Part I
      Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the accompanying condensed consolidated financial statements and related notes. In the course of operations, we are subject to certain risk factors, including but not limited to competition and competitive pressures, sensitivity to general economic and industry conditions, international political and economic risks, availability and price of raw materials and execution of business strategy. Any forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements involve risks and uncertainties in that the actual results may differ materially from those projected in the forward-looking statements.

Results of Operations

Revenue and Gross Profit

Consolidated revenues decreased 26% to $53.2 million in the first quarter of fiscal 2004 as compared to first quarter 2003 revenues of $71.6 million, primarily due to a decline in new infrastructure investments in the industrial and utility markets served by our Electrical Power Products segement. Domestic revenues decreased $16.6 million to $45.3 million for the three months ended January 31, 2004. International revenues decreased 18% in the first quarter 2004 to $7.9 million from $9.6 million in the same quarter of the prior year. Revenues outside of the United States accounted for 15% of consolidated revenues in the first quarter of fiscal 2004 compared to 13% in the same period last year.

Electrical Power Products

Our Electrical Power Products segment recorded revenues of $46.2 million for the three months ended January 31, 2004 compared to $65.6 million for the same time period of the previous year. In the first quarter of 2004, revenues from public and private utilities were 38% lower than the first quarter of fiscal 2003. This was primarily due to a significant decline in new investments in electrical power generation facilities. Utility revenues were $19 million compared to $30 million in the first quarter of 2003. Revenues from industrial customers totaled $21 million, a decrease of $8 million, or 28%, from the same time period of the previous year. This decrease in revenue from industrial customers resulted primarily from lower revenues related to the manufacture and delivery of power control modules for new oil and gas production facilities. Municipal and transit projects generated revenues of $13 million during the first quarter of 2004 and 2003.

Gross profit, as a percentage of revenues, was 17.8% in the first quarter of fiscal 2004, compared to 19.4% in the first quarter of fiscal year 2003. Gross profit was adversely impacted by lower production volumes and competitive pricing pressures. Partially offsetting adverse market conditions were the results of our efforts to reduce our costs of production by improving operating efficiencies through the implementation of lean initiatives. In addition, we incurred separation costs of $0.2 million as a result of reductions in our workforce.

Process Control Systems

Revenues in our Process Control Systems segment increased 17% to $7.1 million compared to $6.0 million in the first quarter of fiscal 2003. Our most significant project during the first quarter of 2004 was a contract to design and build Intelligent Transportation Systems (ITS) for the Holland and Lincoln tunnels from the Port Authority of New York and New Jersey. First quarter revenue attributable to this project totaled $2.8 million. Gross profit, as a percentage of revenues, was 19.2% in the first quarter of fiscal 2004 compared to 25.1% in the first quarter of 2003. Margins fell during the first quarter of 2004 due to a higher proportion of segment revenue attributable to subcontract work, which carries substantially lower margins.

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

Operating Expenses

Selling, general and administrative expenses increased to 16.0% of revenues in the first quarter of 2004 compared to 13.1% of revenues in the first quarter of fiscal year 2003. Our commitment to continue to develop our customer markets and products resulted in an increase in operating expenses relative to our revenues. Research and development expenditures were $0.9 million in the first quarter of fiscal 2004 compared to $0.7 million in last year’s first quarter. Our research efforts are directed toward the discovery and development of new products and processes as well as improvements in existing products and processes. For the full year, we anticipate research and development spending will be comparable to fiscal year 2003 expenditures of $3.6 million.

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Interest Income and Expense

We incurred $27 thousand in interest expense on our outstanding industrial development revenue bonds during the quarter compared to $86 thousand for the three months ended January 31, 2003. In September 2003, we paid off our term debt, which accounted for the majority of the interest expense incurred in the first quarter of 2003. As a result of lower levels of debt and decreased interest rates, our interest expense has declined.

Interest income increased by $100 thousand to $192 thousand for the first quarter of 2004 compared to the same period of the previous year. An increase in invested funds during 2004 has been partially offset by the lower interest rate environment.

Provision for Income Taxes

Our provision for income taxes reflects an effective tax rate on earnings before income taxes of 36.7% in the first quarter of fiscal 2004 compared to 37.2% in the first quarter of fiscal 2003. The decrease in the provision is primarily due to the decrease in consolidated pre-tax earnings, which has changed our effective federal income tax rate from 35% in 2003 to 34% in 2004.

Net Income

Net income was $747 thousand, or $0.07 per diluted share, in the first quarter of fiscal 2004 compared to $2.5 million, or $0.24 per diluted share, in the first quarter of fiscal 2003. The decrease in net income primarily relates to lower business volume and decreased gross profits in fiscal 2004.

In the first quarter of fiscal 2003, net income was negatively impacted as a result of the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. During that quarter, we recorded a goodwill impairment loss of $0.5 million as a cumulative effect of a change in accounting principle. The goodwill impairment charge accounted for a loss of $0.04 per diluted share.

Backlog

The order backlog on January 31, 2004, was $137.3 million, compared to $157.5 million at fiscal year end 2003 and $168.5 million at the end of the first quarter one year ago. New orders placed during the first quarter totaled $33.1 million versus $36.3 million in our fourth quarter 2003 and $50.7 million for the same period last year. Capital spending on new infrastructure projects has declined due to uncertainty with the U.S. economy, thus causing the decline in our backlog and bookings.

Liquidity and Capital Resources

We have maintained a strong liquidity position. Working capital was $97.7 million at January 31, 2004 compared to $96.9 million at October 31, 2003. As of January 31, 2004, current assets exceeded current liabilities by 3.3 times and our debt to capitalization ratio was less than 0.1 to 1.0.

As of January 31, 2004, we had cash and cash equivalents of $37.3 million, as well as $5.7 million in marketable debt securities, a slight increase from year end 2003. Long-term debt, including current maturities, totaled $7.3 million at January 31, 2004 compared to $7.4 million at October 31, 2003. In addition to our long-term debt, we have a $15 million revolving credit agreement expiring February 2006. As of January 31, 2004, there were no borrowings under this line of credit. We were in compliance with all debt covenants as of January 31, 2004.

Operating Activities

For the three months ended January 31, 2004, cash from operating activities provided $1.8 million. A net reduction in operating assets and liabilities provided $2.0 million compared to the net investment of $5.2 million in operating assets in the first quarter of 2003. During the first quarter of 2004, the primary source of cash from operating activities was due to increased billings on percentage of completion projects. In addition, reductions in inventory provided cash from operations as opposed to the increases in inventory during the first quarter of 2003 partially offset by increases in accounts receivable.

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Investing Activities

Cash used for the purchase of property, plant and equipment during the three months ended January 31, 2004 was $1.5 million, as compared to $1.8 million for the three months ended January 31, 2003. The majority of our 2004 and 2003 capital expenditures were to increase our manufacturing capabilities available for the manufacture of electrical power control modules. These modules are provided to the oil and gas industry for use on offshore platforms.

Financing Activities

Financing activities provided $250 thousand in the first quarter of 2004. The primary source of cash from financing activities was the proceeds from the exercise of stock options. During the first quarter of 2003, the primary use of cash was to repay our term debt. The term loan was paid off in September 2003.

Outlook

For the second quarter of 2004, we expect earnings from continuing operations to range between $0.04 and $0.09 per diluted share. For the full year 2004, we expect earnings from continuing operations to range between $0.35 and $0.50 per diluted share. Fiscal year 2004 revenue is expected to range between $205 million and $220 million.

We will continue to invest in our manufacturing capabilities and expect capital expenditures for full fiscal year 2004 to range between $5.0 million and $8.0 million. During 2002, we initiated a project to increase our manufacturing capacity available for the manufacture of electrical power control modules. This project is expected to be completed in the first half of fiscal year 2004.

In spite of declining business volumes, we anticipate that our cash position will improve slightly during 2004 due to cost containment and investment income. We believe that working capital, borrowing capabilities, and funds generated from operations should be sufficient to finance anticipated operational activities, capital improvements, debt repayment and possible future acquisitions for the foreseeable future.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments with respect to the selection and application of accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

We believe the following critical accounting policies have the greatest impact on the preparation of our consolidated financial statements.

Revenue Recognition

Our revenues are generated from the manufacture and delivery of custom-manufactured products. We recognize revenues under both the completed contract method and the percentage-of-completion method depending upon the duration and the scope of the project. At the onset of each project, the size and duration of the contract is reviewed to determine the appropriate revenue recognition method based upon company policy. Due to the nature of the projects in the Process Control Systems segment, all revenues are recorded using percentage-of-completion. However, projects in the Electrical Power Products segment vary widely; thus, both the completed contract and percentage-of-completion methods are used.

Under the completed contract method, revenues are recognized upon the transfer of title, which is generally at the time of shipment or delivery depending upon the terms of the contract, when all significant contractual obligations have been satisfied, the price is fixed or determinable, and collectibility is reasonably assured. We use shipping documents and customer acceptance, when applicable, to verify the transfer of title to the customer. We assess whether the price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Collectibility is assessed based on the creditworthiness of the customer based on credit verification and the customer’s payment history.

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Under the percentage-of-completion method, revenues are recognized as work is performed based upon the ratio of labor dollars or hours incurred to date to total estimated labor dollars or hours to measure the stage of completion. The sales and gross profit recognized in each period are adjusted prospectively for any revisions in the total estimated contract costs, total estimated labor hours to complete the project, or total contract value. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. Due to the number of estimates used in the percentage-of-completion calculations, conditions such as changes in job performance, job conditions, estimated contract costs and profitability may result in revisions to original assumptions, thus causing actual results to differ from original estimates.

Valuation Accounts

Our most significant accounting uncertainty for which a valuation account is set up is in the area of accounts receivable collectibility.

An allowance for doubtful accounts has been established to provide for estimated losses on our accounts receivable. This estimated allowance is based on historical experience of uncollected accounts, the level of past due accounts, the overall level of outstanding accounts receivable, information about specific customers with respect to their inability to make payments and expectations of future conditions that could impact the collectibility of accounts receivable. We continually assess our allowance for doubtful accounts and may increase or decrease our periodic provision as additional information regarding collectibility becomes available.

Impairment of Long-Lived Assets

We evaluate the recoverability of the carrying amount of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable. For long-lived assets to be held and used, the evaluation is based on impairment indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, we determine whether impairment has occurred through the use of an undiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows exist, or quoted market prices. If an asset is considered to be impaired, a loss is recognized for the amount by which the carrying amount of the asset exceeds its fair value. For assets held for sale or disposal, the fair value of the asset is measured using quoted market prices or an estimation of net realizable value. Assets are classified as held for sale when there is a plan for disposal and those assets meet the held for sale criteria of SFAS No. 144. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

Accruals for Contingent Liabilities

We account for contingencies in accordance with SFAS No. 5, “Accounting for Contingencies”. SFAS No. 5 requires that we record an estimated loss from a loss contingency when information available prior to the issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. The amounts we record for insurance claims, warranties, legal and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We use past experience and history, as well as other specific circumstances surrounding these claims in evaluating the amount of liability that should be recorded. Actual results could differ from our estimates.

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Part 1
      Item 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks arising from transactions we have entered into in the normal course of business. These risks primarily relate to fluctuations in interest rates, foreign exchange rates, and commodity prices.

We manage our exposure to changes in interest rates by optimizing the use of variable rate debt. A 1.0% increase in interest rates would result in an annual increase in interest expense of less than $100 thousand. In addition to variable rate debt, we also invest in marketable debt securities that are carried at fair value on the consolidated balance sheet, with unrealized gains and losses reported in other comprehensive income. Changes in interest rates will affect the fair value of the marketable securities as reported. However, we believe that changes in interest rates will not have a material near-term impact on our future earnings or cash flows.

We manage our exposure to changes in foreign exchange rates primarily through arranging compensation in U.S. dollars. Risks associated with changes in commodity prices are primarily managed through utilizing contracts with suppliers. Risks related to foreign exchange rates and commodity prices are monitored and actions could be taken to hedge these risks in the future. We believe that fluctuations in foreign exchange rates and commodity prices will not have a material near-term effect on our future earnings and cash flows.

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Part 1
      Item 4

CONTROLS AND PROCEDURES

Management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have each concluded that as of the end of such period, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

We also maintain a system of internal accounting controls that are designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our policies and procedures are followed. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II

OTHER INFORMATION

	ITEM 1.                         ITEM 2.         ITEM 3.         ITEM 4.         ITEM 5.         ITEM 6.	Legal Proceedings The Company is a party to disputes arising in the ordinary course of business. Management does not believe that the ultimate outcome of these disputes will materially affect the financial condition or results of operations of the Company. Changes in Securities and Use of Proceeds None Defaults Upon Senior Securities Not applicable Submission of Matters to a Vote of Security Holders None Other Information None Exhibits and Reports on Form 8-K        a. Exhibits           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 our 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 the quarter ended April 30, 1992, respectively, and incorporated herein by reference).           3.2 - Bylaws of Powell Industries, Inc. (filed as Exhibit 3.2 to our Form 10-Q for the quarter ended                   April 30, 1995 and incorporated herein by reference).          31.1 - Certification of Thomas W. Powell pursuant to Rule 13a-14(a)/15d-14(a).          31.2 - Certification of Don R. Madison pursuant to Rule 13a-14(a)/15d-14(a).          32.1 - Certification of Thomas W. Powell Pursuant to Section 18 U.S.C. Section 1350, as Adopted                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.          32.2 - Certification of Don R. Madison Pursuant to Section 18 U.S.C. Section 1350, as Adopted                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.        b. Reports on Form 8-K            Form 8-K filed on February 27, 2004

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SIGNATURES

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

POWELL INDUSTRIES, INC.
Registrant

March 1, 2004        Date	/s/    THOMAS W. POWELL                Thomas W. Powell President & Chief Executive Officer (Principal Executive Officer)
March 1, 2004        Date	/s/    DON R. MADISON                       Don R. Madison Vice President & Chief Financial Officer (Principal Financial Officer)

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