UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
| |
| ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2015
OR
¨ | |
| |
| |
| TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-12488
Powell Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 88-0106100 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| ||
8550 Mosley Houston, Texas |
| 77075-1180 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code:
(713) 944-6900
Securities registered pursuant to section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, par value $.01 per share NASDAQ Global Market
Securities registered pursuant to Section 12(g) of Act:
None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨£ Yes xR No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨£ Yes xR No
Indicate by check mark 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. xR Yes ¨£ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xR Yes ¨£ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) 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. ¨£
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
¨ Large accelerated filer | x Accelerated filer | ¨ Non-accelerated filer | ¨ Smaller reporting company | ||||
|
| ||||||
|
|
|
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). ¨£ Yes xR No
The aggregate market value of the votingcommon stock held by non-affiliates of the registrant was approximately $403 million as of March 31, 2015, based upon the last business dayclosing price on the NASDAQ Global Market on that date. For purposes of the most recently completed second fiscal quarter, March 31, 2012, was approximately $403,202,000.
Indicate the numbercalculation above only, all directors, executive officers and beneficial owners of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
5% or more are considered to be “affiliates.”
At November 30, 2012,27, 2015, there were 11,915,67311,414,584 outstanding shares of the registrant’s common stock, par value $0.01 per share.
Documents Incorporated By Reference
Portions of the registrant’s definitive Proxy Statement for the 20132016 annual meeting of stockholders to be filed not later than 120 days after September 30, 2012,2015, are incorporated by reference into Part III of this Form 10-K.
POWELL INDUSTRIES, INC.
TABLE OF CONTENTS
Page | |||
Cautionary Statement Regarding Forward-Looking Statements; Risk Factors | 3 | ||
|
|
| |
|
|
| |
| |||
| |||
Item 1. | �� | 4 | |
Item 1A. | 6 | ||
Item 1B. | 10 | ||
Item 2. | 10 | ||
Item 3. | 10 | ||
Item 4. | 10 | ||
|
| ||
| |||
Item 5. | 11 | ||
Item 6. | 13 | ||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | |
Item 7A. | 24 | ||
Item 8. | 25 | ||
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 51 | |
Item 9A. | 51 | ||
Item 9B. | 51 | ||
|
| ||
| |||
Item 10. | 52 | ||
Item 11. | 52 | ||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 52 | |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 52 | |
Item 14. | 52 | ||
|
| ||
| |||
Item 15. | 53 | ||
57 |
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS;
RISK FACTORS
Unless otherwise indicated, all references to “we,” “us,” “our,” “Powell” or “the Company” include Powell Industries, Inc. and its consolidated subsidiaries.
Forward-Looking Statements
This Annual Report on Form 10-K (Annual Report) includes forward-looking statements based on our current expectations, which are subject to risks and uncertainties. Forward-looking statements include information concerning future results of operations and financial condition. Statements that contain words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” or similar expressions may be forward-looking statements. These forward-looking statements are subject to risks and uncertainties, and many factors could affect the future financial results and condition of the Company. Factors that may have a material effect on our revenues, expenses and operating results include adverse business or market conditions, our ability to secure and satisfy customers,meet our customers’ scheduling requirements, our customers’ financial conditions and their ability to secure financing to support current and future projects, the availability and cost of materials from suppliers, availability of skilled labor force, adverse competitive developments and changes in customer requirements as well as those circumstances discussed under “Item 1A. Risk Factors,” below. Accordingly, actual results may differ materially from those expressed or implied by the forward-looking statements contained in this Annual Report. Any forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The forward-looking statements contained in this Annual Report are based on current assumptions that we will continue to develop, market, manufacture and ship products and provide services on a competitive and timely basis; that competitive conditions in our markets will not change in a materially adverse way; that we will accurately identify and meet customer needs for products and services; that we will be able to hire and retain skilled laborers and hire key employees; that our products and capabilities will remain competitive; that the financial markets and banking systems will stabilizeremain stable and availability of credit will continue; that risks related to shifts in customer demand are minimized and that there will be no material adverse change in the operations or business of the Company. Assumptions relating to these factors involve judgments that are based on available information, which may not be complete, and are subject to changes in many factors beyond the Company’s control that can materially affect results. Because of these and other factors that affect our operating results, past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
3
Overview
Powell Industries, Inc. (we, us, our, Powell or the Company) was incorporated in the state of Delaware in 2004 as a successor to a Nevada company incorporated in 1968. The Nevada corporation was the successor to a company founded by William E. Powell in 1947, which merged into the Company in 1977. OurWe are headquartered in Houston, Texas, and our major subsidiaries, all of which are wholly-owned,wholly owned, include: Powell Electrical Systems, Inc.; Transdyn,Powell (UK) Limited; Powell Canada Inc.; and Powell Industries International, Inc.; Switchgear & Instrumentation Limited (S&I) and Powell Canada Inc. B.V.
We develop, design, manufacture and service custom engineered-to-order equipment and systems for the management and control of electrical energy and other critical processes. Headquartered in Houston, Texas, we serve the transportation, environmental, energy, industrial and utility industries.
Our website is powellind.com. We make available, free of charge on or through our website, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonableis reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Paper or electronic copies of such material may also be requested by contacting the Company at our corporate offices.
Our business operations are consolidated into two business segments: Electrical Power Products and Process Control Systems. Revenues from customers located in the United States of America (U.S.) accounted for approximately 58%, 67% and 71%Additionally, all of our consolidated revenuesreports filed with the SEC are available via their website at http://www.sec.gov, or may be read and copied at the SEC Public Reference Room at 100 F Street, NE, Washington, DC 20549.
We develop, design, manufacture and service custom-engineered equipment and systems for the fiscal years ended September 30, 2012, 2011distribution, control and 2010, respectively. Approximately 76%monitoring of our long-lived assets were located in the U.S. at September 30, 2012, with the remaining long-lived assets located primarily in the United Kingdom (U.K.)electrical energy designed to (1) distribute, control and Canada. Financial information related to our business and geographical segments is included in Note M of Notes to Consolidated Financial Statements.
Electrical Power Products
Our Electrical Power Products business segment develops, designs, manufactures and markets custom engineered-to-order electrical power distribution and control systems designed (1) to distribute, monitor and control the flow of electrical energy and (2) to provide protection to motors, transformers and other electrically-poweredelectrically powered equipment. Our principal products include integrated power control room substations (PCRs®), custom-engineered modules, electrical houses (E-Houses), traditional and arc-resistant medium-voltage distribution switchgear and control gear, medium-voltage circuit breakers, offshore generator and control modules, monitoring and control communications systems, motor control centers and bus duct systems. These products are designed for application voltages ranging from 480 volts to 38,000 volts and are used in electric rail transportation,oil and gas refining, chemical manufacturing,offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, systemspulp and paper and other heavy industrial markets. Our product scope includes designs tested to meet both U.S. standards (ANSI) and international standards (IEC). We also seek to assist customers by providing value-added services such as spare parts, field service inspection, installation, commissioning, modification and repair, retrofit and retrofill components for existing systems and replacement circuit breakers for switchgear that is obsolete or that is no longer produced by the original manufacturer. We workseek to establish long-term relationships with the end users of our systems and withas well as the design and construction engineering firms contracted by those end users.
References to Fiscal 2015, Fiscal 2014 and Fiscal 2013 used throughout this Annual Report relate to our fiscal years ended September 30, 2015, 2014 and 2013, respectively.
Revenues from customers located in the United States of America (U.S.) accounted for approximately 72%, 56% and 58% of our consolidated revenues for Fiscal 2015, 2014 and 2013, respectively. Revenues from customers located in Canada accounted for approximately 15%, 21% and 18% of consolidated revenues for Fiscal 2015, 2014 and 2013, respectively. Approximately 62% of our long-lived assets were located in the U.S. at September 30, 2015, with the remaining long-lived assets located primarily in Canada and the United Kingdom (U.K.). Detailed geographic information is included in Note L of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
We previously reported two business segments: Electrical Power Products and Process Control Systems. In January 2014, we sold our wholly owned subsidiary Transdyn Inc. (Transdyn) which was reported in our Process Controls business segment. We have presented the results of these operations as income from discontinued operations, net of tax, for each of the accompanying consolidated statements of operations. While this sale did not result in a material disposition of assets or material reduction to income before income taxes relative to our consolidated financial statements, the revenues, gross profit, income before income taxes and assets of Transdyn comprised a significant majority of those respective amounts previously reported in our Process Control Systems business segment. As we previously reported only two business segments, Electrical Power Products and Process Control Systems, we have removed the presentation of business segments in this Annual Report. Additionally, all current and historical financial information presented in this Annual Report excludes the financial information for Transdyn or presents it as discontinued operations where applicable. For more information about this disposition, see Note N of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Customers and Markets
This business segment’sOur principal productscustomers are designed for use by and marketed to technologically sophisticated users of large amounts of electrical energy that typically haverequire a need for complex combinationscombination of electrical components and systems. OurThese customers and their industries include oil and gas producers,refining, offshore oil and gas pipelines, refineries,production, petrochemical, plants, electricalpipeline, terminal, mining and metals, light rail traction power, generators, public and private utilities, co-generation facilities, mining/metals operations,electric utility, pulp and paper plants, transportation authorities, governmental agencies and other large industrial customers. markets.
Products and services are principally sold directly to the end-userend user or to an engineering, procurement and construction (EPC) firm on behalf of the end-user.end user. Each project is specifically tailoredengineered and manufactured to meet the exact specifications and requirements of the individual customer. Powell’s expertise is in the design and engineering, manufacturing, project management and integration of the various systems into a single custom-engineered deliverable. We market and sell our products and services, which are typically awarded in competitive bid situations, to a wide variety of customers, governmental agencies, markets and geographic regions, which are typically awarded in competitive bid situations.regions. Contracts often represent large-scale and complex projects with an individual customer. By their nature, these projects are typically nonrecurring. Thus, multiple and/or continuous projects of similar magnitude with the same customer may vary. As such, gaps inthe timing of large project awards may cause material fluctuations in segment revenues. revenues and gross margins.
WeDue to the nature and timing of large projects, a significant percentage of revenues in a given period may result from one specific contract or customer. Although we could be adversely impacted by a significant reduction in business volume from a particular industry, which we currently serve. As a result of the fifteen-year supply agreement that we entered into with General Electric Company (GE) on August 7, 2006, our revenues from GE were
4
$64 million, $54 million and $58 million in fiscal 2012, fiscal 2011 and fiscal 2010, respectively, or 9%, 10% and 11% of our consolidated revenues for these periods. Aside from GE, with whom we have the long-term supply agreement, we do not believe that the loss of any specific customer would have a material adverse effect on our business. GE has become aHowever, from time to time, an individual manufacturing facility may have significant volume from one particular customer and has accounted for, and could continuewhich would be material to account for, more than 10% of the annual revenues of this business segment as a result of the supply agreement that we entered into on August 7, 2006. Only one non-recurring petrochemical project being shipped to Colombia amounted to revenues in excess of 10% of consolidated revenues during fiscal 2012.
During fiscal year 2010, no one country outside of the U.S.facility. No customer accounted for more than 10% of our revenues with customers. However, during fiscal years 2012 and 2011, our operations in Canada accounted for 13% and 17% of revenues with customers, respectively. During fiscal year 2012, one petrochemical project being shipped to Colombia accounted for 11% of revenues with customers. For information on the geographic areas in which our consolidated revenues were recorded in each of the past three fiscal years, see Note M of Notes to Consolidated Financial Statements.Fiscal 2015, Fiscal 2014 or Fiscal 2013.
Competition
We strive to be the supplier of choice for custom engineeredcustom-engineered system solutions and services to a variety of customers and markets. Our activities are predominantly in the oil and gas and the electric utility industries, but also include other markets where customers need to manage, monitor and control large amounts of electrical energy. The majority of our business is in support of capital investment projects whichthat are highly complex and competitively bid. Our customized systems are designed to meet the specifications of our customers. Each system is designed, engineered and manufactured to the specific requirements of the particular application. We consider our engineering, project management, systems integration and technical support capabilities vital to the success of our business.
We believe our products and services, turnkey integration capabilities, technical and project management strengths, application expertise and specialty contracting experience, together with our responsiveness and flexibility to the needs of our customers and financial strength, give us a sustainable competitive advantage in our markets. We compete with a small number of multinational competitors that sell to a broad industrial and geographic market and with smaller, regional competitors that typically have limited capabilities and scope of supply.
Our principal competitors include ABB, Eaton, Corporation, GE,General Electric Company, Schneider Electric and Siemens. The competitive factors used during bid evaluation by our customers vary from project to project and may include technical support and application expertise, engineering and manufacturing capabilities, equipment rating, delivered value, scheduling and price. While projects are typically non-recurring, a significant portion of our business is from repeat customers and many times involves third-party engineering and construction companiesEPC firms hired by the end-userend user and with which we also have long and established relationships. We consider our engineering, manufacturing and service capabilities vital to the success of our business, and believe our technical and project management strengths, together with our responsiveness and flexibility to the needs of our customers, give us a competitive advantage in our markets. Ultimately, our competitive position is dependent upon our ability to provide quality custom engineered-to-ordercustom-engineered products, services and systems on a timely basis at a competitive price.
Backlog
Backlog represents the dollar amount of revenue that we expect to realize from work to be performed on uncompleted contracts, including new contractual agreements on which work has not begun. Our methodology for determining backlog may not be comparable to the methodology used by other companies. Orders included in our backlog are represented by customer purchase orders and contracts, which we believe to be firm. Orders in the Electrical Power Products business segmentOur backlog at September 30, 2012,2015 totaled $361.9$441.4 million compared to $394.6$507.1 million at September 30, 2011.2014. We anticipate that approximately $300$374 million of our fiscal 2012Fiscal 2015 ending backlog will be fulfilled during our fiscal year 2013. Conditions outside of our control have caused us to experience some customer delays and cancellations of certain projects in the past; accordingly, backlogending September 30, 2016. Backlog may not be indicative of future operating results as orders in our backlog may be cancelled or modified by our customers.
Raw Materials and Suppliers
The principal raw materials used in Electrical Power Products’our operations include steel, copper and aluminum and various electrical components. Raw materialMaterial costs represented 46% of revenues in Fiscal 2015 compared to 48% of our revenues in fiscal 2012.Fiscal 2014. Unanticipated increaseschanges in raw material requirements, disruptions in supplies or price increases could increaseimpact production costs and adversely affect profitability. our results of operations.
We purchaseOur supply base for certain key electrical components on a sole-sourced basis and maintain a qualification and performance monitoring program to control risk associated with sole-sourced items.is limited. Changes in our design to accommodate similar components from other suppliers could be implemented to resolve a supply problem related to a sole-sourced component. In this circumstance, supply problems could result in delays in our ability to meet commitments to our customers. We believe that sources of supply for raw materials and components are generally sufficient, and we have no reason todo not believe a shortage of raw materials will cause any materialsignificant adverse impact during fiscal year 2013.in the future. While we are not dependent on any one supplier for a material amountthe majority of our raw materials, we are highly dependent on our suppliers in order to meet commitments to our customers. We didhave not experienceexperienced significant or unusual issues in the purchase of key raw materials and commoditiesor components in the past three fiscal years.
ThisOur business segment is subject to the effects of changing material prices. During the last three fiscal years, we have not experienced significant price volatility for certain commodities, in particular steel, copper and aluminum products, which areraw materials or component parts used in the production of our products. While the cost outlook for commodities used in the production of our products is not certain, we believe we can manage these inflationary pressuresthis volatility through contract
5
pricing adjustments, with material-cost predictive estimating and by actively pursuing internal cost reduction efforts. We did not enter into any derivative contracts to hedge our exposure to commodity price changes in fiscal years 2012, 2011Fiscal 2015, 2014 or 2010. 2013.
Employees
At September 30, 2012, the Electrical Power Products business segment2015, we had 2,8122,803 full-time employees located primarily in the United States, Canada and the United Kingdom and Canada.Kingdom. Our employees are not represented by unions, and we believe that our relationship with our employees is good.
Research and Development
This business segment’s research and development activities are directed toward the development of new products and processes as well as improvements in existing products and processes. Research and development expenditures were $6.3 million, $6.4 million and $6.0 million in fiscal years 2012, 2011 and 2010, respectively, and are reported in selling, general and administrative expenses in the consolidated statement of operations.
Intellectual Property
While we are the holder of various patents, trademarks, servicemarks, copyrights and licenses, relating to this business segment, we do not consider any individual intellectual property to be material to our consolidated business operations.
Process Control Systems
Our Process Control Systems business segment designs and delivers custom engineered-to-order technology solutions that help our customers manage their critical transportation, environmental and energy management processes and facilities. Our proprietary DYNAC® software suite provides a highly integrated operations management solution for these vital operations. The mission-critical information may be traffic flow in our intelligent transportation management solutions, water quality in our environmental treatment solutions or electrical power management in the case of our substation automation solutions. DYNAC® has user configurable applications designed specifically for clients that require high performance, 24/7 availability and superior data integrity in a secure environment.
We provide a comprehensive set of technical services to deliver these systems. A diverse team of professional systems engineers, software engineers, analysts, network specialists and automation engineers provide expertise for the entire life cycle of a technology project. We have designed and built systems for various transit facilities and roadways around the world.
Customers and Markets
This business segment’s products and services are principally sold directly to end-users in the transportation, environmental and energy sectors. From time to time, a significant percentage of revenues may result from one specific contract or customer due to the nature of large projects common to this business segment. In fiscal year 2010, revenues with two customers individually accounted for more than 10% of our segment revenues. Revenues from these customers totaled $3.2 million in fiscal 2010. In fiscal years 2012 and 2011, no customer individually accounted for more than 10% of our segment revenues. Contracts often represent large-scale, single-need projects with an individual customer. By their nature, these projects are typically nonrecurring for a given customer. Thus, multiple and/or continuous projects of similar magnitude with the same customer are rare. As such, gaps in large project awards may cause material fluctuations in segment revenues.
During each of the past three fiscal years, the U.S. is the only country that accounted for more than 10% of segment revenues. For information on the geographic areas in which our consolidated revenues were recorded in each of the past three fiscal years, see Note M of Notes to Consolidated Financial Statements.
Competition
This business segment operates in a competitive market where competition for each contract varies. Depending upon the type of system and customer requirements, the competition may include large multinational firms as well as smaller regional competitors.
Our customized systems are designed to meet the specifications of our customers. Each system is designed, delivered and installed to the specific requirements of the particular application. We consider our engineering, systems integration and technical support capabilities vital to the success of our business. We believe our turnkey systems integration capabilities, customizable software, domain expertise, specialty contracting experience and financial strength give us a competitive advantage in our markets.
Backlog
Backlog represents the dollar amount of revenue that we expect to realize from work to be performed on uncompleted contracts, including new contractual agreements on which work has not begun. Our methodology for determining backlog may not be comparable to the methodology used by other companies. Orders included in our backlog are represented by customer purchase orders and contracts, which we believe to be firm. Orders in the Process Control Systems business segment backlog at September 30, 2012, totaled $74.8 million compared to $48.4 million at
6
September 30, 2011. We anticipate that approximately $21.0 million of our ending fiscal 2012 backlog will be fulfilled during our 2013 fiscal year. Conditions outside of our control have caused us to experience some customer delays and cancellations of certain projects in the past; accordingly, backlog may not be indicative of future operating results as orders in our backlog may be cancelled or modified by our customers.
Employees
The Process Control Systems business segment had 169 full-time employees at September 30, 2012, primarily located in the United States. Our employees are not represented by unions, and we believe that our relationship with our employees is good.
Research and Development
The majority of research and development activities of this business segment are directed toward the development of our software suites for the management and control of the critical processes and facilities of our customers. Non-project research and development expenditures were $1.4 million, $1.1 million and $0.4 million in fiscal years 2012, 2011 and 2010, respectively, and are reported in selling, general and administrative expenses in the Consolidated Statements of Operations.
Intellectual Property
While we are the holder of various copyrights related to software for this business segment, we do not consider any individual intellectual property to be material to our consolidated business operations.
Our business is subject to a variety of risks and uncertainties, including, but not limited to, the most significant risks and uncertainties described below. Additional risks and uncertainties not known to us or not described below may also impair our business operations. If any of the following risks actually occur, our business, financial condition, cash flows and results of operations could be harmed and we may not be able to achieve our goals. This Annual Report also includes statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the discussion under “Forward-Looking Statements,” above.
Economic uncertainty and financial market conditions may impact our customer base, suppliers and backlog.
Various factors drive demand for our products and services, including the price ofand demand for oil and gas, capital expenditures, economic forecasts and financial markets. Continued uncertaintyUncertainty regarding these factors could impact our customers and severely impact the demand for projects that would result inand orders for our products and services. If one or more of our suppliers or subcontractors experiences difficulties that result in a reduction or interruption in supply to us, or they fail to meet our manufacturing requirements, our business could be adversely impacted until we are able to secure alternative sources. From time to time, an individual manufacturing facility may have significant volume from one particular customer which would be material to that facility. Furthermore, our ability to expand our business would be limited in the future if we are unable to increase our bonding capacity or our credit facility on favorable terms or at all. These disruptions could lead to a lowerreduced demand for our products and services, and could materially impact our business, financial condition, cash flows and results of operations and could potentially impact the trading price of our common stock.
Our backlog is subject to unexpected adjustments and cancellations and, therefore, may not be a reliable indicator of our future earnings.
We have a backlog of uncompleted contracts. Orders included in our backlog are represented by customer purchase orders and contracts, whichBacklog represents the dollar amount of revenue that we believeexpect to realize from work to be firm. Backlog develops as a result ofperformed on uncompleted contracts, including new business taken,contractual agreements on which represents the revenue value of new project commitments received. Backlog consists of projects which either (1) have not yet been started or (2) are in progress and are not yet completed. In the latter case, the revenue value reported in backlog is the remaining value associated with work that has not yet been completed.begun. From time to time, projects are cancelled that appeared to have a high certainty of going forward at the time they were recorded as new business taken.the order was recorded. In the event of a project cancellation, or modification, we may be reimbursed for certain costs but typicallymay not have noa contractual right to the total revenue reflected in our backlog. In addition to our being unable to recover certain direct costs, cancelled projects may also result in additional unrecoverable costs due to the underutilization of our assets. Accordingly, the amounts recorded in backlog may not be a reliable indicator of our future earnings.
Our volume of fixed-price contracts andThe use of percentage-of-completion accounting on our fixed-price contracts could result in volatility in our results of operations.
As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” and in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report, the majority of our revenues are recognized on the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting, revenues are recognized as work is performed. The percentage-of-completion accounting practice we use results in our recognizingrevenue earned to date is calculated by multiplying the total contract revenues and earnings ratably overprice by the contract term in proportionpercentage of performance to our incurrence of contract costs. The earnings or losses recognized on individual contracts aredate, which is based on total costs or total labor dollars incurred to date compared to the total estimated costs or total labor dollars estimated at completion. The method used to determine the percentage of completion is typically the cost method, unless the labor method is a more accurate method of measuring the progress of the project. Application of the percentage-of-completion method of accounting requires the use of estimates of contract revenues, costs to be incurred for the performance of the contract. The cost estimation process is based upon the professional knowledge and profitability. The processexperience of estimating costs on projects requires a significant amount of judgmentour engineers, project managers and combines
7
professional engineering, cost estimating, pricing and accounting inputs.financial professionals. Contract losses are recognized in full when determined, and estimates of revenue and cost to complete are adjusted based on ongoing reviews of estimated contract performance. Previously recorded estimates are adjusted as the project progresses.progresses and circumstances change. In certain circumstances, it is possible that such adjustments to costs and revenues could have a significant impact on our operating results for any fiscal quarter or year.
A portionThe majority of our contracts contain terms with penalty provisions. performance obligations that may subject us to penalties or additional liabilities.
SomeMost of our customer contracts containhave schedule and performance obligation clauses that, if we fail to meet them, could subject us to penalty provisions, for the failure to meet specified contractual provisions. These contractual provisions defineliquidated damages or claims against our outstanding letters of credit or performance bonds. In addition, some customer contracts stipulate protection against gross negligence or willful misconduct. Each individual contract defines the conditions under which our customersthe customer may make claimsa claim against us. In many cases in which weIt is possible that adjustments arising from such claims, or our failure to manage our contract risk, could have had potential exposurea significant impact on our operating results for damages, such damages ultimately were not fully asserted by our customers. any fiscal quarter or year.
Fluctuations in the price and supply of raw materials used to manufacture ourproducts may reduce our profits and could materially impact our ability to meet commitments to our customers.
Our raw material costs represented 47%46% of our consolidated revenues for the fiscal year ended September 30, 2012.Fiscal 2015. We purchase a wide variety of raw materials and component parts to manufacture our products, including steel, aluminum, copper and various electrical components. Unanticipated increases in raw material requirements, changes in supplier availability or price increases could increase production costs and adversely affect profitability.profitability as fixed-price contracts may prohibit our ability to charge the customer for the increase in raw material prices. Our supply base for certain key electrical components is limited. Our ability to meet customer commitments could be negatively impacted due to the time and effort associated with the selection and qualification of a new supplier. supplier and changes in our design to accommodate similar components from other suppliers. Additionally, we rely on certain competitors for key materials used in our products. This could put us at risk if the relationships change or become adversarial.
Our industry is highly competitive.
Some of our competitors are significantly larger and have substantially greater resources than we do.resources. Competition in the industry depends on a number of factors, including technical ability, production capacity, location and price. Certain of our competitors may have lower cost structures and may, therefore, be able to provide their products or services at lower prices than we are able to provide. Similarly, we cannot be certain that we will be able to maintain or enhance our competitive position within our industry, maintain our customer base at current levels or increase our customer base. New companies may enter the markets in which we compete, or industry consolidation may occur, further increasing competition in our markets which could affect future sales and have a material impact on our results of operations.
Our operations could be adversely impacted by the continuing effects from government regulations.
Various regulations have been implemented related to new safety and certification requirements applicable to oil and gas drilling and production activities. While certain new drilling plans and drilling permits have been approved, we cannot predict whether operators will be able to satisfy these requirements. Further, we cannot predict what the continuing effects of government regulations on offshore deepwater drilling projects may have on offshore oil and gas exploration and development activity, or what actions may be taken by our customers or other industry participantsregulations.
Changes in response to these regulations. Changes inpolicy, laws or regulations regarding offshore oil and gas exploration and development activities and decisions by customers and other industry participants could reduce demand for our services, which would have a negative impact on our operations. Similarly,Various regulations have been implemented around the world related to safety and certification requirements applicable to oil and gas drilling and production activities and we cannot accuratelypredict whether operators will be able to satisfy these requirements. Additionally, customer demands and new regulations related to the conflict-free mineral disclosures may force us to continue to incur additional expenses. Further, we cannot predict future regulations by the governmentchanges in any country in which we operate and how those regulationschanges may affect our ability to perform projects in those regions.
Changes in tax laws and regulations may change our effective tax rate and could have a material effect on our financial results.
InternationalWe are subject to income taxes in the United States and political eventsnumerous foreign jurisdictions. A change in tax laws, deductions or credits, treaties or regulations, or their interpretation, in the countries in which we operate could result in a higher tax rate on our pre-tax income, which could have a material impact on our net income and cash flows from operations. We are regularly under audit by tax authorities, and our tax estimates and tax positions could be materially affected by many factors including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the realizability of deferred tax assets and changes in uncertain tax positions. A significant increase in our tax rate could have a material effect on our profitability.
Our international operations expose us to risks that are different from, or possibly greater than, the risks we are exposed to domestically and may adversely affect our operations.
International sales accounted for 42%Revenues with customers located outside of our revenues in fiscal 2012,the U.S., including sales from our operations in the United Kingdom and Canada. OurCanada, accounted for approximately 28% of our consolidated revenues in Fiscal 2015. While our manufacturing facilities are located in
developed countries with historically stable operating and fiscal environments. Ourenvironments, our consolidated results of operations, cash flows and financial condition could be adversely affected by the occurrencea number of factors, including: political and economic instability; social unrest, acts of terrorism, force majeure, war or other armed conflict; inflation; currency fluctuations, devaluations and conversion restrictions; governmental activities that limit or disrupt markets, restrict payments or limit the movement of funds and trade restrictions andor economic embargoes imposed by the U.S. or other countries. Additionally, the compliance with foreign and domestic import and export regulations and anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, or similar laws of other jurisdictions outside the United States, could adversely impact our ability to compete for contracts in such jurisdictions. Moreover, the violation of such laws or regulations could result in severe penalties including monetary fines, criminal proceedings and suspension of export privileges.
Acquisitions involve a number of risks.
Our strategy has been to pursueincludes the pursuit of growth and product diversification through the acquisition of companies or assets that will enable us to expand our product, geographic coverage and service offerings. We routinely review potential acquisitions. Weacquisitions; however we may be unable to implement this strategy if we cannot reach agreement on potential strategic acquisitions on acceptable terms or for other reasons.strategy. Acquisitions involve certain risks, including difficulties in the integration of operations and systems; failure to realize cost savings; the termination of relationships by key personnel and customers of the acquired company and a failure to add additional employees to handle the increased volume of business. Additionally, financial and accounting challenges and complexities in areas such as valuation, tax planning, treasury management and financial reporting from our acquisitions pose risks to our strategy. Due diligence may not reveal all risks and challenges associated with our acquisitions. Companies that we acquire may not achieve revenues, profitability or cash flows that we expected, or that ultimately justify the investment. It is possible that impairment charges resulting from the overpayment for an acquisition may negatively impact our earnings.results of operations. Financing for acquisitions may require us to obtain additional equity or debt financing which if available, may not be available on attractive terms. terms, if at all.
8
Our operating results may vary significantly from quarter to quarter.
Our quarterly results may be materially and adversely affected by a number of factors including: changes in estimatedestimates relating to revenues, costs, or revenues under fixed-price contracts;project scheduling; the timing and volume of work under new agreements; changes in existing customer schedules; general economic conditions; the spending patterns of customers; variations in the margins of projects performed during any particular quarter; losses experienced in our operations not otherwise covered by insurance; a change in the demand or production of our products and our services caused by severe weather conditions; a change in the mix of our customers, contracts and business; increases in design and manufacturing costs; the ability of customers to pay their invoices owed to us and disagreements with customers related to project performance on delivery.
Accordingly, our operating results in any particular quarter may not be indicative of the results that you can expect for any other quarter or for an entire year. future results.
We may be unsuccessful at generating profitable internal growth.
Our ability to generate profitable internal growth will be affected by, among other factors, potential regulatory changes, our ability to attract new customers, increase the number or size of projects performed for existing customers, hire and retain employees, increase volume utilizing our existing facilities and our ability to construct and integrate new facilities.
In addition, our customers may reduce the number or size of projects available to us. Many of the factors affecting our ability to generate internal growth may be beyond our control, and we cannot be certain that our strategies will be successful or that we will be able to generate cash flow sufficient to fund our operations and to support internal growth. If we are unsuccessful, we may not be able to achieve internal growth, expand our operations or grow our business.
The departure of key personnel could disrupt our business.
We depend on the continued efforts of our executive officers, senior management, other key professionals and senior management.technical personnel. We cannot be certain that any individual will continue in such capacity for any particular period of time. The loss of key personnel, or the inability to hire and retain qualified employees, could negatively impact our ability to perform and manage our business.
9
Our business requires skilled labor and we may be unable to attract and retainqualified employees.
Our ability to maintain our productivity and profitability willmay be limited by our ability to employ, train and retain skilled personnel necessary to meet our requirements. We may experience shortages of qualified personnel.personnel such as engineers, project managers and select skilled trades. We cannot be certain that we will be able to maintain an adequate skilled labor force or key technical personnel necessary to operate efficiently and to support our growth strategy orand operations. We cannot be certain that our labor expenses will not increase as a result of a shortage in the supply of skilled and technical personnel. Labor shortages or increased labor costs could impair our ability to maintain our business, meet customer commitments or grow our revenues, and may adversely impact our profitability. results of operations.
Actual and potential claims, lawsuits and proceedings could ultimately reduce ourprofitability and liquidity and weaken our financial condition.
We could be named as a defendant in future legal proceedings claimingthat claim damages from us in connection with the operation of our business. Most of the actions against us arise out of the normal course of our performing services or manufacturing equipment. We are and will likely continueFrom time to time, we may be a plaintiff in legal proceedings against customers in which we seek to recover payment of contractual amounts due to us, as well as claims for increased costs incurred by us. When appropriate, we establish provisions against certain legal exposures, and we adjust such provisions from time to time according to ongoing developments related to each exposure.exposure, as well as any potential recovery form our insurance, if applicable. If, in the future, our assumptions and estimates related to such exposures prove to be
inadequate or wrong, or our insurance coverage is insufficient, our consolidated results of operations, cash flows and financial condition could be adversely affected. In addition, claims, lawsuits and proceedings may harm our reputation or divert management resources away from operating our business.
Unforeseen difficulties with the implementation or operation of our enterprise resource planning system(ERP), engineering and manufacturing process systems (Business Systems) could adversely affect our internal controls and our business.
The efficient execution of our business is dependent upon the proper functioning of our enterprise resource planning (ERP) systemBusiness Systems that supportssupport our production, engineering, human resources, accounting, estimating, financial, jobproject management and customer systems. Any significant failureThese systems may be susceptible to outages due to natural disaster, power loss, telecommunications failures, break-ins, computer viruses, cyber-attacks or malfunctionother unauthorized access. Additionally, a material network breach of our ERP system could involve the theft of proprietary or customer data which may result in disruptionbe used by competitors. The occurrence of any of these or other events could disrupt or damage our operations. OurBusiness Systems and adversely affect our business or results of operations.
In Fiscal 2014, we re-implemented our existing ERP system and added a suite of new software tools to expand our Business Systems. These upgrades and enhancements were designed to standardize best process practices, drive efficiency and increase productivity across our organization. There can be no certainty that these Business Systems will deliver the expected benefits and the inability to do so may impact our ability to deliver on our commitment to our customers which could negatively impact our operations could beand may adversely affected if we encounter unforeseen problems with respect to the operationimpact our results of this ERP system. operations.
We carry insurance against many potential liabilities, andbut our management of risk mayleave us exposed to unidentified or unanticipated risks.
Although we maintain insurance policies with respect to our related exposures, including certain casualty, property, business interruption, self-insured medical and dental programs, these policies contain deductibles, self-insured retentions and limits of coverage. We estimate our liabilities for known claims and unpaid claims and expenses based on information available as well as projections for claims incurred but not reported. However, insurance liabilities, some of which are self-insured, are difficult to estimate due to various factors. If any of our insurance policies or programs are not effective in mitigating our risks, we may incur losses that are not covered by our insurance policies, subject to deductibles, or that exceed our accruals or that exceed our coverage limits and could adversely impact our consolidated results of operations, cash flows and financial position. In addition, we may not be able to continue to obtain insurance at commercially reasonable rates or may be faced with liabilities not covered by insurance such as environmental contamination or terrorist attacks.
WeChanges in and compliance with environmental laws could adversely impact our financial results.
Private lawsuits or enforcement actions by federal, state, provincial or foreign regulatory agencies may materially increase our costs. Certain environmental laws may make us potentially liable for the remediation of contamination at or emanating from our properties or facilities. Although we seek to obtain indemnities against liabilities relating to historical contamination at the facilities we own or operate, we cannot provide any assurance that we will not incur additional healthcare costs arising from federal healthcare reform legislation.liabilities relating to the remediation of potential contamination, including contamination we did not cause.
In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law in the U.S. This legislation expands health care coverage to many uninsured individuals and expands coverage to those already insured. The changes required by this legislation could cause us to incur additional healthcare and other costs.
Technological innovations by competitors may make existing products and productionmethods obsolete.
All of the products manufacturedthat we manufacture and sold by the Companysell depend upon the best available technology for success in the marketplace. TheThis competitive environment is highly sensitive to technological innovation in both segments of our business.and customer requirements. It is possible for competitors (both domestic and international) to develop products or production methods whichthat will make current products or methods obsolete or at least hasten their obsolescence; therefore, we cannot be certain that our competitors will not develop the expertise, experience and resources to provide products and services that are superior in both price and quality.
10
Catastrophic events could disrupt our business.
The occurrence of catastrophic events, ranging from natural disasters such as hurricanes to epidemics such as health epidemics, to acts of war and terrorism, could disrupt or delay the Company’sour ability to complete projects for itsour customers and could potentially expose the Companyus to third-party liability claims. Such events may or may not be fully covered by our various insurance policies or may be subject to deductibles.deductibles or exceed coverage limits. In addition, such events could impact the Company’sour customers and suppliers, resulting in temporary or long-term delays and/or cancellations of orders orfor raw materials used in normal business operations. These situations are outside the Company’sour control and could have a significant adverse impact on theour consolidated results of operations. operations, cash flows and financial position.
Unforeseen difficulties with the construction, relocation and start-upexpansions, relocations or consolidations of our two newexisting facilities could adversely affect our operations.
We are currently constructing a manufacturing/assembly facility in the United States, as well as one in Canada. We will relocate from two ofFrom time to time we may decide to enter new markets, build additional facilities, expand our existing facilities upon completionor relocate or consolidate one or more of these two facilities. Any significant delay inour operations. Increased costs and production delays arising from the construction,staffing, relocation, expansion or start-upconsolidation of either of these newour facilities could adversely affect our operations. operations and may adversely impact our profitability.
Due to the cyclical nature of the oil and gas industry, our business may be adversely impacted by extended periods of low oil or gas prices or unsuccessful exploration efforts which may decrease our customers’ spending and therefore our results in the future.
Oil and gas prices have been, and are expected to, remain unpredictable. Unfavorable commodity price levels can cause oil and gas companies to change their strategies, delay or cancel projects. The price for oil and gas can be influenced by many factors, including global economic growth, inventory levels and supply and demand for these commodities. These factors could cause oil and gas prices to decrease which could result in a decrease in customer projects that would adversely impact our business and our results. Continued periods of reduced oil and gas prices will negatively impact our business and our consolidated results of operations, cash flows and financial position.
Item 1B. Unresolved Staff Comments
None.
We own or lease manufacturing facilities, warehouse space, sales offices, field offices and repair centers located throughout the U.S. andUnited States, Canada and we have a manufacturing facility located in the United Kingdom. Our facilities are generally located in areas that are readily accessible to raw materials and labor pools and are maintained in good condition. These facilities, together with recent expansions, are expected to meet our needs for the foreseeable future.
Our principal locations by segment as of September 30, 2012,2015, are as follows:
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
| Approximate | |||||||||||||||||||
| Number |
|
| Square Footage |
|
|
|
|
|
| Approximate |
| |||||||||||
Location | of Facilities | Acres |
| Owned |
| Leased | Description |
|
| Acres |
|
| Owned |
|
| Leased |
| ||||||
Electrical Power Products: |
|
|
| ||||||||||||||||||||
Houston, TX | Corporate office and manufacturing facility |
|
|
| 21.4 |
|
|
| 428,515 |
|
|
| — |
| |||||||||
Houston, TX | Office and manufacturing facility |
|
|
| 53.4 |
|
|
| 290,554 |
|
|
| — |
| |||||||||
Houston, TX | 3 | 152.5 |
| 446,600 |
| 138,600 | Office, fabrication facility and yard |
|
|
| 63.3 |
|
|
| 82,320 |
|
|
| — |
| |||
North Canton, OH | 1 | 8.0 |
| 115,200 |
| — | Office and manufacturing facility |
|
|
| 8.0 |
|
|
| 115,200 |
|
|
| — |
| |||
Northlake, IL | 1 | 10.0 |
| 103,500 |
| — | Office and manufacturing facility |
|
|
| 10.0 |
|
|
| 103,500 |
|
|
| — |
| |||
Bradford, United Kingdom | 1 | 7.9 |
| 129,200 |
| — | Office and manufacturing facility |
|
|
| 7.9 |
|
|
| 129,200 |
|
|
| — |
| |||
Acheson, Alberta, Canada | — | 20.1 |
| — |
| — | Office and manufacturing facility |
|
|
| 20.1 |
|
|
| 330,168 |
|
|
| — |
| |||
Edmonton, Alberta, Canada | 2 |
| — |
| 70,700 | ||||||||||||||||||
Calgary, Alberta, Canada | 1 |
| — |
| 8,200 | Office and manufacturing facility |
|
|
| — |
|
|
| — |
|
| 8,200 |
| |||||
Process Control Systems: |
|
|
| ||||||||||||||||||||
Pleasanton, CA | 1 |
| — |
| 21,200 | ||||||||||||||||||
Duluth, GA | 1 |
| — |
| 41,700 | ||||||||||||||||||
Chantilly, VA | 1 |
| — |
| 9,900 | ||||||||||||||||||
East Rutherford, NJ | 1 |
| — |
| 8,700 |
All leased properties are subject to long-term leases with remaining lease terms ranging from one to 11 years as of September 30, 2012.leases. We do not anticipate experiencing significant difficulty in retaining occupancy of any of our leased facilities through lease renewals prior to expiration or through month-to-month occupancy, or in replacing them with equivalent facilities.
In fiscal 2012,Fiscal 2015, we acquired land in Houston, Texas, and incompleted the expansion of our Acheson, Alberta, Canada facility. The expansion cost approximately $26 million, funded by cash on hand, and began constructionincreased the manufacturing capacity of two facilities to allow us to expand our operations. We estimate the total cost of these facilities, including the land, will bethat facility by approximately $75 million. Such costs are expected to be funded from our existing cash and cash equivalents and future cash flow from operations.144,000 square feet.
We are involved in various legal proceedings, claims and other disputes arising in the ordinary course of businessfrom our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. WeAlthough we can give no assurances about the outcome of pending legal proceedings, claims and other disputes, we do not believe that the ultimate conclusion of these disputes could materially affect our financial position or results of operations. operations, cash flow and financial position.
Item 4. Mine Safety Disclosures
Not applicable.
11
Item 5. Market for Registrant’s Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities
Price Range of Common Stock
Our common stock trades on the NASDAQ Global Market (NASDAQ) under the symbol “POWL.” The following table sets forth, for the periods indicated, the high and low sales prices per share as reported on the NASDAQ for our common stock.
36.47 |
|
|
|
|
| |||||||
|
| High |
|
| Low | High |
|
| Low |
| ||
Fiscal Year 2011: |
|
|
| |||||||||
Fiscal 2014: |
|
|
|
|
|
|
| |||||
First Quarter | $ | 37.65 |
| $ | 29.13 | $ | 68.86 |
|
| $ | 60.87 |
|
Second Quarter |
| 40.88 |
|
| 32.97 |
| 69.50 |
|
|
| 59.17 |
|
Third Quarter |
| 40.82 |
|
| 32.01 |
| 65.40 |
|
|
| 60.20 |
|
Fourth Quarter |
| 41.64 |
|
| 30.28 |
| 67.65 |
|
|
| 40.86 |
|
Fiscal Year 2012: |
|
|
| |||||||||
Fiscal 2015: |
|
|
|
|
|
|
| |||||
First Quarter | $ | 36.47 |
| $ | 25.76 | $ | 51.33 |
|
| $ | 38.12 |
|
Second Quarter |
| 38.51 |
|
| 30.67 |
| 49.93 |
|
|
| 31.54 |
|
Third Quarter |
| 38.62 |
|
| 30.00 |
| 39.45 |
|
|
| 32.54 |
|
Fourth Quarter |
| 43.65 |
|
| 33.37 |
| 35.44 |
|
|
| 25.60 |
|
As of November 30, 2012,27, 2015, the last reported salesclosing price of our common stock on the NASDAQ was $40.04$34.96 per share. As of November 30, 2012,27, 2015, there were 496416 stockholders of record of our common stock. All common stock held in street names are recorded in the Company’s stock register as being held by one stockholder.
See Part“Part III, Item 1212. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report for information regarding securities authorized for issuance under our equity compensation plans.
Dividend Policy
In November 2013, our Board of Directors (the Board) elected to begin the payments of quarterly cash dividends. In Fiscal 2014, we paid $12.0 million in dividends. In November 2014, the Board elected to increase our quarterly cash dividend by 4% to $0.26 per share from $0.25 per share. This increase was effective beginning with the first quarter of Fiscal 2015 and in Fiscal 2015 we paid $12.4 million in dividends. The Board anticipates declaring cash dividends in future quarters; however, there is no assurance as to future dividends or their amounts because they depend on future earnings, capital requirements and financial condition.
Dividend Policy
Issuer Purchases of Equity Securities
The table below summarizes information about our purchases of common stock, based on settlement date, during the quarter ended September 30, 2015:
|
|
|
|
|
|
|
|
| Total Number |
|
| Maximum |
| ||
|
|
|
|
|
|
|
|
| of Shares |
|
| Dollar Value of |
| ||
|
|
|
|
|
|
|
|
| Purchased as |
|
| Shares that May |
| ||
| Total Number |
|
| Average Price |
|
| Part of Publicly |
|
| Yet Be Purchased |
| ||||
| of Shares |
|
| Paid per |
|
| Announced Plans |
|
| Under the Plans |
| ||||
| Purchased |
|
| Share (1) |
|
| or Programs |
|
| or Programs(2) |
| ||||
July 1 - July 31 |
| — |
|
| $ | — |
|
|
| — |
|
| $ | 12,477,375 |
|
August 1 - August 31 |
| 170,000 |
|
|
| 27.97 |
|
|
| 170,000 |
|
|
| 7,722,717 |
|
September 1 - September 30 |
| 137,220 |
|
|
| 29.02 |
|
|
| 137,220 |
|
|
| 3,740,770 |
|
Total activity for the quarter ended September 30, 2015 |
| 307,220 |
|
| $ | 28.44 |
|
|
| 307,220 |
|
| $ | 3,740,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes commissions. |
(2) | On December 18, 2014, we announced that on December 17, 2014 our Board of Directors authorized a repurchase program (the Repurchase Program) under which we may repurchase up to $25 million of our outstanding stock. The Repurchase Program will expire as of the close of business on December 31, 2015. |
Our current credit agreements limit the payment of dividends, other than dividends payable solely in our capital stock, without prior consent of our lenders. To date, we have not paid cash dividends on our common stock, and for the foreseeable future we intend to retain earnings for the development of our business. Future decisions to pay cash dividends will be at the discretion of the Board of Directors and will depend upon our results of operations, financial condition and capital expenditure plans and restrictive covenants under our credit facilities, along with other relevant factors.
The following Performance Graph and related information shall not be deemed“soliciting “soliciting material” or to be “filed” with the Securities and Exchange Commission,nor shall such information be incorporated by reference into any future filing underthe Securities Act of 1933 or Securities Act of 1934, each as amended, except to theextent that we specifically incorporate it by reference into such filing.
The following graph compares, for the period from October 1, 2007,2010 to September 30, 2012,2015, the cumulative stockholder return on our common stock with the cumulative total return on the NASDAQ Market Index and the Industrial Electrical Equipment Group (a select group of peer companies – Advanced Energy Industries, Inc.Altra Industrial Motion Corp.; Altra HoldingsAmeresco, Inc.; AZZ Inc.; CTC Corporation; DXP EnterprisesBelden Inc.; ENGlobal Corporation; ESCO TechnologiesDaktronics Inc./SD; Electro Scientific Industries, Inc.; EnerSys; Franklin Electric Company,Co, Inc.; Integrated Electrical Services,GrafTech International Ltd; Littelfuse Inc./DE; LSI Industries Inc.; Methode Electronics Inc.Preformed Line Products; A O Smith Corporation and Power-OneWoodward, Inc.). The comparison assumes that $100 was invested on October 1, 2007,2010, in our common stock, the NASDAQ Market Index and the Industrial Electrical Equipment Group.Group, and that all dividends were re-invested. The stock price performance reflected on the following graph is not necessarily indicative of future stock price performance.
12
Item 6. Selected Financial Data
The selected financial data shown below for the past five years was derived from our audited financial statements.statements, adjusted for discontinuing operations. The historical results are not necessarily indicative of the operating results to be expected in the future. The selected financial data should be read in conjunction with “Management’s“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this Annual Report.
In December 2009, we acquired the business and certain assets of PowerComm Inc. and its subsidiaries, Redhill Systems Ltd., Nextron Corporation, PCG Technical Services Inc. and Concorde Metal Manufacturing Ltd (the entire business of which is referred to herein as Powell Canada). Powell Canada is headquartered in Edmonton, Alberta, Canada, and provides electrical equipment, maintenance and services. Powell Canada is also a manufacturer of switchgear and related products, primarily serving the oil and gas industry in western Canada. The operating results of Powell Canada are included in our Electrical Power Products business segment from the acquisition date.
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years ended September 30, |
| |||||||||||||||||
| Years Ended September 30, | 2015 |
|
| 2014 |
|
| 2013 |
|
| 2012 |
|
| 2011 |
| ||||||||||||||||||
| 2012 |
| 2011 |
| 2010 |
| 2009 |
| 2008 | ||||||||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Statement of Operations: | (In thousands, except per share data) |
| |||||||||||||||||||||||||||||||
Revenues | $ | 717,194 |
| $ | 562,397 |
| $ | 550,692 |
| $ | 665,851 |
| $ | 638,704 | $ | 661,858 |
|
| $ | 647,814 |
|
| $ | 640,867 |
|
| $ | 690,741 |
|
| $ | 536,623 |
|
Cost of goods sold |
| 577,256 |
|
| 462,467 |
|
| 408,635 |
|
| 520,802 |
|
| 512,298 |
| 553,597 |
|
|
| 522,340 |
|
|
| 502,375 |
|
|
| 557,938 |
|
|
| 444,861 |
|
Gross profit |
| 139,938 |
|
| 99,930 |
|
| 142,057 |
|
| 145,049 |
|
| 126,406 |
| 108,261 |
|
|
| 125,474 |
|
|
| 138,492 |
|
|
| 132,803 |
|
|
| 91,762 |
|
Selling, general and administrative expenses |
| 88,947 |
|
| 85,058 |
|
| 84,457 |
|
| 79,954 |
|
| 80,416 |
| 76,801 |
|
|
| 87,756 |
|
|
| 79,707 |
|
|
| 76,961 |
|
|
| 71,934 |
|
Research and development expenses |
| 6,980 |
|
|
| 7,608 |
|
|
| 7,615 |
|
|
| 6,286 |
|
|
| 6,435 |
| ||||||||||||||
Amortization of intangible assets |
| 2,599 |
|
| 4,752 |
|
| 4,477 |
|
| 3,460 |
|
| 3,585 |
| 435 |
|
|
| 779 |
|
|
| 1,659 |
|
|
| 2,599 |
|
|
| 4,752 |
|
Restructuring and relocation expenses |
| 3,397 |
|
|
| — |
|
|
| 3,927 |
|
|
| — |
|
|
| — |
| ||||||||||||||
Impairments |
| — |
|
| 7,158 |
|
| 7,452 |
|
| — |
|
| — |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,158 |
|
Operating income |
| 48,392 |
|
| 2,962 |
|
| 45,671 |
|
| 61,635 |
|
| 42,405 |
| 20,648 |
|
|
| 29,331 |
|
|
| 45,584 |
|
|
| 46,957 |
|
|
| 1,483 |
|
Gain on sale of investment |
| — |
|
| (1,229) |
|
| — |
|
| — |
|
| — |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,229 | ) |
Interest expense, net |
| 158 |
|
| 194 |
|
| 610 |
|
| 976 |
|
| 2,537 | |||||||||||||||||||
Income before income taxes |
| 48,234 |
|
| 3,997 |
|
| 45,061 |
|
| 60,659 |
|
| 39,868 | |||||||||||||||||||
Income tax provision |
| 18,577 |
|
| 6,712 |
|
| 19,894 |
|
| 20,734 |
|
| 14,072 | |||||||||||||||||||
Gain on settlement |
| — |
|
|
| — |
|
|
| (1,709 | ) |
|
| — |
|
|
| — |
| ||||||||||||||
Other income |
| (2,402 | ) |
|
| (1,522 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||
Interest expense (net) |
| 59 |
|
|
| 165 |
|
|
| 167 |
|
|
| 158 |
|
|
| 194 |
| ||||||||||||||
Income from continuing operations before income taxes |
| 22,991 |
|
|
| 30,688 |
|
|
| 47,126 |
|
|
| 46,799 |
|
|
| 2,518 |
| ||||||||||||||
Income tax provision (1) |
| 13,552 |
|
|
| 11,068 |
|
|
| 7,387 |
|
|
| 18,056 |
|
|
| 6,190 |
| ||||||||||||||
Income (loss) from continuing operations |
| 9,439 |
|
|
| 19,620 |
|
|
| 39,739 |
|
|
| 28,743 |
|
|
| (3,672 | ) | ||||||||||||||
Income from discontinued operations, net of tax |
| — |
|
|
| 9,604 |
|
|
| 2,337 |
|
|
| 914 |
|
|
| 957 |
| ||||||||||||||
Net income (loss) |
| 29,657 |
|
| (2,715) |
|
| 25,167 |
|
| 39,925 |
|
| 25,796 | $ | 9,439 |
|
| $ | 29,224 |
|
| $ | 42,076 |
|
| $ | 29,657 |
|
| $ | (2,715 | ) |
Net (income) loss attributable to noncontrolling interest |
| — |
|
| — |
|
| (159) |
|
| (208) |
|
| 51 | |||||||||||||||||||
Net income (loss) attributable to Powell Industries, Inc. | $ | 29,657 |
| $ | (2,715) |
| $ | 25,008 |
| $ | 39,717 |
| $ | 25,847 | |||||||||||||||||||
Basic earnings (loss) per share attributable to Powell Industries, Inc. | $ | 2.50 |
| $ | (0.23) |
| $ | 2.17 |
| $ | 3.48 |
| $ | 2.29 | |||||||||||||||||||
Diluted earnings (loss) per share attributable to Powell Industries, Inc. | $ | 2.49 |
| $ | (0.23) |
| $ | 2.14 |
| $ | 3.43 |
| $ | 2.26 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Continuing operations | $ | 0.80 |
|
| $ | 1.63 |
|
| $ | 3.32 |
|
| $ | 2.43 |
|
| $ | (0.31 | ) | ||||||||||||||
Discontinued operations |
| — |
|
|
| 0.80 |
|
|
| 0.20 |
|
|
| 0.07 |
|
|
| 0.08 |
| ||||||||||||||
Basic earnings (loss) per share | $ | 0.80 |
|
| $ | 2.43 |
|
| $ | 3.52 |
|
| $ | 2.50 |
|
| $ | (0.23 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Continuing operations | $ | 0.79 |
|
| $ | 1.62 |
|
| $ | 3.32 |
|
| $ | 2.41 |
|
| $ | (0.31 | ) | ||||||||||||||
Discontinued operations |
| — |
|
|
| 0.80 |
|
|
| 0.19 |
|
|
| 0.08 |
|
|
| 0.08 |
| ||||||||||||||
Diluted earnings (loss) per share | $ | 0.79 |
|
| $ | 2.42 |
|
| $ | 3.51 |
|
| $ | 2.49 |
|
| $ | (0.23 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
(1) For an explanation of the effective tax rate for the last three fiscal years, see Note H of the Notes to Consolidated Financial | (1) For an explanation of the effective tax rate for the last three fiscal years, see Note H of the Notes to Consolidated Financial |
| |||||||||||||||||||||||||||||||
Statements included elsewhere in this Annual Report. | Statements included elsewhere in this Annual Report. |
| |||||||||||||||||||||||||||||||
| Years ended September 30, |
| |||||||||||||||||||||||||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
|
| 2012 |
|
| 2011 |
| |||||||||||||||||||
Balance Sheet Data: | (In thousands) |
| |||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 43,569 |
|
| $ | 103,118 |
|
| $ | 107,411 |
|
| $ | 89,669 |
|
| $ | 123,161 |
| ||||||||||||||
Property, plant and equipment, net |
| 154,594 |
|
|
| 156,896 |
|
|
| 144,495 |
|
|
| 78,489 |
|
|
| 59,416 |
| ||||||||||||||
Total assets |
| 468,824 |
|
|
| 541,443 |
|
|
| 530,903 |
|
|
| 448,312 |
|
|
| 421,676 |
| ||||||||||||||
Long-term debt and capital lease obligations, including current maturities |
|
2,800 |
|
|
|
3,200 |
|
|
|
3,616 |
|
|
|
4,355 |
|
|
|
5,441 |
| ||||||||||||||
Total stockholders' equity |
| 333,262 |
|
|
| 371,097 |
|
|
| 355,226 |
|
|
| 310,103 |
|
|
| 275,343 |
| ||||||||||||||
Total liabilities and stockholders' equity |
| 468,824 |
|
|
| 541,443 |
|
|
| 530,903 |
|
|
| 448,312 |
|
|
| 421,676 |
| ||||||||||||||
Dividends paid on common stock |
| 12,358 |
|
|
| 11,998 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| |||||
|
| |||||||||
| As of September 30, | |||||||||
| 2012 | 2011 | 2010 | 2009 | 2008 | |||||
| (In thousands) | |||||||||
Balance Sheet Data: | ||||||||||
Cash and cash equivalents | $ 90,040 | $ 123,466 | $ 115,353 | $ 97,403 | $ 10,134 | |||||
Property, plant and equipment, net | 78,652 | 59,637 | 63,676 | 61,036 | 61,546 | |||||
Total assets | 448,312 | 421,676 | 400,712 | 404,840 | 397,634 | |||||
Long-term debt and capital lease obligations, including current maturities | 4,355 | 5,441 | 6,885 | 9,492 | 41,758 | |||||
Total stockholders’ equity | 310,103 | 275,343 | 277,303 | 246,761 | 206,874 | |||||
Total liabilities and stockholders’ equity | 448,312 | 421,676 | 400,712 | 404,840 | 397,634 |
Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations
The following discussion should be read in conjunction with the accompanying consolidated financial statements and related notes. Any forward-looking statements made by or on our behalf 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 uncertainties in thatand the actual results may differ materially from those projected in the forward-looking statements. For a description of the risks and uncertainties, please see “Cautionary Statement Regarding Forward-Looking Statements; Risk Factors” and “Item 1A. Risk Factors” containedincluded elsewhere in this Annual Report.
Overview
We develop, design, manufacture and service custom engineered-to-ordercustom-engineered equipment and systems for the management and control of electrical energy and other critical processes. Headquartered in Houston, Texas, we serve the transportation, environmental, energy,oil and gas refining, offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper and other industrial and utility industries. Our business operations are consolidated into two business segments: Electrical Power Products and Process Control Systems.markets. Revenues and costs are primarily related to custom engineered-to-order equipment and systems and accounted for under percentage-of-completion accounting which precludes us from providing detailed price and volume information.
Our backlog includes various projects, some of which are petrochemical, oil and gas construction and transportation infrastructure projects which take a number of months to produce.
The markets in which Powell participateswe participate are capital intensive and cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic conditions and anticipated environmental or regulatory changes which affect the manner in which our customers proceed with capital investments. Our customers analyze various factors including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns. These factors influence the release of new capital projects by our customers, which are traditionally awarded in competitive bid situations. Scheduling of projects is matched to the customer requirements and projects may take a number of months to produce; but schedules may change during the course of any particular project. Our operating results can be impacted by factors outside of our control.
Our operating results have been negatively impacted by factors such as our operational inefficiencies, our inability to meet contractual commitments on existing projects, customer approval of engineering and design specifications and delays in customer construction schedules, all of which impact the timing and costs related to project execution. These factors resulted in an imbalance of our factory resources with our customer commitments, resulting in higher production costs due to inefficiencies. Our operating results were also negatively impacted by the timing and resolution of change orders, project close-out and resolution of potential liquidated damage claims, all of which impacted gross margins during the period in which these items are resolved with our customers.
We anticipate that demand for our solutions in the western Canadian oil and gas markets will continue to be a contributor to our strategic position in the Canadian market place. We completed the construction of our new Canadian facility and relocated operations in the fall of 2013 and completed a $26 million expansion of this manufacturing facility in the third quarter of Fiscal 2015. The stabilization of our Canadian operations has presented challenges resulting in inefficiencies that led to extended project delivery times, delayed project revenues, higher operating costs, gross margin deterioration and operating losses. We have taken actions in an effort to mitigate the risks associated with replicating our U.S. project-based integration model which allows for the design, fabrication, integration and testing of our products at a single location. Prior to the construction of our new Canadian facility, we performed only final assembly operations in Canada.
On January 15, 2014, we sold our wholly-owned subsidiary Transdyn to a global provider of electronic toll collection systems, headquartered in Vienna, Austria. The purchase price from the sale of this subsidiary totaled $16.0 million, subject to working capital adjustments. We received cash of $14.4 million and the remaining $1.6 million was placed into an escrow account and released to us in July 2015. We have presented the results of these operations as income from discontinued operations, net of tax, in the condensed consolidated statements of operations for all periods presented. Accordingly, we have removed Transdyn from the Results of Operations discussions below.
Twelve Months Ended September 30, 2015 Compared to Twelve Months Ended September 30, 2014
Revenue and Gross Profit
Revenues increased 2.2% or $14.0 million, to $661.9 million in Fiscal 2015, primarily due to the increase in domestic revenues. Domestic revenues increased 30.0%, or $109.6 million, to $474.7 million in Fiscal 2015 primarily due to our production efforts on various large petrochemical projects awarded in Fiscal 2014. International revenues decreased 33.8%, or $95.6 million, to $187.2 million in Fiscal 2015 primarily due to the substantial completion of several large projects for both the Canadian market and the U.S. export projects. Revenues from commercial and industrial customers increased $50.0 million to $524.5 million in Fiscal 2015. Revenues from public and private utilities decreased $41.9 million to $85.1 million in Fiscal 2015. Revenues from municipal and transit projects increased $5.9 million to $52.2 million in Fiscal 2015.
Gross profit decreased 13.7%, or $17.2 million, to $108.3 million in Fiscal 2015. Gross profit as a percentage of revenues decreased to 16.4% in Fiscal 2015 compared to 19.4% in Fiscal 2014. Our gross profit and gross profit as a percentage of revenues decreased in Fiscal 2015 compared to Fiscal 2014, primarily due to inefficiencies resulting from our production efforts and incremental costs required to maintain our customer’s schedules, as well as the overall mix of project types.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $11.0 million to $76.8 million in Fiscal 2015 compared to Fiscal 2014. Selling, general and administrative expenses, as a percentage of revenues, decreased to 11.6% in Fiscal 2015 compared to 13.5% in Fiscal 2014. These decreases were primarily due to a decrease in performance-based compensation, sales commissions, personnel and administrative costs resulting from reductions in force, reduced bad debt expense and overall cost reduction efforts.
Restructuring and separation costs
In Fiscal 2015, we incurred $3.4 million in restructuring and separation costs. Of this, $2.6 million was from separation and severance costs and the remaining $0.8 million resulted from the exit of a Canadian facility lease and the write-off of associated leasehold improvements.
Other Income
We recorded other income of $2.4 million in Fiscal 2015, of which $2.0 million related to the amortization of the deferred gain from the amended supply agreement, discussed in Note E of the Notes to Condensed Consolidated Financial Statements, and $0.4 million was from a death benefit received from our company-owned life insurance policy. We recorded other income of $1.5 million in Fiscal 2014, which was solely from the amortization of the deferred gain.
Income Tax Provision
Our provision for income taxes was $13.6 million in Fiscal 2015 compared to $11.1 million in Fiscal 2014. The effective tax rate in Fiscal 2015 was 58.9% compared to an effective tax rate of 36.1% for Fiscal 2014. This increase in effective tax rate in Fiscal 2015 was primarily due to the establishment of a valuation allowance against the Canadian net deferred tax assets, partially offset by the resolution of an IRS audit and the retroactive reinstatement of the Federal Research and Development Tax Credit for the second through fourth quarter of Fiscal 2014 (for more detailed information, see Note H of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Annual Report). The effective tax rate for Fiscal 2014 approximated the combined U.S. federal and state statutory rate as the majority of our income was attributable to the U.S.
Income from Continuing Operations
In Fiscal 2015, we recorded income from continuing operations of $9.4 million, or $0.79 per diluted share compared to $19.6 million, or $1.62 per diluted share in Fiscal 2014. This reduction to net income was primarily due to a valuation allowance recorded against our Canadian deferred tax assets (as discussed above) and higher domestic productions costs caused by inefficiencies resulting from our production efforts and incremental costs to maintain our customers’ scheduling requirements. These reductions to net income were partially offset by lower selling, general and administrative costs.
Income from Discontinued Operations
In Fiscal 2014, we recorded $9.6 million, or $0.80 per diluted share, of income from discontinued operations which included the gain on the sale. For additional information about this disposition, see Note N of the Notes to Condensed Consolidated Financial Statements.
Backlog
Our backlog includes various projects, some of which are petrochemical, oil and gas construction and transportation infrastructure projects which take a number of months to produce. The order backlog at September 30, 2015 was $441.4 million, compared to $507.1 million at September 30, 2014. New orders placed in Fiscal 2015 totaled $606.8 million, compared to $725.8 million in Fiscal 2014. This decrease in orders was due to reduced capital investments by our customers primarily in oil and gas and petrochemical industries.
Twelve Months Ended September 30, 2014 Compared to Twelve Months Ended September 30, 2013
Revenue and Gross Profit
Revenues increased 1.1% or $6.9 million, to $647.8 million in Fiscal 2014. Domestic revenues decreased 2.5%, or $9.3 million, to $365.1 million in Fiscal 2014, primarily due to the mix of projects and international revenues increased 6.1%, or $16.3 million, to $282.7 million in Fiscal 2014. The expansion of our Canadian operations contributed to the increase in international revenues. Revenues from industrial customers increased $18.8 million to $474.4 million in Fiscal 2014. Revenues from public and private utilities decreased $11.6 million to $127.0 million in Fiscal 2014. Revenues from municipal and transit projects decreased $0.3 million to $46.3 million in Fiscal 2014. Additionally, revenues in Fiscal 2013 were favorably impacted by the recovery of $3.8 million related to cost overruns from a previous year on a large industrial project.
Gross profit decreased 9.4%, or $13.0 million, to $125.5 million in Fiscal 2014. Gross profit as a percentage of revenues decreased to 19.4% in Fiscal 2014 compared to 21.6% in Fiscal 2013 primarily due to higher costs resulting from the efficiency and utilization challenges associated with the ramp of our Canadian operations. Additionally, we incurred higher operating costs associated with inefficiencies from the re-implementation of our existing ERP system and added a suite of new software tools to expand our Business Systems. These higher costs were partially offset by various supply chain and productivity initiatives. Gross profit for Fiscal 2013 was favorably impacted by the $3.8 million recovery from the project discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $8.0 million to $87.8 million in Fiscal 2014 compared to Fiscal 2013, primarily due to increased personnel costs, travel and administrative expenses and bad debts. Selling, general and administrative expenses, as a percentage of revenues, increased to 13.5% in Fiscal 2014 compared to 12.4% in Fiscal 2013. This increase in selling, general and administrative expense was partially offset by a decrease in depreciation expense as our existing Business Systems became fully depreciated in December 2012 and the favorable impact of the capitalization of certain personnel costs associated with the development and implementation of our new Business Systems, which went live in May 2014. However, going forward, the favorable impact of depreciation expense and capitalization of certain personnel costs will no longer be realized.
Amortization of Intangible Assets
Amortization of intangible assets decreased to $0.8 million in Fiscal 2014 compared to $1.7 million in Fiscal 2013 primarily due to the amendment to the supply agreement which is discussed in Note E of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Other Income
We recorded other income of $1.5 million in Fiscal 2014 which represents the amortization of the deferred gain from the amendment to the supply agreement discussed above. We did not record other income in Fiscal 2013.
Income Tax Provision
Our provision for income taxes for continuing operations was $11.1 million in Fiscal 2014 compared to $7.4 million in Fiscal 2013. The effective tax rate in Fiscal 2014 was 36.1%, which approximates the combined U.S. federal and state statutory rates as the majority of our income is attributable to the U.S. Additionally, the Federal Research and Development Tax Credit (R&D Credit) expired December 31, 2013. The effective tax rate for Fiscal 2013 was 15.7% and was favorably impacted by the release of the $7 million valuation allowance recorded as an offset to the prior years’ Canadian pre-tax losses and the R&D Credit as well as the
utilization of certain foreign tax credits. For further information on the effective tax rate for Fiscal 2013, see Note H of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Income from Continuing Operations
In Fiscal 2014, we recorded income from continuing operations of $19.6 million, or $1.62 per diluted share, compared to $39.7 million, or $3.32 per diluted share, in Fiscal 2013. This decrease in income from continuing operations was primarily due to efficiency and utilization challenges associated with the ramp of our Canadian operations, higher operating costs associated with inefficiencies from the re-implementation of our existing ERP system and the mix of projects in process at our domestic operations.
Income from Discontinued Operations
In Fiscal 2014, we recorded $9.6 million, or $0.80 per diluted share, of income from discontinued operations compared to $2.3 million, or $0.19 per diluted share, in Fiscal 2013 as the current fiscal year includes the gain on the sale. For additional information about this disposition, see Note N of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Backlog
The order backlog at September 30, 2014 was $507.1 million compared to $437.9 million at September 30, 2013. New orders placed in Fiscal 2014 totaled $725.8 million compared to $715.7 million in Fiscal 2013. The year over year increase in new orders was primarily due to the continued strength in oil and gas production and petrochemical and pipeline projects.
Liquidity and Capital Resources
Cash and cash equivalents decreased to $43.6 million at September 30, 2015, compared to $103.1 million at September 30, 2014. As of September 30, 2015, current assets exceeded current liabilities by 2.4 times and our total debt-to-capitalization ratio was 0.83%.
We have a $75.0 million revolving credit facility in the U.S., which expires in December 2018. As of September 30, 2015, there were no amounts borrowed under this line of credit. We also have a $7.5 million revolving credit facility in Canada. At September 30, 2015, there was no balance outstanding under the Canadian revolving credit facility. Total long-term debt and capital lease obligations, including current maturities, totaled $2.8 million at September 30, 2015, compared to $3.2 million at September 30, 2014. Total letters of credit outstanding were $21.1 million and $21.5 million at September 30, 2015 and 2014, respectively, which reduce our availability under our U.S. credit facility and our Canadian revolving credit facility. Amounts available at September 30, 2015 under the U.S. and Canadian revolving credit facilities were $53.9 million and $7.5 million, respectively. For further information regarding our debt, see Notes F and G of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Approximately $10.4 million of our cash at September 30, 2015 was held outside of the United States for international operations. It is our intention to indefinitely reinvest all current and future foreign earnings internationally in order to ensure sufficient working capital to support and expand these international operations. In the event that we elect to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside the U.S., under current tax laws we would incur additional tax expense upon such repatriation.
We believe that cash available and borrowing capacity under our existing credit facilities should be sufficient to finance anticipated operating activities, capital improvements and expansions, as well as debt repayments, for the foreseeable future. We continue to monitor the factors that drive our markets and strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions.
Operating Activities
During Fiscal 2015, net cash provided by operating activities was $12.9 million. During Fiscal 2014, net cash provided by operating activities was $9.1 million and in Fiscal 2013, net cash provided by operating activities was $91.4 million. Cash flow from operations is primarily influenced by demand for our products and services and is impacted as our progress payment terms with our customers are matched with the payment terms with our suppliers. During Fiscal 2015, our cash provided by operations increased over Fiscal 2014 primarily due to a decrease in prepaid assets and income taxes receivable. In Fiscal 2014, we received the $10.0 million payment related to the amended supply agreement discussed in Note E of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report. In Fiscal 2013, we received $6.8 million in contract settlements related to Fiscal 2012 matters.
Purchases of property, plant and equipment during Fiscal 2015 totaled $34.7 million compared to $16.5 million and $74.4 million in Fiscal 2014 and 2013, respectively. A significant portion of the investments in Fiscal 2013 were to acquire land and build facilities in the United States and Canada to support continued expansion in our key markets, including the oil and gas markets and Canadian oil sands region. Costs related to the re-implementation and additional software added to our Business Systems were incurred during Fiscal 2013 and were placed into service in the third quarter of Fiscal 2014.
Financing Activities
Net cash used in financing activities was $34.9 in Fiscal 2015, $12.5 million in Fiscal 2014 and $0.5 million in Fiscal 2013. The increase in the use of cash in Fiscal 2014 compared to Fiscal 2013 was primarily due to the payment of dividends. The increase in Fiscal 2015 was primarily due to our share repurchase program discussed below.
Share Repurchase Program
On December 17, 2014, our Board of Directors authorized a share repurchase program under which we may repurchase up to $25 million of our outstanding stock. The purchases may be made from time to time in the open market, through privately negotiated transactions and Rule 10b5-1 trading plans in accordance with applicable laws, rules and regulations. The Repurchase Program is being funded from cash on hand and cash provided by operating activities. The Repurchase Program will expire as of the close of business on December 31, 2015. As of September 30, 2015, we had purchased 670,181 shares at a cost of $21.3 million under the Repurchase Program. The average purchase price per share through September 30, 2015 was $31.72.
Contractual and Other Obligations
At September 30, 2015, our long-term contractual obligations were limited to debt and leases. The table below details our commitments by type of obligation, including interest if applicable, and the period that the payment will become due (in thousands).
As of September 30, 2015, Payments Due by Period: | Long‑Term |
|
|
| Operating |
|
| Total |
| |||
Less than 1 year | $ | 404 |
|
|
| $ | 3,768 |
|
| $ | 4,172 |
|
1 to 3 years |
| 806 |
|
|
|
| 4,992 |
|
|
| 5,798 |
|
3 to 5 years |
| 803 |
|
|
|
| 2,641 |
|
|
| 3,444 |
|
More than 5 years |
| 801 |
|
|
|
| 5,586 |
|
|
| 6,387 |
|
Total long-term contractual obligations | $ | 2,814 |
|
|
| $ | 16,987 |
|
| $ | 19,801 |
|
In Fiscal 2015, we exited one of our previously occupied leased facilities in Acheson, Alberta, Canada. The lease does not expire until October 2019; however, we are currently seeking to sublet the facility. In Fiscal 2014, we also exited one of our previously occupied leased facilities in Edmonton, Alberta, Canada. This lease does not expire until July 2023; however, we have sublet that facility through July 2019.
As of September 30, 2015, the total unrecognized tax benefit related to uncertain tax positions was $0.8 million. We estimate that none of this will be paid within the next 12 months. However, we believe that it is reasonably possible that within the next 12 months, the total unrecognized tax benefits will decrease by approximately 4% due to the expiration of certain statutes of limitations in various state and local jurisdictions. We are unable to make reasonably reliable estimates regarding the timing of future cash outflows, if any, associated with the remaining unrecognized tax benefits.
Other Commercial Commitments
We are contingently liable for secured and unsecured letters of credit of $25.2 million as of September 30, 2015, of which $21.1 million reduces our borrowing capacity.
The following table reflects potential cash outflows that may result in the event that we are unable to perform under our contracts (in thousands):
As of September 30, 2015, Payments Due by Period: |
| Letters of |
| |
Less than 1 year |
| $ | 12,037 |
|
1 to 3 years |
|
| 9,741 |
|
More than 3 years |
|
| 3,386 |
|
Total long-term commercial obligations |
| $ | 25,164 |
|
We also had performance and maintenance bonds totaling $318.8 million that were outstanding at September 30, 2015. Performance and maintenance bonds are primarily used to guarantee our contract performance to our customers.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements during the periods presented.
Outlook
The markets in which we participate are capital-intensive and cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic conditions and anticipated environmental or regulatory changes which affect the manner in which our customers proceed with capital investments. Our customers analyze various factors including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns. These factors influence the release of new capital projects by our customers.
14
We entered fiscal 2012 with a backlog of unfilled orders of $443.0 million, an increase of $160.7 million over the prior year, which provided our revenue growth during fiscal 2012. As of September 30, 2012, our order backlog remains strong; however, the quotation-to-order period is beginning to lengthen. We enter fiscal 2013 with a backlog of unfilled orders of $436.7 million. Our backlog includes various projects, some ofcustomers, which are for petrochemical, oiltraditionally awarded in competitive bid situations. Scheduling of projects is matched to the customer requirements and gas construction and transportation infrastructure projects whichmay take a number of months to produce. produce, but schedules may change during the course of any particular project.
ResultsA significant portion of Operations
Twelve Months Ended September 30, 2012 (Fiscal 2012) Compared to Twelve MonthsEnded September 30, 2011(Fiscal 2011)
Revenue and Gross Profit
Consolidatedour revenues increased 27.5%, or $154.8 million, to $717.2 million in Fiscal 2012. Domestic revenues increased by 8.9%, or $33.9 million, to $412.8 million in Fiscal 2012 and international revenues increased 65.9%, or $120.9 million, to $304.4 million in Fiscal 2012. Revenues increased primarily as a result of an increase in activity in complex petrochemical andare derived from the oil and gas construction projects, as a result of our Electrical Power Products business segment.
Gross profit in Fiscal 2012 increased 40.0%, or $40.0 million, to $139.9 million in Fiscal 2012. Gross profit as a percentage of revenues increased to 19.5% in Fiscal 2012, compared to 17.8% in Fiscal 2011 primarily as a result of our Electrical Power Products business segment.
Electrical Power Products
Electrical Power Products business segment revenues increased 28.7%, or $153.3 million, to $686.6 million in Fiscal 2012. Revenues increased primarily as a result of an increase in project activity in certain markets. Revenues from public and private utilities decreased $51.3 million to $115.3 million in Fiscal 2012. Revenues from commercial and industrial customers increased $202.2 million to $522.7 million in Fiscal 2012. Revenues from municipal and transit projects increased $2.4 million to $48.6 in Fiscal 2012.
Electrical Power Products business segment gross profit increased 44.4%, or $40.7 million, to $132.5 million in Fiscal 2012. Gross profit, as a percentage of revenues, increased to 19.3% in Fiscal 2012 compared to 17.2% in Fiscal 2011, as a result of favorable operational execution and project management on certain large complex projects that were completed or near completion. Our increase in project activity in Fiscal 2012 also improved our ability to cover fixed and overhead operating costs, partially offset by the challenges on certain large projects at Powell Canada. These challenges resulted from scope changes and cost overruns on certain Canadian projects. We are currently pursuing recovery of certain of these costs; however, there is no assurance these costsUnfavorable long-term commodity price levels can be recovered. Revenues have not been recognized on such costs as recovery has not been deemed probable until change orders are approved by the customer.
Process Control Systems
Process Control Systems business segment revenues increased 5.2%, or $1.5 million, to $30.6 million in Fiscal 2012. Business segment gross profit, as a percentage of revenues, decreased to 24.4% for Fiscal 2012, compared to 28.2% for Fiscal 2011. This decrease in gross profit as a percentage of revenues is related to the mix of project types.
For additional information related to our business segments, see Note M of Notes to Consolidated Financial Statements.
Consolidated Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of revenues, decreased to 12.4% in Fiscal 2012 from 15.1% in Fiscal 2011. Selling, general and administrative expenses decreased as a percentage of revenues in Fiscal 2012 as a result of our increase in revenues. Consolidated selling, general and administrative expenses increased $3.8 million to $88.9 million in Fiscal 2012. This increase is primarily related to increased personnel costs and incentive compensation resulting from higher levels of operating performance. Additionally, separation payments of $2.6 million to our former CEO were recorded in selling, general and administrative expenses in the fourth quarter of Fiscal 2011.
15
Amortization of Intangible Assets
Amortization of intangible assets decreased to $2.6 million in Fiscal 2012, compared to $4.8 million in Fiscal 2011. This decrease resulted from the impairment of the intangible assets recorded in Fiscal 2011 related to Powell Canada.
Income Tax Provision
Our provision for income taxes reflected an effective tax rate on earnings before income taxes of 38.5% in Fiscal 2012 compared to 167.9% in Fiscal 2011. The effective tax rate for both Fiscal 2012 and 2011 were negatively impacted by our inability to record the tax benefit related to pre-tax losses in Canada, offset by the favorable impact on our effective tax rate for the domestic production activities deduction in the United States.
Net Income (Loss) Attributable to Powell Industries, Inc.
In Fiscal 2012, we recorded net income of $29.7 million, or earnings of $2.49 per diluted share, compared to a net loss of $2.7 million, or a loss of $0.23 per diluted share, in Fiscal 2011. Net income improved in Fiscal 2012 as a result of increased revenue and earnings from increased activity and favorable operational and project execution in Fiscal 2012. Fiscal 2011 was negatively impacted by the impairment of intangible assets for Powell Canada of $7.2 million, the $2.6 million separation charge with our former CEO and our inability to record the tax benefits related to the pre-tax losses in Canada.
Backlog
The order backlog at September 30, 2012, was $436.7 million, compared to $443.0 million at September 30, 2011. New orders placed during Fiscal 2012 totaled $710.7 million compared to $725.2 million in Fiscal 2011. The backlog for Fiscal 2012 decreased slightly due to the completion of certain complexcause oil and gas productioncompanies to change their strategies, delay or cancel projects. Due to the precipitous decline in oil and petrochemical projects.
Twelve Months Ended September 30, 2011 (Fiscal 2011) Compared to Twelve MonthsEnded September 30, 2010 (Fiscal 2010)
Revenuegas prices over the past year, many of our customers have reduced their capital budgets and Gross Profit
Consolidated revenues increased $11.7 million to $562.4 millioncut costs, and in Fiscal 2011 compared to $550.7 million in Fiscal 2010. Revenues increased primarily ascertain instances have deferred or cancelled projects that we were pursuing. We believe that sustained lower oil and gas prices from a result of the $25.0 million full yearcontinued global supply/demand imbalance will negatively impact of revenues from Powell Canada which was acquired in the first quarter of Fiscal 2010. Domestic revenues decreased by 3.6% to $378.9 million in Fiscal 2011 compared to $393.3 million in Fiscal 2010, primarilyfuture orders due to reduced manufacturingcapital spending by our customers which may result in project deferrals and service activities because ofcancellations. The reduction in available projects, across the lower level ofmarkets we serve, will increase market price pressures during this downward cycle. This reduction in new business opportunities and market price pressures will negatively impact our revenues, backlog, at the beginning of Fiscal 2011. International revenues increased from $157.6 million in Fiscal 2010 to $183.5 million in Fiscal 2011. Gross profit in Fiscal 2011 decreased by $42.1 million compared to Fiscal 2010, as a result of the competitive pressure on margins, as well as execution-related challenges on certain large projects at Powell Canada. These factors also contributed to the decrease in gross profit as a percentage of revenues to 17.8% in Fiscal 2011, compared to 25.8% in Fiscal 2010.
Electrical Power Products
Our Electrical Power Products business segment recorded revenues of $533.3 million in Fiscal 2011, compared to $517.1 million in Fiscal 2010. Revenues increased as a result of the $25.0 million full year impact of revenues from Powell Canada which was acquired in the first quarter of Fiscal 2010. Excluding the increase related to the revenues at Powell Canada, revenues decreased primarily due to reduced manufacturing and service activities because of the lower level of backlog at the beginning of Fiscal 2011. In Fiscal 2011, revenues from public and private utilities were $166.6 million compared to $148.6 million in Fiscal 2010. Revenues from commercial and industrial customers totaled $320.5 million in Fiscal 2011, a decrease of $10.2 million compared to Fiscal 2010. Municipal and transit projects generated revenues of $46.2 million in Fiscal 2011 compared to $37.6 million in Fiscal 2010.
Business segment gross profit, as a percentage of revenues, was 17.2% in Fiscal 2011 compared to 25.1% in Fiscal 2010. This decrease in gross profit as a percentage of revenues resulted primarily from the competitive pressure on margins, as well as execution-related challenges on certain large projects at Powell Canada. Gross profit in Fiscal 2010 benefitted from the favorable execution of large projects, as well as cancellation fees and the successful negotiation of change orders on projects which were substantially completed in prior periods.
16
Process Control Systems
In Fiscal 2011, our Process Control Systems business segment recorded revenues of $29.1 million, a decrease from $33.6 million in Fiscal 2010. Business segment gross profit, as a percentage of revenues, decreased to 28.2% for Fiscal 2011, compared to 36.5% for Fiscal 2010. This decrease in revenues and gross profit as a percentage of revenues resulted from a less favorable mix of projects.
For additional information related to our business segments, see Note M of Notes to Consolidated Financial Statements.
Consolidated Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses decreased to 15.1% of revenues in Fiscal 2011 compared to 15.3% of revenues in Fiscal 2010. Selling, general and administrative expenses remained relatively unchanged at $85.1 million in Fiscal 2011 compared to $84.5 million in Fiscal 2010. Decreases in short-term and long-term incentive compensation resulting from lower earnings compared to Fiscal 2010 were offset by increased depreciation expense related to the Company’s ERP system in Fiscal 2011, compared to Fiscal 2010. Additionally, separation payments of $2.6 million to our former CEO were recorded in selling, general and administrative expenses in the fourth quarter of which $1.2 million was paid in October 2011, with the balance being comprised of deferred payments and compensation expense related to the vesting of outstanding equity-based awards. In the prior year there were acquisition-related costs of $2.4 million related to the acquisition of Powell Canada. Selling, general and administrative expenses decreased as a percentage of revenues in Fiscal 2011 as a result of the increase in revenue of $11.7 million.
Amortization of Intangible Assets
Amortization of intangible assets increased to $4.8 million in Fiscal 2011, compared to $4.5 million in Fiscal 2010. This increase was from the full year impact of the amortization of the intangible assets recorded as a result of acquisitions in Canada.
Gain on sale of investment
Gain on sale of investment resulted from a $1.2 million gain recorded in the second quarter of Fiscal 2011 from cash received for the sale of our 50% equity investment in Kazakhstan which was previously a part of the acquisition of Powell Canada in Fiscal 2010.
Impairments
An impairment charge of $7.2 million was recorded in Fiscal 2011 related to the impairment of the intangible assets related to Powell Canada. This impairment of intangible assets was the result of continued operating losses from Powell Canada and the execution-related challenges on certain large projects, which reduced the Company’s projections for future revenuesresults and cash flows from Powell Canada.operations. If commodity prices do not improve, or they continue to decline, the number of projects in our markets could further decline. We will continue to monitor our cost structure and continue to take actions to align our resources and facilities with expected production requirements.
An impairmentOur operating results have been, and may continue to be, negatively impacted by factors such as the timing of goodwillnew order awards, customer approval of $7.5 million was recorded in Fiscal 2010 related to the Powell Canada acquisition. The Company’s strategic decision to exit the 50% owned joint venture in Kazakhstanfinal engineering and design specifications and delays in customer construction schedules, all of which have and may continue to have, a negative impact on the anticipated growthtiming of project execution. These factors have resulted, and may continue to result in, capital investmentsperiods when our factory resources are not in balance with our customers’ scheduling requirements, resulting in higher production costs due to inefficiencies. Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders, project close-out and resolution of potential contract claims, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers.
We completed the construction of our new Acheson, Alberta facility and relocated operations in the Oil Sands Regionfall of western Canada, relative2013 and completed a $26 million expansion of this facility in the third quarter of Fiscal 2015. The production ramp and stabilization of our Canadian operations has presented and may continue to our expectations,present challenges resulting in inefficiencies and extended project delivery times. These challenges resulted in delayed project revenues, incremental costs to hold customers’ schedules, gross margin deterioration, back charges and operating losses. We have taken actions to stabilize our Canadian operations and mitigate the impairment charge.
Income Tax Provision
Our provisionrisks associated with replicating our U.S. project-based integration model which allows for income taxes reflected an effective tax rate on earnings before income taxesthe design, fabrication, integration and testing of 167.9% in Fiscal 2011 comparedour products at a single location. However, we may continue to 44.1% in Fiscal 2010. The effective tax rate for Fiscal 2011 was negatively impacted by our inability to record the tax benefit of $4.5 million related to pre-taxincur operating losses in Canada offset by the favorable impact onas we continue to enhance our effective tax rate for the domestic production activities deductionengineering and the researchproject management competencies and development credit in the United States.
Net Income (Loss) Attributable to Powell Industries, Inc.
In Fiscal 2011, we recorded a net loss of $2.7 million, or a loss of $0.23 per diluted share, compared to net income of $25.0 million, or earnings of $2.14 per diluted share, in Fiscal 2010. The impairment of intangible assets for Powell Canada of $7.2 million, andimprove our inability to record the tax benefits of $4.5 million related to the pre-tax losses in Canada contributed to our net loss in Fiscal 2011. Fiscal 2011 was also negatively impacted by execution-related challenges on certain large projects at Powell Canada. The overall decrease in net income in Fiscal 2011 compared to Fiscal 2010 resulted from competitive pressure on gross margins compared to Fiscal 2010 which benefitted from the favorable execution of large projects, as well as cancellation fees and the successful negotiation of change orders on projects which were substantially completed in prior periods. Net income for Fiscal 2010 was negatively impacted by the impairment of goodwill of approximately $7.5 million and our inability to record the tax benefit of $3.7 million related to the pre-tax losses in Canada.
17
Backlog
The order backlog at September 30, 2011, was $443.0 million, compared to $282.3 million at September 30, 2010. New orders placed during Fiscal 2011 totaled $725.2 million compared to $466.8 million in Fiscal 2010. Backlog increased primarily due to increased activity in petrochemical and offshore oil and gas construction projects. Some of our recent orders received were for large petrochemical and offshore oil and gas construction projects which take several months to produce, and most were awarded in competitive bid situations.
Liquidity and Capital Resources
Cash and cash equivalents decreased to $90.0 million at September 30, 2012, compared to $123.5 million at September 30, 2011, primarily as a result of the recent purchases of land to build facilities in the United States and Canada during Fiscal 2012 to support our continued expansion of the offshore production markets and the Canadian Oil Sands market. As of September 30, 2012, current assets exceeded current liabilities by 2.6 times and our debt to total capitalization ratio was 1.4%.
We have a $75.0 million revolving credit facility in the U.S., which expires in December 2016. As of September 30, 2012, there were no amounts borrowed under this line of credit. We also have a $10.2 million revolving credit facility in Canada. At September 30, 2012, there was no balance outstanding under the Canadian revolving credit facility. Total long-term debt and capital lease obligations, including current maturities, totaled $4.4 million at September 30, 2012, compared to $5.4 million at September 30, 2011. Letters of credit outstanding were $36.6 million and $13.2 million at September 30, 2012 and 2011, respectively, which reduce our availability under our U.S. credit facility and our Canadian revolving credit facility. Amounts available under the U.S. revolving credit facility were $38.5 million at September 30, 2012. Amounts available under the Canadian revolving credit facility were $10.0 million at September 30, 2012. For further information regarding our debt, see Notes G and K of Notes to Consolidated Financial Statements.
Approximately $8.0 million of our cash at September 30, 2012, was held internationally for international operations. It is our intention to indefinitely reinvest all current and future foreign earnings internationally in order to ensure sufficient working capital and support and expand these operations. In the event that the Company elects to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside the U.S., under current tax laws we would incur additional tax expense upon such repatriation.
project execution.
We believe that cash available and borrowing capacity under our existing credit facilities should be sufficient to finance anticipated operating activities, capital improvements, and expansions, as well as debt repayments and share repurchases for the foreseeable future. We will continue to monitor the factors that drive our markets and strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions.
Operating Activities
During Fiscal 2012, cash used in operating activities was $6.0 million. During Fiscal 2011 and Fiscal 2010, cash provided by operating activities was $15.5 million and $64.1 million, respectively. Cash flow from operations is primarily influenced by demand for our products and services and is impacted as our progress payment terms with our customers are matched with the payment terms with our suppliers. During Fiscal 2012, the cash used in operations of $6.0 million was primarily the result of increased unbilled contract receivables based on progress billing milestones. The decrease in Fiscal 2011 cash flow from operations resulted primarily from the net loss and increase in accounts receivable. During Fiscal 2010, cash provided by operating activities was $64.1 million and resulted primarily from net income and decreases in accounts receivable, offset by decreases in accounts payable and income taxes payable.
Investing Activities
Purchases of property, plant and equipment during Fiscal 2012 totaled $29.1 million compared to $7.3 million and $4.4 million in Fiscal 2011 and 2010, respectively. A significant portion of the investments in Fiscal 2012 was to acquire land and build facilities in the United States and Canada to support our continued expansion in the offshore production markets and Canadian Oil Sands. During Fiscal 2011, we received cash of $1.2 million from the sale of our 50% equity investment in Kazakhstan and established a restricted cash account of $1.0 million for the purchase of land near Houston, Texas, which subsequently occurred in October 2011. During Fiscal 2011, our capital expenditures primarily related to the implementation of ERP systems and construction of a warehouse at one of our U.S. facilities. During Fiscal 2010, we paid cash of $23.4 million, excluding debt assumed and acquisition-related expenses, to acquire Powell Canada. Additionally, $0.6 million was paid to acquire the noncontrolling interest related to our joint venture in Singapore (Powell Asia), which has been strategically realigned from an operating entity to a sales and marketing function within Powell.
There were no significant proceeds from the sale of fixed assets in Fiscal 2012, 2011 or 2010.
Financing Activities
18
Net cash provided by financing activities was $1.3 million during Fiscal 2012 due to cash being received from the exercise of stock options. Net cash used in financing activities was $0.8 million during Fiscal 2011. Net cash used in financing activities was $19.4 million in Fiscal 2010, as we paid down our Canadian revolving line of credit and term loan from the cash flow provided by our operating activities.
Contractual and Other Obligations
At September 30, 2012, our long-term contractual obligations were limited to debt and leases. The table below details our commitments by type of obligation, including interest if applicable, and the period that the payment will become due (in thousands).
|
|
|
|
|
As of September 30, 2012, Payments Due by Period: | Long-Term Debt Obligations | Capital Lease Obligations | Operating Lease Obligations |
Total |
Less than 1 year | $ 416 | $ 347 | $ 5,597 | $ 6,360 |
1 to 3 years | 827 | 32 | 8,108 | 8,967 |
3 to 5 years | 820 | — | 5,184 | 6,004 |
More than 5 years | 2,018 | — | 7,725 | 9,743 |
Total long-term contractual obligations | $ 4,081 | $ 379 | $ 26,614 | $ 31,074 |
As of September 30, 2012, the total unrecognized tax benefit related to uncertain tax positions was $0.5 million. We estimate that none of this will be paid within the next 12 months. However, we believe that it is reasonably possible that within the next 12 months, the total unrecognized tax benefits will decrease by approximately 39% due to the expiration of certain statutes of limitations in various state and local jurisdictions. We are unable to make reasonably reliable estimates regarding the timing of future cash outflows, if any, associated with the remaining unrecognized tax benefits.
Other Commercial Commitments
We are contingently liable for secured and unsecured letters of credit of $43.6 million as of September 30, 2012, of which $36.6 million reduces our borrowing capacity.
The following table reflects potential cash outflows that may result in the event that we are unable to perform under our contracts (in thousands):
| |
|
|
| |
| |
| |
|
|
|
We also had performance and maintenance bonds totaling $249.1 million that were outstanding at September 30, 2012. Performance and maintenance bonds are used to guarantee contract performance to our customers.
Outlook
The markets in which Powell participates are capital-intensive and cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic conditions and anticipated environmental or regulatory changes which affect the manner in which our customers proceed with capital investments. Market cycles are many months or years in length and require our customers to analyze factors which include the demand for oil, gas and electrical energy, the overall financial environment, governmental budgets, the outlook for regulatory actions and environmental concerns. Orders take a number of months to produce, are traditionally awarded in competitive bid situations and scheduling is matched to the customer requirements which may change during the course of any particular project.
Growth in demand for energy is expected to continue over the long term. This, when coupled with the need for replacement of existing infrastructure that is at the end of its life cycle, demonstrates a continued need for products and services produced by us. A heightened environmental concern, together with upward pressure on gasoline prices, has expanded the popularity of urban transit systems. This should increase demand for investment in transit infrastructure, contingent upon the availability of government financing. A sluggish global economy and uncertain market conditions in various locations around the world will place competitive market pressure on margins. The outlook for continued opportunities for our products and services remains positive; however, the timing and pricing of many of these projects is difficult to predict.
19
Our operating results are frequently impacted by the timing and resolution of change orders and project close-out which could cause gross margins to improve during the period in which these items are approved and finalized with customers. As a result of these issues, the timing and ultimate financial outcome on some projects is often difficult to predict.
We believe that cash available and borrowing capacity under our existing credit facility should be sufficient to finance anticipated operational activities, capital improvements and debt repayments for the foreseeable future. During this period of economic and market uncertainty, we will continue to monitor our markets and will strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions. serve.
We are impacted bysubject to inflation, which has causedcan cause increases in our costs of raw materials, primarily copper, aluminum and steel, during the past three years.steel. Fixed-price contracts can limit our ability to pass these increases to our customers, thus negatively impacting our earnings. We anticipate that theThe inflation in commodity prices could potentially impact our operations in fiscal 2013. future years.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the following accounting policies and estimates to be critical in the preparation and reporting of our consolidated financial statements.
Revenue Recognition
Our revenues are primarily generated from the engineering and manufacturing of custom products under long-term contracts that may last from one month to several years, depending on the contract. Revenues from long-term contracts are recognized on the percentage-of-completion method of accounting.
Occasionally a contract may require that we segment the project into specific deliverables for revenue recognition. Segmenting a contract may result in different interim rates of profitability for each scope of service than if we had recognized revenue on a combined basis.
Under the percentage-of-completion method of accounting, revenues are recognized as work is performed primarily based on the estimated completionperformed. The revenue earned to date is calculated by multiplying the total contract price by the percentage of performance to date, which is based on total costs or total labor dollars incurred to date compared to the total estimated costs or total labor dollars estimated at completion. The method used to determine the percentage of completion is typically the cost method, unless the labor method is a more accurate method of measuring the progress of the project. Application of the percentage-of-completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct material costs, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and all costs associated with operation of equipment. The cost estimation process is based upon the professional knowledge and experience of our engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays inon our project performance and the recoverability of any claims. Changes in job performance, job conditions, estimated profitability and final contract settlements, including our estimate of liquidated damages, if any, may result in revisions to costs and income, with their effects being recognized in the period in which the revisions are determined. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.
Revenues associated with maintenance, repair and service contracts are recognized when the services are performed. Expenses related to these types of services are recognized as incurred.
Costs and estimated earnings in excess of billings on uncompleted contracts also include certain costs associated with unapproved change orders. These costs are included when change order approval is probable. Amounts are carried at the lower of cost or net realizable value. Revenue is recognized to the extent of costs incurred when recovery is probable. The amounts recorded involve the use of judgments and estimates; thus, actual recoverable amounts could differ from original assumptions.
Allowance for Doubtful Accounts
We maintain and continually assess the adequacy of an allowance for doubtful accounts representing our estimate for losses resulting from the inability of our customers to pay amounts due to us. This estimated allowance is based on historical experience of uncollected accounts, the level of past due accounts, the overall level of outstanding accounts receivable, information about specific customers with respect to their inability to make payments and expectations of future conditions that could impact the collectibilitycollectability of accounts receivable. However, future changes in our
20
customers’ operating performance and cash flows, or in general economic conditions, could have an impact on their ability to fully pay these amounts, which, among other things, could have a material adverse impact on our operating results.
Impairment of Long-Lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be realizable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such asset is necessary. This requires us to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for our products and future market conditions. Estimating future cash flows requires significant judgment, and our projections may vary from cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be reflected in income (loss) from operations in the Consolidated Statements of Operations. In addition, we estimate the useful lives of our long-lived assets and other intangibles and periodically review these estimates to determine whether these lives are appropriate.
Intangible Assets
Goodwill and other intangible assets with indefinite useful lives are no longer amortized, but are evaluated for impairment annually, or immediately if conditions indicate that impairment could exist. The evaluation requires a two-step impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss. The first step of the test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss. Both steps of the goodwill impairment testing involve significant estimates.
The costs of intangible assets with determinable useful lives are amortized over their estimated useful lives. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.
See Note D of the Notes to Consolidated Financial Statements for a discussion of our impairment recorded related to the acquisition of Powell Canada.
Accruals for Contingent Liabilities
From time to time, contingencies such as insurance,insurance-related claims, liquidated damages and legal claims arise in the normal course of business. Pursuant to current accounting standards, we must evaluate such contingencies to subjectively determine the likelihood that an asset has been impaired or a liability has been incurred at the date of the financial statements, as well as evaluatingevaluate whether the amount of the loss can be reasonably estimated. If the likelihood is determined to be probable and it can be reasonably estimated, the estimated loss is recorded. The amounts we record for insurance claims, warranties, legal and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We use past experience and history, as well as the specific circumstances surrounding each contingent liability, in evaluating the amount of liability that should be recorded. Actual results could differ from our estimates.
Warranty Costs
We provide for estimated warranty costs atwith the timerecognition of salerevenue 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. Our standard terms and conditions of sale include a warranty for parts and service for the earlier of 18 months from the date of shipment or 12 months from the date of initial operations.energization. Occasionally projects require warranty terms thatwhich are longer than our standard terms due to the nature of the project. Extended warranty terms may be negotiated and included in our contracts. We use past experience and historical claims to determine the estimated liability. Actual results could differ from our estimate.
Accounting for Income Taxes
We account for income taxes under the asset and liability method, based on the income tax laws and rates in the countries in which operations are conducted and income is earned. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Developing our provision for income taxes requires significant judgment and expertise in federal, international and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. WeIn assessing the realizability of net deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of the net deferred tax assets may not be realized. The ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. In light of the historical Canadian losses, and recent changes in projected losses in the near term, we are required under the more-likely-than-not accounting standard to record a valuation allowance to reduce our deferred tax assets toagainst the amount that is more likely than not to be realized. We believe that theCanadian net deferred tax asset recorded as of September 30, 2012, is realizable through future reversals of existing taxable temporary differences and future taxable income. Ifassets because we were to subsequently determine that we wouldmay not be able to realize deferred tax assetsthe benefits of the net operating loss carryforwards and other deductible differences. Estimates may change as new events occur, estimates of future taxable income during the carryforward period are reduced or increased, additional information becomes available or operating environments change, which may result in a full or partial reversal of the future in excess of our net
21
recorded amount, an adjustment to deferred tax assets would increase earnings for the period in which such determination was made.valuation allowance. We will continue to assess the adequacy of the valuation allowance on a quarterly basis. Our judgments and tax strategies are subject to audit by various taxing authorities.
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial statements.
See Note H of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report for disclosures related to the valuation allowance recorded relatedin relation to foreign deferred taxes.
Foreign Currency Translation
The functional currency for our foreign subsidiaries is the local currency in which the entity is located. The financial statements of all subsidiaries with a functional currency other than the U.S. Dollar have been translated into U.S. Dollars. All assets and liabilities of foreign operations are translated into U.S. Dollars using year-end exchange rates, and all revenues and expenses are translated at average rates during the respective period. The U.S. Dollar results that arise from such translation, as well as exchange gains and losses on intercompany balances of a long-term investment nature, are included in the cumulative currency translation adjustments in accumulated other comprehensive income in stockholders’ equity.
Derivative Financial Instruments
As part of managing our exposure to changes in foreign currency exchange rates, we periodically utilize foreign exchange forward contracts. The objective of these contracts is to minimize impacts to cash flows and profitability due to changes in foreign currency exchange rates on accounts receivable, accounts payable and forecasted cash transactions. These contracts are recorded in the consolidated balance sheets at fair value, which is based upon an income approach consisting of a discounted cash flow model that takes into account the present value of the future cash flows under the terms of the contracts using current market information, such as foreign currency spot and forward rates, as of the reporting date.
We formally document our hedging relationships, including identifying the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking the hedge transactions. We also formally assess, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of the change in fair value of a derivative is recorded as a component of accumulated other comprehensive income in the consolidated balance sheets. When the hedged item affects the consolidated statement of operations, the gain or loss included in accumulated other comprehensive income is reported on the same line in the consolidated statements of operations as the hedged item. In addition, any ineffective portion of the changes in the fair value of derivatives used as cash flow hedges is reported in the consolidated statements of operations as the changes occur. If it is determined that a derivative ceases to be a highly effective hedge, or it is probable that the forecasted transaction will not occur, we discontinue hedge accounting and any unrealized gains or losses are recorded in the consolidated statement of operations.
We provide 1) qualitative disclosures regarding the objectives and strategies for using derivative instruments and engaging in hedging activities in the context of our overall risk exposure; 2) quantitative disclosure in tabular format of the fair values of derivative instruments and their gains and losses and 3) disclosures about credit-risk related contingent features in derivative instruments.
New Accounting Pronouncements
Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated statements upon adoption.
In January 2010, the FASB issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures about significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new
22
disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities, rather than each major category of assets or liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update became effective for us with the interim and annual reporting period beginning after December 15, 2009, our fiscal year 2011, except for the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which became effective for us with the interim and annual reporting period beginning after December 15, 2010, our fiscal year 2012. We were not required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures, adoption of this update has not had a material impact on our consolidated financial statements.
In May 2011,July 2013, the FASB issued accounting guidance relatedon the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to fair value measurement, which amends current guidancea deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to achieve common fair value measurementsettle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and disclosure requirementsthe entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in U.S. GAAPthe financial statements as a liability and International Financial Reporting Standards. This guidance generally represents clarification of fair value measurement standards, but also includes instances where a particular principle or requirement for measuring fair value of disclosing information about fair value measurements has changed.should not be combined with deferred tax assets. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We will adopt this guidance for2013, which was our fiscal year beginning October 1, 2012. We doending September 30, 2015. This guidance should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this guidance has not expecthad a significant impact on our consolidated financial position or results of operations.
In April 2014, the FASB issued an amendment to the financial reporting of discontinued operations. The amendments in this pronouncementupdate changed the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to the financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations that have a major effect on the organization’s operations and financial results should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in this update are effective in the first quarter of 2015, which would be in our fiscal year ending September 30, 2016. Early adoption is permitted for disposals that have not been previously reported as discontinued operations. This amendment is not expected to have a material effectimpact on our consolidated financial statements.
position or results of operations.
In June 2011,May 2014, the FASB issued a new accountingstandard on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a five-step approach to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract. This guidance on the presentation of comprehensive income in financial statements. Entities are required to present total comprehensive income either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. Under the single-statement approach, entities must include the components of net income, a total for net income, the components of other comprehensive income and a total for comprehensive income. Under the two-statement approach, entities must report an income statement and, immediately following, a statement of other comprehensive income. Under either method, entities must display adjustments for items reclassified from other comprehensive income to net income in both net income and other comprehensive income. The provisions for this guidance areis now effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. We will adopt this guidance for2017, which would be our fiscal year beginning October 1, 2012. ending September 30, 2019. The standard permits the use of either the retrospective or cumulative effect transition method therefore we are evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
In September 2011,June 2014, the FASB issued new accountingan amendment to the topic regarding share-based payments and instances where terms of an award provide that a performance target can be achieved after the requisite service period. This guidance has been provided to resolve the diversity in practice concerning employee share-based payments that contain performance targets that could be achieved after the requisite service period. The updated guidance requires that a performance target that affects vesting and that can be achieved after the requisite service period be treated as a performance condition. Compensation cost should be recognized in the period in which simplifies how an entityit
becomes probable that the performance target will be achieved and is requiredattributable to test goodwillthe periods for impairment. Under this guidance, an entity would be allowed to first assess qualitative factors to determine whether itwhich service has been rendered. If the performance target becomes probable of being achieved before the end of the service period, the remaining unrecognized compensation cost for which requisite service has not yet been rendered is necessary to performrecognized prospectively over the two-step quantitative goodwill impairment test. An entity would not be required to calculateremaining service period. The total amount of compensation cost recognized during and after the fair value of a reporting unit unlessservice period should reflect the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This new guidance includes a number of factorsawards that are expected to consider in conducting the qualitative assessment. Thisvest and should be adjusted to reflect those awards that ultimately vest. The updated guidance is effective for annual and interim goodwill impairment tests performed for fiscal yearsperiods beginning after December 15, 2011, our Fiscal 2013. Early2015, with early adoption is permitted; however, we will not adoptpermitted. The adoption of this guidance until October 1, 2012. This guidance is not expected to have a material impact on our reportedconsolidated financial position or results of operations or financial position. operations.
In July 2012,2015, the FASB issued a new topic on simplifying the measurement of inventory. The current standard is to measure inventory at lower of cost or market; where market could be replacement cost, net realizable value, or net realizable value less an accounting standards update regardingapproximately normal profit margin. This topic updates this guidance to measure inventory at the testinglower of indefinite-lived intangible assets for impairment. Under this update, an entity hascost and net realizable value; where net realizable value is the option to first assess qualitative factors to determine whetherestimated selling prices in the existenceordinary course of eventsbusiness, less reasonably predictable costs of completion, disposal, and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the events and circumstances, an entity concludes that it is more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if any entity concludes otherwise, it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment testing by comparing the fair value with the carrying amount. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative test. An entity will be able to resume performing the qualitative assessment in any subsequent period.transportation. This update is effective for annual and interim tests performed for fiscal yearsreporting periods beginning after SeptemberDecember 15, 2012,2016, which would be our fiscal year 2013. Early adoption is permitted; however, we will not adopt this guidance until October 1, 2012.ending September 30, 2018. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. This guidancetopic is not expected to have a material impact on our reportedconsolidated financial position or results of operations or financial position. operations.
In August 2012, the SEC adopted a rule mandated by the Dodd-Frank Act to require companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo or an adjoining country. The final rule applies to a company that uses minerals including tantalum, tin, gold or tungsten. The final rule requires companies to provide disclosure on a new form filed with the SEC, with the first specialized disclosure report due on May 31, 2014, for the 2013 calendar year, and annually on May 31 each year thereafter. We are currently evaluating the impact of adoption.
Item 7A. Quantitative Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks arising from transactions we have entered into in the normal course of business. These risks primarily relate to fluctuations in interest rates, foreign exchange rates and commodity prices.
Market Risk
Interest RateWe are also exposed to general market risk and its potential impact on accounts receivable or costs and estimated earnings in excess of billings on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. Our customers and their industries are typically EPC firms, oil and gas refining, offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper and other heavy industrial customers. We maintain ongoing discussions with customers regarding contract status with respect to payment status, change orders and billing terms in an effort to monitor collections of amounts billed.
Commodity Price Risk
23
If we decide to borrow under one of our credit facilities, we will beWe are subject to market risk resulting from changes in interest rates relatedfluctuating market prices of certain raw materials. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We attempt to pass along such commodity price increases to our floating rate bank credit facility. If we werecustomers on a contract-by-contract basis to make such borrowings,avoid a hypothetical 100 basis point increase in variable interest rates may result in a material impact tonegative effect on our financial statements.profit margin. While we may do so in the future, we have not currently haveentered into any derivative contracts to hedge our exposure to interest rate risk, wecommodity risk. We continue to experience price volatility with some of our key raw materials and components. Fixed-price contracts may limit our ability to pass cost increases to our customers, thus negatively impacting our earnings. Fluctuations in commodity prices may have in the past and may in the future enter into such contracts. During each of the past three years, we have not experienced a significant effectmaterial impact on our business due to changes in interest rates. future earnings and cash flows.
Foreign Currency Transaction Risk
We have operations that expose us to currency risk in the British Pound Sterling, the Canadian Dollar and to a lesser extent the Euro. Amounts invested in our foreign operations are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as accumulated other comprehensive income (loss), a component of stockholders’ equity in our consolidated balance sheets. We believe the exposure to the effects that fluctuating foreign currencies have on our consolidated results of operations is limited because the foreign operations primarily invoice customers and collect obligations in their respective currencies or U.S. Dollars. Our international operations are financed utilizing local credit facilities denominated in local currencies. Additionally, expenses associated with these transactions are generally contracted and paid for in the same local currencies. A 10% unfavorable changeDuring Fiscal 2015, our realized foreign exchange losses were $0.6 million and are included in selling, general and administrative expenses in the U.S. Dollar exchange rate, relative to other functional currencies in which we operate, would not materially impact our consolidated balance sheet at September 30, 2012. Consolidated Statements of Operations.
During Fiscal 2011 and Fiscal 2012, we entered into eightWe are exposed to the effects of fluctuations in foreign currency forward contracts to manage the volatility of future cash flows on certain long-term contracts that are denominated in theexchange rates (primarily Canadian Dollar, British Pound Sterling. The contracts were designated as cash flow hedges for accounting purposes. The changes in fair value related toand Euro denominated) on the effective portiontranslation of the hedges arefinancial statements of our foreign operations into our reporting currency. The impact of this translation to U.S. dollars is recognized as a component ofcumulative translation adjustment in accumulated other comprehensive income on(loss). We do not hedge our consolidated balance sheets. At September 30, 2012, allexposure to potential foreign currency forward contracts have been settled, with no balances recorded ontranslation adjustments.
Interest Rate Risk
If we decide to borrow under one of our consolidated balance sheets related to these transactions.
24
Commodity Price Risk
We arecredit facilities, we will be subject to market risk resulting from fluctuating market prices of certain raw materials. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We attempt to pass along such commodity price increaseschanges in interest rates related to our customers onfloating rate bank credit facility. If we were to make such borrowings, a contract-by-contracthypothetical 100 basis point increase in variable interest rates may result in a material impact to avoid a negative effect on profit margin.our financial statements. While we may do so in the future, we have not currently entered intohave any derivative contracts to hedge our exposure to commodity risk. We continue to experience price volatility with someinterest rate risk, in the past we have entered and may in the future enter into such contracts. During each of our key raw materials and components. Fixed-price contracts may limit our ability to pass cost increases to our customers, thus negatively impacting our earnings. Fluctuations in commodity prices maythe past three years, we have not experienced a material impactsignificant effect on our future earnings and cash flows. business due to changes in interest rates.
Market Risk
We are also exposed to general market and other risk and its potential impact on accounts receivable or costs and estimated earnings in excess of billings on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. Our customers and their industries are typically EPC firms, oil and gas producers, oil and gas pipelines, refineries, petrochemical plants, electrical power generators, public and private utilities, co-generation facilities, mining/metals operations, pulp and paper plants, transportation authorities, governmental agencies and other large industrial customers. We maintain ongoing discussions with customers regarding contract status with respect to payment status, change orders and billing terms in an effort to monitor collections of amounts billed.
25
Item 8. Financial Financial Statements and Supplementary Data
Index to Consolidated Financial Statements | Page | |
Financial Statements: |
| |
| 26 | |
Consolidated Balance Sheets as of September 30, |
| 27 |
28 | ||
29 | ||
30 | ||
31 | ||
32 |
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of Powell Industries, Inc.:
In our opinion, the accompanying consolidated financialbalance sheets and the related consolidated statements listed in the accompanying indexof operations, of comprehensive income, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of Powell Industries, Inc. and its subsidiaries at September 30, 20122015 and 2011,2014, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 20122015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2012,2015, based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above.Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP |
Houston, Texas |
December 2, 2015 |
Houston, Texas
December 5, 2012
27
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
| ||||||||
| September 30, | September 30, |
| ||||||
| 2012 | 2011 | 2015 |
|
| 2014 |
| ||
ASSETS |
|
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
|
| ||
Cash and cash equivalents | $ 90,040 | $ 123,466 | $ | 43,569 |
|
| $ | 103,118 |
|
Cash held in escrow | — | 1,000 | |||||||
Accounts receivable, less allowance for doubtful accounts of $1,399 and $391, respectively | 125,771 | 109,317 | |||||||
Accounts receivable, less allowance for doubtful accounts of $746 and $1,577 |
| 101,784 |
|
|
| 107,162 |
| ||
Costs and estimated earnings in excess of billings on uncompleted contracts | 86,734 | 51,568 |
| 104,793 |
|
|
| 95,970 |
|
Inventories, net | 32,917 | 36,640 | |||||||
Inventories |
| 32,891 |
|
|
| 32,815 |
| ||
Income taxes receivable | 485 | 4,071 |
| 1,232 |
|
|
| 2,804 |
|
Deferred income taxes | 4,598 | 3,580 |
| 3,910 |
|
|
| 5,297 |
|
Prepaid expenses and other current assets | 5,865 | 7,040 | |||||||
Prepaid expenses |
| 5,004 |
|
|
| 5,870 |
| ||
Other current assets |
| 3,916 |
|
|
| 4,291 |
| ||
Total Current Assets | 346,410 | 336,682 |
| 297,099 |
|
|
| 357,327 |
|
Property, plant and equipment, net | 78,652 | 59,637 |
| 154,594 |
|
|
| 156,896 |
|
Goodwill | 1,003 | ||||||||
Intangible assets, net | 13,317 | 15,847 | |||||||
Goodwill and intangible assets, net |
| 2,393 |
|
|
| 2,907 |
| ||
Deferred income taxes |
| 2,288 |
|
|
| 11,422 |
| ||
Other assets | 8,930 | 8,507 |
| 10,117 |
|
|
| 8,224 |
|
Total Assets | $ 448,312 | $ 421,676 | |||||||
Long-term receivable (Note E) |
| 2,333 |
|
|
| 4,667 |
| ||
|
| $ | 468,824 |
|
| $ | 541,443 |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
|
|
| ||
Current maturities of long-term debt and capital lease obligations | $ 725 | $ 1,140 | $ | 400 |
|
| $ | 400 |
|
Income taxes payable | 3,516 | 881 |
| 784 |
|
|
| 705 |
|
Accounts payable | 48,490 | 56,893 |
| 48,008 |
|
|
| 70,209 |
|
Accrued salaries, bonuses and commissions | 25,822 | 22,314 |
| 19,223 |
|
|
| 25,206 |
|
Billings in excess of costs and estimated earnings on uncompleted contracts | 37,144 | 44,523 |
| 42,057 |
|
|
| 48,702 |
|
Accrued product warranty | 5,714 | 4,603 |
| 4,930 |
|
|
| 4,557 |
|
Other accrued expenses | 9,462 | 7,370 |
| 7,521 |
|
|
| 6,291 |
|
Deferred credit ─ short term (Note E) |
| 2,029 |
|
|
| 2,029 |
| ||
Total Current Liabilities | 130,873 | 137,724 |
| 124,952 |
|
|
| 158,099 |
|
Long-term debt and capital lease obligations, net of current maturities | 3,630 | 4,301 |
| 2,400 |
|
|
| 2,800 |
|
Deferred compensation | 2,891 | 3,242 |
| 4,950 |
|
|
| 4,226 |
|
Postretirement benefit obligation | 685 | 900 | |||||||
Other liabilities | 130 | 166 | |||||||
Other long-term liabilities |
| 723 |
|
|
| 655 |
| ||
Deferred credit ─ long term (Note E) |
| 2,537 |
|
|
| 4,566 |
| ||
Total Liabilities | 138,209 | 146,333 | $ | 135,562 |
|
| $ | 170,346 |
|
|
| ||||||||
Commitments and Contingencies (Note K) | |||||||||
|
| ||||||||
Stockholders’ Equity: | |||||||||
Commitments and Contingencies (Note G) |
|
|
|
|
|
|
| ||
Stockholders' Equity: |
|
|
|
|
|
|
| ||
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued | — |
| — |
|
|
| — |
| |
Common stock, par value $.01; 30,000,000 shares authorized; 11,915,673 and 11,752,393 shares issued and outstanding, respectively | 119 | 117 | |||||||
Common stock, par value $.01; 30,000,000 shares authorized; 12,100,459 and 12,031,243 shares issued and outstanding, respectively |
| 121 |
|
|
| 120 |
| ||
Additional paid-in capital | 38,452 | 34,343 |
| 48,507 |
|
|
| 46,267 |
|
Retained earnings | 271,911 | 242,254 |
| 328,294 |
|
|
| 331,213 |
|
Accumulated other comprehensive income (loss) | (379) | (1,371) | |||||||
Total Stockholders’ Equity | 310,103 | 275,343 | |||||||
Total Liabilities and Stockholders’ Equity | $ 448,312 | $ 421,676 | |||||||
Treasury stock, 670,181 shares at cost |
| (21,259 | ) |
|
| — |
| ||
Accumulated other comprehensive loss |
| (22,401 | ) |
|
| (6,503 | ) | ||
Total Stockholders' Equity |
| 333,262 |
|
|
| 371,097 |
| ||
Total Liabilities and Stockholders' Equity | $ | 468,824 |
|
| $ | 541,443 |
|
The accompanying notes are an integral part of these consolidated financial statements.
28
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
| Year Ended September 30, |
| |||||||||||
| Year Ended September 30, |
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
| 2012 | 2011 | 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues | $ 717,194 | $ 562,397 | $ 550,692 |
| $ | 661,858 |
|
| $ | 647,814 |
|
| $ | 640,867 |
|
Cost of goods sold | 577,256 | 462,467 | 408,635 |
|
| 553,597 |
|
|
| 522,340 |
|
|
| 502,375 |
|
Gross profit | 139,938 | 99,930 | 142,057 |
|
| 108,261 |
|
|
| 125,474 |
|
|
| 138,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Selling, general and administrative expenses | 88,947 | 85,058 | 84,457 |
|
| 76,801 |
|
|
| 87,756 |
|
|
| 79,707 |
|
Research and development expenses |
|
| 6,980 |
|
|
| 7,608 |
|
|
| 7,615 |
| |||
Amortization of intangible assets | 2,599 | 4,752 | 4,477 |
|
| 435 |
|
|
| 779 |
|
|
| 1,659 |
|
Impairments | — | 7,158 | 7,452 | ||||||||||||
Restructuring and relocation expenses |
|
| 3,397 |
|
|
| — |
|
|
| 3,927 |
| |||
Operating income | 48,392 | 2,962 | 45,671 |
|
| 20,648 |
|
|
| 29,331 |
|
|
| 45,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Gain on sale of investment | — | (1,229) | — | ||||||||||||
Gain on settlement |
|
| — |
|
|
| — |
|
|
| (1,709 | ) | |||
Other income (See Note E) |
|
| (2,402 | ) |
|
| (1,522 | ) |
|
| — |
| |||
Interest expense | 272 | 408 | 870 |
|
| 145 |
|
|
| 178 |
|
|
| 202 |
|
Interest income | (114) | (214) | (260) |
|
| (86 | ) |
|
| (13 | ) |
|
| (35 | ) |
Income before income taxes | 48,234 | 3,997 | 45,061 | ||||||||||||
Income from continuing operations before income taxes |
|
| 22,991 |
|
|
| 30,688 |
|
|
| 47,126 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Income tax provision | 18,577 | 6,712 | 19,894 |
|
| 13,552 |
|
|
| 11,068 |
|
|
| 7,387 |
|
Net income (loss) | 29,657 | (2,715) | 25,167 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income attributable to noncontrolling interest | — | (159) | |||||||||||||
Income from continuing operations |
|
| 9,439 |
|
|
| 19,620 |
|
|
| 39,739 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income (loss) attributable to Powell Industries, Inc. | $ 29,657 | $ (2,715) | $ 25,008 | ||||||||||||
Income from discontinued operations, net of tax (Note N) |
|
| — |
|
|
| 9,604 |
|
|
| 2,337 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Earnings (loss) per share attributable to Powell Industries, Inc.: | |||||||||||||||
Basic | $ 2.50 | $ (0.23) | $ 2.17 | ||||||||||||
Diluted | $ 2.49 | $ (0.23) | $ 2.14 | ||||||||||||
Net income |
| $ | 9,439 |
|
| $ | 29,224 |
|
| $ | 42,076 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Continuing operations |
| $ | 0.80 |
|
| $ | 1.63 |
|
| $ | 3.32 |
| |||
Discontinued operations |
|
| — |
|
|
| 0.80 |
|
|
| 0.20 |
| |||
Basic earnings per share |
| $ | 0.80 |
|
| $ | 2.43 |
|
| $ | 3.52 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Continuing operations |
| $ | 0.79 |
|
| $ | 1.62 |
|
| $ | 3.32 |
| |||
Discontinued operations |
|
| — |
|
|
| 0.80 |
|
|
| 0.19 |
| |||
Diluted earnings per share |
| $ | 0.79 |
|
| $ | 2.42 |
|
| $ | 3.51 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic | 11,850 | 11,735 | 11,545 |
|
| 11,869 |
|
|
| 12,003 |
|
|
| 11,948 |
|
Diluted | 11,925 | 11,735 | 11,693 |
|
| 11,908 |
|
|
| 12,058 |
|
|
| 11,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Dividends per share |
| $ | 1.04 |
|
| $ | 1.00 |
|
| $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
29
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYCOMPREHENSIVE INCOME (LOSS)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| |
| Other |
| Additional |
| Other |
| |
| Comprehensive | Common Stock | Paid-in | Retained | Comprehensive |
| |
| Income (Loss) | Shares | Amount | Capital | Earnings | Income/(Loss) | Total |
Balance, September 30, 2009 | 11,480 | $ 115 | $ 29,401 | $ 219,961 | $ (2,716) | $ 246,761 | |
Net income | $ 25,008 | — | — | — | 25,008 | — | 25,008 |
Foreign currency translation adjustments | 1,467 | — | — | — | — | 1,467 | 1,467 |
Exercise of stock options | — | 109 | 1 | 1,699 | — | — | 1,700 |
Stock-based compensation | — | 58 | 1 | 791 | — | — | 792 |
Income tax benefit from stock options exercised | — | — | — | 878 | — | — | 878 |
Amortization of restricted stock | — | — | — | 467 | — | — | 467 |
Issuance of restricted stock | — | 30 | — | 333 | — | — | 333 |
Unrealized loss on cash flow hedges, net of tax of $265 | (206) | — | — | — | — | (206) | (206) |
Postretirement benefit adjustment, net of tax of $58 | 103 | — | — | — | — | 103 | 103 |
Total comprehensive income | 26,372 | — | — | — | 25,008 | 1,364 | 26,372 |
Balance, September 30, 2010 | 11,677 | 117 | 33,569 | 244,969 | (1,352) | 277,303 | |
Net loss | (2,715) | — | — | — | (2,715) | — | (2,715) |
Foreign currency translation adjustments | (19) | — | — | — | — | (19) | (19) |
Exercise of stock options | — | 27 | — | 495 | — | — | 495 |
Stock-based compensation | — | 20 | — | (1,223) | — | — | (1,223) |
Income tax benefit from stock options exercised | — | — | — | 180 | — | — | 180 |
Amortization of restricted stock | — | — | — | 280 | — | — | 280 |
Issuance of restricted stock | — | 28 | — | 1,042 | — | — | 1,042 |
Unrealized gain on cash flow hedges, net of tax of $94 | 111 | — | — | — | — | 111 | 111 |
Postretirement benefit adjustment, net of tax of $60 | (111) | — | — | — | — | (111) | (111) |
Total comprehensive income (loss) | (2,734) | — | — | — | (2,715) | (19) | (2,734) |
Balance, September 30, 2011 | 11,752 | 117 | 34,343 | 242,254 | (1,371) | 275,343 | |
Net income | 29,657 | — | — | — | 29,657 | — | 29,657 |
Foreign currency translation adjustments | 833 | — | — | — | — | 833 | 833 |
Exercise of stock options | — | 98 | 1 | 1,798 | — | — | 1,799 |
Stock-based compensation | — | 7 | — | 1,004 | — | — | 1,004 |
Income tax benefit from stock options exercised | — | — | — | 589 | — | — | 589 |
Amortization of restricted stock | — | — | — | 135 | — | — | 135 |
Issuance of restricted stock | — | 74 | 1 | 583 | — | — | 584 |
Retirement of stock | (15) | — | — | — | — | — | |
Postretirement benefit adjustment, net of tax of $20 | 159 | — | — | — | — | 159 | 159 |
Total comprehensive income | $ 30,649 | — | — | — | 29,657 | 992 | 30,649 |
Balance, September 30, 2012 | 11,916 | $ 119 | $ 38,452 | $ 271,911 | $ (379) | $ 310,103 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended September 30, |
| |||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 9,439 |
|
| $ | 29,224 |
|
| $ | 42,076 |
|
Foreign currency translation adjustments |
| (16,104 | ) |
|
| (4,447 | ) |
|
| (1,719 | ) |
Postretirement benefit adjustment, net of tax |
| 206 |
|
|
| 17 |
|
|
| 25 |
|
Comprehensive income (loss) | $ | (6,459 | ) |
| $ | 24,794 |
|
| $ | 40,382 |
|
The accompanying notes are an integral part of these consolidated financial statements.
30
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| Other |
|
|
|
|
| ||||
| Common Stock |
|
| Treasury Stock |
|
| Paid-in |
|
|
| Retained |
|
| Comprehensive |
|
|
|
|
| |||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
|
| Earnings |
|
| Income/(Loss) |
|
| Total |
| ||||||||||
Balance, September 30, 2012 |
| 11,916 |
|
| $ | 119 |
|
|
| — |
|
| $ | — |
|
| $ | 38,452 |
|
|
| $ | 271,911 |
|
| $ | (379 | ) |
| $ | 310,103 |
| ||
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 42,076 |
|
|
| — |
|
|
| 42,076 |
| ||
Foreign currency translation adjustments |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
| (1,719 | ) |
|
| (1,719 | ) | ||
Stock-based compensation |
| 39 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,369 |
|
|
|
| — |
|
|
| — |
|
|
| 2,369 |
| ||
Excess tax benefit from share-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
| 464 |
|
|
|
|
— |
|
|
|
— |
|
|
| 464 |
| ||
Shares withheld in lieu of employee tax withholding |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
| (187 | ) |
|
|
|
— |
|
|
|
— |
|
|
| (187 | ) | ||
Amortization of restricted stock |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,095 |
|
|
|
| — |
|
|
| — |
|
|
| 2,095 |
| ||
Issuance of restricted stock |
| 17 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
| ||
Retirement of stock |
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
| ||
Postretirement benefit adjustment, net of tax of $14 |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| 25 |
|
|
| 25 |
| ||
Balance, September 30, 2013 |
| 11,971 |
|
| $ | 119 |
|
|
| — |
|
| $ | — |
|
| $ | 43,193 |
|
|
| $ | 313,987 |
|
| $ | (2,073 | ) |
| $ | 355,226 |
| ||
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 29,224 |
|
|
| — |
|
|
| 29,224 |
| ||
Foreign currency translation adjustments |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| (4,447 | ) |
|
| (4,447 | ) | ||
Stock-based compensation |
| 44 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,385 |
|
|
|
| — |
|
|
| — |
|
|
| 3,385 |
| ||
Excess tax benefit from share-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
| 407 |
|
|
|
|
— |
|
|
|
— |
|
|
| 407 |
| ||
Shares withheld in lieu of employee tax withholding |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(718 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
(718 |
) | ||
Issuance of restricted stock |
| 16 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1 |
| ||
Dividends paid |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (11,998 | ) |
|
| — |
|
|
| (11,998 | ) | ||
Postretirement benefit adjustment, net of tax of $9 |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| 17 |
|
|
| 17 |
| ||
Balance, September 30, 2014 |
| 12,031 |
|
| $ | 120 |
|
|
| — |
|
| $ | — |
|
| $ | 46,267 |
|
|
| $ | 331,213 |
|
| $ | (6,503 | ) |
| $ | 371,097 |
| ||
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 9,439 |
|
|
| — |
|
|
| 9,439 |
| ||
Foreign currency translation adjustments |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| (16,104 | ) |
|
| (16,104 | ) | ||
Stock-based compensation |
| 53 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,171 |
|
|
|
| — |
|
|
| — |
|
|
| 3,171 |
| ||
Excess tax benefit from share-based compensation |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(191 |
) |
|
|
|
— |
|
|
|
— |
|
|
| (191 | ) | ||
Shares withheld in lieu of employee tax withholding |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(740 |
) |
|
|
|
— |
|
|
|
— |
|
|
| (740 | ) | ||
Issuance of restricted stock |
| 16 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1 |
| ||
Purchase of treasury shares |
| — |
|
|
| — |
|
|
| (670 | ) |
|
| (21,259 | ) |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| (21,259 | ) | ||
Dividends paid |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (12,358 | ) |
|
| — |
|
|
| (12,358 | ) | ||
Postretirement benefit adjustment, net of tax of $123 |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| 206 |
|
|
| 206 |
| ||
Balance, September 30, 2015 |
| 12,100 |
|
| $ | 121 |
|
|
| (670 | ) |
| $ | (21,259 | ) |
| $ | 48,507 |
|
|
| $ | 328,294 |
|
| $ | (22,401 | ) |
| $ | 333,262 |
|
The accompanying notes are an integral part of these consolidated financial statements.
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
| Year Ended September 30, | ||
| 2012 | 2011 | 2010 |
Operating Activities: | |||
Net income (loss) | $ 29,657 | $ (2,715) | $ 25,167 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||
Depreciation | 10,465 | 10,598 | 9,154 |
Amortization | 2,612 | 4,848 | 4,549 |
Impairments | — | 7,158 | 7,452 |
Stock-based compensation | 1,723 | 99 | 1,929 |
Bad debt expense (recovery) | 842 | (114) | 410 |
Deferred income taxes | (1,422) | (425) | (348) |
Gain on sale of investment | — | (1,229) | — |
Changes in operating assets and liabilities: | |||
Accounts receivable, net | (16,209) | (17,616) | 39,687 |
Costs and estimated earnings in excess of billings on uncompleted contracts | (34,755) | (13,519) | 8,243 |
Inventories | 3,948 | 1,542 | 12,320 |
Prepaid expenses and other current assets | 4,821 | 4,514 | (5,813) |
Other assets | (13) | (2,627) | 440 |
Accounts payable and income taxes payable | (6,036) | 14,487 | (20,281) |
Accrued liabilities | 6,411 | (4,255) | (5,392) |
Billings in excess of costs and estimated earnings on uncompleted contracts | (7,492) | 13,553 | (13,762) |
Other, net | (517) | 1,188 | 378 |
Net cash provided (used in) by operating activities | (5,965) | 15,487 | 64,133 |
|
|
|
|
Investing Activities: | |||
Proceeds from sale of property, plant and equipment | 195 | 354 | 14 |
Purchases of property, plant and equipment | (29,063) | (7,347) | (4,420) |
Proceeds from sale of investment | — | 1,229 | — |
Decrease in cash held in escrow | 1,000 | — | — |
Increase in cash held in escrow | — | (1,000) | — |
Purchase of noncontrolling interest – Powell Asia | — | — | (659) |
Acquisition of Powell Canada | — | — | (23,394) |
Net cash used in investing activities | (27,868) | (6,764) | (28,459) |
|
|
|
|
Financing Activities: | |||
Borrowings on Canadian revolving line of credit | 7,992 | 7,810 | 891 |
Payments on Canadian revolving line of credit | (7,992) | (7,818) | (13,984) |
Payments on Canadian term loan | — | — | (2,429) |
Payments on industrial development revenue bonds | (400) | (400) | (400) |
Payments on deferred acquisition payable | — | — | (4,292) |
Payments on short-term and other financing | (717) | (1,068) | (1,087) |
Proceeds from exercise of stock options | 1,799 | 495 | 1,700 |
Tax benefit from exercise of stock options | 589 | 180 | 209 |
Net cash provided by (used in) financing activities | 1,271 | (801) | (19,392) |
|
|
|
|
Net increase (decrease) in cash and cash equivalents | (32,562) | 7,922 | 16,282 |
Effect of exchange rate changes on cash and cash equivalents | (864) | 191 | 1,668 |
Cash and cash equivalents at beginning of year | 123,466 | 115,353 | 97,403 |
Cash and cash equivalents at end of year | $ 90,040 | $ 123,466 | $ 115,353 |
| Year Ended September 30, |
| |||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 9,439 |
|
| $ | 29,224 |
|
| $ | 42,076 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
| 13,120 |
|
|
| 11,386 |
|
|
| 8,519 |
|
Amortization |
| 435 |
|
|
| 779 |
|
|
| 1,671 |
|
Gain on sale of discontinued operations, net of tax |
| — |
|
|
| (8,563 | ) |
|
| — |
|
Stock-based compensation |
| 3,171 |
|
|
| 3,385 |
|
|
| 4,464 |
|
Excess tax benefit from stock-based compensation |
| 191 |
|
|
| (407 | ) |
|
| (464 | ) |
Bad debt expense/(recovery) |
| (29 | ) |
|
| 1,074 |
|
|
| (544 | ) |
Deferred income tax expense (benefit) |
| 10,521 |
|
|
| (3,212 | ) |
|
| (6,720 | ) |
Gain on amended supply agreement |
| (2,029 | ) |
|
| (1,522 | ) |
|
| — |
|
Cash received from amended supply agreement |
| 2,333 |
|
|
| 10,000 |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
| 391 |
|
|
| 1,959 |
|
|
| 5,838 |
|
Costs and billings in excess of estimates on uncompleted contracts |
| (17,430 | ) |
|
| (17,089 | ) |
|
| 23,054 |
|
Inventories |
| (572 | ) |
|
| (3,959 | ) |
|
| 3,881 |
|
Prepaid expenses and other current assets |
| 2,656 |
|
|
| (1,101 | ) |
|
| (3,530 | ) |
Accounts payable and income taxes payable |
| (5,073 | ) |
|
| 1,002 |
|
|
| 13,029 |
|
Accrued liabilities |
| (3,373 | ) |
|
| (4,997 | ) |
|
| (633 | ) |
Other, net |
| (833 | ) |
|
| 1,524 |
|
|
| 784 |
|
Net assets held for sale |
| — |
|
|
| (10,355 | ) |
|
| — |
|
Net cash provided by operating activities |
| 12,918 |
|
|
| 9,128 |
|
|
| 91,425 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, plant and equipment |
| 112 |
|
|
| 118 |
|
|
| 885 |
|
Proceeds from sale of Transdyn |
| — |
|
|
| 14,819 |
|
|
| — |
|
Purchases of property, plant and equipment |
| (34,719 | ) |
|
| (16,495 | ) |
|
| (74,369 | ) |
Net cash used in investing activities |
| (34,607 | ) |
|
| (1,558 | ) |
|
| (73,484 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
Payments on industrial development revenue bonds |
| (400 | ) |
|
| (400 | ) |
|
| (400 | ) |
Excess tax benefit from stock-based compensation |
| (191 | ) |
|
| 407 |
|
|
| 464 |
|
Shares withheld in lieu of employee tax withholding |
| (740 | ) |
|
| (499 | ) |
|
| (187 | ) |
Purchase of treasury shares |
| (21,259 | ) |
|
| — |
|
|
| — |
|
Dividends paid |
| (12,358 | ) |
|
| (11,998 | ) |
|
| — |
|
Payments on short-term and other financing |
| — |
|
|
| (16 | ) |
|
| (329 | ) |
Net cash used in financing activities |
| (34,948 | ) |
|
| (12,506 | ) |
|
| (452 | ) |
Net increase (decrease) in cash and cash equivalents |
| (56,637 | ) |
|
| (4,936 | ) |
|
| 17,489 |
|
Effect of exchange rate changes on cash and cash equivalents |
| (2,912 | ) |
|
| 643 |
|
|
| (118 | ) |
Cash and cash equivalents, beginning of period |
| 103,118 |
|
|
| 107,411 |
|
|
| 90,040 |
|
Cash and cash equivalents, end of period | $ | 43,569 |
|
| $ | 103,118 |
|
| $ | 107,411 |
|
The accompanying notes are an integral part of these consolidated financial statements.
31
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Business and Organization
Powell Industries, Inc. (we, us, our, Powell or the Company) was incorporated in the state of Delaware in 2004 as a successor to a Nevada company incorporated in 1968. The Nevada corporation was the successor to a company founded by William E. Powell in 1947, which merged into the Company in 1977. Our major subsidiaries, all of which are wholly-owned,wholly owned, include: Powell Electrical Systems, Inc.; Transdyn,Powell (UK) Limited (formerly Switchgear & Instrumentation Limited); Powell Canada Inc.; and Powell Industries International, Inc.; Switchgear & Instrumentation Limited (S&I) and Powell Canada Inc.
B.V.
We develop, design, manufacture and service custom engineered-to-ordercustom-engineered equipment and systems for the managementdistribution, control and monitoring of electrical energy designed to (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other critical processes. Headquarteredelectrically powered equipment. Our principal products include integrated power control room substations (PCRs®), custom-engineered modules, electrical houses (E-Houses), traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers and bus duct systems. These products are designed for application voltages ranging from 480 volts to 38,000 volts and are used in Houston, Texas,oil and gas refining, offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper and other heavy industrial markets. Our product scope includes designs tested to meet both U.S. standards (ANSI) and international standards (IEC). We assist customers by providing value-added services such as spare parts, field service inspection, installation, commissioning, modification and repair, retrofit and retrofill components for existing systems and replacement circuit breakers for switchgear that is obsolete or that is no longer produced by the original manufacturer. We seek to establish long-term relationships with the end users of our systems as well as the design and construction engineering firms contracted by those end users.
References to Fiscal 2015, Fiscal 2014 and Fiscal 2013 used throughout these Notes to Consolidated Financial Statements relate to our fiscal years ended September 30, 2015, 2014 and 2013, respectively.
We previously reported two business segments: Electrical Power Products and Process Control Systems. In January 2014, we servesold our wholly owned subsidiary Transdyn Inc. (Transdyn), which was reported in our Process Controls business segment. We have presented the transportation, environmental, energy, industrialresults of these operations as income from discontinued operations, net of tax, for each of the accompanying consolidated statements of operations. While this sale did not result in a material disposition of assets or material reduction to income before income taxes relative to our consolidated financial statements, the revenues, gross profit, income before income taxes and utility industries.assets of Transdyn comprised a significant majority of those respective amounts previously reported in our Process Control Systems business segment. As we previously reported only two business segments, Electrical Power Products and Process Control Systems, we have removed the presentation of business segments in these Notes to Consolidated Financial Statements. All current and historical financial information presented exclude the financial information for Transdyn or presents it as discontinued operations where applicable. For more information about this disposition, see Note N.
B. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Powell and our wholly-ownedwholly owned subsidiaries. The financial position and results of operation of our Singapore joint venture, in which we held a majority ownership, have also been consolidated. As a result of this consolidation, we record noncontrolling interest on our balance sheet for our joint venture partner’s share of equity in the joint venture. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassificationsReclassifications have been made in prior years’ financial statementsConsolidated Statements of Cash Flows and Consolidated Statements of Stockholders’ Equity to conform toand expand the presentation usedof shares withheld in lieu of employee tax withholding in the current year. These reclassifications have not resulted in any changes to previously reported net incomecash flows or equity for any periods.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying footnotes. The most significant estimates used in our financial statements affect revenue and cost recognition for construction contracts, the allowance for doubtful accounts, provision for excess and obsolete inventory, goodwill and other intangible assets, self-insurance, warranty accruals and income taxes and estimates related to acquisition valuations.taxes. The amounts recorded for insurance claims, warranties, legal, income taxes and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We base our
estimates on historical experience and on various other assumptions, as well as the specific circumstances surrounding these contingent liabilities, in evaluating the amount of liability that should be recorded. Additionally, the recognition of deferred tax assets requires estimates related to future income and other assumptions regarding timing and future profitability. Estimates may change as new events occur, additional information becomes available or operating environments change. Actual results may differ from our estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits with banks and highly liquid investments with original maturities of three months or less.
Restricted Cash
Cash of $1.0 million was held in escrow at September 30, 2011. This restricted cash was related to a purchase of land which closed in October 2011 for $6.5 million.
32
Supplemental Disclosures of Cash Flow Information (in thousands):
|
|
| ||||||||||||||||||
| Year Ended September 30, | Year Ended September 30, | ||||||||||||||||||
| 2012 | 2011 | 2010 | 2015 |
|
| 2014 |
|
| 2013 |
| |||||||||
Cash paid during the period for: |
|
|
|
|
|
| ||||||||||||||
Interest | $ 141 | $ 102 | $ 563 | |||||||||||||||||
Interest, net of interest income | $ | 70 |
|
| $ | 149 |
|
| $ | 164 |
| |||||||||
Income taxes, net of refunds | 12,104 | 3,889 | 31,993 |
| 2,298 |
|
|
| 18,889 |
|
|
| 14,783 |
| ||||||
Non-cash capital expenditures |
| 147 |
|
|
| 13,527 |
|
|
| 2,807 |
|
Fair Value of Financial Instruments
Financial instruments include cash, short-term investments, marketable securities,cash equivalents, receivables, deferred compensation, payables and debt obligations. Except as described below, due to the short-term nature of the investments,account receivables and account payables, the book value is representative of their fair value. The carrying value of debt approximates fair value as interest rates are indexed to the Federal Funds Rate, the Canadian Prime Rate or the bank’s prime rate.
Accounts Receivable
Accounts receivable are stated net of allowances for doubtful accounts. We maintain and continually assess the adequacy of the allowance for doubtful accounts representing our estimate for losses resulting from the inability of our customers to pay amounts due to us. This estimated allowance is based on historical experience of uncollected accounts, the level of past due accounts, the overall level of outstanding accounts receivable, information about specific customers with respect to their inability to make payments and expectations of future conditions that could impact the collectibilitycollectability of accounts receivable. Future changes in our customers’ operating performance and cash flows, or in general economic conditions, could have an impact on their ability to fully pay these amounts, which could have a material impact on our operating results. In most cases, receivables are not collateralized. However, we utilize letters of credit to secure payment on sales when possible. At September 30, 20122015 and 2011,2014, accounts receivable included retention amounts of $8.7$5.4 million and $6.1$6.7 million, respectively. Retention amounts are in accordance with applicable provisions of engineering and construction contracts and become due upon completion of contractual requirements. Approximately $4.0$0.7 million of the retained amount at September 30, 2012,2015, is expected to be collected subsequent to September 30, 2013. 2016.
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues are recorded on a percentage-of-completion basis but cannot be invoiced under the terms of the contract. Such amounts are invoiced upon completion of contractual milestones.
Costs and estimated earnings in excess of billings on uncompleted contracts also include certain costs associated with unapproved change orders. These costs are included when the approval of the change order approval is probable. Amounts are carried at the lower of cost or net realizable value. Revenue is recognized to the extent of costs incurred when recovery is probable. The amounts recorded involve the use of judgments and estimates; thus, actual recoverable amounts could differ from original assumptions.
In accordance with industry practice, assets and liabilities related to costs and estimated earnings in excess of billings on uncompleted contracts, as well as billings in excess of costs and estimated earnings on uncompleted contracts, have been classified as current. The contract cycle for certain long-term contracts may extend beyond one year; thus, collection of amounts related to these contracts may extend beyond one year.
Inventories are stated at the lower of cost or market using weighted-average methods and include the cost of materials, labor and manufacturing overhead. We use estimates in determining the level of reserves required to state inventory at the lower of cost or market. Our estimates are based on market activity levels, production requirements, the physical condition of products and technological innovation. Changes in any of these factors may result in adjustments to the carrying value of inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are 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 improvements, 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 Consolidated Statements of Operations.
We review property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying value may not be realizable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such asset is necessary. If an impairment is indicated, we record an impairment loss equal to the difference between the carrying value and the fair value of the long-lived asset. This requires us to make long-term forecasts of the future revenues
33
and the costs related to the assets subject to review. Forecasts require assumptions about demand for our products and future market conditions. Estimating future cash flows requires significant judgment and our projections may vary from cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be reflected in income (loss) from operations in the Consolidated Statements of Operations. In addition, we estimate the useful lives of our property, plant and equipment and periodically review these estimates to determine whether these lives are appropriate.
Intangible Assets Which Are Amortized
The costs of intangible assets with determinable useful lives are amortized over their estimated useful lives. When certain events or changes in operating conditions occur, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such assets is necessary. For intangible assets that are amortized, we review their estimated useful lives and evaluate whether events and circumstances warrant a revision to the remaining useful life. For additional information regarding our intangible assets and related impairment, see Note D. E herein.
Goodwill and Indefinite Lived Assets
Goodwill and other intangible assets with indefinite useful lives areis evaluated for impairment annually, or immediately if conditions indicate that impairment could exist. The evaluation requires a two-step impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss. The first step of the test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss. Both steps of the goodwill impairment testing involve significant estimates.
Income Taxes
We account for income taxes under the asset and liability method, based on the income tax laws and rates in the countries in which operations are conducted and income is earned. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Developing our provision for income taxes requires significant judgment and expertise in federal, international and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We believe that the deferred tax asset recorded asThe recognition of September 30, 2012, is realizable through future reversals of existing taxable temporary differences and future taxable income. If we were to subsequently determine that we would be able to realize deferred tax assets requires estimates related to future income and other assumptions regarding timing and future profitability. Estimates may change as new events occur, estimates of future taxable income during the carryforward period are reduced or increased, additional information becomes available or operating environments change, which may result in a full or partial reversal of the future in excess of our net recorded amount, an adjustment to deferred tax assets would increase earnings for the period in which such determination was made.valuation allowance. We will continue to assess the adequacy of the valuation allowance on a quarterly basis. Our judgments and tax strategies are subject to audit by various taxing authorities.
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial statements.
34
Revenue Recognition
Our revenues are primarily generated from engineering and manufacturing of custom products under long-term contracts that may last from one month to several years, depending on the contract. Revenues from long-term contracts are recognized on the percentage-of-completion method of accounting.
Occasionally a contract may require that we segment the project into specific deliverables for revenue recognition. Segmenting a contract may result in different interim rates of profitability for each scope of service than if we had recognized revenue on a combined basis.
Under the percentage-of-completion method of accounting, revenues are recognized as work is performed primarily based on the estimated completionperformed. The revenue earned to date is calculated by multiplying the total contract price by the percentage of performance to date, which is based on total costs or total labor dollars incurred to date compared to the total estimated costs or total labor dollars estimated at completion. The method used to determine the percentage of completion is typically the cost method, unless the labor method is determined to be a more accurate method of measuring the progress of the projects.project. Application of the percentage-of-completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct material costs, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and all costs associated with operation of equipment. The cost estimation process is based upon the professional knowledge and experience of our engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays inon our project performance and the recoverability of any claims. Changes in job performance, job conditions, estimated profitability and final contract settlements, including our estimate of liquidated damages, if any, may result in revisions to costs and income, with their effects being recognized in the period in which the revisions are determined. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.
Revenues associated with maintenance, repair and service contracts are recognized when the services are performed. Expenses related to these types of services are recognized as incurred.
Warranties
We provide for estimated warranty costs atwith the timerecognition of salerevenue 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. Our standard terms and conditions of sale include a warranty for parts and service for the earlier of 18 months from the date of shipment or 12 months from the date of initial operations.energization, whichever occurs first. Occasionally projects require warranty terms that are longer than our standard terms due to the nature of the project. Extended warranty terms may be negotiated and included in our contracts. We use past experience and historical claims to determine the estimated liability. Actual results could differ from our estimate.
Research and Development Expense
Research and development activities are directed toward the development of new products and processes as well as improvements in existing products and processes. These costs, which primarily include salaries, contract services and supplies, are charged to expenseexpensed as incurred. These costs are included as a component of selling, general and administrative expenses on the Consolidated Statements of Operations. Such amounts were $7.7$7.0 million, $7.5$7.6 million and $6.5$7.6 million in fiscal years 2012, 2011Fiscal 2015, 2014 and 2010,2013, respectively.
Foreign Currency Translation
The functional currency for our foreign subsidiaries is the local currency in which the entity is located. The financial statements of all subsidiaries with a functional currency other than the U.S. Dollar have been translated into U.S. Dollars. All assets and liabilities of foreign operations are translated into U.S. Dollars using year-end exchange rates, and all revenues and expenses are translated at average rates during the respective period. The U.S. Dollar results that arise from such translation, as well as exchange gains and losses on intercompany balances of a long-term investment nature, are included in the cumulative currency translation adjustments in accumulated other comprehensive income in stockholders’ equity.
We measure stock-based compensation cost at the grant date based on the fair value of the restricted stock award and recognize it asaward. Compensation expense is recognized over the applicableperiod during which the employee is required to provide service in exchange for the awards, typically the vesting period of the stock award using the straight-line method.period. Excess income tax benefits related to share-based compensation expense that must be recognized directly in equity are considered financing rather than operating cash flow activities.
35
Derivative Financial Instruments
As part of managing our exposure to changes in foreign currency exchange rates, we periodically utilize foreign exchange forward contracts. The objective of these contracts is to minimize impacts to cash flows and profitability due to changes in foreign currency exchange rates on accounts receivable, accounts payable and forecasted cash transactions. These contracts are recorded in the Consolidated Balance Sheets at fair value, which is based upon an income approach consisting of a discounted cash flow model that takes into account the present value of the future cash flows under the terms of the contracts using current market information as of the reporting date, such as foreign currency spot and forward rates.
We formally document our hedging relationships, including identifying the hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking the hedge transaction. We also formally assess, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of the change in fair value of a derivative is recorded as a component of accumulated other comprehensive income in the Consolidated Balance Sheets. When the hedged item affects the income statement, the gain or loss included in accumulated other comprehensive income is reported on the same line in the Consolidated Statements of Operations as the hedged item. In addition, any ineffective portion of the changes in the fair value of derivatives used as cash flow hedges is reported in the Consolidated Statements of Operations as the changes occur. If it is determined that a derivative ceases to be a highly effective hedge, or it is probable that the forecasted transaction will not occur, we discontinue hedge accounting and any unrealized gains or losses are recorded in the consolidated financial statements.
We provide 1) qualitative disclosures regarding the objectives and strategies for using derivative instruments and engaging in hedging activities in the context of our overall risk exposure; 2) quantitative disclosure in tabular format of the fair values of derivative instruments and their gains and losses and 3) disclosures about credit-risk related contingent features in derivative instruments.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss), which is included as a component of stockholders’ equity net of tax, includes unrealized gains or losses on derivative instruments, postretirement benefit adjustments and currency translation adjustments in foreign consolidated subsidiaries.
New Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated statements upon adoption.
In January 2010, the FASB issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures about significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities, rather than each major category of assets or liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update became effective for us with the interim and annual reporting period beginning after December 15, 2009, our fiscal year 2011, except for the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which became effective for us with the interim and annual reporting period beginning after December 15, 2010, our fiscal year 2012. We were not required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures, adoption of this update has not had a material impact on our consolidated financial statements.
In May 2011,July 2013, the FASB issued accounting guidance relatedon the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to fair value measurement, which amends current guidancea deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to achieve common fair value measurementsettle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and disclosure requirementsthe entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in U.S. GAAPthe financial statements as a liability and International Financial Reporting Standards. This guidance generally represents clarification of fair value measurement standards, but also includes instances where a particular principle or requirement for measuring fair value of disclosing information about fair value measurements has changed.should not be combined with deferred tax assets. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We will adopt this guidance for2013, which was our fiscal year beginning October 1, 2012. We doended September 30, 2015. This guidance should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this guidance has not expecthad a significant impact on our consolidated financial position or results of operations.
In April 2014, the FASB issued an amendment to the financial reporting of discontinued operations. The amendments in this pronouncementupdate changed the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to the financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations that have a major effect on the organization’s operations and financial results should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in this update are effective in the first quarter of 2015, which would be our fiscal year end September 30, 2016. Early adoption is permitted for disposals that have not been previously reported as discontinued operations. This amendment is not expected to have a material effectimpact on our consolidated financial statements.
position or results of operations.
In June 2011,May 2014, the FASB issued a new accountingstandard on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a five-step approach to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract. This guidance on the presentation of comprehensive income in financial statements. Entities are required to present total comprehensive income either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. Under the single-statement approach, entities must include the components of net income, a total for net income, the components of other comprehensive income and a total for comprehensive income. Under the two-statement approach, entities must report an income statement and, immediately following, a statement of other comprehensive income. Under either method, entities must display adjustments for items reclassified from other comprehensive income to net income in both net income and other comprehensive income. The provisions for this guidance areis now effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. We will adopt this guidance for2017, which would be our fiscal year beginning October 1, 2012. ending September 30, 2019. The standard permits the use of either the retrospective or cumulative effect transition method therefore we are evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
36
In September 2011,June 2014, the FASB issued new accountingan amendment to the topic regarding share-based payments and instances where terms of an award provide that a performance target can be achieved after the requisite service period. This guidance has been provided to resolve the diversity in practice concerning employee share-based payments that contain performance targets that could be achieved after the requisite service period. The updated guidance requires that a performance target that affects vesting and that can be achieved after the requisite service period be treated as a performance condition. Compensation cost should be recognized in the period in which simplifies how an entityit becomes probable that the performance target will be achieved and is requiredattributable to test goodwillthe periods for impairment. Under this guidance, an entity would be allowed to first assess qualitative factors to determine whether itwhich service has been rendered. If the performance target becomes probable of being achieved before the end of the service period, the remaining unrecognized compensation cost for which requisite service has not yet been rendered is necessary to performrecognized prospectively over the two-step quantitative goodwill impairment test. An entity would not be required to calculateremaining service period. The total amount of compensation cost recognized during and after the fair value of a reporting unit unlessservice period should reflect the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This new guidance includes a number of factorsawards that are expected to consider in conducting the qualitative assessment. Thisvest and should be adjusted to reflect those awards that ultimately vest. The updated guidance is effective for annual and
interim goodwill impairment tests performed for fiscal yearsperiods beginning after December 15, 2011, our Fiscal 2013. Early2015, with early adoption is permitted; however, we will not adoptpermitted. The adoption of this guidance until October 1, 2012. This guidance is not expected to have a material impact on our reportedconsolidated financial position or results of operations or financial position.
operations.
In July 2012,2015, the FASB issued a new topic on simplifying the measurement of inventory. The current standard is to measure inventory at lower of cost or market; where market could be replacement cost, net realizable value, or net realizable value less an accounting standards update regardingapproximately normal profit margin. This topic updates this guidance to measure inventory at the testinglower of indefinite-lived intangible assets for impairment. Under this update, an entity hascost and net realizable value; where net realizable value is the option to first assess qualitative factors to determine whetherestimated selling prices in the existenceordinary course of eventsbusiness, less reasonably predictable costs of completion, disposal, and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the events and circumstances, an entity concludes that it is more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if any entity concludes otherwise, it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment testing by comparing the fair value with the carrying amount. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative test. An entity will be able to resume performing the qualitative assessment in any subsequent period.transportation. This update is effective for annual and interim tests performed for fiscal yearsreporting periods beginning after SeptemberDecember 15, 2012,2016, which would be our fiscal year 2013. Early adoption is permitted; however, we will not adopt this guidance until October 1, 2012.ending September 30, 2018. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. This guidancetopic is not expected to have a material impact on our reported results of operations or financial position.
In August 2012, the SEC adopted a rule mandated by the Dodd-Frank Act to require companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo or an adjoining country. The final rule applies to a company that uses minerals including tantalum, tin, gold or tungsten. The final rule requires companies to provide disclosure on a new form filed with the SEC, with the first specialized disclosure report due on May 31, 2014, for the 2013 calendar year, and annually on May 31 each year thereafter. We are currently evaluating the impact of adoption.
Subsequent Events
We evaluated subsequent events through the time of filing this Annual Report on Form 10-K. No significant events occurred subsequent to the balance sheet or prior to the filing of this report that would have a material impact on our consolidated financial statementsposition or results of operations.
C. Earnings Per Share
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share includes the weighted average of additional shares associated with the incremental effect of dilutive restricted stock and restrictive stock units, as prescribed by the FASB guidance on earnings per share.
The following table reconciles basic and diluted weighted average shares used in the computation of earnings per share for the years ended September 30, 2015, 2014 and 2013 (in thousands, except per share data):
| Year Ended September 30, |
| |||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations | $ | 9,439 |
|
| $ | 19,620 |
|
| $ | 39,739 |
|
Income from discontinued operations |
| — |
|
|
| 9,604 |
|
|
| 2,337 |
|
Net income | $ | 9,439 |
|
| $ | 29,224 |
|
| $ | 42,076 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares |
| 11,869 |
|
|
| 12,003 |
|
|
| 11,948 |
|
Dilutive effect of restricted stock units |
| 39 |
|
|
| 55 |
|
|
| 46 |
|
Weighted average diluted shares with assumed conversions |
| 11,908 |
|
|
| 12,058 |
|
|
| 11,994 |
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Continuing operations | $ | 0.80 |
|
| $ | 1.63 |
|
| $ | 3.32 |
|
Discontinued operations |
| — |
|
|
| 0.80 |
|
|
| 0.20 |
|
Basic earnings per share | $ | 0.80 |
|
| $ | 2.43 |
|
| $ | 3.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations | $ | 0.79 |
|
| $ | 1.62 |
|
| $ | 3.32 |
|
Discontinued operations |
| — |
|
|
| 0.80 |
|
|
| 0.19 |
|
Diluted earnings per share | $ | 0.79 |
|
| $ | 2.42 |
|
| $ | 3.51 |
|
D. Detail of Selected Balance Sheet Accounts
Allowance for Doubtful Accounts
Activity in our allowance for doubtful accounts consisted of the following (in thousands):
| September 30, |
| |||||
| 2015 |
|
| 2014 |
| ||
Balance at beginning of period | $ | 1,577 |
|
| $ | 572 |
|
Bad debt expense (recovery) |
| (29 | ) |
|
| 1,074 |
|
Uncollectible accounts written off, net of recoveries |
| (749 | ) |
|
| (58 | ) |
Change in foreign currency translation |
| (53 | ) |
|
| (11 | ) |
Balance at end of period | $ | 746 |
|
| $ | 1,577 |
|
The components of inventories are summarized below (in thousands):
| September 30, |
| |||||
| 2015 |
|
| 2014 |
| ||
Raw materials, parts and subassemblies | $ | 36,575 |
|
| $ | 35,349 |
|
Work-in-progress |
| 1,084 |
|
|
| 2,035 |
|
Provision for excess and obsolete inventory |
| (4,768 | ) |
|
| (4,569 | ) |
Total inventories | $ | 32,891 |
|
| $ | 32,815 |
|
Cost and Estimated Earnings on Uncompleted Contracts
The components of costs and estimated earnings and related amounts billed on uncompleted contracts are summarized below (in thousands):
| September 30, |
| |||||
| 2015 |
|
| 2014 |
| ||
Costs incurred on uncompleted contracts | $ | 912,237 |
|
| $ | 604,939 |
|
Estimated earnings |
| 271,640 |
|
|
| 157,562 |
|
|
| 1,183,877 |
|
|
| 762,501 |
|
Less: Billings to date |
| (1,121,141 | ) |
|
| (715,233 | ) |
Net underbilled position | $ | 62,736 |
|
| $ | 47,268 |
|
|
|
|
|
|
|
|
|
Included in the accompanying balance sheets under the following captions: |
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts – underbilled | $ | 104,793 |
|
| $ | 95,970 |
|
Billings in excess of costs and estimated earnings on uncompleted contracts – overbilled |
| (42,057 | ) |
|
| (48,702 | ) |
Net underbilled position | $ | 62,736 |
|
| $ | 47,268 |
|
Property, Plant and Equipment
Property, plant and equipment are summarized below (in thousands):
| September 30, |
|
| Range of | |||||
| 2015 |
|
| 2014 |
|
| Asset Lives | ||
Land | $ | 22,380 |
|
| $ | 23,545 |
|
| — |
Buildings and improvements |
| 120,983 |
|
|
| 100,901 |
|
| 3 - 39 Years |
Machinery and equipment |
| 100,306 |
|
|
| 100,922 |
|
| 3 - 15 Years |
Furniture and fixtures |
| 3,564 |
|
|
| 3,852 |
|
| 3 - 10 Years |
Construction in process |
| 1,013 |
|
|
| 15,878 |
|
| — |
| $ | 248,246 |
|
| $ | 245,098 |
|
|
|
Less: Accumulated depreciation |
| (93,652 | ) |
|
| (88,202 | ) |
|
|
Total property, plant and equipment, net | $ | 154,594 |
|
| $ | 156,896 |
|
|
|
The increase in buildings and improvements was primarily the completion of the expansion of our facility in Acheson, Alberta, Canada in Fiscal 2015.
There were no assets under capital lease as of September 30, 2015 or September 30, 2014. Depreciation expense from continuing operations, including the depreciation of capital leases when applicable, was $13.1 million, $11.4 million and $8.5 million for fiscal years 2015, 2014, and 2013, respectively.
Activity in our product warranty accrual consisted of the following (in thousands):
| September 30, |
| |||||
| 2015 |
|
| 2014 |
| ||
Balance at beginning of period | $ | 4,557 |
|
| $ | 5,282 |
|
Increase to warranty expense |
| 3,364 |
|
|
| 3,237 |
|
Deduction for warranty charges |
| (2,738 | ) |
|
| (3,892 | ) |
Increase (decrease) due to foreign currency translations |
| (253 | ) |
|
| (70 | ) |
Balance at end of period | $ | 4,930 |
|
| $ | 4,557 |
|
E. Goodwill and Intangible Assets
Our intangible assets consist of goodwill, which is not being amortized, purchased technology (6- to 7-year useful lives) and trade names (10-year useful life), which are amortized over their estimated useful lives. We test for impairment of goodwill and intangible assets annually, or immediately if conditions indicate that impairment could exist. No impairment was identified as a result of performing our annual impairment tests for Fiscal 2015 or 2014.
Intangible assets balances, subject to amortization, at September 30, 2015 and 2014 consisted of the following (in thousands):
| September 30, 2015 |
|
| September 30, 2014 |
| ||||||||||||||||||
| Gross |
|
|
|
|
|
| Net |
|
| Gross |
|
|
|
|
|
| Net |
| ||||
| Carrying |
|
| Accumulated |
|
| Carrying |
|
| Carrying |
|
| Accumulated |
|
| Carrying |
| ||||||
| Value |
|
| Amortization |
|
| Value |
|
| Value |
|
| Amortization |
|
| Value |
| ||||||
Purchased technology | $ | 11,749 |
|
| $ | (10,359 | ) |
| $ | 1,390 |
|
| $ | 11,749 |
|
| $ | (9,918 | ) |
| $ | 1,831 |
|
Trade name |
| 1,136 |
|
|
| (1,136 | ) |
|
| — |
|
|
| 1,136 |
|
|
| (1,063 | ) |
|
| 73 |
|
Total | $ | 12,885 |
|
| $ | (11,495 | ) |
| $ | 1,390 |
|
| $ | 12,885 |
|
| $ | (10,981 | ) |
| $ | 1,904 |
|
Amortization of intangible assets recorded for the years ended September 30, 2015, 2014 and 2013, was $0.4 million, $0.8 million and $1.7 million, respectively.
Estimated amortization expense for each of the five subsequent fiscal years is expected to be (in thousands):
Years Ending September 30, |
| Total |
| |
2016 |
| $ | 340 |
|
2017 |
|
| 340 |
|
2018 |
|
| 340 |
|
2019 |
|
| 340 |
|
2020 |
|
| 30 |
|
On August 7, 2006, we purchased certain assets related to the manufacturing of ANSI medium-voltage switchgear and circuit breaker business from General Electric Company (GE). In connection with the acquisition, we entered into a 15-year supply agreement with GE pursuant to which GE would purchase from the Company all of its requirements for ANSI medium-voltage switchgear and circuit breakers and other related equipment and components (the Products). In connection with the acquisition, we recorded an intangible asset related to this supply agreement. On December 30, 2013, the Company and GE amended the supply agreement to allow GE to manufacture similar Products for sale immediately and allow GE to begin purchasing Products from other suppliers beginning December 31, 2014. In return, GE paid us $10 million upon execution of the amended supply agreement and agreed to pay an additional $7 million over three years, subject to certain conditions. The first payment of $2.3 million was received in March 2015. We have $2.3 million recorded in other current assets and the remaining $2.3 million is recorded as a long-term receivable. We wrote off the intangible asset related to the original supply agreement and recorded a deferred credit in the amount of $8.1 million at December 31, 2013, the amount by which the total proceeds from GE exceeded the unamortized balance of our intangible asset. We are amortizing this deferred credit over the four-year life of the agreement and have recognized gains in other income of $2.0 million and $1.5 million for the years ended September 30, 2015 and 2014, respectively.
Long-term debt consisted of the following (in thousands):
| September 30, |
| |||||
| 2015 |
|
| 2014 |
| ||
Industrial development revenue bonds | $ | 2,800 |
|
| $ | 3,200 |
|
Capital lease obligations |
| — |
|
|
| — |
|
Subtotal long-term debt and capital lease obligations |
| 2,800 |
|
|
| 3,200 |
|
Less: current portion |
| (400 | ) |
|
| (400 | ) |
Total long-term debt and capital lease obligations | $ | 2,400 |
|
| $ | 2,800 |
|
The annual maturities of long-term debt as of September 30, 2015, were as follows (in thousands):
Year Ending September 30, |
| Long‑Term |
| |
2016 |
| $ | 400 |
|
2017 |
|
| 400 |
|
2018 |
|
| 400 |
|
2019 |
|
| 400 |
|
2020 |
|
| 400 |
|
Thereafter |
|
| 800 |
|
Total long-term debt maturities |
| $ | 2,800 |
|
U.S. Revolver
In Fiscal 2014, we amended and restated our existing credit agreement (the Amended Credit Agreement) with a major domestic bank. In Fiscal 2015, we entered into the Second Amendment of the Amended Credit Agreement (the Second Amendment). The Second Amendment provided for the expansion of our Canadian manufacturing facility and allowed for the repurchase of our common stock pursuant to a share repurchase program announced in December 2014. The Amended Credit Agreement provides for a $75.0 million revolving credit facility (U.S. Revolver). Obligations are collateralized by the stock of certain of our subsidiaries.
The interest rate for amounts outstanding under the Amended Credit Agreement for the U.S. Revolver is a floating rate based upon the higher of the Federal Funds Rate plus 0.5%, the bank’s prime rate, or the Eurocurrency rate plus 1.00%. Once the applicable rate is determined, a margin ranging up to 1.75%, as determined by our consolidated leverage ratio, is added to the applicable rate.
The U.S. Revolver provides for the issuance of letters of credit which reduce the amounts that may be borrowed under this revolver. The amount available under the U.S. Revolver was reduced by $21.1 million for our outstanding letters of credit at September 30, 2015.
There were no borrowings outstanding under the U.S. Revolver as of September 30, 2015. Amounts available under the U.S. Revolver were $53.9 million at September 30, 2015. The U.S. Revolver expires on December 31, 2018.
The Amended Credit Agreement contains certain restrictive and maintenance-type covenants, such as restrictions on the amount of capital expenditures allowed. It also contains financial covenants defining various financial measures and the levels of these measures with which we must comply, as well as a “material adverse change” clause. A “material adverse change” is defined as a material change in our operations, business, properties, liabilities or condition (financial or otherwise) or a material impairment of our ability to perform our obligations under our credit agreements.
The Amended Credit Agreement is collateralized by a pledge of 100% of the voting capital stock of each of our domestic subsidiaries and 65% of the voting capital stock of each non-domestic subsidiary, excluding Powell Canada. The Amended Credit Agreement provides for customary events of default and carries cross-default provisions with other existing debt agreements. If an event of default (as defined in the Amended Credit Agreement) occurs and is continuing, on the terms and subject to the conditions set forth in the Amended Credit Agreement, amounts outstanding under the Amended Credit Agreement may be accelerated and may become immediately due and payable. As of September 30, 2015, we were in compliance with all of the financial covenants of the Amended Credit Agreement.
We have a $7.5 million credit agreement with a major international bank in Canada (the Canadian Revolver) to provide working capital support and letters of credit for our operations in Canada. The Canadian Revolver provides for the issuance of letters of credit which reduce the amounts that may be borrowed under this revolver. There were no outstanding letters of credit at September 30, 2015.
There were no borrowings outstanding under the Canadian Revolver as of September 30, 2015 and amounts available under the Canadian Revolver were $7.5 million at September 30, 2015. The interest rate for amounts outstanding under the Canadian Revolver is a floating interest rate based upon either the Canadian Prime Rate, or the lender’s Bankers’ Acceptance Rate. Once the applicable rate is determined, a margin of 0.50% to 1.75%, as determined by our consolidated leverage ratio, is added to the applicable rate. The Canadian Revolver expires on March 31, 2018.
The principal financial covenants are consistent with those described in our Amended Credit Agreement. The Canadian Revolver contains a “material adverse effect” clause. A “material adverse effect” is defined as a material change in the operations of Powell or Powell Canada in relation to our financial condition, property, business operations, expected net cash flows, liabilities or capitalization.
The Canadian Revolver is secured by the assets of our Canadian operations and provides for customary events of default and carries cross-default provisions with our existing debt agreements. If an event of default (as defined in the Canadian Revolver) occurs and is continuing, per the terms and subject to the conditions set forth in the Canadian Revolver, amounts outstanding under the Canadian Revolver may be accelerated and may become immediately due and payable. As of September 30, 2015, we were in compliance with all of the financial covenants of the Canadian Revolver.
Industrial Development Revenue Bonds
We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds from tax-exempt industrial development revenue bonds (Bonds). These Bonds were issued by the Illinois Development Finance Authority and were used for the completion of our Northlake, Illinois facility. Pursuant to the Bond issuance, a reimbursement agreement between us and a major domestic bank required an issuance by the bank of an irrevocable direct-pay letter of credit (Bond LC), as collateral, to the Bonds’ trustee to guarantee payment of the Bonds’ principal and interest when due. The Bond LC is subject to both early termination and extension provisions customary to such agreements, as well as various covenants, for which we were in compliance at September 30, 2015. While the Bonds mature in 2021, the reimbursement agreement requires annual redemptions of $0.4 million that commenced on October 25, 2002. A sinking fund is used for the redemption of the Bonds. The Bonds bear interest at a floating rate determined weekly by the Bonds’ remarketing agent, which was the underwriter for the Bonds and is an affiliate of the bank. This interest rate was 0.17% as of September 30, 2015.
G. Commitments and Contingencies
Long-Term Debt
See Note F herein for a discussion of our long-term debt.
Leases
We lease certain offices, facilities and equipment under operating leases expiring at various dates through 2023.
At September 30, 2015, the minimum annual rental commitments under leases having terms in excess of one year were as follows (in thousands):
Years Ending September 30, |
| Operating |
| |
2016 | $ | 3,768 |
| |
2017 |
| 2,844 |
| |
2018 |
| 2,147 |
| |
2019 |
| 1,317 |
| |
2020 |
| 1,325 |
| |
Thereafter |
| 5,586 |
| |
Total lease commitments | $ | 16,987 |
|
Lease expense for all operating leases was $4.0 million, $3.9 million and $4.7 million for Fiscal 2015, 2014 and 2013, respectively. In Fiscal 2015, we exited one of our previously occupied leased facilities in Acheson, Alberta, Canada. The lease does not expire until October 2019; however, we are currently seeking to sublet the facility. We recorded a $0.8 million loss pertaining to this lease which represents the net difference between the annual lease costs and the anticipated sublease of this facility, as well as the write-off of associated leasehold improvements. In Fiscal 2014, we also exited one of our previously occupied leased facilities in Edmonton, Alberta, Canada. This lease does not expire until July 2023; however, we have sublet that facility through July 2019. We recorded a $1.7 million loss in the fourth quarter of fiscal year 2013 for the net difference between those annual lease costs and the expected receipts from the sublease, as well as the write-off of leasehold improvements.
Letters of Credit and Bonds
Certain customers require us to post bank letter of credit guarantees or performance bonds issued by a surety. These guarantees and performance bonds assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or performance by the surety under a performance bond. To date, there have been no significant expenses related to either letters of credit or performance bonds for the periods reported. We were contingently liable for secured and unsecured letters of credit of $21.1 million as of September 30, 2015. We also had performance and maintenance bonds totaling $318.8 million that were outstanding, with additional bonding capacity of $431.2 million available, at September 30, 2015.
We have a $15.2 million facility agreement (Facility Agreement) between Powell (UK) Limited and a large international bank. This Facility Agreement provides Powell (UK) the ability to enter into bank guarantees as well as forward exchange contracts and currency options. At September 30, 2015, we had outstanding guarantees totaling $4.0 million under this Facility Agreement and amounts available under this Facility Agreement were $11.2 million. This facility is renewable in May 2016.
The Facility Agreement provides for financial covenants and customary events of default, and carries cross-default provisions with our Amended Credit Facility. If an event of default (as defined in the Facility Agreement) occurs and is continuing, per the terms and subject to the conditions set forth in the Facility Agreement, obligations outstanding under the Facility Agreement may be accelerated and may become or be declared immediately due and payable. As of September 30, 2015, we were in compliance with all of the financial covenants of the Facility Agreement.
Litigation
We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. Although we can give no assurances about the outcome of pending or threatened litigation and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity.
In March 2013, we settled a lawsuit we had filed against the previous owners of Powell Canada for $1.7 million, which was received in April 2013 and is recorded as gain on settlement in the accompanying Consolidated Statement of Operations.
Liquidated Damages
Certain of our customer contracts have schedule and performance obligation clauses that, if we fail to meet them, could subject us to liquidated damages. Each individual contract defines the conditions under which the customer may make a claim against us. As of September 30, 2015, our exposure to possible liquidated damages is $5.4 million, of which approximately $1.8 million is probable. Based on our actual or projected failure to meet these various contractual commitments, $1.7 million has been recorded against revenue in our statement of operations. We believe that we will be successful in obtaining change orders or contract extensions that should resolve the potential for any unaccrued liquidated damages; however, should we fail to achieve relief on some or all of these contractual obligations, we could be subject to additional liquidated damages which could impact our future operating results.
The components of the income tax provision were as follows (in thousands):
| Year Ended September 30, |
| |||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| |||
Current: |
|
|
|
|
|
|
|
|
|
|
|
Federal | $ | 2,638 |
|
| $ | 12,184 |
|
| $ | 10,919 |
|
State |
| 699 |
|
|
| 2,226 |
|
|
| 1,757 |
|
Foreign |
| (306 | ) |
|
| (130 | ) |
|
| 1,575 |
|
|
| 3,031 |
|
|
| 14,280 |
|
|
| 14,251 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
Federal |
| 3,296 |
|
|
| (1,798 | ) |
|
| (580 | ) |
State |
| 420 |
|
|
| (311 | ) |
|
| (114 | ) |
Foreign |
| 6,805 |
|
|
| (1,103 | ) |
|
| (6,170 | ) |
|
| 10,521 |
|
|
| (3,212 | ) |
|
| (6,864 | ) |
Total income tax provision | $ | 13,552 |
|
| $ | 11,068 |
|
| $ | 7,387 |
|
Income before income taxes was as follows (in thousands):
| Year Ended September 30, |
| |||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| |||
U.S. | $ | 33,549 |
|
| $ | 35,131 |
|
| $ | 43,299 |
|
Other than U.S. |
| (10,558 | ) |
|
| (4,443 | ) |
|
| 3,827 |
|
Income before income taxes | $ | 22,991 |
|
| $ | 30,688 |
|
| $ | 47,126 |
|
A reconciliation of the statutory U.S. income tax rate and the effective income tax rate, as computed on earnings before income tax provision in each of the three years presented in the Consolidated Statements of Operations, was as follows:
| Year Ended September 30, |
| ||||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| ||||
Statutory rate |
| 35 | % |
|
| 35 | % |
|
| 35 | % | |
State income taxes, net of federal benefit |
| 3 |
|
|
| 3 |
|
|
| 2 |
| |
Research and development credit |
| (21 | ) |
|
| — |
|
|
| — |
| |
International withholding tax |
| — |
|
|
| — |
|
|
| (1 | ) | |
Other permanent tax items |
| 2 |
|
|
| 1 |
|
|
| 1 |
| |
Foreign rate differential |
| 4 |
|
|
| 1 |
|
|
| (1 | ) | |
Domestic production activities deduction |
| (3 | ) |
|
| (3 | ) |
|
| (3 | ) | |
Foreign valuation allowance and other |
| 39 |
|
|
| (1 | ) |
|
| (17 | ) | |
Effective rate |
| 59 | % |
|
| 36 | % |
|
| 16 | % |
Our provision for income taxes reflects an effective tax rate on pre-tax earnings of 59% in Fiscal 2015 compared to 36% and 16% in Fiscal 2014 and 2013, respectively. The effective tax rate for Fiscal 2015 was adversely impacted by the establishment of a valuation allowance against the Canadian net deferred assets. The effective tax rate for Fiscal 2015 was favorably impacted by the resolution of an IRS audit that resulted in a $4.1 million release of uncertain tax benefits as well as the retroactive reinstatement of the Federal Research and Development Tax Credit (R&D Credit) for the second through fourth quarters of Fiscal 2014 which gave rise to a $0.6 million tax benefit. The effective tax rate for Fiscal 2014 approximated the combined U.S. federal and state statutory rate, while the effective tax rate in Fiscal 2013 was favorably impacted by the release of a valuation allowance that was recorded against Canadian deferred tax assets.
We have not recorded deferred income taxes on $18.4 million of undistributed earnings of our foreign subsidiaries because of management’s intent to indefinitely reinvest such earnings. Upon distribution of these earnings in the form of dividends or otherwise, we may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable on the eventual remittance of these earnings.
We are subject to income tax in the U.S., multiple state jurisdictions and certain international jurisdictions, primarily the U.K. and Canada. We do not consider any state in which we do business to be a major tax jurisdiction. We remain open to examination in the other jurisdictions as follows: Canada 2010 – 2014, United Kingdom 2013-2014 and the United States 2013 – 2014.
The net deferred income tax asset (liability) was comprised of the following (in thousands):
| September 30, |
| |||||
| 2015 |
|
| 2014 |
| ||
Current deferred income taxes: |
|
|
|
|
|
|
|
Gross assets | $ | 3,910 |
|
| $ | 5,297 |
|
Gross liabilities |
| — |
|
|
| — |
|
Net current deferred income tax asset |
| 3,910 |
|
|
| 5,297 |
|
Noncurrent deferred income taxes: |
|
|
|
|
|
|
|
Gross assets |
| 5,005 |
|
|
| 11,532 |
|
Gross liabilities |
| (2,717 | ) |
|
| (110 | ) |
Net noncurrent deferred income tax asset |
| 2,288 |
|
|
| 11,422 |
|
Net deferred income tax asset | $ | 6,198 |
|
| $ | 16,719 |
|
The tax effect of temporary differences between U.S. GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities was as follows (in thousands):
| September 30, |
| |||||
| 2015 |
|
| 2014 |
| ||
Deferred Tax Assets: |
|
|
|
|
|
|
|
Net operating loss | $ | 9,877 |
|
| $ | 6,236 |
|
Uniform capitalization and inventory |
| 1,895 |
|
|
| 2,529 |
|
Deferred compensation |
| 1,848 |
|
|
| 1,611 |
|
Stock-based compensation |
| 993 |
|
|
| 1,529 |
|
Reserve for accrued employee benefits |
| 1,482 |
|
|
| 1,444 |
|
Depreciation and amortization |
| — |
|
|
| 1,217 |
|
Warranty accrual |
| 915 |
|
|
| 643 |
|
Goodwill |
| 398 |
|
|
| 474 |
|
Postretirement benefits liability |
| — |
|
|
| 252 |
|
Allowance for doubtful accounts |
| 166 |
|
|
| 495 |
|
Workers’ compensation |
| 8 |
|
|
| 128 |
|
Accrued legal |
| 60 |
|
|
| 65 |
|
Credit carryforwards and other |
| 1,329 |
|
|
| 1,109 |
|
Deferred tax assets |
| 18,971 |
|
|
| 17,732 |
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
Depreciation and amortization |
| (2,705 | ) |
|
| — |
|
Other |
| (12 | ) |
|
| (110 | ) |
Deferred tax liabilities |
| (2,717 | ) |
|
| (110 | ) |
|
|
|
|
|
|
|
|
Less: valuation allowance |
| (10,056 | ) |
|
| (903 | ) |
Net deferred tax asset | $ | 6,198 |
|
| $ | 16,719 |
|
At September 30, 2015, we had $37 million of gross foreign net operating loss carryforwards, the majority of which are subject to a 20-year carryforward period and will begin to expire in 2031. During Fiscal 2015, we established a valuation allowance in the amount of $9.3 million against Canadian net deferred tax assets. In assessing the realizability of net deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of the net deferred tax assets may not be realized. The ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. In light of the historical Canadian losses, and projected losses in the near term, we are required under the more-likely-than-not accounting standard to record a valuation allowance against the Canadian net deferred assets because we may not be able to realize the benefits of the net operating loss carryforwards and other deductible differences.
A rollforward of the valuation allowance for the past three years is summarized below:
$ | 7,498 |
|
| |
Charged to cost and expenses |
| (6,318 | ) |
|
Charged to other accounts |
| (1,045 | ) |
|
Balance at September 30, 2013 | $ | 135 |
|
|
Charged to cost and expenses |
| 80 |
|
|
Charged to other accounts |
| 688 |
|
|
Balance at September 30, 2014 | $ | 903 |
|
|
Charged to cost and expenses |
| 10,048 |
|
|
Charged to other accounts |
| (895 | ) |
|
Balance at September 30, 2015 | $ | 10,056 |
|
|
A reconciliation of the beginning and ending amount of the unrecognized tax liabilities follows (in thousands):
| Year Ended September 30, |
| |||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| |||
Balance at beginning of period | $ | 4,026 |
|
| $ | 3,845 |
|
| $ | 511 |
|
Increases related to tax positions taken during the current period |
| 954 |
|
|
| 225 |
|
|
| 880 |
|
Increases related to tax positions taken during a prior period |
| 2 |
|
|
| 14 |
|
|
| 2,869 |
|
Decreases related to expiration of statute of limitations |
| (49 | ) |
|
| (58 | ) |
|
| (415 | ) |
Decreases related to settlement with taxing authorities |
| (4,149 | ) |
|
| — |
|
|
| — |
|
Balance at end of period | $ | 784 |
|
| $ | 4,026 |
|
| $ | 3,845 |
|
Our continuing policy is to recognize interest and penalties related to income tax matters as tax expense. The amount of interest and penalty expense recorded for the year ended September 30, 2015 was not material.
During Fiscal 2013, prior year U.S. federal income tax returns were amended to reflect increased R&D Credits and unrecognized tax benefits related to these refund claims were recorded. These amended returns, along with the refund claims, were subject to an Internal Revenue Service audit which was closed during the second quarter of Fiscal 2015 resulting in a $4.1 million tax benefit. Due to the expiration of certain state statutes of limitations, management believes that, within the next 12 months, it is reasonably possible to recognize a nominal amount from a decrease in unrecognized tax benefits.
Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income tax in the period such resolution occurs. Although timing of the resolution and/or closure of audits is highly uncertain, we do not believe it is reasonably possible that our unrecognized tax benefits could materially change in the next 12 months.
I. Employee Benefit Plans
Retirement Plans
We have defined employee contribution plans for substantially all of our U.S. employees (401(k) plan) and our Canadian employees (Registered Retirement Savings Plan). We recognized expenses under these plans primarily related to matching contributions of $5.9 million, $5.3 million and $4.9 million in Fiscal 2015, 2014 and 2013, respectively.
Deferred Compensation
We offer a non-qualified deferred compensation plan to a select group of management and highly compensated individuals. The plan permits the deferral of up to 50% of a participant’s base salary and/or 100% of a participant’s annual incentive bonus. The deferrals are held in a separate trust, an irrevocable rabbi trust (the Rabbi Trust), which has been established to administer the plan. The Rabbi Trust is intended to be used as a source of funds to match respective funding obligations to participants. The assets of the trust are subject to the claims of our creditors in the event that we become insolvent. Consequently, the Rabbi Trust qualifies as a grantor trust for income tax purposes. We make periodic payments into company-owned life insurance policies held in this Rabbi Trust to fund the expected obligations arising under this plan. The assets and liabilities of the plan are recorded in other assets and deferred compensation, respectively, in the accompanying Consolidated Balance Sheets. Changes in the deferred compensation balance are recorded to compensation expense and reflected within the selling, general and administrative line in the Consolidated Statements of Operations. The plan is not qualified under Section 401 of the Internal Revenue code. We recorded net compensation expense
adjustments of $0.1 million related to this plan in Fiscal 2015. Total assets held by the trustee and deferred compensation liabilities were $4.8 million and $4.5 million, respectively, at September 30, 2015.
Certain former executives were provided an executive benefit plan which provides for fixed payments upon normal retirement on or after age 65 and the completion of at least 10 years of continuous employment. The estimated present value of these payments were accrued over the service life of these individuals, and $0.5 million is recorded in deferred compensation related to this executive benefit plan. To assist in funding the deferred compensation liability, we have invested in corporate-owned life insurance policies. The cash surrender value of these policies is presented in other assets and was $4.5 million at September 30, 2015.
Retiree Medical Plan
We have a plan that extends health benefits to retirees that are also available to active employees under our existing health plans. This plan is unfunded. The plan provides coverage for employees with at least 10 years of service who are age 55 or older but less than 65. The retiree is required to pay the COBRA rate less a subsidy provided by us based on years of service at the time of retirement. The unfunded liability was $0.7 million as of September 30, 2015 and 2014 and our net periodic postretirement benefit expenses have been less than $0.1 million for the last three fiscal years. Due to the immateriality of the costs and liabilities of this plan, no further disclosure is being presented.
J. Stock-Based Compensation
We have the following stock-based compensation plans:
2014 Equity Incentive Plan
In February 2014, our stockholders approved and adopted at the Annual Meeting of Stockholders the 2014 Equity Incentive Plan (the 2014 Plan) which replaced our 2006 Equity Compensation Plan (2006 Plan). Persons eligible to receive awards under the 2014 Plan include our officers and employees. The 2014 Plan authorizes stock options, stock appreciation rights, restricted stock, restricted stock units and performance-based awards, as well as certain other awards. Restricted stock grants vest equally over their respective vesting period on each anniversary of the grant date and compensation expense is recognized over their respective vesting periods based on the price per share on the grant date.
In accordance with the 2014 Plan, the compensation committee has authorized grants of restricted stock units (RSUs) to certain officers and key employees of the company. The fair value of the RSUs is based on the closing price of our common stock as reported on the NASDAQ Global Market (NASDAQ) on the grant dates. Typically, these grants vest over a three-year period from their date of issuance, of which sixty percent of the grant will be earned based on the three year earnings performance of the Company following the grant date. The remaining forty percent of the grant is time-based and vests over a three-year period on each anniversary of the grant date, based on continued employment. At September 30, 2015, there were 133,506 RSUs outstanding. The RSUs do not have voting rights but do receive dividend equivalents upon vesting; additionally, the shares of common stock underlying the RSUs are not considered issued and outstanding until vested and common stock is issued.
Total RSU activity (number of shares) for the past three years is summarized below:
| Number of |
|
| Weighted |
| ||
| Restricted |
|
| Average |
| ||
| Stock |
|
| Fair Value |
| ||
| Units |
|
| Per Share |
| ||
Outstanding at September 30, 2012 |
| 99,725 |
|
| $ | 32.69 |
|
Granted |
| 58,775 |
|
|
| 39.05 |
|
Vested |
| (66,383 | ) |
|
| 34.00 |
|
Forfeited |
| (10,562 | ) |
|
| 33.46 |
|
Outstanding at September 30, 2013 |
| 81,555 |
|
| $ | 38.66 |
|
Granted |
| 57,200 |
|
|
| 66.15 |
|
Vested |
| (29,832 | ) |
|
| 44.88 |
|
Forfeited |
| (2,078 | ) |
|
| 56.34 |
|
Outstanding at September 30, 2014 |
| 106,845 |
|
| $ | 51.30 |
|
Granted |
| 89,500 |
|
|
| 41.75 |
|
Vested |
| (55,431 | ) |
|
| 45.23 |
|
Forfeited |
| (7,408 | ) |
|
| — |
|
Outstanding at September 30, 2015 |
| 133,506 |
|
| $ | 50.26 |
|
We have reserved 750,000 shares of common stock for issuance under the 2014 Plan. In Fiscal 2015, 16,846 shares were issued under the 2014 Plan and the total number of shares of common stock left available was 728,376 shares.
2006 Equity Compensation Plan
In August 2012, 45,000 shares of restricted stock were issued under the 2006 Plan to our President and Chief Executive Officer. These shares were issued at a price of $39.11 per share and vested over a three-year period on each anniversary of the grant date. The 2006 Plan terminated in December 2013 and no further awards will be made under this plan.
2014 Non-Employee Director Equity Incentive Plan
In February 2014, our stockholders approved and adopted at the Annual Meeting of Stockholders the 2014 Non-Employee Director Equity Incentive Plan (the 2014 Director Plan), which replaced our former Non-Employee Director Restricted Stock Plan (Restricted Stock Plan). The total number of shares of common stock reserved under the plan is 150,000 shares. The plan is administered by the Compensation Committee. Eligibility to participate in the plan is limited to those individuals who are members of the Board of the Company and who are not employees of the Company or any affiliate of the Company.
Under the terms of the 2014 Director Plan, the maximum number of shares that may be granted during any calendar year to any individual is 12,000 shares. The total number of shares that may be issued for awards to any single participant during a calendar year for other stock-based awards (excluding stock options and SARs) is 4,000 shares. The Compensation Committee has determined that each non-employee director will receive 2,000 restricted shares of the Company’s common stock annually and that the annual grant of restricted shares will vest over a two-year period, of which 50% will vest on each anniversary of the grant date.
In February 2015, we issued 16,000 restricted shares at a price of $33.37 per share and in September 2015, we issued 1,400 restricted shares at a price of $29.48 per share under the 2014 Director Plan. In February 2014, 16,000 shares of restricted stock were issued to our directors at a price of $66.15 per share. The total number of shares of common stock available for future awards under the 2014 Director plan was 116,600 shares as of September 30, 2015.
We did not issue any shares in Fiscal 2015 under the Restricted Stock Plan, however, in January 2013, 500 shares of restricted stock were issued to a newly appointed director at a price of $42.54 per share and in February 2013, 16,000 shares of restricted stock were issued to our directors at a price of $58.54 per share. The Restricted Stock Plan terminated in December 2014, and no further grants shall be made under this plan.
At September 30, 2015 and 2014, there were 26,200 shares and 54,240 shares of unvested restricted stock outstanding. Total compensation expense related to restricted stock grants under all plans was $1.3 million, $1.3 million and $2.1 million for the years ended September 30, 2015, 2014 and 2013, respectively. Total compensation expense related to RSU’s under all plans was $1.9 million, $2.1 million and $2.4 million for the years ended September 30, 2015, 2014 and 2013, respectively.
We record the amortization of non-vested restricted stock and restricted stock units as an increase to additional paid-in capital. As of September 30, 2015 and 2014, amounts not yet recognized related to non-vested stock totaled $1.9 million and $2.4 million, respectively. As of September 30, 2015, the total weighted average remaining contractual life of our restricted stock and RSU’s is 0.87 years and 1.29 years, respectively.
K. Fair Value Measurements
We measure certain financial assets and liabilities at fair value. Fair value is defined as an “exit price” which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in valuing an asset or liability. The accounting guidance requires the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumptions and inputs, a fair value hierarchy has been established whichthat identifies and prioritizes three levels of inputs to be used in measuring fair value.
The three levels of the fair value hierarchy are as follows:
Level 1 — Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 — Inputs other than the quoted prices in active markets that are observable either directly or indirectly, including: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.
The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 20122015 (in thousands):
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at September 30, 2012 |
|
| |||||
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) |
|
Fair Value at September 30, 2012 |
Assets |
|
|
|
|
|
|
|
|
Cash equivalents | $ | 45,888 | $ | — | $ | — | $ | 45,888 |
Total | $ | 45,888 | $ | — | $ | — | $ | 45,888 |
Liabilities |
|
|
|
|
|
|
|
|
Foreign currency forward contracts | $ | — | $ | — | $ | — | $ | — |
Total | $ | — | $ | — | $ | — | $ | — |
| Fair Value Measurements at September 30, 2015 |
| |||||||||||||
| Quoted Prices in |
|
| Significant Other |
|
| Significant |
|
|
|
|
| |||
| Active Markets for |
|
| Observable |
|
| Unobservable |
|
| Fair Value at |
| ||||
| Identical Assets |
|
| Inputs |
|
| Inputs |
|
| March 31, |
| ||||
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| 2015 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | $ | 434 |
|
| $ | — |
|
| $ | — |
|
| $ | 434 |
|
Deferred compensation |
| 1,879 |
|
|
| 2,904 |
|
|
| — |
|
|
| 4,783 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
| — |
|
|
| 4,487 |
|
|
| — |
|
|
| 4,487 |
|
37
The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 20112014 (in thousands):
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at September 30, 2011 |
|
| |||||
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs (Level 3) |
|
Fair Value at September 30, 2011 |
Assets |
|
|
|
|
|
|
|
|
Cash equivalents | $ | 65,792 | $ | — | $ | — | $ | 65,792 |
Total | $ | 65,792 | $ | — | $ | — | $ | 65,792 |
Liabilities |
|
|
|
|
|
|
|
|
Foreign currency forward contracts | $ | — | $ | — | $ | — | $ | — |
Total | $ | — | $ | — | $ | — | $ | — |
| Fair Value Measurements at September 30, 2014 |
| |||||||||||||
| Quoted Prices in |
|
| Significant Other |
|
| Significant |
|
|
|
|
| |||
| Active Markets for |
|
| Observable |
|
| Unobservable |
|
| Fair Value at |
| ||||
| Identical Assets |
|
| Inputs |
|
| Inputs |
|
| September 30, |
| ||||
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| 2014 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | $ | 10,535 |
|
| $ | — |
|
| $ | — |
|
| $ | 10,535 |
|
Deferred compensation |
| 724 |
|
|
| 2,802 |
|
|
| — |
|
|
| 3,526 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
| — |
|
|
| 3,688 |
|
|
| — |
|
|
| 3,688 |
|
Cash equivalents, primarily funds held in money market savings instruments, are reported at their current carrying value which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in our Consolidated Balance Sheets.
Fair Value of Other Financial Instruments
Foreign currency forward contractsFair value guidance requires certain fair value disclosures be presented in both interim and annual reports. The estimated fair value amounts of financial instruments have been determined using available market information and valuation methodologies described below.
Deferred Compensation – We hold investments in an irrevocable Rabbi Trust for our deferred compensation plan. These assets include both mutual fund investments and company-owned life insurance policies. Under the plan, participants designate investment options to serve as the basis for measurement of the notional value of their accounts. The fair values of the underlying securities of these funds are based on quoted market prices and are categorized as Level I in the fair value measurement hierarchy. The company-owned life insurance policies are valued using an income approach which consists of a discountedat cash flow model that takes into accountsurrender value and are therefore categorized as Level 2 in the presentfair value measurement hierarchy.
Industrial Development Revenue Bonds – The fair value of future cash flows underour long-term debt depends primarily on the terms of the contracts using observable market spot and forward rates ascoupon rate of our reporting date, and are included in Level 2 inputs in the above tables. We use these derivative instruments to mitigate non-functional currency transaction exposure on certain contracts with customers and vendors. We mitigate derivative credit risk by transacting with highly rated counterparties. We have evaluated the credit and non-performance risks associated withindustrial development revenue bonds. The carrying value of our derivative counterparties and believe them to be insignificantlong-term debt at September 30, 2012. All contracts are recorded at2015, approximates fair value and marked-to-market at the end of each reporting period, with unrealized gains and losses being included in accumulated other comprehensive incomebased on the Consolidated Balance Sheets for that period. At September 30, 2012, all foreign currency forward contracts have been settled, with no balances recorded on our consolidated balance sheets related to these transactions.
D. Intangible Assets
Our intangible assets consistcurrent coupon rate of (1) goodwill,the bonds, which is not being amortized, and (2) customer relationships (15 years), trademarks (15 years), trade names (10 years), non-compete agreements (5 years),reset weekly. It is classified as a supply agreement (15 years) and purchased technologies (6 to 7 years) which are amortized over their estimated useful lives. We test for impairment of goodwill annually, or immediately if conditions indicate that impairment could exist.
During the year ended September 30, 2010, we acquired intangible assets and recorded goodwill in connection with our acquisition of Powell Canada and our acquisition of a 50% interestLevel 2 input in the operations of a joint venture in Kazakhstan. During fiscal year 2010, our impairment analyses for goodwill indicated thatfair value measurement hierarchy as there is an impairment was required. A loss on impairment of $7.5 million was recorded in fiscal year 2010 related to the Powell Canada acquisition. Our strategic decision to exit the 50% owned joint venture in Kazakhstan and delays in the anticipated growth in capital investments in the Oil Sands Region of western Canada, relative to our expectations, resulted in the impairment charge. No impairment was identified as a result of performing our annual impairment test of goodwill for fiscal years 2012 or 2011.
During fiscal year 2011, our impairment analysis indicated that the non-compete agreements, trade name and customer relationships intangible assets related to the Powell Canada acquisition were impaired due to continued operating losses at Powell Canada, which have reduced our projections for future revenues and cash flows. Accordingly, we recognized a loss on impairment of $7.2 million.
38
Intangible assets balances, subject to amortization, at September 30, 2012, and September 30, 2011, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
| September 30, 2012 |
| September 30, 2011 | ||||
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value |
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value |
Supply agreement | $ 17,580 | $ (7,225) | $ 10,355 |
| $ 17,580 | $ (6,052) | $ 11,528 |
Purchased technology | 11,818 | (9,121) | 2,697 |
| 11,747 | (7,759) | 3,988 |
Non-compete agreements | 4,170 | (4,170) | — |
| 4,170 | (4,170) | — |
Trade name | 1,136 | (871) | 265 |
| 1,098 | (767) | 331 |
|
|
|
|
|
|
|
|
Total | $ 34,704 | $ (21,387) | $ 13,317 |
| $ 34,595 | $ (18,748) | $ 15,847 |
All goodwill and intangible assets disclosed above are reported in our Electrical Power Products business segment.
Amortization of intangible assets recordedactive market for the years ended September 30, 2012, 2011 and 2010, was $2.6 million, $4.8 million and $4.5 million, respectively.
Estimated amortization expense for eachtrading of the five subsequent fiscal years is expected to be (in thousands):
|
|
Years Ending September 30, | Total |
2013 | $ 1,673 |
2014 | 1,673 |
2015 | 1,649 |
2016 | 1,576 |
2017 | 1,576 |
E. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
|
|
|
|
| Year Ended September 30, | ||
| 2012 | 2011 | 2010 |
Numerator: | |||
Net income (loss) attributable to Powell Industries, Inc. | $ 29,657 | $ (2,715) | $ 25,008 |
|
|
|
|
Denominator: | |||
Weighted average basic shares | 11,850 | 11,735 | 11,545 |
Dilutive effect of stock options, restricted stock and restricted stock units (1) | 75 | — | 148 |
Weighted average diluted shares with assumed conversions | 11,925 | 11,735 | 11,693 |
|
|
|
|
Net earnings (loss) per share: | |||
Basic | $ 2.50 | $ (0.23) | $ 2.17 |
Diluted | $ 2.49 | $ (0.23) | $ 2.14 |
(1) In fiscal year 2011, these items were excluded from diluted income (loss) per share as the effect would have been anti-dilutive.
Approximately 23,000 shares related to outstanding stock options and restricted stock units were excluded from the computation of diluted earnings (loss) per share because they were antidilutive at September 30, 2011. All options were included in the computation of diluted earnings per share for the years ended September 30, 2012 and 2010, respectively, as the options’ exercise prices were less than the average market price of our common stock.
F. Detail of Selected Balance Sheet Accountsindustrial development revenue bonds.
Allowance for Doubtful Accounts
Activity in our allowance for doubtful accounts receivable consisted of the following (in thousands):
|
|
|
| September 30, | |
| 2012 | 2011 |
Balance at beginning of year | $ 391 | $ 907 |
Increase (decrease) to bad debt expense | 842 | (114) |
Deductions for uncollectible accounts written off, net of recoveries | 142 | (394) |
Increase (decrease) due to foreign currency translation | 24 | (8) |
Balance at end of year | $ 1,399 | $ 391 |
39
Warranty Accrual
Activity in our product warranty accrual consisted of the following (in thousands):
|
|
|
| September 30, | |
| 2012 | 2011 |
Balance at beginning of year | $ 4,603 | $ 5,929 |
Increase to warranty expense | 3,624 | 788 |
Deductions for warranty charges | (2,323) | (2,432) |
Increase (decrease) due to foreign currency translation | (190) | 318 |
Balance at end of year | $ 5,714 | $ 4,603 |
In addition to our standard estimated warranty accrual, during fiscal year 2012, we recorded an additional $1.0 million of warranty expense related to the estimated costs to replace certain component parts which may be defective.
Inventories
The components of inventories are summarized below (in thousands):
|
|
| |
| September 30, | ||
| 2012 | 2011 | |
Raw materials, parts and subassemblies | $ 33,632 | $ 38,400 | |
Work-in-progress | 6,422 | 5,892 | |
Provision for excess and obsolete inventory | (7,137) | (7,652) | |
Total inventories | $ 32,917 | $ 36,640 |
Cost and Estimated Earnings on Uncompleted Contracts
The components of costs and estimated earnings and related amounts billed on uncompleted contracts are summarized below (in thousands):
|
|
|
| September 30, | |
| 2012 | 2011 |
Costs incurred on uncompleted contracts | $ 635,714 | $ 475,525 |
Estimated earnings | 168,480 | 131,367 |
| 804,194 | 606,892 |
Less: Billings to date | 754,604 | 599,847 |
Net underbilled position | $ 49,590 | $ 7,045 |
|
|
|
Included in the accompanying balance sheets under the following captions: | ||
Costs and estimated earnings in excess of billings on uncompleted contracts – underbilled | $ 86,734 | $ 51,568 |
Billings in excess of costs and estimated earnings on uncompleted contracts – overbilled | (37,144) | (44,523) |
Net underbilled position | $ 49,590 | $ 7,045 |
40
Property, Plant and Equipment
Property, plant and equipment are summarized below (in thousands):
|
|
|
|
| September 30, | Range of | |
| 2012 | 2011 | Asset Lives |
Land | $ 24,766 | $ 7,640 | — |
Buildings and improvements | 55,431 | 54,321 | 3 - 39 Years |
Machinery and equipment | 67,007 | 62,456 | 3 - 15 Years |
Furniture and fixtures | 2,940 | 3,203 | 3 - 10 Years |
Construction in process | 7,224 | 2,625 | — |
| 157,368 | 130,245 |
|
Less: Accumulated depreciation | (78,716) | (70,608) |
|
Total property, plant and equipment, net | $ 78,652 | $ 59,637 |
|
The increases in land and construction in process are primarily the result of construction of facilities in Houston, Texas, and Acheson, Alberta, Canada.
Included in property and equipment are assets under capital lease of $1.8 million and $2.9 million at September 30, 2012 and 2011, with related accumulated depreciation of $1.0 million and $1.4 million, respectively. Depreciation expense, including the depreciation of capital leases, was $10.5 million, $10.6 million and $9.2 million for fiscal years 2012, 2011 and 2010, respectively.
G. Long-Term Debt
Long-term debt consisted of the following (in thousands):
|
|
|
| September 30, | |
| 2012 | 2011 |
Industrial development revenue bonds | $ 4,000 | $ 4,400 |
Capital lease obligations | 355 | 1,041 |
Subtotal long-term debt and capital lease obligations | 4,355 | 5,441 |
Less current portion | (725) | (1,140) |
Total long-term debt and capital lease obligations | $ 3,630 | $ 4,301 |
The annual maturities of long-term debt as of September 30, 2012, were as follows (in thousands):
|
|
Year Ending September 30, | Long-Term Debt Maturities |
2013 | $ 725 |
2014 | 428 |
2015 | 402 |
2016 | 400 |
2017 | 400 |
Thereafter | 2,000 |
Total long-term debt maturities | $ 4,355 |
US Revolver
In March 2012, we amended our existing credit agreement (Amended Credit Agreement) with a major domestic bank. This amendment to our credit facility was made to increase the dollar limit on capital expenditures to allow us to support our continued expansions, including the Canadian Oil Sands and offshore production markets. The Amended Credit Agreement provides for a $75.0 million revolving credit facility (US Revolver). Obligations are collateralized by the stock of certain of our subsidiaries.
The interest rate for amounts outstanding under the Amended Credit Agreement for the US Revolver is a floating rate based upon the higher of the Federal Funds Rate plus 0.5%, or the bank’s prime rate. Once the applicable rate is determined, a margin ranging up to 1.75%, as determined by our consolidated leverage ratio, is added to the applicable rate.
The US Revolver provides for the issuance of letters of credit which reduce the amounts which may be borrowed under the revolver. The amount available under the US Revolver was reduced by $36.5 million for our outstanding letters of credit at September 30, 2012.
41
There were no borrowings undertransfers between levels with the US Revolver as of September 30, 2012. Amounts available under the US Revolver were $38.5 million at September 30, 2012. The US Revolver expires on December 31, 2016.
The Amended Credit Agreement contains certain restrictive and maintenance-type covenants, including restrictions on our ability to pay dividends, as well as restriction on the amount of capital expenditures allowed. It also contains financial covenants defining various financial measures and the levels of these measures with which we must comply, as well as a “material adverse change” clause. A “material adverse change” is defined as a material change in our operations, business, properties, liabilities or condition (financial or otherwise) or a material impairment of our ability to perform our obligations under our credit agreements.
The Amended Credit Agreement’s principal financial covenants include:
Minimum Fixed Charge Coverage Ratio — The Amended Credit Agreement requires that the consolidated fixed charge coverage ratio be greater than 1.25 to 1.00. The consolidated fixed charge calculation is income before interest and income taxes, increased by depreciation and amortization expense (EBITDA) and reduced by income taxes and capital expenditures for the previous 12 months, divided by the sum of payments on long-term debt, excluding the US Revolver and interest expense,fair value measurement hierarchy during the previous 12 months.
Maximum Leverage Ratio — The Amended Credit Agreement requires that the ratio be less than 2.75 to 1.00. The maximum leverage ratio is the sum of total long-term debt and outstanding letters of credit, less industrial development revenue bonds, divided by the EBITDA for the previous 12 months.
The Amended Credit Agreement is collateralized by a pledge of 100% of the voting capital stock of each of our domestic subsidiaries and 66% of the voting capital stock of each non-domestic subsidiary, excluding Powell Canada. The Amended Credit Agreement provides for customary events of default and carries cross-default provisions with other existing debt agreements. If an event of default (as defined in the Amended Credit Agreement) occurs and is continuing, on the terms and subject to the conditions set forth in the Amended Credit Agreement, amounts outstanding under the Amended Credit Agreement may be accelerated and may become immediately due and payable. As of September 30, 2012, we were in compliance with all of the financial covenants of the Amended Credit Agreement.
Canadian Revolver
On December 15, 2009, we entered into a credit agreement with a major international bank (the Canadian Facility) to finance the acquisition of Powell Canada and provide additional working capital support for our operations in Canada. In March 2012, we reduced the Canadian Facility from a $20.0 million CAD (approximately $20.3 million) revolving credit facility (the Canadian Revolver) to $10.0 million CAD (approximately $10.2 million), and eliminated the restrictions on amounts which may be borrowed based on a borrowing base calculation.
The Canadian Revolver provides for the issuance of letters of credit which reduce the amounts which may be borrowed under the Canadian Revolver. The amount available under the Canadian Revolver was reduced by $0.1 million for an outstanding letter of credit at September 30, 2012.
There were no borrowings outstanding under the Canadian Revolver, and $10.0 million was available at September 30, 2012. The Canadian Facility expires on February 28,Fiscal 2015. The interest rate for amounts outstanding under the Canadian Revolver is a floating interest rate based upon either the Canadian Prime Rate, or the lender’s US Bank Rate. Once the applicable rate is determined, a margin of 0.375% to 1.125%, as determined by our consolidated leverage ratio, is added to the applicable rate.
The principal financial covenants are consistent with those described in our Amended Credit Agreement. The Canadian Facility contains a “material adverse effect” clause. A “material adverse effect” is defined as a material change in the operations of Powell or Powell Canada in relation to our financial condition, property, business operations, expected net cash flows, liabilities or capitalization.
The Canadian Facility is secured by the assets of our Canadian operations and provides for customary events of default and carries cross-default provisions with our existing debt agreements. If an event of default (as defined in the Canadian Facility) occurs and is continuing, on the terms and subject to the conditions set forth in the Canadian Facility, amounts outstanding under the Canadian Facility may be accelerated and may become immediately due and payable. As of September 30, 2012, we were in compliance with all of the financial covenants of the Canadian Facility.
Industrial Development Revenue Bonds
We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds from tax-exempt industrial development revenue bonds (Bonds). These Bonds were issued by the Illinois Development Finance Authority and were used for the completion of our Northlake, Illinois, facility. Pursuant to the Bond issuance, a reimbursement agreement between us and a major domestic bank required an issuance by the bank of an irrevocable direct-pay letter of credit (Bond LC), as collateral, to the Bonds’ trustee to guarantee payment of the Bonds’ principal and interest when due. The Bond LC is subject to both early termination and extension provisions customary to such agreements, as well as various
42
covenants, for which we were in compliance at September 30, 2012. While the Bonds mature in 2021, the reimbursement agreement requires annual redemptions of $400,000 that commenced on October 25, 2002. A sinking fund is used for the redemption of the Bonds. At September 30, 2012, the balance in the restricted sinking fund was approximately $434,000 and was recorded in cash and cash equivalents. The Bonds bear interest at a floating rate determined weekly by the Bonds’ remarketing agent, which was the underwriter for the Bonds and is an affiliate of the bank. This interest rate was 0.45% per year on September 30, 2012.
H. Income Taxes
The components of the income tax provision were as follows (in thousands):
|
|
|
|
| Year Ended September 30, | ||
| 2012 | 2011 | 2010 |
Current: | |||
Federal | $ 18,156 | $ 5,470 | $ 18,126 |
State | 1,512 | 939 | 1,750 |
Foreign | 331 | 563 | 1,071 |
| 19,999 | 6,972 | 20,947 |
|
|
|
|
Deferred: |
|
|
|
Federal | (1,840) | (122) | (1,189) |
State | 25 | (76) | 23 |
Foreign | 393 | (62) | 113 |
| (1,422) | (260) | (1,053) |
Total income tax provision | $ 18,577 | $ 6,712 | $ 19,894 |
Income before income taxes and minority interest was as follows (in thousands):
|
|
|
| |
| Year Ended September 30, | |||
| 2012 | 2011 | 2010 | |
U.S. | $ 53,885 | $ 19,850 | $ 53,467 | |
Other than U.S. | (5,651) | (15,853) | (8,406) | |
Income from continuing operations before provision for income taxes | $ 48,234 | $ 3,997 | $ 45,061 |
A reconciliation of the statutory U.S. income tax rate and the effective income tax rate, as computed on earnings before income tax provision in each of the three years presented in the Consolidated Statements of Operations, was as follows:
|
|
|
|
| Year Ended September 30, | ||
| 2012 | 2011 | 2010 |
Statutory rate | 35% | 35% | 35% |
State income taxes, net of federal benefit | 2 | 14 | 3 |
International withholding tax | (1) | (9) | — |
Other permanent tax items | — | 5 | — |
Foreign rate differential | 1 | 33 | 1 |
Domestic production activities deduction | (3) | (16) | (2) |
Foreign valuation allowance and other | 4 | 106 | 7 |
Effective rate | 38% | 168% | 44% |
Our provision for income taxes reflects an effective tax rate on earnings before income taxes of 38% in fiscal year 2012 compared to 168% and 44% in fiscal years 2011 and 2010, respectively. The increase in the effective tax rate for fiscal year 2011 resulted from a valuation allowance against deferred tax assets in Canada.
We have not recorded deferred income taxes on $16 million of undistributed earnings of our foreign subsidiaries because of management’s intent to indefinitely reinvest such earnings. Upon distribution of these earnings in the form of dividends or otherwise, we may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable on the eventual remittance of these earnings.
We are subject to income tax in the U.S., multiple state jurisdictions and a few international jurisdictions, primarily the U.K. and in Canada since December 15, 2009. For U.S. Federal income tax purposes, all years prior to 2009 are closed. We do not consider any state in which we do business to be a major tax jurisdiction. We remain open to examination in the U.K. for tax years 2008 to the present.
43
The net deferred income tax asset (liability) was comprised of the following (in thousands):
|
|
|
| September 30, | |
| 2012 | 2011 |
Current deferred income taxes: | ||
Gross assets | $ 7,053 | $ 6,801 |
Gross liabilities | (2,455) | (3,221) |
Net current deferred income tax asset | 4,598 | 3,580 |
Noncurrent deferred income taxes: | ||
Gross assets | 2,422 | 2,133 |
Gross liabilities | — | (114) |
Net noncurrent deferred income tax asset | 2,422 | 2,019 |
Net deferred income tax asset | $ 7,020 | $ 5,599 |
At September 30, 2012 and 2011, the noncurrent deferred income tax asset was included in other assets on the Consolidated Balance Sheets.
The tax effect of temporary differences between U.S. GAAP accounting and federal income tax accounting creating deferred income tax assets and liabilities were as follows (in thousands):
|
|
|
| September 30, | |
| 2012 | 2011 |
Deferred Tax Assets: |
|
|
Allowance for doubtful accounts | $ 367 | $ 89 |
Workers compensation | 360 | 39 |
Stock-based compensation | 729 | 354 |
Reserve for accrued employee benefits | 1,546 | 1,579 |
Warranty accrual | 1,336 | 935 |
Depreciation and amortization | 1,366 | 956 |
Deferred compensation | 1,013 | 1,343 |
Postretirement benefits liability | 373 | 460 |
Accrued legal | 114 | 182 |
Uniform capitalization and inventory | 3,683 | 4,667 |
Goodwill impairment | 1,285 | 1,360 |
Other | 14 | 41 |
Net operating loss | 4,787 | 3,144 |
Gross deferred tax asset | 16,973 | 15,149 |
Less: valuation allowance | 7,498 | 6,215 |
Deferred tax assets | 9,475 | 8,934 |
|
|
|
Deferred Tax Liabilities: |
|
|
Uncompleted contracts | (2,455) | (3,221) |
Other | — | (5) |
Capital lease | — | (109) |
Deferred tax liabilities | (2,455) | (3,335) |
|
|
|
Net deferred tax asset | $ 7,020 | $ 5,599 |
At September 30, 2012, we had $19.1 million of gross foreign operating loss carryforwards, which are subject to a 20-year carryforward period. As of September 30, 2012, we have recorded a net valuation allowance of $7.5 million against our Canadian deferred tax assets, which we expect cannot be realized through future reversals of existing taxable temporary differences and future taxable income. We believe that our deferred tax assets in other tax jurisdictions are more likely than not realizable through future reversals of existing taxable temporary differences and our estimate of future taxable income.
We previously adopted accounting guidance on the accounting for uncertainty in income taxes. Upon adoption of the guidance, we recorded a $0.3 million increase in our tax reserves, an offsetting decrease of $0.2 million to retained earnings for uncertain tax positions and an increase in deferred income tax assets of $0.1 million. As of the adoption date, we had total tax reserves of $1.2 million. This reserve includes an estimate of potential interest and penalties on estimated liabilities for uncertain tax positions, which were recorded as components of income tax expense, in the amount of $160,000 as of September 30, 2012. A reconciliation of the beginning and ending amount of the unrecognized tax liabilities follows (in thousands):
| |
| |
| |
| |
|
44
Our continuing policy is to recognize interest and penalties related to income tax matters as tax expense. The amount of interest and penalty expense recorded for the year ended September 30, 2012, was not material.
There was no material change in the net amount of unrecognized tax benefits in the year ended September 30, 2012. Management believes that it is reasonably possible that within the next 12 months, the total unrecognized tax benefits will decrease by approximately 39% due to the expiration of certain statutes of limitations in various state and local jurisdictions.
Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income tax in the period such resolution occurs. Although timing of the resolution and/or closure of audits is highly uncertain, we do not believe it is reasonably possible that our unrecognized tax benefits would materially change in the next 12 months.
I. Derivative Instruments and Hedging Strategies
We operate in various countries and have operations in the United Kingdom and Canada. These international operations expose us to market risk associated with foreign currency exchange rate fluctuations. We have entered into certain forward contracts to hedge the risk of certain foreign currency rate fluctuations. To the extent we choose to manage volatility associated with the net exposures, we enter into various financial transactions which we account for using the applicable accounting guidance for derivative instruments and hedging activities. Our objective is to hedge the variability in forecasted cash flow due to the foreign currency risk associated with certain long-term sales. As of September 30, 2012, we held no derivatives.
In order for a derivative to qualify for hedge accounting, the derivative must be formally designated as a hedge by documenting the relationship between the derivative and the hedged item. The documentation includes a description of the hedging instrument, the hedge item, the risk being hedged, our risk management objective and strategy for undertaking the hedge, the method for assessing the effectiveness of the hedge and the method for measuring hedge ineffectiveness. Additionally, the hedge relationship must be expected to be highly effective at offsetting changes in either the fair value or cash flows of the hedged item at both inception of the hedge and on an ongoing basis. We assess the ongoing effectiveness of our hedges in accordance with the Cumulative Dollar-Offset ApproachL. , and measure and record hedge ineffectiveness at the end of each fiscal quarter, as necessary. Geographic Information
All derivatives are recognized on the Consolidated Balance Sheets at their fair value and classified based on the instrument’s maturity date. There were no outstanding derivatives as of September 30, 2011, and September 30, 2012.
J. Employee Benefit Plans
401(k) Plan
We have a defined employee contribution 401(k) plan for substantially all of our U.S. employees. We match 100% of employee contributions upRevenues by country represent sales to an employee contribution of 4% of each employee’s salary. We recognized expenses of $4.6 million, $3.4 million and $2.9 million in fiscal years 2012, 2011 and 2010, respectively, under this plan primarily related to matching contributions.
Deferred Compensation
We offer an unfunded, non-qualified deferred compensation plan to a select group of management and highly compensated individuals. The plan permits the deferral of up to 50% of a participant’s base salary and/or 100% of a participant’s annual incentive bonus. The deferrals are held in a separate trust, which has been established to administer the plan. The assets of the trust are subject to the claims of our creditors in the event that we become insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (a Rabbi Trust). The assets and liabilities of the plan are recorded in other assets and deferred compensation in the accompanying Consolidated Balance Sheets, respectively. Changes in the deferred compensation balance are charged to compensation expense. The plan is not qualified under Section 401 of the Internal Revenue code. There was no compensation expense related to this plan in fiscal year 2012. Total assets held by the trustee and deferred compensation liabilities were $2.1 million at September 30, 2012.
45
Certain executives were provided an executive benefit plan which provides for fixed payments upon normal retirement on or after age 65 and the completion of at least 10 years of continuous employment. The estimated present value of these payments were accrued over the service life of these individuals, and $0.8 million is recorded in deferred compensation in the accompanying Consolidated Balance Sheets related to this executive benefit plan. To assist in funding the deferred compensation liability, we have invested in corporate-owned life insurance policies. The cash surrender value of these policies is presented in other assets in the accompanying Consolidated Balance Sheets. The cash surrender value of life insurance policies was $4.1 million at September 30, 2012.
Retiree Medical Plan
We have a plan to extend to retirees health benefits which are available to active employees under our existing health plans. This plan is unfunded. The plan provides coverage for employees with at least 10 years of service and who are age 55 or older but less than 65. The retiree is required to pay the COBRA rate less a subsidy provided by us based on years of service at the time of retirement.
For the year ended September 30, 2012, the measurement of postretirement benefit expense was based on assumptions used to value the postretirement benefit liability as of September 30, 2012, our measurement date.
Amounts recognized in accumulated other comprehensive income as of September 30, 2012 and 2011, consisted of the following on a pretax basis (in thousands):
908 |
|
|
| September 30, | |
| 2012 | 2011 |
Net actuarial gain | $ (909) | $ (827) |
Prior service cost | — | 51 |
Total recognized in accumulated other comprehensive income | $ (909) | $ (776) |
Amounts in accumulated other comprehensive income as of September 30, 2012, expected to be recognized as components of net periodic postretirement benefit cost in 2013 were as follows (in thousands):
| |
|
|
|
46
The following table illustrates the changes in accumulated postretirement benefit obligation, changes in fair value of assets and the funded status of the postretirement benefit plan (in thousands):
|
|
|
|
|
| ||
| September 30, | ||||||
|
| 2012 |
|
| 2011 | ||
Changes in postretirement benefit obligation: |
|
|
| ||||
Balance at beginning of year | $ | 895 |
| $ | 663 | ||
Service cost |
| 23 |
|
| 40 | ||
Interest cost |
| 17 |
|
| 39 | ||
Actuarial loss (gain) |
| (189) |
|
| 248 | ||
Benefits paid |
| (57) |
|
| (95) | ||
Balance at end of year | $ | 689 |
| $ | 895 | ||
Change in plan assets: |
|
|
| ||||
Fair value of assets at beginning of year | $ | — |
| $ | — | ||
Employer contributions |
| 57 |
|
| 95 | ||
Benefits paid |
| (57) |
|
| (95) | ||
Fair value of assets at end of year | $ | — |
| $ | — | ||
Reconciliation of funded status: |
|
|
| ||||
Unfunded liability | $ | (689) |
| $ | (895) | ||
Unrecognized prior service cost |
| — |
|
| 51 | ||
Unrecognized net actuarial gain |
| (909) |
|
| (827) | ||
Net liability recognized | $ | (1,598) |
| $ | (1,671) |
|
|
|
| 2012 | 2011 |
Weighted-average assumptions used to determine benefit obligations at September 30: | ||
Discount rate pre-retirement | 0.00% | 0.00% |
Discount rate post-retirement | 3.08 | 4.24 |
Current year trend rate | 8.40 | 10.00 |
Ultimate trend rate | 5.00 | 5.00 |
Year ultimate trend rate reached | 2023 | 2014 |
If the medical care cost trend rate assumptions were increased or decreased by 1% as of September 30, 2012, the effect of this change on the accumulated postretirement benefit obligation and service and interest costs would be an increase of $102,000 and $5,000 or a decrease of $53,000 and $3,000, respectively.
|
|
|
|
| Year Ended September 30, | ||
| 2012 | 2011 | 2010 |
Components of net periodic postretirement benefit cost: | |||
Service cost | $ 23 | $ 40 | $ 33 |
Interest cost | 17 | 39 | 39 |
Prior service cost | 51 | 115 | 115 |
Net gain recognized | (107) | (37) | (49) |
Net periodic postretirement benefit cost | $ (16) | $ 157 | $ 138 |
|
|
|
| 2012 | 2011 |
Weighted-average assumptions used to determine benefit costs at September 30: | ||
Discount rate pre-retirement | 0.00% | 0.00% |
Discount rate post-retirement | 4.24 | 4.56 |
Current year trend rate | 9.00 | 10.00 |
Ultimate trend rate | 5.00 | 5.00 |
Year ultimate trend rate reached | 2015 | 2013 |
47
Future expected benefit payments as of September 30, 2012, related to postretirement benefits for the subsequent five years were as follows (in thousands):
|
|
Year Ending September 30, | Expected Benefit Payments |
2013 | $ 61 |
2014 | 44 |
2015 | 47 |
2016 | 46 |
2017 | 54 |
2018 through 2022 | 283 |
K. Commitments and Contingencies
Long-Term Debt
See Note G herein for discussion of our long-term debt.
Leases
We lease certain offices, facilities and equipment under operating leases expiring at various dates through 2023. At September 30, 2012, the minimum annual rental commitments under leases having terms in excess of one year were as follows (in thousands):
|
|
Years Ending September 30, | Operating Leases |
2013 | $ 5,597 |
2014 | 4,575 |
2015 | 3,533 |
2016 | 2,910 |
2017 | 2,274 |
Thereafter | 7,725 |
Total lease commitments | $ 26,614 |
Lease expense for all operating leases was $5.4 million, $3.7 million and $3.3 million for fiscal years 2012, 2011 and 2010, respectively.
Letters of Credit and Bonds
Certainunaffiliated customers require us to post bank letter of credit guarantees or performance bonds issued by a surety. These guarantees and performance bonds assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or performance by the surety under a performance bond. To date, there have been no significant expenses related to either for the periods reported. We were contingently liable for secured and unsecured letters of credit of $36.6 million as of September 30, 2012. We also had performance and maintenance bonds totaling $249.1 million that were outstanding, with additional bonding capacity of $150.9 million available, at September 30, 2012.
We have a facility agreement (Facility Agreement) between S&I and a large international bank. The $12.1 million facility agreement provides S&I the ability to enter into forward exchange contracts, currency options and performance bonds. At September 30, 2012, we had outstanding a total of $7.0 million of guarantees under this Facility Agreement.
The Facility Agreement provides for financial covenants, customary events of default and carries cross-default provisions with our Amended Credit Facility. If an event of default (as defined in the Facility Agreement) occurs and is continuing, on the terms and subject to the conditions set forth in the Facility Agreement, obligations outstanding under the Facility Agreement may be accelerated and may become or be declared immediately due and payable.
Litigation
We are involved in various legal proceedings, claims and other disputes arising in the ordinary course of business which, in general, are subject to uncertainties and the outcomes are not predictable. Although we can give no assurance about the outcome of pending or threatened litigation and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to
48
the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity.
L. Stock-Based Compensation
We have the following stock-based compensation plans:
Restricted Stock
We have a Restricted Stock Plan for the benefit of members of the Board of Directors of the Company (the Board) who, at the time of their service, are not employees of the Company or any of its affiliates. Subject to certain conditions and restrictions as determined by the Compensation Committeeultimate destination of our products and services, summarized for the Board and proportionate adjustmentslast three fiscal years by region in the event of stock dividends, stock splits and similar corporate transactions, each eligible director will receive 2,000 shares of restricted stock annually. In fiscal 2012, 16,000 shares of restricted stock were issued to such directors at a price of $37.50 per share. In fiscal 2011, 17,500 shares of restricted stock were issued to such directors at a price of $33.49 per share. The maximum aggregate number of shares of stock that may be issued under the Restricted Stock Plan is 150,000 and will consist of authorized but unissued or reacquired shares of stock, or any combination thereof. The restricted stock grants vest 50% per year over a two-year period on each anniversary of the grant date. Unless terminated by the Board, the Restricted Stock Plan will terminate at the close of business on December 16, 2014, and no further grants shall be made under the plan after such date. Awards granted before such date shall continue to be subject to the terms and conditions of the plan and the respective agreements pursuant to which they were granted. The total number of shares of common stock available for future awards under the plan was 32,879 shares as of September 30, 2012.
The 2000 Non-Employee Director Stock Option Plan, as amended, previously had been adopted for the benefit of members of the Board of Directors of the Company who, at the time of their service, were not employees of the Company or any of its affiliates. Following the adoption of the Restricted Stock Plan described above, the Compensation Committee ceased the use of this plan in making new grants to directors. The total number of shares of common stock available for future awards under the plan was 33,117 shares as of September 30, 2012.
The 2006 Equity Compensation Plan (the 2006 Plan) grants any employee of the Company and its subsidiaries and consultants, the right to participate in the plan and receive awards. Awards can take the form of options, stock appreciation rights, stock awards and performance unit awards. The maximum aggregate number of shares of stock that may be issued under the 2006 Plan is 750,000 shares. The total number of shares of common stock available under the plan was 508,403 shares as of September 30, 2012.
In August 2012, 45,000 shares of restricted stock were issued under the 2006 Plan to our new President and Chief Executive Officer. These shares were issued at a price of $39.11 per share. The restricted stock grant vests 33% per year over a three-year period on each anniversary of the grant date.
In June 2012, 2,000 shares of restricted stock were issued under the 2006 Plan to the Chairman of the Board, who was an employee of the Company at the time the shares were issued. These shares were issued at a price of $37.50 per share. The restricted stock grant vests 50% per year over a two-year period on each anniversary of the grant date.
During the first quarter of fiscal 2011, 26,000 shares of restricted stock were issued to certain officers and key employees of the Company with a fair value ranging from $30.79 to $32.12 per share under the 2006 Plan. The restricted stock grant vests over a three-year period on each anniversary of the grant date. Compensation expense is recognized over a three-year period based on the price per share on the grant date. In conjunction with the separation of our former President and Chief Executive Officer (CEO) in September 2011, the remaining unvested 7,601 shares previously issued to him became immediately vested and were expensed in selling, general and administrative expenses.
During the first quarter of fiscal 2010, 10,000 shares of restricted stock were issued to our former CEO at a price of $37.67 per share under the 2006 Plan. The restricted stock grant vests 20% per year over a five-year period on each anniversary of the grant date. Compensation expense is recognized over the five-year vesting period based on the $37.67 price per share on the grant date. In conjunction with the separation of our former CEO in September 2011, the remaining unvested 8,000 shares previously issued to him became immediately vested and were expensed in selling, general and administrative expenses.
During the year ended September 30, 2012, we recorded compensation expense of $0.7 million related to restricted stock grants. We recorded compensation expense of $0.8 million and $0.8 million related to restricted stock grants for the years ended September 30, 2011 and 2010, respectively.
Restricted Stock Units
49
In October 2009 and October 2010, we granted 34,700 and 34,566 restricted stock units (RSUs), respectively, with a fair value of $38.36 and $30.79 per unit, respectively, to certain officers and key employees of the Company. An additional 4,482 RSUs were granted in October 2010, with a fair value of $32.12. The RSUs vest over a three-year period from their date of issuance. The fair value of the RSUs was based on the closing price of our common stock as reported on the NASDAQ Global Market (NASDAQ) on the grant dates. Sixty-percent of the actual amount of the RSUs earned will be based on the cumulative earnings as reported relative to the three-year performance cycle which began October 1 of the year granted, and ranges from 0% to 150% of the target RSUs granted. The remaining forty-percent of the RSUs are time-based and vest over a three-year period. At September 30, 2012, there were 99,725 RSUs outstanding. The RSUs do not have voting rights of common stock, and the shares of common stock underlying the RSUs are not considered issued and outstanding until actually issued.
During the first quarter of fiscal 2012, we granted 32,894 performance-based RSUs with a fair value of $31.18 per unit to certain officers and key employees of the Company. The RSUs vest over a three-year period from their date of issuance, and are earned over a three-year performance cycle.
During the first quarter of fiscal 2012, we also granted 21,931 time-based RSUs with a fair value of $31.18 per unit to certain officers and key employees of the Company. The RSUs vest over a three-year period from their date of issuance, and are time-based.
RSU activity (number of shares) for us was as follows:
|
|
|
|
Number of Restricted Stock Units | Weighted Average Grant Date Fair Value Per Share |
|
|
|
Outstanding at September 30, 2009 | 94,589 | $ 36.04 |
Granted | 34,688 | 38.36 |
Expired or cancelled | — | — |
Vested/exercised | (41,823) | 31.86 |
Outstanding at September 30, 2010 | 87,454 | 38.96 |
Granted | 39,048 | 30.94 |
Expired or cancelled | — | — |
Vested/exercised | (57,124) | 36.94 |
Outstanding at September 30, 2011 | 69,378 | 36.10 |
Granted | 54,825 | 31.18 |
Expired or cancelled | (24,478) | 38.71 |
Vested/exercised | — | — |
Outstanding at September 30, 2012 | 99,725 | $ 32.69 |
We recorded compensation expense of $1.5 million and $1.3 million related to RSUs for the years ended September 30, 2012 and 2010, respectively. For the year ended September 30, 2011, we recorded a credit to compensation expense of $1.4 million related to RSUs, as the estimated earnings per share goals were not met for the three-year cumulative performance cycle for all RSU awards currently outstanding.
Stock Options
The 1992 Stock Option Plan, as amended (the 1992 Plan), permits us to grant to key employees non-qualified options and stock grants, subject to certain conditions and restrictions as determined by the Compensation Committee of the Board of Directors and proportionate adjustments in the event of stock dividends, stock splits and similar corporate transactions. The maximum number of shares that may be issued under the 1992 Plan is 2.7 million shares. Stock options are granted at an exercise price equal to the fair market value of the common stock on the date of the grant. Generally, options granted have an expiration date of seven years from the grant date and vest in increments of 20% per year over a five-year period. Pursuant to the 1992 Plan, option holders who exercise their options and hold the underlying shares of common stock for five years, vest in a stock grant equal to 20% of the original option shares. While restricted until the expiration of five years, the stock grant is considered issued at the date of the stock option exercise and is included in earnings per share. During fiscal years 2012 and 2010, 3,740 shares and 12,380 shares, respectively, of restricted stock were issued to option holders who met specified requirements under the 1992 Plan. There were no restricted stock grants under the 1992 Plan during fiscal year 2011. There have been no stock options granted since July 2005, and all outstanding options under the 1992 Plan were exercised or forfeited as of September 30, 2012. There were 466,392 shares available to be granted under this plan as of September 30, 2012.
M. Business Segments
50
We manage our business through operating segments, which are comprised of two reportable business segments: Electrical Power Products and Process Control Systems. Electrical Power Products includes equipment and systems for the distribution and control of electrical energy. Process Control Systems consists principally of instrumentation, computer controls, communications and data management systems to control and manage critical processes.
The table below reflects certain information relating to our operations by business segment. All revenues represent sales from unaffiliated customers. The accounting policies of the business segments are the same as those described in the summary of significant accounting policies. Corporate expenses are allocated to the operating business segments primarily based on revenues. The corporate assets are mainly cash, cash equivalents and marketable securities.
Detailed information regarding our business segments is shown below (in thousands):
|
|
|
|
| Year Ended September 30, | ||
| 2012 | 2011 | 2010 |
Revenues: | |||
Electrical Power Products | $ 686,581 | $ 533,339 | $ 517,069 |
Process Control Systems | 30,613 | 29,058 | 33,623 |
Total | $ 717,194 | $ 562,397 | $ 550,692 |
|
|
|
|
Gross profit: | |||
Electrical Power Products | $ 132,458 | $ 91,730 | $ 129,780 |
Process Control Systems | 7,480 | 8,200 | 12,277 |
Total | $ 139,938 | $ 99,930 | $ 142,057 |
|
|
|
|
Income before income taxes: | |||
Electrical Power Products | $ 48,055 | $ 3,888 | $ 41,378 |
Process Control Systems | 179 | 109 | 3,683 |
Total | $ 48,234 | $ 3,997 | $ 45,061 |
|
|
|
|
Depreciation and amortization: | |||
Electrical Power Products | $ 13,010 | $ 15,188 | $ 13,453 |
Process Control Systems | 55 | 162 | 177 |
Total | $ 13,065 | $ 15,350 | $ 13,630 |
|
|
|
|
| Year Ended September 30, |
| |||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| |||
United States | $ | 474,038 |
|
| $ | 365,085 |
|
| $ | 374,453 |
|
Canada |
| 101,191 |
|
|
| 137,684 |
|
|
| 113,391 |
|
Middle East and Africa |
| 40,557 |
|
|
| 84,330 |
|
|
| 61,618 |
|
Europe (including former Soviet Union) |
| 23,567 |
|
|
| 34,920 |
|
|
| 24,092 |
|
Far East |
| 12,026 |
|
|
| 15,127 |
|
|
| 35,388 |
|
Mexico, Central and South America |
| 10,479 |
|
|
| 10,668 |
|
|
| 31,925 |
|
Total revenues | $ | 661,858 |
|
| $ | 647,814 |
|
| $ | 640,867 |
|
Income before income taxes includes a $1.2 million gain recorded in the second quarter of fiscal 2011 resulting from cash received from the sale of our 50% equity investment in Kazakhstan. This gain was recorded in our Electrical Power Products business segment. Income before taxes for fiscal 2011 includes an impairment charge of $7.2 million, which was recorded in the fourth quarter, to reflect the impairment for the value of the intangible assets that were recorded in relation to the acquisition of Powell Canada. This loss was recorded in our Electrical Power Products business segment.
Income before income taxes for fiscal 2010 includes an impairment charge of $7.5 million to reflect the impairment for the value of goodwill that was recorded in relation to the acquisition of Powell Canada. This loss was recorded in our Electrical Power Products business segment.
51
| September 30, |
| |||||
| 2015 |
|
| 2014 |
| ||
Long-lived assets: |
|
|
|
|
|
|
|
United States | $ | 95,694 |
|
| $ | 99,711 |
|
Canada |
| 53,879 |
|
|
| 51,493 |
|
United Kingdom |
| 5,021 |
|
|
| 5,692 |
|
Total | $ | 154,594 |
|
| $ | 156,896 |
|
Geographic Information
Revenues are as follows (in thousands):
|
|
|
|
| Year Ended September 30, | ||
| 2012 | 2011 | 2010 |
Europe (including former Soviet Union) | $ 24,857 | $ 7,107 | $ 25,174 |
Far East | 14,865 | 17,172 | 24,998 |
Middle East and Africa | 79,781 | 46,304 | 25,880 |
North, Central and South America (excluding U.S.) | 184,935 | 112,949 | 81,506 |
United States | 412,756 | 378,865 | 393,134 |
Total revenues | $ 717,194 | $ 562,397 | $ 550,692 |
The United States accounted for 58%, 67% and 71% of consolidated revenues in fiscal years 2012, 2011 and 2010, respectively. During fiscal years 2012 and 2011, our operations in Canada accounted for 13% and 17% of revenues with customers, respectively. During fiscal year 2012, one petrochemical project being shipped to Colombia accounted for 11% of revenues with customers.
|
|
|
| September 30, | |
| 2012 | 2011 |
Long-lived assets: | ||
United States | $ 60,012 | $ 47,966 |
United Kingdom | 6,238 | 6,409 |
Canada | 12,402 | 5,262 |
Total | $ 78,652 | $ 59,637 |
Long-lived assets by country consist of property, plant and equipment, net of accumulated depreciation.depreciation and are determined based on the location of the tangible assets.
M. Restructuring and Separation Costs
In Fiscal 2015, we incurred $3.4 million of restructuring and separation costs. Of this, $2.6 million were separation and severance costs associated with headcount reductions in Canada and certain U.S. operations as we continue to respond to current market conditions, as well as the departure of our former Chief Operating Officer. The remaining $0.8 million was related to the exit of one of our previously occupied leased facilities in Acheson, Alberta, Canada and the write-off of associated leasehold improvements. The lease does not expire until October 2019; however, we are currently seeking to sublet the facility. Of the restructuring and separation costs, $2.4 million has been paid as of September 30, 2015 and the remaining $0.2 million will be paid by September 2016.
In Fiscal 2013, we recorded restructuring and relocation charges totaling $3.9 million. We incurred approximately $2.8 million in Fiscal 2013 related to relocation efforts in connection with the construction of our new facility in Houston, Texas and our new facility in Acheson, Alberta, Canada. These costs were primarily related to the relocation of our operations, the loss on the sublease, and the abandonment of leasehold improvements on the previously occupied facilities in the second half of Fiscal 2013.
Also in Fiscal 2013, we recorded and paid $1.1 million related to severance at our United Kingdom operations. These operations were negatively impacted by market conditions and competitive pressures in the international markets in which they operate; therefore, we exited certain non-core operations and eliminated certain positions to better align our workforce with current market conditions.
N. Quarterly ResultsDiscontinued Operations
On January 15, 2014, we sold our wholly owned subsidiary Transdyn to a global provider of Operations (Unaudited)electronic toll collection systems, headquartered in Vienna, Austria. The purchase price from the sale of this subsidiary totaled $16.0 million, of which we received cash of $14.4 million. The remaining $1.6 million was placed into an escrow account and was released to us in July 2015. We received additional cash of $0.4 million after the final working capital adjustment was calculated in March 2014. We recorded a gain on this transaction of $8.6 million, net of tax, which has been included in income from discontinued operations in Fiscal 2014 in the accompanying consolidated statements of operations. Transdyn’s results were previously reflected in the Process Control Systems business segment.
We have presented the results of these operations as income from discontinued operations, net of tax, for each of the accompanying consolidated statements of operations.
Summary comparative financial results of discontinued operations were as follows (in thousands):
| Year Ended September 30, |
| |||||||||
| 2015 |
|
| 2014 |
|
| 2013 |
| |||
Revenues | $ | — |
|
| $ | 13,923 |
|
| $ | 33,905 |
|
Income from discontinued operations, net of tax of $633 and $1,269, respectively | $ | — |
|
| $ | 1,041 |
|
| $ | 2,337 |
|
Gain on sale of discontinued operations, net of tax of $5,218 |
| — |
|
|
| 8,563 |
|
|
| — |
|
Net income from discontinued operations, net of tax | $ | — |
|
| $ | 9,604 |
|
| $ | 2,337 |
|
Earnings per share information: |
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | — |
|
| $ | 0.80 |
|
| $ | 0.20 |
|
Diluted | $ | — |
|
| $ | 0.80 |
|
| $ | 0.19 |
|
O. Share Repurchase Program
On December 17, 2014, our Board of Directors authorized a repurchase program (the Repurchase Program) under which we may repurchase up to $25 million of our outstanding stock. The purchases may be made from time to time in the open market, through privately negotiated transactions and Rule 10b5-1 trading plans in accordance with applicable laws, rules and regulations. The Repurchase Program is being funded from cash on hand and cash provided by operating activities. The Repurchase Program will expire as of the close of business on December 31, 2015. As of September 30, 2015, we had purchased 670,181 shares at cost of $21.3 million under the Repurchase Program. The average purchase price per share through September 30, 2015 has been $31.72.
P. Quarterly Information
The table below sets forth the unaudited consolidated operating results by fiscal quarter for the years ended September 30, 20122015 and 20112014 (in thousands, except per share data):
|
|
|
|
| ||||||||||||||||||||||||
| 2012 Quarters | 2015 Quarters |
| |||||||||||||||||||||||||
| First | Second | Third | Fourth | 2012 | First |
|
| Second |
|
| Third |
|
| Fourth |
|
| 2015 |
| |||||||||
Revenues | $ 157,456 | $ 181,486 | $ 194,093 | $ 184,159 | $ 717,194 | $ | 152,601 |
|
| $ | 170,199 |
|
| $ | 176,733 |
|
| $ | 162,325 |
|
| $ | 661,858 |
| ||||
Gross profit | 20,378 | 34,237 | 43,843 | 41,480 | 139,938 |
| 21,069 |
|
|
| 24,301 |
|
|
| 32,944 |
|
|
| 29,947 |
|
|
| 108,261 |
| ||||
Net income (loss) | (1,745) | 7,411 | 12,138 | 11,853 | 29,657 |
| (239 | ) |
|
| (3,683 | ) |
|
| 7,049 |
|
|
| 6,312 |
|
|
| 9,439 |
| ||||
Basic earnings (loss) per share | (0.15) | 0.63 | 1.03 | 0.99 | 2.50 | |||||||||||||||||||||||
Diluted earnings (loss) per share | (0.15) | 0.63 | 1.02 | 0.99 | 2.49 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
| 2011 Quarters | |||||||||||||||||||||||||||
| First | Second | Third | Fourth | 2011 | |||||||||||||||||||||||
Revenues | $ 124,674 | $ 125,111 | $ 141,369 | $ 171,243 | $ 562,397 | |||||||||||||||||||||||
Gross profit | 25,865 | 24,877 | 21,864 | 27,324 | 99,930 | |||||||||||||||||||||||
Net income (loss) | 2,432 | 1,733 | 73 | (6,953) | (2,715) | |||||||||||||||||||||||
Basic earnings (loss) per share | 0.21 | 0.15 | 0.01 | (0.59) | (0.23) | |||||||||||||||||||||||
Diluted earnings (loss) per share | 0.21 | 0.15 | 0.01 | (0.59) | (0.23) | |||||||||||||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Basic | $ | (0.02 | ) |
| $ | (0.31 | ) |
| $ | 0.60 |
|
| $ | 0.54 |
|
| $ | 0.80 |
| |||||||||
Diluted | $ | (0.02 | ) |
| $ | (0.31 | ) |
| $ | 0.60 |
|
| $ | 0.54 |
|
| $ | 0.79 |
|
| 2014 Quarters |
| |||||||||||||||||
| First |
|
| Second |
|
| Third |
|
| Fourth |
|
| 2014 |
| |||||
Revenues | $ | 171,872 |
|
| $ | 162,295 |
|
| $ | 150,800 |
|
| $ | 162,847 |
|
| $ | 647,814 |
|
Gross profit |
| 35,158 |
|
|
| 34,928 |
|
|
| 29,642 |
|
|
| 25,746 |
|
|
| 125,474 |
|
Income from continuing operations |
| 7,268 |
|
|
| 6,976 |
|
|
| 2,947 |
|
|
| 2,429 |
|
|
| 19,620 |
|
Net income |
| 8,255 |
|
|
| 15,593 |
|
|
| 2,947 |
|
|
| 2,429 |
|
|
| 29,224 |
|
Earnings per share ─ continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.61 |
|
| $ | 0.58 |
|
| $ | 0.25 |
|
| $ | 0.20 |
|
| $ | 1.63 |
|
Diluted | $ | 0.60 |
|
| $ | 0.58 |
|
| $ | 0.24 |
|
| $ | 0.20 |
|
| $ | 1.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.69 |
|
| $ | 1.30 |
|
| $ | 0.25 |
|
| $ | 0.20 |
|
| $ | 2.43 |
|
Diluted | $ | 0.68 |
|
| $ | 1.29 |
|
| $ | 0.24 |
|
| $ | 0.20 |
|
| $ | 2.42 |
|
(1) | The increase in earnings per share for the second quarter of Fiscal 2014 was primarily due to the sale of Transdyn. For additional information on this disposition, see Note N. |
The sum of the individual earnings per share amounts may not agree with year-to-date earnings per share as each period��speriod’s computation is based on the weighted-average number of shares outstanding during the period.
Income before income taxes includes a $1.2 million gain recorded in the second quarter of fiscal 2011 resulting from cash received from the sale of our 50% equity investment in Kazakhstan. Income before taxes for fiscal 2011 includes an impairment charge of $7.2 million, which was recorded in the fourth quarter, to reflect the impairment for the value of the intangible assets that were recorded in relation to the acquisition of Powell Canada.
52
Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure
None.
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission (SEC)SEC pursuant to the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures.
Management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.Annual Report on Form 10-K. Based on such evaluation, our CEO and CFO have each concluded that, as of September 30, 2015, the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequateeffective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our system of internal control system was designed using a top-down risk-based approach to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofineffective due to changes in conditions or thatdeterioration in the degree of compliance with the policies or procedures may deteriorate.
procedures.
Management of the Company has assessed the effectiveness of our internal control over financial reporting as of September 30, 2012.2015. Management evaluated the effectiveness of our internal control over financial reporting based on the criteria in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management’s evaluation, management has concluded that our internal control over financial reporting was effective at the reasonable assurance level as of September 30, 2012,2015, based on criteria in Internal Control – Integrated Framework (2013) issued by the COSO.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited and issued their report on the effectiveness of our internal control over financial reporting as of September 30, 2012,2015, which appears in their report toon the financial statements included herein.
Changes in Internal Control overOver Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
None.
53
Item 10. Directors, Executive Officers and CorporateGovernance
The information required by this item is incorporated in this Annual Report by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended September 30, 2012. 2015.
We have adopted a Code of Business Conduct and Ethics that applies to all employees, including our executive officers and directors. A copy of our Code of Business Conduct and Ethics may be obtained at the Investor Relations section of our website, www.powellind.com, or by written request addressed to the Secretary, Powell Industries, Inc., 8550 Mosley Drive,Road, Houston, Texas 77075. We will satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of our code of ethics that apply to the chief executive officer, chief financial officer or controller by posting such information on our website.
Item 11. Executive Compensation
The information required by this item is incorporated in this Annual Report by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended September 30, 2012. 2015.
Item 12. Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters
The information required by this item is incorporated in this Annual Report by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended September 30, 2012. 2015.
Item 13. Certain Relationships and Related Transactions, and DirectorIndependence
The information required by this item is incorporated in this Annual Report by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended September 30, 2012. 2015.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated in this Annual Report by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Securities and Exchange Commission not later than 120 days after the close of our fiscal year ended September 30, 2012.
2015.
54
Item 15. Exhibits and Financial Statement Schedules
1. Financial Statements. Reference is made to the Index to Consolidated Financial Statements at Item 8 of this Annual Report.
2. Financial Statement Schedule. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes to the financial statements.
3. Exhibits.
Number |
| Description of Exhibits | ||
3.1 | — | Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary of State of the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to our Form 8-A/A filed November 1, 2004, and incorporated herein by reference). | ||
|
|
| ||
|
| |||
|
| |||
3.2 | — | Amended and Restated By-laws of Powell Industries, Inc. (filed as Exhibit 3.1 to our Form 8-K filed October 12, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.1 | — | Powell Industries, Inc., Incentive Compensation Plan (filed as Exhibit 10.1 to our Form 10-K for the fiscal year ended October 31, 2003, and incorporated herein by reference). | ||
|
|
| ||
10.2 | — | Description of Supplemental Executive Benefit Plan (filed as Exhibit 10 to our Form 10-K for the fiscal year ended October 31, 1984, and incorporated herein by reference). | ||
|
|
| ||
10.3 | — | 1992 Powell Industries, Inc. Stock Option Plan (filed as Exhibit 10.1 to our registration statement on Form S-8 filed on December 21, 2010, and incorporated herein by reference). | ||
|
|
| ||
10.4 | — | Amendment to 1992 Powell Industries, Inc. Stock Option Plan (filed as Exhibit 10.8 to our Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). | ||
|
|
| ||
10.5 | — | Amendment to 1992 Powell Industries, Inc. Stock Option Plan (the cover of the 1992 Powell Industries, Inc. Stock Option Plan has been noted to reflect the increase in the number of shares authorized for issuance under the Plan from 2,100,000 to 2,700,000, which increase was approved by the stockholders of the Company at the 2005 Annual Meeting of Stockholders). | ||
|
|
| ||
10.6 | — | Powell Industries, Inc. Directors’ Fees Program (filed as Exhibit 10.7 to our Form 10-K for the fiscal year ended October 31, 1992, and incorporated herein by reference). | ||
|
|
| ||
10.7 | — | Powell Industries, Inc. Executive Severance Protection Plan (filed as Exhibit 10.7 to our Form 10-K for the fiscal year ended October 31, 2002, and incorporated herein by reference). | ||
|
|
| ||
10.8 | — | Powell Industries, Inc. Non-Employee Directors Stock Option Plan (filed as Exhibit 10.9 to our Form 10-K for the fiscal year ended October 31, 2002, and incorporated herein by reference). | ||
|
|
| ||
10.9 | — | Powell Industries, Inc. Deferred Compensation Plan (filed as Exhibit 10.9 to our Form 10-K for the fiscal year ended October 31, 2002, and incorporated herein by reference). | ||
|
|
| ||
10.10 | — | Powell Industries, Inc. Non-Employee Director Restricted Stock Plan (filed as Exhibit 10.3 to our registration statement on Form S-8 filed on December 21, 2010, and incorporated herein by reference). | ||
|
|
| ||
10.11 | — | Amended Loan Agreement dated October 29, 2004, between Powell Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.10 to our Form 10-K for the fiscal year ended October 31, 2004, and incorporated herein by reference). | ||
|
|
| ||
10.12 | — | Credit and Reimbursement Agreement dated April 15, 2004, between Powell Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.11 to our Form 10-K for the fiscal year ended October 31, 2004, and incorporated herein by reference). |
|
|
| Description of Exhibits | |
10.13 | — | Credit Agreement dated June 29, 2005 among Powell Industries, Inc., Inhoco 3210 Limited and Switchgear & Instrumentation Properties Limited, and Bank of America and the other lenders parties thereto (filed as Exhibit 10.1 to our Form 8-K filed July 6, 2005, and incorporated herein by reference). | ||
|
|
| ||
10.14 | — | First Amendment to Credit Agreement dated November 7, 2005 among Powell Industries, Inc., Inhoco 3210 Limited (n/k/a Switchgear & Instrumentation Limited), Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders parties thereto (filed as Exhibit 10.14 to our Form 10-K for the fiscal year ended October 31, 2005, and incorporated herein by reference). | ||
|
|
| ||
10.15 | — | Second Amendment to Credit Agreement dated January 11, 2006 among Powell Industries, Inc., Switchgear & Instrumentation Limited, Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders parties thereto (filed as Exhibit 10.15 to our Form 10-K for the fiscal year ended October 31, 2005, and incorporated herein by reference). | ||
|
|
| ||
10.16 | — | Third Amendment to Credit Agreement dated August 4, 2006 among Powell Industries, Inc., Switchgear & Instrumentation Limited, Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders parties thereto (filed as Exhibit 10.3 to our Form 8-K filed August 9, 2006, and incorporated herein by reference). | ||
|
|
| ||
10.17 | — | Fourth Amendment to Credit Agreement dated December 7, 2006 among Powell Industries, Inc., Switchgear & Instrumentation Limited, Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders parties thereto (filed as Exhibit 10.17 to our Transition report on Form 10-K for the fiscal year ended September 30, 2006, and incorporated herein by reference). | ||
|
|
| ||
10.18 | — | Fifth Amendment to Credit Agreement, dated as of December 4, 2007, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party thereto (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, and incorporated herein by reference). | ||
|
|
| ||
10.19 | — | Sixth Amendment to Credit Agreement, dated as of December 14, 2007, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party thereto (filed as Exhibit 10.1 to our Form 8-K filed December 19, 2007, and incorporated herein by reference). | ||
|
|
| ||
10.20 | — | Banking facilities between HSBC Bank plc and Switchgear & Instrumentation Limited and Switchgear & Instrumentation Properties Limited dated September 12, 2005 (filed as Exhibit 10.16 to our Form 10-K for the fiscal year ended October 31, 2005, and incorporated herein by reference). | ||
|
|
| ||
**10.21 | — | Powell Supply Agreement between the Company and General Electric Company dated August 7, 2006 (filed as Exhibit 10.1 to our Form 8-K/A filed June 16, 2008, and incorporated herein by reference). | ||
|
|
| ||
10.22 | — | Lease Agreement between the Company and C&L Partnership, Ltd. dated April 19, 2006 (filed as Exhibit 10.2 to our Form 8-K filed August 9, 2006, and incorporated herein by reference). | ||
|
|
| ||
10.23 | — | Consulting Agreement dated July 18, 2008 between the Company and Thomas W. Powell (filed as Exhibit 10.1 to our Form 8-K filed July 24, 2008, and incorporated herein by reference). | ||
|
|
| ||
10.24 | — | Seventh Amendment to Credit Agreement, dated as of December 10, 2008, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party (filed as Exhibit 10.24 to our Form 10-K for the fiscal year ended September 30, 2008, and incorporated herein by reference). | ||
|
|
| ||
10.25 | — | Powell Industries, Inc. 2006 Equity Compensation Plan (filed as Exhibit 10.2 to our registration statement on Form S-8 filed on December 21, 2010, and incorporated herein by reference). | ||
|
|
| ||
10.26 | — | Credit Agreement dated as of December 15, 2009, between Powell PowerComm Inc., as Borrower, Powell Industries, Inc., Nextron Limited, PPC Technical Services Inc., as Guarantors, and HSBC Bank Canada, as Lender (filed as Exhibit 10.1 to our Form 8-K filed on December 21, 2009, and incorporated herein by reference). |
|
|
| Description of Exhibits | |
10.27 | — | Ninth Amendment to Credit Agreement, dated as of May 18, 2011, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party (filed as Exhibit 10.1 to our Form 8-K dated May 18, 2011, and incorporated herein by | ||
|
|
| ||
10.28 | — | Severance Agreement and Release dated as of October 7, 2011 between the Company and Patrick L. McDonald. (filed as Exhibit 10.28 to our Form 10-K for the fiscal year ended September 30, 2011 and incorporated herein by reference). | ||
|
|
| ||
10.29 | — | Employment Agreement dated as of May 8, 2012 between the Company and Don R. Madison (filed as Exhibit 10.1 to our Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.30 | — | Employment Agreement dated as of May 8, 2012 between the Company and Milburn E. Honeycutt (filed as Exhibit 10.2 to our Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.31 | — | Tenth Amendment to Credit Agreement, dated as of March 26, 2012, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified herein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party (filed as Exhibit 10.3 to our Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.32 | — | Amended and Restated Credit Agreement dated as of April 26, 2012, between Powell PowerComm Inc., as Borrower, Powell Industries, Inc., Nextron Limited, PPC Technical Services Inc., as Guarantors, and HSBC Bank Canada, as Lender (filed as Exhibit 10.4 to our Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.33 | — | Employment Agreement dated as of August 20, 2012, between the Company and Michael A. Lucas (filed as Exhibit 10.1 to our Form 8-K dated August 9, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.34 | — | Eleventh Amendment to Credit Agreement, dated as of June 27, 2013, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party thereto. (filed as Exhibit 10.1 to our Form 10-Q filed August 7, 2013, and incorporated herein by reference). | ||
10.35 | — | Employment Agreement dated as of December 1, 2013, between the Company and Neil Dial (filed as Exhibit 10.1 to our Form 8-K filed December 5, 2013, and incorporated herein by reference). | ||
10.36 | — | Stock Purchase Agreement dated as of January 15, 2014, between the Company and Kapsch TrafficCom IVHS, Inc. (filed as Exhibit 10.1 to our Form 8-K filed January 17, 2014, and incorporated herein by reference). | ||
**10.37 | — | Amended and Restated Powell Supply Agreement dated as of December 30, 2013, between the Company and General Electric Company (filed as Exhibit 10.2 to our Form 10-Q filed February 5, 2014 and incorporated herein by reference). | ||
10.38 | — | Restated Credit Agreement dated as of December 31, 2013, between the Company and Bank of America, N.A. (filed as Exhibit 10.3 to our Form 10-Q filed February 5, 2014 and incorporated herein by reference). | ||
10.39 | — | 2014 Equity Incentive Plan (filed as Exhibit 10.2 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.40 | — | Form of Restricted Stock Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.3 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.41 | — | Form of Restricted Stock Unit Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.4 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.42 | — | Form of Performance Unit Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.5 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.43 | — | Form of Stock Option Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.6 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
Description of Exhibits | ||||
10.44 | — | Form of Stock Appreciation Right Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.7 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.45 | — | 2014 Non-Employee Director Equity Incentive Plan (filed as Exhibit 10.8 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.46 | — | Form of Restricted Stock Award Agreement under 2014 Non-Employee Director Equity Incentive Plan (filed as Exhibit 10.9 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.47 | — | First Amendment to Credit Agreement, dated as of March 28, 2014, among Powell Industries, Inc., as Parent, certain subsidiaries of Powell Industries, Inc. identified therein, as Guarantors, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party thereto. (filed as Exhibit 10.10 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.48 | — | Renewed banking facilities between HSBC Bank plc and Powell (UK) Limited dated October 20, 2014. | ||
10.49 | — | Second Amendment to Amended Credit Agreement, dated December 31, 2014, among Powell Industries, Inc., as Parent, certain subsidiaries of Powell Industries, Inc. identified therein, as Guarantors, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party thereto (filed as Exhibit 10.1 to our Form 10-Q filed February 4, 2015 and incorporated herein by reference). | ||
10.50 | — | Amending Agreement to Amended and Restated Credit Agreement, effective as of March 31, 2015, between Powell Canada Inc., Powell Industries, Inc., Nextron Limited, PCG Northern Services Inc. and HSBC Bank Canada (filed as Exhibit 10.1 to our Form 10-Q filed May 6, 2015 and incorporated herein by reference). | ||
*21.1 | — | Subsidiaries of Powell Industries, Inc. | ||
|
|
| ||
*23.2 | — | Consent of PricewaterhouseCoopers LLP. | ||
|
|
| ||
*31.1 | — | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | ||
|
|
| ||
*31.2 | — | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | ||
|
|
| ||
*32.1 | — | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
|
| ||
*32.2 | — | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
|
| ||
101.INS | — | XBRL Instance Document | ||
|
|
| ||
101.SCH | — | XBRL Taxonomy Extension Schema Document | ||
|
|
| ||
101.CAL | — | XBRL Taxonomy Extension Calculation Linkbase Document | ||
|
|
| ||
101.DEF | — | XBRL Taxonomy Extension Definition Linkbase Document | ||
|
|
| ||
101.LAB | — | XBRL Taxonomy Extension Label Linkbase Document | ||
|
|
| ||
101.PRE | — | XBRL Taxonomy Extension Presentation Linkbase Document |
55
56
____________
|
* | Filed |
** | Portions of this exhibit have been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. Such omitted portions have been filed separately with the Commission. |
57
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/ Michael A. Lucas |
Michael A. Lucas | |
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange 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:
Signature |
| |
| Title | |
/s/ Thomas W. Powell |
| Chairman of the Board |
|
| |
|
| |
/s/
| Director
| |
Michael A. Lucas | ||
|
| |
/s/
| Executive Vice President
| |
Don R. Madison | ||
|
| |
/s/
|
| Vice President |
Milburn Honeycutt | ||
|
| |
/s/ |
| Director |
Joseph L. Becherer | ||
|
| |
/s/ |
| Director |
Eugene L. Butler | ||
|
| |
/s/ Christopher E. Cragg | Director | |
Christopher E. Cragg | ||
|
| |
/s/ Bonnie V. Hancock | Director | |
Bonnie V. Hancock | ||
|
| |
/s/ Scott E. Rozzell | Director | |
Scott E. Rozzell | ||
|
| |
/s/ Stephen W. Seale, Jr. |
| Director |
Stephen W. Seale, Jr. | ||
/s/ John D. White |
| |
| Director | |
John D. White |
|
|
Date: December 5, 2012
58 2, 2015
EXHIBIT INDEX
Number |
| Description of Exhibits | ||
3.1 | — | Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary of State of the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to our Form 8-A/A filed November 1, 2004, and incorporated herein by reference). | ||
|
|
| ||
|
| |||
|
| |||
3.2 | — | Amended and Restated By-laws of Powell Industries, Inc. (filed as Exhibit 3.1 to our Form 8-K filed October 12, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.1 | — | Powell Industries, Inc., Incentive Compensation Plan (filed as Exhibit 10.1 to our Form 10-K for the fiscal year ended October 31, 2003, and incorporated herein by reference). | ||
|
|
| ||
10.2 | — | Description of Supplemental Executive Benefit Plan (filed as Exhibit 10 to our Form 10-K for the fiscal year ended October 31, 1984, and incorporated herein by reference). | ||
|
|
| ||
10.3 | — | 1992 Powell Industries, Inc. Stock Option Plan (filed as Exhibit 10.1 to our registration statement on Form S-8 filed on December 21, 2010, and incorporated herein by reference). | ||
|
|
| ||
10.4 | — | Amendment to 1992 Powell Industries, Inc. Stock Option Plan (filed as Exhibit 10.8 to our Form 10-Q for the quarter ended April 30, 1996, and incorporated herein by reference). | ||
|
|
| ||
10.5 | — | Amendment to 1992 Powell Industries, Inc. Stock Option Plan (the cover of the 1992 Powell Industries, Inc. Stock Option Plan has been noted to reflect the increase in the number of shares authorized for issuance under the Plan from 2,100,000 to 2,700,000, which increase was approved by the stockholders of the Company at the 2005 Annual Meeting of Stockholders). | ||
|
|
| ||
10.6 | — | Powell Industries, Inc. Directors’ Fees Program (filed as Exhibit 10.7 to our Form 10-K for the fiscal year ended October 31, 1992, and incorporated herein by reference). | ||
|
|
| ||
10.7 | — | Powell Industries, Inc. Executive Severance Protection Plan (filed as Exhibit 10.7 to our Form 10-K for the fiscal year ended October 31, 2002, and incorporated herein by reference). | ||
|
|
| ||
10.8 | — | Powell Industries, Inc. Non-Employee Directors Stock Option Plan (filed as Exhibit 10.9 to our Form 10-K for the fiscal year ended October 31, 2002, and incorporated herein by reference). | ||
|
|
| ||
10.9 | — | Powell Industries, Inc. Deferred Compensation Plan (filed as Exhibit 10.9 to our Form 10-K for the fiscal year ended October 31, 2002, and incorporated herein by reference). | ||
|
|
| ||
10.10 | — | Powell Industries, Inc. Non-Employee Director Restricted Stock Plan (filed as Exhibit 10.3 to our registration statement on Form S-8 filed on December 21, 2010, and incorporated herein by reference). | ||
|
|
| ||
10.11 | — | Amended Loan Agreement dated October 29, 2004, between Powell Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.10 to our Form 10-K for the fiscal year ended October 31, 2004, and incorporated herein by reference). | ||
|
|
| ||
10.12 | — | Credit and Reimbursement Agreement dated April 15, 2004, between Powell Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.11 to our Form 10-K for the fiscal year ended October 31, 2004, and incorporated herein by reference). | ||
|
|
| ||
10.13 | — | Credit Agreement dated June 29, 2005 among Powell Industries, Inc., Inhoco 3210 Limited and Switchgear & Instrumentation Properties Limited, and Bank of America and the other lenders parties thereto (filed as Exhibit 10.1 to our Form 8-K filed July 6, 2005, and incorporated herein by reference). | ||
|
|
| ||
10.14 | — | First Amendment to Credit Agreement dated November 7, 2005 among Powell Industries, Inc., Inhoco 3210 Limited (n/k/a Switchgear & Instrumentation Limited), Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders parties thereto (filed as Exhibit 10.14 to our Form 10-K for the fiscal year ended October 31, 2005, and incorporated herein by reference). | ||
|
|
| ||
10.15 | — | Second Amendment to Credit Agreement dated January 11, 2006 among Powell Industries, Inc., Switchgear & Instrumentation Limited, Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders parties thereto (filed as Exhibit 10.15 to our Form 10-K for the fiscal year ended October 31, 2005, and incorporated herein by reference). |
|
|
| Description of Exhibits | |
10.16 | — | Third Amendment to Credit Agreement dated August 4, 2006 among Powell Industries, Inc., Switchgear & Instrumentation Limited, Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders parties thereto (filed as Exhibit 10.3 to our Form 8-K filed August 9, 2006, and incorporated herein by reference). | ||
|
|
| ||
10.17 | — | Fourth Amendment to Credit Agreement dated December 7, 2006 among Powell Industries, Inc., Switchgear & Instrumentation Limited, Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders parties thereto (filed as Exhibit 10.17 to our Transition report on Form 10-K for the fiscal year ended September 30, 2006, and incorporated herein by reference). | ||
|
|
| ||
10.18 | — | Fifth Amendment to Credit Agreement, dated as of December 4, 2007, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party thereto (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, and incorporated herein by reference). | ||
|
|
| ||
10.19 | — | Sixth Amendment to Credit Agreement, dated as of December 14, 2007, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party thereto (filed as Exhibit 10.1 to our Form 8-K filed December 19, 2007, and incorporated herein by reference). | ||
|
|
| ||
10.20 | — | Banking facilities between HSBC Bank plc and Switchgear & Instrumentation Limited and Switchgear & Instrumentation Properties Limited dated September 12, 2005 (filed as Exhibit 10.16 to our Form 10-K for the fiscal year ended October 31, 2005, and incorporated herein by reference). | ||
|
|
| ||
**10.21 | — | Powell Supply Agreement between the Company and General Electric Company dated August 7, 2006 (filed as Exhibit 10.1 to our Form 8-K/A filed June 16, 2008, and incorporated herein by reference). | ||
|
|
| ||
10.22 | — | Lease Agreement between the Company and C&L Partnership, Ltd. dated April 19, 2006 (filed as Exhibit 10.2 to our Form 8-K filed August 9, 2006, and incorporated herein by reference). | ||
|
|
| ||
10.23 | — | Consulting Agreement dated July 18, 2008 between the Company and Thomas W. Powell (filed as Exhibit 10.1 to our Form 8-K filed July 24, 2008, and incorporated herein by reference). | ||
|
|
| ||
10.24 | — | Seventh Amendment to Credit Agreement, dated as of December 10, 2008, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party (filed as Exhibit 10.24 to our Form 10-K for the fiscal year ended September 30, 2008, and incorporated herein by reference). | ||
|
|
| ||
10.25 | — | Powell Industries, Inc. 2006 Equity Compensation Plan (filed as Exhibit 10.2 to our registration statement on Form S-8 filed on December 21, 2010, and incorporated herein by reference). | ||
|
|
| ||
10.26 | — | Credit Agreement dated as of December 15, 2009, between Powell PowerComm Inc., as Borrower, Powell Industries, Inc., Nextron Limited, PPC Technical Services Inc., as Guarantors, and HSBC Bank Canada, as Lender (filed as Exhibit 10.1 to our Form 8-K filed on December 21, 2009, and incorporated herein by reference). | ||
|
|
| ||
10.27 | — | Ninth Amendment to Credit Agreement, dated as of May 18, 2011, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party (filed as Exhibit 10.1 to our Form 8-K dated May 18, 2011, and incorporated herein by | ||
|
|
| ||
10.28 | — | Severance Agreement and Release dated as of October 7, 2011 between the Company and Patrick L. McDonald. (filed as Exhibit 10.28 to our Form 10-K for the fiscal year ended September 30, 2011 and incorporated herein by reference). | ||
|
|
| ||
10.29 | — | Employment Agreement dated as of May 8, 2012 between the Company and Don R. Madison (filed as Exhibit 10.1 to our Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.30 | — | Employment Agreement dated as of May 8, 2012 between the Company and Milburn E. Honeycutt (filed as Exhibit 10.2 to our Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference). | ||
|
|
|
Description of Exhibits | ||||
10.31 | — | Tenth Amendment to Credit Agreement, dated as of March 26, 2012, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified herein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party (filed as Exhibit 10.3 to our Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.32 | — | Amended and Restated Credit Agreement dated as of April 26, 2012, between Powell PowerComm Inc., as Borrower, Powell Industries, Inc., Nextron Limited, PPC Technical Services Inc., as Guarantors, and HSBC Bank Canada, as Lender (filed as Exhibit 10.4 to our Form 10-Q for the quarter ended March 31, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.33 | — | Employment Agreement dated as of August 20, 2012, between the Company and Michael A. Lucas (filed as Exhibit 10.1 to our Form 8-K dated August 9, 2012, and incorporated herein by reference). | ||
|
|
| ||
10.34 | — | Eleventh Amendment to Credit Agreement, dated as of June 27, 2013, among Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries, Inc. identified therein, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party thereto. (filed as Exhibit 10.1 to our Form 10-Q filed August 7, 2013, and incorporated herein by reference). | ||
10.35 | — | Employment Agreement dated as of December 1, 2013, between the Company and Neil Dial (filed as Exhibit 10.1 to our Form 8-K filed December 5, 2013, and incorporated herein by reference). | ||
10.36 | — | Stock Purchase Agreement dated as of January 15, 2014, between the Company and Kapsch TrafficCom IVHS, Inc. (filed as Exhibit 10.1 to our Form 8-K filed January 17, 2014, and incorporated herein by reference). | ||
**10.37 | — | Amended and Restated Powell Supply Agreement dated as of December 30, 2013, between the Company and General Electric Company (filed as Exhibit 10.2 to our Form 10-Q filed February 5, 2014 and incorporated herein by reference). | ||
10.38 | — | Restated Credit Agreement dated as of December 31, 2013, between the Company and Bank of America, N.A. (filed as Exhibit 10.3 to our Form 10-Q filed February 5, 2014 and incorporated herein by reference). | ||
10.39 | — | 2014 Equity Incentive Plan (filed as Exhibit 10.2 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.40 | — | Form of Restricted Stock Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.3 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.41 | — | Form of Restricted Stock Unit Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.4 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.42 | — | Form of Performance Unit Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.5 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.43 | — | Form of Stock Option Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.6 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.44 | — | Form of Stock Appreciation Right Award Agreement under 2014 Equity Incentive Plan (filed as Exhibit 10.7 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.45 | — | 2014 Non-Employee Director Equity Incentive Plan (filed as Exhibit 10.8 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.46 | — | Form of Restricted Stock Award Agreement under 2014 Non-Employee Director Equity Incentive Plan (filed as Exhibit 10.9 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
10.47 | — | First Amendment to Credit Agreement, dated as of March 28, 2014, among Powell Industries, Inc., as Parent, certain subsidiaries of Powell Industries, Inc. identified therein, as Guarantors, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party thereto. (filed as Exhibit 10.10 to our Form 10-Q filed May 7, 2014 and incorporated herein by reference). | ||
— | Renewed banking facilities between HSBC Bank plc and Powell (UK) Limited dated October 20, 2014. | |||
10.49 | — | Second Amendment to Amended Credit Agreement, dated December 31, 2014, among Powell Industries, Inc., as Parent, certain subsidiaries of Powell Industries, Inc. identified therein, as Guarantors, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C issuer, and the Lenders party thereto (filed as Exhibit 10.1 to our Form 10-Q filed February 4, 2015 and incorporated herein by reference). | ||
10.50 | — | Amending Agreement to Amended and Restated Credit Agreement, effective as of March 31, 2015, between Powell Canada Inc., Powell Industries, Inc., Nextron Limited, PCG Northern Services Inc. and HSBC Bank Canada (filed as Exhibit 10.1 to our Form 10-Q filed May 6, 2015 and incorporated herein by reference). | ||
*21.1 | — | Subsidiaries of Powell Industries, Inc. | ||
|
|
| ||
*23.2 |
| — | Consent of PricewaterhouseCoopers LLP. | |
|
|
| ||
*31.1 | — | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | ||
|
|
| ||
*31.2 | — | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | ||
|
|
| ||
*32.1 | — | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
|
| ||
*32.2 | — | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
|
| ||
101.INS | — | XBRL Instance Document | ||
|
|
| ||
101.SCH | — | XBRL Taxonomy Extension Schema Document | ||
|
|
| ||
101.CAL | — | XBRL Taxonomy Extension Calculation Linkbase Document | ||
|
|
| ||
101.DEF | — | XBRL Taxonomy Extension Definition Linkbase Document | ||
|
|
| ||
101.LAB | — | XBRL Taxonomy Extension Label Linkbase Document | ||
|
|
| ||
101.PRE | — | XBRL Taxonomy Extension Presentation Linkbase Document |
59
60
____________
|
* | Filed |
** | Portions of this exhibit have been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. Such omitted portions have been filed separately with the Commission. |
61
61