**FORM 10-Q**

** **

**SECURITIES AND EXCHANGE COMMISSION**

** **

**Washington,D. C. 20549**

 

(Mark One)

**ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE**

**            SECURITIES EXCHANGE ACT OF 1934**

 

For the quarterly period ended: **September 30, 2003**

**OR**

**o  TRANSITION REPORT PURSUANT TO SECTION 13 OR15 (d) OF THE**

**            SECURITIES EXCHANGE ACT OF 1934**

 

For the transitionperiod from

 

**Commissionfile number 1-10233**

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**MAGNETEK, INC.**

(Exact name of registrantas specified in its charter)

 
| **Delaware**                     |   | **95-3917584**         |
|----------------------------------|--------|------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer       |
| incorporation or  organization)  |   | Identification Number) |

 

 

**10900 Wilshire Blvd., Suite 850**

**LosAngeles, California 90024**

(Address of principalexecutive offices)

(Zip Code)

**(310)208-1980**

(Registrant’s telephonenumber, including area code)

 

 

(Former name, formeraddress and former fiscal year,

if changed since lastreport)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes  ý  No o

 

                Indicate by checkmark whether the registrant is considered an accelerated filer as defined inRule 12b-2 of the Exchange Act.   Yes ý  No o

 

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

Thenumber of shares outstanding of Registrant’s Common Stock, as of October 30, 2003 was 28,446,302 shares.

 

 

 

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2004 MAGNETEK FORM 10-Q

 

TABLE OF CONTENTS FOR THEQUARTERLY REPORT ON FORM 10Q

FOR THE FISCAL QUARTERENDED SEPTEMBER 30, 2003

 

MAGNETEK, INC.

 

 
| **Part  I.** |   | **Financial  Information**                                                                  |
|--------------|--------|---------------------------------------------------------------------------------------------|
|         |   |                                                                                        |
| Item  1.     |   | Financial  Statements                                                                       |
| Item  2.     |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
| Item  3.     |   | Quantitative  and Qualitative Disclosures about Market Risk                                 |
| Item  4.     |   | Controls  and Procedures                                                                    |
|         |   |                                                                                        |
| **Part II.** |   | **Other  Information**                                                                      |
|         |   |                                                                                        |
| Item 1.      |   | Legal Proceedings                                                                           |
| Item  4.     |   | Submission  of Matters to a Vote of Security Holders                                        |
| Item 6.      |   | Exhibits and Reports  on Form 8-K                                                           |
|         |   |                                                                                        |
| Signatures   |   |                                                                                        |

 

 

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PART I.  FINANCIALINFORMATION

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States for interim financial information and with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by accounting principles for complete financial statements.

 

 

Inthe opinion of management, the accompanying condensed consolidated financialstatements contain all adjustments necessary to fairly present the financialposition as of September 30, 2003 and the results of operations and cash flowsfor the three-month periods ended September 30, 2003 and 2002.  It is suggested that these condensedconsolidated financial statements be read in conjunction with the consolidatedfinancial statements and notes included in the Company’s latest Annual Reporton Form 10-K.  Results for thethree-months ended September 30, 2003 are not necessarily indicative of resultsthat may be experienced for the full fiscal year.

 

 

Thisdocument, including documents incorporated herein by reference, contains“forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Thewords “believe”, “expect”, “estimate”, “anticipate”, “intend”, “may”, “might”,“will”, “would”, “could”, “project”, and “predict”, or similar words andphrases generally identify forward-looking statements.  Forward-looking statements contained orincorporated by reference in this document, including those set forth in the sectionof this document entitled “Management’s Discussion and Analysis of FinancialCondition and Results of Operations”, include, but are not limited to,statements regarding projections of revenues, income or loss, capitalexpenditures, plans for future operations, products or services and financingneeds or expectations, as well as assumptions relating to the foregoing.

 

Forward-lookingstatements are inherently subject to risks and uncertainties which in manycases are beyond the control of the Company and which cannot be predicted orquantified.  As a result, future eventsand actual results could differ materially from those set forth in,contemplated by, or underlying forward-looking statements.  Such risks and uncertainties include but arenot limited to economic conditions in general, sensitivity to industryconditions, competitive factors such as technology and pricing pressures,business conditions in the telecommunications and electronic equipment markets,international sales and operations, dependence on significant customers,increased material costs, risks and costs associated with acquisitions anddivestitures, environmental matters and the risk that the Company’s ultimatecosts of doing business exceed present estimates.  Further information on factors that could affect Magnetek’sfinancial results can be found in the Company’s filings with the Securities andExchange Commission.

 

Forward-lookingstatements contained in this document speak only as of the date of thisdocument or, in the case of any document incorporated by reference, the date ofthat document.  The Company does nothave any obligation to publicly update or revise any forward-looking statementcontained or incorporated by reference in these documents to reflect changedassumptions, the occurrence of unanticipated events or changes to futureoperating results over time.

 

 

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ITEM 1

 

MAGNETEK, INC.

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS

FOR THE THREE MONTHSENDED

September 30, 2003 and2002

(amounts in thousands,except per share data)

(unaudited)

 
|                                             |   | **2003** |   | **2002** |   |
|--------------------------------------------------|--------|----------|--------|----------|--------|
|                                             |   |     |   |     |   |
| Net sales                                        |   | $        | 50,435 |     | $      | 42,826 |   |
| Cost of sales                                    |   | 40,089   |   | 33,042   |   |
|                                             |   |     |   |     |   |
| Gross profit                                     |   | 10,346   |   | 9,784    |   |
| Research and  development                        |   | 2,843    |   | 2,513    |   |
| Selling, general  and administrative             |   | 10,470   |   | 9,464    |   |
| Non-recurring  gain                              |   | —   |   | (27,771  | )      |
|                                             |   |     |   |     |   |
| Income (loss)  from operations                   |   | (2,967   | )      | 25,578   |   |
| Interest and  other expense                      |   | 672      |   | 186      |   |
|                                             |   |     |   |     |   |
| Income (loss)  before provision for income taxes |   | (3,639   | )      | 25,392   |   |
| Provision for  income taxes                      |   | —   |   | 9,649    |   |
| Net income  (loss)                               |   | $        | (3,639 | )        | $      | 15,743 |   |
|                                             |   |     |   |     |   |
| Earnings (loss)  per common share                |   |     |   |     |   |
|                                             |   |     |   |     |   |
| Basic and  diluted:                              |   |     |   |     |   |
| Net income  (loss)                               |   | $        | (0.15  | )        | $      | 0.67 |   |
|                                             |   |     |   |     |   |

 

 

 

 

 

See accompanying notes

 

3

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MAGNETEK, INC.

CONDENSED CONSOLIDATEDBALANCE SHEETS

September 30, 2003 andJUNE 30, 2003

(amounts in thousands)

 
| **ASSETS**                                      |   | **September  30** |    | **June 30** |   |
|-------------------------------------------------|--------|-------------------|---------|-------------|--------|
|                                            |   | **(unaudited)**   |    |        |   |
| Current assets:                                 |   |              |    |        |   |
| Cash                                            |   | $                 | 1,396   |        | $      | 1,680 |   |
| Accounts  receivable, net                       |   | 43,823            |    | 46,745      |   |
| Inventories                                     |   | 49,965            |    | 48,843      |   |
| Prepaid expenses  and other                     |   | 9,760             |    | 12,908      |   |
| Total current  assets                           |   | 104,944           |    | 110,176     |   |
|                                            |   |              |    |        |   |
| Property, plant  and equipment                  |   | 113,012           |    | 111,723     |   |
|                                            |   |              |    |        |   |
| Less-accumulated  depreciation and amortization |   | 80,438            |    | 77,929      |   |
|                                            |   | 32,574            |    | 33,794      |   |
|                                            |   |              |    |        |   |
| Goodwill                                        |   | 63,147            |    | 63,067      |   |
| Prepaid pension  and other assets               |   | 74,169            |    | 73,614      |   |
| Total Assets                                    |   | $                 | 274,834 |        | $      | 280,651 |   |
|                                            |   |              |    |        |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY      |   |              |    |        |   |
|                                            |   |              |    |        |   |
| Current  liabilities:                           |   |              |    |        |   |
| Accounts payable                                |   | $                 | 35,773  |        | $      | 35,496 |   |
| Accrued  liabilities                            |   | 10,517            |    | 13,452      |   |
| Current portion  of long-term debt              |   | 649               |    | 805         |   |
| Total current  liabilities                      |   | 46,939            |    | 49,753      |   |
|                                            |   |              |    |        |   |
| Long-term debt,  net of current portion         |   | 25,228            |    | 25,897      |   |
|                                            |   |              |    |        |   |
| Other long-term  obligations                    |   | 116,635           |    | 118,861     |   |
|                                            |   |              |    |        |   |
| Deferred income  taxes                          |   | 6,455             |    | 6,469       |   |
|                                            |   |              |    |        |   |
| Stockholders’  equity                      |   |              |    |        |   |
| Common stock                                    |   | 243               |    | 237         |   |
| Paid in capital  in excess of par value         |   | 108,988           |    | 106,541     |   |
| Retained  earnings                              |   | 77,320            |    | 80,959      |   |
| Accumulated  other comprehensive loss           |   | (106,974          | )       | (108,066    | )      |
| Total  stockholders’ equity                |   | 79,577            |    | 79,671      |   |
|                                            |   |              |    |        |   |
| Total  Liabilities and                          |   |              |    |        |   |
| Stockholders’  Equity                      |   | $                 | 274,834 |        | $      | 280,651 |   |
|                                            |   |              |    |        |   |

 

 

See accompanying notes

 

 

4

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MAGNETEK, INC.

CONSOLIDATED STATEMENTSOF CASH FLOW

FOR THE THREE MONTHSENDED

September 30, 2003 and2002

(amounts in thousands)

(unaudited)

 
|                                                                                                 |   | **2003** |   | **2002** |   |
|------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Cash flows from  operating activities:                                                               |   |     |   |     |   |
| Net income  (loss)                                                                                   |   | $        | (3,639 | )        | $      | 15,743 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |   |     |   |     |   |
| Depreciation and  amortization                                                                       |   | 2,481    |   | 2,175    |   |
| Changes in  operating assets and liabilities                                                         |   | 1,539    |   | (18,563  | )      |
|                                                                                                 |   |     |   |     |   |
| Total  adjustments                                                                                   |   | 4,020    |   | (16,388  | )      |
| Net cash  provided by (used in) operating activities                                                 |   | 381      |   | (645     | )      |
|                                                                                                 |   |     |   |     |   |
| Cash flows from  investing activities:                                                               |   |     |   |     |   |
| Proceeds from  sale of businesses                                                                    |   | 1,250    |   | —   |   |
| Capital expenditures                                                                                 |   | (775     | )      | (1,131   | )      |
| Net cash  provided by (used in) investing activities                                                 |   | 475      |   | (1,131   | )      |
|                                                                                                 |   |     |   |     |   |
| Cash flow from  financing activities:                                                                |   |     |   |     |   |
| Proceeds from  issuance of common stock                                                              |   | 62       |   | 83       |   |
| Repayment of  bank and other long term obligations                                                   |   | (825     | )      | (310     | )      |
| Increase in  deferred financing costs                                                                |   | (377     | )      | (42      | )      |
| Net cash used in  financing activities                                                               |   | (1,140   | )      | (269     | )      |
|                                                                                                 |   |     |   |     |   |
| Net decrease in  cash                                                                                |   | $        | (284   | )        | $      | (2,045 | ) |
| Cash at the  beginning of the period                                                                 |   | 1,680    |   | 4,816    |   |
|                                                                                                 |   |     |   |     |   |
| Cash at the end  of the period                                                                       |   | $        | 1,396  |     | $      | 2,771 |   |
|                                                                                                 |   |     |   |     |   |

 

See accompanyingnotes

 

 

5

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MAGNETEK, INC.

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2003

(Amounts in thousands,except per share data)

(unaudited)

 

 

1.                                       Basis of Presentation

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States for interim financial reporting. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for fiscal year endfinancial statements.  For furtherinformation, refer to the financial statements and footnotes thereto includedin the Company’s Form 10-K for the year ended June 30, 2003 filed with theSecurities and Exchange Commission.  Inthe Company’s opinion, these unaudited statements contain all adjustments(consisting of normal recurring adjustments) necessary to present fairly thefinancial position of Magnetek, Inc. as of September 30, 2003, and the resultsof its operations and its cash flows for the three months then ended.

 

The Company uses a fifty-two, fifty-three week fiscalyear ending on the Sunday nearest to June 30. Fiscal quarters are the thirteen or fourteen week periods ending on theSunday nearest September 30, December 31, March 31 and June 30.  For clarity of presentation, all periods arepresented as if they ended on the last day of the calendar period.  The three-month periods ended September 30,2003 and 2002 each contained thirteen weeks.

 

2.                                       Summary of Significant AccountingPolicies

 

Principles ofConsolidation —The condensed consolidated financial statements include the accounts ofMagnetek, Inc. and its subsidiaries (the “Company”).  All significant intercompany accounts and transactions have beeneliminated.

 

Use of Estimates - The preparation of financial statements inaccordance with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. Actual resultscould differ from those estimates.  Significant areas requiring management estimates include the followingkey financial areas:

 

*AccountsReceivable*

 

Accountsreceivable represent receivables from customers in the ordinary course ofbusiness.  The Company is subject tolosses from uncollectible receivables in excess of its allowances.  The Company maintains allowances for doubtful accounts forestimated losses from customers’ inability to make required payments.  In order to estimate the appropriate levelof this allowance, the Company analyzes historical bad debts, customer concentrations,current customer creditworthiness, current economic trends and changes incustomer payment patterns.  If thefinancial conditions of the Company’s customers were to deteriorate and toimpair their ability to make payments, additional allowances may be required infuture periods.  The Company’smanagement believes that all appropriate allowances have been provided.

 

*Inventories*

* *

The Company’s inventoriesare stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, including material,labor and factory overhead.  Inventoryon hand may exceed future demand either because the product is obsolete, or theamount on hand is more than can be used to meet future needs.  The Company identifies potentially obsoleteand excess inventory by evaluating overall inventory levels.  In assessing the ultimate realization ofinventories, the Company is required to make judgments as to future demandrequirements and compare those with the current or committed inventory levels.  If future demand requirements are lessfavorable than those projected by management, additional inventory write-downsmay be required.

 

*Reserves for Litigation andEnvironmental Issues*

 

TheCompany periodically records the estimated impacts of various conditions,situations or circumstances involving uncertain outcomes.  The accounting for such events is prescribedunder Statement of Financial Accounting Standard (SFAS) No. 5, “Accounting forContingencies.”  SFAS No. 5 defines acontingency as “an

 

6

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existingcondition, situation, or set of circumstances involving uncertainty as topossible gain or loss to an enterprise that will ultimately beresolved when one or more future events occur or fail to occur.”

 

SFAS No. 5 does notpermit the accrual of gain contingencies under any circumstances.  For loss contingencies, the loss must beaccrued if (1) information is available that indicates it is probable that theloss has been incurred, given the likelihood of uncertain events; and (2) thatthe amount of the loss can be reasonably estimated.

 

Theaccrual of a contingency involves considerable judgment on the part ofmanagement.  The Company uses itsinternal expertise, and outside experts, as necessary, to help estimate theprobability that a loss has been incurred and the amount (or range) of theloss.

 

*Income*Taxes

 

TheCompany uses the liability method to account for income taxes.  The preparation of consolidated financial statements involves estimating the Company’s current tax exposure together withassessing temporary differences resulting from differing treatment of items fortax and accounting purposes.  Thesedifferences result in deferred tax assets and liabilities, which are includedin the consolidated balance sheets.  Anassessment of the recoverability of the deferred tax assets is made, and avaluation allowance is established based upon this assessment.

 

Federalincome taxes are not provided currently on undistributed earnings of foreignsubsidiaries since the Company presently intends to reinvest any earningsoverseas indefinitely.

* *

*PensionBenefits*

 

The valuation of the Company’s pension plan requires the use ofassumptions and estimates to develop actuarial valuations of expenses andassets/liabilities.  These assumptionsinclude discount rates, investment returns and mortality rates.  Changes in assumptions and futureinvestments returns could potentially have a material impact on the Company’sexpenses and related funding requirements.

 

Revenue Recognition — The Company’s policy is to record andrecognize sales only upon shipment. Amounts billed to customers for shipping costs are reflected in netsales; shipping costs are reflected in cost of sales.

 

Property, Plant andEquipment —Additions and improvement are capitalized at cost, whereas expenditures formaintenance and repair are charged to expense as incurred.  Depreciation is provided over the estimateduseful lives of the respective assets (ranging from three to forty years)principally using the straight-line method.

Goodwill- The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”,effective July 1, 2001.  Under SFAS No.142, goodwill and other intangible assets deemed to have indefinite lives areno longer amortized but are subject to annual impairment tests, or interimimpairment tests if certain indicators arise. Management reviews the valuation ofgoodwill at least annually, using discounted future cash flow analysis of eachof the Company’s reporting units.

DeferredFinancing Costs — Costs incurred to obtainfinancing are deferred and included in other assets in the condensedconsolidated balance sheets.  Deferredfinancing costs are amortized over the term of the financing facility.

Warranties— The Company offers warranties for certain products that it manufactures, withthe warranty term generally ranging from one to two years.  Warranty reserves are established for costsexpected to be incurred after the sale and delivery of products under warranty,based mainly on known product failures and historical experience.  Actual repair costs incurred for productsunder warranty are charged against the established reserve balance as incurred.

Earningsper Share — In accordance withSFAS No. 128, “Earnings per Share”, basic earnings per share are computed usingthe weighted average number of common shares outstanding during theperiod.  Diluted earnings per shareincorporate the incremental shares issuable upon the assumed exercise of stockoptions as if all exercises had occurred at the beginning of the fiscal period.

 

Stock-Based Compensation — The Company has elected to continue touse the intrinsic-value method of accounting as prescribed by AccountingPrinciples Board (APB) No. 25 “Accounting for Stock Issued to Employees” inaccounting for stock based awards to 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 employee compensation cost is reflected inreported results of operations for all periods presented.

 

The Company adopted the interim disclosure provisionsof SFAS No. 148, “Accounting for Stock-Based Compensation — Transition andDisclosure — an Amendment of FASB Statement No. 123” effective January 1, 2003.

 

 

7

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The following table illustrates the effect on netincome (loss) and earnings (loss) per share for the three months endedSeptember 30, 2003 and 2002, if the Company had applied the fair valuerecognition provisions of SFAS No. 123, “Accounting for Stock-BasedCompensation”, to stock-based employee compensation:

 
|                                                                                                                                          |   | **Three  Months Ended** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                          |   | **September  30,**      |   |
|                                                                                                                                          |   | **2003**                |   | **2002** |   |
| Net income  (loss)                                                                                                                            |   | $                       | (3,639 | ) | $ | 15,743 |   |
|                                                                                                                                          |   |                    |   |   |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |   | (707                    | )      | (800 | ) |
| Pro forma net  income (loss)                                                                                                                  |   | $                       | (4,346 | ) | $ | 14,943 |   |
|                                                                                                                                          |   |                    |   |   |   |
| Earnings (loss)  per share as reported:                                                                                                       |   |                    |   |   |   |
| Basic and  diluted                                                                                                                            |   | $                       | (0.15  | ) | $ | 0.67 |   |
|                                                                                                                                          |   |                    |   |   |   |
| Pro forma  earnings (loss) per share:                                                                                                         |   |                    |   |   |   |
| Basic and  diluted                                                                                                                            |   | $                       | (0.18  | ) | $ | 0.63 |   |
|                                                                                                                                          |   |                    |   |   |   |

 

 

 

DerivativeFinancial Instruments — The Company uses derivativefinancial instruments to reduce financial market risks. These instruments areused to hedge foreign currency and interest rate market exposures. The Companydoes not use derivative financial instruments for speculative or tradingpurposes.  The Company accounts forderivative instruments in accordance with SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities”, and SFAS No. 149, “Amendment ofStatement 133 on Derivatives and Hedging”, issued in April 2003.  These statements require that an entityrecognize all derivatives as either assets or liabilities in the statement offinancial position, measured at fair value, and that hedge accounting beapplied when certain conditions are met.

 

Foreign Currency Translation -The Company’s foreign entities’ accounts are measuredusing local currency as the functional currency.  Assets and liabilities are translated at the exchange rate ineffect at year-end.  Revenues andexpenses are translated at the rates of exchange prevailing during theyear.  Unrealized translation gains andlosses arising from differences in exchange rates from period to period areincluded as a component of accumulated other comprehensive loss instockholders’ equity.

 

RecentAccounting Pronouncements — InJanuary 2003, the FASB issued Interpretation No. 46 (FIN 46),“Consolidation of Variable Interest Entities (VIE).”  FIN 46 requires that if a company holds a controllingfinancial interest in a VIE, the assets, liabilities and results of the VIE’sactivities should be consolidated in the entity’s financial statements. TheCompany does not expect FIN 46 to have a material impact on its results ofoperations or financial position.

In April 2003, the FASBissued SFAS No. 149, “Amendment of Statement 133 on Derivatives and Hedging”,which amends and clarifies accounting for derivative instruments, includingcertain derivative instruments embedded in other contracts and for hedgingactivities under Statement of Financial Accounting Standards No. 133,“Accounting for Derivative Instruments and Hedging Activities.”** SFAS No. 149 is generally effective forderivative instruments, including derivative instruments embedded in certaincontracts, entered into or modified after June 30, 2003 and for hedgingrelationships designated after June 30, 2003. The adoption of SFAS No. 149 did nothave a material impact on the Company’s results of operations or financialposition.

In May 2003, the FASBissued SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristic of Both Liabilities and Equity”.  This statement establishes standards for how an issuer classifiesand measures in its statement of financial position certain financialinstruments with characteristics of both liabilities and equity.  SFAS No. 150 requires

 

8

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that an issuer classifya financial instrument that is within the scope of SFAS No. 150 as a liability(or an asset in some circumstances) because that financial instrument embodiesan obligation of the issuer. SFAS No. 150 is effective for financial instrumentsentered into or modified after May 31, 2003, and otherwise is effective at thebeginning of the first interim periods beginning after June 15, 2003 Theadoption of SFAS No. 150 did not have a material impact on it’s the Company’sresults of operations or financial position.

Reclassifications— Certain prior year balances were reclassified to conform to the current yearpresentation.

 

3.                                       Inventories

 

Inventories at September 30, 2003 and June 30, 2003consist of the following:

 

 
|                           |   | **September  30** |   | **June 30** |   |
|--------------------------------|--------|-------------------|--------|-------------|--------|
| Raw materials  and stock parts |   | $                 | 26,384 |        | $      | 26,994 |   |
| Work-in-process                |   | 15,270            |   | 15,217      |   |
| Finished goods                 |   | 8,311             |   | 6,632       |   |
|                           |   | $                 | 49,965 |        | $      | 48,843 |   |
|                           |   |              |   |        |   |

 

 

4.                                       Commitments and Contingencies

 

TheCompany is a party to a number of product liability lawsuits, all of whicharise from business operations no longer owned by Magnetek. Contractualliability for claims resulting from indemnification obligations related tosales of the various business operations has terminated, except for liabilityrelated to fires allegedly caused by defective lighting ballasts, whichterminates December 15, 2003 for new claims. All of the pending product liability cases are being aggressivelydefended by the Company, and management believes that its insurers will bearall liability, if any, that exceeds applicable deductibles, and that none ofthese proceedings individually or in the aggregate will have a material effecton the Company’s results of operations or financial position.

 

TheCompany has been named, along with numerous other defendants, inasbestos-related lawsuits. The Company has never produced asbestos-containingproducts and is either contractually indemnified against liability forasbestos-related claims or believes that it has no liability for such claims,all of which arise from business operations the Company acquired but no longerowns. While the outcome of these cases cannot be predicted with certainty, theCompany is aggressively seeking to be dismissed from the proceedings and doesnot believe the proceedings, individually or in the aggregate, will have amaterial adverse effect on its results of operations or financial position.

 

InApril 1998, Ole K. Nilssen filed a lawsuit in the U.S. District Court forthe Northern District of Illinois alleging infringement by the Company of sevenof his patents pertaining to electronic ballast technology, and seekingunspecified damages and injunctive relief to preclude the Company from making,using or selling products allegedly infringing his patents. The Company denied thatits products infringed any valid patent and filed a response assertingaffirmative defenses, as well as a counterclaim for a judicial declaration thatits products do not infringe the patents asserted by Nilssen and also that theasserted patents are invalid. In April 2003, the lawsuit and counterclaims weredismissed by the parties with prejudice and both parties agreed to submitlimited issues in dispute to binding arbitration before an arbitrator with arelevant technical background.  Theballast division was sold in 2001 and the Company agreed to a limitedindemnification of the buyer of the division against substantively the sameclaims raised against the Company.  InFebruary 2003, Nilssen filed a suit against the buyer and the buyer is seekingindemnification from the Company in connection therewith.  Settlement discussions have occurred betweenthe Company and Nilssen from time to time, and although the Company willcontinue to assert what it believes are strong defenses at arbitration, anunfavorable decision in the arbitration or the failure to obtain a favorableresolution of Nilssen’s claims against the buyer of the ballast division couldhave a material adverse effect on the Company’s financial position, cash flowsor results of operations.

 

Fromtime to time, the Company discovered the existence of hazardous substances atcertain facilities associated with previously owned businesses and responded asnecessary to bring the facilities into compliance with applicable laws andregulations. Upon sale of the businesses, the Company agreed, in some cases, toindemnify the buyers against environmental claims associated with the divestedoperations, subject to various conditions and limitations. Remediationactivities, including those related to the Company’s indemnificationobligations, did not involve material expenditures during the first quarter offiscal year 2004.

 

9

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The Company has also been identified by the United States EnvironmentalProtection Agency and certain state agencies as a potentially responsible partyfor cleanup costs associated with alleged past waste disposal practices atseveral previously owned facilities and offsite locations. Its remediationactivities as a potentially responsible party were not material in the firstquarter of fiscal year 2004. . Although the materiality of future expendituresfor environmental activities may be affected by the level and type ofcontamination, the extent and nature of cleanup activities required bygovernmental authorities, the nature of the Company’s alleged connection to thecontaminated sites, the number and financial resources of other potentiallyresponsible parties, the availability of indemnification rights against thirdparties and the identification of additional contaminated sites, the Company’sestimated share of liability, if any, for environmental remediation, includingits indemnification obligations, is not expected to be material.

Prior to the Company’s purchase of Century Electric, Inc. (“CenturyElectric”) in 1986, Century Electric acquired a business from Gould Inc.(“Gould”) in May 1983 that included a leasehold interest in a fractionalhorsepower electric motor manufacturing facility located in McMinnville, Tennessee.Gould agreed to indemnify Century Electric from and against liabilities andexpenses arising out of the handling and cleanup of certain waste materials,including but not limited to cleaning up any polychlorinated biphenyls (“PCBs”)at the McMinnville facility (the “1983 Indemnity”).  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 McMinnville plantin August 1999 and while the Company believes that Gould will continue toperform substantially under its indemnity obligations, Gould’s substantialfailure to perform such obligations could have a material adverse effect on theCompany’s financial position, cash flows or results of operations.

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. Environmental liabilities covered by theindemnification agreement include completion of additional cleanup activities,if any, at the Bridgeport, Connecticut facility (sold in connection with thesale of the transformer business in June 2001) and defense and indemnificationagainst liability related to offsite disposal locations where Magnetek may havea share of potential response costs. In 1999 FOL filed a petition forReorganization under Chapter 11 of the Bankruptcy Code and the Company filed aproof of claim in the proceeding for obligations related to the environmentalindemnification agreement. In November 2001, the Company and FOL entered intoan agreement involving the allocation of certain potential tax credits andMagnetek withdrew its claims in the bankruptcy proceeding.  Although the Company believes that FOL hassubstantially completed the obligations required by the indemnificationagreement, its ability to set aside any remaining obligations to the states ofConnecticut and New Jersey through bankruptcy, 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.

##  

5.             ComprehensiveIncome (Loss)

 

For the fiscal quarters ended September 30, 2003 and2002, comprehensive income (loss) consisted of the following:

 
|                             |   | **Three  Months Ended** |   |
|----------------------------------|--------|-------------------------|--------|
|                             |   | **September  30,**      |   |
|                             |   | **2003**                |   | **2002** |   |
| Net income  (loss)               |   | $                       | (3,639 | ) | $ | 15,743 |   |
| Currency translation  adjustment |   | 1,092                   |   | (427 | ) |
| Comprehensive  income (loss)     |   | $                       | (2,547 | ) | $ | 15,316 |   |
|                             |   |                    |   |   |   |

 

10

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6.                                       Earnings (Loss) Per Share

 

Thefollowing table sets forth the computation of basic and diluted earnings (loss)per share for the three months ended September 30, 2003 and 2002.  Weighted average basic and diluted sharesoutstanding include shares contributed to a Rabbi trust of 161 thousand sharesand 114 thousand shares as of September 30, 2003 and 2002 respectively.

 
|                                                               |   | **Three  Months Ended** |   |
|--------------------------------------------------------------------|--------|-------------------------|--------|
|                                                               |   | **September  30,**      |   |
|                                                               |   | **2003**                |   | **2002** |   |
| Basic earnings  (loss) per share:                                  |   |                    |   |   |   |
| Net income  (loss)                                                 |   | $                       | (3,639 | ) | $ | 15,743 |   |
|                                                               |   |                    |   |   |   |
| Weighted average  shares for basic earnings (loss) per share       |   | 23,799                  |   | 23,626 |   |
|                                                               |   |                    |   |   |   |
| Basic earnings  (loss) per share                                   |   | $                       | (0.15  | ) | $ | 0.67 |   |
|                                                               |   |                    |   |   |   |
| Diluted earnings  (loss) per share:                                |   |                    |   |   |   |
| Net income  (loss)                                                 |   | $                       | (3,639 | ) | $ | 15,743 |   |
|                                                               |   |                    |   |   |   |
| Weighted average  shares for basic earnings(loss)  per  share |   | 23,799                  |   | 23,626 |   |
| Effect of  dilutive stock options                                  |   | —                  |   | — |   |
| Weighted average  shares for diluted earnings (loss) per share     |   | 23,799                  |   | 23,626 |   |
|                                                               |   |                    |   |   |   |
| Diluted earnings  (loss) per share                                 |   | $                       | (0.15  | ) | $ | 0.67 |   |
|                                                               |   |                    |   |   |   |

 

 

7.             Warranties

 

TheCompany offers warranties for certain products that it manufactures, with thewarranty term generally ranging from one to two years.  Warranty reserves are established for costsexpected to be incurred after the sale and delivery of products under warranty,based mainly on known product failures and historical experience.  Actual repair costs incurred for productsunder warranty are charged against the established reserve balance asincurred.  Changes in the warrantyreserve for the three months ended September 30, 2003 were as follows:

 
|                                                  |   | **Warranty** |   |
|-------------------------------------------------------|--------|--------------|--------|
|                                                  |   | **Reserve**  |   |
| Balance at June  30, 2003                             |   | $            | 503    |   |
| Additions  charged to earnings for product warranties |   | 23           |   |
| Use of reserve  for warranty obligations              |   | (63          | )      |
| Decrease to  pre-existing warranties                  |   | (50          | )      |
| Balance at  September 30, 2003                        |   | $            | 413    |   |
|                                                  |   |         |   |

 

 

Warrantyreserves are included in accrued liabilities in the condensed consolidatedbalance sheets.

 

8.             Other Events

 

OnSeptember 15, 2003, the Company issued 535 thousand shares of the Company’scommon stock to the trustee of the Magnetek, Inc. FlexCare Plus RetirementPension Plan as a voluntary contribution.

 

11

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On October 8, 2003, theCompany entered into agreements with a small number of investors to purchase4.2 million shares of the Company’s common stock at a discount of 8% from the$5.10 closing price on that date.  OnOctober 17, 2003 the Company issued the shares, receiving aggregate proceeds,net of fees and expenses, of approximately $18.5 million.  The proceeds were used to repay debt.

 

The Company has agreed toregister the shares issued pursuant to the above transactions for resale.  Each of the above-described privateplacements was in reliance on exemptions available under Section 4(2) forregistration of securities under the Securities Act of 1933, as amended.

 

 

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

 

Overview

 

Weare a global provider of digital power-electronic products, includingelectronic converters, inverters, rectifiers and systems.  These products are used primarily inindustrial, telecommunications, data processing, consumer, imaging, alternativeenergy, power generation and other applications requiring precise, efficient,reliable power.  We believe that withour technical and productive resources, we are well positioned to respond toincreasing demand for such power.  Weoperate in a single business segment, Digital Power Products, which includestwo broad product categories, Components and Systems.

 

Ourembedded power products (Components), which are sold to original equipmentmanufacturers for installation in their products, include: Ac-to-Dc switchingpower supplies, Ac-to-Dc rectifiers and battery chargers, Dc-to-Dc powerconverters, Dc-to-Ac power inverters and peripheral component interconnects(PCI’s).  These products are usedprimarily in telecommunications, data-processing and storage, digital imaging,semiconductor processing and testing equipment, medical instrumentation andhome appliances.

 

Ourintegrated power products (Systems) consist primarily of programmable motioncontrol and power conditioning systems and include: alternating current (Ac)and direct current (Dc) variable-frequency motor drives (VFDs), fuel cell powerinverters and telecom power plants.  Ourpower systems also include complete Dc power systems for telecom and networkingapplications.

 

Critical Accounting Policies

 

The following discussion and analysis of our financialcondition and results of operations is based upon our condensed consolidatedfinancial statements.  In preparing financialstatements in conformity with accounting principles generally accepted in theUnited States, we must make estimates and assumptions that affect the reportedamount of assets and liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities at the date of our financialstatements.  Such estimates are basedupon historical experience and other assumptions believed to be reasonablegiven known circumstances.  Actualresults could differ from those estimates. On an ongoing basis, we evaluate and update our estimates, includingthose related to accounting for inventories, goodwill, pension benefits andreserves for litigation and environmental issues.  We consider the following policies critical to understanding ourfinancial position and results of operations.

*Inventories*

Our inventories arestated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, includingmaterial, labor and factory overhead. We identify potentially obsolete and excess inventory by evaluatingoverall inventory levels in relation to expected future requirements and marketconditions, and provisions for excess and obsolete inventory and inventoryvaluation are recorded accordingly.  Inassessing the ultimate realization of inventories, we are required to makejudgments as to future demand requirements and compare those with the currentor committed inventory levels.  Iffuture demand requirements are less favorable than those we project, additionalinventory write-downs may be required.

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

Weperiodically evaluate the recoverability of our long-lived assets, includingproperty, plant and equipment. Impairment charges are recorded in operating results when theundiscounted future expected cash flows derived from an asset are less than thecarrying value of the asset.

Wealso periodically evaluate the carrying value of goodwill for impairment.  We have identified our Telecom Power, PowerElectronics and Industrial Controls groups as reporting units under SFAS No.142.  In assessing potential

 

12

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impairment,we make significant estimates and assumptions regarding the discounted futurecash flows of our identified reporting units to determine the fair value ofthose reporting units.    Such estimatesinclude, but are not limited to, projected future operating results, workingcapital ratios, cash flow, market discount rates and tax rates.  If these estimates change in the future, orif actual circumstances vary significantly from these assumptions, this couldresult in additional goodwill impairment charges.

 

*Pension****Benefits*

The valuation of ourpension plan requires the use of assumptions and estimates to develop actuarialvaluations of expenses and assets/liabilities. These assumptions include discount rates, investment returns andmortality rates.  Changes inassumptions, or significant differences between actual future discount rates,investments returns and mortality rates from those assumptions, couldpotentially have a material impact on our expenses and related fundingrequirements.

 

*Reserves for Litigation and Environmental Issues*

Weperiodically record the estimated impacts of various conditions, situations orcircumstances involving uncertain outcomes. The accounting for such events is prescribed under SFAS No. 5,“Accounting for Contingencies.”  SFASNo. 5 defines a contingency as “an existing condition, situation, or set ofcircumstances involving uncertainty as to possible gain or loss to anenterprise that will ultimately be resolved when one or more future eventsoccur or fail to occur.”

 

SFAS No. 5 does notpermit the accrual of gain contingencies under any circumstances.  For loss contingencies, the loss must beaccrued if (1) information is available that indicates it is probable that theloss 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 considerable judgment on ourpart.  We use our 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.

*Income Taxes*

We record deferred income tax assets in tax jurisdictions where wegenerate losses for income tax purposes. We also record valuation allowances against these deferred tax assets inaccordance with SFAS No. 109, “Accounting for Income Taxes”, when, in ourjudgment, the deferred income tax assets will likely not be realized in theforeseeable future.

 

Resultsof Operations - Three Months Ended September 30, 2003 and 2002

 

NetSales and Gross Profit

 

Netsales for the first quarter of fiscal 2004 were $50.4 million, an increase of17.8% from the first quarter of fiscal 2003 sales of $42.8 million.  The increase is attributed to higher salesof embedded power supplies, currency translation impact from the stronger Euro,and the inclusion of Telemotive in the first quarter of fiscal 2004, partiallyoffset by lower telecom service revenue. We divested our telecom service business midway through the firstquarter of fiscal 2004.  While there hasbeen recent improvement in the general economy, our net sales continue to beadversely affected by continued weakness in telecommunications and informationtechnology markets.  We believe theweakness in telecommunications may continue at least through fiscal 2004.Accordingly we have focused on gaining share in systems markets and on new productintroductions in industrial, consumer and alternative energy markets.  We expect our second quarter revenue toincrease over the first quarter due to higher revenues in markets other thantelecommunications and seasonal factors.

 

Ourfiscal 2004 first quarter gross profit was $10.3 million, or 20.5% of sales,versus $9.8 million, or 22.8% of sales in the first quarter of fiscal2003.  While we reported higher grossprofits due to higher sales volume, our gross profit as a percentage of salesdecreased.  This reduction was primarilydue to the continued strength in the Euro relative to the U.S. dollar, whichcompressed gross profits on sales from our European subsidiary denominated inU.S. dollars, negatively impacting power supply gross profits.  Additionally, gross profits were negativelyimpacted by lower sales of telecom systems and continuing expenses associatedwith expanding our manufacturing operation in China.

 

Researchand Development, Selling, General and Administrative

 

Wecontinued to increase our investment in research and development(R&D).  R&D expense was $2.8million, or 5.6% of sales, in the first quarter of fiscal 2004 compared to $2.5million, or 5.8% of sales, in fiscal 2003. We continue to invest in new power-electronic platforms and applicationsand expand the breadth of existing product lines.  We also increased spending in fiscal 2004 in new productdevelopment aimed at alternative energy markets.

 

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Selling, general and administrative (SG&A) expensewas $10.5 million (20.8% of sales) in the first three months of fiscal 2004versus $9.5 million (22.1% of sales) in the first three months of fiscal2003.  This increase was mainly due tohigher volume-related selling expense, increased pension expense and higherSG&A expense in China, partially offset by the divestiture of our telecomservice business midway through the first quarter of fiscal 2004 and selectivecost reduction actions in our remaining telecom business.  Also the first quarter of fiscal 2004includes SG&A expenses of Telemotive, acquired in the third quarter offiscal 2003.  Our first quarter fiscal2004 selling expenses were $4.0 million, versus $4.1 million in the firstquarter of fiscal 2003, due to increased commission expense offset by thedivestiture of our telecom service business and reduced advertisingexpenses.  Our first quarter fiscal 2004pension expense was $1.0 million compared to a prior year first quarter expenseamount of $0.4 million.  We expect thishigher level of pension expense to occur throughout fiscal 2004.

 

First quarter fiscal 2003 results include anonrecurring pre-tax gain of $27.8 million related to the termination of ourretiree medical plan.  The financialimpact in subsequent fiscal quarters has been a reduction of income from operationsof approximately $0.4 million, due to elimination of the amortization creditassociated with the related liability. However, we have realized a positive quarterly cash impact.  We continue to review all benefit programsto ensure that they are appropriate given the competitive environment and thecurrent size of the company.

 

Income (Loss) fromOperations

 

Asa result of the above items, our operating loss for the first quarter of fiscal2004 was $3.0 million compared to operating income of $25.6 million for thefirst quarter of fiscal 2003.  Excludingthe nonrecurring gain from termination of our retiree medical plan, we had aloss from operations of $2.2 million in the first quarter of fiscal 2003.  The increased operating loss is due tohigher spending in R&D and SG&A, which offset incremental gross profitgenerated by the higher sales volume in fiscal 2004.

 

Interestand Other Expense (Income)

 

Interestexpense was $0.3 million in the first quarter of fiscal 2004 compared tointerest expense of $0.1 million in the first quarter of fiscal 2003.  The increase in interest expense over theprior year is due to higher outstanding debt balances.  Other expense in the first quarter of fiscal2004 includes $0.4 million related to the write off of deferred financingamounts under our prior bank agreement, which was replaced during the firstquarter of fiscal 2004, as well as amortization of deferred financing.  Fiscal 2003 first quarter other expenseincludes $0.1 million related to amortization of deferred financing amounts.

 

NetIncome (Loss)

 

Ournet loss was $3.6 million in the first quarter of fiscal 2004, compared to netincome of $15.7 million, including the impact of the nonrecurring gain, in thefirst quarter of fiscal 2003.  Excludingthe nonrecurring gain, we would have recorded an after-tax loss of $1.4 millionin fiscal 2003.  We did not record a taxbenefit on our pretax loss in the first quarter of fiscal 2004, and weanticipate that no amounts for income taxes will be recorded in future periodsuntil results reflect pretax income. The tax provision in the first quarter of fiscal 2003 was $9.6 million(38% effective rate).

 

Liquidityand Capital Resources

 

Ourcash balance decreased $0.3 million in the first quarter of fiscal 2004, from$1.7 million at June 30, 2003 to $1.4 million at September 30, 2003.  Our primary sources of cash in the firstthree months of fiscal 2004 were proceeds of $1.2 million from the sale of ourtelecom service business and $0.4 million provided by operating activities.  Our primary uses of cash for the same periodwere for repayment of bank obligations of $0.8 million, costs incurred inrefinancing our bank debt of $0.4 million and capital expenditures of $0.8million.  We anticipate that our capitalexpenditures for the fiscal year will be less than $8.0 million.

 

Asof September 30, 2003, long-term borrowings (including current portion) were$25.9 million, a reduction of $0.8 million from borrowings of $26.7 million asof June 30, 2003.  In August 2003, wereplaced our then-existing credit facility with an asset based credit agreement(“Credit Agreement”) with Bank One.  Theaggregate lending commitment under the Credit Agreement is $19.0 million withavailable borrowings determined by a borrowing base as defined in theagreement, supported by eligible domestic accounts receivable andinventory.  Borrowings under the CreditAgreement bear interest at the bank’s prime lending rate plus one percent or,at our option, the London Interbank Offering Rate (LIBOR) plus three andone-quarter percent.  Borrowings underthe Credit Agreement are secured by substantially all of the Company’s NorthAmerican assets.  This facility alsosupports the issuance of letters of credit. As of September 30, 2003, we had $8.1 million of borrowings outstandingunder the facility.

 

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Additionally,our European subsidiary maintains revolving borrowing arrangements with localbanks, primarily to support working capital needs.  Available borrowings under these arrangements aggregateapproximately Euro 20.0 million depending in part upon levels of accountsreceivable, and bear interest at various rates ranging from 2% to 8%.  During the first quarter of fiscal 2004, ourEuropean subsidiary entered into an agreement with a European bank to provideborrowings secured by the subsidiary’s land and building over a ten yearperiod.    Borrowings under thisagreement bear interest at EURIBOR plus one and one-half percent.  The initial commitment to lend under thisagreement is Euro 7.0 million, with the commitment reduced ratably on aquarterly basis beginning March 31, 2004 and ending September 30, 2013.  Amounts outstanding at September 30, 2003under all of our European bank lending agreements were $17.8 million.

 

Asa result of the decline in interest rates and stock market equity values overthe past two years, the accumulated benefit obligation of our defined benefitpension plan exceeds plan assets as of the end of September 30, 2003.  The amount and timing of futurecontributions to the plan are dependent upon values in equity and fixed incomemarkets, and to a lesser extent, the level of interest rates.  While no contributions were mandated, we didelect to contribute 535,000 shares of our common stock, valued at approximately$2.4 million, to the plan during the first quarter of fiscal 2004.

 

On October 8, 2003, weentered into agreements with a small number of investors to purchase 4.2million shares of our common stock at a discount of 8% from the $5.10 closingprice on that date.  On October 17, 2003we issued the shares, receiving aggregate proceeds, net of fees and expenses,of approximately $18.5 million.  Theproceeds were used to repay debt.  Wehave agreed to register the shares for resale.

 

Basedupon current plans and business conditions, management believes that borrowingcapacity under our revolving loan facilities and internally generated cashflows will be sufficient to fund anticipated working capital needs, capitalexpenditures, and other near-term commitments during the next twelve months.

 

 

ITEM 3

 

## QUALITATIVE ANDQUANTITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposedto market risks in the areas of foreign exchange and interest rates.  To mitigate the effect of such risks, theCompany selectively uses specific financial instruments. Hedging transactionscan be entered into under Company policies and procedures and are monitoredmonthly. Company policy clearly prohibits the use of such financial instrumentsfor trading or speculative purposes. There have been no material changes in the reported market risks sincethat reported in the Company’s Annual Report on Form 10-K dated June 30, 2003.

**               **Interest Rates

The fair value of the Company’s debt was $25.9 million at September 30,2003.  The fair value of the Company’sdebt is equal to the borrowings outstanding from domestic and foreign banks andsmall amounts owed under capital lease arrangements. Prospectively, the Companydoes not consider there to be material risk due to changes in the interest ratestructure of borrowing rates applicable to such debt. For the Company’s debtoutstanding at September 30, 2003, a hypothetical 10% adverse change ininterest rates would not have had a material impact on the Company’s pre-taxearnings and cash flow due to relatively low variable interest rates.

**               **Foreign Currency Exchange Rates

The Company may selectively enter into foreign exchange contracts tohedge certain balance sheet exposures in Europe.  The Company had no foreign currency contracts outstanding atSeptember 30, 2003.

 

 

 

ITEM 4

 

CONTROLS AND PROCEDURES

 

Evaluation of DisclosureControls and Procedures

 

An evaluation of theCompany’s disclosure controls and procedures was performed by management within90 days of the filing of this report, with the participation of the ChiefExecutive Officer (CEO) and the Chief Financial Officer (CFO).  Based on this evaluation, the CEO and CFObelieve the Company’s disclosure controls and procedures are effective as ofSeptember 30, 2003.

 

15

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Changes in InternalControls

 

In the quarter endedSeptember 30, 2003, there were no significant changes in the Company’s internalcontrols or in other factors that could significantly affect these controls, includingany corrective actions with regard to significant deficiencies and materialweaknesses.

 

 

 

 

PART II                 OTHERINFORMATION

 

ITEM 1.                  LegalProceedings

 

                                See Part I, Item 1, Note 4.

 

 

ITEM4.                  Submission of Matters to a Vote ofSecurity Holders

 

(a)                                     TheAnnual Meeting of Stockholders of the Company was held on October 29, 2003.

 

(b)                                    Thefollowing named persons were elected as directors at such meeting:

| Andrew G. Galef   |
|-------------------|
| Thomas G. Boren   |
| Dewain K. Cross   |
| Paul J. Kofmehl   |
| Mitchell I. Quain |
| Robert E. Wycoff  |

 

 

(c)                                     Thevotes cast for and withheld with respect to each nominee for director are asfollows:

 

 

| **Nominee**        |   | **For**    |   | **Against** |   |
|--------------------|--------|------------|--------|-------------|--------|
|               |   |       |   |        |   |
| Andrew G. Galef    |   | 20,074,350 |   | 448,572     |   |
| Thomas G. Boren    |   | 20,378,797 |   | 144,125     |   |
| Dewain K. Cross    |   | 20,361,776 |   | 161,146     |   |
| Paul J. Kofmehl    |   | 20,377,960 |   | 144,962     |   |
| Mitchell I.  Quain |   | 20,379,382 |   | 143,540     |   |
| Robert E. Wycoff   |   | 20,072,887 |   | 450,035     |   |

 

 

 

 

ITEM6.                  Exhibits and Reports on Form 8-K

 

(a)                                  Indexto Exhibits

 
| 4.1    |   | Registration  Rights Agreement dated as of June 26, 2002, between the Company and U.S.  Trust Company, N.A.                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.2    |   | Agreement  for Registration Rights dated as of September 15, 2003, between the Company  and SEI Private Trust Company                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1   |   | Credit  Agreement dated as of August 15, 200, among the Company, MagneTek ADS Power,  Inc., a Delaware corporation (“ADS Power”), Maxtec International Corp., a  Delaware corporation (“Maxtec”; and, together with the Company and ADS Power,  the “Borrowers”), MXT Holdings, Inc., an Illinois corporation (“MXT  Holdings”), MAGNETEK Mondel Holding, Inc., a Delaware corporation (“Mondel  Holding”), MagneTek Leasing Corporation, a Delaware corporation |

 

 

16

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|   |   | (“Leasing”),  MagneTek National Electric Coil, Inc., a Delaware corporation (“Coil”),  Mondel ULC, an unlimited liability company organized under the laws of the  Province of Nova Scotia, Canada, and Bank One, NA (the “Lender”). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                               |
| 10.2   |   | Pledge  and Security Agreement dated as of August 15, 2003 between the Company and  the Lender.                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                               |
| 10.3   |   | Pledge  and Security Agreement dated as of August 15, 2003 between ADS Power and the  Lender.                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                               |
| 10.4   |   | Pledge  and Security Agreement dated as of August 15, 2003 between Maxtec and the  Lender.                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                               |
| 10.5   |   | Pledge  and Security Agreement dated as of August 15, 2003 between MXT Holdings and  the Lender.                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                               |
| 10.6   |   | Pledge  and Security Agreement dated as of August 15, 2003 between Mondel Holding and  the Lender.                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                               |
| 10.7   |   | Pledge  and Security Agreement dated as of August 15, 2003 between Leasing and the  Lender.                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                               |
| 10.8   |   | Pledge  and Security Agreement dated as of August 15, 2003 between Coil and the  Lender.                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                               |
| 10.9   |   | Change  of Control Agreement Dated July 29, 2003 between Marty J. Schwenner and the  Company.                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                               |
| 31.1   |   | Certification of the  Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange  Act of 1934                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                               |
| 31.2   |   | Certification of the  Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange  Act of 1934                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                               |
| 32.1   |   | Certification of the  Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                            |
|   |   |                                                                                                                                                                                                                                                               |
| 32.2   |   | Certification of the  Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                            |

 

 

(b)                                 Reportson Form 8-K

 

Form 8-K filed July 3, 2003, announcing theCompany received an extension of waivers of certain covenants in its existingcredit agreement with its domestic banks.

 

Form8-K filed August 1, 2003, announcing the Company received a commitment letterfor North American refinancing.

 

Form 8-K filed August 14, 2003, announcing theoccurrence of B. Riley & Co. Investor Conference.

 

Form8-K filed August 18, 2003, announcing the divestiture of the Company’s non-coretelecom service business.

 

Form8-K/A filed August 19, 2003, announcing that the Company had completed itsNorth American refinancing.

 

Form 8-K filed August 19, 2003, announcing theCompany had executed an agreement with Bank One Corporation, replacingMagnetek’s existing credit line with a new asset-based credit facility.

 

Form 8-K filed August 21, 2003, announcing theCompany’s 2003 fourth quarter and year end results.

 

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                    |   | MAGNETEK,  INC.                 |
|-------------------------|--------|---------------------------------|
|                    |   | (Registrant)                    |
|                    |   |                            |
|                    |   |                            |
|                    |   |                            |
| Date: November  4, 2003 |   | /s/ David P. Reiland            |
|                    |   | David P. Reiland                |
|                    |   | Executive Vice President        |
|                    |   | and Chief Financial Officer     |
|                    |   | (Duly authorized officer of the |
|                    |   | registrant and principal        |
|                    |   | financial officer)              |
|                         |        |                                 |  |

 

 

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