##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)8550 Mosley Drive,Houston, Texas
    
    77075-1180(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
(713) 944-6900
 þ o
  o
Large accelerated filer
    
    þ Accelerated filer
    
    o Non-accelerated filer
    
    o Smaller reporting company(Do not check if a smaller reporting company)
 o þ




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##### 



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 PagePart I  Financial InformationItem 1. Condensed Consolidated Financial Statements
    
    
    3Condensed 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 Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    18Part II  Other InformationItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 6. Exhibits
    
    
    20Signatures
    
    
    21Fifth Amendment to Credit AgreementCertification of CEO Pursuant to Rule 13a-14(a)/15d-14(a)Certification of CFO Pursuant to Rule 13a-14(a)/15d-14(a)Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



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)
 December 31,
    
    
    September 30,2007
    
    
    2007(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    6,553
    
    
    $
    5,257Accounts receivable, less allowance for doubtful accounts of $1,668 and
$1,739, respectively
    
    
    131,915
    
    
    
    107,717Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    54,526
    
    
    
    69,442Inventories, net
    
    
    59,358
    
    
    
    47,789Income taxes receivable
    
    
    729
    
    
    
    548Deferred income taxes
    
    
    2,071
    
    
    
    1,898Prepaid expenses and other current assets
    
    
    3,855
    
    
    
    4,235Total Current Assets
    
    
    259,007
    
    
    
    236,886Property, plant and equipment, net
    
    
    65,929
    
    
    
    67,401Goodwill
    
    
    1,084
    
    
    
    1,084Intangible assets, net
    
    
    27,897
    
    
    
    28,861Other assets
    
    
    6,682
    
    
    
    6,783Total Assets
    
    $
    360,599
    
    
    $
    341,015LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Current maturities of long-term debt and capital lease obligations
    
    $
    8,404
    
    
    $
    8,464Income taxes payable
    
    
    2,906
    
    
    
    1,669Accounts payable
    
    
    54,087
    
    
    
    65,225Accrued salaries, bonuses and commissions
    
    
    14,872
    
    
    
    19,010Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    38,777
    
    
    
    25,924Accrued product warranty
    
    
    6,162
    
    
    
    5,787Other accrued expenses
    
    
    9,393
    
    
    
    9,533Total Current Liabilities
    
    
    134,601
    
    
    
    135,612Long-term debt and capital lease obligations, net of current maturities
    
    
    41,608
    
    
    
    27,372Deferred compensation
    
    
    3,187
    
    
    
    3,155Postretirement benefit obligation
    
    
    967
    
    
    
    942Other liabilities
    
    
    92
    
    
    
    87Total Liabilities
    
    
    180,455
    
    
    
    167,168Commitments and Contingencies (Note F)Minority Interest
    
    
    417
    
    
    
    298Stockholders Equity:Preferred stock, par value $.01; 5,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, par value $.01; 30,000,000 shares authorized; 11,227,366 and
11,143,866 shares issued, respectively; 11,227,366 and 11,143,866 shares
outstanding, respectively
    
    
    112
    
    
    
    111Additional paid-in capital
    
    
    20,014
    
    
    
    16,854Retained earnings
    
    
    157,983
    
    
    
    154,572Accumulated other comprehensive income
    
    
    2,071
    
    
    
    2,557Deferred compensation
    
    
    (453
    )
    
    
    (545
    )Total Stockholders Equity
    
    
    179,727
    
    
    
    173,549Total Liabilities and Stockholders Equity
    
    $
    360,599
    
    
    $
    341,015
  3




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##### Table of Contents



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
 Three Months EndedDecember 31, 2007
    
    
    December 31, 2006Revenues
    
    $
    147,121
    
    
    $
    122,776Cost of goods sold
    
    
    120,426
    
    
    
    102,686Gross profit
    
    
    26,695
    
    
    
    20,090Selling, general and administrative expenses
    
    
    20,111
    
    
    
    16,274Income before interest, income taxes and minority interest
    
    
    6,584
    
    
    
    3,816Interest expense
    
    
    865
    
    
    
    688Interest income
    
    
    (115
    )
    
    
    (180
    )Income before income taxes and minority interest
    
    
    5,834
    
    
    
    3,308Income tax provision
    
    
    2,129
    
    
    
    1,220Minority interest
    
    
    119
    
    
    
    59Net income
    
    $
    3,586
    
    
    $
    2,029Net earnings per common share:Basic
    
    $
    0.32
    
    
    $
    0.19Diluted
    
    $
    0.32
    
    
    $
    0.18Weighted average shares:Basic
    
    
    11,155
    
    
    
    10,942Diluted
    
    
    11,372
    
    
    
    11,121
  4




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##### Table of Contents



POWELL INDUSTRIES, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Three Months EndedDecember 31, 2007
    
    
    December 31, 2006Operating Activities:Net income
    
    $
    3,586
    
    
    $
    2,029Adjustments to reconcile net income to net cash used in operating activities:Depreciation
    
    
    1,963
    
    
    
    1,551Amortization
    
    
    934
    
    
    
    947Amortization of unearned restricted stock
    
    
    85
    
    
    
    68Stock-based compensation
    
    
    808
    
    
    
    206Minority interest
    
    
    119
    
    
    
    59Gain (loss) on disposition of assets
    
    
    9
    
    
    
    (10
    )Bad debt expense
    
    
    70
    
    
    
    58Deferred income taxes
    
    
    (197
    )
    
    
    (674
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (24,556
    )
    
    
    (2,984
    )Costs and estimated earnings in excess of billings on uncompleted contracts
    
    
    14,714
    
    
    
    (9,054
    )Inventories
    
    
    (11,705
    )
    
    
    (7,175
    )Prepaid expenses and other current assets
    
    
    191
    
    
    
    (4,460
    )Other assets
    
    
    (46
    )
    
    
    (42
    )Accounts payable and income taxes payable
    
    
    (9,808
    )
    
    
    (3,590
    )Accrued liabilities
    
    
    (3,784
    )
    
    
    (3,250
    )Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    12,856
    
    
    
    20,645Deferred compensation
    
    
    124
    
    
    
    90Other liabilities
    
    
    30
    
    
    
    1Net cash used in operating activities
    
    
    (14,607
    )
    
    
    (5,585
    )Investing Activities:Proceeds from sale of fixed assets
    
    
    
    
    
    
    155Purchases of property, plant and equipment
    
    
    (746
    )
    
    
    (5,430
    )Net cash used in investing activities
    
    
    (746
    )
    
    
    (5,275
    )Financing Activities:Borrowings on US revolving line of credit
    
    
    31,452
    
    
    
    8,892Payments on US revolving line of credit
    
    
    (15,952
    )
    
    
    (5,892
    )Borrowings on UK revolving line of credit
    
    
    
    
    
    
    1,959Payments on UK revolving line of credit
    
    
    
    
    
    
    (588
    )Payments on UK term loan
    
    
    (614
    )
    
    
    Payments on industrial development revenue bonds
    
    
    (400
    )
    
    
    (400
    )Proceeds from exercise of stock options
    
    
    1,510
    
    
    
    925Tax benefit from exercise of stock options
    
    
    719
    
    
    
    264Payments on short-term and other financing
    
    
    (13
    )
    
    
    (173
    )Net cash provided by financing activities
    
    
    16,702
    
    
    
    4,987Net increase (decrease) in cash and cash equivalents
    
    
    1,349
    
    
    
    (5,873
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (53
    )
    
    
    333Cash and cash equivalents at beginning of period
    
    
    5,257
    
    
    
    10,495Cash and cash equivalents at end of period
    
    $
    6,553
    
    
    $
    4,955
  5




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POWELL INDUSTRIES, INC. AND SUBSIDIARIES
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Overview
   Basis of Presentation
    Use of Estimates
  6




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Foreign Currency Translation
 Foreign Currency Translation
 Stock-Based Compensation
 Shared-Based Payment
 Accumulated Other Comprehensive Income
  Income Taxes
  Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
    7




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New Accounting Standards
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research Bulletin 51
   Three Months EndedDecember 31,2007
    
    
    2006Numerator:Net income
    
    $
    3,586
    
    
    $
    2,029Denominator:Denominator for basic earnings per share-weighted average shares
    
    
    11,155
    
    
    
    10,942Dilutive effect of stock options and restricted stock
    
    
    217
    
    
    
    179Denominator for diluted earnings per share-adjusted weighted
average shares with assumed conversions
    
    
    11,372
    
    
    
    11,121Net earnings per share:Basic
    
    $
    0.32
    
    
    $
    0.19Diluted
    
    $
    0.32
    
    
    $
    0.18
  8




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Allowance for Doubtful Accounts
  Three Months EndedDecember 31,2007
    
    
    2006Balance at beginning of period
    
    $
    1,739
    
    
    $
    1,044Adjustments to the allowance
    
    
    70
    
    
    
    59Deductions for uncollectible accounts written off, net of recoveries
    
    
    (134
    )
    
    
    Increase due to foreign currency translation
    
    
    (7
    )
    
    
    16Balance at end of period
    
    $
    1,668
    
    
    $
    1,119
 Warranty Accrual
  Three Months EndedDecember 31,2007
    
    
    2006Balance at beginning of period
    
    $
    5,787
    
    
    $
    3,443Adjustments to the accrual
    
    
    1,125
    
    
    
    984Deductions for warranty charges
    
    
    (712
    )
    
    
    (642
    )Increase due to foreign currency translation
    
    
    (38
    )
    
    
    51Balance at end of period
    
    $
    6,162
    
    
    $
    3,836
 Inventories
  December 31,
    
    
    September 30,2007
    
    
    2007Raw materials, parts and subassemblies
    
    $
    41,998
    
    
    $
    31,914Work-in-progress
    
    
    17,360
    
    
    
    15,875Total inventories
    
    $
    59,358
    
    
    $
    47,789
 Cost and Estimated Earnings on Uncompleted Contracts
  December 31,
    
    
    September 30,2007
    
    
    2007Costs incurred on uncompleted contracts
    
    $
    487,082
    
    
    $
    456,892Estimated earnings
    
    
    112,476
    
    
    
    104,136599,558
    
    
    
    561,028Less: Billings to date
    
    
    583,809
    
    
    
    517,510$
    15,749
    
    
    $
    43,518Included in the accompanying balance sheets under the following captions:Costs and estimated earnings in excess of billings on uncompleted contracts
    
    $
    54,526
    
    
    $
    69,442Billings in excess of costs and estimated earnings on uncompleted contracts
    
    
    (38,777
    )
    
    
    (25,924
    )$
    15,749
    
    
    $
    43,518
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Three Months EndedDecember 31,2007
    
    
    2006Net income
    
    $
    3,586
    
    
    $
    2,029Unrealized (loss) gain on foreign currency translation
    
    
    (486
    )
    
    
    716Comprehensive income
    
    $
    3,100
    
    
    $
    2,745
   December 31,
    
    
    September 30,2007
    
    
    2007US Revolver
    
    $
    17,500
    
    
    $
    2,000UK Revolver
    
    
    4,594
    
    
    
    4,710UK Term Loan
    
    
    7,191
    
    
    
    7,986Deferred acquisition payable
    
    
    15,075
    
    
    
    15,075Industrial development revenue bonds
    
    
    5,600
    
    
    
    6,000Capital lease obligations
    
    
    52
    
    
    
    65Subtotal long-term debt and capital lease obligations
    
    
    50,012
    
    
    
    35,836Less current portion
    
    
    (8,404
    )
    
    
    (8,464
    )Total long-term debt and capital lease obligations
    
    $
    41,608
    
    
    $
    27,372
 US and UK Revolvers
    UK Term Loan
  10




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##### Table of Contents



Deferred Acquisition Payable
  Industrial Development Revenue Bonds
   Letters of Credit and Bonds
   Litigation
  Other Contingencies
  11




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Restricted Stock Units
   Stock Options
  RemainingWeighted
    
    WeightedAverage
    
    Average
    
    AggregateStock
    
    Exercise
    
    Contractual
    
    IntrinsicOptions
    
    Price
    
    Term (Years)
    
    Value(In thousands)Outstanding at September 30, 2007
    
    
    505,450
    
    
    $
    17.44Granted
    
    
    
    
    
    
    Exercised
    
    
    (92,700
    )
    
    
    18.70Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2007
    
    
    412,750
    
    
    $
    17.16
    
    
    
    3.08
    
    
    $
    7,084Exercisable at December 31, 2007
    
    
    262,010
    
    
    $
    16.86
    
    
    
    2.53
    
    
    $
    4,417
 12




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Three Months EndedDecember 31,2007
    
    
    2006Revenues:Electrical Power Products
    
    $
    141,089
    
    
    $
    117,343Process Control Systems
    
    
    6,032
    
    
    
    5,433Total
    
    $
    147,121
    
    
    $
    122,776Gross profit:Electrical Power Products
    
    $
    24,844
    
    
    $
    18,726Process Control Systems
    
    
    1,851
    
    
    
    1,364Total
    
    $
    26,695
    
    
    $
    20,090Income before income taxes and minority interest:Electrical Power Products
    
    $
    5,614
    
    
    $
    3,225Process Control Systems
    
    
    220
    
    
    
    83Total
    
    $
    5,834
    
    
    $
    3,308
 December 31, 2007
    
    
    September 30, 2007Identifiable tangible assets:Electrical Power Products
    
    $
    300,444
    
    
    $
    279,901Process Control Systems
    
    
    9,720
    
    
    
    7,365Corporate
    
    
    20,883
    
    
    
    23,460Total
    
    $
    331,047
    
    
    $
    310,726
  13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis 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 Quarterly Report on Form 10-Q and with our Annual Report
on Form 10-K for the year ended September 30, 2007, which was filed with the Securities and
Exchange Commission on December 7, 2007 and is available on the SECs website at www.sec.gov. 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. Important factors that could
cause actual results to differ include risks set forth in Item 1A. Risk Factors included in our
Annual Report on Form 10-K.
 Overview
    Results of Operations
 Revenue and Gross Profit
  Electrical Power Products
  14




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Process Control Systems
   Consolidated Selling, General and Administrative Expenses
  Interest Expense and Income
   Provision for Income Taxes
   Net Income
  Backlog
  15




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Liquidity and Capital Resources
   Operating Activities
  Investing Activities
  Financing Activities
  New Accounting Standards
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements  an amendment of Accounting Research Bulletin 51
 16




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Critical Accounting Policies
   Income Taxes  Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for
Income Taxes
 Outlook for Fiscal 2008
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   17




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Internal Control over Financial Reporting
  Design and Operation of Control Systems
  18




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  19




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##### Table of Contents



Item 6. Exhibits
 Number
    
    
    
    Description of Exhibits3.1
    
    
    
    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
    
    
    
    By-laws 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
    
    
    
    Fifth Amendment to Credit Agreement, dated as of December 4, 2007, among
Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries,
Inc. identified therein, as Borrowers, Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party
thereto.10.2
    
    
    
    Sixth Amendment to Credit Agreement, dated as of December 14, 2007, among
Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries,
Inc. identified therein, as Borrowers, Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party
thereto (filed as Exhibit 10.1 to our Form 8-K filed December 19, 2007, and
incorporated herein by reference).*31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).*31.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).*32.1
    
    
    
    Certification of Chief Executive Officer 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 Chief Financial Officer Pursuant to Section 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Filed herewith 20




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##### Table of Contents



SIGNATURES
  POWELL INDUSTRIES, INC.(Registrant)February 6,
2008
    
    By:
    
    /s/ Thomas W. PowellDate
    
    
    
    Thomas W. PowellChairman and Chief Executive Officer(Principal Executive Officer)February 6,
2008
    
    By:
    
    /s/ Don R. MadisonDate
    
    
    
    Don R. MadisonExecutive Vice PresidentChief Financial and Administrative Officer(Principal Financial and Accounting Officer)
 21




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EXHIBIT INDEX
 Number
    
    
    
    Exhibit Title3.1
    
    
    
    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
    
    
    
    By-laws 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
    
    
    
    Fifth Amendment to Credit Agreement, dated as of December 4, 2007, among
Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries,
Inc. identified therein, as Borrowers, Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party
thereto.10.2
    
    
    
    Sixth Amendment to Credit Agreement, dated as of December 14, 2007, among
Powell Industries, Inc., as Parent, the subsidiaries of Powell Industries,
Inc. identified therein, as Borrowers, Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, and the Lenders party
thereto (filed as Exhibit 10.1 to our Form 8-K filed December 19, 2007, and
incorporated herein by reference).*31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).*31.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).*32.1
    
    
    
    Certification of Chief Executive Officer 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 Chief Financial Officer Pursuant to Section 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Filed herewith 22