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DEAR FELLOW STOCKHOLDER:


Shortly after the close of our fiscal year 2000, MagneTek's directors voted to divest all of the company's remaining electrical equipment product lines, which include lighting ballasts, magnet wire, capacitors and small transformers. These product lines, which generated 59 percent of the company's total revenue in 1999, are accounted for as discontinued operations in this report.


Why such a sweeping decision? The answer is focus.


As a diversified electrical equipment manufacturer, we addressed many markets through different channels. In many of these we were considered a component supplier, which limited our margins and profits. At the same time (since 1991, in fact), we have been developing technical competence in digital power products that are necessary subsystems in fast-growing, high-value-added markets such as telecommunications.


Digital power products* provide precise control of electric power in systems ranging from the utility grid to the internet. MagneTek today ranks among the world's leading independent manufacturers of digital power products++, and we are convinced that our strategy, well executed, will enable us to achieve the following basic goals:


- DOUBLE-DIGIT REVENUE GROWTH;
- DOUBLE-DIGIT OPERATING PROFIT MARGINS;
- DOUBLE-DIGIT CASH FLOW RETURN ON INVESTED CAPITAL.


MagneTek has been gravitating toward this electronic core since 1994, when we began selling off electrical equipment product lines. In August 1999 we completed the sale of our motor and generator businesses, and in December 1999 we disposed of our unprofitable European magnetic lighting ballast operations.


We will use the proceeds from the completion of the sale of our remaining electrical equipment operations to:


- FINISH BUYING BACK THE 10-MILLION SHARES (30%) OF MAGNETEK STOCK
AUTHORIZED BY THE BOARD IN 1999;
- PAY OFF ALL DEBT OUTSTANDING UNDER OUR EXISTING BANK LINES;
- INCREASE OUR LEVEL OF INVESTMENT IN DIGITAL POWER R&D;
- MAKE ACQUISITIONS THAT ARE CONSISTENT WITH OUR NEW FOCUS.


Before elaborating on our digital power strategy, let's examine MagneTek's fiscal 2000 results.


Despite the disposal of our unprofitable European ballast business in the second fiscal quarter, the profitability of the lighting products group deteriorated. This was mostly due to channel mix issues and price


* THE MAGNETEK FAMILY OF STANDARD, MODIFIED-STANDARD AND
CUSTOM-DESIGNED DIGITAL POWER-PRODUCTS PROVIDE DIGITALLY PROCESSED
ELECTRIC POWER AND CONTROL FUNCTIONS IN SYSTEMS RANGING FROM COMPUTERS
AND TELECOM NETWORKS TO HOME APPLIANCES AND INDUSTRIAL EQUIPMENT:
AC-DC SWITCHING POWER SUPPLIES DC-AC POWER INVESTORS
AC-DC RECTIFIERS/BATTERY CHARGERS PERIPHERAL COMPONENT INTERCONNECTS (PCIs)
DC-DC POWER CONVERTERS PROGRAMMABLE POWER SUPPLIES
ENERGY MANAGEMENT SYSTEMS SMART APPLIANCE MODULES (TM)


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erosion, compounded by higher material and freight costs. We increased lighting's profitability through streamlining operations and initiating the first industry price increase in four years. But with all of our efforts we could not figure out a way to achieve the growth, profits and return on investment we wanted for our stockholders.


Our continuing operations, on the other hand, grew at a double-digit rate throughout fiscal 2000. Total revenues were up 27% ($294 million vs. $231 million) from 1999. This was due in part to the acquisition during the year of the EMS Group of companies and Mondel Engineering, which complemented our digital motion control products.


Profits of these continuing operations also improved against the prior year. Gross profit was up 54% ($63 million vs. $41 million), and our gross profit margin increased 380 basis points to 21.5%. Operating income was $6.8 million and net income was $1.3 million or $.05 per diluted share after including the company's entire corporate overhead, even though these overhead expenditures also supported the discontinued operations.


With gains on the disposal of discontinued operations, MagneTek's total net income in fiscal 2000 amounted to $42.5 million or $1.70 per diluted share versus $38.5 million or $1.25 per diluted share in fiscal 1999.


We constantly strive to improve the operating performance of our technically talented company. Our immediate objectives are to:


- Complete the divestiture process by calendar year-end at prices in
excess of net book value.
- Continue to cut operating expenses, and especially corporate overhead.
- Increase R&D investment in innovative, proprietary products that
command greater margins.
- Expand our customer base and channels of distribution.
- Complete a major B2B initiative to enhance our marketing and information
systems.
- Make acquisitions that will augment our growth and profitability in
digital power electronics.


The power and motion control "marketplaces" in which our continuing operations presently participate are:


- COMMUNICATION/INFORMATION TECHNOLOGY, including telecommunications,
computer and office equipment, and networking equipment.
- INDUSTRIAL/INSTRUMENTATION TECHNOLOGY, including motion controls,
alternative energy interfaces, energy-saving controls for home
appliances and laser applications.


We are continually assessing the growth, profitability and cash-flow prospects for digital power products in each of these broad markets.


Worldwide consumption of digital power products, which already exceeds $30 billion a year, is projected to top $40 billion by 2004 and expand exponentially thereafter. Communication/Information Technology (CIT) applications currently account for about 83% of the total, and Industrial/Instrumentation Technology (IIT) applications account for another 12%++.


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The CIT marketplace for digital power products is now growing 11% annually++, but "broadband" infrastructure alone (telecom, data-com and networking equipment) is forecasted to undergo a $10 trillion global buildout over the next decade.(1)


The average industry operating profit margin on digital power products sold into this burgeoning marketplace is approximately 10%.++ We intend to exceed this by focusing on products, such as DC-DC converters and rectifier/battery-chargers that command above-average margins, and by moving up the "value chain" into "smart" power supplies, integrated subsystems and services.


MagneTek's Communication/Information Technology customers include such industry leaders as AT&T Wireless, Alcatel, Bosch, Bull, Compaq, Comverse, Ericsson, IBM, Italtel, Kodak, Lucent, MCI, Marconi, Motorola, NBase, Nokia, Network Appliance, Qwest, Radisys, Redback, Siemens, Teledata, Unisys and Xerox.


The Industrial/Instrumentation (IIT) marketplace also offers significant profit potential. Digital power products sold into this sector command operating profit margins in the 20% range on average for the industry. This marketplace is growing about 7% annually++ and the growth rate is expected to accelerate. Further, we plan to assure double-digit growth in IIT through acquisitions like those we made in fiscal 2000 and early entry into emerging markets such as fuel cell power conversion where we have a larger installed base than all of our competitors combined.


Our Industrial/Instrumentation customers include Baxter, Beckman, Caterpillar, Credence, Electrolux, GE, InFocus, Lam Research, Merloni, Nixdorf, Siemens (Medical Systems), United Technologies (International Fuel Cells), Universal Laser Systems, most of the crane and hoist manufacturers in North America, and all of the world's leading elevator builders.


To repeat what I said before, our three basic goals are:


- DOUBLE-DIGIT REVENUE GROWTH;
- DOUBLE-DIGIT OPERATING PROFIT MARGINS;
- DOUBLE-DIGIT CASH FLOW RETURN ON INVESTED CAPITAL.


What are the chances of our achieving these goals? In terms of things we can control, it depends on technology, acquisitions and execution.


We certainly are well positioned in technology. Our 200-plus power electronics engineers and scientists, 38 percent of whom hold Ph.D. or Masters degrees, excel in:


- MIXED-SIGNAL (ANALOG TO DIGITAL) DESIGN, enabling us to provide total
power solutions to our customers, who specialize in digital design;
- HEAT REDUCTION TECHNOLOGY, resulting in the most compact, reliable,
highest power-density products on the market;
- APPLICATION OF MICROPROCESSORS AND DIGITAL SIGNAL PROCESSORS, allowing
us to create "smart" power products that are programmable and
self-diagnostic.


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Regarding external growth, the digital power industry is consolidating, and we will participate by making acquisitions that:


- LEVERAGE OUR TECHNOLOGY;
- ADD TO OUR PRODUCT LINES;
- STRENGTHEN OUR CHANNELS TO MARKET;
- DEEPEN OUR TALENT POOL.


There are over 250 digital power product manufacturers in North America and more than 1,000 worldwide. MagneTek currently ranks 13th++ in the industry; and since we expect to be debt-free following the sale of our remaining electrical component businesses, this places us in an excellent position to accelerate growth through acquisitions.


We are taking the steps necessary to assure proper and timely implementation of our digital power strategy.


- We are adding world-class marketing talent at the corporate level.
- We are structuring the organization into "expertise distinct" marketing
units to optimize our business model.
- We have formed a mergers and acquisitions team to drive the acquisition
process from due diligence through integration.
- We are reviewing and re-qualifying our industry alliances to assure
their effectiveness.
- We are re-energizing our intellectual property portfolio through
aggressive strategic patenting.
- We are structuring an incentive system to reward internal
entrepreneurship, and exploring more effective ways of rewarding valued
employees at all levels.


The potential clearly exists for us to achieve our goals of double-digit revenue growth, double-digit operating profits and double-digit cash flow return on invested capital. These goals are not inconsistent with the performance of other digital power product companies.


I am confident that, with our new strategic focus, we will emerge a much stronger company with a bright future.


MagneTek's 2000 annual meeting will be held in New York City on November 1st. At that time, we will present a more comprehensive picture of our digital power strategy and prospects. I hope you will be able to attend the meeting in person or access the Webcast on the internet.*


/s/ ANDREW G. GALEF
-----------------------------------------------
Andrew G. Galef
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER


SOURCES: ++ MICRO-TECH CONSULTANTS
1. GLOBAL BUSINESS NETWORK
2. HOLT VALUE ASSOCIATES


* MAGNETEK'S FISCAL 2000 STOCKHOLDERS' MEETING WILL BE HELD ON WEDNESDAY, NOVEMBER 1ST AT 10:00 A.M. EASTERN STANDARD TIME AT THE PENINSULA HOTEL, 700 FIFTH AVENUE AT 55TH STREET, NEW YORK CITY. MEETING AUDIO AND VISUALS WILL BE WEBCAST SIMULTANEOUSLY ON STREETFUSION (HTTP://WWW.STREETFUSION.COM); THOSE WITHOUT ACCESS TO INTERNET AUDIO CAN LISTEN TO THE PROCEEDINGS BY PHONING 303/224-6999.


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SELECTED FINANCIAL DATA


STATEMENT OF INCOME DATA


FOR THE YEARS ENDED JUNE 30, (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------------- Net sales $293,575 $231,339 $244,040 $240,205 $239,588 Income (loss):
Continuing operations 1,282 (24,318) 344 (6,602) (25,275)
Discontinued operations 41,170 62,791 37,532 35,353 (68,889)
Extraordinary item - - - (4,676) -
Net income (loss) 42,452 38,473 37,876 24,075 (94,164) Per common share--basic:
Income (loss) from continuing
operations before extraordinary
item $ 0.05 $ (0.79) $ 0.01 $ (0.26) $ (1.02)
Net income (loss) $ 1.71 $ 1.25 $ 1.25 $ 0.94 $ (3.81) Per common share--diluted:
Income (loss) from continuing
operations before extraordinary
item $ 0.05 $ (0.79) $ 0.01 $ (0.26) $ (1.02)
Net income (loss) $ 1.70 $ 1.25 $ 1.25 $ 0.94 $ (3.81) ======================================================================================================================


IN FISCAL YEARS 1996 THROUGH 1999, THE EFFECT OF CONVERTIBLE SECURITIES AND
EMPLOYEE STOCK OPTIONS ARE ANTI-DILUTIVE AS TO EARNINGS PER SHARE AND ARE
IGNORED IN THE COMPUTATION OF DILUTED EARNINGS PER SHARE IN THOSE PERIODS.


NET INCOME FOR THE YEAR ENDED JUNE 30, 2000 INCLUDES A $35,125 AFTER-TAX
GAIN ON THE SALE OF THE COMPANY'S MOTOR AND EUROPEAN LIGHTING BUSINESS
INCLUDED IN DISCONTINUED OPERATIONS.


NET INCOME FOR THE YEAR ENDED JUNE 30, 1999 INCLUDES A $50,988 AFTER-TAX
GAIN ON THE SALE OF THE COMPANY'S GENERATOR BUSINESS INCLUDED IN
DISCONTINUED OPERATIONS. CONTINUING AND DISCONTINUED OPERATIONS RESULTS IN
FISCAL 1999 INCLUDE CHARGES AGGREGATING $21,564 AND $12,836 RESPECTIVELY,
RELATING TO DOWNSIZING, INVENTORY ADJUSTMENTS, SEVERANCE COSTS AND OTHER
ASSET-WRITEDOWNS.


LOSSES FROM CONTINUING AND DISCONTINUED OPERATIONS FOR THE YEAR ENDED JUNE
30, 1996 INCLUDE PRE-TAX CHARGES AGGREGATING $6,326 AND $73,391
RESPECTIVELY. CHARGES IN FISCAL 1996 REFLECT COSTS ASSOCIATED WITH
REPOSITIONING OPERATIONS PRIMARILY FOR SEVERANCE, TERMINATION BENEFITS,
WARRANTY AND ASSET WRITE-DOWNS RELATED TO FACILITY CLOSURES. ALSO, IN
REVIEW OF THE COMPANY'S DEFERRED TAX ASSET IN ACCORDANCE WITH FASB NO.109,
A $14,700 CHARGE WAS INCURRED IN FISCAL YEAR 1996.


BALANCE SHEET DATA


AS OF JUNE 30, (AMOUNTS IN THOUSANDS) 2000 1999 1998 1997 1996 --------------------------------------------------------------------------------------------------------------------------- Total assets $400,673 $576,220 $595,534 $498,544 $515,800 Long-term debt,
including current portion 64,040 179,181 244,714 236,127 313,729 Common stockholders' equity 184,206 204,885 189,558 102,274 42,116 ---------------------------------------------------------------------------------------------------------------------------


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


GENERAL


During fiscal year 2000, the Company continued to review its strategic direction for the express purpose of maximizing shareholder value. These reviews led us to the conclusion that increased value to shareholders could be best achieved by focusing all efforts towards "Digital Power Products." This area includes the Company's power control and motion control product offerings. The potential for both above average revenue growth and operating margin performance in this area is far more expansive than any of our other products and services. Profitable market niches exist, and are growing rapidly, where competitive advantages are based on technology, reliability and dependability and not significantly dependent upon economies of scale or low-cost manufacturing as in electrical products. These niches are clearly opportunities for our Company due to our current platform of technology and portfolio of products. While there remain "gaps" in both, these can be quickly filled and allow us to be a significant market force in targeted areas. To accelerate this process, the Company will divest its Lighting Products and Transformer businesses. These divestitures will provide cash for continued investment in power electronics and focus all of our resources on our core strengths. In the previous fiscal year, similar decisions were made to exit the Company's Generator and Motor businesses due to industry consolidation and other factors that limited our long-term ability to successfully compete in these markets. The Generator and Motor businesses were successfully sold for $115 million and $253 million respectively. Proceeds from these sales were used to repay debt, continue the stock repurchase program authorized by the Board of Directors in May, 1999, and selectively acquire businesses to complement the Company's strengths.


MagneTek now operates in a single business segment, Digital Power Products. Digital Power Products includes electronic converters and rectifiers generally known as power controls primarily for telecommunications equipment, data processing, data storage, networking, imaging, power quality, medical electronics markets and power generation. Digital Power Products also includes motion control devices that regulate speed for electric motors as well as communicating to related hardware and software equipment.


YEAR 2000 ISSUE


In fiscal years 1998 and 1999 the Company conveyed its plans and progress in ensuring that all systems were Year 2000 compliant. As scheduled, the Company completed remediation and testing for all systems in the last half of fiscal year 1999. Due to efforts expended, the Company has experienced no significant disruptions in either critical information or non-information technology systems. The Company is not aware of any material problems resulting from Year 2000 issues with products, internal systems or third party products or services. For the remainder of Year 2000, the Company will continue to monitor both internal computer applications and those of third party suppliers and vendors. While the Company does not expect any problems to occur, should any latent Year 2000 issues arise, they will be addressed promptly.


RESULTS OF OPERATIONS


NET SALES AND GROSS PROFIT


Net sales for the Company increased to $293.6 million in fiscal 2000 from $231.3 million in fiscal 1999 and $244.0 million in fiscal 1998. The 27% increase in revenue levels was primarily due to the effect of the acquisitions of the EMS Group and Mondel ULC and increased domestic sales for power control products. The decline in sales from fiscal 1999 versus 1998 of 5% was caused by reduced sales of motion control products and lower reported revenues from international operations. Gross profits increased to $63.2 million(21.5% of net sales) in fiscal 2000 from $40.9 million (17.7% of net sales)in fiscal 1999. Increased gross profit levels were primarily a function of higher revenues. Results in fiscal 1999 include $7.5 million of repositioning costs (primarily inventory write-downs) which adversely impacted gross profits. Gross profits were $58.7 million (24.0% of net sales) in fiscal 1998.


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OPERATING EXPENSES


Selling, general and administrative expense (including research and development expenditures) was $56.4 million (19.2% of net sales) in fiscal 2000 compared to $72.7 million (31.4% of net sales) in fiscal 1999. Fiscal 1999 results included approximately $13 million of fourth quarter charges related primarily to severance expense, costs associated with vacating facilities, provisions for accounts receivable and write-offs associated with software assets. Fiscal 1998 expenses were $54.1 million (22.2% of net sales).


INTEREST AND OTHER EXPENSES


Interest expense was $2.9 million in fiscal 2000 compared to $1.6 million in fiscal 1999 and $1.9 million in fiscal 1998. Interest expense for the Company is recorded in conformance with accounting principles that allow the allocation of interest expense between continuing and discontinued operations in accordance with EITF 87-24, "Allocation of Interest to Discontinued Operations." Other expense was $1.9 million in fiscal 2000 compared to $2.6 million in fiscal 1999 and $2.1 million in fiscal 1998.


NET INCOME (LOSS)


In fiscal 2000, the Company recorded net income of $42.5 million or $1.71 per share (basic) and $1.70 on a diluted basis. Results reflect net income of $1.3 million from continuing operations, $6.1 million from discontinued operations and a $35.1 million gain on sale of discontinued businesses (the Motor and European Lighting businesses of which the Motor business accounted for all of the gain on sale). Comparable net income for the Company for fiscal 1999 was $38.5 million, $1.25 per share (basic) and $1.25 on a diluted basis. Net income in fiscal 1999 reflects a loss of $24.3 million from continuing operations, net income of $11.8 million from discontinued operations and a gain on the sale of discontinued businesses (the Generator business in April of 1999) of $51 million. Fiscal 1998 net income of $37.9 million was $1.25 per share (basic) and $1.25 per share on a diluted basis. Continuing operations in fiscal 1998 contributed $.3 million of net income with discontinued operations generating $37.6 million of net income in the period.


LIQUIDITY AND CAPITAL RESOURCES


As of June 30, 2000, long term borrowings (including the current portion) were $64 million, compared to $179 million as of June 30, 1999 and $245 million as of June 30, 1998. The decrease in long term borrowings in fiscal 2000 resulted primarily from repayment with proceeds received from the sale of the Motor business aggregating $253 million. In fiscal 2000, the Company also completed the acquisitions of the EMS Group and Mondel ULC for an aggregate cash payment of $48 million. In fiscal 2000, the Company continued open market purchases of its common stock, purchasing 7.1 million shares at a cost of $62 million. The decrease in long term borrowings in fiscal 1999 from fiscal 1998 resulted primarily from the sale of the Generator business, which totaled $115 million. In fiscal 1998 the Company made open-market purchases of approximately 1.6 million shares of its common stock for $17 million.


At June 30, 2000, the Company had an agreement with a group of banks to borrow up to $200 million under a revolving loan facility through June of 2002. As of June 30, 2000, the Company had approximately $134 million in available capacity under this agreement. The Company had amended its Bank Loan Agreement on July 30, 1999 reducing the lending commitment from $350 million to $200 million. The reduced lending commitment occurred as a result of the $253 million sale of the Company's Motor business in August of 1999 at which point the Company repaid all outstanding borrowings under its Bank Loan Agreement.


We believe that internally generated cash flows, along with the Company's Bank Loan Agreement and access to external capital resources, will be sufficient to fund near-term commitments and plans.


Cash outflow in connection with repositioning reserves established in fiscal 1999 approximated $7 million in fiscal 2000. The Company may be subject to certain potential environmental and legal liabilities (see Note 11).


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QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK


The Company is exposed to market risks in the areas of commodity prices, foreign exchange and interest rates. To mitigate the effect of such risks, the Company selectively utilizes specific financial instruments. Hedging transactions are entered into under Company policies and procedures and monitored monthly. Company policy clearly prohibits the use of such financial instruments for trading or speculative purposes. A discussion of the Company's accounting policies for derivative financial instruments is included in the Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements.


COMMODITY PRICES


The Company uses within its discontinued operations a significant amount of copper wire in the production of its products. The price of copper is subject to fluctuations based upon general economic conditions, labor issues at the producing mines, the capacity of smelting operations and the availability of scrap copper. Due to the relatively large content of copper cost in the Company's product, the Company enters into forward copper futures positions to act as a hedge against its material purchases. The fair value of the Company's position in copper is calculated by valuing its futures position at quoted market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. The potential loss in fair value of the Company's copper futures position from a hypothetical 10% decrease in copper prices was $1.3 million at June 30, 2000 and $1.6 million at June 30, 1999.


INTEREST RATES


The fair value of the Company's debt was $64 million and $179 million at June 30, 2000 and June 30, 1999 respectively. The fair value of the Company's debt is equal to the borrowings outstanding from domestic and foreign banks and small amounts owed under capital lease arrangements. Prospectively, the Company does not consider there to be material risk due to changes in the interest rate structure of borrowing rates applicable to such debt. For the variable rate debt outstanding at June 30, 2000 and 1999, a hypothetical 10% adverse change in interest rates would have an unfavorable impact of $.5 million and $1.0 million respectively, on the Company's pre-tax earnings and cash flows.


FOREIGN CURRENCY EXCHANGE RATES


The Company enters into foreign exchange contracts to hedge certain balance sheet exposures in Europe and operating cost exposures related to manufacturing facilities in Mexico. The Company had foreign currency contracts outstanding of approximately $30.7 million at June 30, 2000 and $39 million at June 30, 1999. Assuming a hypothetical 10% adverse change in foreign exchange rates, the potential loss in value of the Company's forward contracts would have been $3.1 million at June 30, 2000 and $3.9 million at June 30, 1999.


FORWARD-LOOKING INFORMATION


The foregoing risk management discussion and amounts projected, generated from adverse changes that could occur are forward-looking statements of market risks assuming that certain adverse market conditions do occur. Actual results in the future are beyond the control of the Company and may differ materially from those estimated. The analytical methods used to assess and mitigate risks in areas discussed should not be considered projections of future events or losses.


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CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JUNE 30, (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 ------------------------------------------------------------------------------------------------------
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