UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended September 30, 20132015

OR

Commission File Number 001-12488

Powell Industries, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:

(713)  944-6900

Securities registered pursuant to section 12(b) of the Act:

                               Title of each class:                                                                      Name of each exchange on which registered:

Common Stock, par value $.01 per share                                                                NASDAQ Global Market

Securities registered pursuant to Section 12(g) of Act:

None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes     x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    x  No

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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted 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 and post such files). x Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). ¨ Yes x  No

The aggregate market value of the votingcommon stock held by non-affiliates of the registrant was approximately $403 million as of March 31, 2013, was approximately $624,554,7522015, based upon the closing price on the NASDAQ Global Market on that date.  For purposes of the calculation above only, all directors, executive officers and beneficial owners of 5% or more are considered to be “affiliates.”

At November 30, 2013,27, 2015, there were 11,969,66111,414,584 outstanding shares of the registrant’s common stock, par value $0.01 per share.

Documents Incorporated By Reference

Portions of the registrant’s definitive Proxy Statement for the 20142016 annual meeting of stockholders to be filed not later than 120 days after September 30, 2013,2015, are incorporated by reference into Part III of this Form 10-K.

POWELL INDUSTRIES, INC.

TABLE OF CONTENTS

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS;

RISK FACTORS

Unless otherwise indicated, all references to “we,” “us,” “our,” “Powell” or “the Company” include Powell Industries, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

This Annual Report on Form 10-K (Annual Report) includes forward-looking statements based on our current expectations, which are subject to risks and uncertainties. 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. These forward-looking statements are subject to risks and uncertainties, and many factors could affect the future financial results and condition of the Company. Factors that may have a material effect on our revenues, expenses and operating results include adverse business or market conditions, our ability to secure and satisfy customers,meet our customers’ scheduling requirements, our customers’ financial conditions and their ability to secure financing to support current and future projects, the availability and cost of materials from suppliers, availability of skilled labor force, adverse competitive developments and changes in customer requirements as well as those circumstances discussed under “Item 1A. Risk Factors,” below. Accordingly, actual results may differ materially from those expressed or implied by the forward-looking statements contained in this Annual Report. Any forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements contained in this Annual Report are based on current assumptions that we will continue to develop, market, manufacture and ship products and provide services on a competitive and timely basis; that competitive conditions in our markets will not change in a materially adverse way; that we will accurately identify and meet customer needs for products and services; that we will be able to hire and retain skilled laborers and hire key employees; that our products and capabilities will remain competitive; that the financial markets and banking systems will remain stable and availability of credit will continue; that risks related to shifts in customer demand are minimized and that there will be no material adverse change in the operations or business of the Company. Assumptions relating to these factors involve judgments that are based on available information, which may not be complete, and are subject to changes in many factors beyond the Company’s control that can materially affect results. Because of these and other factors that affect our operating results, past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

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PART I

Item 1.Business

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 corporation was the successor to a company founded by William E. Powell in 1947, which merged into the Company in 1977. OurWe are headquartered in Houston, Texas, and our major subsidiaries, all of which are wholly-owned,wholly owned, include: Powell Electrical Systems, Inc.; Transdyn,Powell (UK) Limited; Powell Canada Inc.; and Powell Industries International, B.V.; Switchgear & Instrumentation Limited (S&I) and Powell Canada Inc.

We develop, design, manufacture and service custom engineered-to-order equipment and systems for the management and control of electrical energy and other critical processes. Headquartered in Houston, Texas, we serve the energy, industrial, utility, transportation and environmental industries.

Our website ispowellind.com. We make available, free of charge on or through our website, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonableis reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Paper or electronic copies of such material may also be requested by contacting the Company at our corporate offices.

References to Fiscal 2013, Fiscal 2012 and Fiscal 2011 used throughout this Annual Report on Form 10-K relate to our fiscal years ended September 30, 2013, 2012 and 2011, respectively.

Our business operations are consolidated into two business segments: Electrical Power Products and Process Control Systems.  Our Electrical Power Products segment accounted for approximately 94%, 96% and 95%Additionally, all of our consolidated revenues for Fiscal 2013, Fiscal 2012 and Fiscal 2011, respectively. Revenues from customers located in the United States of America (U.S.) accounted for approximately 60%, 58% and 67% of our consolidated revenues for Fiscal 2013, 2012 and 2011, respectively. Revenues from customers located in Canada accounted for approximately 17%, 13% and 16% of consolidated revenues for Fiscal 2013, 2012 and 2011, respectively. Approximately 67% of our long-lived assets were located in the U.S. at September 30, 2013,reports filed with the remaining long-lived assets located primarily inSEC are available via their website at http://www.sec.gov, or may be read and copied at the United Kingdom (U.K.)SEC Public Reference Room at 100 F Street, NE, Washington, DC 20549.

We develop, design, manufacture and Canada. Financial information relatedservice custom-engineered equipment and systems for the distribution, control and monitoring of electrical energy designed to our business(1) distribute, control and geographical segments is included in Note L of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Electrical Power Products

Our Electrical Power Products business segment develops, designs, manufactures and markets custom engineered-to-order electrical power distribution and control systems designed (1) to distribute, monitor and control the flow of electrical energy and (2) to provide protection to motors, transformers and other electrically-poweredelectrically powered equipment. Our principal products include integrated power control room substations (PCRs®), custom-engineered modules, electrical houses (E-Houses), traditional and arc-resistant medium-voltage distribution switchgear and control gear, medium-voltage circuit breakers, offshore generator and control modules, monitoring and control communications systems, motor control centers and bus duct systems. These products are designed for application voltages ranging from 480 volts to 38,000 volts and are used in electric rail transportation,oil and gas refining, chemical manufacturing,offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, systemspulp and paper and other heavy industrial markets. Our product scope includes designs tested to meet both U.S. standards (ANSI) and international standards (IEC). We also seek to assist customers by providing value-added services such as spare parts, field service inspection, installation, commissioning, modification and repair, retrofit and retrofill components for existing systems and replacement circuit breakers for switchgear that is obsolete or that is no longer produced by the original manufacturer. We workseek to establish long-term relationships with the end users of our systems as well as the design and construction engineering firms contracted by those end users.

References to Fiscal 2015, Fiscal 2014 and Fiscal 2013 used throughout this Annual Report relate to our fiscal years ended September 30, 2015, 2014 and 2013, respectively.

Revenues from customers located in the United States of America (U.S.) accounted for approximately 72%, 56% and 58% of our consolidated revenues for Fiscal 2015, 2014 and 2013, respectively. Revenues from customers located in Canada accounted for approximately 15%, 21% and 18% of consolidated revenues for Fiscal 2015, 2014 and 2013, respectively. Approximately 62% of our long-lived assets were located in the U.S. at September 30, 2015, with the remaining long-lived assets located primarily in Canada and the United Kingdom (U.K.).  Detailed geographic information is included in Note L of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

We previously reported two business segments: Electrical Power Products and Process Control Systems.  In January 2014, we sold our wholly owned subsidiary Transdyn Inc. (Transdyn) which was reported in our Process Controls business segment.  We have presented the results of these operations as income from discontinued operations, net of tax, for each of the accompanying consolidated statements of operations. While this sale did not result in a material disposition of assets or material reduction to income before income taxes relative to our consolidated financial statements, the revenues, gross profit, income before income taxes and assets of Transdyn comprised a significant majority of those respective amounts previously reported in our Process Control Systems business segment. As we previously reported only two business segments, Electrical Power Products and Process Control Systems, we have removed the presentation of business segments in this Annual Report. Additionally, all current and historical financial information presented in this Annual Report excludes the financial information for Transdyn or presents it as discontinued operations where applicable. For more information about this disposition, see Note N of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Customers and Markets

This business segment’sOur principal productscustomers are designed for use by, and marketed to, technologically sophisticated users of large amounts of electrical energy that typically haverequire a need for complex combinationscombination of electrical components and systems. OurThese customers and their industries include oil and gas producers,refining, offshore oil and gas pipelines, refineries,production, petrochemical, plants, electricalpipeline, terminal, mining and metals, light rail traction power, generators, public and private utilities, co-generation facilities, mining/metals operations,electric utility, pulp and paper plants, transportation authorities, governmental agencies and other large industrial customers.markets.

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Products and services are principally sold directly to the end user or to an engineering, procurement and construction (EPC) firm on behalf of the end user. Each project is specifically tailoredengineered and manufactured to meet the exact specifications and requirements of the individual customer. Powell’s expertise is in the design and engineering, manufacturing, project management and integration of the various systems into a single custom-engineered deliverable. We market and sell our products and services, which are typically awarded in competitive bid situations, to a wide variety of customers, governmental agencies, markets and geographic regions. Contracts often represent large-scale and complex projects with an individual customer. By their nature, these projects are typically nonrecurring. Thus, multiple and/or continuous projects of similar magnitude with the same customer may vary. As such, the timing of large project awards may cause material fluctuations in segment revenues.revenues and gross margins.

WeDue to the nature and timing of large projects, a significant percentage of revenues in a given period may result from one specific contract or customer. Although we could be adversely impacted by a significant reduction in business volume from a particular industry, that we currently serve, however we do not believe that the loss of any specific customer would have a material adverse effect on our business. However, from time to time, an individual manufacturing facility may have significant volume from one particular customer which would be material to that facility.  No customer accounted for more than 10% of this segment’sour revenues in Fiscal 2015, Fiscal 2014 or Fiscal 2013.  However, in both Fiscal 2012 and Fiscal 2011 one customer accounted for 10% of this segment’s revenues.

For information on the geographic areas in which our consolidated revenues were recorded in each of the past three fiscal years, see Note L of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Competition

We strive to be the supplier of choice for custom engineered-to-ordercustom-engineered system solutions and services to a variety of customers and markets. Our activities are predominantly in the oil and gas and the electric utility industries, but also include other markets where customers need to manage, monitor and control large amounts of electrical energy. The majority of our business is in support of capital investment projects that are highly complex and competitively bid. Our customized systems are designed to meet the specifications of our customers. Each system is designed, engineered and manufactured to the specific requirements of the particular application. We consider our engineering, project management, systems integration and technical support capabilities vital to the success of our business.

We believe our products and services, turnkey integration capabilities, technical and project management strengths, application expertise and specialty contracting experience, together with our responsiveness and flexibility to the needs of our customers and financial strength, give us a sustainable competitive advantage in our markets. We compete with a small number of multinational competitors that sell to a broad industrial and geographic market and with smaller, regional competitors that typically have limited capabilities and scope of supply.

Our principal competitors include ABB, Eaton, GE,General Electric Company, Schneider and Siemens. The competitive factors used during bid evaluation by our customers vary from project to project and may include technical support and application expertise, engineering and manufacturing capabilities, equipment rating, delivered value, scheduling and price. While projects are typically non-recurring, a significant portion of our business is from repeat customers and many times involves third-party EPC firms hired by the end user and with which we also have long and established relationships. We consider our engineering, manufacturing and service capabilities vital to the success of our business, and believe our technical and project management strengths, together with our responsiveness and flexibility to the needs of our customers, give us a competitive advantage in our markets. Ultimately, our competitive position is dependent upon our ability to provide quality custom engineered-to-ordercustom-engineered products, services and systems on a timely basis at a competitive price.

Backlog

Backlog represents the dollar amount of revenue that we expect to realize from work to be performed on uncompleted contracts, including new contractual agreements on which work has not begun. Our methodology for determining backlog may not be comparable to the methodology used by other companies. Orders included in our backlog are represented by customer purchase orders and contracts, which we believe to be firm. Orders in the Electrical Power Products business segmentOur backlog at September 30, 20132015 totaled $435.0$441.4 million compared to $361.9$507.1 million at September 30, 2012.2014. We anticipate that approximately $370$374 million of this segment’s Fiscal 20132015 ending backlog will be fulfilled during our fiscal year ending September 30, 2014. Conditions outside of our control have caused us to experience some customer delays and cancellations of certain projects in the past; accordingly, backlog2016. Backlog may not be indicative of future operating results as orders in our backlog may be cancelled or modified by our customers.

Raw Materials and Suppliers

The principal raw materials used in the operation of our Electrical Power Products business segmentoperations include steel, copper and aluminum and various electrical components. Raw materialMaterial costs represented 46% of this segment’s revenues in Fiscal 2013.2015 compared to 48% of revenues in Fiscal 2014.  Unanticipated increaseschanges in raw material requirements, disruptions in supplies or price increases could increaseimpact production costs and adversely affect profitability.our results of operations.

We purchaseOur supply base for certain key electrical components on a sole-sourced basis and maintain a qualification and performance monitoring program to control risk associated with sole-sourced items.is limited.  Changes in our design to accommodate similar components from other suppliers could be implemented to resolve a supply problem related to a sole-sourced component. In this circumstance, supply problems could result in delays in our ability to meet commitments to our customers. We believe that sources of supply for raw materials and components are generally sufficient, and we have no reason todo not believe a shortage of raw materials will cause any materialsignificant adverse impact during our fiscal year ending September 30, 2014.in the future. While we are not dependent on any one supplier for a material amountthe majority of our raw materials, we are highly dependent on our suppliers in order to meet commitments to our customers. We have not experienced significant or unusual issues in the purchase of key raw materials and commoditiesor components in the past three fiscal years. 

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ThisOur business segment is subject to the effects of changing material prices. During the last three fiscal years, we have not experienced significant price volatility for certain commodities, in particular steel, copper and aluminum products, which areraw materials or component parts used in the production of our products. While the cost outlook for commodities used in the production of our products is not certain, we believe we can manage this volatility through contract pricing adjustments, with material-cost predictive estimating and by actively pursuing internal cost reduction efforts. We did not enter into any derivative contracts to hedge our exposure to commodity price changes in Fiscal 2013, 20122015, 2014 or 2011.2013.

Employees

At September 30, 2013, the Electrical Power Products business segment2015, we had 2,9232,803 full-time employees located primarily in the United States, Canada and the United Kingdom and Canada.Kingdom. Our employees are not represented by unions, and we believe that our relationship with our employees is good.

Research and Development

This business segment’s research and development activities are directed toward the development of new products and processes as well as improvements in existing products and processes. Research and development expenditures were $7.6 million, $6.3 million and $6.4 million in Fiscal 2013, 2012 and 2011, respectively, and are reported in selling, general and administrative expenses in the Consolidated Statements of Operations.

Intellectual Property

While we are the holder of various patents, trademarks, servicemarks, copyrights and licenses, relating to this business segment, we do not consider any individual intellectual property to be material to our consolidated business operations.

Process Control Systems

Our Process Control Systems business segment designs and delivers custom engineered-to-order technology solutions that help our customers manage their critical transportation, environmental and energy management processes and facilities. Our proprietary DYNAC^® software suite provides a highly integrated operations management solution for these vital operations. The mission-critical information may be traffic flow in our intelligent transportation management solutions, water quality in our environmental treatment solutions or electrical power management in the case of our substation automation solutions. DYNAC^® has user-configurable applications designed specifically for clients that require high performance, 24/7 availability and superior data integrity in a secure environment.

We provide a comprehensive set of technical services to deliver these systems. A diverse team of professional systems engineers, software engineers, analysts, network specialists and automation engineers provides expertise for the entire life cycle of a technology project. We have designed and built systems for various transit facilities and roadways around the world.

Customers and Markets

This business segment’s products and services are principally sold directly to end users in the transportation, environmental and energy sectors. From time to time, a significant percentage of revenues may result from one specific contract or customer due to the nature of large projects common to this business segment. In Fiscal 2013, one customer accounted for 16% of this segment’s revenues.  In Fiscal 2012 and 2011, no customer individually accounted for more than 10% of this segment’s revenues. We do not believe that the loss of any specific customer would have a material adverse effect on our business.  Contracts often represent large-scale, single-need projects with an individual customer. By their nature, these projects are typically nonrecurring for a given customer. Thus, multiple and/or continuous projects of similar magnitude with the same customer are rare. As such, the timing of large project awards may cause material fluctuations in segment revenues.

During each of the past three fiscal years, the U.S. is the only country that accounted for more than 10% of segment revenues. For information on the geographic areas in which our consolidated revenues were recorded in each of the past three fiscal years, see Note L of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

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Competition

This business segment operates in a competitive market where competition for each contract varies. Depending upon the type of system and customer requirements, the competition may include large multinational firms as well as smaller regional competitors.

Our customized systems are designed to meet the specifications of our customers. Each system is designed, delivered and installed to the specific requirements of the particular application. We consider our engineering, systems integration and technical support capabilities vital to the success of our business. We believe our turnkey systems integration capabilities, customizable software, domain expertise, specialty contracting experience and financial strength give us a competitive advantage in our markets.

Backlog

Backlog represents the dollar amount of revenue that we expect to realize from work to be performed on uncompleted contracts, including new contractual agreements on which work has not begun. Our methodology for determining backlog may not be comparable to the methodology used by other companies. Orders included in our backlog are represented by customer purchase orders and contracts, which we believe to be firm. Orders in the Process Control Systems business segment backlog at September 30, 2013, totaled $81.6 million compared to $74.8 million at September 30, 2012. We anticipate that approximately $20 million of this segment’s ending Fiscal 2013 backlog will be fulfilled during our September 30, 2014 fiscal year. Conditions outside of our control have caused us to experience some customer delays and cancellations of certain projects in the past; accordingly, backlog may not be indicative of future operating results as orders in our backlog may be cancelled or modified by our customers.

Employees

The Process Control Systems business segment had 199 full-time employees at September 30, 2013, primarily located in the United States. Our employees are not represented by unions, and we believe that our relationship with our employees is good.

Research and Development

The majority of research and development activities of this business segment are directed toward the development of our software suites for the management and control of the critical processes and facilities of our customers. Non-project research and development expenditures were $0.9 million, $1.4 million and $1.1 million in Fiscal 2013, 2012 and 2011, respectively, and are reported in selling, general and administrative expenses in the Consolidated Statements of Operations.

Intellectual Property

While we are the holder of various trademarks, licenses and copyrights related to software for this business segment, we do not consider any individual intellectual property to be material to our consolidated business operations.

Item 1A.Risk Factors

Our business is subject to a variety of risks and uncertainties, including, but not limited to, the most significant risks and uncertainties described below. Additional risks and uncertainties not known to us or not described below may also impair our business operations. If any of the following risks actually occur, our business, financial condition, cash flows and results of operations could be harmed and we may not be able to achieve our goals. This Annual Report also includes statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the discussion under “Forward-Looking Statements,” above.

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

Various factors drive demand for our products and services, including the price and demand for oil and gas, capital expenditures, economic forecasts and financial markets. Uncertainty regarding these factors could impact our customers and severely impact the demand for projects that would result inand orders for our products and services. If one or more of our suppliers or subcontractors experiences difficulties that result in a reduction or interruption in supply to us, or they fail to meet our manufacturing requirements, our business could be adversely impacted until we are able to secure alternative sources. From time to time, an individual manufacturing facility may have significant volume from one particular customer which would be material to that facility. Furthermore, our ability to expand our business would be limited in the future if we are unable to increase our bonding capacity or our credit facility on favorable terms or at all. These disruptions could lead to reduced demand for our products and services;services, could materially impact our business, financial condition, cash flows and results of operations;operations and could potentially impact the trading price of our common stock.

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

We have a backlog of uncompleted contracts. Orders included in our backlog are represented by customer purchase orders and contracts, whichBacklog represents the dollar amount of revenue that we believeexpect to realize from work to be firm. Backlog develops as a result ofperformed on uncompleted contracts, including new business taken,contractual agreements on which represents the revenue value of new project commitments received. Backlog consists of projects that either (1) have not yet been started or (2) are in progress and are not yet completed. In the latter case, the revenue value reported in backlog is the remaining value associated with work that has not yet been completed.begun. From time to time, projects are cancelled that appeared to have a high certainty of going forward at the time they were recorded as new business taken.the order was recorded. In the event of a project cancellation, or modification, we may be reimbursed for certain costs but typicallymay not have noa contractual right to the total revenue reflected in our backlog. In addition to our being unable to recover certain direct costs, cancelled projects may also result in additional unrecoverable costs due to the underutilization of our assets.  Accordingly, the amounts recorded in backlog 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.

As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” and in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report, the majority of our revenues are recognized on the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting, revenues are recognized as work is performed. The percentage-of-completion accounting practice we use results in our recognizingrevenue earned to date is calculated by multiplying the total contract revenues and earnings ratably overprice by the contract term in proportionpercentage of performance to our incurrence of contract costs. The earnings or losses recognized on individual contracts aredate, which is based on total costs or total labor dollars incurred to date compared to the total estimated costs or total labor dollars estimated at completion. The method used to determine the percentage of completion is typically the cost method, unless the labor method is a more accurate method of measuring the progress of the project. Application of the percentage-of-completion method of accounting requires the use of estimates of contract revenues, costs to be incurred for the performance of the contract. The cost estimation process is based upon the professional knowledge and profitability. The processexperience of estimating costs on projects requires a significant amount of judgmentour engineers, project managers and combines professional engineering, cost estimating, pricing and accounting inputs.

financial professionals. Contract losses are recognized in full when determined, and estimates of revenue and cost to complete are adjusted based on ongoing reviews of estimated contract performance. Previously recorded estimates are adjusted as the project progresses.progresses and circumstances change. In certain circumstances, it is possible that such adjustments to costs and revenues could have a significant impact on our operating results for any fiscal quarter or year.

A portionThe majority of our contracts contain terms with penalty provisions.performance obligations that may subject us to penalties or additional liabilities.

SomeMost of our customer contracts containhave schedule and performance obligation clauses that, if we fail to meet them, could subject us to penalty provisions, for the failure to meet specified contractual provisions. These contractual provisions defineliquidated damages or claims against our outstanding letters of credit or performance bonds.  In addition, some customer contracts stipulate protection against gross negligence or willful misconduct.  Each individual contract defines the conditions under which our customersthe customer may make claimsa claim against us. It is possible that adjustments arising from such claims, or our failure to manage our contract risk, could have a significant impact on our operating results for any fiscal quarter or year.

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

Our raw material costs represented 45%46% of our consolidated revenues for Fiscal 2013.2015. We purchase a wide variety of raw materials and component parts to manufacture our products, including steel, aluminum, copper and various electrical components. Unanticipated increases in raw material requirements, changes in supplier availability or price increases could increase production costs and adversely affect profitability.profitability as fixed-price contracts may prohibit our ability to charge the customer for the increase in raw material prices. Our supply base for certain key electrical components is limited. Our ability to meet customer commitments could be negatively impacted due to the time and effort associated with the selection and qualification of a new supplier.supplier and changes in our design to accommodate similar components from other suppliers. Additionally, we rely on certain competitors for key materials used in our products.  This could put us at risk if the relationships change or become adversarial.

Our industry is highly competitive.

Some of our competitors are significantly larger and have substantially greater resources than we do.resources. Competition in the industry depends on a number of factors, including technical ability, production capacity, location and price. Certain of our competitors may have lower cost structures and may, therefore, be able to provide their products or services at lower prices than we are able to provide. Similarly, we cannot be certain that we will be able to maintain or enhance our competitive position within our industry, maintain our customer base at current levels or increase our customer base. New companies may enter the markets in which we compete, or industry consolidation may occur, further increasing competition in our markets which could affect future sales and have a material impact on our results of operations.

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

Changes in policy, laws or regulations regarding oil and gas exploration and development activities and decisions by customers and other industry participants could reduce demand for our services, which would have a negative impact on our operations. Various regulations have been implemented inaround the U.S.world related to safety and certification requirements applicable to oil and gas drilling and production activities and we cannot predict whether operators will be able to satisfy these requirements. Additionally, customer demands and new regulations related to the conflict-free mineral disclosures may force us to continue to incur additional expenses. Further, we cannot predict future regulationschanges in any country in which we operate and how those regulationschanges may affect our ability to perform projects in those regions.

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

We are subject to income taxes in the United States and numerous foreign jurisdictions. A change in tax laws, deductions or credits, treaties or regulations, or their interpretation, in the countries in which we operate could result in a higher tax rate on our pre-tax income, which could have a material impact on our net income and cash flows from operations. We are regularly under audit by tax authorities, and our tax estimates and tax positions could be materially affected by many factors including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the realizability of deferred tax assets and changes in uncertain tax positions. A significant increase in our tax rate could have a material effect on our profitability.

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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.

Revenues fromwith customers located outside of the U.S. accounted for 40% of our consolidated revenues in Fiscal 2013,, including sales from our operations in the United Kingdom and Canada.Canada, accounted for approximately 28% of our consolidated revenues in Fiscal 2015. While our manufacturing facilities are located in

developed countries with historically stable operating and fiscal environments, our consolidated results of operations, cash flows and financial condition could be adversely affected by the following:a number of factors, including:  political and economic instability; social unrest, acts of terrorism, force majeure, war or other armed conflict; inflation; currency fluctuations, devaluations and conversion restrictions; governmental activities that limit or disrupt markets, restrict payments or limit the movement of funds;funds and trade restrictions andor economic embargoes imposed by the U.S. or other countries. Additionally, the compliance with foreign and domestic import and export regulations and anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, or similar laws of other jurisdictions outside the United States, could adversely impact our ability to compete for contracts in such jurisdictions. Moreover, the violation of such laws or regulations could result in severe penalties including monetary fines, criminal proceedings and suspension of export privileges.

Acquisitions involve a number of risks.

Our strategy has been to pursueincludes the pursuit of growth and product diversification through the acquisition of companies or assets that will enable us to expand our product, geographic coverage and service offerings. We routinely review potential acquisitions,acquisitions; however we may be unable to implement this strategy.  Acquisitions involve certain risks, including difficulties in the integration of operations and systems; failure to realize cost savings; the termination of relationships by key personnel and customers of the acquired company and a failure to add additional employees to handle the increased volume of business. Additionally, financial and accounting challenges and complexities in areas such as valuation, tax planning, treasury management and financial reporting from our acquisitions pose risks to our strategy. Due diligence may not reveal all risks and challenges associated with our acquisitions. Companies that we acquire may not achieve revenues, profitability or cash flows that we expected, or that ultimately justify the investment.  It is possible that impairment charges resulting from the overpayment for an acquisition may negatively impact our earnings.results of operations. Financing for acquisitions may require us to obtain additional equity or debt financing which if available, may not be available on attractive terms.terms, if at all.

Our operating results may vary significantly from quarter to quarter.

Our quarterly results may be materially and adversely affected by a number of factors including: changes in estimatedestimates relating to revenues, costs, or revenues under fixed-price contracts;project scheduling; the timing and volume of work under new agreements; changes in existing customer schedules; general economic conditions; the spending patterns of customers; variations in the margins of projects performed during any particular quarter; losses experienced in our operations not otherwise covered by insurance; a change in the demand or production of our products and our services caused by severe weather conditions; a change in the mix of our customers, contracts and business; increases in design and manufacturing costs; the ability of customers to pay their invoices owed to us;us and disagreements with customers related to project performance on delivery.

Accordingly, our operating results in any particular quarter may not be indicative of the results that you can expect for any other quarter or for an entire year.future results.

The departure of key personnel could disrupt our business.

We depend on the continued efforts of our executive officers, senior management, and other key professionals.professionals and technical personnel. We cannot be certain that any individual will continue in such capacity for any particular period of time. The loss of key personnel, or the inability to hire and retain qualified employees, could negatively impact our ability to perform and manage our business.

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

Our ability to maintain our productivity and profitability willmay be limited by our ability to employ, train and retain personnel necessary to meet our requirements. We may experience shortages of qualified personnel such as engineers, project managers and select skilled tradesmen.trades. We cannot be certain that we will be able to maintain an adequate skilled labor force or key technical personnel necessary to operate efficiently and to support our growth strategy orand operations.  We cannot be certain that our labor expenses will not increase as a result of a shortage in the supply of skilled and technical personnel. Labor shortages or increased labor costs could impair our ability to maintain our business, meet customer commitments or grow our revenues, and may adversely impact our profitability.results of operations.

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

We could be named as a defendant in future legal proceedings claimingthat claim damages from us in connection with the operation of our business. Most of the actions against us arise out of the normal course of our performing services or manufacturing equipment. We are, and will likely continueFrom time to time, we may be a plaintiff in legal proceedings against customers in which we seek to recover payment of contractual amounts due to us, as well as claims for increased costs incurred by us. When appropriate, we establish provisions against certain legal exposures, and we adjust such provisions from time to time according to ongoing developments related to each exposure.

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exposure, as well as any potential recovery form our insurance, if applicable. If, in the future, our assumptions and estimates related to such exposures prove to be

inadequate or wrong, or our insurance coverage is insufficient, our consolidated results of operations, cash flows and financial condition could be adversely affected. In addition, claims, lawsuits and proceedings may harm our reputation or divert management resources away from operating our business.

Unforeseen difficulties with our enterprise resource planning (ERP), engineering and manufacturing process systems (Business Systems) could adversely affect our internal controls and our business.

The efficient execution of our business is dependent upon the proper functioning of our Business Systems that support our production, engineering, human resources, estimating, financial, jobproject management and customer systems. Any significant failure or malfunction of our Business Systems may result in disruption of our operations. These systems may be susceptible to outages due to natural disaster, power loss, telecommunications failures, break-ins, and similar events.  Despitecomputer viruses, cyber-attacks or other unauthorized access.   Additionally, a material network breach of our ERP system could involve the implementationtheft of network security measures, our systemsproprietary or customer data which may be vulnerable to security breaches such as computer viruses and similar disruptions from unauthorized tampering.used by competitors. The occurrence of any of these or other events could disrupt or damage our Business Systems and adversely affect our business or results of operations. Additionally,

In Fiscal 2014, we are in the processre-implemented our existing ERP system and added a suite of re-implementingnew software tools to expand our Business SystemsSystems.  These upgrades and adding additional software that will redesignenhancements were designed to standardize best process practices, drive efficiency and improveincrease productivity across our processes.organization.  There can be no certainty that this systemthese Business Systems will deliver the expected benefits.  The failurebenefits and the inability to achieve our goalsdo so may impact our ability to (1) process transactions accurately and efficiently and (2) deliver on our commitment to our customers which could negatively impact our operations and may adversely impact our results of operations.

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

Although we maintain insurance policies with respect to our related exposures, including certain casualty, property, business interruption, self-insured medical and dental programs, these policies contain deductibles, self-insured retentions and limits of coverage. We estimate our liabilities for known claims and unpaid claims and expenses based on information available as well as projections for claims incurred but not reported. However, insurance liabilities, some of which are self-insured, are difficult to estimate due to various factors. If any of our insurance policies or programs isare not effective in mitigating our risks, we may incur losses that are not covered by our insurance policies, subject to deductibles, or that exceed our accruals or our coverage limits and could adversely impact our consolidated results of operations, cash flows and financial position. In addition, we may not be able to continue to obtain insurance at commercially reasonable rates or may be faced with liabilities not covered by insurance such as environmental contamination or terrorist attacks.

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

Private lawsuits or enforcement actions by federal, state, provincial or foreign regulatory agencies may materially increase our costs. Certain environmental laws may make us potentially liable for the remediation of contamination at or emanating from our properties or facilities. Although we seek to obtain indemnities against liabilities relating to historical contamination at the facilities we own or operate, we cannot provide any assurance that we will not incur liabilities relating to the remediation of potential contamination, including contamination we did not cause.

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

All of the products manufacturedthat we manufacture and sold by Powellsell depend upon the best available technology for success in the marketplace. TheThis competitive environment is highly sensitive to technological innovation in both segments of our business.and customer requirements. It is possible for competitors (both domestic and international) to develop products or production methods that will make current products or methods obsolete or at least hasten their obsolescence; therefore, we cannot be certain that our competitors will not develop the expertise, experience and resources to provide products and services that are superior in both price and quality.

Catastrophic events could disrupt our business.

The occurrence of catastrophic events, ranging from natural disasters such as hurricanes, to epidemics such as health epidemics, to acts of war and terrorism, could disrupt or delay our ability to complete projects for our customers and could potentially expose us to third-party liability claims. Such events may or may not be fully covered by our various insurance policies or may be subject to deductibles or exceed coverage limits. In addition, such events could impact our customers and suppliers, resulting in temporary or long-term delays and/or cancellations of orders for raw materials used in normal business operations. These situations are outside our control and could have a significant adverse impact on our consolidated results of operations, cash flows and financial position.

Unforeseen difficulties with the ramp-upexpansions, relocations or consolidations of our two newexisting facilities could adversely affect our operations.

We recently completed the construction of a manufacturing/assembly facility in the United States, as well as one in Canada. We have relocated from two ofFrom time to time we may decide to enter new markets, build additional facilities, expand our existing facilities which were leased. Any significant delay in the ramp-up, staffing and expansionor relocate or consolidate one or more of our operations in eitheroperations. Increased costs and production delays arising from the staffing, relocation, expansion or consolidation of these newour facilities could adversely affect our operations and may adversely impact our profitability.

Due to the cyclical nature of the oil and gas industry, our business may be adversely impacted by extended periods of low oil or gas prices or unsuccessful exploration efforts which may decrease our customers’ spending and therefore our results in the future.

Oil and gas prices have been, and are expected to, remain unpredictable.  Unfavorable commodity price levels can cause oil and gas companies to change their strategies, delay or cancel projects.  The price for oil and gas can be influenced by many factors, including global economic growth, inventory levels and supply and demand for these commodities.  These factors could cause oil and gas prices to decrease which could result in a decrease in customer projects that would adversely impact our business and our results.  Continued periods of reduced oil and gas prices will negatively impact our business and our consolidated results of operations, cash flows and financial position.

Item 1B.Unresolved Staff Comments

None.

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Item 2.Properties

We own or lease manufacturing facilities, warehouse space, sales offices, field offices and repair centers located throughout the United States, Canada and the United Kingdom. Our facilities are generally located in areas that are readily accessible to raw materials and labor pools and are maintained in good condition. These facilities, together with recent expansions, are expected to meet our needs for the foreseeable future.

Our principal locations by segment as of September 30, 2013,2015, are as follows:

All leased properties are subject to long-term leases. We do not anticipate experiencing significant difficulty in retaining occupancy of any of our leased facilities through lease renewals prior to expiration or through month-to-month occupancy, or in replacing them with equivalent facilities.

In Fiscal 2012,2015, we acquired land in Houston, Texas, and incompleted the expansion of our Acheson, Alberta, Canada facility.  The expansion cost approximately $26 million, funded by cash on hand, and began constructionincreased the manufacturing capacity of two facilities to allow us to expand our operations. The construction of these two facilities was substantially completed in September 2013 and we have relocated the majority of our operations and personnel from their existing leased facilities.  Our lease on the Houston facility has expired.  Our previously occupied Edmonton facility lease does not expire until 2023; however we have sublet that facility through 2019.by approximately 144,000 square feet.  

Item 3.Legal Proceedings

We are involved in various legal proceedings, claims and other disputes arising in the ordinary course of businessfrom our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. WeAlthough we can give no assurances about the outcome of pending legal proceedings, claims and other disputes, we do not believe that the ultimate conclusion of these disputes could materially affect our financial position or results of operations.operations, cash flow and financial position.

Item 4.Mine Safety Disclosures

Not applicable.

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PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock trades on the NASDAQ Global Market (NASDAQ) under the symbol “POWL.” The following table sets forth, for the periods indicated, the high and low sales prices per share as reported on the NASDAQ for our common stock.

As of November 30, 2013,27, 2015, the last reported salesclosing price of our common stock on the NASDAQ was $68.59$34.96 per share. As of November 30, 2013,27, 2015, there were 474416 stockholders of record of our common stock. All common stock held in street names are recorded in the Company’s stock register as being held by one stockholder.

See “Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report for information regarding securities authorized for issuance under our equity compensation plans.

Dividend Policy

In November 2013, our Board of Directors (the Board) elected to begin the payments of quarterly cash dividends.  In Fiscal 2014, we paid $12.0 million in dividends.  In November 2014, the Board elected to increase our quarterly cash dividend by 4% to $0.26 per share from $0.25 per share. This increase was effective beginning with the first quarter of Fiscal 2015 and in Fiscal 2015 we paid $12.4 million in dividends.  The Board anticipates declaring cash dividends in future quarters; however, there is no assurance as to future dividends or their amounts because they depend on future earnings, capital requirements and financial condition.  

Issuer Purchases of Equity Securities

The table below summarizes information about our purchases of common stock, based on settlement date, during the quarter ended September 30, 2015:

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Performance Graph

The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

The following graph compares, for the period from October 1, 2008,2010 to September 30, 2013,2015, the cumulative stockholder return on our common stock with the cumulative total return on the NASDAQ Market Index and the Industrial Electrical Equipment Group (a select group of peer companies –Altra Holdings Inc.– Altra Industrial Motion Corp.; Ameresco, Inc.; AZZ Inc.; Belden Inc.; Coleman Cable,Daktronics Inc.; Daktronics Inc//SD; Electro Scientific Industries, Inc.; EnerSys;  Franklin Electric Co, Inc.; Fushi Copperweld, Inc.; GrafTech International Ltd; Littelfuse Inc/Inc./DE; LSI Industries Inc.; Preformed Line Products; A O Smith Corporation and Woodward, Inc.). The comparison assumes that $100 was invested on October 1, 2008,2010, in our common stock, the NASDAQ Market Index and the Industrial Electrical Equipment Group.Group, and that all dividends were re-invested. The stock price performance reflected on the following graph is not necessarily indicative of future stock price performance.

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Item 6.Selected Financial Data

The selected financial data shown below for the past five years was derived from our audited financial statements.statements, adjusted for discontinuing operations. The historical results are not necessarily indicative of the operating results to be expected in the future. The selected financial data should be read in conjunction with “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this Annual Report.

In December 2009, we acquired the business and certain assets of PowerComm Inc. and its subsidiaries, Redhill Systems Ltd., Nextron Corporation, PCG Technical Services Inc. and Concorde Metal Manufacturing Ltd (the entire business of which is referred to herein as Powell Canada). Powell Canada is headquartered in Acheson, Alberta, Canada, and provides electrical equipment, maintenance and services. Powell Canada is also a manufacturer of switchgear and related products, primarily serving the oil and gas industry in western Canada. The operating results of Powell Canada are included in our Electrical Power Products business segment from the acquisition date.

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the accompanying consolidated financial statements and related notes. Any forward-looking statements made by or on our behalf are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements involve risks and uncertainties in thatand the actual results may differ materially from those projected in the forward-looking statements. For a description of the risks and uncertainties, please see “Cautionary Statement Regarding Forward-Looking Statements; Risk Factors” and “Item 1A. Risk Factors” included elsewhere in this Annual Report.

Overview

We develop, design, manufacture and service custom engineered-to-ordercustom-engineered equipment and systems for the management and control of electrical energy and other critical processes. Headquartered in Houston, Texas, we serve the transportation, environmental, energy,oil and gas refining, offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper and other industrial and utility industries. Our business operations are consolidated into two business segments: Electrical Power Products and Process Control Systems.markets. Revenues and costs are primarily related to custom engineered-to-order equipment and systems and accounted for under percentage-of-completion accounting which precludes us from providing detailed price and volume information. Our backlog includes various projects, some of which are petrochemical, oil and gas construction and transportation infrastructure projects which 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 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 may take a number of months to produce; but schedules also may change during the course of any particular project. Our operating results arecan be impacted by factors outside of our control, for example, many ofcontrol.  

Our operating results have been negatively impacted by factors such as our operational inefficiencies, our inability to meet contractual commitments on existing projects, have contracting arrangements where thecustomer approval of engineering and design specifications may affectand delays in customer construction schedules, all of which impact the timing and costs related to project execution.  These factors resulted in an imbalance of our factory resources with our customer commitments, resulting in higher production costs due to inefficiencies.  Our operating results were also negatively impacted by the timing and resolution of change orders, project close-out and resolution of potential liquidated damage claims, all of which impacted gross margins during the period in which these items are resolved with our customers.

We anticipate that demand for our solutions in the western Canadian oil and gas markets will continue to be a contributor to our strategic position in the Canadian market place.  We completed the construction of our new Canadian facility and relocated operations in the fall of 2013 and completed a $26 million expansion of this manufacturing facility in the third quarter of Fiscal 2015. The stabilization of our Canadian operations has presented challenges resulting in inefficiencies that led to extended project delivery times, delayed project revenues, higher operating costs, gross margin deterioration and operating losses.  We have taken actions in an effort to mitigate the risks associated with replicating our U.S. project-based integration model which allows for the design, fabrication, integration and testing of our products at a single location.  Prior to the construction of our new Canadian facility, we performed only final assembly operations in Canada.

On January 15, 2014, we sold our wholly-owned subsidiary Transdyn to a global provider of electronic toll collection systems, headquartered in Vienna, Austria.  The purchase price from the sale of this subsidiary totaled $16.0 million, subject to working capital adjustments. We received cash of $14.4 million and the remaining $1.6 million was placed into an escrow account and released to us in July 2015. We have presented the results of these operations as income from discontinued operations, net of tax, in the condensed consolidated statements of operations for all periods presented.  Accordingly, we have removed Transdyn from the Results of Operations discussions below.

Results of Operations

Twelve Months Ended September 30, 2015 Compared to Twelve Months Ended September 30, 2014

Revenue and Gross Profit

Revenues increased 2.2% or $14.0 million, to $661.9 million in Fiscal 2015, primarily due to the increase in domestic revenues. Domestic revenues increased 30.0%, or $109.6 million, to $474.7 million in Fiscal 2015 primarily due to our production efforts on various large petrochemical projects awarded in Fiscal 2014.  International revenues decreased 33.8%, or $95.6 million, to $187.2 million in Fiscal 2015 primarily due to the substantial completion of several large projects for both the Canadian market and the U.S. export projects. Revenues from commercial and industrial customers increased $50.0 million to $524.5 million in Fiscal 2015. Revenues from public and private utilities decreased $41.9 million to $85.1 million in Fiscal 2015. Revenues from municipal and transit projects increased $5.9 million to $52.2 million in Fiscal 2015.  

Gross profit decreased 13.7%, or $17.2 million, to $108.3 million in Fiscal 2015.  Gross profit as a percentage of revenues decreased to 16.4% in Fiscal 2015 compared to 19.4% in Fiscal 2014. Our gross profit and gross profit as a percentage of revenues decreased in Fiscal 2015 compared to Fiscal 2014, primarily due to inefficiencies resulting from our production efforts and incremental costs required to maintain our customer’s schedules, as well as the overall mix of project types.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $11.0 million to $76.8 million in Fiscal 2015 compared to Fiscal 2014. Selling, general and administrative expenses, as a percentage of revenues, decreased to 11.6% in Fiscal 2015 compared to 13.5% in Fiscal 2014. These decreases were primarily due to a decrease in performance-based compensation, sales commissions, personnel and administrative costs resulting from reductions in force, reduced bad debt expense and overall cost reduction efforts.

Restructuring and separation costs

In Fiscal 2015, we incurred $3.4 million in restructuring and separation costs. Of this, $2.6 million was from separation and severance costs and the remaining $0.8 million resulted from the exit of a Canadian facility lease and the write-off of associated leasehold improvements.  

Other Income

We recorded other income of $2.4 million in Fiscal 2015, of which $2.0 million related to the amortization of the project execution.deferred gain from the amended supply agreement, discussed in Note E of the Notes to Condensed Consolidated Financial Statements, and $0.4 million was from a death benefit received from our company-owned life insurance policy.  We recorded other income of $1.5 million in Fiscal 2014, which was solely from the amortization of the deferred gain.

AsIncome Tax Provision

Our provision for income taxes was $13.6 million in Fiscal 2015 compared to $11.1 million in Fiscal 2014.  The effective tax rate in Fiscal 2015 was 58.9% compared to an effective tax rate of September 30, 2013,36.1% for Fiscal 2014.  This increase in effective tax rate in Fiscal 2015 was primarily due to the establishment of a valuation allowance against the Canadian net deferred tax assets, partially offset by the resolution of an IRS audit and the retroactive reinstatement of the Federal Research and Development Tax Credit for the second through fourth quarter of Fiscal 2014 (for more detailed information, see Note H of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Annual Report).  The effective tax rate for Fiscal 2014 approximated the combined U.S. federal and state statutory rate as the majority of our order backlog strengthened with unfilled ordersincome was attributable to the U.S.

Income from Continuing Operations

In Fiscal 2015, we recorded income from continuing operations of $516.6$9.4 million, an increaseor $0.79 per diluted share compared to $19.6 million, or $1.62 per diluted share in Fiscal 2014. This reduction to net income was primarily due to a valuation allowance recorded against our Canadian deferred tax assets (as discussed above) and higher domestic productions costs caused by inefficiencies resulting from our production efforts and incremental costs to maintain our customers’ scheduling requirements.  These reductions to net income were partially offset by lower selling, general and administrative costs.

Income from Discontinued Operations

In Fiscal 2014, we recorded $9.6 million, or $0.80 per diluted share, of approximately $80 million overincome from discontinued operations which included the beginninggain on the sale. For additional information about this disposition, see Note N of this fiscal year. the Notes to Condensed Consolidated Financial Statements.

Backlog

Our backlog includes various projects, some of which are petrochemical, oil and gas construction and transportation infrastructure projects which take a number of months to produce.

In the fourth quarter of Fiscal 2013, we recovered approximately $5.1 The order backlog at September 30, 2015 was $441.4 million, relatedcompared to one large project$507.1 million at Powell Canada, of which approximately $3.8 million was recorded as revenue and the remaining $1.3 million was related to amounts recorded to other assets in prior periods.  This recovery related to cost overruns on a large project with execution challenges in the first half of Fiscal 2012 which negatively impacted revenue and gross profitSeptember 30, 2014. New orders placed in Fiscal 20122015 totaled $606.8 million, compared to $725.8 million in Fiscal 2014. This decrease in orders was due to reduced capital investments by our Electrical Power Products segment.  

Results of Operationscustomers primarily in oil and gas and petrochemical industries.

Twelve Months Ended September 30, 20132014 Compared to Twelve Months Ended September 30, 20122013

Revenue and Gross Profit

Consolidated revenues decreased 5.9%, or $42.4 million, to $674.8 million in Fiscal 2013.  Domestic revenues decreased by 1.9%, or $7.7 million, to $405.1 million in Fiscal 2013 and international revenues decreased 11.4%, or $34.7 million, to $269.7 million in Fiscal 2013. Gross profitRevenues increased 4.9%,1.1% or $6.9 million, to $146.8$647.8 million in Fiscal 2013. Gross profit as a percentage of revenues increased to 21.8% in Fiscal 2013, compared to 19.5% in Fiscal 2012.  Operating results by segment are discussed below.

Electrical Power Products

Electrical Power Products business segment2014. Domestic revenues decreased 7.5%2.5%, or $51.3$9.3 million, to $635.3$365.1 million in Fiscal 2013. Revenues decreased2014, primarily due to the completionmix of certain complex domesticprojects and international petrochemicalrevenues increased 6.1%, or $16.3 million, to $282.7 million in Fiscal 2014. The expansion of our Canadian operations contributed to the increase in international revenues.  Revenues from industrial customers increased $18.8 million to $474.4 million in Fiscal 2014. Revenues from public and oilprivate utilities decreased $11.6 million to $127.0 million in Fiscal 2014. Revenues from municipal and gas constructiontransit projects that weredecreased $0.3 million to $46.3 million in process during Fiscal 2012. However,2014. Additionally, revenues in Fiscal 2013 were favorably impacted by the recovery of $3.8 million related to cost overruns from a previous year on a large industrial project at Powell Canada.  This Canadian project experienced execution challenges in the first half of Fiscal 2012, which negatively impacted revenue and grossproject.

Gross profit in Fiscal 2012. Revenues from public and private utilities increased $22.7decreased 9.4%, or $13.0 million, to $138.0$125.5 million in Fiscal 2013. Revenues from commercial and industrial customers decreased $72.1 million to $450.6 million in Fiscal 2013. Revenues from municipal and transit projects decreased $1.9 million to $46.6 million in Fiscal 2013.  

Electrical Power Products business segment gross profit increased 4.0%, or $5.3 million, to $137.8 million in Fiscal 2013.2014.  Gross profit, as a percentage of revenues, increased to 21.7% in Fiscal 2013 compared to 19.3% in Fiscal 2012.  These increases were primarily driven by the recovery from the Canadian contract settlement discussed above, the margins associated with the mix of projects in process during Fiscal 2012 and 2013, as well as the increased focus on cost reduction activities.

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Process Control Systems

Process Control Systems business segment revenues increased 29.1%, or $8.9 million, to $39.5 million in Fiscal 2013. This revenue increase has been driven by the increase in projects that were awarded during Fiscal 2012 primarily from municipal and transit customers. Business segment gross profit as a percentage of revenues decreased to 23.0%19.4% in Fiscal 2014 compared to 21.6% in Fiscal 2013 primarily due to higher costs resulting from the efficiency and utilization challenges associated with the ramp of our Canadian operations. Additionally, we incurred higher operating costs associated with inefficiencies from the re-implementation of our existing ERP system and added a suite of new software tools to expand our Business Systems.  These higher costs were partially offset by various supply chain and productivity initiatives. Gross profit for Fiscal 2013 compared to 24.4% for Fiscal 2012. This decrease in gross profit as a percentage of revenues was primarily due tofavorably impacted by the overall mix of$3.8 million recovery from the project types.discussed above.

For additional information related to our business segments, see Note L of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Consolidated Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $2.2by $8.0 million to $83.5$87.8 million in Fiscal 2013.2014 compared to Fiscal 2013, primarily due to increased personnel costs, travel and administrative expenses and bad debts.  Selling, general and administrative expenses, as a percentage of revenues, increased to 13.5% in Fiscal 2014 compared to 12.4% in Fiscal 2013 from 11.3% in Fiscal 2012. This increase is primarily related to increased personnel costs and increased long-term incentive compensation resulting from higher levels of operating performance over the three-year performance cycle.2013. This increase in selling, general and administrative expensesexpense was partially offset by a decrease in depreciation expense as our existing Business Systems became fully depreciated in December 2012. Additionally, selling, general2012 and administrative costs for Fiscal 2013 were favorably impacted bythe favorable impact of the capitalization of certain personnel costs in Fiscal 2013 associated with the development and implementation of our new Business Systems.Systems, which went live in May 2014.  However, going forward, the favorable impact of depreciation expense and capitalization of certain personnel costs will no longer be realized once the Business Systems are implemented in our fiscal year ending September 30, 2014.realized.

Amortization of Intangible Assets

Amortization of intangible assets decreased to $0.8 million in Fiscal 2014 compared to $1.7 million in Fiscal 2013 comparedprimarily due to $2.6the amendment to the supply agreement which is discussed in Note E of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Other Income

We recorded other income of $1.5 million in Fiscal 2012, as certain intangible assets have become fully amortized.

Restructuring and Relocation Costs

During Fiscal 2013, we recorded restructuring and relocation charges totaling $3.9 million.  These charges were related2014 which represents the amortization of the deferred gain from the amendment to our Electrical Power Products business segment.

the supply agreement discussed above.  We have incurred approximately $2.8 milliondid not record other income in Fiscal 2013 related to relocation efforts in connection with the construction of our new facility in Houston, Texas and our new facility in Acheson, Alberta, Canada.  These costs were primarily related to the relocation of our operations, the loss on the sublease, and the abandonment of leasehold improvements on the previously occupied facilities in the second half of Fiscal 2013. The construction of our two new facilities was substantially completed in September 2013 and we have relocated the majority of our operations and personnel from their previously leased facilities.  

In the third quarter of Fiscal 2013, we recorded and paid $1.1 million related to severance at our United Kingdom operations.  These operations were negatively impacted by market conditions and competitive pressures in the international markets in which they operate; therefore, we exited certain non-core operations and eliminated certain positions to better align our workforce with current market conditions.

Gain on Settlement

In March 2013, we settled a lawsuit we had filed against the previous owners of Powell Canada in the amount of $1.7 million, which was received in April 2013.

Income Tax Provision

Our provision for income taxes reflected anfor continuing operations was $11.1 million in Fiscal 2014 compared to $7.4 million in Fiscal 2013.  The effective tax rate on earnings before income taxes of 17.1% in Fiscal 2013 compared2014 was 36.1%, which approximates the combined U.S. federal and state statutory rates as the majority of our income is attributable to 38.5% in Fiscal 2012.the U.S. Additionally, the Federal Research and Development Tax Credit (R&D Credit) expired December 31, 2013.   The effective tax rate for Fiscal 2013 has beenwas 15.7% and was favorably impacted by the release of the $7 million valuation allowance recorded as an offset to the prior years’ Canadian pre-tax losses.  We believe that it is more likely than not that the market conditions and our operating results going forward will allow us to realize the deferred tax assets associated with the prior year losses in Canada.  The rate for Fiscal 2013 was also favorably impacted by the Federal Research and Development Tax Credit and the R&D Credit as well as the

utilization of certain foreign tax credits.  The effective tax rate for Fiscal 2012 was negatively impacted by our inability to record a tax benefit related to pre-tax losses in Canada.  For further information on the effective tax rate for Fiscal 2013, see Note H of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

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Net Income (Loss)from Continuing Operations

In Fiscal 2013,2014, we recorded net income from continuing operations of $42.1$19.6 million, or earnings of $3.51$1.62 per diluted share, compared to net income of $29.7$39.7 million, or earnings of $2.49$3.32 per diluted share, in Fiscal 2012. Net2013.  This decrease in income from continuing operations was primarily due to efficiency and utilization challenges associated with the ramp of our Canadian operations, higher operating costs associated with inefficiencies from the re-implementation of our existing ERP system and the mix of projects in process at our domestic operations.

Income from Discontinued Operations

In Fiscal 2014, we recorded $9.6 million, or $0.80 per diluted share, of income from discontinued operations compared to $2.3 million, or $0.19 per diluted share, in Fiscal 2013 was positively impacted byas the recovery of $3.8 million fromcurrent fiscal year includes the Canadian contract settlement andgain on the favorable tax benefits discussed above.

Backlog

The order backlog at September 30, 2013, was $516.6 million, compared to $436.7 million at September 30, 2012. New orders placed during Fiscal 2013 totaled $757.0 million compared to $710.7 million in Fiscal 2012. The backlog for Fiscal 2013 has increased primarily due to continued strength in oil and gas production projects, refining projects and transportation markets.

Twelve Months Ended September 30, 2012 Compared to Twelve Months Ended September 30, 2011

Revenue and Gross Profit

Consolidated revenues increased 27.5%, or $154.8 million, to $717.2 million in Fiscal 2012. Domestic revenues increased by 8.9%, or $33.9 million, to $412.8 million in Fiscal 2012 and international revenues increased 65.9%, or $120.9 million, to $304.4 million in Fiscal 2012. Revenues increased primarily as a result of an increase in activity in complex petrochemical and oil and gas construction projects, as a result of our Electrical Power Products business segment.

Gross profit in Fiscal 2012 increased 40.0%, or $40.0 million, to $139.9 million in Fiscal 2012. Gross profit as a percentage of revenues increased to 19.5% in Fiscal 2012, compared to 17.8% in Fiscal 2011, primarily as a result of our Electrical Power Products business segment. Operating results by segment are discussed below.

Electrical Power Products

Electrical Power Products business segment revenues increased 28.7%, or $153.3 million, to $686.6 million in Fiscal 2012. Revenues increased primarily as a result of an increase in project activity in certain markets. Revenues from public and private utilities decreased $51.3 million to $115.3 million in Fiscal 2012. Revenues from commercial and industrial customers increased $202.2 million to $522.7 million in Fiscal 2012. Revenues from municipal and transit projects increased $2.4 million to $48.6 in Fiscal 2012.

Electrical Power Products business segment gross profit increased 44.4%, or $40.7 million, to $132.5 million in Fiscal 2012. Gross profit, as a percentage of revenues, increased to 19.3% in Fiscal 2012, compared to 17.2% in Fiscal 2011, as a result of favorable operational execution and project management on certain large complex projects that were completed or near completion. Our increase in project activity in Fiscal 2012 also improved our ability to cover fixed and overhead operating costs, partially offset by the challenges on certain large projects at Powell Canada. These challenges resulted from scope changes and cost overruns on certain Canadian projects. We recovered certain of these costs in Fiscal 2013.

Process Control Systems

Process Control Systems business segment revenues increased 5.2%, or $1.5 million, to $30.6 million in Fiscal 2012. Business segment gross profit, as a percentage of revenues, decreased to 24.4% for Fiscal 2012, compared to 28.2% for Fiscal 2011. This decrease in gross profit as a percentage of revenues is related to the mix of project types.

sale. For additional information related to our business segments,about this disposition, see Note L of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Consolidated Selling, General and Administrative Expenses

Selling, general and administrative expenses, as a percentage of revenues, decreased to 11.3% in Fiscal 2012 from 13.8% in Fiscal 2011. Selling, general and administrative expenses decreased as a percentage of revenues in Fiscal 2012 as a result of our increase in revenues. Consolidated selling, general and administrative expenses increased $3.8 million to $81.3 million in Fiscal 2012. This increase is primarily related to increased personnel costs and incentive compensation resulting from higher levels of operating performance. Additionally, separation payments of $2.6 million to our former CEO were recorded in selling, general and administrative expenses in the fourth quarter of Fiscal 2011.

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Amortization of Intangible Assets

Amortization of intangible assets decreased to $2.6 million in Fiscal 2012, compared to $4.8 million in Fiscal 2011. This decrease resulted from the impairment of the intangible assets recorded in Fiscal 2011 related to Powell Canada.

Income Tax Provision

Our provision for income taxes reflected an effective tax rate on earnings before income taxes of 38.5% in Fiscal 2012 compared to 167.9% in Fiscal 2011. The effective tax rate for both Fiscal 2012 and 2011 were negatively impacted by our inability to record the tax benefit related to pre-tax losses in Canada, offset by the favorable impact on our effective tax rate of the domestic production activities deduction in the United States. For further information on the effective tax rate for Fiscal 2013, see Note HN of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Net Income (Loss)

In Fiscal 2012, we recorded net income of $29.7 million, or earnings of $2.49 per diluted share, compared to a net loss of $2.7 million, or a loss of $0.23 per diluted share, in Fiscal 2011. Net income improved in Fiscal 2012 as a result of increased revenue and earnings from increased activity and favorable operational and project execution in Fiscal 2012. Fiscal 2011 was negatively impacted by the impairment of intangible assets for Powell Canada of $7.2 million, the $2.6 million separation charge with our former CEO and our inability to record the tax benefits related to the pre-tax losses in Canada.

Backlog

The order backlog at September 30, 2012,2014 was $436.7$507.1 million compared to $443.0$437.9 million at September 30, 2011.2013.  New orders placed duringin Fiscal 20122014 totaled $710.7$725.8 million compared to $725.2$715.7 million in Fiscal 2011.2013.  The backlog for Fiscal 2012 decreased slightlyyear over year increase in new orders was primarily due to the completion of certain complexcontinued strength in oil and gas production and petrochemical and pipeline projects.

Liquidity and Capital Resources

Cash and cash equivalents increaseddecreased to $107.7$43.6 million at September 30, 2013,2015, compared to $90.0$103.1 million at September 30, 2012. This increase in cash primarily resulted from cash flow provided by operations of $91.8 million. These cash flows were partially used to fund the construction of our two new facilities in the United States and Canada in Fiscal 2013 in order to support continued expansion in our key markets.2014.  As of September 30, 2013,2015, current assets exceeded current liabilities by 2.12.4 times and our debt to total capitalizationdebt-to-capitalization ratio was 1.0%0.83%.

We have a $75.0 million revolving credit facility in the U.S., which expires in December 2016.2018.  As of September 30, 2013,2015, there were no amounts borrowed under this line of credit. We also have a $9.5$7.5 million revolving credit facility in Canada. At September 30, 2013,2015, there was no balance outstanding under the Canadian revolving credit facility. Total long-term debt and capital lease obligations, including current maturities, totaled $3.6$2.8 million at September 30, 2013,2015, compared to $4.4$3.2 million at September 30, 2012.2014. Total letters of credit outstanding were $20.1$21.1 million and $36.6$21.5 million at September 30, 20132015 and 2012,2014, respectively, which reduce our availability under our U.S. credit facility and our Canadian revolving credit facility. Amounts available at September 30, 20132015 under the U.S. and Canadian revolving credit facilities were $55.0$53.9 million and $9.4$7.5 million, respectively. For further information regarding our debt, see Notes F and G and J of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.

Approximately $9.8$10.4 million of our cash at September 30, 20132015 was held outside of the United States for international operations. It is our intention to indefinitely reinvest all current and future foreign earnings internationally in order to ensure sufficient working capital andto support and expand these 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.

We believe that cash available and borrowing capacity under our existing credit facilities should be sufficient to finance anticipated operating activities, capital improvements and expansions, as well as debt repayments, for the foreseeable future. We continue to monitor the factors that drive our markets and strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions.

Operating Activities

During Fiscal 2015, net cash provided by operating activities was $12.9 million.  During Fiscal 2014, net cash provided by operating activities was $9.1 million and in Fiscal 2013, net cash provided by operating activities was $91.8 million. During Fiscal 2012, net cash used in operating activities was $6.0 million and in Fiscal 2011, net cash provided by operating activities was $15.5$91.4 million. Cash flow from operations is primarily influenced by demand for our products and services and is impacted as our progress payment terms with our customers are matched with the payment terms with our suppliers.   During Fiscal 2013,2015, our cash fromprovided by operations increased over Fiscal 2012,

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2014 primarily due to increased neta decrease in prepaid assets and income as well astaxes receivable.  In Fiscal 2014, we received the increase$10.0 million payment related to the amended supply agreement discussed in billingNote E of the Notes to Consolidated Financial Statements included elsewhere in excess of costs and estimated earnings on uncompleted contracts and the collection of contracts receivable based on the progress billing milestones.  Additionally inthis Annual Report.  In Fiscal 2013, we received $6.8 million in contract settlements related to Fiscal 2012 matters.  During Fiscal 2012, the cash used in operations of $6.0 million was primarily the result of increased unbilled contract receivables based on progress billing milestones. Cash flow provided by operations of $15.5 million in Fiscal 2011 resulted primarily from the increase in accounts payable.

Investing Activities

Purchases of property, plant and equipment during Fiscal 20132015 totaled $74.4$34.7 million compared to $29.1$16.5 million and $7.3$74.4 million in Fiscal 20122014 and 2011,2013, respectively. A significant portion of the investments in the last two fiscal years wasFiscal 2013 were to acquire land and build facilities in the United States and Canada to support our continued expansion in our key markets, including the oil and gas markets and Canadian oil sands region. Costs related to upgradesthe re-implementation and enhancementsadditional software added to our Business Systems were also incurred during Fiscal 2013; which are expected to be2013 and were placed into service in the secondthird quarter of our fiscal year ending September 30,Fiscal 2014.

Financing Activities

Net cash used in financing activities was $34.9 in Fiscal 2015, $12.5 million in Fiscal 2014 and $0.5 million in Fiscal 2013. NetThe increase in the use of cash in Fiscal 2014 compared to Fiscal 2013 was primarily due to the payment of dividends.  The increase in Fiscal 2015 was primarily due to our share repurchase program discussed below.  

Share Repurchase Program

On December 17, 2014, our Board of Directors authorized a share repurchase program under which we may repurchase up to $25 million of our outstanding stock.  The purchases may be made from time to time in the open market, through privately negotiated transactions and Rule 10b5-1 trading plans in accordance with applicable laws, rules and regulations.  The Repurchase Program is being funded from cash on hand and cash provided by financing activitiesoperating activities.  The Repurchase Program will expire as of the close of business on December 31, 2015.  As of September 30, 2015, we had purchased 670,181 shares at a cost of $21.3 million under the Repurchase Program.  The average purchase price per share through September 30, 2015 was $1.3 million during Fiscal 2012 due to cash being received from the exercise of stock options. Net cash used in financing activities was $0.8 million during Fiscal 2011.$31.72.

Contractual and Other Obligations

At September 30, 2013,2015, our long-term contractual obligations were limited to debt and leases. The table below details our commitments by type of obligation, including interest if applicable, and the period that the payment will become due (in thousands).

The lease onIn Fiscal 2015, we exited one of our previously occupied Canadian facilityleased facilities in Acheson, Alberta, Canada.  The lease does not expire until October 2019; however, we are currently seeking to sublet the facility.  In Fiscal 2014, we also exited one of our previously occupied leased facilities in Edmonton, Alberta, Canada.  This lease does not expire until July 2023; however, we have sublet that facility through July 2019.

As of September 30, 2013,2015, the total unrecognized tax benefit related to uncertain tax positions was $3.8$0.8 million. We estimate that none of this will be paid within the next 12 months.  However, we believe that it is reasonably possible that within the next 12 months, the total unrecognized tax benefits will decrease by approximately 1%4% due to the expiration of certain statutes of limitations in various state and local jurisdictions.  We are unable to make reasonably reliable estimates regarding the timing of future cash outflows, if any, associated with the remaining unrecognized tax benefits. 

Other Commercial Commitments

We are contingently liable for secured and unsecured letters of credit of $24.8$25.2 million as of September 30, 2013,2015, of which $20.1$21.1 million reduces our borrowing capacity.

The following table reflects potential cash outflows that may result in the event that we are unable to perform under our contracts (in thousands):

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We also had performance and maintenance bonds totaling $283.4$318.8 million that were outstanding at September 30, 2013.2015. Performance and maintenance bonds are primarily used to guarantee our contract performance to our customers.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements during the periods presented.

Outlook

Powell participatesThe markets in which we participate are capital-intensive markets that areand cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic conditions and anticipated environmental or regulatory changes which affect the manner in which our customers proceed with capital investments. Market cycles are many months or years in lengthOur customers analyze various factors including the demand and require our customers to analyze factors which include the demandprice for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, the outlook for regulatory actions and environmental concerns. Orders take a numberThese factors influence the release of months to produce andnew capital projects by our customers, which are traditionally awarded in competitive bid situations. Scheduling of projects is matched to the customer requirements whichand projects may take a number of months to produce, but schedules may change during the course of any particular project.

GrowthA significant portion of our revenues are derived from the oil and gas markets.  Unfavorable long-term commodity price levels can cause oil and gas companies to change their strategies, delay or cancel projects.  Due to the precipitous decline in demand for energy is expected to continue over the long term. This, when coupled with the need for replacement of existing infrastructure that is at the end of its life cycle, demonstrates a continued need for productsoil and services produced by us. Our ordersgas prices over the past year, many of our customers have been solid, driven primarily by continued strengthreduced their capital budgets and cut costs, and in certain instances have deferred or cancelled projects that we were pursuing.  We believe that sustained lower oil and gas productionprices from a continued global supply/demand imbalance will negatively impact future orders due to reduced capital spending by our customers which may result in project deferrals and cancellations. The reduction in available projects, refining projectsacross the markets we serve, will increase market price pressures during this downward cycle. This reduction in new business opportunities and transportation markets. Wemarket price pressures will negatively impact our revenues, backlog, operating results and cash flows from operations.  If commodity prices do not improve, or they continue to experience timing challengesdecline, the number of projects in the near-term relatedour markets could further decline.  We will continue to the awarding of large projects duemonitor our cost structure and continue to various global market conditionstake actions to align our resources and industry constraints. However, the outlook for continued opportunities for our products and services remains positive; even though the timing and pricing of many of these projects are difficult to predict.facilities with expected production requirements.  

Our operating results have been, and may continue to be, negatively 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 have and may continue to have, a negative impact on the timing of project execution.  These factors have resulted, and may continue to result in, periods when our factory resources are frequentlynot in balance with our customers’ scheduling requirements, resulting in higher production costs due to inefficiencies.  Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders, and project close-out and resolution of potential contract claims, all of which could cause gross margins to improve or deteriorate gross margins during the period in which these items are approved and finalizedresolved with our customers. Our operating results are also impacted by factors outside

We completed the construction of our control, suchnew Acheson, Alberta facility and relocated operations in the fall of 2013 and completed a $26 million expansion of this facility in the third quarter of Fiscal 2015. The production ramp and stabilization of our Canadian operations has presented and may continue to present challenges resulting in inefficiencies and extended project delivery times. These challenges resulted in delayed project revenues, incremental costs to hold customers’ schedules, gross margin deterioration, back charges and operating losses.  We have taken actions to stabilize our Canadian operations and mitigate the risks associated with replicating our U.S. project-based integration model which allows for the design, fabrication, integration and testing of our products at a single location.  However, we may continue to incur operating losses in Canada as we continue to enhance our projects that have contract arrangements where the approval of engineering and design specifications may affect the timing of theproject management competencies and improve our overall project execution.

Strength in the Canadian oil sands region continues to be a major contributor to our improved operations and backlog in Canada. The relocation to our newly constructed facility and the ramp-up, staffing and expansion of our operations in Canada pose various risks and uncertainties in the near term.

We believe that cash available and borrowing capacity under our existing credit facilityfacilities should be sufficient to finance anticipated operationaloperating activities, capital improvements, and debt repayments and share repurchases for the foreseeable future. We continue to monitor our markets and will strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions.serve.

Effects of Inflation

We are subject to inflation, which can cause increases in our costs of raw materials, primarily copper, aluminum and steel. Fixed-price contracts can limit our ability to pass these increases to our customers, thus negatively impacting our earnings. The inflation in commodity prices could potentially impact our operations in our fiscal year ending September 30, 2014.future years.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the following accounting policies and estimates to be critical in the preparation and reporting of our consolidated financial statements.

Revenue Recognition

Our revenues are primarily generated from the engineering and manufacturing of custom products under long-term contracts that may last from one month to several years, depending on the contract. Revenues from long-term contracts are recognized on the percentage-of-completion method of accounting. Occasionally a contract may require that we segment the project into specific deliverables for revenue recognition.Segmenting a contract may result in different interim rates of profitability for each scope of service than if we had recognized revenue on a combined basis.

Under the percentage-of-completion method of accounting, revenues are recognized as work is performed. The estimated completionrevenue earned to date is calculated by multiplying the total contract price by the percentage of performance to date, which is based on total costs or total labor dollars incurred to date compared to the total estimated costs or total labor dollars estimated at completion. The method used to determine the percentage of completion is typically the cost method, unless the labor method is a more accurate method of

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measuring the progress of the project. Application of the percentage-of-completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct material costs, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and all costs associated with operation of equipment. 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 effect of change orders, the availability of materials, the effect of any delays on our project performance and the recoverability of any claims. Changes in job performance, job conditions, estimated profitability and final contract settlements, including our estimate of liquidated damages, if any, may result in revisions to costs and income, with their effects being recognized in the period in which the revisions are determined. 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.

Revenues associated with maintenance, repair and service contracts are recognized when the services are performed. Expenses related to these types of services are recognized as incurred.

Costs and estimated earnings in excess of billings on uncompleted contracts also include certain costs associated with unapproved change orders. These costs are included when change order approval is probable. Amounts are carried at the lower of cost or net realizable value. Revenue is recognized to the extent of costs incurred when recovery is probable. The amounts recorded involve the use of judgments and estimates; thus, actual recoverable amounts could differ from original assumptions.

Allowance for Doubtful Accounts

We maintain and continually assess the adequacy of an allowance for doubtful accounts representing our estimate for losses resulting from the inability of our customers to pay amounts due to us. This estimated allowance is based on historical experience of uncollected accounts, the level of past due accounts, the overall level of outstanding accounts receivable, information about specific customers with respect to their inability to make payments and expectations of future conditions that could impact the collectability of accounts receivable. However, future changes in our customers’ operating performance and cash flows, or in general economic conditions, could have an impact on their ability to fully pay these amounts, which, among other things, could have a material adverse impact on our operating results.

Impairment of Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be realizable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such asset is necessary. This requires us to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for our products and future market conditions. Estimating future cash flows requires significant judgment, and our projections may vary from cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be reflected in income (loss) from operations in the Consolidated Statements of Operations. In addition, we estimate the useful lives of our long-lived assets and other intangibles and periodically review these estimates to determine whether these lives are appropriate.

Intangible Assets

Goodwill and other intangible assets with indefinite useful lives are no longer amortized, but are evaluated for impairment annually, or immediately if conditions indicate that impairment could exist. The evaluation requires a two-step impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss. The first step of the test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss. Both steps of the goodwill impairment testing involve significant estimates.

The costs of intangible assets with determinable useful lives are amortized over their estimated useful lives. When certain events or changes in operating conditions occur, an impairment assessment is performed and the lives of intangible assets with determinable lives may be adjusted.

See Note D of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report for a discussion of our impairment recorded in relation to the acquisition of Powell Canada.

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Accruals for Contingent Liabilities

From time to time, contingencies such as insurance,insurance-related claims, liquidated damages and legal claims arise in the normal course of business. Pursuant to current accounting standards, we must evaluate such contingencies to subjectively determine the likelihood that an asset has been impaired or a liability has been incurred at the date of the financial statements, as well as evaluate whether the amount of the loss can be reasonably estimated. If the likelihood is determined to be probable and it can be reasonably estimated, the estimated loss is recorded. The amounts we record for insurance claims, warranties, legal and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We use past experience and history, as well as the specific circumstances surrounding each contingent liability, in evaluating the amount of liability that should be recorded. Actual results could differ from our estimates.

Warranty Costs

We provide for estimated warranty costs atwith the timerecognition of salerevenue based upon historical rates applicable to individual product lines. In addition, specific provisions are made when the costs of such warranties are expected to exceed accruals. Our standard terms and conditions of sale include a warranty for parts and service for the earlier of 18 months from the date of shipment or 12 months from the date of initial operations.energization. Occasionally projects require warranty terms thatwhich are longer than our standard terms due to the nature of the project. Extended warranty terms may be negotiated and included in our contracts. We use past experience and historical claims to determine the estimated liability. Actual results could differ from our estimate.

Accounting for Income Taxes

We account for income taxes under the asset and liability method, based on the income tax laws and rates in the countries in which operations are conducted and income is earned. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Developing our provision for income taxes requires significant judgment and expertise in federal, international and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets.  WeIn assessing the realizability of net deferred tax assets, we consider whether it is more-likely-than-not that some portion or all of the net deferred tax assets may not be realized.  The ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible.  In light of the historical Canadian losses, and recent changes in projected losses in the near term, we are required under the more-likely-than-not accounting standard to record a valuation allowance to reduce our deferred tax assets toagainst the amount that is more likely than not to be realized. We believe that theCanadian net deferred tax asset recorded as of September 30, 2013, is realizable through future reversals of existing taxable temporary differences and future taxable income. Ifassets because we were to subsequently determine that we wouldmay not be able to realize deferred tax assetsthe benefits of the net operating loss carryforwards and other deductible differences.  Estimates may change as new events occur, estimates of future taxable income during the carryforward period are reduced or increased, additional information becomes available or operating environments change, which may result in a full or partial reversal of the future in excess of our net recorded amount, an adjustment to deferred tax assets would increase earnings for the period in which such determination was made.valuation allowance. We will continue to assess the adequacy of the valuation allowance on a quarterly basis. Our judgments and tax strategies are subject to audit by various taxing authorities.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Accounting literature also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial statements.

See Note H of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for disclosures related to the valuation allowance recorded in relation to foreign deferred taxes.

Foreign Currency Translation

The functional currency for our foreign subsidiaries is the local currency in which the entity is located. The financial statements of all subsidiaries with a functional currency other than the U.S. Dollar have been translated into U.S. Dollars. All assets and liabilities of foreign operations are translated into U.S. Dollars using year-end exchange rates, and all revenues and expenses are translated at average rates during the respective period. The U.S. Dollar results that arise from such translation, as well as exchange gains and losses on intercompany balances of a long-term investment nature, are included in the cumulative currency translation adjustments in accumulated other comprehensive income in stockholders’ equity.

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New Accounting PronouncementsStandards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated statements upon adoption.

In August 2012, the Securities and Exchange Commission (SEC) adopted a rule mandated by the Wall Street Reform and Consumer Protection Act to require companies to publicly disclose their use of conflict minerals that originate in the Democratic Republic of the Congo or an adjoining country. The final rule applies to a company that uses minerals including tantalum, tin, gold or tungsten. The final rule requires companies to provide disclosure on a new form filed with the SEC, with the first specialized disclosure report due on May 31, 2014, for the 2013 calendar year, and annually on May 31 each year thereafter. We are implementing the processes and procedures to comply with this rule.

In February 2013, the FASB issued accounting guidance that requires companies to provide information regarding the amounts reclassified out of accumulated other comprehensive income by component. A company will be required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required by U.S. generally accepted accounting principles (U.S. GAAP) to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, a company is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail regarding those amounts. This accounting guidance was effective for fiscal years beginning after December 15, 2012, on a prospective basis. We are evaluating the impact of this guidance on our consolidated financial statements, but since the guidance only affects presentation and disclosure of amounts reclassified out of accumulated other comprehensive income, the adoption of this guidance in our first quarter of fiscal year 2014 is not expected to have a significant impact on our consolidated financial position or results of operations.

In March 2013, the FASB issued accounting guidance to resolve the diversity in practice for accounting for the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of real estate or conveyance of oil and gas mineral rights) within a foreign entity. This guidance is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013, our fiscal year ended September 30, 2015. We do not expect this guidance to have a material impact on our consolidated financial position or results of operations.

In July 2013, the FASB issued accounting guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, which was our fiscal year endedending September 30, 2015. This guidance should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of this guidance ishas not expected to havehad a significant impact on our consolidated financial position or results of operations.

In April 2014, the FASB issued an amendment to the financial reporting of discontinued operations.  The amendments in this update changed the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to the financial reporting of discontinued operations guidance in U.S. GAAP.  Under the new guidance, only disposals representing a strategic shift in operations that have a major effect on the organization’s operations and financial results should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in this update are effective in the first quarter of 2015, which would be in our fiscal year ending September 30, 2016. Early adoption is permitted for disposals that have not been previously reported as discontinued operations. This amendment is not expected to have a material impact on our consolidated financial position or results of operations.

In May 2014, the 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.  This guidance is now effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, which would be our fiscal year ending September 30, 2019.  The standard permits the use of either the retrospective or cumulative effect transition method therefore we are evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

In June 2014, the FASB issued an amendment to the topic regarding share-based payments and instances where terms of an award provide that a performance target can be achieved after the requisite service period.  This guidance has been provided to resolve the diversity in practice concerning employee share-based payments that contain performance targets that could be achieved after the requisite service period. The updated guidance requires that a performance target that affects vesting and that can be achieved after the requisite service period be treated as a performance condition. Compensation cost should be recognized in the period in which it

becomes probable that the performance target will be achieved and is attributable to the periods for which service has been rendered. If the performance target becomes probable of being achieved before the end of the service period, the remaining unrecognized compensation cost for which requisite service has not yet been rendered is recognized prospectively over the remaining service period. The total amount of compensation cost recognized during and after the service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The updated guidance is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial position or results of operations.

In July 2015, the FASB issued a new topic on simplifying the measurement of inventory.  The current standard is to measure inventory at lower of cost or market; where market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. This topic updates this guidance to measure inventory at the lower of cost and net realizable value; where net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This update is effective for annual reporting periods beginning after December 15, 2016, which would be our fiscal year ending September 30, 2018.  The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. This topic is not expected to have a material impact on our consolidated financial position or results of operations.

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Item 7A.Quantitative 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 interest rates, foreign exchange rates and commodity prices.

Interest RateMarket Risk

If we decideWe are also exposed to borrow under onegeneral 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 credit facilities, we will becustomers’ ability to pay these obligations is negatively impacted by economic conditions. Our customers and their industries are typically EPC firms, oil and gas refining, offshore oil and gas production, petrochemical, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper and other heavy industrial customers. 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 resulting from changes in interest rates relatedfluctuating market prices of certain raw materials. 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 floating rate bank credit facility. If we werecustomers on a contract-by-contract basis to make such borrowings,avoid a hypothetical 100 basis point increase in variable interest rates may result in a material impact tonegative effect on our financial statements.profit margin. While we may do so in the future, we have not currently haveentered into any derivative contracts to hedge our exposure to interest rate risk,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 the past wecommodity prices may have entered and may in the future enter into such contracts. During each of the past three years, we have not experienced a significant effectmaterial impact on our business due to changes in interest rates.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 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. Our international operations are financed utilizing local credit facilities denominated in local currencies. Additionally, expenses associated with these transactions are generally contracted and paid for in the same local currencies. A 10% unfavorable changeDuring Fiscal 2015, our realized foreign exchange losses were $0.6 million and are included in selling, general and administrative expenses in the U.S.Consolidated Statements of Operations.

We are exposed to the effects of fluctuations in foreign exchange rates (primarily Canadian Dollar, exchange rate, relative to other functional currencies in which we operate, would not materially impact our consolidated balance sheet at September 30, 2013.

During Fiscal 2012, we entered into eight foreign currency forward contracts to manage the volatility of future cash flows on certain long-term contracts that are denominated in the British Pound Sterling. The contracts were designated as cash flow hedges for accounting purposes. The changes in fair value related toand Euro denominated) on the effective portiontranslation of the hedges arefinancial statements of our foreign operations into our reporting currency.  The impact of this translation to U.S. dollars is recognized as a component ofcumulative translation adjustment in accumulated other comprehensive income on(loss).  We do not hedge our consolidated balance sheets. At September 30, 2013, allexposure to potential foreign currency forward contracts have been settled, with no balances recorded ontranslation adjustments.

Interest Rate Risk

If we decide to borrow under one of our consolidated balance sheets related to these transactions.

Commodity Price Risk

We arecredit facilities, we will be subject to market risk resulting from fluctuating market prices of certain raw materials. 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 increaseschanges in interest rates related to our customers onfloating rate bank credit facility. If we were to make such borrowings, a contract-by-contracthypothetical 100 basis point increase in variable interest rates may result in a material impact to avoid a negative effect on our profit margin.financial statements. While we may do so in the future, we have not currently entered intohave any derivative contracts to hedge our exposure to commodity risk. We continue to experience price volatility with someinterest rate risk, in the past we have entered and may in the future enter into such contracts. During each 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 maythe past three years, we have not experienced a material impactsignificant effect on our future earnings and cash flows.

Market Risk

We are also exposedbusiness due to general market risk and its potential impact on accounts receivable or costs and estimated earningschanges 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 and their industries are typically EPC firms, oil and gas producers, oil and gas pipelines, refineries, petrochemical plants, electrical power generators, public and private utilities, co-generation facilities, mining/metals operations, pulp and paper plants, transportation authorities, governmental agencies and other large industrial customers. 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.interest rates.

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Item  8.Financial Financial Statements and Supplementary Data

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

and Stockholders of Powell Industries, Inc.:

In our opinion, the accompanyingconsolidated balance sheets and the relatedconsolidated statements of operations, andof comprehensive income, of shareholders’stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of Powell Industries, Inc.and its subsidiariesatSeptember 30, 2013 and2012,2015 and 2014, and the results oftheir operations andtheir cash flows for each of the three years in the period endedSeptember 30, 20132015 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2013,2015, based on criteria established inInternal Control—Control - Integrated Framework (1992)  2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,, included in Management’sManagement's Report on Internal Control Overover Financial Reporting appearing under Item 9A.Reporting.  Our responsibility is to express opinions on these financial statements, and on the Company's internal control over financial reporting based on our integrated audits.We conducted our audits inin accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed 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.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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POWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)