UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark one)

þ		Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended December 31, 2006.

o		Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                      to                     .

POWELL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		88-0106100
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
8550 Mosley Drive, Houston, Texas		77075-1180
(Address of principal executive offices)		(Zip Code)

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be 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 check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o       Accelerated filer þ       Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes þ No

     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; 11,050,579 shares outstanding as of February 6, 2007.

 

 

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

For the Quarter Ended December 31, 2006

Explanatory Note	3
Part I – Financial Information
Item 1. Condensed Consolidated Financial Statements	6
Condensed Consolidated Balance Sheets	6
Condensed Consolidated Statements of Operations	7
Condensed Consolidated Statements of Cash Flows	8
Notes to Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	23
Item 4. Controls and Procedures	23
Part II – Other Information
Item 1. Legal Proceedings	24
Item 1A. Risk Factors	24
Item 6. Exhibits	25
Signatures	26
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

EXPLANATORY NOTE

     This Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the three month period ended December 31, 2006, initially filed with the U.S. Securities and Exchange Commission (“SEC”) on February 9, 2007 (“Original Filing”), reflects a restatement of our Condensed Consolidated Financial Statements as discussed in Note J to Notes to Condensed Consolidated Financial Statements. Previously issued financial statements are being restated to correct errors in inventories and accounts payable at one of our domestic divisions which resulted in a decrease in net income. Additionally, the previously issued Condensed Consolidated Balance Sheet as of December 31, 2006 is being restated to reflect a reclassification between net deferred income taxes and income taxes receivable related to a long-term contract. The income tax provision included in the previously issued Condensed Consolidated Statement of Operations for the three month period ended December 31, 2006 is not impacted by the reclassification of income tax accounts on the Condensed Consolidated Balance Sheet.

     In addition, we have also revised the data and information in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” to reflect the impact of the adjustments on the restated Condensed Consolidated Financial Statements.

     The Company has re-evaluated its disclosure controls and procedures and internal control over financial reporting as of December 31, 2006, and concluded that because of the errors that resulted in the restatement of inventories and accounts payable, the Company had a material weakness in internal control over financial reporting. See Item 4 for further discussions and remediation measures that are in progress.

     This Amendment No. 1 on Form 10-Q/A speaks as of the end of the three month period ended December 31, 2006 as required by Form 10-Q on and as of the date of the Original Filing. It does not update any of the statements contained therein, unless noted above. This Form 10-Q/A contains forward-looking statements that were made at the time the Original Filing on February 9, 2007.

The effects of the restatement adjustments on the Company’s unaudited Condensed Consolidated Statement of Operations follow (in thousands):

		Three Months				Three Months
		Ended				Ended
		December 31, 2006				January 31, 2006
Cost of goods sold:
As previously reported		$	101,319			$	69,036
Adjustments			1,367				404
As restated		$	102,686			$	69,440
Gross Profit:
As previously reported		$	21,457			$	14,777
Adjustments to cost of goods sold			(1,367	)			(404	)
As restated		$	20,090			$	14,373
Income before interest, income taxes and minority interest:
As previously reported		$	5,183			$	1,793
Adjustments to cost of goods sold			(1,367	)			(404	)
As restated		$	3,816			$	1,389
Income before income taxes and minority interest:
As previously reported		$	4,675			$	1,760
Adjustments to cost of goods sold			(1,367	)			(404	)
As restated		$	3,308			$	1,356
Net income:
As previously reported		$	2,892			$	1,093
Adjustments to cost of goods sold			(1,367	)			(404	)
Income tax benefit			504				143
As restated		$	2,029			$	832
Net earnings per common share:
Basic:
As previously reported		$	0.26			$	0.10
Adjustments			(0.07	)			(0.02	)
As restated		$	0.19			$	0.08
Diluted:
As previously reported		$	0.26			$	0.10
Adjustments			(0.08	)			(0.02	)
As restated		$	0.18			$	0.08

The effects of the restatement adjustments on the Company’s unaudited Condensed Consolidated Balance Sheet follow (in thousands):

		December 31, 2006
Inventories:
As previously reported		$	36,712
Adjustments			(1,085	)
As restated		$	35,627
Income taxes receivable:
As previously reported		$	1,291
Adjustments			(116	)
As restated		$	1,175
Deferred income taxes:
As previously reported		$	162
Reclassification			1,600
As restated		$	1,762
Accounts payable:
As previously reported		$	39,263
Adjustments			3,093
As restated		$	42,356
Retained earnings:
As previously reported		$	149,382
Adjustments			(2,694	)
As restated		$	146,688

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Powell Industries, Inc. and Subsidiaries

		December 31,				September 30,
		2006				2006
		(Unaudited)				(See Note A)
		(As restated,				(As restated,
		see Note J)				see Note J)
Assets
Current Assets:
Cash and cash equivalents		$	4,955			$	10,495
Accounts receivable, less allowance for doubtful accounts of $1,119 and $1,044, respectively			111,648				108,002
Costs and estimated earnings in excess of billings on uncompleted contracts			52,325				43,067
Inventories, net			35,627				28,268
Income taxes receivable			1,175				—
Deferred income taxes			1,762				1,270
Prepaid expenses and other current assets			5,813				2,398
Total Current Assets			213,305				193,500
Property, plant and equipment, net			64,521				60,336
Goodwill			1,084				1,084
Intangible assets, net			31,498				32,263
Other assets			5,670				5,495
Total Assets		$	316,078			$	292,678
Liabilities and Stockholders’ Equity
Current Liabilities:
Current maturities of long-term debt and capital lease obligations		$	8,454			$	8,510
Income taxes payable			1,761				733
Accounts payable			42,356				46,515
Accrued salaries, bonuses and commissions			11,148				13,183
Billings in excess of costs and estimated earnings on uncompleted contracts			37,536				16,752
Accrued product warranty			3,836				3,443
Other accrued expenses			8,041				9,476
Total Current Liabilities			113,132				98,612
Long-term debt and capital lease obligations, net of current maturities			38,295				33,886
Deferred compensation			1,739				1,735
Postretirement benefits obligation			1,171				1,146
Other liabilities			63				90
Total Liabilities			154,400				135,469
Commitments and contingencies (Note G)
Minority interest			337				278
Stockholders’ Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued			—				—
Common stock, par value $.01; 30,000,000 shares authorized; 11,002,779 and 11,001,733 shares issued, respectively; 11,002,779 and 10,924,046 shares outstanding, respectively			110				110
Additional paid-in capital			13,830				12,776
Retained earnings			146,688				144,659
Treasury stock, -0- and 77,687 shares, respectively, at cost			—				(525	)
Accumulated other comprehensive income			1,533				817
Deferred compensation			(820	)			(906	)
Total Stockholders’ Equity			161,341				156,931
Total Liabilities and Stockholders’ Equity		$	316,078			$	292,678

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

Powell Industries, Inc. and Subsidiaries

		Three Months Ended
		December 31, 2006				January 31, 2006
		(See Note A)
		(As restated,				(As restated,
		see Note J)				see Note J)
Revenues		$	122,776			$	83,813
Cost of goods sold			102,686				69,440
Gross profit			20,090				14,373
Selling, general and administrative expenses			16,274				12,984
Income before interest, income taxes and minority interest			3,816				1,389
Interest expense			688				335
Interest income			(180	)			(302	)
Income before income taxes and minority interest			3,308				1,356
Income tax provision			1,220				506
Minority interest in net income			59				18
Net income		$	2,029			$	832
Net earnings per common share:
Basic		$	0.19			$	0.08
Diluted		$	0.18			$	0.08
Weighted average shares:
Basic			10,942				10,853
Diluted			11,121				11,004

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

Powell Industries, Inc. and Subsidiaries

		Three Months Ended
		December 31, 2006				January 31, 2006
		(See Note A)
		(As restated,				(As restated,
		see Note J)				see Note J)
Operating Activities:
Net income		$	2,029			$	832
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation			1,551				1,470
Amortization			947				335
Amortization of unearned restricted stock			68				52
Stock-based compensation			206				417
Bad debt expense			58				98
(Gain) loss on disposition of assets			(10	)			48
Deferred income taxes			(674	)			331
Minority interest earnings			59				18
Changes in operating assets and liabilities:
Accounts receivable, net			(2,984	)			2,914
Costs and estimated earnings in excess of billings on uncompleted contracts			(9,054	)			(9,195	)
Inventories			(7,175	)			(3,550	)
Prepaid expenses and other current assets			(4,460	)			(3,128	)
Other assets			(42	)			1,301
Accounts payable and income taxes payable			(3,590	)			1,163
Accrued liabilities			(3,250	)			(725	)
Billings in excess of costs and estimated earnings on uncompleted contracts			20,645				2,678
Deferred compensation			90				(111	)
Other liabilities			1				117
Net cash used in operating activities			(5,585	)			(4,935	)
Investing Activities:
Proceeds from sale of fixed assets			155				21
Purchases of property, plant and equipment			(5,430	)			(1,178	)
Purchases of short-term auction rate securities			—				(2,000	)
Net cash used in investing activities			(5,275	)			(3,157	)
Financing Activities:
Borrowings on U.S. revolving line of credit			8,892				2,820
Payments on U.S. revolving line of credit			(5,892	)			(2,820	)
Borrowings on UK revolving line of credit			1,959				—
Payments on UK revolving line of credit			(588	)			—
Payments on short-term financing			(160	)			—
Payments on capital lease obligations			(13	)			(13	)
Payments on tax exempt industrial development revenue bonds			(400	)			—
Tax benefit from exercise of stock options			264				19
Proceeds from exercise of stock options			925				67
Net cash provided by financing activities			4,987				73
Net decrease in cash and cash equivalents			(5,873	)			(8,019	)
Effect of exchange rate changes on cash and cash equivalents			333				(9	)
Cash and cash equivalents at beginning of period			10,495				24,844
Cash and cash equivalents at end of period		$	4,955			$	16,816

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

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

A. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Change in Fiscal Year-End

Effective September 30, 2006, we changed our fiscal year from October 31 to September 30. We have not restated prior year financial statements to conform to the new fiscal year as we do not believe the results would be materially different because our operations and cash flows do not fluctuate on a seasonal basis and the change in fiscal year end is 30 days. Therefore, our consolidated operating results and cash flows for the three months ended December 31, 2006 (“first quarter of fiscal 2007”) will be compared to the operating results for the three months ended January 31, 2006 (“first quarter of fiscal 2006”).

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, energy, 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 I herein.

Note B contains information related to our acquisition of medium voltage switchgear and circuit breaker product lines from General Electric in August 2006, herein referred to as “Power/Vac®.” Additionally, we acquired a service company located in Louisiana in July 2006. The operating results of both acquisitions are included in our Electrical Power Products business segment from their respective acquisition dates.

Basis of Presentation

The condensed consolidated financial statements include the accounts of Powell Industries, Inc. and its wholly-owned subsidiaries (“we,” “us,” “our,” “Powell,” or the “Company”). 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 Transition Report on Form 10-K for the year ended September 30, 2006. In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments that are necessary for a fair presentation of our 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.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying footnotes. The amounts we record for insurance claims, warranties, legal and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We base our estimates on historical experience and on various other assumptions, as well as the specific circumstances surrounding these contingent liabilities, in evaluating the amount of liability that should be recorded. Estimates may change as new events occur, additional information becomes available, or operating environments change. Actual results may differ from our estimates. The most significant estimates used in our financial statements affect revenue and cost recognition for construction contracts, legal accruals, the allowance for doubtful accounts, self-insurance, warranty accruals and postretirement benefit obligations.

Foreign Currency Translation

The functional currency for our foreign subsidiaries is the local currency in which the entity is located. The financial statements of all subsidiaries with a functional currency other than the U.S. Dollar have been translated into U.S. Dollars in accordance with Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation.” All assets and liabilities of foreign operations are translated into U.S. Dollars using period-end exchange rates and all revenues and expenses are translated at average rates during the respective period. 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 in stockholders’ equity.

Stock-Based Compensation

Under Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), we use the Black-Scholes option pricing model to estimate the fair value of our stock options. We apply the expanded guidance under SFAS No. 123R for the development of our assumptions used as inputs for the Black-Scholes option pricing model for grants issued after November 1, 2005. Expected volatility is determined using historical volatilities based on historical stock prices for a period equal to the expected term. The expected volatility assumption is adjusted if future volatility is expected to vary from historical experience. The expected term of options represents the period of time that options granted are expected to be outstanding and falls between the option’s vesting and contractual expiration dates. The risk-free interest rate is based on the yield at the date of grant of a zero-coupon U.S. Treasury bond whose maturity period equals the option’s expected term.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income, which is included as a component of stockholders’ equity net of tax, includes unrealized gains or losses on currency translation adjustments in foreign consolidated subsidiaries.

New Accounting Standards

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the “more likely than not” recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. FIN 48 is effective for our fiscal year beginning October 1, 2007. The Company is currently evaluating the impact of adopting FIN 48.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for our fiscal year beginning October 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 157.

In September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Benefits, an Amendment of FASB Statements No. 87, 88, 106 and 123R.” SFAS No. 158 requires an employer with a defined benefit pension plan to (1) recognize the funded status of the benefit plan in its statement of financial position, (2) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to FASB Statement No. 87 or FASB Statement No. 106, (3) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position, and (4) disclose in the notes to the financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. SFAS No. 158 is required to be adopted by September 30, 2007. We do not expect the adoption of SFAS No. 158 to have a material impact on our consolidated financial position.

B. ACQUISITION

Louisiana Acquisition

On July 14, 2006, we acquired certain assets and hired the service and administrative employees of an electrical services company in Louisiana for approximately $1.5 million. The purchase price was paid from existing cash and short-term marketable securities. This acquisition allows us to extend sales and service to the Eastern Gulf Coast Region. As this acquisition is not material to the consolidated financial results or financial position of the Company, no additional disclosure is included in these Notes to Condensed Consolidated Financial Statements.

General Electric Company’s Medium Voltage Switchgear and Circuit Breakers (“Power/Vac®”)

On August 7, 2006, we purchased certain assets related to the manufacturing of American National Standards Institute (“ANSI”) medium voltage switchgear and circuit breaker business of General Electric Company’s (“GE”) Consumer & Industrial unit located at its West Burlington, Iowa facility for $32.0 million, not including expenses. In connection with the acquisition, we entered into a 15 year supply agreement with GE pursuant to which GE will purchase from the Company (subject to limited conditions for exceptions) all of its requirements for ANSI medium voltage switchgear and circuit breakers and other related equipment and components. We have also agreed to purchase certain of our required product components and subassemblies from GE. In addition, GE has agreed to provide services related to transitioning the product line from West Burlington, Iowa to the Company’s facilities in Houston, Texas. The relocation of the product line includes all related product technology and design information, engineering, manufacturing and related activities and is estimated to be completed during the first half of fiscal 2008. GE will continue to manufacture products and supply them to Powell during the transition period. Following the transition period, the new product line will be manufactured in Houston, Texas and will require between 300 and 350 employees. This acquisition supports our strategy to expand our product offerings and enhance our customer base. This product line has typically been marketed to customers in the distribution, commercial, industrial, and utilities sectors. The Power/Vac® product line will be marketed through the existing sales force of GE as well as our own sales team.

The $32.0 million purchase price consisted of an initial payment of $8.5 million paid at closing from existing cash and short-term marketable securities with the remainder payable in four installments every 10 months over the next 40 months from August 2006 of $5.5 million, $6.25 million, $6.25 million and $5.5 million, respectively. The deferred installments resulted in a discounted purchase price of approximately $28.8 million based on an assumed discount rate of 6.6%. Approximately $1.2 million of expenses were incurred related to the acquisition resulting in a total discounted purchase price of $30.0 million. We are also required to purchase the remaining inventory at the end of the transition period for the carrying value of such inventory in seller’s accounting records and have the option to purchase additional equipment after completion of the transition and product relocation to Houston, Texas.

We entered into a lease agreement for a facility in Houston, Texas, in connection with this acquisition, which increased our manufacturing space by approximately 140,000 square feet. The lease costs approximately $34,000 per month.

The discounted purchase price (including expenses) allocation was as follows (in thousands):

						Estimated
		Amount				Life
Supply agreement		$	17,570			15 years
Unpatented technology			5,300			6 years
Non-compete agreement			4,010			5 years
Trademark			2,650			15 years
Equipment, tools and dies			400			5 to 7 years
Goodwill (tax deductible)			88					—
Total purchase price		$	30,018

The amounts assigned to intangible assets were estimated by management with the assistance of an independent valuation specialist. These assets will be amortized over their estimated useful lives which approximate the related contractual terms of the applicable agreements.

The unaudited pro forma data presented below reflects the results for the first quarter of fiscal 2006 of Powell Industries, Inc. and the acquisition of Power/Vac® assuming the acquisition was completed on November 1, 2005 (in thousands, except per share data):

		Three Months Ended
		January 31, 2006
		(As restated,
		see Note J)
Pro forma revenues		$	106,341
Pro forma net income		$	1,973
Net earnings per common share:
Pro forma:
Basic		$	0.18
Diluted		$	0.18
As reported:
Basic		$	0.08
Diluted		$	0.08

The unaudited pro forma information includes the operating results of Power/Vac® prior to the acquisition date adjusted to include the pro forma impact of the following:

	1)		Impact of additional interest expense related to the purchase price;
	2)		Impact of amortization expense related to intangible assets;
	3)		Adjustment to the income tax provision.

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 the period presented or that may be obtained in the future.

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
		December 31, 2006				January 31, 2006
		(As restated,				(As restated,
		see Note J)				see Note J)
Numerator:
Net income		$	2,029			$	832
Denominator:
Denominator for basic earnings per share-weighted average shares			10,942				10,853
Dilutive effect of stock options and restricted stock			179				151
Denominator for diluted earnings per share-adjusted weighted average shares with assumed conversions			11,121				11,004
Net earnings per share:
Basic		$	0.19			$	0.08
Diluted		$	0.18			$	0.08

Excluded from the computation of diluted earnings per share were options to purchase approximately 2,000 and 24,000 shares of common stock for the three months ended December 31, 2006 and January 31, 2006, respectively. These options were excluded from the computation because the effect of the options was not dilutive as their exercise prices were greater than the average market price of our common stock.

D. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS

Allowance for Doubtful Accounts

Activity in our allowance for doubtful accounts receivable consists of the following (in thousands):

		Three Months Ended
		December 31, 2006				January 31, 2006
Balance at beginning of period		$	1,044			$	567
Adjustments to the allowance			59				98
Deductions for uncollectible accounts written off, net of recoveries			—				—
Increase due to foreign currency translation			16				—
Balance at end of period		$	1,119			$	665

Warranty Accrual

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

		Three Months Ended
		December 31, 2006				January 31, 2006
Balance at beginning of period		$	3,443			$	1,836
Adjustments to the accrual			984				727
Deductions for warranty charges			(642	)			(460	)
Increase due to foreign currency translation			51				—
Balance at end of period		$	3,836			$	2,103

Inventories

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

		December 31,				September 30,
		2006				2006
		(As restated,				(As restated,
		see Note J)				see Note J)
Raw materials, parts and subassemblies		$	23,641			$	18,772
Work-in-progress			11,986				9,496
Total Inventories		$	35,627			$	28,268

Costs and Estimated Earnings on Uncompleted Contracts

The components of costs and estimated earnings and related amounts billed on uncompleted contracts are summarized below (in thousands):

		December 31,				September 30,
		2006				2006
Costs incurred on uncompleted contracts		$	315,747			$	300,247
Estimated earnings			63,917				64,964
			379,664				365,211
Less: Billings to date			364,875				338,896
		$	14,789			$	26,315
Included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts		$	52,325			$	43,067
Billings in excess of costs and estimated earnings on uncompleted contracts			(37,536	)			(16,752	)
		$	14,789			$	26,315

E. COMPREHENSIVE INCOME

Comprehensive income is as follows (in thousands):

		Three Months Ended
		December 31, 2006				January 31, 2006
		(As restated,				(As restated,
		see Note J)				see Note J)
Net income		$	2,029			$	832
Other comprehensive income, net of tax
Unrealized gain on foreign currency translation			716				13
Comprehensive income		$	2,745			$	845

F. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

		December 31,				September 30,
		2006				2006
US Revolver		$	6,000			$	3,000
UK Revolver			4,506				2,434
UK Term Loan			9,404				9,550
Deferred acquisition payable			20,273				20,273
Industrial development revenue bonds			6,000				6,400
Capital lease obligations			103				115
Other borrowings			463				624
Subtotal long-term debt and capital lease obligations			46,749				42,396
Less current portion			(8,454	)			(8,510	)
Total long-term debt and capital lease obligations		$	38,295			$	33,886

US and UK Revolvers

On August 4, 2006, we amended our existing credit agreement (“Amended Credit Agreement”) with a major domestic bank and certain other financial institutions. This amendment to our credit facility was made to expand our US borrowing capacity by $20.0 million to provide partial funding for the acquisition of the Power/Vac® product line and to provide working capital support for the Company. The Amended Credit Agreement expires on December 31, 2010. Expenses associated with the issuance of the Amended Credit Agreement are classified as deferred loan costs and totaled $576,000 and are being amortized as a non-cash charge to interest expense over the term of the agreement.

The Amended Credit Agreement provides for a 1) $42.0 million revolving credit facility (“US Revolver”), 2) £4.0 million (pounds sterling) (approximately $7.8 million) revolving credit facility (“UK Revolver”) and 3) £6.0 million (approximately $11.8 million) single advance term loan (“UK Term Loan”). The Amended Credit Agreement contains certain covenants with respect to minimum earnings (as defined), maximum capital expenditures, minimum tangible net worth and restricts our ability to pay dividends. Obligations are secured by the stock of our subsidiaries. The interest rate for amounts outstanding under the Amended Credit Agreement is a floating rate based upon LIBOR plus a margin which can range from 0% to 1%, as determined by the Company’s consolidated leverage ratio as defined within the Amended Credit Agreement.

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. The amount available under this agreement is reduced by $13.2 million for our outstanding letters of credit at December 31, 2006. There was £2.3 million, or approximately $4.5 million, outstanding under the UK Revolver and $6.0 million outstanding under the US Revolver as of December 31, 2006.

UK Term Loan

The UK Term Loan provides for borrowings of £6.0 million, or approximately $11.8 million, for our financing requirements related to the acquisition of S&I. Approximately £5.0 million, or approximately $8.9 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 £1.0 million, or approximately $1.8 million, was utilized as the initial working capital for S&I. Quarterly installments of £300,000, or approximately $0.6 million, began March 31, 2006 with the final payment due on March 31, 2010. As of December 31, 2006, £4.8 million, or $9.4 million, was outstanding under the UK Term Loan. The interest rate for amounts outstanding under the UK Term Loan is a floating rate based upon LIBOR plus a margin which can range from 0% to 1%, as determined by the Company’s consolidated leverage ratio as defined within the Amended Credit Agreement.

Deferred Acquisition Payable

In connection with the acquisition of the Power/Vac® product line, $8.5 million of the total purchase price of $32.0 million was paid to GE at closing on August 7, 2006. The remaining balance of the purchase price of $23.5 million is payable in four installments every 10 months over the next 40 months from the acquisition date. The deferred installments result in a discounted note payable of approximately $28.8 million at December 31, 2006 based on an assumed discount rate of 6.6%. The current portion of this deferred acquisition payable is $5.2 million and is included in the current portion of long-term debt.

Tax Exempt Industrial Development Revenue Bonds

We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds from tax-exempt industrial development revenue bonds (“Bonds”). These Bonds were issued by the Illinois Development Finance Authority and were used for the completion of our Northlake, Illinois facility. Pursuant to the Bond issuance, a reimbursement agreement between the Company and a major domestic bank required an issuance by the bank of an irrevocable direct-pay letter of credit (“Bond LC”) to the Bonds’ trustee to guarantee payment of the Bonds’ principal and interest when due. The Bond LC is subject to both early termination and extension provisions customary to such agreements. While the Bonds mature in 2021, the reimbursement agreement requires annual redemptions of $400,000 that commenced on October 25, 2002. A sinking fund is used for the redemption of the Bonds. The Bonds bear interest at a floating rate determined weekly by the Bonds’ remarketing agent, which was the underwriter for the Bonds and is an affiliate of the bank. This interest rate was 4.0% per annum on December 31, 2006.

We are currently engaged in an audit with the Internal Revenue Service (“IRS”) related to our Bonds. We have furnished the IRS with the information requested in their audit. The IRS is reviewing these materials and has not yet informed us as to their conclusions. Based on our discussions with the IRS, management does not believe the outcome of this audit will have a material impact on the consolidated financial position or results of operations. Assuming an adverse conclusion was reached by the IRS, the Company could have to redeem the Bonds, with a penalty, using the available capacity under our Amended Credit Agreement.

Capital Leases and Other

Some machinery and equipment used in our manufacturing facilities were financed through capital lease agreements. These capital lease agreements are collateralized by the leased property. The capital lease obligations are at a fixed interest rate of 3%.

G. COMMITMENTS AND CONTINGENCIES

Letters of Credit and Bonds

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. 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 $14.0 million as of December 31, 2006. We also had performance bonds totaling approximately $118.6 million outstanding at December 31, 2006.

In November 2005, we entered into a new facility agreement (“Facility Agreement”) with a large international bank. The Facility Agreement provides for 1) £15.0 million in bonds (approximately $29.4 million), 2) £1.5 million of forward exchange contracts and currency options (approximately $2.9 million), and 3) the issuance of bonds and the entering into of forward exchange contracts and currency options. At December 31, 2006, we had outstanding bonds of £4.9 million, or approximately $9.7 million.

Contingencies

The Company previously entered into a construction joint venture agreement to supply, install, and commission a Supervisory Control and Data Acquisition System (“SCADA”) to monitor and control the distribution and delivery of fresh water to the City and County of San Francisco Public Utility Commission (“Commission”). The project was substantially completed and has been performing to the satisfaction of the Commission. 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 Commission has withheld liquidated damages and earned contract payments from the joint venture. The Company has made claims against the Commission for various matters including compensation for extra work and delay to the project.

The Company is currently pursuing the recovery of amounts owed under the contract, as well as legal and other costs incurred to prosecute its claim. This matter is currently being tried in court. As of December 31, 2006, the Company had approximately

$1.8 million recorded in the 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 revenue to the extent of 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 results of operations, the Company believes that, under the circumstances and on the basis of information now available, an unfavorable outcome is unlikely.

See Note F for discussion related to our tax exempt industrial development revenue bonds.

H. STOCK-BASED COMPENSATION

Refer to the Company’s Transition Report on Form 10-K/A for the fiscal year ended September 30, 2006 for a full description of the Company’s existing stock-based compensation plans.

Stock Options

Stock option activity for the three months ended December 31, 2006 is as follows:

										Remaining
						Weighted-				Weighted-Average				Aggregate
		Stock				Average				Contractual Term				Intrinsic Value
		Options				Exercise Price				(years)				(in thousands)
Outstanding at September 30, 2006			732,770			$	17.37
Granted			—				—
Exercised			(61,633	)			16.88
Forfeited			—				—
Outstanding at December 31, 2006			671,137				17.41				4.51			$	5,491
Exercisable at December 31, 2006			486,737				17.40				4.02			$	3,990

Additionally, 5,100 shares were issued in fiscal 2007 related to options exercised in fiscal 2006.

Restricted Stock

In September 2006, our Board of Directors approved the 2006 Equity Compensation Plan subject to stockholder approval. This plan allows the Company to grant certain employees restricted stock awards, incentive and non-qualified stock options, performance awards or stock appreciation rights. A total of 750,000 shares of our common stock have been authorized for issuance under this plan. The adoption of the 2006 Equity Compensation Plan has been submitted to the stockholders for approval at the stockholders meeting on February 23, 2007.

These RSU’s entitle the employee to receive common stock on the vesting date assuming that certain levels of performance are achieved. The vesting period ranges from one to three years. RSU’s do not have voting rights of common stock and the common shares underlying the RSU’s are not considered issued and outstanding.

For fiscal 2007, Powell will grant approximately 110,000 RSU’s upon stockholder approval. These RSU’s will have a grant date of February 23, 2007 upon approval of the stockholders. Compensation expense will be recorded for fiscal 2007 based on the closing price on February 23, 2007.

Additionally, 12,000 restricted shares were issued in the first quarter of fiscal 2007 under the Restricted Stock Plan.

I. BUSINESS SEGMENTS

We manage our business through operating subsidiaries, which are comprised of 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 operating results of the Louisiana acquisition and the Power/Vac® product lines are included in our Electrical Power Products business segment as of their respective acquisition dates.

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. Corporate expenses and certain assets are allocated to the operating segments primarily based on revenues. The corporate assets are mainly cash and cash equivalents.

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

		Three Months Ended
		December 31, 2006				January 31, 2006
		(As restated,				(As restated,
		see Note J)				see Note J)
Revenues:
Electrical Power Products		$	117,343			$	76,642
Process Control Systems			5,433				7,171
Total		$	122,776			$	83,813
Gross profit:
Electrical Power Products		$	18,726			$	12,660
Process Control Systems			1,364				1,713
Total		$	20,090			$	14,373
Income before income taxes and minority interest:
Electrical Power Products		$	3,225			$	995
Process Control Systems			83				361
Total		$	3,308			$	1,356

		December 31, 2006				September 30, 2006
		(As restated, see				(As restated, see
		Note J)				Note J)
Identifiable tangible assets:
Electrical Power Products		$	260,214			$	238,125
Process Control Systems			9,678				8,813
Corporate			13,113				11,853
Total		$	283,005			$	258,791

In addition, the Electrical Power Products business segment had $1,084,000 and $1,084,000 of goodwill and $31,498,000 and $32,263,000 of intangible assets as of December 31, 2006 and September 30, 2006, respectively. Additionally, Corporate had $491,000 and $540,000 of deferred loan costs as of December 31, 2006 and September 30, 2006, respectively, which are not included in identifiable tangible assets above.

J. ACCOUNTING RESTATEMENT

The Company has restated the Consolidated Financial Statements for the periods ended September 30, 2006 and October 31, 2005 for errors at one of its domestic divisions related to work-in-process inventory and accounts payable. The accounting errors resulted from incorrectly analyzing and adjusting work-in-process inventory balances and received goods accounts payable. These accounting errors were discovered by a new controller who had just joined this division. This restatement increased cost of goods sold and reduced net income for the periods stated below. Additionally, the previously issued condensed consolidated balance sheet as of December 31, 2006 and September 30, 2006 is being restated to reflect a reclassification between net deferred income taxes and income taxes receivable related to a long-term contract. The income tax provision included in the previously issued consolidated statements of operations for the eleven month period ended September 30, 2006 is not impacted by the reclassification of income tax accounts on the consolidated balance sheet.

The effects of the restatement adjustments on the Company’s unaudited Condensed Consolidated Statements of Operations follow (in thousands):

		Three Months				Three Months
		Ended				Ended
		December 31, 2006				January 31, 2006
Cost of goods sold:
As previously reported		$	101,319			$	69,036
Adjustments			1,367				404
As restated		$	102,686			$	69,440
Gross Profit:
As previously reported		$	21,457			$	14,777
Adjustments to cost of goods sold			(1,367	)			(404	)
As restated		$	20,090			$	14,373
Income before interest, income taxes and minority interest:
As previously reported		$	5,183			$	1,793
Adjustments to cost of goods sold			(1,367	)			(404	)
As restated		$	3,816			$	1,389
Income before income taxes and minority interest:
As previously reported		$	4,675			$	1,760
Adjustments to cost of goods sold			(1,367	)			(404	)
As restated		$	3,308			$	1,356
Net income:
As previously reported		$	2,892			$	1,093
Adjustments to cost of goods sold			(1,367	)			(404	)
Income tax benefit			504				143
As restated		$	2,029			$	832
Net earnings per common share:
Basic:
As previously reported		$	0.26			$	0.10
Adjustments			(0.07	)			(0.02	)
As restated		$	0.19			$	0.08
Diluted:
As previously reported		$	0.26			$	0.10
Adjustments			(0.08	)			(0.02	)
As restated		$	0.18			$	0.08

The effects of the restatement adjustments on the Company’s unaudited Condensed Consolidated Balance Sheet follow (in thousands):

		December 31, 2006
Inventories:
As previously reported		$	36,712
Adjustments			(1,085	)
As restated		$	35,627
Income taxes receivable:
As previously reported		$	1,291
Adjustments			(116	)
As restated		$	1,175
Deferred income taxes:
As previously reported		$	162
Reclassification			1,600
As restated		$	1,762
Accounts payable:
As previously reported		$	39,263
Adjustments			3,093
As restated		$	42,356
Retained earnings:
As previously reported		$	149,382
Adjustments			(2,694	)
As restated		$	146,688

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/A and our Amendment No. 1 to the Transition Report on Form 10-K/A for the eleven months ended September 30, 2006 (“Form 10-K/A”) as filed with the Securities and Exchange Commission. 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 Form 10-K/A.

As discussed in Note J of Notes to Condensed Consolidated Financial Statements, our financial statements as of and for the three months ended December 31, 2006 and January 31, 2006 have been restated. The accompanying management’s discussion and analysis gives effect to that restatement.

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 I of Notes to Condensed Consolidated Financial Statements.

Effective September 30, 2006, we changed our fiscal year from October 31 to September 30. We have not restated prior year financial statements to conform to the new fiscal year as we do not believe the results would be materially different because our operations and cash flows do not fluctuate on a seasonal basis and the change in fiscal year end is 30 days. Therefore, our consolidated operating results and cash flows for the three months ended December 31, 2006 (“first quarter of fiscal 2007”) will be compared to the operating results for the three months ended January 31, 2006 (“first quarter of fiscal 2006”).

On August 7, 2006, we purchased certain assets related to the American National Standards Institute (“ANSI”) medium voltage switchgear and circuit breaker business of General Electric Company’s (“GE”) Consumer & Industrial unit located at its West Burlington, Iowa facility. We refer to the acquired product line as “Power/Vac®.” The operating results of the Power/Vac® product line are included from that date and are included in our Electrical Power Products business segment.

The Power/Vac® medium voltage switchgear product line enhances our product offering, comes with a large installed base and has a broad customer base across utility, industrial and commercial markets. In connection with the acquisition, we entered into a 15 year supply agreement with GE in which GE will purchase from Powell (subject to limited conditions for exceptions) all of its requirements for ANSI medium voltage switchgear and circuit breakers and other related equipment and components. The Power/Vac® product line, together with our long-term commercial alliance with GE, is expected to significantly strengthen our position in the marketplace and will enable us to reach a broader market and gain access to new customers. We are currently relocating the Power/Vac® product line from GE’s facility in West Burlington, Iowa to our facilities in Houston, Texas. The relocation of the product line and related activities is estimated to be completed in the first half of fiscal 2008. GE will continue to manufacture products and supply them to Powell during the transition period.

Overall, we continue to experience strong market demand for our products and services. Pricing in our markets has improved in conjunction with the overall increase in business activity that we saw in 2006. We believe this increase was a result of the petrochemical and utility markets entering into a new investment cycle in late fiscal 2005. Customer inquiries, or requests for proposals, steadily strengthened since the second half of fiscal 2005. This increase in customer inquiries led to increased orders in fiscal 2006 and accordingly a very strong backlog of orders continuing into fiscal 2007.

Results of Operations

Revenue and Gross Profit

Consolidated revenues increased $39.0 million to $122.8 million in the first quarter of fiscal 2007 compared to $83.8 million in the first quarter of fiscal 2006. Revenues increased primarily due to general market recovery, concerted sales efforts and the acquisition of the Power/Vac® product line in the fourth quarter of fiscal 2006. The acquisition of the Power/Vac® product line added revenues of $21.3 million in the first quarter of fiscal 2007. For the first quarter of fiscal 2007, domestic revenues increased by 29% to $79.4 million compared to the first quarter of fiscal 2006. Total international revenues were $43.4 million in the first quarter of 2007 compared to $22.4 million in the first quarter of fiscal 2006. International revenues increased primarily due to higher levels of energy related investments, principally oil and gas projects. Gross profit for the first quarter of fiscal 2007 increased by approximately $5.7 million to $20.1 million as a result of improved pricing, coupled with the acquisition of the

Power/Vac® product line.

Electrical Power Products

Our Electrical Power Products segment recorded revenues of $117.3 million in the first quarter of fiscal 2007, which includes revenues of $21.3 million from the acquisition of the Power/Vac® product line compared to $76.6 million for the first quarter of fiscal 2006. In the first quarter of fiscal 2007, revenues from public and private utilities were approximately $38.3 million, compared to $22.7 million in the first quarter of fiscal 2006. Revenues from commercial and industrial customers totaled $72.5 million in the first quarter of fiscal 2007, an increase of $25.6 million compared to the first quarter of fiscal 2006. Municipal and transit projects generated revenues of $6.5 million in the first quarter of fiscal 2007 compared to $7.0 million in the first quarter of fiscal 2006.

Gross profit from the Electrical Power Products segment, as a percentage of revenues, was 16.0% in the first quarter of fiscal 2007, compared to 16.5% in the first quarter of fiscal 2006. Excluding the direct impact of the Power/Vac® product line acquisition, segment gross profit would have been approximately 18% in the first quarter of fiscal 2007. This increase in gross profit resulted from improved pricing and operating efficiencies, partially offset by inflationary pressures, primarily related to higher unit prices for copper compared to the first quarter of fiscal 2006.

Process Control Systems

Our Process Control Systems segment recorded revenues of $5.4 million in the first quarter of fiscal 2007, down from $7.2 million in the first quarter of fiscal 2006. Segment gross profit increased, as a percentage of revenues, to 25.1% in the first quarter of fiscal 2007 compared to 23.9% in the first quarter of fiscal 2006.

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

Consolidated Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses decreased to 13.3% of revenues in the first quarter of fiscal 2007 compared to 15.5% of revenues in the first quarter of fiscal 2006. Selling, general and administrative expenses were $16.3 million for the first quarter of fiscal 2007, an increase of $3.3 million over the first quarter of fiscal 2006. Selling general and administrative expenses included $0.9 million and $0.3 million, for the first quarters of fiscal 2007 and 2006, respectively, related to non-cash amortization expense resulting from the amortization of intangibles related to acquisitions. The remainder of this increase of $2.4 million is primarily attributable to the increased administrative costs related to the integration of the Power/Vac® product line and related operations and increased payroll and recruiting costs which are consistent with the increase in volume. Additionally, we recorded approximately $0.2 million in proceeds from a life insurance policy in the first quarter of fiscal 2006.

Interest Income and Expense

Interest expense was approximately $0.7 million in the first quarter of fiscal 2007, an increase of approximately $0.4 million compared to the first quarter of fiscal 2006. The increase in interest expense is primarily due to interest expense imputed on the discounted purchase price for the acquisition of the Power/Vac® product line.

Interest income was $0.2 million in the first quarter of fiscal 2007 compared to $0.3 million in the first quarter of fiscal 2006. This decrease resulted from the reduction in our cash available for investment.

Provision for Income Taxes

Our provision for income taxes reflects an effective tax rate on earnings before income taxes of 36.9% in the first quarter of fiscal 2007 compared to 37.3% in the first quarter of fiscal 2006. Our effective tax rate will generally be lower due to income generated in the United Kingdom which has a lower statutory rate than the United States; however, the lower statutory rate will be offset by certain expenses that are not deductible for tax purposes in the United Kingdom, such as amortization of intangible assets. In addition, adjustments to estimated tax accruals are analyzed and adjusted quarterly as events occur to warrant such change. Adjustments to tax accruals are a component of the effective tax rate.

Net Income

In the first quarter of fiscal 2007 we generated net income of $2.0 million, or $0.18 per diluted share, compared to $0.8 million, or $0.08 per diluted share, in the first quarter of fiscal 2006. Higher revenues and improved gross profits in our Electrical Power Products business segment, partially offset by increased selling, general and administrative expenses associated with higher levels of business activity, have improved net income in the first quarter of fiscal 2007 compared to the first quarter of fiscal 2006.

Backlog

The order backlog on December 31, 2006 was $384.5 million, compared to $355.1 million at September 30, 2006 and $286.5 million at the end of the first quarter of fiscal 2006. This increase is related to our acquisition of the Power/Vac® product line from GE. New orders placed during the first quarter of fiscal 2007 totaled $147.5 million compared to $111.3 million in the first quarter of fiscal 2006.

Liquidity and Capital Resources

Working capital was $100.2 million at December 31, 2006, compared to $94.9 million at September 30, 2006. As of December 31, 2006, current assets exceeded current liabilities by 1.9 times and our debt to capitalization ratio was 22.5%.

As of December 31, 2006, we had cash and cash equivalents of $5.0 million compared to $10.5 million as of September 30, 2006. Long-term debt and capital lease obligations, net of current maturities, totaled $38.3 million at December 31, 2006 compared to $33.9 million at September 30, 2006. We were in compliance with all debt covenants as of December 31, 2006.

As of December 31, 2006, we had $22.8 million available on the US Revolver and £1.7 million, or approximately $3.3 million, available on the UK Revolver.

Operating Activities

For the first quarter of fiscal 2007, cash used in operating activities was $5.6 million compared to cash used in operating activities of $4.9 million in the first quarter of fiscal 2006. This cash was principally used to fund growth in accounts receivable, inventories and costs related to projects which could not be billed under the contract terms.

Investing Activities

Cash used for the purchase of property, plant and equipment during the first quarter of fiscal 2007 was $5.4 million compared to $1.2 million for the first quarter of fiscal 2006. The majority of our 2007 capital expenditures were used to continue the implementation of our new Enterprise Resource Planning System (“ERP System”), and for expansion of two of our operating facilities.

Financing Activities

Cash provided by financing activities was $5.0 million for the first quarter of fiscal 2007 compared to $0.1 million in the first quarter of fiscal 2006. Borrowings on the line of credit were used to fund operations and capital expenditures.

Outlook

Our backlog of orders is approximately $384.5 million, the highest in the history of the Company. Customer inquiries, or requests for proposals, have strengthened during the last three fiscal years. We anticipate that strong business activities will continue throughout fiscal 2007.

Our Electrical Power Products segment has reported increased backlog for the last three fiscal years. Backlog growth has been driven by strong market demand in petrochemical, utility and transportation markets. Additionally, our recent acquisitions have strengthened our strategic position in the electrical power products market and expanded our product offering in the utility, industrial and commercial markets. We have enhanced our capabilities with the addition of medium and low voltage IEC switchgear, intelligent motor control systems and power distribution solutions. The Power/Vac® switchgear product line acquired from GE has a large installed base and a broad customer base across utility, industrial and commercial markets. Our recent acquisitions have provided us with a significantly broader product portfolio and enhanced our capabilities to meet market demands around the world. We have also significantly enhanced our ability to reach a broader market and gain access to new customers with a long-term commercial alliance with GE. Over the next 15 years, GE is required to purchase from us (subject to limited conditions for exceptions) all of its requirements for ANSI medium voltage switchgear and circuit breakers and other related equipment and components. We believe that new products and new channels to new markets have strengthened us in our Electrical Power Products business and positioned us for continued growth.

Subsequent to that evaluation, and in connection with the restatement as discussed in Note J to the Consolidated Financial Statements, our CEO and CFO, concluded that our disclosure controls and procedures were not effective at a reasonable level of assurance, as of December 31, 2006, because of a material weakness. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. For a discussion of the material weakness, see Item 9A included in our Amendment No. 1 of our Annual Report on Form 10-K/A for the eleven month period ended September 30, 2006. Additionally, our CEO and CFO have subsequently concluded that the material weakness described in Item 9A of our Annual Report on Form 10-K/A for the eleven months ended September 30, 2006, existed as of December 31, 2006. Based upon the work performed during the restatement process, management concluded that the Company’s unaudited condensed consolidated financial statements for the periods covered by and included in this Quarterly Report in Form 10-Q/A are fairly stated in all material respects.

Changes in Internal Control Over Financial Reporting

During the second quarter of fiscal 2007, management continued the Oracle implementation which began in fiscal 2006. This conversion to Oracle has involved various changes to internal processes and control procedures over financial reporting; however, the basic internal controls over financial reporting have not materially changed as a result of the continuation of the Oracle implementation. At the time of the filing of our Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2006, our management including our CEO and CFO concluded 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.

Remediation Plan

See Item 9A included in our Annual Report on Form 10-K/A for a discussion of actions we have taken and are planning to take to remediate the material weakness noted in that Item 9A.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company previously entered into a construction joint venture agreement to supply, install, and commission a Supervisory Control and Data Acquisition System (“SCADA”) to monitor and control the distribution and delivery of fresh water to the City and County of San Francisco Public Utility Commission (“Commission”). The project was substantially completed and has been performing to the satisfaction of the Commission. 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 Commission has withheld liquidated damages and earned contract payments from the joint venture. The Company has made claims against the Commission for various matters including compensation for extra work and delay to the project.

The Company is currently pursuing the recovery of amounts owed under the contract, as well as legal and other costs incurred to prosecute its claim. This matter is currently being tried in Alameda County Superior Court, State of California. As of December 31, 2006, the Company had approximately $1.8 million recorded in the 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 results of operations, the Company believes that, under the circumstances and on the basis of information now available, an unfavorable outcome is unlikely.

Item 1A. Risk Factors

There are no material changes from the risk factors previously disclosed in the Company’s Transition Report on Form 10-K/A for the fiscal year ended September 30, 2006.

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).
10.1		—		Fourth Amendment to Credit Agreement dated December 7, 2006 among Powell Industries, Inc., Switchgear & Instrumentation Limited, Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders party thereto (filed as Exhibit 10.17 to our Transition Report on Form 10-K for the transition period ended September 30, 2006, and incorporated herein by reference).
*31.1		—		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2		—		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1		—		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2		—		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

May 23, 2007   Date		/s/ THOMAS W. POWELL   Thomas W. Powell
		Chairman and Chief Executive Officer
		(Principal Executive Officer)
May 23, 2007   Date		/s/ DON R. MADISON   Don R. Madison
		Executive Vice President and Chief Financial and Administrative Officer
		(Principal Financial Officer)

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).
10.1		—		Fourth Amendment to Credit Agreement dated December 7, 2006 among Powell Industries, Inc., Switchgear & Instrumentation Limited, Switchgear & Instrumentation Properties Limited, Bank of America, N.A., and the other lenders party thereto (filed as Exhibit 10.17 to our Transition Report on Form 10-K for the transition period ended September 30, 2006, and incorporated herein by reference).
*31.1		—		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2		—		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1		—		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2		—		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.