e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended September 30,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number
001-12488
Powell Industries,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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88-0106100
(I.R.S. Employer
Identification No.)
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8550 Mosley Drive,
Houston, Texas
(Address of principal
executive offices)
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77075-1180
(Zip Code)
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Registrants telephone number, including area code:
(713) 944-6900
Securities registered pursuant to section 12(b) of the
Act:
Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of
Act:
None
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. o Yes þ No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes þ No
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 has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). o Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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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o Large
accelerated filer
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þ Accelerated
filer
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o Non-accelerated
filer
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o Smaller
reporting company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). o Yes þ No
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of the last business day of
the most recently completed second fiscal quarter,
March 31, 2009, was approximately $403,807,000.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
At December 7, 2009, there were 11,497,610 outstanding
shares of the registrants common stock, par value $0.01
per share.
Documents Incorporated By Reference
Portions of the registrants definitive Proxy Statement for
the 2010 annual meeting of stockholders to be filed not later
than 120 days after September 30, 2009, are
incorporated by reference into Part III of this
Form 10-K.
POWELL
INDUSTRIES, INC.
TABLE OF
CONTENTS
2
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS;
RISK FACTORS
Forward-Looking
Statements
This Annual Report on
Form 10-K
(Annual Report) includes forward-looking statements
based on our current expectations, which are subject to risks
and uncertainties. Forward-looking statements include
information concerning future results of operations and
financial condition. Statements that contain words such as
believes, expects,
anticipates, intends,
estimates, continue, should,
could, may, plan,
project, predict, will or
similar expressions may be forward-looking statements. These
forward-looking statements are subject to risks and
uncertainties, and many factors could affect the future
financial results and condition of the Company. Factors that may
have a material effect on our revenues, expenses and operating
results include adverse business or market conditions, our
ability to secure and satisfy customers, our customers
financial condition and their ability to secure financing to
support current and future projects, the availability and cost
of materials from suppliers, adverse competitive developments
and changes in customer requirements as well as those
circumstances discussed under Item 1A. Risk
Factors, below. Accordingly, actual results may differ
materially from those expressed or implied by the
forward-looking statements contained in this Annual Report. 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.
The forward-looking statements contained in this Annual Report
are based on current assumptions that we will continue to
develop, market, manufacture and ship products and provide
services on a competitive and timely basis; that competitive
conditions in our markets will not change in a materially
adverse way; that we will accurately identify and meet customer
needs for products and services; that we will be able to retain
and hire key employees; that our products and capabilities will
remain competitive; that the financial markets and banking
systems will stabilize and availability of credit will continue;
that risks related to shifts in customer demand are minimized
and that there will be no material adverse change in the
operations or business of the Company. Assumptions relating to
these factors involve judgments that are based on available
information, which may not be complete, and are subject to
changes in many factors beyond the Companys control that
can materially affect results. Because of these and other
factors that affect our operating results, past financial
performance should not be considered an indicator of future
performance, and investors should not use historical trends to
anticipate results or trends in future periods.
3
PART I
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.
Our website address is www.powellind.com. We make
available, free of charge on or through our website, copies of
our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonable after we electronically file such
material with, or furnish it to, the Securities and Exchange
Commission (SEC). Paper or electronic copies of such
material may also be requested by contacting the Company at our
corporate offices.
On December 13, 2005, we announced a change in our fiscal
year-end from October 31 to September 30, effective
September 30, 2006. The change was designed to align our
financial reporting with calendar quarters and to reduce the
impact holidays have on our reporting timeline.
Our business operations are consolidated into two business
segments: Electrical Power Products and Process Control Systems.
Approximately 77%, 73% and 66% of our consolidated revenues for
the fiscal years ended September 30, 2009, 2008 and 2007,
respectively, were generated in the United States of America.
Approximately 88% of our long-lived assets were located in the
United States at September 30, 2009, with the remaining
balance located primarily in the United Kingdom. Financial
information related to our business and geographical segments is
included in Note M of Notes to Consolidated Financial
Statements.
On August 7, 2006, we purchased certain assets related to
the manufacturing of American National Standards Institute
(ANSI) medium voltage switchgear and circuit breaker
business of General Electric Companys (GE)
Consumer & Industrial unit for $32.0 million, not
including expenses. We refer to the acquired product line herein
as
Power/Vac®.
The operating results of
Power/Vac®
are included in our Electrical Power Products business segment
from the acquisition date.
On July 14, 2006, we acquired certain assets and hired the
service and administrative employees of an electrical services
company in Louisiana for approximately $1.5 million. The
purchase price was paid from existing cash and short-term
marketable securities. The operating results of this acquisition
are included in our Electrical Power Products business segment
from the acquisition date.
On July 4, 2005, we acquired selected assets and assumed
certain operating liabilities and contracts of
Switchgear & Instrumentation Limited in the United
Kingdom. We refer to the acquired business herein as
S&I. The operating results of S&I are
included in our Electrical Power Products business segment from
that date. Total consideration paid for S&I was
approximately $19.2 million.
Electrical
Power Products
Our Electrical Power Products business segment designs,
develops, manufactures and markets custom
engineered-to-order
electrical power distribution and control systems designed
(1) to distribute, monitor and control the flow of
electrical energy and (2) to provide protection to motors,
transformers and other electrically-powered equipment. Our
principal products include power control room substation
packages, traditional and arc resistant distribution switchgear,
medium-voltage circuit breakers, offshore generator and control
modules,
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monitoring and control communications systems, motor control
centers and bus duct systems. These products are designed for
application voltages ranging from 480 volts to in excess of
38,000 volts and are used in electric rail transportation,
refining, chemical, offshore oil and gas production, electric
utility and other heavy industrial markets. Product scope
includes designs tested to meet both U.S. standards
(ANSI American National Standards Institute) and
international design standards (IEC International
Electrotechnical Commission). We also seek to assist customers
by providing value-added services such as spare parts, field
service inspection and repair, retrofit and retrofill components
for existing systems and replacement circuit breakers for
switchgear that is obsolete or that is no longer produced by the
original manufacturer. We work to establish long-term
relationships with the end users of our systems and with the
design and construction engineering firms contracted by those
end users.
On August 7, 2006, we purchased the
Power/Vac®
product line described above. We believe that this acquisition
strengthens our strategic position in the electrical power
products business and allows us to reach new markets and a
broader base of customers. In conjunction with the
Power/Vac®
acquisition, Powell entered into a long-term commercial alliance
with GE Consumer & Industrial whereby Powell became
the exclusive supplier of ANSI medium voltage switchgear to GE.
On July 14, 2006, we acquired certain assets and hired the
service and administrative employees of an electrical services
company in Louisiana. This acquisition allowed us to extend
sales and services to the Eastern Gulf Coast Region.
On July 4, 2005, we acquired selected assets and assumed
certain operating liabilities and contracts of
Switchgear & Instrumentation Limited, as described
above. S&Is primary manufacturing facility is located
in the United Kingdom. This acquisition is part of the
Companys overall strategy to increase our international
presence. S&I affords Powell the opportunity to serve
customers with products and solutions covering a wider range of
electrical standards and opens new geographic markets previously
closed due to our previous lack of product portfolio that met
international electrical design and test standards. The fit,
culture and market position of Powell and S&I compare
favorably as both have similar reputations in
engineered-to-order
solutions.
Customers
and Markets
This business segments principal products are designed for
use by and marketed to technologically sophisticated users of
large amounts of electrical energy that typically have a need
for complex combinations of electrical components and systems.
Our customers include oil and gas producers, oil and gas
pipelines, refineries, petrochemical plants, electrical power
generators, public and private utilities, co-generation
facilities, mining/metals, pulp and paper plants, transportation
systems, governmental agencies and other large industrial
customers.
Products and services are principally sold directly to the
end-user or to an engineering, procurement and construction
(EPC) firm on behalf of the end-user. Each project
is specifically tailored to meet the exact specifications and
requirements of the individual customer. Powells expertise
is in the engineering and packaging of the various systems into
a single deliverable. We market and sell our products and
services to a wide variety of customers, markets and geographic
regions. As a result of the supply agreement that we entered
into on August 7, 2006, with GE, our revenues from GE were
approximately $86 million, $82 million and
$100 million in fiscal 2009, fiscal 2008 and fiscal 2007,
respectively, or approximately 14%, 13% and 18% of our
consolidated revenues for these periods. Aside from GE, with
whom we have a long-term supply agreement, we do not believe
that the loss of any specific customer would have a material
adverse effect on our business. We could be adversely impacted
by a significant reduction in business volume from a particular
industry which we currently serve. GE has become a significant
customer and has accounted for, and could continue to account
for, more than 10% of the annual revenues of this business
segment as a result of the supply agreement that we entered into
on August 7, 2006.
During each of the past three fiscal years, no one country
outside of the United States accounted for more than 10% of
segment revenues. For information on the geographic areas in
which our consolidated revenues were recorded in each of the
past three fiscal years, see Note M of Notes to
Consolidated Financial Statements.
5
Competition
We strive to be the supplier of choice for custom engineered
system solutions to a variety of customers and markets. Our
activities are predominantly in the oil and gas and the electric
utility industries, but also include other markets where
customers need to manage, monitor and control large amounts of
electrical energy. The majority of our business is in support of
capital investment projects which are competitively bid. We
compete with a small number of multinational competitors that
sell to a broad industrial and geographic market and with
smaller, regional competitors that typically have limited
capabilities and scope of supply.
Our principal competitors include ABB, Eaton Corporation, GE,
Schneider Electric and Siemens. The competitive factors used
during bid evaluation by our customers vary from project to
project and may include technical support and application
expertise, engineering and manufacturing capabilities, equipment
rating, delivered value, scheduling and price. A significant
portion of our business is from repeat customers and many times
involves third-party engineering and construction companies
hired by the end-user and with which we also have long and
established relationships. We consider our engineering,
manufacturing and service capabilities vital to the success of
our business, and believe our technical and project management
strengths, together with our responsiveness and flexibility to
the needs of our customers, give us a competitive advantage in
our markets. Ultimately, our competitive position is dependent
upon our ability to provide quality custom
engineered-to-order
products and systems on a timely basis at a competitive price.
Backlog
Backlog represents the dollar amount of revenue that we expect
to realize from work to be performed on uncompleted contracts,
including new contractual agreements on which work has not
begun. Our methodology for determining backlog may not be
comparable to the methodology used by other companies. Orders
included in our backlog are represented by customer purchase
orders and contracts, which we believe to be firm. Orders in the
Electrical Power Products business segment backlog at
September 30, 2009, totaled $329.6 million compared to
$493.0 million at September 30, 2008. Our backlog has
declined as an increasing number of our customers have delayed
the start of new capital projects during the second half of
fiscal year 2009. We anticipate that approximately
$282.6 million of our ending 2009 backlog will be fulfilled
during our fiscal year 2010. Conditions outside of our control
have caused us to experience some customer delays and
cancellations of certain projects in the past, accordingly,
backlog may not be indicative of future operating results as
orders in our backlog may be cancelled or modified by our
customers.
Raw
Materials and Suppliers
The principal raw materials used in Electrical Power
Products operations include steel, copper, aluminum and
various electrical components. These raw material costs
represented approximately 49% of our revenues in fiscal 2009.
Unanticipated increases in raw material requirements,
disruptions in supplies or price increases could increase
production costs and adversely affect profitability.
We purchase certain key electrical components on a sole-sourced
basis and maintain a qualification and performance monitoring
program to control risk associated with sole-sourced items.
Changes in our design to accommodate similar components from
other suppliers could be implemented to resolve a supply problem
related to a sole-sourced component. In this circumstance,
supply problems could result in short-term delays in our ability
to meet commitments to our customers. We believe that sources of
supply for raw materials and components are generally
sufficient, and we have no reason to believe a shortage of raw
materials will cause any material adverse impact during fiscal
year 2010. While we are not dependent on any one supplier for a
material amount of our raw materials, we are highly dependent on
our suppliers in order to meet commitments to our customers. We
did not experience significant or unusual problems in the
purchase of key raw materials and commodities in the past three
years.
Inflation
This business segment is subject to the effects of changing
prices. During the last three fiscal years, we experienced
increased costs for certain commodities, in particular steel,
copper and aluminum products, which are
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used in the production of our products. While the cost outlook
for commodities used in the production of our products is not
certain, we believe we can manage these inflationary pressures
through contract pricing adjustments and by actively pursuing
internal cost reduction efforts. We did not enter into any
derivative contracts to hedge our exposure to commodity price
changes in fiscal years 2009, 2008 or 2007.
Employees
At September 30, 2009, the Electrical Power Products
business segment had 2,538 full-time employees located in
the United States, the United Kingdom and Singapore. Our
employees are not represented by unions, and we believe that our
relationship with our employees is good.
Research
and Development
This business segments research and development activities
are directed toward the development of new products and
processes as well as improvements in existing products and
processes. Research and development expenditures were
$5.8 million, $6.3 million and $5.4 million in
fiscal years 2009, 2008 and 2007, respectively.
Intellectual
Property
While we are the holder of various patents, trademarks and
licenses relating to this business segment, we do not consider
any individual intellectual property to be material to our
consolidated business operations.
Process
Control Systems
Our Process Control Systems business segment designs and
delivers custom
engineered-to-order
technology solutions that help our customers manage their
critical transportation, environmental and energy management
processes and facilities. Our proprietary
DYNAC®
software suite provides a highly integrated operations
management solution for these vital operations. The
mission-critical information may be traffic flow in our
intelligent transportation management solutions, water quality
in our environmental treatment solutions or electrical power
status in the case of our substation automation solutions.
DYNAC®
has user configurable applications designed specifically for
clients that require high performance, 24/7 availability and
superior data integrity in a secure environment.
We provide a comprehensive set of technical services to deliver
these systems. A diverse team of professional systems engineers,
software engineers, analysts, network specialists and automation
engineers provide expertise for the entire lifecycle of a
technology project. We have designed and built systems for
various facilities and roadways around the world.
Customers
and Markets
This business segments products and services are
principally sold directly to end-users in the transportation,
environmental and energy sectors. From time to time, a
significant percentage of revenues may result from one specific
contract or customer due to the nature of large projects common
to this business segment. In each of the past three fiscal
years, revenues with one or more customers individually
accounted for more than 10% of our segment revenues. Revenues
from these customers totaled $7.4 million,
$5.4 million and $5.9 million in fiscal 2009, 2008 and
2007, respectively. Contracts often represent large-scale,
single-need projects with an individual customer. By their
nature, these projects are typically nonrecurring for a given
customer. Thus, multiple
and/or
continuous projects of similar magnitude with the same customer
are rare. As such, gaps in large project awards may cause
material fluctuations in segment revenues.
During each of the past three fiscal years, the United States is
the only country that accounted for more than 10% of segment
revenues. For information on the geographic areas in which our
consolidated revenues were recorded in each of the past three
fiscal years, see Note M of Notes to Consolidated Financial
Statements.
7
Competition
This business segment operates in a competitive market where
competition for each contract varies. Depending upon the type of
system and customer requirements, the competition may include
large multinational firms as well as smaller regional
competitors.
Our customized systems are designed to meet the specifications
of our customers. Each system is designed, delivered and
installed to the specific requirements of the particular
application. We consider our engineering, systems integration
and technical support capabilities vital to the success of our
business. We believe our turnkey systems integration
capabilities, customizable software, domain expertise, specialty
contracting experience and financial strength give us a
competitive advantage in our markets.
Backlog
Backlog represents the dollar amount of revenue that we expect
to realize from work to be performed on uncompleted contracts,
including new contractual agreements on which work has not
begun. Our methodology for determining backlog may not be
comparable to the methodology used by other companies. Orders
included in our backlog are represented by customer purchase
orders and contracts, which we believe to be firm. Orders in the
Process Control Systems business segment backlog at
September 30, 2009, totaled $36.2 million compared to
$25.5 million at September 30, 2008. We anticipate
that approximately $24.7 million of our year-end 2009
backlog will be fulfilled during our 2010 fiscal year.
Conditions outside of our control have caused us to experience
some customer delays and cancellations of certain projects in
the past, accordingly, backlog may not be indicative of future
operating results as orders in our backlog may be cancelled or
modified by our customers.
Employees
The Process Control Systems business segment had
120 full-time employees at September 30, 2009,
primarily located in the United States. Our employees are not
represented by unions, and we believe that our relationship with
our employees is good.
Research
and Development
The majority of research and development activities of this
business segment are directed toward the development of our
software suites for the management and control of the critical
processes and facilities of our customers. Non-project research
and development expenditures were $0.3 million,
$0.3 million and $0.3 million in fiscal years 2009,
2008 and 2007, respectively.
Intellectual
Property
While we are the holder of various copyrights related to
software for this business segment, we do not consider any
individual intellectual property to be material to our
consolidated business operations.
Our business is subject to a variety of risks and uncertainties,
including, but not limited to, the most significant risks and
uncertainties described below. Additional risks and
uncertainties not known to us or not described below may also
impair our business operations. If any of the following risks
actually occur, our business, financial condition and results of
operations could be harmed and we may not be able to achieve our
goals. This Annual Report also includes statements reflecting
assumptions, expectations, projections, intentions or beliefs
about future events that are intended as forward-looking
statements under the Private Securities Litigation Reform
Act of 1995 and should be read in conjunction with the
discussion under Forward-Looking Statements, above.
The
current economic uncertainty and financial market conditions
have negatively impacted and may continue to impact our customer
base, suppliers and backlog.
The current economic downturn has reduced our backlog of orders.
Various factors drive demand for our products and services,
including the price of oil, economic forecasts and financial
markets. Continued uncertainty in
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the price of oil, economic recovery or further deterioration of
the financial markets could continue to impact our customers and
severely impact the demand for projects that would result in
orders for our products and services. If one or more of our
suppliers or subcontractors experiences difficulties that result
in a reduction or interruption in supply to us, or they fail to
meet our manufacturing requirements, our business could be
adversely impacted until we are able to secure alternative
sources. Furthermore, our ability to expand our business would
be limited in the future if we are unable to increase our
bonding capacity or our credit facility on favorable terms or at
all. These disruptions could lead to a lower demand for our
products and services and could materially impact our business,
financial condition and results of operations and potentially
impact the trading price of our common stock.
Our
industry is highly competitive.
Many of our competitors are significantly larger and have
substantially greater resources than we do. Competition in the
industry depends on a number of factors, including price.
Certain of our competitors may have lower cost structures and
may, therefore, be able to provide their products or services at
lower prices than we are able to provide. We cannot be certain
that our competitors will not develop the expertise, experience
and resources to provide products or services that are superior
in both price and quality to our services. Similarly, we cannot
be certain that we will be able to maintain or enhance our
competitive position within our industry, maintain our customer
base at current levels or increase our customer base.
International
and political events may adversely affect our
operations.
International sales accounted for approximately 23% of our
revenues in fiscal 2009, including sales from our operations in
the United Kingdom. We primarily operate in developed countries
with historically stable operating and fiscal environments. Our
consolidated results of operations, cash flows and financial
condition could be adversely affected by the occurrence of
political and economic instability; social unrest, acts of
terrorism, force majeure, war or other armed conflict;
inflation; currency fluctuations, devaluations and conversion
restrictions; governmental activities that limit or disrupt
markets, restrict payments or limit the movement of funds and
trade restrictions and economic embargoes imposed by the United
States or other countries.
Fluctuations
in the price and supply of raw materials used to manufacture our
products may reduce our profits.
Our raw material costs represented approximately 48% of our
revenues for the fiscal year ended September 30, 2009. We
purchase a wide variety of raw materials to manufacture our
products, including steel, aluminum, copper and various
electrical components. Unanticipated increases in raw material
requirements or price increases could increase production costs
and adversely affect profitability.
Our
use of
percentage-of-completion
accounting could result in a reduction or elimination of
previously reported profits.
As discussed in Managements Discussion and Analysis
of Financial Condition and Results of Operations
Critical Accounting Policies and Estimates and in Notes to
Consolidated Financial Statements, a significant portion of our
revenues is recognized on the
percentage-of-completion
method of accounting. The
percentage-of-completion
accounting practice we use results in our recognizing contract
revenues and earnings ratably over the contract term in
proportion to our incurrence of contract costs. The earnings or
losses recognized on individual contracts are based on estimates
of contract revenues, costs and profitability. The process of
estimating costs on projects combines professional engineering,
cost estimating, pricing and accounting judgment. Contract
losses are recognized in full when determined, and contract
profit estimates are adjusted based on ongoing reviews of
estimated contract profitability. Previously recorded estimates
are adjusted as the project progresses. In certain
circumstances, it is possible that such adjustments could have a
significant impact on our operating results for any fiscal
quarter or year.
9
Our
dependence upon fixed-price contracts could result in reduced
profits or, in some cases, losses, if costs increase above our
estimates.
We currently generate, and expect to continue to generate, a
significant portion of our revenues under
fixed-price
contracts. We must estimate the costs of completing a particular
project to bid for fixed-price contracts. The cost of labor and
materials, however, may vary from the costs we originally
estimated. These variations, along with other risks inherent in
performing fixed-price contracts, may cause actual revenue and
gross profits for a project to differ from those we originally
estimated, and could result in reduced profitability or losses
on projects. Revenues and profits recognized under the
percentage-of-completion
method of accounting may be reversed if estimates of costs to
complete a project increase. Depending upon the size of a
particular project, variations from the estimated contract costs
could have a significant impact on our operating results for any
fiscal quarter or year. Some of our contracts contain penalty
provisions that require us to pay liquidated damages if we are
responsible for the failure to meet specified contractual
milestones and the applicable customer asserts a claim under
these provisions. These contractual provisions define the
conditions under which our customers may make claims against us
to pay liquidated damages. In many cases in which we have had
potential exposure for liquidated damages, such damages
ultimately were not fully asserted by our customers.
Our
acquisition strategy involves a number of risks.
Our strategy has been to pursue growth and product
diversification through the acquisition of companies or assets
that will enable us to expand our product and service offerings.
We routinely review potential acquisitions. However, we may be
unable to implement this strategy if we cannot reach agreement
on potential strategic acquisitions on acceptable terms or for
other reasons. Moreover, our acquisition strategy involves
certain risks, including difficulties in the integration of
operations and systems; the termination of relationships by key
personnel and customers of the acquired company; a failure to
add additional employees to handle the increased volume of
business; additional financial and accounting challenges and
complexities in areas such as tax planning, treasury management
and financial reporting; risks and liabilities from our
acquisitions, some of which may not be discovered during our due
diligence; a disruption of our ongoing business or an inability
of our ongoing business to receive sufficient management
attention and a failure to realize the cost savings or other
financial benefits we anticipated.
Financing for acquisitions may require us to obtain additional
equity or debt financing, which, if available, may not be
available on attractive terms.
We may
not be able to fully realize the revenue value reported in our
backlog.
We have a backlog of work to be completed on contracts. Orders
included in our backlog are represented by customer purchase
orders and contracts, which we believe to be firm. Backlog
develops as a result of new business taken, which represents the
revenue value of new project commitments received by us during a
given period. Backlog consists of projects which either
(1) have not yet been started or (2) are in progress
and are not yet completed. In the latter case, the revenue value
reported in backlog is the remaining value associated with work
that has not yet been completed. From time to time, projects are
canceled that appeared to have a high certainty of going forward
at the time they were recorded as new business taken. In the
event of a project cancellation, we may be reimbursed for
certain costs but typically have no contractual right to the
total revenue reflected in our backlog. In addition to our being
unable to recover certain direct costs, canceled projects may
also result in additional unrecoverable costs due to the
resulting underutilization of our assets.
Our
operating results may vary significantly from quarter to
quarter.
Our quarterly results may be materially and adversely affected
by changes in estimated costs or revenues under fixed-price
contracts; the timing and volume of work under new agreements;
general economic conditions; the spending patterns of customers;
variations in the margins of projects performed during any
particular quarter; losses experienced in our operations not
otherwise covered by insurance; a change in the demand or
production of our products and our services caused by severe
weather conditions; a change in the mix of our customers,
contracts and
10
business; increases in design and manufacturing costs; the
ability of customers to pay their invoices owed to us and
disagreements with customers related to project performance on
delivery.
Accordingly, our operating results in any particular quarter may
not be indicative of the results that you can expect for any
other quarter or for an entire year.
We may
be unsuccessful at generating profitable internal
growth.
Our ability to generate profitable internal growth will be
affected by, among other factors, potential regulatory changes,
our ability to attract new customers; increase the number or
size of projects performed for existing customers; hire and
retain employees and increase volume utilizing our existing
facilities.
In addition, our customers may reduce the number or size of
projects available to us. Many of the factors affecting our
ability to generate internal growth may be beyond our control,
and we cannot be certain that our strategies will be successful
or that we will be able to generate cash flow sufficient to fund
our operations and to support internal growth. If we are
unsuccessful, we may not be able to achieve internal growth,
expand our operations or grow our business.
The
departure of key personnel could disrupt our
business.
We depend on the continued efforts of our executive officers and
senior management. We cannot be certain that any individual will
continue in such capacity for any particular period of time. The
loss of key personnel, or the inability to hire and retain
qualified employees, could negatively impact our ability to
manage our business.
Our
business requires skilled labor, and we may be unable to attract
and retain qualified employees.
Our ability to maintain our productivity and profitability will
be limited by our ability to employ, train and retain skilled
personnel necessary to meet our requirements. We may experience
shortages of qualified personnel. We cannot be certain that we
will be able to maintain an adequate skilled labor force
necessary to operate efficiently and to support our growth
strategy or that our labor expenses will not increase as a
result of a shortage in the supply of skilled personnel. Labor
shortages or increased labor costs could impair our ability to
maintain our business or grow our revenues, and may adversely
impact our profitability.
Actual
and potential claims, lawsuits and proceedings could ultimately
reduce our profitability and liquidity and weaken our financial
condition.
We could be named as a defendant in future legal proceedings
claiming damages from us in connection with the operation of our
business. Most of the actions against us arise out of the normal
course of our performing services or manufacturing equipment. We
are and will likely continue to be a plaintiff in legal
proceedings against customers, in which we seek to recover
payment of contractual amounts due to us, as well as claims for
increased costs incurred by us. When appropriate, we establish
provisions against certain legal exposures, and we adjust such
provisions from time to time according to ongoing developments
related to each exposure. If in the future our assumptions and
estimates related to such exposures prove to be inadequate or
wrong, our consolidated results of operations, cash flows and
financial condition could be adversely affected. In addition,
claims, lawsuits and proceedings may harm our reputation or
divert management resources away from operating our business.
We
carry insurance against many potential liabilities, and our
management of risk may leave us exposed to unidentified or
unanticipated risks.
Although we maintain insurance policies with respect to our
related exposures, including certain self-insured medical and
dental programs, these policies contain deductibles and limits
of coverage. We estimate our liabilities for known claims and
unpaid claims and expenses based on information available as
well as projections for claims incurred but not reported.
However, insurance liabilities are difficult to estimate due to
various factors. If any of our insurance policies or programs
are not effective in mitigating our risks, we may incur losses
that are not covered by our insurance policies or that exceed
our accruals or that exceed our coverage limits and could
adversely impact our consolidated results of operations, cash
flows and financial position.
11
Technological
innovations by competitors may make existing products and
production methods obsolete.
All of the products manufactured and sold by the Company depend
upon the best available technology for success in the
marketplace. The competitive environment is highly sensitive to
technological innovation in both segments of our business. It is
possible for competitors (both domestic and foreign) to develop
products or production methods, which will make current products
or methods obsolete or at least hasten their obsolescence.
Catastrophic
events could disrupt our business.
The occurrence of catastrophic events ranging from natural
disasters such as hurricanes to epidemics such as health
epidemics to acts of war and terrorism could disrupt or delay
the Companys ability to complete projects for its
customers and could potentially expose the Company to
third-party liability claims. Such events may or may not be
fully covered by our various insurance policies or may be
subject to deductibles. In addition, such events could impact
the Companys customers and suppliers, resulting in
temporary or long-term delays
and/or
cancellations of orders or raw materials used in normal business
operations. These situations are outside the Companys
control and could have a significant adverse impact on the
results of operations.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
We have manufacturing facilities, sales offices, field offices
and repair centers located throughout the United States, and we
have a manufacturing facility located in the United Kingdom. We
also rent office space in Singapore on an as-needed basis. Our
facilities are generally located in areas that are readily
accessible to raw materials and labor pools and are maintained
in good condition. These facilities, together with recent
expansions, are expected to meet our needs for the foreseeable
future.
Our principal locations by segment as of September 30,
2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
Number
|
|
|
|
Square Footage
|
Location
|
|
of Facilities
|
|
Acres
|
|
Owned
|
|
Leased
|
|
Electrical Power Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
|
3
|
|
|
|
78.1
|
|
|
|
430,600
|
|
|
|
138,600
|
|
North Canton, OH
|
|
|
1
|
|
|
|
8.0
|
|
|
|
115,200
|
|
|
|
|
|
Northlake, IL
|
|
|
1
|
|
|
|
10.0
|
|
|
|
103,500
|
|
|
|
|
|
Bradford, United Kingdom
|
|
|
1
|
|
|
|
7.9
|
|
|
|
129,200
|
|
|
|
|
|
Process Control Systems:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pleasanton, CA
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
21,200
|
|
Duluth, GA
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
29,700
|
|
Chantilly, VA
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
5,200
|
|
East Rutherford, NJ
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
7,300
|
|
All leased properties are subject to long-term leases with
remaining lease terms ranging from one to five years as of
September 30, 2009. We do not anticipate experiencing
significant difficulty in retaining occupancy of any of our
leased facilities through lease renewals prior to expiration or
through
month-to-month
occupancy, or in replacing them with equivalent facilities.
|
|
Item 3.
|
Legal
Proceedings
|
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. We do not believe that the ultimate conclusion of
these disputes could materially affect our financial position or
results of operations.
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
12
substantially completed and has been performing to the
satisfaction of the Commission. However, various factors outside
of our control and the control of our joint venture partner
caused numerous changes and additions to the work that in turn
delayed the completion of the project. The Commission withheld
liquidated damages and earned contract payments from the joint
venture. We made claims against the Commission for various
matters, including compensation for extra work and delay to the
project.
The joint venture, of which we are the managing partner, and the
Commission reached an agreement through mediation in April 2009.
The settlement required the Commission to pay the joint venture
$5.9 million, of which $2.5 million was previously
paid in December 2008, resulting from the previously issued jury
verdict in our favor. An additional payment of $2.5 million
was received in May 2009, and the final payment of
$0.9 million was received in July 2009. This settlement
resulted in an increase in revenue of approximately
$3.5 million, reduced by legal and other expenses of
approximately $0.7 million in fiscal 2009.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
We did not submit any matter to a vote of our stockholders
during the fourth quarter of fiscal year 2009.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Price
Range of Common Stock
Our common stock trades on the NASDAQ Global Market
(NASDAQ) under the symbol POWL. The
following table sets forth, for the periods indicated, the high
and low sales prices per share as reported on the NASDAQ for our
common stock.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Fiscal Year 2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
47.00
|
|
|
$
|
37.51
|
|
Second Quarter
|
|
|
45.76
|
|
|
|
35.47
|
|
Third Quarter
|
|
|
55.50
|
|
|
|
38.50
|
|
Fourth Quarter
|
|
|
57.98
|
|
|
|
37.34
|
|
Fiscal Year 2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
41.00
|
|
|
$
|
16.74
|
|
Second Quarter
|
|
|
37.31
|
|
|
|
23.25
|
|
Third Quarter
|
|
|
44.93
|
|
|
|
30.60
|
|
Fourth Quarter
|
|
|
42.55
|
|
|
|
33.73
|
|
As of December 7, 2009, the last reported sales price of
our common stock on the NASDAQ was $37.08 per share.
As of December 7, 2009, there were 548 stockholders of
record of our common stock. All common stock held in street
names are recorded in the Companys stock register as being
held by one stockholder.
See Part III, Item 12 for information regarding
securities authorized for issuance under our equity compensation
plans.
Dividend
Policy
Our current credit agreements limit the payment of dividends,
other than dividends payable solely in our capital stock,
without prior consent of our lenders. To date, we have not paid
cash dividends on our common stock, and for the foreseeable
future we intend to retain earnings for the development of our
business. Future decisions to pay cash dividends will be at the
discretion of the Board of Directors and will depend upon our
results of operations, financial condition and capital
expenditure plans and restrictive covenants under our credit
facilities, along with other relevant factors.
13
Performance
Graph
The following Performance Graph and related information shall
not be deemed soliciting material or to be
filed with the Securities and Exchange Commission,
nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933 or Securities Act
of 1934, each as amended, except to the extent that we
specifically incorporate it by reference into such filing.
The following graph compares, for the period from
October 31, 2004, to September 30, 2009, the
cumulative stockholder return on our common stock with the
cumulative total return on the NASDAQ Market Index and
Industrial Electrical Equipment. The comparison assumes that
$100 was invested on October 31, 2004, in our common stock,
the NASDAQ Market Index and Industrial Electrical Equipment. The
stock price performance reflected on the following graph is not
necessarily indicative of future stock price performance.
COMPARISON
OF 5-YEAR
CUMULATIVE TOTAL RETURN
AMONG POWELL INDUSTRIES, INC.,
INDUSTRIAL ELECTRICAL EQUIPMENT AND NASDAQ MARKET
INDEX
|
|
Item 6.
|
Selected
Financial Data
|
The selected financial data shown below for the past five years
(including the
11-month
period ended September 30, 2006) was derived from our
audited financial statements. The historical results are not
necessarily indicative of the operating results to be expected
in the future. The selected financial data should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and the
consolidated financial statements and related notes included
elsewhere in this Annual Report.
On August 7, 2006, we purchased certain assets related to
the ANSI medium voltage switchgear and circuit breaker business
of GEs Consumer & Industrial unit. The operating
results of the
Power/Vac®
product line are included from that date.
On July 14, 2006, we acquired certain assets and hired the
service and administrative employees of an electrical services
company in Louisiana. The operating results of this acquisition
are included in our Electrical Power Products business segment
from that date.
14
On July 4, 2005, we acquired selected assets and assumed
certain operating liabilities and contracts of
Switchgear & Instrumentation Limited. The operating
results of S&I are included from that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 Months
|
|
|
|
|
|
|
Years Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
October 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
665,851
|
|
|
$
|
638,704
|
|
|
$
|
564,282
|
|
|
$
|
374,547
|
|
|
$
|
256,645
|
|
Cost of goods sold
|
|
|
520,802
|
|
|
|
512,298
|
|
|
|
468,691
|
|
|
|
305,489
|
|
|
|
213,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
145,049
|
|
|
|
126,406
|
|
|
|
95,591
|
|
|
|
69,058
|
|
|
|
43,234
|
|
Selling, general and administrative expenses
|
|
|
83,414
|
|
|
|
84,001
|
|
|
|
77,246
|
|
|
|
55,345
|
|
|
|
41,846
|
|
Gain on sale of land and building
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before interest, income taxes, minority interest
|
|
|
61,635
|
|
|
|
42,405
|
|
|
|
18,345
|
|
|
|
13,713
|
|
|
|
2,440
|
|
Interest expense (income), net
|
|
|
976
|
|
|
|
2,537
|
|
|
|
2,943
|
|
|
|
698
|
|
|
|
(386
|
)
|
Income tax provision
|
|
|
20,734
|
|
|
|
14,072
|
|
|
|
5,468
|
|
|
|
4,609
|
|
|
|
932
|
|
Minority interest
|
|
|
208
|
|
|
|
(51
|
)
|
|
|
21
|
|
|
|
(3
|
)
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
39,717
|
|
|
$
|
25,847
|
|
|
$
|
9,913
|
|
|
$
|
8,409
|
|
|
$
|
1,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
3.48
|
|
|
$
|
2.29
|
|
|
$
|
0.90
|
|
|
$
|
0.77
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
3.43
|
|
|
$
|
2.26
|
|
|
$
|
0.88
|
|
|
$
|
0.76
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
As of September 30,
|
|
|
October 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
97,403
|
|
|
$
|
10,134
|
|
|
$
|
5,257
|
|
|
$
|
10,495
|
|
|
$
|
24,844
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,200
|
|
Property, plant and equipment, net
|
|
|
61,036
|
|
|
|
61,546
|
|
|
|
67,401
|
|
|
|
60,336
|
|
|
|
55,678
|
|
Total assets
|
|
|
404,840
|
|
|
|
397,634
|
|
|
|
341,015
|
|
|
|
292,678
|
|
|
|
226,778
|
|
Long-term debt and capital lease obligations, including current
maturities
|
|
|
9,492
|
|
|
|
41,758
|
|
|
|
35,836
|
|
|
|
42,396
|
|
|
|
21,531
|
|
Total stockholders equity
|
|
|
246,761
|
|
|
|
206,874
|
|
|
|
173,549
|
|
|
|
156,931
|
|
|
|
143,994
|
|
Total liabilities and stockholders equity
|
|
|
404,840
|
|
|
|
397,634
|
|
|
|
341,015
|
|
|
|
292,678
|
|
|
|
226,778
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and related
notes. 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. For a
description of the risks and uncertainties, please see
Cautionary Statement Regarding Forward-Looking Statements;
Risk Factors and Item 1A. Risk Factors
contained in this Annual Report.
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
15
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.
Throughout fiscal years 2007 and 2008, we experienced strong
market demand for our products and services. New investments in
oil and gas infrastructure, as well as new investments by
municipal and transit authorities to expand and improve public
transportation, were key drivers of increased business activity
in fiscal years 2008 and 2009. Customer inquiries, or requests
for proposals, remained strong throughout fiscal 2008 and the
first half of fiscal 2009. Accordingly, we entered fiscal 2009
with a strong backlog of orders which resulted in record
revenues for fiscal 2009.
Results
of Operations
Twelve
Months Ended September 30, 2009 (Fiscal 2009)
Compared to Twelve Months Ended September 30, 2008 (Fiscal
2008)
Revenue
and Gross Profit
Consolidated revenues increased $27.2 million to
$665.9 million in Fiscal 2009 compared to
$638.7 million in Fiscal 2008. Revenues increased as we
have responded to strong market demand by increasing our
capacity and throughput. Domestic revenues increased by 10.0% to
$516.0 million in Fiscal 2009 compared to
$469.1 million in Fiscal 2008. International revenues
decreased from $169.6 million in Fiscal 2008 to
$149.9 million in Fiscal 2009, primarily as the result of
changes in the British Pound
Sterling-to-U.S. Dollar
exchange rate. The increase in consolidated revenues was
primarily due to an increased sales effort and strong market
demand in Fiscal 2008 and the first half of Fiscal 2009. Gross
profit in Fiscal 2009 increased by approximately
$18.6 million compared to Fiscal 2008, as a result of our
ability to absorb our fixed costs and improved pricing as a
result of strong market activity.
Electrical
Power Products
Our Electrical Power Products business segment recorded revenues
of $637.9 million in Fiscal 2009, compared to
$611.5 million in Fiscal 2008. In Fiscal 2009, revenues
from public and private utilities were approximately
$154.3 million compared to $171.8 million in Fiscal
2008. Revenues from commercial and industrial customers totaled
$432.5 million in Fiscal 2009, an increase of
$32.5 million compared to Fiscal 2008. Municipal and
transit projects generated revenues of $51.1 million in
Fiscal 2009 compared to $39.7 million in Fiscal 2008.
Business segment gross profit, as a percentage of revenues, was
20.9% in Fiscal 2009 compared to 19.3% in Fiscal 2008. The
increase in gross profit as a percentage of revenues was
attributable to efficiencies resulting from an increase in
production volume and improved pricing as a result of strong
market activity.
Process
Control Systems
In Fiscal 2009, our Process Control Systems business segment
recorded revenues of $28.0 million, up from
$27.2 million in Fiscal 2008. Business segment gross profit
increased as a percentage of revenues, to 40.8% for Fiscal 2009,
compared to 30.2% for Fiscal 2008. This increase resulted from a
favorable mix of jobs and increased efficiencies through
regionalization of operations. Revenues and gross profit
benefited in Fiscal 2009 by approximately $3.5 million and
$2.8 million, respectively, due to a mediated settlement
related to a previously completed contract that was in dispute
for several years.
For additional information related to our business segments, see
Note M of Notes to Consolidated Financial Statements.
Consolidated
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses
decreased to 12.5% of revenues in Fiscal 2009 compared to 13.2%
of revenues in Fiscal 2008. Selling, general and administrative
expenses decreased to $83.4 million in Fiscal 2009 compared
to $84.0 million in Fiscal 2008. This decrease was
primarily a result of decreased commissions and incentive
compensation. Selling, general and administrative expenses as a
percentage
16
of revenues decreased primarily due to our ability to leverage
our existing infrastructure to support our increased production
volume, along with the timing of commissions related to new
orders.
Interest
Income and Expense
Interest expense was $1.1 million in Fiscal 2009, a
decrease of approximately $1.8 million compared to Fiscal
2008. The decrease in interest expense was primarily due to
lower interest rates and the lower amounts outstanding under our
credit facility during Fiscal 2009.
Interest income was $0.1 million in Fiscal 2009 compared to
$0.4 million in Fiscal 2008. This decrease resulted from
lower interest rates being earned on amounts invested.
Provision
for Income Taxes
Our provision for income taxes reflects an effective tax rate on
earnings before income taxes of 34.2% in Fiscal 2009 compared to
35.3% in Fiscal 2008. The decrease in the effective tax rate
resulted primarily from an agreement reached with the taxing
authorities in the United Kingdom resulting in a reduction in
tax expense of approximately $568,000 related to foreign tax
credits from previous years.
Net
Income
In Fiscal 2009, we recorded net income of $39.7 million, or
$3.43 per diluted share, compared to $25.8 million, or
$2.26 per diluted share, in Fiscal 2008. We generated higher
revenues and improved gross profits for the Company as a whole,
while leveraging our existing infrastructure to support our
increased production volume. As previously discussed, net income
in Fiscal 2009 included the benefit of the $3.5 million
mediated settlement, reduced by legal and other expenses of
approximately $0.7 million, net of tax, related to a
previously completed contract that was in dispute for several
years.
Backlog
The order backlog at September 30, 2009, was
$365.8 million, compared to $518.6 million at
September 30, 2008. New orders placed during Fiscal 2009
totaled $511.2 million compared to $705.4 million in
Fiscal 2008. Our decline in backlog was due to the amount of
projects completed being greater than the amount of orders
received, and a number of our customers have delayed the start
of new capital projects during the second half of Fiscal 2009.
Fiscal
2008 Compared to Twelve Months Ended September 30, 2007
(Fiscal 2007)
Revenue
and Gross Profit
Consolidated revenues increased $74.4 million to
$638.7 million in Fiscal 2008 compared to
$564.3 million in Fiscal 2007. Revenues increased as we
responded to strong market demand by increasing our capacity and
throughput. Domestic revenues increased by 25.9% to
$469.1 million in Fiscal 2008 compared to
$372.7 million in Fiscal 2007. International revenues
decreased from $191.6 million in Fiscal 2007 to
$169.6 million in Fiscal 2008, as a large international
project was substantially completed in Fiscal 2007. The increase
in consolidated revenues was primarily due to higher levels of
energy related investments, principally oil and gas projects.
Gross profit in Fiscal 2008 increased by approximately
$30.8 million compared to Fiscal 2007, as a result of
improved pricing and productivity.
Electrical
Power Products
Our Electrical Power Products business segment recorded revenues
of $611.5 million in Fiscal 2008, compared to
$541.6 million in Fiscal 2007. In Fiscal 2008, revenues
from public and private utilities were approximately
$171.8 million compared to $174.4 million in Fiscal
2007. Revenues from commercial and industrial customers totaled
$400.0 million in Fiscal 2008, an increase of
$69.6 million compared to Fiscal 2007. Municipal and
transit projects generated revenues of $39.7 million in
Fiscal 2008 compared to $36.8 million in Fiscal 2007.
17
Business segment gross profit, as a percentage of revenues, was
19.3% in Fiscal 2008 compared to 16.4% in Fiscal 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. 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 we
entered into in fiscal 2006.
Process
Control Systems
In Fiscal 2008, our Process Control Systems business segment
recorded revenues of $27.2 million, up from
$22.7 million in Fiscal 2007. Business segment gross profit
increased as a percentage of revenues, to 30.2% for Fiscal 2008,
compared to 28.8% for 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 in Fiscal 2008 were also positively impacted by
approximately $1.9 million related to the favorable
settlement of a claim for extra work performed on a project that
was substantially completed in prior years.
For additional information related to our business segments, see
Note M of Notes to Consolidated Financial Statements.
Consolidated
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses
decreased to 13.2% of revenues in Fiscal 2008 compared to 13.7%
of revenues in Fiscal 2007. Selling, general and administrative
expenses increased to $84.0 million in Fiscal 2008 compared
to $77.2 million in Fiscal 2007. This increase is a result
of increased commissions, salaries and incentive compensation
due to increased volumes and earnings. 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.
Interest
Income and Expense
Interest expense was $2.9 million in Fiscal 2008, a
decrease of approximately $0.6 million compared to Fiscal
2007. The decrease in interest expense was primarily due to
lower interest rates.
Interest income was $0.4 million in Fiscal 2008 compared to
$0.6 million in Fiscal 2007. This decrease resulted from
lower interest rates and cash being used to fund working capital
during Fiscal 2008.
Provision
for Income Taxes
Our provision for income taxes reflects an effective tax rate on
earnings before income taxes of 35.3% in Fiscal 2008 compared to
35.5% in 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, as well as a mix of
various state income taxes due to the relative mix of volume in
the United States.
Net
Income
In Fiscal 2008, we recorded net income of $25.8 million, or
$2.26 per diluted share, compared to $9.9 million, or $0.88
per diluted share, in Fiscal 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 September 30, 2008, was
$518.6 million, compared to $464.5 million at
September 30, 2007. New orders placed during Fiscal 2008
totaled $705.4 million compared to $667.1 million in
Fiscal 2007.
18
Liquidity
and Capital Resources
Cash and cash equivalents increased to approximately
$97.4 million at September 30, 2009, as a result of
cash flow provided by operations of approximately
$127.0 million for Fiscal 2009. The approximately
$127.0 million of cash flow from operations resulted from
net income and our increased efforts to manage inventory and
billings to customers and was used to repay our
U.S. revolving credit facility and our revolving credit
facility and term loan in the United Kingdom, reducing total
debt outstanding by approximately $26.6 million, and to
finance our operational activities. As of September 30,
2009, current assets exceeded current liabilities by 2.1 times
and our debt to total capitalization ratio was 3.7%.
At September 30, 2009, we had cash and cash equivalents of
$97.4 million, compared to $10.1 million at
September 30, 2008. We have a $58.5 million revolving
credit facility in the U.S. and an additional
£4.0 million (approximately $6.4 million)
revolving credit facility in the United Kingdom, both of which
expire in December 2012. As of September 30, 2009, there
were no amounts borrowed under these lines of credit. Total
long-term debt and capital lease obligations, including current
maturities, totaled $9.5 million at September 30,
2009, compared to $41.8 million at September 30, 2008.
Letters of credit outstanding were $17.6 million and $31.3
at September 30, 2009 and 2008, respectively. Amounts
available under the U.S. revolving credit facility and the
revolving credit facility in the United Kingdom were
approximately $45.9 million and $6.4 million,
respectively, at September 30, 2009. For further
information regarding our debt, see Notes H and K of Notes
to Consolidated Financial Statements.
Operating
Activities
During Fiscal 2009, cash provided by operating activities was
approximately $127.0 million. Cash flow from operations is
primarily influenced by demand for our products and services and
is impacted as our progress payment terms with our customers are
matched with the payment terms with our suppliers. The increase
in cash flow from operations resulted primarily from net income
and our increased efforts to manage inventory and billings to
customers. During Fiscal 2008, cash used in operating activities
was approximately $5.2 million. Cash flow from operations
was negatively impacted as accounts receivable and inventories
increased due to higher volume as a result of demand for our
products and services. During Fiscal 2007, cash provided by
operating activities was approximately $12.2 million.
Investing
Activities
Investments in property, plant and equipment during Fiscal 2009
totaled approximately $8.1 million compared to
$3.4 million and $14.3 million in Fiscal 2008 and
2007, respectively. Our capital expenditures in Fiscal 2009
related primarily to the expansion of one of our operating
facilities and for upgrades to our enterprise resource planning
system (ERP system). The majority of our 2007
capital expenditures were used to continue the implementation of
our new ERP system, and the expansion of two of our operating
facilities.
There were no material proceeds from the sale of fixed assets in
Fiscal 2009 or 2008. Proceeds from the sale of fixed assets
provided cash of approximately $0.2 million in Fiscal 2007.
Proceeds from the sale of fixed assets in Fiscal 2009 and 2007
were primarily from the sale of idled manufacturing facilities
and equipment.
Financing
Activities
Net cash used in financing activities was approximately
$30.4 million in Fiscal 2009, because we paid down our
revolving lines of credit and the term loan from the cash flow
provided by our operating activities. Net cash provided by
financing activities was approximately $13.8 million in
Fiscal 2008. The primary source of cash in financing activities
in Fiscal 2008 was due to borrowings on the US revolving line of
credit and proceeds from the exercise of stock options, which
were used to fund operations and capital expenditures. Net cash
used in financing activities was approximately $4.0 million
in Fiscal 2007. The primary use of cash in financing activities
in Fiscal 2007 was due to payments on the US revolving line of
credit.
19
Contractual
and Other Obligations
At September 30, 2009, our long-term contractual
obligations were limited to debt and leases. The table below
details our commitments by type of obligation, including
interest if applicable, and the period that the payment will
become due (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
Operating
|
|
|
|
|
As of September 30, 2009,
|
|
Debt
|
|
|
Lease
|
|
|
|
|
Payments Due by Period:
|
|
Obligations
|
|
|
Obligations
|
|
|
Total
|
|
|
Less than 1 year
|
|
$
|
5,929
|
|
|
$
|
2,982
|
|
|
$
|
8,911
|
|
1 to 3 years
|
|
|
850
|
|
|
|
5,356
|
|
|
|
6,206
|
|
3 to 5 years
|
|
|
841
|
|
|
|
2,219
|
|
|
|
3,060
|
|
More than 5 years
|
|
|
3,267
|
|
|
|
|
|
|
|
3,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term contractual obligations
|
|
$
|
10,887
|
|
|
$
|
10,557
|
|
|
$
|
21,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009, the total unrecognized tax
benefit related to uncertain tax positions was approximately
$0.6 million. We estimate that none of this will be paid
within the next 12 months. However, we believe that it is
reasonably possible that within the next 12 months
unrecognized tax benefits will decrease by approximately $80,000
due to the expiration of certain statutes of limitations. We are
unable to make reasonably reliable estimates regarding the
timing of future cash outflows, if any, associated with the
remaining unrecognized tax benefits.
Other
Commercial Commitments
We are contingently liable for secured and unsecured letters of
credit of $17.6 million as of September 30, 2009, of
which $12.6 million reduces our borrowing capacity.
The following table reflects potential cash outflows that may
result from a contingent event related to our letters of credit
(in thousands):
|
|
|
|
|
As of September 30, 2009,
|
|
Letters of
|
|
Payments Due by Period:
|
|
Credit
|
|
|
Less than 1 year
|
|
$
|
9,312
|
|
1 to 3 years
|
|
|
7,948
|
|
3 to 5 years
|
|
|
135
|
|
More than 5 years
|
|
|
159
|
|
|
|
|
|
|
Total long-term commercial obligations
|
|
$
|
17,554
|
|
|
|
|
|
|
We also had performance and maintenance bonds totaling
approximately $182.8 million that were outstanding at
September 30, 2009. Performance and maintenance bonds are
used to guarantee contract performance to our customers.
Outlook
We participate in large capital-intensive projects in the oil
and gas, petrochemical, utility and transportation markets,
which can take several years to plan and execute. Once our
customers begin the construction phase, projects are typically
completed. Our record revenues in Fiscal 2009 were driven by the
large number and size of capital projects that were planned and
initiated over the past two years.
However, our backlog of orders going into our fiscal year 2010
(Fiscal 2010) is approximately $365.8 million,
a $152.8 million decrease from the beginning backlog of
orders going into Fiscal 2009. Throughout the second half of
Fiscal 2009, an increasing number of our customers began to
delay the start of new capital projects. We believe these delays
resulted from the short-term reduction in the demand for oil,
uncertainty in the worldwide economy and financial markets, as
well as increasing uncertainty as to the impact that potential
regulatory changes could have on their business. We believe that
this delay in capital project investment decisions will subside
once financial markets begin to stabilize and the impact of
regulatory changes can be predicted.
20
Growth in demand for energy is expected to continue over the
long term. New infrastructure investments will be needed to
ensure the available supply of petroleum products. New power
generation and distribution infrastructure will also be needed
to meet the growing demand for electrical energy. New power
generation plants will also be needed to replace the aging
facilities across the United States, as those plants reach the
end of their life cycle. A heightened concern for environmental
damage, together with the uncertainty of gasoline prices, has
expanded the popularity of urban transit systems and pushed
ridership to an all-time high, which will drive new investment
in transit infrastructure. Opportunities for future projects
continue; however, the timing of many of these projects is
difficult to predict.
We believe that cash available and borrowing capacity under our
existing revolvers should be sufficient to finance anticipated
operational activities, capital improvements and debt repayments
for the foreseeable future. During this period of market
uncertainty, we will continue to monitor the factors that drive
our markets. We will strive to maintain our leadership and
competitive advantage in the markets we serve while aligning our
cost structures with market conditions.
Effects
of Inflation
We have experienced significant price volatility related to raw
materials, primarily copper, aluminum and steel, during the past
three years. Fixed price contracts can limit our ability to pass
cost increases to our customers, thus negatively impacting our
earnings. We anticipate that the volatility in commodity prices
could impact our operations in Fiscal 2010.
Critical
Accounting Policies and Estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosures of
contingent assets and liabilities. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual
results may differ from these estimates. We believe the
following accounting policies and estimates to be critical in
the preparation and reporting of our consolidated financial
statements.
Revenue
Recognition
Our revenues are primarily generated from engineering and
manufacturing of custom products under long-term contracts that
may last from one month to several years, depending on the
contract. Revenues from long-term contracts are recognized on
the
percentage-of-completion
method of accounting.
Under the
percentage-of-completion
method of accounting, revenues are recognized as work is
performed primarily based on the estimated completion to date
calculated by multiplying the total contract price by percentage
of performance to date, based on total costs or total labor
dollars incurred to date to the total estimated costs or total
labor dollars estimated at completion. The method used to
determine the percentage of completion is typically the cost
method, unless the labor method is a more accurate method of
measuring the progress of the project. Application of the
percentage-of-completion
method of accounting requires the use of estimates of costs to
be incurred for the performance of the contract. Contract costs
include all direct material, direct labor costs and those
indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs and all costs associated with
operation of equipment. The cost estimation process is based
upon the professional knowledge and experience of the
Companys engineers, project managers and financial
professionals. Factors that are considered in estimating the
work to be completed and ultimate contract recovery include the
availability and productivity of labor, the nature and
complexity of the work to be performed, the effect of change
orders, the availability of materials, the effect of any delays
in our project performance and the recoverability of any claims.
Changes in job performance, job conditions, estimated
profitability and final contract settlements, including our
estimate of liquidated damages, if any, may result in revisions
to costs and income, with their effects being recognized in the
period in which the revisions are determined. Whenever revisions
of estimated contract costs and contract values indicate that
the contract costs will exceed estimated revenues, thus creating
a loss, a provision for the total estimated loss is recorded in
that period.
21
Revenues associated with maintenance, repair and service
contracts are recognized when the services are performed.
Expenses related to these types of services are recognized as
incurred.
Allowance
for Doubtful Accounts
We maintain and continually assess the adequacy of an allowance
for doubtful accounts representing our estimate for losses
resulting from the inability of our customers to pay amounts due
to us. This estimated allowance is based on historical
experience of uncollected accounts, the level of past due
accounts, the overall level of outstanding accounts receivable,
information about specific customers with respect to their
inability to make payments and expectations of future conditions
that could impact the collectibility of accounts receivable.
However, future changes in our customers operating
performance and cash flows, or in general economic conditions,
could have an impact on their ability to fully pay these
amounts, which, among other things, could have a material
adverse impact on our operating results.
Impairment
of Long-Lived Assets
We evaluate the recoverability of the carrying amount of
long-lived assets, including intangible assets with definite
useful lives, whenever events or changes in circumstances
indicate that the carrying value of an asset may not be fully
recoverable. The review for impairment of these long-lived
assets takes into account estimates of future cash flows. For
assets held for sale or disposal, the fair value of the asset is
measured using quoted market prices or an estimation of net
realizable value. An impairment loss exists when estimated
undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying
amount.
Intangible
Assets
Goodwill and other intangible assets with indefinite useful
lives are no longer amortized, but are evaluated for impairment
annually, or immediately if conditions indicate that impairment
could exist. The annual evaluation for impairment of goodwill
and indefinite-lived intangible assets is based on valuation
models that incorporate assumptions and internal projections of
expected future cash flows and operating plans.
The costs of intangible assets with determinable useful lives
are amortized over their estimated useful lives. When certain
events or changes in operating conditions occur, an impairment
assessment is performed and lives of intangible assets with
determinable lives may be adjusted.
Accruals
for Contingent Liabilities
From time to time, contingencies such as insurance and legal
claims arise in the normal course of business. Pursuant to
current accounting standards, we must evaluate such
contingencies to subjectively determine the likelihood that an
asset has been impaired or a liability has been incurred at the
date of the financial statements, as well as evaluating whether
the amount of the loss can be reasonably estimated. If the
likelihood is determined to be probable and it can be reasonably
estimated, the estimated loss is recorded. The amounts we record
for insurance claims, warranties, legal and other contingent
liabilities require judgments regarding the amount of expenses
that will ultimately be incurred. We use past experience and
history, as well as the specific circumstances surrounding each
contingent liability, in evaluating the amount of liability that
should be recorded. Actual results could differ from our
estimates.
Warranty
Costs
We provide for estimated warranty costs at the time of sale
based upon historical rates applicable to individual product
lines. In addition, specific provisions are made when the costs
of such warranties are expected to exceed accruals. We use past
experience and historical claims to determine the estimated
liability. Actual results could differ from our estimate.
22
Accounting
for Income Taxes
We account for income taxes under the asset and liability
method, based on the income tax laws and rates in the countries
in which operations are conducted and income is earned. This
approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax
basis of assets and liabilities. Developing our provision for
income taxes requires significant judgment and expertise in
federal, international and state income tax laws, regulations
and strategies, including the determination of deferred tax
assets and liabilities and, if necessary, any valuation
allowances that may be required for deferred tax assets. We have
not recorded any valuation allowances as of September 30,
2009, because we believe that future taxable income will, more
likely than not, be sufficient to realize the benefits of those
assets as the temporary differences in basis reverse over time.
Our judgments and tax strategies are subject to audit by various
taxing authorities.
We adopted new accounting guidance on the accounting for
uncertainty in income taxes on October 1, 2007. This new
accounting guidance addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. 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 positions. 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. This new accounting
guidance also provides guidance on derecognition,
classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures.
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. All assets and liabilities of foreign
operations are translated into U.S. Dollars using year-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.
Derivative
Financial Instruments
As part of managing our exposure to changes in foreign currency
exchange rates, we periodically utilize foreign exchange forward
contracts. The objective of these contracts is to minimize
impacts to cash flows and profitability due to changes in
foreign currency exchange rates on accounts receivable, accounts
payable and forecasted cash transactions. These contracts are
recorded in the consolidated balance sheets at fair value, which
is based upon an income approach consisting of a discounted cash
flow model that takes into account the present value of the
future cash flows under the terms of the contracts using current
market information as of the reporting date, such as foreign
currency spot and forward rates.
We formally document our hedging relationships, including
identifying the hedging instruments and the hedged items, as
well as our risk management objectives and strategies for
undertaking the hedge transactions. We also formally assess,
both at inception and at least quarterly thereafter, whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in the cash flows of the hedged
item. The effective portion of the change in fair value of a
derivative is recorded as a component of accumulated other
comprehensive income in the consolidated balance sheets. When
the hedged item affects the income statement, the gain or loss
included in accumulated other comprehensive income is reported
on the same line in the consolidated statements of operations as
the hedged item. In addition, any ineffective portion of the
changes in the fair value of derivatives used as cash flow
hedges is reported in the consolidated statements of operations
as the changes occur. If it is determined that a derivative
ceases to be a highly effective hedge, or if the anticipated
transaction is no longer likely to occur, we discontinue hedge
accounting and any unrealized gains or losses are recorded in
the consolidated statements of operations.
23
On January 1, 2009, we adopted new accounting guidance that
amended and expanded the disclosure requirements related to
derivative instruments and hedging activities. This guidance was
issued in response to concerns and criticisms about the lack of
adequate disclosure of derivative instruments and hedging
activities. The new guidance is focused on requiring enhanced
disclosure on: 1) how and why an entity uses derivative
instruments and hedging activities; 2) how derivative
instruments and related hedging activities are accounted for and
3) how derivative instruments and related hedging
activities affect an entitys cash flows, financial
position and performance.
To accomplish the three objectives listed above, we are required
to provide: 1) qualitative disclosures regarding the
objectives and strategies for using derivative instruments and
engaging in hedging activities in the context of our overall
risk exposure; 2) quantitative disclosure in tabular format
of the fair values of derivative instruments and their gains and
losses and 3) disclosures about credit-risk related
contingent features in derivative instruments.
New
Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has
codified a single source of authoritative nongovernmental
U.S. GAAP, the Accounting Standards Codification
(Codification). While the Codification does not
change U.S. GAAP, it introduces a new structure that is
organized in an easily accessible, user-friendly on-line
research system. The Codification supersedes all existing
accounting standards documents. All other accounting literature
not included in the Codification will be considered
nonauthoritative. Unless needed to clarify a point to readers,
we will refrain from citing specific section references when
discussing application of accounting principles or addressing
new or pending accounting rule changes.
In December 2007, the FASB issued new accounting guidance on
business combinations. The new guidance 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. The new accounting guidance also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
The new guidance 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 this new accounting guidance on
future acquisitions.
In December 2007, the FASB issued new accounting guidance for
noncontrolling interests in consolidated financial statements.
This new guidance 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. The new accounting guidance also establishes
disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the
noncontrolling owners. The new guidance 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 this guidance on our
consolidated results of operations and financial condition.
In April 2008, the FASB issued new accounting guidance regarding
the determination of useful lives of intangible assets that
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.
This guidance is intended to improve the consistency between the
useful life of a recognized intangible asset under accounting
guidance related to goodwill and other intangible assets and the
period of expected cash flows used to measure the fair value of
the asset under accounting guidance related to business
combinations and other U.S. GAAP. This guidance 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 this
new guidance on our consolidated results of operations and
financial condition.
In June 2008, the FASB issued new accounting guidance regarding
share-based payment transactions that 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-
24
class method. This new accounting guidance 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.
This guidance 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
do not expect adoption of this guidance to have a material
effect on our earnings per share.
In December 2008, the FASB issued new accounting guidance on
employers disclosures about postretirement benefit plan
assets. The disclosures about plan assets required by this new
guidance shall be provided for fiscal years ending after
December 15, 2009, and will be adopted by us in the first
quarter of fiscal year 2011. We do not expect adoption of this
new guidance to have a material impact on our consolidated
financial statements.
In April 2009, the FASB issued new accounting guidance
addressing the interim disclosures about the fair value of
financial instruments, which amended the previous disclosures
regarding the fair value of financial instruments, and interim
financial reporting. This new guidance requires disclosures
about the fair value of financial instruments in interim
financial statements, in addition to the annual financial
statements as already required. This new accounting guidance
became effective for interim periods ending after June 15,
2009, and was adopted by us in the third quarter of Fiscal 2009.
The adoption of this new guidance had no material impact on our
consolidated financial statements.
In April 2009, the FASB issued new accounting guidance regarding
the accounting for assets acquired and liabilities assumed in a
business combination due to contingencies. This new guidance
clarifies the initial and subsequent recognition, subsequent
accounting and disclosure of assets and liabilities arising from
contingencies in a business combination. This new guidance
requires that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized
at fair value, if the acquisition date fair value
can be reasonably estimated. If the acquisition-date fair value
of an asset or liability cannot be reasonably estimated, the
asset or liability would be measured at the amount that would be
recognized using the accounting guidance related to accounting
for contingencies or the guidance for reasonably estimating
losses. This new accounting guidance becomes effective for us on
October 1, 2010; however, as the provision of the guidance
will be applied prospectively to business combinations with an
acquisition date on or after the guidance becomes effective, the
impact to us cannot be determined until a transaction occurs.
In April 2009, the FASB issued new accounting guidance regarding
the determination of fair value when the volume and level of
activity for assets or liabilities have significantly decreased,
and identifying transactions that are not orderly. This guidance
requires an evaluation of whether there has been a significant
decrease in the volume and level of activity for the asset or
liability in relation to normal market activity for the asset or
liability. If there has, transactions or quoted prices may not
be indicative of fair value and a significant adjustment may
need to be made to those prices to estimate fair value.
Additionally, an entity must consider whether the observed
transaction was orderly (that is, not distressed or forced). If
the transaction was orderly, the obtained price can be
considered a relevant observable input for determining fair
value. If the transaction is not orderly, other valuation
techniques must be used when estimating fair value. This new
accounting guidance must be applied prospectively for interim
periods ending after June 15, 2009, and was adopted by us
effective June 30, 2009, but currently has no impact on our
financial statements.
|
|
Item 7A.
|
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.
Interest
Rate Risk
We are subject to market risk resulting from changes in interest
rates related to our floating rate bank credit facility. At
September 30, 2009, $12.6 million was outstanding,
bearing interest at approximately 3.0% per year. A hypothetical
100 basis point increase in variable interest rates would
result in a total annual increase in interest expense of
approximately $126,000. 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. During each of the past three years, we have not
experienced a significant effect on our business due to changes
in interest rates.
25
Foreign
Currency Transaction Risk
We have significant operations that expose us to currency risk
in the British Pound Sterling and to a lesser extent the Euro.
Amounts invested in our foreign operations are translated into
U.S. Dollars at the exchange rates in effect at the balance
sheet date. The resulting translation adjustments are recorded
as accumulated other comprehensive income (loss), a component of
stockholders equity in our consolidated balance sheets. 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 Pound Sterling. Additionally, expenses
associated with these transactions are generally contracted and
paid for in the same local currencies. A 10% unfavorable change
in the British Pound
Sterling-to-U.S. Dollar
exchange rate would not materially impact our consolidated
balance sheet at September 30, 2009.
During Fiscal 2009, we entered into four foreign currency
forward contracts to manage the volatility of future cash flows
on certain large contracts that are denominated in the British
Pound Sterling. The contracts are designated as cash flow hedges
for accounting purposes. The changes in fair value related to
the effective portion of the hedges are recognized as a
component of accumulated other comprehensive income on our
consolidated balance sheets. At September 30, 2009, a net
liability of approximately $0.8 million was recorded on our
consolidated balance sheets related to these transactions.
Commodity
Price Risk
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 volatility with some of our key raw
materials and components. Fixed price contracts may limit our
ability to pass 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.
Market
Risk
We are also exposed to general market and other risk and its
potential impact on accounts receivable or costs and estimated
earnings in excess of billings on uncompleted contracts. The
amounts recorded may be at risk if our customers ability
to pay these obligations is negatively impacted by economic
conditions. Our customers are typically oil and gas producers,
oil and gas pipelines, refineries, petrochemical plants,
electrical power generators, public and private utilities,
co-generation facilities, mining/metals, pulp and paper plants,
transportation authorities, governmental agencies and other
large industrial customers. We maintain on-going discussions
with customers regarding contract status with respect to payment
status, change orders and billing terms in an effort to monitor
collections of amounts billed.
26
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
|
|
|
|
|
Index to Consolidated Financial Statements
|
|
Page
|
|
Financial Statements:
|
|
|
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
31
|
|
|
|
|
32
|
|
|
|
|
33
|
|
27
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of Powell Industries, Inc.:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Powell Industries, Inc. and its
subsidiaries at September 30, 2009 and 2008, and the
results of their operations and their cash flows for the three
years in the period ended September 30, 2009, in conformity
with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over
financial reporting as of September 30, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note I to the consolidated financial
statements, the Company has changed the manner in which it
accounts for uncertainty in income taxes for 2008.
A companys internal control over financial reporting is a
process designed 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. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Houston, Texas
December 11, 2009
28
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
97,403
|
|
|
$
|
10,134
|
|
Accounts receivable, less allowance for doubtful accounts of
$1,607 and $1,180, respectively
|
|
|
114,274
|
|
|
|
132,446
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
46,335
|
|
|
|
82,574
|
|
Inventories, net
|
|
|
46,252
|
|
|
|
72,679
|
|
Income taxes receivable
|
|
|
695
|
|
|
|
149
|
|
Deferred income taxes
|
|
|
3,303
|
|
|
|
1,518
|
|
Prepaid expenses and other current assets
|
|
|
6,741
|
|
|
|
3,935
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
315,003
|
|
|
|
303,435
|
|
Property, plant and equipment, net
|
|
|
61,036
|
|
|
|
61,546
|
|
Goodwill
|
|
|
1,084
|
|
|
|
1,084
|
|
Intangible assets, net
|
|
|
21,305
|
|
|
|
25,014
|
|
Other assets
|
|
|
6,412
|
|
|
|
6,555
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
404,840
|
|
|
$
|
397,634
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and capital lease
obligations
|
|
$
|
4,692
|
|
|
$
|
7,814
|
|
Income taxes payable
|
|
|
7,637
|
|
|
|
7,223
|
|
Accounts payable
|
|
|
48,124
|
|
|
|
54,168
|
|
Accrued salaries, bonuses and commissions
|
|
|
24,503
|
|
|
|
26,361
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
44,772
|
|
|
|
39,336
|
|
Accrued product warranty
|
|
|
7,558
|
|
|
|
6,793
|
|
Other accrued expenses
|
|
|
11,856
|
|
|
|
11,041
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
149,142
|
|
|
|
152,736
|
|
Long-term debt and capital lease obligations, net of current
maturities
|
|
|
4,800
|
|
|
|
33,944
|
|
Deferred compensation
|
|
|
2,685
|
|
|
|
2,821
|
|
Postretirement benefit obligation
|
|
|
784
|
|
|
|
807
|
|
Other liabilities
|
|
|
212
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
157,623
|
|
|
|
190,512
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note K)
|
|
|
|
|
|
|
|
|
Minority Interest
|
|
|
456
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.01; 5,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $.01; 30,000,000 shares authorized;
11,479,610 and 11,403,687 shares issued, respectively;
11,479,610 and 11,403,687 shares outstanding, respectively
|
|
|
115
|
|
|
|
114
|
|
Additional paid-in capital
|
|
|
29,970
|
|
|
|
26,921
|
|
Retained earnings
|
|
|
219,961
|
|
|
|
180,244
|
|
Accumulated other comprehensive income
|
|
|
(2,716
|
)
|
|
|
335
|
|
Deferred compensation
|
|
|
(569
|
)
|
|
|
(740
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
246,761
|
|
|
|
206,874
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
404,840
|
|
|
$
|
397,634
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
29
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
665,851
|
|
|
$
|
638,704
|
|
|
$
|
564,282
|
|
Cost of goods sold
|
|
|
520,802
|
|
|
|
512,298
|
|
|
|
468,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
145,049
|
|
|
|
126,406
|
|
|
|
95,591
|
|
Selling, general and administrative expenses
|
|
|
83,414
|
|
|
|
84,001
|
|
|
|
77,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before interest, income taxes and minority interest
|
|
|
61,635
|
|
|
|
42,405
|
|
|
|
18,345
|
|
Interest expense
|
|
|
1,107
|
|
|
|
2,892
|
|
|
|
3,501
|
|
Interest income
|
|
|
(131
|
)
|
|
|
(355
|
)
|
|
|
(558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
60,659
|
|
|
|
39,868
|
|
|
|
15,402
|
|
Income tax provision
|
|
|
20,734
|
|
|
|
14,072
|
|
|
|
5,468
|
|
Minority interest in net income (loss)
|
|
|
208
|
|
|
|
(51
|
)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
39,717
|
|
|
$
|
25,847
|
|
|
$
|
9,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.48
|
|
|
$
|
2.29
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
3.43
|
|
|
$
|
2.26
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,424
|
|
|
|
11,265
|
|
|
|
11,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
11,591
|
|
|
|
11,452
|
|
|
|
11,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
30
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumu-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
hensive
|
|
|
Deferred
|
|
|
|
|
|
|
hensive
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
Income
|
|
|
Compen-
|
|
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
(Loss)
|
|
|
sation
|
|
|
Total
|
|
|
Balance, September 30, 2006
|
|
|
|
|
|
|
11,002
|
|
|
$
|
110
|
|
|
$
|
12,776
|
|
|
$
|
144,659
|
|
|
$
|
(525
|
)
|
|
$
|
817
|
|
|
$
|
(906
|
)
|
|
$
|
156,931
|
|
Net income
|
|
$
|
9,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,913
|
|
Foreign currency translation adjustments
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,528
|
|
|
|
|
|
|
|
1,528
|
|
Amortization of deferred compensation-ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
361
|
|
|
|
361
|
|
Exercise of stock options
|
|
|
|
|
|
|
124
|
|
|
|
1
|
|
|
|
2,847
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
3,264
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664
|
|
Income tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
Deferred compensation restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
Issuance of restricted stock
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
11,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,913
|
|
|
|
|
|
|
|
1,528
|
|
|
|
|
|
|
|
11,441
|
|
Incremental adjustment to adopt postretirement benefit
accounting guidance, net of tax of $116
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
|
|
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007
|
|
|
|
|
|
|
11,144
|
|
|
|
111
|
|
|
|
16,854
|
|
|
|
154,572
|
|
|
|
|
|
|
|
2,557
|
|
|
|
(545
|
)
|
|
|
173,549
|
|
Net income
|
|
|
25,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,847
|
|
Foreign currency translation adjustments
|
|
|
(2,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,395
|
)
|
|
|
|
|
|
|
(2,395
|
)
|
Amortization of deferred compensation-ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387
|
|
|
|
387
|
|
Exercise of stock options
|
|
|
|
|
|
|
239
|
|
|
|
3
|
|
|
|
4,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,237
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,166
|
|
Income tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,510
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
424
|
|
Deferred compensation restricted stock
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(716
|
)
|
|
|
|
|
Adjustment from adoption of accounting guidance on the
accounting for uncertainty in income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
Postretirement benefit adjustment, net of tax of $97
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173
|
|
|
|
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
23,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,847
|
|
|
|
|
|
|
|
(2,222
|
)
|
|
|
|
|
|
|
23,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008
|
|
|
|
|
|
|
11,404
|
|
|
|
114
|
|
|
|
26,921
|
|
|
|
180,244
|
|
|
|
|
|
|
|
335
|
|
|
|
(740
|
)
|
|
|
206,874
|
|
Net income
|
|
|
39,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,717
|
|
Foreign currency translation adjustments
|
|
|
(2,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,867
|
)
|
|
|
|
|
|
|
(2,867
|
)
|
Amortization of deferred compensation-ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
158
|
|
Exercise of stock options
|
|
|
|
|
|
|
31
|
|
|
|
1
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
514
|
|
Stock-based compensation
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
1,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,623
|
|
Income tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476
|
|
|
|
476
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(463
|
)
|
|
|
159
|
|
Unrealized loss on cash flow hedges, net of tax of $164
|
|
|
(304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(304
|
)
|
|
|
|
|
|
|
(304
|
)
|
Postretirement benefit adjustment, net of tax of $67
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
36,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,717
|
|
|
|
|
|
|
|
(3,051
|
)
|
|
|
|
|
|
|
36,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
|
|
|
|
11,480
|
|
|
$
|
115
|
|
|
$
|
29,970
|
|
|
$
|
219,961
|
|
|
$
|
|
|
|
$
|
(2,716
|
)
|
|
$
|
(569
|
)
|
|
$
|
246,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
31
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
39,717
|
|
|
$
|
25,847
|
|
|
$
|
9,913
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
7,493
|
|
|
|
8,133
|
|
|
|
7,688
|
|
Amortization
|
|
|
3,469
|
|
|
|
3,740
|
|
|
|
3,876
|
|
Amortization of unearned restricted stock
|
|
|
634
|
|
|
|
425
|
|
|
|
296
|
|
Minority interest earnings (loss)
|
|
|
208
|
|
|
|
(51
|
)
|
|
|
21
|
|
Stock-based compensation
|
|
|
1,622
|
|
|
|
2,167
|
|
|
|
651
|
|
Bad debt expense
|
|
|
959
|
|
|
|
637
|
|
|
|
1,192
|
|
Deferred income taxes
|
|
|
(1,447
|
)
|
|
|
318
|
|
|
|
(592
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
15,392
|
|
|
|
(27,146
|
)
|
|
|
578
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
|
35,701
|
|
|
|
(14,062
|
)
|
|
|
(25,945
|
)
|
Inventories
|
|
|
25,884
|
|
|
|
(25,513
|
)
|
|
|
(19,148
|
)
|
Prepaid expenses and other current assets
|
|
|
(3,432
|
)
|
|
|
657
|
|
|
|
(2,354
|
)
|
Other assets
|
|
|
(194
|
)
|
|
|
|
|
|
|
(1,530
|
)
|
Accounts payable and income taxes payable
|
|
|
(4,891
|
)
|
|
|
(4,916
|
)
|
|
|
18,657
|
|
Accrued liabilities
|
|
|
(40
|
)
|
|
|
10,422
|
|
|
|
7,877
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
5,789
|
|
|
|
13,773
|
|
|
|
8,883
|
|
Deferred compensation
|
|
|
23
|
|
|
|
164
|
|
|
|
1,781
|
|
Other
|
|
|
97
|
|
|
|
217
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
126,984
|
|
|
|
(5,188
|
)
|
|
|
12,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of fixed assets
|
|
|
30
|
|
|
|
|
|
|
|
175
|
|
Purchases of property, plant and equipment
|
|
|
(8,081
|
)
|
|
|
(3,428
|
)
|
|
|
(14,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,051
|
)
|
|
|
(3,428
|
)
|
|
|
(14,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on US revolving line of credit
|
|
|
50,953
|
|
|
|
229,480
|
|
|
|
69,385
|
|
Payments on US revolving line of credit
|
|
|
(69,953
|
)
|
|
|
(212,480
|
)
|
|
|
(70,385
|
)
|
Borrowings on UK revolving line of credit
|
|
|
|
|
|
|
|
|
|
|
2,276
|
|
Payments on UK revolving line of credit
|
|
|
(2,388
|
)
|
|
|
(1,596
|
)
|
|
|
(1,143
|
)
|
Payments on UK term loan
|
|
|
(4,223
|
)
|
|
|
(2,343
|
)
|
|
|
(1,564
|
)
|
Payments on capital lease obligations
|
|
|
(13
|
)
|
|
|
(52
|
)
|
|
|
(52
|
)
|
Payments on short-term financing
|
|
|
|
|
|
|
|
|
|
|
(623
|
)
|
Payments on industrial development revenue bonds
|
|
|
(400
|
)
|
|
|
(400
|
)
|
|
|
(400
|
)
|
Payments on deferred acquisition payable
|
|
|
(5,220
|
)
|
|
|
(5,563
|
)
|
|
|
(5,198
|
)
|
Proceeds from exercise of stock options
|
|
|
515
|
|
|
|
4,236
|
|
|
|
3,264
|
|
Tax benefit from exercise of stock options
|
|
|
291
|
|
|
|
2,510
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(30,438
|
)
|
|
|
13,792
|
|
|
|
(4,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
88,495
|
|
|
|
5,176
|
|
|
|
(6,050
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,226
|
)
|
|
|
(299
|
)
|
|
|
812
|
|
Cash and cash equivalents at beginning of year
|
|
|
10,134
|
|
|
|
5,257
|
|
|
|
10,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
97,403
|
|
|
$
|
10,134
|
|
|
$
|
5,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
32
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
A.
|
Business
and Organization
|
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.
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
herein as
Power/Vac®.
The operating results of the
Power/Vac®
product line are included from the acquisition date.
|
|
B.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements include the accounts of
Powell and our 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 equity. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(U.S. GAAP) requires management to make
estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying
footnotes. The amounts we record for insurance claims,
warranties, legal 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 our financial statements affect revenue and
cost recognition for construction contracts, the allowance for
doubtful accounts, self-insurance, warranty accruals and
postretirement benefit obligations.
Cash
and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits with
banks and highly liquid investments with original maturities of
three months or less.
Supplemental
Disclosures of Cash Flow Information (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
439
|
|
|
$
|
1,447
|
|
|
$
|
1,309
|
|
Income taxes, net of refunds
|
|
|
21,527
|
|
|
|
3,641
|
|
|
|
2,392
|
|
33
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
Financial instruments include cash, short-term investments,
marketable securities, receivables, payables and debt
obligations. Except as described below, due to the short-term
nature of the investments, the book value is representative of
their fair value. The carrying value of debt approximates fair
value as interest rates are indexed to the Federal Funds Rate,
the London interbank offered rate (LIBOR) or the
banks prime rate.
The deferred acquisition payable was discounted based on a rate
of approximately 6.6%, which approximated our incremental
borrowing rate for obligations of a similar nature. The carrying
value of this debt approximates fair value. For additional
information regarding the deferred acquisition payable, see
Note H.
Accounts
Receivable
Accounts receivable are stated net of allowances for doubtful
accounts. We maintain and continually assess the adequacy of the
allowance for doubtful accounts representing our estimate for
losses resulting from the inability of our customers to pay
amounts due to us. This estimated allowance is based on
historical experience of uncollected accounts, the level of past
due accounts, the overall level of outstanding accounts
receivable, information about specific customers with respect to
their inability to make payments and expectations of future
conditions that could impact the collectibility of accounts
receivable. Future changes in our customers operating
performance and cash flows or in general economic conditions
could have an impact on their ability to fully pay these
amounts, which could have a material impact on our operating
results. In most cases, receivables are not collateralized.
However, we utilize letters of credit to secure payment on sales
when possible. At September 30, 2009 and 2008, accounts
receivable included retention amounts of $8.1 million and
$8.5 million, respectively. Retention amounts are in
accordance with applicable provisions of engineering and
construction contracts and become due upon completion of
contractual requirements. Approximately $0.6 million of the
retained amount at September 30, 2009, is expected to be
collected subsequent to September 30, 2010.
Costs
and Estimated Earnings in Excess of Billings on Uncompleted
Contracts
Costs and estimated earnings in excess of billings on
uncompleted contracts arise when revenues are recorded on a
percentage-of-completion
basis but cannot be invoiced under the terms of the contract.
Such amounts are invoiced upon completion of contractual
milestones.
Costs and estimated earnings in excess of billings on
uncompleted contracts also include certain costs associated with
unapproved change orders. These costs are included when change
order approval is probable. Amounts are carried at the lower of
cost or net realizable value. No profit is recognized on costs
incurred until change order approval is obtained. The amounts
recorded involve the use of judgments and estimates; thus,
actual recoverable amounts could differ from original
assumptions. See Note K Commitments and
Contingencies for a discussion related to certain costs recorded
in costs and estimated earnings in excess of billings on
uncompleted contracts.
In accordance with industry practice, assets and liabilities
related to costs and estimated earnings in excess of billings on
uncompleted contracts, as well as billings in excess of costs
and estimated earnings on uncompleted contracts, have been
classified as current. The contract cycle for certain long-term
contracts may extend beyond one year; thus, collection of
amounts related to these contracts may extend beyond one year.
Inventories
Inventories are stated at the lower of cost or market using
first-in,
first-out (FIFO) or weighted-average methods and include the
cost of materials, labor and manufacturing overhead. We use
estimates in determining the level of reserves required to state
inventory at the lower of cost or market. Our estimates are
based on market activity levels, production requirements, the
physical condition of products and technological innovation.
Changes in any of these factors may result in adjustments to the
carrying value of inventory.
34
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property,
Plant and Equipment
Property, plant and equipment are stated at cost and are
depreciated using the straight-line method over the estimated
useful lives of the assets. Expenditures for repairs and
maintenance are charged to expense when incurred. Expenditures
for major renewals and improvements, which extend the useful
lives of existing equipment, are capitalized and depreciated.
Upon retirement or disposition of property, plant and equipment,
the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized in the
Consolidated Statements of Operations.
Impairment
of Long-Lived Assets
We evaluate the recoverability of the carrying amount of
long-lived assets, including intangible assets with definite
useful lives, whenever events or changes in circumstances
indicate that the carrying value of an asset may not be fully
recoverable. The review for impairment of these long-lived
assets takes into account estimates of future cash flows. For
assets held for sale or disposal, the fair value of the asset is
measured using quoted market prices or an estimation of net
realizable value. An impairment loss exists when estimated
undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying
amount.
Intangible
Assets
Goodwill and other intangible assets with indefinite useful
lives are no longer amortized, but are evaluated for impairment
annually, or immediately if conditions indicate that impairment
could exist. The annual evaluation for impairment of goodwill
and indefinite-lived intangible assets is based on valuation
models that incorporate assumptions and internal projections of
expected future cash flows and operating plans.
The costs of intangible assets with determinable useful lives
are amortized over their estimated useful lives. When certain
events or changes in operating conditions occur, an impairment
assessment is performed and lives of intangible assets with
determinable lives may be adjusted. For additional information
regarding our intangible assets, see Note J.
Income
Taxes
We account for income taxes under the asset and liability
method. This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the
tax basis of assets and liabilities. Developing our provision
for income taxes requires significant judgment and expertise in
federal, state and international income tax laws, regulations
and strategies, including the determination of deferred tax
assets and liabilities and, if necessary, any valuation
allowances that may be required for deferred tax assets. We have
not recorded any valuation allowances as of September 30,
2009, because we believe that future taxable income will, more
likely than not, be sufficient to realize the benefits of those
assets as the temporary differences in basis reverse over time.
Our judgments and tax strategies are subject to audit by various
taxing authorities.
We adopted accounting guidance on the accounting for uncertainty
in income taxes on October 1, 2007. This guidance addresses
the determination of whether tax benefits claimed or expected to
be claimed on a tax return should be recorded in the financial
statements. 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 50% likelihood of being
realized upon settlement with the taxing authorities. This
accounting guidance also provides guidance on derecognition,
classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures.
35
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
Our revenues are primarily generated from engineering and
manufacturing of custom products under long-term contracts that
may last from one month to several years, depending on the
contract. Revenues from long-term contracts are recognized on
the
percentage-of-completion
method of accounting.
Under the
percentage-of-completion
method of accounting, revenues are recognized as work is
performed primarily based on the estimated completion to date
calculated by multiplying the total contract price by percentage
of performance to date, based on total costs or total labor
dollars incurred to date to the total estimated costs or total
labor dollars estimated at completion. The method used to
determine the percentage of completion is typically the cost
method, unless the labor method is a more accurate method of
measuring the progress of the projects. Application of the
percentage-of-completion
method of accounting requires the use of estimates of costs to
be incurred for the performance of the contract. Contract costs
include all direct material, direct labor costs and those
indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs and all costs associated with
operation of equipment. The cost estimation process is based
upon the professional knowledge and experience of the
Companys engineers, project managers and financial
professionals. Factors that are considered in estimating the
work to be completed and ultimate contract recovery include the
availability and productivity of labor, the nature and
complexity of the work to be performed, the effect of change
orders, the availability of materials, the effect of any delays
in our project performance and the recoverability of any claims.
Changes in job performance, job conditions, estimated
profitability and final contract settlements, including our
estimate of liquidated damages, if any, may result in revisions
to costs and income, with their effects being recognized in the
period in which the revisions are determined. Whenever revisions
of estimated contract costs and contract values indicate that
the contract costs will exceed estimated revenues, thus creating
a loss, a provision for the total estimated loss is recorded in
that period.
Revenues associated with maintenance, repair and service
contracts are recognized when the services are performed.
Expenses related to these types of services are recognized as
incurred.
Warranties
We provide for estimated warranty costs at the time of sale
based upon historical rates applicable to individual product
lines. In addition, specific provisions are made when the costs
of such warranties are expected to exceed accruals. Our standard
terms and conditions of sale include a warranty for parts and
service for the earlier of 18 months from the date of
shipment or 12 months from the date of initial operations.
Research
and Development Expense
Research and development costs are charged to expense as
incurred. These costs are included as a component of selling,
general and administrative expenses on the Consolidated
Statements of Operations. Such amounts were $6.0 million,
$6.6 million and $5.6 million in fiscal years 2009,
2008 and 2007, respectively.
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. All assets and liabilities of foreign
operations are translated into U.S. Dollars using year-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.
36
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-Based
Compensation
In the first quarter of fiscal year 2006, we adopted accounting
guidance that generally requires the recognition of the cost of
employee services for share-based compensation based on the
grant date fair value of the equity or liability instruments
issued and any unearned or deferred compensation (contra-equity
accounts) related to awards prior to adoption be eliminated
against the appropriate equity accounts. Also under the new
standard, excess income tax benefits related to share-based
compensation expense that must be recognized directly in equity
are considered financing rather than operating cash flow
activities.
We continue to use the Black-Scholes option pricing model to
estimate the fair value of our stock options. However, we apply
expanded guidance 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.
In July 2006, the Compensation Committee of the Board of
Directors modified the vesting requirements for stock options
upon retirement. The committee voted to automatically vest
granted options upon retirement at age 60 with
10 years of service or at age 62 regardless of
service. Stock options are vested at retirement and will remain
exercisable for the remaining life of the option. All other
terms of stock options remain the same.
We recognized approximately $0.9 million in selling,
general and administrative expenses of non-cash compensation
expense related to the modification at July 31, 2006. After
the modification adjustment, there was approximately
$1.6 million of unrecognized non-cash compensation expense
related to non-vested stock options at September 30, 2006.
Of the $1.6 million unrecognized compensation expense,
$0.7 million was expensed in fiscal year 2007,
$0.5 million was expensed in fiscal year 2008 and
$0.3 million was expensed in fiscal year 2009. The
remaining $0.1 million unrecognized compensation expense at
September 30, 2009, will be expensed during fiscal year
2010. In addition, at September 30, 2006, there was
approximately $0.3 million of total unrecognized
compensation expense related to restricted stock, of which
$0.2 million was recognized in fiscal year 2007 and
$0.1 million was recognized in fiscal year 2008.
Derivative
Financial Instruments
As part of managing our exposure to changes in foreign currency
exchange rates, we periodically utilize foreign exchange forward
contracts. The objective of these contracts is to minimize
impacts to cash flows and profitability due to changes in
foreign currency exchange rates on accounts receivable, accounts
payable and forecasted cash transactions. These contracts are
recorded in the Consolidated Balance Sheets at fair value, which
is based upon an income approach consisting of a discounted cash
flow model that takes into account the present value of the
future cash flows under the terms of the contracts using current
market information as of the reporting date, such as foreign
currency spot and forward rates.
We formally document our hedging relationships, including
identifying the hedging instruments and the hedged items, as
well as our risk management objectives and strategies for
undertaking the hedge transaction. We also formally assess, both
at inception and at least quarterly thereafter, whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in the cash flows of the hedged
item. The effective portion of the change in fair value of a
derivative is recorded as a component of accumulated other
comprehensive income in the Consolidated Balance Sheets. When
the hedged item affects the income statement, the gain or loss
included in accumulated other comprehensive income is reported
on the same line in the Consolidated Statements of Operations as
the hedged item. In addition, any ineffective portion of the
changes in the fair value of derivatives used as cash flow
hedges is reported in the Consolidated Statements of Operations
as the changes occur. If it is
37
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determined that a derivative ceases to be a highly effective
hedge, or if the anticipated transaction is no longer likely to
occur, we discontinue hedge accounting and any unrealized gains
or losses are recorded in the Consolidated Statements of
Operations.
On January 1, 2009, we adopted new accounting guidance that
amended and expanded the disclosure requirements related to
derivative instruments and hedging activities. This guidance was
issued in response to concerns and criticisms about the lack of
adequate disclosure of derivative instruments and hedging
activities. The new guidance is focused on requiring enhanced
disclosure on: 1) how and why an entity uses derivative
instruments and hedging activities; 2) how derivative
instruments and related hedging activities are accounted for and
3) how derivative instruments and related hedging
activities affect an entitys cash flows, financial
position and performance.
To accomplish the three objectives listed above, we are required
to provide: 1) qualitative disclosures regarding the
objectives and strategies for using derivative instruments and
engaging in hedging activities in the context of our overall
risk exposure; 2) quantitative disclosure in tabular format
of the fair values of derivative instruments and their gains and
losses and 3) disclosures about credit-risk related
contingent features in derivative instruments.
The adoption of the new accounting guidance did not have an
impact on our consolidated financial position or results of
operations. As a result of the adoption of this guidance, we
have expanded our disclosures regarding derivative instruments
and hedging activities with Note L.
Accumulated
Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss), which is included
as a component of stockholders equity net of tax, includes
unrealized gains or losses on
available-for-sale
marketable securities, derivative instruments and currency
translation adjustments in foreign consolidated subsidiaries.
Fair
Value Measurements
On October 1, 2008, we adopted new accounting guidance on
fair value measurements. The new guidance defines fair value,
establishes a framework for measuring fair value under
U.S. GAAP and expands disclosures about fair value
measurements. It was effective for us beginning October 1,
2008, for certain financial assets and liabilities. Refer to
Note C for additional information regarding our fair value
measurements for financial assets and liabilities. The new
guidance is effective for non-financial assets and liabilities
recognized or disclosed at fair value on a nonrecurring basis
beginning October 1, 2009. We believe that the adoption of
the new guidance applicable to non-financial assets and
liabilities will not have a material effect on our financial
position, results of operations or cash flows.
New
Accounting Standards
The Financial Accounting Standards Board (FASB) has
codified a single source of authoritative nongovernmental
U.S. GAAP, the Accounting Standards Codification
(Codification). While the Codification does not
change U.S. GAAP, it introduces a new structure that is
organized in an easily accessible, user-friendly on-line
research system. The Codification supersedes all existing
accounting standards documents. All other accounting literature
not included in the Codification will be considered
nonauthoritative. Unless needed to clarify a point to readers,
we will refrain from citing specific section references when
discussing application of accounting principles or addressing
new or pending accounting rule changes.
In December 2007, the FASB issued new accounting guidance on
business combinations. The new guidance 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. The new accounting guidance also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
The new guidance is effective as of the beginning of an
38
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
entitys fiscal year that begins after December 15,
2008, and will be adopted by us in the first quarter of fiscal
year 2010. We are currently unable to predict the potential
impact, if any, of the adoption of this new accounting guidance
on future acquisitions.
In December 2007, the FASB issued new accounting guidance for
noncontrolling interests in consolidated financial statements.
This new guidance 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. The new accounting guidance also establishes
disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the
noncontrolling owners. The new guidance 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 year 2010. We are currently evaluating the
potential impact of the adoption of this guidance on our
consolidated results of operations and financial condition.
In April 2008, the FASB issued new accounting guidance regarding
the determination of useful lives of intangible assets that
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.
This guidance is intended to improve the consistency between the
useful life of a recognized intangible asset under accounting
guidance related to goodwill and other intangible assets and the
period of expected cash flows used to measure the fair value of
the asset under accounting guidance related to business
combinations and other U.S. GAAP. This guidance is
effective for fiscal years beginning after December 15,
2008, and will be adopted by us in the first quarter of fiscal
year 2010. Earlier application is not permitted. We are
currently evaluating the potential impact, if any, of the
adoption of this new guidance on our consolidated results of
operations and financial condition.
In June 2008, the FASB issued new accounting guidance regarding
share-based payment transactions that 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. This new accounting
guidance 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. This guidance is effective for
fiscal years beginning after December 15, 2008, and will be
adopted by us in the first quarter of fiscal year 2010. Earlier
application is not permitted. We do not expect adoption of this
guidance to have a material effect on our earnings per share.
In December 2008, the FASB issued new accounting guidance on
employers disclosures about postretirement benefit plan
assets. The disclosures about plan assets required by this new
guidance shall be provided for fiscal years ending after
December 15, 2009, and will be adopted by us in the first
quarter of fiscal year 2011. We do not expect adoption of this
new guidance to have a material impact on our consolidated
financial statements.
In April 2009, the FASB issued new accounting guidance
addressing the interim disclosures about the fair value of
financial instruments, which amended the previous disclosures
regarding the fair value of financial instruments, and interim
financial reporting. This new guidance requires disclosures
about the fair value of financial instruments in interim
financial statements, in addition to the annual financial
statements as already required. This new accounting guidance
became effective for interim periods ending after June 15,
2009, and was adopted by us in the third quarter of fiscal 2009.
The adoption of this new guidance had no material impact on our
consolidated financial statements.
In April 2009, the FASB issued new accounting guidance regarding
the accounting for assets acquired and liabilities assumed in a
business combination due to contingencies. This new guidance
clarifies the initial and subsequent recognition, subsequent
accounting and disclosure of assets and liabilities arising from
contingencies in a business combination. This new guidance
requires that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized
at fair value, if the acquisition-date fair value can be
39
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reasonably estimated. If the acquisition-date fair value of an
asset or liability cannot be reasonably estimated, the asset or
liability would be measured at the amount that would be
recognized using the accounting guidance related to accounting
for contingencies or the guidance for reasonably estimating
losses. This new accounting guidance becomes effective for us on
October 1, 2010; however, as the provision of the guidance
will be applied prospectively to business combinations with an
acquisition date on or after the guidance becomes effective, the
impact to us cannot be determined until a transaction occurs.
In April 2009, the FASB issued new accounting guidance regarding
the determination of fair value when the volume and level of
activity for assets or liabilities have significantly decreased,
and identifying transactions that are not orderly. This guidance
requires an evaluation of whether there has been a significant
decrease in the volume and level of activity for the asset or
liability in relation to normal market activity for the asset or
liability. If there has, transactions or quoted prices may not
be indicative of fair value and a significant adjustment may
need to be made to those prices to estimate fair value.
Additionally, an entity must consider whether the observed
transaction was orderly (that is, not distressed or forced). If
the transaction was orderly, the obtained price can be
considered a relevant observable input for determining fair
value. If the transaction is not orderly, other valuation
techniques must be used when estimating fair value. This new
accounting guidance must be applied prospectively for interim
periods ending after June 15, 2009, and was adopted by us
effective June 30, 2009, but currently has no impact on our
financial statements.
|
|
C.
|
Fair
Value Measurements
|
We measure certain financial assets and liabilities at fair
value. New accounting guidance defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. Fair value is defined as an exit
price which represents the amount that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants as of the measurement
date. As such, fair value is a market-based measurement that
should be determined based on assumptions that market
participants would use in valuing an asset or liability. The new
accounting guidance also requires the use of valuation
techniques to measure fair value that maximize the use of
observable inputs and minimize the use of unobservable inputs.
As a basis for considering such assumptions and inputs, a fair
value hierarchy has been established which identifies and
prioritizes three levels of inputs to be used in measuring fair
value.
The three levels of the fair value hierarchy are as follows:
Level 1 Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or
liabilities.
Level 2 Inputs other than the quoted prices in
active markets that are observable either directly or
indirectly, including: quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active or
other inputs that are observable or can be corroborated by
observable market data.
Level 3 Unobservable inputs that are supported
by little or no market data and require the reporting entity to
develop its own assumptions.
40
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the fair value of our assets that
were accounted for at fair value on a recurring basis as of
September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Significant
|
|
|
Fair Value at
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Unobservable Inputs
|
|
|
September 30,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
59,324
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,324
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
|
|
|
$
|
752
|
|
|
$
|
|
|
|
$
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
752
|
|
|
$
|
|
|
|
$
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents, primarily funds held in commercial paper, bank
notes and money market instruments, are reported at their
current carrying value which approximates fair value due to the
short-term nature of these instruments and are included in cash
and cash equivalents in our Consolidated Balance Sheets. Our
commercial paper, bank notes and money market instruments are
valued primarily using quoted market prices and are included in
Level 1 inputs. The fair value at September 30, 2009,
for cash equivalents was approximately $59.3 million.
Foreign currency forward contracts are valued using an income
approach which consists of a discounted cash flow model that
takes into account the present value of future cash flows under
the terms of the contracts using observable market spot and
forward rates as of our reporting date, and are included in
Level 2 inputs in the above table. We use these derivative
instruments to mitigate non-functional currency transaction
exposure on certain contracts with customers and vendors. We
mitigate derivative credit risk by transacting with highly rated
counterparties. We have evaluated the credit and non-performance
risks associated with our derivative counterparties and believe
them to be insignificant at September 30, 2009. All
contracts are recorded at fair value and
marked-to-market
at the end of each reporting period, with unrealized gains and
losses being included in accumulated other comprehensive income
on the Consolidated Balance Sheets for that period. The
$0.8 million net fair value of our foreign currency forward
contracts was included in other accrued expenses in our
Consolidated Balance Sheets. See Note L for further
discussion regarding our derivative instruments.
|
|
D.
|
Stock-Based
Compensation
|
We have the following stock-based compensation plans:
We have a Restricted Stock Plan for the benefit of members of
the Board of Directors of the Company who, at the time of their
service, are not employees of the Company or any of its
affiliates. Subject to certain conditions and restrictions as
determined by the Compensation Committee of the Board of
Directors and proportionate adjustments in the event of stock
dividends, stock splits and similar corporate transactions, each
eligible director will receive 2,000 shares of restricted
stock annually. In Fiscal 2009, 16,000 shares of restricted
stock were issued at a price of $38.87 per share. The maximum
aggregate number of shares of stock that may be issued under the
Restricted Stock Plan is 150,000 and will consist of authorized
but unissued or reacquired shares of stock, or any combination
thereof. The restricted stock grants vest 50% per year over a
two-year period on each anniversary of the grant date. Unless
terminated by the Board, the Restricted Stock Plan will
terminate at the close of business on December 16, 2014,
and no further grants shall be made under the plan after such
date. Awards granted before such date shall continue to be
subject to the terms and conditions of the plan and the
respective agreements pursuant to which they were granted. The
total number of shares of common stock available under the plan
was 84,000 as of September 30, 2009.
41
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The 2000 Non-Employee Stock Option Plan, as amended, previously
had been adopted for the benefit of members of the Board of
Directors of the Company who, at the time of their service, were
not employees of the Company or any of its affiliates. Following
the adoption of the Restricted Stock Plan described above, the
Compensation Committee ceased the use of this plan in making new
grants to directors. This plan will maintain its effectiveness
until all options have been exercised or have expired. The total
number of shares of our common stock available under this plan
was approximately 33,000 as of September 30, 2009. Stock
options granted to the Directors under this plan were
non-qualified and were granted at an exercise price equal to the
fair market value of the common stock at the date of grant.
Generally, options granted had expiration terms of seven years
from the date of grant and vested in full one year from the
grant date.
In September 2006, our Board of Directors adopted, and in
February 2007, our stockholders approved, the 2006 Equity
Compensation Plan (the 2006 Plan), which became
retroactively effective to September 29, 2006. Under the
2006 Plan, any employee of the Company and its subsidiaries and
consultants are eligible to participate in the plan and receive
awards. Awards can take the form of options, stock appreciation
rights, stock awards and performance unit awards. A total of
750,000 shares of our common stock are available for
issuance under the 2006 Plan.
In October 2006, October 2007 and October 2008, we granted
approximately 107,000, 34,300 and 32,900 restricted stock units
(RSUs), respectively, with a fair value of $31.86,
$37.89 and $40.81 per share, respectively, to certain officers
and key employees. The fair value of the RSUs was based on the
closing price of our common stock as reported on the NASDAQ
Global Market (NASDAQ) on the grant dates. The
actual amount of the RSUs earned will be based on cumulative
earnings per share as reported relative to established goals for
the three-year performance cycles which began October 1 of the
year granted, and ranges from 0% to 150% of the target RSUs
granted. At September 30, 2009, there were approximately
94,600 RSUs outstanding with a vesting period of 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.
We recorded compensation expense of approximately
$1.7 million and $2.3 million related to RSUs for the
years ended September 30, 2009 and 2008, respectively. For
the year ended September 30, 2007, no compensation expense
was recognized related to the RSUs as the required performance
targets were not met.
The 1992 Stock Option Plan, as amended (the 1992
Plan), permits us to grant to key employees non-qualified
options and stock grants, subject to certain conditions and
restrictions as determined by the Compensation Committee of the
Board of Directors and proportionate adjustments in the event of
stock dividends, stock splits and similar corporate
transactions. At the April 15, 2005 Annual Meeting,
stockholders approved an amendment to the 1992 Plan to increase
the number of shares available for issuance under the plan from
2.1 million shares to 2.7 million shares. Stock
options are granted at an exercise price equal to the fair
market value of the common stock on the date of the grant.
Generally, options granted have an expiration date of seven
years from the grant date and vest in increments of 20% per year
over a five-year period. Pursuant to the 1992 Plan, option
holders who exercise their options and hold the underlying
shares of common stock for five years, vest in a stock grant
equal to 20% of the original option shares. While restricted
until the expiration of five years, the stock grant is
considered issued at the date of the stock option exercise and
is included in earnings per share. There were 0.5 million
shares available to be granted under this plan as of
September 30, 2009. There were no restricted stock grants
under the 1992 Plan during fiscal years 2009, 2008 and 2007.
42
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock option activity (number of shares) for us was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at September 30, 2006
|
|
|
732,770
|
|
|
|
17.37
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(193,520
|
)
|
|
|
17.13
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(33,800
|
)
|
|
|
17.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2007
|
|
|
505,450
|
|
|
|
17.44
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(235,350
|
)
|
|
|
17.79
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(2,800
|
)
|
|
|
17.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
267,300
|
|
|
|
17.14
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(29,950
|
)
|
|
|
17.15
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009
|
|
|
237,350
|
|
|
|
17.14
|
|
|
|
2.21
|
|
|
$
|
4,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2009
|
|
|
198,350
|
|
|
|
16.88
|
|
|
|
2.05
|
|
|
$
|
3,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding as of September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Range of
|
|
Outstanding at
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Exercisable at
|
|
|
Exercise
|
|
Exercise Prices
|
|
09/30/09
|
|
|
Contractual Life
|
|
|
Price
|
|
|
09/30/09
|
|
|
Price
|
|
|
$13.06 - 15.10
|
|
|
91,400
|
|
|
|
1.0
|
|
|
$
|
15.10
|
|
|
|
91,400
|
|
|
$
|
15.10
|
|
16.30 - 18.44
|
|
|
145,950
|
|
|
|
3.0
|
|
|
|
18.41
|
|
|
|
106,950
|
|
|
|
18.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Options
|
|
|
237,350
|
|
|
|
2.2
|
|
|
|
17.14
|
|
|
|
198,350
|
|
|
|
16.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No options were granted during the fiscal years ended
September 30, 2009, 2008 and 2007.
43
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the computation of basic and
diluted earnings per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
39,717
|
|
|
$
|
25,847
|
|
|
$
|
9,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted average shares
|
|
|
11,424
|
|
|
|
11,265
|
|
|
|
11,045
|
|
Dilutive effect of stock options, restricted stock and
restricted stock units
|
|
|
167
|
|
|
|
187
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share-adjusted weighted
average shares with assumed conversions
|
|
|
11,591
|
|
|
|
11,452
|
|
|
|
11,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.48
|
|
|
$
|
2.29
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
3.43
|
|
|
$
|
2.26
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended September 30, 2009, 2008 and 2007,
there were no options to purchase shares excluded from the
computation of diluted earnings per share because the
options exercise prices were less than the average market
price of our common stock.
|
|
F.
|
Detail of
Selected Balance Sheet Accounts
|
Allowance
for Doubtful Accounts
Activity in our allowance for doubtful accounts receivable
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of period
|
|
$
|
1,180
|
|
|
$
|
1,739
|
|
Accrued bad debt expense
|
|
|
959
|
|
|
|
637
|
|
Deductions for uncollectible accounts written off, net of
recoveries
|
|
|
(631
|
)
|
|
|
(1,163
|
)
|
(Decrease) increase due to foreign currency translation
|
|
|
99
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,607
|
|
|
$
|
1,180
|
|
|
|
|
|
|
|
|
|
|
Warranty
Accrual
Activity in our product warranty accrual consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of period
|
|
$
|
6,793
|
|
|
$
|
5,787
|
|
Accrued warranty expense
|
|
|
5,124
|
|
|
|
3,946
|
|
Deductions for warranty charges
|
|
|
(4,008
|
)
|
|
|
(2,746
|
)
|
Decrease due to foreign currency translation
|
|
|
(351
|
)
|
|
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
7,558
|
|
|
$
|
6,793
|
|
|
|
|
|
|
|
|
|
|
44
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
The components of inventories are summarized below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials, parts and subassemblies
|
|
$
|
37,655
|
|
|
$
|
57,742
|
|
Work-in-progress
|
|
|
8,597
|
|
|
|
14,937
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
46,252
|
|
|
$
|
72,679
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Costs incurred on uncompleted contracts
|
|
$
|
552,805
|
|
|
$
|
513,549
|
|
Estimated earnings
|
|
|
136,603
|
|
|
|
120,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
689,408
|
|
|
|
634,120
|
|
Less: Billings to date
|
|
|
687,845
|
|
|
|
590,882
|
|
|
|
|
|
|
|
|
|
|
Net underbilled position
|
|
$
|
1,563
|
|
|
$
|
43,238
|
|
|
|
|
|
|
|
|
|
|
Included in the accompanying balance sheets under the following
captions:
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
$
|
46,335
|
|
|
$
|
82,574
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
(44,772
|
)
|
|
|
(39,336
|
)
|
|
|
|
|
|
|
|
|
|
Net underbilled position
|
|
$
|
1,563
|
|
|
$
|
43,238
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
Property, plant and equipment are summarized below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Range of
|
|
|
|
2009
|
|
|
2008
|
|
|
Asset Lives
|
|
|
Land
|
|
$
|
7,268
|
|
|
$
|
7,628
|
|
|
|
|
|
Buildings and improvements
|
|
|
51,056
|
|
|
|
49,500
|
|
|
|
3 - 39 Years
|
|
Machinery and equipment
|
|
|
51,977
|
|
|
|
51,037
|
|
|
|
3 - 15 Years
|
|
Furniture and fixtures
|
|
|
3,050
|
|
|
|
2,992
|
|
|
|
3 - 10 Years
|
|
Construction in process
|
|
|
3,771
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,122
|
|
|
|
111,665
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(56,086
|
)
|
|
|
(50,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
61,036
|
|
|
$
|
61,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in property and equipment are assets under capital
lease of approximately $246,000 and $246,000 at
September 30, 2009 and 2008, with related accumulated
depreciation of approximately $246,000 and $225,000,
respectively. Depreciation expense, including the depreciation
of capital leases, was approximately $7.5 million,
$8.1 million and $7.7 million for fiscal years 2009,
2008 and 2007, respectively.
45
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
G.
|
Employee
Benefit Plans
|
401(k)
Plan
We have a defined employee contribution 401(k) plan for
substantially all of our employees. We match 100% of employee
contributions up to an employee contribution of 4% of each
employees salary. We recognized expenses of
$3.0 million, $2.2 million and $1.7 million in
fiscal years 2009, 2008 and 2007, respectively, under this plan
primarily related to matching contributions.
Employee
Stock Ownership Plan
We have an employee stock ownership plan (ESOP)
which initially purchased 793,525 shares of the
Companys common stock from a major stockholder. The
funding for this plan was provided through a loan from the
Company of $4.5 million in 1992. This loan has been repaid
by the ESOP as of September 30, 2009. Previously, payments
were made over a
20-year
period of $424,000 per year, including interest at 7%. We
recorded deferred compensation as a contra-equity account for
the amount loaned to the ESOP in the accompanying Consolidated
Balance Sheets. We were required to make annual contributions to
the ESOP to enable it to repay its loan to us. The amount in the
deferred compensation account was amortized as compensation
expense over 20 years as employees earned their shares for
services rendered. Compensation expense for fiscal years 2009,
2008 and 2007 was approximately $158,000, $387,000 and $361,000,
respectively, and interest income for fiscal years 2009, 2008
and 2007 was approximately $12,000, $38,000 and $63,000,
respectively. The receivable from the ESOP was recorded as a
reduction of stockholders equity, and the allocated and
unallocated shares of the ESOP are treated as outstanding common
stock in the computation of earnings per share. The Company has
no current plans to contribute additional shares to the ESOP.
Deferred
Compensation
We offer an unfunded, non-qualified deferred compensation plan
to a select group of management and highly compensated
individuals. The plan permits the deferral of up to 50% of a
participants base salary
and/or 100%
of a participants annual incentive bonus. The deferrals
are held in a separate trust, which has been established to
administer the plan. The assets of the trust are subject to the
claims of our creditors in the event that we become insolvent.
Consequently, the trust qualifies as a grantor trust for income
tax purposes (a Rabbi Trust). The assets and
liabilities of the plan are recorded in other assets and
deferred compensation in the accompanying Consolidated Balance
Sheets, respectively. Changes in the deferred compensation
balance are charged to compensation expense. The plan is not
qualified under Section 401 of the Internal Revenue code.
There was no compensation expense related to this plan in fiscal
year 2009. Total assets held by the trustee and deferred
compensation liabilities were $1.3 million at
September 30, 2009.
Certain executives were provided an executive benefit plan which
provides for fixed payments upon normal retirement on or after
age 65 and the completion of at least 10 years of
continuous employment. The estimated present value of these
payments were accrued over the service life of these
individuals, and $1.4 million is recorded in deferred
compensation in the accompanying Consolidated Balance Sheets
related to this executive benefit plan. To assist in funding the
deferred compensation liability, we have invested in
corporate-owned life insurance policies. The cash surrender
value of these policies is presented in other assets in the
accompanying Consolidated Balance Sheets. The cash surrender
value of life insurance policies was $3.7 million at
September 30, 2009.
Retiree
Medical Plan
We have a plan to extend to retirees health benefits which are
available to active employees under our existing health plans.
This plan is unfunded. The plan provides coverage for employees
with at least 10 years of service, age 55 or older but
less than 65, who retire on or after January 1, 2000. The
retiree is required to pay the COBRA rate less a subsidy
provided by us based on years of service at the time of
retirement.
46
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the year ended September 30, 2009, the measurement of
postretirement benefit expense was based on assumptions used to
value the postretirement benefit liability as of October 1,
2008, our measurement date.
Effective September 30, 2007, we adopted new accounting
guidance which requires the recognition of actuarial gains or
losses, prior service costs or credits and transition assets or
obligations in pension obligations and accumulated other
comprehensive income that had previously been deferred.
Amounts recognized in accumulated other comprehensive income as
of September 30, 2009, consisted of the following on a
pretax basis (in thousands):
|
|
|
|
|
Net actuarial gain
|
|
$
|
(1,067
|
)
|
Prior service cost
|
|
|
282
|
|
|
|
|
|
|
Total recognized in accumulated other comprehensive income
|
|
$
|
(785
|
)
|
|
|
|
|
|
Amounts in accumulated other comprehensive income as of
September 30, 2009, expected to be recognized as components
of net periodic postretirement benefit cost in 2010 were as
follows (in thousands):
|
|
|
|
|
Net actuarial gain
|
|
$
|
(85
|
)
|
Prior service cost
|
|
|
116
|
|
|
|
|
|
|
Total
|
|
$
|
31
|
|
|
|
|
|
|
The following table illustrates the changes in accumulated
postretirement benefit obligation, changes in fair value of
assets and the funded status of the postretirement benefit plan
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Changes in postretirement benefit obligation:
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
807
|
|
|
$
|
942
|
|
Service cost
|
|
|
60
|
|
|
|
52
|
|
Interest cost
|
|
|
59
|
|
|
|
49
|
|
Actuarial loss (gain)
|
|
|
(147
|
)
|
|
|
(234
|
)
|
Benefits paid
|
|
|
(38
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
741
|
|
|
$
|
807
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of year
|
|
$
|
|
|
|
$
|
|
|
Employer contributions
|
|
|
38
|
|
|
|
2
|
|
Benefits paid
|
|
|
(38
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status:
|
|
|
|
|
|
|
|
|
Unfunded liability
|
|
$
|
(741
|
)
|
|
$
|
(807
|
)
|
Unrecognized prior service cost
|
|
|
282
|
|
|
|
398
|
|
Unrecognized net actuarial gain
|
|
|
(1,067
|
)
|
|
|
(996
|
)
|
|
|
|
|
|
|
|
|
|
Net liability recognized
|
|
$
|
(1,526
|
)
|
|
$
|
(1,405
|
)
|
|
|
|
|
|
|
|
|
|
47
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Weighted-average assumptions used to determine benefit
obligations at September 30:
|
|
|
|
|
|
|
|
|
Discount rate pre-retirement
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Discount rate post-retirement
|
|
|
5.45
|
|
|
|
7.45
|
|
Current year trend rate
|
|
|
9.00
|
|
|
|
9.00
|
|
Ultimate trend rate
|
|
|
5.00
|
|
|
|
5.00
|
|
Year ultimate trend rate reached
|
|
|
2012
|
|
|
|
2011
|
|
If the medical care cost trend rate assumptions were increased
or decreased by 1% as of September 30, 2009, the effect of
this change on the accumulated postretirement benefit obligation
and service and interest costs would be an increase of
approximately $55,000 and $10,000 or a decrease of approximately
$49,000 and $9,000, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Components of net periodic postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
60
|
|
|
$
|
52
|
|
|
$
|
53
|
|
Interest cost
|
|
|
59
|
|
|
|
49
|
|
|
|
50
|
|
Prior service cost
|
|
|
115
|
|
|
|
115
|
|
|
|
106
|
|
Net gain recognized
|
|
|
(75
|
)
|
|
|
(79
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit cost
|
|
$
|
159
|
|
|
$
|
137
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Weighted-average assumptions used to determine benefit costs at
September 30:
|
|
|
|
|
|
|
|
|
Discount rate pre-retirement
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Discount rate post-retirement
|
|
|
7.45
|
|
|
|
6.24
|
|
Current year trend rate
|
|
|
9.00
|
|
|
|
9.00
|
|
Ultimate trend rate
|
|
|
5.00
|
|
|
|
5.00
|
|
Year ultimate trend rate reached
|
|
|
2011
|
|
|
|
2010
|
|
Future expected benefit payments as of September 30, 2009,
related to postretirement benefits for the subsequent five years
were as follows (in thousands):
|
|
|
|
|
|
|
Expected
|
|
|
|
Benefit
|
|
Year Ending September 30,
|
|
Payments
|
|
|
2010
|
|
$
|
33
|
|
2011
|
|
|
46
|
|
2012
|
|
|
49
|
|
2013
|
|
|
58
|
|
2014
|
|
|
59
|
|
2015 through 2019
|
|
|
434
|
|
48
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
US Revolver
|
|
$
|
|
|
|
$
|
19,000
|
|
UK Revolver
|
|
|
|
|
|
|
2,726
|
|
UK Term Loan
|
|
|
|
|
|
|
4,907
|
|
Deferred acquisition payable
|
|
|
4,292
|
|
|
|
9,512
|
|
Industrial development revenue bonds
|
|
|
5,200
|
|
|
|
5,600
|
|
Capital lease obligations
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Subtotal long-term debt and capital lease obligations
|
|
|
9,492
|
|
|
|
41,758
|
|
Less current portion
|
|
|
(4,692
|
)
|
|
|
(7,814
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations
|
|
$
|
4,800
|
|
|
$
|
33,944
|
|
|
|
|
|
|
|
|
|
|
The annual maturities of long-term debt as of September 30,
2009, were as follows (in thousands):
|
|
|
|
|
|
|
Long-Term
|
|
|
|
Debt
|
|
Year Ending September 30,
|
|
Maturities
|
|
|
2010
|
|
$
|
4,692
|
|
2011
|
|
|
400
|
|
2012
|
|
|
400
|
|
2013
|
|
|
400
|
|
2014
|
|
|
400
|
|
Thereafter
|
|
|
3,200
|
|
|
|
|
|
|
Total long-term debt maturities
|
|
$
|
9,492
|
|
|
|
|
|
|
US and
UK Revolvers
In December 2007 and 2008, 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 to provide additional working capital support
for the Company. The Amended Credit Agreement continues to
provide for a 1) $58.5 million revolving credit
facility (US Revolver); 2) £4.0 million
(pound sterling) (approximately $6.4 million) revolving
credit facility (UK Revolver) and 3)
£6.0 million (approximately $9.6 million) single
advance term loan (UK Term Loan). The UK Term Loan
was repaid in September 2009 and may not be reborrowed (see
below). 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. Obligations are collateralized by the stock of
our subsidiaries.
The interest rate for amounts outstanding under the Amended
Credit Agreement for the US Revolver is a floating rate based
upon the higher of the Federal Funds Rate plus 0.5%, or the
banks prime rate. Once the applicable rate is determined,
a margin ranging from -0.5% to 0.5%, as determined by our
consolidated leverage ratio, is added to the applicable rate.
The interest rate for amounts outstanding under the Amended
Credit Agreement for the UK Revolver is a floating rate based
upon the LIBOR plus a margin which can range from 1.25% to
2.25%, as determined by our consolidated leverage ratio as
defined within the Amended Credit Agreement.
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 the US Revolver is
49
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reduced by $12.6 million for our outstanding letters of
credit at September 30, 2009. There were no letters of
credit outstanding under the UK Revolver.
There were no borrowings outstanding under the US Revolver or
the UK Revolver as of September 30, 2009. Amounts available
under the US Revolver and the UK Revolver were approximately
$45.9 million and $6.4 million, respectively, at
September 30, 2009. The US Revolver and the UK Revolver
expire on December 31, 2012.
The Amended Credit Agreement contains certain covenants and
restricts our ability to pay dividends. It contains financial
covenants defining various financial measures and the levels of
these measures with which we must comply, as well as a
material adverse change clause. A material
adverse change is defined as a material change in the
operations, business, properties, liabilities or condition
(financial or otherwise) of us or a material impairment of the
ability of us to perform our obligations under our debt
agreements.
The Amended Credit Agreements principal financial
covenants include:
Minimum Tangible Net Worth The Amended Credit
Agreement requires consolidated tangible net worth
(stockholders equity, less intangible assets) as of the
end of each quarter to be greater than the sum of $172,500,000,
plus an amount equal to 50% of our consolidated net income for
each fiscal quarter, plus an amount equal to 100% of the
aggregate increase in stockholders equity by reason of the
issuance and sale of any equity interests.
Minimum Fixed Charge Coverage Ratio The
Amended Credit Agreement requires that the consolidated fixed
charge coverage ratio be greater than 1.25 to 1.00. The
consolidated fixed charge calculation is income before interest
and income taxes, increased by depreciation and amortization
expense (EBITDA) and reduced by income taxes and capital
expenditures for the previous 12 months, divided by the sum
of payments on long-term debt, excluding the US Revolver and the
UK Revolver and interest expense, during the previous
12 months.
Maximum Leverage Ratio The Amended Credit
Agreement requires that the ratio be less than 2.75 to 1.00 for
the quarter ended September 30, 2009, and thereafter. The
maximum leverage ratio is the sum of total long-term debt and
outstanding letters of credit, less industrial development
revenue bonds, divided by the EBITDA for the previous
12 months.
The Amended Credit Agreement is collateralized by a pledge of
100% of the voting capital stock of each of our domestic
subsidiaries and 66% of the voting capital stock of each
non-domestic subsidiary of ours. The Amended Credit Agreement
provides for customary events of default and carries
cross-default provisions with our existing subordinated debt. If
an event of default (as defined in the Amended Credit Agreement)
occurs and is continuing, on the terms and subject to the
conditions set forth in the Amended Credit Agreement, amounts
outstanding under the Amended Credit Agreement may be
accelerated and may become or be declared immediately due and
payable. As of September 30, 2009, we were in compliance
with all of the financial covenants of the Amended Credit
Agreement.
UK
Term Loan
The UK Term Loan provided £6.0 million, or
approximately $9.6 million, for financing the acquisition
of Switchgear & Instrumentation Limited. Approximately
£5.0 million, or approximately $8.0 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 $1.6 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 $478,000, began
March 31, 2006, with the final payment due on
December 31, 2010. The UK Term Loan was repaid in September
2009 and may not be reborrowed. 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 1.25% to 2.25% as
determined by our consolidated leverage ratio as defined within
the Amended Credit Agreement.
50
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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 next 40 months
following the acquisition date. The remaining deferred
installments result in a discounted deferred acquisition payable
of approximately $4.3 million at September 30, 2009,
based on an assumed discount rate of 6.6%. The entire balance of
this deferred acquisition payable is classified as current and
is included in the current portion of long-term debt as this
payment is due in December 2009.
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
us 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, as well as various covenants, for
which we are in compliance. 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 September 30, 2009, the
balance in the restricted sinking fund was approximately
$434,000 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
0.6% per year on September 30, 2009.
The net deferred income tax asset (liability) was comprised of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Current deferred income taxes:
|
|
|
|
|
|
|
|
|
Gross assets
|
|
$
|
9,457
|
|
|
$
|
8,505
|
|
Gross liabilities
|
|
|
(6,154
|
)
|
|
|
(6,987
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred income tax asset
|
|
|
3,303
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred income taxes:
|
|
|
|
|
|
|
|
|
Gross assets
|
|
|
3,894
|
|
|
|
3,600
|
|
Gross liabilities
|
|
|
(2,703
|
)
|
|
|
(2,071
|
)
|
|
|
|
|
|
|
|
|
|
Net noncurrent deferred income tax asset
|
|
|
1,191
|
|
|
|
1,529
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
4,494
|
|
|
$
|
3,047
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009 and 2008, the noncurrent deferred
income tax asset was included in other assets on the
Consolidated Balance Sheets.
51
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effect of temporary differences between GAAP accounting
and federal income tax accounting creating deferred income tax
assets and liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Allowance for doubtful accounts
|
|
$
|
40
|
|
|
$
|
330
|
|
Workers compensation
|
|
|
388
|
|
|
|
340
|
|
Stock-based compensation
|
|
|
458
|
|
|
|
340
|
|
Reserve for accrued employee benefits
|
|
|
2,431
|
|
|
|
1,972
|
|
Warranty accrual
|
|
|
2,900
|
|
|
|
2,692
|
|
Uncompleted long-term contracts
|
|
|
(6,155
|
)
|
|
|
(6,987
|
)
|
Depreciation and amortization
|
|
|
(627
|
)
|
|
|
(143
|
)
|
Deferred compensation
|
|
|
1,062
|
|
|
|
1,341
|
|
Postretirement benefits liability
|
|
|
396
|
|
|
|
201
|
|
Accrued legal
|
|
|
93
|
|
|
|
65
|
|
Uniform capitalization and inventory
|
|
|
3,495
|
|
|
|
3,212
|
|
Software development costs
|
|
|
(488
|
)
|
|
|
(483
|
)
|
Other
|
|
|
501
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
4,494
|
|
|
$
|
3,047
|
|
|
|
|
|
|
|
|
|
|
Income before interest, income taxes and minority interest was
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S.
|
|
$
|
56,115
|
|
|
$
|
35,089
|
|
|
$
|
11,329
|
|
Other than U.S.
|
|
|
4,544
|
|
|
|
4,779
|
|
|
|
4,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
$
|
60,659
|
|
|
$
|
39,868
|
|
|
$
|
15,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the income tax provision were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
18,028
|
|
|
$
|
10,487
|
|
|
$
|
3,904
|
|
State
|
|
|
2,910
|
|
|
|
1,628
|
|
|
|
641
|
|
Foreign
|
|
|
1,146
|
|
|
|
1,601
|
|
|
|
1,626
|
|
Deferred
|
|
|
(1,350
|
)
|
|
|
356
|
|
|
|
(703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
20,734
|
|
|
$
|
14,072
|
|
|
$
|
5,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the statutory U.S. income tax rate and
the effective income tax rate, as computed on earnings before
income tax provision in each of the three years presented in the
Consolidated Statements of Operations, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State income taxes, net of federal benefit
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
International withholding tax
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Other permanent tax items
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Foreign rate differential
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Domestic production activities deduction
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
34
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our provision for income taxes reflects an effective tax rate on
earnings before income taxes of 34% in fiscal year 2009 compared
to 35% in both fiscal years 2008 and 2007, respectively. The
decrease in the effective tax rate resulted from an agreement
reached with the taxing authorities in the United Kingdom
related to foreign tax credits from previous years.
We have not recorded deferred income taxes on the undistributed
earnings of our foreign subsidiaries because of
managements intent to indefinitely reinvest such earnings.
Upon distribution of these earnings in the form of dividends or
otherwise, we may be subject to U.S. income taxes and
foreign withholding taxes. It is not practical, however, to
estimate the amount of taxes that may be payable on the eventual
remittance of these earnings.
In the first quarter of fiscal year 2008, we adopted accounting
guidance on the accounting for uncertainty in income taxes. Upon
adoption of the guidance, we recorded a $0.3 million
increase in our 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, we 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 were
recorded as components of income tax expense, in the amount of
$135,000 as of September 30, 2009. A reconciliation of the
beginning and ending amount of the unrecognized tax benefits
follows (in thousands):
|
|
|
|
|
Balance as of September 30, 2008
|
|
$
|
997
|
|
Increases related to tax positions taken during a prior period
|
|
|
229
|
|
Decreases related to expectations of statute of limitations
|
|
|
(638
|
)
|
|
|
|
|
|
Balance as of September 30, 2009
|
|
$
|
588
|
|
|
|
|
|
|
Our 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 year ended
September 30, 2009, was not material.
There was no material change in the net amount of unrecognized
tax benefits in the year ended September 30, 2009.
Management believes that it is reasonably possible that within
the next 12 months, the total unrecognized tax benefits
will decrease by approximately 13% due to the expiration of
certain statutes of limitations in various state and local
jurisdictions.
We are subject to income tax in the United States, multiple
state jurisdictions and a few international jurisdictions,
primarily the United Kingdom. For United States federal income
tax purposes, all years prior to 2007 are closed. The Internal
Revenue Service (IRS) recently completed an
examination of the returns for the 2005 and 2006 tax years. No
material adjustments were identified during the examination. We
do not consider any state in which we do business to be a major
tax jurisdiction. We remain open to examination in the United
Kingdom for tax
53
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
years 2006 to present. We recently reached an agreement with the
taxing authorities in the United Kingdom resulting in a
reduction in tax expense of approximately $568,000 related to
foreign tax credits from previous years.
Management believes that an adequate provision has been made for
any adjustments that may result from tax examinations. However,
the outcome of tax audits cannot be predicted with certainty. If
any issues addressed in our tax audits are resolved in a manner
not consistent with managements expectations, we could be
required to adjust our provision for income tax in the period
such resolution occurs. Although timing of the resolution
and/or
closure of audits is highly uncertain, we do not believe it is
reasonably possible that our unrecognized tax benefits would
materially change in the next 12 months.
|
|
J.
|
Goodwill
and Other Intangible Assets
|
Our intangible assets consist of (1) goodwill which is not
being amortized and (2) patents, trademarks, tradenames,
non-compete agreements, a supply agreement and purchased
technologies which are amortized over their estimated useful
lives. Goodwill and other intangible assets with indefinite
useful lives are no longer subject to amortization. We test for
impairment of goodwill annually, or immediately if conditions
indicate that impairment could exist. Intangible assets with
definite useful lives continue to be amortized over their
estimated useful lives. No impairment was identified as a result
of performing our annual impairment test for fiscal years 2009,
2008 or 2007.
A summary of goodwill, intangible and other assets follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Historical
|
|
|
Accumulated
|
|
|
Historical
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Amortization
|
|
|
Goodwill not subject to amortization
|
|
$
|
1,265
|
|
|
$
|
181
|
|
|
$
|
1,265
|
|
|
$
|
181
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supply agreement
Power/Vac®
|
|
|
17,580
|
|
|
|
3,709
|
|
|
|
17,580
|
|
|
|
2,538
|
|
Non-compete agreements
|
|
|
4,170
|
|
|
|
2,643
|
|
|
|
4,170
|
|
|
|
1,809
|
|
Patents and Trademarks
|
|
|
804
|
|
|
|
804
|
|
|
|
804
|
|
|
|
774
|
|
Tradenames and unpatented technology
|
|
|
11,444
|
|
|
|
5,537
|
|
|
|
11,938
|
|
|
|
4,358
|
|
Deferred loan costs
|
|
|
829
|
|
|
|
649
|
|
|
|
809
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,092
|
|
|
$
|
13,523
|
|
|
$
|
36,566
|
|
|
$
|
10,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense for each of the five subsequent
fiscal years is expected to be (in thousands):
|
|
|
|
|
Years Ending September 30,
|
|
Total
|
|
|
2010
|
|
$
|
3,555
|
|
2011
|
|
|
3,399
|
|
2012
|
|
|
2,262
|
|
2013
|
|
|
1,474
|
|
2014
|
|
|
1,474
|
|
54
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
K.
|
Commitments
and Contingencies
|
Long-Term
Debt
See Note H herein for discussion of our long-term debt.
Leases
We lease certain offices, facilities and equipment under
operating leases expiring at various dates through 2014. At
September 30, 2009, the minimum annual rental commitments
under leases having terms in excess of one year were as follows
(in thousands):
|
|
|
|
|
|
|
Operating
|
|
Years Ending September 30,
|
|
Leases
|
|
|
2010
|
|
$
|
2,982
|
|
2011
|
|
|
2,806
|
|
2012
|
|
|
2,550
|
|
2013
|
|
|
1,539
|
|
2014
|
|
|
680
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total lease commitments
|
|
$
|
10,557
|
|
|
|
|
|
|
Lease expense for all operating leases was $3.1 million,
$2.7 million and $2.4 million for fiscal years 2009,
2008 and 2007, respectively.
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 the terms of our contract and with associated
vendors and 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 $12.6 million as
of September 30, 2009, under our Amended Credit Agreement.
We also had performance and maintenance bonds totaling
approximately $182.8 million that were outstanding, with
additional bonding capacity of approximately $117.2 million
available, at September 30, 2009.
In March 2007, we renewed and amended our facility agreement
(Facility Agreement) between S&I and a large
international bank. The Facility Agreement provides S&I
with (1) £10.0 million in bonds (approximately
$15.9 million); (2) £2.5 million of forward
exchange contracts and currency options (approximately
$4.0 million) and (3) the ability to issue bonds and
enter into forward exchange contracts and currency options. At
September 30, 2009, we had outstanding a total of
£3.1 million, or approximately $4.9 million, of
obligations under this Facility Agreement.
The Facility Agreement is secured by a guarantee from Powell.
The Facility Agreements principal financial covenants are
the same as those discussed in Note H for the Amended
Credit Facility. The Facility Agreement provides for customary
events of default and carries cross-default provisions with our
Amended Credit Facility. If an event of default (as defined in
the Facility Agreement) occurs and is continuing, on the terms
and subject to the conditions set forth in the Facility
Agreement, obligations outstanding under the Facility Agreement
may be accelerated and may become or be declared immediately due
and payable.
55
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. 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
of our control and the control of our joint venture partner
caused numerous changes and additions to the work that in turn
delayed the completion of the project. The Commission withheld
liquidated damages and earned contract payments from the joint
venture. We made claims against the Commission for various
matters, including compensation for extra work and delay to the
project.
The joint venture, of which we are the managing partner, and the
Commission reached an agreement through mediation in April 2009.
The settlement required the Commission to pay the joint venture
$5.9 million, of which $2.5 million was previously
paid in December 2008, resulting from the previously issued jury
verdict in our favor. An additional payment of $2.5 million
was received in May 2009, and the final payment of
$0.9 million was received in July 2009. This settlement
resulted in an increase in revenue of approximately
$3.5 million, reduced by legal and other expenses of
approximately $0.7 million during fiscal 2009.
|
|
L.
|
Derivative
Instruments and Hedging Strategies
|
We operate in various countries and have a significant operation
in the United Kingdom. These international operations expose us
to market risk associated with foreign currency exchange rate
fluctuations. We have entered into certain forward contracts to
hedge the risk of foreign currency rate fluctuations. To the
extent we choose to manage volatility associated with the net
exposures, we enter into various financial transactions which we
account for using the applicable accounting guidance for
derivative instruments and hedging activities. Our objective is
to hedge the variability in forecasted cash flow due to the
foreign currency risk (U.S. Dollar/British Pound Sterling
exchange rate) associated with certain contracted sales. As of
September 30, 2009, we held only derivatives that were
designated as cash flow hedges.
In order for a derivative to qualify for hedge accounting, the
derivative must be formally designated as a cash flow hedge by
documenting the relationship between the derivative and the
hedged item. The documentation includes a description of the
hedging instrument, the hedge item, the risk being hedged, our
risk management objective and strategy for undertaking the
hedge, the method for assessing the effectiveness of the hedge
and the method for measuring hedge ineffectiveness.
Additionally, the hedge relationship must be expected to be
highly effective at offsetting changes in either the fair value
or cash flows of the hedged item at both inception of the hedge
and on an on-going basis. We assess the on-going effectiveness
of our hedges in accordance with the Cumulative Dollar-Offset
Approach, and measure and record hedge ineffectiveness at
the end of each fiscal quarter, as necessary.
All derivatives are recognized on the Consolidated Balance
Sheets at their fair value and classified based on the
instruments maturity date. The total notional amount of
outstanding derivatives as of September 30, 2009, was
approximately $13.0 million.
56
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the fair value of derivative
instruments included with the Consolidated Balance Sheets as of
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
Fair
|
|
|
|
|
Fair
|
|
|
|
Balance Sheet Location
|
|
Value
|
|
|
Balance Sheet Location
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forwards
|
|
Prepaid expenses and other current assets
|
|
$
|
|
|
|
Other accrued expenses
|
|
$
|
752
|
|
Foreign exchange forwards
|
|
Deferred income taxes
|
|
|
164
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
164
|
|
|
|
|
$
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amounts affecting the
Consolidated Statements of Operations for the year ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
|
|
Amount of Gain (Loss)
|
|
|
|
|
Reclassified from
|
|
|
|
Recognized in Other
|
|
|
|
|
Accumulated Other
|
|
|
|
Comprehensive Income
|
|
|
Location of Gain (Loss)
|
|
Comprehensive Income
|
|
|
|
on Derivatives(1)
|
|
|
Reclassified from Accumulated
|
|
into Income(1)
|
|
|
|
Year Ended
|
|
|
Other Comprehensive
|
|
Year Ended
|
|
Derivatives Designated
|
|
September 30, 2009
|
|
|
Income into Income
|
|
September 30, 2009
|
|
|
Derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forwards
|
|
$
|
(467
|
)
|
|
Other income (expense)
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
Total designated cash flow hedges
|
|
$
|
(467
|
)
|
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the year ended September 30, 2009, we recorded in other
(income) expense an immaterial amount of ineffectiveness from
cash flow hedges. |
Refer to Note C for a description of how the above
financial instruments are valued in accordance with the fair
value measurement accounting guidance for the year ended
September 30, 2009.
Cash
Flow Hedges
The purpose of our foreign currency hedging activities is to
protect us from the risk that the eventual cash flows resulting
from transactions that are currently denominated in British
Pounds Sterling will be adversely affected by changes in
exchange rates. We are currently hedging our exposure to the
reduction in value of forecasted foreign currency cash flows
through foreign currency forward agreements through
August 15, 2011.
All changes in the fair value of outstanding cash flow hedge
derivatives, except the ineffective portion, are recorded in
accumulated other comprehensive income, until net income is
affected by the variability of cash flows of the hedged
transaction. In most cases, amounts recorded in accumulated
other comprehensive income will be released to net income some
time after the maturity of the related derivative. The
Consolidated Statements of Operations classification of
effective hedge results is the same as that of the underlying
exposure. Results of hedges of revenue and product costs are
recorded in revenue and costs of sales, respectively, when the
underlying hedged transaction affects net income. Results of
hedges of selling and administrative expense are recorded
together with those costs when the related expense is recorded.
In addition, any ineffective portion of the changes in the fair
value of the derivatives designated as cash flow hedges are
reported in the Consolidated Statements of Operations as the
changes occur.
57
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of September 30, 2009, approximately $0.3 million
of deferred net losses (net of tax) on outstanding derivatives
recorded in accumulated other comprehensive income are expected
to be reclassified to net income during the next 12 months
as a result of underlying hedged transactions being recorded in
net income. Actual amounts ultimately reclassified to net income
are dependent on the exchange rates in effect when the
derivative contracts that are currently outstanding mature. As
of September 30, 2009, the maximum term over which we are
hedging exposure to the variability of cash flows for our
forecasted and recorded transactions is 23 months.
We formally assess both at a hedges inception and on an
ongoing basis, whether the derivatives that are used in the
hedging transaction have been highly effective in offsetting
changes in the cash flows of hedged items and whether those
derivatives may be expected to remain highly effective in future
periods. Effectiveness for cash flow hedges is assessed based on
forward rates.
We discontinue hedge accounting prospectively when (1) we
determine that the derivative is no longer highly effective in
offsetting changes in the cash flows of a hedged item (including
hedged items such as firm commitments or forecasted
transactions); (2) the derivative expires or is sold,
terminated or exercised; (3) it is no longer probable that
the forecasted transaction will occur or (4) management
determines that designating the derivative as a hedging
instrument is no longer appropriate.
When we discontinue hedge accounting because it is no longer
probable that the forecasted transaction will occur in the
originally expected period, the gain or loss on the derivative
remains in accumulated other comprehensive income and is
reclassified to net income when the forecasted transaction
affects net income. However, if it is probable that a forecasted
transaction will not occur by the end of the originally
specified time period or within an additional two-month period
of time thereafter, the gains and losses that were accumulated
in other comprehensive income will be recognized immediately in
net income. In all situations in which hedge accounting is
discontinued and the derivative remains outstanding, we will
carry the derivative at its fair value on the balance sheet,
recognizing future changes in the fair value in selling, general
and administrative expense. For the year ended
September 30, 2009, we recorded in selling, general and
administrative expense an immaterial amount of ineffectiveness
from cash flow hedges.
Credit
Risk
We are exposed to credit-related losses in the event of
non-performance by counterparties to hedging instruments.
Recently, the ability of financial counterparties to perform
under financial instruments has become less certain. We attempt
to take into account the financial viability of counterparties
in both valuing the instruments and determining their
effectiveness as hedging instruments. If a counterparty was
unable to perform, our ability to qualify for hedging certain
transactions would be compromised and the realizable value of
the financial instruments would be uncertain. As a result, our
results of operations and cash flows would be impacted.
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, cash equivalents and marketable securities.
58
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Detailed information regarding our business segments is shown
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Power Products
|
|
$
|
637,845
|
|
|
$
|
611,470
|
|
|
$
|
541,584
|
|
Process Control Systems
|
|
|
28,006
|
|
|
|
27,234
|
|
|
|
22,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
665,851
|
|
|
$
|
638,704
|
|
|
$
|
564,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Power Products
|
|
$
|
133,629
|
|
|
$
|
118,171
|
|
|
$
|
89,044
|
|
Process Control Systems
|
|
|
11,420
|
|
|
|
8,235
|
|
|
|
6,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
145,049
|
|
|
$
|
126,406
|
|
|
$
|
95,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Power Products
|
|
$
|
56,700
|
|
|
$
|
38,241
|
|
|
$
|
14,781
|
|
Process Control Systems
|
|
|
3,959
|
|
|
|
1,627
|
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
60,659
|
|
|
$
|
39,868
|
|
|
$
|
15,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Identifiable tangible assets:
|
|
|
|
|
|
|
|
|
Electrical Power Products
|
|
$
|
258,012
|
|
|
$
|
342,105
|
|
Process Control Systems
|
|
|
6,863
|
|
|
|
8,734
|
|
Corporate
|
|
|
117,398
|
|
|
|
20,507
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
382,273
|
|
|
$
|
371,346
|
|
|
|
|
|
|
|
|
|
|
In addition, the Electrical Power Products business segment had
approximately $1,084,000 and $1,084,000 of goodwill and
$21,305,000 and $25,014,000 of intangible and other assets as of
September 30, 2009 and 2008, respectively, and corporate
had approximately $180,000 and $189,000 of deferred loan costs,
as of September 30, 2009 and 2008, respectively, which are
not included in identifiable tangible assets above.
Geographic
Information
Revenues are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Europe (including former Soviet Union)
|
|
$
|
30,582
|
|
|
$
|
50,807
|
|
|
$
|
28,118
|
|
Far East
|
|
|
62,155
|
|
|
|
13,092
|
|
|
|
27,600
|
|
Middle East and Africa
|
|
|
28,405
|
|
|
|
55,960
|
|
|
|
58,879
|
|
North, Central and South America (excluding U.S.)
|
|
|
28,737
|
|
|
|
49,772
|
|
|
|
76,964
|
|
United States
|
|
|
515,972
|
|
|
|
469,073
|
|
|
|
372,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
665,851
|
|
|
$
|
638,704
|
|
|
$
|
564,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The United States is the only country that accounted for more
than 10% of consolidated revenues in fiscal years 2009, 2008 or
2007.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
53,503
|
|
|
$
|
52,943
|
|
United Kingdom
|
|
|
7,481
|
|
|
|
8,563
|
|
Other
|
|
|
52
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61,036
|
|
|
$
|
61,546
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets consist of property, plant and equipment net
of accumulated depreciation.
|
|
N.
|
Quarterly
Results of Operations (Unaudited)
|
The table below sets forth the unaudited consolidated operating
results by fiscal quarter for the years ended September 30,
2009 and 2008 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
2009
|
|
|
Revenues
|
|
$
|
170,489
|
|
|
$
|
164,099
|
|
|
$
|
165,942
|
|
|
$
|
165,321
|
|
|
$
|
665,851
|
|
Gross profit
|
|
|
34,502
|
|
|
|
33,844
|
|
|
|
41,107
|
|
|
|
35,596
|
|
|
|
145,049
|
|
Net income
|
|
|
7,853
|
|
|
|
8,852
|
|
|
|
13,138
|
|
|
|
9,874
|
|
|
|
39,717
|
|
Basic earnings per share
|
|
|
0.69
|
|
|
|
0.78
|
|
|
|
1.15
|
|
|
|
0.86
|
|
|
|
3.48
|
|
Diluted earnings per share
|
|
|
0.68
|
|
|
|
0.77
|
|
|
|
1.14
|
|
|
|
0.85
|
|
|
|
3.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
2008
|
|
|
Revenues
|
|
$
|
147,121
|
|
|
$
|
160,333
|
|
|
$
|
164,123
|
|
|
$
|
167,127
|
|
|
$
|
638,704
|
|
Gross profit
|
|
|
26,695
|
|
|
|
30,692
|
|
|
|
35,002
|
|
|
|
34,017
|
|
|
|
126,406
|
|
Net income
|
|
|
3,586
|
|
|
|
6,029
|
|
|
|
7,893
|
|
|
|
8,339
|
|
|
|
25,847
|
|
Basic earnings per share
|
|
|
0.32
|
|
|
|
0.54
|
|
|
|
0.70
|
|
|
|
0.73
|
|
|
|
2.29
|
|
Diluted earnings per share
|
|
|
0.32
|
|
|
|
0.53
|
|
|
|
0.69
|
|
|
|
0.72
|
|
|
|
2.26
|
|
The sum of the individual earnings per share amounts may not
agree with
year-to-date
earnings per share as each periods computation is based on
the weighted-average number of shares outstanding during the
period.
Subsequent events have been evaluated for recognition and
disclosure through December 9, 2009, the date of the filing
of this Annual Report on
Form 10-K
with the SEC.
On October 21, 2009, we announced that we have entered into
a definitive asset purchase agreement and two related purchase
agreements with PowerComm Inc., and its subsidiaries Redhill
Systems Ltd., Nextron Corporation, PCG Technical Services Inc.
and Concorde Metal Manufacturing Ltd., each an Alberta
corporation, pursuant to which we propose to acquire the
business and substantially all of the assets of PowerComm Inc.
and its subsidiaries. The aggregate purchase price set forth in
the agreements calls for an initial payment of
$24.2 million ($25.5 million CAD) in cash and a
potential subsequent payment of up to $7.6 million
($8.0 million CAD) in cash based on actual earnings before
interest, taxes, depreciation and amortization (EBITDA) for the
12 months ending March 31, 2010. We will fund the
aggregate purchase price from our existing cash and cash
equivalents. We will
60
POWELL
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
also assume certain liabilities of PowerComm including bank
debt, accounts payable and obligations under capital leases
estimated to total approximately $21.4 million
($22.5 million CAD).
The transaction, which is subject to customary closing
conditions, regulatory approvals and approval from PowerComm
shareholders, is expected to close in December 2009. PowerComm
is headquartered in Alberta, Canada, and listed on the Toronto
Stock Exchange.
PowerComm has mailed the proxy and information circular to its
shareholders for the meeting to be held on December 15,
2009, at which its shareholders will vote on the proposal to
approve the transaction.
61
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
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 the end of such
period, 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.
Managements
Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
under the Securities and Exchange Act of 1934. Our internal
control system was designed 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. Due to
its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management of the Company has assessed the effectiveness of our
internal control over financial reporting as of
September 30, 2009. Management evaluated the effectiveness
of internal control over financial reporting based on the
criteria in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on managements
evaluation, management has concluded that internal control over
financial reporting was effective at the reasonable assurance
level as of September 30, 2009, based on criteria in
Internal Control Integrated Framework issued by the
COSO.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, has audited and issued their report on the
effectiveness of our internal control over financial reporting
as of September 30, 2009, which appears in their report to
the financial statements included herein.
Changes
in Internal Control over Financial Reporting
There has been no change in our internal control over financial
reporting during the year ended September 30, 2009, that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
62
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item is incorporated in this
Annual Report by reference to our definitive proxy statement
pursuant to Regulation 14A, to be filed with the Securities
and Exchange Commission not later than 120 days after the
close of our fiscal year ended September 30, 2009.
We have adopted a Code of Business Conduct and Ethics that
applies to all employees, including our executive officers and
directors. A copy of our Code of Business Conduct and Ethics may
be obtained at the Investor Relations section of our website,
www.powellind.com, or by written request addressed to the
Secretary, Powell Industries, Inc., 8550 Mosley Drive, Houston,
Texas 77075. We will satisfy the requirements under
Item 5.05 of
Form 8-K
regarding disclosure of amendments to, or waivers from,
provisions of our code of ethics that apply to the chief
executive officer, chief financial officer or controller by
posting such information on our website.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated in this
Annual Report by reference to our definitive proxy statement
pursuant to Regulation 14A, to be filed with the Securities
and Exchange Commission not later than 120 days after the
close of our fiscal year ended September 30, 2009.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated in this
Annual Report by reference to our definitive proxy statement
pursuant to Regulation 14A, to be filed with the Securities
and Exchange Commission not later than 120 days after the
close of our fiscal year ended September 30, 2009.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is incorporated in this
Annual Report by reference to our definitive proxy statement
pursuant to Regulation 14A, to be filed with the Securities
and Exchange Commission not later than 120 days after the
close of our fiscal year ended September 30, 2009.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is incorporated in this
Annual Report by reference to our definitive proxy statement
pursuant to Regulation 14A, to be filed with the Securities
and Exchange Commission not later than 120 days after the
close of our fiscal year ended September 30, 2009.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
1. Financial Statements. Reference is
made to the Index to Consolidated Financial Statements at
Item 8 of this Annual Report.
2. Financial Statement Schedule. All
schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the
notes to the financial statements.
63
3. Exhibits.
|
|
|
|
|
|
|
Number
|
|
|
|
Description of Exhibits
|
|
|
2
|
.4
|
|
|
|
Asset Purchase Agreement dated October 21, 2009 by and among,
Powell PowerComm Inc. (as a Buyer) and PowerComm Inc., Redhill
Systems Ltd., Nextron Corporation, PCG Technical Services Inc.,
and Concorde metal Manufacturing Ltd. (as Sellers) (filed as
Exhibit 2.1 to our Form 8-K filed October 27, 2009, and
incorporated herein by reference).
|
|
2
|
.5
|
|
|
|
Purchase Agreement dated October 21, 2009 by and among Powell
PowerComm KO Inc. (as a Buyer) and PowerComm Inc. (as a Seller)
(filed as Exhibit 2.2 to our Form 8-K filed October 27, 2009,
and incorporated herein by reference).
|
|
2
|
.6
|
|
|
|
Purchase Agreement dated October 21, 2009 by and among Powell
PowerComm Ventures Inc. (as a Buyer) and PowerComm Inc. (as a
Seller) (filed as Exhibit 2.3 to our Form 8-K filed October 27,
2009, and incorporated herein by reference).
|
|
3
|
.1
|
|
|
|
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).
|
|
3
|
.2
|
|
|
|
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).
|
|
10
|
.1
|
|
|
|
Powell Industries, Inc., Incentive Compensation Plan (filed as
Exhibit 10.1 to our Form 10-K for the fiscal year ended October
31, 2003, and incorporated herein by reference).
|
|
10
|
.2
|
|
|
|
Description of Supplemental Executive Benefit Plan (filed as
Exhibit 10 to our Form 10-K for the fiscal year ended October
31, 1984, and incorporated herein by reference).
|
|
10
|
.3
|
|
|
|
1992 Powell Industries, Inc. Stock Option Plan (filed as an
exhibit to our preliminary proxy statement dated January 24,
1992, and incorporated herein by reference).
|
|
10
|
.4
|
|
|
|
Amendment to 1992 Powell Industries, Inc. Stock Option Plan
(filed as Exhibit 10.8 to our Form 10-Q for the quarter ended
April 30, 1996, and incorporated herein by reference).
|
|
10
|
.5
|
|
|
|
Amendment to 1992 Powell Industries, Inc. Stock Option Plan (the
cover of the 1992 Powell Industries, Inc. Stock Option Plan has
been noted to reflect the increase in the number of shares
authorized for issuance under the Plan from 2,100,000 to
2,700,000, which increase was approved by the stockholders of
the Company at the 2005 Annual Meeting of Stockholders).
|
|
10
|
.6
|
|
|
|
Powell Industries, Inc. Directors Fees Program (filed as
Exhibit 10.7 to our Form 10-K for the fiscal year ended October
31, 1992, and incorporated herein by reference).
|
|
10
|
.7
|
|
|
|
Powell Industries, Inc. Executive Severance Protection Plan
(filed as Exhibit 10.7 to our Form 10-K for the fiscal year
ended October 31, 2002, and incorporated herein by reference).
|
|
10
|
.8
|
|
|
|
Powell Industries, Inc. Non-Employee Directors Stock Option Plan
(filed as Exhibit 10.9 to our Form 10-K for the fiscal year
ended October 31, 2002, and incorporated herein by reference).
|
|
10
|
.9
|
|
|
|
Powell Industries, Inc. Deferred Compensation Plan (filed as
Exhibit 10.9 to our Form 10-K for the fiscal year ended October
31, 2002, and incorporated herein by reference).
|
|
10
|
.10
|
|
|
|
Powell Industries, Inc. Non-Employee Director Restricted Stock
Plan (filed as Exhibit 10.10 to our Form 10-K for the fiscal
year ended October 31, 2005, and incorporated herein by
reference).
|
|
10
|
.11
|
|
|
|
Amended Loan Agreement dated October 29, 2004, between Powell
Industries, Inc. and Bank of America, N.A. (filed as Exhibit
10.10 to our Form 10-K for the fiscal year ended October 31,
2004, and incorporated herein by reference).
|
|
10
|
.12
|
|
|
|
Credit and Reimbursement Agreement dated April 15, 2004, between
Powell Industries, Inc. and Bank of America, N.A. (filed as
Exhibit 10.11 to our Form 10-K for the fiscal year ended October
31, 2004, and incorporated herein by reference).
|
|
10
|
.13
|
|
|
|
Credit Agreement dated June 29, 2005 among Powell Industries,
Inc., Inhoco 3210 Limited and Switchgear & Instrumentation
Properties Limited, and Bank of America and the other lenders
parties thereto (filed as Exhibit 10.1 to our Form 8-K filed
July 6, 2005, and incorporated herein by reference).
|
|
10
|
.14
|
|
|
|
First Amendment to Credit Agreement dated November 7, 2005 among
Powell Industries, Inc., Inhoco 3210 Limited (n/k/a Switchgear
& Instrumentation Limited), Switchgear &
Instrumentation Properties Limited, Bank of America, N.A., and
the other lenders parties thereto (filed as Exhibit 10.14 to our
Form 10-K for the fiscal year ended October 31, 2005, and
incorporated herein by reference).
|
64
|
|
|
|
|
|
|
Number
|
|
|
|
Description of Exhibits
|
|
|
10
|
.15
|
|
|
|
Second Amendment to Credit Agreement dated January 11, 2006
among Powell Industries, Inc., Switchgear & Instrumentation
Limited, Switchgear & Instrumentation Properties Limited,
Bank of America, N.A., and the other lenders parties thereto
(filed as Exhibit 10.15 to our Form 10-K for the fiscal year
ended October 31, 2005, and incorporated herein by reference).
|
|
10
|
.16
|
|
|
|
Third Amendment to Credit Agreement dated August 4, 2006 among
Powell Industries, Inc., Switchgear & Instrumentation
Limited, Switchgear & Instrumentation Properties Limited,
Bank of America, N.A., and the other lenders parties thereto
(filed as Exhibit 10.3 to our Form 8-K filed August 9, 2006, and
incorporated herein by reference).
|
|
10
|
.17
|
|
|
|
Fourth Amendment to Credit Agreement dated December 7, 2006
among Powell Industries, Inc., Switchgear & Instrumentation
Limited, Switchgear & Instrumentation Properties Limited,
Bank of America, N.A., and the other lenders parties thereto
(filed as Exhibit 10.17 to our Transition report on Form 10-K
for the fiscal year ended September 30, 2006, and incorporated
herein by reference).
|
|
10
|
.18
|
|
|
|
Fifth Amendment to Credit Agreement, dated as of December 4,
2007, among Powell Industries, Inc., as Parent, the subsidiaries
of Powell Industries, Inc. identified therein, as Borrowers,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, and the Lenders party thereto (filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2007, and incorporated herein by
reference).
|
|
10
|
.19
|
|
|
|
Sixth Amendment to Credit Agreement, dated as of December 14,
2007, among Powell Industries, Inc., as Parent, the subsidiaries
of Powell Industries, Inc. identified therein, as Borrowers,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C issuer, and the Lenders party thereto (filed as
Exhibit 10.1 to our Form 8-K filed December 19, 2007, and
incorporated herein by reference).
|
|
10
|
.20
|
|
|
|
Banking facilities between HSBC Bank plc and Switchgear &
Instrumentation Limited and Switchgear & Instrumentation
Properties Limited dated September 12, 2005 (filed as Exhibit
10.16 to our
Form 10-K
for the fiscal year ended October 31, 2005, and incorporated
herein by reference).
|
|
**10
|
.21
|
|
|
|
Powell Supply Agreement between the Company and General Electric
Company dated August 7, 2006 (filed as Exhibit 10.1 to our Form
8-K/A filed June 16, 2008, and incorporated herein by reference).
|
|
10
|
.22
|
|
|
|
Lease Agreement between the Company and C&L Partnership,
Ltd. dated April 19, 2006 (filed as Exhibit 10.2 to our Form 8-K
filed August 9, 2006, and incorporated herein by reference).
|
|
10
|
.23
|
|
|
|
Consulting Agreement dated July 18, 2008 between the Company and
Thomas W. Powell (filed as Exhibit 10.1 to our Form 8-K filed
July 24, 2008, and incorporated herein by reference).
|
|
10
|
.24
|
|
|
|
Seventh Amendment to Credit Agreement, dated as of December 10,
2008, among Powell Industries, Inc., as Parent, the subsidiaries
of Powell Industries, Inc. identified therein, as Borrowers,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C issuer, and the Lenders party (filed as Exhibit
10.24 to our form 10-K for the fiscal year ended September 30,
2008, and incorporated herein by reference).
|
|
*21
|
.1
|
|
|
|
Subsidiaries of Powell Industries, Inc.
|
|
*23
|
.2
|
|
|
|
Consent of PricewaterhouseCoopers, LLP.
|
|
*31
|
.1
|
|
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
|
*31
|
.2
|
|
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
|
*32
|
.1
|
|
|
|
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.
|
|
*32
|
.2
|
|
|
|
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.
|
|
|
|
* |
|
Filed herewith |
|
** |
|
Portions of this exhibit have been omitted based on a request
for confidential treatment pursuant to
Rule 24b-2
of the Securities Exchange Act of 1934. Such omitted portions
have been filed separately with the Commission. |
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
POWELL INDUSTRIES, INC.
|
|
|
|
By:
|
/s/ Patrick
L. McDonald
|
Patrick L. McDonald
President and Chief Executive Officer
(Principal Executive Officer)
Don R. Madison
Executive Vice President
Chief Financial and Administrative Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the date
indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Thomas
W. Powell
Thomas
W. Powell
|
|
Chairman of the Board
|
|
|
|
/s/ Joseph
L. Becherer
Joseph
L. Becherer
|
|
Director
|
|
|
|
/s/ Eugene
L. Butler
Eugene
L. Butler
|
|
Director
|
|
|
|
/s/ James
F. Clark
James
F. Clark
|
|
Director
|
|
|
|
/s/ Christopher
E. Cragg
Christopher
E. Cragg
|
|
Director
|
|
|
|
/s/ Stephen
W. Seale, Jr.
Stephen
W. Seale, Jr.
|
|
Director
|
|
|
|
/s/ Robert
C. Tranchon
Robert
C. Tranchon
|
|
Director
|
|
|
|
/s/ Ronald
J. Wolny
Ronald
J. Wolny
|
|
Director
|
Date: December 11, 2009
66
EXHIBIT INDEX
|
|
|
|
|
|
|
Number
|
|
|
|
Exhibit Title
|
|
|
2
|
.4
|
|
|
|
Asset Purchase Agreement dated October 21, 2009 by and among,
Powell PowerComm Inc. (as a Buyer) and PowerComm Inc., Redhill
Systems Ltd., Nextron Corporation, PCG Technical Services Inc.,
and Concorde metal Manufacturing Ltd. (as Sellers) (filed as
Exhibit 2.1 to our Form 8-K filed October 27, 2009, and
incorporated herein by reference).
|
|
2
|
.5
|
|
|
|
Purchase Agreement dated October 21, 2009 by and among Powell
PowerComm KO Inc. (as a Buyer) and PowerComm Inc. (as a Seller)
(filed as Exhibit 2.2 to our Form 8-K filed October 27, 2009,
and incorporated herein by reference).
|
|
2
|
.6
|
|
|
|
Purchase Agreement dated October 21, 2009 by and among Powell
PowerComm Ventures Inc. (as a Buyer) and PowerComm Inc. (as a
Seller) (filed as Exhibit 2.3 to our Form 8-K filed October 27,
2009, and incorporated herein by reference).
|
|
3
|
.1
|
|
|
|
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).
|
|
3
|
.2
|
|
|
|
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).
|
|
10
|
.1
|
|
|
|
Powell Industries, Inc., Incentive Compensation Plan (filed as
Exhibit 10.1 to our Form 10-K for the fiscal year ended October
31, 2003, and incorporated herein by reference).
|
|
10
|
.2
|
|
|
|
Description of Supplemental Executive Benefit Plan (filed as
Exhibit 10 to our Form 10-K for the fiscal year ended October
31, 1984, and incorporated herein by reference).
|
|
10
|
.3
|
|
|
|
1992 Powell Industries, Inc. Stock Option Plan (filed as an
exhibit to our preliminary proxy statement dated January 24,
1992, and incorporated herein by reference).
|
|
10
|
.4
|
|
|
|
Amendment to 1992 Powell Industries, Inc. Stock Option Plan
(filed as Exhibit 10.8 to our Form 10-Q for the quarter ended
April 30, 1996, and incorporated herein by reference).
|
|
10
|
.5
|
|
|
|
Amendment to 1992 Powell Industries, Inc. Stock Option Plan (the
cover of the 1992 Powell Industries, Inc. Stock Option Plan has
been noted to reflect the increase in the number of shares
authorized for issuance under the Plan from 2,100,000 to
2,700,000, which increase was approved by the stockholders of
the Company at the 2005 Annual Meeting of Stockholders).
|
|
10
|
.6
|
|
|
|
Powell Industries, Inc. Directors Fees Program (filed as
Exhibit 10.7 to our Form 10-K for the fiscal year ended October
31, 1992, and incorporated herein by reference).
|
|
10
|
.7
|
|
|
|
Powell Industries, Inc. Executive Severance Protection Plan
(filed as Exhibit 10.7 to our Form 10-K for the fiscal year
ended October 31, 2002, and incorporated herein by reference).
|
|
10
|
.8
|
|
|
|
Powell Industries, Inc. Non-Employee Directors Stock Option Plan
(filed as Exhibit 10.9 to our
Form 10-K
for the fiscal year ended October 31, 2002, and incorporated
herein by reference).
|
|
10
|
.9
|
|
|
|
Powell Industries, Inc. Deferred Compensation Plan (filed as
Exhibit 10.9 to our Form 10-K for the fiscal year ended October
31, 2002, and incorporated herein by reference).
|
|
10
|
.10
|
|
|
|
Powell Industries, Inc. Non-Employee Director Restricted Stock
Plan (filed as Exhibit 10.10 to our Form 10-K for the fiscal
year ended October 31, 2005, and incorporated herein by
reference).
|
|
10
|
.11
|
|
|
|
Amended Loan Agreement dated October 29, 2004, between Powell
Industries, Inc. and Bank of America, N.A. (filed as Exhibit
10.10 to our Form 10-K for the fiscal year ended October 31,
2004, and incorporated herein by reference).
|
|
10
|
.12
|
|
|
|
Credit and Reimbursement Agreement dated April 15, 2004, between
Powell Industries, Inc. and Bank of America, N.A. (filed as
Exhibit 10.11 to our Form 10-K for the fiscal year ended October
31, 2004, and incorporated herein by reference).
|
|
10
|
.13
|
|
|
|
Credit Agreement dated June 29, 2005 among Powell Industries,
Inc., Inhoco 3210 Limited, and Switchgear & Instrumentation
Properties Limited, and Bank of America and the other lenders
parties thereto (filed as Exhibit 10.1 to our Form 8-K filed
July 6, 2005, and incorporated herein by reference).
|
67
|
|
|
|
|
|
|
Number
|
|
|
|
Exhibit Title
|
|
|
10
|
.14
|
|
|
|
First Amendment to Credit Agreement dated November 7, 2005 among
Powell Industries, Inc., Inhoco 3210 Limited (n/k/a Switchgear
& Instrumentation Limited.), Switchgear &
Instrumentation Properties Limited, Bank of America, N.A., and
the other lenders parties thereto (filed as Exhibit 10.14 to our
Form 10-K for the fiscal year ended October 31, 2005, and
incorporated herein by reference).
|
|
10
|
.15
|
|
|
|
Second Amendment to Credit Agreement dated January 11, 2006
among Powell Industries, Inc., Switchgear & Instrumentation
Limited, Switchgear & Instrumentation Properties Limited,
Bank of America, N.A., and the other lenders parties thereto
(filed as Exhibit 10.15 to our Form 10-K for the fiscal year
ended October 31, 2005, and incorporated herein by reference).
|
|
10
|
.16
|
|
|
|
Third Amendment to Credit Agreement dated August 4, 2006 among
Powell Industries, Inc., Switchgear & Instrumentation
Limited, Switchgear & Instrumentation Properties Limited,
Bank of America, N.A., and the other lenders parties thereto
(filed as Exhibit 10.3 to our Form 8-K filed August 9, 2006, and
incorporated herein by reference).
|
|
10
|
.17
|
|
|
|
Fourth Amendment to Credit Agreement dated December 7, 2006
among Powell Industries, Inc., Switchgear & Instrumentation
Limited, Switchgear & Instrumentation Properties Limited,
Bank of America, N.A., and the other lenders parties thereto
(filed as Exhibit 10.17 to our Transition report on Form 10-K
for the fiscal year ended September 30, 2006, and incorporated
herein by reference).
|
|
10
|
.18
|
|
|
|
Fifth Amendment to Credit Agreement, dated as of December 4,
2007, among Powell Industries, Inc., as Parent, the subsidiaries
of Powell Industries, Inc. identified therein, as Borrowers,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, and the Lenders party thereto (filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2007, and incorporated herein by
reference).
|
|
10
|
.19
|
|
|
|
Sixth Amendment to Credit Agreement, dated as of December 14,
2007, among Powell Industries, Inc., as Parent, the subsidiaries
of Powell Industries, Inc. identified therein, as Borrowers,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, and the Lenders party thereto (filed as
Exhibit 10.1 to our Form 8-K filed December 19, 2007, and
incorporated herein by reference).
|
|
10
|
.20
|
|
|
|
Banking facilities between HSBC Bank plc and Switchgear &
Instrumentation Limited and Switchgear & Instrumentation
Properties Limited dated September 12, 2006 (filed as Exhibit
10.16 to our
Form 10-K
for the fiscal year ended October 31, 2005, and incorporated
herein by reference).
|
|
**10
|
.21
|
|
|
|
Powell Supply Agreement between the Company and General Electric
Company dated August 7, 2006 (filed as Exhibit 10.1 to our Form
8-K/A filed June 16, 2008, and incorporated herein by reference).
|
|
10
|
.22
|
|
|
|
Lease Agreement between the Company and C&L Partnership,
Ltd. dated April 19, 2006 (filed as Exhibit 10.2 to our Form 8-K
filed August 9, 2006, and incorporated herein by reference).
|
|
10
|
.23
|
|
|
|
Consulting Agreement dated July 18, 2008 between the Company and
Thomas W. Powell (filed as Exhibit 10.1 to our Form 8-K filed on
July 24, 2008, and incorporated herein by reference).
|
|
10
|
.24
|
|
|
|
Seventh Amendment to Credit Agreement, dated as of December 10,
2008, among Powell Industries, Inc., as Parent, the subsidiaries
of Powell Industries, Inc. identified therein, as Borrowers,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender and L/C issuer, and the Lenders party (filed as Exhibit
10.24 to out Form 10-K for the fiscal year ended September 30,
2008, and incorporated herein by reference).
|
|
*21
|
.1
|
|
|
|
Subsidiaries of Powell Industries, Inc.
|
|
*23
|
.2
|
|
|
|
Consent of PricewaterhouseCoopers, LLP.
|
|
*31
|
.1
|
|
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
|
*31
|
.2
|
|
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
|
*32
|
.1
|
|
|
|
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.
|
|
*32
|
.2
|
|
|
|
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.
|
|
|
|
* |
|
Filed herewith |
|
** |
|
Portions of this exhibit have been omitted based on a request
for confidential treatment pursuant to
Rule 24b-2
of the Securities Exchange Act of 1934. Such omitted portions
have been filed separately with the Commission. |
68
exv21w1
Exhibit 21.1
SUBSIDIARIES OF POWELL INDUSTRIES, INC.
|
|
|
Name of Subsidiary |
|
Incorporated |
Powell Industries, Inc.
|
|
Delaware |
Powell Electrical Systems, Inc.
|
|
Delaware |
Transdyn, Inc.
|
|
Delaware |
Powell Industries International, Inc.
|
|
Delaware |
Powell Industries Asia, Inc.
|
|
Delaware |
Powell International Europe B.V.
|
|
Netherlands |
Switchgear & Instrumentation Ltd
|
|
United Kingdom |
Switchgear & Instrumentation Properties Ltd
|
|
United Kingdom |
exv23w2
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in post-effective amendment No. 1 to the
Registration Statement on Form S-8 (No. 333-63740) of Powell Industries, Inc. of our report dated
December 11, 2009, relating to the financial statements and the effectiveness of internal control
over financial reporting which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
December 11, 2009
exv31w1
EXHIBIT 31.1
CERTIFICATION
I, Patrick L. McDonald, certify that:
1. I have reviewed this Annual Report on Form 10-K 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/ Patrick L. McDonald
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Patrick L. McDonald |
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President and Chief Executive Officer
(Principal Executive Officer) |
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Date: December 11, 2009
exv31w2
EXHIBIT 31.2
CERTIFICATION
I, Don R. Madison, certify that:
1. I have reviewed this Annual Report on Form 10-K 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
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Don R. Madison |
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Executive Vice President
Chief Financial and Administrative Officer
(Principal Financial and Accounting Officer) |
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Date: December 11, 2009
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 Annual Report (the Report) on Form 10-K of Powell Industries, Inc.
(the Company) for the year ended September 30, 2009, as filed with the Securities and Exchange
Commission on the date hereof, I, Patrick L. McDonald, President and 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/ Patrick L. McDonald
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Patrick L. McDonald |
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President and Chief Executive Officer |
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Date: December 11, 2009
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 Annual Report (the Report) on Form 10-K of Powell Industries, Inc.
(the Company) for the year ended September 30, 2009, as filed with the Securities and Exchange
Commission on the date hereof, I, Don R. Madison, 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
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Don R. Madison |
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Executive Vice President
Chief Financial and Administrative Officer |
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Date: December 11, 2009