The following discussion should be read in conjunction with the accompanying consolidated financial statements and related notes. 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. For a description of the risks and uncertainties, please see "Cautionary Statement Regarding Forward-Looking Statements; Risk Factors" and "Item 1A. Risk Factors" contained in this Annual Report.

Overview

We develop, design, manufacture and service custom engineered-to-order equipment and systems for the management and control of electrical energy and other critical processes. Headquartered in Houston, Texas, we

serve the transportation, environmental, energy, industrial and utility industries. Our business operations are consolidated into two business segments:
Electrical Power Products and Process Control Systems.

Effective September 30, 2006, we changed our fiscal year-end from October 31 to September 30. Therefore, our consolidated operating results and cash flows for the year ended September 30, 2007, are compared to the operating results and cash flows for the 11 months ended September 30, 2006.

On August 7, 2006, we purchased certain assets related to the ANSI medium voltage switchgear and circuit breaker business of GE's Consumer & Industrial unit. The operating results of the Power/VacŪ product line are included from that date and are included in our Electrical Power Products business segment.

The Power/VacŪ medium voltage switchgear product line enhances our product portfolio, comes with a large installed base and has broad customer support across utility, industrial and commercial markets. In connection with the acquisition, we entered into a 15-year supply agreement in which GE is obligated to purchase from Powell (subject to limited conditions for exceptions) all of its requirements for ANSI medium voltage switchgear and circuit breakers and other related equipment and components. The Power/VacŪ product line, together with our long-term commercial alliance with GE, has expanded our position in the marketplace and enabled us to reach a broader market and gain access to new customers. We completed the relocation of the Power/VacŪ product line from West Burlington, Iowa, to our facilities in Houston, Texas, during fiscal year 2008.

Throughout fiscal 2008, we experienced strong market demand for our products and services. New investments in oil and gas infrastructure, as well as new investments by municipal and transit authorities to expand and improve public transportation, were key drivers of increased business activity in fiscal 2008. Customer inquiries, or requests for proposals, continued to strengthen throughout fiscal years 2007 and 2008. This increase in customer inquiries led to increased orders in fiscal year 2008 and, accordingly, a strong backlog of orders entering into fiscal year 2009.

Results of Operations

Twelve Months Ended September 30, 2008 ("Fiscal 2008") Compared to Twelve Months Ended September 30, 2007 ("Fiscal 2007")

Revenue and Gross Profit

Consolidated revenues increased $74.4 million to $638.7 million in Fiscal 2008 compared to $564.3 million in Fiscal 2007. Revenues increased as we have responded to strong market demand by increasing our capacity and throughput. Domestic revenues increased by 25.9% to $469.1 million in Fiscal 2008 compared to $372.7 million in Fiscal 2007. International revenues decreased from $191.6 million in Fiscal 2007 to $169.6 million in Fiscal 2008, as a large international project was substantially completed in Fiscal 2007. The increase in consolidated revenues was primarily due to higher levels of energy related investments, principally oil and gas projects. Gross profit in Fiscal 2008 increased by approximately $30.8 million compared to Fiscal 2007, as a result of improved pricing and productivity.

Electrical Power Products

Our Electrical Power Products business segment recorded revenues of $611.5 million in Fiscal 2008, compared to $541.6 million in Fiscal 2007. In Fiscal 2008, revenues from public and private utilities were approximately $171.8 million compared to $174.4 million in Fiscal 2007. Revenues from commercial and industrial customers totaled $400.0 million in Fiscal 2008, an increase of $69.6 million compared to Fiscal 2007. Municipal and transit projects generated revenues of $39.7 million in Fiscal 2008 compared to $36.8 million in Fiscal 2007.

Business segment gross profit, as a percentage of revenues, was 19.3% in Fiscal 2008 compared to 16.4% in Fiscal 2007. The increase in gross profit as a percentage of revenues is attributable to an increase in production volume and improved pricing, along with higher than anticipated margins being achieved on various jobs. Excluding the direct impact of the Power/VacŪ product line, business segment gross profit would have been approximately 21.2% for Fiscal 2008. Cost of sales and gross profit were also negatively impacted by approximately $1.4 million to record a 2006 charge for a liability related to a contract we entered into in fiscal 2006.

Process Control Systems

In Fiscal 2008, our Process Control Systems business segment recorded revenues of $27.2 million, up from $22.7 million in Fiscal 2007. Business segment gross profit increased as a percentage of revenues, to 30.2% for Fiscal 2008, compared to 28.8% for Fiscal 2007. This increase resulted from a favorable mix of jobs and achieving synergies and increased efficiencies through regionalization of operations. Revenues and gross profit in Fiscal 2008 were also positively impacted by approximately $1.9 million related to the favorable settlement of a claim for extra work performed on a project that was substantially completed in prior years.

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

Consolidated Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses decreased to 13.2% of revenues in Fiscal 2008 compared to 13.7% of revenues in Fiscal 2007. Selling, general and administrative expenses increased to $84.0 million in Fiscal 2008 compared to $77.2 million in Fiscal 2007. This increase is a result of increased commissions, salaries and incentive compensation due to increased volumes and earnings. Selling, general and administrative expenses as a percentage of revenues decreased due to our ability to leverage our existing infrastructure to support our increased production volume.

Interest Income and Expense

Interest expense was $2.9 million in Fiscal 2008, a decrease of approximately $0.6 million compared to Fiscal 2007. The decrease in interest expense was primarily due to lower interest rates.

Interest income was $0.4 million in Fiscal 2008 compared to $0.6 million in Fiscal 2007. This decrease resulted from lower interest rates and cash was used to fund working capital during Fiscal 2008.

Provision for Income Taxes

Our provision for income taxes reflects an effective tax rate on earnings before income taxes of 35.3% in Fiscal 2008 compared to 35.5% in Fiscal 2007. Our effective tax rate is impacted by income generated in the United Kingdom, which has a lower statutory rate than the United States; as well as a mix of various state income taxes due to the relative mix of volume in the United States.

In addition, adjustments to estimated tax accruals are analyzed and adjusted quarterly as events occur to warrant such change. Adjustments to tax accruals are a component of the effective tax rate.

Net Income

In Fiscal 2008, we recorded net income of $25.8 million, or $2.26 per diluted share, compared to $9.9 million, or $0.88 per diluted share, in Fiscal 2007. As discussed above, we generated higher revenues and improved gross profits in all of our business segments, while leveraging our existing infrastructure to support our increased production volume.

Backlog

The order backlog at September 30, 2008, was $518.6 million, compared to $464.5 million at September 30, 2007. New orders placed during Fiscal 2008 totaled $705.4 million compared to $667.1 million in Fiscal 2007.

Fiscal 2007 Compared to Eleven Months Ended September 30, 2006 ("Fiscal 2006")

Revenue and Gross Profit

Consolidated revenues increased $189.8 million to $564.3 million in Fiscal 2007 compared to $374.5 million in Fiscal 2006. Revenues increased primarily due to general market recovery, concerted sales efforts and the acquisition of the Power/VacŪ product line in the fourth quarter of Fiscal 2006. The Power/VacŪ product line added revenues of

$85.7 million in Fiscal 2007. Domestic revenues increased by 41.7% to $372.7 million in Fiscal 2007 compared to $263.1 million in Fiscal 2006. International revenues were $191.6 million in Fiscal 2007 compared to $111.5 million in Fiscal 2006. The increase was primarily due to higher levels of energy related investments, principally oil and gas projects. Gross profit in Fiscal 2007 increased by approximately $26.5 million compared to Fiscal 2006, as a result of improved pricing and productivity.

Electrical Power Products

Our Electrical Power Products business segment recorded revenues of $541.6 million in Fiscal 2007, which included revenues of $85.7 million from the Power/VacŪ product line, compared to $347.9 million in Fiscal 2006. In Fiscal 2007, revenues from public and private utilities were approximately $174.4 million compared to $113.6 million in Fiscal 2006. Revenues from commercial and industrial customers totaled $330.4 million in Fiscal 2007, an increase of $126.0 million compared to Fiscal 2006. Municipal and transit projects generated revenues of $36.8 million in Fiscal 2007 compared to $29.9 million in Fiscal 2006.

Business segment gross profit, as a percentage of revenues, was 16.4% in Fiscal 2007 compared to 17.7% in Fiscal 2006. In Fiscal 2007, gross profit, as a percentage of revenues, was negatively impacted by the integration and start up costs associated with relocating the Power/VacŪ product line to Houston, Texas. Higher than average gross margins from service and replacement projects, as a result of the 2005 hurricanes along the Gulf Coast region, increased the gross profit percentage in Fiscal 2006. Excluding the direct impact of the Power/VacŪ product line, business segment gross profit would have been approximately 19.5% in Fiscal 2007. Gross profit was also negatively impacted by the operating performance of one of the Company's smaller business units which had a number of jobs that were underestimated at quotation in previous years, as well as operational challenges in completing certain projects.

Process Control Systems

In Fiscal 2007, our Process Control Systems business segment recorded revenues of $22.7 million, down from $26.6 million in Fiscal 2006. This decrease in revenues is primarily attributable to the substantial completion of certain large projects in early 2006. Business segment gross profit, as a percentage of revenues, increased to 28.8% in Fiscal 2007 compared to 28.4% in Fiscal 2006. Gross profit in each of Fiscal 2007 and 2006 was negatively impacted by approximately $2.3 million related to legal and other costs incurred to recover amounts owed on a previously completed contract.

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

Consolidated Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses decreased to 13.7% of revenues in Fiscal 2007 compared to 14.8% of revenues in Fiscal 2006. Selling, general and administrative expenses were $77.2 million in Fiscal 2007 compared to $55.3 million in Fiscal 2006. Selling, general and administrative expenses increased primarily due to amortization expense, increased administrative costs related to the integration of the Power/VacŪ product line and related operations and increased payroll and recruiting costs, which are consistent with the increase in volume. Additionally, bad debt expense increased primarily related to collection shortfalls associated with certain projects with operational issues at one of the Company's smaller business units.

Interest Income and Expense

Interest expense was $3.5 million in Fiscal 2007, an increase of approximately $1.9 million compared to Fiscal 2006. The increase in interest expense was primarily due to interest expense imputed as a discount on the purchase price for the acquisition of the Power/ VacŪ product line in the fourth quarter of Fiscal 2006.

Interest income was $0.6 million in Fiscal 2007 compared to $0.9 million in Fiscal 2006. This decrease resulted as cash generated from operations was used to reduce debt balances.

Provision for Income Taxes

Our provision for income taxes reflects an effective tax rate on earnings before income taxes of 35.5% in Fiscal 2007 compared to 35.0% in Fiscal 2006. Our effective tax rate is impacted by income generated in the United Kingdom, which has a lower statutory rate than the United States; however, the lower statutory rate will be offset by certain expenses that are not deductible for tax purposes in the United Kingdom, such as amortization of intangible assets.

In addition, adjustments to estimated tax accruals are analyzed and adjusted quarterly as events occur to warrant such change. Adjustments to tax accruals are a component of the effective tax rate.

Net Income

In Fiscal 2007, we recorded net income of $9.9 million, or $0.88 per diluted share, compared to $8.4 million, or $0.76 per diluted share, in Fiscal 2006. We had an increase in selling, general and administrative expenses associated with higher levels of business activity and the integration and relocation costs of the Power/VacŪ product line, partially offset by higher revenues and improved gross profits in our Electrical Power Products business segment. Additionally, net income was also negatively impacted by underperformance at one of the Company's smaller business units stemming from performance and collection issues with certain projects.

Backlog

The order backlog at September 30, 2007, was $464.5 million, compared to $355.1 million at September 30, 2006. New orders placed during Fiscal 2007 totaled $667.1 million compared to $470.7 million in Fiscal 2006.

Liquidity and Capital Resources

We have maintained a positive liquidity position. Working capital increased to $150.7 million at September 30, 2008, compared to $101.3 million at September 30, 2007. This increase in working capital resulted primarily from increases in inventory and accounts receivable due to increased demand for our products and services. As of September 30, 2008, current assets exceeded current liabilities by 1.99 times and our debt to total capitalization ratio was 16.8%.

At September 30, 2008, we had cash, cash equivalents and marketable securities of $10.1 million, compared to $5.3 million at September 30, 2007. We have a $58.5 million revolving credit facility in the U.S. and an additional Ģ4.0 million (approximately $7.3 million) revolving credit facility in the United Kingdom, both of which expire in December 2011. As of September 30, 2008, there was approximately $21.7 million borrowed under these lines of credit. Total long-term debt and capital lease obligations, including current maturities, totaled $41.8 million at September 30, 2008, compared to $35.8 million at September 30, 2007. Letters of credit outstanding were $22.2 million and $20.6 at September 30, 2008 and 2007, respectively, which reduced our availability under our credit facilities. Amounts available under the U.S. revolving credit facility and the revolving credit facility in the United Kingdom were approximately $19.5 million and $4.5 million, respectively, at September 30, 2008. For further information regarding our debt, see Notes H and K of Notes to Consolidated Financial Statements.

In December 2008, the Company further amended its Amended Credit Agreement to provide additional working capital support for the Company for 180 days, expiring June 1, 2009. The availability under the US Revolver was increased by $25 million through February 28, 2009 to provide additional capacity to the Company as a result of working capital continuing to be invested due to increased operations in the second half of Fiscal 2008. This additional capacity is then reduced to $12.5 million through June 1, 2009. On June 1, 2009, the amount available under the US Revolver will be reduced to its previous limit of $58.5 million. This amendment also increases the applicable interest rate by 25 to 50 basis points. The amendment also raised the baseline amount for the minimum tangible net worth covenant to $172.5 million from $120 million. Additionally, this amendment extends the expiration of the Amended Credit Agreement by one year, to December 31, 2012.

Operating Activities

During Fiscal 2008, cash used in operating activities was approximately $5.2 million. Cash flow from operations was negatively impacted as accounts receivable and inventories increased due to higher volume as a result of demand for our products and services. During Fiscal 2007, cash provided by operating activities was approximately $12.2 million and during Fiscal 2006, cash used in operating activities was approximately $4.7 million. In all years, cash was principally used to fund growth in accounts receivable, inventories and costs related to projects which could not be billed under the contract terms.

Investing Activities

Investments in property, plant and equipment during Fiscal 2008 totaled approximately $3.4 million compared to $14.3 million and $8.4 million in Fiscal 2007 and 2006, respectively. The majority of our 2007 capital expenditures were used to continue the implementation of our new enterprise resource planning system ("ERP system"), and the expansion of two of our operating facilities. We incurred approximately $1.9 million in Fiscal 2007 at our Electrical Power Products operations and $6.6 million in Fiscal 2006, related to the implementation of the ERP system. The majority of our 2006 capital investments were used to improve our capabilities to manufacture switchgear and electrical power control rooms, as well as investments in the ERP system mentioned above. In 2006, investing activities included cash expenditures of $9.7 million for the acquisition of the Power/VacŪ product line from GE (which does not include the total $32.0 million purchase price payable over 40 months) and $1.5 million for the acquisition of the services business in Louisiana previously described.

There were no proceeds from the sale of fixed assets in Fiscal 2008. Proceeds from the sale of fixed assets provided cash of approximately $0.2 million and $0.8 million in Fiscal 2007 and 2006, respectively. Proceeds from the sale of fixed assets in Fiscal 2007 and 2006 were primarily from the sale of idled manufacturing facilities and equipment.

There were no net proceeds from the sale and purchase of marketable securities in Fiscal 2008 or 2007. Net proceeds from the sale and purchase of marketable securities were $8.2 million in Fiscal 2006. Marketable securities were sold to finance working capital requirements of the business in Fiscal 2006.

Financing Activities

Net cash provided by financing activities was approximately $13.8 million in Fiscal 2008. The primary source of cash in financing activities in Fiscal 2008 was due to borrowings on the US revolving line of credit, which is used to fund operations and capital expenditures and proceeds from the exercise of stock options. Net cash used in financing activities was approximately $4.0 million in Fiscal 2007 and net cash provided by financing activities was approximately $0.7 million in Fiscal 2006. The primary use of cash in financing activities in Fiscal 2007 was due to payments on the US revolving line of credit. The primary source of cash from financing activities in Fiscal 2006 was proceeds from the exercise of stock options.

Contractual Obligations

At September 30, 2008, our long-term contractual obligations were limited to
debt and leases. The table below details our commitments by type of obligation,
including interest if applicable, and the period that the payment will become
due (in thousands).


                                                Long-Term           Capital          Operating
As of September 30, 2008                           Debt              Lease             Lease
Payments Due by Period:                        Obligations        Obligations       Obligations        Total

Less than 1 year                               $      9,019      $          13      $      2,995      $ 12,027
1 to 3 years                                         32,010                  -             5,273        37,283
3 to 5 years                                            860                  -             3,688         4,548
More than 5 years                                     3,872                  -               587         4,459

Total long-term contractual obligations        $     45,761      $          13      $     12,543      $ 58,317

Other Commercial Commitments

The following table reflects other commercial commitments or potential cash
outflows that may result from a contingent event (in thousands):


              As of September 30, 2008,                 Letters of
              Payments Due by Period:                     Credit

              Less than 1 year                         $     18,913
              1 to 3 years                                   11,862
              3 to 5 years                                        -
              More than 5 years                                 515

              Total long-term commercial obligations   $     31,290

We are contingently liable for secured and unsecured letters of credit of $31.3 million as of September 30, 2008, of which $20.0 million reduces our borrowing capacity. We also had performance and maintenance bonds totaling approximately $127.1 million that were outstanding at September 30, 2008. Performance and maintenance bonds are used to guarantee contract performance to our customers.

Outlook for Fiscal 2009

Our backlog of orders going into Fiscal 2009 is approximately $518.6 million, a $54.1 million increase over the beginning backlog of orders going into Fiscal 2008. Backlog growth has been driven by strong market demand in petrochemical, utility and transportation markets. Additionally, our recent acquisitions have strengthened our strategic position in the electrical power products market and expanded our product offering in the utility, industrial and commercial markets. We have enhanced our capabilities with the addition of medium and low voltage IEC switchgear, intelligent motor control systems and power distribution solutions. The acquired Power/VacŪ switchgear product line has a large installed base and a broad customer support across utility, industrial and commercial markets. These recent acquisitions provide us with a significantly broader product portfolio and have enhanced our capabilities to meet market demands around the world. We believe that our expanded product portfolio and new channels to new markets have strengthened us in our Electrical Power Products business and positioned us for continued growth.

Growth in demand for energy is expected to continue over the long term. New infrastructure investments will be needed to ensure the available supply of petroleum products. New power generation and distribution infrastructure will also be needed to meet the growing demand for electrical energy. New power generation plants will also be needed to replace the aging facilities across the United States, as those plants reach the end of their life cycle. A heightened concern for environmental damage, together with the uncertainty of gasoline prices, has expanded the popularity of urban transit systems and pushed ridership to an all-time high, which will drive new investment in transit infrastructure. Opportunities for future projects continue; however, the timing of many of these projects is difficult to predict. The current worldwide financial crises have reduced the availability of liquidity and credit to fund the continuation and expansion of many industrial business operations worldwide. Recent financial market conditions have significantly increased the volatility of currency and commodity markets. This uncertainty may defer or delay commitments for new infrastructure projects that are in our opportunity pipeline.

The investment in working capital needed to produce our backlog varies and is impacted by the type of projects and the billing and payment terms on each project. The increase in volume over the last three years has increased our investment in working capital. As projects are completed and customer payments are received, cash flow from the projects is recovered. While we believe that cash available and borrowing capacity under our existing revolvers should be sufficient to finance anticipated operational activities, capital improvements and debt repayments for the foreseeable future, the current financial crises could have an adverse effect on our business. We will continue to actively monitor the collection of accounts receivable and investments in inventories to enhance our operating cash flow.

In response to the financial crises affecting the banking system and financial markets, and ongoing threats to other financial institutions, U.S. legislation was enacted for the purpose of stabilizing the financial markets. Since

enactment of the legislation, the capital markets have continued to experience extreme volatility and the credit markets have not yet shown any significant increase in the availability of credit. There can be no assurance what impact this legislation ultimately will have on financial markets. If actions taken to provide stabilization to the financial markets and increasing availability of credit are unsuccessful, it could have a material adverse effect on our business, financial condition and results of operations.

Effects of Inflation

We have experienced significant price volatility related to raw materials, primarily copper, aluminum and steel, during the past three years. Fixed price contracts can limit our ability to pass cost increases to our customers, thus negatively impacting our earnings. We anticipate that the volatility in commodity prices could impact our operations in 2009.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America . . .