<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended April 30, 1999.
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
--------------------------------- --------------------------------
COMMISSION FILE NUMBER 0-6050
POWELL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0106100
- -------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8550 Mosley Drive, Houston, Texas 77075-1180
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 944-6900
Indicate by "X" whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Common Stock, par value $.01 per share; 10,659,345 shares outstanding on June
11, 1999.
<PAGE> 2
Powell Industries, Inc. and Subsidiaries
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements..................3-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Quarterly
Results of Operations....................................10-13
Item 3. Quantitative and Qualitative Disclosure about Market Risk....13
Part II - Other Information and Signatures.................................14-16
2
<PAGE> 3
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
---------------- -------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................................... $ 478 $ 601
Accounts receivable, less allowance for doubtful accounts of
$ 713 and $ 761, respectively........................................................... 53,470 44,255
Costs and estimated earnings in excess of billings.......................................... 22,303 24,783
Inventories ............................................................................... 16,952 16,284
Deferred income taxes....................................................................... 451 709
Income taxes receivable..................................................................... -- 945
Prepaid expenses and other current assets................................................... 2,346 1,441
-------- --------
Total Current Assets.................................................................... 96,000 89,018
Property, plant and equipment, net............................................................... 34,161 32,311
Deferred income taxes............................................................................ 1,142 833
Other assets ............................................................................... 5,140 4,969
-------- --------
Total Assets............................................................................ $136,443 $127,131
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and income taxes payable........................................................... $ 12,184 $ 12,094
Accrued salaries, bonuses and commissions................................................... 4,735 6,784
Accrued product warranty.................................................................... 1,506 1,388
Other accrued expenses...................................................................... 3,834 4,652
Billings in excess of costs and estimated earnings.......................................... 7,002 3,845
Current maturities of long-term debt........................................................ 2,429 1,429
-------- --------
Total Current Liabilities............................................................... 31,690 30,192
Long-term debt, net of current maturities........................................................ 15,358 11,571
Deferred compensation expense.................................................................... 1,162 1,187
Postretirement benefits liability................................................................ 761 845
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued
Common stock, par value $.01; 30,000,000 shares authorized; 10,659,345
and
10,656,945 shares issued and outstanding................................................ 107 107
Additional paid-in capital.................................................................. 5,950 5,919
Retained earnings........................................................................... 84,233 80,237
Deferred compensation-ESOP.................................................................. (2,818) (2,927)
-------- --------
Total Stockholders' Equity.............................................................. 87,472 83,336
-------- --------
Total Liabilities and Stockholders' Equity.............................................. $136,443 $127,131
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
1999 1998
---------- ----------
<S> <C> <C>
Revenues............................................................................ $ 56,331 $ 53,989
Cost of goods sold.................................................................. 46,093 41,708
----------- ----------
Gross profit........................................................................ 10,238 12,281
Selling, general and administrative expenses........................................ 7,497 7,335
----------- ----------
Earnings from operations before interest and income taxes........................... 2,741 4,946
Interest expense, net............................................................... 137 30
----------- ----------
Earnings from operations before income taxes........................................ 2,604 4,916
Income tax provision................................................................ 784 1,602
----------- ----------
Net earnings........................................................................ $ 1,820 $ 3,314
=========== ==========
Net earnings per common share:
Basic............................................................................ $ 0.17 $ 0.31
Diluted.......................................................................... 0.17 0.31
Weighted average number of common shares outstanding................................ 10,660,905 10,642,613
=========== ==========
Weighted average number of common and common equivalent shares outstanding.......... 10,720,233 10,743,872
=========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
1999 1998
---------- ----------
<S> <C> <C>
Revenues............................................................................ $ 110,465 $ 100,339
Cost of goods sold.................................................................. 89,295 77,427
----------- ----------
Gross profit........................................................................ 21,170 22,912
Selling, general and administrative expenses........................................ 15,008 14,463
----------- ----------
Earnings from operations before interest and income taxes........................... 6,162 8,449
Interest expense, net............................................................... 273 53
----------- ----------
Earnings from operations before income taxes........................................ 5,889 8,396
Income tax provision................................................................ 1,891 2,684
----------- ----------
Net earnings........................................................................ $ 3,998 $ 5,712
=========== ==========
Net earnings per common share:
Basic............................................................................ $ 0.38 $ 0.54
Diluted.......................................................................... 0.37 0.53
-
Weighted average number of common shares outstanding................................ 10,659,725 10,641,806
=========== ==========
Weighted average number of common and common equivalent shares outstanding.......... 10,743,872 10,753,379
=========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net earnings........................................................................ $ 3,998 $ 5,712
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................... 2,185 1,977
Deferred income tax provision (benefit)......................................... (51) 446
Postretirement benefits liability............................................... (84) (180)
Changes in operating assets and liabilities:
Accounts receivable...................................................... (9,215) 11,045
Costs and estimated earnings in excess of billings......................... 2,480 1,855
Inventories................................................................ (668) (9,049)
Prepaid expenses and other current assets.................................. (905) 267
Other assets.................................................................... (463) 119
Accounts payable and income taxes payable or receivable.................... 1,035 1,498
Accrued liabilities........................................................ (2,749) (2,925)
Billings in excess of costs and estimated earnings.............................. 3,157 (6,718)
Deferred compensation expense.............................................. 82 117
----------- ----------
Net cash provided by (used in) operating activities...................................... (1,198) 4,164
----------- ----------
Investing Activities:
Purchases of property, plant and equipment.......................................... (3,743) (5,510)
----------- ----------
Net cash used in investing activities.................................................... (3,743) (5,510)
----------- ----------
Financing Activities:
Borrowings of long-term debt........................................................ 17,500 11,000
Repayment of long term debt......................................................... (12,713) (10,000)
Exercise of stock options........................................................... 31 63
----------- ----------
Net cash provided by financing activities................................................ 4,818 1,063
----------- ----------
Net decrease in cash and cash equivalents................................................ (123) (283)
Cash and cash equivalents at beginning of period......................................... 601 2,219
----------- ----------
Cash and cash equivalents at end of period............................................... $ 478 $ 1,936
=========== ==========
Supplemental disclosure of cash flow information (in thousands):
Cash paid during the quarter for:
Interest........................................................................ $ 570 $ 171
=========== ==========
Income taxes.................................................................... $ 0 $ 0
=========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE> 7
Part I
Item 1
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and,
in the opinion of management, reflect all adjustments which are of a
normal recurring nature necessary for a fair presentation of financial
position, results of operations, and cash flows. These financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's October 31, 1998 annual
report on Form 10-K.
SFAS No. 130, "Reporting Comprehensive Income", was issued in June 1997.
SFAS No. 130 requires the presentation of comprehensive income in an
entity's financial statements. Comprehensive income represents all
changes in equity of an entity during the reporting period, including net
income and charges directly to equity which are excluded from net income.
The Company adopted SFAS No. 130 during fiscal year ended October 31,
1998. The adoption had no effect on the Company's consolidated financial
position or results of operations.
B. INVENTORY
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
The components of inventory are summarized below (in thousands):
Raw materials and subassemblies............................................ $10,202 $ 9,795
Work-in-process............................................................ 6,750 6,489
------- --------
Total inventories.......................................................... $16,952 $16,284
======= =======
C. PROPERTY, PLANT AND EQUIPMENT
April 30, October 31,
1999 1999
---- ----
(unaudited)
Property, plant and equipment is summarized below (in thousands):
Land....................................................................... $ 3,193 $ 2,720
Buildings and improvements................................................. 30,588 27,478
Machinery and equipment.................................................... 29,216 28,149
Furniture & fixtures....................................................... 4,345 4,039
Construction in process.................................................... 2,151 3,364
-------- --------
69,493 65,750
Less-accumulated depreciation.............................................. (35,332) (33,439)
------- -------
Total property, plant and equipment, net................................... $34,161 $32,311
======= =======
</TABLE>
7
<PAGE> 8
Part I
Item 1
D. PRODUCTION CONTRACTS
For contracts for which the percentage-of-completion method is used,
costs and estimated earnings in excess of billings are shown as a current
asset and billings in excess of costs and estimated earnings are shown as
a current liability. The components of these contracts are as follows (in
thousands):
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
(unaudited)
<S> <C> <C>
Costs and estimated earnings............................................... $ 97,227 $114,127
Progress billings.......................................................... (74,924) (89,344)
-------- --------
Total costs and estimated earnings in excess of billings................... $ 22,303 $ 24,783
========= ========
Progress billings.......................................................... $97,055 $ 67,471
Costs and estimated earnings............................................... (90,003) (63,626)
-------- --------
Total billings in excess of costs and estimated earnings................... $ 7,022 $ 3,845
========= =========
</TABLE>
E. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except share and per share data):
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per
share-earnings from continuing operations
available to common stockholders..................... $ 1,820 $ 3,314 $ 3,998 $ 5,712
========== ========== ========== ==========
Denominator:
Denominator for basic earnings per share-
weighted average shares............................... 10,660,905 10,642,613 10,659,725 10,641,806
Effect of dilutive securities-employee stock options... 59,327 101,259 84,147 111,573
---------- ---------- ----------- ----------
Denominator for diluted earnings per share-
adjusted weighted-average shares with assumed
conversions.......................................... 10,720,233 10,743,872 10,743,872 10,753,379
========== ========== ========== ==========
Basic earning per share.................................... $ 0.17 $ 0.31 $ 0.38 $ 0.54
=========== =========== =========== ===========
Diluted earnings per share................................. $ 0.17 $ 0.31 $ 0.37 $ 0.53
=========== =========== =========== ===========
</TABLE>
8
<PAGE> 9
Part I
Item 1
F. BUSINESS SEGMENTS (unaudited)
The Company has three reportable segments: 1. Switchgear and related
equipment and service (Switchgear) for distribution, control and
management of electrical energy. 2. Bus duct products (Bus Duct) for
distribution of electric power. 3. Process Control Systems which consists
principally of instrumentation, computer control, communications and data
management systems for the control of dynamic processes.
The required disclosures for the business segments are set forth below
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Switchgear............................................. $37,973 $38,721 $77,209 $71,335
Bus Duct............................................... 7,517 6,524 13,757 12,682
Process Control Systems................................ 8,440 6,674 14,807 11,192
------- ------- -------- -------
Sub-total......................................... 53,930 51,919 105,773 95,209
Other.................................................. 4,139 3,250 6,944 7,257
Intercompany Eliminations.............................. (1,738) (1,180) (2,252) (2,127)
------- ------- -------- -------
Total Revenues............................................ $56,331 $53,989 $110,465 $100,339
======= ======= ======== ========
Earnings from operations before income taxes:
Switchgear............................................. $ 1,999 $ 4,025 $ 5,051 $ 7,116
Bus Duct............................................... 1,386 1,504 2,474 2,670
Process Control Systems................................ 301 98 549 243
------- ------- -------- -------
Sub-total......................................... 3,686 5,627 8,074 10,029
Other.................................................. (1,082) (712) (2,185) (1,633)
------- ------- -------- -------
Total earnings from operations before income taxes........ $ 2,604 $ 4,916 $ 5,889 $ 8,396
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Assets
Switchgear........................................................ $ 95,362 $ 90,603
Bus Duct.......................................................... 11,984 12,271
Process Control Systems........................................... 12,029 10,309
-------- --------
Sub-total..................................................... 119,375 113,183
Corporate and Other............................................... 17,068 13,948
-------- --------
Total Assets...................................................... $136,443 $127,131
======== ========
</TABLE>
9
<PAGE> 10
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain items
from the Condensed Consolidated Statements of Operations.
<TABLE>
<CAPTION>
April 30, 1999 April 30, 1998
-----------------------------------------------------------
three months six months three months six months
ended ended ended ended
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Gross Profit 18.2 19.2 22.7 22.8
Selling, general and administrative
expenses 13.3 13.6 13.6 14.4
Interest expense, net .2 .2 .1 .1
Earnings from operations before income
taxes 4.6 5.3 9.1 8.4
Net earnings 3.2 3.6 6.1 5.7
</TABLE>
Revenues for the quarter ended April 30, 1999, were up 4.3 percent to
$56,331,000 from $53,989,000 in the second quarter of last year. Revenues for
the six months ended April 30, 1998 were up 10 percent to $110,465,000 from
$100,339,000. The increases in revenues were in the export markets. Sales
increases from the Bus Duct and Process Control Systems business segments
accounted for the majority of the increase for the quarter. Export revenues
continued to be an important component of the Company's operations, accounting
for $45,635,000 for the six months ending April 30, 1999 compared to
$39,240,000 for the same period of 1998.
Gross profit, as a percentage of revenues, was 18.2 percent and 22.7 percent
for the quarter ended April 30, 1999 and 1998, respectively. The lower
percentages in 1999 were mainly due to the decline in performance of the
Switchgear business segment and lower prices, and changes in product mix to
lower gross margin products.
Selling, general and administrative expenses as a percentage of revenues were
13.3 percent and 13.6 percent for the quarters ended April 30, 1999 and 1998,
respectively. The decrease in percentages reflects the increased volume of
revenues.
Interest expense, net The following schedule shows the amounts for interest
expense and income:
<TABLE>
<CAPTION>
April 30, 1999 April 30, 1998
Three month six months three months six months
Ended ended ended ended
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Expense............................. $216 $429 $106 $223
Income.............................. (79) (156) (76) (170)
---- ---- ---- ----
Net................................. $137 $273 $ 30 $ 53
==== ==== ==== ====
</TABLE>
Sources of interest expense were primarily related to 10.5% in 1996 bank
notes payable in 1999 and 1998 at rates between 6 and 8%.
Sources of the interest income were related to notes receivable and short-term
investment of available funds at various rates between 4 and 7%.
10
<PAGE> 11
Income tax provision The effective tax rates on continuing operations earnings
were 30.1 percent and 32.6 percent for the quarter ended April 30, 1999 and
1998, respectively. The decrease was primarily due to higher estimated foreign
sales corporation credits compared to the prior year as a result of a higher
than normal volume of international percentage of completion projects in
process at the end of the quarter. This effective tax rate difference should
be a timing difference and the effective rate should finish the year at
approximately 31-32 percent which is more consistent with past years.
Earnings from continuing operations were $1,820,000 or $.17 per diluted share
for the second quarter of fiscal 1999, a decrease from $3,314,000 or $.30 per
diluted share for the same period last year. The decrease was
mainly due to lower gross margins in the Switchgear and Bus Duct business
segments.
Backlog The order backlog at April 30, 1999 was $136.2 million, compared to
$143.4 million at October 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
In September 1998, the Company amended an existing revolving line of credit
agreement with a major domestic bank. The agreement provided for a $10,000,000
term loan and a revolving line of credit of $15,000,000. In February 1999 the
agreement was amended to increase the revolving line of credit to $20,000,000.
The Company had borrowings outstanding of $3,500,000 under this line on June
11, 1999 and was in compliance with all financial covenants of the agreement.
The Company's ability to satisfy its cash requirements is evaluated by
analyzing key measures of liquidity applicable to the Company. The following
table is a summary of the measures which are significant to management:
April 30, October 31,
1999 1998
------------------------------
Working Capital $64,310,000 $58,826,000
Current Ratio 3.03 to 1 2.95 to 1
Long-term Debt to Capitalization .2 to 1 .1 to 1
Management believes that the Company continues to maintain a strong liquidity
position. The increase in working capital at April 30, 1999, as compared to
October 31, 1998, is due mainly to an increase in accounts receivable.
Cash and cash equivalents decreased by $123,000 during the six months ended
April 30, 1999. The primary use of cash during this period was for the
increase of accounts receivable. The net borrowings and the net earnings were
the primary sources of required cash for the quarter.
The Company's fiscal 1999 asset management program will continue to focus on
the collection of receivables and reduction in inventories. The Company plans
to satisfy its fiscal 1999 capital requirements and operating needs primarily
with funds available in cash and cash equivalents of $478,000, funds generated
from operating activities and funds available under its existing revolving
credit line.
The previous discussion should be read in conjunction with the consolidated
financial statements.
Year 2000 Readiness
The Year 2000 readiness issue results from the historical use in computer
software programs and operating systems of a two digit number to represent the
year. Certain software and hardware may fail to properly function when
confronted with dates that contain "00" as a two digit year. New information
about the nuances of the problem seems to become available on almost a daily
basis and that is likely to continue as companies around the world focus
increased attention and resources on finding solutions to the problem's many
manifestations.
To address the potential risk for disruption of operations, each subsidiary of
the Company has developed a compliance plan. The Company has substantially
completed a comprehensive initial assessment of the readiness of its internal
systems and manufacturing systems. Many of the readiness issues identified in
internal systems during the course of the initial assessment have already been
addressed. Numerous tests have been conducted to confirm the effectiveness of
applied solutions. Additional testing will occur throughout 1999. While the
Company's initial assessment is substantially complete, the Company intends to
continue to update the assessment of its state of readiness based upon new
information that may become available from third party vendors, suppliers and
manufacturers in the months to come.
11
<PAGE> 12
All components originally manufactured by the Company are inherently compliant
in that the components do not manipulate, process, store or record
date-related information. However, a few subsidiaries, including the Company's
largest subsidiary, Powell Electrical Manufacturing Company, sell engineered
systems that include potentially noncompliant components manufactured by third
parties. The Company is pursuing a plan to evaluate the compliance status of
all components manufactured by third parties and will pass through to its
customers any compliance warranties provided by the components' manufacturers.
The Company will continue to strongly recommend to its customers that each of
them make an independent evaluation of the readiness of manufactured products
that include potentially noncompliant components.
The Transdyn Controls, Inc. subsidiary is a systems integrator of primarily
third party products. As an integrator, Transdyn must rely on the readiness
information provided by the providers of those third party products. Microsoft
is the primary provider of software Transdyn utilizes in its integrated
systems. Based on currently available information, Transdyn believes that the
versions of third party products currently integrated into systems it develops
are either compliant or will be compliant upon application of readily
available patches. Earlier versions of third party products integrated in
systems delivered by Transdyn in the past are known to be noncompliant, and
Transdyn will continue to work to identify and notify affected customers.
Transdyn is offering its services to affected customers to assist in the
testing, retrofit or upgrade process.
The costs to the Company to achieve Year 2000 readiness are believed to be
approximately $100,000 to $200,000. Most tasks associated with compliance plan
implementation have been or will be completed by internal employees. Certain
tasks will be performed by external solution providers; however, reliance on
external resources will not be significant.
The most likely worst case Year 2000 scenario for the Company includes the
following possibilities:
* A limited number of components manufactured by third parties will fail in
some respect despite the manufacturers' assurances that such components
are compliant. To the extent that this occurs and the Company is
obligated to do so under contractual warranties, the Company will make
replacement components available to customers. Otherwise, the Company
will facilitate the identification of viable compliant components and
replacement of the noncompliant components.
* 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 of 2000 so as to minimize
the effect any infrastructure failure might have on its ability to satisfy
those obligations. At this time, the Company does not intend to invest in
alternative sources of water, power or telecommunications. The Company
will prepare further contingency plan s to deal with potential in
frastructure 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.
12
<PAGE> 13
Part I
Item 3
Quantitative and Qualitative Disclosure about Market Risk
The Company's financial instruments include cash and equivalents, accounts
receivable, accounts payable, debt obligations and interest rate swaps. The
book value of cash and equivalents, accounts receivable and payable and
short-term debt are considered to be representative of fair value because of
the short maturity of these instruments. The Company believes that the
carrying value of its borrowings under the credit agreement approximate their
fair value as they bear interest at rates indexed to IBOR. The Company
receivables are not concentrated in one customer or one industry and is not
viewed as an unusual credit risk. The Company had recorded an allowance for
doubtful accounts of $713,000 at April 30, 1999 and $761,000 at October 31,
1998, respectively.
The rate swap agreement, which is used by the Company in the management of
interest rate exposure is accounted for on the accrual basis. Income and
expense resulting from this agreement is recorded in the same category as
interest expense accrued on the related term note. Amounts to be paid on
received under the interest rate swap agreement is recognized as an adjustment
to expense in the periods in which they accure. At April 30, 1999 the Company
had $9,786,000 of borrowings subject to interest rate swap at a rate of 5.20%
through September 30, 2003. The agreements require that the Company pay the
counterparty at the above fixed swap rate and requires the counterparty to pay
the Company interest ar the 30 day IBOR rate. The closing 30 day IBOR rate on
April 30, 1999 was 4.90%.
Any forward looking statements in the preceding paragraphs of this Form 10-Q
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such forward
looking statements involve risks and uncertainty in that actual results may
differ materially from those projected in the forward looking statements.
These risks and uncertainties include, without limitation, difficulties which
could arise in obtaining materials or components in sufficient quantities as
needed for the Company's manufacturing and assembly operations, unforeseen
political or economic problems in countries to which the Company exports its
products in relation to the Company's principal competitors, any significant
decrease in the Company's backlog of orders, any material employee relations
problems, or any material litigation or claims made against the Company, as
well as general market conditions, competition and pricing.
<PAGE> 14
Part II
OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is a party to disputes arising in the ordinary
course of business. Management does not believe that the
ultimate outcome of these disputes will materially affect
the financial position of results of operations of the
Company.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on
March 19, 1999, J. F. Ahart, Eugene L. Butler, and
Bonnie L. Powell were elected as directors of the Company
with terms ending in 2002. The directors continuing in
office after the meeting are Stephen W, Seale, Jr., Thomas
W. Powell, Lawrence R. Tanner and Joseph L. Becherer. As
to each nominee for director, the number of votes cast for
or ithheld, as well as the number of abstentions and
broker non-votes, were as follows:
<TABLE>
<CAPTION>
Nominee Votes Cast for Votes Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C>
J. F. Ahart 10,293,166 34,364 --- 333,149
Eugene L. Butler 10,293,026 34,504 --- 333,149
Bonnie L. Powell 10,290,777 36,753 --- 333,149
</TABLE>
At the annual meeting, the stockholders also approved and
ratified the actions of the directors and officers of the
Company during fiscal 1998 as the acts of the Company. The
number of votes cast for, against, or withheld, as well as
the number of abstentions and broker non-votes, with
respect to such matter was as follows:
<TABLE>
<CAPTION>
Votes Cast For Votes Cast Against Abstentions Non-Votes
<S> <C> <C> <C> <C>
10,327,530 --- --- 333,149
</TABLE>
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.6 Amendment dated February 26 , 1999 to credit
agreement between Powell Industries, Inc. and Bank of
America Texas, N.A.
27.0 Financial Data Schedule
b. Reports on Form 8-K
None
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWELL INDUSTRIES, INC.
Registrant
June 10, 1999 /s/ THOMAS W. POWELL
- ----------------------- ------------------------------------
Date Thomas W. Powell
President and Chief Executive Officer
(Principal Executive Officer)
June 10, 1999 /s/ J. F. AHART
- ----------------------- ------------------------------------
Date J.F. Ahart
Vice President,
Secretary-Treasurer
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE> 1
EXHIBIT 10.6
AMENDMENT TO DOCUMENTS
FOURTH AMENDMENT TO BUSINESS LOAN AGREEMENT
This Fourth Amendment to Business Loan Agreement is entered into as of
February 26, 1999, 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, September
25, 1998, and October 15, 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 1.1 (Line of Credit Amount) of the Agreement, the amount
"Twenty Million and No/100 Dollars ($20,000,000.00)," is substituted
for the amount "Fifteen Million and No/100 Dollars ($15,000,000.00)."
2. In Paragraph 1.2 (Availability) of the Agreement, the date
"February 28, 2001," is substituted for the date "February 28, 2000."
3. Paragraph one of Paragraph 1.5 (Letters of Credit) is amended in its
entirety to read as follows:
1.5 LETTERS OF CREDIT. This line of credit may be used for issuing
commercial letters of credit and standby letters of credit with a
maximum maturity of February 28, 2001, provided however that letters
of credit of One Million and No/100 Dollars ($1,000,000.00) or less
may mature one year beyond the Expiration Date. Each commercial
letter of credit will require drafts payable at sight.
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").
The Bank has received from the Borrower a corporate resolution in the amount
of Thirty Million and No/100 Dollars ($30,000,000.00).
The Bank has received guaranties signed by Powell Electrical Manufacturing
Company, Delta-Unibus Corp., Unibus, Inc., Powell-ESCO Company, and Transdyn
Controls, Inc. in the amount of Thirty Million and No/100 Dollars
($30,000,000.00).
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.
1
<PAGE> 2
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
2
<PAGE> 3
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor of the Borrower's
obligations to the Bank under the Agreement, each hereby (i) acknowledge and
consent to the execution, delivery, and performance by Borrower of the
foregoing Fourth Amendment to Agreement (the "Amendment"), and (ii) reaffirm
and agree that the guaranty to which the undersigned is party and all other
documents and agreements executed and delivered by the undersigned to the Bank
in connection with the Agreement are in full force and effect, without
defense, offset, or counterclaim, to secure the indebtedness of the Borrower
to the Bank, including without limitation the indebtedness evidenced by the
Agreement as amended. (Capitalized terms used herein have the meanings
specified in the Amendment.)
Dated: February 26, 1999
POWELL ELECTRICAL MANUFACTURING COMPANY
By: /s/ J. F. AHART
---------------------------
J. F. Ahart, Vice President
3
<PAGE> 4
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor of the Borrower's obligations
to the Bank under the Agreement, each hereby (i) acknowledge and consent to
the execution, delivery, and performance by Borrower of the foregoing Fourth
Amendment to Agreement (the "Amendment"), and (ii) reaffirm and agree that the
guaranty to which the undersigned is party and all other documents and
agreements executed and delivered by the undersigned to the Bank in connection
with the Agreement are in full force and effect, without defense, offset, or
counterclaim, to secure the indebtedness of the Borrower to the Bank,
including without limitation the indebtedness evidenced by the Agreement as
amended. (Capitalized terms used herein have the meanings specified in the
Amendment.)
Dated: February 26, 1999
DELTA-UNIBUS CORP.
By: /s/ J. F. AHART
---------------------------
J. F. Ahart, Vice President
4
<PAGE> 5
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor of the Borrower's obligations
to the Bank under the Agreement, each hereby (i) acknowledge and consent to
the execution, delivery, and performance by Borrower of the foregoing Fourth
Amendment to Agreement (the "Amendment"), and (ii) reaffirm and agree that the
guaranty to which the undersigned is party and all other documents and
agreements executed and delivered by the undersigned to the Bank in connection
with the Agreement are in full force and effect, without defense, offset, or
counterclaim, to secure the indebtedness of the Borrower to the Bank,
including without limitation the indebtedness evidenced by the Agreement as
amended. (Capitalized terms used herein have the meanings specified in the
Amendment.)
Dated: February 26, 1999
UNIBUS, INC.
By: /s/ J. F. AHART
---------------------------
J. F. Ahart, Vice President
5
<PAGE> 6
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor of the Borrower's obligations
to the Bank under the Agreement, each hereby (i) acknowledge and consent to
the execution, delivery, and performance by Borrower of the foregoing Fourth
Amendment to Agreement (the "Amendment"), and (ii) reaffirm and agree that the
guaranty to which the undersigned is party and all other documents and
agreements executed and delivered by the undersigned to the Bank in connection
with the Agreement are in full force and effect, without defense, offset, or
counterclaim, to secure the indebtedness of the Borrower to the Bank,
including without limitation the indebtedness evidenced by the Agreement as
amended. (Capitalized terms used herein have the meanings specified in the
Amendment.)
Dated: February 26, 1999
POWELL-ESCO COMPANY
By: /s/ J. F. AHART
---------------------------
J. F. Ahart, Vice President
6
<PAGE> 7
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor of the Borrower's obligations
to the Bank under the Agreement, each hereby (i) acknowledge and consent to
the execution, delivery, and performance by Borrower of the foregoing Fourth
Amendment to Agreement (the "Amendment"), and (ii) reaffirm and agree that the
guaranty to which the undersigned is party and all other documents and
agreements executed and delivered by the undersigned to the Bank in connection
with the Agreement are in full force and effect, without defense, offset, or
counterclaim, to secure the indebtedness of the Borrower to the Bank,
including without limitation the indebtedness evidenced by the Agreement as
amended. (Capitalized terms used herein have the meanings specified in the
Amendment.)
Dated: February 26, 1999
TRANSDYN CONTROLS, INC.
By: J. F. AHART
---------------------------
J. F. Ahart, Vice President
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited condensed consolidated financial statements for the quarter
ended April 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> APR-30-1999
<CASH> 478
<SECURITIES> 0
<RECEIVABLES> 54,183
<ALLOWANCES> 713
<INVENTORY> 16,952
<CURRENT-ASSETS> 96,000
<PP&E> 69,493
<DEPRECIATION> 35,332
<TOTAL-ASSETS> 136,443
<CURRENT-LIABILITIES> 31,690
<BONDS> 15,358
0
0
<COMMON> 107
<OTHER-SE> 87,365
<TOTAL-LIABILITY-AND-EQUITY> 136,443
<SALES> 56,331
<TOTAL-REVENUES> 56,331
<CGS> 46,093
<TOTAL-COSTS> 46,093
<OTHER-EXPENSES> 7,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137
<INCOME-PRETAX> 2,604
<INCOME-TAX> 784
<INCOME-CONTINUING> 1,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,820
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
