Attention:

 

 

Re:

Comment 1.

In future filings we will expand our discussion regarding management’s responsibility for the valuation and the various factors considered. Currently, the only outstanding shelf registration statements we have are on Form S-8 which do not have an “Experts” section, but we do make note of your comment related to the “Experts” section for future registration statements.

Comment 2.

Powell recognizes its revenues from construction contracts under the percentage of completion method in accordance with SOP 81-1. Paragraph .13 of SOP 81-1 details the types of contracts covered by that accounting guidance, and as S&I is a custom manufacturer of specialty equipment to buyers’ specifications, these construction contracts are within the guidance provided by ARB 45 and SOP 81-1. Long-term contracts are accounted for using the percentage of completion method as this method presents more accurately the relationship between gross profit from these contracts and the related period costs. As stated in SOP 81-1, paragraphs .22 and .23, percentage of completion is the preferable method of accounting for construction contracts in circumstances where reasonably dependable estimates can be made, the contractor and customer can reasonably be expected to satisfy their contractual obligations, and the contracts include provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement. As S&I’s long-term contracts meet these requirements, percentage of completion accounting was determined to be the applicable method for accounting for their long-term contracts.

In applying purchase accounting, long-term contracts which were not completed as of the acquisition date were analyzed in accordance with the guidance of SOP 81-1. We compared the labor costs incurred to the estimated labor costs expected to be incurred to determine the percentage of completion for each contract. We also determined the total expected costs to be incurred for each contract and the total contract value to determine the total estimated gross profit for each contract. Adjustments were recorded based on the estimated revenues and profits to be recognized at the acquisition date with corresponding adjustments to costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings.

As a result, we recorded deferred revenues and deferred costs at the acquisition date in accordance with SOP 81-1. Please note the purchase price allocation on Page 42 reflects “costs and estimated earnings in excess of billings” of $4.5 million (deferred costs) and “billings in excess of costs and estimated earnings” of $1.4 million (deferred revenues).