SOURCE: Channell Commercial Corporation

March 28, 2008 07:00 ET

Channell Announces 2007 Fourth Quarter and Full Year Results

TEMECULA, CA--(Marketwire - March 28, 2008) - Channell Commercial Corporation (NASDAQ: CHNL), a designer and manufacturer of telecommunications equipment supplied to operators of communications networks worldwide and water harvesting solutions distributed in markets throughout Australia, today announced financial results for the three and twelve months ended December 31, 2007.

Fourth Quarter Results

Channell Commercial Corporation (the "Company") reported fourth quarter 2007 net sales of $29.7 million. This represents a 20.2% increase compared to net sales of $24.7 million for the fourth quarter of 2006. On a sequential basis, net sales decreased 12.2% compared to third quarter 2007 net sales of $33.9 million.

The Company also reported a GAAP net loss of $815,000 for the fourth quarter of 2007, or ($0.09) per basic and diluted share, as compared to a net loss of $2.8 million, or ($0.29) per basic and diluted share, for the fourth quarter of 2006. Included in the fourth quarter 2007 net loss is stock compensation expense of $29,000 (accounted for under SFAS 123R), and intangible amortization expense of $51,000, which together equate to ($0.01) per basic and diluted share. Excluding these items, fourth quarter 2007 non-GAAP pro forma net loss was $735,000, or ($0.08) per basic and diluted share.

Gross profit for fourth quarter 2007 was $8.9 million, or 29.8% of net sales, as compared to $6.0 million, or 24.2% of net sales, for the comparable period last year.

Total operating expenses for fourth quarter 2007 were $9.1 million, or 30.7% of net sales. Included in operating expenses was $80,000 of intangible amortization and stock compensation expenses.

Full Year Results

For the twelve months ended December 31, 2007, net sales were $133.2 million, a 22% increase compared to net sales of $109.1 million for the comparable period in 2006.

The Company also reported 2007 GAAP net income of $273,000, or $0.03 per basic and diluted share, versus a net loss of $6.8 million, or ($0.72) per basic and diluted share, for the prior year. 2007 non-GAAP pro forma net income was $579,000, or $0.06 per basic and diluted share, which includes stock compensation expense of $115,000 (accounted for under SFAS 123R) and intangible amortization expense of $191,000. Included in the 2006 loss is a non-cash goodwill impairment charge of approximately $4.8 million associated with the Company's Bushman Tanks subsidiary, stock compensation expense of $343,000 (accounted for under SFAS 123R), and intangible amortization of $175,000, partially offset by the net benefit of $344,000 primarily from the utilization of excess and obsolete inventory that was fully reserved. Excluding these items, which together equate to ($0.39) on a basic and diluted per share basis, the non-GAAP, pro forma net loss for the twelve months ended December 31, 2006 was $3.0 million or ($0.33) per basic and diluted share.

Gross profit for the twelve months ended December 31, 2007 was $40.9 million, or 30.7% of net sales, as compared to $33.1 million, or 30.3% of net sales, for the same period in 2006. The 2006 gross margin was positively impacted by $344,000, or $0.04 per basic and diluted share, associated with the utilization of excess and obsolete inventory that was fully reserved.

Operating expenses for the twelve months ended December 31, 2007 were $38.9 million compared to $41.5 million for the same period last year. The lower operating expenses were primarily the result of a non-cash goodwill impairment charge incurred during 2006 of approximately $4.8 million associated with the Company's Bushman Tanks subsidiary.

Liquidity

At December 31, 2007, the Company had total cash and cash equivalents of $2.1 million, which was $0.5 million higher than the total at September 30, 2007, and $18.2 million in total outstanding debt and capital lease obligations, which was $0.6 million higher than September 30, 2007. Net cash generated from operating activities was $1.2 million for the fourth quarter of 2007.

Days sales outstanding declined to 39 days during the fourth quarter of 2007 from 43 days in the comparable period last year and also down from 44 days in the third quarter of 2007. Days inventory for the fourth quarter of 2007 was 68 days, up from 63 days inventory for the fourth quarter of 2006 but down from 69 days during the third quarter of 2007. Days payables were 41 days for the fourth quarter of 2007, down from 46 days in the year-ago period and the third quarter of 2007.

Capital expenditures were $1.3 million in the fourth quarter of 2007 compared to $2.2 million in the comparable period last year. Full year capital expenditures were $3.9 million for both 2007 and 2006.

Non-GAAP Financial Measures

Non-GAAP pro forma net income (loss) and Non-GAAP pro forma net income (loss) per basic and diluted share are non-GAAP financial measures, and represent net income (loss), and net income (loss) per basic and diluted share, each adjusted to exclude certain non-cash and non-recurring items. For a reconciliation of non-GAAP pro forma net income (loss) to GAAP net income (loss), and non-GAAP pro forma net income (loss) per basic and diluted share to GAAP net income (loss) per basic and diluted share, for the periods presented, please see the financial tables attached to this press release. This press release and the attached financial information are also available in the investor relations section of the Company's web site at www.channell.com.

The Company believes the presentation of non-GAAP financial measures assists investors to better understand the Company's operating performance. In addition, analyst estimates typically exclude the impact of non-cash and non-recurring items from net income (loss) per basic and diluted share; consequently, the Company believes that the presentation of these non-GAAP financial measures is helpful to investors in their review of information presented by analysts.

About Channell

Channell Commercial Corporation is a designer and manufacturer of telecommunications equipment supplied to communications network operators worldwide and water storage tanks distributed in markets throughout Australia. Major product lines include a complete line of thermoplastic and metal fabricated enclosures, advanced copper termination and connectorization products, fiber-optic cable management systems and polyethylene water storage tanks. The Company's headquarters and U.S. manufacturing facilities are in Temecula, California. International operations include facilities in Toronto (Canada), London (U.K.) and various locations throughout Australia. The Company's website is www.channell.com

Forward-Looking Statements

This news release contains statements that are not historical in nature and that may be characterized as "forward-looking statements" within the meaning of the securities laws. Examples of forward-looking statements would include statements about the expected future revenues, expenses and other financial results, and any other statements that are not historical facts. These statements are based on management's current expectation and are subject to a number of uncertainties and risks. Actual results may differ materially. Important factors that could cause actual results to differ materially from the Company's estimates or projections contained in the forward-looking statements include, but are not limited to: (1) obsolescence of Company products resulting from technological change, (2) ability to anticipate changes in technology and industry standards in order to successfully develop and introduce new products, (3) dependence on a few customers for a large percentage of sales, (4) dependence on the telecommunications industry to represent a substantial portion of the Company's total sales, (5) customer demand, (6) material costs and the availability of complementary products, (7) energy costs, (8) integration of acquired businesses, (9) delays in product development, (10) operating leverage, (11) seasonality and fluctuations in operating results and (12) worldwide economic conditions. Such uncertainties are discussed further in the Company's filings with the Securities and Exchange Commission, which you are encouraged to review in connection with this release.

                     CHANNELL COMMERCIAL CORPORATION
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                      AND COMPREHENSIVE INCOME (LOSS)
                          Year ended December 31,
              (amounts in thousands, except per share data)

                                Twelve months ended   Three months ended
                                    December 31,          December 31,
                                  2007       2006       2007       2006
                                ---------  ---------  ---------  ---------

Net sales                       $ 133,163  $ 109,138  $  29,732  $  24,662
Cost of goods sold                 92,240     76,055     20,858     18,701
                                ---------  ---------  ---------  ---------
 Gross Profit                      40,923     33,083      8,874      5,961
                                ---------  ---------  ---------  ---------

Operating expenses
  Selling                          22,131     21,993      5,272      5,171
  General and administrative       14,868     12,500      3,342      3,622
  Research and development          1,865      2,222        524        366
  Impairment of goodwill                -      4,829          -          -
                                ---------  ---------  ---------  ---------
                                   38,864     41,544      9,138      9,159
                                ---------  ---------  ---------  ---------

  Income (loss) from
   operations                       2,059     (8,461)      (264)    (3,198)
  Interest expense                 (1,323)      (857)      (540)      (355)
                                ---------  ---------  ---------  ---------
    Income (loss) before
     income tax expense
     (benefit)                        736     (9,318)      (804)    (3,553)

  Income tax expense (benefit)        484       (777)        50       (512)
                                ---------  ---------  ---------  ---------
    Income (loss) before
     minority interest                252     (8,541)      (854)    (3,041)
      Minority interest in
       loss of subsidiaries           (21)    (1,712)       (39)      (260)
                                ---------  ---------  ---------  ---------
    Net income (loss)           $     273  $  (6,829) $    (815) $  (2,781)
                                =========  =========  =========  =========

  Net income (loss) per share
    Basic and diluted           $    0.03  $   (0.72) $   (0.09) $   (0.29)
                                =========  =========  =========  =========



                      CHANNELL COMMERCIAL CORPORATION
                        CONSOLIDATED BALANCE SHEETS
                               December 31,
              (amounts in thousands, except per share data)


                                                          2007      2006
                                                        --------  --------
                       ASSETS
Current assets
  Cash and cash equivalents                             $  1,825  $  2,235
  Restricted cash                                            282         -
  Accounts receivable, net of allowance for doubful
   accounts of $281 at December 31, 2007 and $220 at
   December 31, 2006                                      12,807    11,673
  Inventories, net                                        15,763    13,018
  Prepaid expenses and other current assets                1,436       931
  Income taxes receivable                                      -       881
  Deferred income taxes, net                                 936       719
                                                        --------  --------
        Total current assets                              33,049    29,457

Property and equipment, net                               19,036    18,799
Deferred income taxes, net                                   642     1,017
Goodwill                                                  10,998     9,848
Intangible assets, net                                     2,128     2,097
Other assets                                                 994       660
                                                        --------  --------
                                                        $ 66,847  $ 61,878
                                                        ========  ========
      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable                                      $  9,447  $ 10,902
  Short-term debt (including current maturities of
   long-term debt)                                        10,335    13,723
  Current maturities of capital lease obligations            153       138
  Income taxes payable                                       178         -
  Accrued expenses                                         5,444     4,371
                                                        --------  --------
        Total current liabilities                         25,557    29,134

Long-term debt, less current maturities                    7,467         -
Capital lease obigations, less current maturities            198       384
Other long-term liabilities                                  906     1,332
                                                        --------  --------
        Total liabilities                                 34,128    30,850
Commitments and contingencies (Note L)                         -         -
Minority interest                                            955       878

Stockholders' equity
  Preferred stock, par value $.01 per share, authorized
   - 1,000 shares, none issued and outstanding                 -         -
  Common stock, par value $.01 per share, authorized -
   19,000 shares; issued 9,788 at December 31, 2007 and
   9,787 at December 31, 2006, outstanding - 9,544 shares
   at December 31, 2007 and 9,543 shares at December 31,
   2006                                                       98        98
  Additional paid-in capital                              31,210    31,093
  Treasury stock - 244 shares in 2007 and 2006            (1,871)   (1,871)
  Retained earnings (accumulated deficit)                    113      (160)
  Accumulated other comprehensive income -
    Foreign currency translation                           2,214       990
                                                        --------  --------
          Total stockholders' equity                      31,764    30,150
                                                        --------  --------
                                                        $ 66,847  $ 61,878
                                                        ========  ========



                      CHANNELL COMMERCIAL CORPORATION
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                          Year ended December 31,
                          (amounts in thousands)

                                                          2007      2006
                                                        --------  --------
Cash flows from operating activities:
  Net income (loss)                                     $    273  $ (6,829)
  Adjustments to reconcile net income (loss) to
   net cash provided by (used in) operating
   activities:
    Depreciation and amortization                          4,929     5,101
    Stock-based compensation                                 115       343
    Asset impairment charge                                    -         -
    Loss (gain) on disposal of fixed assets                   50        43
    Amortization of deferred gain on sale leaseback          (60)      (60)
    Impairment of goodwill                                     -     4,829
    Deferred income taxes                                    336      (758)
    Provision for doubtful accounts                          125       (31)
    Provision for inventory obsolescence                     656       131
    Minority interest in (loss) income of subsidiaries       (21)   (1,712)
    Changes in assets and liabilities:
      Accounts receivable                                   (582)   (2,562)
      Inventories                                         (2,724)   (1,277)
      Prepaid expenses and other current assets             (457)       93
      Income taxes                                         1,070      (816)
      Other assets                                          (311)      (60)
      Accounts payable                                    (2,239)    1,602
      Restructuring liability                                  -         -
      Accrued expenses and other liabilities                 436      (324)
                                                        --------  --------
        Net cash provided by (used in) operating
         activities                                        1,596    (2,287)
                                                        --------  --------

Cash flows from investing activities:
  Purchase of property and equipment                     (3,917)   (3,871)
  Proceeds from sale of property and equipment               163       106
                                                        --------  --------
    Net cash used in investing activities                 (3,754)   (3,765)
                                                        --------  --------

Cash flows from financing activities:
  Repayment of debt                                      (14,695)   (1,972)
  Borrowings from credit facilities                       17,882     7,710
  Repayment of obligations under capital lease, net         (679)     (174)
  Restricted cash                                           (282)        -
  Exercise of employee stock options                           2         -
                                                        --------  --------
    Net cash provided by financing activities              2,228     5,564
                                                        --------  --------
Effect of exchange rates on cash                            (480)     (425)
                                                        --------  --------
  Decrease in cash and cash equivalents                     (410)     (913)
Cash and cash equivalents, beginning of year               2,235     3,148
                                                        --------  --------
Cash and cash equivalents, end of year                  $  1,825  $  2,235
                                                        ========  ========
Cash paid during the year for:
  Interest                                              $  1,348  $  1,064
                                                        ========  ========
  Income taxes                                          $     21  $    604
                                                        ========  ========
Non-cash investing acitivities:
  Purchases of property and equipment which are
   included in:
    Obligations under capital leases                    $    464  $    506
                                                        ========  ========
    Accounts payable                                    $     63  $     48
                                                        ========  ========



                     Channell Commercial Corporation
  Reconciliation Tables of GAAP Financial Measures to Non-GAAP Financial
                                 Measures


Reconciliation of GAAP net income
 (loss) per basic and diluted
 share to non-GAAP pro forma net
 income (loss) per basic and
 diluted share (Unaudited)
                                     Quarter Ended        Quarter Ended
                                   December 31, 2007    December 31, 2006
                                  -------------------  -------------------
GAAP net income (loss) per basic
 and diluted share                ($             0.09) ($             0.29)

Add:
  Stock compensation expense
   under SFAS 123R                $              0.00  $              0.01

  Intangible amortization         $              0.01  $              0.00
                                  -------------------  -------------------

Non-GAAP pro forma net income
 (loss) per basic and diluted
 share                            ($             0.08) ($             0.28)
                                  ===================  ===================



Reconciliation of GAAP net income
 (loss) to non-GAAP pro forma net
 income (loss) (Unaudited)
 (in thousands)
                                      Quarter Ended        Quarter Ended
                                    December 31, 2007    December 31, 2006
                                  -------------------  -------------------
GAAP net income (loss)            ($              816) ($            2,781)

Add:
  Stock compensation expense
   under SFAS 123R                $                29  $                82

  Intangible amortization         $                51  $                44
                                  -------------------  -------------------


Non-GAAP net income (loss)        ($              736) ($            2,655)
                                  ===================  ===================


Reconciliation of GAAP net income
 (loss) per basic and diluted
 share to non-GAAP pro forma net
 income (loss) per basic
 and diluted share (Unaudited)

                                  Twelve Months Ended  Twelve Months Ended
                                    December 31, 2007    December 31, 2006
                                  -------------------  -------------------
GAAP net income (loss) per basic
 and diluted share                $              0.03  ($             0.72)

Add:
  Stock compensation expense
   under SFAS 123R                $              0.01  $              0.04
  Non-cash Goodwill impairment
   charge after impact of
   minority interest                              n/a  $              0.38
  Intangible amortization         $              0.02  $              0.02

Subtract:
  Net benefit from obsolete
   inventory utilization                          n/a  ($             0.04)
                                  -------------------  -------------------

Non-GAAP pro forma net income
 (loss) per basic and diluted
   share                          $              0.06  ($             0.32)
                                  ===================  ===================


Reconciliation of GAAP net income
 (loss) to non-GAAP pro forma net
 income (loss) (Unaudited)
 (in thousands)
                                  Twelve Months Ended  Twelve Months Ended
                                    December 31, 2007    December 31, 2006
                                  -------------------  -------------------
GAAP net income (loss)            $               272  ($            6,829)

Add:
  Stock compensation expense
   under SFAS 123R                $               115  $               343
  Non-cash Goodwill impairment
   charge after impact of
   minority interest                              n/a  $             3,622
  Intangible amortization         $               191  $               175

Subtract:
  Net benefit from obsolete
   inventory utilization                          n/a  ($              344)
                                  -------------------  -------------------


Non-GAAP net income (loss)        $               578  ($            3,033)
                                  ===================  ===================

Contact Information

  • CONTACTS

    At the Company:
    Michael Perica
    Treasurer
    951-719-2600
    Email Contact