Powell Industries, Inc. (we, us, our, Powell or the Company) is incorporated in the state of Delaware. Powell's predecessor companies werea Delaware corporation founded 76 years ago by William E. Powell in 1947. Our major subsidiaries, all of which are wholly owned, include Powell Electrical Systems, Inc.; Powell (UK) Limited; Powell Canada Inc.; and Powell Industries International, B.V.

TheseThe unaudited condensed consolidated financial statements include the accounts of Powell and our wholly-ownedwholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying footnotes. The most significant estimates used in our condensed consolidated financial statements affect revenue recognition and estimated cost recognition on our customer contracts, the allowance for credit losses, provision for excess and obsolete inventory, warranty accruals and income taxes. The amounts recorded for warranties, legal, income taxes, impairment of long-lived assets (when applicable), liquidated damages and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We base our estimates on historical experience, forecasts and various other assumptions, as well as the specific circumstances surrounding these contingent liabilities, in evaluating the amount of liability that should be recorded. Additionally, the basis for recognition of deferred tax assets requires estimates related to future income and other assumptions regarding timing and future profitability because the ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which temporary differences become deductible. Estimates routinely change as new events occur, additional information becomes available or operating environments change. Actual results may differ from our prior estimates.

We compute basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share includesinclude the weighted average of additional shares associated with the incremental effect of dilutive restricted stock and restricted stock units.

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

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

A performance obligation is a promise in a contract or with a customer to transfer a distinct good or service. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligations are satisfied. To determine the proper revenue recognition for contracts, we evaluate whether a contract should be accounted for as more than one performance obligation or, less commonly, whether two or more contracts should be combined and accounted for as one performance obligation. This evaluation of performance obligations requires significant judgment. The majority of our contracts have a single performance obligation where multiple engineered products and services are combined into a single custom-engineered solution. Our contracts include a standard one-year assurance warranty. Occasionally, we provide service-type warranties that will extend the warranty period. These extended warranties qualify as a separate performance obligation, and revenue is deferred and recognized over the warranty period. If we determine during the evaluation of the contract that there are multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

For the ninesix months ended June 30,March 31, 2024 and 2023, and 2022, our operating results were positively impacted by $13.2$7.8 million and $5.9$7.4 million, respectively, as a result of net changes in contract estimates related to projects in progress at the beginning of the respective period. These changes in estimates resulted primarily from favorable project execution, reduced cost estimates and negotiations of variable consideration, discussed below, as well as revenue recognized from project cancellations and other changes in facts and circumstances during these periods. Project cancellations on two projects increased gross profit for the nine months ended June 30, 2023 by $3.4 million. Gross unfavorable changes in contract estimates were immaterial for both the ninesix months ended June 30, 2023March 31, 2024 and 2022.2023.

The timing of revenue recognition, billings and cash collections affects accounts receivable, contract assets and contract liabilities in our Condensed Consolidated Balance Sheets.

Contract assets are recorded when revenues are recognized in excess of amounts billed for fixed-price contracts as determined by the billing milestone schedule. Contract assets are transferred to accounts receivable when billing milestones have been met, or we have an unconditional right to payment.

On March 31,October 4, 2023, we entered into a secondthird amendment (the SecondThird Amendment) to our credit agreement with Bank of America, N.A. (as amended, the U.S. Revolver). The SecondThird Amendment added Texas Capital Bank as Syndication Agent and a lender, increased the amount of the revolving credit facility extended to us under the U.S. Revolver, which is available for both borrowings and lettersline of credit and expires September 27, 2024, from $75.0$125.0 million to $125.0 million.$150.0 million, and extended the expiry date to October 4, 2028. The aggregate commitment of $150.0 million consists of $100.0 million committed by Bank of America and $50.0 million committed by Texas Capital Bank. As amended by the SecondThird Amendment, the U.S. Revolver states that the lesser of $50(a) $60 million, or 50%(b) 60% of readily and available cash, mayand (c) the aggregate face amount of the issued but undrawn letters of credit that are not cash-secured, shall be deducted from the amount of letters of credit outstanding (not to be less than zero) when calculating the consolidated funded indebtedness, which is a component ofwhen calculating the consolidated net leverage ratio. We have the option to cash collateralize all or a portion of the letters of credit outstanding, which would favorably impact the consolidated funded indebtedness calculation and the consolidated net leverage ratio. As of June 30, 2023,March 31, 2024, there were no amounts borrowed under the U.S. Revolver, and letters of credit outstanding were $49.0$87.8 million. There was $76.0$62.2 million available for the issuance of letters of credit and borrowings under the U.S. Revolver as of June 30, 2023.March 31, 2024.

Certain customers require us to post letters of credit, bank guarantees or surety bonds. These security instruments assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or bank guarantee, or performance by the surety under a bond. To date, there have been no significant draws or claims related to security instruments for the periods reported. We were contingently liable for letters of credit of $49.0$87.8 million as of June 30, 2023.March 31, 2024. We also had surety bonds totaling $357.5$481.9 million that were outstanding, with additional bonding capacity of $342.5$718.1 million available, at June 30, 2023.March 31, 2024. We have strong surety relationships; however, a change in market conditions or the sureties' assessment of our financial position could cause the sureties to require cash collateralization for undischarged liabilities under the bonds.

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

Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 20222023 for a full description of our existing stock-based compensation plans. On February 15, 2023, at the 2023 Annual Meeting of Stockholders, our stockholders approved an amendment to our 2014 Equity Incentive Plan (the 2014 Plan) that extended the term of the 2014 Plan by five years and increased the number of shares of common stock that may be issued under the 2014 Plan by 600,000 shares for a total of 1,350,000 shares.

We issue restricted stock units (RSUs) to certain officers and key employees of the Company. The fair value of the RSUs is based on the price of our common stock as reported on the NASDAQ Global Market on the grant dates. Typically, these grants vest over a three-year period from the date of issuance and are a blend of time-based and performance-based shares. The portion of the grant that is time-based typically vests over a three-year period on each anniversary of the grant date, based on continued employment. The performance-based shares vest based on the three-year earnings and safety performance of the Company following the grant date. At June 30, 2023,March 31, 2024, there were 295,417193,346 RSUs outstanding. The RSUs do not have voting rights but do receive dividend equivalents upon vesting which are accrued quarterly. Additionally, the shares of common stock underlying the RSUs are not considered issued and outstanding until vested and common stock is issued.

EachIn December 2023, the Company's Compensation and Human Capital Committee revised the non-employee directors' annual restricted stock compensation from a fixed-shares arrangement to a fixed-value arrangement, retrospectively effective on October 1, 2023. Prior to October 1, 2023, each non-employee director receivesreceived 2,400 restricted shares of the Company’s common stock annually. Fifty-percentFifty percent of the restricted stock granted to each of our non-employee directors vestsvested immediately, while the remaining fifty-percent vestsfifty percent vested on the anniversary of the grant date. Compensation expense iswas recognized immediately for the first fifty-percentfifty percent of the restricted stock granted, while compensation expense for the remaining fifty-percent isfifty percent was recognized over the remaining vesting period. Subsequent to October 1, 2023, each non-employee director shall receive restricted shares of the Company's common stock valued at $0.1 million annually. The number of granted shares is calculated by dividing the $0.1 million by the average of high and low prices of our common stock on the grant date. The shares shall vest on the earlier of the grant anniversary date or the date of the next annual meeting of stockholders, whichever occurs first. In February 2023, 16,8002024, 4,620 shares of restricted stock were issued to our non-employee directors under the 2014 Non-Employee Director Equity Incentive Plan, as amended, at a price of $43.22$153.81 per share. During the ninesix months ended June 30,March 31, 2024 and 2023, and 2022, we recorded compensation expense of $0.5$0.2 million and $0.4$0.5 million, respectively, related to restricted stock.  

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

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

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

On August 1, 2023,April 30, 2024, our Board of Directors declared a quarterly cash dividend on our common stock in the amount of $0.2625$0.2650 per share. The dividend is payable on September 20, 2023June 12, 2024 to shareholdersstockholders of record at the close of business on August 16, 2023.May 15, 2024.