POWELL INDUSTRIES INC, 10-K, 1997-01-29

POWELL INDUSTRIES INC
10-K, 1997-01-29
SWITCHGEAR & SWITCHBOARD APPARATUS

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<PAGE> 1

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

---------------------
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM ________ TO ________

COMMISSION FILE NUMBER 0-6050

---------------------

POWELL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
NEVADA 88-0106100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

8550 MOSLEY DRIVE, HOUSTON, TEXAS 77075-1180
(Address of principal executive offices) (Zip Code)
</TABLE>

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

Securities registered pursuant to section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of Act:

Common Stock, par value $.01 per share

Indicate by "X" whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by "X" if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be contained, to the best of
the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $85,137,000 as of January 14, 1997. The number
of shares of the Company's Common Stock outstanding on that date was 10,604,471
shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 1997 annual meeting of stockholders
to be filed not later than 120 days after October 31, 1996 are incorporated by
reference into Part III.

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<PAGE> 2

PART I

ITEM 1. BUSINESS

Powell Industries, Inc. ("Powell" or the "Company") was incorporated under
the laws of the State of Nevada in December 1968. The Company is the successor
to a corporation founded by William E. Powell in 1947, which merged into the
Company in 1977. During 1996 the Company completed the sale of its gas turbine
packaging business and its microprocessor based distributed control equipment
business. These businesses were operated by U. S. Turbine Corp. and
Powell-Process Systems Inc., wholly owned subsidiaries of the Company.

The Company sells, designs, develops, manufactures, packages and services
systems and equipment for the distribution, control and management of electrical
energy and other dynamic processes. The Company's offices are located in
Houston, Texas with plants located in Houston, Greenville and Jacinto Port,
Texas; Elyria, Ohio; Franklin Park, Illinois; Fremont and Pleasanton,
California; and Norcross, Georgia. Most of the products manufactured by the
Company are made pursuant to specifications required for a particular order.

PRODUCTS AND SYSTEMS

Powell designs, develops, manufactures, sells and services electrical power
distribution and control equipment and systems through its subsidiaries: Powell
Electrical Manufacturing Company; Powell-ESCO Company; Unibus, Inc.;
Delta-Unibus Corp. and Transdyn Controls, Inc. As applicable to the context,
"Company' is also sometimes used herein to refer to Powell and its subsidiaries.

The principal products are switchgear and related equipment, bus duct and
process control systems. These products and systems are utilized primarily by
refineries, petrochemical plants, utilities, paper mills, offshore platforms,
commuter railways, vehicular transportation and numerous other industrial,
commercial and governmental facilities. A brief description of each of the major
products follows:

Switchgear and other related Equipment:

Free-standing metal enclosures containing a selection of electrical
components that protect, monitor and control the flow of electricity from its
source to motors, transformers and other electrically powered equipment. Major
electrical components include customized portable buildings (PCR(R)), circuit
breakers, protective relays, meters, control switches, fuses, motor control
centers and both current and potential transformers. During the fiscal years
ended October 31, 1996, 1995 and 1994, sales and service of switchgear and other
related equipment accounted for 76%, 73% and 71%, respectively, of consolidated
revenues of the Company.

Bus Duct:

Bus duct consists of insulated power conductors housed in a metal
enclosure. Individual pieces of bus duct are arranged in whatever physical
configuration may be required to distribute electrical power to or from a
generator, transformer, switching device or other electrical apparatus. Powell
can provide the nonsegregated phase, segregated phase and isolated phase styles
of bus duct with numerous amperage and voltage ratings. Sales of bus duct
accounted for 15%, 15% and 15% of consolidated revenues for fiscal years 1996,
1995 and 1994, respectively.

Process Control Systems:

The process control systems supplied by the Company consist principally of
instrumentation, computer control, communications, and data management systems.
Demand for process control systems has been for modernization and expansion
projects as well as new facilities that mainly serve the transportation,
environmental and utilities industries. During the fiscal years ended October
31, 1996, 1995 and 1994, sales of process control systems accounted for 9%, 12%
and 14%, respectively, of consolidated revenues of the Company.

1
<PAGE> 3

SUPPLIERS

All of the Company's products are manufactured using components and
materials that are readily available from numerous domestic suppliers. The
Company has three principal suppliers of components and anticipates no
difficulty in obtaining its components in sufficient quantities to support its
manufacturing and assembly operations.

METHODS OF DISTRIBUTION AND CUSTOMERS

The Company's products are sold through manufacturers' representatives and
its internal sales force. The Company is not dependent on any single customer
for sales and the loss of any specific customer would not have a material
adverse effect upon the Company. No single customer or export country accounted
for more than 10% of consolidated revenues in the fiscal years ended 1996, 1995
or 1994. Export revenues were $63,884,000, $39,491,000 and $41,151,000 in fiscal
years 1996, 1995 and 1994, respectively. See Note H of the Notes to Consolidated
Financial Statements showing in what geographic area these revenues were
recorded.

COMPETITION

The Company is engaged in a highly competitive business which is
characterized by a small number of much larger companies that dominate the bulk
of the market and a large number of smaller companies that compete for a limited
share of such market. In the opinion of management, the competitive position of
the Company is dependent on the ability of the Company to provide quality
products to a customer's specifications, on a timely basis, at a competitive
price, utilizing state-of-the-art materials, design and production methods. Some
of the Company's principal competitors are larger and have greater capital and
management resources.

EMPLOYEES

At October 31, 1996, the Company employed 945 employees on a full-time
basis. Management considers its employee relations to be good.

BACKLOG

The Company's backlog of orders was $106,457,000 and $103,315,000 at
October 31, 1996 and 1995, respectively, and the percentage of its 1996 year end
backlog that it does not expect to fill in fiscal year 1997 is 25%. Orders
included in the backlog are represented by purchase orders which the Company
believes to be firm. The terms on which the Company accepts orders include a
penalty for cancellation. Historically, no material amount of orders included in
backlog has been canceled. No material portion of the Company's business is
seasonal in nature.

RESEARCH AND DEVELOPMENT

During the fiscal years ended October 31, 1996, 1995 and 1994, the Company
spent approximately $2,283,000, $1,843,000 and $1,670,000 respectively, on
research and development programs.

2
<PAGE> 4

ITEM 2. PROPERTIES

The following table sets forth information about the Company's principal
facilities at October 31, 1996.

<TABLE>
<CAPTION>
SQUARE
FOOTAGE
LOCATION ACRES OF FACILITIES OCCUPANCY
-------- ----- ------------- ---------
<S> <C> <C> <C>
Owned:
Franklin Park, IL...... 2.0 58,000 Delta-Unibus Corp.
Greenville, TX......... 19.0 109,000 Powell-ESCO Company
Houston, TX............ 21.4 303,000 Powell Electrical Manufacturing Co.
Jacinto Port, TX....... 42.0 9,600 Powell Offshore Division
Elyria, OH............. 8.6 64,000 Unibus, Inc.
Leased:
Fremont, CA............ 10,500 Powell-Innovative Breaker Technologies Division
Pleasanton, CA......... 39,100 Transdyn Controls, Inc.
Norcross, GA........... 19,200 Transdyn Controls, Inc.
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

On August 5, 1993, the Company was served with a lawsuit by National
Westminster Bank plc ("NatWest") alleging the Company had defaulted on a
Construction Guaranty provided to NatWest in 1992 in connection with a project
at MacDill Air Force Base. NatWest is seeking damages in excess of $20,000,000.
The Company has denied the substantive allegations of the complaint and has
filed counterclaims for damages against NatWest alleging fraud, bad faith and
failure to preserve and protect its collateral and seeking a declaratory
judgement that the Company is not in default of the Construction Guaranty.

The ultimate disposition of the NatWest litigation is not presently
determinable. Accordingly, although an unfavorable outcome to the NatWest
litigation could have a material effect on the Company's financial position and
results of operations, the Company believes it would be unreasonable to conclude
that an unfavorable outcome is probable.

The Company is party to other disputes arising in the ordinary course of
business. Management does not believe the ultimate outcome of these disputes
will materially effect the financial position or results of operations of the
Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters which were submitted to a vote of security holders
through proxies, or otherwise, during the fourth quarter of the fiscal year
ended October 31, 1996.

3
<PAGE> 5

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of October 31, 1996, there were approximately 951 holders of record of
Powell Industries, Inc. common stock which is traded on the over-the-counter
market and listed on the NASDAQ National Market System under the symbol POWL.

Quarterly stock prices and trading volumes for the last two fiscal years
are as follows:

<TABLE>
<CAPTION>
AVERAGE
HIGH LOW LAST DAILY VOLUME
------ ----- ------ ------------
<S> <C> <C> <C> <C>
1996
First Quarter.............................. $ 8.88 $6.38 $ 8.50 23,295
Second Quarter............................. 10.63 8.38 9.63 31,914
Third Quarter.............................. 12.38 9.13 10.00 29,380
Fourth Quarter............................. 12.25 8.75 10.50 20,617
1995
First Quarter.............................. $ 6.38 $5.13 $ 5.88 15,676
Second Quarter............................. 6.38 5.63 5.88 20,061
Third Quarter.............................. 7.00 5.50 6.00 12,883
Fourth Quarter............................. 7.25 5.75 6.88 21,438
</TABLE>

The Company has paid no dividends on its common stock during the last three
years and anticipates that it will not do so in the foreseeable future. The
terms of the Company's loan agreements restrict the payment of dividends. See
Note F of the Notes to Consolidated Financial Statements.

4
<PAGE> 6

ITEM 6. SELECTED FINANCIAL DATA

The following data has been derived from consolidated financial statements
that have been audited by Arthur Andersen LLP, independent public accountants.
The information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Annual Report
on Form 10-K.

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Statements of operations data:
Revenues............................. $170,123,000 $139,534,000 $119,453,000 $ 94,790,000 $101,433,000
Earnings from continuing
operations......................... 10,758,000 7,080,000 4,559,000 3,555,000 7,961,000
Earnings (loss) from discontinued
operations (net of tax)............ (5,998,000) (1,382,000) (164,000) 964,000 448,000
Cumulative effect of change in
accounting principles (net of
tax)............................... -- -- -- (1,588,000) --
------------ ------------ ------------ ------------ ------------
Net earnings................... $ 4,760,000 $ 5,698,000 $ 4,395,000 $ 2,931,000 $ 8,409,000
============ ============ ============ ============ ============
Net earnings per common and common
equivalent share:
Continuing operations................ $ 1.00 $ .67 $ .43 $ .34 $ .77
Discontinued operations.............. (.56) (.13) (.01) .09 .04
Cumulative effect of change in
accounting principles.............. -- -- -- (.15) --
------------ ------------ ------------ ------------ ------------
Net earnings per common and
common equivalent share...... $ .44 $ .54 $ .42 $ .28 $ .81
============ ============ ============ ============ ============
Weighted average shares outstanding.... 10,764,656 10,611,331 10,509,371 10,478,632 10,425,382
Balance Sheet Data:
Working capital...................... $ 46,505,000 $ 32,642,000 $ 30,351,000 $ 33,153,000 $ 27,057,000
Total assets......................... 99,523,000 90,534,000 84,327,000 76,114,000 74,495,000
Long-term debt....................... -- 3,750,000 6,563,000 9,375,000 12,188,000
Stockholders' equity................. 63,225,000 57,657,000 51,656,000 46,631,000 43,159,000
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the
consolidated financial statements.

Any forward-looking statements made by or on behalf of the Company 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 uncertainty in that actual results may differ materially from
those projected in the forward-looking statements. These risks and uncertainties
include, without limitation, the following:

- Difficulties in scheduling which could arise from the inability to obtain
materials or components in sufficient quantities as needed for the
Company's manufacturing and assembly operations,

- Difficulties in scheduling which could arise from significant customer
directed shipment delay,

- Significant decrease in the Company's backlog,

- Unforeseen political or economic problems in countries to which the
Company exports its products,

- Unforeseen material employee relations problems,

- Problems in the quality, the design, the production methods or pricing of
its products,

- Unfavorable material litigation or claims made against the Company, and

- Changes in general market conditions, competition and pricing.

5
<PAGE> 7

RESULTS OF OPERATIONS

The following table sets forth, as a percentage of revenues, certain items
from the Consolidated Statements of Operations.

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Gross profit................................................ 25.3 22.2 22.3
Selling, general and administrative expenses................ 15.8 14.5 16.3
Interest, net............................................... .1 .5 .6
Earnings from continuing operations......................... 6.3 5.1 3.8
Losses from discontinued operations......................... (3.5) (1.0) (0.1)
Net earnings................................................ 2.8 4.1 3.7
</TABLE>

REVENUES

The Company reported revenues of $170,123,000, $139,534,000 and
$119,453,000 in fiscal years 1996, 1995 and 1994 respectively. Revenues
increased 22% in fiscal year 1996 as compared to fiscal year 1995 due primarily
to the increased volume of shipments of electrical distribution equipment to
export customers. Revenues increased 17% in fiscal year 1995 as compared to
fiscal year 1994 due primarily to the improvement in revenues of electrical
distribution equipment to domestic transit customers.

Export revenues continued to be an important component of the Company's
operations accounting for 38%, 28% and 34% of consolidated revenues in fiscal
years 1996, 1995 and 1994, respectively. A schedule is provided in Note H of the
Notes to Consolidated Financial Statements showing in which geographic area
these sales were made. Management anticipates that consolidated revenues will
increase in fiscal 1997 and that export revenues will continue to contribute
approximately 35% to 40% to consolidated revenues.

GROSS PROFIT

Gross profit, as a percentage of revenues, was 25.3%, 22.2% and 22.3% in
fiscal years 1996, 1995 and 1994, respectively. Gross profit improved in fiscal
year 1996 from fiscal year 1995 due to improved prices, higher volumes and
higher margin contracts and services resulting primarily from a more favorable
economy in most of the markets in which the Company competes. Gross profit
varied only slightly from fiscal year 1995 to fiscal year 1994 due to changes in
product mix. The Company continues to focus on productivity improvements to
respond to the competitive market it serves.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses as a percentage of revenues
were 15.8%, 14.5% and 16.3% for fiscal years 1996, 1995 and 1994, respectively.
The increase in fiscal year 1996, as a percentage of revenues is due to higher
marketing, incentives and commissions expenses. The decrease in fiscal year 1995
as a percentage of revenues, is due to a higher revenue volume without a
corresponding increase in costs.

INTEREST, NET

Interest expense (net of interest income) is lower in fiscal years 1996 and
1995 primarily due to a reduction in total debt.

INCOME TAX PROVISION

The effective tax rate on earnings from continuing operations before income
taxes was 33%, 30% and 29% for fiscal years 1996, 1995 and 1994, respectively.
The effective tax rates are lower than the statutory rate due primarily to
foreign sales corporation credits.

6
<PAGE> 8

EARNINGS FROM CONTINUING OPERATIONS

Earnings from continuing operations recorded in fiscal year 1996 were
$10,758,000 or $1.00 per share. This represented a 52.0% percent increase in
earnings when compared to fiscal year 1995 earnings. The increase was primarily
due to the factors discussed above. Earnings from continuing operations recorded
in fiscal year 1995 were $7,080,000 or $.67 per share, an increase of 55.3%
compared to net earnings in fiscal year 1994.

DISCONTINUED OPERATIONS

See Note L to Notes to Consolidated Financial Statements for discussion of
the operations that were discontinued in fiscal year 1996.

NET EARNINGS

Net earnings were $4,760,000 or $.44 per share in fiscal year 1996 compared
to $5,698,000 or $.54 per share and $4,395,000 or $.42 per share in fiscal year
1995 and 1994, respectively. The losses from discontinued operations, explained
in the previous paragraph, resulted in lower net earnings in fiscal year 1996 as
compared to fiscal year 1995.

LIQUIDITY AND CAPITAL RESOURCES

In October 1995, the Company entered into a $15,000,000 revolving line of
credit agreement with a major domestic bank. As of October 31, 1996, the Company
did not have borrowings outstanding under this revolving line of credit. The
Company's ability to satisfy its cash requirements is evaluated by analyzing key
measures of liquidity applicable to the Company. The following table is a
summary of the measures which are significant to management.

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Working capital............................. $46,505,000 $32,642,000 $30,351,000
Current ratio............................... 2.42 to 1 2.30 to 1 2.39 to 1
Debt to total capitalization................ .1 to 1 .1 to 1 .2 to 1
</TABLE>

Management believes that the Company continues to maintain a strong
liquidity position. The increase in working capital at October 31, 1996, as
compared to October 31, 1995, is due mainly to increases in accounts receivable
and costs and estimated earnings in excess of billings, partially offset by
increases in accrued liabilities.

Capital expenditures totaled $3,349,000 during fiscal year 1996 compared to
$3,378,000 during fiscal year 1995. During fiscal year 1996 the Company approved
major capital expenditures for future plant expansions at three operating
facilities totalling approximately $12,000,000. Management expects the Company's
capital expenditures to increase substantially in fiscal year 1997 due to these
plant expansions.

The Company's fiscal year 1997 asset management program will continue to
focus on the collection of receivables and reduction in inventories. Management
believes that the cash and cash equivalents of $8,935,000 at October 31, 1996,
along with funds generated from operating activities and funds available through
borrowings from the credit line will be sufficient to meet the capital
requirements and operating needs of the Company.

EFFECTS OF INFLATION AND RECESSION

During the last three years, the Company has not experienced any
significant effects of inflation on its operations. Management continues to
evaluate the potential impact inflation could have on future growth and minimize
the impact by including escalation clauses in long-term contracts. Recent
marketing and financial reports indicate that the current economic conditions
should improve slightly in 1997 and the Company does not anticipate significant
increases in inflation in the immediate future.

7
<PAGE> 9

NEW ACCOUNTING STANDARDS

The Company is required to adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" and
SFAS No. 123, "Accounting for Stock Based Compensation" during its fiscal year
ending October 31, 1997. Adoption of SFAS No. 121 will not have significant
effect on the Company's consolidated financial statements. The Company expects
to disclose the fair value of options granted in a footnote to its October 31,
1997 consolidated financial statements, as required by SFAS No. 123.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Report of Independent Public Accountants.................. 9
Consolidated Balance Sheets as of October 31, 1996 and
1995................................................... 10
Consolidated Statements of Operations for the three years
ended October 31, 1996................................. 11
Consolidated Statements of Stockholders' Equity for the
three years ended October 31, 1996..................... 12
Consolidated Statements of Cash Flows for the three years
ended October 31, 1996................................. 13
Notes to Consolidated Financial Statements................ 14
</TABLE>

ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None

8
<PAGE> 10

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Board of Directors and Stockholders of Powell Industries, Inc.:

We have audited the accompanying consolidated balance sheets of Powell
Industries, Inc. (a Nevada Corporation) and subsidiaries as of October 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended October
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Powell
Industries, Inc. and subsidiaries as of October 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1996, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
December 3, 1996

9
<PAGE> 11

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
OCTOBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 8,935 $ 2,796
Accounts receivable, less allowance for doubtful accounts
of $777 and $687, respectively......................... 37,013 25,921
Costs and estimated earnings in excess of billings........ 13,934 11,114
Inventories............................................... 14,114 15,062
Deferred income taxes..................................... 2,572 502
Income taxes receivable................................... 876 718
Prepaid expenses and other current assets................. 1,700 1,693
------- -------
Total Current Assets.............................. 79,144 57,806
Property, plant and equipment, net........................ 14,602 14,082
Deferred income taxes..................................... 1,164 1,122
Other assets.............................................. 4,613 4,850
Net assets of discontinued operations..................... -- 12,674
------- -------
Total Assets...................................... $99,523 $90,534
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current Liabilities:
Accounts and income taxes payable......................... $ 8,543 $ 8,657
Accrued salaries, bonuses and commissions................. 5,687 4,716
Accrued product warranty.................................. 1,614 1,375
Accrued legal expenses.................................... 3,903 773
Other accrued expenses.................................... 3,717 2,723
Billings in excess of costs and estimated earnings........ 5,425 4,107
Current maturities of long-term debt...................... 3,750 2,813
------- -------
Total Current Liabilities......................... 32,639 25,164
Long-term debt, net of current maturities................... -- 3,750
Deferred compensation expense............................... 2,157 2,006
Postretirement benefits liability........................... 1,502 1,957
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares
authorized; none issued
Common stock, par value $.01; 15,000,000 shares
authorized, 10,604,644 and 10,542,704 shares issued and
outstanding............................................ 106 105
Additional paid-in capital................................ 5,601 5,062
Retained earnings......................................... 60,943 56,183
Deferred compensation-ESOP................................ (3,425) (3,693)
------- -------
Total Stockholders' Equity........................ 63,225 57,657
------- -------
Total Liabilities and Stockholders' Equity........ $99,523 $90,534
======= =======
</TABLE>

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

10
<PAGE> 12

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $170,123 $139,534 $119,453
Cost of goods sold.......................................... 127,075 108,525 92,861
-------- -------- --------
Gross profit................................................ 43,048 31,009 26,592
Selling, general and administrative expenses................ 26,928 20,286 19,491
-------- -------- --------
Earnings from continuing operations before interest and
income taxes ............................................. 16,120 10,723 7,101
Interest, net............................................... 117 633 720
-------- -------- --------
Earnings from continuing operations before income taxes..... 16,003 10,090 6,381
Income tax provision........................................ 5,245 3,010 1,822
-------- -------- --------
Earnings from continuing operations......................... 10,758 7,080 4,559
Discontinued operations (net of income taxes):
Loss from operations...................................... (4,860) (1,382) (164)
Loss on disposal of discontinued operations............... (1,138) -- --
-------- -------- --------
Net earnings................................................ $ 4,760 $ 5,698 $ 4,395
======== ======== ========
Earnings (loss) per common and common equivalent share:
Continuing operations..................................... $ 1.00 $ .67 $ .43
Discontinued operations................................... (.56) (.13) (.01)
-------- -------- --------
Net earnings per common and common equivalent share......... $ .44 $ .54 $ .42
======== ======== ========
</TABLE>

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

11
<PAGE> 13

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
-------------------- PAID-IN RETAINED COMPENSATION
SHARES AMOUNT CAPITAL EARNINGS ESOP
---------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1993........... 10,492,704 $105 $4,728 $46,090 $(4,292)
Net earnings...................... -- -- -- 4,395 --
Amortization of deferred
compensation-ESOP.............. -- -- -- -- 452
Stock grants...................... 25,000 -- 178 -- --
---------- ---- ------ ------- -------
Balance, October 31, 1994........... 10,517,704 105 4,906 50,485 (3,840)
Net earnings...................... -- -- -- 5,698 --
Amortization of deferred
compensation-ESOP.............. -- -- -- -- 147
Stock grants...................... 25,000 -- 156 -- --
---------- ---- ------ ------- -------
Balance, October 31, 1995........... 10,542,704 105 5,062 56,183 (3,693)
Net earnings...................... -- -- -- 4,760 --
Amortization of deferred
compensation-ESOP.............. -- -- -- -- 268
Exercise of Stock options......... 11,940 -- 52 -- --
Stock grants...................... 50,000 1 487 -- --
---------- ---- ------ ------- -------
Balance, October 31, 1996........... 10,604,644 $106 $5,601 $60,943 $(3,425)
========== ==== ====== ======= =======
</TABLE>

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

12
<PAGE> 14

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net earnings.............................................. $ 4,760 $ 5,698 $ 4,395
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 3,270 2,800 2,690
Deferred income taxes (benefit)........................ (2,112) 742 (548)
Postretirement benefits liability...................... (455) (418) 166
Changes in operating assets and liabilities:
Accounts receivable.................................. (11,092) (1,290) (2,658)
Costs and estimated earnings in excess of billings... (2,820) (3,876) (757)
Inventories.......................................... 948 (4,079) (1,953)
Prepaid expenses and other current assets............ (7) (749) 330
Other assets......................................... (205) (273) (575)
Accounts payable and income taxes payable or
receivable........................................ (272) 562 1,959
Accrued liabilities.................................. 5,334 (276) 1,009
Billings in excess of costs and estimated earnings... 1,318 2,314 (1,199)
Deferred compensation expense........................ 420 266 144
Changes in net assets of discontinued operations..... 12,674 109 (3,248)
-------- ------- -------
Net cash provided by (used in) operating activities......... 11,761 1,530 (245)
-------- ------- -------
Investing Activities:
Purchases of property, plant and equipment................ (3,349) (3,378) (1,183)
Acquisition of Transdyn Controls, Inc..................... -- -- (1,539)
-------- ------- -------
Net cash used in investing activities....................... (3,349) (3,378) (2,722)
-------- ------- -------
Financing Activities:
Payments of long-term debt................................ (2,813) (2,813) (2,812)
Exercise of stock options and grants...................... 540 156 178
-------- ------- -------
Net cash used in financing activities....................... (2,273) (2,657) (2,634)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 6,139 (4,505) (5,601)
Cash and cash equivalents at beginning of year.............. 2,796 7,301 12,902
-------- ------- -------
Cash and cash equivalents at end of year.................... $ 8,935 $ 2,796 $ 7,301
======== ======= =======
</TABLE>

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

13
<PAGE> 15

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. BUSINESS AND ORGANIZATION

Powell designs, develops, manufactures, sells and services electrical power
distribution and control equipment and systems through its subsidiaries: Powell
Electrical Manufacturing Company; Powell-ESCO Company; Unibus, Inc.;
Delta-Unibus Corp. and Transdyn Controls, Inc. As applicable to the context,
"Company" is also sometimes used herein to refer to Powell and its subsidiaries.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Powell Industries, Inc. and its wholly-owned subsidiaries (the Company). All
material intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of less than three months to be cash equivalents.

Accounts Receivable

The Company's receivables are generally not collateralized. Management
performs ongoing credit analyses of the accounts of its customers and provides
allowances as deemed necessary. Accounts receivable at October 31, 1996 and 1995
include $3,603,000 and $2,835,000, respectively due from customers in accordance
with applicable retainage provisions of engineering and construction contracts,
which will become billable upon completion of such contracts. Approximately
$706,000 of the retained amount at October 31, 1996 is expected to be billed
subsequent to 1997.

Inventories

Inventories are stated at the lower of cost (primarily first-in, first-out
method) or market and include material, labor and manufacturing overhead.

Property, Plant and Equipment

Property, plant and equipment is stated at cost and is depreciated using
the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.

Amortization of Intangibles

Included in other assets are net intangible assets totalling $2,172,000 and
$2,461,000 at October 31, 1996 and 1995, respectively. Intangible assets
primarily include goodwill and patents which are amortized using the
straight-line method over periods ranging from five to twenty years. The
accumulated amortization of intangible accounts totalled $1,873,000 and
$1,540,000 at October 31, 1996 and 1995, respectively. Management continually
evaluates whether events or circumstances have occurred that indicate the
remaining

14
<PAGE> 16

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimated useful life of intangible assets may warrant revision or that
remaining balances may not be recoverable.

Revenue Recognition

Revenues from product sales are recognized at the time of shipment.
Revenues related to multiple unit orders and their associated costs are recorded
as identifiable units are delivered. Contract revenues are recognized on a
percentage-of-completion basis primarily using labor dollars incurred to date in
relation to estimated total labor dollars of the contracts to measure the stage
of completion. Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as indirect labor,
supplies and depreciation costs. Provisions for total estimated losses on
uncompleted contracts are recorded in the period in which they become evident.

Warranties

The Company provides for estimated warranty costs at the time of sale based
upon historical rates applicable to individual product lines. In addition,
specific provisions are made when the costs of such warranties are expected to
exceed accruals.

Research and Development Expense

Research and development costs are charged to expense as incurred. Such
amounts were $2,283,000, $1,843,000 and $1,670,000 in fiscal years 1996, 1995
and 1994, respectively.

Earnings per Common and Common Equivalent Share

Per share data has been computed based on the weighted average number of
common and common equivalent shares outstanding of 10,764,656, 10,611,331 and
10,509,371 in fiscal years 1996, 1995 and 1994, respectively.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassification

Certain reclassifications of prior year amounts have been made in order to
conform with the classifications used in the current year presentation.

Income Taxes

The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes". Under SFAS
No. 109, deferred tax assets and liabilities are computed based on the
difference between the financial statements and income tax bases of assets and
liabilities using enacted tax rates. Under this standard, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that the
tax rate changes.

15
<PAGE> 17

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

New Accounting Standards

C. INVENTORIES

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

<TABLE>
<CAPTION>
OCTOBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Raw materials, parts and subassemblies...................... $ 8,118 $ 8,443
Work-in-process............................................. 5,996 6,619
------- -------
Total inventories................................. $14,114 $15,062
======= =======
</TABLE>

D. PROPERTY, PLANT AND EQUIPMENT

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

<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- RANGE OF
1996 1995 ASSET LIVES
-------- -------- ------------
<S> <C> <C> <C>
Land............................................ $ 2,362 $ 2,362 --
Buildings and improvements...................... 13,255 13,119 3 - 30 Years
Machinery and equipment......................... 21,157 19,708 3 - 15 Years
Furniture and fixtures.......................... 2,923 2,604 3 - 10 Years
Construction in progress........................ 1,869 417 --
-------- --------
41,566 38,210
Less -- accumulated depreciation................ (26,964) (24,128)
-------- --------
Total property, plant and equipment,
net................................. $ 14,602 $ 14,082
======== ========
</TABLE>

E. EMPLOYEE BENEFIT PLANS

The Company has a defined contribution plan (4.01k) for substantially all
of its employees. The Company matches 50% of employee contributions up to six
percent of their salary. The Company recognized expense of $736,000, $658,000
and $607,000 in fiscal years 1996, 1995 and 1994, respectively, under this plan.

Three long service employees are participants in a deferred compensation
plan providing payments in accordance with a predetermined plan upon retirement
or death. The Company recognizes the cost of this plan over the projected years
of service of the participant. The Company has insured the lives of these key
employees to assist in the funding of the deferred compensation liability.

In 1992, the Company formed a new subsidiary and entered into a stock
participation agreement with two key employees of the subsidiary providing for
them to purchase stock in the subsidiary for a nominal amount. The agreement
allows the two employees to sell their stock back to the Company after October
1997 for $1,000,000. The Company has established a deferred compensation
liability and prepaid compensation expense included in other assets, based on
the net present value of the amount. The charge to fiscal years 1996, 1995 and
1994 for compensation expense and interest was $206,000, $156,000 and $197,000
respectively.

16
<PAGE> 18

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During January 1992, the Company established an employee stock ownership
plan (ESOP) for the benefit of substantially all full-time employees other than
employees covered by a collective bargaining agreement to which the ESOP has not
been extended by agreement or by action of the Company. The ESOP purchased
793,525 shares of the Company's common stock from a major stockholder. The
funding for this plan was provided through a loan from the Company of
$4,500,000. This loan will be repaid over a twenty-year period with equal
payments of $424,000 per year including interest at 7%. The Company recorded
deferred compensation as a contra-equity account for the amount loaned to the
ESOP in the accompanying consolidated balance sheet. The Company is required to
make annual contributions to the ESOP to enable it to repay its loan to the
Company. The deferred compensation account is amortized as compensation expense
over twenty years as employees earn their shares for services rendered. The loan
agreement also provides for prepayment of the loan if the Company elects to make
any additional contributions. During fiscal year 1994 the Company made an
additional contribution of $331,000 to provide ESOP benefits to the increased
number of eligible employees. The compensation expense for fiscal years 1996,
1995 and 1994 was $268,000, $147,000 and $452,000, respectively.

In November 1992, the Company established a plan to extend to retirees
health benefits which are available to active employees under the Company's
existing health plans. Participants become eligible for retiree health care
benefits when they retire from active service at age 55 with ten years of
service. Generally, the health plans pay a stated percentage of medical and
dental expenses reduced for any deductible and co-payment. These plans are
unfunded. Medical coverage may be continued by the retired employee up to age 65
at the average cost to the Company of active employees. At the age of 65, when
the employee becomes eligible for Medicare, the benefits provided by the Company
are reduced by the amount provided by Medicare and the cost to the retired
employee is reduced to 50 percent of the average cost to the Company of active
employees.

In January 1994, the Company modified its postretirement benefits to
provide retiree healthcare benefits to only current retirees and active
employees who will be eligible to retire by December 31, 1999. Participants
eligible for such benefits will be required to pay between 20 percent and 100
percent of the Company's average cost of benefits based on years of service. In
addition, benefits will end upon the employee's attainment of age 65. The effect
of these modifications significantly reduced the Company's postretirement
benefits cost and accumulated benefits obligation.

The following table sets forth the plans' combined status reconciled with
the accrued retirement benefits cost included in the Company's Consolidated
Balance Sheets (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees.................................................. $ 364 $ 446
Fully eligible active participants........................ 343 359
Other active participants................................. 93 182
------ ------
Total accumulated postretirement benefits
obligation...................................... 800 987
Unrecognized prior service credits.......................... 1,006 1,324
Unrecognized net loss....................................... (304) (354)
------ ------
Postretirement benefits liability................. $1,502 $1,957
====== ======
</TABLE>

17
<PAGE> 19

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net periodic postretirement benefits cost includes the following components
(in thousands):

<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
----------------
1996 1995
----- -----
<S> <C> <C>
Service cost of benefits earned during the period........... $ 10 $ 12
Interest cost on accumulated postretirement benefit
obligation................................................ 54 67
Amortization of unrecognized prior service credits.......... (318) (317)
Amortization of net loss and transition obligation.......... 32 10
----- -----
Net periodic postretirement benefits cost......... $(222) $(228)
===== =====
</TABLE>

The assumed health care cost trend rate in measuring the accumulated
postretirement benefits obligation was ten percent in fiscal year 1996
decreasing to six percent by fiscal year 2000. If the health care trend rate
assumptions were increased by one percent, the accumulated postretirement
benefits obligation, as of October 31, 1996, would be increased by 8.8 percent.
The effect of this change on the net postretirement benefit cost for 1996 would
be an increase of 8.7 percent. The weighted average discount rate used in
determining the accumulated postretirement benefits obligation was 7.0 and 6.5
percent for fiscal years 1996 and 1995, respectively.

F. DEBT

In June 1990, the Company concluded a private placement of $15,000,000 in
term notes due through June 1997. The notes, with interest at a fixed rate of
10.4 percent, are unsecured. The loan agreements require, among other things,
maintenance of minimum levels of working capital and tangible net worth and
places various restrictions on the payment of dividends and investments, as
defined. The amounts of funds available for payment of dividends and
investments, as defined, at October 31, 1996 and 1995 were $16,784,000 and
$15,630,000, respectively.

In October 1995, the Company entered into an agreement for a $15,000,000
revolving line of credit with a major U.S. bank that replaced an existing line
of credit. The agreement provides for interest at the bank's prime rate on
amounts borrowed and a fee of .25 percent on the unused balance. The agreement
contains customary affirmative and negative covenants and requirements to
maintain a minimum level of working capital and tangible net worth and places
restrictions on the payment of dividends and investments, as defined. The
agreement matures on August 15, 1998. As of October 31, 1996, the Company did
not have any balance outstanding under this line of credit.

Long-term debt is summarized below (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
------------------
1996 1995
------ ------
<S> <C> <C>
Term notes.................................................. $3,750 $6,563
Less-current maturities..................................... 3,750 2,813
------ ------
Total long-term debt.............................. $ -- $3,750
====== ======
</TABLE>

Interest paid during the year was $683,000, $1,157,000 and $1,379,000 in
1996, 1995 and 1994, respectively. The interest expense recorded during the year
was $637,000, $1,047,000 and $1,244,000 in 1996, 1995 and 1994, respectively.

18
<PAGE> 20

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

G. INCOME TAXES

The net deferred tax asset is comprised of the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Current deferred taxes:
Gross assets.............................................. $2,909 $1,065
Gross liabilities......................................... (337) (563)
------ ------
Net current deferred tax asset.................... 2,572 502
------ ------
Noncurrent deferred taxes:
Gross assets.............................................. 1,673 1,467
Gross liabilities......................................... (509) (345)
------ ------
Net noncurrent deferred tax asset................. 1,164 1,122
------ ------
Net deferred tax asset............................ $3,736 $1,624
====== ======
</TABLE>

The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Allowance for doubtful accounts............................. $ 264 $ 234
Reserve for accrued employee benefits....................... 397 326
Warranty reserves........................................... 549 468
Uncompleted long-term contracts............................. (337) (605)
Depreciation and amortization............................... (432) (282)
Deferred compensation....................................... 733 682
Postretirement benefits liability........................... 510 665
Accrued legal expenses...................................... 1,327 263
Other....................................................... 725 (127)
------ ------
Net deferred tax asset............................ $3,736 $1,624
====== ======
</TABLE>

The components of the income tax provision consist of the following (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................... $ 7,135 $2,154 $2,233
State................................................. 222 114 137
Deferred:
Federal............................................... (2,112) 742 (548)
------- ------ ------
Total income tax provision.................... $ 5,245 $3,010 $1,822
======= ====== ======
</TABLE>

19
<PAGE> 21

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the statutory U.S. income tax rate and the effective
income tax rate, as computed on earnings from continuing operations before
income taxes reflected in each of the three years presented in the Consolidated
Statements of Operations is as follows:

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory rate.............................................. 34% 34% 34%
Foreign sales corporation credits........................... (4) (3) (3)
Revision of previous estimates of income taxes payable...... -- (3) (4)
State income taxes, net of federal benefit.................. 1 1 2
Other....................................................... 2 1 --
-- -- --
Effective rate.............................................. 33% 30% 29%
== == ==
</TABLE>

Total cash payments for income taxes during the year were $3,211,000,
$2,062,000 and $1,716,000 in fiscal years 1996, 1995 and 1994, respectively.

H. SIGNIFICANT SALES DATA

No single customer or export country accounted for more than 10 percent of
consolidated revenues in fiscal years 1996, 1995 and 1994.

Export sales are as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Europe (including former Soviet Union)................ $ 5,680 $ 2,908 $ 316
Far East.............................................. 24,948 16,778 19,199
Middle East and Africa................................ 12,928 5,997 7,766
North, Central and South America (Excluding U. S.).... 20,328 13,808 13,870
------- ------- -------
Total export sales.......................... $63,884 $39,491 $41,151
======= ======= =======
</TABLE>

I. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases certain offices, facilities and equipment under
operating leases expiring at various dates through 2003. At October 31, 1996,
the minimum annual rental commitments under leases having terms in excess of one
year are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING OPERATING
OCTOBER 31 LEASES
- ----------- ---------
<S> <C>
1997................................................................ $ 875
1998................................................................ 635
1999................................................................ 661
2000................................................................ 553
2001................................................................ 517
Thereafter.......................................................... 408
------
Total lease commitments................................... $3,649
======
</TABLE>

Lease expense for all operating leases, excluding leases with terms of less
than one year, was $908,000, $623,000 and $758,000 for fiscal years 1996, 1995
and 1994, respectively.

20
<PAGE> 22

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Letters of Credit

The Company is contingently liable for secured and unsecured letters of
credit totaling approximately $2,514,000 that were outstanding at October 31,
1996.

Litigation

J. STOCK OPTION PLAN

In March 1992, the stockholders approved an amendment to a plan that was
adopted in March 1989, in which 750,000 shares of common stock would be made
available through an incentive program for certain employees of the Company. The
awards under this plan are subject to certain conditions and restrictions as
determined by the Compensation Committee of the Board of Directors. The fair
market value of the shares awarded is deferred and amortized to compensation
expense on a straight-line basis over the vesting period. The vesting period for
shares awarded vary from the date of the grant up to five years. In March 1996,
the stockholders approved an amendment to increase the maximum shares available
under the Plan from 750,000 shares to 1,500,000 shares of common stock. The
Company recognized compensation expense related to stock grants pursuant to this
plan of $487,000, $156,000 and $178,000 in fiscal years 1996, 1995 and 1994,
respectively.

There were 820,083 shares available under the plan to be granted as of
October 31, 1996. Stock option plan activity (number of shares) for the Company
during fiscal years 1996, 1995 and 1994 was as follows:

<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
OPTIONS GRANTS OPTIONS GRANTS OPTIONS GRANTS
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........... 441,450 50,000 175,800 75,000 177,000 100,000
Granted:
Stock options $6.25 per share....... 265,650
Exercised:
Stock grants........................ (50,000) (25,000) (25,000)
Stock options $6.25 per share....... (7,500)
Stock options $6.75 per share....... (4,440)
Forfeited:
Stock options $6.75 per share....... (1,200)
------- ------- ------- ------- ------- -------
Outstanding, ranging from $6.25 to $6.75
per share, at the end of year.......... 429,510 0 441,450 50,000 175,800 75,000
======= ======= ======= ======= ======= =======
</TABLE>

21
<PAGE> 23

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

K. PRODUCTION CONTRACTS

For contracts in which the percentage-of-completion method is used, costs
and estimated earnings in excess of billings are reported as a current asset and
billings in excess of costs and estimated earnings are reported as a current
liability. The components of these contracts are as follows (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Costs and estimated earnings................................ $ 45,559 $ 46,612
Progress billings........................................... (31,625) (35,498)
-------- --------
Total costs and estimated earnings in excess of
billings........................................ $ 13,934 $ 11,114
======== ========
Progress billings........................................... $ 50,667 $ 27,160
Costs and estimated earnings................................ (45,242) (23,053)
-------- --------
Total billings in excess of costs and estimated
earnings........................................ $ 5,425 $ 4,107
======== ========
</TABLE>

L. DISCONTINUED OPERATIONS

On July 26, 1996, the Company completed the sale of its power generation
set packaging business to Rolls-Royce Acquisition Corporation. This business was
operated by U.S. Turbine Corp. (USTC), the Company's subsidiary based in
Maineville, Ohio. Total consideration received by the Company, as adjusted, was
$12,889,000, including $3,660,000 of cash, a $500,000 note receivable bearing
interest at the prime rate due July 1997 and the assumption of liabilities of
$8,729,000. The Company recognized a gain on the sale of $89,000, net of taxes.
The Company has also guaranteed the collection of certain accounts receivable
and the salability of certain inventory. The Company recognized net losses from
USTC operations of $3,173,000, $799,000 and $221,000 for the fiscal years 1996,
1995 and 1994, respectively.

On August 1, 1996 the Company announced the discontinuance of its
operations in the microprocessor-based equipment manufacturing business segment
effective July 31, 1996. This business was operated by Powell-Process Systems,
Inc. (PSI), a subsidiary of the Company based in Houston. On October 31, 1996,
the Company completed the sale of these assets and the related business to Micon
Systems LLC for approximately $874,000, including $650,000 cash and a $224,000
non-interest bearing note receivable due February 13, 1997. The Company
recognized a loss on the sale of $1,227,000, net of taxes. The Company
recognized net losses (income) from PSI operations of $1,687,000, $583,000 and
($57,000) for the fiscal years 1996, 1995 and 1994, respectively.

The following summarizes the results of operations and consolidated balance
sheets of the discontinued operations:

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues.............................................. $29,182 $30,309 $32,526
======= ======= =======
Loss from operations before income taxes.............. $(7,464) $(2,085) $ (224)
Benefit for income taxes.............................. 2,604 703 60
Loss on disposal before income taxes.................. (1,725) -- --
Benefit for income taxes.............................. 587 -- --
------- ------- -------
Net loss from discontinued operations................. $(5,998) $(1,382) $ (164)
======= ======= =======
</TABLE>

22
<PAGE> 24

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
OCTOBER 31,
1995
-----------
<S> <C>
Current assets.............................................. $15,895
Property, plant and equipment............................... 2,189
Other assets................................................ 938
-------
Total assets...................................... $19,022
=======

Liabilities and Stockholders' Equity:
Current liabilities......................................... $ 6,348
Due to parent............................................... 12,674
-------
Total liabilities and stockholders' equity........ $19,022
=======
</TABLE>

M. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The table below sets forth the unaudited consolidated operating results by
fiscal quarter for the years ended October 31, 1996 and 1995 (in thousands,
except per share data):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996 --
Revenues............................................. $39,861 $43,127 $45,903 $41,232
Gross profit......................................... 8,860 11,123 12,212 10,853
Net earnings:
Earnings from continuing operations............... 1,862 2,911 3,046 2,939
Losses from discontinued operations............... (178) (268) (5,506) (46)
Net earnings...................................... 1,684 2,643 (2,460) 2,893
Net earnings per common and common equivalent share:
Continuing operations............................. $ .18 $ .27 $ .28 $ .27
Discontinued operations........................... (.02) (.03) (.51) --
Net earnings...................................... $ .16 $ .24 $ (.23) $ .27
1995 --
Revenues............................................. $29,476 $33,703 $34,651 $41,704
Gross profit......................................... 6,502 7,640 7,947 8,920
Net earnings:
Earnings from continuing operations............... 952 1,974 1,838 2,316
Losses from discontinued operations............... (148) (517) (400) (317)
Net earnings...................................... 804 1,457 1,438 1,999
Net earnings per common and common equivalent share:
Continuing operations............................. $ .09 $ .18 $ .18 $ .22
Discontinued operations........................... (.01) (.05) (.04) (0.03)
Net earnings...................................... $ .08 $ .13 $ .14 $ .19
</TABLE>

23
<PAGE> 25

PART III

ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by these items is omitted because the Company will
file, within 120 days after the end of the fiscal year ended October 31, 1996, a
definitive proxy statement pursuant to Regulation 14A, which information is
herein incorporated by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

Financial Statements -- See Index to Consolidated Financial Statements at
Item 8 of this report

<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
2.1 -- Asset Purchase Agreement dated as of June 20, 1996 by and
between Rolls-Royce North America, Inc. and Rolls-Royce
Acquisition Corp. and U. S. Turbine Corp. and the Company
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated August 8, 1996 and incorporated herein by
reference).
2.2 -- First Amendment to Asset Purchase Agreement dated July
26, 1996 by and between Rolls-Royce North America, Inc.
and Rolls-Royce Acquisition Corp. and U. S. Turbine Corp.
and the Company (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated August 8, 1996 and
incorporated herein by reference).
3.1 -- Articles of Incorporation and Certificates of Amendment
of Powell Industries, Inc. dated July 20, 1987 and March
13, 1992 (filed as Exhibit 3 to the Company's Form 10-K
for the fiscal year ended October 31, 1982, Form 10-Q for
the quarter ended July 31, 1987, and Form 10-Q for
quarter ended April 30, 1992, respectively, and
incorporated herein by reference).
3.2 -- By-laws of Powell Industries, Inc. (filed as Exhibit
3(ii) to Company's Form 10-Q for the quarter ended April
30, 1995 and incorporated herein by reference).
10.1 -- Powell Industries, Inc., Incentive Compensation Plan for
1996.
10.2 -- Salary Continuation Agreement with William E. Powell,
dated July 17, 1984 (filed as Exhibit 10 to the Company's
Form 10-K for the fiscal year ended October 31, 1984, and
incorporated herein by reference).
10.3 -- Description of Supplemental Executive Benefit Plan (filed
as Exhibit 10 to the Company's Form 10-K for the fiscal
year ended October 31, 1984, and incorporated herein by
reference).
10.4 -- Loan agreements dated June 26, 1990 between Powell
Industries, Inc. and Metropolitan Life Insurance Company
and Metropolitan Property and Casualty Insurance Company
(filed as an Exhibit to the Company's Form 10-Q for the
quarter ended July 31, 1990, and incorporated herein by
reference).
10.5 -- Credit Agreement dated October 20, 1995 between Powell
Industries, Inc. and First Interstate Bank of Texas,
N. A. (Filed as an Exhibit to the Company's Form 10-K for
the fiscal year ended October 31, 1995 and incorporated
herein by reference.)
</TABLE>

24
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.6 -- Amendment No. 1 dated August 15, 1996, to Credit
Agreement between the Powell Industries, Inc. and Wells
Fargo Bank of Texas (previously First Interstate of
Texas).
10.7 -- 1992 Powell Industries, Inc. Stock Option Plan (filed as
Exhibit 4.2 to the Company's registration statement on
Form S-8 dated July 26, 1994 (File No. 33-81998) and
incorporated herein by reference).
10.8 -- The Powell Industries, Inc. Directors' Fees Program
(filed as Exhibit 10.7 to the Company's Form 10-K for the
fiscal year ended October 31, 1992, and incorporated
herein by reference).
10.9 -- The Powell Industries, Inc. Executive Severance
Protection Plan (filed as an exhibit to the Company's
Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.10 -- Amendment to Powell Industries, Inc. Stock Option Plan
(filed as an exhibit to the Company's Form 10-Q for the
quarter ended April 30, 1996 and incorporated herein by
reference).
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Public Accountants.
27 -- Financial data schedule.
</TABLE>

(b) Reports on Form 8-K.

No reports on Form 8-K have been filed during the last quarter of the
fiscal year covered by this report.

25
<PAGE> 27

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

By /s/ THOMAS W. POWELL
------------------------------------
Thomas W. Powell
President and Chief Executive
Officer (Principal Executive
Officer)

By /s/ J.F. AHART
------------------------------------
J.F. Ahart
Vice President Secretary and
Treasurer (Principal Financial
and Accounting Officer)

Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ THOMAS W. POWELL Chairman of the Board
- -----------------------------------------------------
Thomas W. Powell January 10, 1997

/s/ EUGENE L. BUTLER Director
- -----------------------------------------------------
Eugene L. Butler January 10, 1997

/s/ J. F. AHART Director
- -----------------------------------------------------
J. F. Ahart January 10, 1997

/s/ BONNIE L. POWELL Director
- -----------------------------------------------------
Bonnie L. Powell January 10, 1997

/s/ STEPHEN W. SEALE, JR. Director
- -----------------------------------------------------
Stephen W. Seale, Jr. January 10, 1997

/s/ ELBERT D. STEWART Director
- -----------------------------------------------------
Elbert D. Stewart January 10, 1997

/s/ D.D. SYKORA Director
- -----------------------------------------------------
D.D. Sykora January 10, 1997

/s/ LAWRENCE R. TANNER Director
- -----------------------------------------------------
Lawrence R. Tanner January 10, 1997

/s/ RONALD J. WOLNY Director
- -----------------------------------------------------
Ronald J. Wolny January 10, 1997
</TABLE>

26
<PAGE> 28

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Asset Purchase Agreement dated as of June 20, 1996 by and
between Rolls-Royce North America, Inc. and Rolls-Royce
Acquisition Corp. and U. S. Turbine Corp. and the Company
(filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated August 8, 1996 and incorporated herein by
reference).
2.2 -- First Amendment to Asset Purchase Agreement dated July
26, 1996 by and between Rolls-Royce North America, Inc.
and Rolls-Royce Acquisition Corp. and U. S. Turbine Corp.
and the Company (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated August 8, 1996 and
incorporated herein by reference).
3.1 -- Articles of Incorporation and Certificates of Amendment
of Powell Industries, Inc. dated July 20, 1987 and March
13, 1992 (filed as Exhibit 3 to the Company's Form 10-K
for the fiscal year ended October 31, 1982, Form 10-Q for
the quarter ended July 31, 1987, and Form 10-Q for
quarter ended April 30, 1992, respectively, and
incorporated herein by reference).
3.2 -- By-laws of Powell Industries, Inc. (filed as Exhibit
3(ii) to Company's Form 10-Q for the quarter ended April
30, 1995 and incorporated herein by reference).
10.1 -- Powell Industries, Inc., Incentive Compensation Plan for
1996.
10.2 -- Salary Continuation Agreement with William E. Powell,
dated July 17, 1984 (filed as Exhibit 10 to the Company's
Form 10-K for the fiscal year ended October 31, 1984, and
incorporated herein by reference).
10.3 -- Description of Supplemental Executive Benefit Plan (filed
as Exhibit 10 to the Company's Form 10-K for the fiscal
year ended October 31, 1984, and incorporated herein by
reference).
10.4 -- Loan agreements dated June 26, 1990 between Powell
Industries, Inc. and Metropolitan Life Insurance Company
and Metropolitan Property and Casualty Insurance Company
(filed as an Exhibit to the Company's Form 10-Q for the
quarter ended July 31, 1990, and incorporated herein by
reference).
10.5 -- Credit Agreement dated October 20, 1995 between Powell
Industries, Inc. and First Interstate Bank of Texas,
N. A. (Filed as an Exhibit to the Company's Form 10-K for
the fiscal year ended October 31, 1995 and incorporated
herein by reference.)
10.6 -- Amendment No. 1 dated August 15, 1996, to Credit
Agreement between the Powell Industries, Inc. and Wells
Fargo Bank of Texas (previously First Interstate of
Texas).
10.7 -- 1992 Powell Industries, Inc. Stock Option Plan (filed as
Exhibit 4.2 to the Company's registration statement on
Form S-8 dated July 26, 1994 (File No. 33-81998) and
incorporated herein by reference).
10.8 -- The Powell Industries, Inc. Directors' Fees Program
(filed as Exhibit 10.7 to the Company's Form 10-K for the
fiscal year ended October 31, 1992, and incorporated
herein by reference).
10.9 -- The Powell Industries, Inc. Executive Severance
Protection Plan (filed as an exhibit to the Company's
Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.10 -- Amendment to Powell Industries, Inc. Stock Option Plan
(filed as an exhibit to the Company's Form 10-Q for the
quarter ended April 30, 1996 and incorporated herein by
reference).
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Public Accountants.
27 -- Financial data schedule.
</TABLE>

<PAGE> 1
EXHIBIT 10.1

POWELL INDUSTRIES, INC.
INCENTIVE COMPENSATION PLAN FOR 1996

DECEMBER 1995

1. PLAN PURPOSE

The purpose of the plan is to recognize and reward key corporate and
subsidiary employees for their contributions to the growth and
profitability of Powell Industries, Inc. and its operating
subsidiaries through the opportunity to earn incentive compensation,
in addition to their base salaries, based on the performance of the
Company or subsidiary.

2. GENERAL DESCRIPTION

Key corporate and subsidiary executives and managers will be selected
for participation on an annual basis. For each participant, a maximum
incentive compensation opportunity will be established, and expressed
as a percentage of the individual's base salary at the beginning of
the plan year. The actual amount of incentive compensation earned by
each participant will be based on the performance of the Company or
subsidiary against pre-established performance measures. The
performance measures for the subsidiary participants will include
"return on revenues" and "revenue growth". For corporate
participants, the performance measures will include "Powell
Industries, Inc. earnings per share", and "revenue growth". Specific
performance levels will be established each year based on an
assessment of historical results, the budgeted performance for the
plan year, and general business conditions.

The plan will be administered by the Compensation Committee of the
Board of Directors, in conjunction with the Chief Executive Officer.

3. ELIGIBILITY AND INCENTIVE COMPENSATION OPPORTUNITY

On an annual basis key corporate and subsidiary participants will be
identified for participation. Participation in one year does not
guarantee participation in the following year.

Subsidiary presidents will submit their recommended participants to
the CEO for approval. In addition, each subsidiary president may
identify a general incentive "pool", which may be used to recognize
the contributions of individuals within the subsidiary who are not
named participants.

Page 1
<PAGE> 2
The CEO will recommend corporate participants for approval by the
Compensation Committee. The CEO may identify a general incentive
"pool" which may be used to recognize the contributions of individuals
who are not named participants.

For each named participant, their "maximum incentive opportunity" will
be identified, which is expressed as a percentage of base salary at
the beginning of the plan year.

4. PERFORMANCE MEASURES AND WEIGHTS

The following performance measures will be used to measure the
performance of the Company and determine the incentive award earned by
each participant. The weighting percentage reflects the relative
weight given to each performance measure.

SUBSIDIARY PARTICIPANTS

o 70% Return on Revenues - Net profits before taxes divided by
total revenues

o 30% Percent Growth of Total Revenues

CORPORATE PARTICIPANTS

o 70% Powell Industries, Inc. Earnings Per Share

o 30% Percent Growth of Total Revenues Over Prior Year

Prior to the beginning of the plan year, the performance standards for
each subsidiary and Powell Industries, Inc. will be finalized,
approved by the Compensation Committee, and communicated to
participants. The performance standards will be based on historical
results, management's expectations for the coming year, and the
general business environment. The CEO will approve subsidiary
performance standards, and the Compensation Committee will approve the
company-wide performance standards.

For 1995, the revenue growth standard for the corporation and
subsidiaries will be 10%. Beginning in 1996, the standard will be
increased to 15%.

5. COMPUTATION OF AWARDS

For each subsidiary and Powell Industries, Inc., an Incentive
Compensation Calculation Form will be prepared at the beginning of the
plan year, which will include a listing of the participants, their
base salary, and maximum incentive opportunity. For each performance
measure, a funding table will be attached which establishes the amount
of incentive compensation earned at various performance levels. The
Incentive Compensation Calculation Form is attached.

Page 2
<PAGE> 3
In order to activate the plan for each subsidiary, the threshold
Return on Revenue (ROR) must be achieved. If the ROR threshold is
not achieved, no incentive awards will be paid, regardless of the
revenue growth percentage.

In order to activate the plan for corporate participants, the
threshold Earnings Per Share (EPS) must be achieved. If the EPS
threshold is not achieved, no incentive awards will be paid,
regardless of the revenue growth percentage.

In computing performance results, ROR and EPS will be net of the
accrued incentive compensation payments.

In addition to the incentive award computed under this plan, the
Compensation Committee may in its sole discretion, make additional
discretionary awards to recognize significant individual
contributions. This discretionary award is limited to no more than
30% of the individual's maximum incentive opportunity.

The Compensation Committee, in conjunction with the CEO, may make
adjustments to the subsidiary or Company performance results to
eliminate the impact of extraordinary charges to earnings, both
positive and negative. The purpose of any such adjustment is to
better reflect the performance of the subsidiary or Company. Each
August, the Committee will meet to review the interim performance
results of the Company and determine if extraordinary charges have
occurred or are likely to occur that should be eliminated.

6. PAYMENT OF AWARDS

The annual incentive awards will be determined after the end of the
plan year and paid as soon as practical. Prior to payment of awards,
the Compensation Committee will review and certify the incentive
awards for all participants.

Incentive awards will be computed based on the participant's base
salary at the beginning of the plan year.

A participant must be an active employee on the last day of the plan
year in order to receive an incentive award.

Participants added to the plan after the beginning of the plan year,
will be eligible to receive a prorated award based on their salary
when they became eligible.

Participants who die, retire, or become disabled during the plan year
will be eligible for a prorated award based on the number of months of
active participation during the plan year.

7. ADMINISTRATION OF PLAN

The plan will be administered by the Compensation Committee, in
conjunction with the CEO. The Committee reserves the right to amend
or terminate the plan at any

Page 3
<PAGE> 4
time, except that such amendment or termination will not affect any
awards that have been earned but not paid.

Page 4

<PAGE> 1
EXHIBIT 10.6

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AGREEMENT (hereinafter called this "Amendment")
is entered into on August 15, 1996, to be effective as of August 15, 1996,
between Powell Industries, Inc., a Nevada corporation (the "Borrower") and
Wells Fargo Bank (Texas), National Association, formerly First Interstate Bank
of Texas, N.A. (the "Bank").

W I T N E S S E T H:

WHEREAS, the Borrower and First Interstate Bank of Texas, N.A. entered
into a Credit Agreement dated as of October 20, 1995 (hereinafter called the
"Agreement"), whereby, upon the terms and conditions therein stated, the Bank
agreed to make available to the Borrower a credit facility upon the terms and
conditions set forth in the Agreement; and

WHEREAS, the Borrower has dissolved or sold Powell-Process Systems, Inc.
and U.S. Turbine, Inc., each of which was a subsidiary of Borrower and each of
which guaranteed the payment of the credit facility represented by the
Agreement; and

WHEREAS, the Borrower has requested that the Bank agree to certain
amendments to the Agreement;

NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, the parties to this Amendment hereby agree as
follows:

SECTION 1. Terms Defined in Agreement. An used in this Amendment,
except as may otherwise be provided herein, all capitalized terms which are
defined in the Agreement shall have the same meaning herein as therein, all of
such terms and their definitions being incorporated herein by reference.

SECTION 2. Amendments to Agreement. Subject to the conditions precedent
set forth in Section 3 hereof, the Agreement is hereby amended as follows:

(a) The definition of "Stated Maturity Date" is hereby deleted from
Section 8.1 of the Agreement and the following definition is substituted in
lieu thereof:

"STATED MATURITY DATE" shall mean August 15, 1998.

(b) The definition of "Termination Date" is hereby deleted from Section
8.1 of the Agreement and the following definition is substituted in lieu
thereof:

"TERMINATION DATE" shall mean August 15, 1998.

SECTION 3. Conditions of Effectiveness.

(a) The Bank has relied upon the representations and warranties
contained in this Amendment in agreeing to the amendments to the Agreement set
forth herein and the amendments to the Agreement set forth herein are
conditioned upon and subject to the accuracy of each and every representation
and warranty of the Borrower made or referred to herein, and performance by the
Borrower of its obligations to be performed under the Agreement on or before
the date of this Amendment (except to the extent amended herein).

-1-

<PAGE> 2
(b) The amendments to the Agreement set forth herein are further
conditioned upon receipt by the Bank of

(i) A fully executed Amended and Restated Revolving Promissory Note
in the form attached hereto as Exhibit "A";

(ii) certificates of the Secretary or Assistant Secretary of the
Borrower and each Guarantor setting forth resolutions of its
respective Board of Directors in form and substance reasonably
satisfactory to the Bank with respect to this Amendment.

SECTION 4. Representations and Warranties of the Borrower. The Borrower
represents and warrants to the Bank, with full knowledge that the Bank is
relying on the following representations and warranties in executing this
Amendment, as follows:

(a) The Borrower has corporate power and authority to execute,
deliver and perform this Amendment, and all corporate action on the part of the
Borrower requisite for the due execution, delivery and performance of this
Amendment has been duly and effectively taken.

(b) The Agreement as amended by this Amendment and the Loan Documents
and each and every other document executed and delivered in connection with
this Amendment to which the Borrower or any of its Subsidiaries is a party
constitute the legal, valid and binding obligations of the Borrower and any of
its Subsidiaries to the extent it is a party thereto, enforceable against such
Person in accordance with their respective terms.

(c) This Amendment does not and will not violate any provisions of
the articles or certificate of incorporation or bylaws of the Borrower, or any
contract, agreement, instrument or requirement of any Governmental Authority to
which the Borrower is subject. The Borrower's execution of this Amendment will
not result in the creation or imposition of any lien upon any properties of the
Borrower, other than those permitted by the Agreement and this Amendment.

(d) The Borrower's execution, delivery and performance of this
Amendment do not require the consent or approval of any other Person,
including, without limitation, any regulatory authority or governmental body of
the United States of America or any state thereof or any political subdivision
of the United States of America or any state thereof.

(e) The Borrower has performed and complied with all agreements and
conditions contained in the Agreement required to be performed or complied with
by the Borrower prior to or at the time of delivery of this Amendment.

(f) After giving effect to this Amendment, no Default or Event of
Default exists and all of the representations and warranties contained in the
Agreement and all instruments and documents executed pursuant thereto or
contemplated thereby are true and correct in all material respects on and as of
this date.

(g) Nothing in this Section 4 of this Amendment is intended to amend
any of the representations or warranties contained in the Agreement or of the
Loan Documents to which the Borrower or any of the Subsidiaries is a party.

-2-
<PAGE> 3
SECTION 5. Reference to and Effect on the Agreement.

(a) Upon the effectiveness of Sections 1 and 2 hereof, on and after
the date hereof, each reference in the Agreement to "this Agreement",
"hereunder", "hereof", "herein", or words of like import, shall mean and be a
reference to the Agreement as amended hereby.

(b) Except as specifically amended by this Amendment, the Agreement
shall remain in full force and effect and is hereby ratified and confirmed.

SECTION 6. No Waiver. Except as specifically amended hereby, the
Borrower agrees that no Event of Default and no Default has been waived or
remedied by the execution of this Amendment by the Bank and any such Default or
Event or Default heretofore arising and currently continuing shall continue
after the execution and delivery hereof.

SECTION 7. Extent of Amendments. Except as otherwise expressly provided
herein, the Agreement and the other Loan Documents are not amended, modified or
affected by this Amendment. The Borrower ratifies and confirms that (i) except
as expressly amended hereby, all of the terms, conditions, covenants,
representations, warranties and all other provisions of the Agreement remain in
full force and effect and (ii) each of the other Loan Documents are and remain
in full force and effect in accordance with their respective terms.

SECTION 8. WAIVERS AND RELEASE OF CLAIMS. As additional consideration
to the execution, delivery, and performance of this Amendment by the parties
hereto and to induce the Bank to enter into this Amendment, the Borrower
represents and warrants that (a) the Borrower knows of no defenses,
counterclaims or rights of setoff to the payment of any indebtedness of the
Borrower to the Bank, and (b) the Borrower for itself, its Subsidiaries, their
respective representatives, agents, officers, directors, employees,
shareholders, and successors and assigns, hereby fully, finally, completely,
generally and forever releases, discharges, acquits, and relinquishes the Bank
and their respective representatives, agents, officers, directors, employees,
shareholders, and successors and assigns, from any and all claims, actions,
demands, and causes of action of whatever kind or character, whether joint or
several, whether known or unknown, for any and all injuries, harm, damages,
penalties, costs, losses, expenses, attorneys' fees, and/or liability
whatsoever and whenever incurred or suffered by any of them prior to the
execution of this Amendment. Notwithstanding any provision of this Amendment,
the Agreement or any other Loan Document, this Section 8 shall remain in full
force and effect and shall survive the delivery of the Notes, this Amendment
and the other Loan Documents and the making, extension, renewal, modification,
amendment or restatement of any thereof.

SECTION 9. Guaranties. Each of the Guarantors hereby consents to and
accepts the terms and conditions of this Amendment, agrees to be bound by the
terms and conditions hereof and ratifies and confirms that its continuing
Guaranty Agreement, executed and delivered to the Bank on October 20, 1995,
guaranteeing payment of the obligations, is and remains in full force and
effect and secures payment of, among other things, the Note as renewed,
rearranged and extended hereby.

SECTION 10. Execution and Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of the signature page of
this Amendment by facsimile shall be equally as effective as delivery of a
manually executed counterpart of this Amendment.

-3-

<PAGE> 4
SECTION 11. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas.

SECTION 12. Headings. Section headings in this Amendment are included
herein for convenience and reference only and shall not constitute a part of
this Amendment for any other purpose.

SECTION 13. Arbitration Program. The parties agree to be bound by the
terms and provisions of the current Arbitration Program of First Interstate
Bank of Texas, N.A., which is incorporated by reference herein and is
acknowledged as received by the parties pursuant to which any and all disputes
arising hereunder, under the Agreement, under any of the other Loan Documents,
or under any of the documents and instruments contemplated thereby, or
pertaining hereto or thereto, shall be resolved by mandatory binding
arbitration upon the request of any party.

SECTION 14. NO ORAL AGREEMENTS. THE AGREEMENT (AS AMENDED BY THIS
AMENDMENT) AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized.

BORROWER:
- ---------

POWELL INDUSTRIES, INC

By:
/s/ J. F. AHART
---------------------------------
Name: J. F. Ahart
Title: Vice President

BANK:
- -----

WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION

By:
/s/ VALERIE B. CARLSON
---------------------------------
Name: Valerie B. Carlson
Title: Vice President

CONSENTED AND AGREED TO THIS 3 day of September, 1996:

POWELL ELECTRICAL MANUFACTURING COMPANY

By: /s/ J. F. AHART
---------------------------------
Name: J. F. Ahart
Title: Vice President

-4-

<PAGE> 5
DELTA-UNIBUS CORP. POWELL-ESCO COMPANY

By: /s/ J. F. AHART By: /s/ J. F. AHART
------------------------------ ------------------------------
Name: J. F. Ahart Name: J. F. Ahart
Title: Vice President Title: Vice President

UNIBUS, INC. TRACTION POWER SYSTEMS, INC

By: /s/ J. F. AHART By: /s/ J. F. AHART
------------------------------ ------------------------------
Name: J. F. Ahart Name: J. F. Ahart
Title: Vice President Title: Vice President

POWELL-INNOVATIVE BREAKER TRANSDYN CONTROLS, INC.
TECHNOLOGIES, INC.

By: /s/ J. F. AHART By: /s/ J. F. AHART
------------------------------ ------------------------------
Name: J. F. Ahart Name: J. F. Ahart
Title: Vice President Title: Vice President

-5-
<PAGE> 6
FIRST AMENDED AND RESTATED REVOLVING PROMISSORY NOTE

$15,000,000.00 AUGUST 15, 1996

FOR VALUE RECEIVED, after date, without grace, in the manner, on the dates and
in the amounts so herein stipulated, the undersigned, POWELL INDUSTRIES, INC.,
a Nevada corporation, acting by and through its duly authorized officer,
("Borrower") , PROMISES TO PAY TO THE ORDER OF WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, FORMERLY FIRST INTERSTATE BANK OF TEXAS, N.A. ("Lender"),
in Houston, Harris County, Texas, the sum of FIFTEEN MILLION AND N0/100 DOLLARS
($15,000,000.00) or, if less, the aggregate unpaid principal amount of advances
made by Lender to Borrower pursuant to this Note, in lawful money of the United
States of America, which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, and to pay interest on the
unpaid principal amount from date until maturity at a rate equal to the Stated
Rate (as hereinafter defined), not to exceed the maximum non-usurious interest
rate permitted by applicable law from time to time in effect as such law may be
interpreted, amended, revised, supplemented or enacted ("Maximum Rate"),
provided that if at any time the Stated Rate exceeds the Maximum Rate then
interest hereon shall accrue at the Maximum Rate. In the event the Stated Rate
subsequently decreases to a level which would be less than the Maximum Rate or
if the Maximum Rate applicable to this Note should subsequently be changed,
then interest hereon shall accrue at a rate equal to the applicable Maximum
Rate until the aggregate amount of interest so accrued equals the aggregate
amount of interest which would have accrued at the Stated Rate without regard
to any usury limit, at which time interest hereon shall again accrue at the
Stated Rate. As used herein, the Stated Rate shall mean, in the absence of
Borrower's exercise of a Eurodollar Rate Election (as defined in the Credit
Agreement) , the Prime Rate plus the applicable Base Rate Margin as set forth
below:

RATIO OF-FUNDED INDEBTEDNESS TO BASE RATE MARGIN
EBITDA FOR THE PRECEDING FOUR (4)
FISCAL QUARTERS

less than 1.75 to 1.00 0%

1.75 to 1.00 or greater 0.25%

Page 1 of Five
<PAGE> 7
In the event the Borrower exercises its right to select the Eurodollar Rate (as
defined in the Credit Agreement) , (i) such selection shall be in accordance
with the provisions of the Credit Agreement and (ii) the Stated Rate as to the
Eurodollar Rate Advance (as defined in the Credit Agreement) shall be the
Eurodollar Rate plus the applicable Libor Margin as set forth below:

<TABLE>
<CAPTION>
RATIO OF-FUNDED INDEBTEDNESS TO LIBOR MARGIN
EBITDA FOR THE PRECEDING FOUR (4)
FISCAL QUARTERS

<S> <C>
less than or equal to 1.25 to 1.00 1.00%

greater than 1.25 to 1.00,
but less than 1.50 to 1.00 1.25%

equal to or greater than 1.50 to 1.00,
but less than 1.75 to 1.00 1.50%

equal to or greater than 1.75 to 1.00,
but less than 2.00 to 1.00 1.75%

equal to or greater than 2.00 to 1.00 2.25%
</TABLE>

The adjustment in the applicable Base Rate Margin and/or Libor Margin of this
Note shall be effective on the first of the month following receipt of
quarterly financial statements pursuant to Section 3.1 and Compliance
Certificate pursuant to Section 5.10 of the Credit Agreement indicating the
Ratio of Funded Indebtedness to EBITDA for the preceding four (4) fiscal
quarters (as such terms are defined in the Credit Agreement), provided that if,
for any reason, the applicable financial statements are delivered after the 1st
of the month approximately sixty (60) days following the end of the fiscal
quarter, the adjustment in Base Rate Margin or Libor Margin shall be
retroactive to the 1st of such month based upon the financial statements when
delivered.

Interest shall be due and payable monthly as it accrues on the first day of
each and every month, beginning November 1, 1995, and continuing regularly
thereafter until August 15, 1998, when the entire balance of principal and
accrued interest shall be due and payable.

Page 2 of Five
<PAGE> 8
This Note is the Revolving Note referred to in, is subject to, and is entitled
to the benefits of, the Credit Agreement dated as of October 20, 1995, as
amended by a First Amendment to Credit Agreement, dated of even date herewith,
between Borrower and Lender, as that Credit Agreement, as amended, may be
further amended, modified or supplemented from time to time (the "Credit
Agreement"). The Credit Agreement contains, among other things, provisions for
the acceleration of the maturity hereof upon the occurrence of certain stated
events. All capitalized terms used herein which are defined in the Credit
Agreement shall have the same meaning as in the Credit Agreement.

It is agreed that time is of the essence of this agreement. Upon the
occurrence of an Event of Default, Lender may accelerate and declare this Note
immediately due and payable as provided in the Credit Agreement. Any failure
to exercise this option shall not constitute a waiver by Lender of the right to
exercise the same at any other time.

Upon the occurrence of an Event of Default under Section 6.1 of the Credit
Agreement or in the event this Note is declared due interest shall accrue in
accordance with the provisions of Section 1.9 of the Credit Agreement, but in
no event to exceed the Maximum Rate.

Borrower hereby agrees to pay all expenses incurred, including reasonable
attorneys' fees, all of which shall become a part of the principal hereof, if
this Note is placed in the hands of an attorney for collection or if collected
by suit or through any probate, bankruptcy or any other legal proceedings.

Interest charges will be calculated on amounts advanced hereunder on the actual
number of days these amounts are outstanding in accordance with the Credit
Agreement. It is the intention of the parties hereto to comply with all
applicable usury laws; accordingly, it is agreed that notwithstanding any
provision to the contrary in this Note, or in any of the documents securing
payment hereof or otherwise relating hereto, no such provision shall require
the payment or permit the collection of interest in excess of the Maximum Rate.
If any excess of interest in such respect is provided for, or shall be
adjudicated to be so provided for, in this Note or in any of the documents
securing payment hereof or otherwise relating hereto, then in such event (1)
the provisions of this paragraph shall govern and control, (2) neither
Borrower, endorsers or guarantors, nor their heirs, legal representatives,
successors or assigns nor any other party liable for the payment hereof, shall
be obligated to pay the amount of such interest to the extent that it is in
excess of the Maximum Rate, (3) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal amount
hereof or refunded to Borrower, and (4) the provisions of this Note and any
documents securing payment of this Note shall be automatically reformed so that
the effective rate of interest shall be reduced to the Maximum Rate. For the
purpose of determining the Maximum Rate, all interest payments with respect to
this Note shall be amortized, prorated and spread throughout the full term of
the Note so that the effective rate of interest on account of this Note is
uniform throughout the term hereof.

Page 3 of Five
<PAGE> 9
Borrower agrees that the Maximum Rate to be charged or collected pursuant to
this Note shall be the applicable indicated rate ceiling as defined in TEX.
REV. CIV. STAT. ANN. Art. 5069-1.04, provided that Lender may rely on other
applicable laws, including without limitation laws of the United States, for
calculation of the Maximum Rate if the application thereof results in a greater
Maximum Rate. Except as provided above, the provisions of this Note shall be
governed by the laws of the State of Texas.

Each maker, surety, guarantor and endorser (i) waives demand, grace, notice,
presentment for payment, notice of intention to accelerate the maturity hereof,
notice of acceleration of the maturity hereof and protest, (ii) agrees that
this Note and the liens securing its payment may be renewed, and the time of
payment extended from time to time, without notice and without releasing any of
the foregoing, and (iii) agrees that without notice or consent from any maker,
surety, guarantor, or endorser, Lender may release any collateral which may
from time to time be pledged to secure repayment of this Note, or may release
any party who might be liable for this Note.

Subject to the provisions of the Credit Agreement, Borrower may prepay this
Note, in whole or in part, at any time prior to maturity without penalty, and
interest shall cease on any amount prepaid.

As used in this Note, the term "Prime Rate" shall mean the variable rate of
interest announced by Lender from time to time as its prime rate of interest
and, without notice to the maker of this Note or any other person, such rate of
interest shall change as and when changes in that prime rate of interest are
announced. The Prime Rate is set by Lender as a general reference rate of
interest, taking into account such factors as Lender may deem appropriate, it
being understood that many of Lender's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or best rate of
interest actually charged on any loan, and that Lender may make various
commercial or other loans at rates of interest having no relationship to the
Prime Rate. If at any time the "Prime Rate" of Wells Fargo Bank (Texas),
National Association, formerly First Interstate Bank of Texas, N.A. is no
longer available, then the owner of this Note ("Owner") will designate a
different "Prime Rate" as announced by a national banking association of
owner's choice.

The principal of this Note represents funds which Lender will advance to
Borrower from time to time upon request of Borrower. Any part of the principal
may be repaid by Borrower and thereafter reborrowed, provided the outstanding
principal amount of this Note shall never exceed the face amount of this Note.
Each advance shall constitute a part of the principal hereof and shall bear
interest from the date of the advance. The provisions of TEX. REV. CIV.
STAT. ANN. Art. 5069-15.01, et seq, as may be amended, shall not apply to
this Note or to any of the security documents executed in connection with this
Note.

Page 4 of Five
<PAGE> 10
This First Amended and Restated Revolving Promissory Note is given in renewal
and extension and not in novation of the Revolving Promissory Note dated
October 20, 1995, in the amont of $15,000,000.00 executed by Borrower payable
to First Interstate Bank of Texas, N.A.

Borrower represents and warrants that this loan is for business, commercial,
investment or similar purposes and not primarily for personal, family,
household or agricultural use, as such terms are used in Chapter One of the
Texas Credit Code.

POWELL INDUSTRIES, INC.

By: /s/ J. F. AHART
--------------------------------
Name: J. F. Ahart
-----------------------------
Title: Vice President
----------------------------

"BORROWER"

Page 5 of Five

<PAGE> 1
EXHIBIT 21.1

SUBSIDIARIES OF POWELL INDUSTRIES, INC.

<TABLE>
<CAPTION>
NAME OF DOMESTIC SUBSIDIARY STATE OF INCORPORATION
- --------------------------- ----------------------
<S> <C>
Powell Electrical Manufacturing Co. Delaware

Powell-Process Systems, Inc.(Inactive) Utah

Powell-ESCO Company Texas

Unibus, Inc. Ohio

Delta-Unibus Corp. Illinois

U. S. Turbine Corp.(Inactive) Nevada

Transdyn Controls, Inc. California

NAME OF FOREIGN SUBSIDIARY COUNTRY OF INCORPORATION
- -------------------------- ------------------------

Powell Foreign Sales Corporation Barbados, West Indies
</TABLE>

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

AS INDEPENDENT PUBLIC ACCOUNTANTS, WE HEREBY CONSENT TO THE INCORPORATION BY
REFERENCE OF OUR REPORTS DATED DECEMBER 3, 1996, INCLUDED IN THIS FORM 10-K,
INTO THE POWELL INDUSTRIES, INC. PREVIOUSLY FILED FORM S-8 REGISTRATION FILE
NO. 33-81998.

ARTHUR ANDERSEN LLP

HOUSTON, TEXAS

JANUARY 27, 1997

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 8,935
<SECURITIES> 0
<RECEIVABLES> 37,790
<ALLOWANCES> 777
<INVENTORY> 14,114
<CURRENT-ASSETS> 79,144
<PP&E> 41,566
<DEPRECIATION> 26,964
<TOTAL-ASSETS> 99,523
<CURRENT-LIABILITIES> 32,639
<BONDS> 0
<COMMON> 106
0
0
<OTHER-SE> 63,119
<TOTAL-LIABILITY-AND-EQUITY> 99,523
<SALES> 170,123
<TOTAL-REVENUES> 170,123
<CGS> 127,075
<TOTAL-COSTS> 127,075
<OTHER-EXPENSES> 26,928
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> 16,003
<INCOME-TAX> 5,245
<INCOME-CONTINUING> 0
<DISCONTINUED> (5,998)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,760
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0

</TABLE>