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<SEC-DOCUMENT>0000080420-05-000029.txt : 20060317
<SEC-HEADER>0000080420-05-000029.hdr.sgml : 20060317
<ACCEPTANCE-DATETIME>20050331181216
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000080420-05-000029
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20050331

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			POWELL INDUSTRIES INC
		CENTRAL INDEX KEY:			0000080420
		STANDARD INDUSTRIAL CLASSIFICATION:	SWITCHGEAR & SWITCHBOARD APPARATUS [3613]
		IRS NUMBER:				880106100
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		8550 MOSLEY DR
		STREET 2:		POST OFFICE BOX 12818
		CITY:			HOUSTON
		STATE:			TX
		ZIP:			77075
		BUSINESS PHONE:		7139446900

	MAIL ADDRESS:	
		STREET 1:		8550 MOSLEY DRIVE P O BOX 12818
		STREET 2:		8550 MOSLEY DRIVE P O BOX 12818
		CITY:			HOUSTON
		STATE:			TX
		ZIP:			77075

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PROCESS SYSTEMS INC
		DATE OF NAME CHANGE:	19780926
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
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<TITLE>SEC Comment Letter</TITLE>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 31, 2005 </FONT></P>
<BR>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Securities and Exchange
Commission<BR>Division of Corporation Finance<BR>450 Fifth Street, N.W. <BR>Washington, D.C. 20549</FONT></P>




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<TD WIDTH=10% align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Attention: <BR><BR><BR><BR><BR><BR>Re:</FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Kevin L. Vaughn<BR>Division of Corporation Finance<BR><BR>
Kate Tillan<BR>Reviewing Accountant<BR><BR>
 Form 10-K for the fiscal year ended October 31, 2004, Filed January 31, 2005 <BR>Form 8K dated
December 15, 2004 <BR>File No. 001-12488 </FONT></TD>
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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ladies and Gentlemen: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
purpose of this letter is to respond to the comments in your letter dated March&nbsp;11,
2005, regarding your review of the aforementioned filings with the Securities and Exchange
Commission (&#147;SEC&#148;). For ease of reference, each paragraph number in this letter
corresponds to the same paragraph number in your letter. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><i><b>Form 10-K for the Year
Ended October 31, 2004 </b></i></FONT></P>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comment 1. </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 <U>Item 7. Management&#146;s Discussion and Analysis of Financial Condition and Results
of Operation &#150; Page 11 </U><BR> <U>Year Ended October 31, 2004 Compared with Year Ended
October 31, 2003 &#150; Page 12 </U><BR> Revise future filings to discuss <U>and quantify</U>
the effects of changes in volume and pricing on your results of operations. We note that
your revenues have been declining, and you attribute part of this to &#147;competitive
pricing.&#148; In addition, in your discussion of net income, you attribute the declined
net income to &#147;lower business volume&#148; and &#147;depressed market price
levels.&#148; Refer to Item 303(A)(3)(iii) of Regulation S-K. </FONT></TD>
</TR>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Response:</B> </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In future filings we will expand our discussion and quantify the effects of changes in
volume and pricing as it may apply. Please note, however, that Powell engineers custom
products where there is no comparability between projects from period to period. These are
typically one-time jobs designed to meet varying customer specifications in various
industries. In future filings, we will also state that we are a custom engineer of varying
products, which limits our ability to conduct volume and pricing analysis. </FONT></TD>
</TR>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comment 2. </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<u>Contractual Obligations &#150; Page 17</u> <BR>
In
future filings, please provide the disclosures required by Item 303(a)(5) of Regulation
S-K for each of the specified categories.</FONT></TD>
</TR>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Response: </b></FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In future filings we will provide all applicable  disclosure  categories.  For categories  that are not  applicable,
                  we will put an additional disclosure sentence stating such.</FONT></TD>
</TR>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comment 3. </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<u>Item 8. Financial Statements and Supplementary Data &#150; Page 23</u><BR><u>Note B &#150;
Summary of Significant Accounting Policies &#150; Page 30</u><BR>We
note that you classify all costs and estimated earnings in excess of billings on
uncompleted contracts as current on your balance sheet. You state that you do this based
on the operating cycle concept. Tell us why you believe your operating cycle is greater
than 12 months. We note that you offer various products and services, and it appears that
the operating cycle can vary significantly among these offerings. Tell us why you believe
you have a clearly defined operating cycle that supports the classification of items that
will not be recovered in the next twelve months as a current asset. Cite the accounting
literature upon which you relied.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Response:</B> </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Powell manufactures and sells custom-engineered products accounted for as construction
contracts under either the percentage of completion (long-term nature contracts) or
completed contract (short-term nature contracts) methods in accordance with SOP 81-1. As
noted in paragraph 18 of SOP 81-1, Powell also follows the guidance provided to the
construction industry by the AICPA&#146;s Construction Contractors Audit and Accounting
Guide. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=13%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
ARB
No. 43, Chapter 3, paragraph 5, defines the operating cycle as &#147;the average time
intervening between the acquisition of materials or services entering [the production]
process and the final cash realization.&#148; Section 6.05 of the Construction Contractors
Audit and Accounting Guide recognizes that contracts with varying durations determine the
operating cycle for contractors; thus, the operating cycle is defined by that guide as
&#147;the average time intervening between the inception of contracts and the substantial
completion of contracts.&#148; </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=13%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Based
on the definitions above, certain business lines within Powell have operating cycles
greater than 12 months as the average time intervening between inception and substantial
completion of contracts exceeds 12 months. The time intervening between the accumulation
of engineering costs to final cash realization and collection of retentions on
construction contracts within these business lines can extend over several years. In
accordance with industry practice and the accounting guidance in ARB No. 45, paragraph 5
and the Construction Contractors Audit and Accounting Guide, Chapter 6, paragraph 6.08,
all assets and liabilities related to the performance of long-term contracts are
classified as current in the consolidated balance sheet. The AICPA&#146;s guide states
that contractors whose operating cycle exceeds one year should classify all
contract-related assets and liabilities as current under the operating cycle concept. </FONT></TD>
</TR>
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<TD WIDTH=13%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
future filings, we will disclose the range of contract durations within our business lines
whose operating cycle exceeds one year in accordance with the guidance in section 6.21b of
the Construction Contractors Audit and Accounting Guide. </FONT></TD>
</TR>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comment 4. </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 Please tell us and disclose in future filings the accounting literature you relied upon
in determining your revenue recognition policies. Tell us the basis under U.S. GAAP for
recording revenues under both the completed contract and percentage of completion methods,
depending upon the duration and scope of the project. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Response:</B>  </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Powell recognizes revenue 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 Powell is a custom manufacturer of
specialty equipment to buyers&#146; 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 Powell&#146;s long-term contracts meet these requirements, percentage of
completion accounting is used. </FONT></TD>
</TR>
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<TD WIDTH=13%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
future filings, we will refer to SOP 81-1 as the accounting literature applicable to our
percentage of completion revenue recognition policy and will eliminate any reference to
the completed contract method. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=13%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
For
the Staff&#146;s information, certain of our short-term contracts which typically span
less than three months have been internally accounted for under the completed contract
method because the duration of the contract is such that the effects of accounting for
these using the completed contract method on our financial position and results of
operations does not vary materially from those resulting from use of the percentage of
completion method. As stated in SOP 81-1, paragraph .31 when referring to the completed
contract method, &#147;revenues and costs in the aggregate for all contracts would be
expected to result in a matching of gross profit with period overhead or fixed costs
similar to that achieved by use of the percentage of completion method.&#148; </FONT></TD>
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<TD WIDTH=13%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
For
the Staff&#146;s information, Powell also generates an immaterial amount of revenue from
repair, refurbishment, and renewal parts orders. These revenues are recognized under SAB
101 as amended by SAB 104; however, this is considered immaterial for disclosure purposes. </FONT></TD>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comment 5. </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 <u>Note G &#150; Long-Term Debt &#150; Page 41</u><BR>We
note per the statement of cash flows on page 29 that you have historically entered into
interest rate swap agreements. Tell us whether you currently have any outstanding interest
rate hedging agreements. Revise future filings as necessary to disclose information on
these derivatives in accordance with Rule&nbsp;4-08(n) of Regulation S-X and paragraphs
44-45 of SFAS No. 133.  </FONT></TD>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Response:</b> </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 We do not currently  have any  outstanding  interest rate hedging  agreements.  The interest rate swap noted on page
                  29 was settled in September  2003. Any future hedging  activities  will be disclosed in accordance with Rule 4-08(n)
                  of Regulation S-X and paragraphs 44-45 of SFAS No. 133.  </FONT></TD>
</TR>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comment 6. </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 <u>Note L &#150; Business Segments &#150; Page 46</u><BR>Revise
future filings to provide a reconciliation of the total reportable segment identifiable
tangible assets to the total consolidated assets presented on the balance sheet. Refer to
paragraph 32(c) of SFAS No. 131.  </FONT></TD>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>Response:</b> </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 In future filings we will reconcile total reportable segment identifiable tangible assets to total assets. </FONT></TD>
</TR>
</TABLE>
<BR><BR>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b><i>Form 8K dated December
15, 2004 </i></b></FONT></P>

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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Comment 7. </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 We note that you present a non-GAAP financial measure of free cash flow. Revise future
filings to explain in greater detail why the non-GAAP measure is useful to an investor in
accordance with Item 10(e)(i) of Regulation S-K. Your discussion should address the item
that is being excluded in your non-GAAP financial measure as well as how your management
uses the non-GAAP financial measure. Refer to question 8 of the June 13, 2003 FAQ
Regarding the Use of Non-GAAP Financial Measures. </FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Response:</B> </FONT></TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In future filings we will expand our explanation on any non-GAAP financial measures in
accordance with Item 10(e)(i) of Regulation S-K. In addition, we will disclose the
following items as prescribed in the June 13, 2003 FAQ: the manner in which management
uses the non-GAAP measure to conduct or evaluate its business; the economic substance
behind management&#146;s decision to use such a measure; the material limitations
associated with use of the non-GAAP financial measure as compared to the use of the most
directly comparable GAAP financial measure; the manner in which management compensates for
these limitations when using the non-GAAP financial measure; and the substantive reasons
why management believes the non-GAAP financial measure provides useful information to
investors. </FONT></TD>
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<TD WIDTH=92%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
company hereby acknowledges that: </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
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<TD WIDTH=8%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The company is responsible for the adequacy and accuracy of the disclosure in the filings;</FONT></TD>
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<TD WIDTH=8%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=87%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Staff comments or changes to disclosure in response to staff comments in the filings
reviewed by the staff do not foreclose the Commission from taking any action with respect
to the filing; and </FONT></TD>
</TR>
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<TD WIDTH=8%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
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The company may not assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United States. </FONT></TD>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
hope you find that we have been appropriately responsive to your comments and look forward
to enhancing our future periodic filings based on the comments you have provided. Please
feel free to call me at (713) 948-4915 if you have any questions regarding this response. </FONT></P>




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     <TD WIDTH="50%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Sincerely,<BR><BR>
POWELL INDUSTRIES, INC.<BR><BR><BR><BR>
By:   <u>&nbsp;&nbsp;&nbsp;   /s/ DON R. MADISON  &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>      <BR>
     Don R. Madison                    <BR>        Vice President, Chief Financial Officer, Secretary, Treasurer
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>cc: </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mark W. Eisenbraun <BR>Winstead
Sechrest &amp; Minick P.C. (counsel to Powell Industries, Inc.)</FONT></TD>
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