e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-12488
Powell Industries, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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88-0106100 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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8550 Mosley Drive, |
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Houston, Texas
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77075-1180 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code:
(713) 944-6900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act
Rule 12b-2). o Yes þ No
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date.
At August 4, 2008, there were 11,396,887 outstanding shares of the registrants common stock,
par value $0.01 per share.
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
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June 30, |
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September 30, |
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2008 |
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2007 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
6,835 |
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$ |
5,257 |
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Accounts receivable, less allowance for doubtful accounts of $1,222 and $1,739, respectively |
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132,532 |
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107,717 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
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83,813 |
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69,442 |
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Inventories, net |
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71,588 |
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47,789 |
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Income taxes receivable |
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1,128 |
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548 |
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Deferred income taxes |
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1,898 |
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Prepaid expenses and other current assets |
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2,464 |
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4,235 |
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Total Current Assets |
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298,360 |
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236,886 |
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Property, plant and equipment, net |
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63,006 |
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67,401 |
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Goodwill |
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1,084 |
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1,084 |
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Intangible assets, net |
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26,100 |
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28,861 |
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Other assets |
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6,524 |
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6,783 |
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Total Assets |
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$ |
395,074 |
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$ |
341,015 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Current maturities of long-term debt and capital lease obligations |
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$ |
8,040 |
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$ |
8,464 |
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Income taxes payable |
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2,357 |
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1,669 |
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Accounts payable |
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64,160 |
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65,225 |
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Accrued salaries, bonuses and commissions |
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23,833 |
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19,010 |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
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43,203 |
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25,924 |
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Accrued product warranty |
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7,480 |
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5,787 |
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Other accrued expenses |
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12,771 |
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9,533 |
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Total Current Liabilities |
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161,844 |
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135,612 |
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Long-term debt and capital lease obligations, net of current maturities |
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30,377 |
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27,372 |
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Deferred compensation |
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2,928 |
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3,155 |
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Postretirement benefit obligation |
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1,017 |
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942 |
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Other liabilities |
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111 |
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87 |
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Total Liabilities |
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196,277 |
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167,168 |
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Commitments and Contingencies (Note F)
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Minority Interest |
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142 |
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298 |
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Stockholders Equity: |
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Preferred stock, par value $.01; 5,000,000 shares authorized; none issued |
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Common stock, par value $.01; 30,000,000 shares authorized; 11,387,187 and 11,143,866
shares issued, respectively; 11,387,187 and 11,143,866 shares outstanding, respectively |
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114 |
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111 |
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Additional paid-in capital |
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24,821 |
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16,854 |
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Retained earnings |
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171,905 |
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154,572 |
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Accumulated other comprehensive income |
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2,084 |
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2,557 |
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Deferred compensation |
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(269 |
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(545 |
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Total Stockholders Equity |
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198,655 |
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173,549 |
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Total Liabilities and Stockholders Equity |
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$ |
395,074 |
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$ |
341,015 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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June 30, 2008 |
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June 30, 2007 |
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June 30, 2008 |
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June 30, 2007 |
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Revenues |
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$ |
164,123 |
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$ |
149,131 |
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$ |
471,577 |
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$ |
413,819 |
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Cost of goods sold |
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129,121 |
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121,705 |
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379,188 |
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343,538 |
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Gross profit |
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35,002 |
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27,426 |
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92,389 |
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70,281 |
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Selling, general and administrative expenses |
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21,774 |
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21,750 |
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62,846 |
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56,476 |
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Income before interest, income taxes and minority interest |
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13,228 |
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5,676 |
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29,543 |
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13,805 |
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Interest expense |
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697 |
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922 |
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2,333 |
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2,529 |
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Interest income |
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(59 |
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(110 |
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(260 |
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(410 |
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Income before income taxes and minority interest |
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12,590 |
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4,864 |
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27,470 |
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11,686 |
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Income tax provision |
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4,753 |
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1,724 |
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10,118 |
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4,154 |
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Minority interest |
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(56 |
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(30 |
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(156 |
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79 |
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Net income |
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$ |
7,893 |
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$ |
3,170 |
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$ |
17,508 |
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$ |
7,453 |
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Net earnings per common share: |
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Basic |
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$ |
0.70 |
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$ |
0.29 |
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$ |
1.56 |
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$ |
0.68 |
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Diluted |
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$ |
0.69 |
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$ |
0.28 |
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$ |
1.53 |
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$ |
0.67 |
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Weighted average shares: |
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Basic |
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11,310 |
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11,082 |
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11,233 |
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11,023 |
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Diluted |
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11,470 |
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11,271 |
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11,416 |
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11,207 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
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Nine Months Ended |
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June 30, 2008 |
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June 30, 2007 |
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Operating Activities: |
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Net income |
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$ |
17,508 |
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$ |
7,453 |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation |
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6,095 |
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5,337 |
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Amortization |
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2,840 |
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2,888 |
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Stock-based compensation |
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2,456 |
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1,078 |
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Minority interest |
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(156 |
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79 |
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Loss on disposition of assets |
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11 |
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300 |
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Bad debt expense |
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527 |
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255 |
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Deferred income taxes |
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1,928 |
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293 |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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(25,469 |
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(12,429 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
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(14,577 |
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(20,048 |
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Inventories |
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(23,940 |
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(12,403 |
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Prepaid expenses and other current assets |
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1,182 |
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(5,171 |
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Other assets |
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(54 |
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(192 |
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Accounts payable and income taxes payable |
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(340 |
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5,197 |
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Accrued liabilities |
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9,876 |
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4,605 |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
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17,152 |
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14,289 |
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Deferred compensation |
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160 |
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280 |
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Other liabilities |
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98 |
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(7 |
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Net cash used in operating activities |
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(4,703 |
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(8,196 |
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Investing Activities: |
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Proceeds from sale of fixed assets |
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155 |
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Purchases of property, plant and equipment |
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(1,969 |
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(11,111 |
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Net cash used in investing activities |
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(1,969 |
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(10,956 |
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Financing Activities: |
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Borrowings on US revolving line of credit |
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155,413 |
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66,066 |
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Payments on US revolving line of credit |
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(143,113 |
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(51,531 |
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Borrowings on UK revolving line of credit |
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1,959 |
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Payments on UK revolving line of credit |
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(1,596 |
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Payments on UK term loan |
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(1,810 |
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(1,778 |
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Payments on industrial development revenue bonds |
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(400 |
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(400 |
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Payments on deferred acquisition payable |
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(5,563 |
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(5,197 |
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Proceeds from exercise of stock options |
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3,963 |
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2,674 |
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Tax benefit from exercise of stock options |
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1,401 |
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785 |
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Payments on short-term and other financing |
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(39 |
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(504 |
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Net cash provided by financing activities |
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8,256 |
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12,074 |
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Net increase (decrease) in cash and cash equivalents |
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1,584 |
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(7,078 |
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Effect of exchange rate changes on cash and cash equivalents |
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(6 |
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439 |
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Cash and cash equivalents at beginning of period |
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5,257 |
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10,495 |
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Cash and cash equivalents at end of period |
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$ |
6,835 |
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$ |
3,856 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
5
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
A. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
Powell Industries, Inc. (we, us, our, Powell or the Company) was incorporated in the
state of Delaware in 2004 as a successor to a Nevada company incorporated in 1968. The Nevada
corporation was the successor to a company founded by William E. Powell in 1947, which merged into
the Company in 1977. Our major subsidiaries, all of which are wholly-owned, include: Powell
Electrical Systems, Inc.; Transdyn, Inc.; Powell Industries International, Inc.; Switchgear &
Instrumentation Limited and Switchgear & Instrumentation Properties Limited.
We develop, design, manufacture and service custom engineered-to-order equipment and systems for
the management and control of electrical energy and other critical processes. Headquartered in
Houston, Texas, we serve the transportation, environmental, energy, industrial and utility
industries.
Basis of Presentation
These unaudited condensed consolidated financial statements include the accounts of Powell and its
wholly-owned subsidiaries. The financial position and results of operation of our Singapore joint
venture, in which we hold a majority ownership, have also been consolidated. As a result of this
consolidation, we record minority interest on our balance sheet for our joint venture partners
share of the equity in the joint venture. All significant intercompany accounts and transactions
have been eliminated in consolidation.
These unaudited condensed consolidated financial statements have been prepared pursuant to the
rules of the Securities and Exchange Commission (SEC). Certain information and footnote
disclosures, normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America, have been condensed or
omitted pursuant to those rules and regulations. Powell believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to fairly state the
financial position, results of operations and cash flows with respect to the interim consolidated
financial statements have been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year. The year-end balance sheet data
was derived from audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America.
These unaudited condensed financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto of Powell and its subsidiaries included in
Powells Annual Report on Form 10-K for the year ended September 30, 2007, which was filed with the
SEC on December 7, 2007.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the amounts
reported in the condensed consolidated financial statements and accompanying footnotes. The amounts
recorded for insurance claims, warranties, legal, income taxes and other contingent liabilities
require judgments regarding the amount of expenses that will ultimately be incurred. We base our
estimates on historical experience and on various other assumptions, as well as the specific
circumstances surrounding these contingent liabilities, in evaluating the amount of liability that
should be recorded. Estimates may change as new events occur, additional information becomes
available or operating environments change. Actual results may differ from our estimates. The most
significant estimates used in the Companys financial statements affect revenue and cost
recognition for construction contracts, the allowance for doubtful accounts, self-insurance,
warranty accruals, income taxes and postretirement benefit obligations.
Foreign Currency Translation
The functional currency for our foreign subsidiaries is the local currency in which the entity is
located. The financial statements of all subsidiaries with a functional currency other than the
U.S. Dollar have been translated into U.S. Dollars in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation (SFAS No. 52). All assets and
liabilities of
6
foreign operations are translated into U.S. Dollars using period-end exchange rates and all
revenues and expenses are translated at average rates during the respective period. The U.S. Dollar
results that arise from such translation, as well as exchange gains and losses on intercompany
balances of a long-term investment nature, are included in the cumulative currency translation
adjustments in accumulated other comprehensive income in stockholders equity.
Stock-Based Compensation
Under SFAS No. 123 (revised 2004), Shared-Based Payment (SFAS No. 123R), we use the Black-Scholes
option pricing model to estimate the fair value of our stock options. We apply the expanded
guidance under SFAS No. 123R for the development of our assumptions used as inputs for the
Black-Scholes option pricing model for grants issued after November 1, 2005. Expected volatility is
determined using historical volatilities based on historical stock prices for a period equal to the
expected term. The expected volatility assumption is adjusted if future volatility is expected to
vary from historical experience. The expected term of options represents the period of time that
options granted are expected to be outstanding and falls between the options vesting and
contractual expiration dates. The risk-free interest rate is based on the yield at the date of
grant of a zero-coupon U.S. Treasury bond whose maturity period equals the options expected term.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income, which is included as a component of stockholders equity
net of tax, includes unrealized gains or losses on currency translation adjustments in foreign
consolidated subsidiaries.
Income Taxes
The Company uses an estimated annual effective income tax rate in recording its quarterly provision
for income taxes in the various jurisdictions in which the Company operates. Statutory tax rate
changes and other significant or unusual discrete items are recognized in the quarter in which they
occur.
The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109,
(FIN 48) on October 1, 2007. FIN 48 addresses the determination of whether tax benefits claimed
or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN
48, the Company may recognize the tax benefit from uncertain tax positions only if it is at least
more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the largest benefit that has
a greater than fifty percent likelihood of being realized upon settlement with the taxing
authorities. FIN 48 also provides guidance on derecognition, classification, interest and penalties
on income taxes, accounting in interim periods and requires increased disclosures.
Upon adoption of FIN 48, the Company recorded a $0.3 million increase in its tax reserves, an
offsetting decrease of $0.2 million to retained earnings for uncertain tax positions and an
increase in deferred income tax assets of $0.1 million. As of the adoption date, the Company had
total tax reserves of approximately $1.2 million. This reserve includes an estimate of potential
interest and penalties on estimated liabilities for uncertain tax positions, which are recorded as
components of income tax expense, in the amount of $0.4 million as of October 1, 2007. Subsequent
to adoption, no significant changes were made to the Companys tax reserve balances during the
first nine months of fiscal 2008.
The Companys continuing policy is to recognize interest and penalties related to income tax
matters as tax expense. The amount of interest and penalty expense recorded for the three and nine
months ended June 30, 2008 was not material.
There was no material change in the net amount of unrecognized tax benefits in the three and nine
months ended June 30, 2008. Management believes that it is reasonably possible that within the next
12 months the total unrecognized tax benefits will decrease by approximately 35% due to the
expiration of certain statutes of limitations in various state and local jurisdictions.
The Company is subject to income tax in the United States, multiple state jurisdictions and a few
foreign jurisdictions, primarily the United Kingdom. We remain open to examination by the Internal
Revenue Service (IRS) for tax years 2003 through 2007, as these statutes of limitations have not
yet expired. Powell does not consider any state in which it does business to be a major tax
jurisdiction under FIN 48. The Company remains open to examination in the United Kingdom since the
acquisition of Switchgear & Instrumentation Limited in 2005.
7
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosure requirements about fair value measurements. SFAS No.
157 does not require any new fair value measurements, but provides guidance on how to measure fair
value by providing a fair value hierarchy used to classify the source of the information. SFAS No.
157 is effective for our fiscal year beginning October 1, 2008. The Company is currently evaluating
the impact of adopting SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 155 (SFAS No. 159). SFAS No.
159 permits entities to measure many financial instruments and certain other assets and liabilities
at fair value, with unrealized gains and losses related to these financial instruments reported in
earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We have not elected to measure any additional assets or liabilities at
fair value that are not already measured at fair value under existing standards. Therefore, the
adoption of this standard has no impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No.
141R). SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS No. 141R is effective as of the beginning of an entitys fiscal year
that begins after December 15, 2008, and will be adopted by us in the first quarter of fiscal 2010.
We are currently unable to predict the potential impact, if any, of the adoption of SFAS No. 141R
on future acquisitions.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research Bulletin 51 (SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parents ownership interest and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective as of the
beginning of an entitys fiscal year that begins after December 15, 2008, and will be adopted by us
in the first quarter of fiscal 2010. We are currently evaluating the potential impact of the
adoption of SFAS No. 160 on our consolidated results of operations and financial condition.
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible
Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used for purposes of determining the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). FSP
FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141R and other accounting principles generally accepted in the United
States. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008, and will be
adopted by us in the first quarter of fiscal 2010. Earlier application is not permitted. We are
currently evaluating the potential impact, if any, of the adoption of FSP FAS 142-3 on our
consolidated results of operations and financial condition.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). SFAS No. 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States of America. SFAS No. 162 will be
effective 60 days following the SECs approval of the Public Company Accounting Oversight Board
Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any,
of the adoption of SFAS No. 162 on our consolidated financial statements.
In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1
addresses whether instruments granted in share-based payment transactions are participating
securities prior to vesting and therefore need to be included in the earnings allocation in
calculating earnings per share under the two-class method described in SFAS No. 138, Earnings per
Share. FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have
non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in
calculating earnings per share. FSP EITF 03-6-1 is effective for fiscal years beginning after
December
8
15, 2008, and will be adopted by us in the first quarter of fiscal 2010. Earlier application is
not permitted. The Company does not expect adoption of FSP EITF 03-6-1 to have a material effect
on its earnings per share.
B. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,893 |
|
|
$ |
3,170 |
|
|
$ |
17,508 |
|
|
$ |
7,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted average shares |
|
|
11,310 |
|
|
|
11,082 |
|
|
|
11,233 |
|
|
|
11,023 |
|
Dilutive effect of stock options and restricted stock |
|
|
160 |
|
|
|
189 |
|
|
|
183 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share-adjusted weighted
average shares with assumed conversions |
|
|
11,470 |
|
|
|
11,271 |
|
|
|
11,416 |
|
|
|
11,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.70 |
|
|
$ |
0.29 |
|
|
$ |
1.56 |
|
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.69 |
|
|
$ |
0.28 |
|
|
$ |
1.53 |
|
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no options excluded from the computation of diluted earnings per share for the three and
nine months ended June 30, 2008, respectively, as the average market prices of our common stock
were greater than the options exercise prices. Excluded from the computation of diluted earnings
per share for the three months ended June 30, 2007 were approximately 15,000 restricted stock
units. For the nine months ended June 30, 2007, 12,000 shares of restricted stock and
approximately 15,000 restricted stock units were excluded from the computation of diluted earnings
per share. The restricted stock and restricted stock units were excluded from the computation
because their effect was anti-dilutive.
C. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
Allowance for Doubtful Accounts
Activity in our allowance for doubtful accounts receivable consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
1,035 |
|
|
$ |
882 |
|
|
$ |
1,739 |
|
|
$ |
1,044 |
|
Adjustments to the allowance |
|
|
90 |
|
|
|
339 |
|
|
|
526 |
|
|
|
255 |
|
Deductions for uncollectible accounts written off, net of recoveries |
|
|
97 |
|
|
|
(75 |
) |
|
|
(1,036 |
) |
|
|
(169 |
) |
Increase due to foreign currency translation |
|
|
|
|
|
|
7 |
|
|
|
(7 |
) |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
1,222 |
|
|
$ |
1,153 |
|
|
$ |
1,222 |
|
|
$ |
1,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty Accrual
Activity in our product warranty accrual consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
6,866 |
|
|
$ |
4,664 |
|
|
$ |
5,787 |
|
|
$ |
3,443 |
|
Adjustments to the accrual |
|
|
1,710 |
|
|
|
1,817 |
|
|
|
4,135 |
|
|
|
4,021 |
|
Deductions for warranty charges |
|
|
(1,099 |
) |
|
|
(1,201 |
) |
|
|
(2,406 |
) |
|
|
(2,237 |
) |
Increase due to foreign currency translation |
|
|
3 |
|
|
|
28 |
|
|
|
(36 |
) |
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
7,480 |
|
|
$ |
5,308 |
|
|
$ |
7,480 |
|
|
$ |
5,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Inventories
The components of inventories are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Raw materials, parts and subassemblies |
|
$ |
56,862 |
|
|
$ |
31,914 |
|
Work-in-progress |
|
|
14,726 |
|
|
|
15,875 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
71,588 |
|
|
$ |
47,789 |
|
|
|
|
|
|
|
|
Cost and Estimated Earnings on Uncompleted Contracts
The components of costs and estimated earnings and related amounts billed on uncompleted contracts
are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Costs incurred on uncompleted contracts |
|
$ |
556,396 |
|
|
$ |
456,892 |
|
Estimated earnings |
|
|
139,601 |
|
|
|
104,136 |
|
|
|
|
|
|
|
|
|
|
|
695,997 |
|
|
|
561,028 |
|
Less: Billings to date |
|
|
655,387 |
|
|
|
517,510 |
|
|
|
|
|
|
|
|
|
|
$ |
40,610 |
|
|
$ |
43,518 |
|
|
|
|
|
|
|
|
Included in the accompanying balance sheets under the following captions: |
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
$ |
83,813 |
|
|
$ |
69,442 |
|
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
|
(43,203 |
) |
|
|
(25,924 |
) |
|
|
|
|
|
|
|
|
|
$ |
40,610 |
|
|
$ |
43,518 |
|
|
|
|
|
|
|
|
D. COMPREHENSIVE INCOME
Comprehensive income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
7,893 |
|
|
$ |
3,170 |
|
|
$ |
17,508 |
|
|
$ |
7,453 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on forward exchange contracts |
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
151 |
|
Unrealized (loss) gain on foreign currency translation, net of tax |
|
|
13 |
|
|
|
152 |
|
|
|
(473 |
) |
|
|
844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
7,906 |
|
|
$ |
3,473 |
|
|
$ |
17,035 |
|
|
$ |
8,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
US Revolver |
|
$ |
14,300 |
|
|
$ |
2,000 |
|
UK Revolver |
|
|
2,993 |
|
|
|
4,710 |
|
UK Term Loan |
|
|
5,986 |
|
|
|
7,986 |
|
Deferred acquisition payable |
|
|
9,512 |
|
|
|
15,075 |
|
Industrial development revenue bonds |
|
|
5,600 |
|
|
|
6,000 |
|
Capital lease obligations |
|
|
26 |
|
|
|
65 |
|
|
|
|
|
|
|
|
Subtotal long-term debt and capital lease obligations |
|
|
38,417 |
|
|
|
35,836 |
|
Less current portion |
|
|
(8,040 |
) |
|
|
(8,464 |
) |
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations |
|
$ |
30,377 |
|
|
$ |
27,372 |
|
|
|
|
|
|
|
|
US and UK Revolvers
On December 14, 2007, we amended our existing credit agreement (Amended Credit Agreement) with a
major domestic bank and certain other financial institutions. This amendment to our credit facility
was made to expand our US borrowing capacity by $16.5
10
million to provide additional working capital support for the Company. The Amended Credit Agreement
extended the expiration date to December 31, 2011.
The Amended Credit Agreement provides for a 1) $58.5 million revolving credit facility (US
Revolver), 2) £4.0 million (pound sterling) (approximately $8.0 million) revolving credit facility
(UK Revolver) and 3) £6.0 million (approximately $12.0 million) single advance term loan (UK
Term Loan). The Amended Credit Agreement contains certain covenants with respect to minimum
earnings (as defined), maximum capital expenditures, minimum tangible net worth and restrictions on
our ability to pay dividends. Obligations are secured by the stock of our subsidiaries. The
interest rate for amounts outstanding under the Amended Credit Agreement is a floating rate based
upon the London interbank offered rate (LIBOR) plus a margin which can range from 0% to 1%, as
determined by the Companys consolidated leverage ratio as defined within the Amended Credit
Agreement. Expenses associated with the issuance of the original credit agreement are classified as
deferred loan costs, totaled $576,000 and are being amortized as a non-cash charge to interest
expense.
The US Revolver and the UK Revolver provide for the issuance of letters of credit which would
reduce the amounts which may be borrowed under the respective revolvers. The amount available under
this agreement was reduced by $17.2 million for our outstanding letters of credit at June 30, 2008.
There was £1.5 million, or approximately $3.0 million, outstanding under the UK Revolver and $14.3
million outstanding under the US Revolver as of June 30, 2008. Amounts available under the US
Revolver and the UK Revolver were approximately $27.0 million and $5.0 million, respectively, at
June 30, 2008. The US Revolver and the UK Revolver expire on December 31, 2011.
UK Term Loan
The UK Term Loan provided £6.0 million, or approximately $12.0 million, for financing the July 2005
acquisition of Switchgear & Instrumentation Limited. Approximately £5.0 million, or approximately
$10.0 million, of this facility was used to finance the portion of the purchase price of Switchgear
& Instrumentation Limited that was denominated in pounds sterling. The remaining £1.0 million, or
approximately $2.0 million, was utilized as the initial working capital for the surviving business
of Switchgear & Instrumentation Limited that we operate (referred to as S&I). Quarterly
installments of £300,000, or approximately $599,000, began March 31, 2006, with the final payment
due on March 31, 2010. As of June 30, 2008, £3.0 million, or $6.0 million, was outstanding on the
UK Term Loan. The interest rate for amounts outstanding under the UK Term Loan is a floating rate
based upon LIBOR plus a margin which can range from 0% to 1% as determined by the Companys
consolidated leverage ratio as defined within the Amended Credit Agreement.
Deferred Acquisition Payable
In connection with the acquisition of the Power/Vac® product line, $8.5 million of the total
purchase price of $32.0 million was paid to General Electric Company (GE) at closing on August 7,
2006. The remaining balance of the purchase price of $23.5 million is payable in four installments
every 10 months over the 40 months following the acquisition date. The deferred installments result
in a discounted deferred purchase price payable of approximately $9.5 million at June 30, 2008,
based on an assumed discount rate of 6.6%. The current portion of this deferred acquisition payable
is $5.2 million and is included in the current portion of long-term debt.
Industrial Development Revenue Bonds
We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds from
tax-exempt industrial development revenue bonds (Bonds). These Bonds were issued by the Illinois
Development Finance Authority and were used for the completion of our Northlake, Illinois facility.
Pursuant to the Bond issuance, a reimbursement agreement between the Company and a major domestic
bank required an issuance by the bank of an irrevocable direct-pay letter of credit (Bond LC) to
the Bonds trustee to guarantee payment of the Bonds principal and interest when due. The Bond LC
is subject to both early termination and extension provisions customary to such agreements. While
the Bonds mature in 2021, the reimbursement agreement requires annual redemptions of $400,000 that
commenced on October 25, 2002. A sinking fund is used for the redemption of the Bonds. At June 30,
2008, the balance in the sinking fund was approximately $330,000 and was recorded in cash and cash
equivalents. The Bonds bear interest at a floating rate determined weekly by the Bonds remarketing
agent, which was the underwriter for the Bonds and is an affiliate of the bank. This interest rate
was 1.75% per annum on June 30, 2008.
F. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Bonds
Certain customers require us to post bank letter of credit guarantees or performance bonds issued
by a surety. These guarantees and performance bonds assure our customers that we will perform under
terms of our contracts with associated vendors and
11
subcontractors. In the event of default, the customer may demand payment from the bank under a
letter of credit or performance by the surety under a performance bond. To date, there have been no
significant expenses related to either for the periods reported. We were contingently liable for
secured and unsecured letters of credit of $34.6 million as of June 30, 2008. We also had
performance bonds totaling approximately $134.3 million that were outstanding at June 30, 2008.
In March 2007, we renewed and amended our facility agreement (Facility Agreement) with a large
international bank. The Facility Agreement provides S&I with 1) £10.0 million in bonds
(approximately $20.0 million), 2) £2.5 million of forward exchange contracts and currency options
(approximately $5.0 million) and 3) the issuance of bonds and entering into forward exchange
contracts and currency options. At June 30, 2008, we had outstanding a total of £5.9 million, or
approximately $11.8 million, of bonds under this Facility Agreement.
Litigation
We are involved in various legal proceedings, claims and other disputes arising in the ordinary
course of business which, in general, are subject to uncertainties and the outcomes are not
predictable. However, other than the claim discussed below in Other Contingencies, we do not
believe that the ultimate conclusion of these disputes could materially affect our financial
position or results of operations.
Other Contingencies
We previously entered into a construction joint venture agreement to supply, install and commission
a Supervisory Control and Data Acquisition System (SCADA) to monitor and control the distribution
and delivery of fresh water to the City and County of San Francisco Public Utility Commission
(Commission). The project was substantially completed and has been performing to the satisfaction
of the Commission. However, various factors outside the control of the Company and its joint
venture partner caused numerous changes and additions to the work that in turn delayed the
completion of the project. The Commission has withheld liquidated damages and earned contract
payments from the joint venture. The Company has made claims against the Commission for various
matters, including compensation for extra work and delay to the project.
Despite attempts at mediation, the parties could not resolve their dispute, and a jury trial
commenced in December 2006. On May 1, 2007, the jury delivered its verdict in favor of the joint
venture, of which the Company is the managing partner, and determined that the Commission had
breached its contract with the joint venture. The court has issued and filed its final judgment
confirming the jury verdict and has also awarded pre-judgment interest and post-judgment interest.
The judgment is subject to appeal, and the Commission filed a notice of appeal on June 27, 2008.
However, based upon the judgment issued in favor of the Company, we anticipate that we will be able
to recover the approximately $2.0 million recorded in the consolidated balance sheet at June 30,
2008.
G. STOCK-BASED COMPENSATION
Refer to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2007 for
a full description of the Companys existing stock-based compensation plans.
Restricted Stock Units
In October 2006, the Company granted approximately 107,000 restricted stock units (RSUs) with a
fair value of $31.86 per RSU to certain officers and key employees. The fair value of the RSUs was
based on the closing price of the Companys common stock as reported on the NASDAQ Global Market
(NASDAQ) on February 23, 2007, which was the date stockholders approved our 2006 Equity
Compensation Plan. The actual amount of RSUs earned will be based on cumulative earnings per share
as reported relative to established goals for the remaining two and three year performance cycles
which began October 1, 2006, and range from 0% to 150% of the target RSUs granted. The remaining
vesting period ranges from two to three years. The RSUs do not have voting rights of common stock
and the shares of common stock underlying the RSUs are not considered issued and outstanding.
Approximately 21,000 of the RSUs granted in October 2006 expired as performance targets were not
met.
In October 2007, the Company granted approximately 34,300 RSUs with a fair value of $37.89 per RSU
to certain officers and key employees. The fair value of the RSUs was based on the closing price of
the Companys common stock as reported on the NASDAQ on September 28, 2007. The actual amount of
RSUs earned will be based on cumulative earnings per share as reported relative to established
goals for the three year performance cycle which began October 1, 2007, and ranges from 0% to 150%
of the target RSUs granted. The vesting period is three years. The RSUs do not have voting rights
of common stock and the shares of common stock underlying the RSUs are not considered issued and
outstanding until actually issued.
12
The Company recorded compensation expense of approximately $1.8 million related to the RSUs for the
nine months ended June 30, 2008.
Stock Options
Stock option activity for the nine months ended June 30, 2008 was as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Aggregate |
|
|
Stock |
|
Exercise |
|
Contractual |
|
Intrinsic |
|
|
Options |
|
Price |
|
Term (Years) |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Outstanding at September 30, 2007 |
|
|
505,450 |
|
|
$ |
17.44 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(224,950 |
) |
|
|
17.83 |
|
|
|
|
|
|
|
|
|
Forfeited / Cancelled |
|
|
(2,800 |
) |
|
|
17.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
277,700 |
|
|
$ |
17.13 |
|
|
|
3.16 |
|
|
$ |
4,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008 |
|
|
199,700 |
|
|
$ |
16.62 |
|
|
|
2.84 |
|
|
$ |
3,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. BUSINESS SEGMENTS
We manage our business through operating subsidiaries, which are comprised of two reportable
business segments: Electrical Power Products and Process Control Systems. Electrical Power Products
includes equipment and systems for the distribution and control of electrical energy. Process
Control Systems consists principally of instrumentation, computer controls, communications and data
management systems to control and manage critical processes.
The tables below reflect certain information relating to our operations by business segment. All
revenues represent sales from unaffiliated customers. The accounting policies of the business
segments are the same as those described in the summary of significant accounting policies.
Corporate expenses and certain assets are allocated to the operating business segments primarily
based on revenues. The corporate assets are mainly cash and cash equivalents.
Detailed information regarding our business segments is shown below (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Power Products |
|
$ |
156,516 |
|
|
$ |
143,051 |
|
|
$ |
451,699 |
|
|
$ |
396,428 |
|
Process Control Systems |
|
|
7,607 |
|
|
|
6,080 |
|
|
|
19,878 |
|
|
|
17,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
164,123 |
|
|
$ |
149,131 |
|
|
$ |
471,577 |
|
|
$ |
413,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Power Products |
|
$ |
32,044 |
|
|
$ |
25,523 |
|
|
$ |
85,346 |
|
|
$ |
65,182 |
|
Process Control Systems |
|
|
2,958 |
|
|
|
1,903 |
|
|
|
7,043 |
|
|
|
5,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,002 |
|
|
$ |
27,426 |
|
|
$ |
92,389 |
|
|
$ |
70,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Power Products |
|
$ |
11,244 |
|
|
$ |
4,769 |
|
|
$ |
25,283 |
|
|
$ |
11,107 |
|
Process Control Systems |
|
|
1,346 |
|
|
|
95 |
|
|
|
2,187 |
|
|
|
579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,590 |
|
|
$ |
4,864 |
|
|
$ |
27,470 |
|
|
$ |
11,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
September 30, 2007 |
|
Identifiable tangible assets: |
|
|
|
|
|
|
|
|
Electrical Power Products |
|
$ |
336,365 |
|
|
$ |
279,901 |
|
Process Control Systems |
|
|
11,685 |
|
|
|
7,365 |
|
Corporate |
|
|
19,641 |
|
|
|
23,460 |
|
|
|
|
|
|
|
|
Total |
|
$ |
367,691 |
|
|
$ |
310,726 |
|
|
|
|
|
|
|
|
In addition, the Electrical Power Products business segment had approximately $1,084,000 and
$1,084,000 of goodwill and $26,100,000 and $28,861,000 of intangible and other assets as of June
30, 2008 and September 30, 2007, respectively, and corporate
13
had approximately $197,000 and $344,000 of deferred loan costs, as of June 30, 2008 and September
30, 2007, respectively, which are not included in identifiable tangible assets above.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with the accompanying condensed consolidated financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report
on Form 10-K for the year ended September 30, 2007, which was filed with the Securities and
Exchange Commission on December 7, 2007 and is available on the SECs website at www.sec.gov. Any
forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such
forward-looking statements involve risks and uncertainties in that the actual results may differ
materially from those projected in the forward-looking statements. Important factors that could
cause actual results to differ include risks set forth in Item 1A. Risk Factors included in our
Annual Report on Form 10-K.
Overview
We develop, design, manufacture and service custom engineered-to-order equipment and systems for
the management and control of electrical energy and other critical processes. Headquartered in
Houston, Texas, we serve the transportation, environmental, energy, industrial and utility
industries. Our business operations are consolidated into two business segments: Electrical Power
Products and Process Control Systems. Financial information related to these business segments is
included in Note H of Notes to Condensed Consolidated Financial Statements.
On August 7, 2006, we purchased certain assets related to the American National Standards Institute
(ANSI) medium voltage switchgear and circuit breaker business of General Electric Companys
(GE) Consumer & Industrial unit located at its West Burlington, Iowa facility. We refer to the
acquired product line as Power/Vac®. The relocation of the product line from Iowa to Houston,
Texas and related activities was substantially completed in February 2008.
Overall, we continue to experience strong market demand for our products and services. Pricing in
our markets has improved in conjunction with the overall increase in business activity. We believe
this increase was a result of the petrochemical and utility markets entering into a new investment
cycle. Customer inquiries, or requests for proposals, steadily strengthened throughout fiscal year
2007 and have remained strong into the first nine months of fiscal 2008. This increase in customer
inquiries has led to increased orders and, accordingly, a very strong backlog of orders.
Results of Operations
Revenue and Gross Profit
Consolidated revenues increased $15.0 million to $164.1 million in the third quarter of fiscal 2008
compared to $149.1 million in the third quarter of fiscal 2007. Revenues increased as the Company
has responded to strong market demand by increasing our capacity and throughput. For the third
quarter of fiscal 2008, domestic revenues increased by 31.0% to $121.9 million compared to the
third quarter of 2007. Total international revenues were $42.2 million in the third quarter of 2008
compared to $56.0 million in the third quarter of 2007. International revenues are primarily
related to energy related investments, principally oil and gas projects. Gross profit for the third
quarter of fiscal 2008, as compared to the third quarter of fiscal 2007, increased by approximately
$7.6 million to $35.0 million as a result of improved pricing and productivity. Gross profit as a
percentage of revenues increased to 21.3% in the third quarter of fiscal 2008, compared to 18.4% in
the third quarter of fiscal 2007. This increase in gross profit as a percentage of revenues
resulted from an increased production volume and improved pricing, as well as the favorable impact
from the successful completion of certain jobs with margins that exceeded expectations. Gross
profit was also positively impacted by approximately $0.5 million which consisted of $1.9 million
related to the recovery of costs related to additional work on a project that was substantially
completed in prior years, partially offset by approximately
$1.4 million to record a 2006 charge for a liability
related to a contract the Company entered into in fiscal 2006.
For the nine months ended June 30, 2008, consolidated revenues increased $57.8 million to $471.6
million compared to $413.8 million for the nine months ended June 30, 2007. Revenues increased
primarily due to an increased sales effort and strong market demand. For the first nine months of
fiscal 2008, domestic revenues increased by 27.1% to $341.8 million compared to the first nine
months of fiscal 2007. Total international revenues were $129.8 million in the first nine months of
2008 compared to $145.0 million in the first nine months of fiscal 2007. Gross profit for the first
nine months of fiscal 2008, as compared to the first nine months of fiscal
14
2007, increased by approximately $22.1 million, to $92.4 million, as a result of improved pricing
and productivity. Gross profit as a percentage of revenues increased to 19.6% for the first nine
months of fiscal 2008, compared to 17.0% for the first nine months of fiscal 2007. This increase in
gross profit as a percentage of revenues resulted from the increase in production volume and
improved pricing, as well as the favorable impact from the successful completion of certain jobs
with margins that exceeded expectations. Gross profit was also positively impacted by
approximately $0.5 million which consisted of $1.9 million related to the recovery of costs related
to additional work on a project that was substantially completed in prior years, partially offset
by approximately $1.4 million to record a 2006 charge for a liability related to a contract the Company entered into
in fiscal 2006.
Electrical Power Products
Our Electrical Power Products business segment recorded revenues of $156.5 million in the third
quarter of fiscal 2008, compared to $143.1 million for the third quarter of fiscal 2007. In the
third quarter of 2008, revenues from public and private utilities were approximately $41.3 million,
compared to $35.8 million in the third quarter of fiscal 2007. Revenues from industrial and
commercial customers totaled $105.2 million in the third quarter of 2008, an increase of $8.5
million compared to the third quarter of fiscal 2007. Municipal and transit projects generated
revenues of $10.0 million in the third quarter of fiscal 2008 compared to $10.6 million in the
third quarter of fiscal 2007.
Business segment gross profit, as a percentage of revenues, was 20.5% in the third quarter of
fiscal 2008, compared to 17.8% in the third quarter of fiscal 2007. Excluding the direct impact of
the Power/Vac® product line, business segment gross profit would have been approximately 21.5% in
the third quarter of fiscal 2008. Cost of sales and gross profit were also negatively impacted by
approximately $1.4 million to record a 2006 charge for a liability related to a contract the Company entered into in
fiscal 2006.
For the nine months ended June 30, 2008, our Electrical Power Products segment recorded revenues of
$451.7 million, compared to $396.4 million for the nine months ended June 30, 2007. In the first
nine months of fiscal 2008, revenues from public and private utilities were approximately $137.4
million, compared to $133.2 million in the first nine months of fiscal 2007. Revenues from
commercial and industrial customers totaled $292.4 million in the first nine months of fiscal 2008,
an increase of $53.2 million compared to the first nine months of fiscal 2007. Municipal and
transit projects generated revenues of $21.9 million in the first nine months of fiscal 2008,
compared to $24.2 million in the first nine months of fiscal 2007.
For the nine months ended June 30, 2008, gross profit from the Electrical Power Products business
segment, as a percentage of revenues, was 18.9%, compared to 16.4% for the nine months ended June
30, 2007. The increase in gross profit as a percentage of revenues is attributable to an increase
in production volume and improved pricing, along with higher than anticipated margins being
achieved on various jobs. Excluding the direct impact of the Power/Vac® product line, business
segment gross profit would have been approximately 21.4% for the nine months ended June 30, 2008.
Cost of sales and gross profit were also negatively impacted by approximately $1.4 million to
record a 2006 charge for a liability related to a contract the Company entered into in fiscal 2006.
Process Control Systems
Our Process Control Systems business segment recorded revenues of $7.6 million in the third quarter
of fiscal 2008, an increase from $6.1 million in the third quarter of fiscal 2007. Business segment
gross profit, as a percentage of revenues, increased to 38.9% in the third quarter of fiscal 2008
compared to 31.3% in the third quarter of fiscal 2007. This increase resulted from a favorable mix
of jobs and achieving synergies and increased efficiencies through regionalization of operations.
Revenues and gross profit were also positively impacted by approximately $1.9 million resulting
from the recovery of costs related to additional work on a project that was substantially completed
in prior years.
For the nine months ended June 30, 2008, our Process Control Systems business segment recorded
revenues of $19.9 million, up from $17.4 million for the nine months ended June 30, 2007. Business
segment gross profit increased, as a percentage of revenues, to 35.4% for the first nine months of
fiscal 2008, compared to 29.3% for the first nine months of fiscal 2007. This increase resulted
from a favorable mix of jobs and achieving synergies and increased efficiencies through
regionalization of operations. Revenues and gross profit were also positively impacted by
approximately $1.9 million resulting from the recovery of costs related to additional work on a
project that was substantially completed in prior years.
For additional information related to our business segments, see Note H of Notes to Condensed
Consolidated Financial Statements.
15
Consolidated Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses were the same for the three months ended
June 30, 2008 and 2007, at $21.8 million, while as a percentage of revenues they decreased to 13.3%
of revenues in the third quarter of fiscal 2008 compared to 14.6% of revenues in the third quarter
of fiscal 2007. Selling, general and administrative expenses as a percentage of revenues decreased
due to our ability to leverage our existing infrastructure to support our increased production
volume.
For the nine months ended June 30, 2008, consolidated selling, general and administrative expenses
decreased to 13.3% of revenues, compared to 13.6% of revenues for the nine months ended June 30,
2007. Selling, general and administrative expenses were $62.8 million for the first nine months of
fiscal 2008 compared to $56.5 million for the first nine months of fiscal 2007. Selling, general
and administrative expenses as a percentage of revenues decreased due to our ability to leverage
our existing infrastructure to support our increased production volume. Selling, general and
administrative expenses increased primarily due to increased selling and administrative costs
related to the Power/Vac® product line and related operations and increased compensation costs,
including cash and non-cash equity incentives, which are consistent with the increase in volume and
earnings.
Interest Expense and Income
Interest expense was $0.7 million and $2.3 million for the three and nine months ended June 30,
2008, a decrease of approximately $0.2 million and $0.2 million compared to the three and nine
months ended June 30, 2007, respectively. The decrease in interest expense is primarily due to
lower interest rates.
Interest income was $0.1 million and $0.3 million for the three and nine months ended June 30, 2008
compared to $0.1 million and $0.4 million for the three and nine months ended June 30, 2007,
respectively. This decrease resulted as cash was used to fund working capital during the first nine
months of fiscal 2008.
Provision for Income Taxes
Our provision for income taxes reflects an effective tax rate on earnings before income taxes of
37.8% in the third quarter of fiscal 2008 compared to 35.4% in the third quarter of fiscal 2007.
For the first nine months of fiscal 2008, our effective tax rate was 36.8% compared to 35.5% for
the first nine months of fiscal 2007. Our effective tax rate is impacted by income generated in the
United Kingdom, which has a lower statutory rate than the United States; however, the lower
statutory rate will be offset by certain expenses that are not deductible for tax purposes in the
United Kingdom, such as amortization of intangible assets. The effective tax rate has increased as
a result of the relative shift in taxable income between domestic and international reporting
jurisdictions, coupled with higher state income taxes in the United States.
In addition, adjustments to estimated tax accruals are analyzed and adjusted quarterly as events
occur to warrant such change. Adjustments to tax accruals are a component of the effective tax
rate.
Net Income
In the third quarter of fiscal 2008, we generated net income of $7.9 million, or $0.69 per diluted
share, compared to $3.2 million, or $0.28 per diluted share, in the third quarter of fiscal 2007.
For the nine months ended June 30, 2008, we recorded net income of $17.6 million, or $1.53 per
diluted share, compared to $7.5 million, or $0.67 per diluted share, for the nine months ended June
30, 2007. As discussed above, we generated higher revenues and improved gross profits in all of our
business segments, while leveraging our existing infrastructure to support our increased production
volume.
Backlog
The order backlog at June 30, 2008 was $553.1 million, compared to $464.5 million at September 30,
2007 and $410.9 million at the end of the third quarter of fiscal 2007. New orders placed during
the third quarter of fiscal 2008 totaled $187.6 million compared to $151.2 million in the third
quarter of fiscal 2007.
Liquidity and Capital Resources
We have maintained a positive liquidity position. Working capital was $136.5 million at June 30,
2008, compared to $101.3 million at September 30, 2007. As of June 30, 2008, current assets
exceeded current liabilities by 1.8 times and our debt to total capitalization ratio was 16.2%. The
increase in working capital was driven primarily by the increase in accounts receivable and
inventories
16
commensurate with the increase in business volume. We anticipate that we will continue to reinvest
a portion of our cash generated from operations into working capital this year due to increased
business activity because our progress payment terms on long-term projects with our customers
extend beyond the payment terms with our suppliers. Working capital needs are anticipated to
increase with growing levels of business activity. We believe that working capital, borrowing
capabilities and cash generated from operations will be sufficient to finance the anticipated
operational activities, capital improvements and debt repayments for the foreseeable future.
At June 30, 2008, we had cash and cash equivalents of $6.8 million, compared to $5.3 million at
September 30, 2007. Long-term debt and capital lease obligations, including current maturities,
totaled $38.4 million at June 30, 2008, compared to $35.8 million at September 30, 2007. The
increase in borrowings was primarily due to the funding of working capital needs due to increased
production volume, along with billing terms that are weighted toward significant completion of
long-term projects. We have a $58.5 million revolving credit facility in the U.S. and an additional
£4.0 million (approximately $8.0 million) revolving credit facility in the United Kingdom, both of
which expire in December 2011. As of June 30, 2008, there was approximately $34.5 million borrowed
under these lines of credit, which is included in our long-term debt. Amounts available under the
U.S. revolving credit facility and the revolving credit facility in the United Kingdom were
approximately $27.0 million and $5.0 million, respectively, at June 30, 2008. For further
information regarding our debt, see Notes E and F of Notes to Condensed Consolidated Financial
Statements.
Operating Activities
During the first nine months of fiscal 2008 and 2007, cash used in operating activities was
approximately $4.7 million and $8.2 million, respectively. Cash flow from operations is primarily
influenced by demand for our products and services and is negatively impacted as our progress
payment terms on long-term projects with our customers extend beyond the payment terms with our
suppliers. The payment of annual incentive compensation in the first nine months of fiscal 2008,
along with our recent increase in volume and inventories needed for our existing backlog have
resulted in negative cash flow from operations in the first nine months of fiscal 2008.
Investing Activities
Investments in property, plant and equipment during the first nine months of fiscal 2008 totaled
approximately $2.0 million compared to $11.1 million during the first nine months of fiscal 2007.
The majority of our capital expenditures in the first nine months of fiscal 2007 were used to
continue the implementation of our new Enterprise Resource Planning System (ERP), and the
expansion of two of our operating facilities as a result of integrating the Power/Vac® product
line. These operating facility expansions were completed in fiscal 2007.
Financing Activities
Net cash provided by financing activities was approximately $8.3 million for the first nine months
of fiscal 2008, compared to $12.1 million for the first nine months of fiscal 2007. Borrowings on
the line of credit were used to fund operations and capital expenditures.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosure requirements about fair value measurements. SFAS No.
157 does not require any new fair value measurements, but provides guidance on how to measure fair
value by providing a fair value hierarchy used to classify the source of the information. SFAS No.
157 is effective for our fiscal year beginning October 1, 2008. The Company is currently evaluating
the impact of adopting SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, including an amendment of FASB Statement No. 155 (SFAS No. 159). SFAS No.
159 permits entities to measure many financial instruments and certain other assets and liabilities
at fair value, with unrealized gains and losses related to these financial instruments reported in
earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We have not elected to measure any additional assets or liabilities at
fair value that are not already measured at fair value under existing standards. Therefore, the
adoption of this standard has no impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No.
141R). SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. SFAS No. 141R is effective as of the beginning of an entitys fiscal year
that begins after December 15, 2008, and will be adopted by us in the
17
first quarter of fiscal 2010. We are currently unable to predict the potential impact, if any, of
the adoption of SFAS No. 141R on future acquisitions.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research Bulletin 51 (SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parents ownership interest and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective as of the
beginning of an entitys fiscal year that begins after December 15, 2008, and will be adopted by us
in the first quarter of fiscal 2010. We are currently evaluating the potential impact of the
adoption of SFAS No. 160 on our consolidated results of operations and financial condition.
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible
Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used for purposes of determining the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). FSP
FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141R and other accounting principles generally accepted in the United
States. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008, and will be
adopted by us in the first quarter of fiscal 2010. Earlier application is not permitted. We are
currently evaluating the potential impact, if any, of the adoption of FSP FAS 142-3 on our
consolidated results of operations and financial condition.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). SFAS No. 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States of America. SFAS No. 162 will be
effective 60 days following the SECs approval of the Public Company Accounting Oversight Board
Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any,
of the adoption of SFAS No. 162 on our consolidated financial statements.
In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1
addresses whether instruments granted in share-based payment transactions are participating
securities prior to vesting and therefore need to be included in the earnings allocation in
calculating earnings per share under the two-class method described in SFAS No. 138, Earnings per
Share. FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have
non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in
calculating earnings per share. FSP EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008, and will be adopted by us in the first quarter of fiscal 2010. Earlier
application is not permitted. The Company does not expect adoption of FSP EITF 03-6-1 to have a
material effect on its earnings per share.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and
on various other assumptions that are believed to be reasonable under the circumstances. There can
be no assurance that actual results will not differ from those estimates.
There have been no material changes to our critical accounting policies as disclosed in our Annual
Report on Form 10-K for the year ended September 30, 2007, except as follows:
Income Taxes We account for uncertain tax positions in accordance with FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for
Income Taxes, (FIN 48). FIN 48 prescribes a comprehensive model for how companies should
recognize, measure, present and disclose in their financial statements uncertain tax positions
taken or to be taken on a tax return. The income tax laws and regulations are voluminous and are
often ambiguous. As such, we are required to make many subjective assumptions and judgments
regarding our tax positions that can materially affect amounts recognized in the consolidated
balance sheets and statements of operations.
18
Outlook for Fiscal 2008
Our backlog of orders is approximately $553.1 million, the highest in our history. Customer
inquiries, or requests for proposals, have steadily strengthened over the past three fiscal years.
We anticipate that strong business activities in our principal markets will continue throughout
2008.
Backlog growth has been driven by strong market demand in petrochemical, utility and transportation
markets. Additionally, our acquisitions in 2005 and 2006 have strengthened our strategic position
in the electrical power products market and expanded our product offering in the utility,
industrial and commercial markets. We enhanced our capabilities with the addition of medium and low
voltage IEC switchgear, intelligent motor control systems and power distribution solutions. The
Power/Vac® switchgear product line acquired from GE has a large installed base and a broad customer
base across utility, industrial and commercial markets. These acquisitions provided us with a
significantly broader product portfolio and enhanced our capabilities to meet market demands around
the world. We also significantly enhanced our ability to reach a broader market and gain access to
new customers with a long-term commercial alliance with GE, which obligates GE to purchase from us
their requirements for ANSI medium voltage switchgear and circuit breakers and other related
equipment and components. The costs and effort to relocate the Power/Vac® product line have
negatively impacted our earnings to date, and we expect this to continue through 2008 as we
continue the integration efforts. We believe that our expanded product portfolio and new channels
to new markets have strengthened us in our Electrical Power Products business segment and
positioned us for continued growth.
We anticipate that we will continue to reinvest our cash generated from operations to support our
increased business activity and the acquired Power/Vac® product line. Working capital needs are
anticipated to increase with growing levels of business activity. We believe that cash available
and borrowing capacity should be sufficient to finance anticipated operational activities, capital
improvements and debt repayments for the foreseeable future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks arising from transactions we have entered into in the normal
course of business. These risks primarily relate to fluctuations in interest rates, foreign
exchange rates and commodity prices.
We are subject to market risk resulting from changes in interest rates related to our floating rate
bank credit facility. At June 30, 2008, $36.0 million was outstanding, bearing interest at
approximately 4.47% per year. A hypothetical 100 basis point increase in variable interest rates
would result in a total annual increase in interest expense of approximately $360,000. While we do
not currently have any derivative contracts to hedge our exposure to interest rate risk, we have in
the past and may in the future enter into such contracts. Overall, we believe that changes in
interest rates will not have a material near-term impact on our future earnings or cash flows.
During each of the past three years, we have not experienced a significant effect on our business
due to changes in interest rates.
We have significant operations that expose us to currency risk in the British Pound Sterling and to
a lesser extent the Euro. We believe the exposure to the effects that fluctuating foreign
currencies have on our consolidated results of operations is limited because the foreign operations
primarily invoice customers and collect obligations in their respective currencies or U.S. Dollars
and a portion of our credit facility is payable in British Pounds Sterling. Additionally, expenses
associated with these transactions are generally contracted and paid for in the same local
currencies. While we do not currently have any derivative contracts to hedge our exposure to
foreign currency exchange risk, we have in the past and may in the future enter into such
contracts.
We are subject to market risk from fluctuating market prices of certain raw materials. While such
materials are typically available from numerous suppliers, commodity raw materials are subject to
price fluctuations. We attempt to pass along such commodity price increases to our customers on a
contract-by-contract basis to avoid a negative effect on profit margin. While we may do so in the
future, we have not currently entered into any derivative contracts to hedge our exposure to
commodity risk. We continue to experience price increases with some of our key raw materials.
Competitive market pressures may limit our ability to pass these cost increases to our customers,
thus negatively impacting our earnings. Fluctuations in commodity prices may have a material impact
on our future earnings and cash flows.
19
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established and maintain a system of disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be disclosed in our reports filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the
Commission and that such information is accumulated and communicated to our management, including
our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow
timely decisions regarding required disclosures.
Management, with the participation of our CEO and CFO, has evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this report. Based on such evaluation, our CEO and CFO have each concluded that as of June 30,
2008, our disclosure controls and procedures were effective to provide reasonable assurance that
information required to be disclosed by us in reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms and that such
information is accumulated and communicated to our management, including the CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosures.
Internal Control over Financial Reporting
During the first nine months of fiscal 2008, management continued the domestic ERP implementation
which began in fiscal 2006. This conversion has involved various changes to internal processes and
control procedures over financial reporting. However, the basic internal controls over financial
reporting have not materially changed.
Design and Operation of Control Systems
Our management, including the CEO and CFO, does not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent or detect all errors and
all fraud. A control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control systems objectives will be met. The design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that misstatements due to error
or fraud will not occur or that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and breakdowns can occur because of simple error or mistakes.
Controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of controls is based in
part on certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or personnel, or
deterioration in the degree of compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We previously entered into a construction joint venture agreement to supply, install and commission
a Supervisory Control and Data Acquisition System (SCADA) to monitor and control the distribution
and delivery of fresh water to the City and County of San Francisco Public Utility Commission
(Commission). The project was substantially completed and has been performing to the satisfaction
of the Commission. However, various factors outside of the control of the Company and its joint
venture partner caused numerous changes and additions to the work that in turn delayed the
completion of the project. The Commission has withheld liquidated damages and earned contract
payments from the joint venture. The Company has made claims against the Commission for various
matters, including compensation for extra work and delay to the project.
Despite attempts at mediation, the parties could not resolve their dispute, and a jury trial
commenced in December 2006. On May 1, 2007, the jury delivered its verdict in favor of the joint
venture, of which the Company is the managing partner, and determined that the Commission had
breached its contract with the joint venture. The court has issued and filed its final judgment
confirming the jury
20
verdict and has also awarded pre-judgment interest and post-judgment interest. The judgment is
subject to appeal, and the Commission filed a notice of appeal on June 27, 2008. However, based
upon the judgment issued in favor of the Company, we anticipate that we will be able to recover the
approximately $2.0 million recorded in the condensed consolidated balance sheet at June 30, 2008.
Item 1A. Risk Factors
There are no material changes from the risk factors previously disclosed in the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2007.
Item 6. Exhibits
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Number |
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Description of Exhibits |
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3.1
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Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary
of State of the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to
our Form 8-A/A filed November 1, 2004, and incorporated herein by reference). |
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3.2
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By-laws of Powell Industries, Inc. (filed as Exhibit 3.2 to our Form 8-A/A filed
November 1, 2004, and incorporated herein by reference). |
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*31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
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*31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
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*32.1
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Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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*32.2
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Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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POWELL INDUSTRIES, INC.
(Registrant) |
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August 6, 2008
Date
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By:
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/s/ Thomas W. Powell
Thomas W. Powell
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Chairman and Chief Executive Officer
(Principal Executive Officer) |
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August 6, 2008
Date
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By:
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/s/ Don R. Madison
Don R. Madison
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Executive Vice President |
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Chief Financial and Administrative Officer
(Principal Financial and Accounting Officer) |
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22
EXHIBIT INDEX
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Number |
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Exhibit Title |
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3.1
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Certificate of Incorporation of Powell Industries, Inc. filed with the
Secretary of State of the State of Delaware on February 11, 2004 (filed as
Exhibit 3.1 to our Form 8-A/A filed November 1, 2004, and incorporated herein
by reference). |
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3.2
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By-laws of Powell Industries, Inc. (filed as Exhibit 3.2 to our Form 8-A/A
filed November 1, 2004, and incorporated herein by reference). |
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*31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
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*31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
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*32.1
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Certification of Chief Executive Officer Pursuant to Section 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
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*32.2
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Certification of Chief Financial Officer Pursuant to Section 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
23
exv31w1
EXHIBIT 31.1
CERTIFICATION
I, Thomas W. Powell, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Powell Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial
reporting (as defined in Exchange Act Rules 13-15(f) and 15d-15(f)) that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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/s/ Thomas W. Powell
Thomas W. Powell
Chairman and Chief Executive Officer
(Principal Executive Officer)
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Date: August 6, 2008
exv31w2
EXHIBIT 31.2
CERTIFICATION
I, Don R. Madison, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Powell Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial
reporting (as defined in Exchange Act Rules 13-15(f) and 15d-15(f)) that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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/s/ Don R. Madison
Don R. Madison
Executive Vice President
Chief Financial and Administrative Officer
(Principal Financial and Accounting Officer)
|
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Date: August 6, 2008
exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report (the Report) on Form 10-Q of Powell Industries,
Inc. (the Company) for the period ended June 30, 2008, as filed with the Securities and Exchange
Commission on the date hereof, I, Thomas W. Powell, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material respects, the
financial condition and results of operations of the Company.
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/s/ Thomas W. Powell
Thomas W. Powell
Chairman and Chief Executive Officer
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Date: August 6, 2008
exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report (the Report) on Form 10-Q of Powell Industries,
Inc. (the Company) for the period ended June 30, 2008, as filed with the Securities and Exchange
Commission on the date hereof, I, Don R. Madison, Executive Vice President and Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material respects, the
financial condition and results of operations of the Company.
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/s/ Don R. Madison
Don R. Madison
Executive Vice President
Chief Financial and Administrative Officer
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Date: August 6, 2008