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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
---------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 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
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POWELL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (713)944-6900
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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 [ ]
Indicate by "X" if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be contained, to the best of
the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $77,963,000 as of January 8, 1999. The number
of shares of the Company's Common Stock outstanding on that date was 10,660,679
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 annual meeting of stockholders
to be filed not later than 120 days after October 31, 1998 are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS
Powell Industries, Inc. ("Powell" or the "Company") was incorporated under
the laws of the State of Nevada in December 1968. The Company is the successor
to a corporation founded by William E. Powell in 1947, which merged into the
Company in 1977.
The Company sells, designs, develops, manufactures, packages and services
systems and equipment for the distribution, control and management of electrical
energy and other dynamic processes. The Company's offices are located in
Houston, Texas with plants located in Houston, Greenville and Jacinto Port,
Texas; Elyria and North Canton, Ohio; Franklin Park, Illinois; Pleasanton and
Watsonville, California; and Norcross, Georgia. Most of the products
manufactured by the Company are made pursuant to specifications required for a
particular order.
PRODUCTS AND SYSTEMS
Powell designs, develops, manufactures, sells and services electrical power
distribution and control equipment and systems through its subsidiaries: Powell
Electrical Manufacturing Company; Powell-ESCO Company; Unibus, Inc.;
Delta-Unibus Corp. and Transdyn Controls, Inc. As applicable to the context, the
"Company" is also sometimes used herein to refer to Powell and its subsidiaries.
The principal products are switchgear and related equipment, bus duct and
process control systems. These products and systems are utilized primarily by
refineries, petrochemical plants, utilities, paper mills, offshore platforms,
commuter railways, vehicular transportation and numerous other industrial,
commercial and governmental facilities. A brief description of each of the major
products follows:
Switchgear and other related Equipment:
Switchgear is defined as free-standing metal enclosures containing a
selection of electrical components that protect, monitor and control the flow of
electricity from its source to motors, transformers and other electrically
powered equipment as well as customized portable buildings to house switchgear
and related equipment (PCR(R)). Major electrical components include circuit
breakers, protective relays, meters, control switches, fuses, motor control
centers and both current and potential transformers. During the fiscal years
ended October 31, 1998, 1997 and 1996, sales and service of switchgear and other
related equipment accounted for 77%, 73% and 76%, respectively, of consolidated
revenues of the Company.
Bus Duct:
Bus duct consists of insulated power conductors housed in a metal
enclosure. Individual pieces of bus duct are arranged in whatever physical
configuration may be required to distribute electrical power to or from a
generator, transformer, switching device or other electrical apparatus. The
Company can provide the nonsegregated phase, segregated phase and isolated phase
styles of bus duct with numerous amperage and voltage ratings. Sales of bus duct
accounted for 12%, 17% and 15% of consolidated revenues for fiscal years 1998,
1997 and 1996, respectively.
Process Control Systems:
The process control systems supplied by the Company consist principally of
instrumentation, computer control, communications, and data management systems.
Demand for process control systems has been for modernization and expansion
projects as well as new facilities that mainly serve the Company=s
transportation, environmental and utilities industries. During the fiscal years
ended October 31, 1998, 1997 and 1996, sales of process control systems
accounted for 11%, 10% and 9%, respectively, of consolidated revenues of the
Company.
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SUPPLIERS
All of the Company's products are manufactured using components and
materials that are readily available from numerous domestic suppliers. The
Company has three principal suppliers of components and anticipates no
difficulty in obtaining its components in sufficient quantities to support its
manufacturing and assembly operations.
METHODS OF DISTRIBUTION AND CUSTOMERS
The Company's products are sold through manufacturers' representatives and
its internal sales force. The Company is not dependent on any single customer
for sales and the loss of any specific customer would not have a material
adverse effect upon the Company. No single customer or export country accounted
for more than 10% of consolidated revenues in the fiscal years ended 1998, 1997
or 1996. Export revenues were $85,448,000, $88,107,000 and $63,884,000 in fiscal
years 1998, 1997 and 1996, respectively. See Note I of the Notes to Consolidated
Financial Statements showing the geographic areas in which these revenues were
recorded.
COMPETITION
The Company is engaged in a highly competitive business which is
characterized by a small number of much larger companies that dominate the bulk
of the market and a large number of smaller companies that compete for a limited
share of such market. In the opinion of management, the competitive position of
the Company is dependent on the ability of the Company to provide quality
products to a customer's specifications, on a timely basis, at a competitive
price, utilizing state-of-the-art materials, design and production methods. Some
of the Company's principal competitors are larger and have greater capital and
management resources.
EMPLOYEES
At October 31, 1998, the Company employed 1,253 employees on a full-time
basis. Management considers its employee relations to be good.
BACKLOG
The Company's backlog of orders was $143,394,000 and $137,295,000 at
October 31, 1998 and 1997, respectively, and the percentage of its 1998 year end
backlog that it does not expect to fill in fiscal year 1999 is 17%. Orders
included in the backlog are represented by purchase orders which the Company
believes to be firm. The terms on which the Company accepts orders include a
penalty for cancellation. Historically, no material amount of orders included in
backlog has been canceled. No material portion of the Company's business is
seasonal in nature.
RESEARCH AND DEVELOPMENT
During the fiscal years ended October 31, 1998, 1997 and 1996, the Company
spent approximately $2,693,000, $2,649,000 and $2,283,000 respectively, on
research and development programs.
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ITEM 2. PROPERTIES
The following table sets forth information about the Company's principal
facilities at October 31, 1998.
<TABLE>
<CAPTION>
SQUARE
FOOTAGE
OF
LOCATION ACRES FACILITIES OCCUPANCY
-------- ----- ---------- ---------
<S> <C> <C> <C>
Owned:
Franklin Park, IL.................. 2.0 64,000 Delta-Unibus Corp. (Delta)
Greenville, TX..................... 19.0 109,000 Powell-ESCO Company (Esco)
Houston, TX........................ 26.2 421,000 Powell Electrical Manufacturing Co.
(PEMCO)
Jacinto Port, TX................... 42.0 9,600 PEMCO-Offshore Division
Elyria, OH......................... 8.6 64,000 Unibus, Inc. (Unibus)
Leased:
Pleasanton, CA..................... 39,100 Transdyn Controls, Inc. and Power
Electronics Company, Inc. (PPECO)
Watsonville, CA.................... 9,600 PPECO
Norcross, GA....................... 19,200 Transdyn Controls, Inc.
North Canton, OH................... 53,000 PEMCO-North Canton Division
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On August 5, 1993, the Company was served with a lawsuit filed by National
Westminister Bank Plc ("NatWest") in the United States District Court, Southern
District of New York, alleging that the Company had defaulted on a Construction
Guaranty provided to NatWest in 1992 in connection with a project at MacDill Air
Force Base. NatWest had sought damages in excess of $20,000,000.
On September 2, 1998, the Company signed a Settlement Agreement with
NatWest to settle this litigation. The settlement closed on September 10, 1998.
Under the terms of the Settlement Agreement, the Company paid NatWest $7,000,000
at closing, and delivered a promissory note in the principal amount of
$1,000,000, bearing interest at 3% per annum, which will be due on December 31,
1999.
The Company recorded a charge of approximately $4.8 million (net of income
taxes) to discontinued operations in its third quarter ended July 31, 1998 in
connection with this settlement. The additional amount payable under the
Settlement Agreement (net of income taxes) was accrued in prior periods. See the
Settlement Agreement filed as Exhibit 10.11 to this report for additional terms
of such settlement.
The Company is a party to other 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 or results of operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters which were submitted to a vote of security holders
through proxies, or otherwise, during the fourth quarter of the fiscal year
ended October 31, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of October 31, 1998, there were approximately 865 holders of record of
Powell Industries, Inc. common stock, which is traded on the over-the-counter
market and listed on the NASDAQ National Market System under the symbol POWL.
Quarterly stock prices and trading volumes for the last two fiscal years
are as follows:
<TABLE>
<CAPTION>
AVERAGE
HIGH LOW LAST DAILY VOLUME
------ ------ ------ ------------
<S> <C> <C> <C> <C>
1998
First Quarter................................ $17.56 $12.63 $13.13 10,267
Second Quarter............................... 14.00 10.00 12.63 22,518
Third Quarter................................ 13.50 11.75 12.75 10,933
Fourth Quarter............................... 12.63 7.25 9.25 9,764
1997
First Quarter................................ $15.25 $ 9.88 $14.13 46,614
Second Quarter............................... 15.00 10.50 14.00 19,637
Third Quarter................................ 18.25 13.75 16.50 16,233
Fourth Quarter............................... 17.75 14.75 14.75 13,031
</TABLE>
The Company has paid no dividends on its common stock during the last three
years and anticipates that it will not do so in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from consolidated financial statements
that have been audited by Arthur Andersen LLP, independent public accountants.
The information set forth below is not necessarily
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indicative of the results of future operations and should be read in conjunction
with the consolidated financial statements and notes thereto appearing elsewhere
in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statements of operations data:
Revenues....................... $212,733,000 $191,651,000 $170,123,000 $139,534,000 $119,453,000
Earnings from continuing
operations................... 11,465,000 12,629,000 10,758,000 7,080,000 4,559,000
Loss from discontinued
operations (net of income
taxes)....................... (4,800,000) -- (5,998,000) (1,382,000) (164,000)
------------ ------------ ------------ ------------ ------------
Net earnings..................... $ 6,665,000 $ 12,629,000 $ 4,760,000 $ 5,698,000 $ 4,395,000
============ ============ ============ ============ ============
Net earnings per common share:
Continuing operations
Basic:....................... $ 1.08 $ 1.19 $ 1.02 $ .67 $ .43
Diluted:..................... 1.07 1.17 1.00 .67 .43
Discontinued operations
Basic:....................... (.45) -- (.57) (.13) (.01)
Diluted:..................... (.45) -- (.56) (.13) (.01)
Net earnings per common share:
Basic:....................... .63 1.19 .45 .54 .42
Diluted:..................... .62 1.17 .44 .54 .42
Weighted average number of common
shares outstanding............. 10,644,427 10,622,521 10,566,934 10,534,371 10,505,204
Weighted average number of common
and common equivalent shares
outstanding.................... 10,743,428 10,808,384 10,764,656 10,611,331 10,509,371
Balance Sheet Data:
Working capital................ $ 58,826,000 $ 51,769,000 $ 46,505,000 $ 32,642,000 $ 30,351,000
Total assets................... 127,131,000 122,867,000 99,523,000 90,534,000 84,327,000
Long-term debt................. 11,571,000 6,000,000 -- 3,750,000 6,563,000
Stockholders' equity........... 83,336,000 76,307,000 63,225,000 57,657,000 51,656,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements.
Any forward-looking statements made by or on behalf of the Company are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward-looking statements
involve risks and uncertainty in that actual results may differ materially from
those projected in the forward-looking statements. These risks and uncertainties
include, without limitation, the following:
- Difficulties in scheduling which could arise from the inability to obtain
materials or components in sufficient quantities as needed for the
Company's manufacturing and assembly operations,
- Difficulties in scheduling which could arise from significant
customer-directed shipment delay,
- Significant decrease in the Company's backlog,
- Unforeseen political or economic problems in countries to which the
Company exports its products,
- Unforeseen material employee relations problems,
- Problems in the quality, the design, the production methods or pricing of
its products,
- Unfavorable material litigation or claims made against the Company, and
- Changes in general market conditions, competition and pricing.
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RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain items
from the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Gross profit................................................ 22.5 24.5 25.3
Selling, general and administrative expenses................ 14.5 15.1 15.8
Interest (income) expense, net.............................. .1 (.2) .1
Earnings from continuing operations......................... 5.4 6.6 6.3
Losses from discontinued operations......................... (2.3) -- (3.5)
Net earnings................................................ 3.1 6.6 2.8
</TABLE>
REVENUES
The Company reported revenues of $212,733,000, $191,651,000 and
$170,123,000 in fiscal years 1998, 1997 and 1996, respectively. Revenues
increased 11% in fiscal year 1998 as compared to fiscal year 1997 due primarily
to the increased volume of shipments of electrical distribution equipment to
domestic customers in fiscal 1998 that was partially offset by lower revenues
from the bus duct product line. Revenues increased 13% in fiscal year 1997 when
compared to fiscal year 1996 due primarily to increased sales to export
customers. All product lines reported increased revenue for fiscal year 1997.
Export revenues continued to be an important component of the Company's
operations, accounting for 40%, 46% and 38% of consolidated revenues in fiscal
years 1998, 1997 and 1996, respectively. A schedule is provided in Note I of the
Notes to Consolidated Financial Statements showing the geographic areas in which
these sales were made. Management anticipates that consolidated revenues will
increase in fiscal 1999 and that export revenues will continue to contribute
approximately 35% to 40% of consolidated revenues.
GROSS PROFIT
Gross profit, as a percentage of revenues, was 22.5%, 24.5%, and 25.3% in
fiscal years 1998, 1997 and 1996, respectively. The gross profit percentage
decreased by 2.0% in 1998 from 1997 due primarily to losses at Powell-ESCO
Company and revenues shifts to lower gross margin product lines. The decrease in
1997 when compared to 1996 was due to the shifts in revenues to lower gross
margin product lines. The Company continues to focus on productivity
improvements to respond to the competitive markets it serves.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of revenues
were 14.5%, 15.1%, and 15.8% for fiscal years 1998, 1997 and 1996, respectively.
The decrease in fiscal years 1998 and 1997, as a percentage of revenues, was due
to controlling of expenses as volumes increased.
INTEREST (INCOME) EXPENSE, NET
Interest (income) expense reflects a net interest expense in fiscal years
1998 and 1996 and net interest income in fiscal year 1997. The net interest
expense in 1998 was primarily due to an increase in total debt, partially offset
by lower rates. The net interest income in 1997 was due to lower debt and more
available funds to invest.
INCOME TAX PROVISION
The effective income tax rate on earnings from continuing operations before
income taxes was 32%, 32%, and 33% for fiscal years 1998, 1997 and 1996,
respectively. The effective income tax rates are lower than the statutory rate
due primarily to foreign sales corporation credits.
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EARNINGS FROM CONTINUING OPERATIONS
Earnings from continuing operations recorded in fiscal year 1998 were
$11,465,000 or $1.07 per diluted share. This represented a 9.2% decrease in
earnings compared to fiscal year 1997 earnings. The decrease was primarily due
to losses at Powell-ESCO Company and revenue shifts to lower gross margin
product lines. Earnings from continuing operations recorded in fiscal year 1997
were $12,629,000 or $1.17 per diluted share, an increase of 17.4% compared to
earnings from continuing operations of $10,758,000 or $1.00 per diluted share in
fiscal year 1996. This increase was primarily due to the increased volume and
controlled costs.
DISCONTINUED OPERATIONS
See Note M to Notes to Consolidated Financial Statements for discussion of
the operations that were discontinued in fiscal years 1998 and 1996.
NET EARNINGS
Net earnings were $6,665,000 or $.62 per diluted share in fiscal year 1998
compared to $12,629,000 or $1.17 per diluted share and $4,760,000 or $.44 per
diluted share in fiscal year 1997 and 1996, respectively. The losses from
discontinued operations, referred to in the previous paragraph, resulted in
lower net earnings in fiscal year 1998 as compared to 1997.
LIQUIDITY AND CAPITAL RESOURCES
In September 1998, the Company amended a revolving line of credit agreement
with a major domestic bank. The amendment provided for a $10,000,000 term loan
and a revolving line of credit of $15,000,000. The term loan matures in five
years with an amortization of seven years. The effective interest rate, after
including a interest rate swap negotiated with the trust company of the same
domestic bank, is 5.20 percent per annum plus a .75 to 1.25 fees based on
financial covenants. The proceeds of the term loan were used to pay the
Settlement Agreement discussed in Note M and to pay down the line of credit. As
of October 31, 1998, the Company had $2,000,000 in borrowings outstanding under
this revolving line of credit.
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 liquidity measures which management believes to be
significant.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Working capital............................... $58,826,000 $51,769,000 $46,505,000
Current ratio................................. 2.95 to 1 2.36 to 1 2.42 to 1
Debt to total capitalization.................. .1 to 1 .1 to 1 .1 to 1
</TABLE>
Management believes that the Company continues to maintain a strong
liquidity position. The increase in working capital at October 31, 1998, as
compared to October 31, 1997, is due mainly to an increase in costs and
estimated earnings in excess of billings and inventories. These increases were
partially offset by decreases in accounts receivable and increases in billings
in excess of costs and estimated earnings.
Operating cash flows decreased $4,600,000 in fiscal 1998 as compared to
fiscal 1997 due to payments made for the settlement of the NatWest litigation
and decreased levels of billings in excess of costs and earnings, partially
offset by increased collections on accounts receivable. Operating cash flows
decreased $6,100,000 in fiscal 1997 as compared to fiscal 1996 due to the
disposition of net assets of discontinued operations, partially offset by
increased net income.
Capital expenditures totaled $9,739,000 during fiscal year 1998 compared to
$14,773,000 during fiscal year 1997. During fiscal year 1998 and 1997 the
majority of the capital expenditures was for plant expansions of operating
facilities at PEMCO. Management expects the Company's capital expenditures
program to be approximately $7,000,000 in fiscal year 1999, primarily for
additions and replacement of machinery and equipment and the purchase of a
facility in North Canton, Ohio currently being leased.
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The Company's fiscal year 1998 asset management program will continue to
focus on the reduction of receivables days outstanding and reduction in
inventories. Management believes that the cash and cash equivalents of $601,000
at October 31, 1998, along with funds generated from operating activities and
funds available through borrowings from the credit line will be sufficient to
meet the capital requirements and operating needs of the Company for at least
the next twelve months.
EFFECTS OF INFLATION AND RECESSION
During the last three years, the Company has not experienced any
significant effects of inflation on its operations. Management continues to
evaluate the potential impact inflation could have on future growth and minimize
the impact by including escalation clauses in long-term contracts. Recent
marketing and financial reports indicate that the current economic conditions
should remain in 1999 at approximately the same level as 1998 and the Company
does not anticipate significant increases in inflation in the immediate future.
YEAR 2000 COMPLIANCE
The Year 2000 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 resolution 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 make an
independent evaluation of the readiness of manufactured products that include
potentially noncompliant components.
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 is 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.
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The most likely worst case Year 2000 scenario for the Company includes the
following possibilities.
- 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 a 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.
- 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.
- 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.
- 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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Public Accountants.................. 11
Consolidated Balance Sheets as of October 31, 1998 and
1997................................................... 12
Consolidated Statements of Operations for the three years
ended October 31, 1998................................. 13
Consolidated Statements of Stockholders' Equity for the
three years ended October 31, 1998..................... 14
Consolidated Statements of Cash Flows for the three years
ended October 31, 1998................................. 15
Notes to Consolidated Financial Statements................ 16
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
10
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Board of Directors and Stockholders of Powell Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Powell
Industries, Inc. (a Nevada corporation) and subsidiaries as of October 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended October
31, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Powell Industries, Inc. and subsidiaries as of October 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended October 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 30, 1998
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POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 601 $ 2,219
Accounts receivable, less allowance for doubtful accounts
of $761 and $465, respectively......................... 44,255 50,391
Costs and estimated earnings in excess of billings........ 24,783 18,986
Inventories............................................... 16,284 13,603
Deferred income taxes..................................... 709 825
Income taxes receivable................................... 945 1,351
Prepaid expenses and other current assets................. 1,441 2,594
-------- --------
Total Current Assets.............................. 89,018 89,969
Property, plant and equipment, net.......................... 32,311 26,374
Deferred income taxes....................................... 833 1,578
Other assets................................................ 4,969 4,946
-------- --------
Total Assets...................................... $127,131 $122,867
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and income taxes payable......................... $ 12,094 $ 11,929
Accrued salaries, bonuses and commissions................. 6,784 6,737
Accrued product warranty.................................. 1,388 1,511
Accrued legal expenses.................................... 1,133 3,785
Other accrued expenses.................................... 3,519 3,282
Billings in excess of costs and estimated earnings........ 3,845 10,956
Current maturities of long-term debt...................... 1,429 --
-------- --------
Total Current Liabilities......................... 30,192 38,200
Long-term debt, net of current maturities................... 11,571 6,000
Deferred compensation expense............................... 1,187 1,128
Postretirement benefits liability........................... 845 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; 10,658,679 and 10,642,779
shares issued and outstanding, respectively............ 107 106
Additional paid-in capital................................ 5,919 5,782
Retained earnings......................................... 80,237 73,572
Deferred compensation -- ESOP............................. (2,927) (3,153)
-------- --------
Total Stockholders' Equity........................ 83,336 76,307
-------- --------
Total Liabilities and Stockholders' Equity........ $127,131 $122,867
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE> 13
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................................. $ 212,733 $ 191,651 $ 170,123
Cost of goods sold.................................... 164,944 144,645 127,075
----------- ----------- -----------
Gross profit.......................................... 47,789 47,006 43,048
Selling, general & administrative expenses............ 30,805 28,982 26,928
----------- ----------- -----------
Earnings from continuing operations before interest
and income taxes.................................... 16,984 18,024 16,120
Interest expense (income), net........................ 239 (416) 117
----------- ----------- -----------
Earnings from continuing operations before income
taxes............................................... 16,745 18,440 16,003
Income tax provision.................................. 5,280 5,811 5,245
----------- ----------- -----------
Earnings from continuing operations................... 11,465 12,629 10,758
Loss from discontinued operations, net of income
taxes............................................... (4,800) -- (5,998)
----------- ----------- -----------
Net earnings.......................................... $ 6,665 $ 12,629 $ 4,760
=========== =========== ===========
Earnings (loss) per common share:
Continuing operations:
Basic............................................ $ 1.08 $ 1.19 $ 1.02
Diluted.......................................... 1.07 1.17 1.00
Discontinued operations:
Basic............................................ $ (.45) $ -- $ (.57)
Diluted.......................................... (.45) -- (.56)
Net earnings:
Basic............................................ $ .63 $ 1.19 $ .45
Diluted.......................................... .62 1.17 .44
Weighted average number of common shares
outstanding......................................... 10,644,427 10,622,521 10,566,934
Weighted average number of common and common
equivalent shares outstanding....................... 10,743,428 10,808,384 10,764,656
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE> 14
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
------------------- PAID-IN RETAINED COMPENSATION
SHARES AMOUNT CAPITAL EARNINGS ESOP
---------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1995............... 10,542,704 $105 $5,062 $56,183 $(3,693)
Net earnings.......................... 4,760
Amortization of deferred
compensation -- ESOP............... 268
Exercise of stock options............. 11,940 -- 52
Stock grants.......................... 50,000 1 487
---------- ---- ------ ------- -------
Balance, October 31, 1996............... 10,604,644 106 5,601 60,943 (3,425)
Net earnings.......................... 12,629
Amortization of deferred
compensation -- ESOP............... 272
Exercise of stock options............. 38,135 -- 181
---------- ---- ------ ------- -------
Balance, October 31, 1997............... 10,642,779 106 5,782 73,572 (3,153)
Net earnings.......................... 6,665
Amortization of deferred
compensation -- ESOP............... 226
Exercise of stock options............. 15,900 1 137
---------- ---- ------ ------- -------
Balance, October 31, 1998............... 10,658,679 $107 $5,919 $80,237 $(2,927)
========== ==== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE> 15
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net earnings.............................................. $ 6,665 $ 12,629 $ 4,760
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 4,070 3,376 3,270
Deferred income tax provision (benefit)................ 861 1,333 (2,112)
Postretirement benefits liability...................... (387) (270) (455)
Changes in operating assets and liabilities:
Accounts receivable.................................. 6,136 (13,378) (11,092)
Costs and estimated earnings in excess of billings... (5,797) (5,052) (2,820)
Inventories.......................................... (2,681) 511 948
Prepaid expenses and other current assets............ 1,153 (894) (7)
Other assets......................................... (291) (708) (205)
Accounts payable and income taxes payable or
receivable........................................ 571 2,911 (272)
Accrued liabilities.................................. (2,491) 394 5,334
Billings in excess of costs and estimated earnings... (7,111) 5,531 1,318
Deferred compensation expense........................ 285 (757) 420
Changes in net assets of discontinued operations..... -- -- 12,674
------- -------- --------
Net cash provided by operating activities......... 983 5,626 11,761
------- -------- --------
Investing Activities:
Purchases of property, plant and equipment................ (9,739) (14,773) (3,349)
------- -------- --------
Net cash used in investing activities............. (9,739) (14,773) (3,349)
------- -------- --------
Financing Activities:
Net borrowings of long-term debt.......................... 7,000 6,000 --
Payments of long-term debt................................ -- (3,750) (2,813)
Exercise of stock grants and options...................... 138 181 540
------- -------- --------
Net cash provided by (used in) financing
activities...................................... 7,138 2,431 (2,273)
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (1,618) (6,716) 6,139
Cash and cash equivalents at beginning of year.............. 2,219 8,935 2,796
------- -------- --------
Cash and cash equivalents at end of year.................... $ 601 $ 2,219 $ 8,935
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 16
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BUSINESS AND ORGANIZATION
Powell Industries, Inc. ("Powell" or the "Company") was incorporated under
the laws of the state of Nevada in December 1968. The Company is the successor
to a corporation founded by William E. Powell in 1947, which merged into the
Company in 1977.
Powell designs, develops, manufactures, sells and services electrical power
distribution and control equipment and systems through its subsidiaries: Powell
Electrical Manufacturing Company; Powell-ESCO Company; Unibus, Inc.;
Delta-Unibus Corp. and Transdyn Controls, Inc. As applicable to the context,
"Company" is also sometimes used herein to refer to Powell and its subsidiaries.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Powell Industries, Inc. and its wholly-owned subsidiaries (the Company). All
material intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of less than three months to be cash equivalents.
Accounts Receivable
The Company's receivables are generally not collateralized. Management
performs ongoing credit analyses of the accounts of its customers and provides
allowances as deemed necessary. Accounts receivable at October 31, 1998 and 1997
include $3,931,000 and $2,296,000, respectively, due from customers in
accordance with applicable retainage provisions of engineering and construction
contracts, which will become billable upon completion of such contracts.
Approximately $2,384,000 of the retained amount at October 31, 1998 is expected
to be billed subsequent to 1999.
Inventories
Inventories are stated at the lower of cost (primarily first-in, first-out
method) or market and include material, labor and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and is depreciated using
the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments which extend the useful lives of
existing equipment are capitalized and depreciated. Upon retirement or
disposition of property, plant and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
Amortization of Intangibles
Included in other assets are net intangible assets totaling $2,004,000 and
$2,272,000 at October 31, 1998 and 1997, respectively. Intangible assets
primarily include goodwill and patents which are amortized using the
straight-line method over periods ranging from five to twenty years. The
accumulated amortization of intangible assets totaled $1,744,000 and $1,476,000
at October 31, 1998 and 1997, respectively. Management
16
<PAGE> 17
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
continually evaluates whether events or circumstances have occurred that
indicate the remaining estimated useful life of intangible assets may warrant
revision or that remaining balances may not be recoverable.
Revenue Recognition
Revenues from product sales are recognized at the time of shipment.
Revenues related to multiple unit orders and their associated costs are recorded
as identifiable units are delivered. Contract revenues are recognized on a
percentage-of-completion basis primarily using labor dollars or hours incurred
to date in relation to estimated total labor dollars or hours of the contracts
to measure the stage of completion. Contract costs include all direct material
and labor costs and those indirect costs related to contract performance, such
as indirect labor, supplies and depreciation costs. Provisions for total
estimated losses on uncompleted contracts are recorded in the period in which
they become evident.
Warranties
The Company provides for estimated warranty costs at the time of sale based
upon historical rates applicable to individual product lines. In addition,
specific provisions are made when the costs of such warranties are expected to
exceed accruals.
Research and Development Expense
Research and development costs are charged to expense as incurred. Such
amounts were $2,693,000, $2,649,000, and $2,283,000 in fiscal years 1998, 1997
and 1996, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain reclassifications of prior year amounts have been made in order to
conform with the classifications used in the current year presentation.
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes". Under SFAS
No. 109, deferred tax assets and liabilities are computed based on the
difference between the financial statements and income tax bases of assets and
liabilities using enacted tax rates. Under this standard, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that the
tax rate changes.
New Accounting Standards
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was issued in June 1997. SFAS No. 131 provides revised disclosure
guidelines for segments of an enterprise based on a management approach to
defining operating segments. The Company will provide reporting disclosures as
required by the statement during its fiscal year ending October 31, 1999.
17
<PAGE> 18
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1998, the Accounting Standards Board issued SFAS No.
133 -- "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. The statement, which is to be applied prospectively, is
effective for the Company's quarter ending January 31, 2000. The Company is
currently evaluating the impact of SFAS No. 133 on its future results of
operations and financial position.
In April 1998, Statement of Position ("SOP") No. 98-5 -- "Reporting on the
Costs of Start-Up Activities" was issued by the American Institute of Certified
Public Accountants. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application of the
statement, which is effective for the Company's fiscal year 2000, is to be
reported as a cumulative effect of a change in accounting principle. The Company
believes that the future adoption of SOP No. 98-5 will not have a material
effect on its results of operations or financial position.
C. EARNINGS PER SHARE
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 date):
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per
share -- earnings from continuing operations
available to common shareholders............. $ 11,465 $ 12,629 $ 10,758
========== ========== ==========
Denominator:
Denominator for basic earnings per
share -- weighted-average shares............. 10,644,427 10,622,521 10,566,934
Effect of dilutive securities -- Employee stock
options...................................... 99,001 185,863 197,722
---------- ---------- ----------
Denominator for diluted earnings per
share -- adjusted weighted-average shares
assumed conversions.......................... 10,743,428 10,808,384 10,764,656
========== ========== ==========
Basic earnings per share........................ $ 1.08 $ 1.19 $ 1.02
========== ========== ==========
Diluted earnings per share...................... $ 1.07 $ 1.17 $ 1.00
========== ========== ==========
</TABLE>
D. INVENTORIES
The components of inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Raw materials, parts and subassemblies...................... $ 9,795 $ 8,706
Work-in-process............................................. 6,489 4,897
------- -------
Total inventories................................. $16,284 $13,603
======= =======
</TABLE>
18
<PAGE> 19
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized below (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------------- RANGE OF
1998 1997 ASSET LIVES
-------- -------- -----------
<S> <C> <C> <C>
Land............................................... $ 2,720 $ 2,720 --
Buildings and improvements......................... 27,478 20,662 3-39 Years
Machinery and equipment............................ 28,149 24,912 3-15 Years
Furniture and fixtures............................. 4,039 3,121 3-10 Years
Construction in progress........................... 3,364 4,596 --
-------- --------
65,750 56,011
Less -- accumulated depreciation................... (33,439) (29,637)
-------- --------
Total property, plant and equipment,
net.................................... $ 32,311 $ 26,374
======== ========
</TABLE>
F. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401K plan for substantially all of
its employees. The Company matches 50% of employee contributions up to six
percent of their salary. The Company recognized expense of $934,000, $848,000,
and $736,000 in fiscal years 1998, 1997 and 1996, respectively, under this plan.
Two long service employees are participants in a deferred compensation plan
providing payments in accordance with a predetermined plan upon retirement or
death. The Company recognizes the cost of this plan over the projected years of
service of the participant. The Company has insured the lives of these key
employees to assist in the funding of the deferred compensation liability.
The Company has established an employee stock ownership plan (ESOP) for the
benefit of substantially all full-time employees other than employees covered by
a collective bargaining agreement to which the ESOP has not been extended by
agreement or by action of the Company. The ESOP purchased 793,525 shares of the
Company's common stock from a major stockholder. The funding for this plan was
provided through a loan from the Company of $4,500,000. This loan will be repaid
over a twenty-year period with equal payments of $424,000 per year including
interest at 7 percent. The Company recorded deferred compensation as a
contra-equity account for the amount loaned to the ESOP in the accompanying
consolidated balance sheets. The Company is required to make annual
contributions to the ESOP to enable it to repay its loan to the Company. The
deferred compensation account is amortized as compensation expense over twenty
years as employees earn their shares for services rendered. The loan agreement
also provides for prepayment of the loan if the Company elects to make any
additional contributions. The compensation expense for fiscal years 1998, 1997
and 1996 was $226,000, $271,000, and $268,000, respectively.
In November 1992, the Company established a plan for each subsidiary to
extend to retirees health benefits which are available to active employees under
the Company's existing health plans. Participants become eligible for retiree
health care benefits when they retire from active service at age 55 with ten
years of service. Generally, the health plans pay a stated percentage of medical
and dental expenses reduced for any deductible and co-payment. These plans are
unfunded. Medical coverage may be continued by the retired employee up to age 65
at the average cost to the Company of active employees. At the age of 65, when
the employee becomes eligible for Medicare, the benefits provided by the Company
are reduced by the amount provided by Medicare and the cost to the retired
employee is reduced to 50 percent of the average cost to the Company of active
employees.
In January 1994, the Company modified its postretirement benefits to
provide retiree healthcare benefits to only current retirees and active
employees who will be eligible to retire by December 31, 1999. Participants
eligible for such benefits will be required to pay between 20 percent and 100
percent of the Company's average
19
<PAGE> 20
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cost of benefits based on years of service. In addition, benefits will end upon
the employee's attainment of age 65. The effect of these modifications
significantly reduced the Company's postretirement benefits cost and accumulated
benefits obligation.
The following table sets forth the plans' combined status reconciled with
the accrued retirement benefits cost included in the Company's consolidated
balance sheets (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-------------
1998 1997
---- ------
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees.................................................. $228 $ 242
Fully eligible active participants........................ 316 353
Other active participants................................. 25 62
---- ------
Total accumulated postretirement benefits
obligation...................................... 569 657
Unrecognized prior service credits.......................... 370 688
Unrecognized net loss....................................... (94) (113)
---- ------
Postretirement benefits liability................. $845 $1,232
==== ======
</TABLE>
Net periodic postretirement benefits expense (income) includes the
following components (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
-------------
1998 1997
----- -----
<S> <C> <C>
Service cost of benefits earned during the period........... $ 4 $ 5
Interest cost on accumulated postretirement benefit
obligation................................................ 36 45
Amortization of unrecognized prior service credits.......... (318) (310)
Amortization of net loss and transition obligation.......... (7) 33
----- -----
Net periodic postretirement benefits expense
(income)........................................ $(285) $(227)
===== =====
</TABLE>
The assumed health care cost trend rate in measuring the accumulated
postretirement benefits obligation was 8 percent in fiscal year 1998 decreasing
to six percent by fiscal year 2000. If the health care trend rate assumptions
were increased by one percent, the accumulated postretirement benefits
obligation, as of October 31, 1998, would be increased by 7.7 percent. The
effect of this change on the net postretirement benefit cost for 1998 would be
an increase of 6.9 percent. The weighted average discount rate used in
determining the accumulated postretirement benefits obligation was 6.0 and 6.5
percent for fiscal years 1998 and 1997, respectively.
G. DEBT
In September 1998, the Company amended an existing agreement for a
revolving line of credit with a major U.S. bank. The amendment provides for a
$10,000,000 term loan and a revolving line of credit of $15,000,000. The term
loan matures in five years with nineteen equal quarterly payments of $357,143
and a final payment of the remaining principal balance on September 30, 2003.
The effective interest rate, after including the results of an interest rate
swap negotiated with the trust company of the same domestic bank, is 5.20
percent per annum plus a .75 to 1.25 percent fee based on financial covenants.
The notional amount of the swap agreement is $10,000,000 and follows the same
reduction schedule as the term-loan. The Company considers the risk of
non-performance by its swap partner to be minimal. The revolving line of credit
provides for the Company to elect an interest rate on amounts borrowed of (1)
the bank's prime rate less .5 percent (on the first $5,000,000) and prime rate
on additional borrowings, or (2) the bank's IBOR rate plus an additional
20
<PAGE> 21
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
percentage of .75% to 1.25% based on the Company's performance. Also, a fee of
.20 to .25 percent is charged on the unused balance of the line. The agreement
contains customary affirmative and negative covenants and requirements to
maintain a minimum level of tangible net worth and profitability. As of October
31, 1998, $2,000,000 was borrowed against this line of credit. The agreement
expires on February 28, 2000.
Long-term debt is summarized below (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1998 1997
------- ------
<S> <C> <C>
5 year term note............................................ $10,000 $
Revolving line of credit.................................... 2,000 6,000
NatWest promissory note (see Note J below).................. 1,000
------- ------
Total debt.................................................. 13,000 6,000
Less -- current maturities.................................. (1,429) --
------- ------
Total long-term debt.............................. $11,571 $6,000
======= ======
</TABLE>
Interest paid during the year was $502,000, $529,000 and $683,000 in fiscal
years 1998, 1997 and 1996, respectively. The interest expense recorded during
the year was $558,000, $381,000 and $637,000 in 1998, 1997 and 1996,
respectively. The annual maturities of long-term debt for the years 1999 through
2003 are as follows: $1,429,000, $4,429,000, $1,429,000, $1,428,000 and
$4,285,000, respectively. Management estimates that the fair value of its debt
obligations approximates the historical value of $13,000,000 at October 31,
1998.
H. INCOME TAXES
The net deferred income tax asset is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Current deferred income taxes:
Gross assets.............................................. $ 2,075 $ 2,469
Gross liabilities......................................... (1,366) (1,644)
------- -------
Net current deferred income tax asset..................... 709 825
------- -------
Noncurrent deferred income taxes
Gross assets.............................................. 1,593 2,122
Gross liabilities......................................... (760) (544)
------- -------
Net noncurrent deferred income tax asset.................... 833 1,578
------- -------
Net deferred income tax asset..................... $ 1,542 $ 2,403
======= =======
</TABLE>
21
<PAGE> 22
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Allowance for doubtful accounts............................. $ 259 $ 158
Reserve for accrued employee benefits....................... 907 681
Warranty reserves........................................... 471 513
Uncompleted long-term contracts............................. (1,262) (1,644)
Depreciation and amortization............................... 92 (132)
Deferred compensation....................................... 404 384
Postretirement benefits liability........................... 287 419
Accrued legal expenses...................................... 385 1,287
Other....................................................... (1) 737
------- -------
Net deferred income tax asset..................... $ 1,542 $ 2,403
======= =======
</TABLE>
The components of the income tax provision (benefit) consist of the
following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Continuing Operations:
Current:
Federal............................................. $ 4,198 $4,237 $ 7,135
State............................................... 221 241 222
Deferred:
Federal............................................. 861 1,333 (2,112)
------- ------ -------
Income tax provision continuing operations............. 5,280 5,811 5,245
------- ------ -------
Discontinuing Operations:
Current................................................ (3,821) -- (1,435)
Deferred............................................... 1,371 -- (1,756)
------- ------ -------
Income tax provision discontinued operations........... (2,450) -- (3,191)
------- ------ -------
Total income tax provision..................... $ 2,830 $5,811 $ 2,054
======= ====== =======
</TABLE>
A reconciliation of the statutory U.S. income tax rate and the effective
income tax rate, as computed on earnings from continuing operations before
income taxes reflected in each of the three years presented in the Consolidated
Statements of Operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory rate.............................................. 34% 34% 34%
Foreign sales corporation credits........................... (3) (3) (4)
State income taxes, net of federal benefit.................. 1 1 1
Other....................................................... -- -- 2
-- -- --
Effective rate.............................................. 32% 32% 33%
== == ==
</TABLE>
Total cash payments for income taxes during the year were $2,039,000,
$4,799,000, and $3,211,000 in fiscal years 1998, 1997 and 1996, respectively.
22
<PAGE> 23
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. SIGNIFICANT SALES DATA
No single customer or export country accounted for more than 10 percent of
consolidated revenues in fiscal years 1998, 1997 and 1996.
Export sales are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Europe (including former Soviet Union).................. $ 500 $ 4,781 $ 5,680
Far East................................................ 27,502 29,343 24,948
Middle East and Africa.................................. 31,694 27,035 12,928
North, Central and South America (excluding U.S.)....... 25,752 26,948 20,328
------- ------- -------
Total export sales............................ $85,448 $88,107 $63,884
======= ======= =======
</TABLE>
J. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain offices, facilities and equipment under
operating leases expiring at various dates through 2003. At October 31, 1998,
the minimum annual rental commitments under leases having terms in excess of one
year are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING OPERATING
OCTOBER 31 LEASES
- ----------- ---------
<S> <C>
1999...................................................... $1,255
2000...................................................... 945
2001...................................................... 678
2002...................................................... 459
2003...................................................... 4
Thereafter................................................ --
------
Total lease commitments................................... $3,341
======
</TABLE>
Lease expense for all operating leases, excluding leases with terms of less
than one year, was $1,259,000, $1,067,000 and $908,000 for fiscal years 1998,
1997 and 1996, respectively.
Letters of Credit and Bonds
The Company is contingently liable for secured and unsecured letters of
credit and performance bonds totaling approximately $4,997,000 and $67,008,000
respectively that were outstanding at October 31, 1998.
Litigation
On August 5, 1993, the Company was served with a lawsuit filed by National
Westminister Bank Plc ("NatWest") in the United States District Court, Southern
District of New York, alleging that the Company had defaulted on a Construction
Guaranty provided to NatWest in 1992 in connection with a project at MacDill Air
Force Base. NatWest had sought damages in excess of $20,000,000.
On September 2, 1998, the Company signed a Settlement Agreement with
NatWest to settle this litigation. The settlement closed on September 10, 1998.
Under the terms of the Settlement Agreement, the Company paid NatWest $7,000,000
at closing, and delivered a promissory note in the principal amount of
$1,000,000, bearing interest at 3% per annum, which will be due on December 31,
1999.
23
<PAGE> 24
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded a charge of approximately $4.8 million (net of income
taxes) to discontinued operations in its third quarter ended July 31, 1998, in
connection with this settlement. The additional amount payable under the
Settlement Agreement (net of income taxes) was accrued in prior periods.
The Company is a party to other 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 or results of operations
of the Company.
K. STOCK OPTIONS AND GRANTS
In March 1992, the stockholders approved an amendment to a plan that was
adopted in March 1989, in which 750,000 shares of common stock would be made
available through an incentive program for certain employees of the Company. In
March 1996, the stockholders approved an amendment to increase the maximum
shares available under the plan from 750,000 shares to 1,500,000 shares of
common stock. The awards available under the plan include both stock options and
stock grants and are subject to certain conditions and restrictions as
determined by the Compensation Committee of the Board of Directors.
"Stock options" -- Options granted under the plan are non-qualified and are
granted at a price equal to the fair market value of the common stock at the
date of grant. Generally, options granted have a term of ten years from the date
of grant and will vest in increments of 20 percent per year over a five year
period on the yearly anniversary of the grant date. The plan provides for
additional stock to be awarded equal to 20 percent of all options which are
exercised and then held for a period of five years.
"Stock grants" -- The fair market value of shares awarded as stock grants
has been deferred and amortized to compensation expense ratably as such shares
are vested. The Company recognized compensation expense related to stock grants
pursuant to this plan of $0, $0, and $487,000 in fiscal years 1998, 1997, and
1996, respectively.
There were 628,673 shares available under the plan to be granted as of
October 31, 1998. Stock option and grant activity (number of shares) for the
Company during fiscal years 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- -----------------
OPTIONS GRANTS OPTIONS GRANTS OPTIONS GRANTS
------- ------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.......... 575,060 429,510 -- 441,450 50,000
Granted:
Stock options $6.25 per share......
Stock options $15.81 per share..... 250,500
Exercised:
Stock grants....................... (50,000)
Stock options $6.25 per share...... (7,800) (31,760) (7,500)
Stock options $6.75 per share...... (8,100) (47,700) (4,440)
Forfeited:
Stock options $6.25 per share...... (13,800) (16,400)
Stock options $6.75 per share...... (1,800) (4,090)
Stock options $15.81 per share..... (18,000) (5,000)
------- -- ------- -- ------- -------
Outstanding, ranging from $6.25 to
$15.81 per share, at the end of
year.................................. 525,560 -- 575,060 -- 429,510 --
======= == ======= == ======= =======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", in accounting for employees stock options
whereby no compensation expense is recorded related to the options granted equal
to the market value of the stock on the date of grant. If compensation expense
had been determined based on the Black-Scholes option pricing model value at the
grant date for awards in 1998,
24
<PAGE> 25
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 and 1996 consistent with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company's net income and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Net income:
As reported............................................. $6,665 $12,629 $4,760
Pro forma............................................... 6,108 12,072 4,571
Earnings per share:
As reported............................................. $ .62 $ 1.17 $ .44
Pro forma............................................... .57 1.12 .43
</TABLE>
The SFAS No. 123 method of accounting has not been applied to options
granted prior to October 31, 1995, and the resulting pro forma compensation
expense may not be indicative of pro forma expense in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Expected life of options.......................... 10 years
Risk-free interest rate........................... 6.07% -- 6.49%
Expected dividend yield........................... 0.00%
Expected stock price volatility................... 55.22% -- 56.31%
</TABLE>
L. PRODUCTION CONTRACTS
For contracts in which the percentage-of-completion method is used, costs
and estimated earnings in excess of billings are reported as a current asset and
billings in excess of costs and estimated earnings are reported as a current
liability. The components of these contracts are as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Costs and estimated earnings................................ $114,127 $ 85,126
Progress billings........................................... (89,344) (66,140)
-------- --------
Total costs and estimated earnings in excess of
billings........................................ $ 24,783 $ 18,986
======== ========
Progress billings........................................... $ 67,471 $ 69,213
Costs and estimated earnings................................ (63,626) (58,257)
-------- --------
Total billings in excess of costs and estimated
earnings........................................ $ 3,845 $ 10,956
======== ========
</TABLE>
M. DISCONTINUED OPERATIONS
On July 26, 1996, the Company completed the sale of its power generation
set packaging business to Rolls-Royce Acquisition Corporation. This business was
operated by U.S. Turbine Corp. (USTC), the Company's subsidiary based in
Maineville, Ohio. Total consideration received by the Company, as adjusted, was
$12,889,000, including $3,660,000 of cash, a $500,000 note receivable bearing
interest at the prime rate due July 1997 and the assumption of liabilities of
$8,729,000. The Company recognized a gain on the sale of $89,000, net of taxes.
The Company recognized a net loss from USTC operations of $3,173,000 for fiscal
year 1996.
On August 1, 1996 the Company announced the discontinuance of its
operations in the microprocessor-based equipment manufacturing business segment
effective July 31, 1996. This business was operated by Powell-Process Systems,
Inc. (PSI), a subsidiary of the Company based in Houston. On October 31, 1996,
25
<PAGE> 26
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company completed the sale of these assets and the related business to Micon
Systems LLC for approximately $874,000, including $650,000 cash and a $224,000
non-interest bearing note receivable due February 13, 1997. The Company
recognized a loss on the sale of $1,227,000, net of taxes. The Company
recognized net losses from PSI operations of $1,687,000 for fiscal year 1996.
As previously reported on Form 8-K in September 1998, and as discussed in
Note J above, the Company entered into a Settlement Agreement with National
Westminister Bank plc ("NatWest") to settle all litigation between them
regarding completion of a project of USTC at MacDill Air Force Base (the
responsibility for this project was not assumed by Rolls-Royce in the
acquisition of USTC). Under the terms of such Settlement Agreement, the Company
paid NatWest $7,000,000 at the closing (September 10, 1998) and delivered a
promissory note in the principal amount of $1,000,000 bearing interest at the
rate of 3 percent per annum, which will be due on December 31, 1999;
accordingly, the Company has recorded a loss from discontinued operations of
$4,800,000 (net of income taxes) or $.45 per diluted share, to reflect
additional expense accruals related to this settlement.
The following summarizes the results of operations and consolidated balance
sheets of the discontinued operations:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
1998 1996
--------- ---------
<S> <C> <C>
Revenues.................................................... -- $29,182
======= =======
Loss from operations before income taxes.................... $(7,250) $(7,464)
Benefit for income taxes.................................... 2,450 2,604
Loss on disposal before income taxes........................ (1,725)
Benefit for income taxes.................................... 587
------- -------
Net loss from discontinued operations............. $(4,800) $(5,998)
======= =======
</TABLE>
26
<PAGE> 27
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The table below sets forth the unaudited consolidated operating results by
fiscal quarter for the years ended October 31, 1998 and 1997 (in thousands,
except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998 --
Revenues............................................. $46,350 $53,989 $56,258 $56,136
Gross profit......................................... 10,631 12,281 12,370 12,507
Net Earnings:
Earnings from continuing operations............... 2,398 3,314 3,193 2,560
Loss from discontinued operations................. -- -- (4,700) (100)
------- ------- ------- -------
Net earnings (loss).................................. 2,398 3,314 (1,507) 2,460
Net earnings (loss) per common share:
Continuing operations:
Basic........................................... .23 .31 .30 .24
Diluted......................................... .22 .31 .30 .24
Discontinued operations:
Basic........................................... -- -- (.44) (.01)
Diluted......................................... -- -- (.44) (.01)
Net earnings (loss):
Basic........................................... .23 .31 (.14) .23
Diluted......................................... .22 .31 (.14) .23
1997 --
Revenues............................................. $43,128 $48,439 $46,061 $54,023
Gross profit......................................... 10,288 12,542 11,720 12,456
Net earnings......................................... 2,369 3,273 3,432 3,555
Net earnings per common and common equivalent share:
Basic........................................... .22 .31 .32 .33
Diluted......................................... .22 .30 .32 .33
</TABLE>
27
<PAGE> 28
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by these items is omitted because the Company will
file, within 120 days after the end of the fiscal year ended October 31, 1998, a
definitive proxy statement pursuant to Regulation 14A, which information is
herein incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Financial Statements -- See Index to Consolidated Financial Statements at
Item 8 of this report
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
2.1 -- Asset Purchase Agreement dated as of June 20, 1996 by and
between Rolls-Royce North America, Inc. and Rolls-Royce
Acquisition Corp. and U.S. Turbine Corp. and the Company
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated August 8, 1996 and incorporated herein by
reference).
2.2 -- First Amendment to Asset Purchase Agreement dated July
26, 1996 by and between Rolls-Royce North America, Inc.
and Rolls-Royce Acquisition Corp. and U.S. Turbine Corp.
and the Company (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated August 8, 1996 and
incorporated herein by reference).
3.1 -- Articles of Incorporation and Certificates of Amendment
of Powell Industries, Inc. dated July 20, 1987 and March
13, 1992 (filed as Exhibit 3 to the Company's Form 10-K
for the fiscal year ended October 31, 1982, Form 10-Q for
the quarter ended July 31, 1987, and Form 10-Q for
quarter ended April 30, 1992, respectively, and
incorporated herein by reference).
3.2 -- By-laws of Powell Industries, Inc. (filed as Exhibit
3(ii) to the Company's Form 10-Q for the quarter ended
April 30, 1995 and incorporated herein by reference).
10.1 -- Powell Industries, Inc., Incentive Compensation Plan for
1998.
10.2 -- Salary Continuation Agreement with William E. Powell,
dated July 17, 1984 (filed as Exhibit 10 to the Company's
Form 10-K for the fiscal year ended October 31, 1984, and
incorporated herein by reference).
10.3 -- Description of Supplemental Executive Benefit Plan (filed
as Exhibit 10 to the Company's Form 10-K for the fiscal
year ended October 31, 1984, and incorporated herein by
reference).
10.5 -- Credit Agreement dated August 15, 1997 between Powell
Industries, Inc. and Bank of America Texas, N.A. (Filed
as an Exhibit to the Company's Form 10-Q for the quarter
ended July 31, 1997 and incorporated herein by
reference).
10.6 -- Amendments dated September 16, 1998, September 25, 1998
and October 15, 1998 to credit agreement between Powell
Industries, Inc., and Bank of America Texas, N.A.
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.7 -- 1992 Powell Industries, Inc. Stock Option Plan (filed as
Exhibit 4.2 to the Company's registration statement on
Form S-8 dated July 26, 1994 (File No. 33-81998) and
incorporated herein by reference).
10.8 -- The Powell Industries, Inc. Directors' Fees Program
(filed as Exhibit 10.7 to the Company's Form 10-K for the
fiscal year ended October 31, 1992, and incorporated
herein by reference).
10.9 -- The Powell Industries, Inc. Executive Severance
Protection Plan (filed as an exhibit to the Company's
Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.10 -- Amendment to Powell Industries, Inc. Stock Option Plan
(filed as an exhibit to the Company's Form 10-Q for the
quarter ended April 30, 1996 and incorporated herein by
reference).
10.11 -- Settlement Agreement effective September 3, 1998 by and
among National Westminister Bank, plc, Powell Industries,
Inc., Powell Energy Systems, Inc., Empire Energy
Management Systems, Inc., Empire Cogen and Brian Travis
(filed as Exhibit 10.11 to the Company's Form 10-Q for
quarter ended July 31, 1998 and incorporated herein by
reference).
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Public Accountants.
27.0 -- Financial data schedule.
</TABLE>
(b) Reports on Form 8-K.
The Registrant filed a Form 8-K during the last quarter of the fiscal year
covered by this report, reporting the settlement of litigation discussed in Item
3 of Part I above.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POWELL INDUSTRIES, INC.
By /s/ THOMAS W. POWELL
-----------------------------------
Thomas W. Powell
President and Chief Executive
Officer
(Principal Executive Officer)
By /s/ J.F. AHART
-----------------------------------
J.F. Ahart
Vice President
Secretary and Treasurer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ THOMAS W. POWELL Chairman of the Board
- -----------------------------------------------------
Thomas W. Powell
/s/ J. F. AHART Director
- -----------------------------------------------------
J. F. Ahart
/s/ JOSEPH L. BECHERER Director
- -----------------------------------------------------
Joseph L. Becherer
/s/ EUGENE L. BUTLER Director
- -----------------------------------------------------
Eugene L. Butler
/s/ BONNIE L. POWELL Director
- -----------------------------------------------------
Bonnie L. Powell
/s/ STEPHEN W. SEALE, JR. Director
- -----------------------------------------------------
Stephen W. Seale, Jr.
/s/ LAWRENCE R. TANNER Director
- -----------------------------------------------------
Lawrence R. Tanner
</TABLE>
Date: January 8, 1999
30
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Asset Purchase Agreement dated as of June 20, 1996 by and
between Rolls-Royce North America, Inc. and Rolls-Royce
Acquisition Corp. and U.S. Turbine Corp. and the Company
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated August 8, 1996 and incorporated herein by
reference).
2.2 -- First Amendment to Asset Purchase Agreement dated July
26, 1996 by and between Rolls-Royce North America, Inc.
and Rolls-Royce Acquisition Corp. and U.S. Turbine Corp.
and the Company (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated August 8, 1996 and
incorporated herein by reference).
3.1 -- Articles of Incorporation and Certificates of Amendment
of Powell Industries, Inc. dated July 20, 1987 and March
13, 1992 (filed as Exhibit 3 to the Company's Form 10-K
for the fiscal year ended October 31, 1982, Form 10-Q for
the quarter ended July 31, 1987, and Form 10-Q for
quarter ended April 30, 1992, respectively, and
incorporated herein by reference).
3.2 -- By-laws of Powell Industries, Inc. (filed as Exhibit
3(ii) to the Company's Form 10-Q for the quarter ended
April 30, 1995 and incorporated herein by reference).
10.1 -- Powell Industries, Inc., Incentive Compensation Plan for
1998.
10.2 -- Salary Continuation Agreement with William E. Powell,
dated July 17, 1984 (filed as Exhibit 10 to the Company's
Form 10-K for the fiscal year ended October 31, 1984, and
incorporated herein by reference).
10.3 -- Description of Supplemental Executive Benefit Plan (filed
as Exhibit 10 to the Company's Form 10-K for the fiscal
year ended October 31, 1984, and incorporated herein by
reference).
10.5 -- Credit Agreement dated August 15, 1997 between Powell
Industries, Inc. and Bank of America Texas, N.A. (Filed
as an Exhibit to the Company's Form 10-Q for the quarter
ended July 31, 1997 and incorporated herein by
reference).
10.6 -- Amendments dated September 16, 1998, September 25, 1998
and October 15, 1998 to credit agreement between Powell
Industries, Inc., and Bank of America Texas, N.A.
10.7 -- 1992 Powell Industries, Inc. Stock Option Plan (filed as
Exhibit 4.2 to the Company's registration statement on
Form S-8 dated July 26, 1994 (File No. 33-81998) and
incorporated herein by reference).
10.8 -- The Powell Industries, Inc. Directors' Fees Program
(filed as Exhibit 10.7 to the Company's Form 10-K for the
fiscal year ended October 31, 1992, and incorporated
herein by reference).
10.9 -- The Powell Industries, Inc. Executive Severance
Protection Plan (filed as an exhibit to the Company's
Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.10 -- Amendment to Powell Industries, Inc. Stock Option Plan
(filed as an exhibit to the Company's Form 10-Q for the
quarter ended April 30, 1996 and incorporated herein by
reference).
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.11 -- Settlement Agreement effective September 3, 1998 by and
among National Westminister Bank, plc, Powell Industries,
Inc., Powell Energy Systems, Inc., Empire Energy
Management Systems, Inc., Empire Cogen and Brian Travis
(filed as Exhibit 10.11 to the Company's Form 10-Q for
quarter ended July 31, 1998 and incorporated herein by
reference).
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Public Accountants.
27.0 -- Financial data schedule.
</TABLE>
32
<PAGE> 1
EXHIBIT 10.1
POWELL INDUSTRIES, INC.
INCENTIVE COMPENSATION PLAN FOR 1998
JANUARY, 1998
1. PLAN PURPOSE
The purpose of the plan is to recognize and reward key corporate and
subsidiary employees for their contributions to the growth and
profitability of Powell Industries, Inc. and its operating subsidiaries
through the opportunity to earn incentive compensation, in addition to
their base salaries, based on the performance of the Company or subsidiary.
2. GENERAL DESCRIPTION
Key corporate and subsidiary executives and managers will be selected for
participation on an annual basis. For each participant, a maximum incentive
compensation Opportunity will be established, and expressed as a percentage
of the individual's base salary at the beginning of the plan year. The
actual amount of incentive compensation earned by each participant will be
based on the performance of the Company or subsidiary against
pre-established performance measures. The performance measures for the
subsidiary participants will include "return on revenues" and "revenue
growth". For corporate participants, the performance measures will include
"Powell Industries, Inc. earnings per share", and "revenue growth".
Specific performance levels will be established each year based on an
assessment of historical results, the budgeted performance for the plan
year, and general business conditions.
The plan will be administered by the Compensation Committee of the Board of
Directors, in conjunction with the Chief Executive Officer.
3. ELIGIBILITY AND INCENTIVE COMPENSATION OPPORTUNITY
On an annual basis key corporate and subsidiary participants will be
identified for participation. Participation in one year does not guarantee
participation in the following year.
Subsidiary presidents will submit their recommended participants to the CEO
for approval. In addition, each subsidiary president may identify a general
incentive "pool", which may be used to recognize the contributions of
individuals within the subsidiary who are not named participants.
The CEO will recommend corporate participants for approval by the
Compensation Committee. The CEO may identify a general incentive "pool"
which may be used to recognize the contributions of individuals who are not
named participants.
For each named participant, their "maximum incentive opportunity" will be
identified, which is expressed as a percentage of base salary at the
beginning of the plan year.
4. PERFORMANCE MEASURES AND WEIGHTS
The following performance measures will be used to measure the performance
of the Company and determine the incentive award earned by each
participant. The weighting percentage reflects the relative weight given to
each performance measure.
SUBSIDIARY PARTICIPANTS
o 70% Return on Revenues - Net profits before taxes divided by total
revenues
o 30% Growth of Total Revenues
Page 1
<PAGE> 2
CORPORATE PARTICIPANTS
o 70% Powell Industries, Inc. Earnings Per Share
o 30% Growth of Total Revenues Over Prior Year
Prior to the beginning of the plan year, the performance standards for each
subsidiary and Powell Industries, Inc. will be finalized, approved by the
Compensation Committee, and communicated to participants. The performance
standards will be based on historical results, management's expectations
for the coming year, and the general business environment. The CEO will
approve subsidiary performance standards, and the Compensation Committee
will approve the company-wide performance standards.
5. COMPUTATION OF AWARDS
For each subsidiary and Powell Industries, Inc., an Incentive Compensation
Calculation Form will be prepared at the beginning of the plan year, which
will include a listing of the participants, their base salary, and maximum
incentive opportunity. For each performance measure, a funding table will
be attached which establishes the amount of incentive compensation earned
at various performance levels. The Incentive Compensation Calculation Form
is attached.
In order to activate the plan for each subsidiary, the threshold Return on
Revenue (ROR) must be achieved. If the ROR threshold is not achieved, no
incentive awards will be paid, regardless of the revenue growth
percentage.
In order to activate the plan for corporate participants, the threshold
Earnings Per Share (EPS) must be achieved. If the EPS threshold is not
achieved, no incentive awards will be paid, regardless of the revenue
growth percentage.
In computing performance results, ROR and EPS will be net of the incentive
compensation payments.
In addition to the incentive award computed under this plan, Compensation
Committee may, in its sole discretion, make additional discretionary awards
to recognize significant individual contributions. This discretionary award
is limited to no more than 30% of the individual's maximum incentive
opportunity.
The Compensation Committee, in conjunction with the CEO, may make
adjustments to the subsidiary or Company performance results to eliminate
the impact of extraordinary charges to earnings, both positive and
negative. The purpose of any such adjustment is to better reflect the
performance of the subsidiary or Company. Each August, the Company will
meet to review the interim performance results of the Company and determine
if extraordinary charges have occurred or are likely to occur that should
be eliminated.
6. PAYMENT OF AWARDS
The annual incentive awards will be determined after the and of the plan
year and paid as soon as practical. Prior to payment of awards, the
Compensation Committee will review and certify the incentive awards for all
participants.
Incentive awards will be computed based on the participant's base salary at
the beginning of the plan year.
Page 2
<PAGE> 3
A participant must be an active employee on the last day of the plan year
in order to receive an incentive award.
Participants added to the plan after the beginning of the plan year, will
be eligible to receive a prorated award based on their salary when they
became eligible.
Participants who die, retire, or become disabled during the plan year will
be eligible for a prorated award based on the number of months of active
participation during the plan year.
7. ADMINISTRATION OF PLAN
The plan will be administered by the Compensation Committee, in conjunction
with the CEO. The Committee reserves the right to amend or terminate the
plan at any time, except that such amendment or termination will not affect
any awards that have been earned but not paid.
Page 3
<PAGE> 1
EXHIBIT 10.6
<PAGE> 2
[LOGO] BANK OF AMERICA
AMENDMENT TO DOCUMENTS
================================================================================
THIRD AMENDMENT TO BUSINESS LOAN AGREEMENT
This Third Amendment to Business Loan Agreement is entered into as of October
15, 1998, between Bank of America Texas, N.A. ("Bank") and Powell Industries,
Inc. ("Borrower").
RECITALS
A. WHEREAS, Bank and Borrower have entered into that certain Business Loan
Agreement dated August 21, 1997, and amended on September 16, 1998 and September
25, 1998 (collectively the "Agreement"); and
B. WHEREAS, Borrower and Bank desire to amend certain terms and provisions of
said Agreement as more specifically hereinafter set forth.
AGREED
NOW, THEREFORE, in consideration of the foregoing recitals and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower mutually agree to amend said Agreement as follows:
1. In Paragraph 1.5 (Letters of Credit) of the Agreement, the amount "Fifteen
Million and No/100 Dollars ($15,000,000.00)" is substituted for the amount
"Twenty Million and No/100 Dollars ($20,000,000.00)".
This Amendment will become effective as of the date first written above,
provided that each of the following conditions precedent have been satisfied in
a manner satisfactory to Bank:
The Bank has received from the Borrower a duly executed original of this
Amendment, together with a duly executed Guarantor Acknowledgment and
Consent in the form attached hereto (the "Consent").
Except as provided in this Amendment, all of the terms and provisions of the
Agreement and the documents executed in connection therewith shall remain in
full force and effect. All references in such other documents to the Agreement
shall hereafter be deemed to be references to the Agreement as amended hereby.
THIS WRITTEN AMENDMENT AND THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of
the date first written above.
BANK OF AMERICA TEXAS, N.A. POWELL INDUSTRIES, Inc.
By: /s/ JOSEPH PATTERSON By: /s/ J.F. AHART
---------------------------------- ---------------------------
Joseph Patterson, Vice President J.F. Ahart, Vice President
AMEND. TX (7/96) 1
<PAGE> 3
[LOGO] BANK OF AMERICA
AMENDMENT TO DOCUMENTS
================================================================================
SECOND AMENDMENT TO BUSINESS LOAN AGREEMENT
This Second Amendment to Business Loan Agreement is entered into as of 25 SEPT,
1998, between Bank of America Texas, N.A. ("Bank") and Powell Industries, Inc.
("Borrower").
RECITALS
A. WHEREAS, Bank and Borrower have entered into that certain Business Loan
Agreement dated August 21, 1997, as amended by that First Amendment to Business
Loan Agreement dated as of September 16, 1998 (as amended, the "Agreement"); and
B. WHEREAS, Borrower and Bank desire to amend certain terms and provisions of
said Agreement as more specifically hereinafter set forth.
AGREED
NOW, THEREFORE, in consideration of the foregoing recitals and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower mutually agree to amend said Agreement as follows:
1. The first paragraph of Section 2.5 of the Agreement is amended in its
entirety to read as follows:
2.5 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance of the Facility No. 2 Commitment bear interest at the
rate equal to the lesser of (a) the Maximum Rate or (b) the LIBOR Rate plus
the Applicable Margin then in affect, corresponding to the Funded Debt to
EBITDA Ratio then in effect, as specified below:
<TABLE>
<CAPTION>
Funded Debt to EBITDA Ratio Applicable Margin
----------------------------- -----------------
<S> <C>
Less than 1.00:1.00 0.75%
Greater than or equal to 1.00:1.00, but
less then 1.50:1.00 1.00%
Greater than or equal to 1.50:1.00 1.25%
</TABLE>
This Amendment will become effective as of the date first written above,
provided that each of the following conditions precedent have been satisfied in
a manner satisfactory to Bank:
The Bank has received from the Borrower a duly executed original of this
Amendment, together with duly executed Guarantor Acknowledgments and
Consents In the form attached hereto (the "Consent").
Except as provided in this Amendment, all of the terms and provisions of the
Agreement and the documents executed in connection therewith shall remain in
full force and effect. All references in such other documents to the Agreement
shall hereafter be deemed to be references to the Agreement as amended hereby.
THIS WRITTEN AMENDMENT AND THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of
the date first written above.
1
AMEND.TX (7/96)
<PAGE> 4
BANK OF AMERICA TEXAS, N.A. POWELL INDUSTRIES, Inc.
By: /s/ JOE PATTERSON By: /s/ J.F. AHART
---------------------------------- ---------------------------
Joe Patterson, Vice President J.F. Ahart, Vice President
AMEND.TX (7/96) 2
<PAGE> 5
[LOGO] BANK OF AMERICA
AMENDMENT TO DOCUMENTS
================================================================================
FIRST AMENDMENT TO BUSINESS LOAN AGREEMENT
This First Amendment to Business Loan Agreement is entered into as 16 September,
1998, between Bank of America Texas, N.A. ("Bank") and Powell Industries, Inc.
("Borrower").
RECITALS
A. WHEREAS, Bank and Borrower have entered into that certain Business Loan
Agreement dated August 21, 1997 (the "Agreement"); and
B. WHEREAS, Borrower and Bank desire to amend certain terms and provisions of
said Agreement as more specifically hereinafter set forth.
AGREED
NOW, THEREFORE, in consideration of the foregoing recitals and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower mutually agree to amend said Agreement as follows:
1. Paragraph 1 (LINE OF CREDIT AMOUNT AND TERMS) of the Agreement 14 amended
and restated in its entirety to read as follows:
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS.
2. Paragraph 1.1 (Line of Credit Amount) of the Agreement is amended in its
entirety to read as follows:
1.1 LINE OF CREDIT AMOUNT. During the availability period described below,
the Bank will provide a line of credit to the Borrower. The amount of the
line of credit (the "Facility No. 1 Commitment") is Fifteen Million and
No/100 Dollars ($15,000,000.00).
This is a revolving line of credit with a within line facility for letters
of credit. During the availability period, the Borrower may repay principal
amounts and reborrow them.
Each advance must be for at least One Hundred Thousand and No/100 Dollars
($100,000.00), or for the amount of the remaining available line of credit,
if less.
The Borrower agrees not to permit the outstanding principal balance of the
line of credit plus the outstanding amounts of any letters of credit,
including amounts drawn on letters of credit and not yet reimbursed, to
exceed the Facility No. 1 Commitment.
3. The first Paragraph of Paragraph 1.3 (Interest Rate) of the Agreement is
amended and restated in its entirety to read as follows:
1.3 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the lesser of (a) the maximum lawful
rate of interest permitted under applicable usury laws, now or hereafter
enacted (the "Maximum Rate"), of (b) the rate (the "Basic Rate") that is
equal to the Bank's Reference Rate minus 1/2% for Basic Rate borrowings up
to Five Million and No/100 Dollars ($5,000,000.00) In the aggregate for
advances under the Facility No. 1 Commitment and the Facility No. 2
Commitment, and the Bank's Reference Rate for the portion of any Basic Rate
borrowings exceeding Five Million and No/100 Dollars ($5,000,000.00) in
the aggregate for advances under the Facility No. 1 Commitment and the
Facility No. 2 Commitment.
AMEND.TX (7/96) 1
<PAGE> 6
4. Sections 2 (FEES AND EXPENSES) through 8 (ENFORCING THIS AGREEMENT;
MISCELLANEOUS) are hereby renumbered as Sections 3 through 9 respectively.
5. A new Paragraph 2 (FACILITY NO. 2: TERM LOAN AMOUNT AND TERMS) is added to
the Agreement in its entirety to read as follows:
2. FACILITY NO. 2: TERM LOAN AMOUNT AND TERMS.
2.1 LOAN AMOUNT. The Bank agrees to provide a term loan to the Borrower in
the amount of Ten Million and No/100 Dollars ($10,000,000.00) (the
"Facility No. 2 Commitment").
The loan is available in one disbursement from the Bank between the date of
this Agreement and September 30, 1998 unless the Borrower is in default.
2.2 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the lesser of (a) (Maximum Rate), or
(b) the (Basic Rate).
Notwithstanding the foregoing, if at any time the Basic Rate shall exceed
the Maximum Rate and thereafter the Basic Rate shall become less then the
Maximum Rate, the Rate of interest payable shall be the Maximum Rate until
the Bank shall have received the amount of interest it otherwise would have
received if the interest payable had not been limited by the Maximum Rate
during the period of time the Basic Rate exceeded the Maximum Rate.
2.3 REPAYMENT TERMS.
(a) The Borrower will pay Interest on December 31, 1998 and on the last
day of each quarter thereafter until payment in full of any principal
outstanding under this term loan. (b) The Borrower will repay principal in
19 successive quarterly installments of Three Hundred Fifty Seven Thousand
One Hundred Forty Two and 86/100 Dollars ($357,142.86) each, starting
December 31, 1998, and in one final installment on September 30, 2003, in
the amount of the remaining principal balance plus all accrued unpaid
interest. (c) Subject to paragraph 2.5 (g) below, the Borrower may prepay
the loan in full or in part at any time. The prepayment will be applied to
the most remote installment of principal due under this Agreement
2.4 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect to have all or portions of
the Facility No. 2 Commitment (during the availability period) bear
interest at the rate(s) described below during an interest period agreed to
by the Bank and the Borrower; provided, however, that the Borrower shall
not have the option or right to elect to have all or any portion of the
loan bear interest at the rate(s) described in Section 2.5 below when such
rate(s) exceeds the Maximum Rate. Each interest rate is a rate per year.
Interest will be paid on the last day of the applicable interest period. At
the end of any interest period, the interest rate will revert to the rate
based on the Reference Rate, unless the Borrower has designated another
optional interest rate for the portion.
2.5 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance of the Facility No. 2 Commitment bear interest at the
rate equal to the lesser of (a) the Maximum Rate or (b) the LIBOR Rate plus
the Applicable Margin then in effect, as indicated below, corresponding to
the Funded Debt to EBITDA Ratio then in effect, as specified below (a
"Eurodollar Rate"):
<TABLE>
<CAPTION>
Funded Debt to EBITDA Ratio Applicable Margin
--------------------------- -----------------
<S> <C>
Less than or equal to 0.50:1.00 0.50%
Greater than 1.00:1.00 but
less than 1.50:1.00 1.00%
Greater than or equal to 1.50:1.00 1.25%
</TABLE>
For purposes of determining the Applicable Margin in effect on any date,
the "Funded Debt to EBITDA Ratio" means the ratio of (i) the Borrower's
consolidated Funded Debt, to (ii) the Borrower's consolidated EBITDA,
AMEND.TX (7/96) 2
<PAGE> 7
as such ratio is defined and calculated in paragraph 7.5 of this Agreement.
(The sum of the LIBOR Rate plus the Applicable Margin is referred to herein
as the "Eurodollar Rate").
Borrower shall give Bank notice of its election of a Eurodollar Rate by
such time, and in such manner, as shall be acceptable to Bank. Each such
election shall be for an interest period of not less than one month or more
than 3 months. At the end of any Interest period, the interest rate will
revert to the Basic Rate unless the Borrower has elected another Eurodollar
Rate interest period.
Designation of a Eurodollar Rate portion is subject to the following
requirements:
(a) The interest period during which the Eurodollar Rate will be in
effect will be 30, 60 or 90 days. The last day of the interest period
will be determined by the Bank using the practices of the London
inter-bank market.
(b) Each Eurodollar Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The Borrower shall irrevocably request a Eurodollar Rate portion no
later than 11:00 a.m. Houston time three (3) banking days before the
commencement of the interest period.
(d) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Rate
-------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the London Branch,
London, Great Britain, of Bank of America National Trust and
Savings Association, would offer U.S. dollar deposits for the
applicable interest period to other major banks in the London
inter-bank market at approximately 11:00 a.m. London time two
(2) Banking Days prior to the commencement of the interest
period.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(e) The Borrower may not elect an Eurodollar Rate with respect to any
portion of the principal balance of the line of credit which is
scheduled to be repaid before the last day of the applicable interest
period.
(f) Any portion of the principal balance of the line of credit already
bearing interest at the Eurodollar Rate will not be converted to a
different rate during its interest period.
(g) Each prepayment of an Eurodollar Rate portion will be accompanied by
the amount of accrued interest on the amount prepaid; and a
prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the offshore dollar
market for a period starting on the date on which it was
prepaid and ending on the last day of the interest period for
such portion.
(h) The Bank will have no obligation to accept an election for a
Eurodollar Rate portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount and for periods equal
to the interest period, of a
AMEND.TX (7/96) 3
<PAGE> 8
Eurodollar Rate portion are not available in the London
inter-bank markets; or
(ii) the Eurodollar Rate does not accurately reflect the cost of an
Eurodollar Rate portion.
(i) If at any time during any applicable interest period the Eurodollar
Rate shall exceed the Maximum Rate and thereafter the Eurodollar Rate
shall become less than the Maximum Rate, the rate of interest payable
shall be the Maximum Rate until the Bank shall have received the
amount of interest it otherwise would have received if the interest
payable had not been limited by the Maximum Rate during the period of
time the Eurodollar Rate exceeded the Maximum Rate.
6. A new Paragraph 6(i) (REPRESENTATIONS AND WARRANTIES) is added to the
Agreement in its entirety to read as follows:
(i) Borrower represents and warrants that it has instituted, and is
in the process of implementing, a plan ("Year 2000 Plan") for
addressing the "Year 2000 issue" (that is, the inability of
computers, as well as embedded microchips in non-computing devices,
to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999). Borrower reasonably
believes that under its Year 2000 Plan, Borrower's systems and
equipment will be year 2000 compliant (that is, the ability to
perform property date-sensitive functions with respect to certain
dates prior to and after December 31, 1999) provided, however:
BORROWER DOES NOT WARRANT AND EXPRESSLY DISCLAIMS ANY WARRANTY
THAT ITS YEAR 2000 PLAN WILL RESULT IN YEAR 2000 COMPLIANCE BY
BORROWER, OR ANY OF ITS SUPPLIERS, VENDORS OR CUSTOMERS.
The Borrower represents that it will take such actions with respect
to its operations and properties as may be reasonably necessary to
properly address any adverse impacts of the year 2000 problem on its
operations, properties, and prospects, or ability to repay the
Borrowers obligations to the Bank.
7. Paragraph 7.1 (Use of Proceeds) of the Agreement is amended and restated in
its entirety to read as follows:
7.1 USE OF PROCEEDS. To use the proceeds of the credit only for the
following:
FACILITY NO. 1: working capital, letters of credit and other general
corporate purposes.
FACILITY NO. 2: repaying the principal outstanding balance on the
existing revolving line of credit, previously incurred capital
expenditures, and other corporate purposes.
8. The second Paragraph of Paragraph 7.5 (Funded Debt to EBITDA Ratio) of the
Agreement is amended and restated in its entirety to read as follows:
"EBITDA" means the sum of net income before taxes, plus interest expense,
depreciation and amortization, less taxes paid, excluding non-recurring
charges taken in the Borrower's third (3rd) fiscal quarter of 1998 not to
exceed Eight Million and No/100 Dollars ($8,000,000.00).
9. In Paragraph 7.6 (d) (Other Debts) of the Agreement, the amount "Five
Million and No/100 Dollars ($5,000,000.00)" is substituted for the amount
"Ten Million and No/100 Dollars ($10,00,000.00)".
10. A new Paragraph 7.18 (Fixed Charge Coverage Ratio) is added to the
Agreement in its entirety to read as follows:
7.18 FIXED CHARGE COVERAGE RATIO. To maintain on a consolidated basis a
Fixed Charge Coverage Ratio of at least 1.25:1.0.
"FIXED CHARGE COVERAGE RATIO" means the ratio of EBITDA to the sum of
interest expense, dividends paid, capital expenditures and the current
portion of long-term debt.
For the definition of EBITDA, refer to Paragraph 7.5 of this Agreement.
AMEND.TX (7/96) 4
<PAGE> 9
This ratio will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the 3 immediately preceding quarters.
The current portion of long term debt will be measured as of the last day
of the preceding fiscal quarter.
This Amendment will become effective as of the date first written above,
provided that each of the following conditions precedent have been satisfied in
a manner satisfactory to Bank:
The Bank has received from the Borrower a duly executed original of this
Amendment, together with a duly executed Guarantor Acknowledgments and
Consents in the form attached hereto (the "Consent").
The Bank has received from the Borrower a Corporate Resolution authorizing
loans in the aggregate amount of Twenty Five Million and No/100 Dollars
($25,000,000.00).
The Bank has received from the Borrower a duly executed original Corporate
Resolution Authorizing Execution of Guaranty signed by the authorized
officers of Powell Electrical Manufacturing Company, Delta-Unibus Corp.,
Unibus, Inc., Powell-ESCO Company and Transdyn Controls, Inc. each in the
aggregate amount of Twenty Five Million and No/100 Dollars
($25,000,000.00).
The Bank has received guaranties signed by Powell Electrical Manufacturing
Company, Delta-Unibus Corp., Unibus, Inc., Powell-ESCO Company and Transdyn
Controls, Inc. each in the amount of Twenty Five Million and No/100 Dollars
($25,000,000.00).
The Bank has received from the Borrower a duly executed Compliance
Certificate.
Except as provided in this Amendment, all of the terms and provisions of the
Agreement and the documents executed in connection therewith shall remain in
full force and effect. All references in such other documents to the Agreement
shall hereafter be deemed to be references to the Agreement as amended hereby.
THIS WRITTEN AMENDMENT AND THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of
the date first written above.
BANK OF AMERICA TEXAS, N.A. POWELL INDUSTRIES, INC.
By: /s/ JOE PATTERSON By: /s/ J.F. AHART
---------------------------------- ---------------------------
Joe Patterson, Vice President J.F. Ahart, Vice President
AMEND.TX (7/96) 5
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF POWELL INDUSTRIES, INC.
<TABLE>
<CAPTION>
NAME OF DOMESTIC SUBSIDIARY STATE OF INCORPORATION
- --------------------------- ----------------------
<S> <C>
Delta-Unibus Corp. Illinois
Powell Electrical Manufacturing Co. Delaware
Powell Power Electronics Company, Inc. Delaware
Powell-Process Systems, Inc. (Inactive) Utah
Powell-ESCO Texas
Unibus, Inc. Ohio
Powell Energy Systems Inc. (Inactive) Nevada
Transdyn Controls, Inc. California
</TABLE>
<TABLE>
<CAPTION>
NAME OF FOREIGN SUBSIDIARY COUNTRY OF INCORPORATION
- -------------------------- ------------------------
<S> <C>
Powell Foreign Sales Corporation Barbados, West Indies
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated November 30, 1998, included in
this Form 10-K, into the Powell Industries, Inc. previously filed Form S-8
Registration No. 33-81998.
Arthur Andersen LLP
Houston, Texas
January 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATMENTS FOR THE YEAR
ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 601
<SECURITIES> 0
<RECEIVABLES> 45,016
<ALLOWANCES> 761
<INVENTORY> 16,284
<CURRENT-ASSETS> 89,018
<PP&E> 65,750
<DEPRECIATION> 33,439
<TOTAL-ASSETS> 127,131
<CURRENT-LIABILITIES> 30,192
<BONDS> 11,571
0
0
<COMMON> 107
<OTHER-SE> 83,229
<TOTAL-LIABILITY-AND-EQUITY> 127,131
<SALES> 212,733
<TOTAL-REVENUES> 212,733
<CGS> 164,944
<TOTAL-COSTS> 164,944
<OTHER-EXPENSES> 30,805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 239
<INCOME-PRETAX> 16,745
<INCOME-TAX> 5,280
<INCOME-CONTINUING> 11,465
<DISCONTINUED> 4,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,665
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.62
</TABLE>
