UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended April 30, 2002 or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from to
----------------------------- ----------------------------------
COMMISSION FILE NUMBER 0-6050
POWELL INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<Table>
NEVADA 88-0106100
- ------------------------------------------------------------------- --------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
8550 Mosley Drive, Houston, Texas 77075-1180
- ------------------------------------------------------------------- -------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</Table>
Registrant's telephone number, including area code (713) 944-6900
---------------
Indicate by "X" whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Common Stock, par value $.01 per share; 10,468,919 shares outstanding as of May
16, 2002.
Powell Industries, Inc. and Subsidiaries
<Table>
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements...........................................3
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations.............................................................11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................................15
Part II - Other Information and Signatures..............................................................16
</Table>
2
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2002 2001
------------- -------------
ASSETS (UNAUDITED)
Current Assets:
Cash and cash equivalents ...................................................... $ 13,933 $ 6,520
Accounts receivable, less allowance for doubtful accounts of
$601 and $551, respectively ................................................ 57,438 76,592
Costs and estimated earnings in excess of billings ............................. 32,462 36,164
Inventories .................................................................... 24,500
21,425
Deferred income taxes and income taxes receivable .............................. 0 1,043
Prepaid expenses and other current assets ...................................... 1,892 835
------------- -------------
Total Current Assets ....................................................... 130,225 142,579
Property, plant and equipment, net .................................................. 44,200 37,409
Deferred income taxes ............................................................... 1,089 1,064
Other assets ........................................................................ 5,669 5,309
------------- -------------
Total Assets ............................................................... $ 181,183 $ 186,361
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ........................................... $ 1,429 $ 1,429
Accounts and income taxes payable .............................................. 16,910 18,857
Accrued salaries, bonuses and commissions ...................................... 7,999 9,670
Billings in excess of costs and estimated earnings ............................. 13,236 14,858
Accrued product warranty ....................................................... 2,389 1,860
Other accrued expenses ......................................................... 7,387 6,924
------------- -------------
Total Current Liabilities .................................................. 49,350 53,598
Long-term debt, net of current maturities ........................................... 11,571 21,285
Deferred compensation expense ....................................................... 1,509 1,404
Other liabilities ................................................................... 562 705
------------- -------------
Total Liabilities .......................................................... 62,992 76,992
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued
Common stock, par value $.01; 30,000,000 shares authorized; 10,965,000 and
10,964,000 shares issued, respectively ....................................... 109 109
Additional paid-in capital ..................................................... 8,882 8,680
Retained earnings .............................................................. 116,215 107,967
Treasury stock, 503,000 shares and 530,000 shares respectively, at cost ........ (4,690) (4,887)
Accumulated other comprehensive income (loss): fair value of interest rate swap (93) (140)
Deferred compensation-ESOP ..................................................... (2,232) (2,360)
------------- -------------
Total Stockholders' Equity ................................................. 118,191 109,369
------------- -------------
Total Liabilities and Stockholders' Equity ................................. $ 181,183 $ 186,361
============= =============
</Table>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
THREE MONTHS ENDED APRIL 30,
2002 2001
------------- -------------
Revenues ............................................................................ $ 80,286 $ 68,719
Cost of goods sold .................................................................. 63,019 54,493
------------- -------------
Gross profit ........................................................................ 17,267 14,226
Selling, general and administrative expenses ........................................ 9,917 9,261
------------- -------------
Earnings before interest and income taxes ........................................... 7,350 4,965
Interest expense (income), net ...................................................... 263 91
------------- -------------
Earnings before income taxes ........................................................ 7,087 4,874
Income tax provision ................................................................ 2,573 1,753
------------- -------------
Net earnings ........................................................................ $ 4,514 $ 3,121
============= =============
Net earnings per common share:
Basic ............................................................................ $ 0.43 $ 0.30
Diluted .......................................................................... 0.42 0.30
Weighted average number of common shares outstanding ................................ 10,457 10,343
============= =============
Weighted average number of common and common equivalent shares outstanding .......... 10,685 10,475
============= =============
</Table>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
SIX MONTHS ENDED APRIL 30,
2002 2001
------------- -------------
Revenues ............................................................................ $ 156,773 $ 123,870
Cost of goods sold .................................................................. 123,915 98,430
------------- -------------
Gross profit ........................................................................ 32,858 25,440
Selling, general and administrative expenses ........................................ 19,338 17,614
------------- -------------
Earnings before interest and income taxes ........................................... 13,520 7,826
Interest expense (income), net ...................................................... 568 78
------------- -------------
Earnings before income taxes ........................................................ 12,952 7,748
Income tax provision ................................................................ 4,703 2,743
------------- -------------
Net earnings ........................................................................ $ 8,249 $ 5,005
============= =============
Net earnings per common share:
Basic ............................................................................ $ 0.79 $ 0.48
Diluted .......................................................................... 0.77 0.48
Weighted average number of common shares outstanding ................................ 10,452 10,330
============= =============
Weighted average number of common and common equivalent shares outstanding .......... 10,676 10,479
============= =============
</Table>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<Table>
<Caption>
SIX MONTHS ENDED APRIL 30,
2002 2001
------------- -------------
Operating Activities:
Net earnings .............................................................. $ 8,249 $ 5,005
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization ......................................... 2,315 2,204
Loss on disposition of assets ......................................... 30 7
Deferred income tax provision (benefit) ............................... (24) (214)
Postretirement benefits liability ..................................... (144) (4)
Changes in operating assets and liabilities:
Accounts receivable, net ......................................... 19,153 (2,843)
Costs and estimated earnings in excess of billings ............... 3,702 (4,360)
Inventories ...................................................... (3,075) (4,376)
Prepaid expenses and other current assets ........................ (1,057) (58)
Other assets ..................................................... (460) (61)
Accounts payable and income taxes payable or receivable .......... (904) (702)
Accrued liabilities .............................................. (631) 683
Billings in excess of costs and estimated earnings ............... (1,622) 3,551
Deferred compensation expense .................................... 234 196
------------- -------------
Net cash provided by (used in) operating activities .......... 25,766 (972)
Investing Activities:
Purchases of property, plant and equipment ................................ (9,037) (2,456)
------------- -------------
Net cash used in investing activities ........................ (9,037) (2,456)
------------- -------------
Financing Activities:
Borrowings on revolving line of credit .................................... -- 11,750
Repayments on revolving line of credit .................................... (9,000) (8,750)
Repayments of long-term debt .............................................. (714) (714)
Payments to reacquire common stock ........................................ 0 (267)
Exercise of stock options ................................................. 398 388
------------- -------------
Net cash provided by (used in) financing activities .......... (9,316) 2,407
------------- -------------
Net increase (decrease) in cash and cash equivalents ........................... 7,413 (1,021)
Cash and cash equivalents at beginning of period ............................... 6,520 2,114
------------- -------------
Cash and cash equivalents at end of period ..................................... $ 13,933 $ 1,093
============= =============
Supplemental disclosure of cash flow information (in thousands):
Cash paid during the period for:
Interest .............................................................. $ 348 $ 336
Income taxes .......................................................... $ 500 $ 1,600
</Table>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
Part I
Item 1
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions of Form 10-Q and, in the
opinion of management, reflect all adjustments which are of a normal
recurring nature necessary for a fair presentation of financial position,
results of operations, and cash flows. These financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's October 31, 2001 annual report on Form 10-K.
New Accounting Policies
On June 30, 2001 the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standards ("SFAS") Nos. 141 "Business
Combinations" and 142 "Goodwill and Other Intangible Assets". SFAS Nos. 141
and 142 are effective for fiscal years beginning after December 15, 2001.
The Company plans to adopt these statements effective November 1, 2002.
SFAS No. 141 requires that all business combinations completed after June
30, 2001, be accounted for using the purchase method. The Company does not
believe that the effect on its financial statements of the adoption of SFAS
No. 141 will be material. SFAS No. 142 requires that goodwill no longer be
amortized but be subject to an annual assessment for impairment based on a
fair value test. In addition, acquired intangible assets are required under
SFAS No. 142 to be separately recognized if the benefit of the asset is
based on contractual or legal rights. The Company will adopt the standard
on November 1, 2002. The Company is evaluating the impact of SFAS No. 142
on its financial statements. Goodwill amortization for six months ended
April 30, 2002 was $72,000, which had no impact on earnings per diluted
share for the period.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and
requires that these long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. The Company will adopt this
standard on November 1, 2002, and is in the process of assessing the impact
that the adoption of this standard will have on its financial position and
results of operations.
7
B. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):
<Table>
<Caption>
April 30, October 31,
2002 2001
----------- -----------
(unaudited)
Balance at beginning of period ............................................. $ 551 $ 505
Additions to costs and expenses ............................................ 116 62
Deductions for uncollectible accounts written off, net of recoveries ....... (66) (16)
----------- -----------
Balance at end of period ................................................... $ 601 $ 551
=========== ===========
</Table>
The components of inventories are summarized below (in thousands):
<Table>
<Caption>
April 30, October 31,
2002 2001
----------- -----------
(unaudited)
Raw materials, parts and subassemblies ..................................... $ 17,097 $ 15,186
Work-in-process ............................................................ 7,403 6,239
Total inventories .......................................................... $ 24,500 $ 21,425
=========== ===========
</Table>
Property, plant and equipment is summarized below (in thousands):
<Table>
<Caption>
April 30, October 31,
2002 2001
----------- -----------
(unaudited)
Land ....................................................................... $ 5,391 $ 5,232
Buildings and improvements ................................................. 30,990 30,952
Machinery and equipment .................................................... 33,102 31,559
Furniture & fixtures ....................................................... 2,764 3,829
Construction in process .................................................... 13,204 4,985
----------- -----------
85,451 76,557
Less-accumulated depreciation .............................................. (41,251) (39,148)
----------- -----------
Total property, plant and equipment, net ................................... $ 44,200 $ 37,409
=========== ===========
</Table>
The components of cost and estimated earnings in excess of billings (in
thousands):
<Table>
<Caption>
April 30, October 31,
2002 2001
----------- -----------
(unaudited)
Costs and estimated earnings ............................................... $ 152,192 $ 156,822
Progress billings .......................................................... (119,730) (120,658)
----------- -----------
Total costs and estimated earnings in excess of billings ................... $ 32,462 $ 36,164
=========== ===========
</Table>
The components of billings in excess of cost and estimated earnings (in
thousands):
<Table>
<Caption>
April 30, October 31,
2002 2001
----------- -----------
(unaudited)
Progress billings .......................................................... $ 139,517 $ 111,963
Costs and estimated earnings ............................................... (126,281) (97,105)
----------- -----------
Total billings in excess of costs and estimated earnings ................... $ 13,236 $ 14,858
=========== ===========
</Table>
8
C. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<Table>
<Caption>
Three Months Ended April 30, Six Months Ended April 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Numerator:
Numerator for basic and diluted earnings per
share-earnings from operations
available to common stockholders .......................... $ 4,514 $ 3,121 $ 8,249 $ 5,005
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per share-
weighted average shares .................................... 10,457 10,343 10,452 10,330
Effect of dilutive securities-employee stock options ........ 228 132 224 149
----------- ----------- ----------- -----------
Denominator for diluted earnings per share-
adjusted weighted-average shares with assumed
conversions ............................................... 10,685 10,475 10,676 10,479
=========== =========== =========== ===========
Basic earnings per share ........................................ $ 0.43 $ 0.30 $ 0.79 $ 0.48
=========== =========== =========== ===========
Diluted earnings per share ...................................... $ 0.42 $ 0.30 $ 0.77 $ 0.48
=========== =========== =========== ===========
</Table>
For the quarters ended April 30, 2002 and 2001 there were no exercisable
stock options excluded from the computation of diluted earnings per share
because the options' exercise prices were greater that the average market
price of the Company's common stock.
D. COMPREHENSIVE INCOME
The Company adopted SFAS No. 133 as amended on November 1, 2000.
Accordingly on that date, the Company recorded an asset of $192,000
representing the fair value of its interest rate swap agreement, which is
used by the Company in the management of interest rate exposure. The
Company also realized this amount as a component of comprehensive income.
The Company's comprehensive income, which encompasses net income and the
change in fair value of hedge instruments, is as follows (in thousands):
<Table>
<Caption>
Three Months Ended April 30, Six Months Ended April 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
(unaudited) (unaudited)
Net income .................................. $ 4,514 $ 3,121 $ 8,249 $ 5,005
Initial adoption of SFAS 133 ................ -- 192 -- 192
Change in fair value of hedge instrument .... 12 (56) 47 (232)
------------- ------------- ------------- -------------
Comprehensive income ........................ $ 4,526 $ 3,257 $ 8,296 $ 4,965
============= ============= ============= =============
</Table>
E. BUSINESS SEGMENTS
The Company has three reportable segments: Switchgear and related equipment
and service (Switchgear) for the distribution, control and management of
electrical energy, Bus duct products (Bus Duct) for the distribution of
electric power, and Process Control Systems which consists principally of
instrumentation, computer control, communications and data management
systems for the control of dynamic processes.
The tables below reflect certain information relating to the Company's
operations by segment. Substantially all revenues represent sales to
unaffiliated customers. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies
as discussed in the Company's annual report on Form 10-K for the year ended
October 31, 2001.
9
For purposes of this presentation, all general corporate expenses have been
allocated among operating segments based primarily on revenues. In
addition, the corporate assets are mainly cash and cash equivalents
transferred to the corporate office from the segments. Interest charges and
credits to the segments from the corporate office are based on use of
funds.
The required disclosures for the business segments are set forth below (in
thousands):
<Table>
<Caption>
Three Months Ended April 30, Six Months Ended April 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
(unaudited) (unaudited)
Revenues:
Switchgear ............................................. $ 65,535 $ 50,831 $ 127,298 $ 90,354
Bus Duct ............................................... 9,569 10,842 18,933 20,004
Process Control Systems ................................... 5,182 7,046 10,542 13,512
------------- ------------- ------------- -------------
Total Revenues ............................................ $ 80,286 $ 68,719 $ 156,773 $ 123,870
============= ============= ============= =============
Earnings from operations before income taxes:
Switchgear ............................................. $ 5,895 $ 3,004 $ 10,459 $ 4,152
Bus Duct ............................................... 1,424 1,748 2,502 3,381
Process Control Systems ................................ (232) 122 (9) 215
------------- ------------- ------------- -------------
Total earnings from operations before income taxes ........ $ 7,087 $ 4,874 $ 12,952 $ 7,748
============= ============= ============= =============
</Table>
<Table>
<Caption>
April 30, October 31,
2002 2001
------------- -------------
(unaudited)
Assets
Switchgear .......................... $ 124,210 $ 134,872
Bus Duct ............................ 21,775 21,576
Process Control Systems ............. 16,077 17,579
Corporate ........................... 19,121 12,334
------------- -------------
Total Assets ........................... $ 181,183 $ 186,361
============= =============
</Table>
10
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENT
Any forward-looking statements contained in this Form 10-Q are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that such forward-looking statements involve risks
and uncertainty; in that, actual results may differ materially from those
projected in the forward-looking statements. These risks and uncertainties
include, without limitation, difficulties which could arise in obtaining
materials or components in sufficient quantities as needed for the Company's
manufacturing and assembly operations, unforeseen political or economic problems
in countries to which the Company exports its products in relation to the
Company's principal competitors, any significant decrease in the Company's
backlog of orders, any material employee relations problems, or any material
litigation or claims made against the Company, as well as general market
conditions, competition and pricing.
CRITICAL ACCOUNTING POLICIES
In response to the Security and Exchange Commission Release No. 33-8040,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies," the
Company has identified the accounting principles which it believes are most
critical to the Company's reported financial status by considering accounting
policies that involve the most complex or subjective decisions or assessments.
Management identified the Company's most critical accounting policies to be
those related to the percentage-of-completion revenue recognition method.
Revenue from construction and certain production contracts are recognized in
accordance with the American Institute of Certified Public Accountants Statement
of Position 81-1 "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts". Percentage-of-completion for contracts is measured
principally by the percentage of costs incurred and accrued to date for each
contract compared to the estimated total costs for such contract for the year.
Contracts are generally considered to be substantially complete upon acceptance
by the customer. Changes in job performance, job conditions, estimated contract
costs and profitability may result in revisions in the period in which the
revisions are determined. Provisions for total estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain items from
the Condensed Consolidated Statements of Operations.
<Table>
<Caption>
April 30, 2002 April 30, 2001
------------------------------ ------------------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
------------- ------------- ------------- -------------
Revenues 100.0% 100.0% 100.0% 100.0%
Gross profit 21.5 21.0 20.7 20.5
Selling, general and administrative
expenses 12.4 12.3 13.5 14.2
Interest expense, net 0.3 0.4 0.1 0.1
Earnings from operations before income
taxes 8.8 8.3 7.1 6.3
Income tax provision 3.2 3.0 2.6 2.3
Net earnings 5.6 5.3 4.5 4.0
</Table>
11
The following table sets forth the percentage of total revenues attributable to
each business segment:
<Table>
<Caption>
April 30, 2002 April 30, 2001
------------------------------ ------------------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
------------- ------------- ------------- -------------
Revenues:
Switchgear 82% 81% 74% 73%
Bus Duct 12% 12% 16% 16%
Process Control Systems 6% 7% 10% 11%
------------- ------------- ------------- -------------
Total 100% 100% 100% 100%
</Table>
Revenues for the quarter ended April 30, 2002 were up 16.8 percent to
$80,286,000 from $68,719,000 in the second quarter of last year. The increase in
revenues for the quarter was attributed to the Switchgear products segment
experiencing an increased demand for our products and services from the domestic
electric utility markets both public and private. Revenues for the six months
ended April 30, 2002, were up 26.6 percent to $156,773,000 from $123,870,000.
The increase in revenues for the six months was attributed to the Switchgear
products segment experiencing an increased demand for our products and services
from the domestic electric utility markets both public and private. This
increase was partially offset by lower revenues from the Process Control segment
due to a shift of value added professional work which has less pass through
charges.
Gross profit, as a percentage of revenues, was 21.5 percent and 20.7 percent for
the quarter ended April 30, 2002 and 2001, respectively. The higher percentages
for the quarter were mainly due to increased margins for Switchgear products and
the benefits of lean manufacturing techniques. Gross profit, as a percentage of
revenues, was 21.0 percent and 20.5 percent for the six months ended April 30,
2002 and 2001, respectively. The slightly higher percentages for the six months
were mainly due to price stabilization for Switchgear products and increased
margins from Bus Duct products as well as the benefits of lean manufacturing
techniques. This is partially offset by lower margins for the Process Control
segment due to costs being expensed on contracts awaiting change orders.
Selling, general and administrative expenses as a percentage of revenues were
12.4 percent and 13.5 percent for the quarter ended April 30, 2002 and 2001,
respectively. The lower percentages for the quarter were due to lower salaries
and selling expenses, partially offset by increasing medical benefits. Selling,
general and administrative expenses as a percent of revenues were 12.3 percent
and 14.2 percent for the six months ended April 30, 2002 and 2001, respectively.
The lower percentages for the six months were due to lower salaries, selling
expenses and legal expenses.
Interest expense (income) is shown in the following schedule (in thousands):
<Table>
<Caption>
April 30, 2002 April 30, 2001
------------------------------ ------------------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
------------- ------------- ------------- -------------
Expense ............ $ 320 $ 676 $ 180 $ 286
Income ............. (57) (108) (89) (208)
------------- ------------- ------------- -------------
Net ................ $ 263 $ 568 $ 91 $ 78
============= ============= ============= =============
</Table>
Interest expense for the second quarter of 2002 and 2001 was primarily related
to bank notes payable at rates between 1.5 percent and 5.2 percent. Sources of
the interest income were related to notes receivable and short-term investment
of available funds at various rates between 0.8 percent and 7.0 percent.
Income tax provision is represented by an effective tax rate on earnings of 36.3
percent and 36.0 percent for the quarters ended April 30, 2002 and 2001,
respectively. The increase was due to lower estimated foreign sales corporation
credits because of lower export sales compared to the prior year. The effective
tax rate on earnings was 36.3 percent and 35.4 percent for the six-months ended
April 30, 2002 and 2001, respectively. This increase for the six months was also
due to lower estimated foreign sales corporation credits because of lower export
sales compared to the prior year.
Net earnings were $4,514,000 or $0.42 per diluted share for the second quarter
of fiscal 2002, an increase of 44.6 percent from $3,121,000 or $0.30 per diluted
share for the same period last year. The increase was mainly due to higher
volume and gross margins in the Switchgear segment. This is partially offset by
lower earnings for the Process Control segment due to costs being expensed on
contracts
12
awaiting change orders. Net earnings were $8,249,000 or $0.77 per diluted share
for the first six months of fiscal 2002, an increase of 64.8 percent from
$5,005,000 or $0.48 per diluted share for the same period last year. The
increase was also due to significantly higher volume and increased gross margins
in the Switchgear segment.
Backlog at April 30, 2002 was $221,722,000 compared to $213,349,000 and
$208,938,000 at January 31, 2002, and at October 31, 2001, respectively, an
increase of $8,373,000 for the three months and $12,784,000 for the six months.
The increase in backlog was primarily in the Switchgear segment due to increased
bookings from the domestic electric utility markets both public and private.
This was partially offset by lower demand in the Bus Duct segment.
The following table sets forth the value of total backlog attributable to each
business segment (in thousands):
<Table>
<Caption>
April 30, January 31, October 31,
2002 2002 2001
------------- ------------- -------------
Switchgear .............. $ 153,083 $ 145,905 $ 137,361
Bus Duct ................ 24,816 25,952 30,232
Process Control ......... 43,823 41,492 41,345
------------- ------------- -------------
Total .............. $ 221,722 $ 213,349 $ 208,938
============= ============= =============
</Table>
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to satisfy its cash requirements is evaluated by analyzing
key measures of liquidity applicable to the Company. The following table is a
summary of the measures which are significant to management:
<Table>
<Caption>
April 30, October 31,
2002 2001
------------- -------------
Working Capital $ 80,875,000 $ 88,981,000
Current Ratio 2.64 to 1 2.66 to 1
Long-term Debt to Capitalization .1 to 1 .2 to 1
</Table>
Management believes that the Company continues to maintain a strong liquidity
position. The $8,106,000 decrease in working capital during the six months ended
April 30, 2002 reflects the Company's effort to reduce investment in trade
accounts receivable.
Cash and cash equivalents increased by $9,375,000 during the three months ended
April 30, 2002, primarily through earnings and collections on accounts
receivable. The primary use of cash during this period was to fund investing
activities and reduce net borrowings on the revolving line of credit.
On April 30, 2001, the Board of Directors approved the Company's planned plant
expansion in the Chicago operations of the Bus Duct segment. The Company expects
to invest a total of approximately $9.0 million during fiscal 2001 and 2002 on
this project. Approximately $8,400,000 has been expended to date. On June 15,
2001, the Board of Directors approved planned plant expansion in the North
Canton, Ohio and Houston, Texas operations of the Switchgear segment. The
Company expects to invest a total of approximately $8.6 million during fiscal
2002 on this project. Approximately $4,000,000 has been expended to date.
In September 1998, the Company amended a revolving line of credit agreement with
a major domestic bank. The amendment provided for a $10,000,000 term loan and a
revolving line of credit of $20,000,000. The term of the loan was five years
with nineteen equal quarterly payments of $357,143 and a final payment of the
remaining principal balance on September 30, 2003. The effective interest rate,
after including an interest rate swap negotiated with the trust company of the
same domestic bank, is 5.2 percent per annum plus a .75 to 1.25 percent fee
based on financial covenants. In December 1999 the revolving line of credit was
amended to reduce the revolving line of credit to $15,000,000. In October 2001,
the credit agreement was amended and restated to increase the revolving line of
credit to $25,000,000 and to extend the maturity date to February 28, 2003. As
of April 30, 2002 the Company had no outstanding borrowings on this line of
credit.
A Company subsidiary ("Borrower") borrowed $8 million on October 25, 2001,
through a loan agreement funded with proceeds from certain tax-exempt industrial
development revenue bonds ("Bonds"). The Bonds were issued by the Illinois
Development Finance Authority and are to be used strictly for the completion of
the Company's Northlake, Illinois production facility. A reimbursement agreement
between the Borrower and a major U.S. bank, required an issuance by the bank of
an irrevocable direct-pay letter of credit to the Bonds' trustee that guarantees
payment of the Bonds' principal and interest when due. The letter of credit
terminates on October 25, 2004,
13
and is subject to both early termination and extension provisions customary to
such agreements. The Bonds mature in 2021, but the reimbursement agreement
requires Borrower to provide for redemption of one twentieth of the par amount
of the Bonds on October 25, 2002, and each subsequent anniversary. A sinking
fund equal to one twentieth of the total Bonds outstanding will be funded by the
Company each year for 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.
The Company had a stock repurchase plan under which the Company was authorized
to spend up to $5,000,000 for purchases of its common stock. Pursuant to this
plan, the Company repurchased 530,100 shares of its common stock at an aggregate
cost of approximately $4,887,000 through April 30, 2001. Repurchased shares were
added to treasury stock and 27,350 have been used this fiscal year for issuance
under the Company's employee stock option plan. No additional shares will be
purchased under this plan.
The Company believes the current credit facilities, coupled with the Company's
additional borrowing capacity, along with cash generated from operations, will
be sufficient to fund the Company's current operations, internal growth and
possible acquisitions.
OTHER COMMITMENTS
The Company has other commitments, as is common in our industry, which are not
entered into our Balance Sheet and expose the company to increased financial
risks. Significant off balance sheet transactions include liabilities associated
with noncancelable operating leases, letter of credit obligations and surety
guarantees.
Non-cancelable operating leases are entered into for certain offices,
facilities, equipment and vehicles that are not owned and require monthly lease
rental fees. At the end of the lease, there is no further obligation to the
lessor and many leases have cancellation and termination clauses prior to
reaching the end of the lease. A cancelled or terminated lease may contain fees
for canceling before reaching the final termination date. This amount is
typically the difference between the fair market value of the leased asset and
the implied book value of the leased asset as determined in accordance with the
lease agreement.
At April 30, 2002, the minimum annual rental commitments under leases having
terms in excess of one year and annual maturities of long-term debt and capital
obligations are as follows (in thousands):
<Table>
<Caption>
Year Ending Operating Debt & Capital
October 31 Leases Obligations
---------------------------------------- ------------- -------------
2002 ................................ 1,559 714
2003 ................................ 870 4,286
2004 ................................ 655 --
2005 ................................ 450 --
2006 ................................ 295 --
Thereafter .......................... 294 8,000
------------- -------------
Total lease commitments/debt
and capital obligations ........ $ 4,123 $ 13,000
============= =============
</Table>
Certain customers require us to post a bank letter of credit guarantee or
performance bonds issued by a surety. These assure our customers that we will
perform under terms of our contract and with associated vendors and
subcontractors. In the event of default the customer 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. The Company is contingently liable for secured and unsecured
letters of credit of $12,212,000 as of April 30, 2002. The Company also had
performance bonds totaling approximately $165,346,000 that were outstanding at
April 30, 2002.
The previous discussion should be read in conjunction with the consolidated
financial statements.
14
Part 1
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments include cash and equivalents, accounts
receivable, accounts payable, debt obligations and an interest rate swap. The
book value of cash and cash equivalents, accounts receivable and accounts
payable are considered to be representative of fair value because of the short
maturity of these instruments. The Company believes that the carrying value of
its borrowings under the credit agreement approximates their fair value as they
bear interest at rates indexed to the bank's interbank offered rate. The
Company's accounts receivable are not concentrated in one customer or one
industry and are not viewed as an unusual credit risk. The Company had recorded
an allowance for doubtful accounts of $601,000 at April 30, 2002 and $551,000 at
October 31, 2001, respectively, which management believes is adequate.
The interest rate swap agreement, which is used by the Company in the management
of interest rate exposure, is accounted for on the accrual basis. Income and
expense resulting from this agreement is recorded in the same category as
interest expense accrued on the related term note. Amounts to be paid or
received under the interest rate swap agreement are recognized as adjustments to
interest expense in the periods in which they occur.
At April 30, 2002 the Company had $5,000,000 in borrowings subject to the
interest rate swap at a rate of 5.20 percent through September 30, 2003. The
5.20 percent rate is currently approximately 3.3 percent above market and should
represent approximately $165,000 of increased interest expense for fiscal year
2002 assuming the current market interest rates do not change. The approximate
fair value of the swap agreement at April 30, 2002 is ($93,000). The fair value
is the estimated amount the Company would pay to terminate the contract. The
agreements require that the Company pay the counterparty at the above fixed swap
rate and require the counterparty to pay the Company interest at the 90 day
LIBOR rate. The closing 90 day LIBOR rate on April 30, 2002 was 1.9 percent.
15
Part II
OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is a party to disputes arising in the ordinary course of
business. Management does not believe that the ultimate outcome of
these disputes will materially affect the financial position of
results of operations of the Company.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on March 15,
2002, Ronald Wolny and Eugene L. Butler were elected as directors of
the Company with terms ending in 2005. The directors continuing in
office after the meeting are Thomas W. Powell, Lawrence R. Tanner,
Joseph L. Becherer. Steven W. Seale, Jr., Eugene L. Butler, and Robert
C. Tranchon. As to each nominee for director, the number of votes cast
for or withheld, as well as the number of abstentions and broker
non-votes, were as follows:
<Table>
<Caption>
Nominee Votes Cast for Votes Cast Against Votes Withheld Abstentions Non-Votes
------- -------------- ------------------ -------------- ----------- ---------
Eugene L Butler 9,784,350 29,350 --- --- 643,494
Ronald J. Wolny 9,784,350 29,350 --- --- 643,494
</Table>
At the annual meeting, the stockholders also approved and ratified the
actions of the directors and officers of the Company during fiscal
2001 as the acts of the Company. The number of votes cast for,
against, or withheld, as well as the number of abstentions and broker
non-votes, with respect to such matter was as follows:
<Table>
<Caption>
Votes Cast for Votes Cast Against Votes Withheld Abstentions Non-Votes
-------------- ------------------ -------------- ----------- ---------
9,813,700 --- --- --- 643,494
</Table>
Also at the annual meeting, the stockholders approved the Company's
Non Employee Directors Stock Option Plan, as amended by the Company's
Board of Directors on January 18, 2002. The number of votes cast for,
against or withheld, as well as the number abstentions and broker
non-votes, with respect to such matter was as follows:
<Table>
<Caption>
Votes Cast for Votes Cast Against Votes Withheld Abstentions Non-Votes
-------------- ------------------ -------------- ----------- ---------
9,361,178 210,735 --- 241,787 643,494
</Table>
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Powell Industries, Inc. Non-Employee Director Stock Option
Plan.
b. Reports on Form 8-K
None
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWELL INDUSTRIES, INC.
Registrant
May 22, 2002 /s/ THOMAS W. POWELL
- ------------ ------------------------------------------
Date Thomas W. Powell
President and Chief Executive Officer
(Principal Executive Officer)
May 22, 2002 /s/ DON R. MADISON
- ------------ ------------------------------------------
Date Don R. Madison
Vice President and Chief Financial Officer
(Principal Financial Officer)
17
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Powell Industries, Inc. Non-Employee Director Stock Option Plan.
</Table>