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 Securities Exchange Act of 1934 for the quarterly period ended April 30, 2005

or

o 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.

(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)

Registrant’s telephone number, including area code (713) 944-6900

     Indicate by “X” whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by “X” whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

          Common Stock, par value $.01 per share; 10,766,965 shares outstanding as of June 6, 2005.

1

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

For the Quarter Ended April 30, 2005

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 Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures About Market Risk	17
Item 4. Controls and Procedures	18
Part II –Other Information
Item 1. Legal Proceedings	19
Item 4. Submission of Matters to a Vote of Security Holders	19
Item 6. Exhibits and Reports on Form 8-K	19
Signatures	20
Certification of Thomas W. Powell
Certification of Don R. Madison
Certification of Thomas W. Powell
Certification of Don R. Madison

2

Powell Industries, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

	April 30,			October 31,
	2005			2004
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	949		$	8,974
Marketable securities		40,372			54,208
Accounts receivable, less allowance for doubtful accounts of $678 and $617, respectively		48,738			42,659
Costs and estimated earnings in excess of billings on uncompleted contracts		28,851			19,822
Inventories, net		19,721			15,332
Income taxes receivable		1,717			1,179
Deferred income taxes		1,454			729
Prepaid expenses and other current assets		4,529			2,717
Total Current Assets		146,331			145,620
Property, plant and equipment, net		45,119			45,041
Other assets		5,719			5,418
Total Assets	$	197,169		$	196,079
Liabilities and Stockholders’ Equity
Current Liabilities:
Current maturities of long-term debt and capital lease obligations	$	468		$	474
Income taxes payable		888			1,358
Accounts payable		18,287			14,239
Accrued salaries, bonuses and commissions		6,652			7,964
Billings in excess of costs and estimated earnings on uncompleted contracts		16,810			15,174
Accrued product warranty		1,373			1,545
Other accrued expenses		3,926			5,596
Total Current Liabilities		48,404			46,350
Long-term debt and capital lease obligations, net of current maturities		6,592			6,626
Deferred compensation		1,848			1,744
Other liabilities		1,383			1,306
Total Liabilities		58,227			56,026
Commitments and contingencies (Note H)
Minority interest		242			218
Stockholders’ Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued		—			—
Common stock, par value $.01; 30,000,000 shares authorized; 11,000,000 and 11,000,000 shares issued, respectively; 10,765,000 and 10,730,000 shares outstanding, respectively		110			110
Additional paid-in capital		9,565			9,433
Retained earnings		132,698			134,419
Treasury stock, 234,000 shares and 270,000 shares, respectively, at cost		(2,202	)		(2,514	)
Accumulated other comprehensive income		7			54
Deferred compensation		(1,478	)		(1,667	)
Total Stockholders’ Equity		138,700			139,835
Total Liabilities and Stockholders’ Equity	$	197,169		$	196,079

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

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,
	2005			2004			2005			2004
Revenues	$	58,914		$	51,476		$	106,603		$	104,703
Cost of goods sold		50,472			42,857			91,202			86,529
Gross profit		8,442			8,619			15,401			18,174
Selling, general and administrative expenses		9,353			8,187			18,874			16,726
Income (loss) before interest, income taxes and minority interest		(911	)		432			(3,473	)		1,448
Interest expense		139			34			216			62
Interest income		(317	)		(175	)		(594	)		(367	)
Income (loss) before income taxes and minority interest		(733	)		573			(3,095	)		1,753
Income tax provision (benefit)		(451	)		213			(1,375	)		646
Minority interest in net income		13			—			1			—
Net income (loss)	$	(295	)	$	360		$	(1,721	)	$	1,107
Net earnings (loss) per common share:
Basic	$	(0.03	)	$	0.03		$	(0.16	)	$	0.10
Diluted	$	(0.03	)	$	0.03		$	(0.16	)	$	0.10
Weighted average shares:
Basic		10,763			10,676			10,750			10,664
Diluted		10,763			10,768			10,750			10,764

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Powell Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(In thousands)

	Six Months Ended April 30,
	2005			2004
Operating Activities:
Net income (loss)	$	(1,721	)	$	1,107
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		2,042			2,339
Bad debt expense		65			233
Gain on disposition of assets		(21	)		—
Other		34			21
Deferred income taxes		(988	)		(2,852	)
Changes in operating assets and liabilities:
Accounts receivable, net		(6,144	)		(2,261	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(9,029	)		11,082
Inventories		(4,389	)		3,324
Prepaid expenses and other current assets		(1,812	)		(1,545	)
Other assets		(83	)		(315	)
Accounts payable and income taxes payable		3,040			(34	)
Accrued liabilities		(3,154	)		(993	)
Billings in excess of costs and estimated earnings on uncompleted contracts		1,636			1,640
Deferred compensation		263			254
Other liabilities		47			127
Net cash provided by (used in) operating activities		(20,214	)		12,127
Investing Activities:
Proceeds from sale of fixed assets		46			—
Purchases of property, plant and equipment		(2,061	)		(3,135	)
Proceeds from sale of short term auction rate securities		18,760			—
Purchase of short term auction rate securities		(5,000	)		(3,425	)
Net cash provided by (used in) investing activities		11,745			(6,560	)
Financing Activities:
Borrowings on revolving line of credit		2,089			217
Repayments on revolving line of credit		(2,089	)		(135	)
Proceeds from exercise of stock options		444			497
Net cash provided by financing activities		444			579
Net increase (decrease) in cash and cash equivalents		(8,025	)		6,146
Cash and cash equivalents at beginning of period		8,974			11,863
Cash and cash equivalents at end of period	$	949		$	18,009
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	212		$	62
Income taxes	$	478		$	1,344
Non-cash investing and financing activities:
Change in fair value of marketable securities during the period, net of $17 and $34 income taxes, respectively	$	28		$	63
Issuance of common stock for deferred directors’ fees	$	14		$	75
Assets acquired under capital lease obligations	$	—		$	200

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Notes To Condensed Consolidated Financial Statements (Unaudited)

A.	BASIS OF PRESENTATION AND STOCK-BASED COMPENSATION
	The accompanying unaudited condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States (“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 accounting principles generally accepted in the United States of America. 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 accounting principles generally accepted in the United States of America 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 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 has a maturity exceeding eight years from April 30, 2005 and October 31, 2004. 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 six months ended April 30, 2005 and 2004 also include the revised presentation. The revised statement of cash flows for the period ended April 30, 2004 reports cash used from investing activities of $6.6 million compared to $3.1 million as previously reported.
	Stock-Based Compensation
	In 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 the fair value at the grant date for awards through April 30, 2005 consistent with the provisions of SFAS No. 123, our net income (loss) and earnings (loss) per share would have been as follows:

	Three Months Ended April 30,						Six Months Ended April 30,
	2005			2004			2005			2004
Net income (loss), as reported	$	(295	)	$	360		$	(1,721	)	$	1,107
Less: Total stock-based employee compensation expenses determined under fair value based method for all awards, net of related tax effects		(168	)		(228	)		(336	)		(456	)
Pro forma net income (loss)	$	(463	)	$	132		$	(2,057	)	$	651
Basic earnings (loss) per share:
As reported	$	(0.03	)	$	0.03		$	(0.16	)	$	0.10
Pro forma	$	(0.04	)	$	0.01		$	(0.19	)	$	0.06
Diluted earnings (loss) per share:
As reported	$	(0.03	)	$	0.03		$	(0.16	)	$	0.10
Pro forma	$	(0.04	)	$	0.01		$	(0.19	)	$	0.06

6

	New Accounting Standards
	In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after November 23, 2004. We do not believe the adoption of SFAS No. 151 will have a material impact on our consolidated financial position, results of operations or cash flows.
	In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” SFAS No. 123(R) will require that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS No. 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123, as originally issued in 1995, established as preferable a fair value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in APB Opinion No. 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair value-based method been used. Public entities will be required to apply SFAS No. 123(R) as of the first annual reporting period that begins after June 15, 2005. We are in the process of evaluating the impact of the adoption of SFAS No. 123(R).
B.	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,
	2005			2004		2005			2004
Numerator:
Net income (loss)	$	(295	)	$	360	$	(1,721	)	$	1,107
Denominator:
Denominator for basic earnings per share-weighted average shares		10,763			10,676		10,750			10,664
Dilutive effect of stock options		—			92		—			100
Denominator for diluted earnings per share-adjusted weighted average shares with assumed conversions		10,763			10,768		10,750			10,764
Net earnings (loss) per share:
Basic	$	(0.03	)	$	0.03	$	(0.16	)	$	0.10
Diluted	$	(0.03	)	$	0.03	$	(0.16	)	$	0.10

The Company had a net loss for the three and six months ended April 30, 2005; accordingly, the inclusion of 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 share are the same. For the three and six months ended April 30, 2004, options to purchase approximately 354,000 and 356,000 shares of common stock were excluded from the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of common stock.

7

C.	DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
	Allowance for Doubtful Accounts
	Activity in our allowance for doubtful accounts receivable account consists of the following (in thousands):

	Three Months Ended April 30,					Six Months Ended April 30,
	2005		2004			2005			2004
Balance at beginning of period	$	674	$	1,280		$	617		$	1,283
Adjustments to the reserve		4		(238	)		65			(233	)
Deductions for uncollectible accounts written off, net of recoveries		—		(26	)		(4	)		(34	)
Balance at end of period	$	678	$	1,016		$	678		$	1,016

Warranty Accrual

Activity in our accrued product warranty accrual account consists of the following (in thousands):

	Three Months Ended April 30,						Six Months Ended April 30,
	2005			2004			2005			2004
Balance at beginning of period.	$	1,388		$	1,833		$	1,545		$	1,929
Adjustments to the reserve		350			344			637			695
Deductions for warranty charges		(365	)		(414	)		(809	)		(861	)
Balance at end of period	$	1,373		$	1,763		$	1,373		$	1,763

Inventories

The components of inventories are summarized below (in thousands):

	April 30,		October 31,
	2005		2004
Raw materials, parts and subassemblies	$	13,271	$	9,167
Work-in-progress		6,450		6,165
Total inventories	$	19,721	$	15,332

Costs and Estimated Earnings on Uncompleted Contracts

The components of costs and estimated earnings on uncompleted contracts (in thousands):

	April 30,			October 31,
	2005			2004
Costs incurred on uncompleted contracts	$	269,429		$	271,442
Estimated earnings		44,498			49,691
		313,927			321,133
Less: Billings to date		301,886			316,485
	$	12,041		$	4,648
Included in accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts	$	28,851		$	19,822
Billings in excess of costs and estimated earnings on uncompleted contracts		(16,810	)		(15,174	)
	$	12,041		$	4,648

8

Property, plant and equipment

Property, plant and equipment are summarized below (in thousands):

	April 30,			October 31,			Range of Asset
	2005			2004			Lives
Land	$	4,720		$	4,720			—
Buildings and improvements		39,540			39,629		3-39 Years
Machinery and equipment		26,729			29,804		3-15 Years
Furniture and fixtures		2,006			2,752		3-10 Years
Construction in process		5,927			5,336			—
		78,922			82,241
Less: accumulated depreciation		(33,803	)		(37,200	)
Total property, plant and equipment, net	$	45,119		$	45,041

	Depreciation expense for the six months ended April 30, 2005 and 2004 was $2.0 million and $2.3 million, respectively.
D.	COMPREHENSIVE INCOME
	Our comprehensive income (loss) consists of net income (loss), the change in fair value of marketable securities and foreign currency translation adjustments. At April 30, 2005, included in marketable securities are $3.9 million of investment-grade corporate bonds that we have classified as available-for-sale. The maturity dates of these bonds vary from 1-9 years. These investments are carried at fair value, with unrealized gains and losses, net of related tax effects, included in other comprehensive income. Comprehensive income (loss) for the six month period ended April 30, 2005 and 2004 is as follows (in thousands):

	Three Months Ended April 30,						Six Months Ended April 30,
	2005			2004			2005			2004
Net income (loss)	$	(295	)	$	360		$	(1,721	)	$	1,107
Unrealized gains (losses) on marketable securities		(17	)		(66	)		(28	)		63
Unrealized gains (losses) on foreign currency translation		—			—			(19	)		—
Comprehensive income (loss)	$	(312	)	$	294		$	(1,768	)	$	1,170

E.	BUSINESS SEGMENTS
	We 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.
	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.

9

     Detailed information regarding our business segments is shown below (in thousands):

	Three Months Ended April 30,					Six Months Ended April 30,
	2005			2004		2005			2004
Revenues:
Electrical Power Products	$	48,384		$	43,993	$	88,148		$	90,152
Process Control Systems		10,530			7,483		18,455			14,551
Total	$	58,914		$	51,476	$	106,603		$	104,703
Gross profit:
Electrical Power Products	$	5,950		$	7,024	$	11,182		$	15,223
Process Control Systems		2,492			1,595		4,219			2,951
Total	$	8,442		$	8,619	$	15,401		$	18,174
Income (loss) before income taxes and minority interest:
Electrical Power Products	$	(1,518	)	$	270	$	(4,134	)	$	1,201
Process Control Systems		785			303		1,039			552
Total	$	(733	)	$	573	$	(3,095	)	$	1,753

	April 30,		October 31,
	2005		2004
Identifiable Tangible Assets:
Electrical Power Products	$	136,596	$	114,374
Process Control Systems		10,951		11,889
Corporate		48,982		69,141
Total	$	196,529	$	195,404

	Excluded from identifiable tangible assets is $640,000 and $675,000 of intangible and other assets as of April 30, 2005 and October 31, 2004, respectively.
F.	POSTRETIREMENT BENEFITS
	The following table illustrates the components of net periodic postretirement benefit expense in the employee retiree benefit plan (in thousands):

	Post-Retirement Plan Benefits
	Three Months Ended April 30,						Six Months Ended April 30,
	2005			2004			2005			2004
Service cost	$	16		$	19		$	28		$	37
Interest cost		16			21			27			42
Amortization of prior service cost		23			24			40			48
Amortization of net (gain) loss		(6	)		(1	)		(10	)		(1	)
Net periodic postretirement benefit expense	$	49		$	63		$	85		$	126

G.	INTANGIBLE AND OTHER ASSETS
	A summary of intangible and other assets follows (in thousands):

	April 30, 2005				October 31, 2004
	Historical		Accumulated		Historical		Accumulated
	Cost		Amortization		Cost		Amortization
Goodwill	$	384	$	181	$	384	$	181
Intangible and other assets subject to amortization:
Deferred loan costs		233		41		233		35
Patents and Trademarks		830		585		837		563

10

	The above intangible and other assets are included in other assets on the consolidated balance sheet. Amortization expense related to intangible assets subject to amortization for the three and six months ended April 30, 2005 was approximately $18,000 and $28,000, respectively, and $17,000 and $35,000, respectively, for the three and six months ended April 30, 2004. Estimated amortization expense for each of the subsequent five fiscal years is expected to be approximately $50,000.
H.	COMMITMENTS AND CONTINGENCIES
	Certain 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 $10.8 million as of April 30, 2005. We also had performance bonds totaling approximately $172 million that were outstanding at April 30, 2005.
	The 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 has 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 will seek indemnification from the Joint Venture for such additional amounts.
	The Joint Venture has no reason to believe the systems it delivered under contract to the MTA were defective and accordingly it intends to vigorously defend any such allegations. An unfavorable outcome to the follow-on contractor’s claim could have a material adverse effect on the Company’s financial condition and results of operations. The ultimate disposition of the Joint Venture’s claim against the MTA and the MTA’s potential claim for indemnification based on the follow-on contractor’s claims are not presently determinable.
I.	CONSOLIDATION OF OPERATIONS
	To 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 April 30, 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 have resulted in the involuntary termination of approximately 100 employees.
	As of April 30, 2005, the unpaid balance of the consolidation costs is included in accrued salaries, bonuses and commissions on the consolidated balance sheet.

11

     Details of the consolidation reserve during the current period are as follows:

	Accrued
	Charges at		Six Months Ended					Accrued
	October 31,		April 30, 2005					Charges at
	2004		Charges		Payments			April 30, 2005
	(In thousands)
Cash charges:
Severance and employee benefits	$	410	$	—	$	(365	)	$	45
Shutdown costs		94		20		(114	)		—
Subtotal	$	504		20	$	(479	)	$	45
Noncash charges:
Write-down (loss) on fixed assets				46
Total charges			$	66

For the six months ended April 30, 2005, shutdown costs incurred were relocation expenses for employees. These expenses are included in selling, general and administrative expenses on the consolidated statement of operations.

12

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. 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

We develop, design, manufacture, and service equipment and systems for the management and control of electrical energy and other critical processes. Headquartered in Houston, Texas, we serve the transportation, environmental, industrial, and utility industries. Our business operations are consolidated into two business segments: Electrical Power Products and Process Control Systems. Financial information related to these business segments is included in Note E of the Notes to Condensed Consolidated Financial Statements.

Results of Operations

Revenue and Gross Profit

Consolidated revenues increased $7.4 million to $58.9 million in the second quarter of fiscal 2005 as compared to second quarter 2004 revenues primarily due to a strengthening order backlog. Domestic revenues increased by 14% to $49.2 million. International revenues were $9.7 million in the second quarter 2005 compared to $8.4 million in the same quarter of the prior year. Revenues outside of the United States accounted for 16% of consolidated revenues in the second quarter of fiscal 2005 unchanged from the same period last year.

For the six months ended April 30, 2005, consolidated revenues increased $1.9 million to $106.6 million compared to the six months ended April 30, 2004 of $104.7 million. Domestic revenues for the first six months of fiscal 2005 were $91.2 million compared to $88.4 million for the first six months of fiscal 2004. International revenues were $15.4 million for the first six months of fiscal 2005 compared to $16.3 million for the same period of last year. For the six months ended April 30, 2005, revenue outside of the United States accounted for 14% of consolidated revenues compared to 16% for the same period a year ago.

Electrical Power Products

Our Electrical Power Products segment recorded revenues of $48.4 million for the three months ended April 30, 2005 compared to $44.0 million for the same time period of the previous year. During the second quarter of fiscal 2005, revenues from utility markets strengthened compared to the same period of the prior year. In the second quarter of fiscal 2005, revenues from public and private utilities were approximately $27.6 million, an increase of $16.6 million compared to the second quarter of fiscal 2004. Revenues from industrial customers totaled $19.0 million compared to $30.3 million from the same period of the previous year. Municipal and transit projects generated revenues of $1.8 million in the second quarter of 2005 compared to $2.7 million in the same period a year ago.

For the six months ended April 30, 2005, this segment recorded revenues of $88.1 million compared to $90.2 million for the first six months of fiscal 2004. During the first six months of 2005, revenues from utility markets strengthened from the same period a year ago. Utility revenues totaled $42.9 million, an increase of approximately 44%. Industrial revenues were $39.5 million, compared to $51.5 million a year ago and revenues from municipal and transit projects totaled $5.8 million, compared to $8.9 million for the same period last year.

Gross profit, as a percentage of revenues declined to 12.3% in the second quarter of fiscal 2005, compared to 16.0% in the second quarter of fiscal year 2004. Material costs increased $0.3 million in the second quarter of fiscal 2005 compared to the same

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period a year ago, primarily due to copper, aluminum and steel. In addition, gross profit margins were adversely impacted in the second quarter of 2005 by competitive pricing pressures due to depressed market levels when jobs were bid in previous periods. Contract labor increased approximately $0.5 million in the second quarter of fiscal year 2005 compared to the same period of last year due to additional labor needed to handle the increase in volume.

For the six months ended April 30, 2005, gross profit as a percentage of revenues decreased to 12.7% from 16.9% for the first six months of fiscal 2004. Higher commodity price levels and competitive pricing due to depressed market levels have contributed to lower gross profit. Direct material costs increased approximately 2.3%, or $1.0 million, during the first six months of 2005 compared to the same period a year ago. In addition, incremental production costs of approximately $0.6 million were incurred during the first three months of fiscal 2005 due to start-up difficulties and inefficiencies with our recently relocated distribution switch product line.

Process Control Systems

Revenues in our Process Control Systems segment increased to $10.5 million for the three months ended April 30, 2005 from $7.5 million for the same period of the prior year. Additionally, revenues for this segment increased to $18.5 million for the six months ended April 30, 2005 from $14.6 million for the same period of the prior year. The majority of the increase related to our contract to design and build Intelligent Transportation Systems (ITS) for the Holland and Lincoln tunnels from the Port Authority of New York and New Jersey. As of April 30, 2005, the remaining value associated with this project in our backlog was $10.7 million which is expected to be recognized as revenue in the next six to nine months.

Gross profit as a percentage of revenues improved to 23.7% in the second quarter of fiscal 2005 compared to 21.3% in the same quarter of the prior year and increased to 22.9% for the first half of fiscal 2005 compared to 20.3% in the same period of fiscal 2004. This increase in gross profit margin can be attributed to improved job performance on the ITS project discussed above and the increase in revenue without a commensurate increase in operating costs. Gross profits, as a percentage of revenues, will fluctuate due to the large amount of subcontract work and material pass-through.

For additional information related to our business segments, see Note E of the Notes to Condensed Consolidated Financial Statements.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $1.2 million to $9.4 million in the second quarter of 2005 compared to the same period of last year. Research and development expenditures were $0.5 million in the second quarter of fiscal 2005 compared to $0.9 million in last year’s second quarter. Commission expenses for manufacturing sales representatives, as well as, direct sales expenses increased by approximately $0.3 million in the second quarter of 2005 compared to the second quarter of 2004 due to the increase in revenues and backlog. Accounting and auditing expenses increased by $0.2 million primarily due to costs incurred for Sarbanes-Oxley compliance. Additionally, selling, general and administrative expenses for the second quarter of 2004 were reduced due to the collection of $0.4 million from a customer which had been previously written off as bad dcbt expense.

For the six months ended April 30, 2005, selling, general and administrative expenses were $18.9 million, or 17.7% of revenues, compared to $16.7 million, or 16.0% of revenues, for the first six months of fiscal 2004. For the six months ended April 30, 2005, research and development expenditures were $1.2 million compared to $1.8 million in first six months of fiscal 2004. Commission expenses for manufacturing sales representatives, as well as, direct sales expenses increased by approximately $0.8 million in the first half of fiscal 2005 compared to the second half of fiscal 2004. Accounting and auditing expenses increased by $0.5 million in the first six months of fiscal 2005 compared to the same period of fiscal 2004 primarily due to costs incurred for Sarbanes-Oxley compliance. Additionally, selling, general and administrative expenses for the second quarter of 2004 were reduced due to the collection of $0.4 million from a customer which had been previously written off as bad dcbt expense.

Interest expense was approximately $139,000 in the second quarter of fiscal 2005, an increase of approximately $105,000 compared to the same period in fiscal 2004. This increase is primarily due to interest expense related to interest payments to certain state taxing authorities related to voluntary disclosure agreements.

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For the six months ended April 30, 2005, we incurred $216,000 in interest expense compared to $62,000 for the same time period of fiscal 2004. This increase is primarily related to the interest payments to state taxing authorities discussed above.

We earned approximately $317,000 of interest income in the second quarter of 2005 compared to approximately $175,000 in the same period of the previous year and approximately $594,000 in the first six months of 2005 compared to $367,000 in the same period of the prior year. Interest income increased primarily due to higher market interest rates and a higher average balance of marketable securities in the first six months of fiscal 2005 compared to the same period in fiscal 2004.

Provision for Income Taxes

Our provision for income taxes reflects an effective tax rate on earnings before income taxes of (61.5%) in the second quarter of fiscal 2005 compared to 37.2% in the second quarter of fiscal 2004 and an effective tax rate of (44.4%) in the first six months of fiscal 2005 compared to 36.9% in the first six months of fiscal 2004 . This increase is primarily due to a higher blended state tax rate and less federal benefit for certain of those state taxes.

Net Income

In the second quarter of 2005, we incurred a net loss of $295,000, or $0.03 per diluted share, compared to net income of $360,000, or $0.03 per diluted share, in the second quarter of fiscal 2004. For the six months ended April 30, 2005, we incurred a net loss of $1.7 million, or $0.16 per diluted share, compared to net income of $1.1 million, or $0.10 per diluted share, for the first six months of 2004. Lower gross profits in our Electrical Power Products business segment and higher selling, general and administrative expenses have resulted in a net loss in fiscal 2005.

Backlog

The order backlog on April 30, 2005, was $161.4 million, compared to $134.3 million at fiscal year end 2004 and $131.2 million at the end of the second quarter one year ago. New orders placed during the second quarter totaled $73.6 million compared to $45.3 million in the same period one year ago.

Liquidity and Capital Resources

We have maintained a strong liquidity position. Working capital was $97.9 million at April 30, 2005 compared to $99.3 million at October 31, 2004. As of April 30, 2005, current assets exceeded current liabilities by 3.0 times and our debt to capitalization ratio was 4.8%.

As of April 30, 2005, we had cash, cash equivalents and marketable securities of $41.3 million compared to $63.2 million as of October 31, 2004. Long-term debt and capital lease obligations, net of current maturities, totaled $6.6 million at April 30, 2005 compared to $6.6 million at October 31, 2004. In addition to our long-term debt, we have a $15 million revolving credit agreement expiring February 2007. As of April 30, 2005, there were no borrowings under this line of credit. We were in compliance with all debt covenants as of April 30, 2005.

Operating Activities

For the six months ended April 30, 2005, cash used in operating activities was $20.2 million compared to cash provided by operations of $12.1 million for the six months ended April 30, 2004. This reduction in cash was principally used to fund growth in accounts receivable, inventories and costs related to uncompleted contracts which were not billed. This use of cash has resulted from the ramp up of our manufacturing operations resulting in working capital being required to fund the increase in volume.

Investing Activities

Cash used for the purchase of property, plant and equipment during the six months ended April 30, 2005 was $2.1 million compared to $3.1 million for the same period of the prior year. The majority of our 2005 capital expenditures were used to improve our capabilities to manufacture switchgear and electrical power control rooms. A year ago, the majority of our capital expenditures were used to increase our manufacturing capabilities available for the manufacture of electrical power modules. These modules are provided to the oil and gas industry for use on offshore platforms.

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Net proceeds from the sale and purchases of auction rate securities during the six months ended April 30, 2005 were $13.8 million compared to cash used to purchase short term auction rate securities of $3.4 million for the six months ended April 30, 2004. Auction rate securities were sold to finance working capital requirements of the business in the first six months of fiscal 2005.

Financing Activities

Financing activities provided $0.4 million for the six months ended April 30, 2005 compared to $0.6 million in the same period a year ago. The primary source of cash from financing activities was proceeds from the exercise of stock options.

Outlook

We expect our principal markets to strengthen throughout 2005. Customer inquiries, or requests for proposals, have steadily strengthened during the second half of fiscal 2004 and on into the first six months of 2005. One of the positive trends we have experienced is an increase in new order activity. Orders during the second quarter and first quarter of 2005 totaled $73.6 million and $60.1 million, respectively, compared to $45.3 million and $33.1 million in the same periods one year ago. We are optimistic that we will maintain this strengthened order rate throughout fiscal 2005.

In our Electrical Power Products segment, new orders during the second quarter and first quarter of 2005 totaled $62.1 million and $55.5 million, respectively, compared to $38.4 million and $30.3 million in the same periods one year ago. In addition, we expect to realize lower overhead expenses and increased efficiencies as a result of our consolidation efforts initiated in 2004 and capital improvements, both of which should improve our competitive position. Although our Process Control Systems segment continues to experience soft market conditions, we anticipate increased funding for municipal projects will be available as general economic conditions strengthen. We believe we are well-positioned to take advantage of improving economic conditions.

We anticipate that we will need to reinvest a portion of our cash in operating working capital for the remainder of fiscal 2005. Working capital needs are anticipated to increase with growing levels of business activity. We believe that working capital, borrowing capabilities, and cash generated from operations will be sufficient to finance the anticipated operational activities, capital improvements, debt repayments and possible future acquisitions for the foreseeable future.

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POWELL INDUSTRIES, INC. AND SUBSIDIARIES

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 normal course of business. These risks primarily relate to fluctuations in interest rates, foreign exchange rates and commodity prices.

We are subject to market risk resulting from changes in interest rates related to our outstanding debt and investments in marketable debt securities. Regarding our various debt instruments outstanding at April 30, 2005 and October 31, 2004, a 100 basis point increase in interest rates would result in a total annual increase in interest expense of less than $75,000. Our investments in marketable debt securities are carried at fair value on the consolidated balance sheet, with unrealized gains and losses reported in other comprehensive income. Changes in interest rates will affect the fair value of the marketable securities as reported. While we do not currently have any derivative contracts to hedge our exposure to interest rate risk, we have in the past and may in the future enter into such contracts. Overall, we believe that changes in interest rates will not have a material near-term impact on our future earnings or cash flows. During each of the past three years, we have not experienced a significant effect on our business due to changes in interest rates.

Our market risk associated with foreign currency rates is not considered to be material, since we primarily arrange compensation in U.S. dollars. During each of the past three years, we have not experienced a significant effect on our business due to fluctuations in foreign exchange rates.

We are subject to market risk from fluctuating market prices of certain raw materials. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We attempt to pass along such commodity price increases to our customers on a contract-by-contract basis to avoid profit margin erosion. While we may do so in the future, we have not entered into any derivative contracts to hedge our exposure to commodity risk in fiscal years 2005 or 2004. During 2004 and the first half or fiscal 2005, we experienced significant price pressures with some of our key raw materials. Competitive market pressures limited our ability to pass these cost increases to our customers, thus eroding our earnings in 2004 and the first half of fiscal 2005. Fluctuations in commodity prices may have a material near-term effect on our future earnings and cash flows.

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POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Item 4. Controls And Procedures

Management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have each concluded that as of the end of such period, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that 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 reasonable assurance that our books and records accurately reflect our transactions and that our policies and procedures are followed. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II

OTHER INFORMATION

ITEM 1.	Legal Proceedings
	The Company is a party to disputes arising in the ordinary course of business. Management does not believe that the ultimate outcome of these disputes will materially affect the financial condition or results of operations of the Company.

ITEM 4.

Submission of Matters to a Vote of Security Holders

At the annual meeting of stockholders of the Company held on April 15, 2005, Eugene L. Butler and Ronald J. Wolny were elected as directors of the Company with terms ending in 2008. The directors continuing in office after the meeting are Joseph L. Becherer, James F. Clark, Thomas W. Powell, Stephen W. Seale, Jr., and Robert C. Tranchon. As to each nominee for director, the number of votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes, were as follows:

Nominee	Votes Cast For		Votes Cast Against		Votes Withheld		Abstentions	Non-votes
Eugene L. Butler		9,879,202		43,560		673,787	—	—
Ronald J. Wolny		10,065,365		58,229		472,955	—	—

At the annual meeting, the stockholders also approved the adoption of the Powell Industries, Inc. Non-Employee Director Restricted Stock Plan. The number of votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes, with respect to such matter, were as follows:

Votes Cast For	Votes Cast Against		Votes Withheld		Abstentions		Non-Votes
8,418,044		831,037		1,289,939		57,529	—

At the annual meeting, the stockholders also approved the amendment of the Powell Industries, Inc. 1992 Stock Option Plan to increase the number of shares available for issuance thereunder by 600,000 shares. The number of votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes, with respect to such matter, were as follows:

Votes Cast For	Votes Cast Against		Votes Withheld		Abstentions		Non-Votes
7,899,018		1,389,041		1,289,939		18,551	—

ITEM 6.	Exhibits
	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).
	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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

POWELL INDUSTRIES, INC.
Registrant

June 8, 2005	/s/ THOMAS W. POWELL
Date	Thomas W. Powell
	President and Chief Executive Officer
	(Principal Executive Officer)

June 8, 2005	/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 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).
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.

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