<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 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>
<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 $46,390,148 as of January 25, 2000. The number
of shares of the Company's Common Stock outstanding on that date was 10,675,000
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2000 annual meeting of stockholders
to be filed not later than 120 days after October 31, 1999 are incorporated by
reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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.; Transdyn Controls, Inc.; and Powell Power Electronics
Company, Inc. (a subsidiary of Powell Electrical Manufacturing Company). 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, 1999, 1998 and 1997, sales and service of switchgear and other
related equipment accounted for 71%, 77% and 73 %, 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 13%, 12% and 17% of
consolidated revenues for fiscal years 1999, 1998 and 1997, 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 transportation, environmental and
utilities industries. During the fiscal years ended October 31, 1999, 1998
and 1997, sales of process control systems accounted for 16%, 11% and 10%,
respectively, of consolidated revenues of the Company.
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.
2
<PAGE> 3
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 1999, 1998
or 1997. Export revenues were $70,373,000, $85,448,000 and $88,107,000 in fiscal
years 1999, 1998 and 1997, 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, 1999, the Company employed 790 employees on a full-time
basis. Management considers its employee relations to be good.
BACKLOG
The Company's backlog of orders was $156,143,000 and $143,394,000 at
October 31, 1999 and 1998, respectively, and the percentage of its 1999 year end
backlog that it does not expect to fill in fiscal year 2000 is 22%. 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, 1999, 1998 and 1997, the Company
spent approximately $3,031,000, $2,693,000 and $2,649,000 respectively, on
research and development programs.
3
<PAGE> 4
ITEM 2. PROPERTIES
The following table sets forth information about the Company's principal
facilities at October 31, 1999.
<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
North Canton, OH.............. 8.0 53,000 PEMCO-North Canton 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.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal and 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, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of October 31, 1999, there were approximately 729 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>
1999
First Quarter................................ $12.75 $ 8.63 $10.75 9,559
Second Quarter............................... 11.00 8.50 8.81 9,429
Third Quarter................................ 10.38 8.38 8.75 12,754
Fourth Quarter............................... 9.13 7.63 7.63 14,547
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
</TABLE>
4
<PAGE> 5
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 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,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statements of operations data:
Revenues............................ $212,531,000 $212,733,000 $191,651,000 $170,123,000 $139,534,000
Earnings from continuing
operations........................ 7,127,000 11,465,000 12,629,000 10,758,000 7,080,000
Loss from discontinued operations
(net of income taxes)............. -- (4,800,000) -- (5,998,000) (1,382,000)
------------ ------------ ------------ ------------ ------------
Net earnings.......................... $ 7,127,000 $ 6,665,000 $ 12,629,000 $ 4,760,000 $ 5,698,000
============ ============ ============ ============ ============
Net earnings per common share:
Continuing operations
Basic:............................ $ .67 $ 1.08 $ 1.19 $ 1.02 $ .67
Diluted:.......................... .66 1.07 1.17 1.00 .67
Discontinued operations
Basic:............................ -- (.45) -- (.57) (.13)
Diluted:.......................... -- (.45) -- (.56) (.13)
Net earnings per common share:
Basic:............................ .67 .63 1.19 .45 .54
Diluted:.......................... .66 .62 1.17 .44 .54
Weighted average number of common
shares outstanding.................. 10,665,000 10,644,000 10,622,000 10,567,000 10,534,000
Weighted average number of common and
common equivalent shares
outstanding......................... 10,777,000 10,743,000 10,808,000 10,765,000 10,611,000
Balance Sheet Data:
Working capital..................... $ 59,782,000 $ 58,826,000 $ 51,769,000 $ 46,505,000 $ 32,642,000
Total assets........................ 127,531,000 127,131,000 122,867,000 99,523,000 90,534,000
Long-term debt...................... 7,143,000 11,571,000 6,000,000 -- 3,750,000
Stockholders' equity................ 90,772,000 83,336,000 76,307,000 63,225,000 57,657,000
</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,
5
<PAGE> 6
- Unfavorable material litigation or claims made against the Company, and
- Changes in general market conditions, competition and pricing.
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,
-------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Gross profit................................................ 18.9 22.5 24.5
Selling, general and administrative expenses................ 13.8 14.5 15.1
Interest (income) expense, net.............................. .2 .1 (.2)
Earnings from continuing operations......................... 3.4 5.4 6.6
Loss from discontinued operations........................... -- (2.3) --
Net earnings................................................ 3.4 3.1 6.6
</TABLE>
Revenues
The Company reported revenues of $212,531,000, $212,733,000 and
$191,651,000 in fiscal years 1999, 1998 and 1997, respectively. Revenues were
flat for fiscal year 1999 as compared to fiscal year 1998. Revenue was higher in
the process control and bus duct segments in fiscal 1999 which was offset by
lower revenues from the switchgear product segment. Revenues increased 11% in
fiscal year 1998 when compared to fiscal year 1997 due primarily to increased
volume of shipments of the switchgear segment to domestic customers that was
partially offset by lower revenues from the bus duct segment.
Export revenues continued to be an important component of the Company's
operations, accounting for 33%, 40% and 46% of consolidated revenues in fiscal
years 1999, 1998 and 1997, 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. This schedule shows the reduction in international
revenues to be mainly from the Far East countries. Management anticipates that
consolidated revenues will increase in fiscal 2000 and that export revenues will
continue to contribute approximately 30% to 40% of consolidated revenues.
Gross profit
Gross profit, as a percentage of revenues, was 18.9%, 22.5%, and 24.5% in
fiscal years 1999, 1998 and 1997, respectively. The decrease in 1999 from 1998
was due mainly to lower switchgear segment prices and volumes. 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
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 13.8%, 14.5%, and 15.1% for fiscal years 1999, 1998 and 1997, respectively.
The decrease in fiscal years 1999 and 1998, as a percentage of revenues, was due
to controlling of expenses as revenues increased in 1998 and remained flat in
1999. The reduction in 1999 was due mainly to lower incentives and bonus expense
payments offset somewhat by higher research and development costs.
6
<PAGE> 7
Interest (income) expense, net
The following schedule shows the amounts of interest expense and income:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Interest expense............................................ $ 774 $ 558 $ 381
Interest income............................................. (413) (319) (797)
----- ----- -----
Net interest................................................ $ 361 $ 239 $(416)
===== ===== =====
</TABLE>
Sources of interest expense were related to notes payable to an insurance
company in 1997 and to bank notes in 1999 and 1998 at approximately 6%.
Sources of interest income were related to a note receivable and to
short-term investments of available funds at various rates between 4% and 7%.
Income tax provision
The effective income tax rate on earnings from continuing operations before
income taxes was 31.8%, 31.5%, and 31.5% for fiscal years 1999, 1998 and 1997,
respectively. The effective income tax rates are lower than the statutory rate
due primarily to foreign sales corporation credits.
Earnings from continuing operations
Earnings from continuing operations recorded in fiscal year 1999 were
$7,127,000 or $0.66 per diluted share. This represented a 38% decrease in
earnings compared to fiscal year 1998 earnings. The decrease was primarily due
to reduced volume and lower margins from the switchgear business segment which
was the result of lower prices. Earnings from continuing operations recorded in
fiscal year 1998 were $11,465,000 or $1.07 per diluted share, a decrease of
17.4% compared to earnings from continuing operations of $12,629,000 or $1.17
per diluted share in fiscal year 1997. This decrease was primarily due to losses
at Powell-Esco Company in fiscal year 1998.
Discontinued operations
See Note M to Notes to Consolidated Financial Statements for discussion of
the operations that were discontinued in fiscal year 1998.
Net earnings
Net earnings were $7,127,000 or $0.66 per diluted share in fiscal year 1999
compared to $6,665,000 or $0.62 per diluted share and $12,629,000 or $1.17 per
diluted share in fiscal years 1998 and 1997, 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 $20,000,000. In December 1999 the revolving
line of credit was amended to reduce the line to $15,000,000 and to extend the
maturity date to February 2002. The term of the loan was five years with four
years remaining. The effective interest rate, after including 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 proceeds of the term loan were used to pay the Settlement Agreement
discussed in Note M to the Consolidated Financial Statements and to pay down the
revolving line of credit. As of October 31, 1999, the Company had no borrowings
outstanding under this revolving line of credit.
7
<PAGE> 8
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>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Working capital............................... $59,782,000 $58,826,000 $51,769,000
Current ratio................................. 3.13 to 1 2.95 to 1 2.36 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 change in working capital in fiscal 1999 compared to
1998 was only $956,000. However, during 1999 there were large reductions in
costs and estimated earnings in excess of billings, and inventories, offset
particularly by a reduction in accounts payable. These reductions resulted in a
large increase in cash and cash equivalents. 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 and a
decrease in billings in excess of costs and estimated earnings. These favorable
changes were partially offset by a decrease in accounts receivable.
Operating cash flows were $18,505,000 for fiscal 1999. The increase in
these funds were due to the decreases in cost and estimated earnings in excess
of billings, accounts receivable, and inventories which was partially offset by
decreases in accounts payable and accrued liabilities. Operating cash flows were
$983,000 in fiscal 1998. The decrease when compared to fiscal 1997 was 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.
Capital expenditures totaled $5,156,000 during fiscal year 1999 compared to
$9,739,000 during fiscal year 1998. The major expenditures in 1999 were for the
purchase of a facility in North Canton, Ohio and for machinery and equipment.
During fiscal year 1998 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 $4,000,000 in fiscal year 2000,
primarily for additions and replacement of machinery and equipment.
The Company announced in December 1999 that authorization had been given by
the Board of Directors to repurchase up to $5,000,000 of its outstanding common
stock, subject to market conditions. The repurchased stock will be used for
general corporate purposes.
The Company's fiscal year 1999 asset management program will continue to
focus on the reduction of accounts receivable days outstanding and reduction in
inventories. Management believes that the cash and cash equivalents of
$10,646,000 at October 31, 1999, along with funds generated from operating
activities and funds available through borrowings from the revolving line of
credit 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 2000 at approximately the same level as 1999 and the Company
does not anticipate significant increases in inflation in the immediate future.
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. Concerns arose as to whether certain software and hardware would fail to
properly function when confronted with dates that contain "00" as a two digit
year. To address the potential risk for disruption of operations, each
subsidiary of the Company developed a
8
<PAGE> 9
compliance plan and conducted numerous tests as to the effectiveness of applied
solutions. The costs to the Company to achieve Year 2000 readiness were
approximately $150,000.
To date, the Company has not experienced any material problems relating to
the Year 2000 readiness issue. However, the Company has not yet experienced all
factors (such as month end accounting close-out, the February leap year date,
and future shipments from suppliers) that might have Year 2000 readiness
implications.
ITEM 7A. 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 cash equivalents, accounts receivable, the short-term note
payable and accounts payable 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 the Bank's IBOR. The
Company's accounts receivable are not concentrated in one customer or one
industry and are not viewed as an unusual credit risk. The Company had recorded
an allowance for doubtful accounts of $852,000 at October 31, 1999 and $761,000
at October 31, 1998, respectively.
The interest 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 or received under the interest rate swap agreement is recognized as an
adjustment to expense in the periods in which they occur.
At October 31, 1999 the Company had $8,572,000 in borrowings subject to the
interest rate swap at a rate of 5.20% through September 30, 2003. The 5.20% rate
is currently approximately 1% below market and should represent approximately
$85,000 of reduced interest expense for fiscal year 2000 assuming the current
market interest rates do not change. The approximate fair value of the swap
agreement at October 31, 1999 is $237,000. The fair value is the estimated
amount the Company would receive to terminate the contract. 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 October 31, 1999 was 6.18%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Public Accountants.................. 10
Consolidated Balance Sheets as of October 31, 1999 and
1998................................................... 11
Consolidated Statements of Operations for the three years
ended October 31, 1999................................. 12
Consolidated Statements of Stockholders' Equity for the
three years ended October 31, 1999..................... 13
Consolidated Statements of Cash Flows for the three years
ended October 31, 1999................................. 14
Notes to Consolidated Financial Statements................ 15
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
9
<PAGE> 10
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, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended October
31, 1999. 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, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended October 31, 1999, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 6, 1999
10
<PAGE> 11
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 10,646 $ 601
Accounts receivable, less allowance for doubtful accounts
of $852 and $761, respectively......................... 43,003 44,255
Costs and estimated earnings in excess of billings........ 16,191 24,783
Inventories............................................... 15,173 16,284
Deferred income taxes..................................... 1,028 709
Income taxes receivable................................... -- 945
Prepaid expenses and other current assets................. 1,795 1,441
-------- --------
Total Current Assets.............................. 87,836 89,018
Property, plant and equipment, net.......................... 33,286 32,311
Deferred income taxes....................................... 1,316 833
Other assets................................................ 5,093 4,969
-------- --------
Total Assets...................................... $127,531 $127,131
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts and income taxes payable......................... $ 9,911 $ 12,094
Accrued salaries, bonuses and commissions................. 5,447 6,784
Accrued product warranty.................................. 1,335 1,388
Other accrued expenses.................................... 4,727 4,652
Billings in excess of costs and estimated earnings........ 4,205 3,845
Current maturities of long-term debt...................... 2,429 1,429
-------- --------
Total Current Liabilities......................... 28,054 30,192
Long-term debt, net of current maturities................... 7,143 11,571
Deferred compensation expense............................... 1,127 1,187
Postretirement benefits liability........................... 435 845
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; 10,675,000 and 10,659,000 shares issued and
outstanding, respectively.............................. 107 107
Additional paid-in capital................................ 6,043 5,919
Retained earnings......................................... 87,364 80,237
Deferred compensation -- ESOP............................. (2,742) (2,927)
-------- --------
Total Stockholders' Equity........................ 90,772 83,336
-------- --------
Total Liabilities and Stockholders' Equity........ $127,531 $127,131
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE> 12
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues $212,531 $212,733 $191,651
Cost of goods sold......................................... 172,353 164,944 144,645
-------- -------- --------
Gross profit............................................... 40,178 47,789 47,006
Selling, general & administrative expenses................. 29,354 30,805 28,982
-------- -------- --------
Earnings from continuing operations before interest and
income taxes............................................. 10,824 16,984 18,024
Interest expense (income), net............................. 361 239 (416)
-------- -------- --------
Earnings from continuing operations before income taxes.... 10,463 16,745 18,440
Income tax provision....................................... 3,336 5,280 5,811
-------- -------- --------
Earnings from continuing operations........................ 7,127 11,465 12,629
Loss from discontinued operations, net of income taxes..... -- (4,800) --
-------- -------- --------
Net earnings............................................... $ 7,127 $ 6,665 $ 12,629
======== ======== ========
Earnings (loss) per common share:
Continuing operations:
Basic................................................. $ .67 $ 1.08 $ 1.19
Diluted............................................... .66 1.07 1.17
Discontinued operations:
Basic................................................. $ -- $ (.45) $ --
Diluted............................................... -- (.45) --
Net earnings:
Basic................................................. $ .67 $ .63 $ 1.19
Diluted............................................... .66 .62 1.17
Weighted average number of common shares outstanding....... 10,665 10,644 10,623
Weighted average number of common and common equivalent
shares outstanding....................................... 10,777 10,743 10,808
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE> 13
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
--------------- PAID-IN RETAINED COMPENSATION
SHARES AMOUNT CAPITAL EARNINGS ESOP TOTAL
------ ------ ---------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1996......... 10,605 $106 $5,601 $60,943 $(3,425) $63,225
Net earnings.................... 12,629 12,629
Amortization of deferred
compensation -- ESOP......... 272 272
Exercise of stock options....... 38 -- 181 181
------ ---- ------ ------- ------- -------
Balance, October 31, 1997......... 10,643 106 5,782 73,572 (3,153) 76,307
Net earnings.................... 6,665 6,665
Amortization of deferred
compensation -- ESOP......... 226 226
Exercise of stock options....... 16 1 137 138
------ ---- ------ ------- ------- -------
Balance, October 31, 1998......... 10,659 107 5,919 80,237 (2,927) 83,336
Net earnings.................... 7,127 7,127
Amortization of deferred
compensation -- ESOP......... 185 185
Exercise of stock options....... 16 -- 124 124
------ ---- ------ ------- ------- -------
Balance, October 31, 1999......... 10,675 $107 $6,043 $87,364 $(2,742) $90,772
====== ==== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE> 14
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net earnings.............................................. $ 7,127 $ 6,665 $ 12,629
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 4,420 4,070 3,376
Deferred income tax provision (benefit)................ (802) 861 1,333
Postretirement benefits liability...................... (410) (387) (270)
Changes in operating assets and liabilities:
Accounts receivable, net............................. 1,252 6,136 (13,378)
Costs and estimated earnings in excess of billings... 8,592 (5,797) (5,052)
Inventories.......................................... 1,111 (2,681) 511
Prepaid expenses and other current assets............ (354) 1,153 (894)
Other assets......................................... (364) (291) (708)
Accounts payable and income taxes payable or
receivable........................................ (1,238) 571 2,911
Accrued liabilities.................................. (1,315) (2,491) 394
Billings in excess of costs and estimated earnings... 360 (7,111) 5,531
Deferred compensation expense........................ 126 285 (757)
-------- -------- --------
Net cash provided by operating activities......... 18,505 983 5,626
-------- -------- --------
Investing Activities:
Purchases of property, plant and equipment................ (5,156) (9,739) (14,773)
-------- -------- --------
Net cash used in investing activities............. (5,156) (9,739) (14,773)
-------- -------- --------
Financing Activities:
Borrowings of long-term debt.............................. 17,500 21,786 6,000
Payments of long-term debt................................ (20,928) (14,785) (3,750)
Exercise of stock options................................. 124 137 181
-------- -------- --------
Net cash provided by (used in) financing activities....... (3,304) 7,138 2,431
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 10,045 (1,618) (6,716)
Cash and cash equivalents at beginning of year.............. 601 2,219 8,935
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 10,646 $ 601 $ 2,219
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ 813 $ 502 $ 528
======== ======== ========
Cash paid for income taxes................................ $ 2,450 $ 2,039 $ 4,799
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE> 15
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., Transdyn Controls, Inc and Powell Power Electronics Company,
Inc., a subsidiary of Powell Electrical Manufacturing Company. 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, 1999 and 1998
include $5,653,000 and $3,931,000, 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 $1,930,000 of the retained amount at October 31, 1999 is expected
to be billed subsequent to October 31, 2000.
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 $1,915,000 and
$2,004,000 at October 31, 1999 and 1998, 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 $1,954,000 and $1,741,000
at October 31, 1999 and 1998, respectively. Management
15
<PAGE> 16
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 $3,031,000, $2,693,000, and $2,649,000 in fiscal years 1999, 1998
and 1997, 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 income tax assets and liabilities are computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using enacted tax rates. Under this standard, the effect on deferred
income taxes of a change in tax rates is recognized in income in the period that
the tax rate changes.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires the reporting
of comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosures of certain financial information that historically has not been
recognized in the calculation of net income from operations. The Company adopted
SFAS No. 130 during fiscal year 1998 and there was no material impact upon the
financial statements.
16
<PAGE> 17
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1999, the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS No. 131 superceded the
business segment disclosure requirements previously in effect under SFAS No. 14.
SFAS No. 131, among other things, establishes standards regarding the
information a company is required to disclose about its operating segments and
provides guidance regarding what constitutes a reportable operating segment.
The Company has adopted the disclosure requirements of SFAS No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits". SFAS
No. 132 revises disclosure requirements for such pension and postretirement
benefit plans to, among other things, standardize certain disclosures and
eliminate certain other disclosures no longer deemed useful. SFAS No. 132 does
not change the measurement or recognition criteria for such plans.
In June 1998 the FASB issued SFAS No. 133 -- "Accounting for Derivative
Instruments and Hedging Activities". In June 1999, the FASB issued SFAS 137,
which amended the effective adoption date of SFAS 133. This statement
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. The statement, as amended and which is to be applied prospectively,
is effective for the Company's quarter ending January 31, 2001. 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
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share date):
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per
share-earnings from continuing operations available
to common stockholders............................. $ 7,127 $11,465 $12,629
======= ======= =======
Denominator:
Denominator for basic earnings per
share -- weighted-average shares................... 10,665 10,644 10,623
Effect of dilutive securities -- Employee stock
options............................................ 112 99 185
------- ------- -------
Denominator for diluted earnings per share -- adjusted
weighted-average shares assumed conversions........ 10,777 10,743 10,808
======= ======= =======
Basic earnings per share.............................. $ .67 $ 1.08 $ 1.19
======= ======= =======
Diluted earnings per share............................ $ .66 $ 1.07 $ 1.17
======= ======= =======
</TABLE>
17
<PAGE> 18
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D. INVENTORIES
The components of inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Raw materials, parts and subassemblies.................... $ 9,058 $ 9,795
Work-in-process........................................... 6,115 6,489
------- -------
Total inventories............................... $15,173 $16,284
======= =======
</TABLE>
E. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized below (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------------- RANGE OF
1999 1998 ASSET LIVES
-------- -------- -----------
<S> <C> <C> <C>
Land...................................... $ 3,193 $ 2,720 --
Buildings and improvements................ 30,638 27,478 3-39 Years
Machinery and equipment................... 30,409 28,149 3-15 Years
Furniture and fixtures.................... 4,464 4,039 3-10 Years
Construction in progress.................. 1,035 3,364 --
-------- -------- ----------
69,739 65,750
Less-accumulated depreciation............. (36,453) (33,439)
-------- --------
Total property, plant and
equipment, net................ $ 33,286 $ 32,311
======== ========
</TABLE>
F. EMPLOYEE BENEFIT PLANS
The Company has a defined employee contribution 401(k) plan for
substantially all of its employees. The Company matches 50% of employee
contributions up to six percent of their salary. The Company recognized expenses
of $1,040,000, $934,000, and $848,000 in fiscal years 1999, 1998 and 1997,
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. At October 31, 1999 and 1998
there were 697,712 and 755,066 shares in the trust with 230,342 and 214,865
shares allocated to participants, respectively. 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 1999, 1998
and 1997 was $185,000, $226,000, and
18
<PAGE> 19
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$271,000, respectively. The receivable from the ESOP is recorded as a reduction
from stockholders' equity and the allocated and unallocated shares of the ESOP
are treated as outstanding common stock in the computation of earnings per
share.
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 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 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 illustrates the components of net periodic benefits
expense, the change in funded status, and the change in accumulated benefit
obligation of the postretirement benefit plans:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Components of net periodic postretirement benefits
expense (income):
Service cost....................................... $ 1 $ 4 $ 5
Interest cost...................................... 25 36 45
Prior service cost................................. (318) (318) (310)
Net (gain)/loss recognized......................... (77) (7) 33
----- ----- -----
Net periodic postretirement benefits expense
(income)........................................ $(369) $(285) $(227)
===== ===== =====
Funded Status:
Retirees........................................... $ 166 $ 228
Fully eligible active participants................. 234 316
Other actual participants.......................... -- 25
----- -----
Accumulated postretirement benefit obligation...... 400 569
Less unrecognized balances:
Prior service cost.............................. 53 370
Net actuarial (gain)/loss....................... (18) (94)
----- -----
Postretirement benefits liability.................. $ 435 $ 845
===== =====
</TABLE>
19
<PAGE> 20
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Changes in accumulated postretirement benefits
obligation:
Balance at beginning of year....................... $ 569 $ 659
Service cost....................................... 1 4
Interest cost...................................... 25 36
Actuarial (gain)/loss.............................. (155) (37)
Benefits paid...................................... (40) (93)
----- -----
Balance at end of year............................. $ 400 $ 569
===== =====
Fair value of plan assets.......................... $ -- $ --
===== =====
Weighted average assumptions as of October 31, 1999
(in thousands):
</TABLE>
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Discount rate........................................ 6% 6%
Expected return on plan assets..................... N/A N/A
Rate of compensation increase...................... N/A N/A
</TABLE>
The assumed health care cost trend measuring the accumulated postretirement
benefits obligation was 6% and 8% in fiscal years 1999 and 1998, respectively.
The trend is expected to remain at 6% for fiscal year 2000 and later. If the
health care trend rate assumptions were increased by one percent, the
accumulated postretirement benefits obligation, as of October 31, 1999, would be
increased by 7.6 percent. The effect of this change on the net postretirement
benefit cost for 1999 would be an increase of 6.9 percent.
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 $20,000,000. In December
1999 the Company amended the agreement to reduce the line of credit to
$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
June 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 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 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, 1999, there were no borrowings under
this line of credit. The agreement expires on February 28, 2002 as amended
December 1999.
The interest 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 or received under the interest rate swap agreement are recognized as an
adjustment to expense in the periods in which they occur. The notional amount of
the swap agreement is $10,000,000 and follows the same reduction schedule as the
term loan. 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 October 31, 1999 was
6.18%. The Company considers the risk of non-performance by its swap partner to
be minimal.
20
<PAGE> 21
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt is summarized below (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Five year term note....................................... $ 8,572 $10,000
Revolving line of credit.................................. -- 2,000
NatWest promissory note (see Note M below)................ 1,000 1,000
------- -------
Total debt................................................ 9,572 13,000
Less -- current maturities................................ (2,429) (1,429)
------- -------
Total long-term debt............................ $ 7,143 $11,571
======= =======
</TABLE>
The interest expense recorded during the year was $774,000, $558,000 and
$381,000 in 1999, 1998 and 1997, respectively. The annual maturities of
long-term debt for the years 2000 through 2004 are as follows: $2,429,000,
$1,429,000, $1,429,000, $4,285,000 and $0, respectively. See footnote N for the
discussion of the fair market value of the debt instruments.
H. INCOME TAXES
The net deferred income tax asset is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1999 1998
------ -------
<S> <C> <C>
Current deferred income taxes:
Gross assets............................................ $1,804 $ 2,075
Gross liabilities....................................... (776) (1,366)
------ -------
Net current deferred income tax asset................... 1,028 709
------ -------
Noncurrent deferred income taxes
Gross assets............................................ 1,400 1,593
Gross liabilities....................................... (84) (760)
------ -------
Net noncurrent deferred income tax asset.................. 1,316 833
------ -------
Net deferred income tax asset............................. $2,344 $ 1,542
====== =======
</TABLE>
The tax effect of significant temporary differences representing deferred
income tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1999 1998
------ -------
<S> <C> <C>
Allowance for doubtful accounts............................ $ 189 $ 259
Reserve for accrued employee benefits...................... 625 907
Warranty reserves.......................................... 855 471
Uncompleted long-term contracts............................ (776) (1,262)
Depreciation and amortization.............................. 267 92
Deferred compensation...................................... 445 404
Postretirement benefits liability.......................... 209 287
Accrued legal expenses..................................... 229 385
Other...................................................... 301 (1)
------ -------
Net deferred income tax asset.............................. $2,344 $ 1,542
====== =======
</TABLE>
21
<PAGE> 22
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the income tax provision (benefit) consist of the
following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------
1999 1998 1997
------ ------- ------
<S> <C> <C> <C>
Continuing Operations:
Current:
Federal...................................... $3,896 $ 4,198 $4,237
State........................................ 242 221 241
Deferred:
Federal...................................... (802) 861 1,333
------ ------- ------
Income tax provision continuing operations...... 3,336 5,280 5,811
------ ------- ------
Discontinuing Operations:
Current......................................... -- (3,821) --
Deferred........................................ -- 1,371 --
------ ------- ------
Income tax provision discontinued operations.... -- (2,450) --
------ ------- ------
Total income tax provision.............. $3,336 $ 2,830 $5,811
====== ======= ======
</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,
------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate............................................ 34% 34% 34%
Foreign sales corporation credits......................... (3) (3) (3)
State income taxes, net of federal benefit................ 2 1 1
Other..................................................... (1) -- --
-- -- --
Effective rate.......................................... 32% 32% 32%
== == ==
</TABLE>
I. SIGNIFICANT SALES DATA
No single customer or export country accounted for more than 10 percent of
consolidated revenues in fiscal years 1999, 1998 and 1997.
Export sales are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Europe (including former Soviet Union).......... $ 1,928 $ 500 $ 4,781
Far East........................................ 15,867 27,502 29,343
Middle East and Africa.......................... 31,364 31,694 27,035
North, Central and South America (excluding
U.S.)......................................... 21,214 25,752 26,948
------- ------- -------
Total export sales.................... $70,373 $85,448 $88,107
======= ======= =======
</TABLE>
22
<PAGE> 23
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1999,
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>
2000...................................................... $1,032
2001...................................................... 766
2002...................................................... 548
2003...................................................... 23
2004...................................................... --
Thereafter................................................ --
------
Total lease commitments......................... $2,369
======
</TABLE>
Lease expense for all operating leases, excluding leases with terms of less
than one year, was $1,328,000, $1,259,000 and $1,067,000 for fiscal years 1999,
1998 and 1997, respectively.
Letters of Credit and Bonds
The Company is contingently liable for secured and unsecured letters of
credit and performance bonds totaling approximately $2,991,000 and $116,790,000,
respectively, that were outstanding at October 31, 1999.
Litigation
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 or future 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. There were
no stock grants during fiscal years 1999, 1998 and 1997.
Stock 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 terms of seven 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.
23
<PAGE> 24
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were 202,404 shares available under the plan to be granted as of
October 31, 1999. Stock option activity (number of shares) for the Company
during fiscal years 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Outstanding, beginning of year.......................... 527,560 577,060 429,510
Granted:
Stock options $15.81 per share..................... 252,500
Stock options $8.50 per share...................... 301,850
Exercised:
Stock options $6.25 per share...................... (3,300) (7,800) (31,760)
Stock options $6.75 per share...................... (5,375) (8,100) (47,700)
Forfeited:
Stock options $6.25 per share...................... (14,700) (13,800) (16,400)
Stock options $6.75 per share...................... (9,000) (1,800) (4,090)
Stock options $15.81 per share..................... (18,400) (18,000) (5,000)
------- ------- -------
Outstanding, ranging from $6.25 to $15.81 per share, at
the end of year....................................... 778,635 527,560 577,060
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding
as of October 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF WEIGHTED AVERAGE AVERAGE WEIGHTED
EXERCISE NUMBER REMAINING EXERCISE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE EXERCISE PRICE
- -------- ----------- ---------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$6.75.................... 95,295 0.7 6.75 95,295 6.75
6.25.................... 170,390 2.7 6.25 131,160 6.25
15.81................... 211,100 4.7 15.81 86,900 15.81
8.50.................... 301,850 6.8 8.50 -- 8.50
------- --- ------ ------- ------
$6.25-15.81.............. 778,635 4.5 $ 9.81 313,355 $ 9.05
======= === ====== ======= ======
</TABLE>
Weighted average fair value of options granted during fiscal 1999 was $4.36
per option.
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 1999, 1998 and 1997 consistent with the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net
income and diluted earnings per share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Net income:
As reported..................................... $7,127 $6,665 $12,629
Pro forma....................................... 6,807 6,370 12,529
Diluted earnings per share:
As reported..................................... $ .66 $ .62 $ 1.17
Pro forma....................................... .63 .59 1.16
</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.
24
<PAGE> 25
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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............................ 7 years
Risk-free interest rate............................. 5.99%-6.43%
Expected dividend yield............................. 0.00%
Expected stock price volatility..................... 37.62%-41.48%
</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,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Costs and estimated earnings............................ $ 79,723 $114,127
Progress billings....................................... (63,532) (89,344)
-------- --------
Total costs and estimated earnings in excess of
billings.............................................. $ 16,191 $ 24,783
======== ========
Progress billings....................................... $ 89,146 $ 67,471
Costs and estimated earnings............................ (84,941) (63,626)
-------- --------
Total billings in excess of costs and estimated
earnings.............................................. $ 4,205 $ 3,845
======== ========
</TABLE>
M. DISCONTINUED OPERATIONS
As previously reported on Form 8-K in September 1998, 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 US
Turbine Corporation (USTC), a previously held subsidiary of the Company, 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 was due on December
31, 1999; accordingly, in 1998 the Company recorded a loss from discontinued
operations of $4,800,000 (net of income taxes) or $0.45 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,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Loss from operations before income taxes........ $ -- $(7,250) $ --
Benefit for income taxes........................ -- 2,450 --
------- ------- -------
Net loss from discontinued operations........... $ -- $(4,800) $ --
======= ======= =======
</TABLE>
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable, short-term note payable, debt obligations
and interest rate swaps. The book value of cash and cash equivalents, accounts
receivable, accounts payable and short-term note payable are considered to be
representative of fair value because of the short maturity of these instruments.
The Company believes that the
25
<PAGE> 26
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying value of its borrowings under the credit agreement approximate their
fair value as they bear interest at rates indexed to the Bank's IBOR rate.
At October 31, 1999 the Company had $8,572,000 borrowings subject to
interest rate swap at a rate of 5.20% through September 30, 2003. The
approximate fair value of the swap agreement at October 31, 1999 is $237,000.
The fair value is the amount estimated that the Company would receive to
terminate the contract.
O. BUSINESS SEGMENTS
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 the distribution of
electric power, and 3. Process Control Systems which consists principally of
instrumentation, computer control, communications and data management systems
for the control of dynamic processes.
The tables below reflect certain information relating to the Company's
operations by segment. Substantially all revenues represent sales from
unaffiliated customers. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. For purposes
of this presentation, all general corporate expenses have not been allocated
between operating segments. In addition, the corporate assets are mainly cash
and cash equivalents transferred to the corporate office from the segments and
interest charges and credits to the segments from the corporate office are based
on use of funds.
The required disclosures for the business segments are set forth below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Switchgear................................. $151,475 $163,367 $140,117
Bus Duct................................... 28,016 26,203 32,061
Process Control Systems.................... 33,040 23,163 19,473
-------- -------- --------
Total Revenues..................... $212,531 $212,733 $191,651
======== ======== ========
Earnings from operations before income taxes:
Switchgear................................. $ 4,772 $ 10,053 $ 11,361
Bus Duct................................... 5,328 5,924 7,612
Process Control Systems.................... 1,500 1,012 705
Corporate.................................. (1,137) (244) (1,239)
-------- -------- --------
Total earnings from operations
before income taxes.............. $ 10,463 $ 16,745 $ 18,439
======== ======== ========
Assets:
Switchgear................................. $ 85,157 $ 98,842 $ 89,275
Bus Duct................................... 14,764 12,271 15,013
Process Control Systems.................... 10,997 10,309 9,640
Corporate.................................. 16,613 5,709 8,939
-------- -------- --------
Total Assets....................... $127,531 $127,131 $122,867
======== ======== ========
</TABLE>
26
<PAGE> 27
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Depreciation and Amortization:
Switchgear................................. $ 3,516 $ 2,955 $ 2,294
Bus Duct................................... 642 662 608
Process Control Systems.................... 343 453 474
-------- -------- --------
Total Depreciation and
Amortization..................... $ 4,501 $ 4,070 $ 3,376
======== ======== ========
Capital Expenditures:
Switchgear................................. $ 4,820 $ 9,323 $ 13,684
Bus Duct................................... 294 251 862
Process Control Systems.................... 192 165 227
-------- -------- --------
Total Capital Expenditures......... $ 5,306 $ 9,739 $ 14,773
======== ======== ========
Interest Expense (Income):
Switchgear................................. $ 1,528 $ 1,356 $ 675
Bus Duct................................... (782) (715) (643)
Process Control............................ 96 83 292
Corporate.................................. (481) (485) (740)
-------- -------- --------
Total Interest Expense (Income).... $ 361 $ 239 $ (416)
======== ======== ========
</TABLE>
27
<PAGE> 28
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
P. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The table below sets forth the unaudited consolidated operating results by
fiscal quarter for the years ended October 31, 1999 and 1998 (in thousands,
except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999 --
Revenues..................................... $54,134 $56,331 $51,612 $50,454
Gross profit................................. 10,932 10,238 9,774 9,234
Net earnings................................. 2,178 1,820 1,513 1,617
Net earnings per common and common equivalent
share:
Basic..................................... .20 .17 .14 .15
Diluted................................... .20 .17 .14 .15
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 and common
equivalent 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
</TABLE>
Q. SUBSEQUENT EVENTS
The Company announced in December 1999 that authorization had been given by
the Board of Directors to repurchase up to $5,000,000 of its outstanding common
stock, subject to market conditions. The repurchased stock will be added to
treasury stock and will be used for general corporate purposes.
28
<PAGE> 29
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, 1999, 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
1999.
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, (filed
as Exhibit 10 to Company's Form 10-K for the fiscal year
ended October 31, 1998 and incorporated herein by
reference).
10.6 -- Fourth Amendment dated February 26, 1999 to credit
agreement between Powell Industries, Inc. and Bank of
America Texas N.A. (filed as Exhibit 10 to Company's 10-Q
for quarter ended April 30, 1999 and incorporated herein
by reference).
</TABLE>
29
<PAGE> 30
<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).
10.12 -- Fifth Amendment dated December 31, 1999 to credit
agreement between Powell Industries, Inc. and Bank of
America Texas N.A.
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.
None
30
<PAGE> 31
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
--------- -----
<C> <S>
/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 28, 2000
31
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS 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
1999.
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, (filed
as Exhibit 10 to Company's Form 10-K for the fiscal year
ended October 31, 1998 and incorporated herein by
reference).
10.6 -- Fourth Amendment dated February 26, 1999 to credit
agreement between Powell Industries, Inc. and Bank of
America Texas N.A. (filed as Exhibit 10 to Company's 10-Q
for quarter ended April 30, 1999 and incorporated herein
by reference).
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>
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBITS 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).
10.12 -- Fifth Amendment dated December 31, 1999 to credit
agreement between Powell Industries, Inc. and Bank of
America Texas N.A.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Public Accountants.
27.0 -- Financial data schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
POWELL INDUSTRIES, INC.
INCENTIVE COMPENSATION PLAN FOR 1999
JANUARY 1999
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.
Page 1
<PAGE> 2
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
Refer to your specific targets and funding levels (attached). The
attached also includes graphs showing how this funding works in
relationship to the targets.
CORPORATE PARTICIPANTS
o 70% Powell Industries, Inc. Earnings Per Share
o 30% Percent 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
accrued incentive compensation payments.
Page 2
<PAGE> 3
In addition to the incentive award computed under this plan, the
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 Committee 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 end 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.
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 10.12
[BANK OF AMERICA LOGO]
AMENDMENT TO DOCUMENTS
================================================================================
FIFTH AMENDMENT TO BUSINESS LOAN AGREEMENT
This FIFTH Amendment to BUSINESS LOAN AGREEMENT is entered into as of DECEMBER
31, 1999, among Bank of America, 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 26, 1998, OCTOBER 15, 1998 AND FEBRUARY 26, 1999 (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
"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)
2. In Paragraph 1.2 (Availability) of the Agreement, the date "FEBRUARY
28, 2002" is substituted for the date "February 28, 2001".
3. In Paragraph 1.5 (Letters of Credit) Paragraph 2, the amount of
"FIFTEEN MILLION AND NO/100 ($15,000,000.00) is substituted for Twenty
Million and No/100 Dollars ($20,000,000.00).
The Fee Amount for Letters of Credit issued with EXPIRATIONS GREATER
THAN 366 days is amended to read 3/4% per annum.
4. In Paragraph 1.7 (Offshore Rate) the Funded Debt to EBITDA and
Percentage Amount is amended as follows:
FUNDED DEBT TO EBITDA PERCENTAGE AMOUNT
--------------------- -----------------
<1.25 0.75%
>=1.25 but <1.75 1.00%
>=1.75 1.25%
5. In renumbered Paragraph 3.1 (a) (Unused Commitment Fee) the Unused
Commitment Dee is amended as follows:
FUNDED DEBT TO EBITDA COMMITMENT FEE
--------------------- --------------
<1.25 0.20%
<PAGE> 2
>=1.25 but <1.75 0.25%
>=1.75 0.25%
6. In renumbered Paragraph 7.3 (Tangible Net Worth) the first paragraph is
amended to read as follows:
7.3 Tangible Net Worth. To maintain Tangible Net worth beginning
October 31, 1999 equal to at least Seventy Five Million and No. 100
Dollars ($75,000,000.00) plus (i) 50% of cumulative positive net
income after taxes for fiscal year's end after October 31, 1999, plus
(ii) 100% of additional equity contributions.
7. In renumbered Paragraph 7.6 (Other Debts) item (d) is amended to read as
follows:
Additional direct or contingent debts for business purposes which do not
exceed a total principal amount of Five Million and No/100 ($5,000,000.00)
outstanding at any one time and shall not rank senior in right of payment
to Bank's debt.
8. In renumbered Paragraph 7.17 is being amended to include (f) Management
Change. Borrower may not make any substantial change in its present
executive or management personnel.
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, N.A.
By:
--------------------------
(Bank Officer Name, Title)
POWELL INDUSTRIES, INC.
By: /s/ J.F. AHART
--------------------------
J.F. Ahart, Vice President
<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 Company 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 ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated December 6, 1999, 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 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 10,646
<SECURITIES> 0
<RECEIVABLES> 43,855
<ALLOWANCES> 852
<INVENTORY> 15,173
<CURRENT-ASSETS> 87,836
<PP&E> 69,739
<DEPRECIATION> 36,453
<TOTAL-ASSETS> 127,531
<CURRENT-LIABILITIES> 28,054
<BONDS> 7,143
0
0
<COMMON> 107
<OTHER-SE> 90,665
<TOTAL-LIABILITY-AND-EQUITY> 127,531
<SALES> 212,531
<TOTAL-REVENUES> 212,531
<CGS> 172,353
<TOTAL-COSTS> 172,353
<OTHER-EXPENSES> 29,354
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 361
<INCOME-PRETAX> 10,463
<INCOME-TAX> 3,336
<INCOME-CONTINUING> 7,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,127
<EPS-BASIC> 0.67
<EPS-DILUTED> 0.66
</TABLE>
