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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****WASHINGTON D.C. 20549****FORM 10-Q**(Mark one)   þ **Quarterly Report pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934 for the quarterly period endedApril 30, 2006.****or**   o **Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934 for the transition period from                      to                      .****Commission File Number 001-12488****POWELL INDUSTRIES, INC.** (Exact name of registrant as specified in its charter)   DELAWARE 88-0106100   (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)   8550 Mosley Drive, Houston, Texas 77075-1180   (Address of principal executive offices) (Zip Code)(713) 944-6900(Registrant’s telephone number, including area code)     Indicate by check mark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.Yesþ      No  o     Indicate by check mark whether the registrant is a large accelerated filer, an acceleratedfiler, or a non-accelerated filer. See definition of “accelerated filer and large acceleratedfiler” in Rule 12b-2 of the Exchange Act. (Check one):     Large accelerated filer o Accelerated filer þ Non-accelerated filer o     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 ofthe Exchange Act).Yeso      No  þ     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, asof the latest practicable date.Common Stock, par value $.01 per share; 10,878,546 shares outstanding as of June 6, 2006.  
 

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POWELL INDUSTRIES, INC. AND SUBSIDIARIESINDEXFor the Quarter Ended April 30, 2006     Part I – Financial Information         Item 1. Condensed Consolidated Financial Statements    Condensed Consolidated Balance Sheets  3 Condensed Consolidated Statements of Operations  4 Condensed Consolidated Statements of Cash Flows  5 Notes to Condensed Consolidated Financial Statements  6      Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations  16      Item 3. Quantitative and Qualitative Disclosures About Market Risk  20      Item 4. Controls and Procedures  20      Part II – Other Information         Item 1. Legal Proceedings  21      Item 1A. Risk Factors  21      Item 4. Submission of Matters to a Vote of Security Holders  22      Item 6. Exhibits  22      Signatures  23  Certification of CEO pursuant to Section 302 Certification of CFO pursuant to Section 302 Certification of CEO pursuant to Section 906 Certification of CFO pursuant to Section 906
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**PART I — FINANCIAL INFORMATION****Item 1.*****Condensed Consolidated Financial Statements*****Powell Industries, Inc. and Subsidiaries****Condensed Consolidated Balance Sheets****(In thousands, except share and per share data)**           **April 30,**  **October 31,**   **2006**  **2005**   (Unaudited)     **Assets**        Current Assets:        Cash and cash equivalents $17,189  $24,844 Marketable securities  —   8,200 Accounts receivable, less allowance for doubtful accounts of $756 and $567, respectively  83,369   65,385 Costs and estimated earnings in excess of billings on uncompleted contracts  43,545   35,328 Inventories, net  26,051   21,616 Income taxes receivable  213   507 Deferred income taxes  798   1,836 Prepaid expenses and other current assets  5,631   4,461        Total Current Assets  176,796   162,177 Property, plant and equipment, net  55,589   55,678 Goodwill  203   203 Intangible assets, net  3,163   3,505 Other assets  4,004   5,096        Total Assets $239,755  $226,659                 **Liabilities and Stockholders’ Equity**        Current Liabilities:        Current maturities of long-term debt and capital lease obligations $3,560  $2,095 Income taxes payable  2,886   1,185 Accounts payable  22,253   22,104 Accrued salaries, bonuses and commissions  9,668   9,820 Billings in excess of costs and estimated earnings on uncompleted contracts  18,275   15,742 Accrued product warranty  3,337   1,836 Other accrued expenses  6,708   5,957        Total Current Liabilities  66,687   58,739 Long-term debt and capital lease obligations, net of current maturities  17,783   19,436 Deferred compensation  1,727   1,918 Other liabilities  1,661   1,871        Total Liabilities  87,858   81,964                 Commitments and contingencies (Note G)                 Minority interest  296   281                 Stockholders’ Equity:        Preferred stock, par value $.01; 5,000,000 shares authorized; none issued  —   — Common stock, par value $.01; 30,000,000 shares authorized; 11,001,733 and 11,001,733shares issued, respectively; 10,876,186 and 10,849,278 shares outstanding, respectively  110   110 Additional paid-in capital  11,182   10,252 Retained earnings  141,908   136,670 Treasury stock, 125,547 and 152,455 shares, respectively, at cost  (1,032)  (1,417)Accumulated other comprehensive income (loss)  483   (11)Deferred compensation  (1,050)  (1,190)                Total Stockholders’ Equity  151,601   144,414                 Total Liabilities and Stockholders’ Equity $239,755  $226,659        The accompanying notes are an integral part of these condensed consolidated financial statements.
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**Powell Industries, Inc. and Subsidiaries****Condensed Consolidated Statements of Operations (unaudited)****(In thousands, except per share data)**                   **Three Months Ended April 30,**  **Six Months Ended April 30,**   **2006**  **2005**  **2006**  **2005** Revenues $98,431  $58,914  $182,244  $106,603 Cost of goods sold  77,688   50,472   146,724   91,202              Gross profit  20,743   8,442   35,520   15,401 Selling, general and administrative expenses  13,851   9,353   26,835   18,874              Income (loss) before interest, income taxesand minority interest  6,892   (911)  8,685   (3,473)Interest expense  326   139   661   216 Interest income  (237)  (317)  (539)  (594)             Income (loss) before income taxes andminority interest  6,803   (733)  8,563   (3,095)Income tax provision (benefit)  2,661   (451)  3,310   (1,375)Minority interest in net income (loss)  (3)  13   15   1                               Net income (loss) $4,145  $(295) $5,238  $(1,721)                              Net earnings (loss) per common share:                Basic $0.38  $(0.03) $0.48  $(0.16)             Diluted $0.37  $(0.03) $0.47  $(0.16)                              Weighted average shares:                Basic  10,865   10,763   10,859   10,750              Diluted  11,110   10,763   11,061   10,750              The accompanying notes are an integral part of these condensed consolidated financial statements.
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**Powell Industries, Inc. and Subsidiaries****Condensed Consolidated Statements of Cash Flows (unaudited)****(In thousands)**           **Six Months Ended April 30,**   **2006**  **2005** Operating Activities:        Net income (loss) $5,238  $(1,721)Adjustments to reconcile net income (loss) to net cash used in operating activities:        Depreciation and amortization  3,463   2,042 Amortization of unearned restricted stock  103   — Bad debt expense  186   65 Loss (gain) on disposition of assets  43   (21)Deferred income taxes  767   (988)Stock-based compensation  735   — Other  32   34 Changes in operating assets and liabilities:        Accounts receivable, net  (17,758)  (6,144)Costs and estimated earnings in excess of billings on uncompleted contracts  (8,113)  (9,029)Inventories  (4,325)  (4,389)Prepaid expenses and other current assets  (861)  (1,812)Other assets  1,002   (83)Accounts payable and income taxes payable  1,671   3,040 Accrued liabilities  2,038   (3,154)Billings in excess of costs and estimated earnings on uncompleted contracts  2,494   1,636 Deferred compensation  (153)  263 Other liabilities  61   47        Net cash used in operating activities  (13,377)  (20,214)                Investing Activities:        Proceeds from sale of fixed assets  29   46 Purchases of property, plant and equipment  (2,645)  (2,061)Proceeds from sale of short-term auction rate securities  8,200   18,760 Purchases of short-term auction rate securities  —   (5,000)       Net cash provided by investing activities  5,584   11,745                 Financing Activities:        Borrowings on U.S. revolving line of credit  3,265   2,089 Payments on U.S. revolving line of credit  (3,265)  (2,089)Payments on UK revolving line of credit  (913)  — Payments on UK term loan  (548)  — Proceeds from short-term financing  897   — Payments on capital lease obligations  (54)  — Tax benefit from exercise of stock options  86   — Proceeds from exercise of stock options  176   444        Net cash (used in) provided by financing activities  (356)  444                 Net decrease in cash and cash equivalents  (8,149)  (8,025)Effect of exchange rate changes on cash and cash equivalents  494   — Cash and cash equivalents at beginning of period  24,844   8,974        Cash and cash equivalents at end of period $17,189  $949                 Supplemental disclosures of cash flow information:        Cash paid during the period for:        Interest $562  $212        Income taxes $419  $478        Non-cash investing and financing activities:        Change in fair value of marketable securities during the period, net of$0 and $17 income taxes, respectively $**---**  $28        Receivable for stock options exercised $164  $—        Issuance of common stock for deferred directors’ fees $24  $14        Restricted stock grants $153  $—        The accompanying notes are an integral part of these condensed consolidated financial statements.
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**POWELL INDUSTRIES, INC. AND SUBSIDIARIES*****Notes To Condensed Consolidated Financial Statements (Unaudited)***A. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   *Overview*   We develop, design, manufacture and service equipment and systems for the management andcontrol of electrical energy and other critical processes. Headquartered in Houston, Texas,we serve the transportation, environmental, industrial, and utility industries. Our businessoperations are consolidated into two business segments: Electrical Power Products andProcess Control Systems. On July 4, 2005, we acquired selected assets and assumed certainoperating liabilities and contracts of Switchgear and Instrumentation Limited in the UnitedKingdom. The acquired business is referred to herein as “S&I.” The operating results of S&Iare included in our Electrical Power Products business segment. Financial informationrelated to these business segments is included in Note H herein.   *Basis of Presentation*   The condensed consolidated financial statements include the accounts of Powell Industries,Inc. and its wholly-owned subsidiaries (“we,” “us,” “our,” “Powell,” or the “Company”). Allsignificant intercompany accounts and transactions are eliminated in consolidation.   The accompanying unaudited condensed consolidated financial statements have been preparedusing accounting principles generally accepted in the United States of America (“GAAP”) forinterim financial information in accordance with the rules of Regulation S-X of theSecurities and Exchange Commission. Accordingly, these interim financial statements do notinclude all annual disclosures required by GAAP. These financial statements should be readin conjunction with the financial statements and related footnotes included in the Company’sannual report on Form 10-K for the year ended October 31, 2005. In the opinion ofmanagement, these condensed consolidated financial statements include all adjustments,consisting of normal recurring adjustments, that are necessary for a fair presentation of ourfinancial position, results of operations and cash flows. The interim period results are notnecessarily indicative of the results to be expected for the full fiscal year.   *Use of Estimates*   The preparation of financial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the amounts reported in the condensed consolidatedfinancial statements and accompanying footnotes. The amounts we record for insurance claims,warranties, legal and other contingent liabilities require judgments regarding the amount ofexpenses that will ultimately be incurred. We base our estimates on historical experienceand on various other assumptions, as well as the specific circumstances surrounding thesecontingent liabilities, in evaluating the amount of liability that should be recorded.Estimates may change as new events occur, additional information becomes available, oroperating environments change. Actual results may differ from our estimates. The mostsignificant estimates used in our financial statements affect revenue and cost recognitionfor construction contracts, legal accruals, the allowance for doubtful accounts,self-insurance, warranty accruals and postretirement benefit obligations.
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  *Foreign Currency Translation*   The functional currency for our foreign subsidiaries is the local currency in which theentity is located. The financial statements of all subsidiaries with a functional currencyother than the U.S. Dollar have been translated into U.S. Dollars in accordance withStatement of Financial Accounting Standards No. 52, “*Foreign Currency Translation*.” Allassets and liabilities of foreign operations are translated into U.S. Dollars usingperiod-end exchange rates and all revenues and expenses are translated at average ratesduring the respective period. The U.S. Dollar results that arise from such translation, aswell as exchange gains and losses on intercompany balances of a long-term investment nature,are included in the cumulative currency translation adjustments in accumulated othercomprehensive income (loss) in stockholders’ equity.   *Stock-Based Compensation*   In the first quarter of fiscal 2006, we adopted SFAS No. 123 (revised 2004), “*Share-BasedPayment*” (“SFAS No. 123R”). We adopted the new statement using the modified prospectivemethod of adoption, which does not require restatement of prior periods. The revisedstandard eliminated the intrinsic value method of accounting for share-based employeecompensation under APB Opinion No. 25, “*Accounting for Stock-Based Compensation*,” which wepreviously used (see pro-forma disclosure of prior period included herein). The revisedstandard generally requires the recognition of the cost of employee services for share-basedcompensation based on the grant date fair value of the equity or liability instruments issuedand any unearned or deferred compensation (contra-equity accounts) related to awards priorto adoption be eliminated against the appropriate equity accounts. The effect of adoption ofthe new standard in the first quarter of 2006, related to stock options and restricted stockplans, was an additional expense of $0.4 million pretax, or $0.2 million after tax ($0.02 pershare, basic and diluted) for the second quarter of 2006 and $0.8 million pretax, or $0.5million after tax ($0.05 per share, basic and diluted) for the first six months of fiscal2006. Also under the new standard, excess income tax benefits related to share-basedcompensation expense that must be recognized directly in equity are considered financingrather than operating cash flow activities. The effect of the adoption of the new standardon cash flows in the second quarter of 2006 was not material. At April 30, 2006, there was$2.9 million of total unrecognized compensation cost related to non-vested stock options.This compensation is expected to be recognized over a weighted-average period ofapproximately 2.3 years. In addition, at April 30, 2006, there was $0.1 million of totalunrecognized compensation cost related to restricted stock. This compensation is expected tobe recognized over a period of less than two years.   Under SFAS No. 123R, we continue to use the Black-Scholes option pricing model to estimatethe fair value of our stock options. However, we will apply the expanded guidance under SFASNo. 123R for the development of our assumptions used as inputs for the Black-Scholes optionpricing model for grants issued after November 1, 2005. Expected volatility is determinedusing historical volatilities based on historical stock prices for a period equal to theexpected term. The expected volatility assumption is adjusted if future volatility isexpected to vary from historical experience. The expected term of options represents theperiod of time that options granted are expected to be outstanding and falls between theoption’s vesting and contractual expiration dates. The risk-free interest rate is based onthe yield at the date of grant of a zero-coupon U.S. Treasury bond whose maturity periodequals the option’s expected term.   The following table presents the pro forma effect on net loss and loss per share as if we hadapplied the fair value recognition to stock-based compensation prior to the adoption of SFASNo. 123R during the three and six month period ended April 30, 2005 (in thousands except pershare amounts):           **Three Months Ended**  **Six Months Ended**   **April 30, 2005**  **April 30, 2005** Net loss as reported $(295) $(1,721)Less: Stock option compensation expense, net of taxes  (101)  (297)                Net loss pro forma $(396) $(2,018)       
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           **Three Months Ended**  **Six Months Ended**   **April 30, 2005**  **April 30, 2005** Net loss per share:        Basic and diluted, as reported $(0.03) $(0.16)       Basic and diluted, pro forma $(0.04) $(0.19)       Stock option activity for the six months ended April 30, 2006 is as follows:                           **Remaining**          **Weighted-**  **Weighted-Average**  **Aggregate**   **Stock**  **average**  **Contractual Term**  **Intrinsic Value**   **Options**  **Exercise Price**  **(years)**  **(in thousands)** Outstanding at October 31, 2005  908,690             Granted  —             Exercised  25,440             Forfeited  —                             Outstanding at April 30, 2006  883,250  $16.45   4.07  $4,059                 Exercisable at April 30, 2006  445,530  $15.67   2.49  $2,386                 The Company has the following stock-based compensation plans:The 1992 Stock Option Plan, as amended (the “1992 Plan”), permits the Company to grant to keyemployees non-qualified options and stock grants, subject to certain conditions andrestrictions as determined by the Compensation Committee of the Board of Directors andproportionate adjustments in the event of stock dividends, stock splits and similar corporatetransactions. The number of shares available for issuance under the 1992 Plan is 2.7 millionshares. There were no stock grants during the first or second quarter of fiscal 2006. Stockoptions are granted at an exercise price equal to the fair market value of the common stockon the date of the grant. Generally, options granted have an expiration date of seven yearsfrom the grant date and vest in increments of 20% per year over a five-year period. Pursuantto the 1992 Plan, option holders who exercise their options and hold the underlying shares ofcommon stock for five years, vest in a stock grant equal to 20% of the original optionshares. While restricted until the expiration of five years, the stock grant is consideredissued at the date of the stock option exercise and is included in earnings per share.The 2000 Non-Employee Director Stock Option Plan, as amended, was adopted for the benefit ofmembers of the Board of Directors of the Company who, at the time of their service, were notemployees of the Company or any of its affiliates. Annually, each eligible Director receiveda grant of an option to purchase 2,000 shares of our common stock. Stock options granted tothe Directors were non-qualified and were granted at an exercise price equal to the fairmarket value of the common stock at the date of grant. Generally, options granted hadexpiration terms of seven years from the date of grant and fully vested one year from thegrant date. The Compensation Committee has no plans to grant any further options under the2000 Non-Employee Director Stock Option Plan currently in place and plans to terminate the2000 Non-Employee Director Stock Option Plan after all outstanding options granted under ithave been exercised or have expired.The Non-Employee Director Restricted Stock Plan (the “Restricted Stock Plan”) was adopted forthe benefit of members of the Board of Directors of the Company who, at the time of theirservice, are not employees of the Company or any of its affiliates. Annually each eligibledirector will receive 2,000 shares of restricted stock on the date of the regular Board ofDirectors meeting in June. The maximum aggregate number of shares of stock that may beissued under the Restricted Stock Plan is 150,000 and will consist of authorized but unissuedor reacquired shares of stock or any combination thereof. The restricted stock grants vest50 percent per year over a two year period on each anniversary of the grant date. Unlesssooner terminated by the Board, the Restricted Stock Plan will terminate at the close ofbusiness on December 16, 2014, and no further grants shall be made under the plan after suchdate. Awards granted before such date shall continue to be subject to the terms andconditions of the plan and the respective agreements pursuant to which they were granted.
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  *Accumulated Other Comprehensive Income (Loss)*   Accumulated other comprehensive income (loss), which is included as a component ofstockholders’ equity net of tax, includes unrealized gains or losses on available-for-salemarketable securities and currency translation adjustments in foreign consolidatedsubsidiaries.   *Reclassifications*   Certain reclassifications have been made in prior period financial statements to conform tocurrent period presentation. These reclassifications had no effect on net income, financialposition or cash flows. B. ACQUISITION   On July 4, 2005, we acquired selected assets and assumed certain operating liabilities andcontracts of Switchgear & Instrumentation Limited. We refer to the acquired business hereinas “S&I.” S&I’s primary manufacturing facility is in the United Kingdom. This acquisitionis part of our overall strategy to increase our international presence. S&I affords us theopportunity to serve our customers with products covering a wider range of electricalstandards and opens new geographic markets previously closed due to a lack of productportfolio. The fit, culture and market position of Powell and S&I are favorably comparablewith similar reputations in engineered-to-order solutions. S&I is a supplier of medium- andlow-voltage switchgear, intelligent motor control systems, and power distribution solutionsto a wide range of process industries, with a focus on oil and gas, petrochemical and otherprocess-related industries. Total consideration paid for S&I was approximately $18.0 million(excluding expenses of approximately $1.2 million). Approximately $10.3 million was fundedfrom existing cash and investments and the balance was provided from the UK Term Loan (asdefined in Note F herein). The results of operations of S&I are included in our CondensedConsolidated Financial Statements from July 4, 2005. The Condensed Consolidated BalanceSheets include an allocation of the purchase price to the assets acquired and liabilitiesassumed based on estimates of fair value.   The purchase price allocation was as follows (in thousands):     Accounts receivable $4,730 Costs and estimated earnings in excess of billings  4,492 Inventories  3,745 Prepaid expenses and other current assets  379 Property, plant and equipment  9,542 Intangible assets  3,846 Accounts payable  (5,793)Billings in excess of costs and estimated earnings  (1,440)Other accrued expenses  (334)    Total purchase price $19,167       The amounts assigned to property, plant and equipment were based on independentappraisals of the property and plant, as well as the more significant pieces of machinery andequipment.   The amounts allocated to intangible assets related to the S&I acquisition were as follows (inthousands):               **Estimated**   **Amount**  **Life** Unpatented technology $2,175  7 yearsTradenames  1,025  10 yearsBacklog  646  6 months        Total $3,846             
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The unaudited pro forma data presented below reflects the results of Powell Industries,Inc. and the acquisition of S&I assuming the acquisition was completed on November 1, 2004(in thousands, except per share data):           **Three Months Ended** **Six Months Ended**  **April 30, 2005** **April 30, 2005**   Revenues $75,973  $140,089 Net loss $(21) $(1,212)Net loss per common share:        Basic $—  $(0.11)Diluted $—  $(0.11)The unaudited pro forma information includes the operating results of S&I prior to theacquisition date adjusted to include the pro forma impact of the following:1) Impact of additional interest expense related to the portion of the purchaseprice financed with the UK Term Loan and lower interest income as a result of the saleof available-for-sale securities used to fund the remainder of the purchase price; 2) Elimination of the operating results of certain businesses of S&I which were not acquired; 3) Elimination of lease expense and recording of additional depreciation expenserelated to assets which were previously leased from S&I’s previous parent; 4) Impact of amortization expense related to intangible assets; 5) Adjustment to the income tax provision to reflect the statutory rate in the UnitedKingdom.The unaudited pro forma results above do not purport to be indicative of the results thatwould have been obtained if the acquisition occurred as of the beginning of the periodpresented or that may be obtained in the future.Prior to the acquisition by Powell, S&I operating results were reported under accountingprinciples generally accepted in the United Kingdom (“UK GAAP”). Revenues and costs relatedto long-term contracts accounted for under UK GAAP were not recognized on apercentage-of-completion basis of accounting. UK GAAP allows companies to recognize revenueon long-term contracts when the contract is complete (completed contract method). Theunaudited pro forma results above were prepared based on the Company’s best estimate ofpercentage-of-completion for long-term contracts under SOP 81-1, “*Accounting for Performanceof Construction-Type and Certain Production-Type Contracts*.”
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C. EARNINGS PER SHARE   The following table sets forth the computation of basic and diluted earnings (loss) per share(in thousands, except per share data):                   **Three Months Ended April 30,**  **Six Months Ended April 30,**   **2006**  **2005**  **2006**  **2005** *Numerator:*                Net income (loss) $4,145  $(295) $5,238  $(1,721)                              *Denominator:*                Denominator for basic earnings (loss)per share-weighted average shares  10,865   10,763   10,859   10,750 Dilutive effect of stock options  245   —   202   —              Denominator for diluted earnings (loss)per share-adjusted weighted averageshares with assumed conversions  11,110   10,763   11,061   10,750                               *Net earnings (loss) per share:*                Basic $0.38  $(0.03) $0.48  $(0.16)             Diluted $0.37  $(0.03) $0.47  $(0.16)               For the three and six months ended April 30, 2006, options to purchase approximately24,000 shares were excluded from the computation of diluted earnings per share because theoptions’ exercise prices were greater than the average market price of our common stock. Wehad a net loss for the three and six months ended April 30, 2005; accordingly, the inclusionof common stock equivalents for outstanding stock options would be antidilutive and,therefore the weighted average shares used to calculate both basic and diluted loss per shareare the same. D. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS   *Allowance for Doubtful Accounts*   Activity in our allowance for doubtful accounts receivable consists of the following (inthousands):                   **Three Months Ended April 30,**  **Six Months Ended April 30,**   **2006**  **2005**  **2006**  **2005** Balance at beginning of period $665  $674  $567  $617 Adjustments to the allowance  83   4   181   65 Deductions for uncollectible accountswritten off, net of recoveries  5   —   5   (4)Increase due to foreign currency translation  3   —   3   —              Balance at end of period $756  $678  $756  $678                *Warranty Accrual*   Activity in our product warranty accrual consists of the following (in thousands):                   **Three Months Ended April 30,**  **Six Months Ended April 30,**   **2006**  **2005**  **2006**  **2005** Balance at beginning of period $2,103  $1,388  $1,836  $1,545 Adjustments to the accrual  1,644   350   2,371   637 Deductions for warranty charges  (436)  (365)  (896)  (809)Increase due to foreign currency translation  26   —   26   —              Balance at end of period $3,337  $1,373  $3,337  $1,373              
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  For the three and six months ended April 30, 2006, our warranty accrual includesapproximately $0.8 million for estimated costs related to the resolution of a specificproduct performance issue that was identified in the second quarter of 2006.   *Inventories*   The components of inventories are summarized below (in thousands):           **April 30,**  **October 31,**   **2006**  **2005** Raw materials, parts and subassemblies $14,621  $12,794 Work-in-progress  11,430   8,822        Total Inventories $26,051  $21,616          *Costs and Estimated Earnings on Uncompleted Contracts*   The components of costs and estimated earnings and related amounts billed on uncompletedcontracts are summarized below (in thousands):           **April 30,**  **October 31,**   **2006**  **2005** Costs incurred on uncompleted contracts $257,222  $293,741 Estimated earnings  57,745   55,360           314,967   349,101 Less: Billings to date  289,697   329,515          $25,270  $19,586        Included in the accompanying balancesheets under the following captions:                 Costs and estimated earnings in excess ofbillings on uncompleted contracts $43,545  $35,328 Billings in excess of costs andestimated earnings on uncompleted contracts  (18,275)  (15,742)         $25,270  $19,586        E. COMPREHENSIVE INCOME (LOSS)   Comprehensive income (loss) for the three and six months ended April 30, 2006 and 2005, is asfollows (in thousands):                   **Three Months Ended April 30,**  **Six Months Ended April 30,**   **2006**  **2005**  **2006**  **2005** Net income (loss) $4,145  $(295) $5,238  $(1,721)Other comprehensive income, net of taxUnrealized loss on marketable securities  —   (17)  —   (28)Unrealized gain (loss) on foreigncurrency translation  468   —   481   (19)             Comprehensive income (loss) $4,613  $(312) $5,719  $(1,768)             F. LONG-TERM DEBT   On June 29, 2005, we entered into a new senior credit agreement (“Credit Agreement”) with amajor domestic bank and certain other financial institutions which replaced our existingrevolving line of credit. The Credit Agreement also replaced an existing letter of creditfacility used to guarantee payment of our existing loan agreement that was funded withproceeds from tax-exempt industrial development revenue bonds. This expanded credit facilitywas put in place to partially fund the acquisition of and provide working capital support forS&I.
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  The Credit Agreement provides for a 1) $22.0 million revolving credit facility (“USRevolver”), 2) £4.0 million (pound sterling) (approximately $7.0 million) revolving creditfacility (“UK Revolver”) and 3) £6.0 million (approximately $10.6 million) single advanceterm loan (“UK Term Loan”). The Credit Agreement contains customary affirmative and negativecovenants and restricts our ability to pay dividends. In addition, there are variousrestrictive covenants pertaining to maintenance of net worth and certain financial ratios.Obligations are secured by the stock of our subsidiaries. The interest rate for amountsoutstanding under the Credit Agreement is a floating rate based upon LIBOR plus a marginwhich can range from 1.25% to 2.25%, as determined by the Company’s consolidated leverageratio as defined in the Credit Agreement.   The US Revolver and the UK Revolver provide for the issuance of letters of credit which wouldreduce the amounts which may be borrowed under the respective revolvers. The amountavailable under this agreement is reduced by $11.9 million for our outstanding letters ofcredit at April 30, 2006. There was £1.9 million, or approximately $3.5 million, outstandingunder the UK revolver as of April 30, 2006, with interest rates ranging from 6.35% to 6.39%.No amounts were borrowed on the US Revolver. The US Revolver and the UK Revolver expire onJune 30, 2008.   The UK Term Loan is a single advance term loan of £6.0 million, or approximately $10.7million, used for financing the acquisition of S&I. Approximately £5.0 million, orapproximately $8.9 million, of this facility was used to finance the portion of the purchaseprice of S&I that was denominated in pounds sterling. The remaining £1.0 million, orapproximately $1.8 million, was utilized as the initial working capital for S&I. Quarterlyinstallments of £300,000, or approximately $532,000, began March 31, 2006, with the finalpayment due on March 31, 2010. As of April 30, 2006, £5.7 million, or approximately $10.4million of the UK Term Loan was outstanding and the per annum interest rate was 6.38%.   Expenses associated with the issuance of the Credit Agreement are classified as deferred loancosts and totaled $501,000 and are being amortized as a non-cash charge to interest expenseover the term of the agreement (three years).   We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds fromtax-exempt industrial development revenue bonds (“Bonds”). These Bonds were issued by theIllinois Development Finance Authority and were used for the completion of our Northlake,Illinois facility. While the Bonds mature in 2021, the reimbursement agreement requiresannual redemptions of $400,000. A sinking fund is used for the redemption of the Bonds. TheBonds bear interest at a floating rate determined weekly by the Bonds’ remarketing agent,which was the underwriter for the Bonds and is an affiliate of the bank. At April 30, 2006,approximately $6.4 million was outstanding on the bonds and the interest rate is based onsimilar types of short-term municipal securities and was 3.9% per annum on April 30, 2006.   We are currently engaged in an audit with the Internal Revenue Service (“IRS”) related to ourtax exempt industrial development revenue bonds. We have furnished the IRS various materialswhich have been requested by the IRS in connection with the audit. The IRS is reviewingthese materials and has not yet informed us as to their conclusions.   Some machinery and equipment used in our manufacturing facilities was financed throughcapital lease agreements. These capital lease agreements are collateralized by the leasedproperty. The capital lease obligations are at a fixed interest rate of 3%.
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G. COMMITMENTS AND CONTINGENCIES   *Letters of Credit and Bonds*   Certain customers require us to post a bank letter of credit guarantee or performance bondsissued by a surety. These guarantees and performance bonds assure our customers that we willperform under terms of our contract. In the event of default, the customer may demand paymentfrom the bank under a letter of credit or performance by the surety under a performance bond.To date, there have been no significant expenses related to either for the periods reported.We were contingently liable for secured and unsecured letters of credit of $12.5 million asof April 30, 2006. We also had performance bonds totaling approximately $143.8 millionoutstanding at April 30, 2006.   In November 2005, we entered into a new facility agreement (“Facility Agreement”) with alarge international bank. The Facility Agreement provides for 1) £15.0 million in bonds(approximately $26.0 million), 2) £1.5 million of forward exchange contracts and currencyoptions (approximately $2.6 million), and 3) the issuance of bonds and the entering into offorward exchange contracts and currency options. At April 30, 2006, we had outstanding bondsof £0.8 million, or approximately $1.4 million.   *Contingencies*   The Company previously entered into a construction joint venture agreement to supply,install, and commission a Supervisory Control and Data Acquisition System (“SCADA”) tomonitor and control the distribution and delivery of fresh water to the City and County ofSan Francisco Public Utility Commission (“Commission”). The project was substantiallycompleted and has been performing to the satisfaction of the Commission. However, variousfactors outside of the control of the Company and its joint venture partner caused numerouschanges and additions to the work that in turn delayed the completion of the project. TheCommission has withheld liquidated damages and earned contract payments from the jointventure. The Company has made claims against the Commission for various matters includingcompensation for extra work and delay to the project.   The Company is currently pursuing the recovery of amounts owed under the contract, aswell as legal and other costs incurred to prosecute its claim. Unless this matter isotherwise resolved, this claim is scheduled to go to trial in 2006. As of April 30, 2006,the Company had approximately $1.6 million recorded in the consolidated balance sheet forcontractually owed amounts in accounts receivable and costs and estimated earnings in excessof billings on uncompleted contracts related to its portion of this contract. Consistentwith Company policy, only revenue to the extent of costs of directed change orders have beenrecorded by the Company. No amounts have been recorded by the Company related to theCompany’s claims and counterclaims alleging breach of the agreement. Although a failure torecover the amounts recorded could have a material adverse effect on the Company’s results ofoperations, the Company believes that, under the circumstances and on the basis ofinformation now available, an unfavorable outcome is unlikely.   See Note F for discussion related to our tax exempt industrial development revenuebonds. H. BUSINESS SEGMENTS   We manage our business through operating subsidiaries, which are comprised of two reportablebusiness segments: Electrical Power Products and Process Control Systems. Electrical PowerProducts includes equipment and systems for the distribution and control of electricalenergy. Process Control Systems consists principally of instrumentation, computer controls,communications, and data management systems to control and manage critical processes.   On July 4, 2005, we acquired selected assets and assumed certain operating liabilities andcontracts of Switchgear & Instrumentation Limited in the United Kingdom. We refer to theacquired business herein as “S&I.” The operating results and tangible assets of S&I areincluded in our Electrical Power Products business segment as of that date.
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  The tables below reflect certain information relating to our operations by segment. Allrevenues represent sales from unaffiliated customers. The accounting policies of thesegments are the same as those described in the summary of significant accounting policies.Corporate expenses and certain assets are allocated to the operating segments primarily basedon revenues. The corporate assets are mainly cash, cash equivalents, and marketablesecurities.   Detailed information regarding our business segments is shown below (in thousands):                   **Three Months Ended April 30,**  **Six Months Ended April 30,**   **2006**  **2005**  **2006**  **2005** Revenues:                Electrical Power Products $91,875  $48,384  $168,517  $88,148 Process Control Systems  6,556   10,530   13,727   18,455              Total $98,431  $58,914  $182,244  $106,603                               Gross profit:                Electrical Power Products $18,782  $5,950  $31,846  $11,182 Process Control Systems  1,961   2,492   3,674   4,219              Total $20,743  $8,442  $35,520  $15,401                               Income (loss) beforeincome taxes and minorityinterest:                Electrical Power Products $6,438  $(1,518) $7,837  $(4,134)Process Control Systems  365   785   726   1,039              Total $6,803  $(733) $8,563  $(3,095)                        **April 30,**  **October 31,**   **2006**  **2005** Identifiable tangible assets:        Electrical Power Products $205,439  $172,544 Process Control Systems  12,213   10,762 Corporate  18,031   39,013        Total $235,683  $222,319          In addition, the Electrical Power Products business segment had $203,000 and $203,000 ofgoodwill and $3,163,000 and $3,505,000 of intangible and other assets as of April 30, 2006and October 31, 2005, respectively. Additionally, Corporate had $706,000 and $632,000 ofdeferred loan costs and other assets as of April 30, 2006 and October 31, 2005, respectively,which are not included in identifiable tangible assets above. I. CONSOLIDATION OF OPERATIONS   To reduce overhead costs and improve efficiency, we initiated a consolidation plan in fiscal2004 to reduce the number of operating locations within our Electrical Power Productssegment. The majority of our consolidation changes related to severance and employee benefitexpenses for involuntary terminations in 2004. During the first six months of fiscal 2005,$66,000 of additional shutdown costs and write downs of fixed assets were expensed andincluded in the Condensed Consolidated Statements of Operations.
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**Item 2.*****Management’s Discussion And Analysis Of Financial Condition And Results OfOperations****The following discussion of our financial condition and results of operations should be read inconjunction with the accompanying condensed consolidated financial statements and related notesincluded elsewhere in this**Form 10-Q**and our Annual Report on**Form 10-K**as filed with theSecurities and Exchange Commission for the year ended October 31, 2005. In the course ofoperations, we are subject to certain risk factors, including but not limited to competition andcompetitive pressures, sensitivity to general economic and industry conditions, internationalpolitical and economic risks, availability and price of raw materials and execution of businessstrategy. Any forward-looking statements made by or on our behalf are made pursuant to the safeharbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautionedthat such forward-looking statements involve risks and uncertainties in that actual results maydiffer materially from those projected in the forward-looking statements.***Overview**We develop, design, manufacture, and service equipment and systems for the management and controlof electrical energy and other critical processes. Headquartered in Houston, Texas, we serve thetransportation, environmental, industrial, and utility industries. Our business operations areconsolidated into two business segments: Electrical Power Products and Process Control Systems.On July 4, 2005, we acquired selected assets and assumed certain operating liabilities andcontracts of Switchgear and Instrumentation Limited in the United Kingdom. The acquired businessis referred to herein as “S&I.” The operating results of S&I are included in our Electrical PowerProducts business segment as of July 4, 2005. Financial information related to these businesssegments is included in Note H of the Notes to Condensed Consolidated Financial Statements.**Results of Operations***Revenue and Gross Profit*Consolidated revenues increased $39.5 million to $98.4 million in the second quarter of fiscal 2006compared to second quarter 2005 revenues of $58.9 million. Revenues increased primarily due togeneral market recovery, concerted sales efforts in 2005 aimed at strengthening our backlog and theacquisition in early July 2005 of S&I. The acquisition of S&I added revenues of $14.3 million, alloutside the United States (“International”), in the second quarter of fiscal 2006. For the threemonths ended April 30, 2006, domestic revenues increased by 37% to $67.4 million. TotalInternational revenues were $31.0 million in the second quarter 2006 compared to $9.7 million inthe same quarter of the prior year. International revenues accounted for 32% of consolidatedrevenues in the second quarter of fiscal 2006 compared to 16% in the second quarter of fiscal 2005;the increase was primarily due to the acquisition of S&I. Gross profit for the second quarter of2006 decreased by approximately $0.8 million for estimated costs related to the resolution of aspecific product performance issue.For the six months ended April 30, 2006, consolidated revenues increased $75.6 million to $182.2million compared to the six months ended April 30, 2005 of $106.6 million. The acquisition of S&Iadded revenues of $26.9 million, all International, in the first six months of fiscal 2006.Domestic revenues for the first six months of fiscal 2006 were $128.8 million compared to $91.2million for the first six months of fiscal 2005. Total International revenues were $53.4 millionfor the first six months of fiscal 2006 compared to $15.4 million for the same period of last year.For the six months ended April 30, 2006, International revenue accounted for 29% of consolidatedrevenues compared to 14% for the same period a year ago; the increase was primarily due to theacquisition of S&I. Gross profit for the first six months of fiscal 2006 decreased byapproximately $0.8 million for estimated costs related to the resolution of a specific productperformance issue.*Electrical Power Products*Our Electrical Power Products segment recorded revenues of $91.9 million in the second quarter of2006, which includes revenues of $14.3 million from the acquisition of S&I, compared to $48.4million for the same period of the previous year. During the second quarter of fiscal 2006,revenues in all our major markets strengthened compared to the same period of the prior year. Inthe second quarter of fiscal 2006, revenues from public and private utilities were approximately$33.8 million, an increase of $6.2 million compared to the second quarter of fiscal 2005. Revenuesfrom industrial customers totaled $50.0 million in the second quarter of fiscal 2006 compared to$19.0 million in the same period of the prior year. Municipal and transit projects generatedrevenues of $8.1 million in the second quarter of fiscal 2006 compared to $1.8 million in the sameperiod a year ago.
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For the six months ended April 30, 2006, this segment recorded revenues of $168.5 million, whichincludes revenues of $26.9 million from the acquisition of S&I, compared to $88.1 million for thefirst six months of fiscal 2005. Utility revenues totaled $56.5 million, an increase ofapproximately 32% over prior year. Industrial revenues were $96.9 million compared to $39.5million a year ago and revenues from municipal and transit projects totaled $15.1 million comparedto $5.8 million for the same period of last year.The gross profit from the Electrical Power Products segment increased, as a percentage of revenues,to 20.4% in the second quarter of fiscal 2006, compared to 12.3% in the second quarter of fiscal2005. Excluding the S&I acquisition, segment gross profit would have been 19.1% in the secondquarter of fiscal 2006. This increase in gross profit resulted from improved pricing, operatingefficiencies resulting from increased volume, as well as increased services and replacementprojects resulting from the hurricanes of 2005 along the Gulf Coast Region. Material costsincreased approximately $0.6 million in the second quarter of fiscal 2006 compared to the sameperiod a year ago, primarily due to higher unit prices for copper.For the six months ended April 30, 2006, gross profit as a percentage of revenues increased to18.9% from 12.7% in the first six months of fiscal 2005. This increase in gross profit resultedfrom improved pricing, operating efficiencies resulting from increased volume, as well as increasedservices and replacement projects resulting from the hurricanes of 2005 along the Gulf CoastRegion. Direct material costs increased approximately 0.8%, or $0.7 million, during the first sixmonths of 2006 compared to the same period a year ago primarily due to higher unit prices forcopper. In addition, incremental production costs of approximately $0.6 million were incurredduring the first six months of fiscal 2005 due to start-up difficulties and inefficiencies with ourrecently relocated distribution switch product line.*Process Control Systems*Revenues in our Process Control Systems segment decreased to $6.6 million in the second quarter offiscal 2006 from $10.5 million for the same period of the prior year. For the six months endedApril 30, 2006, segment revenues decreased to $13.7 million compared to $18.5 million in the sameperiod last year. These decreases in revenue are attributable to a decrease in the proportion ofsubcontracted installation activities.Segment gross profit decreased to $2.0 million compared to $2.5 million in the second quarter of2005. For the six months ended April 30, 2006, segment gross profit decreased to $3.7 millioncompared to $4.2 million in the same period last year.For additional information related to our business segments, see Note H of the Notes to CondensedConsolidated Financial Statements.*Consolidated Selling, General, and Administrative Expenses*Consolidated selling, general, and administrative expenses decreased to 14.1% of revenues in thesecond quarter of 2006 compared to 15.9% of revenues in the same period of last year. Selling,general, and administrative expenses were $13.9 million, an increase of $4.5 million over the sameperiod last year, of which the operating activities of S&I accounted for $2.4 million of theincrease. In the first quarter of fiscal 2006, we adopted SFAS No. 123 (Revised 2004),*“Share-Based Payment”*(SFAS No.123R), which required us to expense the estimated compensationrelated to stock options. The adoption of this new standard increased selling, general, andadministrative expenses by approximately $0.3 million in the second quarter of fiscal 2006. Theremainder of this increase of $1.8 million is primarily attributable to increased legal andprofessional fees, as well as salaries, incentives and commissions which are consistent with theincrease in revenues.Consolidated selling, general and administrative expenses decreased to 14.7% of revenues in thefirst six months of fiscal 2006 compared to 17.7% of revenues in the same period of last year.Selling, general and administrative expenses were $26.8 million, an increase of $7.9 million overthe same period last year, of which the operating activities of S&I accounted for $4.5 million ofthe increase. For the six months ended April 30, 2006, research and development expenditures were$2.2 million compared to $1.2 million in the first six months of fiscal 2005. The adoption of SFASNo.123R increased selling, general, and administrative expenses by approximately $0.7 million inthe first six months of fiscal 2006. Commission expenses for manufacturing sales representatives,as well as direct sales expenses increased by approximately $0.1 million in the first six months offiscal 2006 compared to the first six months of fiscal 2005. Accounting and auditing expensesincreased by $0.5 million in the first six months of fiscal 2006 compared to the same period offiscal 2005 primarily due to costs incurred for compliance with the Sarbanes-Oxley Act and relatedregulations.
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*Interest Income and Expense*Interest expense was approximately $0.3 million in the second quarter of fiscal 2006, an increaseof approximately $0.2 million compared to the same period in fiscal 2005. The increase in interestexpense is primarily due to additional debt incurred to partially finance the acquisition of S&Iand interest payments to state taxing authorities.Interest income was $0.2 million in the second quarter of 2006 compared to $0.3 million in thesecond quarter of 2005. For the six months ended April 30, 2006, interest income was $0.5 millioncompared to $0.6 million in the same period of last year.*Provision for Income Taxes*Our provision (benefit) for income taxes reflects an effective tax rate on earnings before incometaxes of 39.1% in the second quarter of fiscal 2006 compared to a tax benefit of (61.5%) in thesecond quarter of fiscal 2005 and an effective rate of 38.7% in the first six months of fiscal 2006compared to a tax benefit of (44.4%) in the first six months of fiscal 2005. While our effectivetax rate will generally be lower due to income generated in the United Kingdom which has a lowerstatutory rate than the United States, certain expenses are not deductible for tax purposes in theUnited Kingdom, such as amortization of intangible assets. In addition, adjustments to estimatedtax accruals are analyzed and adjusted quarterly as events occur to warrant such change.Adjustments to tax accruals are a component of the effective tax rate. During 2004, the AmericanJobs Creation Act of 2004 was signed into law. The primary effect will be to permit us to claim adeduction of 3% of earnings related to certain manufacturing and construction related activities.This deduction may decrease our effective tax rate as a result of our implementation of this newtax law.*Net Income*In the second quarter of 2006, we generated net income of $4.1 million, or $0.37 per diluted share,compared to a net loss of ($0.3) million, or ($0.03) per diluted share, in the second quarter offiscal 2005. For the six months ended April 30, 2006, we recorded net income of $5.2 million, or$0.47 per diluted share, compared to a net loss of ($1.7) million, or ($0.16) per diluted share forthe first six months of 2005. Higher revenues and improved gross profits in our Electrical PowerProducts business segment, partially offset by increased selling, general and administrativeexpenses associated with higher levels of business activity including the effect of the S&Iacquisition, have improved net income in 2006 compared to the same periods a year ago.*Backlog*The order backlog on April 30, 2006 was $269.2 million, compared to $259.0 million at fiscal yearend 2005 and $161.4 million at the end of the second quarter one year ago. New orders placedduring the second quarter of 2006 totaled $81.1 million compared to $73.6 million in the sameperiod one year ago.
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**Liquidity and Capital Resources**Working capital was $110.1 million at April 30, 2006, compared to $103.4 million at October 31,2005. As of April 30, 2006, current assets exceeded current liabilities by 2.7 times and our debtto capitalization ratio was 12.3%.As of April 30, 2006, we had cash, cash equivalents, and marketable securities of $17.2 millioncompared to $33.0 million as of October 31, 2005. Long-term debt and capital lease obligations,net of current maturities, totaled $17.8 million at April 30, 2006, compared to $19.4 million atOctober 31, 2005. In addition to our long-term debt, we have a $22.0 million revolving creditagreement in the United States and £4.0 million (approximately $7.0 million) revolving creditagreement in the United Kingdom expiring June 2008. As of April 30, 2006, there was £1.9 million,or approximately $3.5 million, outstanding under the UK revolver (as defined in Note F to CondensedConsolidated Financial Statements). No amounts were borrowed on the US Revolver as of April 30,2006. We were in compliance with all debt covenants as of April 30, 2006.As of April 30, 2006, we had $10.1 million available on the US Revolver and £2.1 million, orapproximately $3.8 million, available on the UK Revolver.*Operating Activities*For the six months ended April 30, 2006 and 2005, cash used in operating activities was $13.4million and $20.2 million, respectively. Cash was principally used to fund growth in inventoriesand costs related to projects which cannot be billed under the contract terms, as well as anoverall increase in accounts receivable of $17.8 million.*Investing Activities*Cash used for the purchase of property, plant, and equipment during the six months ended April 30,2006, was $2.6 million compared to $2.1 million for the same period of the prior year. Themajority of our 2006 capital expenditures were used to implement our new Enterprise ResourcePlanning System (“ERP System”), which is expected to be completed by the end of calendar year 2006in the United States and early in calendar year 2007 at S&I. A year ago, the majority of ourcapital expenditures were used to improve our capabilities to manufacture switchgear and electricalpower control rooms.Proceeds from the sale of short-term auction rate securities for the six months ended April 30,2006 and 2005 was $8.2 million and $18.8 million, respectively.*Financing Activities*Cash used in financing activities was $0.4 million for the six months ended April 30, 2006 comparedto cash provided by financing activities of $0.4 million in the same period a year ago. Theprimary use of cash for the six months ended April 30, 2006 was to repay approximately $1.5 millionof UK debt, offset in part by, proceeds from stock options and proceeds from a short-term financingagreement associated with the implementation of our new ERP system.**Outlook**We expect our principal markets to remain steady throughout the balance of 2006 and into 2007.Customer inquiries, or requests for proposals have steadily strengthened during the second half offiscal 2005 and into 2006. One of the positive trends we have experienced is an increase in neworder activity. New orders in the second quarter of 2006 totaled $81.1 million compared to $73.6million in the same period one year ago. We are cautiously optimistic that we will continue toexperience a strong level of bookings throughout fiscal 2006.In our Electrical Power Products segment, new orders in the second quarter of 2006 totaled $78.5million compared to $62.1 million in the same period one year ago. We believe that improved marketpricing and increased volume along with our continued focus on cost containment should reduce theimpact of increased raw material costs such as copper and aluminum. Although our Process ControlSystems segment continues to experience soft market conditions, we anticipate increased funding formunicipal projects will be available as general economic conditions strengthen. We believe we arewell positioned to take advantage of improved economic conditions.We anticipate that we may need to continue to reinvest a portion of our cash in operating workingcapital for the remainder of fiscal 2006 due to increased business activity. We believe thatworking capital, borrowing capabilities, and cash generated from operations will be sufficient tofinance the anticipated operational activities, capital improvements, debt repayments, and possiblefuture acquisitions for the foreseeable future.
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**Item 3.*****Quantitative And Qualitative Disclosures About Market Risk***We are exposed to certain market risks arising from transactions we have entered into in the normalcourse of business. These risks primarily relate to fluctuations in interest rates, foreignexchange rates and commodity prices. Amounts invested in our foreign operations are translatedinto U.S. Dollars at the exchange rate in effect at the end of the period reported. The resultingtranslation adjustments are recorded as accumulated other comprehensive income, a component ofstockholders’ equity, in our condensed consolidated balance sheets. We believe the exposure to theeffects that fluctuating foreign currencies have on our condensed consolidated results ofoperations is limited because the foreign operations primarily invoice customers and collectobligations in their respective currencies or U.S. Dollars. Additionally, expenses associated withthese transactions are generally contracted and paid for in the same local currencies.We are subject to market risk resulting from changes in interest rates related to our outstandingdebt. Regarding our various debt instruments outstanding at April 30, 2006 and October 31, 2005, a100 basis point increase in interest rates would result in a total annual increase in interestexpense of approximately $200,000. While we do not currently have any derivative contracts tohedge our exposure to interest rate risk, we have in the past and may in the future enter into suchcontracts. Overall, we believe that changes in interest rates will not have a material near-termimpact on our future earnings or cash flows. During each of the past three years, we have notexperienced a significant effect on our business due to changes in interest rates.We are subject to market risk from fluctuating market prices of certain raw materials. While suchmaterials are typically available from numerous suppliers, commodity raw materials are subject toprice fluctuations. We attempt to pass along such commodity price increases to our customers on acontract-by-contract basis to avoid profit margin erosion. While we may do so in the future, wehave not entered into any derivative contracts to hedge our exposure to commodity risk in fiscalyears 2006 or 2005. We continue to experience significant price pressures with some of our key rawmaterials. Competitive market pressures limited our ability to pass these cost increases to ourcustomers, thus eroding our earnings in 2005. While improved market prices have allowed us tooffset these cost increases, the long-term nature of our contracts expose us to cost increaseswhich may negatively impact our profit on a particular contract. Fluctuations in commodity pricescould have a material effect on our future earnings and cash flows.**Item 4.*****Controls And Procedures***Management, with the participation of our Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as ofthe end of the period covered by this report. Based on such evaluation, our CEO and CFO have eachconcluded that as of the end of such period, our disclosure controls and procedures were effectiveto ensure that information required to be disclosed by us in reports that we file or submit underthe Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reportedwithin the time periods specified in the Securities and Exchange Commission’s rules and forms andthat such information is accumulated and communicated to our management, including the CEO and CFO,as appropriate, to allow timely decisions regarding required disclosures.We also maintain a system of internal accounting controls that are designed to provide reasonableassurance that our books and records accurately reflect our transactions and that our policies andprocedures are followed. There have not been any changes in our internal control over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities ExchangeAct of 1934, as amended) during the fiscal quarter to which this report relates that havematerially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting.
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**PART II — OTHER INFORMATION****Item 1.*****Legal Proceedings***The Company previously entered into a construction joint venture agreement tosupply, install, and commission a Supervisory Control and Data Acquisition System(“SCADA”) to monitor and control the distribution and delivery of fresh water to theCity and County of San Francisco Public Utility Commission (“Commission”). The projectwas substantially completed and has been performing to the satisfaction of theCommission. However, various factors outside of the control of the Company and itsjoint venture partner caused numerous changes and additions to the work that in turndelayed the completion of the project. The Commission has withheld liquidated damagesand earned contract payments from the joint venture. The Company has made claimsagainst the Commission for various matters including compensation for extra work anddelay to the project.The Company is currently pursuing the recovery of amounts owed under the contract, aswell as legal and other costs incurred to prosecute its claim. Unless this matter isotherwise resolved, this claim is scheduled to go to trial in 2006 in Alameda CountySuperior Court, State of California. As of April 30, 2006, the Company hadapproximately $1.6 million recorded in the consolidated balance sheet for contractuallyowed amounts in accounts receivable and costs and estimated earnings in excess ofbillings on uncompleted contracts related to its portion of this contract. Consistentwith Company policy, only costs of directed change orders have been recorded by theCompany. No amounts have been recorded by the Company related to the Company’s claimsand counterclaims alleging breach of the agreement. Although a failure to recover theamounts recorded could have a material adverse effect on the Company’s results ofoperations, the Company believes that, under the circumstances and on the basis ofinformation now available, an unfavorable outcome is unlikely.**Item 1A.*****Risk Factors***There are no material changes from the risk factorspreviously disclosed in the Company’s Annual Report onForm 10-K for the fiscal year ended October 31, 2005.
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**Item 4.*****Submission of Matters to a Vote of Security Holders***At the annual meeting of stockholders of the Company heldon March 31, 2006, James F. Clark, Stephen W. Seale, Jr.and Robert C. Tranchon were elected directors of theCompany with terms ending in 2009. The directorscontinuing in office after the meeting are Joseph L.Becherer, Eugene L. Butler, Thomas W. Powell and Ronald J.Wolny. As to each nominee for director, the number ofvotes cast for, against or withheld, as well as the numberof abstentions and broker non-votes, were as follows:                     Nominee Votes Cast For Votes Cast Against Votes Withheld Abstentions Non-VotesJames F. Clark  9,922,559   —   41,005   —   — Stephen W. Seale,Jr.  9,855,290   —   108,274   —   — Robert C. Tranchon  9,854,214   —   109,350   —   — **Item 6.*****Exhibits***      3.1 - Certificate of Incorporation of Powell Industries, Inc. filed withthe Secretary of State of the State of Delaware on February 11, 2004 (filed asExhibit 3.1 to our Form 8-A/A filed November 1, 2004, and incorporated herein byreference).   3.2 - Bylaws of Powell Industries, Inc. (filed as Exhibit 3.2 to our Form8-A/A filed November 1, 2004, and incorporated herein by reference).   *31.1 - Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.   *31.2 - Certification of Chief Financial Officer pursuant to Section 302of the Sarbanes-Oxley Act of 2002.   *32.1 - Certification of Chief Executive Officer pursuant to Section 906of the Sarbanes-Oxley Act of 2002.   *32.2 - Certification of Chief Financial Officer pursuant to Section 906of the Sarbanes-Oxley Act of 2002. * Filed herewith.
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**SIGNATURES**Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto duly authorized.       POWELL INDUSTRIES, INC.    Registrant             June 8, 2006      /s/ THOMAS W. POWELL         Date   Thomas W. Powell      President and Chief Executive Officer      (Principal Executive Officer)         June 8, 2006      /s/ DON R. MADISON         Date   Don R. Madison      Vice President and Chief Financial Officer      (Principal Financial Officer)  
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**EXHIBIT INDEX**   **Number** **Exhibit Title**3.1 - Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary ofState of the State of Delaware on February 11, 2004, (filed as Exhibit 3.1 to our Form8-A/A filed November 1, 2004, and incorporated herein by reference).   3.2 - Bylaws of Powell Industries, Inc. (filed as Exhibit 3.2 to our Form 8-A/A filedNovember 1, 2004, and incorporated herein by reference).   *31.1 - Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   *31.2 - Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   *32.1 - Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   *32.2 - Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Filed herewith.
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