e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2010
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-12488
Powell Industries, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(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) |
Registrants telephone number, including area code:
(713) 944-6900
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data 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).
oYes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act
Rule 12b-2). oYes þ No
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date.
At January 28, 2011, there were 11,721,143 outstanding shares of the registrants common
stock, par value $0.01 per share.
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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5 |
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17 |
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23 |
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23 |
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24 |
2
PART I FINANCIAL INFORMATION
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Item 1. |
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Condensed Consolidated Financial Statements |
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
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December 31, |
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September 30, |
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2010 |
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2010 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
120,918 |
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$ |
115,353 |
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Accounts receivable, less allowance for doubtful accounts of $1,188 and $907, respectively |
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93,822 |
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91,766 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
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33,416 |
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38,064 |
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Inventories, net |
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36,712 |
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38,244 |
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Income taxes receivable |
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7,129 |
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6,726 |
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Deferred income taxes |
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3,360 |
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3,087 |
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Prepaid expenses and other current assets |
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6,334 |
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8,951 |
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Total Current Assets |
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301,691 |
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302,191 |
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Property, plant and equipment, net |
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61,994 |
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63,676 |
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Goodwill |
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1,003 |
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1,003 |
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Intangible assets, net |
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26,696 |
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26,132 |
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Other assets |
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7,481 |
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7,710 |
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Total Assets |
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$ |
398,865 |
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$ |
400,712 |
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Current maturities of long-term debt and capital lease obligations |
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$ |
1,766 |
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$ |
1,683 |
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Income taxes payable |
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2,217 |
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1,500 |
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Accounts payable |
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36,223 |
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41,850 |
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Accrued salaries, bonuses and commissions |
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13,848 |
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25,064 |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
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40,352 |
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31,009 |
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Accrued product warranty |
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5,845 |
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5,929 |
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Other accrued expenses |
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9,159 |
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7,711 |
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Total Current Liabilities |
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109,410 |
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114,746 |
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Long-term debt and capital lease obligations, net of current maturities |
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4,675 |
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5,202 |
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Deferred compensation |
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2,818 |
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2,730 |
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Other liabilities |
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873 |
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731 |
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Total Liabilities |
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117,776 |
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123,409 |
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Commitments and Contingencies (Note J) |
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Equity |
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Stockholders Equity: |
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Preferred stock, par value $.01; 5,000,000 shares authorized; none issued |
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Common stock, par value $.01; 30,000,000 shares authorized; 11,717,284 and 11,676,955
shares issued and outstanding, respectively |
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117 |
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117 |
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Additional paid-in capital |
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35,636 |
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34,546 |
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Retained earnings |
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247,401 |
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244,969 |
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Accumulated other comprehensive income (loss) |
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(985 |
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(1,352 |
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Deferred compensation |
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(1,080 |
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(977 |
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Total Stockholders Equity |
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281,089 |
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277,303 |
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Total Liabilities and Stockholders Equity |
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$ |
398,865 |
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$ |
400,712 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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December 31, 2010 |
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December 31, 2009 |
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Revenues |
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$ |
124,674 |
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$ |
135,916 |
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Cost of goods sold |
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98,809 |
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98,099 |
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Gross profit |
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25,865 |
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37,817 |
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Selling, general and administrative expenses |
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20,928 |
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21,779 |
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Amortization of intangible assets |
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1,167 |
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862 |
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Operating income |
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3,770 |
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15,176 |
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Interest expense |
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114 |
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182 |
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Interest income |
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(45 |
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(42 |
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Income before income taxes |
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3,701 |
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15,036 |
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Income tax provision |
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1,269 |
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5,291 |
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Net income |
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2,432 |
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9,745 |
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Net income attributable to noncontrolling interest |
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(101 |
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Net income attributable to Powell Industries, Inc. |
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$ |
2,432 |
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$ |
9,644 |
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Earnings per share attributable to Powell Industries, Inc.: |
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Basic |
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$ |
0.21 |
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$ |
0.84 |
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Diluted |
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$ |
0.21 |
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$ |
0.83 |
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Weighted average shares: |
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Basic |
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11,640 |
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11,476 |
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Diluted |
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11,773 |
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11,626 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
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Three Months Ended |
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December 31, 2010 |
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December 31, 2009 |
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Operating Activities: |
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Net income |
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$ |
2,432 |
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$ |
9,745 |
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Adjustments to reconcile net income to net cash used in operating
activities: Depreciation |
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2,369 |
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2,001 |
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Amortization |
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1,186 |
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871 |
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Stock-based compensation |
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725 |
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817 |
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Bad debt expense |
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288 |
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1,302 |
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Deferred income taxes |
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22 |
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(537 |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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(2,126 |
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17,557 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
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4,620 |
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3,089 |
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Inventories |
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1,618 |
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8,195 |
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Prepaid expenses and other current assets |
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2,250 |
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3,691 |
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Accounts payable and income taxes payable |
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(4,988 |
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(17,760 |
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Accrued liabilities |
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(10,393 |
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(11,080 |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
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9,415 |
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(2,360 |
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Other |
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(618 |
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(202 |
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Net cash provided by operating activities |
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6,800 |
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15,329 |
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Investing Activities: |
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Proceeds from sale of fixed assets |
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24 |
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14 |
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Purchases of property, plant and equipment |
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(763 |
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(614 |
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Acquisition of Powell Canada |
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(21,828 |
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Net cash used in investing activities |
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(739 |
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(22,428 |
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Financing Activities: |
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Borrowings on Canadian revolving line of credit |
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1,280 |
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Payments on Canadian revolving line of credit |
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(1,026 |
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(1,215 |
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Payments on industrial development revenue bonds |
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(400 |
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(400 |
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Payment on deferred acquisition payable |
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(4,292 |
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Other |
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(88 |
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183 |
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Net cash used in financing activities |
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(234 |
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(5,724 |
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Net (decrease) increase in cash and cash equivalents |
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5,827 |
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(12,823 |
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Effect of exchange rate changes on cash and cash equivalents |
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(262 |
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(1,401 |
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Cash and cash equivalents at beginning of period |
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115,353 |
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97,403 |
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Cash and cash equivalents at end of period |
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$ |
120,918 |
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$ |
83,179 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
5
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
A. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
Powell Industries, Inc. (we, us, our, Powell or the Company) was incorporated in the state of
Delaware in 2004 as a successor to a Nevada company incorporated in 1968. The Nevada corporation
was the successor to a company founded by William E. Powell in 1947, which merged into the Company
in 1977. Our major subsidiaries, all of which are wholly-owned, include: Powell Electrical Systems,
Inc.; Transdyn, Inc.; Powell Industries International, Inc.; Switchgear & Instrumentation Limited
(S&I) and Powell Canada Inc.
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.
In December 2009, we acquired the business and certain assets of PowerComm Inc. and its
subsidiaries (referred to herein as Powell Canada) for $23.4 million, not including expenses.
Powell Canada is headquartered in Edmonton, Alberta, Canada, and provides electrical and
maintenance services. Powell Canada is also a manufacturer of switchgear and related products,
primarily serving the oil and gas industry in western Canada. The operating results of Powell
Canada are included in our Electrical Power Products business segment from the acquisition date.
For further information on the Powell Canada acquisition, see Note C.
Basis of Presentation
These unaudited condensed consolidated financial statements include the accounts of Powell and its
wholly-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
These unaudited condensed consolidated financial statements have been prepared pursuant to the
rules of the Securities and Exchange Commission (SEC). Certain information and footnote
disclosures, normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP), have been condensed or
omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate
to make the information presented not misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly state the financial position,
results of operations and cash flows with respect to the interim consolidated financial statements
have been included. The results of operations for the interim periods are not necessarily
indicative of the results for the entire fiscal year. The year-end balance sheet data was derived
from audited financial statements, but does not include all disclosures required by U.S. GAAP.
These unaudited condensed consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto of Powell and its subsidiaries included
in Powells Annual Report on Form 10-K for the year ended September 30, 2010, which was filed with
the SEC on December 8, 2010.
Reclassifications
Certain reclassifications have been made in prior years financial statements to conform to the
presentation used in the current year. These reclassifications have not resulted in any changes to
previously reported net income for any periods.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in the condensed consolidated financial
statements and accompanying footnotes. The most significant estimates used in our financial
statements affect revenue and cost recognition for construction contracts, the allowance for
doubtful accounts, provision for excess and obsolete inventory, goodwill and other intangible
assets, self-insurance, warranty accruals, income taxes and estimates related to acquisition
valuations. The amounts recorded for insurance claims, warranties, legal, income taxes and other
contingent liabilities require judgments regarding the amount of expenses that will ultimately be
incurred. We base our estimates on historical experience and on various other assumptions, as well
as the specific circumstances surrounding these contingent
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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.
New Accounting Standards
In December 2008, the Financial Accounting Standards Board (FASB) issued accounting guidance on
employers disclosures about postretirement benefit plan assets. The disclosures about plan assets
required by this guidance shall be provided for fiscal years ending after December 15, 2009, and
was adopted by us in the first quarter of fiscal year 2011. Adoption of this guidance did not have
a material impact on our consolidated financial statements.
In April 2009, the FASB issued accounting guidance regarding the accounting for assets acquired and
liabilities assumed in a business combination due to contingencies. This guidance clarifies the
initial and subsequent recognition, subsequent accounting and disclosure of assets and liabilities
arising from contingencies in a business combination. This 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
accounting guidance became effective for us on October 1, 2010. The adoption of this guidance did
not have an impact on our consolidated financial statements.
In January 2010, the FASB issued updated guidance to amend the disclosure requirements related to
recurring and nonrecurring fair value measurements. This update requires new disclosures about
significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value
hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out
of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure
requirements, this update clarifies certain existing disclosure requirements. For example, this
update clarifies that reporting entities are required to provide fair value measurement disclosures
for each class of assets and liabilities, rather than each major category of assets or liabilities.
This update also clarifies the requirement for entities to disclose information about both the
valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements.
This update became effective for us with the interim and annual reporting period beginning after
December 15, 2009, our fiscal year 2011, except for the requirement to provide the Level 3 activity
of purchases, sales, issuances and settlements on a gross basis, which will become effective for us
with the interim and annual reporting period beginning after December 15, 2010, our fiscal year
2012. We will not be required to provide the amended disclosures for any previous periods
presented for comparative purposes. Other than requiring additional disclosures, adoption of this
update for the provisions currently in effect for us did not have a material impact on our
consolidated financial statements.
In April 2010, the FASB issued accounting guidance for the milestone method of revenue recognition.
This guidance allows entities to make a policy election to use the milestone method of revenue
recognition and provides guidance on defining a milestone and the criteria that should be met for
applying the milestone method. The scope of this guidance is limited to transactions involving
milestones relating to research and development deliverables.
The guidance includes enhanced disclosure requirements about each arrangement, individual
milestones and related contingent consideration, information about substantive milestones and
factors considered in the determination. This guidance is effective prospectively to milestones
achieved in fiscal years, and interim periods within those years, beginning after June 15, 2010.
Early application and retrospective application are permitted. We have evaluated this new guidance
and have determined that it will not currently have a significant impact on the determination or
reporting of our financial results.
Subsequent Events
We evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q. No
significant events occurred subsequent to the balance sheet or prior to the filing of this report
that would have a material impact on our consolidated financial statements or results of
operations.
B. FAIR VALUE MEASUREMENTS
We measure certain financial assets and liabilities at fair value. 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 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
7
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.
The following table summarizes the fair value of our assets and liabilities that were accounted for
at fair value on a recurring basis as of December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 |
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Significant |
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Unobservable Inputs |
|
|
Fair Value at |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2010 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
72,824 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
72,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
72,824 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
72,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
25 |
|
|
$ |
|
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
25 |
|
|
$ |
|
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the fair value of our assets and liabilities that were accounted for
at fair value on a recurring basis as of December 31, 2009 (in thousands):
|
|
|
|
Fair Value Measurements at December 31, 2009 |
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Significant |
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Unobservable Inputs |
|
|
Fair Value at |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2009 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
40,496 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
40,496 |
|
Foreign currency forward contracts |
|
|
|
|
|
$ |
96 |
|
|
$ |
|
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
40,496 |
|
|
$ |
96 |
|
|
$ |
|
|
|
$ |
40,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
22 |
|
|
$ |
|
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
22 |
|
|
$ |
|
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents, primarily funds held in 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 Condensed Consolidated Balance Sheets.
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 December 31, 2010. 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 Condensed Consolidated Balance Sheets for
that period. See Note I for further discussion regarding our derivative instruments.
8
C. ACQUISITION
On December 15, 2009, we acquired the business and certain assets of PowerComm Inc. and its
subsidiaries, Redhill Systems, Ltd., Nextron Corporation, PCG Technical Services Inc. and Concorde
Metal Manufacturing Ltd (the entire business of which is referred to herein as Powell Canada).
Powell Canada is headquartered in Edmonton, Alberta, Canada, and provides electrical and
maintenance services in western Canada. Powell Canada is also a manufacturer of switchgear and
related products, primarily serving the oil and gas industry in western Canada. This acquisition
supports our strategy to expand our geographic presence into Canada, as well as increasing our
service and maintenance capabilities.
We paid $23.4 million, plus expenses of approximately $2.4 million, for the acquisition from our
existing cash and cash equivalents and assumed $15.1 million of existing bank debt. See the table
below for assets acquired and liabilities assumed. In December 2009, approximately $2.4 million of
the $23.4 million purchase price was placed into an escrow account related to the purchase of
PowerComms 50% interest in the operations of a joint venture in Kazakhstan. This transaction
closed in April 2010 and the escrow was released.
Intangible assets recorded were approximately $9.0 million and are being amortized over an initial
weighted average life of approximately 8.4 years. Goodwill was initially recorded at approximately
$7.2 million and was not amortized. Goodwill represented the excess purchase price over the
estimated fair value allocated to the net assets acquired. During fiscal 2010, our impairment
analysis indicated that the goodwill related to the acquisition of Powell Canada was completely
impaired, thus a loss on impairment of approximately $7.5 million was recorded in fiscal 2010.
The purchase price allocation was as follows, based on the exchange rate as of December 15, 2009
(in thousands):
|
|
|
|
|
Accounts receivable |
|
$ |
16,643 |
|
Inventories |
|
|
4,180 |
|
Prepaid expenses and other current assets |
|
|
3,401 |
|
Property, plant and equipment |
|
|
7,863 |
|
Goodwill |
|
|
7,180 |
|
Intangible assets |
|
|
9,043 |
|
Accounts payable and other current liabilities |
|
|
(7,649 |
) |
Capital lease obligations |
|
|
(2,667 |
) |
Bank debt assumed |
|
|
(15,072 |
) |
|
|
|
|
Total purchase price |
|
$ |
22,922 |
|
|
|
|
|
Operating results of Powell Canada are included in our Electrical Power Products business segment
in our Condensed Consolidated Statements of Operations from December 15, 2009. Pro forma results,
including the results of Powell Canada since the beginning of fiscal year 2009 would not be
materially different than the actual results reported.
In October 2010, we acquired certain assets related to a technology for real-time optical
fiber-based thermal sensors that have application for monitoring of hot spots in electrical power
equipment systems. There were no operations associated with this patent-pending technology
acquired. This transaction has been recorded as an increase in intangible assets of approximately
$1.5 million at December 31, 2010.
D. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
Net income attributable to Powell Industries, Inc. |
|
$ |
2,432 |
|
|
$ |
9,644 |
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average basic shares |
|
|
11,640 |
|
|
|
11,476 |
|
Dilutive effect of stock options, restricted stock and restricted stock units |
|
|
133 |
|
|
|
150 |
|
|
|
|
|
|
|
|
Weighted average diluted shares with assumed conversions |
|
|
11,773 |
|
|
|
11,626 |
|
|
|
|
|
|
|
|
Net earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.21 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.21 |
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
9
All options were included in the computation of diluted earnings per share for the three months
ended December 31, 2010 and 2009, respectively, as the options exercise prices were less than the
average market price of our common stock.
E. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
Allowance for Doubtful Accounts
Activity in our allowance for doubtful accounts receivable consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Balance at beginning of period |
|
$ |
907 |
|
|
$ |
1,607 |
|
Increase to bad debt expense |
|
|
288 |
|
|
|
1,302 |
|
Deductions for uncollectible accounts written off, net of recoveries |
|
|
1 |
|
|
|
(370 |
) |
Increase (decrease) due to foreign currency translation |
|
|
(8 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
1,188 |
|
|
$ |
2,580 |
|
|
|
|
|
|
|
|
Warranty Accrual
Activity in our product warranty accrual consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Balance at beginning of period |
|
$ |
5,929 |
|
|
$ |
7,558 |
|
Increase to warranty expense |
|
|
410 |
|
|
|
801 |
|
Deductions for warranty charges |
|
|
(581 |
) |
|
|
(923 |
) |
Increase due to foreign currency translation |
|
|
87 |
|
|
|
1 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
5,845 |
|
|
$ |
7,437 |
|
|
|
|
|
|
|
|
Inventories
The components of inventories are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2010 |
|
|
2010 |
|
Raw materials, parts and subassemblies |
|
$ |
37,978 |
|
|
$ |
40,325 |
|
Work-in-progress |
|
|
5,726 |
|
|
|
4,646 |
|
Provision for excess and obsolete inventory |
|
|
(6,992 |
) |
|
|
(6,727 |
) |
|
|
|
|
|
|
|
Total inventories |
|
$ |
36,712 |
|
|
$ |
38,244 |
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2010 |
|
|
2010 |
|
Costs incurred on uncompleted contracts |
|
$ |
554,883 |
|
|
$ |
482,149 |
|
Estimated earnings |
|
|
148,632 |
|
|
|
138,836 |
|
|
|
|
|
|
|
|
|
|
|
703,515 |
|
|
|
620,985 |
|
Less: Billings to date |
|
|
710,451 |
|
|
|
613,930 |
|
|
|
|
|
|
|
|
Net (overbilled) underbilled position |
|
$ |
(6,936 |
) |
|
$ |
7,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the accompanying balance sheets under the following captions: |
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
$ |
33,416 |
|
|
$ |
38,064 |
|
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
|
(40,352 |
) |
|
|
(31,009 |
) |
|
|
|
|
|
|
|
Net (overbilled) underbilled position |
|
$ |
(6,936 |
) |
|
$ |
7,055 |
|
|
|
|
|
|
|
|
10
F. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in our goodwill and intangible assets balances for the three months ended December 31,
2010, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
Intangible Assets |
|
Balance at September 30, 2010 |
|
$ |
1,003 |
|
|
$ |
26,132 |
|
Purchase of patent-pending technology |
|
|
|
|
|
|
1,513 |
|
Amortization |
|
|
|
|
|
|
(1,167 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
218 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
1,003 |
|
|
$ |
26,696 |
|
|
|
|
|
|
|
|
All goodwill and intangible assets disclosed above are reported in our Electrical Power Products
business segment.
Amortization of intangible assets recorded for the three months ended December 31, 2010 and 2009
was approximately $1.2 million and $0.9 million, respectively.
G. COMPREHENSIVE INCOME
Comprehensive income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net income attributable to Powell Industries, Inc. |
|
$ |
2,432 |
|
|
$ |
9,644 |
|
Unrealized gain on foreign currency translation |
|
|
360 |
|
|
|
766 |
|
Unrealized gain (loss) on derivative contracts |
|
|
7 |
|
|
|
(241 |
) |
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
2,799 |
|
|
$ |
10,169 |
|
|
|
|
|
|
|
|
H. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2010 |
|
|
2010 |
|
Industrial development revenue bonds |
|
$ |
4,400 |
|
|
$ |
4,800 |
|
Capital lease obligations |
|
|
1,787 |
|
|
|
2,085 |
|
Canadian Revolver |
|
|
254 |
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal long-term debt and capital lease obligations |
|
|
6,441 |
|
|
|
6,885 |
|
Less current portion |
|
|
(1,766 |
) |
|
|
(1,683 |
) |
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations |
|
$ |
4,675 |
|
|
$ |
5,202 |
|
|
|
|
|
|
|
|
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. These amendments to our credit
facility were made to expand our US borrowing capacity to provide additional working capital
support for the Company. The Amended Credit Agreement provides for a 1) $58.5 million revolving
credit facility (US Revolver); 2) £4.0 million (pound sterling) (approximately $6.2 million)
revolving credit facility (UK Revolver) and 3) £6.0 million (approximately $9.3 million) single
advance term loan (UK Term Loan). The UK Term Loan was repaid in September 2009 and may not be
reborrowed. 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 certain 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 negative 0.5% to 0.5%, as
determined by our consolidated leverage ratio, is added to the applicable rate. The floating
interest rate for amounts outstanding under the Amended Credit Agreement for the UK Revolver is a
floating rate based upon the LIBOR plus a
11
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 available under the respective revolvers. The amount available under the US
Revolver was reduced by $14.5 million for our outstanding letters of credit at December 31, 2010.
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 December 31,
2010. Amounts available under the US Revolver and the UK Revolver were approximately $44.0 million
and approximately $6.2 million, respectively, at December 31, 2010. The US Revolver and the UK
Revolver expire on December 31, 2012.
Canadian Revolver
On December 15, 2009, we entered into a credit agreement with a major international bank (the
Canadian Facility) to finance the $15.1 million debt assumed in the acquisition of Powell Canada,
and to provide additional working capital support for our operations in Canada. The Canadian
Facility provides for a $20 million CAD (approximately $20.0 million) revolving credit facility
(the Canadian Revolver), subject to certain limitations including a limitation on borrowings based
upon certain financial ratios, as defined in the credit agreement. Expenses associated with the
Canadian Facility were $0.1 million and are classified as deferred loan costs in other assets and
are being amortized as a non-cash charge to interest expense over two years.
The Canadian Revolver provides for the issuance of letters of credit which reduce the amounts which
may be borrowed under the Canadian Revolver. As of December 31, 2010, there were no letters of
credit outstanding under the Canadian Revolver.
There was approximately $0.3 million outstanding under the Canadian Revolver, and approximately
$16.8 million was available at December 31, 2010. The amount available under the Canadian Revolver
was reduced to approximately $16.6 million based upon the available borrowing base as defined in
the Canadian Facility credit agreement. The Canadian Facility expires on February 29, 2012. The
interest rate for amounts outstanding under the Canadian Revolver is a floating interest rate based
upon either the Canadian Prime Rate, or the lenders US Bank Rate. Once the applicable rate is
determined, a margin of 0.3755% to 1.125%, as determined by our consolidated leverage ratio is
added to the applicable rate.
The principal financial covenants are consistent with those in our US Revolver facility. As
discussed above, the borrowings under the Canadian Revolver are subject to a borrowing base
limitation. The Canadian Facility contains a material adverse effect clause. A material adverse
effect is defined as a material change in the operations of Powell or Powell Canada in relation to
our financial condition, property, business operations, expected net cash flows, liabilities or
capitalization.
The Canadian Facility is secured by the assets of our Canadian operations and provides for
customary events of default and carries cross-default provisions with our existing debt agreements.
If an event of default (as defined in the Canadian Facility credit agreement) occurs and is
continuing, on the terms and subject to the conditions set forth in the Canadian Facility credit
agreement, amounts outstanding under the Canadian Facility may be accelerated and may become
immediately due and payable. As of December 31, 2010, we were in compliance with all of the
financial covenants of the Canadian Facility credit agreement.
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 at December 31, 2010. 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 December 31, 2010, the balance
in the restricted sinking fund was approximately $134,000 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 0.55% per year at December 31, 2010.
12
I. DERIVATIVE FINANCIAL INSTRUMENTS
We operate in various countries and have operations in the United Kingdom and Canada. 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 certain 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 associated with certain
long-term sales. As of December 31, 2010, we held only derivatives that were designated as cash
flow hedges related to the U.S. Dollar/British Pound Sterling exchange rate.
All derivatives are recognized on the Condensed Consolidated Balance Sheets at their fair value and
classified based on the instruments maturity date. The total notional amount of outstanding
derivatives as of December 31, 2010 was approximately $0.6 million.
The following table presents the fair value of derivative instruments included with the Condensed
Consolidated Balance Sheets as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
$ |
|
|
|
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the fair value of derivative instruments included with the Condensed
Consolidated Balance Sheets as of December 31, 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 |
|
$ |
96 |
|
|
Other accrued expenses |
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
$ |
96 |
|
|
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amounts affecting the Condensed Consolidated Statements of
Operations for the three months ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
|
|
|
|
|
|
(Loss) Recognized |
|
|
|
|
Amount of Gain (Loss) |
|
|
|
in Other |
|
|
|
|
Reclassified from |
|
|
|
Comprehensive |
|
|
|
|
Accumulated Other |
|
|
|
Income on |
|
|
|
|
Comprehensive Income |
|
|
|
Derivatives(1) |
|
|
Location of Gain (Loss) |
|
into Income(1) |
|
|
|
Three Months Ended |
|
|
Reclassified from Accumulated |
|
Three Months Ended |
|
Derivatives designated |
|
December 31, 2010 |
|
|
Other Comprehensive Income into Income |
|
December 31, 2010 |
|
Derivatives designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
$ |
11 |
|
|
Revenues |
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
Total designated cash flow hedges |
|
$ |
11 |
|
|
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the three months ended December 31, 2010, we recorded in revenues an immaterial amount of
ineffectiveness from cash flow hedges. |
13
The following table presents the amounts affecting the Condensed Consolidated Statements of
Operations for the three months ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
|
|
|
|
|
|
(Loss) Recognized |
|
|
|
|
Amount of Gain (Loss) |
|
|
|
in Other |
|
|
|
|
Reclassified from |
|
|
|
Comprehensive |
|
|
|
|
Accumulated Other |
|
|
|
Income on |
|
|
|
|
Comprehensive Income |
|
|
|
Derivatives(1) |
|
|
Location of Gain (Loss) |
|
into Income(1) |
|
|
|
Three Months Ended |
|
|
Reclassified from Accumulated |
|
Three Months Ended |
|
Derivatives designated |
|
December 31, 2009 |
|
|
Other Comprehensive Income into Income |
|
December 31, 2009 |
|
Derivatives designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
$ |
700 |
|
|
Revenues |
|
$ |
141 |
|
|
|
|
|
|
|
|
|
|
Total designated cash flow hedges |
|
$ |
700 |
|
|
|
|
$ |
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the three months ended December 31, 2009, we recorded in revenues an immaterial amount of
ineffectiveness from cash flow hedges. |
Refer to Note B for a description of how the above financial instruments are valued in accordance
with the fair value measurement accounting guidance for the three months ended December 31, 2010.
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 denominated in currencies other than the
U.S. Dollar 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, for transactions denominated in the British
Pound Sterling.
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, or until it is probable that the
forecasted transaction will not occur. 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 Condensed 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 Condensed Consolidated Statements of Operations as the changes occur.
As of December 31, 2010, there were no deferred net losses (net of tax) on outstanding derivatives
recorded in accumulated other comprehensive income 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 December 31, 2010, the
maximum term over which we are hedging exposure to the variability of cash flows for our forecasted
and recorded transactions is eight months. For the three months ended December 31, 2010, 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.
14
J. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Bonds
Certain customers require us to post bank letter of credit guarantees or performance bonds issued
by a surety. These guarantees and performance bonds assure that we will perform under the terms of
our contract. In the event of default, the counterparty 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 $14.5 million as of December 31, 2010. We also had
performance and maintenance bonds totaling approximately $190.4 million that were outstanding, with
additional bonding capacity of approximately $109.6 million available, at December 31, 2010.
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) approximately $15.5 million;
2) approximately $3.9 million of forward exchange contracts and currency options and 3) the ability
to issue bonds and enter into forward exchange contracts and currency options. At December 31,
2010, we had outstanding a total of approximately $2.8 million of contingent obligations under this
Facility Agreement.
The Facility Agreement is guaranteed by Powell. The Facility Agreements principal financial
covenants are the same as those 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.
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.
K. STOCK-BASED COMPENSATION
Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2010 for a full
description of our existing stock-based compensation plans.
Restricted Stock Units
In October 2009 and October 2010, the Company granted approximately 34,700 and 35,000 restricted
stock units (RSUs), respectively, with a fair value of $38.36 and $30.79 per unit, respectively, to
certain officers and key employees. An additional 5,000 RSUs were granted in October 2010, with a
fair value of $32.12. The RSUs vest over a three-year period from their date of issuance. 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
the cumulative earnings per share as reported relative to established goals for the three year
performance cycle which began October 1 of the year granted, and ranges from 0% to 150% of the
target RSUs granted. At December 31, 2010, there were approximately 105,000 RSUs outstanding. 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.
During the first quarter of fiscal 2011, the Company granted approximately 15,000 RSUs with a fair
value ranging from $30.79 to $32.12 to certain officers and key employees. The RSUs vest over a
three-year period from their date of issuance. These RSUs are time-based, rather than
performance-based, as those discussed above.
During the three months ended December 31, 2009 and 2010, the Company recorded compensation expense
of approximately $0.7 million and $0.3 million, respectively, related to the RSUs.
Restricted Stock
Under the 2006 Equity Compensation Plan (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.
15
In October 2010, approximately 11,000 shares of restricted stock were issued to the executive
management of the Company at a price of $30.79 per share under the 2006 Plan. The restricted stock
grant vests 33% per year over a three-year period on each anniversary of the grant date.
In October 2009, 10,000 shares of restricted stock were issued to our President and Chief Executive
Officer at a price of $37.67 per share under the 2006 Plan. The restricted stock grant vests 20%
per year over a five-year period on each anniversary of the grant date.
Stock Options
Stock option activity for the three months ended December 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Aggregate |
|
|
|
Stock |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Outstanding at September 30, 2010 |
|
|
128,600 |
|
|
$ |
18.41 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(10,900 |
) |
|
|
18.41 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
117,700 |
|
|
$ |
18.41 |
|
|
|
1.47 |
|
|
$ |
2,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010 |
|
|
117,700 |
|
|
$ |
18.41 |
|
|
|
1.47 |
|
|
$ |
2,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L. BUSINESS SEGMENTS
We manage our business through operating segments, 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 reportable 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 are allocated to the operating business segments primarily based on revenues.
The corporate assets are mainly cash, cash equivalents and marketable securities.
Detailed information regarding our business segments is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
Electrical Power Products |
|
$ |
117,143 |
|
|
$ |
128,129 |
|
Process Control Systems |
|
|
7,531 |
|
|
|
7,787 |
|
|
|
|
|
|
|
|
Total |
|
$ |
124,674 |
|
|
$ |
135,916 |
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Electrical Power Products |
|
$ |
24,292 |
|
|
$ |
34,366 |
|
Process Control Systems |
|
|
1,573 |
|
|
|
3,451 |
|
|
|
|
|
|
|
|
Total |
|
$ |
25,865 |
|
|
$ |
37,817 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
Electrical Power Products |
|
$ |
4,085 |
|
|
$ |
13,848 |
|
Process Control Systems |
|
|
(384 |
) |
|
|
1,188 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,701 |
|
|
$ |
15,036 |
|
|
|
|
|
|
|
|
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with the accompanying condensed consolidated financial statements and
related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report
on Form 10-K for the year ended September 30, 2010, which was filed with the Securities and
Exchange Commission on December 8, 2010 and is available on the SECs website at www.sec.gov.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We are including the following discussion to inform our existing and potential shareholders
generally of some of the risks and uncertainties that can affect our company and to take advantage
of the safe harbor protection for forward-looking statements that applicable federal securities
law affords.
From time to time, our management or persons acting on our behalf make forward-looking statements
to inform existing and potential shareholders about our company. These statements may include
projections and estimates concerning the timing and success of specific projects and our future
backlog, revenues, income and capital spending. Forward-looking statements are generally
accompanied by words such as estimate, project, predict, believe, expect, anticipate,
plan, goal or other words that convey the uncertainty of future events or outcomes. In
addition, sometimes we will specifically describe a statement as being a forward-looking statement
and refer to this cautionary statement.
In addition, various statements in this Quarterly Report on Form 10-Q, including those that express
a belief, expectation or intention, as well as those that are not statements of historical fact,
are forward-looking statements. These forward-looking statements speak only as of the date of this
report; we disclaim any obligation to update these statements unless required by securities law,
and we caution you not to rely on them unduly. We have based these forward-looking statements on
our current expectations and assumptions about future events. While our management considers these
expectations and assumptions to be reasonable, they are inherently subject to significant business,
economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which
are difficult to predict and many of which are beyond our control. These risks, contingencies and
uncertainties relate to, among other matters, the following:
|
|
|
The ongoing economic uncertainty and financial market conditions have negatively impacted
and may continue to impact our customer base, suppliers and backlog. |
|
|
|
|
Our operations could be adversely impacted by the Macondo well incident, the continuing
effects from the U.S. government moratorium on offshore deepwater drilling projects and
related new regulations. |
|
|
|
|
Our industry is highly competitive. |
|
|
|
|
International and political events may adversely affect our operations. |
|
|
|
|
Fluctuations in the price and supply of raw materials used to manufacture our products
may reduce our profits. |
|
|
|
|
Our volume of fixed-price contracts and use of percentage-of-completion accounting could
result in volatility in our results of operations. |
|
|
|
|
Our acquisition strategy involves a number of risks. |
|
|
|
|
Our backlog is subject to unexpected adjustments and cancellations and, therefore, may
not be a reliable indicator of our future earnings. |
|
|
|
|
Our operating results may vary significantly from quarter to quarter. |
|
|
|
|
We may be unsuccessful at generating profitable internal growth. |
|
|
|
|
The departure of key personnel could disrupt our business. |
|
|
|
|
Our business requires skilled labor, and we may be unable to attract and retain qualified
employees. |
17
|
|
|
Actual and potential claims, lawsuits and proceedings could ultimately reduce our
profitability and liquidity and weaken our financial condition. |
|
|
|
|
We carry insurance against many potential liabilities, however our management of risk may
leave us exposed to unidentified, uninsured or unanticipated risks. |
|
|
|
|
We may incur additional healthcare costs arising from federal healthcare reform
legislation. |
|
|
|
|
Technological innovations by competitors may make existing products and production
methods obsolete. |
|
|
|
|
Catastrophic events could disrupt our business. |
We believe the items we have outlined above are important factors that could cause estimates
included in our financial statements to differ materially from actual results and those expressed
in a forward-looking statement made in this report or elsewhere by us or on our behalf. We have
discussed many of these factors in more detail in our Annual Report on Form 10-K for the year ended
September 30, 2010. These factors are not necessarily all of the factors that could affect us.
Unpredictable or unanticipated factors we have not discussed in this report could also have
material adverse effects on actual results of matters that are the subject of our forward-looking
statements. We do not intend to update our description of important factors each time a potential
important factor arises, except as required by applicable securities laws and regulations. We
advise our shareholders that they should (1) be aware that factors not referred to above could
affect the accuracy of our forward-looking statements and (2) use caution when considering our
forward-looking statements.
Overview
We develop, design, manufacture and service custom engineered-to-order equipment and systems for
the management and control of electrical energy and other critical processes. Headquartered in
Houston, Texas, we serve the transportation, environmental, energy, industrial and utility
industries. Our business operations are consolidated into two business segments: Electrical Power
Products and Process Control Systems. Financial information related to these business segments is
included in Note L of Notes to Condensed Consolidated Financial Statements. Revenues and costs are
primarily related to engineered-to-order equipment and systems, which precludes us from providing
detailed price and volume information.
The markets that Powell participates in are capital-intensive and cyclical in nature. Cyclicality
is driven by customer demand, global economic markets and potential environmental or regulatory
impacts which affect the manner in which our customers proceed with capital projects. Our
customers have been assessing the short-term demand for oil and electrical energy, the overall
banking environment, the outlook for offshore drilling and related regulatory actions and the drive
towards environmental controls over the type and way energy is produced and utilized. These
factors over the last two years have contributed to decisions by customers to delay or to change
where they place new capital projects, which has driven our backlog of orders to $282.3 million
entering fiscal 2011, down $83.5 million from the beginning of fiscal 2010. The orders that
comprise our current backlog were taken in a much more competitive environment than the previous
years backlog. This increased competition, along with higher commodity prices, will place
downward pressure on gross profit compared to last fiscal year as we work to fulfill these orders
in fiscal 2011.
In December 2009, we acquired the business and certain assets of PowerComm Inc. and its
subsidiaries (referred to herein as Powell Canada) for $23.4 million, excluding debt assumed of
$15.1 million and not including expenses. Powell Canada is headquartered in Edmonton, Alberta,
Canada, and provides electrical and maintenance services. Powell Canada is also a manufacturer of
switchgear and related products, primarily serving the oil and gas industry in western Canada. The
operating results of Powell Canada are included in our Electrical Power Products business segment
from the acquisition date.
Results of Operations
Revenue and Gross Profit
Consolidated revenues decreased $11.2 million to $124.7 million in the first quarter of fiscal 2011
compared to $135.9 million in the first quarter of fiscal 2010. This decrease in revenues is a
result of reduced backlog discussed above. For the first quarter of fiscal 2011, domestic
revenues decreased by 22.3% to $82.7 million compared to the first quarter of 2010. Total
international revenues were $42.0 million in the first quarter of 2011 compared to $29.5 million in
the first quarter of 2010, primarily resulting from the operations of Powell Canada for the entire
first quarter of 2011 compared to a partial first quarter of fiscal 2010. Gross profit for the
first quarter of fiscal 2011 decreased by approximately $11.9 million, to $25.9 million, as a
result of the reduction in volume and pressure on margins, as discussed above offset in part by the
addition of a full quarter of performance by Powell Canada. Gross profit in fiscal 2010 benefitted
from the favorable execution of large projects, as well as cancellation fees and the successful
negotiation of change
18
orders on projects which were substantially completed in prior periods. As a result, gross profit
as a percentage of revenues decreased to 20.7% in the first quarter of fiscal 2011, compared to
27.8% in the first quarter of fiscal 2010.
Electrical Power Products
Our Electrical Power Products business segment recorded revenues of $117.1 million in the first
quarter of fiscal 2011, compared to $128.1 million for the first quarter of fiscal 2010. This
decrease in revenues is a result of reduced volume related to the reduction in orders and backlog
discussed above. In the first quarter of fiscal 2011, revenues from public and private utilities
were approximately $33.2 million, compared to $30.4 million in the first quarter of fiscal 2010.
Revenues from commercial and industrial customers totaled $77.4 million in the first quarter of
fiscal 2011, an increase of $1.8 million compared to the first quarter of fiscal 2010. Municipal
and transit projects generated revenues of $6.5 million in the first quarter of fiscal 2011
compared to $22.1 million in the first quarter of fiscal 2010.
Business segment gross profit, as a percentage of revenues, was 20.7% in the first quarter of
fiscal 2011, compared to 26.8% in the first quarter of fiscal 2010. This decrease in gross profit
as a percentage of revenues resulted primarily from the reduction in volume and pressure on
margins, as discussed above. Gross profit in fiscal 2010 benefitted from the favorable execution
of large projects, as well as cancellation fees and the successful negotiation of change orders on
projects which were substantially completed in prior periods. We anticipate that these reduced
gross margin levels in fiscal 2011 will continue going forward given the competitive environment,
size and overall mix of jobs currently in our backlog.
Process Control Systems
Our Process Control Systems business segment recorded revenues of $7.5 million in the first quarter
of fiscal 2011, a decrease from $7.8 million in the first quarter of fiscal 2010. Business segment
gross profit, as a percentage of revenues, decreased to 20.9% in the first quarter of fiscal 2011
compared to 44.3% in the first quarter of fiscal 2010. This decrease resulted from a less favorable
mix of jobs compared to the first quarter of fiscal 2010.
For additional information related to our business segments, see Note L of Notes to Condensed
Consolidated Financial Statements.
Consolidated Selling, General and Administrative Expenses
Selling, general and administrative expenses were $20.9 million for the first quarter of fiscal
2011 compared to $21.8 million for the first quarter of fiscal 2010. Selling, general and
administrative expenses decreased primarily due to the decrease in acquisition expenses of $1.6
million and the decrease in bad debt expense of $1.0 million, partially offset by the inclusion of
a full quarter of costs related to Powell Canada included in the first quarter of fiscal 2011.
Consolidated selling, general and administrative expenses increased to 16.8% of revenues in the
first quarter of fiscal 2011 compared to 16.0% of revenues in the first quarter of fiscal 2010,
primarily as a result of the decrease in revenue.
Interest Expense and Income
Interest expense was approximately $0.1 million in the first quarter of 2011, a decrease of
approximately $0.1 million compared to the first quarter of fiscal 2010. The decrease in interest
expense was primarily due to lower interest rates and the lower amounts outstanding under our
credit facility during the first quarter of fiscal 2011.
Interest income was approximately $45,000 in the first quarter of fiscal 2011 compared to
approximately $42,000 in the first quarter of fiscal 2010.
Provision for Income Taxes
Our provision for income taxes reflects an effective tax rate on earnings before income taxes of
34.3% in the first quarter of fiscal 2011, compared to an effective tax rate of 35.2% in the first
quarter of fiscal 2010. The effective tax rate for the first quarter of 2011 has been negatively
impacted by our inability to record the tax benefit related to pre-tax losses in Canada, offset by
favorable changes in the tax rate for the domestic production activities deduction and research and
development credits in the United States.
Net Income Attributable to Powell Industries, Inc.
In the first quarter of fiscal 2011, we recorded net income attributable to Powell Industries, Inc.
of $2.4 million, or $0.21 per diluted share, compared to $9.6 million, or $0.83 per diluted share,
in the first quarter of fiscal 2010.
19
Backlog
The order backlog at December 31, 2010, was $344.1 million, compared to $282.3 million at September
30, 2010 and $341.7 million at the end of the first quarter of fiscal 2010. New orders placed
during the first quarter of fiscal 2011 totaled $185.9 million compared to $107.7 million in the
first quarter of fiscal 2010. The increase in backlog since September 30, 2010, of approximately
$61.8 million is primarily related to one large order.
Liquidity and Capital Resources
Cash and cash equivalents increased to approximately $120.9 million at December 31, 2010, primarily
as a result of cash flow provided by operations of approximately $6.8 million during the first
quarter of fiscal 2011. Approximately $6.8 million of cash flow from operations resulted from net
income and steps taken to manage our working capital. As of December 31, 2010, current assets
exceeded current liabilities by 2.8 times and our debt to total capitalization was 2.2%.
At December 31, 2010, we had cash and cash equivalents of $120.9 million, compared to $115.4
million at September 30, 2010. We have a $58.5 million revolving credit facility in the U.S. and an
additional £4.0 million (approximately $6.2 million) revolving credit facility in the United
Kingdom, both of which expire in December 2012. As of December 31, 2010, there were no amounts
borrowed under these lines of credit. We also have a $20.0 million revolving credit facility and a
$2.5 million single advance term loan in Canada. At December 31, 2010, $0.3 million was
outstanding under the Canadian revolving credit facility, subject to certain limitations as defined
in the credit agreement. There was no balance outstanding under the Canadian term loan. Total
long-term debt and capital lease obligations, including current maturities, totaled $6.4 million at
December 31, 2010, compared to $6.9 million at September 30, 2010. Letters of credit outstanding
were $14.5 million at December 31, 2010, compared to $15.2 million at September 30, 2010, which
reduce our availability under our credit facilities. Amounts available under the U.S. revolving
credit facility and the revolving credit facility in the United Kingdom were approximately $44.0
million and $6.2 million, respectively, at December 31, 2010. Amounts available under the Canadian
revolving credit facility were approximately $16.6 million at December 31, 2010. For further
information regarding our debt, see Notes H and J of Notes to Condensed Consolidated Financial
Statements.
We believe that cash and cash equivalents, projected cash flows from operations and borrowing
capacity under our existing bank 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.
Operating Activities
Cash provided by operating activities was approximately $6.8 million during the first quarter of
fiscal 2011 and approximately $15.3 million during the first quarter of fiscal 2010. 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.
Cash flow from operations decreased during the first quarter of fiscal 2011 compared to the same
period in the prior year, primarily due to the reduction in income from operations.
Investing Activities
Investments in property, plant and equipment during the first quarter of fiscal 2011 totaled
approximately $0.8 million compared to $22.4 million during the first quarter of fiscal 2010, which
was primarily used for the acquisition of Powell Canada.
Financing Activities
Net cash used in financing activities was approximately $0.2 million during the first quarter of
fiscal 2011 and approximately $5.7 million for the first quarter of fiscal 2010. During the first
quarter of fiscal 2010, we repaid the outstanding balance of the deferred acquisition payable to
General Electric Company of $4.3 million.
New Accounting Standards
See Note A to our condensed consolidated financial statements included in this report for
information on new accounting standards.
20
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on our
condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
The preparation of these condensed consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities known to exist at the date of the condensed consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period.
We evaluate our estimates on an ongoing basis, based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. There can be no assurance
that actual results will not differ from those estimates.
There have been no material changes to our critical accounting policies as disclosed in our Annual
Report on Form 10-K for the year ended September 30, 2010.
Outlook for Fiscal 2011
The markets that Powell participates in are capital-intensive and cyclical in nature. Cyclicality
is driven by customer demand, global economic markets and potential environmental or regulatory
impacts which affect the manner in which our customers proceed with capital projects. Our
customers have been assessing the short-term demand for oil and electrical energy, the overall
banking environment, the outlook for offshore drilling and related regulatory actions and the drive
towards environmental controls over the type and way energy is produced and utilized. These
factors over the last two years have contributed to decisions by customers to delay or to change
where they place new capital projects, which has driven our backlog of orders to $282.3 million
entering fiscal 2011, down $83.5 million from the beginning of fiscal 2010. The orders that
comprise our current backlog were taken in a much more competitive environment than the previous
years backlog. This increased competition, along with higher commodity prices, will place
downward pressure on gross profit compared to last fiscal year as we work to fulfill these orders
in fiscal 2011.
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, which should drive demand for investment in transit
infrastructure, contingent upon available financing. Opportunities for future projects continue;
however, the timing and pricing of many of these projects is difficult to predict. The demand for
our products and services should increase as investments in large capital-intensive infrastructure
projects begins to receive funding and support.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks arising from transactions we have entered into in the normal
course of business. These risks primarily relate to fluctuations in interest rates, foreign
exchange rates and commodity prices.
Interest Rate Risk
We are subject to market risk resulting from changes in interest rates related to our floating rate
bank credit facility. A hypothetical 100 basis point increase in variable interest rates would not
result in a material impact to our financial statements. 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.
Foreign Currency Transaction Risk
We have operations that expose us to currency risk in the British Pound Sterling, the Canadian
Dollar 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. Our international operations are financed utilizing local
credit facilities denominated in local currencies. Additionally, expenses associated with these
transactions are generally contracted and paid for in the same local
21
currencies. A 10% unfavorable change in the U.S. Dollar exchange rate, relative to other functional
currencies in which we operate, would not materially impact our consolidated balance sheet at
December 31, 2010.
During fiscal 2010 and the first quarter of 2011, we entered into four foreign currency forward
contracts to manage the volatility of future cash flows on certain long-term 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 Condensed Consolidated
Balance Sheets. At December 31, 2010, we recorded a net liability of approximately $25,000 on our
Condensed 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 and their industries are typically engineering,
procurement and construction firms, oil and gas producers, oil and gas pipelines, refineries,
petrochemical plants, electrical power generators, public and private utilities, co-generation
facilities, mining/metals operations, pulp and paper plants, transportation authorities,
governmental agencies and other large industrial customers. We maintain ongoing 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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established and maintain a system of disclosure controls and procedures that are designed
to provide reasonable assurance that information required to be disclosed in our reports filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the
Commission and that such information is accumulated and communicated to our management, including
our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow
timely decisions regarding required disclosures.
Management, with the participation of our CEO and CFO, has evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this report. Based on such evaluation, our CEO and CFO have each concluded that as of the end of
the 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.
Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended
December 31, 2010, that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Design and Operation of Control Systems
Our management, including the CEO and CFO, does not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent or detect all errors and
all fraud. A control system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control systems objectives will be met. The design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Further,
22
because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and breakdowns
can occur because of simple errors or mistakes. Controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls may become inadequate because of
changes in conditions or personnel, or deterioration in the degree of compliance with policies or
procedures. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We 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.
Item 1A. Risk Factors
There are no material changes from the risk factors previously disclosed in the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2010.
Item 6. Exhibits
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Number |
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Description of Exhibits |
3.1
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Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary of State of
the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to our Form 8-A/A filed
November 1, 2004, and incorporated herein by reference). |
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3.2
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By-laws of Powell Industries, Inc. (filed as Exhibit 3.2 to our Form 8-A/A filed November 1,
2004, and incorporated herein by reference). |
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*31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
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*31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
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*32.1
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Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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*32.2
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Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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POWELL INDUSTRIES, INC.
(Registrant)
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February 2, 2011 |
By: |
/s/ Patrick L. McDonald
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Date |
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Patrick L. McDonald |
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President and Chief Executive Officer
(Principal Executive Officer) |
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February 2, 2011 |
By: |
/s/ Don R. Madison
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Date |
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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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24
EXHIBIT INDEX
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Number |
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Exhibit Title |
3.1
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|
Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary
of State of the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to
our Form 8-A/A filed November 1, 2004, and incorporated herein by reference). |
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3.2
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By-laws of Powell Industries, Inc. (filed as Exhibit 3.2 to our Form 8-A/A filed
November 1, 2004, and incorporated herein by reference). |
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*31.1
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
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*31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
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*32.1
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Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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*32.2
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Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
25
exv31w1
EXHIBIT 31.1
CERTIFICATION
I, Patrick L. McDonald, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Powell Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial
reporting 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: February 2, 2011
exv31w2
EXHIBIT 31.2
CERTIFICATION
I, Don R. Madison, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Powell Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial
reporting 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) |
|
|
Date: February 2, 2011
exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report (the Report) on Form 10-Q of Powell Industries,
Inc. (the Company) for the quarter ended December 31, 2010, as filed with the Securities and
Exchange Commission on the date hereof, I, Patrick L. McDonald, 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: February 2, 2011
exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report (the Report) on Form 10-Q of Powell Industries,
Inc. (the Company) for the quarter ended December 31, 2010, as filed with the Securities and
Exchange Commission on the date hereof, I, Don R. Madison, Executive Vice President and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material respects, the
financial condition and results of operations of the Company.
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/s/ Don R. Madison
|
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Don R. Madison |
|
|
Executive Vice President
Chief Financial and Administrative Officer |
|
|
Date: February 2, 2011