrect.  To the extent applicable in
future filings, you should also better explain this matter to your readers.

Response:  The new contract, while not finalized and executed until the fourth quarter of 2006, by its terms applied retroactively to all business transacted with the customer since January 1, 2006.  As explained in our initial response, under the terms of the old contract, the Company’s revenue recognition policy permitted sales to be recorded upon product delivery.  Under the new contract, title was expressly retained by the Company until installation on the customer’s machine.  As a result, the Company recorded revenues during 2006 at the time of delivery.  Once the new agreement was executed, any revenue recorded for a product that had been delivered but had not yet, as of the date the agreement was executed, been installed on the machine had to be reversed.  In other words, if the contract had been finalized and executed on
January 1, 2006 on the same date it became effective, there would have been no revenue reversal, but rather a period where we were shipping products to the customer, but not recognizing revenue, thereby causing a temporary trough in the revenue stream, and causing a comparability issue between 2006 and other years. Accordingly, there was in fact an event which caused 2006 revenues to be $8 million lower than comparable periods. We believe that the analytical comparison of sales that we have made in the MD&A discloses this event in such a way that the reader can understand the effect that the new contract had on comparability of net sales year-over-year change.

Liquidity and Capital Resources, page 43

            2.

            We have reviewed your response to comment 9 in our letter dated May 5, 2008.  We note your discussion of the PMC strategic investment program in the sixth risk factor and note your discussion of your deliberate, intensive three-year process of restructuring and performance improvement initiatives in MD&A Trends and MD&A Outlook.  If your strategic investment program is part of your performance improvement initiatives, please clarify that in MD&A.  Additionally, absent disclosure of the specific components of the PMC strategic investment program that caused increased capital expenditures, please provide a cross reference to the sixth risk factor in your discussion of capital expenditures so that a reader will be aware that the increase was due to the construction of a new paper machine clothing manufacturing facility in China, additional
forming fabric capacity in Korea and Brazil, and additional dryer fabric capacity in the Company’s existing plant in Panyu, China.

Response:  In our 10-Q for the quarter ended September 30, 2008, we provided more information about the capital expenditures, including a cross-reference as you have suggested.  Please see below an excerpt from the third quarter Liquidity and Capital Resources section:

Net cash provided by operating activities was $31.9 million for the first three quarters of 2008, compared to $39.3 million for the same period of 2007. For the first nine months of 2008, capital spending was $105.0 million, compared to

2

$90.7 million in 2007.  The increase in 2008 principally relates to the PMC investments that are part of the Company’s three-year performance improvement plan as described in “Trends” above, and in “Risk Factors”. The Company expects capital spending to be approximately $150 million in 2008, and has decreased its estimate for 2009 from $70 million to $60 million. Depreciation and amortization were $13.6 million and $2.1 million, respectively, for the third quarter of 2008. Depreciation and amortization are estimated to be $60 million and $7 million for 2008, and $70 million and $8 million for 2009.

Critical Accounting Policies and Assumptions, page 48

            3.

            We have reviewed your response to comment 10 in our letter dated May 5, 2008 and reissue the comment.  We reiterate that the purpose of critical accounting policies is to provide insight into the variability of management’s estimates for accounting policies that you consider critical.  In doing so, you should discuss the uncertainties in your estimates and, if you believe that other outcomes are reasonably likely to occur and may materially affect your financial statements you should quantify the sensitivity of your estimates to these reasonably likely changes.  We believe that information would be beneficial to an investor in gaining insight to the potential effect on your financial statements given a change in a significant estimate.

Response:  We have performed another review of our own accounting policies, and have also researched the Critical Accounting Policy disclosures of many other companies.  Our third quarter 10Q includes several additions and enhancements to our Critical Accounting Policy disclosures.  Below, please see the text that was included in our recently filed 10Q.

Critical Accounting Policies and Assumptions

The following should be read in conjunction with the Consolidated Financial Statements and Notes thereto.

The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).   The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Some of these estimates require judgments about matters that are inherently uncertain.

3

Accounting policies whose application may have a significant effect on the reported results of operations and financial position, and that can require judgments by management that affect their application, include FAS No. No. 5, “Accounting for Contingencies,” FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” FAS No. 142, “Goodwill and Other Intangible Assets,” FAS No. 87, “Employers’ Accounting for Pensions,” FAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” as amended by FAS No. 132 and 132(R), “Employers’ Disclosures About Pension and Other Postretirement Benefits,” FAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” and FAS No. 109, “Accounting
for Income Taxes,” including recent accounting requirements under FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.”

The Company records sales when persuasive evidence of an arrangement exists, delivery has occurred, title has been transferred, the selling price is fixed, and collectability is reasonably assured.  The timing of revenue recognition is dependent upon the contractual arrangement between the Company and its customers.  These arrangements, which may include provisions for transfer of title and guarantees of workmanship, are specific to each customer.  Some of these contracts provide for title transfer upon delivery, or upon reaching a specific date, while other contracts provide for title transfer to occur upon consumption of the product. Sales contracts in the Albany Door Systems segment may include product and installation services.  For these sales, the Company applies the provisions of EITF 00-21, “Revenue Arrangements with Multiple Deliverables”. The
Company’s contracts that include product and installation services generally do not qualify as separate units of accounting and, accordingly, revenue for the entire contract value is recognized upon completion of installation services.   The Company limits the concentration of credit risk in receivables by closely monitoring credit and collection policies. The Company records allowances for sales returns as a deduction in the computation of net sales.  Such provisions are recorded on the basis of written communication with customers and/or historical experience.

Products and services provided under long-term contracts represent a significant portion of sales in the Engineered Composites segment. The Company uses the percentage of completion method for accounting for these projects.  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 current period.  Additionally, the fact that these projects are long-term could increase the chance that a party to the contact may be unable to fulfill their obligations.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  If the financial condition of the Company’s customers were to deteriorate, resulting in an

4

impairment of their ability to make payments, additional allowances may be required.

The Company maintains reserves for possible impairment in the value of inventories.  Such reserves can be specific to certain inventory, or general based on judgments about the overall condition of the inventory.  General reserves are established based on percentage write-downs applied to aged inventories, or for inventories that are slow-moving.  If actual results differ from estimates, additional inventory write-downs may be necessary.

The net carrying amount of property, plant and equipment (PP&E) was $576.6 million, or 37% of total assets, as of September 30, 2008.  For the nine months ended September 30, 2008 depreciation expense totaled $43.6 million, or 5% of operating expenses.  Given the significance of PP&E and associated depreciation to the Company’s financial statements, determination of an asset’s cost basis and its economic useful life are considered critical accounting estimates.  PP&E is recorded at cost, which is generally objectively quantifiable when assets are purchased singly.  However, when assets are purchased in groups, as would be the case for a business acquisition, costs assigned to PP&E are based on an estimate of fair value of each asset at the date of acquisition.  These estimates are based on assumptions about asset condition, remaining useful life
and market conditions.  The Company may employ expert appraisers to aid in allocating cost to assets purchased as a group.  Included in the cost basis of PP&E are those costs that substantially increase the useful lives or capacity of existing PP&E.  Significant judgment is needed to determine which costs should be capitalized under these criteria, and which should be expensed as repairs and maintenance costs.  Economic useful life is the duration of time an asset is expected to be productively employed by the Company, which may be less than its physical life.  Management’s estimate of useful life is monitored to determine its appropriateness, especially in light of changed business circumstances.  Changes in these estimates that affect PP&E could have a significant impact on the Company’s financial statements.  However, significant adjustments have not been required in recent years.  Management also monitors changes in business conditions and events such as a
plant closure that could indicate that PP&E asset values are impaired.  The determination of asset impairment involves significant judgment about market values and future cash flows.

Goodwill amounted to $194.2 million at September 30, 2008 or 12% of total assets.  A goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of possible impairment of goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill and intangible asset balances is required annually. The amount and timing of any impairment charges based on these assessments require the

estimation of future cash flows and the fair market value of the related assets based on management’s best estimates of certain key factors, including future selling prices

5

and volumes, operating, raw material, energy and freight costs, and various other projected operating and economic factors.  As these key factors change in future periods, the Company will update its impairment analysis to reflect its latest estimates and projections.

The Company has investments in other companies that are accounted for under either the cost method or equity method of accounting. Investments accounted for under the equity method are included in Investments in associated companies. The Company performs regular reviews of the financial condition of the investees to determine if its investment is impaired.  If the financial condition of the investees were to no longer support their valuations, the Company would record an impairment provision.

The Company is self insured for some employee and business risks, including health care and workers compensation programs in the United States.  Losses under all of these programs are accrued based upon estimates of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with assistance from third-party actuaries and service providers. However, liabilities are difficult to assess and estimate due to unknown factors, including the severity of an illness or injury and the number of incidents not reported. The accruals are based upon known facts and historical trends and management believes such accruals to be adequate. If actual results significantly differ from estimates used to calculate the liability, the Company’s financi