Overview

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, mining and renewable energy applications. Our digital power control systems serve the needs of selected niches of traditional and emerging markets that are becoming increasingly dependent on "smart" power. 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 DC 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. In addition, we have a growing range of products for energy delivery applications, including motion control systems for mining equipment and power inverters for renewable energy applications. We are focused on providing our customers cost-effective power solutions that will improve efficiency, reduce costs, and save energy. Other trends in our served markets we believe we can capitalize on include the adoption of wireless control solutions, modernization and upgrade of installed equipment, and an increasing desire in our markets for added features, enhanced performance, and safer workplace environments. We believe that with our focus on innovation and our application expertise, combined with strong brand name recognition, broad product offerings and sales channel capabilities, we are well positioned to grow our business by gaining share in both our served markets as well as in new markets. Our operations are located in North America, predominantly in Menomonee Falls, Wisconsin, our Company headquarters.

Our product offerings for material handling applications include innovative power control systems, radio remote controls, and braking, collision-avoidance, and electrification subsystems, sold primarily to OEMs of overhead cranes and hoists. While we sell primarily to OEMs of overhead cranes and hoists, we spend a great deal of effort understanding the needs of end users to gain specification. We can combine our products with engineered services to provide complete customer-specific systems solutions. A primary driver of our growth in this market is our ability to improve our customers' operations and provide them with quantifiable, and in many cases, significant returns on invested capital.

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. We believe we have opportunities for growth in available elevator markets by introducing new energy-saving product offerings for both AC and DC applications, expanding the breadth of our product offerings 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 renewable energy applications, as well as AC and DC drives for mining applications. We believe that energy needs will continue to grow significantly for the foreseeable future, and with our product offerings, we are well positioned to capitalize on that growth whether it be in the form of traditional coal-based sources or from renewable energy sources. We have a wide variety of product offerings which are engineered to efficiently use available power, or which convert energy to usable power in an energy efficient manner. We have been a leading supplier of AC and DC digital motion control systems to underground coal mining equipment manufacturers for over 30 years. More recently we've developed and introduced power inverters which convert DC power from renewable energy sources such as wind to utility-grade AC power. We believe there are revenue growth opportunities in the utility-scale solar market, which is expected to grow rapidly in North America as solar power becomes increasingly competitive from a cost standpoint with more traditional methods of power generation. Accordingly, we've strategically allocated additional resources toward the ongoing development of utility-scale power inverters for the solar market in an effort to shift our renewable sales mix in the future from wind to solar through a more diverse product offering.

We intend to continue to build on our competitive strengths in established material handling, elevator, and mining 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 renewable energy, particularly in the utility-scale solar market. We intend to continue to pursue internal growth opportunities in our core product lines, seeking to increase our market share, enter new markets, and expand our current business model geographically.

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 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 growth initiatives, our operations and our obligations.

Throughout calendar year 2011, we experienced improving conditions and increasing demand in most of our major served markets, mainly in traditional industrial markets. Accordingly, both our sales and operating results improved steadily throughout 2011, and that trend has continued into fiscal 2012. Our 2012 first quarter sales increased 3% to $28.7 million from $27.8 million in the first three months of calendar 2011. Sales of products with material handling applications, our largest served market, continued to grow in the first quarter of fiscal 2012, and increased over 32% over the comparable period last year to more than $18 million. Sales of control systems for mining applications increased more than 36% in the first quarter of fiscal 2012 over the comparable period last year, growing to more than $2.7 million in the three months ended April 1, 2012. The main challenge to our continued growth was in renewable energy, where our primary wind customer rescheduled shipments based upon a slowdown in their business. Aside from that customer-specific issue, we experienced healthy year-over-year sales growth in our material handling and mining markets.

First quarter 2012 gross profit increased to $10.6 million, or 37.0% of sales, compared to $8.7 million, or 31.4% of sales in the first three months of calendar 2011. We reported pre-tax income from operations of $2.5 million, or approximately 8.5% of sales, in the first quarter of 2012, compared to prior year pre-tax income from operations of $1.5 million, due mainly to higher sales volumes into served industrial markets as well as a shift in our sales mix, with lower sales of products with renewable energy applications. Diluted earnings per share from continuing operations increased 74% to $0.68 per share in the first quarter of 2012, compared to $0.39 per share in the first three months of 2011. In addition, our cash balances increased more than $5 million during the first quarter of 2012, largely due to a settlement agreement entered into to resolve a long-standing legal matter.

Our incoming order rate was solid during the first quarter of fiscal 2012, but as expected, was negatively impacted by declining orders for wind power inverters. Demand levels remain healthy in our traditional served industrial markets, mainly for products with material handling and mining applications. Manufacturing continued to be an area of strength in the U.S. economy, and we expect manufacturing activity and demand in our served industrial markets to continue to

grow during 2012. Our declining incoming order rate for wind inverters is indicative of the challenging conditions that have persisted in the wind market for some time, and we expect conditions in the wind market to remain soft for the foreseeable future. As a result, we believe the North American solar market offers us better growth opportunities in renewable energy, particularly at the large-scale end of the market, and we've made steady progress toward entering the market in 2012.

Current forecasts indicate the U.S. economic recovery is continuing at a moderate pace, and we believe overall economic conditions in our end markets remain quite healthy. Macro-economic conditions remain dynamic and fragile, and as a result, it remains challenging to predict the duration or the magnitude of the current economic recovery, whether in the U.S. overall or in the specific end markets we serve. However, barring a significant decline in demand in our served markets, we expect that we can continue to grow our business through a combination of new product introductions, market share gains, and entry into new markets. Throughout 2012, we intend to focus our development and marketing efforts on organic sales growth opportunities across all product lines, and are executing actions to prudently expand our reach into new end markets and geographical areas. We also plan to continue to tightly control our operating expenses to optimize operating leverage and grow our income and cash flow.

Discontinued Operations

Certain expenses related to previously divested businesses 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 Condensed Consolidated Financial Statements). Expenses related to previously divested businesses include environmental matters, asbestos claims and product liability claims (see Note 4 of Notes to Condensed Consolidated Financial Statements). All of these issues relate to businesses we no longer own and most relate to indemnification agreements that we entered into when we divested those businesses.

Going forward, our results of discontinued operations may include additional costs incurred related to businesses no longer owned, and may include additional costs above those currently estimated and accrued related to the divestiture of our telecom power systems ("TPS") business, which was divested in September 2008, and our power electronics business, which was divested in October 2006.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Transition Report on Form 10-K for the six-month transition period ended January 1, 2012.

Results of Operations - Three Months Ended April 1, 2012, and April 3, 2011

Net Sales and Gross Profit

Net sales for the three months ended April 1, 2012, were $28.7 million, an
increase of 3% from the three months ended April 3, 2011, sales of $27.8
million. The increase in sales was primarily due to higher sales volumes into
served material handling and mining markets, partially offset by lower sales of
wind power inverters into renewable energy markets. Net sales by major market
were as follows, in millions:

                                  Three Months Ended
                          April 1, 2012        April 3, 2011
Material handling       $    18.3     64 %   $    13.9     50 %
Elevator motion control       5.3     18 %         6.3     23 %
Energy systems                5.1     18 %         7.6     27 %
Total net sales         $    28.7    100 %   $    27.8    100 %

Gross profit for the three months ended April 1, 2012, was $10.6 million, or 37.0% of sales, versus $8.7 million, or 31.4% of sales, for the three months ended April 3, 2011. The increase in gross profit as a percentage of sales for the three months ended April 1, 2012, as compared to the three months ended April 3, 2011, was due to increased sales of higher margin material handling and mining products as well as improvement in elevator gross margins due to new product introductions and material cost reductions.

Research and Development, Pension Expense, and Selling, General and Administrative

Research and development ("R&D") expense was $1.0 million, or 3.4% of sales, for the three months ended April 1, 2012, comparable to R&D expense of $1.1 million, or 4.0% of sales, for the three months ended April 3, 2011.

Pension expense was $1.7 million and $1.6 million for the three months ended April 1, 2012 and April 3, 2011, respectively (see Note 8 of Notes to Condensed Consolidated Financial Statements). The increase in pension expense was mainly due to increased amortization of actuarial losses resulting from declining interest rates experienced during 2011.

Selling, general and administrative ("SG&A") expense was $5.5 million (19.2% of sales) for the three months ended April 1, 2012, versus $4.5 million (16.4% of sales) for the three months ended April 3, 2011. Selling expenses in the three months ended April 1, 2012, increased to $3.0 million from $2.2 million in the three months ended April 3, 2011, mainly due to higher volume-related commissions, increased payroll-related costs, and higher discretionary spending. General and administrative ("G&A") expense increased to $2.5 million for the three months ended April 1, 2012, from $2.3 million for the three months ended April 3, 2011.

Income from Operations

Income from operations for the three months ended April 1, 2012, was $2.5 million compared to income from operations of $1.5 million for the three months ended April 3, 2011. The increase in income from operations for the three months ended April 1, 2012, as compared to the three months ended April 3, 2011, was mainly due to higher gross profit earned on sales volume increases in the three months ended April 1, 2012, partially offset by increases in selling and G&A expenses.

Interest Income

Interest income was negligible for the three months ended April 1, 2012 and April 3, 2011.

Provision for Income Taxes

We recorded a provision for income taxes of $0.3 million and $0.2 million for the three months ended April 1, 2012, and April 3, 2011, respectively. The income tax provision in both periods includes non-cash deferred income tax provisions of $0.2 million related to changes in deferred tax liabilities from goodwill amortization for tax purposes.

Income from Continuing Operations

We recorded income from continuing operations of $2.2 million for the three months ended April 1, 2012, or $0.68 per diluted share, compared to income from continuing operations of $1.2 million for the three months ended April 3, 2011, or $0.39 per diluted share.

Income (Loss) from Discontinued Operations

We recorded income from discontinued operations for the three months ended April 1, 2012, of $4.7 million, or $1.46 per share on a diluted basis, compared to a loss from discontinued operations of $0.3 million, or a $0.09 loss per share on a diluted basis, for the three months ended April 3, 2011. Income from discontinued operations in the three months ended April 1, 2012, includes a gain of $5.0 million from a settlement agreement resulting in resolution of a legal matter (see Notes 2 and 4 of Notes to Condensed Consolidated Financial Statements). The loss from discontinued operations in the three months ended April 3, 2011, is comprised entirely of expenses related to previously divested businesses.

Net Income
Our net income was $6.9 million in the three months ended April 1, 2012, or $2.14 per diluted share, compared to net income of $1.0 million in the three months ended April 3, 2011, or $0.30 per share on a diluted basis.

Liquidity and Capital Resources

Our unrestricted cash and cash equivalent balance increased approximately $5.1 million during the first three months of fiscal 2012, from $20.6 million at January 1, 2012, to $25.7 million at April 1, 2012. Restricted cash balances remained unchanged during the first three months of fiscal 2012 at $0.3 million. The primary source of cash during the first three months of fiscal 2012 was income from discontinued operations of $4.7 million, which included a gain of $5.0 million from a settlement agreement entered into during the first three months of fiscal 2012 to resolve a long-standing legal issue (see Note 4 of Notes to Condensed Consolidated Financial Statements). In addition, adjusted income from continuing operations was $4.5 million, which included non-cash charges aggregating $2.3 million for depreciation, amortization, pension, stock compensation, and deferred income tax provisions.

The primary use of cash in the first three months of fiscal 2012 was $3.8 million in net increases in operating assets and liabilities. Accounts receivable increased by $0.3 million during the first quarter of fiscal 2012, mainly due to an increase in days sales outstanding, which increased from 51.4 days at January 1, 2012, to 53.8 days at April 1, 2012. Inventories increased by $0.9 million during the first quarter of fiscal 2012. Accounts payable and other accrued liabilities decreased by $2.9 million during the first quarter of fiscal 2012, due to lower accounts payable balances as well as payment of incentive compensation amounts accrued as of January 1, 2012. In addition, we consumed cash of $0.2 million for disbursements related to previously divested businesses and $0.5 million for capital expenditures.

While we may make further investments to increase capacity and improve efficiency, we do not anticipate that capital expenditures in fiscal 2012 will exceed $1.5 million. The expected amount of capital expenditures could change depending upon changes in revenue levels, our financial condition, and the general economy.

In November 2007 we entered into an agreement with Associated Bank, N.A. ("Associated Bank") providing for a $10 million revolving credit facility (the "revolving facility"). Borrowings under the revolving facility bore interest at the London Interbank Offering Rate ("LIBOR") plus 1.5%, with borrowing levels determined by a borrowing base formula as defined in the agreement, based on the level of eligible accounts receivable. The revolving facility also supports the issuance of letters of credit, places certain restrictions on our ability to pay dividends or make acquisitions, and includes covenants which require minimum operating profit levels and limit annual capital expenditures. Borrowings under the revolving facility were collateralized by our accounts receivable and inventory. We have subsequently entered into four amendments to the revolving facility, the primary purpose of which was to extend the maturity dates of the revolving facility and to broaden the security interest of Associated Bank to include all assets of the Company.

In December 2011, we entered into the most recent fourth amendment to the revolving facility with Associated Bank, the purpose of which was to (i) extend the maturity date of the revolving facility to June 15, 2013; (ii) increase the commitment amount of Associated Bank to $12.5 million; (iii) establish minimum adjusted earnings before interest, taxes, depreciation and amortization requirements for the three-month periods ending December 31, 2011, through

March 31, 2013; and (iv) establish maximum cash amounts that we can contribute to our defined benefit pension plan during the term of the agreement. There were no amounts outstanding on the amended revolving facility as of April 1, 2012. We are currently in compliance with all covenants of the revolving facility, as amended.

Primarily as a result of the decline in interest rates over the past decade, the accumulated benefit obligation of our defined benefit pension plan currently exceeds plan assets. We contributed $30 million to our pension plan in December 2006 following the divestiture of our power electronics business, and subsequently have made contributions to the plan aggregating $38 million from April 2008 through December 2011, funded by cash generated from operations and existing cash on hand. Estimated future contributions to achieve 100% funded status, as measured using current actuarial assumptions, are projected to be approximately $92.5 million, relatively significant given the Company's current size and cash flow. Actual future contribution amounts will likely vary from current estimated future contributions, depending on future interest rate levels, values in equity and fixed income markets, and the level and timing of additional interim contributions we may make to plan assets.

In response to the level of our projected pension funding obligations relative to our current operating cash flows, we filed an application with the Internal Revenue Service ("IRS") in February 2011 for a waiver of our minimum funding requirements (contributions) for the pension plan year 2011. The amount of the funding waiver requested was approximately $17 million, scheduled to be funded in quarterly installments from April 2011 through January 2012, with a final installment due in September 2012. The waiver request was approved by the IRS in October 2011, and accordingly, the Company did not make any contributions to the plan for the pension plan year 2011. Rather, the 2011 plan year required contributions of $17 million will be deferred and amortized with interest at a rate of approximately 6% over plan years 2012 through 2016. Required quarterly contributions to the pension plan will resume in April 2012, and current actuarial projections indicate that contributions to the pension plan during 2012 will total $11.7 million. In April 2012, subsequent to the end of the first quarter of fiscal 2012, we made the first required quarterly pension contribution of fiscal 2012 in an amount of $3.9 million.

Receipt of the funding waiver has had a significant favorable impact on our cash flows over the past several quarters, enabling us to strengthen our balance sheet and improve our liquidity while continuing to invest additional resources in growth opportunities. At the same time, receipt of the funding waiver has deferred contributions from the current period of historically low interest rates. An increase in interest rates or a legislative change to the funding rules during the waiver period could also have a favorable impact on our funding obligation as measured upon expiration of the waiver period.

Based upon current plans and business conditions, we believe that current cash balances and internally generated cash flows will be sufficient to fund anticipated operational needs, capital expenditures, required pension plan contributions and other commitments over the next 12 months.

Caution Regarding Forward-Looking Statements and Risk Factors

This document, including documents incorporated herein by reference, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "estimate," "anticipate," "intend," "may," "might," "will," "would," "could," "project," and "predict," or similar words and phrases generally identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties which in many cases are beyond our control and which cannot be predicted or quantified. As a result, future events and actual results could differ materially from those set forth in, contemplated by, or underlying forward-looking statements. Forward-looking statements contained in this document speak only as of the date of this document or, in the case of any document incorporated by reference from another document, the date of that document. We do not have any obligation to publicly update or revise any forward-looking statement contained or incorporated by reference in these documents to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Our future results of operations and the other forward-looking statements contained in this filing, including this section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," involve a number of risks and uncertainties. In particular, the statements regarding future economic conditions, our goals and strategies, new product introductions, penetration of new markets, projections of sales revenues and sales growth, manufacturing costs and operating costs, pricing of our products and raw materials required to manufacture our products, gross margin expectations, relocation and outsourcing of production capacity, capital spending, research and development expenses, the outcome of pending legal proceedings and environmental matters, payment of certain claims by insurance carriers, tax rates, sufficiency of funds to meet our needs including contributions to our defined

benefit pension plan, and our plans for future operations, as well as our assumptions relating to the foregoing, are all subject to risks and uncertainties.

A number of factors could cause our actual results to differ materially from our expectations. We are subject to all of the business risks facing public companies, including business cycles and trends in the general economy, financial market conditions, changes in interest rates, demand variations and volatility, potential loss of key personnel, supply chain disruptions, government legislation and regulation, and natural causes. Additional risks and uncertainties include but are not limited to industry conditions, competitive factors such as technology and pricing pressures, business conditions in our served markets, dependence on significant customers, increased material costs, risks and costs associated with acquisitions and divestitures, environmental matters and the risk that our ultimate costs of doing business exceed present estimates. This list of risk factors is not all-inclusive, as other factors and unanticipated events could adversely affect our financial position or results of operations. Further information on factors that could affect our financial results can be found in our Transition Report on Form 10-K filed with the Securities and Exchange Commission for the six-month transition period ended January 1, 2012, under the heading "Risk Factors" as well as below in Part II, Item 1A under the heading "Risk Factors".