CORRESP 1 filename1.htm corresp20100621.htm

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June 21, 2010

Mr. Jay Webb
United States Securities and Exchange Commission
Division of Corporate Finance
100 F Street, N.E.
Washington, D.C. 20549

 
Re:
Magnetek, Inc.
   
Form 10-K for the fiscal year ended June 28, 2009
   
Filed August 31, 2009
   
File No. 1-10233

Dear Mr. Webb:

We are providing you with this follow-up letter to further clarify our position related to your comment letter dated May 13, 2010, regarding your review of Magnetek, Inc.’s (“Magnetek,” the “Company,” or “we”) Form 10-K for the year ended June 28, 2009.  Please note that this letter repeats the information in our initial response to you dated May 24, 2010, and also includes additional information based upon verbal discussion with the Staff subsequent to your receipt of our initial response.  Your file reference number is stated above.

For ease of reference, we have repeated the Staff’s comments in bold text preceding our response to each comment.

Form 10-K for the Period Ended June 28, 2009

Exhibit 13.1

Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 4

Liquidity and Capital Resources, page 10

1.  
To better explain cash flows from operations, in future filings please revise to discuss the reason for significant changes in the components of working capital - i.e., individually significant changes in line items.  For example, we note that accounts receivable decreased $7 million or 38% from the prior year while fiscal 2009 sales decreased only 1.8%.


Response:
 
We note the Staff’s comment and submit that future filings, beginning with our Form 10-K for the fiscal year ending June 27, 2010, will be revised to discuss significant changes in the components of working capital and the related impact on our cash flows from operations.  In the specific example cited by the Staff above, while our sales declined only 2% for the entire 2009 fiscal year, our sales in the fourth quarter of fiscal year 2009 declined by more than $7 million from the prior fiscal year fourth quarter.  In effect, the decline in accounts receivable year-over-year was primarily related to lower sales volume.

Consolidated Statements of Cash Flows, page 18

2.  
We see you have prepared the operating activities section of this statement utilizing the indirect method and that you reconcile “Income (loss) from continuing operations” to “Net cash provided by (used in) continuing operating activities”.  As outlined in FASB ASC 230-10-45-28, when you present operating cash flows under the indirect method you are required to begin the operating activities reconciliation with “net income (loss)”.  With a view towards revising your presentation, please provide us with a draft of the changes to this statement of cash flows that would result from presenting cash flows in compliance with FASB ASC 230-10-45-28.  Your revised statement should reconcile the changes to each of the cash flow statement line items (operating, investing and financing activities from continuing operations as well as discontinued operations) for the years ended June 28, 2009, June 29, 2008 and July 1, 2007, as well as for each of the interim periods in the fiscal year ended 2010.  For a further discussion of the staff’s views on this issue, please refer to AICPA CPCAF Alert No. 98 issued on April 19, 2006.

Response:

We note the Staff’s comment and submit that future filings, beginning with our Form 10-K for the fiscal year ending June 27, 2010, will be revised to present our statement of cash flows in compliance with FASB ASC 230-10-45-28.  Also, per the request of the Staff, we are including revised draft statements of cash flows prepared in compliance with FASB ASC 230-10-45-28 for the years ended June 28, 2009, and June 29, 2008, as well as for each of the interim periods of fiscal year 2010.

In addition, we further acknowledge that correction of this error will also require footnote disclosure in future filings, describing the nature and impact of the error in accordance with ASC 250, Accounting Changes and Error Corrections.  To that end, we are also including in this response an example of the footnote disclosure we intend to provide in future filings related to correction of this error.

Please note that we have not had any investing or financing activities from discontinued operations during fiscal years 2008, 2009 or in any of our fiscal year 2010 interim periods to date.  As a result, the changes that result from revising our statements of cash flows to comply with FASB ASC 230-10-45-28 mainly impact cash flows from operating activities for all periods presented and have no impact on total company cash flows.

 
 
 

In connection with this response to your comments, we acknowledge that:

·  
The Company is responsible for the adequacy and accuracy of the disclosure in our filings;

·  
Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to our filings; and

·  
The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

Should you have any questions regarding our response, please contact me.

Sincerely,


/s/ Marty J. Schwenner

Marty J. Schwenner
Vice President and Chief Financial Officer
Magnetek, Inc.

 
 
 

 
 
Magnetek, Inc.
            
Revised Draft Statements of Cash Flows in Accordance with FASB ASC 230-10-45-28
              
For the years ended (amounts in US$ thousands)
        
June 28,
    
June 29,
  
   
June 27,
    
2009
    
2008
  
   
2010
    
(restated)
    
(restated)
  
Cash flows from operating activities:
                  
Net income (loss)
         $ 3,283     $ 10,019  
                       
Loss (income) from discontinued operations
           1,686       (3,484 )
Adjustments to reconcile net income (loss) to net cash
                      
provided by (used in) operating activities:
                      
Depreciation
           1,043       1,014  
Amortization
           53       214  
Write-off of deferred financing
           -       -  
Stock based compensation expense
           1,104       640  
Pension expense
           3,385       186  
Deferred income tax provision
           977       900  
Changes in operating assets and liabilities
           2,329       (2,657 )
Cash contribution to pension fund
           (9,422 )     (2,755 )
Net cash provided by (used in) operating activities - continuing operations
     -       4,438       4,077  
Net cash provided by (used in) operating activities - discontinued operations
             (1,226 )     (16,038 )
Net cash provided by (used in) operating activities
     -       3,212       (11,961 )
                         
Cash flows from investing activities:
                        
Proceeds from sale of business, net of transaction costs
             1,250       -  
Purchase of business
             (885 )     (1,750 )
Deposit into escrow  account
             (6 )     22,596  
Capital expenditures
             (807 )     (955 )
Net cash provided by (used in) investing activities - continuing operations
     -       (448 )     19,891  
Net cash provided by (used in) investing activities - discontinued operations
     -       -       -  
Net cash provided by (used in) investing activities
     -       (448 )     19,891  
                         
Cash flows from financing activities:
                        
     Proceeds from issuance of common stock
             310       1,887  
     Purchase and retirement of treasury stock
             (181 )     -  
     Repayment of long-term notes
             -       -  
     Repayment under line-of-credit agreements
             -       -  
     Borrowings under capital lease obligations
             10       -  
     Principal payments under capital lease obligations
             (16 )     (11 )
     Increase in deferred financing costs
             -       -  
Net cash provided by (used in) financing activities - continuing operations
     -       123       1,876  
Net cash provided by (used in) financing activities - discontinued operations
     -       -       -  
Net cash provided by (used in) financing activities
     -       123       1,876  
                         
Net increase (decrease) in cash
     -       2,887       9,806  
Cash at the beginning of the period
             15,210       5,404  
                         
Cash at the end of the period
   $ -     $ 18,097     $ 15,210  


 
 
 

 
 
Magnetek, Inc.
  
Nine Months Ended
  
Revised Draft Statements of Cash Flows in Accordance with FASB ASC 230-10-45-28
  
March 28,
    
March 29,
  
For the periods ended (amounts in US$ thousands)
  
2010
    
2009
  
   
(restated)
    
(restated)
  
Cash flows from operating activities:
            
Net income (loss)
   $ (4,633 )   $ 2,998  
                 
Loss from discontinued operations
     836       1,242  
Adjustments to reconcile net income (loss) to net cash
                
provided by (used in) operating activities:
                
Depreciation and amortization
     813       779  
Stock based compensation expense
     470       923  
Pension expense
     6,155       2,539  
Deferred income tax provision
     707       743  
Changes in operating assets and liabilities
     1,662       (427 )
Cash contribution to pension fund
     (9,507 )     (6,773 )
Net cash provided by (used in) operating activities - continuing operations
     (3,497 )     2,024  
Net cash provided by (used in) operating activities - discontinued operations
     (1,255 )     (354 )
Net cash provided by (used in) operating activities
     (4,752 )     1,670  
                 
Cash flows from investing activities:
                
Capital expenditures
     (977 )     (665 )
Proceeds from sale of business, net of transaction costs
     -       1,250  
Purchase of business
     -       (885 )
Deposit into escrow  account
     -       (5 )
Net cash provided by (used in) investing activities - continuing operations
     (977 )     (305 )
Net cash provided by (used in) investing activities - discontinued operations
     -       -  
Net cash provided by (used in) investing activities
     (977 )     (305 )
                 
Cash flows from financing activities:
                
     Proceeds from issuance of common stock
     200       230  
     Purchase and retirement of treasury stock
     (57 )     (182 )
     Borrowings under capital lease obligations
     -       8  
     Principal payments under capital lease obligations
     (11 )     (12 )
Net cash provided by (used in) financing activities - continuing operations
     132       44  
Net cash provided by (used in) financing activities - discontinued operations
     -       -  
Net cash provided by (used in) financing activities
     132       44  
                 
Net increase (decrease) in cash
     (5,597 )     1,409  
Cash at the beginning of the period
     18,097       15,210  
                 
Cash at the end of the period
   $ 12,500     $ 16,619  


 
 
 

 
 
Magnetek, Inc.
  
Six Months Ended
  
Revised Draft Statements of Cash Flows in Accordance with FASB ASC 230-10-45-28
  
December 27,
    
December 28,
  
For the periods ended (amounts in US$ thousands)
  
2009
    
2008
  
   
(restated)
    
(restated)
  
Cash flows from operating activities:
            
Net income (loss)
   $ (3,020 )   $ 2,820  
                 
Loss from discontinued operations
     629       175  
Adjustments to reconcile net income (loss) to net cash
                
provided by (used in) operating activities:
                
Depreciation and amortization
     541       513  
Stock based compensation expense
     314       742  
Pension expense
     4,103       1,693  
Deferred income tax provision
     459       450  
Changes in operating assets and liabilities
     3,519       (1,001 )
Cash contribution to pension fund
     (6,859 )     (4,392 )
Net cash provided by (used in) operating activities - continuing operations
     (314 )     1,000  
Net cash provided by (used in) operating activities - discontinued operations
     (738 )     (316 )
Net cash provided by (used in) operating activities
     (1,052 )     684  
                 
Cash flows from investing activities:
                
Capital expenditures
     (693 )     (396 )
Proceeds from sale of business, net of transaction costs
     -       1,250  
Deposit into escrow  account
     -       (5 )
Net cash provided by (used in) investing activities - continuing operations
     (693 )     849  
Net cash provided by (used in) investing activities - discontinued operations
     -       -  
Net cash provided by (used in) investing activities
     (693 )     849  
                 
Cash flows from financing activities:
                
     Proceeds from issuance of common stock
     138       164  
     Borrowings under capital lease obligations
     -       8  
     Principal payments under capital lease obligations
     (7 )     (7 )
Net cash provided by (used in) financing activities - continuing operations
     131       165  
Net cash provided by (used in) financing activities - discontinued operations
     -       -  
Net cash provided by (used in) financing activities
     131       165  
                 
Net increase (decrease) in cash
     (1,614 )     1,698  
Cash at the beginning of the period
     18,097       15,210  
                 
Cash at the end of the period
   $ 16,483     $ 16,908  


 
 
 

 
 
Magnetek, Inc.
  
Three Months Ended
  
Revised Draft Statements of Cash Flows in Accordance with FASB ASC 230-10-45-28
  
September 27,
    
September 28,
  
For the periods ended (amounts in US$ thousands)
  
2009
    
2008
  
   
(restated)
    
(restated)
  
Cash flows from operating activities:
            
Net income (loss)
   $ (1,795 )   $ 881  
                 
Loss from discontinued operations
     284       855  
Adjustments to reconcile net income (loss) to net cash
                
provided by (used in) operating activities:
                
Depreciation and amortization
     271       282  
Stock based compensation expense
     175       222  
Pension expense
     2,052       846  
Deferred income tax provision
     225       225  
Changes in operating assets and liabilities
     1,011       840  
Cash contribution to pension fund
     (4,211 )     (2,755 )
Net cash provided by (used in) operating activities - continuing operations
     (1,988 )     1,396  
Net cash provided by (used in) operating activities - discontinued operations
     (194 )     (433 )
Net cash provided by (used in) operating activities
     (2,182 )     963  
                 
Cash flows from investing activities:
                
Capital expenditures
     (274 )     (323 )
Deposit into escrow  account
     -       (5 )
Net cash provided by (used in) investing activities - continuing operations
     (274 )     (328 )
Net cash provided by (used in) investing activities - discontinued operations
     -       -  
Net cash provided by (used in) investing activities
     (274 )     (328 )
                 
Cash flows from financing activities:
                
     Proceeds from issuance of common stock
     73       86  
     Borrowings under capital lease obligations
     -       8  
     Principal payments under capital lease obligations
     (4 )     (3 )
Net cash provided by (used in) financing activities - continuing operations
     69       91  
Net cash provided by (used in) financing activities - discontinued operations
     -       -  
Net cash provided by (used in) financing activities
     69       91  
                 
Net increase (decrease) in cash
     (2,387 )     726  
Cash at the beginning of the period
     18,097       15,210  
                 
Cash at the end of the period
   $ 15,710     $ 15,936  
 

 
 
 
Example of Footnote Disclosure re: Revision of Cash Flow Statements
 
The accompanying consolidated statements of cash flows have been restated for the fiscal years 2009 and 2008 to comply with the presentation requirements of Accounting Standards Codification (“ASC”) Topic 230 (formerly Statement of Financial Accounting Standards No. 95), Statement of Cash Flows.  
 
ASC Topic 230 requires that cash flow statements classify cash inflows and outflows as related to operating, investing, or financing activities, and also requires that the presentation of net cash flow subtotals for each of these three activities include cash flows from both continuing and discontinued operations.
 
In previous filings, the Company presented cash flows related to operating, investing and financing activities from continuing operations separately from cash flows from discontinued operations for each of these three activities.  As a result, our consolidated statements of cash flows in previous filings began with the line item “Net income (loss) from continuing operations.”  This presentation was not in compliance with the requirements of ASC Topic 230, which requires that the consolidated statement of cash flows begin with the line item “Net income (loss).”
 
The restatement impacts only the Company’s reported subtotal related to net cash provided by or used in operating activities, and had no impact on the Company’s statements of operations or total cash flows for the restated periods, or on the Company’s financial position at the end of the restated periods.
 
The table below reflects the impact of the restatement on the Company’s net cash provided by or used in operating activities for fiscal years 2009 and 2008:
 

 
Consolidated Statements of Cash Flows
 
 
June 28, 2009
June 29, 2008
 
As
  
As
  
For the years ended
previously
As
previously
As
(Amounts in thousands except per share amounts)
reported
restated
reported
restated
Net cash provided by (used in) operating activities – continuing operations
  
$
4,438
    
$
4,438
    
$
4,077
    
$
4,077
  
Net cash provided by (used in) operating activities – discontinued operations
    
           -
    
$
(1,226
)
  
 
        -
    
$
(16,038
)
Net cash provided by (used in) operating activities
  
$
4,438
    
$
3,212
    
$ 4,077
    
$
(11,961
)