What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-12-06 compared with 2021-12-08 · 88 added, 90 removed, 135 unchanged (57% of the section changed)

3 unchanged sentences

Refer to Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations and Liquidity and Capital Resources located in our Form 10-K for the fiscal year ended September 30, 2020, filed on December 9, 2020, for reference to discussion of the fiscal year ended September 30, 2019, the earliest of the three fiscal years presented.

Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended September 30, 2021, filed on December 8, 2021, for discussion of the fiscal year ended September 30, 2020, the earliest of the three fiscal years presented.

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.

4 unchanged sentences

We develop, design, manufacture and service custom-engineered equipment and systems which (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment.

We are headquartered in Houston, Texas, and serve the oil and gas and petrochemical markets, which includes onshore and offshore production, LNG facilities and terminals, pipelines, refineries and petrochemical plants.

Additional markets include electric utility and light rail traction power as well as mining and metals, pulp and paper and other municipal, commercial and industrial markets.

We are headquartered in Houston, Texas, and serve the oil and gas and petrochemical markets, which include onshore and offshore production, LNG facilities and terminals, pipelines, refineries and petrochemical plants.

Additional markets include electric utility and light rail traction power as well as mining and metals, pulp and paper and other municipal, commercial and other industrial markets.

Revenues and costs are primarily related to custom engineered-to-order equipment and systems and are accounted for under percentage-of-completion accounting, which precludes us from providing detailed price and volume information.

1 unchanged sentence

The markets in which we participate are capital-intensive and cyclical in nature.

Cyclicality is predominantly driven by customer demand, global economic conditions and anticipated environmental, safety or regulatory changes that affect the manner in which our customers proceed with capital investments.

Cyclicality is predominantly driven by customer demand, global economic and geopolitical conditions and anticipated environmental, safety or regulatory changes which affect the manner in which our customers proceed with capital investments.

Our customers analyze various factors, including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns.

These factors influence the release of new capital projects by our customers, which are traditionally awarded in competitive bid situations.

Scheduling of projects is matched to the customer requirements, and projects typically take a number of months to produce.

Scheduling of projects is matched to customer requirements, and projects typically take a number of months to produce.

Schedules may change during the course of any particular project, and our operating results can, therefore, be impacted by factors outside of our control.

Within the industrial sector, specifically oil, gas and petrochemical, the demand for our electrical distribution solutions is very cyclical and closely correlated to the level of capital expenditures of our end-user customers as well as prevailing global economic conditions.

Historically, the combination of a growing global economy, abundant sources of favorably priced natural gas feedstock, and an energy industry focus on transition to natural gas and cleaner-burning fuels drove an increase in capital investment opportunities, specifically across the oil, gas and petrochemical sectors.

Some of these opportunities were for natural gas related projects targeting global demand for cleaner-burning fuels.

Additionally, projects within the domestic petrochemical sector benefited from the low feedstock prices of natural gas.

Specific to natural gas, the business was awarded a substantial contract in the second quarter of Fiscal 2020 that will support the integrated electrical distribution requirements for a large domestic industrial complex and should be substantially completed in Fiscal 2022.

We began to experience reduced commercial activity in Fiscal 2020 driven in large part by the uncertainties across our industrial end markets in the U.S.

resulting from the COVID-19 pandemic.

Considering the long cycle nature of our business, these cyclical conditions may persist into Fiscal 2022.

Impact of the COVID-19 Pandemic and Oil and Gas Commodity Market Volatility on Powell

The COVID-19 pandemic continues to impact global energy markets.

This pandemic has negatively impacted demand, which in turn has resulted in considerable volatility across global oil and gas commodity markets.

Throughout the pandemic, the demand for our products and services as well as our operations have been negatively impacted, resulting from the associated reduction in oil and gas demand and volatility in commodity prices noted above.

As a result, some of our industrial customers are deferring or suspending their planned capital expenditures.

Certain of our customers have asked that we delay or cancel our manufacturing on their projects as their operations have been negatively impacted by this pandemic and the reduced oil and gas demand which has resulted in recognition of cancellation fees based on contract terms and the extent of our progress on the projects.

We continue to work with our key suppliers who have been impacted by this pandemic to ensure that we are able to meet our customer commitments.

In response to the lower demand across select end markets, we have taken and will continue to take various actions to reduce costs.

During Fiscal 2020, we reduced our global workforce and reduced our capital and discretionary spending in response to business conditions.

We continued to operate at these lower thresholds throughout Fiscal 2021 and are consistently monitoring macro-economic conditions as we head into Fiscal 2022.

As discussed further under the heading "Outlook" below, it is difficult to predict the economic impact that this pandemic, as well as reduced oil and gas demand and commodity price volatility, may have on our business, results of operations and cash flows going forward.

Over the past few years, there has been an increase in capital spending within North America on LNG facilities as the market responds to the increased international demand for LNG.

As a result, the business was awarded a substantial contract in the second quarter of Fiscal 2020 that will support the integrated electrical distribution requirements for a large domestic LNG industrial complex that was substantially completed in Fiscal 2022.

Impact of Global Economic Uncertainty and Commodity Market Volatility on Powell

Various factors resulting in global economic uncertainty have negatively impacted our results over the past two years.

Uncertainty and demand disruptions have resulted in considerable volatility across commodity markets.

Although global oil prices have rebounded, our industrial end markets have responded with modest increases in capital expenditures.

Additionally, we continue to experience supply chain disruptions driven predominately by availability and cost volatility across our raw materials, components and labor force.

All of these factors have contributed to the lower margins realized in Fiscal 2021 and 2022.

As we address disruptions and increased costs, we continue to work with our suppliers of key components and commodities to ensure that we are able to meet our customer commitments.

Additionally, we have adjusted our pricing models with our customers in response to the increased cost environment.

In response to the lower demand and uncertainty across select end markets, we have taken and will continue to take various actions to maintain or reduce costs.

We continue to operate below capacity in some areas and will consistently monitor the macro-economic conditions as we head into our fiscal year ending September 30, 2023.

As discussed further under the heading "Outlook" below, it is difficult to predict the economic impact that this global economic uncertainty, as well as commodity price volatility, may have on our business, results of operations and cash flows going forward.

Results of Operations

1 unchanged sentence

Revenue and Gross Profit

Revenues decreased by 9%, or $47.9 million, to $470.6 million in Fiscal 2021, due to a decrease in orders as well as project delays and cancellations of potential projects associated with the global economic impact resulting from the COVID-19 pandemic and associated reduction in demand across our industrial end markets.

Domestic revenues decreased by 12%, or $46.6 million, to $351.5 million in Fiscal 2021.

International revenues decreased by 1%, or $1.4 million, to $119.1 million.

Revenues increased by 13%, or $62.0 million, to $532.6 million in Fiscal 2022.

Domestic revenues increased by 15%, or $53.5 million, to $405.0 million in Fiscal 2022.

International revenues increased by 7%, or $8.5 million, to $127.6 million.

Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.

Revenue from our core oil and gas markets (excluding petrochemical) decreased by 4%, or $7.5 million, to $187.7 million while petrochemical revenue decreased by 53%, or $67.7 million, to $59.0 million in Fiscal 2021 as noted above.

Revenue from utility markets increased by 25%, or $22.4 million, to $111.2 million and traction market revenue increased by 39%, or $16.7 million, to $59.1 million in Fiscal 2021.

Revenue from all other markets combined decreased by $11.8 million to $53.6 million in Fiscal 2021.

The reduction in revenue led to a reduction in gross profit of 21%, or $19.5 million, in Fiscal 2021.

However, gross profit of $75.1 million in Fiscal 2021 benefited from favorable close out gains on certain projects resulting from cost and productivity efficiencies and to a lesser extent from cancellation fees from certain contracts in our North American manufacturing facilities, which was partially offset by international project execution, higher global commodity prices and U.S.

factory underutilization.

Gross profit as a percentage of revenues decreased to 16% in Fiscal 2021, compared to 18% in Fiscal 2020 as a result of the reduction in revenue noted above.

Revenue from our core oil and gas markets (excluding petrochemical) increased by 15%, or $27.5 million, to $215.2 million while petrochemical revenue increased by 13%, or $7.6 million, to $66.5 million in Fiscal 2022, primarily due to increased market activity.

Revenue from our utility end markets increased by 10%, or $11.1 million, to $122.4 million and traction market revenue decreased by 24%, or $14.2 million, to $44.9 million in Fiscal 2022.

Commercial and other industrial market revenue increased by 109%, or $29.4 million, to $56.5 million driven by an increase in traditionally non-core markets such as data centers, university projects and other miscellaneous applications.

Revenue from all other markets combined increased by $0.6 million to $27.1 million in Fiscal 2022.

Gross profit increased by 13%, or $10.0 million, to $85.0 million in Fiscal 2022.

Despite the increase in revenues, gross profit as a percentage of revenues remained flat to the prior fiscal year at 16% in Fiscal 2022 due to increased costs impacting older projects in our backlog that were subject to inflationary pressures on raw materials and components, with little or no recourse from the customer to reprice the project.

On more recent projects in the backlog, we were able to successfully pass the inflationary impact to the customer in the form of increased pricing.

Additionally, favorable project execution, volume leverage and product mix, including fast track service and replacement projects across our service division, all helped to offset the negative inflationary pressure carried by the older projects in the backlog.

Additionally, gross profit from our international operations improved over the prior year driven by favorable project execution and increased volume.

Throughout the second half of Fiscal 2022, gross margins benefited from favorable close out gains and associated productivity on select projects.

Additionally, revenue and gross profit increased by $2.5 million resulting from the settlement of a claim for cost overruns from prior years related to a U.S.

based municipal transit project.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by 1%, or $0.4 million, to $67.2 million in Fiscal 2021, partially due to the restructuring action taken in Fiscal 2020 as well as lower travel-related costs.

Selling, general and administrative expenses, as a percentage of revenues, increased to 14% in Fiscal 2021, compared to 13% in Fiscal 2020, primarily due to the decrease in revenues.

Restructuring and Other, Net

In response to the COVID-19 pandemic, reductions in global oil and gas demand and volatility of commodity prices, we implemented workforce reductions across the business.

As a result, we recorded $1.4 million of separation costs during Fiscal 2020.

During Fiscal 2020, we recorded other income of $0.5 million related to a death benefit received from our company-owned life insurance policy related to a retired employee.

Income Tax Provision

We recorded an income tax provision of $0.5 million in Fiscal 2021, resulting in an effective tax rate of 42%, compared to an income tax provision of $3.7 million in Fiscal 2020 at an effective tax rate of 18%.

In both Fiscal 2021 and Fiscal 2020, the effective tax rate was negatively impacted by our inability to recognize a tax benefit related to losses incurred in various jurisdictions outside of the United States.

The effective tax rate was also negatively impacted by the valuation allowances set up against our deferred tax assets in Fiscal 2021 and Fiscal 2020 related to Mexico in the amount of $0.1 million and the U.K.

in the amount of $0.5 million.

The estimated Research and Development Tax Credit (R&D Tax Credit) as well as the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance provided a tax benefit for Fiscal 2021 and Fiscal 2020.

In Fiscal 2020, we reversed a reserve of $1.7 million resulting from a favorable settlement of an IRS audit and the expiration of statutes of limitations.

In Fiscal 2021, we recorded net income of $0.6 million, or $0.05 per diluted share, compared to net income of $16.7 million, or $1.42 per diluted share in Fiscal 2020, primarily due to a decline in revenues and gross profit resulting from lower orders and project delays caused by the economic impact resulting from the COVID-19 pandemic and the associated reduction in global demand across our industrial end markets.

The order backlog at September 30, 2021 was $414.9 million, a 13% decrease from $476.8 million at September 30, 2020.

Bookings, net of cancellations and scope reductions, decreased by 30% in Fiscal 2021 to $403.9 million, compared to $576.8 million in Fiscal 2020.

The large year-over-year decrease in bookings in Fiscal 2021 was primarily due to the large contract awarded in Fiscal 2020 and decreased global demand across our industrial end markets.

As noted in "Overview" above, the markets in which we participate are capital-intensive and cyclical in nature.

Selling, general and administrative expenses increased by 5%, or $3.6 million, to $70.8 million in Fiscal 2022, primarily due to increased variable performance based compensation.

Selling, general and administrative expenses, as a percentage of revenues, decreased to 13% in Fiscal 2022, compared to 14% in Fiscal 2021, primarily due to the ability to leverage our cost structure with the increase in revenues.

During Fiscal 2022 we recorded other income of $2.3 million related to a gain on the sale of a small, non-core, industrial valve repair and servicing business within our Canadian operations as well as the sale of an excess parcel of land in the U.S.

We did not record other income in Fiscal 2021.

Income Tax Provision (Benefit)

We recorded an income tax benefit of $3.9 million in Fiscal 2022, resulting in an effective tax rate of negative 40%, compared to an income tax provision of $0.5 million in Fiscal 2021 at an effective tax rate of 42%.

In Fiscal 2022, the tax benefit primarily resulted from the release of the valuation allowance previously recorded against the Canadian net deferred tax assets in the amount of $5.9 million and the estimated Research and Development Tax Credit (R&D Tax Credit).

The tax benefit was partially offset by certain non-deductible items, the tax expense related to the gain on the disposition of a small, non-core division of our Canadian operations and the tax impact of U.S.

global intangible income.

In Fiscal 2021, the effective tax rate was negatively impacted by our inability to recognize a tax benefit related to losses incurred in various jurisdictions outside of the United States as well as the establishment of a valuation allowance against the deferred tax assets in Mexico.

The estimated R&D Tax Credit as well as the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance provided a tax benefit for Fiscal 2021.

In Fiscal 2022, we recorded net income of $13.7 million, or $1.15 per diluted share, compared to net income of $0.6 million, or $0.05 per diluted share in Fiscal 2021.

This increase in net income is primarily due to the increase in bookings which led to an increase in revenues, the release of a Canadian valuation allowance recorded against net deferred tax assets, the gain on the sale of a non-core business within our Canadian operations and the settlement of a claim from a project completed in prior years.

The order backlog at September 30, 2022 was $592.2 million, a 43% increase from $414.9 million at September 30, 2021.

Bookings, net of cancellations and scope reductions, increased by 78% in Fiscal 2022 to $718.6 million, compared to $403.9 million in Fiscal 2021.

The large year-over-year increase was due to strength across our utility, petrochemical, and commercial and other industrial end markets.

As noted in "Overview" above, the markets in which we participate are capital-intensive and generally cyclical in nature.

A significant portion of our revenues has historically been from the oil, gas and petrochemical markets.

Oil and gas commodity price levels have been unstable over the last several years, and our customers have in certain cases, delayed or cancelled some of their major capital investment projects.

Beginning in late Fiscal 2018 through the first quarter of Fiscal 2020, our customers' decisions to invest in projects in our key oil and gas and petrochemical markets were influenced to some extent by relative stabilization of commodity prices and the increased global demand for cleaner-burning fuels during that period of time.

We believe that this change in market sentiment during that period of time had a favorable impact on our orders and backlog entering Fiscal 2020.

However, the uncertainty in oil prices and the global economic impacts from COVID-19 have had, and may continue to have, a negative impact on our business going forward, as discussed in more detail below.

Specific to the energy industry focus on transitioning to natural gas and cleaner-burning fuels, the business was awarded a substantial contract in Fiscal 2020 that will support the integrated electrical distribution requirements for a large domestic industrial complex and should be substantially completed in Fiscal 2022.

Oil and gas commodity price levels have been volatile over the last several years, and our customers have in certain cases, delayed or cancelled some of their major capital investment projects due to price volatility and changes in return expectations.

Recently we have seen increased global demand for cleaner-burning fuels;

however, the uncertainty in oil prices and the global economic impacts from COVID-19, including supply chain disruptions and associated inflationary pressures, as well as other geopolitical events may have a negative impact on our business going forward, as discussed in more detail below.

We continue to experience increased demand from markets outside our core oil, gas and petrochemical end markets, as we increase focus on diversification of our project portfolio.

Our operating results are impacted by factors such as the timing of new order awards, customer approval of final engineering and design specifications and delays in customer construction schedules, all of which contribute to short-term earnings variability and the timing of project execution.

Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders, project close-out and resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers.

These factors may result in periods of underutilization of our resources and facilities, which may negatively impact our ability

to cover our fixed costs.

We will continue to monitor potential labor shortages and increased labor costs and the impact on our operations.

The strong commercial activity and subsequent orders in Fiscal 2018 and 2019 led to solid revenue and operating results for Fiscal 2020.

We began to experience lower commercial activity in Fiscal 2020 driven in large part from the uncertainty resulting from the COVID-19 pandemic, as discussed in "Overview" above.

Considering the long cycle nature of our business, these cyclical conditions may persist into Fiscal 2022.

We will continue to monitor the variables that impact our markets while adjusting to the global conditions in order to maintain competitive costs and technological advantages in the markets that we serve.

The consequences of a prolonged economic decline could include, but are not limited to, a continued reduction in commercial and industrial activity.

Accordingly, the Company cannot reasonably estimate the duration or severity of this pandemic, potential labor shortages, increased labor costs, or the extent to which these disruptions may materially impact our business, results of operations or cash flows.

Disruption in the global supply chain has negatively impacted our business and operating results as well due to the reduction in availability and uncertainty in the timing of the receipt of certain key component parts and commodities.

These factors may result in periods of underutilization of our resources and facilities, which may negatively impact our ability to cover our fixed costs or inhibit our ability to deliver completed products on time.

Additionally, the increases in commodity and component costs from projects awarded in prior years and increased labor costs may have a negative impact on our operating results in the

event that we are not able to pass these cost increases to our customers.

Prior to Fiscal 2022, we experienced periods of lower commercial activity driven in large part from the uncertainty resulting from the COVID-19 pandemic, as discussed in "Overview" above.

Considering the long cycle nature of our business, we are exposed to cyclical conditions in our business.

We will continue to remain focused on the variables that impact our markets as well as cost management, labor and supply chain challenges.

We will also continue to adjust to the global conditions in order to maintain competitive cost and technological advantages in the markets that we serve.

The consequences of a prolonged economic decline could include, but are not limited to, a reduction in commercial and industrial activity.

The Company cannot reasonably estimate the duration or severity of these global economic challenges, or the extent to which the resulting disruptions may materially impact our business, results of operations or cash flows.

We will take prudent measures to maintain our strong liquidity and cash position, which may include reducing our capital expenditures and research and development costs, as well as reducing or eliminating future dividend payments.

Liquidity and Capital Resources

As of September 30, 2021, current assets exceeded current liabilities by 2.5 times, and our debt to total capitalization was 0.13%.

As of September 30, 2022, current assets exceeded current liabilities by 2.0 times.

Cash, cash equivalents and short-term investments decreased to $116.5 million at September 30, 2022, compared to $134.0 million at September 30, 2021.

This decrease in cash was primarily driven by the timing of contract billing milestones.

We believe that our strong working capital position, available borrowings under our credit facility and available cash should be sufficient to finance future operating activities, capital improvements, research and development initiatives and debt repayments for the foreseeable future.

This decrease in cash was primarily driven by the timing of contract billing milestones which increased accounts receivable and the strategic increase in inventory from the advance purchase of certain raw materials and component parts in response to uncertainty from the global supply challenges.

We believe that our strong working capital position, available borrowings under our credit facility and available cash should be sufficient to finance future operating activities, capital improvements and research and development initiatives for the foreseeable future.

We have a credit agreement with Bank of America, N.A.

Revolver) which is a $75.0 million revolving credit facility available for both borrowings and letters of credit and expires September 27, 2024.

On March 12, 2021, we entered into a first amendment to the U.S.

Revolver which, among other things, amended certain terms related to the calculation of the consolidated leverage ratio from gross leverage to net leverage.

As a result of the first amendment, up to $30 million may 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 of the consolidated net leverage ratio.

Revolver states that up to $30 million may 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 of the consolidated net leverage ratio.

Additionally, 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 September 30, 2021, there were no amounts borrowed under this facility, and letters of credit outstanding were $34.8 million.

On October 1, 2021, our industrial development revenue bonds matured and as a result we had no long-term debt at September 30, 2022.

As of September 30, 2022, there were no amounts borrowed under the U.S.

Revolver, and letters of credit outstanding were $36.7 million.

As of September 30, 2022, $38.3 million was available for the issuance of letters of credit and borrowing under the U.S.

Total long-term debt, including current maturities, totaled $0.4 million at September 30, 2021 related to outstanding industrial development revenue bonds.

We are required to maintain certain financial covenants, the most significant of which are a consolidated net leverage ratio less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0.

We are required to maintain certain financial covenants, the most significant of which are a consolidated net leverage ratio of less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0.

Our most restrictive covenant, the consolidated net leverage ratio, is the ratio of earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) to funded indebtedness, which includes letters of credit.

6 unchanged sentences

Operating Activities

Operating activities used net cash of $30.5 million in Fiscal 2021 and provided net cash of $72.4 million in Fiscal 2020.

Cash flow from operations is primarily influenced by the timing of milestone payments from our customers, project volume and the payment terms with our suppliers.

This decrease in operating cash flows was primarily due to the timing of contract billing milestones and cash used on our large industrial project discussed above.

Operating activities used net cash of $3.6 million in Fiscal 2022 and $30.5 million in Fiscal 2021.

Cash flow from operations is primarily influenced by the timing of milestone payments from our customers, project volume and the associated working capital requirements, as well as payment terms with our suppliers.

This decrease in cash flows used in operations was primarily due to the timing of contract billing milestones and an increase in accounts payable and accrued liabilities, although offset by the increase in accounts receivable and inventory safety stock levels to mitigate global supply chain risks.

Investing Activities

Investing activities used $2.5 million of cash during Fiscal 2021 compared to $17.5 million of cash used in Fiscal 2020.

The decrease in cash used by investing activities in Fiscal 2021 was primarily due to a decrease in net purchases of short-term investments and a decrease in capital expenditures.

Additionally, the proceeds received from a Company-owned life insurance policy related to a retired employee provided investing cash flow in Fiscal 2021.

Investing activities provided $6.5 million of cash during Fiscal 2022 compared to $2.5 million of cash used in Fiscal 2021.

The increase in cash provided by investing activities in Fiscal 2022 was primarily due to proceeds of $4.3 million received from the sale of a small, non-core division of our Canadian operations.

Financing Activities

Net cash used in financing activities was $13.2 million in Fiscal 2021 and $13.1 million in Fiscal 2020, which primarily consisted of $12.1 million of dividends paid in each year.

Net cash used in financing activities was $13.3 million in Fiscal 2022 and $13.2 million during the same period in Fiscal 2021, which primarily consisted of approximately $12.2 million and $12.1 million of dividends paid in the respective years.

Other Commercial Commitments

11 unchanged sentences

Effects of Inflation

We are subject to inflation, which can cause increases in our costs of labor and raw materials, primarily copper, aluminum and steel.

We are subject to inflation, which can cause increases in our costs of labor, indirect expenses and 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.

Inflation in commodity prices has negatively impacted our financial results in Fiscal 2021.

Additionally, inflation related to commodity and labor prices may potentially impact our operations in future years.

Inflation in commodity prices and general indirect expenses had a negative impact on our financial results in Fiscal 2022.

Additionally, inflation related specifically to commodity and labor prices may potentially impact our operations in future years.

Critical Accounting Estimates

7 unchanged sentences

These products may be sold separately as an engineered solution, but are typically integrated into custom-built enclosures which we also build.

These enclosures are referred to as power control room substations (PCRs®), custom-engineered modules or electrical houses (E-Houses).

These enclosures are referred to as power control room

substations (PCRs®), custom-engineered modules or electrical houses (E-Houses).

Some contracts may also include the installation and the commissioning of these enclosures.

24 unchanged sentences

Due to the nature of our contracts, estimating total cost and revenue can be complex and subject to variability due to change orders, back charges, spare parts, early completion bonuses, customer allowances and liquidated damages.

We estimate the amount of variable consideration based on the expected value method, which is the sum of probability-weighted amount, or the most likely amount method, which uses various factors including experience with similar transactions and assessment of our anticipated performance.

We estimate the amount of variable consideration based on the expected value method, which is the sum of probability-weighted amounts, or the most likely amount method, which uses various factors including experience with similar transactions and assessment of our anticipated performance.

Variable consideration is included in the transaction price if legally enforceable and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is resolved.

3 unchanged sentences

Most of our contract modifications are for goods and services that are not distinct from the existing performance obligation.

modifications result in a cumulative catch-up adjustment to revenue based on our measure of progress for the performance obligation.

Contract modifications result in a cumulative catch-up adjustment to revenue based on our measure of progress for the performance obligation.

Impairment of Long-Lived Assets

35 unchanged sentences

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.

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 position and results of operations.

See Note I of Notes to Consolidated Financial Statements for disclosures related to the valuation allowance recorded in relation to foreign deferred taxes.

See Note I of Notes to Consolidated Financial Statements for disclosures related to the valuation allowance recorded in relation to deferred taxes.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis