**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:  March 30,  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 since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes  x      No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting 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 |
| (Do not check if a  smaller reporting company) |   |                                    |

 

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 April 30, 2008, was 30,383,386 shares.

 

 

 

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2008 MAGNETEK FORM 10-Q

 

TABLE OF CONTENTSFOR THE QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCALQUARTER ENDED MARCH 30, 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        |                                                                                        |

 

 

2

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**PART I.  FINANCIAL INFORMATION**

 

**Item 1 —Financial Statements**

 

MAGNETEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (Amounts in thousands, except per share data,unaudited)

 
| ** **                                                           | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                           | ** ** | **(13 Weeks)**         | ** ** | **(13 Weeks)** | ** ** |
| ** **                                                           | ** ** | **March 30,**     | ** ** | **April 1,** | ** ** |
| ** **                                                           | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                                                                 |       |                   |       |   |   |
| Net sales                                                            |       | $                      | 26,330     |   | $ | 23,311 |   |
| Cost of sales                                                        |       | 19,515                 |       | 16,406 |   |
| Gross profit                                                         |       | 6,815                  |       | 6,905 |   |
|                                                                 |       |                   |       |   |   |
| Operating  expenses:                                                 |       |                   |       |   |   |
| Research and  development                                            |       | 832                    |       | 912 |   |
| Selling, general  and administrative                                 |       | 4,835                  |       | 5,628 |   |
| Income from operations                                               |       | 1,148                  |       | 365 |   |
|                                                                 |       |                   |       |   |   |
| Non operating  expense (income):                                     |       |                   |       |   |   |
| Interest expense                                                     |       | —                 |       | 142 |   |
| Interest income                                                      |       | (226                   | )          | (389 | ) |
| Other expense                                                        |       | —                 |       | 70 |   |
| Income from  continuing operations before provision for income taxes |       | 1,374                  |       | 542 |   |
|                                                                 |       |                   |       |   |   |
| Provision for  income taxes                                          |       | 224                    |       | 307 |   |
| Income from  continuing operations                                   |       | 1,150                  |       | 235 |   |
|                                                                 |       |                   |       |   |   |
| Loss from  discontinued operations, net of tax                       |       | (642                   | )          | (654 | ) |
|                                                                 |       |                   |       |   |   |
| Net income  (loss)                                                   |       | $                      | 508        |   | $ | (419 | ) |
|                                                                 |       |                   |       |   |   |
| Income (loss)  per common share:                                     |       |                   |       |   |   |
|                                                                 |       |                   |       |   |   |
| Basic and  diluted:                                                  |       |                   |       |   |   |
|                                                                 |       |                   |       |   |   |
| Income from  continuing operations - basic and diluted               |       | $                      | 0.04       |   | $ | 0.01 |   |
| Loss from  discontinued operations - basic and diluted               |       | $                      | (0.02      | ) | $ | (0.02 | ) |
| Net income  (loss) - basic and diluted                               |       | $                      | 0.02       |   | $ | (0.01 | ) |
|                                                                 |       |                   |       |   |   |
| Weighted average  shares outstanding:                                |       |                   |       |   |   |
| Basic                                                                |       | 30,377                 |       | 29,616 |   |
| Diluted                                                              |       | 30,507                 |       | 30,269 |   |

 

See accompanyingnotes

 

3

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MAGNETEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (Amounts in thousands, except per share data,unaudited)

 
| ** **                                                                  | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                  | ** ** | **(39 Weeks)**        | ** ** | **(39 Weeks)** | ** ** |
| ** **                                                                  | ** ** | **March 30,**    | ** ** | **April 1,** | ** ** |
| ** **                                                                  | ** ** | **2008**              | ** ** | **2007** | ** ** |
|                                                                        |       |                  |       |   |   |
| Net sales                                                                   |       | $                     | 81,408     |   | $ | 76,844 |   |
| Cost of sales                                                               |       | 60,153                |       | 55,460 |   |
| Gross profit                                                                |       | 21,255                |       | 21,384 |   |
|                                                                        |       |                  |       |   |   |
| Operating  expenses:                                                        |       |                  |       |   |   |
| Research and  development                                                   |       | 2,596                 |       | 3,719 |   |
| Selling, general  and administrative                                        |       | 15,146                |       | 22,214 |   |
| Income (loss)  from operations                                              |       | 3,513                 |       | (4,549 | ) |
|                                                                        |       |                  |       |   |   |
| Non operating  expense (income):                                            |       |                  |       |   |   |
| Interest expense                                                            |       | 260                   |       | 2,275 |   |
| Interest income                                                             |       | (898                  | )          | (1,582 | ) |
| Other expense                                                               |       | —                |       | 395 |   |
| Income (loss)  from continuing operations before provision for income taxes |       | 4,151                 |       | (5,637 | ) |
|                                                                        |       |                  |       |   |   |
| Provision for  income taxes                                                 |       | 747                   |       | 956 |   |
| Income (loss)  from continuing operations                                   |       | 3,404                 |       | (6,593 | ) |
|                                                                        |       |                  |       |   |   |
| Income (loss)  from discontinued operations, net of tax                     |       | 183                   |       | (3,235 | ) |
|                                                                        |       |                  |       |   |   |
| Net income  (loss)                                                          |       | $                     | 3,587      |   | $ | (9,828 | ) |
|                                                                        |       |                  |       |   |   |
| Income (loss)  per common share                                             |       |                  |       |   |   |
|                                                                        |       |                  |       |   |   |
| Basic and  diluted:                                                         |       |                  |       |   |   |
|                                                                        |       |                  |       |   |   |
| Income (loss)  from continuing operations                                   |       | $                     | 0.11       |   | $ | (0.22 | ) |
| Income (loss)  from discontinued operations                                 |       | $                     | 0.01       |   | $ | (0.11 | ) |
| Net income  (loss)                                                          |       | $                     | 0.12       |   | $ | (0.33 | ) |
|                                                                        |       |                  |       |   |   |
| Weighted average  shares outstanding:                                       |       |                  |       |   |   |
| Basic                                                                       |       | 30,339                |       | 29,497 |   |
| Diluted                                                                     |       | 30,513                |       | 29,497 |   |

 

See accompanyingnotes

 

4

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MAGNETEK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (Amounts in thousands)

 
| ** **                                      | ** ** | **March 30,** | ** ** | **July 1,** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|------------------|------------|
| ** **                                      | ** ** | **2008**           | ** ** | **2007**         | ** ** |
| ** **                                      | ** ** | **(Unaudited)**    | ** ** | ** **       | ** ** |
| ASSETS                                          |       |               |       |             |       |
|                                            |       |               |       |             |       |
| Current assets:                                 |       |               |       |             |       |
| Cash                                            |       | $                  | 11,960     |             | $          | 5,404 |   |
| Restricted cash                                 |       | 22,252             |       | 22,852           |       |
| Accounts  receivable, net                       |       | 16,025             |       | 18,104           |       |
| Inventories                                     |       | 17,274             |       | 16,201           |       |
| Prepaid expenses  and other current assets      |       | 2,388              |       | 1,900            |       |
| Total current assets                            |       | 69,899             |       | 64,461           |       |
|                                            |       |               |       |             |       |
| Property, plant and equipment                   |       | 20,749             |       | 19,772           |       |
| Less-accumulated depreciation                   |       | 16,473             |       | 15,470           |       |
| Net property, plant and equipment               |       | 4,276              |       | 4,302            |       |
|                                            |       |               |       |             |       |
| Goodwill                                        |       | 30,342             |       | 28,187           |       |
| Other assets                                    |       | 6,808              |       | 7,788            |       |
| Total Assets                                    |       | $                  | 111,325    |             | $          | 104,738 |   |
|                                            |       |               |       |             |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY       |       |               |       |             |       |
|                                            |       |               |       |             |       |
| Current liabilities:                            |       |               |       |             |       |
| Accounts payable                                |       | $                  | 10,722     |             | $          | 12,238 |   |
| Accrued  liabilities                            |       | 6,581              |       | 7,639            |       |
| Accrued  arbitration award                      |       | 25,768             |       | 22,602           |       |
| Current portion  of long-term debt              |       | 11                 |       | 11               |       |
| Total current liabilities                       |       | 43,082             |       | 42,490           |       |
|                                            |       |               |       |             |       |
| Long-term debt, net of current portion          |       | 25                 |       | 21               |       |
|                                            |       |               |       |             |       |
| Pension benefit obligations, net                |       | 13,569             |       | 15,965           |       |
| Other long term obligations                     |       | 1,920              |       | 1,709            |       |
| Deferred income taxes                           |       | 3,755              |       | 3,080            |       |
|                                            |       |               |       |             |       |
| Commitments and contingencies                   |       |               |       |             |       |
|                                            |       |               |       |             |       |
| Stockholders’ equity                       |       |               |       |             |       |
| Common stock                                    |       | 304                |       | 301              |       |
| Paid in capital  in excess of par value         |       | 135,733            |       | 134,449          |       |
| Accumulated  deficit                            |       | (11,236            | )          | (14,823          | )          |
| Accumulated  other comprehensive loss           |       | (75,827            | )          | (78,454          | )          |
| Total stockholders’ equity                 |       | 48,974             |       | 41,473           |       |
|                                            |       |               |       |             |       |
| Total Liabilities and Stockholders’ Equity |       | $                  | 111,325    |             | $          | 104,738 |   |

 

See accompanyingnotes

 

5

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MAGNETEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

 (Amounts in thousands, unaudited)

 
| ** **                                                                                                                   | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                   | ** ** | **(39 Weeks)**        | ** ** | **(39 Weeks)** | ** ** |
| ** **                                                                                                                   | ** ** | **March 30,**    | ** ** | **April 1,** | ** ** |
| ** **                                                                                                                   | ** ** | **2008**              | ** ** | **2007** | ** ** |
| Cash flows from  continuing operating activities:                                                                            |       |                  |       |   |   |
| Income (loss)  from continuing operations                                                                                    |       | $                     | 3,404      |   | $ | (6,593 | ) |
| Adjustments to  reconcile income (loss) from continuing operations   to net cash provided by (used in) operating activities: |       |                  |       |   |   |
| Depreciation and  amortization                                                                                               |       | 1,197                 |       | 1,513 |   |
| Stock based  compensation expense                                                                                            |       | 433                   |       | 1,456 |   |
| Pension expense                                                                                                              |       | 140                   |       | 1,821 |   |
| Write-off of  deferred financing                                                                                             |       | —                |       | 670 |   |
| Cash  contribution to pension fund                                                                                           |       | —                |       | (30,000 | ) |
| Changes in  operating assets and liabilities                                                                                 |       | (526                  | )          | (2,531 | ) |
|                                                                                                                         |       |                  |       |   |   |
| Total  adjustments                                                                                                           |       | 1,244                 |       | (27,071 | ) |
| Net cash  provided by (used in) continuing operating activities                                                              |       | 4,648                 |       | (33,664 | ) |
|                                                                                                                         |       |                  |       |   |   |
| Cash flows from  investing activities:                                                                                       |       |                  |       |   |   |
| Proceeds from  sale of business, net of transaction costs                                                                    |       | —                |       | 63,546 |   |
| Purchase of  business                                                                                                        |       | (1,750                | )          | — |   |
| Proceeds from  escrow account                                                                                                |       | 600                   |       | — |   |
| Capital  expenditures                                                                                                        |       | (950                  | )          | (926 | ) |
| Net cash  provided by (used in) investing activities                                                                         |       | (2,100                | )          | 62,620 |   |
|                                                                                                                         |       |                  |       |   |   |
| Cash flows from  financing activities:                                                                                       |       |                  |       |   |   |
| Proceeds from  issuance of common stock                                                                                      |       | 958                   |       | 2,100 |   |
| Repayment of  long term notes                                                                                                |       | —                |       | (18,000 | ) |
| Borrowings  (repayments) under line-of-credit agreements                                                                     |       | —                |       | (9,412 | ) |
| Borrowings under  capital lease obligations                                                                                  |       | 13                    |       | — |   |
| Principal  payments under capital lease obligations                                                                          |       | (9                    | )          | (10 | ) |
| Increase in  deferred financing costs                                                                                        |       | —                |       | (207 | ) |
| Net cash  provided by (used in) financing activities                                                                         |       | 962                   |       | (25,529 | ) |
|                                                                                                                         |       |                  |       |   |   |
| Cash flows from  discontinued operations:                                                                                    |       |                  |       |   |   |
| Provided by  operating activities                                                                                            |       | 3,046                 |       | 7,250 |   |
| Used in  investing activities                                                                                                |       | —                |       | (930 | ) |
| Used in  financing activities                                                                                                |       | —                |       | (5,162 | ) |
| Cash provided by  discontinued operations                                                                                    |       | 3,046                 |       | 1,158 |   |
|                                                                                                                         |       |                  |       |   |   |
| Net increase in  cash                                                                                                        |       | 6,556                 |       | 4,585 |   |
| Cash at the  beginning of the period                                                                                         |       | 5,404                 |       | 96 |   |
|                                                                                                                         |       |                  |       |   |   |
| Cash at the end  of the period                                                                                               |       | $                     | 11,960     |   | $ | 4,681 |   |
|                                                                                                                         |       |                  |       |   |   |

 

See accompanyingnotes

 

6

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MAGNETEK, INC.

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

MARCH 30,2008

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

 

**1.****                                     ****Summary of SignificantAccounting Policies**

 

Profile

 

Magnetek, Inc. (together with its subsidiaries, the “Company” or “Magnetek”)is a global provider of digital power control systems that are used to controlmotion and power primarily in material handling, elevator, telecommunications (“telecom”)and energy delivery applications.  TheCompany’s products consist primarily of programmable motion control and powerconditioning systems used in the following applications: overhead cranes andhoists; elevators; wireless telecom; coal mining equipment; and fuel cells andwind turbines.

 

Basis of Presentation

 

The accompanyingunaudited condensed consolidated financial statements include the accounts ofthe Company and all significant intercompany accounts and transactions havebeen eliminated.

 

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 July 1, 2007 filed with the Securities and ExchangeCommission.  In the Company’s opinion,these unaudited statements contain all adjustments, consisting of normalrecurring adjustments, necessary to present fairly the financial position ofthe Company as of March 30, 2008, and the results of its operations forthe three- and nine-month periods ended March 30, 2008 and April 1,2007 and its cash flows for the nine-months ended March 30, 2008 and April 1,2007.  Results for the three- andnine-months ended March 30, 2008 are not necessarily indicative of resultsthat may be experienced for the full fiscal year.

 

The Company uses a 52-,53-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- andnine-month periods ended March 30, 2008 and April 1, 2007 eachcontained 13 and 39 weeks respectively.

 

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.

 

Recent AccountingPronouncements —In July 2006, the Financial Accounting Standards Board (“FASB”) issuedFASB Interpretation No. 48 (“FIN 48”) *Accounting for Uncertaintyin Income Taxes - an interpretation of FASB Statement No. 109*which prescribes a recognition threshold and measurement process for recordingin the financial statements uncertain tax positions taken or expected to betaken in a tax return.  Additionally, FIN48 provides guidance on derecognition, classification, accounting in interim periods,and disclosure requirements for uncertain tax positions. The Company adoptedFIN 48 on July 2, 2007.  Theadoption of this interpretation did not have a material effect on the Company’sfinancial position, results of operations, or liquidity.

 

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS 157”).  SFAS 157 defines fairvalue, establishes a framework for measuring fair value in generally acceptedaccounting principles, and expands disclosures about fair value measurements.  The Company is required to adopt SFAS 157effective June 30, 2008 and is currently evaluating the impact of adoptingSFAS 157 on its future results of operations and financial condition.

 

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

 

 

7

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

 

The historical operatingresults of the power electronics business, which was divested in October 2006,as well as certain expenses incurred related to businesses the Company nolonger owns, are classified as discontinued operations.  The results of discontinued operations are asfollows:

 

| ** **                                                                   | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                   | ** ** | **March 30,**     | ** ** | **April 1,**     | ** ** | **March 30,** | ** ** | **April 1,** | ** ** |
| ** **                                                                   | ** ** | **2008**               | ** ** | **2007**              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                         |       |                   |       |                  |       |   |   |   |   |
| Net sales                                                                    |       | $                      | —     |                  | $          | — |   | $ | — |   | $ | 53,545 |   |
|                                                                         |       |                   |       |                  |       |   |   |   |   |
| Income (loss)  from discontinued operations before interest and income taxes |       | $                      | (642       | )                     | $          | (234 | ) | $ | 183 |   | $ | (1,863 | ) |
| Loss on sale of power electronics business                                   |       | —                 |       | (420                  | )          | — |   | (420 | ) |
| Interest expense, net                                                        |       | —                 |       | —                |       | — |   | 521 |   |
| Provision for income taxes                                                   |       | —                 |       | —                |       | — |   | 431 |   |
| Income (loss) from discontinued operations                                   |       | $                      | (642       | )                     | $          | (654 | ) | $ | 183 |   | $ | (3,235 | ) |

 

Income (loss) fromdiscontinued operations for the three-and nine-month periods ended March 30,2008 includes net settlement gains of $2.9 million and $3.9 millionrespectively, reflecting cash receipts from the May 2007 agreement betweenthe Company and Federal-Mogul Corporation, partially offset by current periodlegal fees (see Note 4 of Notes to Condensed Consolidated FinancialStatements).  Income (loss) fromdiscontinued operations also includes expenses of $3.5 million and $3.7 millionfor the three-and nine-month periods ended March 30, 2008 respectivelyrelated to businesses the Company no longer owns, comprised mainly of anincrease of $3.2 million in the Company’s accrual for a patent arbitrationaward in both periods (see Note 4 of Notes to Condensed Consolidated FinancialStatements).

 

Loss from discontinuedoperations for the three- and nine-month periods ended April 1, 2007includes $0.2 million and $0.5 million respectively for legal fees and othercosts related to businesses the Company no longer owns.   Loss from discontinued operations for thenine months ended April 1, 2007 includes losses in the Company’sdiscontinued power electronics business of $2.3 million prior to itsdivestiture in October 2006.

 

In October, 2006, the Company completed the sale ofits power electronics business to Power-One, Inc. (“Power-One”).  The transaction included payment by Power-Oneto the Company of $65.7 million in cash, net of post closing adjustments, andthe assumption by Power-One of approximately $16.0 million of the Company’sdebt, representing the total debt balances outstanding of the Company’ssubsidiary Magnetek, S.p.A.  The Companyused approximately $29.0 million of the proceeds to repay all of its remainingoutstanding debt and in December 2006 made a contribution of $30.0 millionto its defined benefit pension plan.

 

Duringthe third quarter of fiscal 2007 the Company and Power-One agreed upon thefinal purchase price adjustment related to the sale of the power electronicsbusiness.  As a result, the Company made a payment of $2.2 million toPower One, based upon changes in the tangible net worth of the business andcertain indemnified liabilities.  The final settlement resulted in a losson the sale of the power electronics business, net of amounts previouslyrecorded, of $0.4 million.

 

The agreement withPower-One provides for indemnification by the Company for breaches ofrepresentations and warranties and other customary matters that the Companybelieves are typical for this type of transaction, including indemnificationfor certain tax, legal, environmental and warranty issues.  The condensed consolidated balance sheet asof March 30, 2008 includes certain accrued liabilities which represent theCompany’s best estimate of remaining contingent liabilities related to theindemnification provisions of the purchase and sale agreement.  While management has used its best judgmentin assessing the potential liability for these items, given the uncertaintyregarding future events, it is difficult to estimate the possible timing ormagnitude of any payments that may be required for liabilities subject toindemnification.  Any future adjustmentto currently recorded contingencies related to indemnification claims orpayments based upon changes in circumstances would also be recorded as a gainor loss on the sale of the business in discontinued operations.

 

3.**                                      ****Inventories**

 

Inventories at March 30,2008 and July 1, 2007 consist of the following:

 

| ** **                    | ** ** | **March 30,** | ** ** | **July 1,** | ** ** |
|-------------------------------|------------|--------------------|------------|------------------|------------|
| ** **                    | ** ** | **2008**           | ** ** | **2007**         | ** ** |
| Raw materials and stock parts |       | $                  | 11,693     |             | $          | 11,046 |   |
| Work-in-process               |       | 1,557              |       | 1,544            |       |
| Finished goods                |       | 4,024              |       | 3,611            |       |
|                          |       | $                  | 17,274     |             | $          | 16,201 |   |

 

 

8

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4.                                       **Commitments andContingencies**

 

**Litigation—PatentInfringement**

 

In April 1998, OleK. Nilssen (“Nilssen”) filed a lawsuit in the U.S. District Court for theNorthern District of Illinois alleging infringement by the Company of seven ofhis 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 deniedthat its 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 Mr. Nilssen and alsothat the asserted patents are invalid. In June 2001, the Company sold itslighting business to Universal Lighting Technologies, Inc. (“ULT”), andagreed to provide a limited indemnification against certain claims ofinfringement that Nilssen might allege against ULT. In April 2003, Nilssen’slawsuit and the counterclaims were dismissed with prejudice and both partiesagreed to submit limited issues in dispute to binding arbitration before anarbitrator with a relevant technical background. The arbitration occurred inNovember 2004 and a decision awarding Nilssen $23.4 million was issued in April2005, to be paid within ten days of the award. Nilssen’s counsel filed a motion to enter the award in U.S. DistrictCourt for the Northern District of Illinois (the “Court”), and Magnetek filed acounter-motion to vacate the award for a number of reasons, including that theaward was fraudulently obtained.  Magnetek’s request for oral argument wasgranted and the hearing took place in October 2005.  In April 2008, the arbitration award wasconfirmed in a judgment entered by the Court. The Company subsequently filed an appeal of the judgment.  An unfavorable decision in the appeal willresult in payment of the award to Nilssen. See Note 13 of Notes to Condensed Consolidated Financial Statements and Part IIOther Information, Item 1 Legal Proceedings below for additional information.

 

In February 2003,Nilssen filed a second lawsuit in the U.S. District Court for the NorthernDistrict of Illinois alleging infringement by ULT of twenty-nine of his patentspertaining to electronic ballast technology, and seeking unspecified damagesand injunctive relief to preclude ULT from making, using or selling productsallegedly infringing his patents. ULT made a claim for indemnification, whichthe Company accepted, subject to the limitations set forth in the saleagreement.  The case is now pending inthe Middle District of Tennessee. Nilssen voluntarily dismissed all but four of the patents from thelawsuit.  The Company denies that the products for which it has anindemnification obligation to ULT infringe any valid patent and responded onbehalf of ULT asserting affirmative defenses, as well as a counterclaim for ajudicial declaration that the patents are unenforceable and invalid and thatthe products do not infringe Nilssen’s patents.   The caseagainst ULT has been stayed pending Nilssen’s appeal of an unfavorable decisionagainst him in another case that could influence the outcome of his lawsuitagainst ULT.  The decision in such othercase was affirmed by the appellate court in October 2007, and Nilssen’spetition for rehearing was denied in January 2008.  ULT requested a re-examination of the patentsat issue by the Patent and Trademark Office (PTO) and the PTO recently rejectedclaims in all of the patents at issue in the lawsuit against ULT.  The ULT lawsuit was dismissed by consentjudgment entered by the District Court on April 21, 2008.  See Part II Other Information, Item 1Legal Proceedings below for additional information.

 

**Litigation—Other**

 

In November 2007,the Company learned that a lawsuit has been filed by Antonio Canova in Italy,in the Court of Arezzo, Labour Law Section, against the Company and Power-OneItaly, S.p.A.  Mr. Canova is aformer Executive Vice President of the Company and was Deputy Chairman andManaging Director of the Company’s former Italian subsidiary, MagnetekS.p.A.  Mr. Canova asserted claimsfor damages in the amount of 3.5 million Euros (approximately $5.4 million USD)allegedly incurred in connection with the termination of his employment at thetime of the sale of the Company’s power electronics business to Power-One, Inc.in October 2006.  The Company’sreply brief was filed in March 2008. The Company believes the claim is without merit and intends tovigorously defend against it.

 

The Company has beennamed, along with multiple other defendants, in asbestos-related lawsuitsassociated with business operations previously acquired by the Company, butwhich are no longer owned. During the Company’s ownership, none of thebusinesses produced or sold asbestos-containing products. With respect 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 of the previously acquiredbusinesses.  The Company has also filedlate claims in the Federal-Mogul bankruptcy proceedings to recover attorney’sfees for defense of these claims.  TheCompany and Federal-Mogul entered into a settlement agreement under which theCompany is entitled to receive amounts from a settlement trust establishedunder Federal-Mogul’s reorganization plan and funded by insuranceproceeds.  The Company is entitled toreceive 15% of the first $20 million and 10% of the next $25 million ofinsurance proceeds, up to a maximum of $5.5 million, in exchange forwithdrawing its bankruptcy claims and objections to the reorganization plan andexecution of certain releases.  Federal-Mogul and the settlement trusthave control over the collection process. The settlement was subject to final approval of 

 

 

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Federal-Mogul’sReorganization Plan, which was confirmed and approved by the Bankruptcy Courtin December, 2007.  During the thirdquarter of fiscal 2008, the Company received funds aggregating $4.5 millionfrom the settlement trust, of which $2.9 million and $3.9 million (cashreceipts less current period legal fees) is included in income fromdiscontinued operations in the three- and nine-month periods ended March 30,2008.  The amount represents primarilythe recovery of previously incurred legal fees for the defense of theseasbestos-related lawsuits.  As theFederal-Mogul settlement trust receives additional funds based on anysettlements with other insurers, Magnetek will be entitled to receive apercentage of those funds based on the terms described above.  Several insurance carriers filed adeclaratory judgment action relating to insurance coverage for such previouslyacquired businesses, seeking a determination that no coverage is availableunder the policies.  Federal-Mogul, theCompany and other defendants filed responsive pleadings and motions to dismissthe case, and the court recently granted the motions to dismiss the declaratoryjudgment action.  Some of these insurershave appealed the dismissal.  Managementdoes not believe the asbestos proceedings, individually or in the aggregate,will have a material adverse effect on its financial position or results ofoperations.

 

**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 thethree- or nine-month periods ended March 30, 2008 or April 1, 2007.

 

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

 

In 1986, the Companyacquired the stock of Universal Manufacturing Company (“Universal”) from apredecessor of Fruit of the Loom (“FOL”), and the predecessor agreed toindemnify the Company against certain environmental liabilities arising frompre-acquisition activities at a facility in Bridgeport, Connecticut.Environmental liabilities covered by the 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 andMagnetek withdrew its claims in the bankruptcy proceeding. FOL’s obligation tothe state of Connecticut was not discharged in the reorganization proceeding.

 

In October 2006, theowner 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 recently denied motions for summary judgment filed by the owner ofthe facility, The Sergy Company, LLC (“Sergy”), as well as the counter motionfor summary 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 against Sergy.  Thecase is in discovery.  The ConnecticutDepartment of Environmental Protection (“DEP”) has requested parties, includingthe Company, 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.  DEP requested additional information from theCompany relating to site investigations and remediation and conducted anon-site inspection at the Bridgeport facility. FOL’s inability to satisfy its remaining obligations related to theBridgeport facility and any offsite disposal locations, or an unfavorableruling in the lawsuit with the owner of the Bridgeport facility, or thediscovery of additional environmental contamination at the Bridgeport facilitycould have a material adverse effect on the Company’s financial position, cashflows or results of operations.

 

 

10

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5.**                                      ****Comprehensive Income(Loss)**

 

For the fiscal periodsended March 30, 2008 and April 1, 2007, comprehensive income (loss)consisted of the following:

 

| ** **                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **March 30,**     | ** ** | **April 1,**     | ** ** | **March 30,** | ** ** | **April 1,** | ** ** |
| ** **                       | ** ** | **2008**               | ** ** | **2007**              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income (loss)                |       | $                      | 508        |                  | $          | (419 | ) | $ | 3,587 |   | $ | (9,828 | ) |
| Unrecognized pension liabilities |       | 845                    |       | —                |       | 2,532 |   | — |   |
| Currency translation adjustment  |       | (141                   | )          | 17                    |       | 95 |   | (170 | ) |
| Comprehensive income (loss)      |       | $                      | 1,212      |                  | $          | (402 | ) | $ | 6,214 |   | $ | (9,998 | ) |

 

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

 

The following table sets forth thecomputation of basic and diluted earnings (loss) per share for the three- andnine-months ended March 30, 2008 and April 1, 2007:

 

| ** **                                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **March 30,**     | ** ** | **April 1,**     | ** ** | **March 30,** | ** ** | **April 1,** | ** ** |
| ** **                                              | ** ** | **2008**               | ** ** | **2007**              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Numerator:                                              |       |                   |       |                  |       |   |   |   |   |
| Income (loss)  from continuing operations               |       | $                      | 1,150      |                  | $          | 235 |   | $ | 3,404 |   | $ | (6,593 | ) |
| Income (loss)  from discontinued operations             |       | (642                   | )          | (654                  | )          | 183 |   | (3,235 | ) |
| Net income  (loss)                                      |       | $                      | 508        |                  | $          | (419 | ) | $ | 3,587 |   | $ | (9,828 | ) |
|                                                    |       |                   |       |                  |       |   |   |   |   |
| Denominator:                                            |       |                   |       |                  |       |   |   |   |   |
| Weighted average  shares for basic earnings per share   |       | 30,377                 |       | 29,616                |       | 30,339 |   | 29,497 |   |
| Add dilutive  effect of stock options outstanding       |       | 130                    |       | 653                   |       | 174 |   | — |   |
| Weighted average  shares for diluted earnings per share |       | 30,507                 |       | 30,269                |       | 30,513 |   | 29,497 |   |
|                                                    |       |                   |       |                  |       |   |   |   |   |
| Basic and diluted:                                      |       |                   |       |                  |       |   |   |   |   |
| Earnings (loss) per share from continuing operations    |       | $                      | 0.04       |                  | $          | 0.01 |   | $ | 0.11 |   | $ | (0.22 | ) |
| Earnings (loss) per share from discontinued  operations |       | $                      | (0.02      | )                     | $          | (0.02 | ) | $ | 0.01 |   | $ | (0.11 | ) |
| Net income (loss) per share                             |       | $                      | 0.02       |                  | $          | (0.01 | ) | $ | 0.12 |   | $ | (0.33 | ) |

 

In addition to theoptions included in the dilutive effect above, the Company had outstandingoptions to purchase 3.8 million and 2.9 million shares of common stock for thethree- and nine-months ended March 30, 2008, respectively, and outstandingoptions to purchase 4.2 million and 4.3 million shares of common stock for thethree- and nine-month periods ended April 1, 2007, respectively.  These additional outstanding options have notbeen included in the Company’s computation of weighted average shares for dilutedearnings per share because the effect would have been 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 asincurred.  Changes in the warrantyreserve for the nine-month periods ended March 30, 2008 and April 1,2007 were as follows:

 

| ** **                                           | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **March 30,**    | ** ** | **April 1,** | ** ** |
| ** **                                           | ** ** | **2008**              | ** ** | **2007** | ** ** |
| Balance, beginning of fiscal year                    |       | $                     | 315        |   | $ | 430 |   |
| Additions charged to earnings for product warranties |       | 662                   |       | 218 |   |
| Use of reserve for warranty obligations              |       | (536                  | )          | (313 | ) |
| Balance, end of period                               |       | $                     | 441        |   | $ | 335 |   |

 

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

 

 

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8.             **Restructuring Costs**

 

As a result of thedivestiture of the Company’s power electronics business in October 2006,the Company downsized and relocated its corporate office to Menomonee Falls,Wisconsin from Chatsworth, California. The condensed consolidated statements of operations for the three- andnine-month periods ended April 1, 2007 include severance costs of $1.9million related to downsizing the corporate office, of which $0.6 million isincluded in research and development expense and $1.3 million is included inselling, general and administrative expense.

 

9.             **Pension Expense**

 

For the three- andnine-month periods ended March 30, 2008 and April 1, 2007, pensionexpense related to the Company’s defined benefit pension plan consisted of thefollowing:

 
| ** **                      | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **March 30,**     | ** ** | **April 1,**     | ** ** | **March 30,** | ** ** | **April 1,** | ** ** |
| ** **                      | ** ** | **2008**               | ** ** | **2007**              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Interest cost                   |       | $                      | 2,606      |                  | $          | 2,549 |   | $ | 7,821 |   | $ | 7,761 |   |
| Expected return on plan assets  |       | (3,405                 | )          | (3,321                | )          | (10,213 | ) | (8,626 | ) |
| Recognized net actuarial losses |       | 845                    |       | 930                   |       | 2,532 |   | 2,686 |   |
|                            |       |                   |       |                  |       |   |   |   |   |
| Total net pension expense       |       | $                      | 46         |                  | $          | 158 |   | $ | 140 |   | $ | 1,821 |   |

 

Pensionexpense is included in selling, general and administrative expense in theaccompanying condensed consolidated statements of operations.  Under funding regulations, current actuarialprojections indicate the Company will be required to make contributions to theplan of approximately $11.0 million within the next 12 months, beginning in July 2008.  The Company made a contribution of $2.75 millionin April 2008.

 

10.                                 **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- and nine-monthperiods ended March 30, 2008 and April 1, 2007 includes $225 and $675of deferred income tax expense, respectively, related to the increase in theCompany’s deferred tax liability as a result of the tax-deductible amortizationof goodwill.   The remaining taxprovision is comprised of income taxes of the Company’s foreign subsidiary inCanada.

 

The Company is currentlyevaluating whether ordinary transfers of the Company’s common stock betweenshareholders have resulted in an ownership change as defined in Section 382of the Internal Revenue Code.  If anownership change has occurred, utilization of the Company’s net operating lossand tax credit carryforwards may be subject to annual limitation provisionsprovided by the Internal Revenue Code and similar state provisions. Such anannual limitation could defer the utilization of loss carryforwards andcredits, accelerate payment of federal income taxes, and could result in theexpiration of a portion of the net operating loss carryforwards and creditsbefore utilization.  An ownership changeunder Section 382 of the Internal Revenue Code would not have a materialadverse effect on the Company’s results of operations or financial position, asthe Company has provided a full valuation allowance against all of its deferredtax assets.

 

11.                                 **Bank Borrowing Arrangements**

 

In September 2005,the Company entered into an agreement with Wells Fargo Foothill, Inc. (“WFF”)providing for a $13 million revolving credit facility.  On November 6, 2007, based upon mutualagreement between the Company and WFF, the revolving credit agreement wasterminated without penalty prior to its expiration date of December 31,2007, and the Company entered into an agreement with Associated Bank, N.A.providing for 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%, with borrowinglevels determined by a borrowing base formula as defined in the agreement,which includes the level of eligible 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 which

 

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require minimum operatingprofit levels and limit annual capital expenditures.  Borrowings under the Associated facility aresecured by the Company’s accounts receivable and inventory.  The Associated facility expires in November 2009unless extended by the parties prior to that time.  There were no amounts outstanding under theAssociated facility as of March 30, 2008.

 

12.                                 **Acquisitions**

 

On February 4, 2008,the Company purchased substantially all of the net assets, primarily accountsreceivable, inventory and accounts payable, of Enrange LLC (“Enrange”) for cash ofapproximately $1.75 million, a deferred payment of $0.75 million due in February 2009and contingent payments due over a three year period based on the futureoperating performance of the business under a negotiated earn-outschedule.  The minimum contingentpayments due under the earn-out schedule are $0.2 million, while achievement of100% of target performance would result in additional payments of $0.4 millionover the three year period.  Theexcess of purchase price over the fair value of the net assets acquired, basedon the initial purchase price allocation, was approximately $2.1 million andwas recognized as goodwill.   Enrangemanufactures radio remote controls for material handling and other industrialapplications.  The operatingresults of Enrange have been included in the Company’s consolidated resultseffective as of the acquisition date.

 

13.                                 **Subsequent Events**

 

As discussed in Note 4of Notes to Condensed Consolidated Financial Statements, in April 1998,Ole K. Nilssen filed a lawsuit in the U.S. District Court for the NorthernDistrict of Illinois alleging infringement by Magnetek of seven of his patentspertaining to electronic ballast technology. In April 2003, both parties agreed to submit limited issues indispute to binding arbitration before an arbitrator with a relevant technicalbackground.  The arbitration occurred in November 2004 and a decisionawarding Nilssen $23.4 million was issued in April 2005.  In April 2008,the arbitration award was confirmed in a judgment entered by the United StatesDistrict Court for the Northern District of Illinois.  The net amount dueand unpaid on the award is $22.0 million.

 

The Company subsequentlyfiled notice of its appeal of the judgment to the U.S. Court of Appeals for theSeventh Circuit.  A motion to stayexecution of the judgment pending the appeal was filed by the Company and astay was granted, pending the parties’ negotiations over use of a letter ofcredit to secure the judgment during the appeal.  Also subsequent to the judgment, Nilssenfiled a petition in the District Court to amend the judgment to includeinterest for the period from the date of the arbitration award to the date ofthe judgment.  The Company intends tofile a brief in opposition to Nilssen’s request for pre-judgment interest.  While Magnetek intends to oppose the interest award requested by Nilssen,the Company increased its accrual for the arbitration award by $3.2 million asof March 30, 2008.  The actual amount of interest awarded, if any,may be greater or less than the amount recorded by the Company.  Theparties have agreed upon a letter of credit to secure payment of the judgmentduring the appeal process, and in May 2008, the Company arranged the issuanceof a letter of credit in favor of Geo Foundation Ltd. in the amount of $22.3million, representing the net amount unpaid on the award and one year ofestimated post-judgment interest.  See Part IIOther Information, Item 1 Legal Proceedings below for additional information.

 

As previously disclosedin the Company’s Form 8-K dated April 22, 2008, the Company hasdecided to pursue the divestiture of its telecom power systems (“TPS”) businessafter concluding that the Company’s best growth prospects lay in its core powercontrol and systems product offerings. The TPS business represented $16.0 million of the Company’s total salesof $103.8 million for fiscal 2007.  The net book value of the TPSbusiness, comprised mainly of inventory, was approximately $3.2 million as of March 30,2008.  The Company plans to complete thedivestiture through a sale of the TPS business and related assets to a thirdparty acquirer.  The Company is currently in the process of estimating thecosts and charges that may be incurred in connection with the divestiture orexit of the TPS business.  The divestitureor exit is expected to be completed by the end of the first quarter of theCompany’s 2009 fiscal year.  Beginning with the fourth quarter of theCompany’s 2008 fiscal year, the Company will account for the TPS business as adiscontinued operation.

 

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

 

**Overview**

 

Magnetek, Inc. (“Magnetek”or “the Company”) is a global provider of digital power control systems thatare used to control motion and power primarily in material handling, elevator,telecommunications (“telecom”) and energy delivery applications.  Our systems consist primarily of programmablemotion control and power conditioning systems used in the followingapplications:  overhead cranes andhoists; elevators; wireless telecom; coal mining equipment; and fuel cells andwind turbines.  We believe that with ourtechnical and productive resources we are well positioned to respond toincreasing demand in our served markets. Our operations are located in North America, predominantly in MenomoneeFalls, Wisconsin, our Company headquarters.

 

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Ourmaterial handling offerings include drives, radio remote controls, and braking,collision-avoidance, and electrification subsystems, sold primarily to originalequipment manufacturers (“OEMs”) of overhead cranes and hoists.  We have a significant market share in NorthAmerica in alternating current (“AC”) drives and believe we have sales growthopportunities in direct current (“DC”) drives for retrofit applications and inwireless remote controls.

 

Ourelevator product offerings are comprised of highly integrated subsystems anddrives used 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 sales growth in available elevator markets by introducing newenergy-saving product offerings for both DC and AC applications, expanding thebreadth of our product offering to include competitive low-end products forlower performance applications, and using our new product offerings to expandgeographically, primarily into Asia.

 

Ourenergy delivery product offerings include power inverters for fuel cells andwind turbines, which deliver AC power from these energy sources to the utilitypower grid.  We believe we have salesgrowth opportunities in the wind market, which is growing rapidly in NorthAmerica as wind power becomes increasingly competitive from a cost standpointwith more traditional methods of power generation.  We believe our product offerings have us wellpositioned to take advantage of growth in the wind market and expect sales ofinverters for wind applications to be our fastest revenue growth product overthe next several years.  We also providedrives for underground coal mining equipment.

 

Ourtelecom product offerings are focused on providing back-up power for wirelessapplications.  In April 2008, weannounced our decision to divest our telecom power systems business after concluding that our best growthprospects lay in our core power control and systems businesses.  We believe we can better achieve our salesgrowth objectives by redirecting resources currently deployed in the TPSbusiness to our product offerings in the material handling, elevator and energydelivery markets.  As a result, beginningwith the fourth quarter of the fiscal 2008, we will account for the TPSbusiness as a discontinued operation.

 

During fiscal year 2007,we completed the divestiture of our power electronics business, repaid all ofour outstanding debt, and made a significant contribution to our definedbenefit pension plan.  While we are asmaller company following the divestiture of our power electronics business, weare a leader in several of our served markets, our operations are centralizedin North America and we believe we have several opportunities for sales growthin fiscal 2008 and 2009.

 

Our fiscal 2008 salesgrowth has been, and we believe our fiscal 2009 sales growth will be, dependenton successful introduction of new products for elevator and wind markets.  These products are gaining acceptance withcustomers in the marketplace, however, the rate of growth is slower than wepreviously expected.  In addition, we mayexperience a cyclical slowdown in the material handling market within the next12 months.  Sales of material handlingproduct offerings have comprised more than half of our sales in fiscal2008.  Gross margins in our continuingoperations have historically been in the range of upper 20%’s to 30% and we aretargeting this level of gross margin going forward, however, gross margin forthe remainder of fiscal 2008 may be negatively impacted by start up expensesrelated to production of new products. In addition, we intend to focus on controlling operating expenses and,through utilization of our net operating loss carryforwards for tax purposes,we believe the majority of our reported operating profit can be realized as netincome.

 

We intend to focus ourdevelopment and marketing capabilities on internal sales growth opportunitiesacross all product lines, with a near-term emphasis on energy efficient power productsfor alternative energy and elevator markets. In addition, we believe that future increased profitability is dependentupon increased sales revenue and improvement in gross margins.  While we believe we can achieve sales growththrough with existing product offerings and new product introductions, we maypursue selective external growth opportunities to enhance or expand our productofferings, market channels or technical resources.   Improvement in gross margins is mainlydependent upon a continuing economic expansion and successful cost reductionactions related to recent new elevator and wind inverter product offerings.

 

**Continuing Operations**

 

Salesin the third quarter of fiscal 2008 were $26.3 million, an increase of $3.0million or 13% from sales of $23.3 million in the third quarter of fiscal2007.  On a sequential basis, salesdeclined 9% from $29.0 million in the second quarter of fiscal 2008.  Despite an expected seasonal slowdown indemand from material handling customers in the third quarter, new quotationactivity and new orders for material handling products remained strong.  In addition, we shipped 15 wind invertersduring the third quarter of fiscal 2008 with a sales value of $1.8 million.

 

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Grossprofit of $6.8 million in the third quarter of fiscal 2008 was slightly lowerthan the same period in fiscal 2007, due mainly to lower sales of telecomproducts and shipments of our wind inverter product.  Our research and development (“R&D”) expensedecreased slightly in the third quarter of fiscal 2008 compared to the secondquarter of fiscal 2008.  We intend tocontinue to invest in R&D going forward, mainly in new product offeringsfor alternative energy applications and design modifications to reduce costsand enhance competitiveness of our products. Third quarter fiscal 2008 selling, general and administrative (“SG&A”)expense was $4.8 million, comparable to our SG&A expense for the secondquarter of fiscal 2008.  As a result, ourcontinuing operations reported income from operations of $1.1 million.

 

##### **Discontinued Operations**

##### ** **

Certain expenses relatedto previously divested businesses, including the operating results of the powerelectronics business divested in fiscal 2007, have been classified asdiscontinued operations in the accompanying condensed consolidated financialstatements and footnotes for all periods presented.  These costs have historically includedcharges for an arbitration award in a patent infringement claim and related legalfees, as well as certain expenses for product liability claims, environmentalissues, and asbestos claims (see Note 4 of Notes to 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 will include the results of our telecom power systemsbusiness, as well as additional costs we may incur related to businesses nolonger owned, and may include additional costs above those currently estimatedand accrued related to the divestiture of our power electronics business.

 

**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 July 1, 2007.

 

**Results of Operations - Three Months Ended March 30,2008 and April 1, 2007**

 

NetSales and Gross Profit

 

Netsales for the three months ended March 30, 2008 were $26.3 million, anincrease of 13.0% from the three months ended April 1, 2007 sales of $23.3million.  The increase was mainly due tohigher sales of material handling products of $2.3 million, sales of windinverters of $1.8 million, and higher sales of elevator products, partiallyoffset by lower sales in our telecom and mining product lines.   Net sales by product line were as follows,in millions:

 
| ** **              | ** ** | **Three Months Ended**  | ** ** |
|-------------------------|------------|-------------------------|------------|
| ** **              | ** ** | **March 30, 2008** | ** ** | **April 1, 2007** | ** ** |
| Material handling       |       | $                       | 16.0       |   | 61 | % | $ | 13.7 |   | 59 | % |
| Elevator motion control |       | 5.4                     |       | 21 | % | 4.2 |   | 18 | % |
| Energy delivery         |       | 3.2                     |       | 12 | % | 1.7 |   | 7 | % |
| Telecom power           |       | 1.7                     |       | 6 | % | 3.7 |   | 16 | % |
|                    |       |                    |       |   |   |   |   |   |   |
| Total net sales         |       | $                       | 26.3       |   | 100 | % | $ | 23.3 |   | 100 | % |

 

Grossprofit for the three months ended March 30, 2008 was $6.8 million, or25.9% of sales, versus $6.9 million, or 29.6% of sales, in the three monthsended April 1, 2007.  The reductionin gross profit as a percentage of sales in the three months ended March 30,2008 as compared to the three months ended April 1, 2007 was due to lowersales volume in our telecom product line and unfavorable sales mix due toincreased sales of lower margin wind inverters, partially offset by highersales volume of material handling and elevator products.

 

Researchand Development, Selling, General and Administrative

 

R&Dexpense was $0.8 million, or 3.2% of sales, for the three months ended March 30,2008, a slight decrease from R&D expense of $0.9 million, or 3.9% of sales,for the three months ended April 1, 2007, due mainly to lowerpayroll-related expenses.

 

15

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SG&A expense was $4.8million, or 18.4% of sales, for the three months ended March 30, 2008versus $5.6 million, or 24.1% of sales, for the three months ended April 1,2007.  Selling expenses for the threemonths ended March 30, 2008 were $2.6 million, comparable to $2.6 millionfor the three months ended April 1, 2007. General and administrative (“G&A”) expense was $2.2 million for thethree months ended March 30, 2008 compared to $3.0 million for the threemonths ended April 1, 2007.  Thedecrease in G&A expense for the three months ended March 30, 2008 ascompared to the three months ended April 1, 2007 is due to lowerprofessional fees, mainly legal and audit, lower insurance premiums, lowerpension expense, and reduced payroll costs.

 

Income from Operations

 

Incomefrom operations for the three months ended March 30, 2008 was $1.1 millioncompared to income from operations of $0.4 million for the three months ended April 1,2007.  The increase in income fromoperations for the three months ended March 30, 2008 as compared to thethree months ended April 1, 2007 was mainly due to reduced operatingexpenses in the three months ended March 30, 2008.

 

InterestIncome and Expense and Other Expense

 

Interestincome was $0.2 million for the three months ended March 30, 2008.  Interest income was $0.4 million and interestexpense was $0.1 million for the three months ended April 1, 2007.  The decrease in interest income for the threemonths ended March 30, 2008 as compared to the three months ended April 1,2007 was mainly due to lower interest rates during the three months ended March 30,2008.  Interest expense for the threemonths ended April 1, 2007 was comprised mainly of deferred financingamortization.

 

Provisionfor Income Taxes

 

Werecorded an income tax provision of $0.2 million for the three months ended March 30,2008 and $0.3 million for the three months ended April 1, 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 10 of Notes to CondensedConsolidated Financial Statements).

 

Incomefrom Continuing Operations

 

Werecorded income from continuing operations of $1.2 million for the three monthsended March 30, 2008, or $0.04 per share on both a basic and dilutedbasis, compared to income from continuing operations of $0.2 million for thethree months ended April 1, 2007, or a $0.01 per share on both a basic anddiluted basis.

 

Lossfrom Discontinued Operations

 

Loss from discontinuedoperations for the three months ended March 30, 2008 was $0.6 million, ora $0.02 loss per share on both a basic and diluted basis, compared to a lossfrom discontinued operations of $0.7 million, or a $0.02 loss per share on botha basic and diluted basis, for the three months ended April 1, 2007.  Loss from discontinued operations for thethree months ended March 30, 2008 includes $3.5 million of expensesrelated to previously divested businesses, comprised mainly of a charge of $3.2million to increase our accrual for a patent arbitration award (see Note 13 ofNotes to Condensed Consolidated Financial Statements), partially offset by anet a settlement gain of $2.9 million from a previous agreement withFederal-Mogul (see Note 4 of Notes to Condensed Consolidated FinancialStatements).  Loss from discontinuedoperations in the three months ended April 1, 2007 was comprised mainly ofa loss on the sale of our power electronics business of $0.4 million andexpenses related to previously divested businesses of $0.3 million.

 

NetIncome (Loss)

 

Ournet income was $0.5 million for the three months ended March 30, 2008, or$0.02 earnings per share on both a basic and diluted basis, compared to a netloss of $0.4 million for the three months ended April 1, 2007, or a $0.01loss per share on both a basic and diluted basis.

 

16

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**Results of Operations - Nine Months Ended March 30,2008 and April 1, 2007**

 

NetSales and Gross Profit

 

Netsales for the nine months ended March 30, 2008 were $81.4 million, anincrease of 5.9% from the nine months ended April 1, 2007 sales of $76.8million.  The increase was mainly due tohigher sales of material handling products of $6.1 million and wind invertersof $3.7 million, partially offset by lower sales of telecom powerproducts.  Net sales by product line wereas follows, in millions:

 
| ** **              | ** ** | **Nine Months Ended**   | ** ** |
|-------------------------|------------|-------------------------|------------|
| ** **              | ** ** | **March 30, 2008** | ** ** | **April 1, 2007** | ** ** |
| Material handling       |       | $                       | 51.3       |   | 63 | % | $ | 45.2 |   | 59 | % |
| Elevator motion control |       | 14.1                    |       | 17 | % | 14.2 |   | 18 | % |
| Energy systems          |       | 7.4                     |       | 9 | % | 5.4 |   | 7 | % |
| Telecom power systems   |       | 8.6                     |       | 11 | % | 12.0 |   | 16 | % |
|                    |       |                    |       |   |   |   |   |   |   |
| Total net sales         |       | $                       | 81.4       |   | 100 | % | $ | 76.8 |   | 100 | % |

 

Grossprofit for the nine months ended March 30, 2008 was $21.3 million, or26.1% of sales, versus $21.4 million, or 27.8% of sales, for the nine monthsended April 1, 2007.  The reductionin gross profit as a percentage of sales for the nine months ended March 30,2008 as compared to the nine months ended April 1, 2007 was due to lowersales volume in our telecom product line, unfavorable sales mix due to highersales of lower margin wind inverters, and start-up costs and manufacturingvariances related to ramp up of production of our wind inverter products,partially offset by higher sales volume of material handling products and theabsence of telecom restructuring costs for the nine months ended March 30,2008.  Gross profit for the nine monthsended April 1, 2007 includes restructuring costs of $0.9 million relatedto the relocation of our telecom manufacturing operations.

 

Researchand Development, Selling, General and Administrative

 

R&Dexpense was $2.6 million, or 3.2% of sales, for the nine months ended March 30,2008, compared to R&D expense of $3.7 million, or 4.8% of sales, for thenine months ended April 1, 2007. R&D expense for the nine months ended March 30, 2008 reflectslower payroll costs, mainly due to the elimination of our corporate R&Dfunction.    R&D expense for the ninemonths ended April 1, 2007 includes $0.6 million in severance expense.

 

SG&A expense was$15.1 million (18.6% of sales) for the nine months ended March 30, 2008versus $22.2 million (28.9% of sales) for the nine months ended April 1,2007.  Selling expenses for the ninemonths ended March 30, 2008 were $8.4 million, an increase of $0.4 millioncompared to $8.0 million for the nine months ended April 1, 2007, due tohigher volume related commissions. G&A expense was $6.7 million for the nine months ended March 30,2008 compared to $14.2 million for the nine months ended April 1, 2007,due to lower pension expense of $1.8 million, lower payroll-related costs dueto corporate staff reductions of $1.4 million, and lower professionalfees.  In addition, G&A expense forthe nine months ended April 1, 2007 includes a stock-based compensationcharge of $1.1 million and $1.3 million in severance costs (see Note 8 of Notesto Condensed Consolidated Financial Statements).

 

Income (Loss) fromOperations

 

Ourincome from operations for the nine months ended March 30, 2008 was $3.5million compared to a loss from operations of $4.5 million for the nine monthsended April 1, 2007.  The increasein income from operations for the nine months ended March 30, 2008 ascompared to the nine months ended April 1, 2007 was mainly due to reductionsin operating expenses and the absence of restructuring and relocation costs forthe nine months ended March 30, 2008.

 

InterestIncome and Expense and Other Expense

 

Interestincome was $0.9 million and interest expense was $0.3 million for the nine monthsended March 30, 2008.  Interestincome was $1.6 million and interest expense was $2.3 million for the ninemonths ended April 1, 2007.  Thedecrease in interest income for the nine months ended March 30, 2008 ascompared to the nine months ended April 1, 2007 was due to higher cashbalances held in short-term investments during November and December 2006and $0.3 million in interest income related to a previous tax settlement in thenine months ended April 1, 2007.

 

Thedecrease in interest expense for the nine months ended March 30, 2008 ascompared to the nine months ended April 1, 2007 was due to the repaymentof all of our debt following the divestiture of the power electronics businessin October 2006.  Interest expensefor the nine months ended March 30, 2008 is comprised mainly of deferredfinancing amortization.  Interest expensefor the nine months ended April 1, 2007 includes the write-off of deferredfinancing assets of $0.7 million from the early retirement of debt.

 

Otherexpense for the nine months ended April 1, 2007 includes a prepaymentpenalty of $0.3 million from the early retirement of debt.

 

17

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** **

 

Provisionfor Income Taxes

 

Werecorded an income tax provision of $0.7 million for the nine months ended March 30,2008.  Despite the pretax loss of $5.6million for the nine months ended April 1, 2007, we recorded a taxprovision of $1.0 million for that period. The provision in both periods was mainly due to non-cash deferred taxprovisions related to changes in deferred tax liabilities from goodwillamortization and, to a lesser extent, provisions for income taxes on our pretaxincome in Canada (see Note 10 of Notes to Condensed Consolidated FinancialStatements).

 

Income(Loss) from Continuing Operations

 

Werecorded income from continuing operations of $3.4 million for the nine monthsended March 30, 2008, or $0.11 earnings per share on both a basic anddiluted basis, compared to a loss from continuing operations of $6.6 millionfor the nine months ended April 1, 2007, or a $0.22 loss per share on botha basic and diluted basis.

 

Income(Loss) from Discontinued Operations

 

Income from discontinuedoperations for the nine months ended March 30, 2008 was $0.2 million, or$0.01 per share on both a basic and diluted basis, compared to a loss fromdiscontinued operations of $3.2 million, or a $0.11 loss per share on both abasic and diluted basis, for the nine months ended April 1, 2007.  Income from discontinued operations for thenine months ended March 30, 2008 includes a net settlement gain of $3.9million from a previous agreement with Federal-Mogul (see Note 4 of Notes toCondensed Consolidated Financial Statements), partially offset by $3.7 millionof expenses related to previously divested businesses, comprised mainly of acharge of $3.2 million to increase our accrual for a patent arbitration award(see Note 13 of Notes to Condensed Consolidated Financial Statements).  Loss from discontinued operations for thenine months ended April 1, 2007 was comprised mainly of losses in ourdiscontinued power electronics business of $2.3 million (prior to itsdivestiture in October 2006), a loss on the sale of the business of $0.4million, and expenses related to previously divested businesses of $0.5million.

 

NetIncome (Loss)

 

Ournet income was $3.6 million for the nine months ended March 30, 2008, or$0.12 per share, basic and diluted, compared to a net loss of $9.8 million forthe nine months ended April 1, 2007, or a $0.33 loss per share on both abasic and diluted basis.

 

**Liquidity and Capital Resources**

 

Our cash and cashequivalent balance, including restricted cash, increased $5.9 million duringthe nine months ended March 30, 2008, from $28.3 million at July 1,2007 to $34.2 million at March 30, 2008. Restricted cash as of March 30, 2008 was $22.3 million.  During the nine months ended March 30,2008, our accounts receivable decreased by $2.1 million; however, ourinventories increased $1.1 million, mainly related to increased purchases ofinventory for wind inverters, and accounts payable and accrued liabilitiesdecreased $2.6 million, mainly due to a decrease in our unearned revenuebalance, incentive compensation payments made in September 2007, andsettlement of certain indemnification claims related to the divestiture of ourpower electronics business.  Our capitalexpenditures for the nine months ended March 30, 2008 were $1.0 millionand while we may make further investments to increase capacity for and improveefficiency in the production of wind inverters, we do not anticipate capitalexpenditures in fiscal 2008 will exceed $1.5 million.  The expected amount of capital expenditurescould change depending upon changes in revenue levels, our financial conditionand the general economy.

 

In the third quarter offiscal 2008, we received total payments of $4.5 million from a Federal-Mogulinsurance settlement trust under a previously negotiated agreement withFederal-Mogul.  The amount representsprimarily the recovery of previously incurred legal fees for the defense ofcertain asbestos-related lawsuits (see Note 4 of Notes to CondensedConsolidated Financial Statements).

 

OnFebruary 4, 2008, we purchased substantially all of the assets of EnrangeLLC (“Enrange”),for cash of approximately $1.75 million, a deferred payment of $0.75 milliondue in February 2009, and contingent payments payable over a three yearperiod based on the future operating performance of the business under anegotiated earn-out schedule (see Note 12 of Notes to Condensed ConsolidatedFinancial Statements).

 

On November 6,2007, based upon mutual agreement between us and Wells Fargo Foothill, Inc.(“WFF”), our amended revolving credit agreement with WFF was terminated withoutpenalty prior to its expiration date of December 31, 2007, and we enteredinto an agreement with Associated Bank, N.A. providing for a $10 millionrevolving credit facility (the “Associated facility”).  Borrowings under the Associated facility bearinterest at the London Interbank Offering Rate 

 

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(“LIBOR”) plus 1.5%,with borrowing 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 aresecured 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 debt covenants as of March 30,2008.

 

Primarily as a result ofthe decline in interest rates over the past several years, the accumulatedbenefit obligation of our defined benefit pension plan currently exceeds planassets.  We used a portion of theproceeds from the divestiture of our power electronics business to contribute$30.0 million to our pension plan in December 2006.  Under funding regulations, actuarialprojections as of December 2007 indicate that we will be required to makequarterly contributions to the plan aggregating approximately $11.0 millionwithin the next 12 months, beginning in July 2008.  We made a contribution of $2.75 million in April 2008funded by existing cash on hand. Required contributions beyond the next 12 months 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, andcould still be significant.

 

We are subject tocertain potential environmental and legal liabilities associated primarily withpast divestitures (see Note 4 of Notes to Condensed Consolidated FinancialStatements).   In the fourth quarter offiscal 2005, a decision was rendered in a patent infringement arbitrationproceeding brought against us by Ole K. Nilssen.  In settlement of pending litigation, weagreed to submit the matter to binding arbitration, and in April 2005, thearbitrator awarded damages to Mr. Nilssen of $23.4 million, to be paidwithin ten days of the award.  Mr. Nilssen’scounsel filed a motion to enter the award in U.S. District Court for theNorthern District of Illinois, and we filed a counter-motion to vacate theaward on grounds that it was fraudulently obtained.  Our request for oralargument was granted and the hearing was held in October 2005.  In April 2008, the arbitration award wasconfirmed in a judgment entered by the United States District Court for theNorthern District of Illinois.  The net amount due and unpaid on the awardis $22.0 million.  We subsequently filednotice of our appeal of the judgment to the U.S. Court of Appeals for theSeventh Circuit.  The parties have agreedupon a letter of credit to secure payment of the judgment during the appealprocess, and in May 2008, we arranged the issuance of a letter of credit infavor of Geo Foundation Ltd. in the amount of $22.3 million.  An unfavorable decision in the appeal willresult in payment of the award to Nilssen. See Part II Other Information, Item 1 Legal Proceedings below foradditional information.

 

We did not have anyoff-balance sheet arrangements or variable interest entities as of March 30,2008.

 

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

 

**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.

 

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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 July 1,2007, under the heading “Risk Factors Affecting the Company’s Outlook”, as wellas below in Part II, Item 1A 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 July 1, 2007.  We did nothave any outstanding hedge instruments or foreign currency contractsoutstanding at March 30, 2008 or April 1, 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 March 30, 2008, and (ii) nochange in internal control over financial reporting occurred during the quarterended March 30, 2008, that has materially affected, or is reasonablylikely to materially affect, such internal control over financial reporting.

 

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. The information in this “Controls and Procedures” section relates to theevaluation conducted by such officers that is referred to in the attachedcertifications, and it should be read in conjunction with the attachedcertifications for a more complete understanding of the topics presented.

 

**PART II — OTHER INFORMATION**

 

**Item 1 — Legal Proceedings**

 

Information about ourlegal proceedings is contained in Part II, Item 3, Legal Proceedings, Part I,Environmental Matters, and Note 11 in the Notes to Consolidated FinancialStatements in our Annual Report on Form 10-K for the fiscal year ended July 1,2007, which is incorporated herein by reference, and in Note 4 and Note 13 ofthe Notes to Condensed Consolidated Financial Statements contained in theQuarterly Reports on Form 10-Q for the first and second quarters of fiscalyear 2008. Except as reported in the paragraphs below, there have been nomaterial developments with respect to these matters during the quarter ended March 31,2008.

 

As previously reportedby Magnetek, in April 1998, Ole K. Nilssen (“Nilssen”) filed alawsuit in the U.S. District Court for the Northern District of Illinois (the “DistrictCourt”) alleging infringement by Magnetek of seven of his patents pertaining toelectronic ballast technology.  In April 2003,both parties agreed to submit limited issues in dispute to binding arbitrationbefore an arbitrator with a relevant technical background.  Thearbitration occurred in November 2004 and a decision awarding Nilssen $23.4million was issued in April 2005.  Nilssen filed a motion to enter theaward in the District Court, and the Company filed a counter-motion to vacatethe award.  Oral argument took place at ahearing in October 2005.  In April 2008,the arbitration award was confirmed in a judgment entered by the DistrictCourt.  The net amount due and unpaid on the award is $22.0 million.  The Company subsequently filed notice of itsappeal of the judgment to the U.S. Court of Appeals for the SeventhCircuit.  A motion to stay execution ofthe judgment pending the appeal was filed by the Company, and a stay wasgranted pending the parties’ negotiations over use of a letter of credit tosecure the judgment during the appeal. Also subsequent to the judgment, Nilssen filed a petition in theDistrict Court to amend the judgment to include interest for the period fromthe date of the arbitration award to the date of the judgment.  The Company intends to file a brief inopposition to Nilssen’s request for pre-judgment interest.  The parties have agreed upon a letter ofcredit to secure payment of the judgment during the appeal process, and in May 2008,the Company arranged the issuance of a letter of credit in favor of GeoFoundation Ltd. in the amount of $22.3 million.

 

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As previously reportedby the Company, Nilssen filed a second lawsuit alleging patent infringementagainst Universal Lighting Technologies, Inc. (“ULT”), the company whichpurchased Magnetek’s lighting business in February 2003.  Magnetek accepted a claim for indemnificationfrom ULT subject to the limitations set forth in the sale agreement.  The case was pending in the U.S. DistrictCourt for the Middle District of Tennessee (the “TN District Court”), but wasstayed pending Nilssen’s appeal of an unfavorable decision against him inanother case.  The unfavorable decisionagainst Nilssen in the other case was upheld on appeal, and another unfavorabledecision was entered against Nilssen in a second case pending in the DistrictCourt.  Nilssen and Magnetek entered intoa consent judgment for dismissal of the ULT case on collateral estoppel groundsbased on the unfavorable decisions in the other two cases.  The TN District Court entered the consentjudgment on April 21, 2008.  Theconsent judgment is without prejudice to Nilssen’s right to bring a motion toset aside the judgment if the patent unenforceability determinations in eitherof the other two cases is vacated or reversed. The consent judgment is also without prejudice to ULT’s rights to seektaxation of costs and to bring a motion for attorney’s fees as the prevailingparty.

 

**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 July 1, 2007.

 

**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 by the Company or any “affiliatedpurchaser” (as defined in Rule 10b-18(a)(3) of the SecuritiesExchange Act of 1934) during our third fiscal quarter ended March 30,2008.

 

**Item3 — Defaults upon Senior Securities**

 

None.

 

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

 

None.

 

**Item5 — Other Information**

 

None.

 

**Item6 — Exhibits**

 

(a)                                  Index to Exhibits

 

3.1                        Magnetek, Inc. Amended and RestatedBylaws **

 

10.1                  Asset Purchase Agreement dated February 4,2008 by and among Magnetek, Inc., Enrange LLC, W. Christopher Dulin,William Gibson and David Ashburn ***

 

31.1                  Certification of the Chief ExecutiveOfficer pursuant to Rule 13a-14(a) of the Securities Exchange Act of1934. *

 

31.2                  Certification of the Chief FinancialOfficer pursuant to Rule 13a-14(a) of the Securities Exchange Act of1934. *

 

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.

 

******           Incorporated by reference to CurrentReport on Form 8-K of the Company filed March 31, 2008.

 

***         Incorporated by reference to CurrentReport on Form 8-K of the Company filed February 5, 2008.

 

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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: May 9,  2008 |   | /s/ David P.  Reiland                       |   |
|                    |   | David P. Reiland                            |   |
|                    |   | President and  Chief Executive Officer      |   |
|                    |   | (Duly authorized  officer of the Registrant |   |
|                    |   | and principal  executive officer)           |   |
|                    |   |                                        |   |
|                    |   |                                        |   |
| Date:  May 9, 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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