## 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 that the actual results may differ materially from those projected in the forward-looking statements. For a description of the risks and uncertainties, please refer to the Company’s filings with the Securities and Exchange Commission, copies of which are available from the Company without charge. 

## Overview 

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 transportation, environmental, energy, industrial and utility industries. Our business operations are consolidated into two business segments: Electrical Power Products and Process Control Systems. Revenues and costs are primarily related to custom engineered-to-order equipment and systems which precludes us from providing detailed price and volume information. 

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 for oil, gas and electrical energy, the overall 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 is matched to the customer requirements and projects may take a number of months to produce; schedules also may change during the course of any particular project. Our operating results are impacted by factors outside of our control, for example, many of our projects have contracting arrangements where the approval of engineering and design specifications may affect the timing of the project execution. 

As of September 30, 2013, our order backlog strengthened with unfilled orders of $516.6 million, an increase of approximately $80 million over the beginning of this fiscal year. 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 million related to one large project 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 profit in Fiscal 2012 in our Electrical Power Products segment. 

## RESULTS OF OPERATIONS 

## Twelve Months Ended September 30, 2013 Compared to Twelve Months Ended September 30, 2012 

## 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 profit increased 4.9%, or $6.9 million, to $146.8 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 segment revenues decreased 7.5%, or $51.3 million, to $635.3 million in Fiscal 2013. Revenues decreased primarily due to the completion of certain complex domestic and international petrochemical and oil and gas construction projects that were in process during Fiscal 2012. However, revenues in Fiscal 2013 were favorably impacted by the recovery of $3.8 million related to cost overruns 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 gross profit in Fiscal 2012. Revenues from public and private utilities increased $22.7 million to $138.0 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. 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. 

## 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% for Fiscal 2013, compared to 24.4% for Fiscal 2012. This decrease in gross profit as a percentage of revenues was primarily due to the overall mix of project types. 

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

