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Article by DailyStocks_admin    (10-22-08 04:09 AM)

Filed with the SEC from Oct 2 to Oct 8 :

MAG Silver (MAG)
Fresnillo PLC raised its stake to 7,233,593 shares (14.7%) by purchasing 5,555,500 from Sept. 18 to 22 at prices that ranged from 4.77 to 5.31 Canadian dollars per share.

BUSINESS OVERVIEW

General

Magnetek, Inc. ("Magnetek," "the Company," "we," or "us") is a global provider of digital power control systems that are used to control motion and power primarily in material handling, elevator, and energy delivery applications. Our products are sold directly or through manufacturers' representatives to original equipment manufacturers ("OEMs") for incorporation into their products, to system integrators and value-added resellers for assembly and incorporation into end-user systems, to distributors for resale to OEMs and contractors, and to end-users for repair and replacement purposes. We operate in a single segment, Digital Power Control Systems. Magnetek was founded in July 1984 and is listed on the New York Stock Exchange (NYSE: MAG).

Magnetek's systems consist primarily of programmable motion control and power conditioning systems used in the following applications: overhead cranes and hoists; elevators; coal mining equipment; and alternative energy sources. We are North America's largest independent supplier of digital drives, radio controls, software and accessories for industrial cranes and hoists, and we are also the largest independent supplier of digital motion control systems for elevators. Customers include most of the industrial crane and hoist companies in North America and the world's leading elevator builders. Our operations are located in North America, predominantly in Menomonee Falls, Wisconsin, the location of our headquarters.

During fiscal 2006, we conducted an evaluation of cash raising alternatives intended to enable us to address pending debt repayment and pension obligations, as well as provide funds for future growth initiatives. As a result, we divested our power electronics business in October 2006. We used the net cash proceeds from the sale of the business to repay all outstanding debt and make a $30 million contribution to our defined benefit pension plan. Following the divestiture, we relocated our corporate headquarters from Chatsworth, California to Menomonee Falls, Wisconsin, which resulted in a reduction in corporate administrative expenses.

During fiscal 2008, we concluded that our best growth prospects lay in our core power control and systems businesses, and we decided to divest our telecom power systems ("TPS") business. We believe we can better achieve our sales growth objectives by redirecting resources currently deployed in the TPS business to our product offerings in the material handling and elevator markets, where we believe we are a market leader, and energy delivery markets, which we believe offer greater prospects for sales growth.

Product Offerings

Magnetek is a leading provider of innovative power control and delivery systems and solutions for overhead material handling applications used in industries such as: aerospace, automotive, steel, aluminum, paper, logging, mining, ship loading, nuclear power plants, work boats, locomotive yards, and heavy movable structures. Our material handling products include drive systems, radio remote controls, and braking, collision-avoidance, and electrification subsystems, sold primarily to original equipment manufacturers of overhead cranes and hoists. We have a significant market share in North America in alternating current ("AC") control systems and see revenue growth opportunities in direct current ("DC") control systems for retrofit applications and in wireless remote controls.

Magnetek also designs, builds, sells, and supports elevator application specific drive products and is recognized as a leader for DC high performance elevator drives, as well as AC drives for low and high performance traction elevators. Our elevator product offerings are comprised of highly integrated subsystems and drives used to control motion primarily in high-rise, high speed elevator applications. Our products are sold mainly to elevator OEMs and we have a significant share of the available market for DC drives and subsystems used in high-rise elevators for both new and retrofit projects. Magnetek elevator drives currently operate in many of the most recognizable high-rise buildings in the world. We believe opportunities for growth exist in available elevator markets through the introduction of new energy-saving product offerings; expanding the breadth of available product offerings to include competitive low-end products for lower performance AC applications; and using new product offerings to expand geographically.

Magnetek's energy delivery product offerings include power inverters for fuel cells, solar panels and wind turbines, which deliver AC power from these energy sources to the utility power grid. We believe there are revenue growth opportunities in the wind and solar markets which are growing very rapidly in North America as these renewable sources of power become increasingly competitive from a cost standpoint with more traditional methods of power generation. We also provide drives for underground coal mining equipment.

We intend to continue to build on our competitive strengths in established material handling and elevator markets and continue to invest in research and development to expand our product portfolio aimed at penetrating growing and emerging markets for digital power-based systems, such as alternative energy.

Seasonality

Our power systems for material handling applications currently represent nearly 70% of our annual revenues. Sales of these products tend to follow capital budgeting and spending patterns of the customer base. As a result, our revenues are generally strongest in the second and fourth fiscal quarters, with relatively lower revenues in the first and third fiscal quarters.

Backlog

Our backlog as of the end of fiscal 2008 was $17.1 million versus $17.3 million at the end of fiscal 2007. The decrease in backlog is primarily due to shipments of more than $5 million of wind inverters during fiscal 2008 without replacement orders, partially offset by an increase in our backlog of material handling and mining products of $4 million. We expect most of the orders in our backlog to be filled during the first half of fiscal 2009.

Competition

Our primary competitors during fiscal 2008 included: Control Techniques; KCI/Konecranes, OMRON, Yaskawa, Fronius, SMA, SatCon Technology, Semikron, Telemics and Xantrex. Some of these companies have substantially greater financial, marketing and other resources, larger product portfolios and greater brand recognition than us.

Competitive Strengths

We believe that we benefit most from competitive advantages in the following areas:

Technological Capabilities and Industry Expertise. We emphasize and leverage our ability to provide custom-designed and customized solutions for power and motion control applications through digital power-electronic technology. Our technical personnel possess substantial expertise in disciplines central to digital power systems and applications. These include analog-to-digital circuit design, thermal management technology, and the application of microprocessors, digital signal processors and software algorithms in the development of "smart" power products.

Customer Relationships. We have established long-term relationships with major manufacturers of cranes and hoists, elevators and mining equipment, among others. We believe that these relationships have resulted from our reliability and responsiveness, readiness to meet special customer requirements based on innovative technology and application expertise, and the quality and performance of our products.

Product Breadth and Systems Sales Channels. Magnetek provides a variety of products in each of its major product lines. For material handling customers, Magnetek serves as a one-stop-source providing a full range of crane controls as well as subsystems including radio controls, brakes and electrification products. We believe that Magnetek's well established network of "Electromotive Systems™" dealers and key OEM customers constitute a significant competitive advantage in the North American material handling marketplace.

Competitive Weaknesses

We consider our primary competitive weaknesses to be our limited size and financial resources. Based upon current plans and business conditions, we believe that available cash and short-term investments, borrowing capacity under our revolving credit facility, and internally generated cash flows will be sufficient to fund anticipated operational needs, capital expenditures and other commitments over the next 12 months. However, some of our competitors have substantially greater financial resources than us.

Suppliers and Raw Materials

Virtually all materials and components that we purchase are available from multiple suppliers. During fiscal 2008, raw material purchases accounted for approximately 73% of our cost of sales. Production of digital power control systems depends heavily on various electronic components as well as steel and aluminum enclosures and wire harnesses. We seek to obtain competitive pricing on these raw materials by utilizing multiple suppliers and leveraging our total purchasing requirements.

Research and Development

Our research and development activities, which are conducted primarily in Menomonee Falls, Wisconsin, are directed toward developing new products, improving existing products and customizing or modifying products to meet customers' specific needs. Total research and development expenditures were approximately $3.2 million, $4.2 million and $4.1 million for our 2008, 2007 and 2006 fiscal years, respectively.

Intellectual Property

Magnetek holds numerous patents, trademarks and copyrights, and we believe that we hold or license all of the patent, trademark, copyright and other intellectual property rights necessary to conduct our business. We generally rely upon patents, copyrights, trademarks and trade secret laws to establish and maintain our proprietary rights in our technology and products. There can be no assurance that any of our patents, trademarks or other intellectual property rights will not be challenged, invalidated or circumvented, or that any rights granted thereunder will provide competitive advantages to us. In addition, there can be no assurance that patents will be issued from pending patent applications filed by us, or that claims allowed on any future patents will be sufficiently broad to protect Magnetek's technology. Further, the laws of some foreign countries may not permit the protection of our proprietary rights to the same extent as do the laws of the United States. Although we believe the protection afforded by our patents, patent applications, trademarks and copyrights have value, Magnetek's future success will depend primarily on the innovative skills, technological expertise, research and development and management capabilities of our employees rather than on patent, copyright, and trademark protection.

International Operations

International sales accounted for 11% of our net sales in fiscal 2008. We define international sales as sales of products manufactured by our facilities outside the U.S. that are sold outside of the U.S., as well as sales of products manufactured in the U.S. to purchasers outside of the U.S. For our 2008, 2007 and 2006 fiscal years, revenues derived from domestic sales were $88.8 million, $75.6 million and $67.1 million, respectively, and revenues derived from international sales were $11.2 million, $12.1 million and $16.0 million, respectively. We hold assets in the U.S., Canada and the United Kingdom totaling $91.5 million, of which $7.4 million are held in Canada and $1.7 million are in the United Kingdom.

Employee Relations

As of August 1, 2008, we had approximately 230 salaried employees and approximately 130 hourly employees, none of whom were covered by collective bargaining agreements with unions. We believe that our relationships with our employees are favorable.

Environmental Matters

From time to time, Magnetek has taken action to bring certain facilities associated with previously owned businesses into compliance with applicable environmental laws and regulations. Upon the subsequent sale of certain businesses, we agreed to indemnify the buyers against environmental claims associated with the divested operations, subject to certain conditions and limitations. Remediation activities, including those related to our indemnification obligations, did not involve material expenditures during fiscal years 2008, 2007 or 2006.

We have 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 previously owned or leased facilities and offsite locations. Our remediation activities as a potentially responsible party were not material in fiscal years 2008, 2007 or 2006. 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 governmental authorities, the nature of our alleged connection to the contaminated sites, 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, our estimated share of liability, if any, for environmental remediation, including our indemnification obligations, is not expected to be material.

David Reiland has been President and Chief Executive Officer of Magnetek since November 2006. Prior to that, Mr. Reiland served as an Executive Vice President of the Company and was its Chief Financial Officer since 1988. Mr. Reiland has also served as the Controller of the Company from 1986 until 1993 and as Vice President, Finance from 1987 to 1989. Mr. Reiland is a Certified Public Accountant.

Peter McCormick has been Chief Operating Officer of Magnetek since November 2006 and has been the Executive Vice President responsible for the Company's Power Control Systems Group since 2002. Prior to that, he served as the President of the Company's Industrial Controls Group from 1999 until 2002. Since joining the Company in 1996, Mr. McCormick has also served as the Vice President of Operations for the drives group from 1998 until 1999 and as Vice President of the custom products business group from 1996 until 1998.

Marty Schwenner has been Chief Financial Officer of Magnetek since November 2006. Mr. Schwenner has served as a Vice President of the Company since 2003 and was Controller of the Company from 2002 until November 2006. Mr. Schwenner was Vice President of Finance for the Power Electronics Group from 1998 until 2002. Mr. Schwenner also served as the Chief Financial Officer of the Company's European Operations from 1992 to 1998 and as Internal Audit Manager from 1991 until 1992. Mr. Schwenner joined Magnetek as an Internal Auditor in 1989. Mr. Schwenner is a Certified Public Accountant and a Certified Internal Auditor.

Ryan Gile has been Vice President and Controller of Magnetek since November 2006. Prior to that, Mr. Gile had served as Magnetek's Vice President of Finance and Business Systems for the Company's Power Control Systems Group since 2002. Before joining Magnetek, Mr. Gile was a Finance Manager at Rockwell Automation since 1995 and was also a Financial Auditor and Tax Associate at Coopers & Lybrand LLP. Mr. Gile is a Certified Public Accountant.

Jolene Shellman has been Vice President Legal Affairs and Corporate Secretary of Magnetek since January 2007. Prior to joining Magnetek, Ms. Shellman was an attorney with Varnum, Riddering, Schmidt & Howlett LLP in its Milwaukee, WI office from 1997 until 2006, and she was self employed as a contract attorney from March 2006 until she joined the Company. From 1979 until 1997, she was Assistant General Counsel and Assistant Secretary at A.O. Smith Corporation and Assistant General Counsel with Tower Automotive, Inc. after it acquired A.O. Smith's automotive business. She also was House Counsel and Assistant Secretary at Mutual Savings and Loan Association from 1975 to 1979.

CEO BACKGROUND

David Reiland has been President and Chief Executive Officer of Magnetek since November 2006. Prior to that, Mr. Reiland served as an Executive Vice President of the Company and was its Chief Financial Officer since 1988. Mr. Reiland has also served as the Controller of the Company from 1986 until 1993 and as Vice President, Finance from 1987 to 1989. Mr. Reiland is a Certified Public Accountant.

Peter McCormick has been Chief Operating Officer of Magnetek since November 2006 and has been the Executive Vice President responsible for the Company's Power Control Systems Group since 2002. Prior to that, he served as the President of the Company's Industrial Controls Group from 1999 until 2002. Since joining the Company in 1996, Mr. McCormick has also served as the Vice President of Operations for the drives group from 1998 until 1999 and as Vice President of the custom products business group from 1996 until 1998.

Marty Schwenner has been Chief Financial Officer of Magnetek since November 2006. Mr. Schwenner has served as a Vice President of the Company since 2003 and was Controller of the Company from 2002 until November 2006. Mr. Schwenner was Vice President of Finance for the Power Electronics Group from 1998 until 2002. Mr. Schwenner also served as the Chief Financial Officer of the Company's European Operations from 1992 to 1998 and as Internal Audit Manager from 1991 until 1992. Mr. Schwenner joined Magnetek as an Internal Auditor in 1989. Mr. Schwenner is a Certified Public Accountant and a Certified Internal Auditor.

Ryan Gile has been Vice President and Controller of Magnetek since November 2006. Prior to that, Mr. Gile had served as Magnetek's Vice President of Finance and Business Systems for the Company's Power Control Systems Group since 2002. Before joining Magnetek, Mr. Gile was a Finance Manager at Rockwell Automation since 1995 and was also a Financial Auditor and Tax Associate at Coopers & Lybrand LLP. Mr. Gile is a Certified Public Accountant.

Jolene Shellman has been Vice President Legal Affairs and Corporate Secretary of Magnetek since January 2007. Prior to joining Magnetek, Ms. Shellman was an attorney with Varnum, Riddering, Schmidt & Howlett LLP in its Milwaukee, WI office from 1997 until 2006, and she was self employed as a contract attorney from March 2006 until she joined the Company. From 1979 until 1997, she was Assistant General Counsel and Assistant Secretary at A.O. Smith Corporation and Assistant General Counsel with Tower Automotive, Inc. after it acquired A.O. Smith's automotive business. She also was House Counsel and Assistant Secretary at Mutual Savings and Loan Association from 1975 to 1979.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW

We are a global provider of digital power control systems that are used to control motion and power primarily in material handling, elevator and energy delivery applications. Our systems consist primarily of programmable motion control and power conditioning systems used in the following applications: overhead cranes and hoists; elevators; coal mining equipment; and alternative energy applications, including wind turbines and photovoltaic power systems. We believe that with our technical and productive resources we are well positioned to respond to increasing demand in our served markets. Our operations are located in North America, predominantly in Menomonee Falls, Wisconsin, our Company headquarters.

Product offerings for material handling applications include drive systems, radio remote controls, and braking, collision-avoidance, and electrification subsystems, sold primarily to OEMs of overhead cranes and hoists. We have a significant market share in North America in AC control systems and believe we have growth opportunities in DC control systems for retrofit applications, wireless remote controls and in automating existing manual material handling processes.

Our product offerings for elevator applications are comprised of highly integrated subsystems and drives used to control motion primarily in high-rise, high speed elevator applications. Our products are sold mainly to elevator OEMs and we have a significant share of the available market for DC drives and subsystems used in high-rise elevators for both new and retrofit projects. We believe we have opportunities for growth in available elevator markets by introducing new energy-saving product offerings for DC applications, expanding the breadth of our product offering to include competitive low-end products for lower performance AC applications, and using our new product offerings to expand geographically.

Our product offerings for energy delivery applications include power inverters for alternative energy applications, including wind turbines and photovoltaic installations, which deliver AC power to the utility grid from generators inside wind turbines or from solar panels, or deliver power for consumption at the source. Both the wind and solar markets are growing very rapidly in North America as wind and solar power are becoming increasingly competitive from a cost standpoint with more traditional methods of power generation. We believe our product offerings have us well positioned to take advantage of growth in alternative energy markets and expect sales of power inverters for alternative energy applications to be our fastest revenue growth product over the next several years.

Continuing Operations

We focus on a variety of key indicators to monitor our business performance. These indicators include order rates, sales growth, gross profit margin, operating profit margin, net income, earnings per share, and working capital and cash flow measures. These indicators are compared to our operating plans as well as to our prior year actual results, and are used to measure our success relative to our company objectives. Our company objectives are to grow sales at least 10% on a year-over year basis, to achieve 30% gross margins and 10% operating profit margins, and to generate sufficient cash flow to fund our operations and meet our obligations.

During fiscal 2008, we achieved 14% year-over-year sales growth from fiscal 2007 mainly due to successful introduction of new products in our served markets. Sales growth of material handling product offerings was mainly due to higher sales of digital DC drives for retrofit applications and higher sales of automation projects, while our base AC business also increased as industrial activity in the U.S. remained strong throughout most of fiscal 2008. We also began initial production and shipments of wind inverters during fiscal 2008. Fiscal 2008 gross margin was 29.4% while operating profit margin was 6.8% in our first full year of operation since completion of our fiscal 2007 restructuring initiatives. During fiscal 2007 we completed the divestiture of our power electronics business, repaid all of our outstanding debt, and made a $30 million contribution to our defined benefit pension plan. We also restructured our management team, reduced our corporate overhead by over $6 million annually and relocated our corporate headquarters to Menomonee Falls, Wisconsin.

In the fourth quarter of fiscal 2008, we classified the assets and liabilities of our TPS business as held for sale, and the results of operations of the business as discontinued operations. Our telecom product offerings have been focused on providing back-up power for wireless applications. During fiscal 2007, we relocated the telecom power manufacturing operations from Dallas, Texas to Menomonee Falls, Wisconsin. While we were successful at increasing operating efficiencies and reducing overhead costs in the TPS business, we were not able to increase telecom power sales by expanding our customer base and we continued to generate operating losses in the TPS business throughout fiscal 2008. In April 2008, we announced our decision to divest our TPS business after concluding that our best growth prospects lay in our core power control and systems businesses. We believe we can better achieve our sales growth objectives by redirecting resources currently deployed in the TPS business to our product offerings in the material handling, elevator and energy delivery markets. We are currently in negotiations with a prospective buyer and expect to complete the transaction during the first quarter of fiscal 2009.

We believe that future increased profitability is dependent upon increased sales revenue and improvement in gross margins. Our fiscal 2008 sales growth has been, and we believe our fiscal 2009 sales growth will continue to be, dependent on continuing strong demand for material handling products and successful introduction and increasing acceptance of new products, mainly in the elevator and alternative energy markets. Recent new product offerings are gaining acceptance with customers in the marketplace, however, the rate of growth is slower than we previously expected. While we believe we can achieve double-digit year-over-year sales growth with existing product offerings and new product introductions, we may pursue selective external growth opportunities to enhance or expand our product offerings, market channels or technical resources. In addition, our material handling business is influenced by cyclical forces in the industrial marketplace. A cyclical slowdown could negatively impact our sales growth rate. Sales of material handling product offerings comprised nearly 70% of our sales in fiscal 2008.

Gross margins in our continuing operations have historically been near or above 30% and we are targeting this level of gross margin going forward. Improvement in gross margins is mainly dependent upon a continuing economic expansion, continued acceptance of recently introduced product offerings by the marketplace, and successful cost reduction actions related to recent new elevator and alternative energy product offerings.

We intend to focus our development and marketing efforts on internal sales growth opportunities across all product lines, with an emphasis on energy efficient power products. While we also intend to control our operating expenses, we expect these expenses to increase in fiscal 2009 due to increased sales and marketing expense aimed at enhancing our sales infrastructure across all product lines, higher volume-related selling expenses and higher non-cash pension expense, which is expected to increase by approximately $3 million over fiscal 2008 levels. The expected higher pension expense in fiscal 2009 is mainly due to negative returns on plan assets experienced during fiscal 2008.

We expect that fiscal 2009 operating margin as a percent of sales will likely be comparable to or down slightly from fiscal 2008 operating margins of 6.8%, due mainly to the expected higher pension expense. Through utilization of our net operating loss carryforwards for U.S. tax purposes, we believe the majority of our reported operating profit can be realized as net income. Discontinued Operations

As discussed above, the operating results of our TPS business as well as certain expenses related to previously divested businesses, including the historical operating results of the power electronics business divested in fiscal 2007, have been classified as discontinued operations in the accompanying condensed consolidated financial statements and footnotes for all periods presented (see Note 2 of Notes to Consolidated Financial Statements). Expenses related to previously divested businesses have historically included charges for an arbitration award in a patent infringement claim and related legal fees, as well as certain expenses for environmental issues, asbestos claims and product liability claims (see Note 2 of Notes to Consolidated Financial Statements). All of these issues relate to businesses we no longer own and most relate to indemnification agreements we provided when we divested those businesses.

Going forward, our discontinued operations will include the results of our telecom power systems business until it is divested, as well as additional costs we may incur related to businesses no longer owned, and may include additional costs above those currently estimated and accrued related to the divestiture of our power electronics business.

Critical Accounting Policies

Our accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires estimates and judgments by management that affect the reported amount of assets and liabilities, revenues, expenses, and related disclosures. Such estimates are based upon historical experience and other assumptions believed to be reasonable given known circumstances. Actual results could differ from those estimates. On an ongoing basis, we evaluate and update our estimates, and we believe the following discussion addresses our policies which are most critical to understanding our financial position and results of operations and which require our most complex judgments.

Accounts Receivable

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

Inventories

Our inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, including material, labor and factory overhead. We identify potentially obsolete and excess inventory by evaluating overall inventory levels in relation to expected future requirements and market conditions, and provisions for excess and obsolete inventory and inventory valuation are recorded accordingly. Items with no usage for the past 12 months and no expected future usage are considered obsolete, and are disposed of or fully reserved. Reserves for excess inventory are determined based upon historical and anticipated usage as compared to quantities on hand. Excess inventory is defined as inventory items with on-hand quantities in excess of one year's usage and specified percentages are applied to the excess inventory value in determining the reserve. Our assumptions have not changed significantly in the past, and are not likely to change in the future. We believe that our assumptions regarding inventory valuation have been accurate in the past.

Long-Lived Assets and Goodwill

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

We are required to perform annual impairment tests of our goodwill, and may be required to test more frequently in certain circumstances. We have elected to perform our annual impairment test in the fourth quarter of our fiscal year. In assessing potential impairment, we make estimates regarding the fair value of the related long-lived assets. No impairments were recognized in long-lived assets or goodwill for the years ended June 29, 2008, and July 1, 2007. For the fiscal year ended July 2, 2006, we recorded a goodwill impairment charge of $22.4 million related to our discontinued power electronics business, included in loss from discontinued operations in the consolidated statement of operations for fiscal 2006.

Pension Benefits

We sponsor a defined benefit plan (frozen in 2003) that covers primarily former employees in the U.S. The valuation of our pension plan requires the use of assumptions and estimates that attempt to anticipate future events to develop actuarial valuations of expenses, assets and liabilities. These assumptions include discount rates, expected rates of return on plan assets and mortality rates. We consider market conditions, including changes in investment returns and interest rates, in making these assumptions. Our plan assets are comprised mainly of common stock and bond funds. The expected rate of return on plan assets is a long-term assumption and is generally not changed on an annual basis. The expected rate of return on plan assets was 9.0% in fiscal 2008, 2007 and 2006. The discount rate reflects the market for high-quality fixed income debt instruments and is subject to change each year. As of June 29, 2008, the discount rate used to determine the benefit obligation was 6.75% as compared to 6.25% at July 1, 2007. Changes in assumptions typically result in actuarial gains or losses that are amortized over future accounting periods in accordance with the methods specified in Statement of Financial Accounting Standard ("SFAS") No. 87, Employers' Accounting for Pensions, as Amended. If our actual return on plan assets is below our expected return on plan assets, this typically results in increased future pension expense. As a result of lower than expected returns on plan assets in fiscal 2008, our fiscal 2009 pension expense is expected to increase by $3 million from fiscal 2008, due to amortization of actuarial losses and a decrease in our expected return on plan assets.

Significant differences between our assumptions and actual future investment returns or discount rates could have a material impact on our financial position or results of operations and related funding requirements.

RESULTS OF OPERATIONS FOR YEAR ENDED JUNE 29, 2008, COMPARED WITH YEAR ENDED JULY 1, 2007

Net Sales and Gross Profit

Net sales increased 14.0% to $100.0 million in fiscal 2008 from $87.7 million in fiscal 2007. The increase in net sales in fiscal 2008 is due primarily to increased sales of material handling systems of $8.0 million, and shipments of wind inverters of $5.4 million.

Gross profit in fiscal 2008 increased to $29.4 million (29.4% of sales) from $28.1 million (32.0% of sales) in fiscal 2007. The $1.3 million increase in gross profit in fiscal 2008 is due to higher sales volume of material handling products, partially offset by start-up costs and shipment of relatively lower margin wind inverters and lower sales volume of mining products in fiscal 2008. The start up costs and wind inverter shipments were also the main reason for the decrease in gross profit as a percentage of sales in fiscal 2008 compared to fiscal 2007.

Operating Expenses

Research and development ("R&D") expense was $3.2 million in fiscal 2008, or 3.2% of sales, compared to $4.2 million, or 4.8% of sales, in fiscal 2007. Fiscal 2007 R&D expense includes $0.6 million in restructuring costs related to elimination of our corporate R&D function. The decreased spending in R&D expense in fiscal 2008 as compared to fiscal 2007 also reflects lower payroll-related costs and the substantial completion of new product development programs for elevator and wind markets.

Selling, general and administrative ("SG&A") expense was $19.5 million, or 19.5% of sales, in fiscal 2008 compared to $24.6 million, or 28.0% of sales, in fiscal 2007. Selling expenses were $9.8 million, or 9.8% of sales in fiscal 2008, compared to $9.1 million or 10.4% of sales in fiscal 2007. The increase is mainly due to higher volume-related expenses in fiscal 2008 as compared to fiscal 2007. General and administrative ("G&A") expense was $9.7 million in fiscal 2008 compared to $15.5 million in fiscal 2007. The decrease in G&A expense in fiscal 2008 as compared to fiscal 2007 mainly reflects reduced corporate payroll-related costs from restructuring actions, reduced professional fees and lower pension expense. Fiscal 2007 G&A expense includes severance charges of $1.3 million and one-time stock compensation charges of $1.1 million from stock awards, accelerated vesting of stock options and restricted stock for employees affected by downsizing actions. Fiscal 2008 pension expense was $0.2 million compared to $2.0 million in fiscal 2007. The decrease in pension expense is mainly due to a contribution of $30.0 million to our defined benefit pension plan in December 2006.

Income (Loss) from Operations

Income from operations was $6.8 million in fiscal 2008, compared to a loss from operations of $0.7 million in fiscal 2007. The loss from operations in fiscal 2007 includes the impact of restructuring our corporate administrative functions.

Interest Income and Expense and Other Expense

Interest income was $1.0 million and interest expense was $0.2 million in fiscal 2008. Interest income was $2.0 million and interest expense was $2.4 million in fiscal 2007. The decrease in interest income in fiscal 2008 as compared to fiscal 2007 is mainly due to lower interest rates earned on cash balances during much of fiscal 2008. In addition, fiscal 2007 interest income includes $0.3 million related to a previous tax settlement.

The decrease in interest expense in fiscal 2008 is mainly due to the repayment of all of our outstanding debt following the divestiture of our power electronics business in October 2006. Fiscal 2007 interest expense includes the write-off of deferred financing assets of $0.7 million from the early retirement of debt.

Other expense of $0.3 million in fiscal 2007 is comprised of a prepayment penalty related to the early repayment of our term loan in October 2006.

Provision for Income Taxes

We recorded a tax provision of $1.0 million in fiscal 2008 and $1.3 million in fiscal 2007, due to non-cash deferred tax provisions of $0.9 million in each fiscal year related to changes in deferred tax liabilities from goodwill amortization and to a lesser extent, provisions for income taxes on our pretax income in Canada (see Note 10 of Notes to Consolidated Financial Statements).

Income (Loss) from Continuing Operations

In fiscal 2008, we recorded income from continuing operations of $6.5 million, or $0.21 per diluted share, compared to a fiscal 2007 loss from continuing operations of $2.8 million, or a $0.09 loss per share on both a basic and diluted basis.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

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



Net Sales and Gross Profit



Net sales for the three months ended March 30, 2008 were $26.3 million, an increase of 13.0% from the three months ended April 1, 2007 sales of $23.3 million. The increase was mainly due to higher sales of material handling products of $2.3 million, sales of wind inverters of $1.8 million, and higher sales of elevator products, partially offset by lower sales in our telecom and mining product lines.

Gross profit for the three months ended March 30, 2008 was $6.8 million, or 25.9% of sales, versus $6.9 million, or 29.6% of sales, in the three months ended April 1, 2007. The reduction in 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 lower sales volume in our telecom product line and unfavorable sales mix due to increased sales of lower margin wind inverters, partially offset by higher sales volume of material handling and elevator products.



Research and Development, Selling, General and Administrative



R&D expense 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 lower payroll-related expenses.

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



Income from Operations



Income from operations for the three months ended March 30, 2008 was $1.1 million compared to income from operations of $0.4 million for the three months ended April 1, 2007. The increase in income from operations for the three months ended March 30, 2008 as compared to the three months ended April 1, 2007 was mainly due to reduced operating expenses in the three months ended March 30, 2008.



Interest Income and Expense and Other Expense



Interest income was $0.2 million for the three months ended March 30, 2008. Interest income was $0.4 million and interest expense was $0.1 million for the three months ended April 1, 2007. The decrease in interest income for the three months 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 three months ended April 1, 2007 was comprised mainly of deferred financing amortization.



Provision for Income Taxes



We recorded 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 due to non-cash deferred tax provisions related to changes in deferred tax liabilities from goodwill amortization and, to a lesser extent, provisions for income taxes on our pretax income in Canada (see Note 10 of Notes to Condensed Consolidated Financial Statements).



Income from Continuing Operations



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



Loss from Discontinued Operations



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



Net Income (Loss)



Our net 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 net loss of $0.4 million for the three months ended April 1, 2007, or a $0.01 loss per share on both a basic and diluted basis.

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