UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

(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 July 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     No þ

     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; 10,909,946 shares outstanding as of September 6, 2006.

 

 

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

For the Quarter Ended July 31, 2006

Explanatory Note

Part I — Financial Information

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

Part II — Other Information

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 6. Exhibits

Signatures

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 and nine months ended July 31, 2006, initially filed with the U.S. Securities and Exchange Commission (“SEC”) on September 11, 2006 (“Original Filing”), reflects a restatement of our Condensed Consolidated Financial Statements as discussed in Note L of 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 July 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 and nine months ended July 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 Condition 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 July 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 and nine months ended July 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 of the Original Filing on September 11, 2006.

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

		Three Months				Nine Months
		Ended				Ended
		July 31, 2006				July 31, 2006
Cost of goods sold:
As previously reported		$	84,928			$	231,652
Adjustments			321				1,257
As restated		$	85,249			$	232,909
Gross Profit:
As previously reported		$	19,093			$	54,613
Adjustments to cost of goods sold			(321	)			(1,257	)
As restated		$	18,772			$	53,356
Income before interest, income taxes and minority interest:
As previously reported		$	3,388			$	12,073
Adjustments to cost of goods sold			(321	)			(1,257	)
As restated		$	3,067			$	10,816
Income before income taxes and minority interest:
As previously reported		$	3,109			$	11,672
Adjustments to cost of goods sold			(321	)			(1,257	)
As restated		$	2,788			$	10,415
Net income:
As previously reported		$	1,757			$	6,995
Adjustments to cost of goods sold			(321	)			(1,257	)
Income tax benefit			114				445
As restated		$	1,550			$	6,183
Net earnings per common share:
Basic:
As previously reported		$	0.16			$	0.64
Adjustments			(0.02	)			(0.07	)
As restated		$	0.14			$	0.57
Diluted:
As previously reported		$	0.16			$	0.63
Adjustments			(0.02	)			(0.07	)
As restated		$	0.14			$	0.56

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

		Three Months				Nine Months
		Ended				Ended
		July 31, 2005				July 31, 2005
Cost of goods sold:
As previously reported		$	54,354			$	145,556
Adjustments			305				305
As restated		$	54,659			$	145,861
Gross Profit:
As previously reported		$	12,561			$	27,962
Adjustments to cost of goods sold			(305	)			(305	)
As restated		$	12,256			$	27,657
Income before interest, income taxes and minority interest:
As previously reported		$	2,674			$	(799	)
Adjustments to cost of goods sold			(305	)			(305	)
As restated		$	2,369			$	(1,104	)
Income before income taxes and minority interest:
As previously reported		$	2,833			$	(262	)
Adjustments to cost of goods sold			(305	)			(305	)
As restated		$	2,528			$	(567	)
Net income:
As previously reported		$	2,132			$	411
Adjustments to cost of goods sold			(305	)			(305	)
Income tax benefit			101				101
As restated		$	1,928			$	207
Net earnings per common share:
Basic:
As previously reported		$	0.20			$	0.04
Adjustments			(0.02	)			(0.02	)
As restated		$	0.18			$	0.02
Diluted:
As previously reported		$	0.19			$	0.04
Adjustments			(0.02	)			(0.02	)
As restated		$	0.17			$	0.02

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

		July 31, 2006
Inventories:
As previously reported		$	30,295
Adjustments			(382	)
As restated		$	29,913
Income taxes receivable:
As previously reported		$	44
Adjustments			214
As restated		$	258
Deferred income taxes:
As previously reported		$	643
Reclassification			437
As restated		$	1,080
Accounts payable:
As previously reported		$	31,214
Adjustments			1,501
As restated		$	32,715
Retained earnings:
As previously reported		$	143,665
Adjustments			(1,232	)
As restated		$	142,433

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Powell Industries, Inc. and Subsidiaries

		July 31,				October 31,
		2006				2005
		(Unaudited)
		(As restated,				(As restated,
		see Note L)				see Note L)
Assets
Current Assets:
Cash and cash equivalents		$	27,833			$	24,844
Marketable securities			—				8,200
Accounts receivable, less allowance for doubtful accounts of $825 and $567, respectively			84,549				65,385
Costs and estimated earnings in excess of billings on uncompleted contracts			39,767				35,328
Inventories, net			29,913				21,529
Income taxes receivable			258				713
Deferred income taxes			1,080				1,836
Prepaid expenses and other current assets			2,776				4,461
Total Current Assets			186,176				162,296
Property, plant and equipment, net			56,591				55,678
Goodwill			203				203
Intangible assets, net			4,625				3,505
Other assets			6,144				5,096
Total Assets		$	253,739			$	226,778
Liabilities and Stockholders’ Equity
Current Liabilities:
Current maturities of long-term debt and capital lease obligations		$	3,415			$	2,095
Income taxes payable			4,086				1,185
Accounts payable			32,715				22,643
Accrued salaries, bonuses and commissions			12,367				9,820
Billings in excess of costs and estimated earnings on uncompleted contracts			15,537				15,742
Accrued product warranty			3,384				1,836
Other accrued expenses			7,549				5,957
Total Current Liabilities			79,053				59,278
Long-term debt and capital lease obligations, net of current maturities			17,450				19,436
Deferred compensation			1,733				1,918
Other liabilities			1,526				1,871
Total Liabilities			99,762				82,503
Commitments and contingencies (Note G) Minority interest			303				281
Stockholders’ Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued			—				—
Common stock, par value $.01; 30,000,000 shares authorized; 11,001,733 and 11,001,733 shares issued, respectively; 10,907,546 and 10,849,278 shares outstanding, respectively			110				110
Additional paid-in capital			12,510				10,252
Retained earnings			142,433				136,250
Treasury stock, 94,187 and 152,455 shares, respectively, at cost			(847	)			(1,417	)
Accumulated other comprehensive income (loss)			432				(11	)
Deferred compensation			(964	)			(1,190	)
Total Stockholders’ Equity			153,674				143,994
Total Liabilities and Stockholders’ Equity		$	253,739			$	226,778

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

Powell Industries, Inc. and Subsidiaries

		Three Months Ended July 31,								Nine Months Ended July 31,
		2006				2005				2006				2005
		(As restated,				(As restated,				(As restated,				(As restated,
		see Note L)				see Note L)				see Note L)				see Note L)
Revenues		$	104,021			$	66,915			$	286,265			$	173,518
Cost of goods sold			85,249				54,659				232,909				145,861
Gross profit			18,772				12,256				53,356				27,657
Selling, general and administrative expenses			15,705				9,887				42,540				28,761
Income (loss) before interest, income taxes and minority interest			3,067				2,369				10,816				(1,104	)
Interest expense			476				130				1,137				346
Interest income			(197	)			(289	)			(736	)			(883	)
Income (loss) before income taxes and minority interest			2,788				2,528				10,415				(567	)
Income tax provision (benefit)			1,231				594				4,210				(781	)
Minority interest in net income			7				6				22				7
Net income		$	1,550			$	1,928			$	6,183			$	207
Net earnings per common share:
Basic		$	0.14			$	0.18			$	0.57			$	0.02
Diluted		$	0.14			$	0.17			$	0.56			$	0.02
Weighted average shares:
Basic			10,888				10,775				10,869				10,757
Diluted			11,140				10,939				11,090				10,886

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

Powell Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

		Nine Months Ended July 31,
		2006				2005
		(As restated,				(As restated,
		see Note L)				see Note L)
Operating Activities:
Net income		$	6,183			$	207
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			4,906				3,244
Amortization of unearned restricted stock			138				91
Stock-based compensation			1,841				—
Bad debt expense			254				30
Loss (gain) on disposition of assets			79				(21	)
Net realized gain on available-for-sale securities			—				(28	)
Deferred income taxes			(1,428	)			(1,048	)
Other			22				149
Changes in operating assets and liabilities:
Accounts receivable, net			(18,681	)			(19,961	)
Costs and estimated earnings in excess of billings on uncompleted contracts			(4,238	)			(5,680	)
Inventories			(8,195	)			(3,432	)
Prepaid expenses and other current assets			2,166				(2,862	)
Other assets			573				68
Accounts payable and income taxes payable			12,652				(393	)
Accrued liabilities			5,578				128
Billings in excess of costs and estimated earnings on uncompleted contracts			(302	)			1,473
Deferred compensation			(60	)			351
Other liabilities			85				(37	)
Net cash provided by (used in) operating activities			1,573				(27,721	)
Investing Activities:
Proceeds from sale of fixed assets			29				46
Proceeds from maturities and sales of available-for-sale securities			—				3,817
Purchases of property, plant and equipment			(4,803	)			(3,226	)
Proceeds from sale of short-term auction rate securities			8,200				43,060
Purchases of short-term auction rate securities			—				(5,000	)
Acquisition of S&I			—				(18,460	)
Acquisition of UMS			(1,524	)			—
Net cash provided by investing activities			1,902				20,237
Financing Activities:
Borrowings on U.S. revolving line of credit			3,791				5,905
Payments on U.S. revolving line of credit			(3,791	)			(5,905	)
Borrowings on UK term loan			—				10,598
Payments on UK term loan			(1,107	)			—
Payments on UK revolving line of credit			(913	)			—
Proceeds from short-term financing			897				—
Payments on short-term financing			(160	)			—
Payments on capital lease obligations			(73	)			(119	)
Debt issue costs			—				(461	)
Tax benefit from exercise of stock options			134				234
Proceeds from exercise of stock options			640				1,350
Net cash (used in) provided by financing activities			(582	)			11,602
Net increase in cash and cash equivalents			2,893				4,118
Effect of exchange rate changes on cash and cash equivalents			96				—
Cash and cash equivalents at beginning of period			24,844				8,974
Cash and cash equivalents at end of period		$	27,833			$	13,092

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
		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 herein.
		Note B contains information related to our acquisitions of Switchgear & Instrumentation Limited in July 2005, herein referred to as “S&I,” and Utility Metering Specialists, Inc. in July 2006, herein referred to as “UMS.” The operating results of both acquisitions are included in our Electrical Power Products business segment.
		Subsequent to the period covered by this report, we acquired certain assets from General Electric Company’s Consumer and Industrial Division as described in Note K herein.
		Basis of Presentation
		The condensed consolidated financial statements include the accounts of Powell Industries, Inc. and its wholly-owned subsidiaries (“we,” “us,” “our,” “Powell,” or the “Company”). All significant intercompany accounts and transactions are eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information in accordance with the rules of Regulation S-X of the Securities and Exchange Commission. Accordingly, these interim financial statements do not include all annual disclosures required by GAAP. These financial statements should be read in conjunction with the financial statements and related footnotes included in the Company’s annual report on Form 10-K for the year ended October 31, 2005. 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 (loss) in stockholders’ equity.

Supplemental disclosures of cash flow information

		Nine Months Ended July 31,
		2006				2005
Cash paid during the period for:
Interest		$	934			$	326
Income taxes			2,645				562
Non-cash investing and financing activities:
Change in fair value of marketable securities during the period, net of $0 and $9 income taxes, respectively		$	—			$	26
Receivable for stock options exercised			24				—
Issuance of common stock for deferred directors’ fees			24				14
Restricted stock grants			129				—
Unrealized gain on forward contracts			—				13
Unrealized foreign currency gain/(loss)			443				(67	)
Accrued acquisition costs			—				485

		Stock-Based Compensation
		In the first quarter of fiscal 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). We adopted the new statement using the modified prospective method of adoption, which does not require restatement of prior periods. The revised standard eliminated the intrinsic value method of accounting for share-based employee compensation under APB Opinion No. 25, “Accounting for Stock-Based Compensation,” which we previously used (see pro-forma disclosure of prior period included herein). The revised standard generally requires the recognition of the cost of employee services for share-based compensation based on the grant date fair value of the equity or liability instruments issued and any unearned or deferred compensation (contra-equity accounts) related to awards prior to adoption be eliminated against the appropriate equity accounts. Also under the new standard, excess income tax benefits related to share-based compensation expense that must be recognized directly in equity are considered financing rather than operating cash flow activities. The effect of the adoption of the new standard on cash flows in the third quarter of 2006 was not material.
		Under SFAS No. 123R, we continue to use the Black-Scholes option pricing model to estimate the fair value of our stock options. However, we will 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 (Loss)
		Accumulated other comprehensive income (loss), which is included as a component of stockholders’ equity net of tax, includes unrealized gains or losses on available-for-sale marketable securities, derivative instruments and currency translation adjustments in foreign consolidated subsidiaries.
		New Accounting Pronouncement
		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.
		Reclassifications
		Certain reclassifications have been made in prior period financial statements to conform to current period presentation. These reclassifications had no effect on net income, financial position or cash flows.

B.		ACQUISITION
		Utility Metering Specialists, Inc. (“UMS”)
		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. Approximately $1.5 million of the purchase price is included in intangible assets in the Condensed Consolidated Balance Sheets. The purchase price resulted primarily in additional intangible assets and as a result such amounts are subject to further adjustment as information becomes available.
		Switchgear & Instrumentation Limited (“S&I”)
		On July 4, 2005, we acquired selected assets and assumed certain operating liabilities and contracts of Switchgear & Instrumentation Limited. S&I’s primary manufacturing facility is in the United Kingdom. This acquisition is part of our overall strategy to increase our international presence. S&I affords us the opportunity to serve our customers with products covering a wider range of electrical standards and opens new geographic markets previously closed due to a lack of product portfolio. The fit, culture and market position of Powell and S&I are favorably comparable with similar reputations in engineered-to-order solutions. S&I is a supplier of medium- and low-voltage switchgear, intelligent motor control systems, and power distribution solutions to a wide range of process industries, with a focus on oil and gas, petrochemical and other process-related industries. Total consideration paid for S&I was approximately $18.0 million (excluding expenses of approximately $1.2 million). Approximately $10.3 million was funded from existing cash and investments and the balance was provided from the UK Term Loan (as defined in Note F herein). The results of operations of S&I are included in our Condensed Consolidated Financial Statements from July 4, 2005. The Condensed Consolidated Balance Sheets include an allocation of the purchase price to the assets acquired and liabilities assumed based on estimates of fair value.
		The purchase price allocation was as follows (in thousands):

Accounts receivable		$	4,730
Costs and estimated earnings in excess of billings			4,492
Inventories			3,745
Prepaid expenses and other current assets			379
Property, plant and equipment			9,542
Intangible assets			3,846
Accounts payable			(5,793	)
Billings in excess of costs and estimated earnings			(1,440	)
Other accrued expenses			(334	)
Total purchase price		$	19,167

		The amounts assigned to property, plant and equipment were based on independent appraisals of the property and plant, as well as the more significant pieces of machinery and equipment.
		The amounts allocated to intangible assets related to the S&I acquisition were as follows (in thousands):

						Estimated
		Amount				Life
Unpatented technology		$	2,175			7 years
Tradenames			1,025			10 years
Backlog			646			6 months
Total		$	3,846

     The unaudited pro forma data presented below reflects the results of Powell Industries, Inc. and the acquisition of S&I assuming the acquisition was completed on November 1, 2004 (in thousands, except per share data):

		Three Months Ended				Nine Months Ended
		July 31, 2005				July 31, 2005
		(As restated,				(As restated,
		see Note L)				see Note L)
Revenues		$	73,791			$	213,880
Net income		$	1,254			$	42
Net earnings per common share:
Basic		$	0.12			$	—
Diluted		$	0.11			$	—

The unaudited pro forma information includes the operating results of S&I prior to the acquisition date adjusted to include the pro forma impact of the following:

	1)		Impact of additional interest expense related to the portion of the purchase price financed with the UK Term Loan and lower interest income as a result of the sale of available-for-sale securities used to fund the remainder of the purchase price;
	2)		Elimination of the operating results of certain businesses of S&I which were not acquired;
	3)		Elimination of lease expense and recording of additional depreciation expense related to assets which were previously leased from S&I’s previous parent;
	4)		Impact of amortization expense related to intangible assets;
	5)		Adjustment to the income tax provision to reflect the statutory rate in the United Kingdom.

		The unaudited pro forma results above do not purport to be indicative of the results that would have been obtained if the acquisition occurred as of the beginning of the period presented or that may be obtained in the future.
		Prior to the acquisition by Powell, S&I’s operating results were reported under accounting principles generally accepted in the United Kingdom (“UK GAAP”). Revenues and costs related to long-term contracts accounted for under UK GAAP were not recognized on a percentage-of-completion basis of accounting. UK GAAP allows companies to recognize revenue on long-term contracts when the contract is complete (completed contract method). The unaudited pro forma results above were prepared based on the Company’s best estimate of percentage-of-completion for long-term contracts under SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.”
C.		EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

		Three Months Ended July 31,								Nine Months Ended July 31,
		2006				2005				2006				2005
		(As restated,				(As restated,				(As restated,				(As restated,
		see Note L)				see Note L)				see Note L)				see Note L)
Numerator:
Net income		$	1,550			$	1,928			$	6,183			$	207
Denominator:
Denominator for basic earnings per share-weighted average shares			10,888				10,775				10,869				10,757
Dilutive effect of stock options			252				164				221				129
Denominator for diluted earnings per share-adjusted weighted average shares with assumed conversions			11,140				10,939				11,090				10,886
Net earnings per share:
Basic		$	0.14			$	0.18			$	0.57			$	0.02
Diluted		$	0.14			$	0.17			$	0.56			$	0.02

Excluded from the computation of diluted earnings per share were options to purchase approximately 24,000 shares of common stock for the three and nine months ended July 31, 2006, and options to purchase approximately 24,000 and 297,000 shares of common stock for the three and nine months ended July 31, 2005, 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 July 31,								Nine Months Ended July 31,
		2006				2005				2006				2005
Balance at beginning of period		$	756			$	678			$	567			$	617
Adjustments to the allowance			67				(35	)			248				30
Deductions for uncollectible accounts written off, net of recoveries			1				—				6				(4	)
Increase due to foreign currency translation			1				—				4				—
Balance at end of period		$	825			$	643			$	825			$	643

Warranty Accrual

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

		Three Months Ended July 31,								Nine Months Ended July 31,
		2006				2005				2006				2005
Balance at beginning of period		$	3,337			$	1,373			$	1,836			$	1,545
Adjustments to the accrual			848				441				3,159				1,078
Deductions for warranty charges			(816	)			(207	)			(1,652	)			(1,016	)
Increase due to foreign currency translation			15				—				41				—
Balance at end of period		$	3,384			$	1,607			$	3,384			$	1,607

For the three and nine months ended July 31, 2006, our warranty accrual includes approximately $0.8 million for estimated costs related to the resolution of a specific product performance issue that was identified in the second quarter of 2006.

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

		July 31,				October 31,
		2006				2005
		(As restated,				(As restated,
		see Note L)				see Note L)
Raw materials, parts and subassemblies		$	17,342			$	12,794
Work-in-progress			12,571				8,735
Total Inventories		$	29,913			$	21,529

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):

		July 31,				October 31,
		2006				2005
Costs incurred on uncompleted contracts		$	274,914			$	293,741
Estimated earnings			59,709				55,360
			334,623				349,101
Less: Billings to date			310,393				329,515
		$	24,230			$	19,586
Included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts		$	39,767			$	35,328
Billings in excess of costs and estimated earnings on uncompleted contracts			(15,537	)			(15,742	)
		$	24,230			$	19,586

E.		COMPREHENSIVE INCOME
		Comprehensive income for the three and nine months ended July 31, 2006 and 2005 is as follows (in thousands):

		Three Months Ended July 31,								Nine Months Ended July 31,
		2006				2005				2006				2005
		(As restated,				(As restated,				(As restated,				(As restated,
		see Note L)				see Note L)				see Note L)				see Note L)
Net income		$	1,550			$	1,928			$	6,183			$	207
Other comprehensive income, net of tax
Unrealized gain (loss) on marketable securities			—				2				—				(26	)
Unrealized gain (loss) on foreign currency translation			(51	)			(48	)			443				(67	)
Unrealized gain on fair value hedge			—				13				—				13
Comprehensive income		$	1,499			$	1,895			$	6,626			$	127

F.		LONG-TERM DEBT
		US and UK Revolvers
		On June 29, 2005, we entered into a new senior credit agreement (“Credit Agreement”) with a major domestic bank and certain other financial institutions which replaced our existing revolving line of credit. The Credit Agreement also replaced an existing letter of credit facility used to guarantee payment of our existing loan agreement that was funded with proceeds from tax-exempt industrial development revenue bonds. This expanded credit facility was put in place to partially fund the acquisition of and provide working capital support for S&I.
		The Credit Agreement provides for a 1) $22.0 million revolving credit facility (“US Revolver”), 2) £4.0 million (pound sterling) (approximately $7.0 million) revolving credit facility (“UK Revolver”) and 3) £6.0 million (approximately $10.7 million) single advance term loan (“UK Term Loan”). The Credit Agreement contains customary affirmative and negative covenants and restricts our ability to pay dividends. In addition, there are various restrictive covenants pertaining to maintenance of net worth and certain financial ratios. Obligations are secured by the stock of our subsidiaries. The interest rate for amounts outstanding under the Credit Agreement is a floating rate based upon LIBOR plus a margin which can range from 1.25% to 2.25%, as determined by the Company’s consolidated leverage ratio as defined in the 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 $11.9 million for our outstanding letters of credit at July 31, 2006. There was £1.9 million, or approximately $3.5 million, outstanding under the UK revolver as of July 31, 2006, with interest rates ranging from 5.60% to 5.635%. No amounts were borrowed on the US Revolver as of July 31, 2006. The US Revolver and the UK Revolver expire on June 30, 2008.
		UK Term Loan
		The UK Term Loan is a single advance term loan of £6.0 million, or approximately $10.7 million, used for financing 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 $532,000, began March 31, 2006, with the final payment due on March 31, 2010. As of July 31, 2006, £5.4 million, or approximately $10.1 million of the UK Term Loan was outstanding and the per annum interest rate was 5.75%.
		Expenses associated with the issuance of the Credit Agreement are classified as deferred loan costs and totaled $501,000 and are being amortized as a non-cash charge to interest expense over the term of the agreement (three years).
		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. While the Bonds mature in 2021, the reimbursement agreement requires annual redemptions of $400,000. 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. At July 31, 2006, approximately $6.4 million was outstanding on the bonds and the interest rate is based on similar types of short-term municipal securities and was 3.73% per annum on July 31, 2006.
		We are currently engaged in an audit with the Internal Revenue Service (“IRS”) related to our tax exempt industrial

		development revenue bonds. We have furnished the IRS with various requested materials in connection with the audit. The IRS is reviewing these materials and has not yet informed us as to their conclusions. Based on discussions with the IRS, management does not believe the outcome will have a material impact on its consolidated financial position or results of operations.
		Capital Leases
		Some machinery and equipment used in our manufacturing facilities was 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 $12.5 million as of July 31, 2006. We also had performance bonds totaling approximately $125.3 million outstanding at July 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 $26.0 million), 2) £1.5 million of forward exchange contracts and currency options (approximately $2.6 million), and 3) the issuance of bonds and the entering into of forward exchange contracts and currency options. At July 31, 2006, we had outstanding bonds of £0.6 million, or approximately $1.1 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. Unless this matter is otherwise resolved, this claim is scheduled to go to trial in 2006. As of July 31, 2006, the Company had approximately $1.6 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.
		The Company was a party to a construction joint venture (the “Joint Venture”), which provided process control systems to the Central Artery/Tunnel Project (the “Project”) in Boston, Massachusetts under a contract with the Massachusetts Turnpike Authority (the “MTA”). The Joint Venture submitted claims against the MTA seeking additional reimbursement for work done by the Joint Venture on the project. These claims were settled and resulted in a net increase in the contract amount of approximately $2.0 million, of which $1.5 million was reflected as additional revenues by the Company for the three and nine months ended July 31, 2005.
		See Note F for discussion related to our tax exempt industrial development revenue bonds.

H. STOCK-BASED COMPENSATION

Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2005 for a full description of the Company’s stock-based compensation plans.

		Modification to Stock Option Vesting
		In July 2006, the Compensation Committee of the Board of Directors modified the vesting requirements for stock options upon retirement. The Committee voted to automatically vest granted options upon retirement at age 60 with 10 years of service or at age 62 regardless of service. Stock options are vested at retirement and will remain exercisable for the remaining life of the option. All other terms of stock options remain the same.

		In accordance with SFAS No. 123R, we recognized approximately $0.9 million in non-cash compensation expense in the third quarter of 2006 related to the modification. This non-cash expense was recorded in selling, general and administrative expenses in July 2006. After the modification adjustment, there is $1.8 million of unrecognized non-cash compensation expense related to non-vested stock options at July 31, 2006. Of the $1.8 million unrecognized compensation expense, $0.5 million will be expensed over a revised weighted-average period of approximately 1.7 years. The remaining $1.3 million is expected to be recognized over a weighted-average period of approximately 2.1 years. In addition, at July 31, 2006, there was approximately $0.1 million of total unrecognized compensation expense related to restricted stock which is expected to be recognized over a period of less than one year.
		Pro Forma Earnings Per Share
		The following table presents the pro forma effect on net income and earnings per share as if we had applied the fair value recognition to stock-based compensation prior to the adoption of SFAS No. 123R during the three and nine month period ended July 31, 2005 (in thousands except per share amounts):

		Three Months Ended				Nine Months Ended
		July 31, 2005				July 31, 2005
		(As restated,				(As restated,
		see Note L)				see Note L)
Net income as reported		$	1,928			$	207
Less: Stock option compensation expense, net of taxes			(185	)			(504	)
Net income (loss) pro forma		$	1,743			$	(297	)
Basic earnings (loss) per share:
As reported		$	0.18			$	0.02
Pro forma		$	0.16			$	(0.03	)
Diluted earnings (loss) per share:
As reported		$	0.17			$	0.02
Pro forma		$	0.16			$	(0.03	)

Stock Options

Stock option activity for the nine months ended July 31, 2006 is as follows:

										Remaining
						Weighted-				Weighted-Average				Aggregate
		Stock				Average				Contractual Term				Intrinsic Value
		Options				Exercise Price				(years)				(in thousands)
Outstanding at October 31, 2005			908,690			$	16.37
Granted			—				—
Exercised			44,800				14.82
Forfeited			—				—
Outstanding at July 31, 2006			863,890				16.45				4.07			$	4,567
Exercisable at July 31, 2006			643,610				16.11				3.49			$	3,605

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.
		On July 14, 2006, we acquired certain assets and hired the service and administrative employees of an electrical services company in Louisiana (“UMS”). The operating results of UMS are included in our Electrical Power Products business segment as of that date. On July 4, 2005, we acquired selected assets and assumed certain operating liabilities and contracts of Switchgear & Instrumentation Limited in the United Kingdom (“S&I”). The operating results and tangible assets of S&I are included in our Electrical Power Products business segment as of that date.
		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, cash equivalents, and marketable securities.
		Detailed information regarding our business segments is shown below (in thousands):

		Three Months Ended July 31,								Nine Months Ended July 31,
		2006				2005				2006				2005
		(As restated,				(As restated,				(As restated,				(As restated,
		see Note L)				see Note L)				see Note L)				see Note L)
Revenues:
Electrical Power Products		$	96,896			$	58,214			$	265,413			$	146,362
Process Control Systems			7,125				8,701				20,852				27,156
Total		$	104,021			$	66,915			$	286,265			$	173,518
Gross profit:
Electrical Power Products		$	17,110			$	8,916			$	48,020			$	20,098
Process Control Systems			1,662				3,340				5,336				7,559
Total		$	18,772			$	12,256			$	53,356			$	27,657
Income (loss) before income taxes and minority interest:
Electrical Power Products		$	2,621			$	689			$	9,522			$	(3,445	)
Process Control Systems			167				1,839				893				2,878
Total		$	2,788			$	2,528			$	10,415			$	(567	)

		July 31,				October 31,
		2006				2005
		(As restated,				(As restated,
		see Note L)				see Note L)
Identifiable tangible assets:
Electrical Power Products		$	208,127			$	172,457
Process Control Systems			10,406				10,762
Corporate			29,299				39,219
Total		$	247,832			$	222,438

In addition, the Electrical Power Products business segment had $203,000 and $203,000 of goodwill and $4,625,000 and $3,505,000 of intangible assets as of July 31, 2006 and October 31, 2005, respectively. Additionally, Corporate had $1,079,000 and $632,000 of deferred loan costs and other assets as of July 31, 2006 and October 31, 2005, respectively, which are not included in identifiable tangible assets above.

J.		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. The majority of the costs related to this consolidation related to severance and employee benefit expenses for involuntary terminations in 2004. During the first nine months of fiscal 2005, $66,000 of additional shutdown costs and write downs of fixed assets were expensed and included in the Condensed Consolidated Statements of Operations.

K.		SUBSEQUENT EVENT
		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 for $32 million, not including expenses. An initial payment of $8.5 million was 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 of $5.5 million, $6.25 million, $6.25 million and $5.5 million, respectively. The deferred installments result in a discounted purchase price of approximately $28.8 million. We are also required to purchase the remaining inventory for additional consideration and have the option to purchase additional equipment after completion of the transition and product relocation to Houston, Texas.
		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 Houston, Texas facility.
		In connection with the acquisition, we entered into a lease agreement for a facility in Houston, Texas, which increased our manufacturing space by approximately 140,000 square feet. The lease will cost approximately $34,000 per month.
		Additionally, we amended our existing Credit Agreement with Bank of America, N.A. to increase the US Revolver by $20.0 million to $42.0 million. This increase in our credit facility was made to assist with future payments related to the GE acquisition and to finance the increase in working capital associated with the start-up, relocation and operation of the product line. This amended line of credit expires on December 31, 2010. Certain financial covenants were changed in conjunction with this amendment to our credit facility.
L.		ACCOUNTING RESTATEMENT
		The Company previously restated the Consolidated Financial Statements for the eleven month transition period ended September 30, 2006 and the fiscal year ended 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 the 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 July 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 Statements of Operations for the three and nine months ended July 31, 2006 is not impacted by the reclassification of income tax accounts on the Condensed Consolidated Balance Sheet.

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

		Three Months				Nine Months
		Ended				Ended
		July 31, 2006				July 31, 2006
Cost of goods sold:
As previously reported		$	84,928			$	231,652
Adjustments			321				1,257
As restated		$	85,249			$	232,909
Gross Profit:
As previously reported		$	19,093			$	54,613
Adjustments to cost of goods sold			(321	)			(1,257	)
As restated		$	18,772			$	53,356
Income before interest, income taxes and minority interest:
As previously reported		$	3,388			$	12,073
Adjustments to cost of goods sold			(321	)			(1,257	)
As restated		$	3,067			$	10,816
Income before income taxes and minority interest:
As previously reported		$	3,109			$	11,672
Adjustments to cost of goods sold			(321	)			(1,257	)
As restated		$	2,788			$	10,415
Net income:
As previously reported		$	1,757			$	6,995
Adjustments to cost of goods sold			(321	)			(1,257	)
Income tax benefit			114				445
As restated		$	1,550			$	6,183
Net earnings per common share:
Basic:
As previously reported		$	0.16			$	0.64
Adjustments			(0.02	)			(0.07	)
As restated		$	0.14			$	0.57
Diluted:
As previously reported		$	0.16			$	0.63
Adjustments			(0.02	)			(0.07	)
As restated		$	0.14			$	0.56

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

		Three Months				Nine Months
		Ended				Ended
		July 31, 2005				July 31, 2005
Cost of goods sold:
As previously reported		$	54,354			$	145,556
Adjustments			305				305
As restated		$	54,659			$	145,861
Gross Profit:
As previously reported		$	12,561			$	27,962
Adjustments to cost of goods sold			(305	)			(305	)
As restated		$	12,256			$	27,657
Income before interest, income taxes and minority interest:
As previously reported		$	2,674			$	(799	)
Adjustments to cost of goods sold			(305	)			(305	)
As restated		$	2,369			$	(1,104	)
Income before income taxes and minority interest:
As previously reported		$	2,833			$	(262	)
Adjustments to cost of goods sold			(305	)			(305	)
As restated		$	2,528			$	(567	)
Net income:
As previously reported		$	2,132			$	411
Adjustments to cost of goods sold			(305	)			(305	)
Income tax benefit			101				101
As restated		$	1,928			$	207
Net earnings per common share:
Basic:
As previously reported		$	0.20			$	0.04
Adjustments			(0.02	)			(0.02	)
As restated		$	0.18			$	0.02
Diluted:
As previously reported		$	0.19			$	0.04
Adjustments			(0.02	)			(0.02	)
As restated		$	0.17			$	0.02

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

		July 31, 2006
Inventories:
As previously reported		$	30,295
Adjustments			(382	)
As restated		$	29,913
Income taxes receivable:
As previously reported		$	44
Adjustments			214
As restated		$	258
Deferred income taxes:
As previously reported		$	643
Reclassification			437
As restated		$	1,080
Accounts payable:
As previously reported		$	31,214
Adjustments			1,501
As restated		$	32,715
Retained earnings:
As previously reported		$	143,665
Adjustments			(1,232	)
As restated		$	142,433