1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 31, 1997
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
________________________ to ______________________
COMMISSION FILE NUMBER 0-6050
POWELL INDUSTRIES, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0106100
- -------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8550 Mosley Drive, Houston, Texas 77075-1180
- -------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 944-6900
-----------------------------
Indicate by "X" whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Common Stock, par value $.01 per share; 10,638,209 shares outstanding on August
31, 1997.
2
POWELL INDUSTRIES, INC.
PART I - Financial Information
Item 1. Financial Statements ................................ 3 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Quarterly
Results of Operations............................. 9 - 10
PART II - Other Information and Signatures ............................ 11 - 12
3
Powell Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share Data)
July 31, October 31,
Assets 1997 1996
(unaudited)
--------- --------
Current Assets:
Cash and cash equivalents ................................................ $ 6,239 $ 8,935
Accounts receivable, less allowance for doubtful accounts
of $692 and $777, respectively ........................................ 36,332 37,013
Costs and estimated earnings in excess of billings ....................... 17,479 13,934
Inventories .............................................................. 19,235 14,114
Deferred income taxes .................................................... 1,414 2,572
Income taxes receivable .................................................. -- 876
Prepaid expenses and other current assets ................................ 1,693 1,700
--------- --------
Total Current Assets ................................................... 82,392 79,144
Property, plant and equipment, net ......................................... 23,760 14,602
Deferred income taxes ...................................................... 1,585 1,164
Other assets ............................................................... 4,915 4,613
--------- --------
Total Assets ........................................................... $ 112,652 $ 99,523
========= ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts and income taxes payable ........................................ $ 13,080 $ 8,543
Accrued salaries, bonuses and commissions ................................ 5,513 5,687
Accrued product warranty ................................................. 1,619 1,614
Accrued legal expenses ................................................... 3,859 3,903
Other accrued expenses ................................................... 2,670 3,717
Billings in excess of costs and estimated earnings ....................... 10,588 5,425
Current maturities of debt ............................................... -- 3,750
--------- --------
Total Current Liabilities .............................................. 37,329 32,639
Deferred compensation expense .............................................. 1,426 2,157
Postretirement benefits liability .......................................... 1,427 1,502
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; 10,616,203 and
10,604,644, respectively, shares issued and outstanding ............... 106 106
Additional paid-in capital ............................................... 5,566 5,601
Retained earnings ........................................................ 70,016 60,943
Deferred compensation-ESOP ............................................... (3,218) (3,425)
--------- --------
Total Stockholders' Equity ............................................. 72,470 63,225
--------- --------
Total Liabilities and Stockholders' Equity ............................. $ 112,652 $ 99,523
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
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4
Powell Industries, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended July 31,
------------------------------
1997 1996
------------ ------------
Revenues ................................................................. $ 46,062 $ 45,838
Cost of goods sold ....................................................... 34,342 33,624
------------ ------------
Gross profit ............................................................. 11,720 12,214
Selling, general and administrative expenses ............................. 7,027 7,462
------------ ------------
Earnings from continuing operations before interest and income taxes ..... 4,693 4,752
Interest expense (income), net ........................................... (196) 29
------------ ------------
Earnings from continuing operations before income taxes .................. 4,889 4,723
Income tax provision ..................................................... 1,457 1,677
------------ ------------
Earnings from continuing operations ...................................... $ 3,432 $ 3,046
Discontinued operations (net of income taxes):
Loss from operations ................................................... -- (3,824)
Loss on disposal of discontinued operations ............................ -- (1,682)
------------ ------------
Net earnings (loss) ...................................................... $ 3,432 ($ 2,460)
============ ============
Earnings (loss) per common and common equivalent share:
Continuing operations .................................................. $ 0.32 $ 0.28
Discontinued operations ................................................ -- (0.51)
------------ ------------
Net earnings (loss) per common and common equivalent share ............... $ 0.32 ($ 0.23)
============ ============
Weighted average number of common and common equivalent shares outstanding 10,853,402 10,759,428
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
5
Powell Industries, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
(In Thousands, Except Per Share Data)
Nine Months Ended July 31,
------------------------------
1997 1996
------------ ------------
Revenues ................................................................. $ 137,628 $ 128,320
Cost of goods sold ....................................................... 103,078 96,125
------------ ------------
Gross profit ............................................................. 34,550 32,195
Selling, general and administrative expenses ............................. 21,449 19,930
------------ ------------
Earnings from continuing operations before interest and income taxes ..... 13,101 12,265
Interest expense (income), net ........................................... (431) 154
------------ ------------
Earnings from continuing operations before income taxes .................. 13,532 12,111
Income tax provision ..................................................... 4,458 4,293
------------ ------------
Earnings from continuing operations ...................................... $ 9,074 $ 7,818
Discontinued operations (net of income taxes):
Loss from operations ................................................... -- (4,270)
Loss on disposal of discontinued operations ............................ -- (1,682)
------------ ------------
Net earnings (loss) ...................................................... $ 9,074 $ 1,866
============ ============
Earnings (loss) per common and common equivalent share:
Continuing operations .................................................. $ 0.84 $ 0.73
Discontinued operations ................................................ -- (0.56)
------------ ------------
Net earnings per common and common equivalent share ...................... $ 0.84 $ 0.17
============ ============
Weighted average number of common and common equivalent shares outstanding 10,849,362 10,747,130
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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6
Powell Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(In Thousands)
Nine Months Ended July 31,
--------------------------
1997 1996
-------- --------
Operating Activities:
Net earnings .......................................................... $ 9,074 $ 1,866
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization ....................................... 2,475 3,211
Deferred income taxes ............................................... 737 244
Gain on sale of U.S. Turbine Corp. .................................. -- (87)
Postretirement benefits liability ................................... -- (430)
Changes in operating assets and liabilities:
Accounts receivable ............................................... 681 (13,261)
Costs and estimated earnings in excess of billings ................ (3,545) (1,855)
Inventories ....................................................... (5,121) (530)
Prepaid expenses and other current assets ......................... 7 503
Other assets ...................................................... (422) (350)
Accounts payable and income taxes payable or receivable ........... 5,413 (470)
Accrued liabilities ............................................... (1,260) 3,735
Billings in excess of costs and estimated earnings ................ 5,163 2,323
Deferred compensation expense ..................................... (803) 353
Changes in net assets of discontinued operations .................. 31 10,838
-------- --------
Net cash provided by operating activities ............................... 12,430 6,090
-------- --------
Investing Activities:
Purchases of property, plant, and equipment ........................... (11,341) (2,089)
Proceeds from sale of the assets of U.S. Turbine Corp. ................ -- 3,430
-------- --------
Net cash provided by investing activities ............................... (11,341) 1,341
-------- --------
Financing Activities:
Payments of long-term debt ............................................ (3,750) (2,813)
Issuance of note receivable ........................................... -- (500)
Exercise of stock options and grants .................................. (35) 285
-------- --------
Net cash used in financing activities ................................... (3,785) (3,028)
Net increase (decrease) in cash and cash equivalents .................... (2,696) 4,403
Cash and cash equivalents at beginning of period ........................ 8,935 2,796
-------- --------
Cash and cash equivalents at end of period .............................. $ 6,239 $ 7,199
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the quarter for:
Interest ........................................................... $ 195 $ 711
Income taxes ....................................................... $ 1,500 $ 3,000
The accompanying notes are an integral part of these consolidated financial
statements.
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Part I
Item 1
POWELL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in the opinion
of management, reflect all adjustments which are of a normal recurring nature
necessary for a fair presentation of financial position, results of operations,
and cash flows. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the company's October
31, 1996 annual report on Form 10K.
B. INVENTORY
July 31, October 31,
1997 1996
(Unaudited)
------- -------
The components of inventory are summarized below (in thousands):
Raw materials and subassemblies $10,246 $ 8,118
Work-in-process ............... 8,989 5,996
------- -------
Total inventories ............. $19,235 $14,114
======= =======
C. PROPERTY, PLANT AND EQUIPMENT
July 31, October 31,
1997 1996
(Unaudited)
-------- --------
Property, plant and equipment are summarized below (in thousands):
Land ................................... $ 2,718 $ 2,362
Buildings and improvements ............. 13,649 13,255
Machinery and equipment ................ 22,910 21,157
Furniture & fixtures ................... 3,052 2,923
Construction in process ................ 10,263 1,869
-------- --------
52,592 41,566
Less-accumulated depreciation .......... (28,832) (26,964)
-------- --------
Total property, plant and equipment, net $ 23,760 $ 14,602
======== ========
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8
D. Production Contracts
For contracts in which the percentage-of-completion method is used, costs
and estimated earnings in excess of billings are shown as a current asset
and billings in excess of costs and estimated earnings are shown as a
current liability.
The components of these contracts are as follows (in thousands):
July 31, October 31,
1997 1996
(unaudited)
-------- --------
Costs and estimated earnings ........................... $ 81,966 $ 45,559
Progress billings ...................................... (64,487) (31,625)
-------- --------
Total costs and estimated earnings in excess of billings $ 17,479 $ 13,934
======== ========
Progress billings ...................................... $ 63,233 $ 50,667
Costs and estimated earnings ........................... (52,645) (45,242)
-------- --------
Total billings in excess of costs and estimated earnings $ 10,588 $ 5,425
======== ========
E. New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS
No. 128 revises the methodology to be used in computing earnings per share
(EPS) such that the computations required for primary and fully diluted EPS are
to be replaced with "basic" and "diluted" eps. Basic EPS is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the year. Diluted EPS is computed in the same manner as
fully diluted EPS, except that, among other changes, the average share price
for the period is used in all cases when applying the treasury stock method to
potentially dilutive outstanding options.
The Company will adopt SFAS No. 128 effective January 31, 1998, and will
restate EPS for all periods presented. The Company anticipates that the amounts
reported for basic EPS for the unaudited three months ended July 31, 1997 and
1996 will be $.32 and $.29, respectively. The Company anticipates that the
amounts reported for diluted EPS for the unaudited three months ended July 31,
1997 and 1996 will be $.32 and $.28, respectively. The Company anticipates the
amounts reported for the basic EPS for the unaudited nine months ended July 31,
1997 and 1996 will be $.86 and $.74, respectively. The Company anticipates the
amounts reported for diluted EPS for this same nine month period will be $.84
and $.73, respectively.
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9
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain items from
the Consolidated Statements of Operations.
July 31, 1997 July 31, 1996
------------------------------------------------------
three months nine months three months nine months
ended ended ended ended
------------ ----------- ------------ -----------
Revenues 100.0% 100.0% 100.0% 100.0%
Gross profit 25.4 25.1 26.6 25.1
Selling, general and administrative
expenses 15.3 15.6 16.3 15.5
Earnings from continuing operations
before income taxes 10.6 9.8 10.3 9.4
Income tax provision 3.2 3.2 3.7 3.3
Earnings from continuing operations 7.4 6.6 6.6 6.1
Revenues for the quarter ended July 31, 1997 were up slightly to $46,062,000
from $45,838,000 in the third quarter of last year. Revenues for the nine
months ended July 31, 1997 were up seven percent to $137,628,000 from
$128,320,000 in the first nine months of last year. This improvement in
revenues has been the result of increased export shipments.
Gross profit, as a percentage of revenues, was 25.4 percent and 26.6 percent
for the quarters ended July 31, 1997 and 1996. The gross profit percentage for
the nine months ended July 31, 1997 and 1996 was 25.1 percent for both periods.
The lower percentage in the third quarter of 1997 was due to changes in product
mix shipped during 1997.
Selling, general and administrative expenses as a percentage of revenues were
15.3 percent and 16.3 percent for the quarters ended July 31, 1997 and 1996.
These percentages for the nine months ended July 31, 1997 and 1996 were 15.6
percent and 15.5 percent, respectively. The decrease in percentages reflects
lower administrative expenses and legal accruals.
Income tax provision The effective tax rate was 31.6 percent and 36.6 percent
for the quarters ended July 31, 1997 and 1996, respectively. For the nine
months ended July 31, 1997 and 1996 the effective tax rate was 32.4 percent and
33.5 percent, respectively. The decrease was primarily due to lower projected
tax rates for 1997 due to an increased level of foreign sales credits.
Earnings from continuing operations were $3,432,000 or $.32 per share for the
third quarter of fiscal 1997, an increase of 13 percent from $3,046,000 or $.28
per share for the same period last year. This improvement in earnings was
mainly due to lower administrative expense, interest income and lower effective
tax rates. For the nine months ended July 31, 1997, net earnings were
$9,074,000 or $.84 per share, compared with $7,818,000 or $.73 per share for
the first nine months of fiscal 1996, an increase of 16 percent.
Backlog
The order backlog at July 31, 1997 was $137.1 million compared to $106.5
million at October 31, 1996.
9
10
LIQUIDITY AND CAPITAL RESOURCES
In August 1997, the Company entered into a $20,000,000 revolving line of credit
agreement with a major domestic bank. As of July 31, 1997, the Company had no
borrowing outstanding and letters of credits outstanding of $8,667,000 that
will be transferred to this new line .
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:
July 31, October 31,
1997 1996
--------------- ---------------
Working Capital $ 45,063,000 $ 46,505,000
Current Ratio 2.2 to 1 2.4 to 1
Debt to Capitalization no debt .1 to 1
Management believes that the Company continues to maintain a strong liquidity
position. The small decrease in working capital at July 31, 1997, as compared
to October 31, 1996 is due mainly to an increase in inventory offset by an
increase in accounts payable.
Cash and cash equivalents decreased $2,696,000 during the nine months ended
July 31, 1997. The primary use of cash, during this period, was for capital
expenditures related to the plant expansion at three operating facilities. This
use of cash was the main reason for the reduction in the current ratio at July
31, 1997.
Capital Expenditures totaled $11,341,000 for the nine months ended July 31,
1997, compared to $2,089,000 during the same period in 1996. The facilities
expansion programs approved in 1996 are projected to be completed within the
$12,000,000 budgeted.
The Company's fiscal 1997 asset management program will continue to focus on
the collection of receivables and reduction in inventories. The Company plans
to satisfy its fiscal 1997 capital requirements and operating needs primarily
with funds available in cash and cash equivalents of $6,239,000, funds
generated from operating activities and funds available under its existing new
revolving credit line.
The previous discussion should be read in conjunction with the consolidated
financial statements.
Any forward looking statements in the preceding paragraphs of this Form 10Q 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.
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Part II
OTHER INFORMATION
ITEM 1. Legal Proceedings
Reference is made to the Company's Form 10Q for the quarter
ended April 30, 1997 reporting developments in the legal
proceedings between the Company and National Westminster
Bank, plc.
ITEM 2. Changes in Securities
None not previously reported
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None not previously reported
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.5 Business Loan Agreement dated August 21, 1997 between
Bank of America Texas,
N.A. and Powell Industries, Inc.
27.0 Financial Data Schedule
b. Reports on Form 8K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWELL INDUSTRIES, INC.
Registrant
September 12, 1997
Date --------------------------------------------
J.F. Ahart
Vice President,
Secretary-Treasurer
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.5 Business Loan Agreement dated August 21, 1997 between Bank
of America Texas, N.A. and Powell Industries, Inc.
27.0 Financial Data Schedule