Cherokee International Corporation (NASDAQ: CHRK), a leading
designer and manufacturer of power supplies, today announced its
financial results for the third quarter ended September 28, 2008.
Net sales for the third quarter of 2008 were $36.4 million, up $6.0
million or 20% compared to $30.4 million for the third quarter
ended September 30, 2007. Sequentially, net sales for the third
quarter of 2008 were down $4.1 million or 10% when compared to
$40.5 million for the second quarter of 2008. The Company�s backlog
at September 28, 2008 was $50.6 million compared with $47.8 million
at September 30, 2007. The book to bill for the third quarter of
2008 was 0.92 to 1.00, compared to 1.00 to 1.00 for the third
quarter of 2007. Net income for the third quarter of 2008 was $0.1
million, or $0.01 per diluted share, compared to a net loss of $1.3
million, or $0.07 per diluted share, for the third quarter a year
ago. On a sequential basis, net income increased $0.7 million from
a net loss of $0.6 million, or $0.03 per diluted share, for the
second quarter of 2008. Gross profit for the third quarter was $9.2
million, up $3.5 million or 61%, compared to $5.7 million for the
same period in 2007, and down 19% sequentially from $11.3 million
for the second quarter of 2008. Gross profit was up mainly due to
higher revenue and operating leverage from increased production
levels at our China facility. Gross margin of 25.4% for the third
quarter 2008 was up from the 18.9% realized in the third quarter of
2007 and down sequentially from 28.0% for the second quarter of
2008. Gross margins improved primarily due to higher net sales,
increased production volumes from our China facility and overall
product mix. Operating income increased by $1.8 million to $0.8
million for the third quarter of 2008 compared to a loss of $1.0
million in the third quarter of 2007. Operating expenses were $8.5
million for the third quarter of 2008 compared to $6.7 million for
the third quarter of 2007, and down from $9.5 million sequentially
for the second quarter of 2008. As a percentage of sales, operating
expenses were 23.2% compared to 22.1% in the same quarter of 2007
and 23.5% sequentially for the second quarter of 2008. General and
administrative expenses increased by $1.5 million due to $0.8
million of professional and legal fees related to the pending
merger with Lineage Power Holdings, Inc., $0.4 million of
professional and legal fees related to efforts prior to entering
into the merger agreement to refinance our 5.25% Senior Notes that
became due and payable November 1, 2008, $0.2 million in other
legal expenses, and $0.1 million in foreign currency exchange rate
fluctuations from our Cherokee European operation. Cherokee Europe
was sold to a third party on October 18, 2008. For more
information, please refer to our 8-K filed October 23, 2008. �We
experienced continued improvement in our operating results for the
third quarter when compared to the same period in 2007. Gross
profit was up 61%, sales were up 20%, backlog increased 6% and we
continue to improve cash flow,� said Jeffrey M. Frank, Cherokee�s
President and Chief Executive Officer. �The strength in our
business came from our North America and Asia operations. Higher
sales and a complementary product mix resulted in higher production
volume and improved operating efficiencies from our China
facility.� Mr. Frank added, �In October, we reported the sale of
our European business. We remain focused on continuing our great
strides in growing the top line and improving profitability in our
North America and Asia operations.� For the nine months ended
September 28, 2008, net sales increased approximately 24.1%, or
$21.7 million, to $111.7 million, compared to $90.0 million for the
same period in 2007. Gross profit increased by 72.0%, or $12.2
million, to $29.2 million, compared to $17.0 million for the nine
months ended September 30, 2007. Gross margin for the nine months
ended September 28, 2008 increased to 26.2% from 18.9% in the prior
year period. Net loss for the nine months ended September 28, 2008
was $0.4 million, or $0.02 per diluted share, compared to a net
loss of $5.0 million, or $0.26 per diluted share for the nine
months ended September 30, 2007. The Company said that its
previously announced merger with Lineage Power Holdings, Inc.
remains on schedule and is expected to close on or about November
21, 2008. A Special Meeting of Stockholders will be held November
18, 2008 to vote on the transaction. For more information, please
refer to our 8-K filed September 30, 2008. About Cherokee
International Cherokee International designs, manufactures and
markets high-reliability custom and standard switch-mode power
supplies for datacom, telecom, medical and process-control
applications. With advanced manufacturing facilities and
engineering expertise located worldwide, Cherokee applies a
customer-focused approach to provide high-reliability power
products to manufacturers, reducing time to market. As the leading
provider of custom-designed power sources, Cherokee also delivers a
complete range of standard and modified-standard AC/DC power
supplies, AC/DC rectifiers and power shelves, and DC/DC converters.
Cherokee International headquarters are at 2841 Dow Ave, Tustin,
California 92780 and can be reached at 714 544 6665. European
operations are at Boulevard de l�Europe 131, 1301 Wavre, Belgium
and can be reached at +32 10 438 510. Cherokee International
(China) Power Supply Ltd. is located at 1353 Chenqiao Road,
Shanghia Fengpu Industrial Park Shanghai, 201401 China and can be
reached at 021 6710 8910. Additional information about the Company
and its products is available at http://www.cherokeepwr.com. Safe
Harbor Statement Certain statements contained in this press release
are forward-looking statements. These forward-looking statements
are based upon our current expectations about future events. When
used in this press release, the words "believe," "anticipate,"
"intend," "estimate," "expect" and similar expressions, or the
negative of such words and expressions, are intended to identify
forward-looking statements, although not all forward-looking
statements contain such words or expressions. These forward-looking
statements generally relate to our plans, objectives and
expectations for the future, including statements about the merger
and continuing improvements in our operating results. However,
these statements are subject to a number of risks and uncertainties
affecting our business. You should read this press release
completely and with the understanding that actual future results
may be materially different from what we expect as a result of
these risks and uncertainties and other factors, which include, but
are not limited to: (1) the following risks and uncertainties
related to the Merger: (i) the parties� ability to consummate the
transaction as expected; the possibility that one or more of the
conditions to the consummation of the transaction may not be
satisfied; the possibility that regulatory and/or shareholder
approvals required for the transaction may not be obtained in a
timely manner, if at all; the parties� ability to meet expectations
regarding the timing, completion, and other matters relating to the
transaction; any event that could give rise to the termination of
the Merger Agreement; (2) changes in general economic and business
conditions, domestically and internationally, (3) reductions in
sales to, or the loss of, any of the Company's significant
customers or in customer capacity generally, (4) changes in the
Company's sales mix to lower margin products, (5) increased
competition in the Company's industry, (6) disruptions of the
Company's established supply channels, (7) the Company's level of
debt and restrictions imposed by its debt agreements, and (8) the
additional risk factors identified in the Company's filings with
the Securities and Exchange Commission. Except as required by law,
the Company undertakes no obligation to update any forward-looking
statements, even though the Company's situation may change in the
future. CHEROKEE INTERNATIONAL CORPORATION Condensed Consolidated
Statements of Operations (In Thousands, Except Per Share Amounts)
(Unaudited) � � � � � Three Months Ended Year to date Sep 28, Sep
30, Sep 28, Sep 30, � 2008 � � 2007 � � 2008 � � 2007 � � Net sales
$ 36,402 $ 30,401 $ 111,689 $ 89,995 Cost of sales � 27,170 � �
24,670 � � 82,481 � � 72,996 � Gross profit � 9,232 � � 5,731 � �
29,208 � � 16,999 � Operating Expenses: Engineering and development
2,618 2,561 8,299 8,040 Selling and marketing 1,682 1,510 5,517
5,247 General and administrative 4,152 2,660 11,141 9,177 Goodwill
impairment (0 ) - 1,120 - Restructuring costs � - � � - � � - � �
155 � Total operating expenses � 8,452 � � 6,731 � � 26,077 � �
22,619 � Operating income (loss) 780 (1,000 ) 3,131 (5,620 ) �
Interest expense (707 ) (707 ) (2,166 ) (2,084 ) Gain on sale of
Mexico Facility building - - - 430 Other income, net � 66 � � (23 )
� 305 � � 291 � Income (loss) before income taxes 139 (1,730 )
1,270 (6,983 ) Provision (benefit) for income taxes � 13 � � (421 )
� 1,701 � � (1,999 ) Net income (loss) $ 126 � $ (1,309 ) $ (431 )
$ (4,984 ) � Net income (loss) per share: Basic $ 0.01 $ (0.07 ) $
(0.02 ) $ (0.26 ) Diluted $ 0.01 $ (0.07 ) $ (0.02 ) $ (0.26 ) �
Weighted average shares outstanding: Basic 19,476 19,414 19,465
19,371 Diluted 19,480 19,414 19,465 19,371 CHEROKEE INTERNATIONAL
CORPORATION Condensed Consolidated Balance Sheets (In Thousands)
(Unaudited) � � � � September 28, December 30, 2008 Unaudited 2007
Audited ASSETS � Current Assets: Cash and cash equivalents $ 15,301
$ 8,484 Accounts receivable, net 29,579 31,237 Inventories, net
29,395 28,021 Prepaid expenses and other current assets 1,509 1,583
Deferred Income taxes � - � � 363 � Total current assets 75,784
69,688 � Property and equipment, net 17,540 19,194 Deposits and
other assets 1,126 1,515 Deferred financing costs, net - 86
Deferred income taxes-long term portion - 1,257 Goodwill � - � �
1,120 � Total Assets $ 94,450 � $ 92,860 � � LIABILITIES AND
STOCKHOLDERS� EQUITY � Current Liabilities: Accounts payable $
15,825 $ 15,140 Accrued liabilities 4,732 4,667 Accrued
compensation and benefits 6,983 6,876 Accrued restructuring costs
410 431 Other short-term borrowings 198 - Borrowings under
revolving line of credit 3,796 3,395 Current debt 24,485 24,485
Current debt payable to affiliates � 22,145 � � 22,145 � Total
current liabilities 78,574 77,139 � Other long-term obligations
4,212 4,534 � � Total liabilities $ 82,786 � $ 81,673 � � Common
stock $ 19 $ 19 Paid-in capital 186,789 186,035 Accumulated deficit
(178,754 ) (178,323 ) Accumulated other comprehensive income �
3,610 � � 3,456 � Total stockholders' equity � 11,664 � � 11,187 �
Total Liabilities and Stockholders' Equity $ 94,450 � $ 92,860 �
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