Table of Contents

 

 

 

**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,D. C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

| **x**                                                        | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**   |
|--------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                         |       |                                                                                                     |
| **For the  quarterly period ended: September 28, 2008** |
|                                                         |       |                                                                                                     |
| **OR**                                                       |
|                                                         |       |                                                                                                     |
| **o**                                                        | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from                              **

 

**Commission file number 1-10233**

 

**MAGNETEK,INC.**

(Exact name ofRegistrant as specified in its charter)

 

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

 

**N49 W13650 Campbell Drive**

**MenomoneeFalls, Wisconsin  53051**

(Address ofprincipal executive offices)

 

**(262)783-3500**

(Registrant’stelephone number, including area code)

 

 

(Former name,former address and former fiscal year,

if changed sincelast report)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

Yes  x   No  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  Seedefinition of “accelerated filer,” “large accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 
| Large accelerated filer  o | Accelerated filer x | Non-accelerated filer o | Smaller Reporting  Company o |
|----------------------------|---------------------|-------------------------|------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o   No  x

 

The number of shares outstanding ofRegistrant’s Common Stock, as of October 24, 2008, was 30,659,151 shares.

 

 

 

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Table of Contents

 

2009 MAGNETEK FORM 10-Q

 

TABLE OF CONTENTSFOR THE QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCALQUARTER ENDED SEPTEMBER 28, 2008

 

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 1A.Risk Factors |
| Item 2.              | Unregistered  Sales of Equity Securities and Use of Proceeds                                |
| Item 3.              | Defaults upon  Senior Securities                                                            |
| Item 4.              | Submission of  Matters to a Vote of Security Holders                                        |
| Item 5.              | Other Information                                                                           |
| Item 6.              | Exhibits                                                                                    |
|                 |                                                                                        |
| Signatures           |

 

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**PART I.  FINANCIAL INFORMATION**

 

**Item 1 –Financial Statements**

 

MAGNETEK, INC.

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts inthousands, except per share data, unaudited)

 
| ** **                                                           | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                           | ** ** | **(13 Weeks)**              | ** ** | **(13 Weeks)** | ** ** |
| ** **                                                           | ** ** | **September 28,**           | ** ** | **September 30,** | ** ** |
| ** **                                                           | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                                                 |       |                             |       |   |   |
| Net sales                                                            |       | $                                | 26,351     |   | $ | 22,799 |   |
| Cost of sales                                                        |       | 16,906                           |       | 15,946 |   |
| Gross profit                                                         |       | 9,445                            |       | 6,853 |   |
|                                                                 |       |                             |       |   |   |
| Operating  expenses:                                                 |       |                             |       |   |   |
| Research and  development                                            |       | 870                              |       | 780 |   |
| Selling, general  and administrative                                 |       | 6,544                            |       | 4,937 |   |
| Income from  operations                                              |       | 2,031                            |       | 1,136 |   |
|                                                                 |       |                             |       |   |   |
| Non operating  expense (income):                                     |       |                             |       |   |   |
| Interest expense                                                     |       | —                           |       | 144 |   |
| Interest income                                                      |       | (67                              | )          | (356 | ) |
| Income from  continuing operations before provision for income taxes |       | 2,098                            |       | 1,348 |   |
|                                                                 |       |                             |       |   |   |
| Provision for  income taxes                                          |       | 362                              |       | 304 |   |
| Income from  continuing operations                                   |       | 1,736                            |       | 1,044 |   |
|                                                                 |       |                             |       |   |   |
| Loss from  discontinued operations, net of tax                       |       | (855                             | )          | (545 | ) |
|                                                                 |       |                             |       |   |   |
| Net income                                                           |       | $                                | 881        |   | $ | 499 |   |
|                                                                 |       |                             |       |   |   |
| Earnings (loss)  per common share                                    |       |                             |       |   |   |
|                                                                 |       |                             |       |   |   |
| Basic and  diluted:                                                  |       |                             |       |   |   |
| Earnings from  continuing operations                                 |       | $                                | 0.06       |   | $ | 0.03 |   |
|                                                                 |       |                             |       |   |   |
| Loss from discontinued  operations                                   |       | $                                | (0.03      | ) | $ | (0.02 | ) |
|                                                                 |       |                             |       |   |   |
| Net income                                                           |       | $                                | 0.03       |   | $ | 0.02 |   |
|                                                                 |       |                             |       |   |   |
| Weighted average  shares outstanding:                                |       |                             |       |   |   |
| Basic                                                                |       | 30,637                           |       | 30,144 |   |
|                                                                 |       |                             |       |   |   |
| Diluted                                                              |       | 30,873                           |       | 30,404 |   |

 

See accompanyingnotes

 

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MAGNETEK, INC.

CONDENSEDCONSOLIDATED BALANCE SHEETS

 (Amounts in thousands)

 
| ** **                                       | ** ** | **September 28,** | ** ** | **June 29,** | ** ** |
|--------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                       | ** ** | **2008**               | ** ** | **2008**          | ** ** |
| ** **                                       | ** ** | **(Unaudited)**        | ** ** | ** **        | ** ** |
| ASSETS                                           | ** ** | ** **             | ** ** | ** **        | ** ** |
| ** **                                       | ** ** | ** **             | ** ** | ** **        | ** ** |
| Current assets:                                  |       |                   |       |              |       |
| Cash and cash  equivalents                       |       | $                      | 15,936     |              | $          | 15,210 |   |
| Restricted cash                                  |       | 261                    |       | 256               |       |
| Accounts  receivable, net                        |       | 16,973                 |       | 18,600            |       |
| Inventories                                      |       | 14,769                 |       | 12,525            |       |
| Prepaid expenses  and other current assets       |       | 3,184                  |       | 2,133             |       |
| Assets held for  sale                            |       | —                 |       | 1,288             |       |
| Total current  assets                            |       | 51,123                 |       | 50,012            |       |
|                                             |       |                   |       |              |       |
| Property, plant  and equipment                   |       | 20,088                 |       | 20,147            |       |
| Less:  accumulated depreciation                  |       | 16,138                 |       | 16,054            |       |
| Net property,  plant and equipment               |       | 3,950                  |       | 4,093             |       |
|                                             |       |                   |       |              |       |
| Goodwill                                         |       | 30,446                 |       | 30,464            |       |
| Other assets                                     |       | 6,379                  |       | 6,978             |       |
| Total Assets                                     |       | $                      | 91,898     |              | $          | 91,547 |   |
|                                             |       |                   |       |              |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY       |       |                   |       |              |       |
|                                             |       |                   |       |              |       |
| Current  liabilities:                            |       |                   |       |              |       |
| Accounts payable                                 |       | $                      | 10,309     |              | $          | 10,407 |   |
| Accrued  liabilities                             |       | 8,732                  |       | 7,740             |       |
| Current portion  of long-term debt               |       | 9                      |       | 9                 |       |
| Total current  liabilities                       |       | 19,050                 |       | 18,156            |       |
|                                             |       |                   |       |              |       |
| Long-term debt,  net of current portion          |       | 17                     |       | 12                |       |
|                                             |       |                   |       |              |       |
| Pension benefit  obligations, net                |       | 34,649                 |       | 37,638            |       |
| Other long term  obligations                     |       | 1,939                  |       | 1,947             |       |
| Deferred income  taxes                           |       | 4,218                  |       | 3,993             |       |
|                                             |       |                   |       |              |       |
| Commitments and  contingencies                   |       |                   |       |              |       |
|                                             |       |                   |       |              |       |
| Stockholders’  equity                       |       |                   |       |              |       |
| Common stock                                     |       | 306                    |       | 306               |       |
| Paid in capital  in excess of par value          |       | 137,172                |       | 136,864           |       |
| Accumulated  deficit                             |       | (3,923                 | )          | (4,804            | )          |
| Accumulated  other comprehensive loss            |       | (101,530               | )          | (102,565          | )          |
| Total  stockholders’ equity                 |       | 32,025                 |       | 29,801            |       |
|                                             |       |                   |       |              |       |
| Total  Liabilities and Stockholders’ Equity |       | $                      | 91,898     |              | $          | 91,547 |   |

 

See accompanyingnotes

 

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MAGNETEK, INC.

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOW

 (Amounts in thousands, unaudited)

 
| ** **                                                                                                 | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                 | ** ** | **(13 Weeks)**              | ** ** | **(13 Weeks)** | ** ** |
| ** **                                                                                                 | ** ** | **September 28,**           | ** ** | **September 30,** | ** ** |
| ** **                                                                                                 | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Cash flows from  continuing operating activities:                                                          |       |                             |       |   |   |
| Income from  continuing operations                                                                         |       | $                                | 1,736      |   | $ | 1,044 |   |
| Adjustments to  reconcile income from continuing operations to net cash provided by operating  activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                                             |       | 282                              |       | 416 |   |
| Stock based  compensation expense                                                                          |       | 222                              |       | 96 |   |
| Pension expense                                                                                            |       | 846                              |       | 47 |   |
| Changes in  operating assets and liabilities                                                               |       | 1,065                            |       | (159 | ) |
| Cash  contribution to pension fund                                                                         |       | (2,755                           | )          | — |   |
|                                                                                                       |       |                             |       |   |   |
| Total  adjustments                                                                                         |       | (340                             | )          | 400 |   |
| Net cash  provided by continuing operating activities                                                      |       | 1,396                            |       | 1,444 |   |
|                                                                                                       |       |                             |       |   |   |
| Cash flows from  investing activities:                                                                     |       |                             |       |   |   |
| Deposit into  escrow account                                                                               |       | (5                               | )          | (870 | ) |
| Capital  expenditures                                                                                      |       | (323                             | )          | (385 | ) |
| Net cash used in  investing activities                                                                     |       | (328                             | )          | (1,255 | ) |
|                                                                                                       |       |                             |       |   |   |
| Cash flow from  financing activities:                                                                      |       |                             |       |   |   |
| Proceeds from  issuance of common stock                                                                    |       | 86                               |       | 199 |   |
| Borrowings under  capital lease obligations                                                                |       | 8                                |       | — |   |
| Principal  payments under capital lease obligations                                                        |       | (3                               | )          | (3 | ) |
| Net cash  provided by financing activities                                                                 |       | 91                               |       | 196 |   |
|                                                                                                       |       |                             |       |   |   |
| Cash flows from  discontinued operations:                                                                  |       |                             |       |   |   |
| Used in  operating activities                                                                              |       | (433                             | )          | (1,527 | ) |
| Cash used in  discontinued operations                                                                      |       | (433                             | )          | (1,527 | ) |
|                                                                                                       |       |                             |       |   |   |
| Net increase  (decrease) in cash                                                                           |       | 726                              |       | (1,142 | ) |
| Cash at the  beginning of the period                                                                       |       | 15,210                           |       | 5,404 |   |
|                                                                                                       |       |                             |       |   |   |
| Cash at the end  of the period                                                                             |       | $                                | 15,936     |   | $ | 4,262 |   |

 

See accompanyingnotes

 

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MAGNETEK, INC.

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 28, 2008

(Amounts inthousands unless otherwise noted, except per share data, unaudited)

 

**1.****                                      Summaryof Significant Accounting Policies**

 

Profile

 

Magnetek, Inc.(the “Company” or “Magnetek”) is a global provider of digital power controlsystems that are used to control motion and power primarily in materialhandling, elevator and energy delivery applications.  The Company’s products consist primarily ofprogrammable motion control and power conditioning systems used on thefollowing applications: overhead cranes and hoists; elevators; coal miningequipment; and alternative energy.

 

Basis of Presentation

 

The accompanyingunaudited condensed consolidated financial statements include the accounts ofMagnetek, Inc. and its subsidiaries. All significant intercompany accounts and transactions have beeneliminated.

 

The accompanying unaudited condensedconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States for interimfinancial reporting and with the instructions to Form 10-Q and Article 10of Regulation S-X.  Accordingly, they donot include all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  For further information, refer to thefinancial statements and footnotes thereto included in the Company’s Form 10-Kfor the year ended June 29, 2008 filed with the Securities and ExchangeCommission (the “SEC”).  In the Company’sopinion, these unaudited statements contain all adjustments, consisting ofnormal recurring adjustments, necessary to present fairly the financialposition of the Company as of September 28, 2008, and the results of itsoperations and cash flows for the three-month periods ended September 28,2008 and September 30, 2007. Results for the three-months ended September 28,2008 are not necessarily indicative of results that may be experienced for thefull fiscal year.

 

The Company uses afifty-two, fifty-three week fiscal year ending on the Sunday nearest to June 30.  Fiscal quarters are the 13 or 14 week periodsending on the Sunday nearest September 30, December 31, March 31and June 30.  The three-monthperiods ended September 28, 2008 and September 30, 2007 eachcontained 13 weeks.

 

Useof Estimates - The preparation offinancial statements in accordance with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from those estimates.

 

Recent AccountingPronouncements – In September 2006,the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, *Fair Value Measurements*(“SFAS 157”). SFAS 157 defines fairvalue, establishes a framework for measuring fair value in accordance withgenerally accepted accounting principles, and expands disclosures about fairvalue measurements.  SFAS 157 establishes a three-levelhierarchy for fair value measurements to prioritize the inputs used in thevaluation techniques to derive fair values. The basis for fair value measurementsfor each level within the hierarchy is described below with Level 1 having thehighest priority and Level 3 having the lowest.

 

Level 1: Quoted prices inactive markets for identical assets or liabilities.

 

Level 2: Quoted pricesfor similar assets or liabilities in active markets; quoted prices foridentical or similar instruments in markets that are not active; andmodel-derived valuations in which all significant inputs are observable inactive markets.

 

Level 3: Valuationsderived from valuation techniques in which one or more significant inputs areunobservable.

 

The Companyadopted SFAS 157 effective June 30, 2008. The Company’s assets and liabilities measured at fair value on arecurring basis subject to the presentation requirements of SFAS 157 at September 28,2008 consisted of cash and cash equivalents. Cash and cash equivalents are comprised of bank deposits and short-terminvestments, such as money market funds, the fair value of which is based onquoted market prices, a Level 1 fair value measure.  The adoption of SFAS 157 did not have amaterial effect on the Company’s financial position, results of operations orcash flows.

 

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In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities – including an amendment of FASBStatement No. 115* (“SFAS 159”). SFAS 159 provides companieswith an option to report selected financial assets and financial liabilities atfair value. Unrealized gains and losses on items for which the fair valueoption has been elected are reported in earnings at each subsequent reportingdate. The Company adopted SFAS 159 effective June 30, 2008.  The Company has not elected to measure anyfinancial assets and financial liabilities at fair value which were notpreviously required to be measured at fair value. Therefore, the adoption ofthis standard had no impact on the Company’s consolidated financial position,results of operations or cash flows.

 

In August 2008, theSEC announced that it will issue for comment a proposed roadmap regarding thepotential use of International Financial Reporting Standards (“IFRS”) for thepreparation of financial statements by U.S. registrants. IFRS are standards andinterpretations adopted by the International Accounting Standards Board. Underthe proposed roadmap, the Company would be required to prepare financialstatements in accordance with IFRS in fiscal 2014, including comparativeinformation also prepared under IFRS for fiscal 2013. The Company is currentlyassessing the potential impact of IFRS on its financial statements and willcontinue to follow the proposed roadmap for future developments.

 

Reclassifications– Certain prior year balances were reclassified to conform to the current yearpresentation, mainly the reclassification of the Company’s telecom powersystems (“TPS”) business results of operations from continuing operations todiscontinued operations.

 

**2.**                                      **Discontinued Operations**

 

In April 2008, theCompany committed to a plan to divest its TPS business, which manufacturesbackup power systems for wireless applications. As a result, the Company reclassified the assets to be disposed of,primarily inventory, as held for sale at June 29, 2008, and classified theoperating results of the business as discontinued operations.  In September 2008, the Company completedthe sale of the assets of the TPS business to Myers Power Products, Inc. (“Myers”).  The purchase price of $1.25 million isincluded in prepaid expenses and other current assets in the accompanyingcondensed consolidated balance sheet as of September 28, 2008, and waspaid by Myers to the Company subsequent to the end of the Company’s firstfiscal quarter.  The Company recorded aloss of $0.5 million related to the divestiture, included in results ofdiscontinued operations for the three months ended September 28, 2008,comprised mainly of future lease costs and the write-off of certain telecomfixed assets.

 

In addition,certain expenses incurred related to businesses the Company no longer owns areclassified as discontinued operations. The results of discontinued operations are as follows:

 
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                          | ** ** | **September 28,**           | ** ** | **September 30,** | ** ** |
| ** **                                          | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Net sales - TPS  business                           |       | $                                | 1,503      |   | $ | 3,311 |   |
|                                                |       |                             |       |   |   |
| Loss from  discontinued operations - TPS business   |       | $                                | (89        | ) | $ | (211 | ) |
| Loss on disposal  of TPS business                   |       | (521                             | )          | — |   |
| Expenses related  to previously divested businesses |       | (245                             | )          | (334 | ) |
| Loss from  discontinued operations                  |       | $                                | (855       | ) | $ | (545 | ) |

 

The condensedconsolidated balance sheet as of September 28, 2008 includes certainaccrued liabilities which represent the Company’s best estimate of remainingcontingent liabilities related to indemnification provisions included in saleagreements of divested businesses.  Whilemanagement has used its best judgment in assessing the potential liability forthese items, given the uncertainty regarding future events, it is difficult toestimate the possible timing or magnitude of any payments that may be requiredfor liabilities subject to indemnification. Any future adjustment to currently recorded contingencies related toindemnification claims or payments based upon changes in circumstances would berecorded as a gain or loss in discontinued operations.

 

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**3.****                                      Inventories**

 

Inventories consist ofthe following:

 
| ** **                     | ** ** | **September 28,** | ** ** | **June 29,** | ** ** |
|--------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                     | ** ** | **2008**               | ** ** | **2008**          | ** ** |
| Raw materials  and stock parts |       | $                      | 9,317      |              | $          | 7,676 |   |
| Work-in-process                |       | 1,119                  |       | 1,071             |       |
| Finished goods                 |       | 4,333                  |       | 3,778             |       |
|                           |       | $                      | 14,769     |              | $          | 12,525 |   |

 

**4.****                                      Commitmentsand Contingencies**

 

**Litigation—ProductLiability**

 

The Company isinvolved in a product liability lawsuit related to the Telemotive IndustrialControls business acquired in December 2002 through the purchase of thestock of MXT Holdings, Inc. (“MXT”). The lawsuit was initially filed by Robert Redman in Cook County,Illinois in 1998 against MXT and other defendants, but now is pending onlyagainst MXT and Electromotive Systems, Inc, a non-affiliated third party.  The claim pre-dated the acquisition and wastendered to 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.  The lawsuit seeksdamages for personal injuries allegedly incurred by Mr. Redman due to anallegedly defective radio control product manufactured by MXT.  Management believes that the insurers willbear all liability, if any, with respect to the case and that theproceeding will not have a material adverse effect on the Company’s results ofoperations or financial position.

 

In August 2006,Pamela L. Carney, Administrator of the Estate of Michael J. Carney, filed alawsuit in the Court of Common Pleas of Westmoreland County, Pennsylvania,against the Company and other defendants, alleging that a product manufacturedby the Telemotive Industrial Controls business acquired by the Company in December 2002contributed to an accident that resulted in the death of Michael J. Carney in August 2004.  The claim has been tendered to the Company’sinsurance carrier and legal counsel has been retained to represent theCompany.  Plaintiff’s claim for damagesis unknown at this time, but management believes that its insurers will bearall liability in excess of deductible amounts for the claim, if any.

 

The Company hasbeen named, 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 to theseclaims, the Company is either contractually indemnified against liability forasbestos-related claims or believes that it has no liability for such claims.The Company aggressively seeks dismissal from these proceedings, and has alsotendered the defense of these cases to the insurers for the companies fromwhich Magnetek acquired the businesses. Management does not believe the asbestos proceedings, individually or inthe aggregate, will have a material adverse effect on its financial position,results of operations or cash flows.

 

**Litigation—Other**

 

In November 2007,a lawsuit was filed by Antonio Canova in Italy, in the Court of Arezzo, LabourLaw Section, against the Company and Power-One Italy, S.p.A.  Mr. Canova is a former Executive VicePresident of the Company and was Deputy Chairman and Managing Director of theCompany’s former Italian subsidiary, Magnetek S.p.A.  Mr. Canova asserted claims for damagesin the amount of 3.5 million Euros (approximately $4.7 million USD) allegedlyincurred in connection with the termination of his employment at the time ofthe sale of the Company’s power electronics business to Power-One, Inc. inOctober 2006.  The Company’s replybrief was filed in March 2008.  TheCompany believes the claim is without merit and intends to vigorously defendagainst it.

 

**EnvironmentalMatters - General**

 

From time to time,Magnetek has taken action to bring certain facilities associated withpreviously owned businesses into compliance with applicable environmentallaws and regulations. Upon the subsequent sale of certain businesses, theCompany agreed to indemnify the buyers against environmental claims associatedwith the divested operations, subject to certain conditions and limitations.Remediation activities, including those related to the Company’sindemnification obligations, did not involve material expenditures during thefirst quarter of fiscal years 2009 or 2008.

 

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The Company hasalso been identified by the United States Environmental Protection Agency andcertain state agencies as a potentially responsible party for cleanup costsassociated with alleged past waste disposal practices at several previouslyowned or leased facilities and offsite locations. Its remediation activities asa potentially responsible party were not material in the first quarter offiscal years 2009 or 2008.  Although themateriality of future expenditures for environmental activities may be affectedby the level and type of contamination, the extent and nature of cleanupactivities required by governmental authorities, the nature of the Company’s allegedconnection to the contaminated sites, the number and financial resources ofother potentially responsible parties, the availability of indemnificationrights against third parties and the identification of additional contaminatedsites, the Company’s estimated share of liability, if any, for environmentalremediation, including its indemnification obligations, is not expected to bematerial.

 

*Environmental- Effect of Fruit of the Loom Bankruptcy (Bridgeport, Connecticut)*

 

In 1986, theCompany acquired the stock of Universal Manufacturing Company (“Universal”)from a predecessor 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 indemnification agreement includecompletion of additional cleanup activities, if any, at the Bridgeport facilityand defense and indemnification against liability for potential response costsrelated to offsite disposal locations. The Company’s leasehold interest in theBridgeport facility was assigned to the buyer in connection with the sale ofthe Company’s transformer business in June 2001.  FOL, the successor to the indemnificationobligation, filed a petition for Reorganization under Chapter 11 of theBankruptcy 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 benefits and Magnetekwithdrew its claims in the bankruptcy proceeding. FOL’s obligation to the stateof Connecticut was not discharged in the reorganization proceeding.

 

In October 2006,the owner of the Bridgeport facility filed a lawsuit in Superior Court, J.D. ofFairfield, Connecticut alleging that the Company is obligated to remediateenvironmental contamination at the facility. The case was transferred to the Complex Litigation Division of theCourt, which subsequently denied motions for summary judgment filed by theplaintiff, The Sergy Company, LLC (“Sergy”), as well as the counter motion forsummary judgment filed by the Company. Sergy’s amended complaint alleges a breach of lease obligations andviolation of Connecticut environmental statutory requirements, whichallegations were denied in the Company’s amended answer, affirmative defensesand counterclaims.  The case is in thediscovery and motions phase, and Sergy recently filed a motion to amend thecomplaint to include additional claims against the Company under theConnecticut Transfer Act.  The Company’srequest to add additional potentially responsible parties as defendants wasgranted by the Court, and the Company subsequently filed declaratory judgment complaintsrelating to two potentially responsible parties.  In January 2007, the ConnecticutDepartment of Environmental Protection (“DEP”) requested parties, including theCompany, to submit reports summarizing the investigations and remediationperformed to date at the site and the proposed additional investigations andremediation necessary to complete those actions at the site.  The DEP requested additional information fromthe Company relating to site investigations and remediation. The Company hasretained an environmental consultant to review and prepare a report onhistorical operations and environmental activities at the Bridgeportfacility.  An action filed by DEP againstthe Company and Sergy is described below in Part II, Item 1, LegalProceedings.  The Company has a liabilityof $0.3 million related to the Bridgeport facility, representing the Company’sbest estimate of future legal fees and site investigation costs, the majorityof which is expected to be incurred during fiscal 2009.  The liability, included in accruedliabilities in the condensed consolidated balance sheet as of June 29,2008, and September 28, 2008, does not include any estimated remediationcosts.  FOL’s inability to satisfy itsremaining obligations related to the Bridgeport facility and any offsitedisposal locations, or an unfavorable ruling in the lawsuit with the owner ofthe Bridgeport facility, or the discovery of additional environmentalcontamination at the Bridgeport facility could have a material adverse effecton the Company’s financial position, cash flows or results of operations.

 

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**5.****                                      ComprehensiveIncome**

 

For the three monthperiods ended September 28, 2008, and September 30, 2007,comprehensive income consisted of the following:

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **September 28,**           | ** ** | **September 30,** | ** ** |
| ** **                                 | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Net income                                 |       | $                                | 881        |   | $ | 499 |   |
| Change in  unrecognized pension liability  |       | 1,080                            |       | 845 |   |
| Change in  currency translation adjustment |       | (45                              | )          | 188 |   |
| Comprehensive  income                      |       | $                                | 1,916      |   | $ | 1,532 |   |

 

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

 

The following table sets forth thecomputation of basic and diluted earnings (loss) per share for the three-monthsended September 28, 2008, and September 30, 2007:

 
| ** **                                              | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **September 28,**           | ** ** | **September 30,** | ** ** |
| ** **                                              | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Numerator:                                              |       |                             |       |   |   |
| Income from  continuing operations                      |       | $                                | 1,736      |   | $ | 1,044 |   |
| Loss from  discontinued operations                      |       | (855                             | )          | (545 | ) |
| Net income                                              |       | $                                | 881        |   | $ | 499 |   |
|                                                    |       |                             |       |   |   |
| Denominator:                                            |       |                             |       |   |   |
| Weighted average  shares for basic earnings per share   |       | 30,637                           |       | 30,144 |   |
| Add dilutive  effective of stock based compensation     |       | 236                              |       | 260 |   |
| Weighted average  shares for diluted earnings per share |       | 30,873                           |       | 30,404 |   |
|                                                    |       |                             |       |   |   |
| Basic &  Diluted:                              |       |                             |       |   |   |
| Income per share  from continuing operations            |       | $                                | 0.06       |   | $ | 0.03 |   |
| Loss per share  from discontinued operations            |       | $                                | (0.03      | ) | $ | (0.02 | ) |
| Net income per  share                                   |       | $                                | 0.03       |   | $ | 0.02 |   |

 

Outstanding options topurchase 1.6 million and 3.9 million shares of common stock for the threemonths ended September 28, 2008, and September 30, 2007,respectively, have not been included in the Company’s computation of weightedaverage shares for diluted earnings per share because the effect would havebeen anti-dilutive.

 

**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 as incurred.  Changes in the warranty reserve for thethree-month periods ended September 28, 2008, and September 30, 2007,are as follows:

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                            | ** ** | **September 28,**           | ** ** | **September 30,** | ** ** |
| ** **                                            | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Balance,  beginning of fiscal year                    |       | $                                | 493        |   | $ | 305 |   |
| Additions  charged to earnings for product warranties |       | 55                               |       | 233 |   |
| Use of reserve  for warranty obligations              |       | (127                             | )          | (168 | ) |
| Balance, end of  period                               |       | $                                | 421        |   | $ | 370 |   |

 

Warrantyreserves are included in accrued liabilities in the accompanying condensedconsolidated balance sheets.

 

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**8.****                                      PensionExpense**

 

Pension expense relatedto the Company’s defined benefit pension plan for the three-month periods endedSeptember 28, 2008, and September 30, 2007, follows:

 
| ** **                       | ** ** | **Three Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **September 28,**           | ** ** | **September 30,** | ** ** |
| ** **                       | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Interest Cost                    |       | $                                | 2,799      |   | $ | 2,607 |   |
| Expected return  on plan assets  |       | (3,033                           | )          | (3,405 | ) |
| Recognized net  actuarial losses |       | 1,080                            |       | 845 |   |
|                             |       |                             |       |   |   |
| Total net  pension expense       |       | $                                | 846        |   | $ | 47 |   |

 

Pensionexpense is included in selling, general and administrative expense in theaccompanying condensed consolidated statements of operations.  Under current funding regulations, actuarialprojections indicate that the Company will be required to make contributions tothe defined benefit pension plan of approximately $5.1 million during theremainder of fiscal year 2009.

 

**9.****                                     ****Income Taxes**

 

Dueto historical taxable losses, the Company provides valuation reserves againstits U.S. deferred tax assets.  A portionof the Company’s deferred tax liability relates to tax-deductible amortizationof goodwill that is no longer amortized for financial reporting purposes. Thesedeferred tax liabilities are considered to have an indefinite life and aretherefore ineligible to be considered as a source of future taxable income inassessing the realization of deferred tax assets.

 

TheCompany’s provision for income taxes for each of the three-month periods ended September 28,2008 and September 30, 2007 includes $225 of deferred income tax expenserelated to the increase in the Company’s deferred tax liability related totax-deductible amortization of goodwill.  The remaining tax provision is comprised of income taxes of the Company’sforeign subsidiary in Canada.

 

The Company iscurrently evaluating whether ordinary transfers of the Company’s common stockbetween shareholders have resulted in an ownership change as defined in Section 382of the Internal Revenue Code.  If suchownership change has occurred, utilization of the Company’s net operating losscarryforwards may be subject to annual limitation provisions per the InternalRevenue Code and similar state laws. Such an annual limitation could defer theutilization of loss carryforwards, accelerate payment of federal income taxes,and could result in the expiration of a portion of the net operating losscarryforwards before utilization.  Anownership change under Section 382 of the Internal Revenue Code would nothave a material adverse effect on the Company’s results of operations orfinancial position, as the Company has provided a full valuation allowanceagainst all of its deferred tax assets.

 

**10.****                              ****Bank Borrowing Arrangements**

 

In November 2007,the Company entered into an agreement with Associated Bank, N.A. providing fora $10 million revolving credit facility (the “Associated facility”). Borrowings under the Associated facility bear interest at the London InterbankOffering Rate (“LIBOR”) plus 1.5%, with borrowing levels determined by aborrowing base formula as defined in the agreement, which includes the level ofeligible accounts receivable.  The Associated facility also supports theissuance of letters of credit, places certain restrictions on the Company’sability to pay dividends or make acquisitions, and includes covenants whichrequire minimum operating profit levels and limit annual capitalexpenditures.  Borrowings under the Associated facility are collateralizedby the Company’s accounts receivable and inventory.  The Associatedfacility expires in November 2009 unless extended by the parties prior tothat time.  The Company is currently in compliance with all covenants andthere were no amounts outstanding under the Associated facility as of September 28,2008.

 

**Item 2 – Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**Overview**

 

Magnetek, Inc.(“Magnetek,” “the Company,” “we,” or “us” ) is a global provider of digitalpower control systems that are used to control motion and power primarily inmaterial handling, elevator, and energy delivery applications.  Our systems consist primarily of programmablemotion control and power conditioning systems used in the followingapplications:  overhead cranes andhoists; elevators; coal mining equipment; and alternative energy applications,including wind turbines 

 

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andphotovoltaic power systems.   Ourproducts are sold directly or through manufacturers’ representatives tooriginal equipment manufacturers (“OEMs”) for incorporation into theirproducts, to system integrators and value-added resellers for assembly andincorporation into end-user systems, to distributors for resale to OEMs andcontractors, and to end-users for repair and replacement purposes.  We believe that with our technical andproductive resources we are well positioned to respond to increasing demand inour served markets.  We operate in asingle segment, Digital Power Control Systems. Magnetek was founded in July 1984 and is listed on the New YorkStock Exchange (NYSE: MAG).  Ouroperations are located in North America, predominantly in Menomonee Falls,Wisconsin, our Company headquarters.

 

Product offerings formaterial handling applications include drive systems, radio remote controls,and braking, collision-avoidance, and electrification subsystems, soldprimarily to OEMs of overhead cranes and hoists.  We have a significant market share in North Americain alternating current (“AC”) control systems and believe we have growthopportunities in direct current (“DC”) control systems for retrofitapplications, wireless remote controls and in automating existing manualmaterial handling processes.

 

Our product offerings forelevator applications are comprised of highly integrated subsystems and drivesused to control motion primarily in high-rise, high speed elevatorapplications.  Our products are soldmainly to elevator OEMs and we have a significant share of the available marketfor DC drives and subsystems used in high-rise elevators for both new andretrofit projects.  We believe we haveopportunities for growth in available elevator markets by introducing new energy-savingproduct offerings for DC applications, expanding the breadth of our productoffering to include competitive low-end products for lower performance ACapplications, and using our new product offerings to expand geographically.

 

Our product offerings forenergy delivery applications include power inverters for alternative energyapplications, including wind turbines and photovoltaic installations, whichdeliver AC power to the utility grid from generators inside wind turbines orfrom solar panels, or deliver power for consumption at the source.  Both the wind and solar markets are growingrapidly in North America as wind and solar power are becoming increasinglycompetitive from a cost standpoint with more traditional methods of powergeneration.  We believe our productofferings have us well positioned to take advantage of growth in alternativeenergy markets and expect sales of power inverters for alternative energyapplications to be our fastest revenue growth product over the next severalyears.

 

**Continuing Operations**

 

We focus on a variety ofkey indicators to monitor our business performance.  These indicatorsinclude order rates, sales growth, gross profit margin, operating profitmargin, net income, earnings per share, and working capital and cash flowmeasures.   These indicators are comparedto our operating plans as well as to our prior year actual results, and areused to measure our success relative to our company objectives.  Ourcompany objectives are to grow sales at least 10% on a year-over year basis, toachieve 30% gross margins and 10% operating profit margins, and to generatesufficient cash flow to fund our operations and meet our obligations.

 

During the first quarterof fiscal 2009, we achieved 16% year-over-year sales growth from the firstquarter of fiscal 2008 due to continued strong demand for our products as wellas successful introduction and acceptance of new products in our servedmarkets.  First quarter fiscal 2009 saleswere $26.4 million compared to first quarter fiscal 2008 sales of $22.8million, as we experienced year-over-year sales growth in our materialhandling, elevator and energy delivery product lines.  First quarter fiscal 2009 bookings were $31.1million, resulting in a book-to-bill ratio of 118%, reflecting continuingstrength in demand for material handling, elevator and mining products.  We completed production of the remainingunits under our initial order for E-Force wind inverters during the firstquarter of fiscal 2009, and expect to ship those units during the secondquarter of fiscal 2009.  Fiscal 2009first quarter gross margin was 35.8% compared to fiscal 2008 first quartergross margin of 30.1%, and operating profit margin was 7.7% in the firstquarter of fiscal 2009 compared to 5.0% in the first quarter of fiscal2008.  The improvement in gross marginand operating profit margin was mainly due to higher volume and favorable salesmix, partially offset by an increase in our non-cash pension expense of $0.8million in the first quarter of fiscal 2009 compared to the first quarter offiscal 2008.  In addition, our cashbalances increased by $0.7 million during the first quarter of fiscal 2009,even after making a $2.8 million contribution to our defined benefit pensionplan, and we have no debt outstanding as of September 28, 2008.

 

In the fourth quarter offiscal 2008, we classified the assets and liabilities of our telecom powersystems (“TPS”) business as held for sale, and the results of operations of thebusiness as discontinued operations.  Ourtelecom product offerings were focused on providing back-up power for wirelessapplications.  We believe we can betterachieve our sales growth objectives by redirecting certain resources deployedin the TPS business to our product offerings in the material handling, elevatorand energy delivery markets.  Wecompleted the divestiture of the TPS business during the first quarter offiscal 2009 (see Note 2 of Notes to Condensed Consolidated FinancialStatements).

 

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We believe that futureincreased profitability is dependent upon increased sales revenue and continuedimprovement in gross margins.  Our pastsales growth has been, and we believe our fiscal 2009 sales growth willcontinue to be, dependent on continuing strong demand for material handlingproducts and successful introduction and increasing acceptance of new products,mainly in the elevator and alternative energy markets.  Recently introduced product offerings aregaining acceptance with customers in the marketplace, however, the rate ofgrowth is slower than we previously expected. While we believe we can achieve double-digit year-over-year sales growthwith existing product offerings and new product introductions, we may pursueselective external growth opportunities to enhance or expand our productofferings, market channels or technical resources.  In addition, our material handling businessis influenced by cyclical forces in the industrial marketplace.  A cyclical slowdown could negatively impactour sales growth rate, as sales of material handling product offeringscomprised nearly 70% of our sales in fiscal 2008.

 

Gross margins in ourcontinuing operations have historically been near or above 30% and we aretargeting this level of gross margin going forward.  Improvement in gross margins is mainlydependent upon a continuing economic expansion, continued acceptance ofrecently introduced product offerings by the marketplace, and successful costreduction actions related to recently introduced elevator and alternativeenergy product offerings.

 

We intend to focus ourdevelopment and marketing efforts on internal sales growth opportunities acrossall product lines, with an emphasis on energy efficient power products.  While we have continued to focus oncontrolling our operating expenses, these expenses increased in the firstquarter of fiscal 2009 over the first quarter of fiscal 2008, due to increasedsales and marketing expense aimed at enhancing our sales infrastructure acrossall product lines, higher volume-related selling expenses and higher non-cashpension expense, which increased by approximately $0.8 million in the firstquarter of fiscal 2009 over fiscal 2008 levels. The higher pension expense will recur throughout fiscal 2009 and ismainly due to negative returns on plan assets experienced during fiscal 2008.

 

We expect that fiscal2009 operating margin as a percent of sales will likely be comparable to fiscal2008 operating margins of 6.8%, due mainly to higher gross profit offset byhigher pension expense.  Throughutilization of our net operating loss carryforwards for U.S. tax purposes, webelieve the majority of our reported operating profit can be realized as netincome.

 

**Discontinued Operations**

 

As discussed above, theoperating results of our TPS business as well as certain expenses related topreviously divested businesses have been classified as discontinued operationsin the accompanying condensed consolidated financial statements and footnotesfor all periods presented (see Note 2 of Notes to Condensed ConsolidatedFinancial Statements).  Expenses relatedto previously divested businesses have historically included charges for anarbitration award in a patent infringement claim and related legal fees, aswell as certain expenses for environmental matters, asbestos claims and productliability claims (see Note 4 of Notes to Condensed Consolidated FinancialStatements).   All of these issues relate to businesses we no longerown and most relate to indemnification agreements we provided when we divestedthose businesses.

 

Going forward, ourdiscontinued operations could include additional costs we may incur related tobusinesses no longer owned, and may include additional costs above thosecurrently estimated and accrued related to the divestiture of our TPS businessand our power electronics business, divested in October 2006.

 

**CriticalAccounting Policies and Estimates**

 

There have been nomaterial changes to our critical accounting policies and estimates from theinformation provided in Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”, included in our Annual Reporton Form 10-K for the fiscal year ended June 29, 2008.

 

**Results of Operations - Three Months Ended September 28,2008 and September 30, 2007**

 

NetSales and Gross Profit

 

Netsales for the three months ended September 28, 2008, were $26.4 million,an increase of 15.6% from the three months ended September 30, 2007, salesof $22.8 million.  The increase in saleswas due to higher sales volumes in each of our material handling, elevator andenergy delivery product lines.  Net salesby product line were as follows, in millions:

 

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| ** **               | ** ** | **Three Months Ended** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **September 28, 2008** | ** ** | **September 30, 2007** | ** ** |
| Material  handling       |       | $                                | 18.4       |   | 70 | % | $ | 17.2 |   | 75 | % |
| Elevator motion  control |       | 5.4                              |       | 20 | % | 4.5 |   | 20 | % |
| Energy delivery          |       | 2.6                              |       | 10 | % | 1.1 |   | 5 | % |
|                     |       |                             |       |   |   |   |   |   |   |
| Total net sales          |       | $                                | 26.4       |   | 100 | % | $ | 22.8 |   | 100 | % |

 

Grossprofit for the three months ended September 28, 2008, was $9.4 million, or35.8% of sales, versus $6.9 million, or 30.1% of sales, for the three monthsended September 30, 2007.  Theincrease in gross profit as a percentage of sales for the three months ended September 28,2008, as compared to the three months ended September 30, 2007, was due tohigher sales volume in all product lines, increased sales of higher marginmining products, and favorable sales mix within our material handling andelevator products.

 

Researchand Development, Selling, General and Administrative

 

Researchand development (“R&D”) expense was $0.9 million, or 3.1% of sales, for thethree months ended September 28, 2008, compared to R&D expense of $0.8million, or 3.4% of sales, for the three months ended September 30,2007.  R&D expense in the threemonths ended September 28, 2008 reflects higher payroll costs mainly dueto staff additions.

 

Selling, general andadministrative (“SG&A”) expense was $6.5 million (23.0% of sales) for thethree months ended September 28, 2008, versus $4.9 million (21.7% ofsales) for the three months ended September 30, 2007.  Selling expenses increased in the threemonths ended September 28, 2008 to $2.6 million from to $2.3 million inthe three months ended September 30, 2007 due to higher volume-relatedselling expenses.  General andadministrative (“G&A”) expense was $3.9 million for the three months ended September 28,2008, compared to $2.6 million for the three months ended September 30,2007, mainly due to increased pension expense of $0.8 million and higherincentive compensation costs of $0.4 million.

 

Income from Operations

 

Incomefrom operations for the three months ended September 28, 2008 was $2.0million compared to income from operations of $1.1 million for the three monthsended September 30, 2007.  Theimprovement in income from operations for the three months ended September 28,2008 as compared to the three months ended September 30, 2007 was due tohigher gross profit on increased sales volume, partially offset by increasedSG&A expense.

 

InterestIncome and Expense

 

Interestincome was $0.1 million for the three months ended September 28,2008.  Interest income was $0.4 millionand interest expense was $0.1 million for the three months ended September 30,2007.  The decrease in interest income inthe three months ended September 28, 2008 as compared to the three monthsended September 30, 2007 was due to lower cash balances held in short-terminvestments and reduced interest rates earned on cash balances.  Interest expense for the three months ended September 30,2007 was comprised mainly of deferred financing amortization.

 

Provisionfor Income Taxes

 

Werecorded an income tax provision of $0.4 million for the three months ended September 28,2008 and $0.3 million for the three months ended September 30, 2007.  The provision in both periods was mainly dueto non-cash deferred tax provisions related to changes in deferred taxliabilities from goodwill amortization and, to a lesser extent, provisions forincome taxes on our pretax income in Canada (see Note 9 of Notes to CondensedConsolidated Financial Statements).

 

Incomefrom Continuing Operations

 

Werecorded income from continuing operations of $1.7 million for the three monthsended September 28, 2008, or $0.06 earnings per share on both a basic anddiluted basis, compared to income from continuing operations of $1.0 millionfor the three months ended September 30, 2007, or $0.03 earnings per shareon both a basic and diluted basis.

 

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Lossfrom Discontinued Operations

 

Our loss fromdiscontinued operations for the three months ended September 28, 2008 was$0.9 million, or a $0.03 loss per share on both a basic and diluted basis,compared to a loss from discontinued operations of $0.5 million, or a $0.02loss per share on both a basic and diluted basis, for the three months ended September 30,2007.  Loss from discontinued operationsin the three months ended September 28, 2008 was comprised of a loss onthe disposal of our TPS business of $0.5 million, expenses related topreviously divested businesses of $0.3 million and losses in our TPS businessprior to its divestiture of $0.1 million. Loss from discontinued operations of $0.5 million in the three monthsended September 30, 2007 was comprised of expenses related to previouslydivested businesses of $0.3 million and losses in our TPS business of $0.2million.

 

NetIncome

 

Ournet income was $0.9 million in the three months ended September 28, 2008,or $0.03 earnings per share, basic and diluted, compared to net income of $0.5million in the three months ended September 30, 2007, or $0.02 earningsper share on both a basic and diluted basis.

 

**Liquidity and Capital Resources**

 

Our cash and cashequivalent balance, including restricted cash, increased $0.7 million duringthe three months ended September 28, 2008, from $15.5 million at June 29,2008 to $16.2 million at September 28, 2008.  Our primary sources of cash during the threemonths ended September 28, 2008 were income from operations of $2.0million and a participation payment related to an annuity contract of $0.4million, and our primary use of cash was a $2.8 million contribution to ourdefined benefit pension plan.  During thethree months ended September 28, 2008, our inventories increased by $2.3million, mainly related to an increase in wind inverter inventory during thequarter; however, accounts receivable decreased by $1.6 million and accountspayable and accrued liabilities increased by $0.9 million from June 29,2008.  Our capital expenditures in thethree months ended September 28, 2008 were $0.3 million.  While we may make further investments toincrease capacity for and improve efficiency in the production of windinverters, we do not anticipate capital expenditures in fiscal 2009 will exceed$2.0 million.  The expected amount ofcapital expenditures could change depending upon changes in revenue levels, ourfinancial condition and the general economy.

 

InNovember 2007 we entered into an agreement with Associated Bank, N.A. providingfor a $10 million revolving credit facility (the “Associated facility”).  Borrowings under the Associated facility bearinterest at the London Interbank Offering Rate (“LIBOR”) plus 1.5%, withborrowing levels determined by a borrowing base formula as defined in theagreement, based on the level of eligible accounts receivable.  The Associated facility also supports theissuance of letters of credit, places certain restrictions on our ability topay dividends or make acquisitions, and includes covenants which requireminimum operating profit levels and limit annual capital expenditures.  Borrowings under the Associated facility arecollateralized by our accounts receivable and inventory.  The Associated facility expires in November 2009unless renewed by the parties prior to that time.  There were no amounts outstanding under theAssociated facility and the Company is in compliance with all covenants as of September 28,2008.

 

Primarily as a result ofthe decline in interest rates over the past several years and a more recentdecline in values in equity markets, the accumulated benefit obligation of ourdefined benefit pension plan currently exceeds plan assets.  We have made contributions to the planaggregating $7.1 million from April 2008 through October 2008 fundedby existing cash on hand.  Under fundingregulations, current actuarial projections indicate that we will be required tomake additional contributions to the plan aggregating approximately $5.1million during the remainder of fiscal 2009 and approximately $12.8 million infiscal 2010.  Required contributionsbeyond fiscal 2010 could still be significant, and will depend on futureinterest rate levels, values in equity and fixed income markets, and the leveland timing of additional interim contributions we may make to the plan.

 

Based upon current plansand business conditions, we believe that current cash balances, borrowingcapacity under the Associated facility and internally generated cash flows willbe sufficient to fund anticipated operational needs, capital expenditures andother commitments over the next 12 months.

 

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**Caution Regarding Forward-Looking Statements andRisk Factors**

 

This document, includingdocuments incorporated herein by reference, contains “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995.  The words “believe,” “expect,” “estimate,” “anticipate,” “intend,”“may,” “might,” “will,” “would,” “could,” “project,” and “predict,” or similarwords and phrases generally identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertaintieswhich in many cases are beyond our control and which cannot be predicted orquantified.  As a result, future events and actual results could differmaterially from those set forth in, contemplated by, or underlyingforward-looking statements.  Forward-looking statements contained in thisdocument speak only as of the date of this document or, in the case of anydocument incorporated by reference from another document, the date of thatdocument.  We do not have any obligation to publicly update or revise anyforward-looking statement contained or incorporated by reference in thesedocuments to reflect changed assumptions, the occurrence of unanticipatedevents or changes to future operating results over time.

 

Our future results ofoperations and the other forward-looking statements contained in this filing,including this section titled “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” involve a number of risks anduncertainties.  In particular, the statements regarding future economicconditions, our goals and strategies, new product introductions, penetration ofnew markets, projections of sales revenues and sales growth, manufacturingcosts and operating costs, pricing of our products and raw materials requiredto manufacture our products, gross margin expectations, relocation andoutsourcing of production capacity, capital spending, research and developmentexpenses, the outcome of pending legal proceedings and environmental matters,payment of certain claims by insurance carriers, tax rates, sufficiency offunds to meet our needs including contributions to our defined benefit pensionplan, and our plans for future operations, as well as our assumptions relatingto the foregoing, are all subject to risks and uncertainties.

 

Anumber of factors could cause our actual results to differ materially from ourexpectations.  We are subject to all of the business risks facing publiccompanies, including business cycles and trends in the general economy,financial market conditions, changes in interest rates, demand variations andvolatility, potential loss of key personnel, supply chain disruptions,government legislation and regulation, and natural causes.  Additionalrisks and uncertainties include but are not limited to industry conditions,competitive factors such as technology and pricing pressures, businessconditions in our served markets, dependence on significant customers,increased material costs, risks and costs associated with acquisitions anddivestitures, environmental matters and the risk that our ultimate costs ofdoing business exceed present estimates. This list of risk factors is not all-inclusive, as other factors andunanticipated events could adversely affect our financial position or resultsof operations.  Further information onfactors that could affect our financial results can be found in our Form 10-Kfiling with the Securities and Exchange Commission for the year ended June 29,2008, under the heading “Risk Factors” as well as below in Part II, Item1A under the heading  “Risk Factors”.

 

**Item 3 –Quantitative and Qualitative Disclosures about Market Risk**

 

Therehave been no material changes to the quantitative and qualitative disclosuresabout our market risk disclosed in our Annual Report on Form 10-K for theyear ended June 29, 2008.  We didnot have any outstanding hedge instruments or foreign currency contractsoutstanding at September 28, 2008 or September 30, 2007.

 

**Item 4 – Controls and Procedures**

 

In connection with this Form 10-Q,under the direction of our Chief Executive Officer and Chief Financial Officer,we evaluated our disclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, and internal controlover financial reporting and concluded that (i) our disclosure controlsand procedures were effective as of September 28, 2008, and (ii) nochange in internal control over financial reporting occurred during the quarterended September 28, 2008 that has materially affected, or isreasonably likely to materially affect, such internal control over financialreporting.

 

Attached as exhibits tothis Form 10-Q are certifications of the Company’s Chief Executive Officerand Chief Financial Officer, which are required in accordance with Rule 13a-14of the Securities Exchange Act of 1934. This “Controls and Procedures” section includes information concerningthe controls and evaluation thereof referred to in the attached certifications,and it should be read in conjunction with the attached certifications for amore complete understanding of the topics presented.

 

**PART II - OTHER INFORMATION**

 

**Item 1 – Legal Proceedings**

 

Information about ourlegal proceedings is contained in Part I, Item 3, Legal Proceedings, andNote 11 in the Notes to Consolidated Financial Statements in our Annual Reporton Form 10-K for the fiscal year ended June 29, 2008, which isincorporated herein by reference, and in Note 4 of the Notes to CondensedConsolidated Financial Statements contained in this Quarterly Report on Form 10-Q.  We believe that there have been no materialdevelopments with respect to these matters during the quarter ended September 28,2008.

 

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As previously reported bythe Company, an action was filed in April 2008 against the Company and TheSergy Company, LLC (“Sergy”) by the Department of Environmental Protection (“DEP”)for the State of Connecticut.  Although astipulation was entered into by the Company and Sergy relating to the issueinvolving the groundwater pump and treat system located at the Bridgeport,Connecticut facility, the DEP filed a request to amend the complaint to assertadditional claims and to seek further remedies for alleged failure toinvestigate and remediate pollution under the Connecticut Transfer Act.  On September 10, 2008, the Court orderedthe case transferred to the Waterbury, Connecticut Court, where the declaratoryjudgment action filed by Sergy against the Company is currently pending.

 

**Item 1A – Risk Factors**

 

There have been nomaterial changes to the risk factors disclosed in our Annual Report on Form 10-Kfor the year ended June 29, 2008.

 

**Item 2 – Unregistered Sales of EquitySecurities and Use of Proceeds**

 

There were no unregistered sales of equity securities andthere were no repurchases of equity securities during our first fiscal quarterended September 28, 2008.

 

**Item3 – Defaults upon Senior Securities**

 

None.

 

**Item 4 – Submission of Matters toa Vote of Security Holders**

 

(a)                                     TheAnnual Meeting of Stockholders of the Company was held on October 24,2008.

 

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

 

David A. Bloss, Sr.

Dewain K. Cross

Yon Y. Jorden

Mitchell I. Quain

David P. Reiland

 

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

 
| **Nominee**               | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|---------------------------|------------|------------|------------|--------------|------------|
|                      |       |       |       |         |       |
| David A.  Bloss, Sr. |       | 28,641,855 |       | 90,472       |       |
| Dewain K. Cross           |       | 28,583,135 |       | 149,192      |       |
| Yon Y. Jorden             |       | 28,606,952 |       | 125,375      |       |
| Mitchell I.  Quain        |       | 28,608,651 |       | 123,676      |       |
| David P. Reiland          |       | 28,582,662 |       | 149,665      |       |

 

(d)                                    Theappointment of Ernst & Young LLP as the Company’s independentregistered public accounting firm for fiscal 2009 was ratified.  The votes cast for and against theappointment, and the votes that abstained were as follows:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 28,705,918 |       | 19,426      |       | 6,982       |       |

 

**Item5 – Other Information**

 

None.

 

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**Item6 - Exhibits**

 

(a)                                  Indexto Exhibits

 
| 10.1   |   | Change in Directors’  Compensation *                                                                                             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                  |
| 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 pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. * |
|   |   |                                                                                                                                  |

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*                                         Filedwith this Report on Form 10-Q.

 

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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: October 30,  2008 |   | /s/ David P. Reiland                        |
|                         |   | David P. Reiland                            |
|                         |   | President and Chief  Executive Officer      |
|                         |   | (Duly authorized  officer of the Registrant |
|                         |   |   and principal  executive officer)    |
|                         |   |                                        |
|                         |   |                                        |
| Date: October 30,  2008 |   | /s/ Marty J. Schwenner                      |
|                         |   | Marty J. Schwenner                          |
|                         |   | Vice-President and  Chief Financial Officer |
|                         |   | (Duly authorized  officer of the Registrant |
|                         |   |   and principal  financial officer)    |

 

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