Magnetek 10-Q 2003 Q1 Quarterly report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:   March 31, 2002

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 of registrant as specified in its charter)
Delaware	95-3917584
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
10900 Wilshire Blvd., Suite 850 Los Angeles, California 90024
(Address of principal executive offices)
(Zip Code)
(310) 208-1980
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)

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

Yes   ý     No   o

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of Registrant’s Common Stock, as of May 3, 2002, 22,528,335 shares.

2002 MAGNETEK FORM 10-Q

TABLE OF CONTENTS FOR THE QUARTERLY REPORT ON FORM 10Q

FOR THE FISCAL QUARTER AND NINE MONTHS ENDED MARCH 31, 2002

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
Part II.	Other Information
Item 1.	Legal Proceedings
Item 6.	Exhibits and Reports on Form 8-K

2

PART I.     FINANCIAL INFORMATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to fairly present the financial position as of March 31, 2002 and the results of operations and cash flows for the three-month and nine-month periods ended March 31, 2002 and 2001. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company’s latest Annual Report on Form 10-K. Results for the three-months and nine-months ended March 31, 2002 are not necessarily indicative of results which may be experienced for the full fiscal year.

This document contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties which, in many cases, are beyond the control of the Company. These include, but are not limited to, economic conditions in general, business conditions in energy and electronic equipment markets, competitive factors such as pricing and technology, risks associated with acquisitions and divestitures, and the risk that the Company’s ultimate costs of doing business exceeds present estimates. Further information on factors that could affect Magnetek’s financial results can be found in the Company’s filings with the Securities and Exchange Commission.

3

ITEM 1

MAGNETEK, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE THREE MONTHS ENDED

March 31, 2002 and 2001

(amounts in thousands except per share data)

(unaudited)

	2002		2001
Net sales	$	44,444	$	78,956
Cost of sales	33,917		57,702
Gross profit	10,527		21,254
Research and development	2,472		2,698
Selling, general and administrative	7,499		11,478
Income from operations	556		7,078
Interest and other expense	68		1,781
Income from continuing operations before provision for income taxes	488		5,297
Provision for income taxes	186		2,015
Income from continuing operations	302		3,282
Discontinued operations -
Loss from operations (net of taxes)	—		(1,091		)
Net income	$	302	$	2,191
Earnings per common share
Basic:
Income from continuing operations	$	0.01	$	0.15
Loss from discontinued operations	—		(0.05		)
Net income	$	0.01	$	0.10
Diluted:
Income from continuing operations	$	0.01	$	0.14
Loss from discontinued operations	—		(0.04		)
Net income	$	0.01	$	0.10

See accompanying notes

4

MAGNETEK, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE NINE MONTHS ENDED

March 31, 2002 and 2001

(amounts in thousands except per share data)

(unaudited)

	2002			2001
Net sales	$	143,987		$	232,694
Cost of sales	110,689			174,317
Gross profit	33,298			58,377
Research and development	7,237			6,738
Selling, general and administrative	23,237			36,201
Income from operations	2,824			15,438
Interest and other (income) expense	(158		)	5,151
Income from continuing operations before provision for income taxes	2,982			10,287
Provision for income taxes	1,134			3,917
Income from continuing operations	1,848			6,370
Discontinued operations -
Income from operations (net of taxes)	—			2,537
Net income	$	1,848		$	8,907
Earnings per common share
Basic:
Income from continuing operations	$	0.08		$	0.29
Income from discontinued operations	—			0.11
Net income	$	0.08		$	0.40
Diluted:
Income from continuing operations	$	0.08		$	0.28
Income from discontinued operations	—			0.11
Net income	$	0.08		$	0.39

See accompanying notes

5

MAGNETEK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2002 and JUNE 30, 2001

(amounts in thousands)

	March 31			June 30
	(unaudited)
ASSETS
Current assets:
Cash	$	5,006		$	5,310
Accounts receivable	42,392			51,074
Inventories	40,411			48,907
Prepaid expenses and other	11,384			11,677
Total current assets	99,193			116,968
Property, plant and equipment	84,842			76,602
Less-accumulated depreciation and amortization	54,030			45,664
	30,812			30,938
Net assets of discontinued operations	—			19,500
Goodwill	90,059			88,784
Prepaid pension and other assets	64,929			65,564
Total Assets	$	284,993		$	321,754
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	19,197		$	33,946
Accrued liabilities	21,166			33,743
Current portion of long-term debt	709			5,822
Total current liabilities	41,072			73,511
Long-term debt, net of current portion	6,177			4,312
Other long-term obligations	36,017			37,915
Deferred income taxes	17,104			22,309
Commitments and contingencies
Stockholders’ equity
Common stock	225			227
Paid in capital in excess of par value	94,952			97,951
Retained earnings	116,243			114,395
Accumulated other comprehensive loss	(26,797		)	(28,866		)
Total stockholders’ equity	184,623			183,707
Total Liabilities and Stockholders’ Equity	$	284,993		$	321,754

See accompanying notes

6

MAGNETEK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE NINE MONTHS ENDED

March 31, 2002 and 2001

(amounts in thousands except per share data)

(unaudited)

	2002			2001
Cash flows from operating activities:
Net income from continuing operations	$	1,848		$	6,370
Adjustments to reconcile income to net cash used in operating activities:
Depreciation	6,553			8,001
Amortization	—			2,176
Changes in operating assets and liabilities of continuing operations	(21,507		)	(25,137		)
Total adjustments	(14,954		)	(14,960		)
Net cash used in operating activities	(13,106		)	(8,590		)
Cash flows from investing activities:
Proceeds from sale of discontinued businesses and other assets	24,414			28,428
Purchase of and investment in companies, net of cash acquired	—			(33,071		)
Capital expenditures	(5,363		)	(6,166		)
Net cash provided by (used in) investing activities	19,051			(10,809		)
Cash flow from financing activities:
Borrowings under bank and other long-term obligations	2,911			34,709
Proceeds from issuance of common stock	915			925
Stock repurchases	(3,916		)	(10,229		)
Repayment of bank and other long term obligations	(6,159		)	—
Net cash provided by (used in) financing activities	(6,249		)	25,405
Net cash provided by (used in) continuing operations	(304		)	6,006
Cash flow from discontinued operations:
Income from discontinued operations	—			2,537
Adjustments to reconcile income to net cash used in discontinued operations:
Depreciation and amortization	—			7,903
Changes in operating assets and liabilities of discontinued operations, including fees and expenses of disposal	—			(8,226		)
Capital expenditures	—			(7,855		)
Net cash used in discontinued operations	—			(5,641		)
Net increase (decrease) in cash	$	(304	)	$	365
Cash at the beginning of the period	5,310			343
Cash at the end of the period	$	5,006		$	708
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	327		$	4,966
Income taxes	$	5,977		$	43

See accompanying notes

7

MAGNETEK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2002

(All dollar amounts are in thousands)

(unaudited)

1.      Summary of significant accounting policies

Fiscal period – The Company uses a fifty-two, fifty-three week fiscal year. Fiscal periods end on the Sunday nearest the end of the month. For clarity of presentation, all periods are presented as if they ended on the last day of the calendar period. The three-month and nine-month periods ended March 31, 2002 and 2001 each contained thirteen weeks and thirty-nine weeks, respectively.

Principles of consolidation – The consolidated financial statements include the accounts of Magnetek, Inc. and its subsidiaries (the “Company”). All significant inter-company accounts and transactions have been eliminated.

Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates.

Commodity Derivative Instruments – The Company historically utilized derivative financial instruments to reduce market fluctuations in commodity (copper wire) and foreign currency (peso related labor costs) exposures specific to businesses included as discontinued operations. As a condition to the sale of its Lighting business on June 15, 2001, the Company agreed to provide for a period of five months following the sale, a fixed peso to dollar conversion rate for a specified amount of peso denominated costs. The Company’s use of derivative instruments included only peso futures contracts related to this obligation. The contract terms of these derivatives extended through November 30, 2001 and were completed through a financial settlement and not through the physical receipt of the currency. This derivative did not qualify for hedge treatment under SFAS No. 133. The Company included in its loss on sale of the Lighting business, the difference between the guaranteed conversion rate and the market rate at the sale date. Changes in fair value were being recorded against the loss on sale of the Lighting business. With the completion of the peso transactions on November 30, 2001, the Company currently has no derivative instruments outstanding. The Company has established policies and procedures that govern the management of these exposures through the use of financial instruments. The Company’s policy prohibits the use of derivative financial instruments for speculative or trading purposes.

The Company accounts for derivatives in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities and its amendments, Statements 137 and 138 (“SFAS 133”). Under SFAS 133, all derivative instruments are recognized as assets or liabilities in the balance sheet and measured at fair value. Accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivatives designated as cash flow

8

hedges, changes in fair value are recognized in accumulated other comprehensive income in the balance sheet until the hedged item is recognized in earnings. Changes in the fair value of derivative instruments, which are not designated as hedges, are recorded in earnings as the changes occur.

2.      Inventories

Inventories at March 31, 2002 and June 30, 2001 consist of the following:

	March 31		June 30
Raw materials	$	25,586	$	26,186
Work-in-process	9,394		8,839
Finished goods	5,431		13,882
	$	40,411	$	48,907

3.      Commitments and Contingencies

The Company is defending against a number of product liability lawsuits involving fires allegedly caused by defective ballasts. Management believes that insurance coverage for the alleged claims exists, subject to applicable deductibles, and that none of these proceedings individually or in the aggregate will materially affect the financial position or results of operations of the Company. On June 15, 2001, the Company sold the assets, properties and interests of its Lighting business, as reported in Form 8-K filed with the Commission on July 2, 2001. The sale limits the Company’s potential exposure to future product liability lawsuits of this type.

In April 1998, Ole K. Nilssen filed a lawsuit in the U.S. District Court for the Northern District of Illinois alleging infringement by the Company of seven of his patents pertaining to electronic ballast technology. Nilssen seeks unspecified damages and injunctive relief to preclude the Company from making, using or selling products allegedly infringing his patents. The Company denies that any of its products infringe any valid patent and has filed a response asserting its affirmative defenses, as well as a counterclaim for a judicial declaration that its products do not infringe the patents asserted by Nilssen and also that the asserted patents are invalid. The Company intends to vigorously defend against Nilssen’s claims and although it cannot predict the outcome of the lawsuit, management does not believe that the financial impact of such litigation will be material to the financial position or results of operations of the Company.

The Company has from time to time discovered contamination by hazardous substances at certain of its facilities. In response, the Company conducts remediation activities to bring its facilities into compliance with applicable laws and regulations. The Company’s remediation activities for the first nine months of fiscal 2002 did not involve material expenditures and the Company does not expect its expenditures for the remainder of fiscal 2002 to be material. The Company has also been identified by the United States Environmental Protection Agency and certain state agencies as a potentially responsible party for cleanup costs associated with alleged past waste disposal practices at several facilities and offsite locations. Its remediation activities as a potentially responsible party were not material for the first nine months of fiscal 2002 and are not expected to be material for the remainder of fiscal 2002. Although the materiality of future expenditures for environmental activities may be affected by the level and type of contamination, the extent and nature of cleanup activities required by the governmental authorities, the nature of the Company’s alleged connection to the

9

contaminated property, the number and financial resources of other potentially responsible parties, the availability of indemnification rights against third parties and the identification of additional contaminated sites, the Company’s estimated share of liability, if any, for environmental remediation is not expected to be material to the Company’s financial position or results of operations.

The Company is frequently named, along with numerous other defendants, in asbestos-related lawsuits. While the outcome of these cases cannot be predicted with certainty, the Company is aggressively seeking to be dismissed from them and does not believe they will have a material adverse effect on its financial position or results of operations, since it has never produced asbestos-containing products and is either contractually indemnified from or believes that it is not liable for these asbestos-related claims, all of which arise from business operations it acquired and no longer owns.

In connection with certain divestitures, the Company has agreed, from time to time, to indemnify buyers with respect to environmental liabilities associated with the divested operations, subject to various conditions and limitations. Expenditures related to the Company’s indemnification obligations were not material in the first nine months of fiscal 2002 and are not expected to be material in the remainder of fiscal 2002. Although future expenditures pursuant to such indemnification obligations could be material, depending upon the extent and nature of subsequently discovered contamination, the Company does not expect its obligations to require material expenditures.

Prior to the Company’s purchase of Century Electric, Inc. (“Century Electric”) in 1986, Century Electric acquired a business from Gould Inc. (“Gould”) in May 1983 that included a leasehold interest in a fractional horsepower electric motor manufacturing facility located in McMinnville, Tennessee. In connection with this acquisition, Gould agreed to indemnify Century Electric from and against liabilities and expenses arising out of the handling and cleanup of certain waste materials, including but not limited to cleaning up any polychlorinated biphenyls (“PCBs”) at the McMinnville facility (the “1983 Indemnity”). Investigation has revealed the presence of PCBs and other substances, including solvents, in the soil and in the groundwater underlying the facility and in certain offsite soil, sediment and biota samples. Century Electric notified the Tennessee Department of Environment and Conservation, Division of Superfund, of the test results from its investigation and the McMinnville plant is listed as a Tennessee Inactive Hazardous Substance Site. A report on the site was presented to the Tennessee legislature and community officials and plant employees were notified of the presence of contaminants at the McMinnville facility. In 1995, Gould completed an interim remedial excavation and disposal of onsite soil containing PCBs. Gould also conducted preliminary investigation and cleanup of certain onsite and offsite contamination. The cost of any further investigation and cleanup of onsite and offsite contamination cannot presently be determined, but the Company believes such costs (including ancillary costs) are covered by the 1983 Indemnity. The Company sold its leasehold interest in the McMinnville plant and while the Company believes that Gould will continue to perform substantially under its indemnity obligations, Gould’s substantial failure to perform such obligations could have a material adverse effect on the Company’s financial position or results of operations.

The Company acquired the stock of Universal Manufacturing Company (“Universal”) from a predecessor of Fruit of the Loom (“FOL”), and the predecessor agreed to indemnify the Company against certain environmental liabilities arising from Universal’s pre-acquisition

10

activities. Environmental liabilities covered by the indemnification agreement include completion of additional cleanup activities, if any, at the Bridgeport, Connecticut facility (recently sold in connection with the sale of the Transformer business) and defense and indemnification against liability related to offsite disposal locations where Magnetek may have a share of potential response costs. FOL filed a petition for Reorganization under Chapter 11 of the Bankruptcy Code and the Company filed a proof of claim in the proceeding for obligations related to the environmental indemnification agreement. While the Company believes that FOL has substantially completed the clean-up obligations required by the indemnification agreement, its ability to set aside any remaining obligations through bankruptcy or the discovery of additional environmental contamination at the Bridgeport facility could have a material adverse effect on the Company’s financial position or results of operations.

4.      Discontinued Operations

The accompanying financial statements conform to discontinued operations treatment for current and historical periods. The results of the Company’s electrical product businesses (Lighting and Transformers) are included within discontinued operations. The $19.5 million classified on the June 30, 2001 balance sheet as net assets of discontinued operations was the receivable value for the sale of the Transformer business on June 29, 2001 and was subsequently collected on July 2, 2001.

On June 15, 2001, the Company sold its Lighting business to Universal Lighting Technologies, Inc., a subsidiary of Littlejohn Fund II, L.P., and on June 29, 2001 sold its Transformer business to American Circuit Breaker Corporation. Pre-tax proceeds received from the sale of the Lighting business were $105 million and were used to repay borrowings under the Bank Loan Agreement and repurchase shares of the Company’s common stock in fiscal year 2001. Proceeds from the sale of the Transformer business were received July 2, 2001 and were used to repay borrowings under the Bank Loan Agreement and repurchase shares of the Company’s common stock in fiscal year 2002. Post closing adjustments are complete for the sale of the Lighting business and are expected to be finalized for the Transformer business in the Company’s fourth fiscal quarter.

5.      Acquisitions and Goodwill

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, effective July 1, 2001. Under SFAS 142, goodwill is no longer amortized but rather reviewed for impairment annually, or more frequently if certain indicators arise. The Company has completed the initial step of the transitional impairment test required upon adoption of SFAS No. 142 and has determined that there is no impairment to its recorded goodwill balances. Had the Company been accounting for its goodwill under SFAS No. 142 for all periods presented, the Company’s net income and earnings per share would have been as follows:

11

	Three Months Ended March 31				Nine Months Ended March 31
	2002		2001		2002		2001
Reported net income	$	302	$	2,191	$	1,848	$	8,907
Add back goodwill amortization net of tax	—		370		—		973
	$	302	$	2,561	$	1,848	$	9,880
Basic earnings per share:
Reported net income	$	0.01	$	0.10	$	0.08	$	0.40
Goodwill amortization net of tax	—		0.02		—		0.04
Adjusted net income	$	0.01	$	0.12	$	0.08	$	0.44
Diluted earnings per share:
Reported net income	$	0.01	$	0.10	$	0.08	$	0.39
Goodwill amortization net of tax	—		0.01		—		0.04
Adjusted net income	$	0.01	$	0.11	$	0.08	$	0.43

6.      Comprehensive Income

During the third quarter of fiscal 2002 and 2001, total comprehensive income was $649 and $1,090 respectively. For the first nine months of fiscal 2002 and fiscal 2001, comprehensive income was $3,917 and $7,308 respectively.

12

7.      Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share.

	Three Months Ended March 31					Nine Months Ended March 31
	3Q 2002		3Q 2001			3Q  YTD 2002		3Q  YTD 2001
Basic earnings per share:
Income from continuing operations	$	302	$	3,282		$	1,848	$	6,370
Income (loss) from discontinued operations	—		(1,091		)	—		2,537
Net income	$	302	$	2,191		$	1,848	$	8,907
Weighted average shares for basic earnings per share	22,455		22,266			22,505		22,474
Basic earnings per share:
Income from continuing operations	$	0.01	$	0.15		$	0.08	$	0.29
Income (loss) from discontinued operations	—		(0.05		)	—		0.11
Basic earnings per share	$	0.01	$	0.10		$	0.08	$	0.40
Diluted earnings per share:
Income from continuing operations	$	302	$	3,282		$	1,848	$	6,370
Income (loss) from discontinued operations	—		(1,091		)	—		2,537
Net income	$	302	$	2,191		$	1,848	$	8,907
Weighted average shares for basic earnings per share	22,455		22,266			22,505		22,474
Effect of dilutive stock options	395		547			341		466
Weighted average shares for diluted earnings per share	22,850		22,813			22,846		22,940
Diluted earnings per share:
Income from continuing operations	$	0.01	$	0.14		$	0.08	$	0.28
Income (loss) from discontinued operations	—		(0.04		)	—		0.11
Diluted earnings per share	$	0.01	$	0.10		$	0.08	$	0.39

13

ITEM 2

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:

Three Months ended March 31, 2002 vs. 2001

Net Sales and Gross Profit

Magnetek’s net sales for the third quarter of fiscal 2002 were $44.4 million, a decrease of 43.7% from the third quarter of fiscal 2001 of $79.0 million. Prior year sales included $5.4 million associated with the standard drives business that was sold on January 29, 2001. Adjusting for the revenues of the standard drives business, sales in the third quarter of fiscal 2002 declined 39.7% from prior year levels. The decline in sales was primarily a function of reduced demand in the telecommunications sector. Both foreign and domestic operations experienced sluggish activity for complete power systems units and individual components.

The Company’s gross profit declined to $10.5 million (23.7% of net sales) in the third quarter of fiscal 2002 compared to $21.3 million (26.9% of net sales) in the third quarter of fiscal 2001. Of the dollar decline from prior year, $1.1 million was associated with the standard drives business sold in January of last year. The balance of the gross profit decline reflects the diminished sales volume in the current quarter compared to the year ago period.

Research and Development and Selling, General and Administrative

Research and development (R&D) expense was $2.5 million (5.6% of net sales) in the third quarter of fiscal 2002 compared to $2.7 million (3.4% of net sales) in the third quarter of fiscal 2001. Fiscal 2001 research and development expense as a percent of sales was 3.7% after eliminating the effect of sales associated with the standard drives business sold in January of 2001. Research and development expenses declined modestly in the third quarter of 2002 but the Company continues to invest in developing new products (e.g. high efficiency dc-dc converters, smart appliances, high power density rectifiers).

Selling, general and administrative (SG&A) expense was $7.5 million (16.9% of net sales) in the third quarter of fiscal 2002 compared to $11.5 million (14.5% of net sales) in the third quarter of fiscal 2001. The reduction in SG&A expense from the prior year was impacted by the sale of the standard drives business and the elimination of $.9 million of expense associated with it, lower variable costs due to overall revenue declines in the quarter and restricted discretionary spending.

Interest and Other (Income) Expense

Interest and other expense was $.1 million in the third quarter of fiscal 2002 compared to $1.8 million in the third quarter of fiscal 2001. The Company early adopted the new rules for the accounting for goodwill and other intangible assets beginning in fiscal 2002 (see Note 5) and recorded no goodwill amortization in the third quarter of fiscal 2002.

14

Net Income

The Company recorded an after-tax profit from continuing operations of $.3 million in the third quarter of fiscal 2002 compared to an after-tax profit of $3.3 million in the third quarter of fiscal 2001. There were no results for discontinued operations in the third quarter of fiscal 2002 compared to an after-tax loss of $1.1 million in the third quarter of fiscal 2001. The tax provision in the third quarter of fiscal 2002 was $.2 million (38% effective tax rate) compared to $2.0 million (38% effective tax rate) in the third quarter of fiscal 2001. The Company expects tax rates used in the third quarter of fiscal 2002 to be used throughout the year.

RESULTS OF OPERATIONS:

Nine Months ended March 31, 2002 vs. 2001

Net Sales and Gross Profit

Net sales for Magnetek for the first nine months of fiscal 2002 were $144.0 million, a 38.1% decrease from the $232.7 million for the first nine months of fiscal 2001. Sales of standard drives (business sold in January of 2001) in the first nine months of fiscal 2001 were $45.5 million. Excluding these sales, overall revenues declined 23.1% in the first nine months of fiscal 2002 compared to fiscal 2001. Revenues continue to be adversely affected by the weakness in the general economy and in telecommunication markets specifically.

The Company’s gross profit declined to $33.3 million (23.1% of net sales) in the first nine months of fiscal 2002, compared to $58.4 million (25.1% of net sales) in the first nine months of fiscal 2001. Adjusting gross profit in fiscal 2001 for the sale of the standard drives business, gross profit in the year earlier period was $48.4 million (25.8% of net sales). The lower gross profit levels in the first nine months of fiscal 2002 are a direct result of the lower revenue levels experienced versus prior year.

Research and Development and Selling, General and Administrative

Research and development (R&D) expense was $7.2 million (5.0% of net sales) in the first nine months of fiscal 2002 compared to $6.7 million (2.9% of net sales) in the first nine months of fiscal 2001. Fiscal 2001 research and development expense as a percent of sales was 3.6% after eliminating the effect of sales associated with the standard drives business. Increased expenditures in R&D were associated with new product development in power electronics and the increased spending related to acquisitions of telecom power businesses that occurred in the second and third quarters of fiscal 2001.

Selling, general and administrative (SG&A) expense was $23.2 million (16.1% of net sales) in the first nine months of fiscal 2002 versus $36.2 million (15.6% of net sales) in the first nine months of fiscal 2001. Of the decline in SG&A expense, $8.1 million was associated with the standard drives business that was sold in January of 2001. The balance of the decline in cost was due to lower discretionary spending and the effect of lower variable costs that declined with the reduced sales volumes.

15

Interest and Other (Income) Expense

Interest and other (income) expense was income of $.2 million in the first nine months of fiscal 2002 compared to $5.2 million of expense in the first nine months of fiscal 2001. The Company benefited in the first nine months of fiscal 2002 as proceeds from the sale of the Lighting and Transformer businesses eliminated all domestic bank debt in July of 2001. The Company early adopted the new rules for the accounting for goodwill and other intangible assets beginning in fiscal 2002 (see Note 5) and recorded no goodwill amortization in the first nine months of fiscal 2002.

Net Income

The Company recorded an after-tax profit from continuing operations of $1.8 million in the first nine months of fiscal 2002 compared to an after-tax profit of $6.4 million in the first nine months of fiscal 2001. Results for discontinued operations in the first nine months of fiscal 2001 were an after-tax profit of $2.5 million; there was no reported activity for discontinued operations in the first nine months of fiscal 2002. The tax provision in the first nine months of fiscal 2002 was $1.1 million (38% effective tax rate) compared to $3.9 million (38% effective tax rate) in the first nine months of fiscal 2001. The Company expects the tax rate used in the first nine months of fiscal 2002 to continue throughout the year.

Liquidity and Capital Resources

At March 31, 2002, the Company had an agreement with a group of banks to borrow up to $60 million under a revolving loan facility through June 2002. Currently, borrowings under the Bank Loan Agreement bear interest at the bank’s prime lending rate plus one-half percent or, at the Company’s option, the London Interbank Offered Rate plus two percent. These rates may be reduced or increased based upon the level of certain debt-to-cash flow ratios. As of March 31, 2002, the Company had $53.4 million of borrowing availability under this facility. During the first nine months of fiscal 2002, the Company repurchased 359,800 common shares for approximately $3.9 million in open market transactions. Common stock repurchases made in the first quarter of fiscal 2002 completed the Company’s previously approved ten million-share stock repurchase program. Subsequent repurchases are included under an additional repurchase program of up to 2.26 million shares authorized on September 17, 2001 by the Board of Directors.

ITEM 3

Qualitative and Quantitative Disclosure About Market Risk

The Company is exposed to market risks in the areas of foreign exchange and interest rates. To mitigate the effect of such risks, the Company selectively utilizes specific financial instruments. Company policy clearly prohibits the use of such financial instruments for trading or speculative purposes. There have been no material changes in the reported market risks since that reported in the Company’s Annual Report on Form 10-K dated June 30, 2001.

16

PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings
	See Part I, Item 1, Note 3.
ITEM 6.	Exhibits and Reports on Form 8-K
	10.17 Amendment to Magnetek, Inc. Amended and Restated Director Compensation and Deferral Investment Plan.

17

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			MAGNETEK, INC.
				(Registrant)
Date: May 14, 2002		/s/ David P. Reiland
	David P. Reiland
	Executive Vice President and Chief Financial Officer
	(Duly authorized officer of the registrant and principal financial officer)

18