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 <TABLE> <S> <C> 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 </TABLE>
3 Powell Industries, Inc. and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Share Data) <TABLE> <CAPTION> July 31, October 31, Assets 1997 1996 (unaudited) --------- -------- <S> <C> <C> 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 ========= ======== </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 3
4 Powell Industries, Inc. and Subsidiaries Consolidated Statements of Operations (unaudited) (In Thousands, Except Per Share Data) <TABLE> <CAPTION> Three Months Ended July 31, ------------------------------ 1997 1996 ------------ ------------ <S> <C> <C> 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 ============ ============ </TABLE> 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) <TABLE> <CAPTION> Nine Months Ended July 31, ------------------------------ 1997 1996 ------------ ------------ <S> <C> <C> 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 ============ ============ </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 5
6 Powell Industries, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (In Thousands) <TABLE> <CAPTION> Nine Months Ended July 31, -------------------------- 1997 1996 -------- -------- <S> <C> <C> 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 </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 6
7 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 <TABLE> <CAPTION> July 31, October 31, 1997 1996 (Unaudited) ------- ------- The components of inventory are summarized below (in thousands): <S> <C> <C> Raw materials and subassemblies $10,246 $ 8,118 Work-in-process ............... 8,989 5,996 ------- ------- Total inventories ............. $19,235 $14,114 ======= ======= </TABLE> C. PROPERTY, PLANT AND EQUIPMENT <TABLE> <CAPTION> July 31, October 31, 1997 1996 (Unaudited) -------- -------- Property, plant and equipment are summarized below (in thousands): <S> <C> <C> 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 ======== ======== </TABLE> 7
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): <TABLE> <CAPTION> July 31, October 31, 1997 1996 (unaudited) -------- -------- <S> <C> <C> 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 ======== ======== </TABLE> 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. 8
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. <TABLE> <CAPTION> July 31, 1997 July 31, 1996 ------------------------------------------------------ three months nine months three months nine months ended ended ended ended ------------ ----------- ------------ ----------- <S> <C> <C> <C> <C> Revenues 100.0% 100.0% 100.0% 100.0% Gross profit 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 </TABLE> 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: <TABLE> <CAPTION> July 31, October 31, 1997 1996 --------------- --------------- <S> <C> <C> 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 </TABLE> 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. 10
11 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 11
12 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)
13 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