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, 1999 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
-------------------------------- --------------------
(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; 10,659,345 shares outstanding on January
31, 1999.
2
Powell Industries, Inc. and Subsidiaries
PART I - Financial Information
Item 1. Financial Statements ................................................... 3 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Quarterly
Results of Operations ............................................... 9 - 11
PART II - Other Information and Signatures ............................................... 12 - 13
3
Powell Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
January 31, October 31,
1999 1998
---------- ----------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents ............................................... $ 2,190 $ 601
Accounts receivable, less allowance for doubtful accounts
of $821 and $761, respectively ........................................ 48,581 44,255
Costs and estimated earnings in excess of billings ...................... 23,199 24,783
Inventories ............................................................. 17,788 16,284
Deferred income taxes ................................................... 331 709
Income taxes receivable ................................................. 1,305 945
Prepaid expenses and other current assets ............................... 3,049 1,441
---------- ----------
Total Current Assets .................................................. 96,443 89,018
Property, plant and equipment, net ........................................ 32,190 32,311
Deferred income taxes ..................................................... 889 833
Other assets .............................................................. 5,129 4,969
---------- ----------
Total Assets .......................................................... $ 134,647 $ 127,131
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts and income taxes payable ....................................... $ 11,477 $ 12,094
Accrued salaries, bonuses and commissions ............................... 4,365 6,784
Accrued product warranty ................................................ 1,511 1,388
Other accrued expenses .................................................. 4,104 4,652
Billings in excess of costs and estimated earnings ...................... 6,378 3,845
Current maturities of long-term debt .................................... 2,529 1,429
---------- ----------
Total Current Liabilities ............................................. 30,364 30,192
Long-term obligations ..................................................... 16,685 11,571
Deferred compensation expense ............................................. 1,174 1,187
Postretirement benefits liability ......................................... 833 845
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,
10,659,345 and 10,656,945 shares issued and outstanding ................ 107 107
Additional paid-in capital .............................................. 5,941 5,919
Retained earnings ....................................................... 82,415 80,237
Deferred compensation-ESOP .............................................. (2,872) (2,927)
---------- ----------
Total Stockholders' Equity ............................................ 85,591 83,336
---------- ----------
Total Liabilities and Stockholders' Equity ............................ $ 134,647 $ 127,131
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
4
Powell Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(In Thousands, Except Share and Per Share Data)
Three Months Ended January 31,
-----------------------------
1999 1998
------------ ------------
Revenues ....................................................................... $ 54,134 $ 46,350
Cost of goods sold ............................................................. 43,202 35,719
------------ ------------
Gross profit ................................................................... 10,932 10,631
Selling, general and administrative expenses ................................... 7,511 7,129
------------ ------------
Earnings from operations before interest and income taxes ...................... 3,421 3,502
Interest expense, net .......................................................... 136 23
------------ ------------
Earnings from operations before income taxes ................................... 3,285 3,479
Income tax provision ........................................................... 1,107 1,081
------------ ------------
Net earnings ................................................................... $ 2,178 $ 2,398
============ ============
Net earnings per common share:
Basic ........................................................................ $ 0.20 $ 0.23
Diluted ...................................................................... 0.20 0.22
Weighted average number of common
shares outstanding ........................................................... 10,658,545 10,643,586
============ ============
Weighted average number of common and common
equivalent shares outstanding ................................................ 10,733,077 10,760,664
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
5
Powell Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Operational (unaudited)
(In Thousands)
Three Months Ended January 31,
--------------------------
1999 1998
---------- ----------
Operating Activities:
Net earnings ............................................................ $ 2,178 $ 2,398
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization ......................................... 1,082 946
Deferred income taxes (benefit) ....................................... 322 80
Postretirement benefits liability ..................................... (12) (40)
Changes in operating assets and liabilities:
Accounts receivable ................................................. (4,326) 11,698
Costs and estimated earnings in excess of billings .................. 1,584 (1,695)
Inventories ......................................................... (1,504) (3,063)
Prepaid expenses and other current assets ........................... (1,608) 217
Other assets ........................................................ (267) (48)
Accounts payable and income taxes payable or receivable ............. (977) (964)
Accrued liabilities ................................................. (2,844) (4,485)
Billings in excess of costs and estimated earnings .................. 2,533 (2,178)
Deferred compensation expense ....................................... 42 64
---------- ----------
Net cash provided by (used in) operating activities ....................... (3,797) 2,930
---------- ----------
Investing Activities:
Purchases of property, plant and equipment .............................. (850) (3,833)
---------- ----------
Net cash used in investing activities ..................................... (850) (3,833)
---------- ----------
Financing activities:
Net borrowings of long-term debt......................................... 6,214 --
Exercise of stock options ............................................... 22 61
---------- ----------
Net cash used in financing activities ..................................... 6,236 61
---------- ----------
Net increase (decrease) in cash and cash equivalents ...................... 1,589 (842)
Cash and cash equivalents at beginning of period .......................... 601 2,219
---------- ----------
Cash and cash equivalents at end of period ................................ $ 2,190 $ 1,377
========== ==========
Supplemental disclosure of cash flow information (in thousands):
Cash paid during the quarter for:
Interest ............................................................. $ 171 $ 169
========== ==========
Income taxes ......................................................... -- --
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
5
6
Part I
Item 1
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's October 31,
1998 annual report on Form 10-K.
B. INVENTORY
January 31, October 31,
1999 1998
-------- --------
(unaudited)
The components of inventory are summarized below (in thousands):
Raw materials and subassemblies ...................................... $ 10,027 $ 9,795
Work-in-process ...................................................... 7,761 6,489
-------- --------
Total inventories .................................................... $ 17,788 $ 16,284
======== ========
C. PROPERTY, PLANT AND EQUIPMENT
January 31, October 31,
1999 1998
-------- --------
(unaudited)
Property, plant and equipment is summarized below (in thousands):
Land ................................................................. $ 2,720 $ 2,720
Buildings and improvements ........................................... 27,561 27,478
Machinery and equipment .............................................. 28,932 28,149
Furniture & fixtures ................................................. 4,084 4,039
Construction in process .............................................. 3,303 3,364
-------- --------
66,600 65,750
Less-accumulated depreciation ........................................ (34,410) (33,439)
-------- --------
Total property, plant and equipment, net ............................. $ 32,190 $ 32,311
======== ========
6
7
Part I
Item 1
D. PRODUCTION CONTRACTS
For contracts in which the percentage-of-completion 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. The components of these contracts are as follows(in thousands):
January 31, October 31,
1999 1998
---------- ----------
(unaudited)
Costs and estimated earnings................................ $ 142,976 $ 114,127
Progress billings........................................... (119,777) (89,344)
---------- ----------
Total costs and estimated earnings in excess of billings.... $ 23,199 $ 24,783
========== ==========
Progress billings........................................... $ 52,721 $ 67,471
Costs and estimated earnings................................ (46,342) (63,626)
---------- ----------
Total billings in excess of costs and estimated earnings.... $ 6,379 $ 3,845
========== ==========
E. EARNINGS PER SHARE (unaudited)
In February 1998, 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 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 primary
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,
=============================
1999 1998
------------ ------------
Numerator:
Numerator per basic earnings per share-income
available to common shareholders $ 2,178 $ 2,398
============ ============
Denominator:
Denominator for basic earnings per share
weighted-average shares 10,658,545 10,643,586
Effect of dilutive securities-employee stock options 74,532 117,078
------------ ------------
Denominator for diluted earnings per share-adjusted
weighted-average shares assumed conversions 10,733,077 10,760,664
============ ============
Basic earnings per share $ 0.20 $ 0.23
============ ============
Diluted earnings per share $ 0.20 $ 0.22
============ ============
7
8
Part I
Item 1
F. BUSINESS SEGMENTS (unaudited)
The Company has three reportable segments: 1. Switchgeer and related
equipment and service (Switchgear) for distribution, control and management of
electrical energy, 2. Bus duct products (Bus Duct) for distribution of electric
power, and 3. Process Control Systems which consists principally of
instrumentation, computer control, communications and data management systems
for the control of dynamic process.
The required disclosures for the business segments are set forth below (in
thousands):
Three months ended January 31,
-----------------------------
1999 1998
----------- ------------
Revenues
Switchgear............................................. $ 39,237 $ 32,614
Bus Duct............................................... 6,239 6,155
Process Control Systems................................ 6,367 4,519
----------- ------------
Sub-total............................................ 51,843 43,288
Other.................................................. 4,492 4,973
Intercompany Eliminations.............................. (2,202) (1,911)
----------- ------------
Total Revenues.............................................. $ 54,133 $ 46,350
=========== ============
Earnings from operations before
Income taxes
Switchgear............................................. $ 3,052 $ 3,091
Bus Duct............................................... 1,087 1,166
Process Control Systems................................ 248 145
----------- ------------
Sub-total............................................ $ 4,387 $ 4,402
Other.................................................. (115) (140)
Intercompany Eliminations.............................. (987) (783)
----------- ------------
Total Earnings from Operations before
Income taxes........................................... $ 3,285 $ 3,479
=========== ============
January 31, October 31,
Assets 1999 1998
----------- ------------
Switchgear............................................. $ 92,060 $ 90,603
Bus Duct............................................... 13,637 12,271
Process Control Systems................................ 10,705 10,309
----------- ------------
Sub-total............................................ 116,402 113,183
Corporate and Other.................................... 18,245 13,948
----------- ------------
Total Assets................................................ $ 134,647 $ 127,131
=========== ============
8
9
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 1999 1998
- -------------------------------------------------------------------------------
Revenues 100.0% 100.0%
Gross Profit 20.2 22.9
Selling, general and administrative
expenses 13.9 15.4
Earnings from operations before income
taxes 6.1 7.5
Net earnings 4.0 5.2
Revenues for the quarter ended January 31, 1999 were up 17.0 percent to
$54,134,000 from $46,350,000 in the first quarter of last year. The increases in
revenues were mainly in the domestic markets consisting of sales increases from
the Switchgear and Process Control Systems business segments due to the record
backlog recorded in fiscal year 1998. Export revenues continued to be an
important component of the Company's operations, accounting for $23,581,000 for
the three months ending January 31, 1999 compared to $21,928,000 for the same
period of 1998.
Gross profit, as a percentage of revenues, was 20.2 percent and 22.9 percent for
the quarter ended January 31, 1999 and 1998, respectively. The lower percentages
in 1998 were mainly due to the decline in performance of Switchgear business
segment and lower prices.
Selling, general and administrative expenses as a percentage of revenues were
13.9 percent and 15.4 percent for the quarter ended January 31, 1999 and 1998,
respectively. The decrease in percentages reflects the increased volume of
revenues.
Income tax provision The effective tax rates on continuing operations earnings
were 33.7 percent and 31.1 percent for the quarter ended January 31, 1999 and
1998, respectively. The increase was primarily due to lower estimated foreign
sales corporation credits compared to the prior year as a result of a higher
than normal volume of international percentage of completion projects in process
at the end of the quarter. This effective tax rate difference should be a timing
difference and the effective rate should finish the year at approximately 31-32
percent which is more consistent with past years.
Earnings from continuing operations were $2,178,000 or $.20 per share for the
first quarter of fiscal 1999, a decrease from $2,398,000 or $.23 per share for
the same period last year. The decrease was mainly due to lower gross margins in
the Switchgear and Bus Duct business segments.
Backlog
The order backlog at January 31, 1999 was $136.2 million, compared to $143.4
million at October 31, 1998.
9
10
LIQUIDITY AND CAPITAL RESOURCES
In September 1998, the Company entered into a $25,000,000 revolving line of
credit agreement with a major domestic bank. The Company had borrowings
outstanding of $18,143,000 under this line on January 31, 1999.
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,
1999 1998 1998
----------- ----------- -----------
Working Capital $66,079,000 $58,826,000 $51,327,000
Current Ratio 3.18 to 1 2.95 to 1 2.68 to 1
Long-term Debt to Capitalization .2 to 1 .1 to 1 .1 to 1
Management believes that the Company continues to maintain a strong liquidity
position. The increase in working capital at January 31, 1999, as compared to
October 31, 1998, is due mainly to an increase in accounts receivable.
Cash and cash equivalents increased by $1,589,000 during the three months ended
January 31, 1999. The primary use of cash during this period was for the
increase of accounts receivables and inventory. The increase in net borrowings
was the primary source of required cash for the quarter.
The Company's fiscal 1999 asset management program will continue to focus on the
collection of receivables and reduction in inventories. The Company plans to
satisfy its fiscal 1999 capital requirements and operating needs primarily with
funds available in cash and cash equivalents of $2,190,000, 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.
Year 2000 Readiness
The Year 2000 readiness issue results from the historical use in computer
software programs and operating systems of a two digit number to represent the
year. Certain software and hardware may fail to properly function when
confronted with dates that contain "00" as a two digit year. New information
about the nuances of the problem seems to become available on almost a daily
basis and that is likely to continue as companies around the world focus
increased attention and resources on finding solutions to the problem's many
manifestations.
To address the potential risk for disruption of operations, each subsidiary of
the Company has developed a compliance plan. The Company has substantially
completed a comprehensive initial assessment of the readiness of its internal
systems and manufacturing systems. Many of the readiness issues identified in
internal systems during the course of the initial assessment have already been
addressed. Numerous tests have been conducted to confirm the effectiveness of
applied solutions. Additional testing will occur throughout 1999. While the
Company's initial assessment is substantially complete, the Company intends to
continue to update the assessment of its state of readiness based upon new
information that may become available from third party vendors, suppliers and
manufacturers in the months to come.
All components originally manufactured by the Company are inherently compliant
in that the components do not manipulate, process, store or record date-related
information. However, a few subsidiaries, including the Company's largest
subsidiary, Powell Electrical Manufacturing Company, sell engineered systems
that include potentially noncompliant components manufactured by third parties.
The Company is pursuing a plan to evaluate the compliance status of all
components manufactured by third parties and will pass through to its customers
any compliance warranties provided by the components' manufacturers. The Company
will continue to strongly recommend to its customers that each of them make an
independent evaluation of the readiness of manufactured products that include
potentially noncompliant components.
10
11
The Transdyn Controls, Inc. subsidiary is a systems integrator of primarily
third party products. As an integrator, Transdyn must rely on the readiness
information provided by the providers of those third party products. Microsoft
is the primary provider of software Transdyn utilizes in its integrated systems.
Based on currently available information, Transdyn believes that the versions of
third party products currently integrated into systems it develops are either
compliant or will be compliant upon application of readily available patches.
Earlier versions of third party products integrated in systems delivered by
Transdyn in the past are known to be noncompliant, and Transdyn will continue to
work to identify and notify affected customers. Transdyn is offering its
services to affected customers to assist in the testing, retrofit or upgrade
process.
The costs to the Company to achieve Year 2000 readiness are not believed to be
material. Most tasks associated with compliance plan implementation have been or
will be completed by internal employees. Certain tasks will be performed by
external solution providers; however, reliance on external resources will not be
significant.
The most likely worst case Year 2000 scenario for the Company includes the
following possibilities.
o A limited number of components manufactured by third parties will fail in
some respect despite the manufacturers' assurances that such components are
compliant. To the extent that this occurs and the Company is obligated to
do so under contractual warranties, the Company will make replacement
components available to customers. Otherwise, the Company will facilitate
the identification of viable compliant components and replacement of the
noncompliant components.
o A limited number of customers who were notified of possible compliance
issues associated with older equipment will fail to timely address the
issue and will seek assistance from the Company after roll-over. To the
extent sufficient and appropriate resources are available, the Company will
facilitate component replacement or upgrades.
o Some customers may suffer failures that cause those customers to delay
placing additional orders of new equipment during the first quarter of 2000
or to delay payment for previously ordered products. The Company plans to
position itself to adjust to any temporary reduction of new orders and to
withstand short term cash flow issues.
o One or more physical facilities may suffer some degree of infrastructure
failure, due in part to the number of geographic locations of the various
subsidiaries. The Company plans to carefully manage its contractual
obligations to customers during the first month of 2000 so as to minimize
the effect any infrastructure failure might have on its ability to satisfy
those obligations. At this time, the Company does not intend to invest in
alternative sources of water, power or telecommunications. The Company will
prepare further contingency plans to deal with potential infrastructure
failure if and when additional information becomes available from current
providers as to their state of readiness.
While other scenarios are possible given the interdependent nature of all
businesses, the Company believes that the foregoing elements, individually or
any combination of one or more other element, represent the most likely worst
case scenario.
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.
11
12
Part II
OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is a party to disputes arising in the ordinary
course of business. Management does not believe that the
ultimate outcome of these disputes will materially affect the
financial position of results of operations of the Company.
ITEM 2. Changes in Securities and Use of Proceeds
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 8-K
None
12
13
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 11, 1999 /s/ THOMAS W. POWELL
- -------------------- ---------------------------------------------
Date Thomas W. Powell
President and Chief Executive Officer
(Principal Executive Officer)
March 11, 1999 /s/ J.F. AHART
- -------------------- ---------------------------------------------
Date J.F. Ahart
Vice President,
Secretary-Treasurer
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
27.0 Financial Data Schedule
5
1,000
3-MOS
OCT-31-1999
JAN-31-1998
2,190
0
49,402
821
17,788
96,443
66,600
32,190
134,647
30,364
16,685
0
0
107
85,484
134,647
54,134
54,134
43,202
43,202
7,511
0
136
3,285
1,107
2,178
0
0
0
2,178
0.20
0.20
