10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

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.    ý  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).    ý  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  x 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    ý  No

At August 5, 2019, there were 11,566,748 outstanding shares of the registrant’s common stock, par value $0.01 per share.

1

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

	Page
Part I — Financial Information	3
Item 1. Condensed Consolidated Financial Statements	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income (Loss)	5
Condensed Consolidated Statements of Stockholders' Equity	6
Condensed Consolidated Statements of Cash Flows	8
Notes to Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	25
Item 4. Controls and Procedures	26
Part II — Other Information	26
Item 1. Legal Proceedings	26
Item 1A. Risk Factors	26
Item 6. Exhibits	27
Signatures	28

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, 2019			September 30, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	71,921		$	36,584
Short-term investments	6,109			13,170
Restricted cash	8,188			19,154
Accounts receivable, less allowance for doubtful accounts of $205 and $157	108,551			92,548
Contract assets	57,231			82,545
Inventories	29,484			21,352
Income taxes receivable	72			6,904
Prepaid expenses	3,316			3,775
Other current assets	2,398			630
Total Current Assets	287,270			276,662
Property, plant and equipment, net	121,909			128,764
Restricted cash	8,476			5,987
Goodwill and intangible assets, net	1,381			1,514
Deferred income taxes	6,960			5,937
Other assets	11,110			11,087
Total Assets	$	437,106		$	429,951
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt	$	400		$	400
Accounts payable	38,483			40,714
Contract liabilities	60,868			43,174
Accrued compensation and benefits	16,078			22,274
Accrued product warranty	3,180			2,604
Income taxes payable	507			897
Other current liabilities	10,285			7,786
Total Current Liabilities	129,801			117,849
Long-term debt, net of current maturities	800			1,200
Deferred compensation	6,497			5,902
Other long-term liabilities	4,349			3,356
Total Liabilities	141,447			128,307
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; 12,358,566 and 12,280,556 shares issued, respectively	124			123
Additional paid-in capital	57,838			56,769
Retained earnings	285,891			291,530
Treasury stock, 806,018 shares at cost	(24,999		)	(24,999		)
Accumulated other comprehensive loss	(23,195		)	(21,779		)
Total Stockholders' Equity	295,659			301,644
Total Liabilities and Stockholders' Equity	$	437,106		$	429,951

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,
	2019			2018			2019			2018
Revenues	$	135,588		$	122,130		$	368,676		$	313,819
Cost of goods sold	111,873			103,755			310,255			272,469
Gross profit	23,715			18,375			58,421			41,350
Selling, general and administrative expenses	17,117			16,174			50,240			48,462
Research and development expenses	1,631			1,632			4,988			4,926
Amortization of intangible assets	44			44			132			161
Insurance proceeds	(950		)	—			(950		)	—
Restructuring and other, net	233			—			233			—
Operating income (loss)	5,640			525			3,778			(12,199		)
Other income	—			—			—			(507		)
Interest expense	59			51			170			153
Interest income	(305		)	(215		)	(707		)	(711		)
Income (loss) before income taxes	5,886			689			4,315			(11,134		)
Income tax expense (benefit)	797			388			963			(2,443		)
Net income (loss)	$	5,089		$	301		$	3,352		$	(8,691	)
Income (loss) per share:
Basic	$	0.44		$	0.03		$	0.29		$	(0.76	)
Diluted	$	0.44		$	0.03		$	0.29		$	(0.76	)
Weighted average shares:
Basic	11,579			11,514			11,567			11,503
Diluted	11,603			11,587			11,589			11,503
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,
	2019		2018			2019			2018
Net income (loss)	$	5,089	$	301		$	3,352		$	(8,691	)
Foreign currency translation adjustments	952		(2,543		)	(1,416		)	(4,132		)
Comprehensive income (loss)	$	6,041	$	(2,242	)	$	1,936		$	(12,823	)

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			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.

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			Loss			Totals
Balance, September 30, 2017	12,234	$	122	$	54,329		$	310,598		(806	)	$	(24,999	)	$	(18,754	)	$	321,296
Net loss	—	—		—			(5,662		)	—		—			—			(5,662		)
Foreign currency translation adjustments	—	—		—			—			—		—			(314		)	(314		)
Stock-based compensation	23	—		1,069			—			—		—			—			1,069
Shares withheld in lieu of employee tax withholding	—	—		(438		)	—			—		—			—			(438		)
Dividends paid	—	—		—			(2,977		)	—		—			—			(2,977		)
Balance, December 31, 2017	12,257	$	122	$	54,960		$	301,959		(806	)	$	(24,999	)	$	(19,068	)	$	312,974
Net loss	—	—		—			(3,330		)	—		—			—			(3,330		)
Foreign currency translation adjustments	—	—		—			—			—		—			(1,275		)	(1,275		)
Stock-based compensation	—	—		998			—			—		—			—			998
Issuance of restricted stock	12	1		—			—			—		—			—			1
Dividends paid	—	—		—			(2,976		)	—		—			—			(2,976		)
Balance, March 31, 2018	12,269	$	123	$	55,958		$	295,653		(806	)	$	(24,999	)	$	(20,343	)	$	306,392
Net income	—	—		—			301			—		—			—			301
Foreign currency translation adjustments	—	—		—			—			—		—			(2,543		)	(2,543		)
Stock-based compensation	5	—		417			—			—		—			—			417
Shares withheld in lieu of employee tax withholding	—	—		(140		)	—			—		—			—			(140		)
Issuance of restricted stock	2	—					—			—		—			—			—
Dividends paid	—	—		—			(2,980		)	—		—			—			(2,980		)
Balance, June 30, 2018	12,276	$	123	$	56,235		$	292,974		(806	)	$	(24,999	)	$	(22,886	)	$	301,447

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,
	2019			2018
Operating Activities:
Net income (loss)	$	3,352		$	(8,691	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	9,408			9,655
Stock-based compensation	2,220			2,485
Bad debt expense	126			110
Deferred income tax benefit	(1,023		)	(2,840		)
Gain on amended supply agreement	—			(507		)
Changes in operating assets and liabilities:
Accounts receivable, net	(16,350		)	(19,252		)
Contract assets and liabilities, net	42,954			(6,211		)
Inventories	(8,202		)	(4,542		)
Income taxes	6,439			945
Prepaid expenses and other current assets	(1,330		)	924
Accounts payable	(2,174		)	1,288
Accrued liabilities	(3,051		)	355
Other, net	1,566			224
Net cash provided by (used in) operating activities	33,935			(26,057		)
Investing Activities:
Purchases of short-term investments	(5,869		)	(20,712		)
Maturities of short-term investments	13,088			31,444
Purchases of property, plant and equipment, net	(3,210		)	(3,922		)
Net cash provided by investing activities	4,009			6,810
Financing Activities:
Payments on industrial development revenue bonds	(400		)	(400		)
Shares withheld in lieu of employee tax withholding	(1,151		)	(578		)
Dividends paid	(8,991		)	(8,934		)
Net cash used in financing activities	(10,542		)	(9,912		)
Net increase (decrease) in cash, cash equivalents and restricted cash	27,402			(29,159		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(542		)	(389		)
Cash, cash equivalents and restricted cash, beginning of period	61,725			93,210
Cash, cash equivalents and restricted cash, end of period	$	88,585		$	63,662

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 products 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.

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.

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, 2018, which was filed with the Securities and Exchange Commission (SEC) on December 12, 2018.

References to Fiscal 2019 and Fiscal 2018 used throughout this report shall mean our fiscal years ended September 30, 2019 and 2018, respectively.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a five-step approach to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and

9

the assets recognized from costs incurred to obtain or fulfill a contract. Effective October 1, 2018, we adopted this standard using the modified retrospective basis. After evaluating the impact of this new standard on contracts outstanding as of October 1, 2018, we determined that no adjustment to retained earnings was necessary. See Note D for further discussion of revenue.

In February 2016, the FASB issued a new topic on leases which requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The new topic is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This would be our fiscal year ending September 30, 2020. In Fiscal 2018, we acquired new lease software designed to assist with our compliance of this new topic. We are still evaluating the impact this new topic will have on our consolidated financial position and results of operations.

In November 2016, the FASB issued a new topic on the statement of cash flows that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents is to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted this topic in Fiscal 2019 and our Condensed Consolidated Cash Flow Statements for all periods reflect this presentation.

In May 2017, the FASB issued a new topic on modification accounting with regards to stock based compensation. This new topic clarifies when a change to the terms or conditions of a share-based payment award should be accounted for as a modification. An entity should account for the effects of a modification unless the fair value, vesting conditions and classification, as an equity instrument or a liability instrument, of the modified award are the same before and after a change to the terms or conditions of the share-based payment award. We adopted this topic in Fiscal 2019 and it has not had a material impact on our consolidated financial position or results of operations.

B. EARNINGS PER SHARE

We compute basic earnings per share by dividing net income (loss) 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.

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,
	2019		2018		2019		2018
Numerator:
Net income (loss)	$	5,089	$	301	$	3,352	$	(8,691	)
Denominator:
Weighted average basic shares	11,579		11,514		11,567		11,503
Dilutive effect of restricted stock units	24		73		22		—
Weighted average diluted shares	11,603		11,587		11,589		11,503
Income (loss) per share:
Basic	$	0.44	$	0.03	$	0.29	$	(0.76	)
Diluted	$	0.44	$	0.03	$	0.29	$	(0.76	)

For the nine months endedJune 30, 2018, we incurred a net loss and therefore all potential common shares were deemed to be anti-dilutive.

10

C. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS

Allowance for Doubtful Accounts

Activity in our allowance for doubtful accounts receivable consisted of the following (in thousands):

	Three months ended June 30,						Nine months ended June 30,
	2019			2018			2019			2018
Balance at beginning of period	$	214		$	264		$	157		$	179
Bad debt expense	25			18			126			110
Uncollectible accounts written off, net of recoveries	(31		)	(36		)	(74		)	(44		)
Change due to foreign currency translation	(3		)	(7		)	(4		)	(6		)
Balance at end of period	$	205		$	239		$	205		$	239

Inventories

The components of inventories are summarized below (in thousands):

	June 30, 2019		September 30, 2018
Raw materials, parts and subassemblies, net	$	28,436	$	20,272
Work-in-progress	1,048		1,080
Total inventories	$	29,484	$	21,352

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,
	2019			2018			2019			2018
Balance at beginning of period	$	2,986		$	2,241		$	2,604		$	3,174
Increase (decrease) in warranty expense	945			1,036			2,572			970
Deduction for warranty charges	(754		)	(891		)	(1,992		)	(1,752		)
Change due to foreign currency translation	3			(23		)	(4		)	(29		)
Balance at end of period	$	3,180		$	2,363		$	3,180		$	2,363

D. REVENUE

On October 1, 2018, we adopted the new revenue recognition standard using the modified retrospective transition method. We applied the guidance to customer contracts which were not substantially complete at that time and we determined that no adjustment to retained earnings was necessary. Financial results for reporting periods after October 1, 2018 are reported under the new guidance; however financial results for prior periods were not adjusted and will continue to be presented in accordance with the previous guidance.

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

11

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 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 93% of total revenues for both 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 a point in time when we fulfill our performance obligation to the customer which is typically upon shipment. Revenue related to sales orders represents approximately 7% of total revenues for both 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 judgement. 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 eighteen months after shipment. Occasionally, we provide service-type warranties that will extend the warranty period. These extended warranties qualify as a separate performance obligation. 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, 2019, we had backlog of $407.0 million, of which approximately $368.7 million is expected to be recognized 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 endedJune 30, 2019 and 2018, our operating results were positively impacted by $4.3 million and $2.9 million, respectively, as a result of changes in contract estimates related to projects in progress at the beginning of the respective period.

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These changes in estimates 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.

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, previously referred to as costs and estimated earnings in excess of billings on uncompleted contracts, 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 receivables when billing milestones have been met or we have an unconditional right to payment.

Contract liabilities, previously referred to as billings in excess of costs and estimated earnings on uncompleted contracts, 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, 2019 and September 30, 2018 are summarized below (in thousands):

	June 30, 2019			September 30, 2018
Contract assets	$	57,231		$	82,545
Contract liabilities	(60,868		)	(43,174		)
Net contract asset (liability)	$	(3,637	)	$	39,371

The decrease in net contract asset (liability) at June 30, 2019 from September 30, 2018 was primarily due to our progress towards completion on our projects and the timing of contract billing milestones and new orders. 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, 2019, we recognized revenue of approximately $2.2 million and $39.4 million, respectively, related to contract liabilities outstanding at September 30, 2018.

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, 2019 and September 30, 2018, accounts receivable included retention amounts of $4.7 million and $4.2 million, respectively. Of the retained amount at June 30, 2019, $4.4 million is expected to be collected in the next twelve months.

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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, 2019 (in thousands):

	Three months ended June 30, 2019		Nine months ended June 30, 2019
United States	$	99,745	$	292,049
Canada	20,206		45,015
Europe, Middle East and Africa	9,659		20,608
Asia/Pacific	4,682		9,155
Mexico, Central and South America	1,296		1,849
Total revenues by geographic destination	$	135,588	$	368,676

	Three months ended June 30, 2019		Nine months ended June 30, 2019
Oil and gas	$	62,356	$	167,954
Petrochemical	21,086		63,387
Electric utility	26,425		66,066
Traction power	7,423		18,457
All others	18,298		52,812
Total revenues by market sector	$	135,588	$	368,676

E. LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):

	June 30, 2019			September 30, 2018
Industrial development revenue bonds	$	1,200		$	1,600
Less current portion	(400		)	(400		)
Total long-term debt	$	800		$	1,200

U.S. Revolver

We have a $75.0 million revolving credit facility (U.S. Revolver) to provide working capital support and letters of credit which expires in June 2022. The amount available under the U.S. Revolver at June 30, 2019 was reduced by $11.8 million for our outstanding letters of credit. Currently, our U.S. Revolver can only be used for letters of credit until we meet certain financial ratios. There were no loans outstanding under the U.S. Revolver as of June 30, 2019. 

Per the terms of the U.S. Revolver, we are required to maintain cash in a pledged collateral account until we satisfy the following two financial ratios for two consecutive fiscal quarters: a max leverage ratio and a fixed charge coverage ratio. The max leverage ratio requires that the ratio of our consolidated funded indebtedness to our consolidated earnings before interest, taxes and depreciation (EBITDA) for the last four consecutive quarters not exceed 2.75 to 1.00. The fixed charge coverage ratio requires that the ratio of consolidated EBITDA for the last four fiscal quarters, less income taxes, capital expenditures, dividends, principal debt payments and interest charges be at least 1.25 to 1.00. If we are not in compliance with the these two ratios, we are required to maintain a cash balance in a pledged cash collateral account equal to 102% of the outstanding amount of any loans and letter of credit obligations until we meet the aforementioned required ratios. As of June 30, 2019, the balance in the cash collateral account was $16.7 million and is recorded as restricted cash in our Condensed Consolidated Balance Sheets. The portion of the cash collateral associated with the outstanding letters of credit that are due to expire beyond twelve months has been classified as non-current restricted cash on our condensed consolidated balance sheets. As of June 30, 2019, there was $63.2 million available for the issuance of letters of credit under the U.S. Revolver, subject to the cash collateral requirements mentioned above.

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The interest rate for amounts outstanding under the U.S. Revolver is a floating rate based upon the higher of the Federal Funds Rate plus 0.5%, the bank’s prime rate, or the Eurocurrency rate plus 1.00%. Once the applicable rate is determined, a margin ranging up to 1.25% is added to the applicable rate.

The U.S. Revolver is collateralized by a pledge of 100% of the voting capital stock of each of our domestic subsidiaries and 65% of the voting capital stock of each non-domestic subsidiary. The U.S. Revolver provides for customary events of default and carries cross-default provisions with other existing debt agreements. If an event of default (as defined in the U.S. Revolver) occurs and is continuing, on the terms and subject to the conditions set forth in the U.S. Revolver, amounts outstanding under the U.S. Revolver may be accelerated and may become immediately due and payable. It also contains financial covenants defining various financial measures and the levels of these measures with which we must comply, as well as a “material adverse change” clause. A “material adverse change” is defined as a material change in our operations, business, properties, liabilities or condition (financial or otherwise) or a material impairment of our ability to perform our obligations under our credit agreements. As of June 30, 2019, we were in compliance with all of the financial covenants of the U.S. Revolver.

Industrial Development Revenue Bonds

We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds from tax-exempt industrial development revenue bonds (Bonds). These Bonds were issued by the Illinois Development Finance Authority and were used for the completion of our Northlake, Illinois facility. Pursuant to the Bond issuance, a reimbursement agreement between us and a major domestic bank required an issuance by the bank of an irrevocable direct-pay letter of credit (Bond LC), as collateral, to the Bonds’ trustee to guarantee payment of the Bonds’ principal and interest when due. The Bond LC is subject to both early termination and extension provisions customary to such agreements, as well as various covenants, for which we were in compliance at June 30, 2019. While the Bonds mature in 2021, the reimbursement agreement requires annual redemptions of $0.4 million that commenced on October 25, 2002. A sinking fund is used for the redemption of the Bonds. The Bonds bear interest at a floating rate determined weekly by the Bonds’ remarketing agent, which was the underwriter for the Bonds and is an affiliate of the bank. This interest rate was 2.03% as of June 30, 2019.

F. COMMITMENTS AND CONTINGENCIES

Letters of Credit, Surety Bonds and Bank Guarantees

Certain customers require us to post letters of credit or surety bonds which assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or performance by the surety under a bond. To date, there have been no significant expenses related to either letters of credit or surety bonds for the periods reported. We were contingently liable for letters of credit of $11.8 million as of June 30, 2019. We also had surety bonds totaling $152.9 million that were outstanding, with additional bonding capacity of $597.1 million available, at June 30, 2019.

Additionally, we have a $6.3 million facility agreement (Facility Agreement) between Powell (UK) Limited and a large international bank. This Facility Agreement provides Powell (UK) Limited the ability to enter into bank guarantees as well as forward exchange contracts and currency options. At June 30, 2019, we had outstanding guarantees totaling $3.7 million under this Facility Agreement and amounts available under this Facility Agreement were $2.6 million. The Facility Agreement provides for financial covenants and customary events of default, and carries cross-default provisions with our U.S. Revolver. If an event of default (as defined in the Facility Agreement) occurs and is continuing, per the terms and subject to the conditions set forth therein, obligations outstanding under the Facility Agreement may be accelerated and declared immediately due and payable. As of June 30, 2019, we were in compliance with all of the financial covenants of the Facility Agreement.  

Litigation

We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. Although we can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity.

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G. STOCK-BASED COMPENSATION

Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 for a full description of our existing stock-based compensation plans.

Restricted Stock Units

We issue restricted stock units (RSUs) to certain officers and key employees of the Company. The fair value of the RSUs is based on the price of our common stock as reported on the NASDAQ Global Market on the grant dates. The typical annual grant vests over a three-year period from the date of issuance and is a blend of time-based and performance-based shares. The portion of the grant that is time-based typically vests over a three-year period on each anniversary of the grant date, based on continued employment. The performance-based shares vest based on the three-year earnings performance of the Company following the grant date. At June 30, 2019, there were 159,216 RSUs outstanding. The RSUs do not have voting rights but do receive dividend equivalents upon vesting; additionally, the shares of common stock underlying the RSUs are not considered issued and outstanding until vested and common stock is issued.

RSU activity (number of shares) for the nine months ended June 30, 2019 is summarized below:

	Number of Restricted Stock Units		Weighted Average Fair Value Per Share
Outstanding at September 30, 2018	190,500		$	33.73
Granted	77,150		34.89
Vested	(97,684	)	32.36
Forfeited/canceled	(10,750	)	34.27
Outstanding at June 30, 2019	159,216		$	34.45

During the nine months ended June 30, 2019 and 2018, we recorded compensation expense of $1.8 million and $2.0 million, respectively, related to the RSUs. 

Restricted Stock

Each non-employee director receives 2,000 restricted shares of the Company’s common stock annually. Fifty-percent of the restricted stock granted to each of our non-employee directors vests immediately, while the remaining fifty-percent vests on the anniversary of the grant date. Compensation expense is recognized immediately for the first fifty-percent of the restricted stock granted, while compensation expense for the remaining fifty-percent is recognized over the remaining vesting period based on the closing price per share on the grant date. In February 2019, 14,000 shares of restricted stock were issued to our non-employee directors under the 2014 Director Plan at a price of $34.02 per share. For each of the nine months ended June 30, 2019 and 2018, we recorded compensation expense of $0.4 million, related to restricted stock.  

H. FAIR VALUE MEASUREMENTS

We measure certain financial assets and liabilities at fair value. Fair value is defined as an “exit price” which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in valuing an asset or liability. The accounting guidance requires the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumptions and inputs, a fair value hierarchy has been established which identifies and prioritizes three levels of inputs to be used in measuring fair value.

The three levels of the fair value hierarchy are as follows:

Level 1 — Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 — Inputs other than the quoted prices in active markets that are observable either directly or indirectly, including: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

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Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.

The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2019 (in thousands):

	Fair Value Measurements at June 30, 2019
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at June 30, 2019
Assets:
Cash and cash equivalents	$	71,921	$	—	$	—	$	71,921
Short-term investments	6,109		—		—		6,109
Restricted cash	16,664		—		—		16,664
Other assets	—		6,821		—		6,821
Liabilities:
Deferred compensation	—		6,284		—		6,284

The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2018 (in thousands):

	Fair Value Measurements at September 30, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2018
Assets:
Cash and cash equivalents	$	36,584	$	—	$	—	$	36,584
Short-term investments	13,170		—		—		13,170
Restricted cash	25,141		—		—		25,141
Other assets	—		6,817		—		6,817
Liabilities:
Deferred compensation	—		5,644		—		5,644

Fair value guidance requires certain fair value disclosures be presented in both interim and annual reports.  The estimated fair value amounts of financial instruments have been determined using available market information and valuation methodologies described below.

Cash and cash equivalents – Cash and cash equivalents, primarily funds held in money market savings instruments, are reported at their current carrying value which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in our Condensed Consolidated Balance Sheets.

Short-term Investments – Short-term investments include time deposits with original maturities of three months or more.

Restricted Cash – Restricted cash represents a pledged cash collateral balance which is required under our amended credit agreement and is held in an interest-bearing account. See Note E for further discussion on restricted cash.

Other Assets/Deferred Compensation – We hold investments in an irrevocable Rabbi Trust for our deferred compensation plan. The assets include both mutual fund investments and company-owned life insurance policies and are included in other assets in the accompanying Condensed Consolidated Balance sheets. Because the mutual funds and company-owned life insurance policies are combined in the plan, they are categorized as Level 2 in the fair value measurement hierarchy. The deferred compensation liability represents the investment options that the plan participants have designated to serve as the basis for measurement of the notional value of their accounts. Because the deferred compensation liability is intended to offset the plan assets, it is also categorized as Level 2 in the fair value measurement hierarchy.

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There were no transfers between levels within the fair value measurement hierarchy during the quarter ended June 30, 2019.

I. RESTRUCTURING AND OTHER

In the nine months ended June 30, 2019, we recorded lease accrual adjustments of $0.7 million related to certain facility leases in Canada that are no longer utilized in our operations. We also recorded a recovery of $0.5 million in the nine months ended June 30, 2019 as a result of the favorable settlement of a claim related to the divestiture of a subsidiary in Fiscal 2014.

J. INCOME TAXES

The calculation of the effective tax rate is as follows (in thousands):

	Three months ended June 30,						Nine months ended June 30,
	2019			2018			2019			2018
Income (loss) before income taxes	$	5,886		$	689		$	4,315		$	(11,134	)
Income tax expense (benefit)	797			388			963			(2,443		)
Net income (loss)	$	5,089		$	301		$	3,352		$	(8,691	)
Effective tax rate	14		%	56		%	22		%	22		%

On December 22, 2017, the new tax law lowered the corporate tax rate from 35% to 21% effective January 1, 2018. As a result, the U.S. federal statutory rate for Fiscal 2019 is 21%, compared to the blended statutory rate of 24.5% effective for Fiscal 2018. The effective tax rate of 14% for the third quarter of Fiscal 2019 was positively impacted by the relative amounts of income recognized in various foreign jurisdictions that were reserved with a valuation allowance. Conversely, losses recognized in foreign jurisdictions reserved with a valuation allowance negatively impacted the effective tax rate of 56% in the third quarter of Fiscal 2018.

For the nine months ended June 30, 2019, the effective tax rate of 22% approximated the U.S. federal statutory rate as the immaterial losses incurred by foreign operations that were reserved with a valuation allowance had a minimal impact on the effective tax rate. The effective tax rate of 22% for the nine months ended June 30, 2018 was negatively impacted by foreign tax losses reserved with a valuation allowance, as well as $0.7 million of tax expense related to the re-measurement of U.S. deferred tax assets as a result of tax reform.

K. SUBSEQUENT EVENTS

On August 6, 2019, our Board of Directors declared a quarterly cash dividend on our common stock in the amount of $0.26 per share. The dividend is payable on September 18, 2019 to shareholders of record at the close of business on August 21, 2019.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We are including the following discussion to inform our existing and potential shareholders generally of some of the risks and uncertainties that can affect our Company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.

From time to time, our management or persons acting on our behalf make forward-looking statements to inform existing and potential shareholders about our Company. These statements may include projections and estimates concerning the timing and success of specific projects and our future backlog, revenues, income, acquisitions and capital spending. Forward-looking statements include information concerning future results of operations and financial condition. Statements that contain words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” or similar expressions may be forward-looking statements. In addition, sometimes we will specifically describe a statement as being a forward-looking statement and refer to this cautionary statement.

In addition, various statements in this Quarterly Report on Form 10-Q, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements speak only as of the date of this report; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:

• Our business is largely dependent on customers in the oil and gas markets and we are adversely impacted by extended periods of low oil or gas prices, which decrease our customers' spending, the demand for our products and services and the prices we are able to charge. This has had, and may continue to have, an adverse effect on our future operating results.

• Economic uncertainty and financial market conditions may impact our customer base, suppliers and backlog.

• Our backlog is subject to unexpected adjustments and cancellations and, therefore, may not be a reliable indicator of our future earnings.

• The use of percentage-of-completion accounting on our fixed-price contracts could result in volatility in our results of operations.

• The majority of our contracts contain performance obligations that may subject us to penalties or additional liabilities.

• Fluctuations in the price and supply of materials used to manufacture our products may reduce our profits and could adversely impact our ability to meet commitments to our customers.

• Our industry is highly competitive.

• Our operations could be adversely impacted by the effects of government regulations.

• Changes in tax laws and regulations may change our effective tax rate and could have a material effect on our financial results.

• Our international operations expose us to risks that are different from, or possibly greater than, the risks we are exposed to domestically and may adversely affect our operations.

• The departure of key personnel could disrupt our business.

• Our business requires skilled labor and we may be unable to attract and retain qualified employees.

• We are exposed to risks relating to the use of subcontractors on some of our projects.

• Misconduct by our employees or subcontractors, or a failure tocomply with laws or regulations, could harm our reputation, damage our relationships with customers and subject us to criminal and civil enforcement actions.

• Unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover.

• Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition.

• Quality problems with our products could harm our reputation and erode our competitive position.

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• A failure in our business systems or cyber security attacks on any of our facilities, or those of third parties, could adversely affect our business and our internal controls.

• We carry insurance against many potential liabilities, but our management of risk may leave us exposed to unidentified or unanticipated risks.

• Changes in and compliance with environmental laws could adversely impact our financial results.

• Technological innovations by competitors may make existing products and production methods obsolete.

• Catastrophic events could disrupt our business.

• Unforeseen difficulties with expansions, relocations or consolidations of existing facilities could adversely affect our operations.

• Growth and product diversification through strategic acquisitions involves a number of risks.

• Provisions of our charter documents or Delaware law could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult to change management.

• Our stock price could decline or fluctuate significantly due to unforeseen circumstances. These fluctuations may cause our stockholders to incur losses.

• Obtaining surety bonds, letters of credit, bank guarantees, or other financial assurances, may be necessary for us to successfully bid on and obtain certain contracts.

• Failure to remain in compliance with covenants, or obtain waivers or amendments and our inability to borrow under our credit agreement could adversely impact our business.

• Failures or weaknesses in our internal controls over financial reporting could adversely affect our ability to report on our financial condition and results of operations accurately and/or on a timely basis.

We believe the items we have outlined above are important factors that could cause estimates included in our financial statements to differ materially from actual results and those expressed in a forward-looking statement made in this report or elsewhere by us or on our behalf.  We have discussed these factors in more detail in our Annual Report on Form 10-K for the year ended September 30, 2018. These factors are not necessarily all of the factors that could affect us. Unpredictable or unanticipated factors we have not discussed in this report could also have material adverse effects on actual results. We do not intend to update our description of important factors each time a potential important factor arises, except as required by applicable securities laws and regulations. We advise our shareholders that they should (1) be aware that factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution when considering our forward-looking statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended September 30, 2018, which was filed with the Securities and Exchange Commission (SEC) on December 12, 2018 and is available on the SEC’s website at www.sec.gov.

Overview

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 and light traction power. Revenues and costs are primarily related to custom engineered-to-order equipment and systems and are accounted for under percentage-of-completion accounting which precludes us from providing detailed price and volume information.Our backlog includes various projects that typically take a number of months to produce.

The markets in which we participate are capital intensive and cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic conditions and anticipated environmental, safety or regulatory changes which affect the manner in which our customers proceed with capital investments. Our customers analyze various factors including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns. These factors influence the release of new capital projects by our customers, which are traditionally awarded in competitive bid situations. Scheduling of projects is matched to the customer requirements and projects typically take a number of months to produce. Schedules may change during the course of any particular project and our operating results can therefore be impacted by factors outside of our control.

Due to the significant decline in oil and gas prices from peak 2014 levels, many of our customers reduced their capital budgets and cut costs, and in certain instances have delayed or canceled projects that we were pursuing. This decline in projects negatively impacted our results in Fiscal 2018. However, customers have begun to invest in projects in our key oil and gas and petrochemical markets and this shift has had a favorable impact on our orders and backlog over recent quarters, resulting in increased revenues in Fiscal 2019.

Results of Operations

Quarter Ended June 30, 2019 Compared to the Quarter Ended June 30, 2018 (Unaudited)

Revenue and Gross Profit

Revenues increased by 11%, or $13.4 million, to $135.6 million in the third quarter of Fiscal 2019, compared to the third quarter of Fiscal 2018, primarily due to an increase in orders over the past few quarters from improved market conditions, primarily in our oil and gas markets. Domestic revenues increased by 14%, or $12.3 million, to $103.6 million in the third quarter of Fiscal 2019, compared to the third quarter of Fiscal 2018. International revenues increased by 4%, or $1.1 million, to $32.0 million in the third quarter of Fiscal 2019, compared to the third quarter of Fiscal 2018, primarily driven by increased activity in our Canadian operations. Our international revenue includes both revenue generated from our international facilities as well as export revenues from our domestic facilities.

Revenues from commercial and industrial projects increased by 6%, or $5.8 million, to $99.1 million in the third quarter of Fiscal 2019, compared to the third quarter of Fiscal 2018, primarily driven by the continued strengthening of the core oil and gas and petrochemical end markets. Revenues from public and private utilities increased by 37%, or $7.1 million, to $26.4 million in the third quarter of Fiscal 2019, compared to the third quarter of Fiscal 2018 as the business nears completion of select large utility projects in the backlog. Revenues from municipal and transit projects increased by 6%, or $0.6 million, to $10.1 million in the third quarter of Fiscal 2019, compared to the third quarter of Fiscal 2018, primarily impacted by project timing and product mix as this market remains stable versus the prior year.

Gross profit for the third quarter of Fiscal 2019increased by 29%, or $5.3 million, to $23.7 million, compared to the third quarter of Fiscal 2018. Gross profit as a percentage of revenues increased to 17% in the third quarter of Fiscal 2019, compared to 15% in the third quarter of Fiscal 2018. Gross profit and margins increased due to improved market conditions and efficiencies resulting from increased volume in our domestic and Canadian manufacturing facilities.

21

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 6%, or $0.9 million, to $17.1 million during the third quarter of Fiscal 2019, compared to $16.2 million in the third quarter of Fiscal 2018, primarily due to increased personnel costs associated with increased project volume. Selling, general and administrative expenses, as a percentage of revenues, remained flat at 13% during the third quarter of Fiscal 2019 as compared to the third quarter of Fiscal 2018.

Insurance Proceeds

In the third quarter of Fiscal 2019, we reached a final settlement with respect to a 2017 business interruption insurance claim resulting from Hurricane Harvey. The settlement resulted in insurance proceeds of $1.0 million, which is included within operating income.

Income Tax Expense

We recorded income tax expense of $0.8 million in the third quarter of Fiscal 2019, compared to income tax expense of $0.4 million in the third quarter of Fiscal 2018. The effective tax rate for the third quarter of Fiscal 2019 was 14%, compared to an effective tax rate of 56% in the third quarter of Fiscal 2018. On December 22, 2017, the new tax law lowered the corporate tax rate from 35% to 21% effective January 1, 2018. As a result, the U.S. federal statutory rate for Fiscal 2019 is 21%, compared to the blended statutory rate of 24.5% effective for Fiscal 2018. For the three months ended June 30, 2019, the effective tax rate was positively impacted by income recognized in foreign jurisdictions that was reserved with a valuation allowance while the effective tax rate for the three months ended June 30, 2018 was negatively impacted by foreign losses recognized that we reserved with a valuation allowance.

Net Income

In the third quarter of Fiscal 2019, we recorded net income of $5.1 million, or $0.44 per diluted share, compared to net income of $0.3 million, or $0.03 per diluted share, in the third quarter of Fiscal 2018. This improvement in operating results over the prior year was primarily due to improved market conditions and efficiencies resulting from increased volume in our domestic and Canadian manufacturing facilities.

Backlog

Our backlog includes various projects that can take a number of months to produce. The order backlog at June 30, 2019 increased to $407.0 million, compared to $397.2 million at March 31, 2019, primarily due to increased demand from our customers in our core oil and gas and petrochemical markets. New orders placed during the third quarter of Fiscal 2019increased to $144.8 million, compared to $139.2 million in the third quarter of Fiscal 2018, primarily due to increased demand from our customers in our core oil and gas and petrochemical markets.

Nine Months Ended June 30, 2019 Compared to the Nine Months Ended June 30, 2018 (Unaudited)

Revenue and Gross Profit

Revenues increased by 17%, or $54.9 million, to $368.7 million for the nine months ended June 30, 2019, compared to the nine months ended June 30, 2018, primarily due to an increase in orders over the past few quarters from improved market conditions, primarily in our oil and gas markets. Domestic revenues increased by 30%, or $67.9 million, to $290.9 million for the nine months ended June 30, 2019, compared to the nine months ended June 30, 2018. International revenues decreased by 14%, or $13.1 million, to $77.8 million for the nine months ended June 30, 2019, compared to the nine months ended June 30, 2018, primarily due to a decrease in export projects from our domestic facilities. Our international revenue includes both revenue generated from our international facilities as well as export revenues from our domestic facilities.

Revenues from commercial and industrial projects increased by 22%, or $49.2 million, to $273.9 million for the nine months ended June 30, 2019, compared to the nine months ended June 30, 2018, driven by the strength across the core oil and gas and petrochemical end markets. Revenues from public and private utilities decreased by 2%, or $1.4 million, to $66.1 million for the nine months ended June 30, 2019, compared to the nine months ended June 30, 2018, as the business nears completion of select large utility projects in the backlog. Revenues from municipal and transit projects increased by 33%, or $7.0 million, to $28.7 million for the nine months ended June 30, 2019, compared to the nine months ended June 30, 2018, primarily impacted by the project timing and product mix of projects at or near completion for some of our key municipal customers.

Gross profit for the nine months ended June 30, 2019increased by 41%, or $17.1 million, to $58.4 million, compared to the nine months ended June 30, 2018. Gross profit as a percentage of revenues increased to 16% for the nine months ended June 30, 2019, compared to 13% for the nine months ended June 30, 2018. Gross profit increased due to improved market conditions and efficiencies resulting from increased volume in our domestic and Canadian manufacturing facilities.

22

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 4%, or $1.8 million, to $50.2 million for the nine months ended June 30, 2019, compared to the nine months ended June 30, 2018, primarily due to increased personnel costs associated with increased project volume. Selling, general and administrative expenses, as a percentage of revenues, decreasedto 14% during the nine months ended June 30, 2019, compared to 15% during the nine months ended June 30, 2018, primarily due to the increase in revenues and our continued focus on our cost structure.

Insurance Proceeds

In the nine months ended June 30, 2019, we reached a final settlement with respect to a 2017 business interruption insurance claim resulting from Hurricane Harvey. The settlement resulted in insurance proceeds of $1.0 million, which is included within operating income.

Income Tax Expense/Benefit

We recorded income tax expense of $1.0 million for the nine months ended June 30, 2019 compared to an income tax benefit of $2.4 million for the nine months ended June 30, 2018. The effective tax rate for both the nine months ended June 30, 2019 and the nine months ended June 30, 2018 was 22%. For the nine months ended June 30, 2019, the effective tax rate approximated the U.S. federal statutory rate as foreign jurisdictions with losses reserved with a valuation allowance were insignificant. The effective tax rate for the same period in 2018 was negatively impacted by foreign tax losses that were reserved with a valuation allowance. The income tax benefit for the nine months ended June 30, 2018 was also negatively impacted by tax expense of $0.7 million due to the re-measurement of U.S. deferred tax assets.

Net Income (Loss)

For the nine months ended June 30, 2019, we recorded net income of $3.4 million, or $0.29 per diluted share, compared to a net loss of $8.7 million, or $0.76 per diluted share, for the nine months ended June 30, 2018. The improvement in our operating results over the prior year was primarily due to improved market conditions and efficiencies resulting from increased volume in our domestic and Canadian manufacturing facilities.

Backlog

The order backlog at June 30, 2019 was $407.0 million, an increase from the $260.9 million at September 30, 2018, primarily due to increased demand from our customers in our core oil and gas and petrochemical markets. New orders increased during the nine months ended June 30, 2019 to $513.9 million, compared to $380.6 million for the nine months ended June 30, 2018, primarily due to improved market conditions.     

Outlook

The markets in which we participate are capital-intensive and cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic conditions and anticipated environmental, safety or regulatory changes which affect the manner in which our customers proceed with capital investments. Our customers analyze various factors including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns. These factors influence the release of new capital projects by our customers, which are traditionally awarded in competitive bid situations. Scheduling of projects is matched to customer requirements and projects typically take a number of months to produce. Schedules may change during the course of any particular project and our operating results can therefore be impacted by factors outside of our control.

A significant portion of our revenues have historically been from the oil, gas and petrochemical markets. Oil and gas commodity price levels have been unstable over the last several years and our customers delayed some of their major capital investment projects. Commodity prices have stabilized and customers continue to invest in projects in our key oil and gas and petrochemical markets, and this shift in market sentiment has had a favorable impact on our orders and backlog over recent quarters.

Our operating results are impacted by factors such as the timing of new order awards, customer approval of final engineering and design specifications and delays in customer construction schedules, all of which contribute to short-term earnings variability and the timing of project execution. Our operating results also have been, and could continue to be, impacted by the timing and resolution of change orders, project close-out and resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers. These factors may result in periods of underutilization of our resources and facilities and negatively impact our ability to cover our fixed costs. The increased orders in Fiscal 2018 and 2019 have led to improvement in revenues and operating results that we anticipate will

23

continue for the remainder of Fiscal 2019. We continue to focus on maintaining our cash position, improving efficiencies in production and investing in future business opportunities.

Our increase in project volume typically requires cash to fund operations, but we believe that our strong working capital position and available cash and short-term investments should be sufficient to finance future operating activities, research and development initiatives, capital improvements and debt repayments for the foreseeable future. We continue to monitor the factors that drive our markets and will continue to strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions.

Liquidity and Capital Resources

As of June 30, 2019, current assets exceeded current liabilities by 2.2 times and our debt to total capitalization was 0.40%.

Cash, cash equivalents and short-term investments increased to $78.0 million at June 30, 2019, compared to $49.8 million at September 30, 2018. We also had restricted cash held in a pledged collateral account related to our amended credit agreement (U.S. Revolver) of $16.7 million at June 30, 2019 and $25.1 million at September 30, 2018. For further information regarding our U.S. Revolver, see Note E of Notes to Condensed Consolidated Financial Statements.

Our U.S. Revolver is a $75.0 million revolving credit facility in the U.S. As of June 30, 2019, there were no amounts borrowed under this facility. Total letters of credit outstanding under our U.S. Revolver, which reduce our availability, were $11.8 million at June 30, 2019 and $23.1 million at September 30, 2018. Currently, our U.S. Revolver can only be used for letters of credit until we meet certain financial ratios as described in Note E of Notes to Condensed Consolidated Financial Statements. As of June 30, 2019, there was $63.2 million available for the issuance of letters of credit under the U.S. Revolver. Total long-term debt, including current maturities, totaled $1.2 million at June 30, 2019, compared to $1.6 million at September 30, 2018.

Approximately $22.8 million of our cash and short-term investments at June 30, 2019 was held outside of the U.S. for international operations. It is our intention to indefinitely reinvest all current and future foreign earnings internationally in order to ensure sufficient working capital to support our international operations. In the event that we elect to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside the U.S., under current tax laws we would incur additional tax expense upon such repatriation.

Operating Activities

Cash provided by operating activities increased to $33.9 million during the nine months ended June 30, 2019, compared to cash used in operating activities of $26.1 million during the same period in Fiscal 2018. This increase in operating cash flow for the nine months ended June 30, 2019 was primarily due to the completion and cash collection of contractual billing milestones, the collection of accounts receivable and the receipt of a $6.6 million income tax refund. Cash flow from operations is primarily influenced by project volume, the timing of milestone payments from our customers and the payment terms with our suppliers.  

Investing Activities

Net cash provided by investing activities during the nine months ended June 30, 2019 totaled $4.0 million compared to cash provided by investing activities of $6.8 million during the same period in Fiscal 2018. This decrease in cash provided by investing activities in the current period was primarily due to a decrease in the net maturities of short-term investments compared to the same period in the prior year.

Financing Activities

Net cash used in financing activities was $10.5 million and $9.9 million during the nine months ended June 30, 2019 and 2018, respectively. These amounts primarily consisted of cash dividends of approximately $9.0 million during the nine months ended June 30, 2019 and $8.9 million during the nine months ended June 30, 2018.

New Accounting Standards

See Note A of Notes to Condensed Consolidated Financial Statements included in this report for information on new accounting standards.

24

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates.

Effective October 1, 2018, we adopted the new revenue recognition guidance which resulted in changes to our revenue recognition policy. See Note D of Notes to Condensed Consolidated Financial Statements for information on the new revenue recognition guidance and related disclosures. There have been no other material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended September 30, 2018.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks arising from transactions we have entered into in the normal course of business. These risks primarily relate to fluctuations in market conditions, commodity prices, foreign exchange rates and interest rates.

Market Risk

We are exposed to general market risk and its potential impact on accounts receivable or costs and estimated earnings in excess of billings on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. Our customers are typically in 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 and light traction power. We maintain ongoing discussions with customers regarding contract status with respect to payment status, change orders and billing terms in an effort to monitor collections of amounts billed.

Commodity Price Risk

We are subject to market risk from fluctuating market prices of certain raw materials used in our products. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We attempt to pass along such commodity price increases to our customers on a contract-by-contract basis to avoid a negative effect on profit margin. While we may do so in the future, we have not currently entered into any derivative contracts to hedge our exposure to commodity risk. We continue to experience price volatility with some of our key raw materials and components. Fixed-price contracts may limit our ability to pass cost increases to our customers, thus negatively impacting our earnings. Fluctuations in commodity prices may have a material impact on our future earnings and cash flows.

Foreign Currency Transaction Risk

We have operations that expose us to currency risk in the British Pound Sterling, the Canadian Dollar and to a lesser extent the Euro. Amounts invested in our foreign operations are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as accumulated other comprehensive income (loss), a component of stockholders’ equity in our condensed consolidated balance sheets. We believe the exposure to the effects that fluctuating foreign currencies have on our consolidated results of operations is limited because the foreign operations primarily invoice customers and collect obligations in their respective currencies or U.S. Dollars. Additionally, expenses associated with these transactions are generally contracted and paid for in the same local currencies. For the nine months ended June 30, 2019, our realized foreign exchange gain was $0.1 million and is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Our accumulated other comprehensive loss, which is included as a component of stockholders’ equity, was $23.2 million as of June 30, 2019, an increase of $1.4 million compared to September 30, 2018. This increase in comprehensive loss was primarily a result of fluctuations in the currency exchange rates for the Canadian Dollar and British Pound Sterling as we remeasured the foreign operations of those divisions.  

We do not currently hedge our exposure to potential foreign currency translation adjustments.

25

Interest Rate Risk

If we meet certain covenants and are able to borrow under our U.S. Revolver, we will be subject to market risk resulting from changes in interest rates related to our floating rate bank credit facility. If we were to make such borrowings, a hypothetical 100 basis point increase in variable interest rates may result in a material impact to our financial statements. While we do not currently have any derivative contracts to hedge our exposure to interest rate risk, in the past we have entered and may in the future enter into such contracts. During each of the periods presented, we have not experienced a significant effect on our business due to changes in interest rates.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures.

Management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.  Based on such evaluation, our CEO and CFO have each concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. Although we can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity.

Item 1A. Risk Factors

There are no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

26

Item 6. Exhibits

Number		Description of Exhibits
3.1	—	Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary of State of the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to our Form 8-A/A filed November 1, 2004, and incorporated herein by reference).
3.2	—	Amended and Restated Bylaws of Powell Industries, Inc. (filed as Exhibit 3.1 to our Form 8-K filed October 12, 2012, and incorporated herein by reference).
10.1	—	First Amendment to Consulting and Advisory Services Agreement effective May 6, 2019 by and between the Company and Don R. Madison (filed as Exhibit 10.1 to our Form 8-K filed May 8, 2019 and incorporated herein by reference).
*31.1	—	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
*31.2	—	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
**32.1	—	Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**32.2	—	Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS	—	XBRL Instance Document
*101.SCH	—	XBRL Taxonomy Extension Schema Document
*101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document
*101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
** Furnished herewith

27

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)
Date: August 7, 2019	By:	/s/ Brett A. Cope
		Brett A. Cope
		President and Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/  Michael W. Metcalf
		Michael W. Metcalf
		Executive Vice President
		Chief Financial Officer
		(Principal Financial Officer)

28

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Brett A. Cope, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Powell Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Brett A. Cope

Brett A. Cope

President and Chief Executive Officer

(Principal Executive Officer)

Date: August 7, 2019

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Michael W. Metcalf, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Powell Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael W. Metcalf 

Michael W. Metcalf

Executive Vice President

Chief Financial Officer

(Principal Financial Officer)

Date: August 7, 2019

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report (the “Report”) on Form 10-Q of Powell Industries, Inc. (the “Company”) for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof, I, Brett A. Cope, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company.

/s/ Brett A. Cope

Brett A. Cope

President and Chief Executive Officer

Date: August 7, 2019

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report (the “Report”) on Form 10-Q of Powell Industries, Inc. (the “Company”) for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof, I, Michael W. Metcalf, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael W. Metcalf 

Michael W. Metcalf

Executive Vice President

Chief Financial Officer

Date: August 7, 2019

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	Jun. 30, 2019	Aug. 05, 2019
Document And Entity Information [Abstract]
Entity Registrant Name	POWELL INDUSTRIES INC
Entity Central Index Key	0000080420
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Amendment Flag	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--09-30
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Shell Company	false
Entity Current Reporting Status	Yes
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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2019	Sep. 30, 2018
Current Assets:
Cash and cash equivalents	$ 71,921	$ 36,584
Short-term investments	6,109	13,170
Restricted cash	8,188	19,154
Accounts receivable, less allowance for doubtful accounts of $205 and $157	108,551	92,548
Contract assets	57,231	82,545
Inventories	29,484	21,352
Income taxes receivable	72	6,904
Prepaid expenses	3,316	3,775
Other current assets	2,398	630
Total Current Assets	287,270	276,662
Property, plant and equipment, net	121,909	128,764
Restricted cash	8,476	5,987
Goodwill and intangible assets, net	1,381	1,514
Deferred income taxes	6,960	5,937
Other assets	11,110	11,087
Total Assets	437,106	429,951
Current Liabilities:
Current maturities of long-term debt	400	400
Accounts payable	38,483	40,714
Contract liabilities	60,868	43,174
Accrued compensation and benefits	16,078	22,274
Accrued product warranty	3,180	2,604
Income taxes payable	507	897
Other current liabilities	10,285	7,786
Total Current Liabilities	129,801	117,849
Long-term debt, net of current maturities	800	1,200
Deferred compensation	6,497	5,902
Other long-term liabilities	4,349	3,356
Total Liabilities	141,447	128,307
Commitments and Contingencies (Note F)
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued	0	0
Common stock, par value $.01; 30,000,000 shares authorized; 12,358,566 and 12,280,556 shares issued, respectively	124	123
Additional paid-in capital	57,838	56,769
Retained earnings	285,891	291,530
Treasury stock, 806,018 shares at cost	(24,999)	(24,999)
Accumulated other comprehensive loss	(23,195)	(21,779)
Total Stockholders' Equity	295,659	301,644
Total Liabilities and Stockholders' Equity	$ 437,106	$ 429,951

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2019	Sep. 30, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 205	$ 157
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	30,000,000	30,000,000
Common stock, shares issued (in shares)	12,358,566	12,280,556
Treasury stock, shares (in shares)	806,018	806,018

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
Revenues	$ 135,588	$ 122,130	$ 368,676	$ 313,819
Cost of goods sold	111,873	103,755	310,255	272,469
Gross profit	23,715	18,375	58,421	41,350
Selling, general and administrative expenses	17,117	16,174	50,240	48,462
Research and development expenses	1,631	1,632	4,988	4,926
Amortization of intangible assets	44	44	132	161
Insurance proceeds	(950)	0	(950)	0
Restructuring and other, net	233	0	233	0
Operating income (loss)	5,640	525	3,778	(12,199)
Other income	0	0	0	(507)
Interest expense	59	51	170	153
Interest income	(305)	(215)	(707)	(711)
Income (loss) before income taxes	5,886	689	4,315	(11,134)
Income tax expense (benefit)	797	388	963	(2,443)
Net income (loss)	$ 5,089	$ 301	$ 3,352	$ (8,691)
Income (loss) per share:
Basic (in dollars per share)	$ 0.44	$ 0.03	$ 0.29	$ (0.76)
Diluted (in dollars per share)	$ 0.44	$ 0.03	$ 0.29	$ (0.76)
Weighted average shares:
Basic (in shares)	11,579	11,514	11,567	11,503
Diluted (in shares)	11,603	11,587	11,589	11,503
Dividends per share (in dollars per share)	$ 0.26	$ 0.26	$ 0.78	$ 0.78

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Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 5,089	$ 301	$ 3,352	$ (8,691)
Foreign currency translation adjustments	952	(2,543)	(1,416)	(4,132)
Comprehensive income (loss)	$ 6,041	$ (2,242)	$ 1,936	$ (12,823)

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Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Acummulated Other Comprehensive Income
Balance (in shares) at Sep. 30, 2017		12,234			(806)
Balance at Sep. 30, 2017	$ 321,296	$ 122	$ 54,329	$ 310,598	$ (24,999)	$ (18,754)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(5,662)			(5,662)
Foreign currency translation adjustments	(314)					(314)
Stock-based compensation (in shares)		23
Stock-based compensation	1,069		1,069
Shares withheld in lieu of employee tax withholding	(438)		(438)
Dividends paid	(2,977)			(2,977)
Balance (in shares) at Dec. 31, 2017		12,257			(806)
Balance at Dec. 31, 2017	312,974	$ 122	54,960	301,959	$ (24,999)	(19,068)
Balance (in shares) at Sep. 30, 2017		12,234			(806)
Balance at Sep. 30, 2017	321,296	$ 122	54,329	310,598	$ (24,999)	(18,754)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(8,691)
Foreign currency translation adjustments	(4,132)
Balance (in shares) at Jun. 30, 2018		12,276			(806)
Balance at Jun. 30, 2018	301,447	$ 123	56,235	292,974	$ (24,999)	(22,886)
Balance (in shares) at Dec. 31, 2017		12,257			(806)
Balance at Dec. 31, 2017	312,974	$ 122	54,960	301,959	$ (24,999)	(19,068)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(3,330)			(3,330)
Foreign currency translation adjustments	(1,275)					(1,275)
Stock-based compensation	998		998
Issuance of restricted stock (In shares)		12
Issuance of restricted stock	1	$ 1
Dividends paid	(2,976)			(2,976)
Balance (in shares) at Mar. 31, 2018		12,269			(806)
Balance at Mar. 31, 2018	306,392	$ 123	55,958	295,653	$ (24,999)	(20,343)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	301			301
Foreign currency translation adjustments	(2,543)					(2,543)
Stock-based compensation (in shares)		5
Stock-based compensation	417		417
Shares withheld in lieu of employee tax withholding	(140)		(140)
Issuance of restricted stock (In shares)		2
Issuance of restricted stock	0
Dividends paid	(2,980)			(2,980)
Balance (in shares) at Jun. 30, 2018		12,276			(806)
Balance at Jun. 30, 2018	301,447	$ 123	56,235	292,974	$ (24,999)	(22,886)
Balance (in shares) at Sep. 30, 2018		12,281			(806)
Balance at Sep. 30, 2018	301,644	$ 123	56,769	291,530	$ (24,999)	(21,779)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(2,695)			(2,695)
Foreign currency translation adjustments	(4,088)					(4,088)
Stock-based compensation (in shares)		41
Stock-based compensation	1,220		1,220
Shares withheld in lieu of employee tax withholding	(731)		(731)
Dividends paid	(2,992)			(2,992)
Balance (in shares) at Dec. 31, 2018		12,322			(806)
Balance at Dec. 31, 2018	292,358	$ 123	57,258	285,843	$ (24,999)	(25,867)
Balance (in shares) at Sep. 30, 2018		12,281			(806)
Balance at Sep. 30, 2018	301,644	$ 123	56,769	291,530	$ (24,999)	(21,779)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	3,352
Foreign currency translation adjustments	(1,416)
Balance (in shares) at Jun. 30, 2019		12,359			(806)
Balance at Jun. 30, 2019	295,659	$ 124	57,838	285,891	$ (24,999)	(23,195)
Balance (in shares) at Dec. 31, 2018		12,322			(806)
Balance at Dec. 31, 2018	292,358	$ 123	57,258	285,843	$ (24,999)	(25,867)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	958			958
Foreign currency translation adjustments	1,720					1,720
Stock-based compensation (in shares)		17
Stock-based compensation	670	$ 1	669
Shares withheld in lieu of employee tax withholding	(416)		(416)
Issuance of restricted stock (In shares)		14
Dividends paid	(2,996)			(2,996)
Balance (in shares) at Mar. 31, 2019		12,353			(806)
Balance at Mar. 31, 2019	292,294	$ 124	57,511	283,805	$ (24,999)	(24,147)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	5,089			5,089
Foreign currency translation adjustments	952					952
Stock-based compensation (in shares)		6
Stock-based compensation	331	$ 0	331
Shares withheld in lieu of employee tax withholding	(4)		(4)
Dividends paid	(3,003)			(3,003)
Balance (in shares) at Jun. 30, 2019		12,359			(806)
Balance at Jun. 30, 2019	$ 295,659	$ 124	$ 57,838	$ 285,891	$ (24,999)	$ (23,195)

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Operating Activities:
Net income (loss)	$ 3,352	$ (8,691)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	9,408	9,655
Stock-based compensation	2,220	2,485
Bad debt expense	126	110
Deferred income tax benefit	(1,023)	(2,840)
Gain on amended supply agreement	0	(507)
Changes in operating assets and liabilities:
Accounts receivable, net	(16,350)	(19,252)
Contract assets and liabilities, net	42,954	(6,211)
Inventories	(8,202)	(4,542)
Income taxes	6,439	945
Prepaid expenses and other current assets	(1,330)	924
Accounts payable	(2,174)	1,288
Accrued liabilities	(3,051)	355
Other, net	1,566	224
Net cash provided by (used in) operating activities	33,935	(26,057)
Investing Activities:
Purchases of short-term investments	(5,869)	(20,712)
Maturities of short-term investments	13,088	31,444
Purchases of property, plant and equipment, net	(3,210)	(3,922)
Net cash provided by investing activities	4,009	6,810
Financing Activities:
Payments on industrial development revenue bonds	(400)	(400)
Shares withheld in lieu of employee tax withholding	(1,151)	(578)
Dividends paid	(8,991)	(8,934)
Net cash used in financing activities	(10,542)	(9,912)
Net increase (decrease) in cash, cash equivalents and restricted cash	27,402	(29,159)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(542)	(389)
Cash, cash equivalents and restricted cash, beginning of period	61,725	93,210
Cash, cash equivalents and restricted cash, end of period	$ 88,585	$ 63,662

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OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 products 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.

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.

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, 2018, which was filed with the Securities and Exchange Commission (SEC) on December 12, 2018.

References to Fiscal 2019 and Fiscal 2018 used throughout this report shall mean our fiscal years ended September 30, 2019 and 2018, respectively.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a five-step approach to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract. Effective October 1, 2018, we adopted this standard using the modified retrospective basis. After evaluating the impact of this new standard on contracts outstanding as of October 1, 2018, we determined that no adjustment to retained earnings was necessary. See Note D for further discussion of revenue.

In February 2016, the FASB issued a new topic on leases which requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The new topic is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This would be our fiscal year ending September 30, 2020. In Fiscal 2018, we acquired new lease software designed to assist with our compliance of this new topic. We are still evaluating the impact this new topic will have on our consolidated financial position and results of operations.

In November 2016, the FASB issued a new topic on the statement of cash flows that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents is to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted this topic in Fiscal 2019 and our Condensed Consolidated Cash Flow Statements for all periods reflect this presentation.

In May 2017, the FASB issued a new topic on modification accounting with regards to stock based compensation. This new topic clarifies when a change to the terms or conditions of a share-based payment award should be accounted for as a modification. An entity should account for the effects of a modification unless the fair value, vesting conditions and classification, as an equity instrument or a liability instrument, of the modified award are the same before and after a change to the terms or conditions of the share-based payment award. We adopted this topic in Fiscal 2019 and it has not had a material impact on our consolidated financial position or results of operations.

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EARNINGS PER SHARE

9 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

We compute basic earnings per share by dividing net income (loss) 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.

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,
	2019		2018		2019		2018
Numerator:
Net income (loss)	$	5,089	$	301	$	3,352	$	(8,691	)
Denominator:
Weighted average basic shares	11,579		11,514		11,567		11,503
Dilutive effect of restricted stock units	24		73		22		—
Weighted average diluted shares	11,603		11,587		11,589		11,503
Income (loss) per share:
Basic	$	0.44	$	0.03	$	0.29	$	(0.76	)
Diluted	$	0.44	$	0.03	$	0.29	$	(0.76	)

For the nine months endedJune 30, 2018, we incurred a net loss and therefore all potential common shares were deemed to be anti-dilutive.

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DETAIL OF SELECTED BALANCE SHEET ACCOUNTS

9 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

DETAIL OF SELECTED BALANCE SHEET ACCOUNTS

DETAIL OF SELECTED BALANCE SHEET ACCOUNTS

Allowance for Doubtful Accounts

Activity in our allowance for doubtful accounts receivable consisted of the following (in thousands):

	Three months ended June 30,						Nine months ended June 30,
	2019			2018			2019			2018
Balance at beginning of period	$	214		$	264		$	157		$	179
Bad debt expense	25			18			126			110
Uncollectible accounts written off, net of recoveries	(31		)	(36		)	(74		)	(44		)
Change due to foreign currency translation	(3		)	(7		)	(4		)	(6		)
Balance at end of period	$	205		$	239		$	205		$	239

Inventories

The components of inventories are summarized below (in thousands):

	June 30, 2019		September 30, 2018
Raw materials, parts and subassemblies, net	$	28,436	$	20,272
Work-in-progress	1,048		1,080
Total inventories	$	29,484	$	21,352

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,
	2019			2018			2019			2018
Balance at beginning of period	$	2,986		$	2,241		$	2,604		$	3,174
Increase (decrease) in warranty expense	945			1,036			2,572			970
Deduction for warranty charges	(754		)	(891		)	(1,992		)	(1,752		)
Change due to foreign currency translation	3			(23		)	(4		)	(29		)
Balance at end of period	$	3,180		$	2,363		$	3,180		$	2,363

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REVENUE

9 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

REVENUE

REVENUE

On October 1, 2018, we adopted the new revenue recognition standard using the modified retrospective transition method. We applied the guidance to customer contracts which were not substantially complete at that time and we determined that no adjustment to retained earnings was necessary. Financial results for reporting periods after October 1, 2018 are reported under the new guidance; however financial results for prior periods were not adjusted and will continue to be presented in accordance with the previous guidance.

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 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 93% of total revenues for both 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 a point in time when we fulfill our performance obligation to the customer which is typically upon shipment. Revenue related to sales orders represents approximately 7% of total revenues for both 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 judgement. 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 eighteen months after shipment. Occasionally, we provide service-type warranties that will extend the warranty period. These extended warranties qualify as a separate performance obligation. 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, 2019, we had backlog of $407.0 million, of which approximately $368.7 million is expected to be recognized 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 endedJune 30, 2019 and 2018, our operating results were positively impacted by $4.3 million and $2.9 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 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.

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, previously referred to as costs and estimated earnings in excess of billings on uncompleted contracts, 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 receivables when billing milestones have been met or we have an unconditional right to payment.

Contract liabilities, previously referred to as billings in excess of costs and estimated earnings on uncompleted contracts, 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, 2019 and September 30, 2018 are summarized below (in thousands):

	June 30, 2019			September 30, 2018
Contract assets	$	57,231		$	82,545
Contract liabilities	(60,868		)	(43,174		)
Net contract asset (liability)	$	(3,637	)	$	39,371

The decrease in net contract asset (liability) at June 30, 2019 from September 30, 2018 was primarily due to our progress towards completion on our projects and the timing of contract billing milestones and new orders. 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, 2019, we recognized revenue of approximately $2.2 million and $39.4 million, respectively, related to contract liabilities outstanding at September 30, 2018.

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, 2019 and September 30, 2018, accounts receivable included retention amounts of $4.7 million and $4.2 million, respectively. Of the retained amount at June 30, 2019, $4.4 million is expected to be collected in the next twelve months.

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, 2019 (in thousands):

	Three months ended June 30, 2019		Nine months ended June 30, 2019
United States	$	99,745	$	292,049
Canada	20,206		45,015
Europe, Middle East and Africa	9,659		20,608
Asia/Pacific	4,682		9,155
Mexico, Central and South America	1,296		1,849
Total revenues by geographic destination	$	135,588	$	368,676

	Three months ended June 30, 2019		Nine months ended June 30, 2019
Oil and gas	$	62,356	$	167,954
Petrochemical	21,086		63,387
Electric utility	26,425		66,066
Traction power	7,423		18,457
All others	18,298		52,812
Total revenues by market sector	$	135,588	$	368,676

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LONG-TERM DEBT

9 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

LONG-TERM DEBT

LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):

	June 30, 2019			September 30, 2018
Industrial development revenue bonds	$	1,200		$	1,600
Less current portion	(400		)	(400		)
Total long-term debt	$	800		$	1,200

U.S. Revolver

We have a $75.0 million revolving credit facility (U.S. Revolver) to provide working capital support and letters of credit which expires in June 2022. The amount available under the U.S. Revolver at June 30, 2019 was reduced by $11.8 million for our outstanding letters of credit. Currently, our U.S. Revolver can only be used for letters of credit until we meet certain financial ratios. There were no loans outstanding under the U.S. Revolver as of June 30, 2019. 

Per the terms of the U.S. Revolver, we are required to maintain cash in a pledged collateral account until we satisfy the following two financial ratios for two consecutive fiscal quarters: a max leverage ratio and a fixed charge coverage ratio. The max leverage ratio requires that the ratio of our consolidated funded indebtedness to our consolidated earnings before interest, taxes and depreciation (EBITDA) for the last four consecutive quarters not exceed 2.75 to 1.00. The fixed charge coverage ratio requires that the ratio of consolidated EBITDA for the last four fiscal quarters, less income taxes, capital expenditures, dividends, principal debt payments and interest charges be at least 1.25 to 1.00. If we are not in compliance with the these two ratios, we are required to maintain a cash balance in a pledged cash collateral account equal to 102% of the outstanding amount of any loans and letter of credit obligations until we meet the aforementioned required ratios. As of June 30, 2019, the balance in the cash collateral account was $16.7 million and is recorded as restricted cash in our Condensed Consolidated Balance Sheets. The portion of the cash collateral associated with the outstanding letters of credit that are due to expire beyond twelve months has been classified as non-current restricted cash on our condensed consolidated balance sheets. As of June 30, 2019, there was $63.2 million available for the issuance of letters of credit under the U.S. Revolver, subject to the cash collateral requirements mentioned above.

The interest rate for amounts outstanding under the U.S. Revolver is a floating rate based upon the higher of the Federal Funds Rate plus 0.5%, the bank’s prime rate, or the Eurocurrency rate plus 1.00%. Once the applicable rate is determined, a margin ranging up to 1.25% is added to the applicable rate.

The U.S. Revolver is collateralized by a pledge of 100% of the voting capital stock of each of our domestic subsidiaries and 65% of the voting capital stock of each non-domestic subsidiary. The U.S. Revolver provides for customary events of default and carries cross-default provisions with other existing debt agreements. If an event of default (as defined in the U.S. Revolver) occurs and is continuing, on the terms and subject to the conditions set forth in the U.S. Revolver, amounts outstanding under the U.S. Revolver may be accelerated and may become immediately due and payable. It also contains financial covenants defining various financial measures and the levels of these measures with which we must comply, as well as a “material adverse change” clause. A “material adverse change” is defined as a material change in our operations, business, properties, liabilities or condition (financial or otherwise) or a material impairment of our ability to perform our obligations under our credit agreements. As of June 30, 2019, we were in compliance with all of the financial covenants of the U.S. Revolver.

Industrial Development Revenue Bonds

We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds from tax-exempt industrial development revenue bonds (Bonds). These Bonds were issued by the Illinois Development Finance Authority and were used for the completion of our Northlake, Illinois facility. Pursuant to the Bond issuance, a reimbursement agreement between us and a major domestic bank required an issuance by the bank of an irrevocable direct-pay letter of credit (Bond LC), as collateral, to the Bonds’ trustee to guarantee payment of the Bonds’ principal and interest when due. The Bond LC is subject to both early termination and extension provisions customary to such agreements, as well as various covenants, for which we were in compliance at June 30, 2019. While the Bonds mature in 2021, the reimbursement agreement requires annual redemptions of $0.4 million that commenced on October 25, 2002. A sinking fund is used for the redemption of the Bonds. The Bonds bear interest at a floating rate determined weekly by the Bonds’ remarketing agent, which was the underwriter for the Bonds and is an affiliate of the bank. This interest rate was 2.03% as of June 30, 2019.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Letters of Credit, Surety Bonds and Bank Guarantees

Certain customers require us to post letters of credit or surety bonds which assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or performance by the surety under a bond. To date, there have been no significant expenses related to either letters of credit or surety bonds for the periods reported. We were contingently liable for letters of credit of $11.8 million as of June 30, 2019. We also had surety bonds totaling $152.9 million that were outstanding, with additional bonding capacity of $597.1 million available, at June 30, 2019.

Additionally, we have a $6.3 million facility agreement (Facility Agreement) between Powell (UK) Limited and a large international bank. This Facility Agreement provides Powell (UK) Limited the ability to enter into bank guarantees as well as forward exchange contracts and currency options. At June 30, 2019, we had outstanding guarantees totaling $3.7 million under this Facility Agreement and amounts available under this Facility Agreement were $2.6 million. The Facility Agreement provides for financial covenants and customary events of default, and carries cross-default provisions with our U.S. Revolver. If an event of default (as defined in the Facility Agreement) occurs and is continuing, per the terms and subject to the conditions set forth therein, obligations outstanding under the Facility Agreement may be accelerated and declared immediately due and payable. As of June 30, 2019, we were in compliance with all of the financial covenants of the Facility Agreement.  

Litigation

We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. Although we can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity.

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STOCK-BASED COMPENSATION

9 Months Ended

Jun. 30, 2019

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 for a full description of our existing stock-based compensation plans.

Restricted Stock Units

We issue restricted stock units (RSUs) to certain officers and key employees of the Company. The fair value of the RSUs is based on the price of our common stock as reported on the NASDAQ Global Market on the grant dates. The typical annual grant vests over a three-year period from the date of issuance and is a blend of time-based and performance-based shares. The portion of the grant that is time-based typically vests over a three-year period on each anniversary of the grant date, based on continued employment. The performance-based shares vest based on the three-year earnings performance of the Company following the grant date. At June 30, 2019, there were 159,216 RSUs outstanding. The RSUs do not have voting rights but do receive dividend equivalents upon vesting; additionally, the shares of common stock underlying the RSUs are not considered issued and outstanding until vested and common stock is issued.

RSU activity (number of shares) for the nine months ended June 30, 2019 is summarized below:

	Number of Restricted Stock Units		Weighted Average Fair Value Per Share
Outstanding at September 30, 2018	190,500		$	33.73
Granted	77,150		34.89
Vested	(97,684	)	32.36
Forfeited/canceled	(10,750	)	34.27
Outstanding at June 30, 2019	159,216		$	34.45

During the nine months ended June 30, 2019 and 2018, we recorded compensation expense of $1.8 million and $2.0 million, respectively, related to the RSUs. 

Restricted Stock

Each non-employee director receives 2,000 restricted shares of the Company’s common stock annually. Fifty-percent of the restricted stock granted to each of our non-employee directors vests immediately, while the remaining fifty-percent vests on the anniversary of the grant date. Compensation expense is recognized immediately for the first fifty-percent of the restricted stock granted, while compensation expense for the remaining fifty-percent is recognized over the remaining vesting period based on the closing price per share on the grant date. In February 2019, 14,000 shares of restricted stock were issued to our non-employee directors under the 2014 Director Plan at a price of $34.02 per share. For each of the nine months ended June 30, 2019 and 2018, we recorded compensation expense of $0.4 million, related to restricted stock. 

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FAIR VALUE MEASUREMENTS

9 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

We measure certain financial assets and liabilities at fair value. Fair value is defined as an “exit price” which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in valuing an asset or liability. The accounting guidance requires the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumptions and inputs, a fair value hierarchy has been established which identifies and prioritizes three levels of inputs to be used in measuring fair value.

The three levels of the fair value hierarchy are as follows:

Level 1 — Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 — Inputs other than the quoted prices in active markets that are observable either directly or indirectly, including: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.

The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2019 (in thousands):

	Fair Value Measurements at June 30, 2019
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at June 30, 2019
Assets:
Cash and cash equivalents	$	71,921	$	—	$	—	$	71,921
Short-term investments	6,109		—		—		6,109
Restricted cash	16,664		—		—		16,664
Other assets	—		6,821		—		6,821
Liabilities:
Deferred compensation	—		6,284		—		6,284

The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2018 (in thousands):

	Fair Value Measurements at September 30, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2018
Assets:
Cash and cash equivalents	$	36,584	$	—	$	—	$	36,584
Short-term investments	13,170		—		—		13,170
Restricted cash	25,141		—		—		25,141
Other assets	—		6,817		—		6,817
Liabilities:
Deferred compensation	—		5,644		—		5,644

Fair value guidance requires certain fair value disclosures be presented in both interim and annual reports.  The estimated fair value amounts of financial instruments have been determined using available market information and valuation methodologies described below.

Cash and cash equivalents – Cash and cash equivalents, primarily funds held in money market savings instruments, are reported at their current carrying value which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in our Condensed Consolidated Balance Sheets.

Short-term Investments – Short-term investments include time deposits with original maturities of three months or more.

Restricted Cash – Restricted cash represents a pledged cash collateral balance which is required under our amended credit agreement and is held in an interest-bearing account. See Note E for further discussion on restricted cash.

Other Assets/Deferred Compensation – We hold investments in an irrevocable Rabbi Trust for our deferred compensation plan. The assets include both mutual fund investments and company-owned life insurance policies and are included in other assets in the accompanying Condensed Consolidated Balance sheets. Because the mutual funds and company-owned life insurance policies are combined in the plan, they are categorized as Level 2 in the fair value measurement hierarchy. The deferred compensation liability represents the investment options that the plan participants have designated to serve as the basis for measurement of the notional value of their accounts. Because the deferred compensation liability is intended to offset the plan assets, it is also categorized as Level 2 in the fair value measurement hierarchy.

There were no transfers between levels within the fair value measurement hierarchy during the quarter ended June 30, 2019.

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RESTRUCTURING AND OTHER

9 Months Ended

Jun. 30, 2019

Restructuring and Related Activities [Abstract]

RESTRUCTURING AND OTHER

RESTRUCTURING AND OTHER

In the nine months ended June 30, 2019, we recorded lease accrual adjustments of $0.7 million related to certain facility leases in Canada that are no longer utilized in our operations. We also recorded a recovery of $0.5 million in the nine months ended June 30, 2019 as a result of the favorable settlement of a claim related to the divestiture of a subsidiary in Fiscal 2014.

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INCOME TAXES

9 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The calculation of the effective tax rate is as follows (in thousands):

	Three months ended June 30,						Nine months ended June 30,
	2019			2018			2019			2018
Income (loss) before income taxes	$	5,886		$	689		$	4,315		$	(11,134	)
Income tax expense (benefit)	797			388			963			(2,443		)
Net income (loss)	$	5,089		$	301		$	3,352		$	(8,691	)
Effective tax rate	14		%	56		%	22		%	22		%

On December 22, 2017, the new tax law lowered the corporate tax rate from 35% to 21% effective January 1, 2018. As a result, the U.S. federal statutory rate for Fiscal 2019 is 21%, compared to the blended statutory rate of 24.5% effective for Fiscal 2018. The effective tax rate of 14% for the third quarter of Fiscal 2019 was positively impacted by the relative amounts of income recognized in various foreign jurisdictions that were reserved with a valuation allowance. Conversely, losses recognized in foreign jurisdictions reserved with a valuation allowance negatively impacted the effective tax rate of 56% in the third quarter of Fiscal 2018.

For the nine months ended June 30, 2019, the effective tax rate of 22% approximated the U.S. federal statutory rate as the immaterial losses incurred by foreign operations that were reserved with a valuation allowance had a minimal impact on the effective tax rate. The effective tax rate of 22% for the nine months ended June 30, 2018 was negatively impacted by foreign tax losses reserved with a valuation allowance, as well as $0.7 million of tax expense related to the re-measurement of U.S. deferred tax assets as a result of tax reform.

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SUBSEQUENT EVENTS

9 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

On August 6, 2019, our Board of Directors declared a quarterly cash dividend on our common stock in the amount of $0.26 per share. The dividend is payable on September 18, 2019 to shareholders of record at the close of business on August 21, 2019.

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OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

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.

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, 2018, which was filed with the Securities and Exchange Commission (SEC) on December 12, 2018.

References to Fiscal 2019 and Fiscal 2018 used throughout this report shall mean our fiscal years ended September 30, 2019 and 2018, respectively.

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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

New Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a five-step approach to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract. Effective October 1, 2018, we adopted this standard using the modified retrospective basis. After evaluating the impact of this new standard on contracts outstanding as of October 1, 2018, we determined that no adjustment to retained earnings was necessary. See Note D for further discussion of revenue.

In February 2016, the FASB issued a new topic on leases which requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The new topic is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This would be our fiscal year ending September 30, 2020. In Fiscal 2018, we acquired new lease software designed to assist with our compliance of this new topic. We are still evaluating the impact this new topic will have on our consolidated financial position and results of operations.

In November 2016, the FASB issued a new topic on the statement of cash flows that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents is to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted this topic in Fiscal 2019 and our Condensed Consolidated Cash Flow Statements for all periods reflect this presentation.

In May 2017, the FASB issued a new topic on modification accounting with regards to stock based compensation. This new topic clarifies when a change to the terms or conditions of a share-based payment award should be accounted for as a modification. An entity should account for the effects of a modification unless the fair value, vesting conditions and classification, as an equity instrument or a liability instrument, of the modified award are the same before and after a change to the terms or conditions of the share-based payment award. We adopted this topic in Fiscal 2019 and it has not had a material impact on our consolidated financial position or results of operations.

Revenue Recognition

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 judgement. 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 eighteen months after shipment. Occasionally, we provide service-type warranties that will extend the warranty period. These extended warranties qualify as a separate performance obligation. 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.

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, previously referred to as costs and estimated earnings in excess of billings on uncompleted contracts, 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 receivables when billing milestones have been met or we have an unconditional right to payment.

Contract liabilities, previously referred to as billings in excess of costs and estimated earnings on uncompleted contracts, 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.

On October 1, 2018, we adopted the new revenue recognition standard using the modified retrospective transition method. We applied the guidance to customer contracts which were not substantially complete at that time and we determined that no adjustment to retained earnings was necessary. Financial results for reporting periods after October 1, 2018 are reported under the new guidance; however financial results for prior periods were not adjusted and will continue to be presented in accordance with the previous guidance.

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 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 93% of total revenues for both 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 a point in time when we fulfill our performance obligation to the customer which is typically upon shipment. Revenue related to sales orders represents approximately 7% of total revenues for both 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

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.

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.

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EARNINGS PER SHARE (Tables)

9 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Reconciliation of Basic and Diluted Weighted Average Shares used in Computation of Earnings Per Share

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,
	2019		2018		2019		2018
Numerator:
Net income (loss)	$	5,089	$	301	$	3,352	$	(8,691	)
Denominator:
Weighted average basic shares	11,579		11,514		11,567		11,503
Dilutive effect of restricted stock units	24		73		22		—
Weighted average diluted shares	11,603		11,587		11,589		11,503
Income (loss) per share:
Basic	$	0.44	$	0.03	$	0.29	$	(0.76	)
Diluted	$	0.44	$	0.03	$	0.29	$	(0.76	)

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DETAIL OF SELECTED BALANCE SHEET ACCOUNTS (Tables)

9 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Activity in Allowance for Doubtful Accounts Receivable

Activity in our allowance for doubtful accounts receivable consisted of the following (in thousands):

	Three months ended June 30,						Nine months ended June 30,
	2019			2018			2019			2018
Balance at beginning of period	$	214		$	264		$	157		$	179
Bad debt expense	25			18			126			110
Uncollectible accounts written off, net of recoveries	(31		)	(36		)	(74		)	(44		)
Change due to foreign currency translation	(3		)	(7		)	(4		)	(6		)
Balance at end of period	$	205		$	239		$	205		$	239

Components of Inventories

The components of inventories are summarized below (in thousands):

	June 30, 2019		September 30, 2018
Raw materials, parts and subassemblies, net	$	28,436	$	20,272
Work-in-progress	1,048		1,080
Total inventories	$	29,484	$	21,352

Activity in Product Warranty Accrual

Activity in our product warranty accrual consisted of the following (in thousands):

	Three months ended June 30,						Nine months ended June 30,
	2019			2018			2019			2018
Balance at beginning of period	$	2,986		$	2,241		$	2,604		$	3,174
Increase (decrease) in warranty expense	945			1,036			2,572			970
Deduction for warranty charges	(754		)	(891		)	(1,992		)	(1,752		)
Change due to foreign currency translation	3			(23		)	(4		)	(29		)
Balance at end of period	$	3,180		$	2,363		$	3,180		$	2,363

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REVENUE (Tables)

9 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

Summary of Contract Asset and Liabilities

Contract assets and liabilities as of June 30, 2019 and September 30, 2018 are summarized below (in thousands):

	June 30, 2019			September 30, 2018
Contract assets	$	57,231		$	82,545
Contract liabilities	(60,868		)	(43,174		)
Net contract asset (liability)	$	(3,637	)	$	39,371

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, 2019 (in thousands):

	Three months ended June 30, 2019		Nine months ended June 30, 2019
United States	$	99,745	$	292,049
Canada	20,206		45,015
Europe, Middle East and Africa	9,659		20,608
Asia/Pacific	4,682		9,155
Mexico, Central and South America	1,296		1,849
Total revenues by geographic destination	$	135,588	$	368,676

	Three months ended June 30, 2019		Nine months ended June 30, 2019
Oil and gas	$	62,356	$	167,954
Petrochemical	21,086		63,387
Electric utility	26,425		66,066
Traction power	7,423		18,457
All others	18,298		52,812
Total revenues by market sector	$	135,588	$	368,676

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LONG-TERM DEBT (Tables)

9 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Components of Long-term debt

Long-term debt consisted of the following (in thousands):

	June 30, 2019			September 30, 2018
Industrial development revenue bonds	$	1,200		$	1,600
Less current portion	(400		)	(400		)
Total long-term debt	$	800		$	1,200

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STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Jun. 30, 2019

Share-based Payment Arrangement [Abstract]

Schedule of Restricted Stock Units Activity

RSU activity (number of shares) for the nine months ended June 30, 2019 is summarized below:

	Number of Restricted Stock Units		Weighted Average Fair Value Per Share
Outstanding at September 30, 2018	190,500		$	33.73
Granted	77,150		34.89
Vested	(97,684	)	32.36
Forfeited/canceled	(10,750	)	34.27
Outstanding at June 30, 2019	159,216		$	34.45

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value of Assets and Liabilities Measured on Recurring Basis

The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2019 (in thousands):

	Fair Value Measurements at June 30, 2019
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at June 30, 2019
Assets:
Cash and cash equivalents	$	71,921	$	—	$	—	$	71,921
Short-term investments	6,109		—		—		6,109
Restricted cash	16,664		—		—		16,664
Other assets	—		6,821		—		6,821
Liabilities:
Deferred compensation	—		6,284		—		6,284

The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2018 (in thousands):

	Fair Value Measurements at September 30, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2018
Assets:
Cash and cash equivalents	$	36,584	$	—	$	—	$	36,584
Short-term investments	13,170		—		—		13,170
Restricted cash	25,141		—		—		25,141
Other assets	—		6,817		—		6,817
Liabilities:
Deferred compensation	—		5,644		—		5,644

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INCOME TAXES (Tables)

9 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Schedule of Calculation of the Effective Income Tax Rate

The calculation of the effective tax rate is as follows (in thousands):

	Three months ended June 30,						Nine months ended June 30,
	2019			2018			2019			2018
Income (loss) before income taxes	$	5,886		$	689		$	4,315		$	(11,134	)
Income tax expense (benefit)	797			388			963			(2,443		)
Net income (loss)	$	5,089		$	301		$	3,352		$	(8,691	)
Effective tax rate	14		%	56		%	22		%	22		%

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Jun. 30, 2019	Jun. 30, 2018
Numerator:
Net income (loss)	$ 5,089	$ 958	$ (2,695)	$ 301	$ (3,330)	$ (5,662)	$ 3,352	$ (8,691)
Denominator:
Weighted average basic shares (in shares)	11,579			11,514			11,567	11,503
Dilutive effect of restricted stock units (in shares)	24			73			22	0
Weighted average diluted shares	11,603			11,587			11,589	11,503
Income (loss) per share:
Basic (in dollars per share)	$ 0.44			$ 0.03			$ 0.29	$ (0.76)
Diluted (in dollars per share)	$ 0.44			$ 0.03			$ 0.29	$ (0.76)

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DETAIL OF SELECTED BALANCE SHEET ACCOUNTS - Activity in Allowance for Doubtful Accounts Receivable (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Balance at beginning of period	$ 214	$ 264	$ 157	$ 179
Bad debt expense	25	18	126	110
Uncollectible accounts written off, net of recoveries	(31)	(36)	(74)	(44)
Change due to foreign currency translation	(3)	(7)	(4)	(6)
Balance at end of period	$ 205	$ 239	$ 205	$ 239

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DETAIL OF SELECTED BALANCE SHEET ACCOUNTS - Components of Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Raw materials, parts and subassemblies, net	$ 28,436	$ 20,272
Work-in-progress	1,048	1,080
Total inventories	$ 29,484	$ 21,352

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DETAIL OF SELECTED BALANCE SHEET ACCOUNTS - Activity in Product Warranty Accrual (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Movement in Standard Product Warranty Accrual [Roll Forward]
Balance at beginning of period	$ 2,986	$ 2,241	$ 2,604	$ 3,174
Increase (decrease) in warranty expense	945	1,036	2,572	970
Deduction for warranty charges	(754)	(891)	(1,992)	(1,752)
Change due to foreign currency translation	3	(23)	(4)	(29)
Balance at end of period	$ 3,180	$ 2,363	$ 3,180	$ 2,363

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REVENUE (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Jun. 30, 2018
Revenue from Contract with Customer [Abstract]
Revenue from products and services transferred to customers over time, percent	93.00%	93.00%
Revenue from sales orders, percentage	7.00%	7.00%
Changes in contract estimates related to projects in progress		$ 4.3	$ 2.9

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REVENUE - Performance Obligations (Details) $ in Millions	Jun. 30, 2019 USD ($)
Revenue from Contract with Customer [Abstract]
Remaining performance obligation, amount	$ 407.0
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-07-01
Revenue from Contract with Customer [Abstract]
Remaining performance obligation, amount	$ 368.7
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation, expected timing of satisfaction, period	1 year

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REVENUE - Contract Balances (Details) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Sep. 30, 2018
Revenue from Contract with Customer [Abstract]
Contract assets	$ 57,231		$ 82,545
Contract liabilities	(60,868)		(43,174)
Net contract asset (liability)	(3,637)		39,371
Revenue recognized related to contract liabilities	2,200	$ 39,400
Retention amounts included in accounts receivable	4,700		$ 4,200
Retained amount expected to be collected in the next twelve months	$ 4,400

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REVENUE - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Disaggregation of Revenue [Line Items]
Revenues	$ 135,588	$ 122,130	$ 368,676	$ 313,819
Oil and gas
Disaggregation of Revenue [Line Items]
Revenues	62,356		167,954
Petrochemical
Disaggregation of Revenue [Line Items]
Revenues	21,086		63,387
Electric utility
Disaggregation of Revenue [Line Items]
Revenues	26,425		66,066
Traction power
Disaggregation of Revenue [Line Items]
Revenues	7,423		18,457
All others
Disaggregation of Revenue [Line Items]
Revenues	18,298		52,812
United States
Disaggregation of Revenue [Line Items]
Revenues	99,745		292,049
Canada
Disaggregation of Revenue [Line Items]
Revenues	20,206		45,015
Europe, Middle East and Africa
Disaggregation of Revenue [Line Items]
Revenues	9,659		20,608
Asia/Pacific
Disaggregation of Revenue [Line Items]
Revenues	4,682		9,155
Mexico, Central and South America
Disaggregation of Revenue [Line Items]
Revenues	$ 1,296		$ 1,849

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LONG-TERM DEBT - Components of Long-Term Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Sep. 30, 2018
Debt Disclosure [Abstract]
Industrial development revenue bonds	$ 1,200	$ 1,600
Less current portion	(400)	(400)
Total long-term debt	$ 800	$ 1,200

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LONG-TERM DEBT - Narrative (Details) - USD ($)	9 Months Ended
	Jun. 30, 2019	Oct. 31, 2001
U.S. Revolver
Line Of Credit Facility [Line Items]
Revolving credit facility	$ 75,000,000.0
Revolving credit facility borrowings, outstanding amount	$ 0
Ratio of indebtedness to consolidated earnings before interest, taxes, depreciation and amortization	2.75
Ratio of consolidated earnings before interest, taxes, depreciation and amortization, less income taxes, capital expenditures, principal debt payments and interest charges	1.25
Amount available under the credit facility	$ 63,200,000
Percentage of voting capital stock pledged as collateral	100.00%
Non-domestic subsidiaries of voting capital stock	65.00%
U.S. Revolver | Maximum
Line Of Credit Facility [Line Items]
Basis spread on variable rate	1.25%
U.S. Revolver | Federal Funds Rate
Line Of Credit Facility [Line Items]
Basis spread on variable rate	0.50%
U.S. Revolver | Eurocurrency Rate
Line Of Credit Facility [Line Items]
Basis spread on variable rate	1.00%
U.S. Revolver | The Third Amendment
Line Of Credit Facility [Line Items]
Cash collateral percent of outstanding debt (at least)	102.00%
Cash collateral pledged balance	$ 16,700,000
U.S. Revolver | Financial Standby Letter of Credit
Line Of Credit Facility [Line Items]
Guarantee liability	11,800,000
Industrial Development Revenue Bonds
Line Of Credit Facility [Line Items]
Borrowings		$ 8,000,000.0
Reimbursement agreement requires annual redemptions	$ 400,000
Interest rate	2.03%

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COMMITMENTS AND CONTINGENCIES (Details)	Jun. 30, 2019 USD ($)
Guarantee Obligations [Line Items]
Additional bonding capacity	$ 597,100,000
Facility Agreement | Powell (UK) Limited
Guarantee Obligations [Line Items]
Guarantee liability	3,700,000
Revolving credit facility	6,300,000
Amount of credit facility remaining borrowing capacity	2,600,000
Surety Bonds
Guarantee Obligations [Line Items]
Guarantee liability	152,900,000
U.S. Revolver
Guarantee Obligations [Line Items]
Revolving credit facility	75,000,000.0
Amount of credit facility remaining borrowing capacity	63,200,000
U.S. Revolver | Financial Standby Letter of Credit
Guarantee Obligations [Line Items]
Guarantee liability	$ 11,800,000

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STOCK-BASED COMPENSATION - Narrative (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended	9 Months Ended
	Feb. 28, 2019	Jun. 30, 2019	Jun. 30, 2018	Sep. 30, 2018
Restricted Stock Units (RSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period		3 years
Unvested restricted stock outstanding (in shares)		159,216		190,500
Compensation expense		$ 1.8	$ 2.0
Restricted Stock Units (RSUs) | Time Based Restricted Stock Unit
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period		3 years
Restricted Stock Units (RSUs) | Performance Based Restricted Stock Unit
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period		3 years
Restricted Stock
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Compensation expense		$ 0.4	$ 0.4
Restricted Stock | Immediate Vesting
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting, percentage		50.00%
Restricted Stock | Anniversary of Grant Date
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting, percentage		50.00%
Restricted Stock | Non Employee Director Equity Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares issued under the plan (in shares)		2,000
Restricted stock issued (in shares)	14,000
Shares issued, price per share (in usd per share)	$ 34.02

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STOCK-BASED COMPENSATION - Schedule of Restricted Stock Units Activity (Details)	9 Months Ended
	Jun. 30, 2019 $ / shares shares
Number of Restricted Stock Units
Forfeited/canceled (in shares) | shares	(10,750)
Weighted Average Fair Value Per Share
Forfeited/canceled (in dollars per share) | $ / shares	$ 34.27
Restricted Stock Units (RSUs)
Number of Restricted Stock Units
Outstanding at beginning of period (in shares) | shares	190,500
Granted (in shares) | shares	77,150
Vested (in shares) | shares	(97,684)
Outstanding at end of period (in shares) | shares	159,216
Weighted Average Fair Value Per Share
Outstanding at beginning of period (in dollars per share) | $ / shares	$ 33.73
Granted (in dollars per share) | $ / shares	34.89
Vested (in dollars per share) | $ / shares	32.36
Outstanding at end of period (in dollars per share) | $ / shares	$ 34.45

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Sep. 30, 2018
Assets:
Cash and cash equivalents	$ 71,921	$ 36,584
Short-term investments	6,109	13,170
Restricted cash	16,664	25,141
Other assets	6,821	6,817
Liabilities:
Deferred compensation	6,284	5,644
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Cash and cash equivalents	71,921	36,584
Short-term investments	6,109	13,170
Restricted cash	16,664	25,141
Other assets	0	0
Liabilities:
Deferred compensation	0	0
Significant Other Observable Inputs (Level 2)
Assets:
Cash and cash equivalents	0	0
Short-term investments	0	0
Restricted cash	0	0
Other assets	6,821	6,817
Liabilities:
Deferred compensation	6,284	5,644
Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	0	0
Short-term investments	0	0
Restricted cash	0	0
Other assets	0	0
Liabilities:
Deferred compensation	$ 0	$ 0

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RESTRUCTURING AND OTHER (Details) $ in Millions	9 Months Ended
	Jun. 30, 2019 USD ($)
Restructuring and Related Activities [Abstract]
Lease accrual adjustments	$ 0.7
Recovery, as a result of a favorable settlement	$ 0.5

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INCOME TAXES - Schedule of Calculation of the Effective Tax Rate (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Jun. 30, 2019	Jun. 30, 2018
Income Tax Disclosure [Abstract]
Income (loss) before income taxes	$ 5,886			$ 689			$ 4,315	$ (11,134)
Income tax expense (benefit)	797			388			963	(2,443)
Net income (loss)	$ 5,089	$ 958	$ (2,695)	$ 301	$ (3,330)	$ (5,662)	$ 3,352	$ (8,691)
Effective tax rate	14.00%			56.00%			22.00%	22.00%

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INCOME TAXES - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Sep. 30, 2018
Income Tax Disclosure [Abstract]
Blended tax rate					24.50%
Effective tax rate	14.00%	56.00%	22.00%	22.00%
Re-measurement of deferred tax assets		$ 0.7		$ 0.7

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SUBSEQUENT EVENTS (Details) - $ / shares		3 Months Ended		9 Months Ended
	Aug. 06, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Subsequent Event [Line Items]
Quarterly cash dividend (in dollars per share)		$ 0.26	$ 0.26	$ 0.78	$ 0.78
Subsequent Event
Subsequent Event [Line Items]
Quarterly cash dividend (in dollars per share)	$ 0.26