1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended January 31, 1998
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
-------- --------
COMMISSION FILE NUMBER 0-6050
POWELL INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0106100
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8550 Mosley Drive, Houston, Texas 77075-1180
- ----------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 944-6900
-----------------------------
Indicate by "X" 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.
Yes X No
----- -----
Common Stock, par value $.01 per share; 10,645,484 shares outstanding on January
31, 1998.
2
Powell Industries, Inc. and Subsidiaries
PART I - Financial Information
Item 1. Financial Statements ............................... 3 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Quarterly
Results of Operations ........................... 8 - 9
PART II - Other Information and Signatures ........................... 10 - 11
3
Powell Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
January 31, October 31,
1998 1997
Assets (unaudited)
----------- -----------
Current Assets:
Cash and cash equivalents ............................................... $ 1,377 $ 2,219
Accounts receivable, less allowance for doubtful accounts
of $477 and $465, respectively ........................................ 38,693 50,391
Costs and estimated earnings in excess of billings ...................... 20,681 18,986
Inventories ............................................................. 16,666 13,603
Deferred income taxes ................................................... 745 825
Income taxes receivable ................................................. 1,251 1,351
Prepaid expenses and other current assets ............................... 2,377 2,594
--------- ---------
Total Current Assets .................................................. 81,790 89,969
Property, plant and equipment, net ........................................ 29,320 26,374
Deferred income taxes ..................................................... 1,578 1,578
Other assets .............................................................. 4,935 4,946
--------- ---------
Total Assets .......................................................... $ 117,623 $ 122,867
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts and income taxes payable ....................................... $ 10,865 $ 11,929
Accrued salaries, bonuses and commissions ............................... 3,666 6,737
Accrued product warranty ................................................ 1,525 1,511
Accrued legal expenses .................................................. 3,095 3,785
Other accrued expenses .................................................. 2,544 3,282
Billings in excess of costs and estimated earnings ...................... 8,778 10,956
--------- ---------
Total Current Liabilities ............................................. 30,473 38,200
Long-term debt, net of current maturities ................................. 6,000 6,000
Deferred compensation expense ............................................. 1,127 1,128
Postretirement benefits liability ......................................... 1,192 1,232
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued
Common stock, par value $.01; 30,000,000 shares authorized,
10,645,979 and 10,642,779 shares issued and outstanding ................ 107 106
Additional paid-in capital .............................................. 5,842 5,782
Retained earnings ....................................................... 75,970 73,572
Deferred compensation-ESOP .............................................. (3,088) (3,153)
--------- ---------
Total Stockholders' Equity ............................................ 78,831 76,307
--------- ---------
Total Liabilities and Stockholders' Equity ............................ $ 117,623 $ 122,867
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
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4
Powell Industries, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
Three Months Ended January 31,
------------------------------
1998 1997
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Revenues ................................................................. $ 46,350 $ 43,128
Cost of goods sold ....................................................... 35,719 32,840
------------ ------------
Gross profit ............................................................. 10,631 10,288
Selling, general and administrative expenses ............................. 7,129 6,888
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Earnings from operations before interest and income taxes ................ 3,502 3,400
Interest expense (income), net ........................................... 23 (138)
------------ ------------
Earnings from operations before income taxes ............................. 3,479 3,538
Income tax provision ..................................................... 1,081 1,169
------------ ------------
Net earnings ............................................................. $ 2,398 $ 2,369
============ ============
Net earnings per common share:
Basic .................................................................. $ 0.23 $ 0.22
Diluted ................................................................ 0.22 0.22
Weighted average number of common shares outstanding ..................... 10,643,586 10,606,442
============ ============
Weighted average number of common and common equivalent shares outstanding 10,757,675 10,743,588
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
4
5
Powell Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Three Months Ended January 31,
------------------------------
1998 1997
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Operating Activities:
Net earnings .......................................................... $ 2,398 $ 2,369
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization ....................................... 946 830
Deferred income taxes ............................................... 80 288
Postretirement benefits liability ................................... (40) (44)
Changes in operating assets and liabilities:
Accounts receivable ............................................... 11,698 4,774
Costs and estimated earnings in excess of billings ................ (1,695) (2,943)
Inventories ....................................................... (3,063) 2,933
Prepaid expenses and other current assets ......................... 217 (643)
Other assets ...................................................... (48) (99)
Accounts payable and income taxes payable or receivable ........... (964) 734
Accrued liabilities ............................................... (4,485) (2,301)
Billings in excess of costs and estimated earnings ................ (2,178) (434)
Deferred compensation expense ..................................... 64 (728)
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Net cash provided by operating activities ............................... 2,930 4,736
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Investing Activities:
Purchases of property, plant and equipment ............................ (3,833) (3,575)
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Net cash used in investing activities ................................... (3,833) (3,575)
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Financing activities:
Exercise of stock options ............................................. 61 2
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Net cash provided by financing activities ............................... 61 2
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Net increase (decrease) in cash and cash equivalents .................... (842) 1,163
Cash and cash equivalents at beginning of period ........................ 2,219 8,935
-------- --------
Cash and cash equivalents at end of period .............................. $ 1,377 $ 10,098
Supplemental disclosure of cash flow information (in thousands):
Cash paid during the quarter for:
Interest ........................................................... $ 169 $ 195
======== ========
Income taxes ....................................................... -- --
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
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6
Part I
Item 1
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in the opinion of
management, reflect all adjustments which are of a normal recurring nature
necessary for a fair presentation of financial position, results of operations,
and cash flows.
B. INVENTORY
January 31, October 31,
1998 1997
(unaudited)
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The components of inventory are summarized below (in thousands):
Raw materials and subassemblies ....................................... $10,129 $ 8,706
Work-in-process ....................................................... 6,537 4,897
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Total inventories ..................................................... $16,666 $13,603
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C. PROPERTY, PLANT AND EQUIPMENT
January 31, October 31,
1998 1997
(unaudited)
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Property, plant and equipment is summarized below (in thousands):
Land .................................................................. $ 3,078 $ 2,720
Buildings and improvements ............................................ 21,337 20,662
Machinery and equipment ............................................... 25,026 24,912
Furniture & fixtures .................................................. 3,179 3,121
Construction in process ............................................... 7,224 4,596
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59,844 56,011
Less-accumulated depreciation ......................................... 30,524 29,637
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Total property, plant and equipment, net .............................. $29,320 $26,374
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Part I
Item 1
D. PRODUCTION CONTRACTS
For contracts in which the percentage-of-completion accounting method is
used, costs and estimated earnings in excess of billings are shown as a current
asset and billings in excess of costs and estimated earnings are shown as a
current liability.
January 31, October 31,
1998 1997
(unaudited)
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The components of these contracts are as follows (in thousands):
Costs and estimated earnings ........................................ $ 79,622 $ 85,126
Progress billings ................................................... (58,941) (66,140)
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Total costs and estimated earnings in excess of billings ............ $ 20,681 $ 18,986
======== ========
Progress billings ................................................... $ 75,712 $ 69,213
Costs and estimated earnings ........................................ (66,934) (58,257)
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Total billings in excess of costs and estimated earnings ............ $ 8,778 $ 10,956
======== ========
E. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement No. 128
replaced the previously reported primary and fully diluted earnings per share
with basic and and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options.
Diluted earnings per share is very similar to the previously reported earnings
per share. Earnings per share amounts for each period have been presented and
restated to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except share and per share data):
Three months ended January 31,
===============================
1998 1997
(unaudited)
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Numerator:
Numerator for basic and diluted earnings per share-
income available to common shareholders $ 2,398 $ 2,369
=============== ===========
Denominator:
Denominator for basic earnings per share
weighted-average shares 10,643,586 10,606,442
Effect of dilutive securities:
Employee incentive stock options 114,089 137,146
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Denominator for diluted earnings per share-adjusted
weighted-average shares assumed conversions 10,757,675 10,743,588
=============== ===========
Basic earnings per share $ 0.22 $ 0.22
=============== ===========
Diluted earnings per share $ 0.23 $ 0.22
=============== ===========
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Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain items from
the Consolidated Statements of Operations.
Quarters ended January 31 1998 1997
- --------------------------------------------------------------------------------
Revenues 100.0% 100.0%
Gross Profit 22.9 23.9
Selling, general and administrative
expenses 15.4 16.0
Net earnings before income taxes 7.5 8.2
Income tax provision 2.3 2.7
Net earnings 5.2 5.5
Revenues for the quarter ended January 31, 1998 were up seven percent to
$46,350,000 from $43,128,000 in the first quarter of last year. This increase in
volume was due primarily to higher electrical distribution equipment revenues.
Export sales were $21,928,000 or 47.3 percent of sales, an increase of 25.7
percent from $17,444,000 in the first quarter of 1997.
Gross profit, as a percentage of revenues, was 22.9 percent and 23.9 percent for
the quarters ended January 31, 1998 and 1997, respectively. The lower percentage
in the first quarter of 1998 was due to changes in product mix shipped during
1998 which were partially offset by efficiencies due to the increased volume of
activity.
Selling, general and administrative expenses as a percentage of revenues were
15.4 percent and 16.0 percent for the quarters ended January 31, 1998 and 1997,
respectively. The decrease in percentages reflects lower spending levels for
selling, general and administrative functions relative to increased volume of
revenues.
Income tax provision The effective tax rate was 31.1 percent and 33.0 percent
for the quarters ended January 31, 1998 and 1997, respectively. The decrease was
primarily due to lower projected tax rates for 1998 due to an increased level of
foreign sales credits.
Net earnings from operations were $2,398,000 for the first quarter of fiscal
1998, unchanged from $2,369,000 for the first quarter of fiscal 1997, or $.22
per diluted earnings per share for both periods reported.
Backlog
The order backlog at January 31, 1998 was $138.7 million compared to
$137.3 million at October 31, 1997.
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9
LIQUIDITY AND CAPITAL RESOURCES
In August 1997, the Company entered into a $20,000,000 revolving line of credit
agreement with a major domestic bank. The Company had borrowings outstanding of
$6,000,000 under this line on January 31, 1998.
The Company's ability to satisfy its cash requirements is evaluated by analyzing
key measures of liquidity applicable to the Company. The following table is a
summary of the measures which are significant to management:
January 31, October 31, January 31,
1998 1997 1997
Working Capital $51,327,000 $51,769,000 $45,157,000
Current Ratio 2.68 to 1 2.36 to 1 2.52 to 1
Debt to Capitalization .1 to 1 .1 to 1 .1 to 1
Management believes that the Company continues to maintain a strong liquidity
position. The small decrease in working capital at January 31, 1998, as compared
to October 31, 1997 is due mainly to a decrease in current assets (primarily
accounts receivable) offset by a smaller decrease in current liabilities.
Cash and cash equivalents decreased by $842,000 during the three months ended
January 31, 1998. The primary use of cash during this period was for capital
expenditures related to the plant expansion and due to decreased current
liabilities.
The Company's fiscal 1998 asset management program will continue to focus on the
collection of receivables and reduction in inventories. The Company plans to
satisfy its fiscal 1998 capital requirements and operating needs primarily with
funds available in cash and cash equivalents of $1,377,000, funds generated from
operating activities and funds available under its existing revolving credit
line.
The previous discussion should be read in conjunction with the consolidated
financial statements.
Any forward looking statements in the preceding paragraphs of this Form 10-Q are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward looking statements
involve risks and uncertainty in that actual results may differ materially from
those projected in the forward looking statements. These risks and uncertainties
include, without limitation, difficulties which could arise in obtaining
materials or components in sufficient quantities as needed for the Company's
manufacturing and assembly operations, unforeseen political or economic problems
in countries to which the Company exports its products in relation to the
Company's principal competitors, any significant decrease in the Company's
backlog of orders, any material employee relations problems, or any material
litigation or claims made against the Company, as well as general market
conditions, competition and pricing.
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Part II
OTHER INFORMATION
ITEM 1. Legal Proceedings
On August 5, 1993, the Company was served with a lawsuit by
National Westminster Bank plc ("NatWest") alleging the Company
had defaulted on a Construction Guaranty provided to NatWest
in 1992 in connection with a project at MacDill Air Force
Base. NatWest is seeking damages in excess of $20,000,000. The
Company has denied the substantive allegations of the
complaint and has filed counterclaims for damages against
NatWest alleging fraud, bad faith and failure to preserve and
protect its collateral and seeking a declaratory judgment that
the Company is not in default of the Construction Guaranty.
On February 4, 1998, the United States District Court,
Southern District of New York, issued a memorandum and order
denying the Company's motion for summary judgment, and
granting NatWest's motion for partial summary judgment, with
respect to certain defenses and one counterclaim of the
Company. The Court dismissed several of the Company's alleged
defenses, in particular, (1) its defense that the Company was
fraudulently induced by NatWest into executing the
Construction Guaranty, (2) its defense that the contract
between NatWest's borrower, Empire Energy Management Systems,
Inc., and the United States Air Force was terminated for the
convenience of the government, and (3) its defense of
secondary liability. Both NatWest and the Company have
requested a trial date.
The ultimate disposition of the NatWest litigation is not
presently determinable. However, an unfavorable outcome to the
NatWest litigation could have a material effect on the
Company's financial position and results of operations.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
27.0 Financial Data Schedule
b. Reports on Form 8K
None
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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.
POWELL INDUSTRIES, INC.
Registrant
March 12, 1998 /s/ Thomas W. Powell
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Date Thomas W. Powell
President and Chief Executive Officer
(Principal Executive Officer)
March 12, 1998 /s/ J.F. Ahart
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Date J.F. Ahart
Vice President,
Secretary-Treasurer
Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.0 Financial Data Schedule
5
1,000
3-MOS
OCT-31-1998
JAN-31-1998
1,377
0
39,170
477
16,666
81,790
59,843
30,523
117,623
30,473
0
0
0
107
78,724
117,623
46,350
46,350
35,719
35,719
7,129
0
23
3,479
1,081
2,398
0
0
0
2,398
0.23
0.22
