**Exhibit 13.1**

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| ****Front Cover: Magnetek’s Role in the  Booming Digital Economy |
|-----------------------------------------------------------------------|

 

As the prototypical “Digital City” onthe front cover of this report illustrates, the new and evolving communities ofthe 21st Century will become increasingly electronic – and thereforewill be increasingly dependent on digital power. Digital (or digitized) poweris a necessity for faster data processing, greater data storage capacity, cleanerenergy generation, higher levels of automation, better communications, safer transportation,and “smarter” consumer products. And those are Magnetek’s sweet spots: “smart”power supplies and systems for applications ranging from the utility grid tothe internet.

Magnetek was founded in July of1984 and went public in July of 1989 (NYSE: MAG). The Company had revenueof $242 million fiscal 2005, ranking as one of the world’s largest manufacturersof digital power converters, inverters, rectifiers, regulators, monitors andcontrols. Magnetek also builds power-control systems based on these power-electronicproducts, and is a leading provider of power conditioners and utility grid interfacesfor fuel cells, solar arrays, wind generators and other renewable energysources.

Magnetek’s growth strategy is characterizedby market diversity and thus is tied to the growth of the digital economy as awhole. The Company is international in both reach and presence, withISO-compliant research and manufacturing facilities in North America, Europeand Asia, employing some 1,500 people worldwide.

Formore information about Magnetek, its people, products and prospects, visit theCompany’s website at: ***http://www.magnetek.com.***
| **Chairman/CEO  Letter**                       | **1**                 |
|------------------------------------------------|-----------------------|
| **Management’s Discussion and Analysis**  | **5**                 |
| **Consolidated Financial Statements**          | **17**                |
| **Notes to Consolidated Financial Statements** | **21**                |
| **Annual Report on Form 10K**             | **41**                |
| **Stockholder  Information**                   | **Inside Back Cover** |

 

***Caution Regarding Forward-Looking Statements.  ***ThisAnnual Report and Form 10-K, including documents incorporated hereinby reference, contain forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. The words ‘‘believe’’, ‘‘expect’’,‘‘estimate’’, ‘‘anticipate’’, ‘‘intend’’, ‘‘may’’, ‘‘might’’, ‘‘will’’, ‘‘would’’,‘‘could’’, ‘‘project’’ and ‘‘predict’’, or similar words and phrases generallyidentify forward-looking statements. Forward-looking statements contained orincorporated by reference in this document, including those set forth in theChairman/CEO’s Letter, the section of this Annual Report entitled ‘‘Management’sDiscussion and Analysis of Financial Condition and Results of Operations’’, andthe section of the Form 10-K entitled ‘‘Description of Business’’include, but are not limited to, statements regarding projections of revenues,income or loss, capital expenditures, plans for future operations, products orservices, legal issues and financing needs or expectations, as well asassumptions relating to the foregoing. Forward-looking statements areinherently subject to risks and uncertainties which in many cases are beyondthe control of the Company and which cannot be predicted or quantified. As aresult, future events and actual results could differ materially from those setforth in, contemplated by, or underlying forward-looking statements. Such risksand uncertainties include, but are not limited to, economic conditions ingeneral, sensitivity to industry conditions, competitive factors such astechnology and pricing pressures, business conditions in electronics,telecommunications, information technology, transportation, consumer products,industrial equipment and energy markets, international sales and operations,dependence on major customers, increased materials costs, risks and costsassociated with acquisitions, litigation and environmental matters and the riskthat the Company’s ultimate costs of doing business exceed present estimates. Adiscussion of these and other specific risks is included in Management’sDiscussion and Analysis of Financial Condition and Results of Operations underthe heading ‘‘Risk Factors Affecting the Company’s Financial Outlook’’. Forward-lookingstatements contained in this Annual Report and Form 10-K speak onlyas of the date of this document or, in the case of any document incorporated byreference, the date of that document. The Company does not have an obligationto publicly update or revise any forward-looking statement contained orincorporated by reference in these documents to reflect changed assumptions,the occurrence of unanticipated events or changes to future operating resultsover time.

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**Dear Fellow Shareholder:**

Enteringfiscal 2005, Magnetek and many other companies in the digital power businesswere benefiting from a year-long recovery in telecom and information technology(IT) markets. Unfortunately, that recovery stalled during our fiscal secondquarter. As a result, revenues of Magnetek’s continuing operations declined inthe second and third quarters, and we did not achieve the double-digit growththat we expected at this time last year. Revenue from continuing operations totaled$242.4 million in fiscal 2005, representing 5% growth from $230.3 millionin fiscal 2004.

Whilefiscal 2005 revenues did not grow as much as anticipated, profit marginsimproved about as expected. Gross profit from continuing operations totaled$60.0 million (24.8% of sales) in fiscal 2005, up 10% from $54.3 million (23.6%of sales) in fiscal 2004. Pretax income from continuing operations was $3.2 millionversus a pretax loss of $2.8 million in fiscal 2004.

Includingnon-cash income tax charges related to goodwill amortization, our continuingoperations reported net income of $0.8 million or $.03 per share in fiscal2005, versus a loss of $9.5 million or $.35 per share in fiscal 2004. Excludingthese non-cash charges, net income from continuing operations was $2.4 millionor $.08 per share in fiscal 2005 against a loss of $2.8 million or $.10 pershare in fiscal 2004.

So, although Magnetek did not perform up to ourexpectations in fiscal 2005, the ongoing Company did grow, it was profitable,and we believe its business prospects are bright.

**ContinuingOperations**

Magnetekmanufactures power-electronic products and power-control systems. As previouslynoted, telecom and IT, historically the largest markets for **power-electronic products**, weakened in November of 2004.While programs that were put on hold at that time have since resumed, and orderpatterns stabilized toward the end of fiscal 2005, demand still has notreturned to fiscal 2004 levels.

Atthe same time, however, growing demand in other markets took up some of theslack. Also in November of 2004, Magnetek reached an agreement withElectrolux Home Products to supply Smart Appliance ModulesTM—or **SAM**s as we call them—for “Frigidaire” brand appliances inthe North America. The first full year of production under the North Americanagreement alone is valued at approximately $16 million.

Everyday, we are seeing more digital electronics in home appliances. Demand forpremium, energy-saving clothes washers, dryers and refrigerators, even atpremium prices, is on the rise. And since **SAM**s saveenergy by adapting energy use to actual machine loading, **SAM**sales are increasing as well, which bears out the market-diversificationstrategy adopted by Magnetek in the late 1990s.

Overall,however, sales of power-electronic products remained nearly flat in fiscal2005, representing approximately two thirds of total revenues.

Almostall of Magnetek’s fiscal 2005 revenue growth came from sales of **power-control systems**—mainly digital control systems forcranes, hoists and elevators. While the primary metals and automotiveindustries, historically our largest markets for power-control systems, are notinitiating many new capital programs now, they are optimizing existing capacity,which generates upgrade and retrofit business for us. More than half ofMagnetek’s industrial sales are into the aftermarket, which is a key to ourperformance in the motion control systems business. Here, too, ourmarket-diversification strategy is working. We are going after new industrialautomation markets, such as radio-controlled systems for marineterminals, movable bridges and rail yards. And we are just entering newgeographic markets, including Mexico, Australia, Taiwan and Mainland China.

We are going overseas with elevator control systems aswell, initially in Europe with drive systems for low-rise elevators. And wehave a very important new product: the **QuattroTM** drivesystem, which can operate any kind of electric elevator, Ac or Dc, and alsoregenerates power back into the utility grid as the elevator descends. Webelieve that **Quattro** will be a breakthroughproduct for Magnetek. Tower-testing by Kone Inc., a major elevator OEM, hasgone very well; and we have received commitments from two of the world’sleading elevator builders to begin outsourcing from us upon successfulcompletion of testing. By itself, that could keep our power-control systemsbusiness growing at double-digit rates.

**‘NewMarket’ Products**

Weare equally excited about Magnetek’s “new market” power-control systems for **alternative energy**

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and **mass transit**, as well as our**HiQgridTM**productsfor the utility industry. Although they are still in start-up modes (togetherrepresenting less than 7% of revenues in fiscal 2005), the outlook for thesesystems is outstanding—especially in alternative energy. Every alternativeenergy source that feeds the utility grid or powers local loads requires apower conditioning interface of some sort; and one of our primary corporateobjectives is to be a top-tier supplier of power interfaces for alternativeenergy sources.

Magnetekfirst entered the alternative energy market a decade ago with digital powerconditioners for fuel cells. We remain a leader in that field, currentlyshipping 200-kilowatt fuel cell powerinverters that alone will contribute at least $1 million to the top linein fiscal ‘06. And that is just a beginning. Today, Magnetek offers advancedpower interfaces for solar arrays and wind turbines as well as fuel cells. Drivenby electric power transmission constraints, security concerns and governmentincentives, demand for all three of these clean energy sources—wind, solar andfuel cells—is expected to grow at an accelerating rate throughout this decade.

Withour new **AuroraTM** solar inverter line, we aregaining market share in three of the world’s biggest solar markets: Germany,California and Spain, where solar power enjoys generous incentive support.  Spain, in fact, has announced plans toincrease its renewable energy target to 12.1% of total power use by 2010, withan investment of some $30 billion; and Italy, Magnetek’s European base,recently followed suit.

Domestically,the Federal energy bill adopted by Congress in July should give Magnetek abig boost in the U.S. It increases tax credits for fuel cells and solar powersystems to as much as a third of their installed value. It also provides a 1.9-cent-per-kilowatt-hourtax credit for electricity generated by wind turbines over the next ten years—akey factor in financing new wind farms. Coupled with oil prices spiking through$70 a barrel in the autumn of 2005, the spotlight is squarely on alternativeenergy sources for industrial back-up power, residential heating and lighting,and mass transit as well as private vehicles.

These are powerful forces that, directly orindirectly, should increase demand for our “new market” products—ranging fromalternative energy interfaces, to smart appliance modules, to auxiliary powerunits (**APU**s) and micro-turbine power pods (**MPP**s) for railcars, to utility grid monitoring systems, evento energy-efficient elevators and “smart” crane control systems.

**ExecutionActions**

Totake full advantage of these opportunities we must establish clear priorities,and we must be very good at executing the fundamentals. While we believe thatMagnetek has been good at defining and pursuing a winning “smart power”,market-diversification strategy, the Company has not been as good at executingthat strategy. A number of actions have been initiated to improve execution.

Weare dedicating more resources to the major markets we have chosen to serve. InApril, for example, we announced the formation of a separate, dedicatedAlternative Energy marketing group led and staffed by professionals experiencedin the international alternative energy field. Their challenge: tailor Magnetek’sproduct portfolio and sales channels to suit the unique requirements, codes andstandards of the rapidly evolving alternative energy marketplace, thus creatinga successful, self-sufficient business entity. Although just begun, thatprocess is already showing exciting signs of success.

Weare also utilizing our technological resources more efficiently. We arefortunate to have excellent digital power technology capability in Magnetek. Ourengineers are among the best and brightest. But because digital power is nolonger limited primarily to data processing and telecommunications, our 200+engineers sometimes have been spread too thin. So we have prioritized our newmarkets and narrowed our internally funded development programs to those thatshow the greatest promise for early profitability, continuing growth andsuperior ROI.

Anotherexample of executing the fundamentals has to do with China. In February of2005, we moved into a new, 237,000-square-foot factory in Shenzhen, twicethe size of our former Chinese plant, while continuing to downsize our Europeanmanufacturing operations. In fiscal Q4, a third of all our embeddedpower-electronic products—some $13 million worth—were produced in China, upfrom zero three years ago. As moves of that magnitude go, it was managed welland is beginning to pay off, as the Company’s gross margin shows. So we havechallenged our people who executed the move so well to maximize its return oninvestment by refocusing on 

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theoperating basics: rigorous supply-chain and working-capital management.

Managingour administrative and general costs is yet another area of opportunity. InAugust, we vacated expensive office space in Nashville, and now we are closingour corporate offices in Los Angeles and moving Magnetek’s executive staff toour power-electronics manufacturing plant in Chatsworth, California. Whilethese are positive moves from a cost reduction and cash management perspective,we need to do more, and we are.

Subsequent to fiscal 2005 year-end, we restructuredand expanded our credit facilities for greater operating flexibility. Inaddition, the new financing also may be used, in part, to satisfy an arbitrationaward related to and reported in results of discontinued operations in thethird quarter of fiscal 2005. While we are contesting the award in FederalCourt, we are prepared to pay it, if necessary.

**Looking Ahead**

In1998, we downsized Magnetek in order to pay off debt and focus exclusively ondigital power technology. At that time, digital power was being adopted basedlargely on the convenience it brought to communications and the speed itbrought to data management. Thus, the Magnetek of today was launched on therising tide of telecom and IT, with cell-phone convenience and computer speedbeing the primary drivers.

Whileour strategy is and always will be evolving, we believe that telecom and ITwill continue to be two of our key markets. However, we also believe that athird and, perhaps, the major driver of Magnetek’s future growth andprofitability will be energy—the capability of our products and systems to helpgenerate and utilize energy more efficiently. Products such as **SAM**s for consumer appliances, **Aurora**alternative energy interfaces, **Quattro**regenerative elevator drives, **APU**s for themass transit, and our **HiQgrid**monitoring and control systems that we are just now introducing to electricutility and municipal markets—will form the foundation on which we build fromhere.

Goingforward, we have three main priorities that we are addressing simultaneously. Numberone: renewed top-line growth through dedicated marketing of our digital powerproducts. Number two: continued, but better-focused development of new productsdifferentiated from our competitors’ by technology, quality and application. Numberthree: renewed bottom-line growth through cost-cutting wherever possible andrigorous management of operations and working capital.

Enteringfiscal 2006, we saw promising signs of firming in our traditionalpower-electronics markets, strength in our industrial power-controls markets,and growth in our newer consumer-driven and energy-related markets. Togetherwith our new execution initiatives, these signs would seem to bode well for thecurrent year. At this writing, the domino effects of the Gulf Coast hurricaneson business and industry are not fully known. However, in the intermediate tolong-term, they should provoke changes in government policy that will enhancepersonal safety and security, strengthen the domestic economy and increasedemand for digital power products.

Natural disasters and legacy issues notwithstanding,we believe we can deliver better results in fiscal 2006 than in fiscal 2005,and we are more convinced than ever that Magnetek has the potential to become auniquely successful digital power company in the growing, global, digitaleconomy. We appreciate your patience and support as we work to realize thatpotential.

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**SELECTED FINANCIAL DATA**

The selected financialdata for Magnetek, Inc. (the “Company” or “Magnetek”) presented belowreflect the restatement of fiscal 2004 and 2003 for income taxes and thereclassification of the Company’s telecom business as discontinued operations,as described in Notes 1 and 3 respectively in Notes to ConsolidatedFinancial  Statements. The restatementincreased the Company’s net loss by $1.6 million in fiscal 2004 and by $1.0million in fiscal 2003. The restatement did not have a material impact on ourfinancial position at the end of the reported periods and had no impact on ourcash flows for the restated periods.

**Statementof Operations Data**

| ***For the years ended  (Amounts in thousands,  except per share data)*** | ** ** | **July 3,  2005** | ** ** | **June 27,  2004  (restated)** | ** ** | **June 29,  2003  (restated)** | ** ** | **June 30,  2002** | ** ** | **July 1,  2001** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|-------------------------|------------|------------------------|------------|
| Net sales                                                                                                         |       | $                      | 242,389    |                                |       | $                                   | 230,280    |                    |       |                   | $          | 180,277 |   |   | $ | 161,858 |   | $ | 272,535 |   |
| Gross Profit                                                                                                      |       | 59,993                 |       |                                | 54,303     |                                |       |                    | 41,222     |                   |       | 39,318 |   | 68,209 |   |
| Gross Profit%                                                                                                     |       | 24.8                   | %          |                                | 23.6       | %                                   |       |                    | 22.9       | %                      |       | 24.3 | % | 25.0 | % |
| Income (loss) from  operations                                                                                    |       | $                      | 3,568      |                                |       | $                                   | (582       | )                       |       |                   | $          | 26,688 |   |   | $ | 4,362 |   | $ | 16,269 |   |
| Net income (loss):                                                                                                |       |                   |       |                                |       |                                |       |                    |       |                   |       |   |   |   |   |
| Continuing  operations                                                                                            |       | $                      | 819        |                                |       | $                                   | (9,470     | )                       |       |                   | $          | 13,178 |   |   | $ | 3,492 |   | $ | 4,798 |   |
| Discontinued  operations                                                                                          |       | (27,689                | )          |                                | (3,601     | )                                   |       |                    | (49,022    | )                      |       | (2,084 | ) | 935 |   |
| Net income (loss)                                                                                                 |       | $                      | (26,870    | )                                   |       | $                                   | (13,071    | )                       |       |                   | $          | (35,844 | ) |   | $ | 1,408 |   | $ | 5,733 |   |
| Per common share  – basic and diluted:                                                                       |       |                   |       |                                |       |                                |       |                    |       |                   |       |   |   |   |   |
| Net income (loss)  from continuing operations                                                                     |       | $                      | 0.03       |                                |       | $                                   | (0.35      | )                       |       |                   | $          | 0.55 |   |   | $ | 0.15 |   | $ | 0.21 |   |
| Net income (loss)  from discontinued operations                                                                   |       | $                      | (0.97      | )                                   |       | $                                   | (0.13      | )                       |       |                   | $          | (2.07 | ) |   | $ | (0.09 | ) | $ | 0.04 |   |
| Net income (loss)                                                                                                 |       | $                      | (0.94      | )                                   |       | $                                   | (0.48      | )                       |       |                   | $          | (1.52 | ) |   | $ | 0.06 |   | $ | 0.25 |   |

 

*Net loss for fiscal year ended July 3, 2005includes a $21,977 patent arbitration charge included in discontinuedoperations, a $1,600 provision for income taxes to increase the valuationallowance against the Company’s deferred tax assets and $1,300 of income fromthe sale and license of rights and patents.*

*Net loss for the fiscal year ended June 27,2004 includes a $6,700 provision for income taxes to increase the valuationallowance against the Company’s deferred tax assets.*

*Net loss for the fiscal year ended June 29,2003 includes a $27,771 pre-tax gain ($17,218 after-tax) from termination ofthe Company’s retiree medical plan and a $1,000 provision for income taxes toincrease the valuation allowance against the Company’s deferred tax assets incontinuing operations; discontinued operations includes after-tax charges of$38,698 for asset impairment, a $3,275 after-tax charge for settlement oflitigation and a $997 after-tax loss on the sale of the Company’s telecomservice business.*

*Netincome for the fiscal year ended July 1, 2001 includes a $4,114 after-taxloss on the sale of the Company’s Lighting and Transformer business included indiscontinued operations.*

**Balance Sheet Data**

| ***(Amounts in thousands)***     | ** ** | **July 3,  2005** | ** ** | **June 27,  2004  (restated)** | ** ** | **June 29,  2003  (restated)** | ** ** | **June 30,  2002** | ** ** | **July 1,  2001** | ** ** |
|--------------------------------------------|------------|------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|-------------------------|------------|------------------------|------------|
| Total assets                               |       | $                      | 229,180    |                                |       | $                                   | 228,024    |                    |       |                   | $          | 221,326 |   |   | $ | 304,891 |   | $ | 321,754 |   |
| Long-term debt,  including current portion |       | 25,230                 |       |                                | 18,126     |                                |       |                    | 26,702     |                   |       | 4,124 |   | 10,134 |   |
| Other long term  obligations               |       | 7,627                  |       |                                | 7,552      |                                |       |                    | 9,180      |                   |       | 39,640 |   | 37,915 |   |
| Pension benefit  obligations               |       | 70,568                 |       |                                | 31,366     |                                |       |                    | 51,356     |                   |       | 74,363 |   | – |   |
| Stockholders’ equity                  |       | 45,554                 |       |                                | 109,922    |                                |       |                    | 78,671     |                   |       | 142,819 |   | 183,707 |   |
|                                            |            |                        |            |                                     |            |                                     |            |                         |            |                        |            |  |  |  |  |  |  |  |  |  |

 

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**MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**RESTATEMENTOF FISCAL 2004 AND 2003 AND RECLASSIFICATION**

As stated in Note 1 of Notes to Consolidated FinancialStatements, we have restated our financial statements for the fiscal years 2004and 2003 with respect to accounting for income taxes.

Since fiscal 2002 we have provided valuation reservesagainst our U.S. deferred tax assets that result in a zero net deferred taxposition (net deferred assets equal to deferred tax liabilities). In a fiscalyear-end review of our tax accounts, we determined that a portion of ourdeferred tax liability relates to tax-deductible amortization of goodwill thatis no longer amortized for financial reporting purposes. Under applicableaccounting rules, such deferred tax liabilities are considered to have anindefinite life and are therefore ineligible to be considered as a source offuture taxable income in assessing the realization of deferred tax assets.

We also determined that such deferred tax liabilitiesexisted at June 27, 2004, and at June 29, 2003, and therefore haverestated those years to increase our valuation allowance for deferred taxassets and the related provision for income taxes by $1.6 million and $1.0million respectively. The restatement did not have a material impact on ourfinancial position at the end of the reported periods and had no impact on ourcash flows for the restated periods.

During fiscal year 2005,we reclassified the assets and liabilities of our telecom business as held forsale, and the results of operations of this business as discontinued operations(see Note 2 of Notes to Consolidated Financial Statements). We also recordedother expenses related to divested businesses as discontinued operations,including a fiscal 2005 charge for an arbitration award in a patentinfringement claim of $22.0 million (net of an amount of $1.4 millionpreviously recorded) and related legal fees, as well as certain expenses forproduct liability claims, environmental issues, and asbestos claims. Priorperiod amounts related to the telecom business or other divested businesseshave also been reclassified in the accompanying consolidated financialstatements for all periods presented in order to conform to the current yearpresentation. All of these issues relate to businesses we no longer own andmost relate to indemnification agreements we provided when we divested thosebusinesses.

**OVERVIEW**

We are a global provider of digital power-electronicproducts, including electronic converters, inverters, rectifiers and systems. Theseproducts are used primarily in industrial, telecommunications, data processing,consumer, imaging, alternative energy, power generation and other applicationsrequiring precise, efficient, reliable power. We believe that with ourtechnical and productive resources we are well positioned to respond toincreasing demand for such power. We operate in a single business segment,Digital Power Products, which includes two broad product categories, systemsand components.

Our power control systems consist primarily ofprogrammable motion control and power conditioning systems used in thefollowing applications:  cranes andhoists; elevators; fuel cell, wind and photovoltaic markets; street lightmonitoring and control; and utility grid monitoring.

Our embedded power electronic products, which are soldprimarily to original equipment manufacturers for installation in theirproducts, include: AC-to-DC switching power supplies, AC-to-DC rectifiers andbattery chargers, DC to-DC power converters, DC-to-AC power inverters andperipheral component interconnects. These products are used primarily intelecommunications (telecom), data processing and storage, digital imaging,semiconductor processing and testing equipment, medical instrumentation andhome appliances.

Our operating results forthe past several years have been negatively impacted by continuing losses inour telecom business, asset impairment charges, and other expenses related tobusinesses we no longer own, including a $22 million charge in fiscal 2005 fora patent infringement arbitration award (see Note 12 of Notes to ConsolidatedFinancial Statements). All of these items are included in discontinuedoperations in the accompanying consolidated financial statements. As a result,in fiscal 2003 and 2004, our primary sources of cash were from increasedborrowings under bank obligations and proceeds from the sale of common stock. Weentered fiscal 2005 focused on increasing revenue, reducing manufacturingcosts, diversifying our served markets, introducing new products and returningto profitability.

**Continuing Operations**

For the first half of fiscal 2005, demand in certainof our key markets, primarily equipment for information technology andtelecommunications, was strong, however near the end of our second fiscalquarter we began to see a slowdown which impacted our second half results. Salesexceeded $128 million in the first half of fiscal 2005 (twenty-seven weeks) whilesales 

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for the second half of fiscal 2005 (twenty-six weeks)were $114 million, representing an 11% decline from our first half sales figure.We finished fiscal 2005 with sales of $242 million, a 5% increase over fiscal2004 sales of $230 million. Our strategy will continue to emphasize diversityin both our product offerings and to gain share in our targeted markets, and weexpect continued revenue growth in fiscal 2006.

During the third quarter of fiscal 2005, we moved ouroperations in China to a nearby larger facility, approximately doubling ourmanufacturing capacity in China. We completed our restructuring activitiesduring fiscal 2005, which included a workforce reduction of approximately 200positions in Europe and the relocation of those positions to our new facilityin China. We also completed the consolidation of manufacturing facilities ofour U.S. systems business. Fiscal 2005 restructuring costs were $1.2 million.We believe these actions will allow us to remain competitive, improve ourmargins, and reduce our operating expenses in the future. These actions werepartially responsible for the improvement in our gross profit for fiscal 2005,which increased to nearly $60 million, or 24.8% of sales, from gross profit of$54 million, or 23.6% of sales, in fiscal 2004.

Our research and development (R&D) expenseincreased 12% compared to prior year as we continued to invest in developingnew products for existing and new markets, including alternative energyproducts for solar and wind applications and monitoring and control systems forutility markets. We will continue to invest in R&D going forward, althoughthe rate of growth in R&D investment may slow in fiscal 2006. Selling,general and administrative (SG&A) expense remained flat with the prioryear, as increased volume-related selling expenses were offset by lower baddebt provisions and reduced pension expense, which decreased by $1.8 million. Ourfuture annual pension expense will depend on future interest rate levels,values in equity and fixed income markets, and contributions we may elect tomake to the plan.

As a result of increased sales, cost reduction actionsand improvement in our sales mix, our income from operations improved to $3.6million from a loss of $0.6 million in fiscal 2004. Our net income fromcontinuing operations improved to $0.8 million, or $0.03 per share, from a lossof $9.5 million, or $0.35 per share. We also achieved a positive income fromcontinuing operations before income taxes of $0.6 million in the fourth quarterof fiscal 2005 on sales of $57.1 million, whereas in our third quarter offiscal 2005, we reported a loss from continuing operations before income taxesof $1.4 million on sales of $57.0 million. The improvement in our resultsquarter to quarter is attributed to completion of our restructuring actions,the resulting cost savings of those actions, and a shift in our sales mix tohigher margin system products.

We generated $13.5 million in cash from operatingactivities of continuing operations in fiscal 2005. Capital expenditures infiscal 2005 of $9.0 million were roughly equal to depreciation expense of $8.9million. Our total long-term debt increased during fiscal 2005 by $7.1 millionto $25.2 million, as discontinued operations consumed $7.5 million in cash. Wedid not make any contributions to our defined benefit pension plan in fiscal2005. Under current regulations, no mandatory contributions are expectedthrough fiscal 2007, however, required contributions in periods subsequent tofiscal 2007 could be significant (see “Summary of Contractual Obligations andCommitments” below). Due mainly to a reduction in interest rates and inthe market value of plan assets during the fiscal year, our pension benefitobligation increased by $39.2 million with a related decrease in equity of$37.8 million due to an increase in our minimum pension liability.

Our efforts to improvemargins include manufacturing cost reduction programs, most notably continuedexpansion of our manufacturing operations in China and selected outsourcing. Weare also focusing our development and marketing capabilities on higher marginsystems applications and markets, with reduced emphasis on lower margincomponent products and less profitable segments. We plan to further consolidateadministrative operations and functions in fiscal 2006, however futuresustained profitability is highly dependent upon improvement in revenues andgross margins, successful implementation of our strategy to penetrate highermargin markets, a shift in our sales mix to proportionately higher sales ofsystems, and favorable outcomes in certain legal matters, primarily the patentinfringement claims (see Note 12 of Notes to Consolidated FinancialStatements).

**Discontinued Operations**

Our telecom power business continued to generatelosses throughout fiscal 2005, and as a result, in the third quarter of fiscal2005, we committed to a plan to divest this business. We are currently innegotiations with prospective buyers, and we will account for our telecom powerbusiness as assets held for sale and discontinued operations until it isdivested. In fiscal 2004 we divested our telecom service business.

In the fourth quarter offiscal 2005, a decision was rendered in a patent infringement claim broughtagainst us by Ole K. Nilssen (see Note 12 of Notes to CondensedConsolidated Financial Statements). In settlement of pending litigation, we hadagreed to submit the matter to binding arbitration, and in May 2005, thearbitrator awarded damages to Mr. Nilssen 

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of $23.4 million. The amountdue was to be paid within ten days of the award, however, we are currentlycontesting the award in Federal court on grounds that the patent and relatedaward were fraudulently obtained. Our request for oral argument was granted anda hearing date has been set for October 19, 2005. Since the patentinfringement award relates to a business we divested in June 2001, theaccompanying consolidated financial statements reflect the impact of thisaward, net of amounts previously recorded of $1.4 million, in discontinuedoperations in fiscal 2005. Mainly as a result of this award, our fiscal 2005loss from discontinued operations was $27.7 million compared to a loss of $3.6million in fiscal 2004. The award had a material adverse effect on ourfinancial position and results of operations for the period ended July 3,2005, and could have a material adverse effect on our future cash flows andliquidity in fiscal 2006 (see “Liquidity and Capital Resources” below).

**RESULTSOF OPERATIONS FOR YEAR ENDED JULY 3, 2005 COMPARED WITH YEAR ENDED JUNE 27,2004**

**Net Sales and Gross Profit**

Net sales increased 5.3% to $242.4 million in fiscal2005 from $230.3 million in fiscal 2004. The increase in net sales in fiscal2005 is due primarily to increased sales of systems, $19.7 million, and thecurrency translation impact of the stronger Euro, $9.2 million, offset by lowersales of embedded power supplies of $17.3 million. Fiscal 2005 containedfifty-three weeks while fiscal 2004 contained fifty-two weeks.

Gross profit in fiscal2005 increased to $60.0 million (24.8% of sales) compared to $54.3 million(23.6% of sales) in fiscal 2004. The $5.7 million improvement in gross profitis due to higher sales of systems, $5.5 million, currency translation impactfrom the stronger Euro, $2.0 million, and reduced manufacturing costs from ourfacility in China, offset by lower sales of embedded power supplies of $3.3million and lower selling prices due to competitive market conditions.

**Operating Expenses**

Research and developmentexpense was $14.6 million in fiscal 2005, or 6.0% of sales, compared to $13.0million, or 5.7% of sales, in fiscal 2004. The increase in R&D expensereflects our continuing investment in product development for new markets andapplications such as alternative energy for wind and solar markets and controland monitoring systems for the utility market. Selling, general andadministrative expense was $41.8 million, or 17.3% of sales, in fiscal 2004compared to $41.9 million, or 18.2% of sales, in fiscal 2004. Selling expenseswere $18.2 million, or 7.5% of sales, in fiscal 2005 compared to $15.8 million,6.9% of sales, in fiscal 2004. The increase reflects higher sales volume aswell as increased investment in marketing our new products. General andadministrative expense (G&A) was $23.6 million in fiscal 2005 compared to$26.1 million in fiscal 2004. The decrease of $2.5 million in G&A expensein fiscal 2005 is due to lower pension expense, $1.8 million, lower bad debtexpense, $1.6 million, and lower restructuring expenses of $0.4 million, offsetby payroll-related costs and higher professional fees.

**Income (Loss) from Operations**

Income from operations was$3.6 million in fiscal 2005 compared to a loss from operations of $0.6 millionin fiscal 2004. The improvement in income from operations was due to highersales volume and improved sales mix, cost savings from our operations in Chinaand restructuring actions and lower G&A spending, partially offset byhigher R&D and selling expenses.

**Interestand Other Income and Expenses**

Interest income was $0.2 million in fiscal 2005compared to $1.2 million in fiscal 2004. Fiscal 2004 interest income includes$1.0 million of interest income related to a tax refund.

Interest expense was $1.8 million in fiscal 2005compared to $2.4 million in fiscal 2004. Interest expense includes $0.3 millionand $0.5 million of amortization of deferred financing expenses in fiscal 2005and 2004 respectively.

Other income of $1.3 million in fiscal 2005 representsincome from the one-time sale and license of rights and patents. Under theterms of the sale agreement, we have no remaining obligations nor will wereceive future royalties.  There was noother income in fiscal 2004.

Other expense of $1.0million in fiscal 2004 primarily included a $0.7 million charge for write downof investments. There was no other expense in fiscal 2005.

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**Provision for Income Taxes**

We recorded a provision for income taxes of $2.4million in fiscal 2005, comprised of $1.6 million (non-cash) to increase thevaluation allowance against U.S. net deferred tax assets to 100%, and $0.8million related to our foreign operations. As of July 3, 2005, our U.S.net operating loss carryforward (“NOL”) was approximately $138 million and ourcapital loss carryforwards were approximately $13 million. The potential taxbenefit of these carryforwards, approximately $70 million, has been fullyreserved with a valuation allowance and therefore there is no net tax asset onthe consolidated balance sheets related to this asset at July 3, 2005. OurNOL and capital loss have carryforward periods of 15 to 20 years withexpiration dates ranging from 2013 to 2025. Since our balance sheet reflects nobenefit of such NOL’s, we anticipate that no federal tax expense would berecorded if and when U.S. taxable income is generated and such carryforwardsare utilized.

We operate in various tax jurisdictions and aresubject to a variety of income and related taxes, and as a result, we mayrecord tax expense on a consolidated basis despite pre-tax losses in the U.S. Althoughwe anticipate little or no tax on income generated in the U.S., incomegenerated by our foreign operations cannot be offset with U.S. net operatinglosses. Therefore we anticipate there will be tax expense in fiscal 2006associated with our foreign operations.

Despite the fiscal 2004pretax loss, we recorded a $6.7 million income tax provision (non-cash) asrestated to increase the valuation allowance against U.S. net deferred taxassets to 100%.

**Income(Loss) from Continuing Operations**

In fiscal 2005, werecorded income from continuing operations of $0.8 million, or $0.03 per share,basic and diluted, compared to a fiscal 2004 loss from continuing operations of$9.5 million, or $0.35 per share on both a basic and diluted basis.

**Loss from Discontinued Operations**

We recorded a loss fromdiscontinued operations in fiscal 2005 of $27.7 million, or $0.97 per share onboth a basic and diluted basis, compared to a loss from discontinued operationsin fiscal 2004 of $3.6 million, or $0.13 per share on both a basic and dilutedbasis. The loss from discontinued operations in fiscal 2005 is comprised of acharge for an arbitration award related to a patent infringement claim of $22.0million, operating losses in our telecom business of $1.0 million, and otherexpenses related to businesses we no longer own, mainly product liabilitycosts, legal fees in the patent infringement claim and asbestos-related costs,totaling $4.7 million.  The loss fromdiscontinued operations in fiscal 2004 is comprised of losses in our telecombusiness of $2.3 million, and other expenses related to businesses we no longerown, mainly product liability costs, legal fees for the patent infringementclaim and asbestos-related costs, totaling $1.3 million.

**Net Loss**

We recorded a net loss infiscal 2005 of $26.9 million, or $0.94 per share on both a basic and dilutedbasis, compared to a fiscal 2004 net loss of $13.1 million, or $0.48 per shareon both a basic and diluted basis.

**RESULTSOF OPERATIONS FOR YEAR ENDED JUNE 27, 2004 COMPARED WITH YEAR ENDED JUNE 29,2003**

**Net Sales and Gross Profit**

Net sales increased 27.7% to $230.3 million in fiscal2004 from $180.3 million in fiscal 2003. The $50.0 million increase in netsales in fiscal 2004 was due to higher sales of embedded power supplies, $27.9million, currency translation impact from the stronger Euro, $16.7 million, andan increase in power systems sales of $5.4 million. Sales growth in fiscal 2004increased in information technology, communications and consumer marketsrelative to fiscal 2003.

Gross profit in fiscal2004 increased to $54.3 million (23.6% of sales) compared to $41.2 million(22.9% of sales) in fiscal 2003. The $13.1 million improvement in gross profitis due to increased power supply unit sales volumes, $7.3 million, increasedsales of systems, $1.7 million, and manufacturing cost reductions from ourfacility in China. These benefits were partially offset by the strength in theEuro relative to the U.S. dollar, which compressed gross profits on sales fromour European subsidiary denominated in U.S. dollars in fiscal 2004 as comparedto fiscal 2003 by an estimated $3.0 million.

**Operating Expenses**

Research and developmentexpense was $13.0 million in fiscal 2004, or 5.7% of sales, compared to $10.4million, or 5.8% of sales, in fiscal 2003. The increase in R&D expensereflects our increased investment in new product development for new marketsand applications, such as alternative energy. Selling, general andadministrative expense was $41.9 million, or 

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18.2% of sales, in fiscal2004 compared to $31.9 million, or 17.7% of sales, in fiscal 2003.  The increase of $10.0 million in SG&Aexpense from fiscal 2003 to fiscal 2004 reflects increased volume relatedselling expenses, $2.0 million, increased bad debt expense, $1.8 million,restructuring costs, $1.6 million, and higher pension expense, $1.5 million, aswell as increased spending on marketing and sales capabilities includingdevelopment of our distribution channel, higher employee benefit costs and theinclusion of Telemotive, a business we acquired in December, 2002, for a fullyear in fiscal 2004.

**Gainfrom Termination of Retiree Medical Plan**

Fiscal 2003 resultsinclude a non-recurring pretax gain of $27.8 million ($17.2 million after tax)related to the termination of our retiree medical plan (see Note 14 of Notes toConsolidated Financial Statements).

**Income (Loss) from Operations**

We recorded a loss fromoperations in fiscal 2004 of $0.6 million compared to income from operations of$26.7 million in fiscal 2003. The income from operations in fiscal 2003 was duemainly to the termination of our retiree medical plan.

**Interestand Other Income and Expenses**

Interest income was $1.2 million in fiscal 2004compared to $0.2 million in fiscal 2003. The increase in fiscal 2004 was due to$1.0 million of interest income related to a tax refund.

Interest expense was $2.4 million in fiscal 2004compared to $1.7 million in fiscal 2003. The increase in fiscal 2004 was due toincreased amortization of deferred financing expenses of $0.2 million andhigher interest expense related to higher average outstanding debt levelsduring fiscal 2004.

Other expense of $1.0million in fiscal 2004 included a $0.7 million charge for write down ofinvestments and a $0.3 million contingent fee payable, both related to a taxrefund. Other expense of $3.3 million in fiscal 2003 was comprised of a chargerelated to the settlement of litigation, included in other expense as thelitigation related to a financing obligation.

**Provision for Income Taxes**

Despite the fiscal 2004pretax loss, our net loss reflects the impact of a $6.7 million income taxprovision (non-cash) as restated to increase our valuation allowance againstU.S. net deferred tax assets to 100%. We recorded a provision for income taxesof $8.6 million as restated in fiscal 2003, which includes the tax impact ofthe gain on termination of our retiree medical plan of $10.6 million, and a$1.0 million tax provision to increase the valuation allowance as restatedagainst U.S. deferred tax assets to 100%. The tax provision (non-cash) relatedto the gain on the termination of our retiree medical plan was partially offsetby tax benefit on a portion of our pretax loss. Due to the net deferred taxposition on the balance sheet in fiscal 2003, we were unable to record a taxbenefit on the majority of the fiscal 2003 pretax loss.

**Income(Loss) from Continuing Operations**

In fiscal 2004, werecorded a loss from continuing operations of $9.5 million, or $0.35 per shareon both a basic and diluted basis, compared to fiscal 2003 income fromcontinuing operations of $13.2 million or $0.55 per share on both a basic anddiluted basis. Income from continuing operations was higher in fiscal 2003mainly due to the gain from the termination of our retiree medical plan.

**Loss from Discontinued Operations**

Loss from discontinuedoperations was $3.6 million in fiscal 2004, or $0.13 per share on both a basicand diluted basis, compared to a loss from discontinued operations in fiscal2003 of $49.0 million, or $2.07 per share on both a basic and diluted basis. Theloss from discontinued operations in fiscal 2004 is comprised of losses in ourtelecom business of $2.3 million, and other expenses related to businesses weno longer own, mainly product liability costs, legal fees in the patentinfringement claim and asbestos-related costs, totaling $1.3 million. The lossfrom discontinued operations in fiscal 2003 is comprised of asset impairmentcharges of $38.7 million, which includes a write-off of goodwill associatedwith our telecom business of $33.4 million, telecom losses of $8.1 million, andother expenses related to businesses we no longer own totaling $2.2 million.

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**Net Loss**

We recorded a net loss infiscal 2004 of $13.1 million, or $0.48 per share on both a basic and dilutedbasis, compared to a fiscal 2003 net loss of $35.8 million, or $1.52 per shareon both a basic and diluted basis.

**Liquidity and Capital Resources**

During fiscal year 2005, our cash balance increased$4.5 million to $6.8 million at July 3, 2005 from $2.3 million at June 27,2004. Our primary sources of cash in fiscal 2005 were cash provided byoperating activities from continuing operations of $13.5 million, borrowingsunder bank obligations of $7.1 million, and proceeds from issuance of commonstock of $0.5 million. Our primary uses of cash in fiscal 2005 were for capitalexpenditures of $9.0 million and cash used in discontinued operations of $7.5million. We have no current requirements or plans for additional major capacityexpansion and we currently anticipate capital expenditures in fiscal 2006 to beless than $10 million. The expected amount of capital expenditures could changedepending upon changes in revenue levels, our financial condition and thegeneral economy.

At July 3, 2005, total long-term borrowingsincluding current portion were $25.2 million ($21.3 million in Europe and $3.9million in the U.S.) compared to $18.1 million ($13.8 million in Europe and$4.3 million in the U.S.) as of June 27, 2004. We were in violation ofcertain covenants under our U.S. credit agreement at July 3, 2005, and in July 2005,in exchange for a waiverof certain covenant defaults and the lender’s willingness to continue to extendcredit under our agreement, we agreed to a permanent reduction in the aggregatelending commitment to $7.5 million and a change in the facility terminationdate from July 15, 2006 to September 30, 2005. We also agreed to useour best efforts to obtain financing from other sources that would enable us tofully repay all indebtedness under the agreement.

On September 30, 2005, we entered into agreementswith lenders providing for an $18 million term loan (“Term Loan”) and $13million Revolving Credit Facility (“Revolving Loan”). Borrowings under the TermLoan bear interest at the lender’s reference rate plus five percent, or, at ouroption, the London Interbank Offering Rate (LIBOR) plus seven and one-halfpercent (approximately 11.5%). Such rates may be increased by up to onepercentage point depending upon the level of U.S. funded debt to EBITDA asdefined in the agreement. The Term Loan requires quarterly principal paymentsof $1 million beginning in September, 2006. Borrowings under the Revolving Loanbear interest at the bank’s prime lending rate plus two and one-halfpercent or, at our option, LIBOR plus four percent (approximately 8%). Borrowingsunder the Revolving Loan are determined by a borrowing base formula as definedin the agreement, based on the level of eligible domestic accounts receivable andinventory. The Revolving Loan facility also supports the issuance of letters ofcredit. Borrowings under the Term Loan and Revolving Loan are secured bysubstantially all of our domestic assets.

Our European subsidiary maintains revolving borrowingarrangements with local banks, primarily to support working capital needs.Available borrowings under these arrangements aggregate approximately Euro 20.0million depending in part upon levels of accounts receivable, and bear interestat various rates ranging from 3% to 8%. Amounts outstanding under thesearrangements were $9.7 million at July 3, 2005. In addition, our Europeansubsidiary has an agreement with a European bank to provide borrowings securedby the subsidiary’s land and building. Borrowings under this agreement bearinterest at EURIBOR plus one and one-half percent (3.5% at July 3, 2005). Theinitial commitment to lend under this agreement is Euro 7.0 million, with thecommitment reduced ratably on a quarterly basis beginning March 31, 2004and ending September 30, 2013. The amount outstanding at July 3, 2005under this agreement was $7.3 million. Our European subsidiary also has certainlong-term notes and capital leases outstanding related mainly to equipmentpurchases. Amounts outstanding at July 3, 2005 under these leases andnotes were $4.3 million with repayment to be made ratably through fiscal 2010.

As a result of the decline in interest rates and stockmarket equity values over the past three-year period, the accumulated benefitobligation of our defined benefit pension plan exceeds plan assets as of July 3,2005. We did not make any contributions to the plan during fiscal 2005, as nonewere mandated. Based upon current contribution credits available under pensionfunding regulations, actuarial projections indicate no mandatory contributionsto the plan would be required through fiscal year 2007. Depending upon changesin asset values and interest rates, as well as any discretionary contributionsmade by us in the interim period, required contributions in periods subsequentto fiscal 2007 could be significant (see Summary of Contractual Obligations andCommitments below).

We are subject to certain potential environmental andlegal liabilities associated primarily with the past divestiture ofdiscontinued operations (see Note 12 of Notes to Consolidated FinancialStatements).  In the fourth quarter offiscal 2005, a decision was rendered in a patent infringement action broughtagainst us by Ole K. Nilssen. In settlement of pending litigation, we agreed tosubmit the matter to binding arbitration, and in May 2005, the arbitratorawarded damages to Mr. Nilssen of $23.4 million, to be paid within tendays of the award. Nilssen’s counsel filed a motion to enter the award in 

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U.S. District Court for the Northern District ofIllinois, and we filed a counter-motion to vacate the award on grounds that itwas fraudulently obtained. Our request for oral argument was granted and ahearing date has been set for October 19, 2005. If our motion is notsuccessful and the Court upholds the award, we would likely be required to paythe accrued balance of $22.6 million during fiscal 2006. We have adequate resourcesto support payment of the award if such a payment is necessary. Payment of theaward would result in higher outstanding debt balances and increased interestexpense in fiscal 2006.

We do not have anyoff-balance sheet arrangements or variable interest entities as of July 3,2005.

**Summaryof Contractual Obligations and Commitments**

Thefollowing is a summary of our future payments due under contractual obligationsas of July 3, 2005 (in thousands):

| ** **                   | ** ** | **Less than  1 Year** | ** ** | **1 to 3  Years** | ** ** | **3 to 5  Years** | ** ** | **More than  5 Years** | ** ** | **Total** | ** ** |
|------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-----------------------------|------------|----------------------------------|------------|-----------|------------|
| Debt repayment               |       |                            | $          | 5,702                       |       |                        | $          | 3,606                            |       | $         | 2,949      |   |   | $ | 12,973 |   |   | $ | 25,230 |   |
| Operating leases             |       |                            | 3,672      |                        |       | 5,186                       |       | 4,779                            |       |      | 12,743     |   |   | 26,380 |   |
| Purchase obligations         |       |                            | 29,483     |                        |       | –                      |       | –                           |       |      | –     |   |   | 29,483 |   |
| Pension funding              |       |                            | –     |                        |       | 14,572                      |       | 41,561                           |       |      | 5,145      |   |   | 61,278 |   |
| Other long-term  obligations |       |                            | 598        |                        |       | 1,195                       |       | 1,195                            |       |      | 4,639      |   |   | 7,627 |   |
| Total                        |       |                            | $          | 39,455                      |       |                        | $          | 24,559                           |       | $         | 50,484     |   |   | $ | 35,500 |   |   | $ | 149,998 |   |

 

Pension funding amounts in the table above are basedon current regulations and actuarial calculations at July 3, 2005. Actualfunding amounts could vary, depending on future interest rate levels and valuesin equity and fixed-income markets.

Purchase obligations in the table above represent thevalue of open purchase orders as of July 3, 2005. We believe that some ofthese obligations could be canceled for payment of a nominal penalty or nopenalty; however, the amount of open purchase orders that could be canceledunder such terms is difficult to quantify.

The figures in the table above do not include ouraggregate future minimum rentals to be received under noncancelable subleasesof $10.3 million as of July 3, 2005.

Based upon current plansand business conditions, we believe that global borrowing capacity under our variouscredit facilities, the anticipated sale of our telecom power business andinternally generated cash flows will be sufficient to fund anticipatedoperational needs, capital expenditures and other near-term commitments.

**Critical Accounting Policies**

Our accounting policiesare more fully described in Note 1 of Notes to Consolidated FinancialStatements. As disclosed in Note 1, the preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires estimates and judgments by management that affect the reported amountof assets and liabilities, revenues, expenses, and related disclosures. Suchestimates are based upon historical experience and other assumptions believedto be reasonable given known circumstances. Actual results could differ fromthose estimates. On an ongoing basis, we evaluate and update our estimates, andwe believe the following discussion addresses our policies which are mostcritical to understanding our financial position and results of operations, andwhich require our most complex judgments.

***Accounts Receivable***

Accounts receivablerepresent amounts due from customers in the ordinary course of business. We aresubject to losses from uncollectible receivables in excess of our allowances. Wemaintain allowances for doubtful accounts for estimated losses from customers’inability to make required payments. In order to estimate the appropriate levelof this allowance, we analyze historical bad debts, customer concentrations,current customer creditworthiness, current economic trends and changes incustomer payment patterns. Our total allowance includes a specific allowancebased on identification of customers where we feel full payment is in doubt, aswell as a general allowance calculated based on our historical losses onaccounts receivable as a percentage of historical sales. We believe that ourmethodology has been effective in accurately quantifying our allowance fordoubtful accounts and do not anticipate changing our methodology in the future.However, if the financial conditions of any of our customers were todeteriorate and impair their ability to make payments, additional allowancesmay be required in future periods. We believe that all appropriate allowanceshave been provided.

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***Inventories***

Our inventories are statedat the lower of cost or market. Cost is determined by the first-in, first-out(FIFO) method, including material, labor and factory overhead. We identifypotentially obsolete and excess inventory by evaluating overall inventorylevels in relation to expected future requirements and market conditions, andprovisions for excess and obsolete inventory and inventory valuation arerecorded accordingly. Items with no usage for the past twelve months and noexpected future usage are considered obsolete, and are disposed of or fullyreserved. Reserves for excess inventory are determined based upon historicaland anticipated usage as compared to quantities on hand. Excess inventory isdefined as inventory items with on-hand quantities in excess of one year’susage and specified percentages are applied to the excess inventory value indetermining the reserve. Our reserve for excess and obsolete inventory hasranged from 9% to 10% of gross inventory value during the fiscal years 2004 and2005. Our assumptions have not changed significantly in the past, and are notlikely to change in the future. We feel that our assumptions regardinginventory valuation have been accurate in the past, with the exception of anunexpected significant decline in demand in our telecom business in fiscal2003, which resulted in a charge to discontinued operations of $4.7 million toincrease our inventory reserves.

***Long-Lived Assets and Goodwill***

We periodically evaluate the recoverability of ourlong-lived assets, including property, plant and equipment. Impairment chargesare recorded in operating results when the undiscounted future expected cashflows derived from an asset are less than the carrying value of the asset.

We are required to performannual impairment tests of our goodwill, and may be required to test morefrequently in certain circumstances. We have elected to perform our annualimpairment test in the fourth quarter of our fiscal year. We have identifiedour Power Electronics and Power Systems groups as reporting units underStatement of Financial Accounting Standard (“SFAS”) No. 142, *Goodwill and Other Intangible Assets*. In assessing potentialimpairment, we make significant estimates and assumptions regarding thediscounted future cash flows of our reporting units to determine the fair valueof those reporting units. Such estimates include, but are not limited to,projected future operating results, working capital ratios, cash flow, terminalvalues, market discount rates and tax rates. We review the accuracy of ourprojections by comparing them to our actual results annually, and havedetermined that, historically, our cash flow estimates used in determining thefair value of our reporting units have been reasonably accurate. We use theresults of this analysis as well as projected operating results to modify ourestimates annually. However, if circumstances cause these estimates to changein the future, or if actual circumstances vary significantly from theseassumptions, this could result in additional goodwill impairment charges. Wecannot predict the occurrence of future events that may adversely affect ourreported goodwill balance.

***Pension Benefits***

We sponsor a defined benefit plan that covers a numberof current and former employees in the U.S. The valuation of our pension planrequires the use of assumptions and estimates that attempt to anticipate futureevents to develop actuarial valuations of expenses, assets and liabilities. Theseassumptions include discount rates, expected rates of return on plan assets andmortality rates. We consider market conditions, including changes in investmentreturns and interest rates, in making these assumptions. Our plan assets arecomprised mainly of common stock and bond funds. The expected rate of return onplan assets is a long-term assumption and is generally not changed on an annualbasis. The expected rate of return on plan assets was 9.0% in each of fiscal2005 and 2004, and was 9.5% in fiscal 2003. The discount rate reflects themarket for high-quality fixed income debt instruments and is subject to changeeach year. As of July 3, 2005, the discount rate was 5.25% as compared to6.375% at June 27, 2004 and 6.125% at June 29, 2003. Changes inassumptions typically result in actuarial gains or losses that are amortized inaccordance with the methods specified in SFAS No. 87, *Employers’Accounting for Pensions*. A reduction in the discount rate, asoccurred during fiscal 2005, results in an increase to our projected benefitobligation and an actuarial loss, which typically results in higher futurepension expense.

Significant differencesbetween our assumptions and actual future investment return or discount ratescould have a material impact on our financial position or results of operationsand related funding requirements.

***Reserves for Contingencies***

We periodically record the estimated impact of variousconditions, situations or circumstances involving uncertain outcomes. Theaccounting for such events is prescribed under SFAS No. 5, *Accounting for Contingencies*. SFAS No. 5 defines acontingency as an existing condition, situation, or set of circumstances involvinguncertainty as to possible gain or loss to an enterprise that will ultimatelybe resolved when one or more future events occur or fail to occur.

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SFAS No. 5 does not permit the accrual of gaincontingencies under any circumstances. For loss contingencies, the loss must beaccrued if (1) information is available that indicates it is probable thatthe loss has been incurred, given the likelihood of uncertain events; and (2) theamount of the loss can be reasonably estimated.

The accrual of acontingency involves considerable judgment and we use our internal expertiseand outside experts, as necessary, to help estimate the probability that a losshas been incurred and to assist in determining the amount or range of the loss.In those circumstances where we determined that it was probable that a loss hadbeen incurred, our estimates of the amount of loss have been reasonablyaccurate.

***Income Taxes***

We record deferred income tax assets in taxjurisdictions where we generate losses for income tax purposes. We also recordvaluation allowances against these deferred tax assets in accordance with SFAS No. 109,*Accounting for Income Taxes*, when in ourjudgment, the deferred income tax assets will likely not be realized in theforeseeable future.

Since fiscal 2002 we have provided valuation reservesagainst our U.S. deferred tax assets that result in a zero net deferred taxposition (net deferred assets equal to deferred tax liabilities). In a fiscalyear-end review of our tax accounts, we determined that a portion of ourdeferred tax liability relates to tax-deductible amortization of goodwill thatis no longer amortized for financial reporting purposes. Under applicableaccounting rules, such deferred tax liabilities are considered to have an indefinitelife and are therefore ineligible to be considered as a source of futuretaxable income in assessing the realization of deferred tax assets.

We also determined thatsuch deferred tax liabilities existed at June 27, 2004, and at June 29,2003, and therefore have restated those years to increase our valuationallowance for deferred tax assets and the related provision for income taxes by$1.6 million and $1.0 million respectively. The restatement did not have amaterial impact on our financial position at the end of the reported periodsand had no impact on our cash flows for the restated periods.

**RiskFactors Affecting the Company’s Financial Outlook**

Our future results of operations and the otherforward-looking statements contained in this filing, including this section titled“Management’s Discussion and Analysis of Financial Condition and Results ofOperations”, involve a number of risks and uncertainties. In particular, thestatements regarding future economic conditions, the recovery in the electronicpower industry, our goals and strategies, new product introductions,penetration of new markets, projections of sales revenues, manufacturing costsand operating costs, pricing of our products and raw materials required tomanufacture our products, gross margin expectations, relocation and outsourcingof production capacity, capital spending, research and development expenses,the outcome of pending legal proceedings and environmental matters, tax rates,sufficiency of funds to meet our needs including contributions to our definedbenefit pension plan, and our plans for future operations, as well as ourassumptions relating to the foregoing, are all subject to risks anduncertainties.

A number of other factorscould cause our actual results to differ materially from our expectations. Weare subject to all of the business risks facing public companies, includingbusiness cycles and trends in the general economy, financial market conditions,changes in interest rates, demand variations and volatility, potential loss ofkey personnel, supply chain disruptions, government legislation and regulation,and natural causes. The following list of risk factors is not all-inclusive.Other factors and unanticipated events could adversely affect our financialposition or results of operations. We believe that the most significantpotential risk factors that could adversely impact us are the following:

***Economic Conditions and Demand for our Products***

Demand for our products,which impacts our revenue and gross profit, is affected by general business andeconomic conditions, and more specifically by conditions in the electronicpower industry. Demand for our products is also impacted by changes in customerorder patterns, such as changes in inventory levels maintained by customers andthe timing of customer purchases. If demand in certain of our served marketsdeteriorates in subsequent periods, our operating results could be adverselyaffected and losses could recur.

***Competitive Industry***

We operate in an intenselycompetitive industry characterized by rapid changes in technology, productdemand, prices and lead times. Our future profitability depends on our abilityto successfully identify and react to these changing trends. Specifically,achievement of our sales and profit goals is dependent in part upon our abilityto successfully anticipate product demand, to introduce new products to meetthat demand in a timely manner at competitive prices, to gain 

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acceptance of our productsin the marketplace, and to adapt our existing product platforms in the event ofchanges in technology. Failure to do so could result in low returns oninvestment in new products and technologies, a loss of competitive positionrelative to our peers, obsolete products and technologies, and adverse impacton our operating results. In addition, price erosion in our served marketscould have a material impact on our financial position or results ofoperations.

***Dependence on Customers and Credit Risk***

We rely on several largecustomers for a significant portion of our sales. While we have taken actionsto diversify our customer base, sales to our top five customers representedapproximately 29% of our net sales in fiscal 2005. The loss of any suchcustomers or significant decreases in any such customers’ levels of purchasescould have an adverse effect on our business.  In addition, we are exposed to the credit riskof our customers, including risk of bankruptcy, and are subject to losses fromuncollectible accounts receivable. If the financial conditions of any of ourcustomers deteriorates and impairs their ability to make payments, we couldincur future write-offs of accounts receivable that could have a materialimpact on our financial position, results of operations or cash flows.

***Reliance on Suppliers***

We purchase raw materialsand subassemblies used in our products from third-party suppliers, and alsopurchase finished goods for resale to customers from third party subcontractors.If our suppliers or subcontractors cannot meet their commitments to us in termsof price, delivery, or quality, it may negatively impact our ability to meetour commitments to our customers. This could result in disruption ofproduction, delay in shipments to customers, higher material costs, qualityissues with our products and damage to customer relationships. In addition,increases in the cost of raw materials purchased from third party supplierscould negatively impact our gross profit and results of operations.

***Competitive Size***

We believe the power supplies industry includes morethan 1,000 enterprises, according to various industry research organizations.Of these enterprises, we compete directly only with manufacturers of complex,non-commodity power products, which we estimate constitute less than 5% of theindustry. However, certain of our competitors are significantly larger and havesubstantially greater resources than us.  Further, given excess capacity and the declinein valuations of companies within the industry since 2000, the risk ofconsolidation in the industry could result in larger competitors than thosethat exist today.

In power systems, wecompete with crane and hoist drive manufacturers and drive system integrators,elevator drive manufactures and control system integrators, mining machinerydrive builders, power inverter builders and telecom power systems builders. Thetotal number of such enterprises with whom we compete directly is considered tobe fewer than 100. However, certain of our competitors are significantly largerand have substantially greater resources than us, and some are global in scope,whereas we currently compete primarily in the North American market.

***International Business***

Our international operations are subject to risksassociated with changes in local economic and political conditions, laws, codesand standards, currency exchange rates and restrictions, regulatoryrequirements and taxes.

Since international salescurrently account for approximately 55% of our revenue, currency exchange ratesimpact our results. This is partially a currency translation issue with noeconomic impact on actual results. However, a fluctuation in exchange ratesbetween a foreign currency and the U.S. dollar can have an economic impact onrevenue and profit. ** **During fiscal 2004 and fiscal 2003,we were impacted by such currency fluctuations, primarily the weakening of theU.S. dollar against the Euro.  Additionalweakening in the value of the dollar against other currencies, primarily theEuro, or changes in any of the other risks listed previously, could have anadverse effect on our financial position or results of operations.

***Restructuring and Outsourcing***

We have taken actions torelocate some of our production capacity to lower cost countries, primarily toChina, and may develop action plans regarding additional relocation orconsolidation activities in the future. While we believe that these actionswill result in a more competitive position and should also increase our grossprofits and reduce our operating expenses, there is no guarantee that theseplans will succeed. There is also no assurance that the expected cost savingsand improvement in gross profits will be realized, and in addition, theseactions may result in quality issues or delays in 

14

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production or shipment tocustomers that could have an adverse impact on our results of operations. Inaddition, there is no assurance that any future activities not yet plannedwould provide any benefits to our operating results, and any such future plansmay result in asset impairment charges.

***Intellectual Property***

We believe that our intellectual property in the areaof digital power-electronics is equal or superior to our competitors’ and we donot know of any new technologies that could cause a shift away from digitalpower-electronic solutions. However, as a technology-based company in anindustry characterized by short product life cycles, we are highly dependent onboth patented and proprietary intellectual property. Therefore, majoradvancements in digital power-electronic technology by competitors or theadvent of technologies obviating digital power-electronic solutions could havean adverse effect on our financial position or results of operations.

Likewise, we could beadversely affected financially should we be judged to have infringed upon theintellectual property of others.

***Legal and Environmental Issues***

Our results of operations could be adversely impactedby pending and future litigation, including claims related to, but not limitedto, product liability, patent infringement, contracts, employment and laborissues, personal injury, and property damage, including damage to theenvironment.

In some cases, we have agreed to provideindemnification against legal and environmental liabilities and potentialliabilities associated with operations that we have divested, including certainmotor, generator, lighting ballast, transformer and drive manufacturingoperations. If we are required to make payments under such indemnificationobligations, such payments could have a material adverse impact on ourfinancial position or results of operations. Further, we have been indemnifiedagainst potential legal and environmental liabilities and potential liabilitiesassociated with operations that we have acquired, including lighting ballast,transformer, capacitor and crane brake manufacturing operations that weresubsequently divested. If not borne by the indemnifiers, such liabilities, ifany, could be borne by us and have an adverse effect on our financial positionor results of operations.

In connection with our June 2001sale of our lighting business to Universal Lighting Technologies, Inc. (“ULT”),we agreed to provide a limited indemnification against certain claims of patentinfringement that Ole K. Nilssen might allege against ULT. Mr. Nilssensubsequently filed a lawsuit against ULT alleging infringement by ULT ofcertain of his patents pertaining to electronic ballast technology. The lawsuitis currently pending in the U.S. District Court for the Middle District ofTennessee. ULT has made a claim for indemnification against us in respect ofthis matter, which we accepted. If Mr. Nilssen succeeds in his claimagainst ULT, our obligation to indemnify ULT for its damages payable to Mr. Nilssencould have a material adverse effect on our financial position and results ofoperations.

**QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

We are exposed to marketrisks in the areas of foreign exchange and interest rates. To mitigate theeffect of such risks, from time to time we selectively use specific financialinstruments. Hedging transactions can be entered into under Company policiesand procedures and are monitored monthly. Company policy prohibits the use ofsuch financial instruments for trading or speculative purposes. A discussion ofour accounting policies for derivative financial instruments is included in theSummary of Significant Accounting Policies under Note 1 in the Notes to theConsolidated Financial Statements. We did not have any outstanding hedgeinstruments or contracts at July 3, 2005.

***Interest Rates***

The fair value of our debtwas $25.2 million and $18.1 million at July 3, 2005 and June 27,2004, respectively. The fair value of our debt is equal to the borrowingsoutstanding from domestic and foreign banks and small amounts owed undercapital lease arrangements. For our debt outstanding at July 3, 2005 and June 27,2004, a hypothetical 10% adverse change in interest rates would have increasedour interest expense by approximately $0.2 million in each fiscal year 2005 andfiscal 2004. Prospectively we expect our interest expense to increase based onhigher interest rates and potentially higher outstanding debt levels under ourdomestic Term Loan and Revolving Loan (see Note 6 of Notes to ConsolidatedFinancial Statements).

15

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***Foreign Currency Exchange Rates***

We generally do not enter into foreign exchangecontracts to protect against reductions in value and volatility of future cashflows caused by changes in exchange rates, but we may selectively enter intoforeign exchange contracts to hedge certain exposures in Europe. Gains andlosses on these non-U.S.-currency investments would generally be offset bycorresponding losses and gains on the related hedging instruments, resulting innegligible net exposure.

A portion of our products are manufactured in Europeand sold in the U.S. Many of these sales to U.S. customers are denominated inU.S. dollars. As a result, our financial results could be significantlyimpacted by changes in exchange rates, particularly the exchange rate betweenthe U.S. dollar and the Euro. Our exposure on sales by our Europeansubsidiaries consists of (1) the exposure related to a weakening U.S.dollar for U.S. dollar denominated sales, as most of our European subsidiaries’costs are in Euro; in the event of a weakening U.S. dollar, locally recordedsales in the functional currency (the Euro) are decreased, (2) theexposure related to a weakening U.S. dollar when payment of U.S. dollarreceivables are received from customers, resulting in less local currency thanwas originally recorded at the date of sale, and (3) the exposure thatupon translation of the subsidiaries’ periodic financial statements, aweakening local currency would result in lower reported sales in U.S. dollarsthan if the local currency had been stable relative to the U.S. dollar. In thelatter case, operating expenses would also be translated at the lower amountand accordingly, the effect on net income would be mitigated.

Based upon the historical trends in currency exchangerates, we believe it is reasonably possible that adverse changes in exchangerates of 20% between the US dollar and the Euro could be experienced in thenear term. Such an adverse change would have resulted in an estimated adverseimpact on net income of approximately $2.4 million and $3.7 million for fiscal2005 and 2004, respectively.

We had no foreign currency contracts outstanding at July 3,2005 and June 27, 2004.

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**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

| ***For the years ended  (Amounts in thousands, except per share data)*** | ** ** | **July 3,  2005** | ** ** | **June 27,  2004  (restated)** | ** ** | **June 29,  2003  (restated)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| Net sales                                                                                                             |       | $                      | 242,389    |                                |       | $                                   | 230,280    |   |   |   | $ | 180,277 |   |   |
| Cost of sales                                                                                                         |       | 182,396                |       |                                | 175,977    |                                |       |   | 139,055 |   |   |
| Gross profit                                                                                                          |       | 59,993                 |       |                                | 54,303     |                                |       |   | 41,222 |   |   |
| Research and development                                                                                              |       | 14,605                 |       |                                | 13,021     |                                |       |   | 10,413 |   |   |
| Sales, general and  administrative                                                                                    |       | 41,820                 |       |                                | 41,864     |                                |       |   | 31,892 |   |   |
| Gain from termination of  retiree medical plan                                                                        |       | –                 |       |                                | –     |                                |       |   | (27,771 | ) |   |
| Income (loss) from  operations                                                                                        |       | 3,568                  |       |                                | (582       | )                                   |       |   | 26,688 |   |   |
| Non operating expense  (income):                                                                                      |       |                   |       |                                |       |                                |       |   |   |   |   |
| Interest income                                                                                                       |       | (200                   | )          |                                | (1,151     | )                                   |       |   | (194 | ) |   |
| Interest expense                                                                                                      |       | 1,824                  |       |                                | 2,358      |                                |       |   | 1,739 |   |   |
| Other income                                                                                                          |       | (1,300                 | )          |                                | –     |                                |       |   | – |   |   |
| Other expense                                                                                                         |       | –                 |       |                                | 981        |                                |       |   | 3,345 |   |   |
| Income (loss) from  continuing operations before provision for income taxes                                           |       | 3,244                  |       |                                | (2,770     | )                                   |       |   | 21,798 |   |   |
| Provision for income  taxes                                                                                           |       | 2,425                  |       |                                | 6,700      |                                |       |   | 8,620 |   |   |
| Net income (loss) from  continuing operations                                                                         |       | 819                    |       |                                | (9,470     | )                                   |       |   | 13,178 |   |   |
| Loss from discontinued  operations                                                                                    |       | (27,689                | )          |                                | (3,601     | )                                   |       |   | (49,022 | ) |   |
| Net loss                                                                                                              |       | $                      | (26,870    | )                                   |       | $                                   | (13,071    | ) |   |   | $ | (35,844 | ) |   |
| Per common share basic  and diluted:                                                                                  |       |                   |       |                                |       |                                |       |   |   |   |   |
| Net income (loss) from  continuing operations                                                                         |       | $                      | 0.03       |                                |       | $                                   | (0.35      | ) |   |   | $ | 0.55 |   |   |
| Loss from discontinued  operations                                                                                    |       | $                      | (0.97      | )                                   |       | $                                   | (0.13      | ) |   |   | $ | (2.07 | ) |   |
| Net loss                                                                                                              |       | $                      | (0.94      | )                                   |       | $                                   | (0.48      | ) |   |   | $ | (1.52 | ) |   |
| Weighted average shares  outstanding – basic                                                                     |       | 28,535                 |       |                                | 27,094     |                                |       |   | 23,644 |   |   |
| Weighted average shares outstanding – diluted                                                                    |       | 29,100                 |       |                                | 27,094     |                                |       |   | 23,753 |   |   |

 

*The accompanying notes arean integral part of these consolidated financial statements.*

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**CONSOLIDATEDBALANCE SHEETS**

| ***As of  (Amounts in thousands)***                                                                               | ** ** | **July 3,  2005** | ** ** | **June 27,  2004  (restated)** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------------------|------------|
| Assets                                                                                                                           |       |                   |       |                                |       |   |   |
| Current assets:                                                                                                                  |       |                   |       |                                |       |   |   |
| Cash                                                                                                                             |       | $                      | 6,854      |                                |       | $ | 2,318 |   |   |
| Accounts  receivable, less allowance for doubtful accounts of $4,204 in 2005 and  $4,308 in  2004                           |       | 54,022                 |       |                                | 56,056     |   |   |
| Inventories                                                                                                                      |       | 49,950                 |       |                                | 48,872     |   |   |
| Deferred income  taxes                                                                                                           |       | 1,636                  |       |                                | 925        |   |   |
| Prepaid expenses  and other current assets                                                                                       |       | 4,077                  |       |                                | 5,447      |   |   |
| Assets held for  sale                                                                                                            |       | 4,727                  |       |                                | 4,474      |   |   |
| Total current assets                                                                                                             |       | 121,266                |       |                                | 118,092    |   |   |
| Property, plant and equipment:                                                                                                   |       |                   |       |                                |       |   |   |
| Land                                                                                                                             |       | 1,240                  |       |                                | 1,261      |   |   |
| Buildings and  improvements                                                                                                      |       | 14,274                 |       |                                | 14,065     |   |   |
| Machinery and  equipment                                                                                                         |       | 113,959                |       |                                | 107,237    |   |   |
| Less accumulated  depreciation                                                                                                   |       | 97,534                 |       |                                | 90,708     |   |   |
| Net property, plant and  equipment                                                                                               |       | 31,939                 |       |                                | 31,855     |   |   |
| Goodwill, less accumulated  amortization of $9,720 in 2005 and 2004                                                              |       | 63,656                 |       |                                | 63,828     |   |   |
| Other assets                                                                                                                     |       | 12,319                 |       |                                | 14,249     |   |   |
| Total assets                                                                                                                     |       | $                      | 229,180    |                                |       | $ | 228,024 |   |   |
| Liabilities and  Stockholders’ Equity                                                                                       |       |                   |       |                                |       |   |   |
| Current liabilities:                                                                                                             |       |                   |       |                                |       |   |   |
| Accounts payable                                                                                                                 |       | $                      | 36,974     |                                |       | $ | 40,031 |   |   |
| Accrued  liabilities                                                                                                             |       | 9,029                  |       |                                | 11,067     |   |   |
| Accrued  arbitration award                                                                                                       |       | 22,602                 |       |                                | –     |   |   |
| Liabilities held  for sale                                                                                                       |       | 1,220                  |       |                                | 1,634      |   |   |
| Current portion  of long-term debt                                                                                               |       | 5,702                  |       |                                | 1,997      |   |   |
| Total current  liabilities                                                                                                       |       | 75,527                 |       |                                | 54,729     |   |   |
| Long-term debt, net of  current portion                                                                                          |       | 19,528                 |       |                                | 16,129     |   |   |
| Pension benefit  obligations, net                                                                                                |       | 70,568                 |       |                                | 31,366     |   |   |
| Other long-term  obligations                                                                                                     |       | 7,627                  |       |                                | 7,552      |   |   |
| Deferred income taxes                                                                                                            |       | 10,376                 |       |                                | 8,326      |   |   |
| Commitments and  contingencies                                                                                                   |       |                   |       |                                |       |   |   |
| Stockholders’  Equity:                                                                                                      |       |                   |       |                                |       |   |   |
| Common stock, $0.01 par  value, 100,000 shares authorized 28,615 and 28,492 shares issued  and outstanding in 2005 and 2004 |       | 286                    |       |                                | 285        |   |   |
| Additional paid-in  capital                                                                                                      |       | 128,158                |       |                                | 127,692    |   |   |
| Retained earnings                                                                                                                |       | 40,018                 |       |                                | 66,888     |   |   |
| Accumulated other  comprehensive loss                                                                                            |       | (122,908               | )          |                                | (84,943    | ) |   |
| Total stockholders’  equity                                                                                                 |       | 45,554                 |       |                                | 109,922    |   |   |
| Total liabilities and stockholders’ equity                                                                                  |       | $                      | 229,180    |                                |       | $ | 228,024 |   |   |

 

*The accompanying notes arean integral part of these consolidated financial statements.*

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**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY**

*(Amounts in thousands)*

| ** **                      | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** **     | ** **  |
|---------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|-----------------|------------|----------------|-------------|
| ** **                      | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | **Retained**      | ** ** | **Other**       | ** ** | ** **     | ** **  |
| ** **                      | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Earnings**   | ** ** | **Comprehensive** | ** ** | **Total ** | ** ** |
| *** ***                    | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **(restated)**    | ** ** | **Loss**        | ** ** | **(restated)** | ** **  |
| **Balance, June 30, 2002** | ** ** |                  | **23,607** | ** **  |       |           | **$**      | **236**           | ** ** |            |       | **$**          | **106,216** | ** ** |   |   | **$** | **115,803** | ** ** |   |   | **$** | **(79,436** | **)** |   |   | **$** | **142,819** | ** ** |   |
| Employee stock purchase  plan   |       |                  | 24         | ** **  |       |           | –     | ** **        |       |            | 75         | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 75 | ** ** |   |
| Shares issued to trust          |       |                  | 65         |        |       |           | 1          | ** **        |       |            | 250        | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 251 | ** ** |   |
| Deferred compensation  plan     |       |                  | 65         |        |       |           | 1          | ** **        |       |            | 250        | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 251 | ** ** |   |
| Share value trust               |       |                  | (65        | )           |       |           | (1         | )                 |       |            | (250       | )              |        |   | – | ** ** |   |   | – | ** ** |   |   | (251 | ) |   |
| Net loss                        |       |                  | –     |        |       |           | –     | ** **        |       |            | –     | ** **     |        |   | (35,844 | ) |   |   | – | ** ** |   |   | (35,844 | ) |   |
| Translation adjustments         |       |                  | –     |        |       |           | –     | ** **        |       |            | –     | ** **     |        |   | – | ** ** |   |   | 7,087 | ** ** |   |   | 7,087 |   |   |
| Minimum pension  liability      |       |                  | –     |        |       |           | –     | ** **        |       |            | –     | ** **     |        |   | – | ** ** |   |   | (35,717 | ) |   |   | (35,717 | ) |   |
| Comprehensive loss              |       |                  | –     | ** **  |       |           | –     | ** **        |       |            | –     | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | (64,474 | ) |   |
| **Balance, June 29, 2003** | ** ** |                  | **23,696** | ** **  |       |           | **$**      | **237**           | ** ** |            |       | **$**          | **106,541** | ** ** |   |   | **$** | **79,959** | ** ** |   |   | **$** | **(108,066** | **)** |   |   | **$** | **78,671** |   |   |
| Exercise of stock  options      |       |                  | 18         | ** **  |       |           | –     | ** **        |       |            | 67         | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 67 |   |   |
| Shares issued                   |       |                  | 4,200      | ** **  |       |           | 42         | ** **        |       |            | 18,480     | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 18,522 |   |   |
| Employee stock purchase  plan   |       |                  | 16         | ** **  |       |           | –     | ** **        |       |            | 47         | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 47 |   |   |
| Pension plan  contribution      |       |                  | 535        | ** **  |       |           | 6          | ** **        |       |            | 2,386      | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 2,392 |   |   |
| Shares issued to trust          |       |                  | 27         | ** **  |       |           | –     | ** **        |       |            | 146        | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 146 |   |   |
| Deferred compensation  plan     |       |                  | –     | ** **  |       |           | –     | ** **        |       |            | (22        | )              |        |   | – | ** ** |   |   | – | ** ** |   |   | (22 | ) |   |
| Share value trust               |       |                  | –     | ** **  |       |           | –     | ** **        |       |            | 47         | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 47 |   |   |
| Net loss                        |       |                  | –     | ** **  |       |           | –     | ** **        |       |            | –     | ** **     |        |   | (13,071 | ) |   |   | – | ** ** |   |   | (13,071 | ) |   |
| Translation adjustments         |       |                  | –     | ** **  |       |           | –     | ** **        |       |            | –     | ** **     |        |   | – | ** ** |   |   | 2,331 | ** ** |   |   | 2,331 | ** ** |   |
| Minimum pension  liability      |       |                  | –     | ** **  |       |           | –     | ** **        |       |            | –     | ** **     |        |   | – | ** ** |   |   | 20,792 | ** ** |   |   | 20,792 | ** ** |   |
| Comprehensive income            |       |                  | –     | ** **  |       |           | –     | ** **        |       |            | –     | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 10,052 | ** ** |   |
| **Balance, June 27, 2004** | ** ** |                  | **28,492** | ** **  |       |           | **$**      | **285**           | ** ** |            |       | **$**          | **127,692** | ** ** |   |   | **$** | **66,888** | ** ** |   |   | **$** | **(84,943** | **)** |   |   | **$** | **109,922** | ** ** |   |
| Exercise of stock  options      |       |                  | 53         | ** **  |       |           | –     | ** **        |       |            | 172        | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 172 | ** ** |   |
| Shares issued                   |       |                  | 3          | ** **  |       |           | –     | ** **        |       |            | 5          | ** **     |        |   | – | ** ** |   |   | – | ** ** |   |   | 5 | ** ** |   |
| Employee stock purchase  plan   |       |                  | 6          |        |       |           | –     |              |       |            | 37         |           |        |   | – | ** ** |   |   | – | ** ** |   |   | 37 | ** ** |   |
| Shares issued to trust          |       |                  | 61         |        |       |           | 1          |              |       |            | 283        |           |        |   | – | ** ** |   |   | – | ** ** |   |   | 284 | ** ** |   |
| Deferred compensation  plan     |       |                  | 61         |        |       |           | 1          |              |       |            | 252        |           |        |   | – | ** ** |   |   | – | ** ** |   |   | 253 | ** ** |   |
| Share value trust               |       |                  | (61        | )           |       |           | (1         | )                 |       |            | (283       | )              |        |   | – | ** ** |   |   | – |   |   |   | (284 | ) |   |
| Net loss                        |       |                  | –     |        |       |           | –     |              |       |            | –     |           |        |   | (26,870 | ) |   |   | – |   |   |   | (26,870 | ) |   |
| Translation adjustments         |       |                  | –     |        |       |           | –     |              |       |            | –     |           |        |   | – | ** ** |   |   | (199 | ) |   |   | (199 | ) |   |
| Minimum pension  liability      |       |                  | –     |        |       |           | –     |              |       |            | –     |           |        |   | – | ** ** |   |   | (37,766 | ) |   |   | (37,766 | ) |   |
| Comprehensive loss              |       |                  | –     |        |       |           | –     |              |       |            | –     |           |        |   | – | ** ** |   |   | – | ** ** |   |   | (64,835 | ) |   |
| **Balance, July 3, 2005**  | ** ** |                  | **28,615** | ** **  |       |           | **$**      | **286**           | ** ** |            |       | **$**          | **128,158** | ** ** |   |   | **$** | **40,018** | ** ** |   |   | **$** | **(122,908** | **)** |   |   | **$** | **45,554** | ** ** |   |

 

*The accompanying notes are anintegral part of these consolidated financial statements.*

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**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

| ***For the years ended  (Amounts in thousands)***                                                                 | ** ** | **July 3,  2005** | ** ** | **June 27,  2004  (restated)** | ** ** | **June 29,  2003  (restated)** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| Cash flows from  continuing operating activities:                                                                                          |       |                   |       |                                |       |                                |       |   |   |   |   |
| Net income (loss)  from continuing operations                                                                                              |       | $                      | 819        |                                |       | $                                   | (9,470     | ) |   |   | $ | 13,178 |   |   |
| Adjustments to reconcile  net income (loss) from continuing operations to net cash provided by (used  in) continuing operating activities: |       |                   |       |                                |       |                                |       |   |   |   |   |
| Depreciation                                                                                                                               |       | 8,883                  |       |                                | 9,078      |                                |       |   | 8,501 |   |   |
| Amortization                                                                                                                               |       | 253                    |       |                                | 513        |                                |       |   | 268 |   |   |
| Gain from  termination of retiree medical plan                                                                                             |       | –                 |       |                                | –     |                                |       |   | (27,771 | ) |   |
| Changes in  operating assets and liabilities of continuing operations                                                                      |       | 3,584                  |       |                                | (2,169     | )                                   |       |   | 2,290 |   |   |
| Total adjustments                                                                                                                          |       | 12,720                 |       |                                | 7,422      |                                |       |   | (16,712 | ) |   |
| Net cash provided by  (used in) continuing operating activities                                                                            |       | 13,539                 |       |                                | (2,048     | )                                   |       |   | (3,534 | ) |   |
| Cash flows from  discontinued operations:                                                                                                  |       |                   |       |                                |       |                                |       |   |   |   |   |
| Loss from  discontinued operations                                                                                                         |       | (27,689                | )          |                                | (3,601     | )                                   |       |   | (49,022 | ) |   |
| Adjustments to loss from  discontinued operations to net cash used in discontinued operations:                                             |       |                   |       |                                |       |                                |       |   |   |   |   |
| Depreciation and  amortization                                                                                                             |       | 127                    |       |                                | 170        |                                |       |   | 367 |   |   |
| Arbitration award  expense                                                                                                                 |       | 21,977                 |       |                                | –     |                                |       |   | – |   |   |
| Goodwill and  other asset impairment                                                                                                       |       | –                 |       |                                | –     |                                |       |   | 38,698 |   |   |
| Changes in  operating assets and liabilities of discontinued operations                                                                    |       | (1,918                 | )          |                                | 1,338      |                                |       |   | 1,141 |   |   |
| Capital  expenditures                                                                                                                      |       | (39                    | )          |                                | (63        | )                                   |       |   | (365 | ) |   |
| Net cash used in  discontinued operations                                                                                                  |       | (7,542                 | )          |                                | (2,156     | )                                   |       |   | (9,181 | ) |   |
| Net cash provided by  (used in) operating activities                                                                                       |       | 5,997                  |       |                                | (4,204     | )                                   |       |   | (12,715 | ) |   |
| Cash flows from  investing activities:                                                                                                     |       |                   |       |                                |       |                                |       |   |   |   |   |
| Purchase and  investment in companies, net of cash acquired                                                                                |       | –                 |       |                                | –     |                                |       |   | (4,306 | ) |   |
| Proceeds from  sale of businesses and other assets                                                                                         |       | –                 |       |                                | 1,075      |                                |       |   | – |   |   |
| Capital  expenditures                                                                                                                      |       | (8,950                 | )          |                                | (5,894     | )                                   |       |   | (8,592 | ) |   |
| Net cash used in  investing activities                                                                                                     |       | (8,950                 | )          |                                | (4,819     | )                                   |       |   | (12,898 | ) |   |
| Cash flows from  financing activities:                                                                                                     |       |                   |       |                                |       |                                |       |   |   |   |   |
| Proceeds from  issuance of common stock                                                                                                    |       | 430                    |       |                                | 18,760     |                                |       |   | 251 |   |   |
| Proceeds from  employee stock purchase plan                                                                                                |       | 37                     |       |                                | 47         |                                |       |   | 75 |   |   |
| Borrowings (repayments)  under line-of-credit agreements                                                                                   |       | 8,596                  |       |                                | (8,693     | )                                   |       |   | 22,063 |   |   |
| Principal  payments under capital lease obligations                                                                                        |       | (256                   | )          |                                | (475       | )                                   |       |   | (616 | ) |   |
| Borrowings under  long term notes                                                                                                          |       | –                 |       |                                | 1,472      |                                |       |   | 1,571 |   |   |
| Repayment of long  term notes                                                                                                              |       | (1,236                 | )          |                                | (880       | )                                   |       |   | (440 | ) |   |
| Increase in  deferred financing costs                                                                                                      |       | (82                    | )          |                                | (570       | )                                   |       |   | (427 | ) |   |
| Net cash provided by  financing activities                                                                                                 |       | 7,489                  |       |                                | 9,661      |                                |       |   | 22,477 |   |   |
| Net increase (decrease)  in cash                                                                                                           |       | 4,536                  |       |                                | 638        |                                |       |   | (3,136 | ) |   |
| Cash at the beginning of  the year                                                                                                         |       | 2,318                  |       |                                | 1,680      |                                |       |   | 4,816 |   |   |
| Cash at the end of the year                                                                                                                |       | $                      | 6,854      |                                |       | $                                   | 2,318      |   |   |   | $ | 1,680 |   |   |

 

*The accompanying notes arean integral part of these consolidated financial statements.*

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

*(Allamounts in the notes to consolidated financial statements are expressed inthousands unless otherwise noted, except share and per share data)*

**1.Summary of Significant Accounting Policies**

**Principles of Consolidation**

The consolidated financialstatements include the accounts of Magnetek, Inc. and its subsidiaries(the “Company” or “Magnetek”). All significant inter-company accounts andtransactions have been eliminated.

**Restatement**

The accompanying consolidated financial statementshave been restated for the fiscal years 2004 and 2003 with respect toaccounting for income taxes.

Since fiscal 2002 the Company has provided valuationreserves against its U.S. deferred tax assets that result in a zero netdeferred tax position (net deferred assets equal to deferred tax liabilities). Ina fiscal year-end review of its tax accounts, the Company determined that aportion of its deferred tax liability relates to tax-deductible amortization ofgoodwill that is no longer amortized for financial reporting purposes. Underapplicable accounting rules, such deferred tax liabilities are considered tohave an indefinite life and are therefore ineligible to be considered as asource of future taxable income in assessing the realization of deferred taxassets.

The Company also determined that such deferred taxliabilities existed at June 27, 2004, and at June 29, 2003, andtherefore has restated those years to increase its valuation allowance fordeferred tax assets and the related provision for income taxes by $1.6 millionand $1.0 million respectively. The restatement did not have a material impacton the Company’s financial position at the end of the reported periods and hadno impact on the Company’s cash flows for the restated periods.

The table belowreflects the impact of the restatement on the Company’s results of operationsfor fiscal years 2004 and 2003:

ConsolidatedStatements of Operations

| ** **                                                                          | ** ** | **June 27, 2004** | ** ** | **June 29, 2003** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                          | ** ** | **As**                      | ** ** | ** **                  | ** ** | **As** | ** ** | ** ** | ** ** |
| ***For the years ended***                                            | ** ** | **previously**              | ** ** | **As**                      | ** ** | **previously** | ** ** | **As** | ** ** |
| ***(Amounts in thousands except per share amounts)*** | ** ** | **reported**                | ** ** | **restated**                | ** ** | **reported** | ** ** | **restated** | ** ** |
| Provision for income  taxes                                                         |       |                        | $          | 5,100                       |       |   |   | $ | 6,700 |   |   |   | $ | 7,620 |   |   |   | $ | 8,620 |   |   |
| Net loss                                                                            |       |                        | $          | (11,471                     | )          |   |   | $ | (13,071 | ) |   |   | $ | (34,844 | ) |   |   | $ | (35,844 | ) |   |
| Net loss per common share, basic and diluted                                        |       |                        | $          | (0.42                       | )          |   |   | $ | (0.48 | ) |   |   | (1.47 | ) |   |   | $ | (1.52 | ) |   |

 

**Use of Estimates**

The preparation of financial statements in accordancewith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Actual results could differfrom those estimates. Significant areas requiring management estimates includethe following key financial areas:

**AccountsReceivable**

Accounts receivable represent receivables fromcustomers in the ordinary course of business. The Company is subject to lossesfrom uncollectible receivables in excess of its allowances. The Companymaintains allowances for doubtful accounts for estimated losses from customers’inability to make required payments. In order to estimate the appropriate levelof this allowance, the Company analyzes historical bad debts, customerconcentrations, current customer creditworthiness, current economic trends andchanges in customer payment patterns. If the financial conditions of theCompany’s customers were to deteriorate and to impair their ability to makepayments, additional allowances may be required in future periods. The Company’smanagement believes that all appropriate allowances have been provided.

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**Inventories**

The Company’s inventories are stated at the lower ofcost or market. Cost is determined by the first-in, first-out (“FIFO”) method,including material, labor and factory overhead. Inventory on hand may exceedfuture demand either because the product is obsolete, or the amount on hand ismore than can be used to meet future needs. The Company identifies potentiallyobsolete and excess inventory by evaluating overall inventory levels. Inassessing the ultimate realization of inventories, the Company is required tomake judgments as to future demand requirements and compare those with thecurrent or committed inventory levels. If future demand requirements are lessfavorable than those projected by management, additional inventory write-downsmay be required.

**Reservesfor Litigation and Environmental Issues**

The Company periodically records the estimated impactsof various conditions, situations or circumstances involving uncertain outcomes.The accounting for such events is prescribed under Statement of FinancialAccounting Standard (“SFAS”) No. 5, *Accounting forContingencies*. SFAS No. 5 defines a contingency as “an existingcondition, situation, or set of circumstances involving uncertainty as topossible gain or loss to an enterprise that will ultimately be resolved whenone or more future events occur or fail to occur.”

SFAS No. 5 does not permit the accrual of gaincontingencies under any circumstances. For loss contingencies, the loss must beaccrued if (1) information is available that indicates it is probable thatthe loss has been incurred, given the likelihood of uncertain events; and (2) thatthe amount of the loss can be reasonably estimated.

The accrual of a contingency involves considerablejudgment on the part of management. The Company uses its internal expertise,and outside experts, as necessary, to help estimate the probability that a losshas been incurred and the amount (or range) of the loss.

**IncomeTaxes**

The Company uses the liability method to account forincome taxes. The preparation of consolidated financial statements involvesestimating the Company’s current tax exposure together with assessing temporarydifferences resulting from differing treatment of items for tax and accountingpurposes. These differences result in deferred tax assets and liabilities,which are included in the consolidated balance sheets. An assessment of therecoverability of the deferred tax assets is made, and a valuation allowance isestablished based upon this assessment.

With the exception of approximately $3.0 million offoreign earnings that the Company expects to repatriate for various financingneeds, the Company presently intends to reinvest any earnings overseasindefinitely.

**PensionBenefits**

The valuation of theCompany’s pension plan requires the use of assumptions and estimates to developactuarial valuations of expenses and assets/liabilities. These assumptionsinclude discount rates, investment returns and mortality rates. Changes inassumptions and future investments returns could potentially have a materialimpact on the Company’s expenses and related funding requirements.

**Revenue Recognition**

The Company’s policy is to recognize revenue when theearnings process is complete. The criteria used in making this determinationare persuasive evidence that an arrangement exists, delivery has occurred, thesales price is fixed or determinable, and collectibility is reasonably assured.Sales are recorded net of returns and allowances, which are estimated usinghistorical data, at the time of sale.

Revenue is recognized upon shipment, except in thosecases where product is shipped to customers with consignment stock agreements,wherein revenue is recognized when the customer removes the product fromconsignment stock. With the exception of consignment stock, terms of shipmentare FOB shipping point, and payment is not contingent upon resale or any othermatter other than passage of time. As a result, title to goods passes uponshipment. Amounts billed to customers for shipping costs are reflected in netsales; shipping costs are reflected in cost of sales.

Sales to distributors arerecorded with appropriate reserves for future returns in accordance with SFAS No. 48,*Revenue Recognition When Right of Return Exists*,and generally do not include future installation obligations or acceptancerequirements.

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**Property, Plant and Equipment**

Additions and improvementsare capitalized at cost, whereas expenditures for maintenance and repairs arecharged to expense as incurred. Depreciation is provided over the estimateduseful lives of the respective assets principally on the straight-linemethod (machinery and equipment normally five to ten years, buildings andimprovements normally ten to forty years).

**Goodwill**

In accordance with SFAS No. 142,*Goodwill and Other Intangible Assets*,the Company reviews the carrying value of goodwill at least annually, and morefrequently if indicators of potential impairment arise, using discounted futurecash flow analyses as prescribed in SFAS 142.

**Accounting for Stock Options**

As permitted under SFAS No. 123, *Accounting for Stock-Based Compensation*, the Company haselected to use the intrinsic-value method of accounting as prescribed byAccounting Principles Board (APB) No. 25 *Accountingfor Stock Issued to Employees* in accounting for stock based awardsto employees. Under APB 25, the Company recognizes no compensation expense withrespect to such awards when the exercise price is equal to or greater than themarket price at the date of grant. Accordingly, no stock-based employeecompensation cost is reflected in reported results of operations for allperiods presented.

Pro forma information regarding net income (loss) andnet income (loss) per share is required by SFAS No. 123 (“FAS 123”)for awards granted in fiscal years after December 31, 1994 as if theCompany had accounted for its stock-based awards to employees underthe fair value method of FAS 123. The fair value of the Company’s stock-basedawards to employees was estimated using a Black-Scholes option pricingmodel. The Black-Scholes option valuation model was developed for use inestimating the fair value of traded options that have no vesting restrictionsand are fully transferable. In addition, the Black-Scholes model requiresthe input of highly subjective assumptions, including expected stock price volatility.Because the Company’s stock-based awards to employees havecharacteristics significantly different from those of traded options, andbecause changes in subjective input assumptions can materially affect the fairvalue estimate, in management’s opinion, the existing models do not necessarilyprovide a reliable single measure of the fair value of its stock-basedawards to employees.

On April 20, 2005, the Company approved theacceleration of the vesting of “underwater” unvested stock options held by theCompany’s current employees, including executive officers, on June 1,2005. No stock options held by non-employee directors were subject to theacceleration. A stock option was considered “underwater” if the option exerciseprice was greater than $2.19 per share, which was the closing price of theCompany’s stock on June 1, 2005.

The decision to accelerate vesting of these underwaterstock options was made primarily to avoid recognizing compensation cost in theconsolidated statement of operations in future financial statements upon theCompany’s adoption of Statement of Financial Accounting Standards No. 123(revised 2004), “Share-Based Payment” (“FAS 123R”), which when adopted by theCompany will require all share-based payments to employees, including grants ofemployee stock options, to be recognized on the Company’s financial statementsbased on their fair values. The Company will adopt the provisions of FAS 123Rin the first quarter of fiscal year 2006.

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Theaccelerated vesting was effective as of June 1, 2005. As a result of theacceleration, the Company reduced the stock option expense it otherwise wouldbe required to record by approximately $1.9 million in fiscal 2006, $1.4million in fiscal 2007 and less than $0.1 million in fiscal 2008 on a pre-taxbasis, resulting in an additional $3.4 million of pro forma expense in fiscal2005. The accelerated vesting was a modification of outstanding awards asdefined by FAS 123, which resulted in incremental pro forma compensationexpense of $0.3 million in 2005. The following table illustrates the effect onnet loss and loss per share if the Company had applied the fair valuerecognition provisions of SFAS No. 123 to stock-based employeecompensation:

| ***(Thousands except per share amounts)***                                                                                             | ** ** | **2005** | ** ** | **2004  (restated)** | ** ** | **2003  (restated)** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------------------|------------|----------------------|------------|
| Net loss – as  reported                                                                                                                               |       | $        | (26,870    | )                    |       | $                    | (13,071    | ) |   |   | $ | (35,844 | ) |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value  based method for all awards, net of related tax effects in 2003 |       | (8,388   | )          |                 | (4,700     | )                    |       |   | (2,378 | ) |   |
| Pro forma net  loss                                                                                                                                        |       | $        | (35,258    | )                    |       | $                    | (17,771    | ) |   |   | $ | (38,222 | ) |   |
| Loss per share as  reported:                                                                                                                               |       |     |       |                 |       |                 |       |   |   |   |   |
| Basic and diluted                                                                                                                                          |       | $        | (0.94      | )                    |       | $                    | (0.48      | ) |   |   | $ | (1.52 | ) |   |
| Pro forma loss  per share:                                                                                                                                 |       |     |       |                 |       |                 |       |   |   |   |   |
| Basic and diluted                                                                                                                                          |       | $        | (1.24      | )                    |       | $                    | (0.66      | ) |   |   | $ | (1.62 | ) |   |

 

Thefair value of the Company’s stock-based awards to employees was estimatedassuming no dividends, using the following assumptions:

| ** **                       | ** ** | **Options** | ** ** |
|----------------------------------|------------|-------------|------------|
| ** **                       | ** ** | **2005**    | ** ** | **2004** | ** ** | **2003** | ** ** |
| Expected life  (years)           |       |        | 6.1        |   |   |   | 6.1 |   |   |   | 6.1 |   |   |
| Expected stock  price volatility |       |        | 72.2       | % |   |   | 65.8 | % |   |   | 48.3 | % |   |
| Risk-free interest rate          |       |        | 4.4        | % |   |   | 3.5 | % |   |   | 3.6 | % |   |

 

In fiscal year 2005, a total of 750,000 options weregranted with exercise prices equal to the market price of the stock on thegrant date. The weighted average exercise price was $7.48 and the average fairvalue of the options was $5.04.

In fiscal year 2004, atotal of 1,836,000 options were granted with exercise prices equal to themarket price of the stock on the grant date. The weighted average exerciseprice was $4.58 and the average fair value of the options was $2.83. In fiscalyear 2003, a total of 1,558,400 options were granted with exercise prices equalto the market price of the stock on the grant date. The weighted averageexercise price was $6.02 and the average fair value of the options was $2.86.

**Recent Accounting Pronouncements**

On December 16, 2004, the Financial AccountingStandards Board (FASB) issued SFAS No. 123 (revised 2004), *Share-Based Payment*, which is a revision of SFAS No. 123,*Accounting for Stock-Based Compensation*.SFAS No. 123(R) supersedes APB Opinion No. 25, *Accounting for Stock Issued to Employees*, and amends SFAS No. 95,*Statement of Cash Flows*. Generally,the approach in SFAS No. 123(R) is similar to the approach describedin SFAS No. 123. However, SFAS No. 123(R) requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the income statement based on their fair values. Pro formadisclosure is no longer an alternative.

Adoption of SFAS No. 123(R) is required asof the first interim or annual reporting period that begins after June 15,2005. The Company will adopt the provisions of SFAS No. 123(R) asrequired in the first quarter of fiscal year 2006.

SFAS No. 123(R) permitspublic companies to adopt its requirements using one of two methods:

1.     A “modifiedprospective” method in which compensation cost is recognized beginning with theeffective date (a) based on the requirements of SFAS No. 123(R) forall share-based payments granted after the effective date and (b) based onthe requirements of SFAS No. 123 for all awards granted to employees priorto the effective date of SFAS No. 123(R) that remain unvested onthe effective date.

2.     A “modifiedretrospective” method which includes the requirements of the modifiedprospective method described above, but also permits entities to restate basedon the amounts previously recognized under SFAS No. 123 for purposes ofpro forma disclosures either (a) all prior periods presented or (b) priorinterim periods of the year of adoption.

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The Company plans to adopt SFAS No. 123(R) usingthe modified-prospective method.

As permitted by SFAS No. 123,the Company currently accounts for share-based payments to employees usingAPB No. 25’s intrinsic value method and, as such, generallyrecognizes no compensation cost for employee stock options. Accordingly, theadoption of SFAS No. 123(R)’s fair value method will have an impact on ourresult of operations, although it will have no impact on our overall financialposition. The impact of adoption of SFAS No. 123(R) cannot bepredicted at this time because it will depend on levels of share-based paymentsgranted in the future. However, had we adopted SFAS No. 123(R) inprior periods, the impact of that standard would have approximated the impactof SFAS No. 123 as described in the disclosure of pro forma net income(loss) and earnings (loss) per share in the table above under “Stock-BasedCompensation.” SFAS No. 123(R) also requires the benefits of taxdeductions in excess of recognized compensation cost to be reported as afinancing cash flow, rather than as an operating cash flow as required undercurrent literature. To the extent these tax deductions are recognized, thisrequirement will reduce net operating cash flows and increase net financingcash flows in periods after adoption.

**Research and Development**

Expenditures for researchand development are charged to expense as incurred and aggregated $14,605,$13,021, and $10,413 for the fiscal years 2005, 2004, and 2003, respectively.

**Advertising**

Expenditures foradvertising are charged to expense as incurred and aggregated $551, $375, and$847 for the fiscal years 2005, 2004, and 2003, respectively.

**Foreign Currency Translation**

The Company’s foreignentities’ accounts are measured using local currency as the functional currency.Assets and liabilities are translated at the exchange rate in effect atyear-end. Revenues and expenses are translated at the rates of exchangeprevailing during the year. Unrealized translation gains and losses arisingfrom differences in exchange rates from period to period are included as acomponent of accumulated other comprehensive loss in stockholders’ equity.

**Derivative Financial Instruments**

The Company periodicallyuses derivative financial instruments to reduce financial market risks. Theseinstruments are used to hedge foreign currency and interest rate marketexposures. The Company does not use derivative financial instruments forspeculative or trading purposes. The accounting policies for these instrumentsare based on the Company’s designation of such instruments as hedgingtransactions. The criteria the Company uses for designating an instrument as ahedge include the instrument’s effectiveness in risk reduction and the matchingof the derivative to the underlying transaction. The resulting gains or lossesare accounted for as part of the transactions being hedged, except that lossesnot expected to be recovered upon the completion of the hedge transaction areexpensed. The Company had no derivative financial instruments at July 3,2005 and June 27, 2004.

**Deferred Financing Costs**

Costs incurred to obtainfinancing are deferred and included in other assets in the consolidated balancesheets. Deferred financing costs are amortized over the term of the financingfacility, and related amortization expense was $253, $513 and $275 for thefiscal years 2005, 2004, and 2003, respectively. These expenses are included ininterest expense in the consolidated statements of operations.

**Earnings Per Share**

In accordance withSFAS No. 128, *Earnings Per Share*,basic earnings per share are computed using the weighted average number ofcommon shares outstanding during the period. Diluted earnings per common shareincorporate the incremental shares issuable upon the assumed exercise of stockoptions as if all exercises had occurred at the beginning of the fiscal year.

**Reclassification**

Certain prior year amountswere reclassified to conform to the current year presentation.

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**Fiscal Year**

The Company uses a fifty-two,fifty-three week fiscal year ending on the Sunday nearest June 30.The fiscal year ended July 3, 2005 contained fifty-three weeks. The fiscalyears ended June 27, 2004 and June 29, 2003 each contained fifty-twoweeks.

**2. Discontinued Operations**

During fiscal year 2005, the Company committed to aplan to divest its telecom business, and as a result, reclassified assets andliabilities as “held for sale” and the results of this business as discontinuedoperations (see Note 3 of Notes to Consolidated Financial Statements). TheCompany also recorded other expenses related to divested businesses asdiscontinued operations, principally a charge for an arbitration award in apatent infringement claim (see Note 12 of Notes to Consolidated FinancialStatements). Prior period amounts related to the telecom business and otherdivested businesses have been reclassified in the accompanying consolidatedfinancial statements for all periods presented in order to conform to thecurrent year presentation.

Theresults of discontinued operations are as follows:

| ** **                               | ** ** | **July 3,** | ** ** | **June 27,** | ** ** | **June 29,** | ** ** |
|------------------------------------------|------------|------------------|------------|-------------------|------------|-------------------|------------|
| ***For the years ended*** | ** ** | **2005**         | ** ** | **2004**          | ** ** | **2003**          | ** ** |
| Net Sales                                |       | $                | 10,347     |              |       | $                 | 12,554     |   |   | $ | 21,505 |   |
| Loss from telecom  business              |       | $                | (1,014     | )                 |       | $                 | (2,340     | ) |   | $ | (46,853 | ) |
| Arbitration award  expense               |       | (21,977          | )          |              | –     |              |       | – |   |
| Other  discontinued operations expense   |       | (4,698           | )          |              | (1,261     | )                 |       | (2,169 | ) |
| Loss from  discontinued operations       |       | $                | (27,689    | )                 |       | $                 | (3,601     | ) |   | $ | (49,022 | ) |

 

Other discontinued operations expense in the tableabove is comprised primarily of legal fees and other costs related to thepatent infringement claim, product liability claims, environmental issues, andasbestos claims. These issues primarily relate to indemnification agreementsprovided by the Company upon sale of an entity in prior years.

The Company did not allocateany interest expense to discontinued operations, and no tax benefit wasrecorded related to discontinued operations for any of the periods presented.

**3. Acquisitions/Divestitures**

During the third quarter of fiscal year 2005, theCompany committed to a plan to divest its telecom power business and beganmarketing the business. Management determined that the assets and liabilitiesto be sold constituted a disposal group under SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*,and that all of the “assets held for sale” criteria outlined in SFAS No. 144were met. The estimated fair value of the disposal group at July 3, 2005is $3.5 million. Based upon its determination of fair value, the Company hasrecorded a write-down from the carrying value of the business of $0.5 million,which is included in loss from discontinued operations in fiscal 2005 in theaccompanying consolidated statements of operations. The estimated fair value atJuly 3, 2005, is comprised of $4.7 million in assets and $1.2 million inliabilities, as reflected in the accompanying consolidated balance sheets. Managementis currently in negotiations with prospective buyers and expects the proceedsfrom the sale to approximate estimated fair value. Accordingly, the operatingresults of this business are classified as discontinued operations in theaccompanying consolidated statements of operations and its assets andliabilities are classified as held for sale in the accompanying consolidated balancesheets for all periods presented.

During the fourth quarter of fiscal year 2003, theCompany committed to a plan to divest its telecom service business. Managementdetermined that the assets and liabilities to be sold constituted a disposalgroup under SFAS No. 144 and that all of the “assets held for sale”criteria outlined in SFAS No. 144 were met as of the end of June 2003.As of June 29, 2003, the net book value of the disposal group was $2.1million, comprised of $2.7 million in assets and $0.6 million inliabilities. The expected proceeds from the sale were $1.2 million, and as aresult, an estimated loss on the sale of $1.0 million, including closingcosts of $0.1 million, was recorded in fiscal year 2003. On August 14,2003 (fiscal 2004), the Company finalized the sale of the business forapproximately $1.1 million. Proceeds from the sale were used for debt repayment.The operating results of this business are classified as discontinuedoperations in the accompanying consolidated statements of operations for allperiods presented.

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On December 30, 2002,the Company purchased all of the outstanding shares of MXT Holding, Inc.for approximately $4.3 million in cash. MXT Holdings, Inc, is a holding companywhose wholly owned subsidiary, Maxtec International Corp. is engaged in thedevelopment, manufacture and sale of wireless remote controls andanti-collision systems for overhead cranes, hoists, monorail systems,conveyors, locomotives, and other material handling applications under the nameTelemotive Industrial Controls (“Telemotive”). Acquisition costs in excess ofnet assets acquired, approximately $2.2 million, were recorded as goodwill. Theacquisition was financed from the Company’s revolving credit facility and wasaccounted for under the purchase method of accounting. Accordingly the purchaseprice has been allocated to the net assets acquired based upon their estimatedfair market values. Operating results for the acquisition were included in theCompany’s consolidated results effective as of the acquisition date. Pro formainformation has not been presented, as results would not differ materially fromreported results.

**4. Goodwill**

In accordance with SFAS No. 142, *Goodwill and Other Intangible Assets*, goodwill is no longeramortized but rather reviewed for impairment annually, or more frequently ifcertain indicators arise. The Company’s annual impairment test for fiscal 2005,which consists primarily of discounted cash flow analyses, indicated noimpairment at April, 2005, the Company’s annual testing date. Assumptions usedin the analyses are based on projected results that the Company considersreasonable and appropriate in light of historical performance and anticipatedfuture conditions.

In the first quarter of fiscal year 2003, as a resultof the decline in the Company’s market capitalization, the decline in thetelecommunications market at that time, and anticipated reduced demand oftelecom power systems in the future, the Company determined that there wereindicators of impairment in the carrying value of goodwill related to itstelecom power systems business. Accordingly, during the second quarter offiscal 2003, the Company performed an interim test of goodwill impairment inaccordance with SFAS No. 142. The fair value of the telecom power systemsbusiness was calculated by discounting future estimated cash flows for afive-year period. Upon completing the interim impairment tests, the Companyrecorded a goodwill impairment charge of $33,442 related to the telecombusiness, representing the difference between the estimated fair value and thecarrying value of the reporting unit. This charge reduced the carrying value ofgoodwill to zero for the telecom power systems reporting unit. The impairmentcharge is included in discontinued operations in the accompanying consolidated statementof operations.

Thechanges in the carrying value of goodwill by reporting for the years ended July 3,2005 and June 27, 2004 are as follows:

| ** **                                        | ** ** | **Power**      | ** ** | **Power**   | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|----------------|------------|-------------|------------|------------|------------|
| ** **                                        | ** ** | **Components** | ** ** | **Systems** | ** ** | **Total**  | ** ** |
| **Balance  at June 29, 2003**                |       |           | $          | 35,058      |       |       |       | $ | 28,009 |   |   | $ | 63,067 |   |
| Purchase price  adjustments and reclassifications |       |           | –     |        |       |       | 29         |   |   | 29 |   |
| Currency  translation                             |       |           | 729        |        |       |       | 3          |   |   | 732 |   |
| **Balance  at June 27, 2004**                |       |           | $          | 35,787      |       |       |       | $ | 28,041 |   |   | $ | 63,828 |   |
| Currency  translation                             |       |           | (204       | )           |       |       | 32         |   |   | (172 | ) |
| **Balance at July 3, 2005**                  |       |           | $          | 35,583      |       |       |       | $ | 28,073 |   |   | $ | 63,656 |   |

 

**5. Inventories**

Inventoriesconsist of the following:

| ** **      | ** ** | **July 3,** | ** ** | **June 27,** | ** ** |
|-----------------|------------|------------------|------------|-------------------|------------|
| ** **      | ** ** | **2005**         | ** ** | **2004**          | ** ** |
| Raw materials   |       | $                | 30,257     |              |       | $ | 26,974 |   |   |
| Work-in-process |       | 9,452            |       |              | 13,201     |   |   |
| Finished goods  |       | 10,241           |       |              | 8,697      |   |   |
|            |       | $                | 49,950     |              |       | $ | 48,872 |   |   |

 

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**6. Long-TermDebt and Bank Borrowing Arrangements**

Long-termdebt consists of the following:

| ** **                                                                             | ** ** | **July 3,** | ** ** | **June 27,** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------|------------|-------------------|------------|
| ** **                                                                             | ** ** | **2005**         | ** ** | **2004**          | ** ** |
| Revolving bank  loans                                                                  |       | $                | 13,598     |              |       | $ | 12,346 |   |   |
| Installment notes  and capital leases at rates ranging from 3% to 5%, due through 2013 |       | 11,632           |       |              | 5,780      |   |   |
|                                                                                   |       | 25,230           |       |              | 18,126     |   |   |
| Less current  portion                                                                  |       | 5,702            |       |              | 1,997      |   |   |
|                                                                                   |       | $                | 19,528     |              |       | $ | 16,129 |   |   |

 

**Bank Borrowing Arrangements**

At July 3, 2005, the Company had an asset basedcredit agreement (“Credit Agreement”) for North American operations, whichexpired September 30, 2005. The aggregate lending commitment under theCredit Agreement was $7,500 with available borrowings determined by a borrowingbase formula as defined in the agreement, based primarily on the levels ofdomestic accounts receivable and inventory. The facility also supported theissuance of letters of credit. At July 3, 2005, the Company had $6,167 ofavailable borrowing capacity, with $3,927 of borrowings outstanding, under thefacility, which is classified as current in the consolidated balance sheet.

Borrowing under the Credit Agreement are secured bysubstantially all of the Company’s North American assets and bear interest atthe bank’s prime lending rate plus one percent (7.25% at July 3, 2005),or, at the Company’s option, the London Interbank Offering Rate (LIBOR) plusthree and one-quarter percent (6.75% at July 3, 2005). These rates may bereduced or increased annually based on the level of a defined fixed chargecoverage ratio. The Company is required to pay a commitment fee of 0.5 percenton the unused available commitment.

The Credit Agreement contains certain provisionswhich, among other things, prohibit the payment of cash dividends andrepurchases of common stock, limit the amount of future indebtedness andcapital expenditures and require the Company to maintain specified levels ofearnings before interest, taxes, depreciation and amortization (EBITDA) andfixed charge coverage. The Company was in violation of certain covenants at July 3,2005, and in July 2005, in exchange for a waiver of certain covenant defaults and the lender’swillingness to continue to extend credit under our agreement, the Companyagreed to a permanent reduction in the aggregate lending commitment to $7.5million and a change in the facility termination date from July 15, 2006to September 30, 2005. The Company also agreed to use its best efforts toobtain financing from other sources that would enable the Company to fullyrepay all indebtedness under the agreement.

On September 30, 2005, the Company entered intoagreements with lenders providing for an $18 million term loan (“Term Loan”)and $13 million Revolving Credit Facility (“Revolving Loan”). Borrowings underthe Term Loan bear interest at the lender’s reference rate plus 5 percent, or,at the Company’s option, the London Interbank Offering Rate (LIBOR) plus sevenand one-half percent (approximately 11.5%). Such rates may be increased by upto one percentage point depending upon the level of U.S. funded debt toEBITDA as defined in the agreement. The Term Loan requires quarterly principalpayments of $1 million beginning in September, 2006. Borrowings under theRevolving Loan bear interest at the bank’s prime lending rate plus two andone-half percent or, at the Company’s option, LIBOR plus four percent(approximately 8.0%). Borrowings under the Revolving Loan are determined by aborrowing base formula as defined in the agreement, based on the level ofeligible domestic accounts receivable and inventory. The Revolving Loanfacility also supports the issuance of letters of credit. Borrowings under theTerm Loan and Revolving Loan are secured by substantially all of the Company’sdomestic assets.

The Company’s European subsidiary has revolving creditarrangements with various banks primarily to finance working capital needs. Availableborrowings under these arrangements aggregate approximately Euro 20,000depending in part upon levels of accounts receivable. Borrowings outstandingunder these arrangements were $9,671 at July 3, 2005 and bear interest atvarious rates ranging from 3% to 8%. In addition, the Company’s Europeansubsidiary has an agreement with a European bank to provide borrowings securedby the subsidiary’s land and building over a ten-year period. The initialcommitment to lend under this agreement is Euro 7,000, with the commitmentamount reduced ratably on a quarterly basis beginning March 31, 2004 andending September 30, 2013. Borrowings outstanding under these arrangementswere $7,298 at July 3, 2005 and bore interest at the European InterbankOffering Rate (EURIBOR) plus one and one-half percent (3.5% at July 3,2005). In addition, the Company’s European subsidiary has certain long-termnotes and capital leases payable through fiscal year 2010. Amounts outstandingat July 3, 2005, were $4,334 and bore interest at various rates rangingfrom 3% to 5%.

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Aggregateprincipal maturities on long-term debt outstanding at July 3, 2005are as follows:

| ***Fiscal year*** | ** ** | ** ** | ** ** |
|------------------------|------------|------------|------------|
| 2006                   |       | $          | 5,702      |   |
| 2007                   |       | 1,790      |       |
| 2008                   |       | 1,816      |       |
| 2009                   |       | 1,468      |       |
| 2010                   |       | 1,481      |       |
| Thereafter             |       | 12,973     |       |
|                   |       | $          | 25,230     |   |

 

**7. Earnings (Loss) Per Share**

Thefollowing table sets forth the computation of basic and diluted earnings (loss)per share for the fiscal year ended:

| ** **                                              | ** ** | ** **       | ** ** | **June 27,** | ** ** | **June 29,** | ** ** |
|---------------------------------------------------------|------------|------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                              | ** ** | **July 3,** | ** ** | **2004**          | ** ** | **2003**          | ** ** |
| ** **                                              | ** ** | **2005**         | ** ** | **(restated)**    | ** ** | **(restated)**    | ** ** |
| Numerator:                                              |       |             |       |              |       |              |       |   |   |   |   |
| Net income (loss) from continuing operations            |       | $                | 819        |              |       | $                 | (9,470     | ) |   |   | $ | 13,178 |   |   |
| Loss from discontinued operations                       |       | (27,689          | )          |              | (3,601     | )                 |       |   | (49,022 | ) |   |
| Net loss                                                |       | $                | (26,870    | )                 |       | $                 | (13,071    | ) |   |   | $ | (35,844 | ) |   |
| Denominator:                                            |       |             |       |              |       |              |       |   |   |   |   |
| Weighted average shares for basic earnings per share    |       | 28,535           |       |              | 27,094     |              |       |   | 23,644 |   |   |
| Add dilutive effect of stock options outstanding        |       | 565              |       |              | –     |              |       |   | 109 |   |   |
| Weighted average shares for diluted earnings per  share |       | 29,100           |       |              | 27,094     |              |       |   | 23,753 |   |   |
| Basic and  Diluted:                                     |       |             |       |              |       |              |       |   |   |   |   |
| Net income (loss)  per share from continuing operations |       | $                | 0.03       |              |       | $                 | (0.35      | ) |   |   | $ | 0.55 |   |   |
| Loss per share  from discontinued operations:           |       | $                | (0.97      | )                 |       | $                 | (0.13      | ) |   |   | $ | (2.07 | ) |   |
| Net loss per share:                                     |       | $                | (0.94      | )                 |       | $                 | (0.48      | ) |   |   | $ | (1.52 | ) |   |

 

Due to the net loss fromcontinuing operations for the year ended June 27, 2004, the effect of 1.8million shares of stock options was excluded from the calculation of dilutedloss per share, as their impact would be anti-dilutive. Similarly, the effectof stock options outstanding was not included in the calculation of dilutedloss per share from discontinued operations or diluted net loss per share forany of the periods presented, as all periods presented resulted in losses fromdiscontinued operations and net losses and as such, inclusion of these shareswould be anti-dilutive.

**8. FairValues of Financial Instruments**

The carrying amounts ofcertain financial instruments such as cash, annuity contracts and borrowingsunder revolving credit agreements approximate their fair values, based on theshort-term nature of these instruments, accounting rules requiringmark-to-market on annuity contracts, and variable rates on borrowings.

**9. AssetImpairment Charges**

In the second quarter offiscal 2003, the Company recorded asset impairment charges related to itstelecom business aggregating $38,698. The charges consisted of $33,442 forgoodwill; $4,679 for inventory; and $577 for fixed assets. The charges areincluded in discontinued operations in the accompanying consolidated statementof operations.

**10. RestructuringCosts**

During fiscal 2004, theCompany began a series of restructuring activities that impacted both itsdomestic and foreign operations. SFAS No. 146, *Accountingfor Costs Associated with Exit or Disposal Activities* requires thatliabilities for costs associated with exit or disposal activities initiatedafter December 31, 2002, be recognized when the liability is incurred,with the exception of termination of certain leases and contracts.

During the second quarter of fiscal 2004, the Companybegan a workforce reduction of approximately 200 positions in Europe and therelocation of those positions to lower cost facilities mainly in China. TheCompany completed these activities in fiscal 2005. Costs incurred were $296 and$1,277 for fiscal years 2005 and 2004, respectively, and are included inselling, general and administrative expense in the accompanying consolidatedstatement of operations.

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In the fourth quarter offiscal 2004, the Company began the consolidation of its Glendale Heights, ILoperation into its Menomonee Falls, WI facility. The Company completed theserestructuring activities in fiscal 2005. Costs incurred were $919 for fiscalyear 2005, of which $166 was included in cost of goods sold and $753 wasincluded in selling, general and administrative expense in the accompanyingconsolidated statement of operations. Costs incurred for fiscal year 2004 were$359 and are included in selling, general and administrative expense in theaccompanying consolidated statement of operations.

**11. Income Taxes**

Thecomponents of provision for income taxes are as follows:

| ** **                        | ** ** | ** **       | ** ** | **June 27,** | ** ** | **June 29,** | ** ** |
|-----------------------------------|------------|------------------|------------|-------------------|------------|-------------------|------------|
| ** **                        | ** ** | **July 3,** | ** ** | **2004**          | ** ** | **2003**          | ** ** |
| ***Fiscal year ended*** | ** ** | **2005**         | ** ** | **(restated)**    | ** ** | **(restated)**    | ** ** |
| Current:                          |       |             |       |              |       |              |       |   |   |   |   |   |   |
| Federal                           |       |             | $          | (85               | )          |              |       | $ | (1,363 | ) |   |   | $ | – |   |   |
| State                             |       |             | –     |              |       |              | 438        |   |   |   | 319 |   |   |
| Foreign                           |       |             | 1,171      |              |       |              | 959        |   |   |   | 326 |   |   |
| Deferred:                         |       |             |       |              |       |              |       |   |   |   |   |   |   |
| Federal                           |       |             | 1,526      |              |       |              | 6,080      |   |   |   | 7,727 |   |   |
| State and Foreign                 |       |             | (187       | )                 |       |              | 586        |   |   |   | 248 |   |   |
|                              |       |             | $          | 2,425             |       |              |       | $ | 6,700 |   |   |   | $ | 8,620 |   |   |

 

As noted in the table above, the Company’s provisionfor income taxes has been restated for fiscal 2004 and 2003. Since fiscal 2002,the Company has provided valuation reserves against its U.S. deferred taxassets that result in a zero net deferred tax position (net deferred assetsequal to deferred tax liabilities). In a fiscal year end review of its taxaccounts, the Company determined that a portion of its deferred tax liabilityrelates to tax-deductible amortization of goodwill that is no longer amortizedfor financial reporting purposes. These deferred tax liabilities are consideredto have an indefinite life and are therefore ineligible to be considered as asource of future taxable income in assessing the realization of deferred taxassets. Accordingly, the Company increased its valuation allowance for deferredtax assets at July 3, 2005 by $1.6 million, resulting in an increase tothe provision for income taxes of $1.6 million for fiscal 2005.

The Company also determined that such deferred taxliabilities existed at June 27, 2004, and at June 29, 2003, and thereforehas restated those years to increase its valuation allowance for deferred taxassets and the related provision for income taxes by $1.6 million and $1.0million, respectively. The restatement had no impact on the Company’s cashflows in fiscal 2004 or 2003.

Areconciliation of the Company’s effective tax rate to the statutory Federal taxrate is as follows:

| ** **                                             | ** ** | **July 3,** | ** ** | **June 27,**        | ** ** | **June 29,**        | ** ** |
|--------------------------------------------------------|------------|------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                             | ** ** | **2005**         | ** ** | **2004 (restated)** | ** ** | **2003 (restated)** | ** ** |
| ***Fiscal year ended***                      | ** ** | **Amount**       | ** ** | **%**                    | ** ** | **Amount**               | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
| Benefit computed  at the statutory rate                |       |             | $          | (8,556                   | )          |                     | 35.0       |   |   | $ | (2,230 | ) |   | 35.0 |   |   | $ | (9,528 | ) |   | 35.0 |   |
| State income  taxes, net of federal benefit            |       |             | –     |                     |       | –                   |       |   | 284 |   |   | (4.4 | ) |   | 207 |   |   | (0.8 | ) |
| Foreign tax rates  in excess of federal statutory rate |       |             | (2,161     | )                        |       | 8.8                      |       |   | 1,457 |   |   | (22.7 | ) |   | 63 |   |   | (0.2 | ) |
| Nondeductible  goodwill impairment                     |       |             | –     |                     |       | –                   |       |   | – |   |   | – |   |   | 11,705 |   |   | (43.0 | ) |
| Losses not  benefited                                  |       |             | 13,142     |                     |       | (53.6                    | )          |   | 7,130 |   |   | (112.0 | ) |   | 6,109 |   |   | (22.4 | ) |
| Other – net                                       |       |             | –     |                     |       | –                   |       |   | 59 |   |   | (0.9 | ) |   | 64 |   |   | (0.2 | ) |
|                                                   |       |             | $          | 2,425                    |       |                     | (9.7       | ) |   | $ | 6,700 |   |   | (105.0 | ) |   | $ | 8,620 |   |   | (31.6 | ) |

 

Income (loss) before provision for income taxes of theCompany’s foreign subsidiaries was approximately $8,631, $(1,173), and $(24)for fiscal years 2005, 2004 and 2003, respectively.

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Deferredincome taxes reflect the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for income tax purposes. Significant components of the Company’sdeferred tax liabilities and assets as of July 3, 2005 and June 27,2004 are as follows:

| ** **                                                                             | ** ** | ** **       | ** ** | **June 27,** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------|------------|-------------------|------------|
| ** **                                                                             | ** ** | **July 3,** | ** ** | **2004**          | ** ** |
| ** **                                                                             | ** ** | **2005**         | ** ** | **(restated)**    | ** ** |
| Deferred tax  liabilities:                                                             |       |             |       |              |       |   |   |
| Depreciation and amortization (including differences  in the basis of acquired assets) |       | $                | (10,376    | )                 |       | $ | (8,326 | ) |   |
| Total deferred  tax liabilities                                                        |       | (10,376          | )          |              | (8,326     | ) |   |
| Deferred tax  assets:                                                                  |       |             |       |              |       |   |   |
| Inventory and other reserves                                                           |       | 12,783           |       |              | 4,046      |   |   |
| Net operating loss & capital loss  carryforwards                              |       | 70,470           |       |              | 46,780     |   |   |
| Total gross  deferred tax assets                                                       |       | 83,253           |       |              | 50,826     |   |   |
| Less: valuation  allowance                                                             |       | (81,617          | )          |              | (49,901    | ) |   |
| Net deferred tax asset /  (liability)                                                  |       | $                | (8,740     | )                 |       | $ | (7,401 | ) |   |

 

The Company records valuation allowances against itsdeferred tax assets, when necessary, in accordance with SFAS No. 109,*Accounting for Income Taxes*. Realizationof deferred tax assets (such as net operating loss carryforwards and income taxcredits) is dependent on future taxable earnings and is therefore uncertain. Tothe extent the Company believes that recovery is unlikely, a valuationallowance is established against its deferred tax asset, increasing its incometax expense in the period such determination is made.

Due to the uncertainty surrounding the timing ofrealizing the benefits of its deferred tax assets in future tax returns, theCompany has recorded a valuation allowance against its otherwise recognizabledeferred tax assets. The net deferred tax liability position at July 3,2005 consists of $4,614 of foreign deferred tax liability and a domestic netdeferred tax liability of $4,126.

During fiscal 2004, the Company finalized negotiationswith the U.S. Department of Justice and Internal Revenue Service regardingcertain proposed adjustments to tax returns filed prior to 1999. As a result,the Company recorded a tax refund receivable of $3,603, included in othercurrent assets in the consolidated balance sheets as of June 27, 2004 andreduced its net operating loss carryforwards and accompanying valuationallowance by $8,681 in accordance with the terms of the settlement. The taxrefund receivable included $1,022 of interest income in the consolidatedstatement of operations in fiscal year 2004. The tax refund was collected infull during fiscal 2005.

The Company’s subsidiary in China has a tax holidayarrangement with the tax authorities wherein no income taxes were owed onpretax profits in China through calendar 2004, and income taxes will be paid at50% of the current 15% tax rate (or 7.5%) from calendar 2005 through calendar2007.

The Company has a net operating and capital loss carryforward for tax purposes of $138,000 and $134,000 as of July 3, 2005 and June 27,2004, respectively, expiring between fiscal years 2013 and 2025.

The Company is currentlyevaluating the impact on its consolidated financial position and disclosuresfrom new U.S. tax legislation, the American Jobs Creation Act of 2004, signedinto law on October 22, 2004. The new law allows a deduction of 85% ofrepatriated qualified earnings. Any impact from this legislation has not beenreflected in the Company’s consolidated financial statements.

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**12. Commitments and Contingencies**

**Leases**

TheCompany leases certain facilities and machinery and equipment primarily underoperating lease arrangements. Future minimum rental payments undernoncancelable operating leases as of July 3, 2005 are as follows:

| ** **             | ** ** | **Minimum**  | ** ** | **Minimum**  | ** ** | **Net**      | ** ** |
|------------------------|------------|--------------|------------|--------------|------------|--------------|------------|
| ** **             | ** ** | **Lease**    | ** ** | **Sublease** | ** ** | **Lease**    | ** ** |
| ***Fiscal Year*** | ** ** | **Payments** | ** ** | **Rentals**  | ** ** | **Payments** | ** ** |
| 2006                   |       |         | $          | 3,672        |       |         |       | $ | 1,909 |   |   |   | $ | 1,763 |   |   |
| 2007                   |       |         | 2,622      |         |       |         | 1,947      |   |   |   | 675 |   |   |
| 2008                   |       |         | 2,564      |         |       |         | 1,986      |   |   |   | 578 |   |   |
| 2009                   |       |         | 2,557      |         |       |         | 2,025      |   |   |   | 532 |   |   |
| 2010                   |       |         | 2,222      |         |       |         | 2,066      |   |   |   | 156 |   |   |
| Thereafter             |       |         | 12,743     |         |       |         | 345        |   |   |   | 12,398 |   |   |
|                   |       |         | $          | 26,380       |       |         |       | $ | 10,278 |   |   |   | $ | 16,102 |   |   |

 

For the fiscal years 2005,2004 and 2003, rent expense was $4,208, $4,467 and $5,906 respectively, whilesublease rental income was $1,871, $2,192 and $3,058 respectively.

**Litigation – Product Liability**

The Company has settled or otherwise resolved all ofthe product liability lawsuits associated with its discontinued businessoperations. The last remaining limited obligation to defend and indemnify thepurchaser of a discontinued business operation against new product liabilityclaims expired in December 2003 and the Company believes that any newclaims would either qualify as an assumed liability, as defined in the variouspurchase agreements, or would be barred by an applicable statute of limitations. TheCompany is also a named party in two product liability lawsuits related to theTelemotive Industrial Controls business acquired in December 2002 throughthe purchase of the stock of MXT Holdings, Inc. Both claims were tenderedto the insurance companies that provided coverage for MXT Holdings, Inc.,against such claims and the defense and indemnification has been accepted bythe carriers, subject to a reservation of rights. Management believes that theinsurers will bear all liability, if any, with respect to both cases andthat the proceedings, individually or in the aggregate, will not have amaterial adverse effect on the Company’s results of operations or financialposition.

The Company has beennamed, along with multiple other defendants, in asbestos-related lawsuitsassociated with business operations previously acquired by the Company, butwhich are no longer owned. During the Company’s ownership, none of thebusinesses produced or sold asbestos-containing products. With respect tothese claims, the Company is either contractually indemnified against liabilityfor asbestos-related claims or believes that it has no liability for suchclaims. The Company aggressively seeks dismissal from these proceedings, and hasalso tendered the defense of these cases to the insurers of the previouslyacquired businesses and is awaiting their response. The Company also filed alate claim in the amount of $2.5 million in the Federal-Mogul bankruptcyproceedings to recover attorney’s fee paid for the defense of these claims,which the Company believes is an obligation of Federal Mogul although the claimis subject to challenge. Management does not believe the asbestos proceedings,individually or in the aggregate, will have a material adverse effect on itsfinancial position or results of operations.

**Litigation – Patent Infringement**

In April 1998, Ole K. Nilssen filed a lawsuit inthe U.S. District Court for the Northern District of Illinois alleginginfringement by the Company of seven of his patents pertaining to electronicballast technology, and seeking unspecified damages and injunctive relief topreclude the Company from making, using or selling products allegedlyinfringing his patents. The Company denied that its products infringed anyvalid patent and filed a response asserting affirmative defenses, as well as acounterclaim for a judicial declaration that its products do not infringe thepatents asserted by Mr. Nilssen and also that the asserted patents areinvalid. In June 2001, the Company sold its lighting business to UniversalLighting Technologies, Inc. (“ULT”), and agreed to provide a limitedindemnification against certain claims of infringement that Nilssen mightallege against ULT. In April 2003, Nilssen’s lawsuit and the counterclaimswere dismissed with prejudice and both parties agreed to submit limited issuesin dispute to binding arbitration before an arbitrator with a relevanttechnical background. The arbitration occurred in November, 2004 and a decisionawarding Nilssen $23.4 million was issued on May 3, 2005, to be paidwithin ten days of the award. Nilssen’s counsel filed a motion to enter theaward in 

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U.S. District Court for the Northern District ofIllinois, and Magnetek filed a counter-motion to vacate the award for a numberof reasons, including that the award was fraudulently obtained. Magnetek’srequest for oral argument was granted and a hearing date has been set for October 19,2005. An unfavorable decision by the Court would likely result in payment ofthe award to Nilssen and would have a material adverse effect on the Company’scash flows during fiscal 2006.

In February 2003,Nilssen filed a second lawsuit in the U.S. District Court for the NorthernDistrict of Illinois alleging infringement by ULT of twenty-nine of his patentspertaining to electronic ballast technology, and seeking unspecified damagesand injunctive relief to preclude ULT from making, using or selling productsallegedly infringing his patents. ULT made a claim for indemnification, whichthe Company accepted, subject to the limitations set forth in the saleagreement. The case is now pending in the Central District of Tennessee. As ofthe date of this report, Nilssen has voluntarily dismissed all but four of thepatents from the lawsuit. The Company denies that the products for which it hasan indemnification obligation to ULT infringe any valid patent and hasresponded on behalf of ULT asserting affirmative defenses, as well as acounterclaim for a judicial declaration that the patents are unenforceable andinvalid and that the products do not infringe Nilssen’s patents.Two of the fourpatents are currently being re-examined by the Patent and Trademark Office, andULT will request a re-examination of the remaining two patents. Meanwhile, theCompany will continue to aggressively defend the claims against ULT that aresubject to defense and indemnification; however, an unfavorable decision couldhave a material adverse effect on the Company’s financial position, cash flowsand results of operations.

**Environmental Matters – General**

From time to time, Magnetek has taken action to bringcertain facilities associated with previously owned businesses into compliancewith applicable environmental laws and regulations. Upon the subsequent sale ofcertain businesses, the Company agreed to indemnify the buyers againstenvironmental claims associated with the divested operations, subject to certainconditions and limitations. Remediation activities, including those related tothe Company’s indemnification obligations, did not involve materialexpenditures during fiscal years 2005, 2004 or 2003.

Magnetek has also beenidentified by the United States Environmental Protection Agency and certainstate agencies as a potentially responsible party for cleanup costs associatedwith alleged past waste disposal practices at several previously ownedfacilities and offsite locations. Its remediation activities as a potentiallyresponsible party were not material in fiscal years 2005, 2004 and 2003.Although the materiality of future expenditures for environmental activitiesmay be affected by the level and type of contamination, the extent and natureof cleanup activities required by governmental authorities, the nature of theCompany’s alleged connection to the contaminated sites, the number andfinancial resources of other potentially responsible parties, the availabilityof indemnification rights against third parties and the identification ofadditional contaminated sites, the Company’s estimated share of liability, ifany, for environmental remediation, including its indemnification obligations,is not expected to be material.

*Century Electric(McMinnville, Tennessee)*

Prior to the Company’spurchase of Century Electric, Inc. (“Century Electric”) in 1986, CenturyElectric acquired a business from Gould Inc. (“Gould”) in May 1983that included a leasehold interest in a fractional horsepower electric motor manufacturingfacility located in McMinnville, Tennessee. Gould agreed to indemnify CenturyElectric from and against liabilities and expenses arising out of the handlingand cleanup of certain waste materials, including but not limited to cleaningup any polychlorinated biphenyls (“PCBs”) at the McMinnville facility (the “1983Indemnity”). The presence of PCBs and other substances, including solvents, inthe soil and in the groundwater underlying the facility and in certain offsitesoil, sediment and biota samples has been identified. The McMinnville plant islisted as a Tennessee Inactive Hazardous Waste Substance Site and plantemployees were notified of the presence of contaminants at the facility. Gouldhas completed an interim remedial excavation and disposal of onsite soilcontaining PCBs and a preliminary investigation and cleanup of certain onsiteand offsite contamination. The Company believes the cost of furtherinvestigation and remediation (including ancillary costs) are covered by the1983 Indemnity. The Company sold its leasehold interest in the McMinnvilleplant in August 1999 and while the Company believes that Gould willcontinue to perform substantially under its indemnity obligations, Gould’ssubstantial failure to perform such obligations could have a material adverseeffect on the Company’s financial position, cash flows and results ofoperations.

*Effect of Fruit ofthe Loom Bankruptcy (Bridgeport, Connecticut)*

In 1986, the Companyacquired the stock of Universal Manufacturing Company (“Universal”) from apredecessor of Fruit of the Loom (“FOL”), and the predecessor agreed toindemnify the Company against certain environmental liabilities arising frompre-acquisition activities at a facility in Bridgeport, Connecticut.Environmental liabilities covered by the 

33

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indemnification agreementinclude completion of additional cleanup activities, if any, at the Bridgeportfacility (sold in connection with the sale of the transformer business in June 2001)and defense and indemnification against liability for potential response costsrelated to offsite disposal locations. FOL, the successor to Universal’sindemnification obligation, filed a petition for Reorganization under Chapter11 of the Bankruptcy Code in 1999 and the Company filed a proof of claim in theproceeding for obligations related to the environmental indemnificationagreement. The Company believes that FOL had substantially completed theclean-up obligations required by the indemnification agreement prior to thebankruptcy filing. In November 2001, the Company and FOL entered into anagreement involving the allocation of certain potential tax credits andMagnetek withdrew its claims in the bankruptcy proceeding. FOL’s obligation tothe state of Connecticut was not discharged in the reorganization proceeding.FOL’s inability to satisfy its remaining obligations related to the Bridgeportfacility and any offsite disposal locations, or the discovery of additionalenvironmental contamination at the Bridgeport facility could have a materialadverse effect on the Company’s financial position or results of operations.

**Letters of Credit**

The Company hadapproximately $1,466 of outstanding letters of credit as of July 3, 2005. TheCompany is permitted to issue up to $1,750 of letters of credit under itsCredit Agreement as amended in July, 2005. The Company’s Revolving Loan permitsthe issuance of up to $4,000 of letters of credit as of September 30, 2005.

**13. Stock Option Agreements**

The Company has two stock option plans (the “Plans”), oneof which provides for the issuance of both incentive stock options (under Section 422Aof the Internal Revenue Code of 1986) and non-qualified stock options atexercise prices not less than the fair market value at the date of grant, andone of which only provides for the issuance of non-qualified stockoptions at exercise prices not less than the fair market value at the date ofgrant. One of the Plans also provides for the issuance of stock appreciationrights, restricted stock, incentive bonuses and incentive stock units. Thetotal number of shares of the Company’s common stock authorized to be issuedupon exercise of the stock options and other stock rights under the Plans is 2,100,000.

Asummary of certain information with respect to options under the Plans follows:

| ** **                              | ** ** | **July 3,**                                            | ** ** | **June 27,**                                           | ** ** | **June 29,**                                                                           | ** ** |
|-----------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ***Years ended***                  | ** ** | **2005**                                                    | ** ** | **2004**                                                    | ** ** | **2003**                                                                                    | ** ** |
| Options  outstanding, beginning of year |       | 7,949,263                                                   |       | 6,517,361                                                   |       | 5,812,845                                                                                   |       |
| Options granted                         |       | 750,000                                                     |       | 1,836,000                                                   |       | 1,558,400                                                                                   |       |
| Options exercised                       |       | (52,999                                                     | )          | (17,667                                                     | )          | –                                                                                      |       |
| Weighted average  exercise price        |       | $         3.26 |       | $         3.83 |       | $              – |       |
| Options cancelled                       |       | (467,970                                                    | )          | (386,431                                                    | )          | (853,884                                                                                    | )          |
| Options  outstanding, end of year       |       | 8,178,294                                                   |       | 7,949,263                                                   |       | 6,517,361                                                                                   |       |
| Weighted average  price                 |       | $         8.77 |       | $         8.92 |       | $      10.27                                                  |       |
| Exercisable options                     |       | 8,095,794                                                   |       | 4,906,479                                                   |       | 4,288,653                                                                                   |       |

 

Thefollowing table provides information regarding exercisable and outstandingoptions as of July 3, 2005.

| ** **                                                       | ** ** | **Exercisable**          | ** ** | **Outstanding**                                        | ** ** |
|------------------------------------------------------------------|------------|--------------------------|------------|--------------------------------------------------------|------------|
| ***Range of exercise price per share*** | ** ** | **Options  exercisable** | ** ** | **Weighted  average  exercise  price per  share** | ** ** | **Options  outstanding** | ** ** | **Weighted  average  exercise  price per  share** | ** ** | **Weighted  average  remaining  contractual life  (years)** | ** ** |
| Under $10.00                                                     |       |                     | 5,681,635  |                                                   |       |   | $ | 6.68 |   |   |   | 5,764,135 |   |   |   | $ | 6.66 |   |   |   | 6.70 |   |   |
| $10.00 – $12.50                                             |       |                     | 1,052,774  |                                                   |       |   | 10.99 |   |   |   | 1,052,774 |   |   |   | 10.99 |   |   |   | 6.07 |   |   |
| $12.51 – $15.00                                             |       |                     | 373,291    |                                                   |       |   | 13.15 |   |   |   | 373,291 |   |   |   | 13.15 |   |   |   | 2.59 |   |   |
| Over $15.00                                                      |       |                     | 988,094    |                                                   |       |   | 17.07 |   |   |   | 988,094 |   |   |   | 17.07 |   |   |   | 3.01 |   |   |
| Total                                                            |       |                     | 8,095,794  |                                                   |       |   | $ | 8.81 |   |   |   | 8,178,294 |   |   |   | $ | 8.77 |   |   |   | 5.98 |   |   |

 

34

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**14. Employee Benefit Plans**

The Company maintains a defined benefit retirementplan (the Plan) for the benefit of eligible employees, former employees andretirees in the U.S. Effective June 30, 2003, the Plan was frozen and nofuture compensation credits will be accrued to participants’ individualaccounts. Participant accounts will continue to be credited with interest. TheCompany funds the Plan in accordance with applicable employee benefit and taxlaws, and did not make any contributions to the Plan during fiscal 2005. Basedupon current contribution credits available under pension funding regulations,actuarial projections indicate no mandatory contributions to the plan would berequired through fiscal year 2007 although the Company may elect to makecontributions prior to that time. The Company elected to contribute 535,000 sharesof its common stock valued at $2,391 during fiscal 2004.

Effective September 30, 2002, the Companyterminated its retiree medical and life insurance programs, resulting in apretax gain of $27,771 in fiscal year 2003.

Pensionbenefit obligations at year-end, fair value of plan assets and prepaidbenefit costs for the years ended July 3, 2005 and June 27, 2004,were as follows:

| ** **                                                  | ** ** | **July 3,** | ** ** | **June 27,** | ** ** |
|-------------------------------------------------------------|------------|------------------|------------|-------------------|------------|
| ** **                                                  | ** ** | **2005**         | ** ** | **2004**          | ** ** |
| **Change  in Benefit Obligation:**                          |       |             |       |              |       |
| Benefit  obligation at beginning of year                    |       | $                | 166,496    |              | $          | 171,707 |   |
| Interest cost                                               |       | 10,302           |       | 10,250            |       |
| Actuarial (gain)  loss                                      |       | 25,504           |       | (4,212            | )          |
| Benefits paid                                               |       | (10,854          | )          | (11,249           | )          |
| Benefit  obligation at end of year                          |       | $                | 191,448    |              | $          | 166,496 |   |
| **Change in Plan Assets:**                                  |       |             |       |              |       |
| Fair value of  plan assets at beginning of year             |       | $                | 135,130    |              | $          | 120,351 |   |
| Actual return on  plan assets                               |       | (3,396           | )          | 23,637            |       |
| Employer  contributions                                     |       | –           |       | 2,391             |       |
| Benefits paid                                               |       | (10,854          | )          | (11,249           | )          |
| Fair value of  plan assets at end of year                   |       | $                | 120,880    |              | $          | 135,130 |   |
| Funded Status                                               |       | $                | (70,568    | )                 | $          | (31,366 | ) |
| Unrecognized net  actuarial loss                            |       | 126,655          |       | 88,889            |       |
| Prepaid benefit  cost                                       |       | $                | 56,087     |              | $          | 57,523 |   |
| **Amounts Recognized in Statement of Financial  Position:** |       |             |       |              |       |
| Accrued benefit  liability                                  |       | (70,568          | )          | (31,366           | )          |
| Accumulated other  comprehensive income                     |       | 126,655          |       | 88,889            |       |
| Net amount recognized                                       |       | $                | 56,087     |              | $          | 57,523 |   |

 

Pension plan assets include 900,000 shares of Companycommon stock valued at $2,286 as of July 3, 2005 and 1,801,900 sharesof Company common stock valued at $15,028 as of June 27, 2004.

Under SFAS No. 87, *Employers’ Accountingfor Pensions*, when the accumulated benefit obligation (“ABO”)exceeds the fair value of the plan assets, a minimum liability (net of relatedincome tax benefit) must be established on the balance sheet with acorresponding amount in other comprehensive income (loss) in stockholders’equity. The minimum pension liability must also include any prepaid pensionasset balance (the amount by which contributions to a plan have exceededexpense recorded under SFAS No. 87) as of the measurement date. Pursuantto SFAS No. 87, the Company recorded a minimum pension liability of$126,655 and $88,889 at July 3, 2005 and June 27, 2004, respectively.These amounts, net of tax benefits of $17,000, have been recorded as areduction to equity in “Accumulated Other Comprehensive Loss” on the Company’sconsolidated balance sheets as of July 3, 2005 and June 27, 2004.

35

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Weighted averageassumptions used to determine benefit cost and benefit obligation for the Planfollows:

| ** **                                        | ** ** | **2005**          | ** ** | **2004**           | ** ** |
|---------------------------------------------------|------------|-------------------|------------|--------------------|------------|
| Discount rate                                     |       | 5.250             | %          | 6.375              | %          |
| Expected return on plan  assets                   |       | 9.00              | %          | 9.00               | %          |
| Rate of compensation  increase                    |       | N/A               |       | N/A                |       |
| Measurement date for  pension benefit obligations |       | July 3, 2005 |       | June 27, 2004 |       |

 

The rate of increase in future compensation levels isnot applicable due the freezing of the Plan in 2003. The Company determines theexpected return on plan assets based upon the overall expected long-term rateof return over the period that benefits are expected to be paid. This estimateconsiders the targeted allocation of plan assets among securities with variousrisk and return profiles and incorporates historical data as well asanticipated economic and market conditions. Plan assets are invested in adiversified mix of funds containing equity and debt securities through aprofessional investment manager with the objective to achieve targeted riskadjusted returns while maintaining liquidity sufficient to fund current benefitpayments. Expected future benefit payments under the Plan for fiscal years areas follows: $10,105 in 2006; $9,915 in 2007; $9,970 in 2008; $10,309 in 2009;$10,029 in 2010; and $56,406 in 2011 through 2015.

Theallocation of Plan assets by investment type as of July 3, 2005 and June 27,2004 are as follows:

| ***Asset Category*** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| Equity securities         |       |     | 66         | %        |       |   | 67 | % |   |
| Fixed income  securities  |       |     | 34         | %        |       |   | 33 | % |   |
| Total                     |       |     | 100        | %        |       |   | 100 | % |   |

 

Netperiodic postretirement benefit costs (income) for pension and other benefitsfor the years ended July 3, 2005, June 27, 2004 and June 29,2003 were as follows:

| ** **                                             | ** ** | **Pension Benefits**                                                 | ** ** | **Other Benefits**                                                   | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                                                  | ** ** | **2004**                                                                  | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Components  of Net Periodic Benefit Cost (Income):** | ** ** | ** **                                                                | ** ** | ** **                                                                | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Service cost                                           |       | $           – |       | $           – |       | $      669 |   |   | $ | – | ** ** |   |   | $ | – | ** ** |   | $     1 |   |
| Interest cost                                          |       | 10,302                                                                    |       | 10,250                                                                    |       | 10,877 |   |   | – | ** ** |   |   | – | ** ** |   | 233 |   |
| Expected return  on plan assets                        |       | (11,720                                                                   | )          | (10,596                                                                   | )          | (12,500 | ) |   | – | ** ** |   |   | – | ** ** |   | – |   |
| Amortization of  prior service costs                   |       | –                                                                    |       | –                                                                    |       | 51 |   |   | – | ** ** |   |   | – | ** ** |   | (156 | ) |
| Recognized net  acturial (gain) loss                   |       | 2,854                                                                     |       | 3,539                                                                     |       | 2,235 |   |   | – | ** ** |   |   | – | ** ** |   | (535 | ) |
| Net periodic  benefit cost (income)                    |       | $   1,436                                                  |       | $   3,193                                                  |       | $   1,332 |   |   | $ | – | ** ** |   |   | $ | – | ** ** |   | $ (457 | ) |
| Curtailment /  settlement loss                         |       | –                                                                    |       | –                                                                    |       | 349 |   |   | – | ** ** |   |   | – | ** ** |   | – |   |
| Net benefit cost  (income)                             |       | $   1,436                                                  |       | $   3,193                                                  |       | $   1,681 |   |   | $ | – | ** ** |   |   | $ | – | ** ** |   | $ (457 | ) |

 

The curtailment/settlement loss in 2003 resulted fromthe freezing of benefit accruals under the Plan.

In addition to the definedbenefit retirement plans, the Company maintains a defined contribution (401k)savings plan for eligible employees. Contributions made to this plan by theCompany were $500, $473, and $435 for the fiscal years 2005, 2004 and 2003respectively.

**15. Related Party Transactions**

The Company has an agreement with the Spectrum Group, Inc.whereby Spectrum will provide management services to the Company through December 2005at an annual fee plus out of pocket expenses. The Company’s chairman is alsothe chairman, president and sole shareholder of Spectrum. Services providedinclude consultation and direct management assistance with respect tooperations, strategic planning and other aspects of the business of theCompany. Fees and expenses paid to Spectrum for these services under theagreement amounted to $791, $588 and $795 for the fiscal years 2005, 2004 and2003, respectively.

The Company leases twobuildings owned by a former executive’s wife. This executive was in charge ofone of the Company’s divisions until January 2003, when his employmentwith the Company was terminated. The Company paid $314 in lease paymentsfor the buildings during fiscal year 2003.

36

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**16. Accrued Liabilities**

Accruedliabilities consisted of the following at fiscal year end:

| ** **                         | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Salaries, wages and  related items |       | $        | 3,126      |     | $          | 3,897 |   |
| Insurance                          |       | 744      |       | 866      |       |
| Warranty                           |       | 315      |       | 204      |       |
| Income Taxes                       |       | 307      |       | 309      |       |
| Other                              |       | 4,537    |       | 5,791    |       |
|                               |       | $        | 9,029      |     | $          | 11,067 |   |

 

The Company offers warranties for certain productsthat it manufactures, with the warranty term generally ranging from one to twoyears. Warranty reservesare established for costs expected to be incurred after the sale and deliveryof products under warranty, based mainly on known product failures andhistorical experience.

Changesin the warranty reserve for fiscal 2005 and 2004 were as follows:

| ** **                               | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Balance at beginning of  year            |       | $        | 204        |     | $          | 403 |   |
| Additions charged to  earnings           |       | 753      |       | 255      |       |
| Use of reserve for  warranty obligations |       | (642     | )          | (217     | )          |
| Decrease to pre-existing  warranties     |       | —   |       | (237     | )          |
| Balance at end of year                   |       | $        | 315        |     | $          | 204 |   |

 

**17. Supplemental Cash Flow Information**

Changes in operating assets and liabilities of continuing operations were as follows:

| ***Fiscal year ended***                         | ** ** | **2005** | ** ** | **2004  (restated)** | ** ** | **2003  (restated)** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------------------|------------|----------------------|------------|
| (Increase) decrease in  accounts receivable               |       | $        | 3,194      |                 |       | $                    | (10,495    | ) |   |   | $ | (9,197 | ) |   |
| (Increase) decrease in  inventories                       |       | 81       |       |                 | (1,787     | )                    |       |   | (10,336 | ) |   |
| (Increase) decrease in  prepaids and other current assets |       | 1,370    |       |                 | (2,352     | )                    |       |   | 737 |   |   |
| (Increase) decrease in  other operating assets            |       | 1,669    |       |                 | 4,342      |                 |       |   | 4,044 |   |   |
| Increase (decrease) in  accounts payable                  |       | (2,415   | )          |                 | 4,422      |                 |       |   | 11,812 |   |   |
| Decrease in accrued  liabilities                          |       | (858     | )          |                 | (1,143     | )                    |       |   | (2,955 | ) |   |
| Increase (decrease) in  deferred income taxes             |       | (968     | )          |                 | 6,666      |                 |       |   | 7,083 |   |   |
| Increase (decrease) in  other operating liabilities       |       | 1,511    |       |                 | (1,822     | )                    |       |   | 1,102 |   |   |
|                                                      |       | $        | 3,584      |                 |       | $                    | (2,169     | ) |   |   | $ | 2,290 |   |   |
| Cash paid for interest  and income taxes :                |       |     |       |                 |       |                 |       |   |   |   |   |
| Interest                                                  |       | $        | 859        |                 |       | $                    | 1,503      |   |   |   | $ | 1,022 |   |   |
| Income taxes                                              |       | $        | 1,314      |                 |       | $                    | 950        |   |   |   | $ | 3,903 |   |   |

 

The Company alsocontributed 535,000 shares of its common stock valued at $2,391 (non-cash) toits defined benefit pension during fiscal 2004.

**18. AccumulatedOther Comprehensive Loss**

Accumulatedother comprehensive loss consisted of the following at July 3, 2005 and June 27,2004:

| ** **                                | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Minimum pension  liability                |       | $        | (109,655   | )        | $          | (71,889 | ) |
| Foreign currency  translation adjustments |       | (13,253  | )          | (13,054  | )          |
|                                      |       | $        | (122,908   | )        | $          | (84,943 | ) |

 

The accumulated othercomprehensive loss related to the minimum pension liability is net of taxbenefits of $17,000.

37

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**19. BusinessSegment and Geographic Information**

The Company currently operates within a singlebusiness segment, Digital Power Products. The segment contains two productcategories, components and systems. The Company sells its products primarily tolarge original equipment manufacturers and distributors. The Company performsongoing credit evaluations of its customers’ financial conditions and generallyrequires no collateral. The Company has no single customer whose purchasesrepresented 10% of the Company’s total revenue in fiscal year 2005. To reducethe concentration of credit risk, management has from time to time factoredaccounts receivable.

During the year ended July 3, 2005, sales ofcomponents were $154,156 and sales of systems were $88,233. During the yearended June 27, 2004, sales of components were $162,427 and sales ofsystems were $67,853. During the year ended June 29, 2003, sales ofcomponents were $117,138 and sales of systems were $63,139.

Informationwith respect to the Company’s foreign subsidiaries follows:

| ***For the fiscal year*** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Sales                                    |       | $        | 122,245    |     | $          | 125,853  |       | $ | 87,388 |   |
| Income from  operations                  |       | 5,568    |       | 2,630    |       | 642      |       |
| Identifiable  assets                     |       | 124,372  |       | 119,260  |       | 116,103  |       |
| Capital  expenditures                    |       | 7,282    |       | 4,941    |       | 7,264    |       |
| Depreciation and  amortization           |       | 6,907    |       | 7,115    |       | 6,352    |       |
|                                          |            |          |            |          |            |          |            |  |  |  |

 

Income from operations for foreign subsidiariesincludes an allocation of $1,020 of corporate costs incurred in the UnitedStates in fiscal years 2005 and 2004. Sales by foreign subsidiaries includeonly sales of products to customers outside of the U.S.

The majority of the Company’s international operationsare in Italy. Fiscal 2005 sales by the Company’s subsidiary in Italy were $105.4million. The Company holds assets in the U.S., Italy, Hungary, China and Canadatotaling $229.2 million, of which $102.5 million are held in Italy, includingnet property, plant and equipment of $18.2 million and goodwill of $11.8million.

Export sales from theUnited States were $12,088, $6,969 and $8,839 in fiscal years 2005, 2004 and2003, respectively.

**20. Quarterly Results (unaudited)**

Thesupplementary quarterly financial information presented below reflects therestatement of three quarters of fiscal 2005 and all quarters of fiscal 2004for income taxes, and the reclassification of the Company’s telecom business asdiscontinued operations for all periods presented as described in Notes 1 and 3respectively in Notes to Consolidated Financial Statements.

| ** **                                                    | ** ** | **Oct 3,** | ** ** | **Jan 2,** | ** ** | **Apr 2,** | ** ** | ** **      | ** ** |
|---------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| ** **                                                    | ** ** | **2004**        | ** ** | **2005**        | ** ** | **2005**        | ** ** | **Jul 3,** | ** ** |
| ***Fiscal 2005 quarter ended***                | ** ** | **(restated)**  | ** ** | **(restated)**  | ** ** | **(restated)**  | ** ** | **2005**        | ** ** |
| Net sales                                                     |       |            | $          | 66,208          |       |            |       | $               | 61,999     |   |   |   | $ | 57,038 |   |   |   | $ | 57,144 |   |   |
| Gross profit                                                  |       |            | 16,121     |            |       |            | 15,602     |            |       |   | 14,164 |   |   |   | 14,106 |   |   |
| Income (loss)  from continuing operations before income taxes |       |            | 1,736      |            |       |            | 2,317      |            |       |   | (1,366 | ) |   |   | 557 |   |   |
| Provision for  income taxes                                   |       |            | 635        |            |       |            | 540        |            |       |   | 550 |   |   |   | 700 |   |   |
| Net income (loss)  from continuing operations                 |       |            | 1,101      |            |       |            | 1,777      |            |       |   | (1,916 | ) |   |   | (143 | ) |   |
| Loss from  discontinued operations                            |       |            | (561       | )               |       |            | (1,615     | )               |       |   | (23,085 | ) |   |   | (2,428 | ) |   |
| Net income (loss)                                             |       |            | $          | 540             |       |            |       | $               | 162        |   |   |   | $ | (25,001 | ) |   |   | $ | (2,571 | ) |   |
| Per common share:                                             |       |            |       |            |       |            |       |            |       |   |   |   |   |   |   |   |   |
| Basic and diluted:                                            |       |            |       |            |       |            |       |            |       |   |   |   |   |   |   |   |   |
| Net income (loss) from continuing operations                  |       |            | $          | 0.04            |       |            |       | $               | 0.07       |   |   |   | $ | (0.07 | ) |   |   | $ | (0.01 | ) |   |
| Loss from discontinued operations                             |       |            | $          | (0.02           | )          |            |       | $               | (0.06      | ) |   |   | $ | (0.81 | ) |   |   | $ | (0.08 | ) |   |
| Net income (loss)                                             |       |            | $          | 0.02            |       |            |       | $               | 0.01       |   |   |   | $ | (0.88 | ) |   |   | $ | (0.09 | ) |   |

 

The quarter ended January 2, 2005 includes $1,300income from the sale and license of rights and patents in income fromcontinuing operations.

38

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The quarter ended April 2, 2005 includes a$21,977 charge for an arbitration award related to a patent infringement claimincluded in loss from discontinued operations.

Allquarters include an increase of $400 provision for income taxes as restated toincrease the valuation allowance against the Company’s deferred tax assets,with a corresponding effect on net income (loss).

| ** **                                                    | ** ** | **Sep 28,** | ** ** | **Dec 28,** | ** ** | **Mar 28,** | ** ** | **Jun 27,** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **2003**         | ** ** | **2003**         | ** ** | **2004**         | ** ** | **2004**         | ** ** |
| ***Fiscal 2004 quarter ended***                | ** ** | **(restated)**   | ** ** | **(restated)**   | ** ** | **(restated)**   | ** ** | **(restated)**   | ** ** |
| Net sales                                                     |       |             | $          | 46,668           |       |             |       | $                | 55,818     |   |   |   | $ | 61,832 |   |   |   | $ | 65,962 |   |   |
| Gross profit                                                  |       |             | 10,339     |             |       |             | 12,505     |             |       |   | 15,059 |   |   |   | 16,400 |   |   |
| Income (loss)  from continuing operations before income taxes |       |             | (2,133     | )                |       |             | (3,036     | )                |       |   | 671 |   |   |   | 1,728 |   |   |
| Provision for  income taxes                                   |       |             | 400        |             |       |             | 400        |             |       |   | 400 |   |   |   | 5,500 |   |   |
| Net income (loss)  from continuing operations                 |       |             | (2,533     | )                |       |             | (3,436     | )                |       |   | 271 |   |   |   | (3,772 | ) |   |
| Loss from  discontinued operations                            |       |             | (1,506     | )                |       |             | (1,012     | )                |       |   | (518 | ) |   |   | (565 | ) |   |
| Net loss                                                      |       |             | $          | (4,039           | )          |             |       | $                | (4,448     | ) |   |   | $ | (247 | ) |   |   | $ | (4,337 | ) |   |
| Per common share:                                             |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Basic and diluted:                                            |       |             |       |             |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Net income (loss) from continuing operations                  |       |             | $          | (0.11            | )          |             |       | $                | (0.12      | ) |   |   | $ | 0.01 |   |   |   | $ | (0.13 | ) |   |
| Loss from discontinued operations                             |       |             | $          | (0.06            | )          |             |       | $                | (0.04      | ) |   |   | $ | (0.02 | ) |   |   | $ | (0.02 | ) |   |
| Net loss                                                      |       |             | $          | (0.17            | )          |             |       | $                | (0.16      | ) |   |   | $ | (0.01 | ) |   |   | $ | (0.15 | ) |   |

 

The quarter ended June 27, 2004 includes $1,022 ofinterest income related to a tax refund settlement and a $693 charge forwrite-down of investments.

All quarters include an increase of $400 provision forincome taxes as restated to increase the valuation allowance against theCompany’s deferred tax assets, with a corresponding effect on net income (loss).

39

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

The Board of Directors and StockholdersMagnetek, Inc.

We have audited the accompanying consolidated balancesheets of Magnetek, Inc. as of July 3, 2005 and June 27, 2004,and the related consolidated statements of operations, stockholders’ equity,and cash flows for each of the three years in the period ended July 3,2005. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 financial statements referred toabove present fairly, in all material respects, the consolidated financialposition of Magnetek, Inc. at July 3, 2005 and June 27, 2004,and the consolidated results of its operations and its cash flows for each ofthe three years in the period ended July 3, 2005, in conformity with U.S.generally accepted accounting principles.

As discussed in Note 1 to the consolidated financialstatements, the fiscal 2004 and 2003 consolidated financial statements havebeen restated with respect to the accounting for income taxes.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of Magnetek, Inc.’sinternal control over financial reporting as of July 3, 2005, based oncriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our reportdated September 30, 2005, expressed an adverse opinion thereon.
|                             | /s/ ERNST &  YOUNG LLP |
|-----------------------------|---------------------------------|
| Woodland Hills,  California |                            |
| September 30, 2005     |                            |

 

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**Board ofDirectors**

**Andrew G. Galef, **Chairman of the Board

**Thomas G. Boren, **President & Chief Executive Officer, Magnetek,Inc.

**Dewain K. Cross, **Retired Senior Vice President, Finance, CooperIndustries, Inc.

**Yon Y. Jorden, **Former Executive Vice President & Chief FinancialOfficer, Advance PCS

**Paul J. Kofmehl, **Retired Vice President & Group Executive, IBM

**Mitchell I. Quain, **Principal at Charter House Group International, Inc.

**Robert E. Wycoff, **Retired President, Atlantic Richfield Company

**Corporate Officers**

**Thomas G. Boren, **President & Chief Executive Officer

**Antonio Canova Ph.D, **Executive Vice Presient,Power Electronic Products

**Alexander Levran Ph.D,**ExecutiveVice President, Chief Technology Officer

**Peter M. McCormick,**ExecutiveVice President, Power Control Systems

**David P. Reiland,** Executive VicePresident & Chief Financial Officer

**Stephen R. Torres,**  Executive Vice President, Alternative Energy

**Tina D. McKnight,** VicePresident, General Counsel & Secretary

**Marty J. Schwenner,** VicePresident & Controller

**Stockholder Information**

**10-K Report**

**Magnetek’s AnnualReport on Form 10-K for the fiscal year ended July 3, 2005,including the Company’s financial statements and related schedules for thefiscal year ended July 3, 2005, is included herein beginning on page 41.Exhibits to Magnetek’s Form 10-K have been filed with the Securitiesand Exchange Commission. Most of these exhibits can be accessed from theInvestor Information section of the Company’s website or on the SEC’s Edgarwebsite at***http://www.sec.gov/cgi-bin/browse-edgar?actiongetcurrent*.Other exhibits are available upon request to Magnetek, subject to payment of areasonable fee to cover the Company’s cost of furnishing such exhibits. Torequest an exhibit from the Company, please contact:

**Investor Relations Department**

Magnetek, Inc.8966 Mason AvenueChatsworth, CA 91311Telephone: 1-818-727-2216 (extension 111)Web SiteAddress: *http://www.magnetek.com*

**Annual Stockholders’ Meeting**

**Magnetek’s fiscal2005 stockholders’ meeting will be held on Wednesday, November 9,2005at 10:00 a.m. Pacific time at 10900 Wilshire Boulevard, Los Angeles, CA90024.**

**Stockholder Information**

Thefollowing table sets forth the high and low sales prices of the Company’sCommon Stock on the New York Stock Exchange during each quarter of fiscal 2004:

| **Quarter Ending** | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------|------------|----------|------------|---------|------------|
| October 3,  2004   |       | $        | 8.40       |    | $          | 5.26 |   |
| January 2,  2005   |       | 7.87     |       | 5.97    |       |
| April 3,  2005     |       | 6.94     |       | 4.50    |       |
| July 3, 2005       |       | 5.40     |       | 1.90    |       |
|                         |            |          |            |         |            |  |  |

 

Magnetek’s Common Stock is listed on the New YorkStock Exchange under the ticker symbol “MAG”. As of September 12, 2004there were 202 holders of record of the Company’s Common Stock. No dividendshave been paid on the Common Stock. The Registrar and Transfer Agent for theCommon Stock is American Stock Transfer & Trust Company: 1-718-921-8380.

 

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