Cherokee (NASDAQ:CHRK)
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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