-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4UDj9wWr6A0v9hwWCsjZxEhR/MKlfAYjbe7AjA5CESiVBHh2OYxdnKODGT6C8Vq R4sK+8MasgI/43+InQYybQ== 0001110550-06-000015.txt : 20061031 0001110550-06-000015.hdr.sgml : 20061031 20060419154722 ACCESSION NUMBER: 0001110550-06-000015 CONFORMED SUBMISSION TYPE: CORRESP PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20060419 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVOTRONICS INC /DE/ CENTRAL INDEX KEY: 0000089140 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 160837866 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: CORRESP BUSINESS ADDRESS: STREET 1: 1110 MAPLE ST CITY: ELMA STATE: NY ZIP: 14059 BUSINESS PHONE: 7166335990 MAIL ADDRESS: STREET 1: P O BOX 300 STREET 2: ELMA STATE: NY ZIP: 14059-0300 CORRESP 1 filename1.txt VIA FACSIMILE 202.772.9369 April 18, 2006 John Cash Accounting Branch Chief Securities and Exchange Commission MAIL STOP 7010 450 Fifth Street, N.W. Washington, D.C. 20549-7010 Dear Mr. Cash: This letter is being filed to respond to comments made by the Securities and Exchange Commission staff (the "Staff") in its comment letter dated March 28, 2006. We have transcribed the Staff's comments below and each of the Staff's comments is followed by the Company's responses. FORM 10-KSB FOR FISCAL YEAR ENDED DECEMBER 31, 2004. - ---------------------------------------------------- COMMENT 1 - --------- 1. In your response you state that you recognize revenue when units are shipped based on the designated FOB point. It appears to us that you should revise your revenue recognition policy in future filings to clarify that fact by deleting the current reference to "as terms and conditions of purchase orders are met" since it does not appear to be accurate. RESPONSE: We will update future filings to clarify our revenue recognition policy and remove the reference to "as terms and conditions of purchase orders are met". COMMENT 2 - --------- 2. It remains unclear to us why you believe your use of percentage of completion accounting is appropriate based on the provisions of SOP 81-1. Please tell us the specific terms and provisions of this contract and provide support for your accounting. It is unclear to us why the criteria you identified in your response, impact your revenue recognition policy. In addition, please help us understand the impact on your financial statements of recognizing revenue John Cash Page 2 of 3 Accounting Branch Chief Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 under the percentage of completion method of accounting rather than as units were shipped for FY 2003, FY 2004 and each quarterly period in FY 2005, including the impact on revenue and net income. RESPONSE: Revenue Recognition on Long-Term Contracts ------------------------------------------ Revenue representing an immaterial amount of 2005 sales was accounted for using the percentage of completion, cost-to-cost method of accounting in accordance with the American Institute of Certified Public Accountants' Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. This method of revenue recognition is for the long-term production of aircraft actuators. The contractual agreements include customers' requirements for the long-term delivery of hardware at a firm-fixed price and a stated number of units. We recognize revenue on contracts using the percentage of completion, cost-to-cost method of accounting as work progresses toward completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods. Changes in estimates affecting sales, costs and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of accounting, resulting in the cumulative effect of changes reflected in the period. Estimates are reviewed and updated quarterly. Contract costs include only allocable, allowable and reasonable costs and are included in cost of sales when incurred. The nature of these costs includes product manufacturing costs including direct material, direct labor, other direct costs and indirect overhead costs. Contract profit is recorded as a result of the revenue recognized less costs incurred in any reporting period. Per your request, the following table shows the immateriality of the impact on our financial statements (including both revenue and net income) of using the percentage of completion method of accounting when compared to the units shipped method of accounting for FY2003, FY2004 and each quarterly period in FY2005. John Cash Page 3 of 3 Accounting Branch Chief Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549
SUMMARY INFORMATION FOR SEC (000'S OMITTED) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 2003 2004 2005 2005 2005 2005 ---- ---- ---- ---- ---- ---- REVENUE IMPACT -------------- Revenue impact of using the percentage of completion method rather than units shipped method ($114) ($104) ($168) ($36) ($93) ($175) Total Net Revenues Reported $17,574 $22,113 $5,684 $6,136 $5,826 $5,480 Difference in net revenue as a % of reported revenue -0.65% -0.47% -2.96% -0.59% -1.60% -3.19% NET INCOME IMPACT ----------------- Net Income impact of using the percentage of completion method rather than units shipped method ($11) ($10) ($12) ($3) ($5) ($10) Earnings Per Share Impact ------------------------- Difference in EPS - Basic and Diluted (based on number of shares as of 12/31/05) ($0.01) $0.00 ($0.01) $0.00 $0.00 $0.00
As shown by the above table, the use of the percentage of completion method of accounting results in an immaterial difference (reduction) in revenue and net income when compared to using the units shipped method of accounting. If you require additional information please call. Sincerely, /s/ Cari L. Jaroslawsky, CPA ----------------------------------- Cari L. Jaroslawsky, CPA CFO and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----