##### 



UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
  FORM 10-Q
 (Mark one)þ
    
    Quarterly Report
pursuant to Section
13 or 15(d) of the
Securities Exchange
Act of 1934 for the
quarterly period
ended
July 31, 2005oro
    
    Transition Report
pursuant to Section
13 or 15(d) of the
Securities Exchange
Act of 1934 for the
transition period
from 
to
 Commission File Number 001-12488
 POWELL INDUSTRIES, INC.
  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
 X
 X
 X
 X




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##### 



Part I  Financial InformationItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Resultsof Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    22Part II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    23Signatures
    
    
    
    
    24
 2




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##### 



Powell Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
 July 31,
    
    
    October 31,2005
    
    
    2004Assets
    
    (Unaudited)Current Assets:Cash and cash equivalents
    
    $
    13,092
    
    
    $
    8,974Marketable securities
    
    
    12,225
    
    
    
    54,208Accounts receivable, less allowance for doubtful accounts of $643 and
$617, respectively
    
    
    67,320
    
    
    
    42,659Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    29,994
    
    
    
    19,822Inventories, net
    
    
    22,436
    
    
    
    15,332Income taxes receivable
    
    
    1,154
    
    
    
    1,179Deferred income taxes
    
    
    1,519
    
    
    
    729Prepaid expenses and other current assets
    
    
    5,858
    
    
    
    2,717Total Current Assets
    
    
    153,598
    
    
    
    145,620Property, plant and equipment, net
    
    
    54,386
    
    
    
    45,041Goodwill
    
    
    3,824
    
    
    
    203Other assets
    
    
    6,017
    
    
    
    5,215Total Assets
    
    $
    217,825
    
    
    $
    196,079Liabilities and Stockholders EquityCurrent Liabilities:Current maturities of long-term debt and capital lease obligations
    
    
    1,563
    
    
    
    474Income taxes payable
    
    
    514
    
    
    
    1,358Accounts payable
    
    
    20,081
    
    
    
    14,239Accrued salaries, bonuses and commissions
    
    
    8,422
    
    
    
    7,964Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    18,087
    
    
    
    15,174Accrued product warranty
    
    
    1,607
    
    
    
    1,545Other accrued expenses
    
    
    5,910
    
    
    
    5,596Total Current Liabilities
    
    
    56,184
    
    
    
    46,350Long-term debt and capital lease obligations, net of current maturities
    
    
    16,018
    
    
    
    6,626Deferred compensation
    
    
    1,858
    
    
    
    1,744Other liabilities
    
    
    1,424
    
    
    
    1,306Total Liabilities
    
    
    75,484
    
    
    
    56,026Commitments and contingencies (Note J)Minority interest
    
    
    248
    
    
    
    218Stockholders Equity:Preferred stock, par value $.01; 5,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, par value $.01; 30,000,000 shares authorized; 10,999,733 and
10,999,733 shares issued, respectively; 10,831,065 and 10,730,134 shares
outstanding, respectively
    
    
    110
    
    
    
    110Additional paid-in capital
    
    
    10,092
    
    
    
    9,433Retained earnings
    
    
    134,830
    
    
    
    134,419Treasury stock, 168,668 shares and 269,599 shares, respectively, at cost
    
    
    (1,573
    )
    
    
    (2,514
    )Accumulated other comprehensive income
    
    
    (27
    )
    
    
    54Deferred compensation
    
    
    (1,339
    )
    
    
    (1,667
    )Total Stockholders Equity
    
    
    142,093
    
    
    
    139,835Total Liabilities and Stockholders Equity
    
    $
    217,825
    
    
    $
    196,079
  3




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##### 



Powell Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
 Three Months Ended July 31,
    
    
    Nine Months Ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    66,915
    
    
    $
    52,805
    
    
    $
    173,518
    
    
    $
    157,508Cost of goods sold
    
    
    54,354
    
    
    
    43,488
    
    
    
    145,556
    
    
    
    130,017Gross profit
    
    
    12,561
    
    
    
    9,317
    
    
    
    27,962
    
    
    
    27,491Selling, general and administrative expenses
    
    
    9,887
    
    
    
    8,849
    
    
    
    28,761
    
    
    
    25,574Income (loss) before interest, income taxes and minority interest
    
    
    2,674
    
    
    
    468
    
    
    
    (799
    )
    
    
    1,917Interest expense
    
    
    130
    
    
    
    45
    
    
    
    346
    
    
    
    108Interest income
    
    
    (289
    )
    
    
    (235
    )
    
    
    (883
    )
    
    
    (602
    )Income (loss) before income taxes and minority interest
    
    
    2,833
    
    
    
    658
    
    
    
    (262
    )
    
    
    2,411Income tax provision (benefit)
    
    
    695
    
    
    
    (79
    )
    
    
    (680
    )
    
    
    567Minority interest in net income
    
    
    6
    
    
    
    
    
    
    
    7
    
    
    
    Net income
    
    $
    2,132
    
    
    $
    737
    
    
    $
    411
    
    
    $
    1,844Net earnings per common share:Basic
    
    $
    0.20
    
    
    $
    0.07
    
    
    $
    0.04
    
    
    $
    0.17Diluted
    
    $
    0.19
    
    
    $
    0.07
    
    
    $
    0.04
    
    
    $
    0.17Weighted average shares:Basic
    
    
    10,775
    
    
    
    10,701
    
    
    
    10,757
    
    
    
    10,676Diluted
    
    
    10,939
    
    
    
    10,777
    
    
    
    10,886
    
    
    
    10,768
  4




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##### 



Powell Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 Nine Months Ended July 31,2005
    
    
    2004Operating Activities:Net income
    
    $
    411
    
    
    $
    1,844Adjustments to reconcile net income to net cash provided by (used
in) operating activities:Depreciation and amortization
    
    
    3,244
    
    
    
    3,396Amortization of unearned restricted stock
    
    
    91
    
    
    
    47Bad debt expense
    
    
    30
    
    
    
    355Gain on disposition of assets
    
    
    (21
    )
    
    
    (146
    )Net realized gain on sale of available-for-sale securities
    
    
    (28
    )
    
    
    Tax benefit from exercise of stock options
    
    
    234
    
    
    
    100Deferred income taxes
    
    
    (1,048
    )
    
    
    (1,516
    )Postretirement benefit liability
    
    
    149
    
    
    
    171Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (19,961
    )
    
    
    736Costs and estimated earnings in excess of billings on
uncompleted contracts
    
    
    (5,680
    )
    
    
    14,825Inventories
    
    
    (3,359
    )
    
    
    3,006Prepaid expenses and other current assets
    
    
    (2,762
    )
    
    
    (1,112
    )Other assets
    
    
    68
    
    
    
    (620
    )Accounts payable and income taxes payable
    
    
    (770
    )
    
    
    (1,044
    )Accrued liabilities
    
    
    128
    
    
    
    (327
    )Billings in excess of costs and estimated earnings on
uncompleted contracts
    
    
    1,473
    
    
    
    (2,185
    )Deferred compensation
    
    
    351
    
    
    
    380Other liabilities
    
    
    (37
    )
    
    
    Net cash provided by (used in) operating activities
    
    
    (27,487
    )
    
    
    17,910Investing Activities:Proceeds from sale of fixed assets
    
    
    46
    
    
    
    290Proceeds from maturities and sales of available-for-sale securities
    
    
    3,817
    
    
    
    Purchases of property, plant and equipment
    
    
    (3,226
    )
    
    
    (4,920
    )Proceeds from sale of short-term auction rate securities
    
    
    43,060
    
    
    
    1,491Purchase of short-term auction rate securities
    
    
    (5,000
    )
    
    
    (23,728
    )Acquisition of S&I
    
    
    (18,460
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    20,237
    
    
    
    (26,867
    )Financing Activities:Borrowings on revolving line of credit
    
    
    5,905
    
    
    
    274Repayments on revolving line of credit
    
    
    (5,905
    )
    
    
    (274
    )Borrowings on Term Loan
    
    
    10,598
    
    
    
    Payments on capital lease obligations
    
    
    (119
    )
    
    
    (82
    )Debt issue costs
    
    
    (461
    )
    
    
    Proceeds from exercise of stock options
    
    
    1,350
    
    
    
    797Net cash provided by financing activities
    
    
    11,368
    
    
    
    715Net increase (decrease) in cash and cash equivalents
    
    
    4,118
    
    
    
    (8,242
    )Cash and cash equivalents at beginning of period
    
    
    8,974
    
    
    
    11,863Cash and cash equivalents at end of period
    
    $
    13,092
    
    
    $
    3,621Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    326
    
    
    $
    106Income taxes
    
    $
    562
    
    
    $
    1,728Non-cash investing and financing activities:Change in fair value of marketable securities during
the period, net of $9 and $33 income taxes,
respectively
    
    $
    26
    
    
    $
    111Unrealized gain on forward contracts
    
    $
    13
    
    
    $
    Unrealized foreign currency gain/(loss)
    
    $
    (67
    )
    
    $
    Issuance of common stock for deferred directors fees
    
    $
    14
    
    
    $
    75Assets acquired under capital lease obligations
    
    $
    
    
    
    $
    200Accrued acquisition costs
    
    $
    485
    
    
    $
    
  5




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##### 



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
 Notes To Condensed Consolidated Financial Statements (Unaudited)
 A.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe condensed consolidated financial statements include the accounts of Powell Industries, Inc.
and its wholly-owned subsidiaries (we, us, our, Powell, or the Company). All
significant intercompany accounts and transactions are eliminated in consolidation.The accompanying unaudited condensed consolidated financial statements have been prepared using
accounting principles generally accepted in the United States of America (GAAP) for interim
financial information in accordance with the rules of Regulation S-X of the Securities and
Exchange Commission. Accordingly, these interim financial statements do not include all annual
disclosures required by GAAP. These financial statements should be read in conjunction with the
financial statements and related footnotes included in the Companys annual report on Form 10-K
for the year ended October 31, 2004. In the opinion of management, these condensed consolidated
financial statements include all adjustments, consisting of normal recurring adjustments, which
are necessary for a fair presentation of the Companys financial position, results of operations
and cash flows. The interim period results are not necessarily indicative of the results to be
expected for the full fiscal year.The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.During the first quarter of 2005, we revised auction rate securities held as investments from
cash and cash equivalents to available-for-sale marketable securities. Accordingly, we revised
our consolidated balance sheet as of October 31, 2004 to conform to the current year
presentation. The aggregate fair value of these securities is equal to recorded cost, and each
auction rate security had a maturity exceeding 18 years from July 31, 2005. As of October 31,
2004, $50.3 million of auction rate securities were included in cash and cash equivalents. The
statements of cash flows for the nine months ended July 31, 2005 and 2004 also include the
revised presentation. The revised statement of cash flows for the period ended July 31, 2004
reports cash used from investing activities of $26.9 million compared to $4.2 million as
previously reported.Foreign Currency TranslationGenerally, the net assets of foreign operations are translated into U.S. dollars using current
exchange rates. The U.S. dollar results that arise from such translation, as well as exchange
gains and losses on intercompany balances of a long-term investment nature, are included in the
cumulative currency translation adjustments in accumulated other comprehensive income.Stock-Based CompensationIn accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, we have elected to account for our stock-based
employee compensation plans under the intrinsic value method established by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Under APB
No. 25, no compensation expense is recorded when the exercise price of the employee stock option
is greater than or equal to the market price of the common stock on the grant date.If compensation expense for our stock option plans had been determined based on an estimate of
the fair value at the grant date for awards through July 31, 2005 consistent with the provisions
of SFAS No. 123, our net income (loss) and earnings (loss) per share would have been as follows
(in thousands):
 6




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##### 



Three Months Ended July 31,
    
    
    Nine Months Ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    2,132
    
    
    $
    737
    
    
    $
    411
    
    
    $
    1,844Less: Total stock-based employee
compensation expenses determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (198
    )
    
    
    (222
    )
    
    
    (534
    )
    
    
    (678
    )Pro forma net income (loss)
    
    $
    1,934
    
    
    $
    515
    
    
    $
    (123
    )
    
    $
    1,166Basic earnings (loss) per share:As reported
    
    $
    0.20
    
    
    $
    0.07
    
    
    $
    0.04
    
    
    $
    0.17Pro forma
    
    $
    0.18
    
    
    $
    0.05
    
    
    $
    (0.01
    )
    
    $
    0.11Diluted earnings (loss) per share:As reported
    
    $
    0.19
    
    
    $
    0.07
    
    
    $
    0.04
    
    
    $
    0.17Pro forma
    
    $
    0.18
    
    
    $
    0.05
    
    
    $
    (0.01
    )
    
    $
    0.11
 Hedging Activities
   New Accounting Pronouncements
   7




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##### 



However, had the Company adopted SFAS No. 123(R) in prior periods, the
impact of that standard would have
approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income
and earnings per share above.ReclassificationsCertain reclassifications have been made in prior period financial statements to conform to
current period presentation. These reclassifications had no effect on net income.B.
    
    ACQUISITIONOn July 4, 2005, Powell acquired substantially all of the assets and assumed substantially all
of the operating liabilities of Switchgear & Instrumentation Limited (S&I). S&Is primary
manufacturing facility is in the United Kingdom. This acquisition is part of the Companys
overall strategy to increase its international presence. S&I is a supplier of medium and low
voltage switchgear, intelligent motor control systems and power distribution solutions to a wide
range of process industries, including: international oil, gas, petrochemical, power generation
and distribution, heavy industry, pharmaceuticals, water treatment and wastewater treatment.
Total consideration paid for S&I was approximately $18.0 million (excluding expenses of
approximately $0.9 million). Approximately $9.2 million was funded from existing cash and
investments and the balance was provided from the Term Loan (see Note J). The results of
operations of S&I are included in the Companys consolidated financial statements from July 4,
2005 through July 31, 2005. The consolidated balance sheet of Powell Industries, Inc. includes
an allocation of the purchase price to the assets acquired and liabilities assumed based on
preliminary estimates of fair value and are subject to final adjustment.The primary purchase price allocation was as follows (in thousands):
 Accounts receivable
    
    $
    4,730Costs and estimated earnings in excess of billings
    
    
    4,492Inventories
    
    
    3,745Prepaid expenses and other current assets
    
    
    379Property, plant and equipment
    
    
    9,542Goodwill
    
    
    3,625Accounts payable
    
    
    (5,793
    )Billings in excess of costs and estimated earnings
    
    
    (1,440
    )Other accrued expenses
    
    
    (334
    )Total purchase price
    
    $
    18,946
 The amounts assigned to property, plant and equipment were based on independent appraisals
of the property and plant, as well as the more significant pieces of machinery and equipment.
Management is still reviewing the amounts assigned to goodwill to determine if any amounts
should be assigned to other intangible assets that may be deemed to have value. Any amounts
assigned to intangible assets in the future will likely result in amortization expense based
upon the estimated useful life of the related intangible asset.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, 2003 (in thousands,
except per share data):
 Nine Months Ended July 31,2005
    
    
    2004Revenues
    
    $
    213,880
    
    
    $
    218,492Net income
    
    $
    246
    
    
    $
    4,156Net earnings per common share:Basic
    
    $
    0.02
    
    
    $
    0.39Diluted
    
    $
    0.02
    
    
    $
    0.39
 The unaudited pro forma information includes the operating results of S&I prior to the
acquisition date adjusted to include the pro forma impact of the following:
 8




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##### 



1)
    
    Impact of additional expense related to the portion of the purchase price financed with the
Term Loan and lower interest income as a result of the sale of 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 expense related to
assets which were previously leased from S&Is previous parent.4)
    
    Adjustment to the income tax provisions to reflect the statutory rate in the United Kingdom.The unaudited pro forma results above do not purport to be indicative of the results that
would have been obtained if the acquisition occurred as of the beginning of each of the
periods presented or that may be obtained in the future.Prior to the acquisition by Powell, S&I operating results were reported under accounting
principles generally accepted in the United Kingdom (UK GAAP). Revenues and costs related
to long-term contracts accounted for under UK GAAP were not recognized on a
percentage-of-completion basis of accounting. UK GAAP allows companies to recognize revenue
on long-term contracts when the contract is complete (completed contract method). The
unaudited pro forma results above were prepared based on the Companys best estimate of
percentage-of-completion for long-term contracts under SOP 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts.
 C.
    
    EARNINGS PER SHARE
 The following table sets forth the computation of basic and diluted earnings per share (in
thousands, except per share data):
 Three Months Ended July 31,
    
    
    Nine Months Ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator:Net income
    
    $
    2,132
    
    
    $
    737
    
    
    $
    411
    
    
    $
    1,844Denominator:Denominator for basic earnings
per share-weighted-average
shares
    
    
    10,775
    
    
    
    10,701
    
    
    
    10,757
    
    
    
    10,676Dilutive effect of stock options
    
    
    164
    
    
    
    76
    
    
    
    129
    
    
    
    92Denominator for diluted
earnings per share-adjusted
weighted-average shares with
assumed conversions
    
    
    10,939
    
    
    
    10,777
    
    
    
    10,886
    
    
    
    10,768Net earnings per share:Basic
    
    $
    0.20
    
    
    $
    0.07
    
    
    $
    0.04
    
    
    $
    0.17Diluted
    
    $
    0.19
    
    
    $
    0.07
    
    
    $
    0.04
    
    
    $
    0.17
 Excluded from the computation of diluted earnings per share were options to purchase
approximately 24,000 and 297,000 shares of common stock for the three and nine months ended July
31, 2005, respectively and options to purchase approximately 350,000 and 354,000 shares of
common stock for the three and nine months ended July 31, 2004, respectively. These options
were excluded because the effect of the options was antidilutive as their exercise prices were
greater than the average market price of common stock.
 9




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##### 



D.
    
    DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
 Allowance for Doubtful AccountsActivity in our allowance for doubtful accounts receivable account consists of the following
(in thousands):
 Three Months Ended July 31,
    
    
    Nine Months Ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    678
    
    
    $
    1,016
    
    
    $
    617
    
    
    $
    1,283Adjustments to the reserve
    
    
    (35
    )
    
    
    (122
    )
    
    
    30
    
    
    
    (355
    )Deductions for uncollectible
accounts written off, net of
recoveries
    
    
    
    
    
    
    (85
    )
    
    
    (4
    )
    
    
    (119
    )Balance at end of period
    
    $
    643
    
    
    $
    809
    
    
    $
    643
    
    
    $
    809
 Warranty AccrualActivity in our accrued product warranty accrual account consists of the following (in
thousands):
 Three Months Ended July 31,
    
    
    Nine Months Ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of period.
    
    $
    1,373
    
    
    $
    1,763
    
    
    $
    1,545
    
    
    $
    1,929Increases to the accrual
    
    
    441
    
    
    
    311
    
    
    
    1,078
    
    
    
    1,006Deductions for warranty charges
    
    
    (207
    )
    
    
    (497
    )
    
    
    (1,016
    )
    
    
    (1,358
    )Balance at end of period
    
    $
    1,607
    
    
    $
    1,577
    
    
    $
    1,607
    
    
    $
    1,577
 For the three and nine months ended July 31, 2005, the S&I acquisition accounted for
$61,000 of the increase to the warranty accrual.InventoriesThe components of inventories are summarized below (in thousands):
 July 31,
    
    
    October 31,2005
    
    
    2004Raw materials, parts and subassemblies
    
    $
    12,757
    
    
    $
    9,167Work-in-progress
    
    
    9,679
    
    
    
    6,165Total inventories
    
    $
    22,436
    
    
    $
    15,332
 Costs and Estimated Earnings on Uncompleted ContractsThe components of costs and estimated earnings on uncompleted contracts (in thousands):
 July 31,
    
    
    October 31,2005
    
    
    2004Costs incurred on uncompleted contracts
    
    $
    283,494
    
    
    $
    271,442Estimated earnings
    
    
    48,126
    
    
    
    49,691331,620
    
    
    
    321,133Less: Billings to date
    
    
    319,713
    
    
    
    316,485$
    11,907
    
    
    $
    4,648Included in accompanying balance sheets under the following captions:Costs and estimated earnings in excess of billings on uncompleted
contracts
    
    $
    29,994
    
    
    $
    19,822Billings in excess of costs and estimated earnings on uncompleted
contracts
    
    
    (18,087
    )
    
    
    (15,174
    )$
    11,907
    
    
    $
    4,648
 10




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##### 



Property, Plant and EquipmentProperty, plant and equipment are summarized below (in thousands):
 July 31,
    
    
    October 31,
    
    
    Range of Asset2005
    
    
    2004
    
    
    LivesLand
    
    $
    7,534
    
    
    $
    4,720
    
    
    
    Buildings and improvements
    
    
    43,354
    
    
    
    39,629
    
    
    3-39 YearsMachinery and equipment
    
    
    32,634
    
    
    
    29,804
    
    
    3-15 YearsFurniture and fixtures
    
    
    2,143
    
    
    
    2,752
    
    
    3-10 YearsConstruction in process
    
    
    3,552
    
    
    
    5,336
    
    
    
    89,217
    
    
    
    82,241Less: accumulated depreciation
    
    
    (34,831
    )
    
    
    (37,200
    )Total property, plant and equipment, net
    
    $
    54,386
    
    
    $
    45,041
 Depreciation expense for the three and nine months ended July 31, 2005 was $1.2 million
and $3.2 million, respectively compared to $1.0 million and $3.3 million for the three and nine
months ended July 31, 2004.E.
    
    COMPREHENSIVE INCOME
 Our comprehensive income consists of net income, the change in fair value of marketable
securities, foreign currency translation adjustments and fair value hedge. Comprehensive income
for the nine month period ended July 31, 2005 and 2004 is as follows (in thousands):
 Three Months Ended July 31,
    
    
    Nine Months Ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    2,132
    
    
    $
    737
    
    
    $
    411
    
    
    $
    1,844Unrealized gains (losses) on marketable
securities
    
    
    2
    
    
    
    40
    
    
    
    (26
    )
    
    
    103Unrealized loss on foreign currency translation
    
    
    (48
    )
    
    
    
    
    
    
    (67
    )
    
    
    Unrealized gain on fair value hedge
    
    
    13
    
    
    
    
    
    
    
    13
    
    
    
    Less: Reclassification adjustment for losses
included in net income
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8Comprehensive income
    
    $
    2,099
    
    
    $
    785
    
    
    $
    331
    
    
    $
    1,955
 F.
    
    BUSINESS SEGMENTSWe manage our business through operating subsidiaries, which are combined into two reportable
business segments: Electrical Power Products and Process Control Systems. Electrical Power
Products includes equipment and systems for the distribution and control of electrical energy.
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 the operating liabilities and contracts
of S&I in the United Kingdom. The operating results and tangible assets of S&I are included in
our Electrical Power Products Segment.The tables below reflect certain information relating to our operations by segment. All
revenues represent sales from unaffiliated customers. The accounting policies of the segments
are the same as those described in the summary of significant accounting policies included in
our annual report on Form 10-K for the year ended October 31, 2004. Corporate expenses and
certain assets are allocated to the operating segments primarily based on revenues. The
corporate assets are mainly cash, cash equivalents and marketable securities.
 11




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##### 



Detailed information regarding our business segments is shown below (in thousands):
 Three Months Ended July 31,
    
    
    Nine Months Ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Electrical Power Products
    
    $
    58,214
    
    
    $
    43,256
    
    
    $
    146,362
    
    
    $
    133,408Process Control Systems
    
    
    8,701
    
    
    
    9,549
    
    
    
    27,156
    
    
    
    24,100Total
    
    $
    66,915
    
    
    $
    52,805
    
    
    $
    173,518
    
    
    $
    157,508Gross profit:Electrical Power Products
    
    $
    9,221
    
    
    $
    7,513
    
    
    $
    20,403
    
    
    $
    22,736Process Control Systems
    
    
    3,340
    
    
    
    1,804
    
    
    
    7,559
    
    
    
    4,755Total
    
    $
    12,561
    
    
    $
    9,317
    
    
    $
    27,962
    
    
    $
    27,491
 Income (loss) before income taxes and minority interest:Electrical Power Products
    
    $
    994
    
    
    $
    185
    
    
    $
    (3,140
    )
    
    $
    1,386Process Control Systems
    
    
    1,839
    
    
    
    473
    
    
    
    2,878
    
    
    
    1,025Total
    
    $
    2,833
    
    
    $
    658
    
    
    $
    (262
    )
    
    $
    2,411
 July 31,
    
    
    October 31,2005
    
    
    2004Identifiable Tangible Assets:Electrical Power Products
    
    $
    166,231
    
    
    $
    114,374Process Control Systems
    
    
    13,441
    
    
    
    11,889Corporate
    
    
    33,422
    
    
    
    69,141Total
    
    $
    213,094
    
    
    $
    195,404
 In addition, the Electrical Power Products business segment had $3,824,000 and $203,000
of goodwill and $907,000 and $472,000 of intangible and other assets as of July 31, 2005 and
October 31, 2004, respectively.G.
    
    POSTRETIREMENT BENEFITSThe following table illustrates the components of net periodic postretirement benefit expense in
the employee retiree benefit plan (in thousands):
 Post-Retirement Plan BenefitsThree Months Ended July 31,
    
    
    Nine Months Ended July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    21
    
    
    $
    13
    
    
    $
    49
    
    
    $
    50Interest cost
    
    
    20
    
    
    
    15
    
    
    
    47
    
    
    
    57Amortization of prior service cost
    
    
    30
    
    
    
    17
    
    
    
    70
    
    
    
    66Amortization of net (gain) loss
    
    
    (7
    )
    
    
    (1
    )
    
    
    (17
    )
    
    
    (2
    )Net periodic postretirement benefit expense
    
    $
    64
    
    
    $
    44
    
    
    $
    149
    
    
    $
    171
 H.
    
    GOODWILLA summary of goodwill follows (in thousands):
 AccumulatedGoodwill
    
    
    AmortizationBalance at October 31, 2004
    
    $
    384
    
    
    $
    181Additions:S&I Acquisition
    
    
    3,621
    
    
    
    Balance at July 31, 2005
    
    $
    4,005
    
    
    $
    181
 12




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##### 



On July 4, 2005, Powell acquired substantially all of the assets and assumed
substantially all of the operating liabilities of S&I. The consolidated balance sheet of Powell
Industries, Inc. includes an allocation of the purchase price to the assets acquired and
liabilities assumed based on preliminary estimates of fair value and are subject to final
adjustment.The amounts assigned to property, plant and equipment related to S&I were based on independent
appraisals of the property and plant, as well as the more significant pieces of machinery and
equipment. Management is still reviewing the amounts assigned to goodwill to determine if any
amounts should be assigned to other intangible assets that may be deemed to have value. Any
amounts assigned to intangible assets in the future will likely result in amortization expense
based upon the estimated useful life of the intangible asset.The fair value of goodwill and other intangible assets with indefinite lives are tested for
impairment annually or whenever events indicate impairment may have occurred. The Company
evaluates goodwill for impairment on an annual basis by comparing the estimated fair value of
its reporting segment units to their carrying values. During the quarter ended July 31, 2005, no
charges were recorded related to impairment of goodwill.I.
    
    INTANGIBLE AND OTHER ASSETSA summary of intangible and other assets follows (in thousands):
 July 31, 2005
    
    
    October 31, 2004Historical
    
    
    Accumulated
    
    
    Historical
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationIntangible and other assets subject to amortization:Deferred loan costs
    
    $
    734
    
    
    $
    58
    
    
    $
    233
    
    
    $
    35Patents and Trademarks
    
    
    829
    
    
    
    598
    
    
    
    837
    
    
    
    563
 The above intangible and other assets are included in other assets on the consolidated
balance sheet. The increase in deferred loan costs is associated with our new credit agreement
as described in Note J. Amortization expense related to intangible assets subject to
amortization for the three and nine months ended July 31, 2005 was approximately $30,000 and
$58,000, respectively, and $17,000 and $52,000, respectively, for the three and nine months
ended July 31, 2004. Estimated amortization expense for each of the subsequent three fiscal
years is expected to be approximately $200,000.J.
    
    COMMITMENTS AND CONTINGENCIESLong-term DebtOn June 29, 2005, we entered into a new senior credit agreement (Credit Agreement) with a
major domestic bank and certain other financial institutions which replaced our existing
revolving line of credit. The Credit Agreement also replaces an existing letter of credit
facility used to guarantee payment of our existing loan agreement that was funded with proceeds
from tax-exempt industrial development revenue bonds. This expanded credit facility was put in
place to partially fund the acquisition of and provide working capital support for S&I.The Credit Agreement provides for a 1) $22 million revolving credit facility (US Revolver), 2)
£4 million (pound sterling) (approximately $7.0 million) revolving credit facility (UK
Revolver) and 3) £6 million (approximately $10.6 million) single advance term loan (UK Term
Loan). The credit agreement contains customary affirmative and negative covenants.
Obligations are secured by the stock of our subsidiaries. The interest rate for amounts
outstanding under the Credit Agreement is a floating rate based upon LIBOR plus a margin which
can range from 1.0% to 2.0%, based upon the Companys consolidated leverage ratio as defined
within the Credit Agreement.
 13




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##### 



The US Revolver and the UK Revolver provide for the issuance of letters of credit which would
reduce the amounts which may be borrowed under the respective revolvers. There were no amounts
outstanding under either of these revolvers as of July 31, 2005. The US Revolver and the UK
Revolver expire on June 30, 2008.The UK Term Loan provides for borrowings of £6 million for our financing requirements related to
the acquisition of S&I. £5 million of this facility was used to finance the portion of the
purchase price of S&I that was denominated in pounds sterling. The remaining £1 million was
utilized as the initial working capital for S&I. Quarterly installments of £300,000 are due
beginning March 31, 2006 with the final payment due on March 31, 2010. As of July 31, 2005, the
full amount of the UK Term Loan was outstanding.Expenses associated with the issuance of the Credit Agreement totaled $501,000 and are being
amortized as a non-cash charge to interest expense.Letters of Credit and BondsCertain customers require us to post a bank letter of credit guarantee or performance bonds
issued by a surety. These guarantees and performance bonds assure our customers that we will
perform under terms of our contract and with associated vendors and subcontractors. In the
event of default, the customer may demand payment from 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 $11.5 million as of July 31, 2005. We also had performance
bonds totaling approximately $174 million that were outstanding at July 31, 2005.Other ContingenciesThe Company is a party to a construction joint venture (the Joint Venture), which provided
process control systems to the Central Artery/Tunnel Project (the Project) in Boston,
Massachusetts under a contract with the Massachusetts Turnpike Authority (the MTA). The Joint
Venture submitted claims against the MTA seeking additional reimbursement for work done by the
Joint Venture on the project. In a separate matter, the Joint Venture received notice dated May
9, 2002 (the Notice) from the MTA that a follow-on contractor has asserted a claim against the
MTA in connection with work done or to be done by the follow-on contractor on the project. One
component of the Project involved the Joint Venture performing specific work that the MTA then
bid for the follow-on contractor to complete. The follow-on contractors claim, in part,
includes allegations that work performed by the Joint Venture was insufficient and defective,
thus possibly contributing to the follow-on contractors claims for damages against the MTA. In
the Notice of the potential claim, the MTA advised the Joint Venture that if it is required to
pay the follow-on contractor additional amounts and such payment is the result of defective work
by the Joint Venture, the MTA would seek indemnification from the Joint Venture for such
additional amounts.This claim, as well as the follow-on contractors claim, and MTAs potential indemnity claim
against the Joint Venture were resolved and appropriate contract modifications were agreed upon.
This settlement resulted in a net increase in the contract amount of approximately $2.0
million, of which $1.5 million was reflected as additional revenues for the three and nine
months ended July 31, 2005.In addition to the MTA matter discussed above, the Company previously entered into a
construction joint venture agreement to perform under a contract with another municipality to
supply, install and commission a SCADA system to monitor and control the distribution and
delivery of fresh water to the municipality. The project was substantially completed and has
been performing to the satisfaction of the municipality. However, various factors outside of
the control of the Company and its joint venture partner caused numerous changes and additions
to the work that in turn delayed the completion of the project. The municipality has withheld
liquidated damages and earned contract payments from the joint venture. The Company has made
claims against the municipality for various matters including compensation for extra work and
delay to the project.As of July 31, 2005, the Company has approximately $1.8 million recorded in the condensed
consolidated balance sheet for contractually owed amounts in accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts related to its portion of this
contract. Consistent with Company policy, only costs of directed change orders have
 14




---



##### 



been recorded by the Company. No amounts have been recorded by the Company related to the Companys
claims and counterclaims alleging breach of the agreement. Although a failure to recover the
amounts recorded could have a material adverse effect on the Companys financial condition and
results of operations, the Company believes that, under the circumstances and on the basis of
information now available, an unfavorable outcome is unlikely.K.
    
    CONSOLIDATION OF OPERATIONSTo reduce overhead costs and improve efficiency, we initiated a consolidation plan in fiscal
2004 to reduce the number of operating locations within our Electrical Power Products segment.
As of June 30, 2004, the consolidation of our Greenville, Texas facility into our North Canton,
Ohio facility was completed, resulting in the transfer of our distribution switch product lines.
In October 2004, we completed the consolidation of our bus duct
product lines by combining our Elyria, Ohio operations into our Northlake, Illinois facility. As of January 31, 2005, the
consolidation of our Watsonville, California operations into our Houston, Texas facility was
completed, resulting in the transfer of our power electronics product lines to Houston. The
consolidation of our operations has resulted in the involuntary termination of approximately 100
employees.As of October 31, 2004, the unpaid balance of the consolidation costs of approximately $504,000
was included in accrued salaries, bonuses and commissions on the consolidated balance sheet.
During the first quarter of fiscal 2005, $66,000 of additional shutdown costs and write-downs of
fixed assets were expensed and included in the consolidated statement of operations. As of July
31, 2005, substantially all amounts have been paid related to this consolidation reserve.
 15




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##### 



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
 Item 2. Managements Discussion And Analysis Of Financial Condition And Results Of Operations
 The following discussion of our financial condition and results of operations should be read in
conjunction with the accompanying condensed consolidated financial statements and related notes
included elsewhere in this Form 10-Q and our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended October 31, 2004. In the course of
operations, we are subject to certain risk factors, including but not limited to competition and
competitive pressures, sensitivity to general economic and industry conditions, international
political and economic risks, availability and price of raw materials and execution of business
strategy. Any forward-looking statements made by or on our behalf are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned
that such forward-looking statements involve risks and uncertainties in that the actual results may
differ materially from those projected in the forward-looking statements.
 Overview
  Results of Operations
 Revenue and Gross Profit
   Electrical Power Products
  16




---



##### 



Process Control Systems
    Selling, General and Administrative Expenses
   17




---



##### 



Interest Income and Expense
   Provision for Income Taxes
  Net Income
  Backlog
  18




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##### 



Liquidity and Capital Resources
   Operating Activities
  Investing Activities
   Financing Activities
  Outlook
   19




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##### 



20




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##### 



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
 Item 3. Quantitative And Qualitative Disclosures About Market Risk
     21




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##### 



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
 Item 4. Controls And Procedures
   22




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##### 



OTHER INFORMATION
 ITEM 1.
    
    Legal ProceedingsThe Company previously entered into a construction joint venture agreement to perform
under a contract with another municipality to supply, install and commission a SCADA
system to monitor and control the distribution and delivery of fresh water to the
municipality. The project was substantially completed and has been performing to the
satisfaction of the municipality. However, various factors outside of the control of
the Company and its joint venture partner caused numerous changes and additions to the
work that in turn delayed the completion of the project. The municipality has
withheld liquidated damages and earned contract payments from the joint venture. The
Company has made claims against the municipality for various matters including
compensation for extra work and delay to the project.As of July 31, 2005, the Company has approximately $1.8 million recorded in the
condensed consolidated balance sheet for contractually owed amounts in accounts
receivable and costs and estimated earnings in excess of billings on uncompleted
contracts related to its portion of this contract. Consistent with Company policy,
only costs of directed change orders have been recorded by the Company. No amounts
have been recorded by the Company related to the Companys claims and counterclaims
alleging breach of the agreement. Although a failure to recover the amounts recorded
could have a material adverse effect on the Companys financial condition and results
of operations, the Company believes that, under the circumstances and on the basis of
information now available, an unfavorable outcome is unlikely.ITEM 4.
    
    Submission of Matters to a Vote of Security HoldersNone.ITEM 6.
    
    Exhibits
 2.1
    
    -
    
    Agreement for the sale and purchase of certain assets and the assumption of certain
liabilities of Switchgear & Instrumentation Limited, dated July 4, 2005 (filed as Exhibit 2.1
to our Form 8-K filed July 6, 2005, and incorporated herein by reference).2.2
    
    -
    
    Agreement for the sale of freehold land at Ripley Road, Bradford, dated July 4, 2005 (filed
as Exhibit 2.2 to our Form 8-K filed July 6, 2005, and incorporated herein by reference).3.1
    
    -
    
    Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary of State
of the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to our Form 8-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 filed November 1,
2004, and incorporated herein by reference).10.1
    
    -
    
    Credit Agreement dated as of June 29, 2005 among Powell Industries, Inc., Inhoco 3210
Limited and Switchgear & Instrumentation Properties Ltd., and Bank of America and the other
lenders parties thereto (filed as Exhibit 10.1 to our Form 8-K filed July 6, 2005, and
incorporated herein by reference).31.1
    
    -
    
    Certification of Thomas W. Powell pursuant to Rule 13a-14(a)/15d-14(a).31.2
    
    -
    
    Certification of Don R. Madison pursuant to Rule 13a-14(a)/15d-14(a).32.1
    
    -
    
    Certification of Thomas W. Powell Pursuant to Section 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    -
    
    Certification of Don R. Madison Pursuant to Section 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 23




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##### 



SIGNATURES
  
 September 9, 2005
    
    /s/ THOMAS W. POWELLDate
    
    Thomas W. PowellPresident and Chief Executive Officer(Principal Executive Officer)September 9, 2005
    
    /s/ DON R. MADISONDate
    
    Don R. MadisonVice President and Chief Financial Officer(Principal Financial Officer)
 24




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##### 



EXHIBIT INDEX
 Number
    
    
    
    Exhibit Title2.1
    
    -
    
    Agreement for the sale and purchase of certain assets and the assumption of certain
liabilities of Switchgear & Instrumentation Limited, dated July 4, 2005 (filed as Exhibit 2.1
to our Form 8-K filed July 6, 2005, and incorporated herein by reference).2.2
    
    -
    
    Agreement for the sale of freehold land at Ripley Road, Bradford, dated July 4, 2005 (filed
as Exhibit 2.1 to our Form 8-K filed July 6, 2005, and incorporated herein by reference).3.1
    
    -
    
    Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary of State
of the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to our Form 8-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 filed November 1,
2004, and incorporated herein by reference).10.1
    
    -
    
    Credit Agreement dated as of June 29, 2005 among Powell Industries, Inc., Inhoco 3210
Limited and Switchgear & Instrumentation Properties Ltd., and Bank of America and the other
lenders parties thereto (filed as Exhibit 10.1 to our Form 8-K filed July 6, 2005, and
incorporated herein by Reference).31.1
    
    -
    
    Certification of Thomas W. Powell pursuant to Rule 13a-14(a)/15d-14(a).31.2
    
    -
    
    Certification of Don R. Madison pursuant to Rule 13a-14(a)/15d-14(a).32.1
    
    -
    
    Certification of Thomas W. Powell Pursuant to Section 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    -
    
    Certification of Don R. Madison Pursuant to Section 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 25