<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 July 31, 1999. or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
-------------------
to
-------------------
COMMISSION FILE NUMBER 0-6050
POWELL INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
NEVADA 88-0106100
<S> <C>
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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; 10,675,000 shares outstanding on
September 10, 1999.
<PAGE> 2
Powell Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Part I - Financial Information
<S> <C> <C>
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
</TABLE>
2
<PAGE> 3
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1999 1998
------------ --------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................. $ 5,381 $ 601
Accounts receivable, less allowance for doubtful accounts of
$883 and $761, respectively........................................... 43,105 44,255
Costs and estimated earnings in excess of billings......................... 20,199 24,783
Inventories................................................................ 15,930 16,284
Deferred income taxes...................................................... 581 709
Income taxes receivable.................................................... -- 945
Prepaid expenses and other current assets.................................. 2,310 1,441
------------ ------------
Total Current Assets................................................... 87,506 89,018
Property, plant and equipment, net.............................................. 33,665 32,311
Deferred income taxes........................................................... 1,115 833
Other assets.................................................................... 5,141 4,969
------------ ------------
Total Assets........................................................... $ 127,427 $ 127,131
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt....................................... $ 2,429 $ 1,429
Accounts and income taxes payable.......................................... 10,726 12,094
Accrued salaries, bonuses and commissions.................................. 5,532 6,784
Accrued product warranty................................................... 1,462 1,388
Other accrued expenses..................................................... 4,690 4,652
Billings in excess of costs and estimated earnings......................... 4,107 3,845
------------ ------------
Total Current Liabilities 28,946 30,192
Long-term debt, net of current maturities....................................... 7,500 11,571
Deferred compensation expense................................................... 1,164 1,187
Postretirement benefits liability............................................... 716 845
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; 10,671,000 and
10,659,000
shares issued and outstanding.......................................... 107 107
Additional paid-in capital................................................. 6,013 5,919
Retained earnings.......................................................... 85,745 80,237
Deferred compensation-ESOP................................................. (2,764) (2,927)
------------ ------------
Total Stockholders' Equity............................................. 89,101 83,336
------------ ------------
Total Liabilities and Stockholders' Equity............................. $ 127,427 $ 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 PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
1999 1998
------- --------
<S> <C> <C>
Revenues................................................................... $ 51,612 $ 56,258
Cost of goods sold......................................................... 41,838 43,888
-------- --------
Gross profit............................................................... 9,774 12,370
Selling, general and administrative expenses............................... 7,507 7,847
-------- --------
Earnings from continuing operations before interest and income taxes....... 2,267 4,523
Interest expense, net...................................................... 136 59
-------- --------
Earnings from continuing operations before income taxes.................... 2,131 4,464
Income tax provision....................................................... 618 1,271
-------- --------
Earnings from continuing operations......................................... 1,513 3,193
Loss from discontinued operations, net of income taxes...................... -- (4,700)
-------- --------
Net earnings................................................................ $ 1,513 $ (1,507)
======== ========
Earnings (loss) per common share:
Continuing operations:
Basic................................................................ $ .14 $ .30
Diluted.............................................................. .14 .30
Discontinued operations:
Basic................................................................ $ -- $ (.44)
Diluted.............................................................. -- (.44)
Net earnings:
Basic................................................................ $ .14 $ (.14)
Diluted.............................................................. .14 (.14)
Weighted average number of common shares outstanding......................... 10,664 10,643
======== ========
Weighted average number of common and common equivalent shares outstanding... 10,769 10,745
======== ========
</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>
NINE MONTHS ENDED JULY 31,
1999 1998
-------- -----------
<S> <C> <C>
Revenues..................................................................... $ 162,077 $ 156,596
Cost of goods sold........................................................... 131,133 121,315
--------- ---------
Gross profit................................................................. 30,944 35,281
Selling, general and administrative expenses................................. 22,516 22,310
--------- ---------
Earnings from continuing operations before interest and income taxes......... 8,428 12,971
Interest expense, net........................................................ 409 112
--------- ---------
Earnings from continuing operations before income taxes...................... 8,019 12,859
Income tax provision......................................................... 2,509 3,954
--------- ---------
Earnings from continuing operations.......................................... 5,510 8,905
Loss from discontinued operations, net of income taxes....................... -- (4,700)
--------- ---------
Net earnings................................................................. $ 5,510 $ 4,205
========= =========
Net earnings per common share:
Continuing operations:
Basic............................................................... $ .52 $ .84
Diluted............................................................. .51 .83
Discontinued operations:
Basic............................................................... $ -- $ (.44)
Diluted............................................................. -- (.44)
Net earnings:
Basic............................................................... $ .52 $ .40
Diluted............................................................. .51 .39
Weighted average number of common shares outstanding......................... 10,661 10,642
========= =========
Weighted average number of common and common equivalent shares outstanding... 10,771 10,750
========= =========
</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>
NINE MONTHS ENDED JULY 31,
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net earnings............................................................... $ 5,510 $ 4,205
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization.......................................... 3,252 2,992
Deferred income tax benefit............................................ (154) (367)
Postretirement benefits liability...................................... (129) (219)
Changes in operating assets and liabilities:
Accounts receivable............................................... 1,150 1,220
Costs and estimated earnings in excess of billings................ 4,584 4,632
Inventories....................................................... 354 (4,752)
Prepaid expenses and other current assets......................... (869) 160
Other assets...................................................... (789) 0
Accounts payable and income taxes payable or receivable........... (231) (194)
Accrued liabilities............................................... (1,332) 608
Billings in excess of costs and estimated earnings................ 262 (5,388)
Deferred compensation expense..................................... 139 169
Changes in net assets of discontinued operations.................. -- 4,700
-------- --------
Net cash provided by operating activities....................................... 11,747 7,766
-------- --------
Investing Activities:
Purchases of property, plant and equipment................................ (3,990) (6,628)
-------- --------
Net cash used in investing activities.......................................... (3,990) (6,628)
-------- --------
Financing Activities:
Borrowings of long-term debt.............................................. 19,000 17,800
Repayment of long term debt............................................... (22,071) (20,300)
Exercise of stock options................................................. 94 69
-------- --------
Net cash used in financing activities.......................................... (2,977) (2,431)
-------- --------
Net increase (decrease) in cash and cash equivalents........................... 4,780 (1,613)
Cash and cash equivalents at beginning of period............................... 601 2,219
-------- --------
Cash and cash equivalents at end of period..................................... $ 5,381 $ 606
======== ========
Supplemental disclosure of cash flow information (in thousands):
Cash paid during the quarter for:
Interest.............................................................. $ 570 $ 297
======== ========
Income taxes.......................................................... $ -- $ 1,000
======== ========
</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>
July 31, October 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
The components of inventory are summarized below (in thousands):
Raw materials and subassemblies............................................ $ 9,334 $ 9,795
Work-in-process............................................................ 6,596 6,489
-------- --------
Total inventories.......................................................... $ 15,930 $ 16,284
======== ========
</TABLE>
C. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
July 31, October 31,
1999 1999
---- ----
(unaudited)
<S> <C> <C>
Property, plant and equipment is summarized below (in thousands):
Land....................................................................... $ 3,193 $ 2,720
Buildings and improvements................................................. 30,588 27,478
Machinery and equipment.................................................... 29,289 28,149
Furniture & fixtures....................................................... 4,392 4,039
Construction in process.................................................... 2,278 3,364
------- -------
69,740 65,750
Less-accumulated depreciation.............................................. (36,075) (33,439)
------- -------
Total property, plant and equipment, net................................... $33,665 $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>
July 31, October 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Costs and estimated earnings............................................... $ 86,695 $ 114,127
Progress billings.......................................................... (66,496) (89,344)
-------- ---------
Total costs and estimated earnings in excess of billings................... $ 20,199 $ 24,783
======== =========
Progress billings.......................................................... $ 99,969 $ 67,471
Costs and estimated earnings............................................... (95,862) (63,626)
-------- ---------
Total billings in excess of costs and estimated earnings................... $ 3,834 $ 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 July 31, Nine Months Ended July 31,
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..................... $ 1,513 $3,197 $5,510 $8,905
======= ====== ====== ======
Denominator:
Denominator for basic earnings per share-
weighted average shares............................... 10,664 10,643 10,661 10,642
Effect of dilutive securities-employee stock options... 105 102 110 108
------- ------ ------ ------
Denominator for diluted earnings per share-adjusted
weighted-average shares with assumed
conversions.......................................... 10,769 10,745 10,771 10,750
======= ====== ====== ======
Basic earning per share.................................... $ .14 $ .30 $ .52 $ .84
======= ====== ====== ======
Diluted earnings per share................................. $ .14 $ .30 $ .51 $ .83
======= ====== ====== ======
</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 accounting policies used
for the reportable segments are the same as those used for the consolidated
financial statements.
The required disclosures for the business segments are set forth below (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Switchgear............................................. $32,862 $41,253 $110,071 $112,588
Bus Duct............................................... 7,067 6,654 20,823 19,336
Process Control Systems................................ 8,069 5,300 22,876 16,492
------- ------- -------- --------
Sub-total......................................... 47,998 53,207 153,770 148,416
Other.................................................. 4,105 3,324 11,051 10,580
Intercompany Eliminations.............................. (492) (273) (2,744) (2,400)
------- ------- -------- --------
Total Revenues............................................ $51,611 $56,258 $162,077 $156,596
======= ======= ======== ========
Earnings from continuing operations before income taxes:
Switchgear............................................. $ 1,601 $ 4,617 $ 6,652 $ 11,383
Bus Duct............................................... 1,367 1,665 3,841 4,325
Process Control Systems................................ 273 171 822 413
------- ------- -------- --------
Sub-total......................................... 3,241 6,453 11,315 16,121
Other.................................................. (1,111) (1,990) (3,296) (3,262)
------- ------- -------- --------
Total earnings from continuing operations
before income taxes.................................... $ 2,130 $ 4,463 $ 8,019 $ 12,859
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
July 31, October 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Assets
Switchgear........................................................ $ 77,743 $ 90,603
Bus Duct.......................................................... 13,148 12,271
Process Control Systems........................................... 12,713 10,309
-------- --------
Sub-total..................................................... 103,604 113,183
Corporate and Other............................................... 23,824 13,948
-------- --------
Total Assets...................................................... $127,428 $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>
July 31, 1999 July 31, 1998
--------------------------- -----------------------------
three months nine months three months nine months
ended ended ended ended
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Gross Profit 18.9 19.1 22.0 22.5
Selling, general and administrative expenses 14.5 13.9 13.9 14.2
Interest expense, net .3 .3 .1 .1
Earnings from operations before income taxes 4.1 4.9 8.0 8.2
Earnings from continuing operations 2.9 3.4 5.7 5.7
Loss from discontinued operations, net of
income taxes -- -- (8.4) (3.0)
Net Earnings 2.9 3.4 (2.7) 2.7
</TABLE>
Revenues for the quarter ended July 31, 1999, were down 8.3 percent to
$51,612,000 from $56,258,000 in the third quarter of last year. Revenues for the
nine months ended July 31, 1999 were up 3.5 percent to $162,077,000 from
$156,596,000. The increases in revenues for the nine month period were in the
domestic markets. The sales decreases for the quarter were due to unfavorable
market conditions in the Switchgear business segment. Export revenues continued
to be an important component of the Company's operations, accounting for
$56,597,000 for the nine months ending July 31, 1999 compared to $64,414,000 for
the same period of 1998.
Gross profit, as a percentage of revenues, was 18.9 percent and 22.0 percent for
the quarters ended July 31, 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
14.5 percent and 13.9 percent for the quarters ended July 31, 1999 and 1998,
respectively. The increase in percentages reflects the decreased volume of
revenues.
Interest expense, net The following schedule shows the amounts for interest
expense and income:
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998
Three months nine months three months nine months
ended ended ended ended
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Expense $214,000 $643,000 $136,000 $359,000
Income (78,000) (234,000) (77,000) (247,000)
-------- -------- -------- --------
Net $136,000 $409,000 $ 59,000 $112,000
======== ======== ======== ========
</TABLE>
Sources of interest expense in fiscal year 1999 and 1998 were primarily related
to bank notes payable 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 29.0 percent and 28.5 percent for the quarters ended July 31, 1999 and
1998, respectively. The effective tax rates in both years have benefited for
foreign sale corporation credits. These effective tax rates have benefited from
timing differences and should finish the year at approximately 31 percent, which
is more consistent with prime years.
Earnings from continuing operations were $1,513,000 or $.14 per diluted share
for the third quarter of fiscal 1999, a decrease from $3,193,000 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 July 31, 1999 was $148.9 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 no borrowings outstanding under this line on July 31, 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:
<TABLE>
<CAPTION>
July 31, October 31,
1999 1998
---- ----
<S> <C> <C>
Working Capital $58,561,000 $58,826,000
Current Ratio 3.02 to 1 2.95 to 1
Long-term Debt to Capitalization .1 to 1 .1 to 1
</TABLE>
Management believes that the Company continues to maintain a strong liquidity
position. Working capital at July 31, 1999 changed very little as compared to
October 31, 1998. However, the increase in funds from the reductions in accounts
receivables, costs and estimated earnings in excess of billings and inventories
were used to pay down debt and to increase cash equivalents
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 $5,381,000, funds generated from
operating activities and funds available under its existing revolving credit
line.
The previous discussion should be read in conjunction with the consolidated
financial statements.
Year 2000 Readiness
The Year 2000 readiness issue results from the historical use in computer
software programs and operating systems of a two digit number to represent the
year. Certain software and hardware may fail to properly function when
confronted with dates that contain "00" as a two digit year. New information
about the nuances of the problem seems to become available on almost a daily
basis and that is likely to continue as companies around the world focus
increased attention and resources on finding solutions to the problem's many
manifestations.
To address the potential risk for disruption of operations, each subsidiary of
the Company has developed a compliance plan. The Company has substantially
completed a comprehensive initial assessment of the readiness of its internal
systems and manufacturing systems. Many of the readiness issues identified in
internal systems during the course of the initial assessment have already been
addressed. Numerous tests have been conducted to confirm the effectiveness of
applied solutions. Additional testing will occur throughout 1999. While the
Company's initial assessment is substantially complete, the Company intends to
continue to update the assessment of its state of readiness based upon new
information that may become available from third party vendors, suppliers and
manufacturers in the months to come.
All components originally manufactured by the Company are inherently compliant
in that the components do not manipulate, process, store or record date-related
information. However, a few subsidiaries, including the Company's largest
subsidiary, Powell Electrical Manufacturing Company, sell engineered systems
that include potentially noncompliant components manufactured by third parties.
The Company is pursuing a plan to evaluate the compliance status of all
components manufactured by third parties and will pass through to its
11
<PAGE> 12
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 $500,000 to $600,000. 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:
o A limited number of components manufactured by third parties will fail in
some respect despite the manufacturers' assurances that such components are
compliant. To the extent that this occurs and the Company is obligated to
do so under contractual warranties, the Company will make replacement
components available to customers. Otherwise, the Company will facilitate
the identification of viable compliant components and replacement of the
noncompliant components.
o A limited number of customers who were notified of possible compliance
issues associated with older equipment will fail to timely address the
issue and will seek assistance from the Company after roll-over. To the
extent sufficient and appropriate resources are available, the Company will
facilitate component replacement or upgrades.
o Some customers may suffer failures that cause those customers to delay
placing additional orders of new equipment during the first quarter of 2000
or to delay payment for previously ordered products. The Company plans to
position itself to adjust to any temporary reduction of new orders and to
withstand short term cash flow issues.
o One or more physical facilities may suffer some degree of infrastructure
failure, due in part to the number of geographic locations of the various
subsidiaries. The Company plans to carefully manage its contractual
obligations to customers during the first month of 2000 so as to minimize
the effect any infrastructure failure might have on its ability to satisfy
those obligations. At this time, the Company does not intend to invest in
alternative sources of water, power or telecommunications. The Company will
prepare further contingency plans to deal with potential infrastructure
failure if and when additional information becomes available from current
providers as to their state of readiness.
While other scenarios are possible given the interdependent nature of all
businesses, the Company believes that the foregoing elements, individually or
any combination of one or more other element, represent the most likely worst
case scenario.
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's accounts receivables are
not concentrated in one customer or industry and are not viewed as an unusual
credit risks. The Company had recorded an allowance for doubtful accounts of
$883,000 at July 31, 1999 and $761,000 at October 31, 1998, respectively.
The Company has an interest rate swap agreement, which is used by the Company in
the management of interest rate exposure, and 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 or received under the interest rate swap agreement are recognized as an
adjustment to expense in the periods in which they accrue. At April 30, 1999 the
Company had $8,929,000 of borrowings subject to the 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 at the 90 day LIBOR rate. The closing 90 day LIBOR rate
on July 31, 1999 was 5.31%.
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.
13
<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
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
27.0 Financial Data Schedule
b. Reports on Form 8-K
None
14
<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
September 13, 1999 /s/ THOMAS W. POWELL
- ------------------- -----------------------------------
Date Thomas W. Powell
President and Chief Executive Officer
(Principal Executive Officer)
September 13, 1999 /s/ J. F. AHART
- ------------------- -----------------------------------
Date J.F. Ahart
Vice President,
Secretary-Treasurer
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
</TABLE>
<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 JULY 31, 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> JUL-31-1999
<CASH> 5,381
<SECURITIES> 0
<RECEIVABLES> 43,988
<ALLOWANCES> 883
<INVENTORY> 15,930
<CURRENT-ASSETS> 87,506
<PP&E> 69,740
<DEPRECIATION> 36,075
<TOTAL-ASSETS> 127,428
<CURRENT-LIABILITIES> 28,946
<BONDS> 7,500
<COMMON> 107
0
0
<OTHER-SE> 88,994
<TOTAL-LIABILITY-AND-EQUITY> 127,427
<SALES> 51,612
<TOTAL-REVENUES> 51,612
<CGS> 41,838
<TOTAL-COSTS> 41,838
<OTHER-EXPENSES> 7,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> 2,131
<INCOME-TAX> 618
<INCOME-CONTINUING> 1,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,513
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
