Company Quick10K Filing
Powell Industries
Price38.97 EPS1
Shares12 P/E46
MCap453 P/FCF7
Net Debt-117 EBIT13
TEV336 TEV/EBIT27
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-06
10-Q 2019-12-31 Filed 2020-02-05
10-K 2019-09-30 Filed 2019-12-05
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-08
10-Q 2018-12-31 Filed 2019-02-06
10-K 2018-09-30 Filed 2018-12-12
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-09
10-Q 2017-12-31 Filed 2018-02-07
10-K 2017-09-30 Filed 2017-12-06
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-03
10-Q 2016-12-31 Filed 2017-02-08
10-K 2016-09-30 Filed 2016-12-07
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-04
10-Q 2015-12-31 Filed 2016-02-03
10-K 2015-09-30 Filed 2015-12-02
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-06
10-Q 2014-12-31 Filed 2015-02-04
10-K 2014-09-30 Filed 2014-12-03
10-Q 2014-06-30 Filed 2014-08-06
10-Q 2014-03-31 Filed 2014-05-07
10-Q 2013-12-31 Filed 2014-02-05
10-K 2013-09-30 Filed 2013-12-04
10-Q 2013-06-30 Filed 2013-08-07
10-Q 2013-03-31 Filed 2013-05-08
10-Q 2012-12-31 Filed 2013-02-06
10-K 2012-09-30 Filed 2012-12-05
10-Q 2012-06-30 Filed 2012-08-08
10-Q 2012-03-31 Filed 2012-05-09
10-Q 2011-12-31 Filed 2012-02-08
10-K 2011-09-30 Filed 2011-12-12
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-04
10-Q 2010-12-31 Filed 2011-02-02
10-K 2010-09-30 Filed 2010-12-08
10-Q 2010-06-30 Filed 2010-08-04
10-Q 2010-03-31 Filed 2010-05-05
10-Q 2009-12-31 Filed 2010-02-04
8-K 2020-08-04 Earnings, Other Events, Exhibits
8-K 2020-05-05
8-K 2020-02-21
8-K 2020-02-04
8-K 2019-12-04
8-K 2019-11-07
8-K 2019-10-03
8-K 2019-09-23
8-K 2019-08-06
8-K 2019-05-08
8-K 2019-05-07
8-K 2019-02-20
8-K 2019-02-05
8-K 2018-12-21
8-K 2018-12-11
8-K 2018-11-05
8-K 2018-10-31
8-K 2018-10-01
8-K 2018-08-07
8-K 2018-05-11
8-K 2018-05-08
8-K 2018-02-22
8-K 2018-02-06

POWL 10Q Quarterly Report

Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 powlexhibit311q32020.htm
EX-31.2 powlexhibit312q32020.htm
EX-32.1 powlexhibit321q32020.htm
EX-32.2 powlexhibit322q32020.htm

Powell Industries Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
54543632721810902012201420172020
Assets, Equity
1901511127435-22012201420172020
Rev, G Profit, Net Income
4018-4-26-48-702012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
Form 10-Q 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
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 001-12488 
 
Powell Industries, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
88-0106100
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
8550 Mosley Road
 

Houston
 
 
Texas
 
77075-1180
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(713) 944-6900
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
POWL
 
NASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes       No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No
At August 3, 2020, there were 11,614,613 outstanding shares of the registrant’s common stock, par value $0.01 per share.
 

1



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 


2



PART I — FINANCIAL INFORMATION 
Item 1. Condensed Consolidated Financial Statements

POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
 
June 30, 2020
 
September 30, 2019
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
156,026

 
$
118,639

Short-term investments
7,330

 
6,042

Accounts receivable, less allowance for doubtful accounts of $434 and $301
97,144

 
112,093

Contract assets
51,723

 
55,374

Inventories
31,663

 
29,202

Income taxes receivable
373

 
233

Prepaid expenses
4,009

 
4,335

Other current assets
1,883

 
2,650

Total Current Assets
350,151

 
328,568

Property, plant and equipment, net
114,826

 
120,812

Operating lease assets, net
5,542

 

Goodwill and intangible assets, net
1,205

 
1,337

Deferred income taxes
3,477

 
5,117

Other assets
11,997

 
11,577

Total Assets
$
487,198

 
$
467,411

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Current maturities of long-term debt
$
400

 
$
400

Accounts payable
38,512

 
51,180

Contract liabilities
97,969

 
71,464

Accrued compensation and benefits
18,618

 
20,182

Accrued product warranty
3,011

 
2,946

Current operating lease liabilities
2,306

 

Income taxes payable
425

 
913

Other current liabilities
9,258

 
10,811

Total Current Liabilities
170,499

 
157,896

Long-term debt, net of current maturities
400

 
800

Deferred compensation
6,524

 
6,447

Long-term operating lease liabilities
3,870

 

Other long-term liabilities
2,334

 
3,115

Total Liabilities
183,627

 
168,258

Commitments and Contingencies (Note F)

 

Stockholders' Equity:
 
 
 
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued

 

Common stock, par value $.01; 30,000,000 shares authorized; 12,420,631 and 12,372,766 shares issued, respectively
124

 
124

Additional paid-in capital
60,927

 
59,153

Retained earnings
294,052

 
289,422

Treasury stock, 806,018 shares at cost
(24,999
)
 
(24,999
)
Accumulated other comprehensive loss
(26,533
)
 
(24,547
)
Total Stockholders' Equity
303,571

 
299,153

Total Liabilities and Stockholders' Equity
$
487,198

 
$
467,411

 
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)
 
 
Three months ended June 30,
 
Nine months ended June 30,
 
2020
 
2019
 
2020
 
2019
Revenues
$
118,062

 
$
135,588

 
$
403,781

 
$
368,676

Cost of goods sold
96,718

 
111,873

 
330,926

 
310,255

Gross profit
21,344

 
23,715

 
72,855

 
58,421

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
15,511

 
17,117

 
51,372

 
50,240

Research and development expenses
1,605

 
1,631

 
4,863

 
4,988

Amortization of intangible assets
44

 
44

 
132

 
132

Insurance proceeds

 
(950
)
 

 
(950
)
Restructuring and other, net
1,400

 
233

 
1,400

 
233

Operating income
2,784

 
5,640

 
15,088

 
3,778

 
 
 
 
 
 
 
 
Interest expense
52

 
59

 
179

 
170

Interest income
(190
)
 
(305
)
 
(901
)
 
(707
)
Income before income taxes
2,922

 
5,886

 
15,810

 
4,315

 
 
 
 
 
 
 
 
Income tax provision (benefit)
(559
)
 
797

 
2,133

 
963

 
 
 
 
 
 
 
 
Net income
$
3,481

 
$
5,089

 
$
13,677

 
$
3,352

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.30

 
$
0.44

 
$
1.18

 
$
0.29

Diluted
$
0.30

 
$
0.44

 
$
1.17

 
$
0.29

 
 
 
 
 
 
 
 
Weighted average shares:
 
 
 
 
 
 
 
Basic
11,631

 
11,579

 
11,622

 
11,567

Diluted
11,698

 
11,603

 
11,686

 
11,589

 
 
 
 
 
 
 
 
Dividends per share
$
0.26

 
$
0.26

 
$
0.78

 
$
0.78

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


4



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In thousands)
 
 
 
Three months ended June 30,
 
Nine months ended June 30,
 
2020
 
2019
 
2020
 
2019
Net income
$
3,481

 
$
5,089

 
$
13,677

 
$
3,352

Foreign currency translation adjustments
2,543

 
952

 
(1,986
)
 
(1,416
)
Comprehensive income
$
6,024

 
$
6,041

 
$
11,691

 
$
1,936

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


5



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
Other
 
 
 
Common Stock
 
Paid-in
 
Retained
 
Treasury Stock
 
Comprehensive
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Shares
 
Amount
 
Income/(Loss)
 
Totals
Balance, September 30, 2019
12,373

 
$
124

 
$
59,153

 
$
289,422

 
(806
)
 
$
(24,999
)
 
$
(24,547
)
 
$
299,153

Net income

 

 

 
2,775

 

 

 

 
2,775

Foreign currency translation adjustments

 

 

 

 

 

 
2,387

 
2,387

Stock-based compensation
30

 

 
982

 

 

 

 

 
982

Shares withheld in lieu of employee tax withholding

 

 
(611
)
 

 

 

 

 
(611
)
Dividends paid

 

 

 
(3,013
)
 

 

 

 
(3,013
)
Balance, December 31, 2019
12,403

 
$
124

 
$
59,524

 
$
289,184

 
(806
)
 
$
(24,999
)
 
$
(22,160
)
 
$
301,673

Net income

 

 

 
7,421

 

 

 

 
7,421

Foreign currency translation adjustments

 

 

 

 

 

 
(6,916
)
 
(6,916
)
Stock-based compensation

 

 
968

 

 

 

 

 
968

Issuance of restricted stock
17

 

 

 

 

 

 

 

Dividends paid

 

 

 
(3,015
)
 

 

 

 
(3,015
)
Balance, March 31, 2020
12,420

 
$
124

 
$
60,492

 
$
293,590

 
(806
)
 
$
(24,999
)
 
$
(29,076
)
 
$
300,131

Net income

 

 

 
3,481

 

 

 

 
3,481

Foreign currency translation adjustments

 

 

 

 

 

 
2,543

 
2,543

Stock-based compensation
1

 

 
441

 

 

 

 

 
441

Shares withheld in lieu of employee tax withholding

 

 
(6
)
 

 

 

 

 
(6
)
Dividends paid

 

 

 
(3,019
)
 

 

 

 
(3,019
)
Balance, June 30, 2020
12,421

 
$
124

 
$
60,927

 
$
294,052

 
(806
)
 
$
(24,999
)
 
$
(26,533
)
 
$
303,571



























6



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
Other
 
 
 
Common Stock
 
Paid-in
 
Retained
 
Treasury Stock
 
Comprehensive
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Shares
 
Amount
 
Income/(Loss)
 
Totals
Balance, September 30, 2018
12,281

 
$
123

 
$
56,769

 
$
291,530

 
(806
)
 
$
(24,999
)
 
$
(21,779
)
 
$
301,644

Net loss

 

 

 
(2,695
)
 

 

 

 
(2,695
)
Foreign currency translation adjustments

 

 

 

 

 

 
(4,088
)
 
(4,088
)
Stock-based compensation
41

 

 
1,220

 

 

 

 

 
1,220

Shares withheld in lieu of employee tax withholding

 

 
(731
)
 

 

 

 

 
(731
)
Dividends paid

 

 

 
(2,992
)
 

 

 

 
(2,992
)
Balance, December 31, 2018
12,322

 
$
123

 
$
57,258

 
$
285,843

 
(806
)
 
$
(24,999
)
 
$
(25,867
)
 
$
292,358

Net income

 

 

 
958

 

 

 

 
958

Foreign currency translation adjustments
 

 
 

 
 

 
 

 
 

 
 

 
1,720

 
1,720

Stock-based compensation
17

 
1

 
669

 

 

 

 

 
670

Shares withheld in lieu of employee tax withholding
 

 
 

 
(416
)
 
 

 
 

 
 

 
 

 
(416
)
Issuance of restricted stock
14

 

 

 

 

 

 

 

Dividends paid

 

 

 
(2,996
)
 

 

 

 
(2,996
)
Balance, March 31, 2019
12,353

 
$
124

 
$
57,511

 
$
283,805

 
(806
)
 
$
(24,999
)
 
$
(24,147
)
 
$
292,294

Net income

 

 

 
5,089

 

 

 

 
5,089

Foreign currency translation adjustments

 

 

 

 

 

 
952

 
952

Stock-based compensation
6

 

 
331

 

 

 

 

 
331

Shares withheld in lieu of employee tax withholding

 

 
(4
)
 

 

 

 

 
(4
)
Dividends paid

 

 

 
(3,003
)
 

 

 

 
(3,003
)
Balance, June 30, 2019
12,359

 
$
124

 
$
57,838

 
$
285,891

 
(806
)
 
$
(24,999
)
 
$
(23,195
)
 
$
295,659


The accompanying notes are an integral part of these condensed consolidated financial statements.


7




POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
Nine months ended June 30,
 
2020
 
2019
Operating Activities:
 
 
 
Net income
$
13,677

 
$
3,352

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
7,878

 
9,408

Stock-based compensation
2,391

 
2,220

Bad debt expense
187

 
126

Deferred income taxes
1,640

 
(1,023
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
14,268

 
(16,350
)
Contract assets and liabilities, net
30,150

 
42,954

Inventories
(2,534
)
 
(8,202
)
Income taxes
(628
)
 
6,439

Prepaid expenses and other current assets
1,071

 
(1,330
)
Accounts payable
(11,264
)
 
(2,174
)
Accrued liabilities
(2,305
)
 
(3,051
)
Other, net
(1,131
)
 
1,566

Net cash provided by operating activities
53,400

 
33,935

Investing Activities:
 
 
 
Purchases of short-term investments
(7,330
)
 
(5,869
)
Maturities of short-term investments
6,146

 
13,088

Purchases of property, plant and equipment, net
(4,274
)
 
(3,210
)
Net cash provided by (used in) investing activities
(5,458
)
 
4,009

Financing Activities:
 
 
 
Payments on industrial development revenue bonds
(400
)
 
(400
)
Shares withheld in lieu of employee tax withholding
(617
)
 
(1,151
)
Dividends paid
(9,047
)
 
(8,991
)
Net cash used in financing activities
(10,064
)
 
(10,542
)
Net increase in cash, cash equivalents and restricted cash
37,878

 
27,402

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(491
)
 
(542
)
Cash, cash equivalents and restricted cash at beginning of period
118,639

 
61,725

Cash, cash equivalents and restricted cash at end of period
$
156,026

 
$
88,585

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


8



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
A. Overview and Summary of Significant Accounting Policies
Overview
Powell Industries, Inc. (we, us, our, Powell or the Company) was incorporated in the state of Delaware in 2004 as a successor to a Nevada company incorporated in 1968. The Nevada company was the successor to a company founded by William E. Powell in 1947, which merged into the Company in 1977. Our major subsidiaries, all of which are wholly owned, include: Powell Electrical Systems, Inc.; Powell (UK) Limited; Powell Canada Inc. and Powell Industries International, B.V.
We develop, design, manufacture and service custom-engineered equipment and systems for the distribution, control and monitoring of electrical energy. Headquartered in Houston, Texas, we serve the oil and gas markets, including onshore and offshore oil and gas production, pipeline, refining and liquid natural gas terminals, as well as petrochemical, electric utility, light rail traction power and other heavy industrial markets.
Impact of the COVID-19 Pandemic and Oil and Gas Commodity Market Volatility on Powell
The spread of COVID-19 has created significant uncertainty and economic disruption across the world during the second half of Fiscal 2020. This pandemic has negatively impacted energy demand, which in turn has resulted in considerable volatility across the oil and gas commodity markets. As a result, some of our industrial customers are deferring or suspending their planned capital expenditures. Certain of our customers have asked that we delay our manufacturing on their projects as their operations have been negatively impacted by this pandemic and the reduced oil and gas demand. We continue to work with and review the contracts with our key suppliers who have been impacted by this pandemic to ensure that we are able to meet our customer commitments.
From an operations standpoint, although our facilities are located in areas that have been or continue to be subject to stay-at-home orders, we have not closed any of our facilities for an extended amount of time and have continued to operate as an "essential business" under these orders across all of our locations. We continue to take the necessary steps to ensure the safety of our employees, customers and vendors. These steps include, among others, promoting increased social distancing practices and enhanced cleaning efforts in our offices and facilities. We are also using technology across our operations to further enhance social distancing and improve safety. These increased safety precautions may have an adverse impact on our efficiency and productivity going forward.
As a result of the circumstances noted above, we anticipate that a decrease in commercial activity will negatively impact our business, results of operations and cash flows going forward. We have and may need to continue to adjust our workforce and labor costs to correspond to the reduced customer demand. We will take prudent measures to maintain our strong liquidity and cash position, which may include reducing our capital expenditures and research and development costs, as well as reducing or eliminating future dividend payments. However, the extent to which the COVID-19 pandemic specifically will impact our business will depend on numerous factors that are hard to predict, some of which include: the duration, spread and severity of the pandemic; governmental actions in response to the pandemic, including travel restrictions and quarantine or related governmental orders; any closures of our offices and facilities or those of our suppliers as a result of the pandemic, and how quickly and to what extent normal economic and operating conditions can resume. Therefore, the magnitude of the impact on our business, results of operations and cash flows is not currently known.
Basis of Presentation
These unaudited condensed consolidated financial statements include the accounts of Powell and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim condensed consolidated financial statements have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. We believe that these financial statements contain all adjustments necessary so that they are not misleading.

9



These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Powell and its subsidiaries included in Powell’s Annual Report on Form 10-K for the year ended September 30, 2019, which was filed with the Securities and Exchange Commission (SEC) on December 5, 2019.
References to Fiscal 2020 and Fiscal 2019 used throughout this report shall mean our fiscal years ended September 30, 2020 and 2019, respectively.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying footnotes. The most significant estimates used in our condensed consolidated financial statements affect revenue recognition and estimated cost recognition on our customer contracts, the allowance for doubtful accounts, provision for excess and obsolete inventory, warranty accruals and income taxes. The amounts recorded for warranties, legal, income taxes, impairment of long-lived assets (when applicable) and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We base our estimates on historical experience and on various other assumptions, as well as the specific circumstances surrounding these contingent liabilities, in evaluating the amount of liability that should be recorded. Additionally, the recognition of deferred tax assets requires estimates related to future income and other assumptions regarding timing and future profitability because the ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which temporary differences become deductible. Estimates routinely change as new events occur, additional information becomes available or operating environments change. Actual results may differ from our prior estimates.
New Accounting Standards
Effective October 1, 2019, we adopted the new lease accounting standard and recorded operating lease assets and operating lease liabilities of approximately $7.0 million and determined that no adjustment to retained earnings was necessary. Financial results for reporting periods after October 1, 2019 are reported under the new standard; however financial results for prior periods were not adjusted and will continue to be presented in accordance with the previous standard. Upon adoption, we elected a package of practical expedients which, among other things, allowed for the historical classification of our existing leases to carryforward. Additionally, we elected to separate non-lease components for our real estate and IT infrastructure asset classes. All other asset classes account for both lease and non-lease components in the operating lease asset and operating lease liability calculations. See Note I for further discussion of leases.
In June 2016, the Financial Accounting Standards Board (FASB) issued a new topic on measurement of credit losses. The topic introduces an impairment model known as the current expected credit loss (CECL) model that is based on an expected loss methodology rather than an incurred loss methodology for financial instruments. Under the new topic, an entity recognizes as an allowance its estimate of expected credit losses with the intention of improving financial reporting by requiring timelier recognition of such losses. Enhanced disclosure of information regarding how a company developed its allowance, including changes in the factors that influenced management's estimate of expected credit losses and the reasons for those changes, will be required upon adoption. The new topic is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This would be our fiscal year ending September 30, 2021. We are still evaluating the impact this new topic will have on our consolidated financial statements.

B. Earnings Per Share
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share includes the weighted average of additional shares associated with the incremental effect of dilutive restricted stock and restricted stock units, as prescribed by the FASB guidance on earnings per share.

10



The following table reconciles basic and diluted weighted average shares used in the computation of earnings per share (in thousands, except per share data):
 
Three months ended June 30,
 
Nine months ended June 30,
 
2020
 
2019
 
2020
 
2019
Numerator:
 
 
 
 
 
 
 
Net income
$
3,481

 
$
5,089

 
$
13,677

 
$
3,352

Denominator:
 
 
 
 
 
 
 
Weighted average basic shares
11,631

 
11,579

 
11,622

 
11,567

Dilutive effect of restricted stock units
67

 
24

 
64

 
22

Weighted average diluted shares
11,698

 
11,603

 
11,686

 
11,589

Income per share:
 
 
 
 
 
 
 
Basic
$
0.30

 
$
0.44

 
$
1.18

 
$
0.29

Diluted
$
0.30

 
$
0.44

 
$
1.17

 
$
0.29






11



C. Detail of Selected Balance Sheet Accounts
Allowance for Doubtful Accounts
Activity in our allowance for doubtful accounts consisted of the following (in thousands):
 
Three months ended June 30,
 
Nine months ended June 30,
 
2020
 
2019
 
2020
 
2019
Balance at beginning of period
$
300

 
$
214

 
$
301

 
$
157

Bad debt expense
136

 
25

 
187

 
126

Uncollectible accounts written off, net of recoveries
(2
)
 
(31
)
 
(57
)
 
(74
)
Change due to foreign currency translation

 
(3
)
 
3

 
(4
)
Balance at end of period
$
434

 
$
205

 
$
434

 
$
205


 
Inventories
The components of inventories are summarized below (in thousands):
 
June 30, 2020
 
September 30, 2019
Raw materials, parts and sub-assemblies, net
$
30,481

 
$
28,102

Work-in-progress
1,182

 
1,100

Total inventories
$
31,663

 
$
29,202



Accrued Product Warranty
Activity in our product warranty accrual consisted of the following (in thousands):
 
Three months ended June 30,
 
Nine months ended June 30,
 
2020
 
2019
 
2020
 
2019
Balance at beginning of period
$
3,276

 
$
2,986

 
$
2,946

 
$
2,604

Increase in warranty expense
276

 
945

 
1,904

 
2,572

Deduction for warranty charges
(555
)
 
(754
)
 
(1,826
)
 
(1,992
)
Change due to foreign currency translation
14

 
3

 
(13
)
 
(4
)
Balance at end of period
$
3,011

 
$
3,180

 
$
3,011

 
$
3,180


 

D. Revenue
Revenue Recognition
The majority of our revenues are generated from the manufacturing of custom-engineered products and systems under long-term fixed-price contracts under which we agree to manufacture various products such as traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers and bus duct systems. These products may be sold separately as an engineered solution, but are typically integrated into custom-built enclosures which we also build. These enclosures are referred to as power control room substations (PCRs®), custom-engineered modules or electrical houses (E-Houses). Some contracts may also include the installation and the commissioning of these enclosures.
Revenue from these contracts is generally recognized over time utilizing the cost-to-cost method to measure the extent of progress toward the completion of the performance obligation and the recognition of revenue over time. We believe that this method is the most accurate representation of our performance, because it directly measures the value of the services transferred to the customer over time as we incur costs on our contracts. Contract costs include all direct materials, labor, and indirect costs related to contract performance, which may include indirect labor, supplies, tools, repairs and depreciation costs.
We also have contracts to provide value-added services such as field service inspection, installation, commissioning, modification and repair, as well as retrofit and retrofill components for existing systems. As a practical expedient, if the service contract terms give us the right to invoice the customer for an amount that corresponds directly with the value of our performance completed to date (i.e., a service contract in which we bill a fixed amount for each hour of service provided), then we recognize revenue over

12



time in each reporting period corresponding to the amount with which we have the right to invoice. Our performance obligations are satisfied as the work progresses. Revenues from our custom-engineered products and value-added services transferred to customers over time accounted for approximately 95% of total revenues for the three and nine months ended June 30, 2020 and 93% of total revenues for the three and nine months ended June 30, 2019.
We also have sales orders for spare parts and replacement circuit breakers for switchgear that are obsolete or that are no longer produced by the original manufacturer. Revenues from these sales orders are recognized at the time we fulfill our performance obligation to the customer, which is typically upon shipment and represented approximately 5% of total revenues for the three and nine months ended June 30, 2020 and 7% of total revenues for the three and nine months ended June 30, 2019.
Additionally, some contracts may contain a cancellation clause that could limit the amount of revenue we are able to recognize over time. In these instances, revenue and costs associated with these contracts are deferred and recognized at a point in time when the performance obligation is fulfilled.
Selling and administrative costs incurred in relation to obtaining a contract are typically expensed as incurred. We periodically utilize a third-party sales agent to obtain a contract and will pay a commission to that agent. We record the full commission liability to the third-party sales agents at the order date, with a corresponding deferred asset. As the project progresses, we record commission expense based on percentage of completion rates that correlate to the project and reduce the deferred asset. Once we have been paid by the customer, we pay the commission and the deferred liability is reduced.
Performance Obligations
A performance obligation is a promise in a contract or with a customer to transfer a distinct good or service. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligations are satisfied. To determine the proper revenue recognition for contracts, we evaluate whether a contract should be accounted for as more than one performance obligation or, less commonly, whether two or more contracts should be combined and accounted for as one performance obligation. This evaluation of performance obligations requires significant judgment. The majority of our contracts have a single performance obligation where multiple engineered products and services are combined into a single custom-engineered solution. Our contracts generally include a standard assurance warranty that typically ends 18 months after shipment. Occasionally, we provide service-type warranties that will extend the warranty period. These extended warranties qualify as a separate performance obligation, and revenue is deferred and recognized over the warranty period. If we determine during the evaluation of the contract that there are multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.
Remaining unsatisfied performance obligations, which we refer to as backlog, represent the estimated transaction price for goods and services for which we have a material right but work has not been performed. As of June 30, 2020, we had backlog of $532.2 million, of which approximately $342.4 million is expected to be recognized as revenue within the next twelve months. Backlog may not be indicative of future operating results as orders may be cancelled or modified by our customers. Our backlog does not include service and maintenance-type contracts for which we have the right to invoice as services are performed.
Contract Estimates
Actual revenues and project costs may vary from previous estimates due to changes in a variety of factors. The cost estimation process is based upon the professional knowledge and experience of our engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the availability of materials, and the effect of any delays on our project performance. We periodically review our job performance, job conditions, estimated profitability and final contract settlements, including our estimate of total costs and make revisions to costs and income in the period in which the revisions are probable and reasonably estimable. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.
For the nine months ended June 30, 2020 and 2019, our operating results were positively impacted by $10.8 million and $4.3 million, respectively, as a result of changes in contract estimates related to projects in progress at the beginning of the respective period. These changes in estimates spread across the entire portfolio with no significant changes in a single contract and resulted primarily from favorable project execution and negotiations of variable consideration, discussed below, as well as other changes in facts and circumstances during these periods.

13



Variable Consideration
It is common for our long-term contracts to contain variable consideration that can either increase or decrease the transaction price. Due to the nature of our contracts, estimating total cost and revenue can be complex and subject to variability due to change orders, back charges, spare parts, early completion bonuses, customer allowances and liquidated damages. We estimate the amount of variable consideration based on the expected value method, which is the sum of probability-weighted amount, or the most likely amount method which uses various factors including experience with similar transactions and assessment of our anticipated performance. Variable consideration is included in the transaction price if legally enforceable and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is resolved.

Contract Modifications
Contracts may be modified for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the enforceable rights and obligations under the contract. Most of our contract modifications are for goods and services that are not distinct from the existing performance obligation. Contract modifications result in a cumulative catch-up adjustment to revenue based on our measure of progress for the performance obligation.
Contract Balances
The timing of revenue recognition, billings and cash collections affects accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) in our Condensed Consolidated Balance Sheet.
Contract assets are recorded when revenues are recognized in excess of amounts billed for fixed-price contracts as determined by the billing milestone schedule. Contract assets are transferred to accounts receivable when billing milestones have been met, or we have an unconditional right to payment.
Contract liabilities typically represent advance payments from contractual billing milestones and billings in excess of revenue recognized. It is unusual to have advanced milestone payments with a term greater than one year, which could represent a financing component on the contract.
Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period and are generally classified as current.
Contract assets and liabilities as of June 30, 2020 and September 30, 2019 are summarized below (in thousands):
 
June 30, 2020
 
September 30, 2019
Contract assets
$
51,723

 
$
55,374

Contract liabilities
(97,969
)
 
(71,464
)
Net contract liability
$
(46,246
)
 
$
(16,090
)

The increase in net contract liability at June 30, 2020 from September 30, 2019 was primarily due to our progress towards completion on our projects and the timing of contract billing milestones and new orders. This increase was primarily driven by the timing of contract billing milestones related to our recent contract award for a large industrial project in the United States. To determine the amount of revenue recognized during the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. During the three and nine months ended June 30, 2020, we recognized revenue of approximately $34.6 million and $67.1 million related to contract liabilities outstanding at September 30, 2019.
The timing of our invoice process is typically dependent on the completion of certain milestones and contract terms and subject to agreement by our customer. Payment is typically expected within 30 days of invoice. Any uncollected invoiced amounts for our performance obligations recognized over time, including contract retentions, are recorded as accounts receivable in the Condensed Consolidated Balance Sheets. Certain contracts contain retention provisions that become due upon completion of contractual requirements. As of June 30, 2020 and September 30, 2019, accounts receivable included retention amounts of $6.7 million and $5.6 million, respectively. Of the retained amount at June 30, 2020, $5.6 million is expected to be collected in the next twelve months and is recorded in accounts receivable. The remaining $1.1 million is recorded in other assets.

14



Disaggregation of Revenue
The following tables present our disaggregated revenue by geographic destination and market sector for the three and nine months ended June 30, 2020 and 2019 (in thousands):
 
Three months ended June 30,
 
Nine months ended June 30,
 
2020
 
2019
 
2020
 
2019
United States
$
89,499

 
$
99,745

 
$
318,009

 
$
292,049

Canada
16,970

 
20,206

 
46,831

 
45,015

Europe, Middle East and Africa
6,422

 
9,659

 
25,404

 
20,608

Asia/Pacific
4,643

 
4,682

 
11,784

 
9,155

Mexico, Central and South America
528

 
1,296

 
1,753

 
1,849

     Total revenues by geographic destination
$
118,062

 
$
135,588

 
$
403,781

 
$
368,676


 
Three months ended June 30,
 
Nine months ended June 30,
 
2020
 
2019
 
2020
 
2019
Oil and gas
$
45,851

 
$
62,356

 
$
157,798

 
$
167,954

Petrochemical
29,293

 
21,086

 
107,057

 
63,387

Electric utility
16,725

 
26,425

 
63,994

 
66,066

Traction power
9,122

 
7,423

 
31,417

 
18,457

All others
17,071

 
18,298

 
43,515

 
52,812

     Total revenues by market sector
$
118,062

 
$
135,588

 
$
403,781

 
$
368,676




E. Long-Term Debt
Long-term debt consisted of the following (in thousands):
 
June 30, 2020
 
September 30, 2019
Industrial development revenue bonds
$
800

 
$
1,200

Less: current portion
(400
)
 
(400
)
Total long-term debt
$
400

 
$
800


U.S. Revolver
On September 27, 2019, we entered into an Amended and Restated Credit Agreement with Bank of America, N.A. (the " "U.S. Revolver"), which replaced our prior credit agreement. The U.S. Revolver is a $