SOURCE: Channell Commercial Corporation

May 13, 2008 07:00 ET

Channell Announces 2008 First Quarter Results

TEMECULA, CA--(Marketwire - May 13, 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 and North America, today announced financial results for the three months ended March 31, 2008.

First Quarter Results

Channell Commercial Corporation (the "Company") reported first quarter 2008 net sales of $25.2 million. This represents a 23.4% decrease compared to net sales of $32.9 million for the first quarter of 2007.

The Company also reported a GAAP net loss of $1.6 million for the first quarter of 2008, or ($0.17) per basic and diluted share, as compared to net income of $115,000, or $0.01 per basic and diluted share, for the first quarter of 2007. Included in the first quarter 2008 net loss is stock compensation expense of $10,000, intangible amortization expense of $52,000, and special charges associated with the right-sizing efforts of the Company's core US and UK telecom operations of $405,000, which together equated to ($0.05) per basic and diluted share. Excluding these items, first quarter 2008 non-GAAP pro forma net loss was $1.1 million, or ($0.12) per basic and diluted share. Included in the first quarter 2007 net income is stock compensation expense of $60,000 (accounted for under SFAS 123R), and intangible amortization expense of $46,000, which together equate to ($0.01) per basic and diluted share. Excluding these items, first quarter 2007 non-GAAP pro forma net income was $221,000 or $0.02 per basic and diluted share.

Gross profit for first quarter 2008 was $7.4 million, or 29.3% of net sales, as compared to $10 million, or 30.4% of net sales, for the comparable period last year.

Total operating expenses for first quarter 2008 were $9.2 million versus $9.9 million in the comparable period a year-ago. Included in operating expenses for the first quarter of 2008 was $10,000 of stock compensation expense, $52,000 of intangible amortization expense and $405,000 of restructuring charges.

Liquidity

At March 31, 2008, the Company had total cash and cash equivalents of $1.7 million, which was $0.4 million less than the total at December 31, 2007, and $19.0 million in total outstanding debt and capital lease obligations, which was $0.8 million higher than at December 31, 2007. Net cash used from operating activities was $0.9 million for the first quarter of 2008.

Days sales outstanding of 46 days during the first quarter of 2008 was in line with the comparable period last year, but up from 39 days in the fourth quarter of 2007. Days inventory for the first quarter of 2008 was 85 days, up from 62 days inventory for the first quarter of 2007 and 68 days during the fourth quarter of 2007. Days payables were 58 days for the first quarter of 2008, down from 64 days in the year-ago period but up from 41 days in the fourth quarter of 2007.

Capital expenditures were $1.6 million in the first quarter of 2008 compared to $634,000 in the comparable period last year.

Business Outlook

For the second quarter of 2008, the Company expects the weak demand experienced in the first quarter of 2008 to continue across the major markets it serves. As such, the Company now anticipates net sales of $28 to $29 million versus prior guidance in the $38-39 million range. Consolidated GAAP net income (loss) per basic and diluted share is now expected to be in the ($0.01) to $0.02 range vs. prior expectations of EPS in the $0.26-$0.27 range. Second quarter 2008 non-GAAP pro forma net income per basic and diluted share, which excludes the impact of SFAS 123R, amortization of intangible assets and restructuring charges, is expected to range from $0.04 to $0.08. Updated third quarter and full year 2008 guidance is expected be provided prior to the conclusion of the current quarter.

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 and North America. 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 AND SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              AND COMPREHENSIVE INCOME (LOSS)
                       (UNAUDITED)
         (amounts in thousands, except per share data)


                                                        Three months ended
                                                            March 31,
                                                        ------------------
                                                          2008      2007
                                                        --------  --------

Net sales                                               $ 25,159  $ 32,853
Cost of goods sold                                        17,788    22,879
                                                        --------  --------
   Gross profit                                            7,371     9,974
                                                        --------  --------

Operating expenses
   Selling                                                 4,980     5,246
   General and administrative                              3,471     4,223
   Research and development                                  391       429
   Restructuring charge                                      405         -
                                                        --------  --------
                                                           9,247     9,898
                                                        --------  --------

   (Loss) Income from operations                          (1,876)       76
   Interest income                                            16        13
   Interest expense                                         (486)     (185)
                                                        --------  --------
      Loss before income tax benefit                      (2,346)      (96)

Income tax benefit                                          (464)     (146)
                                                        --------  --------
   Net (loss) income before minority interest             (1,882)       50
      Minority interest in loss of subsidiaries             (276)      (65)
                                                        --------  --------
   Net (loss) income                                    $ (1,606) $    115
                                                        ========  ========

   Net (loss) income per share
      Basic and diluted                                 $  (0.17) $   0.01
                                                        ========  ========

Net  (loss) income                                      $ (1,606) $    115
Other comprehensive income, net of tax
   Foreign currency translation adjustment                   472       397
                                                        --------  --------

Comprehensive (loss) income                             $ (1,134) $    512
                                                        ========  ========



         CHANNELL COMMERCIAL CORPORATION AND SUBSIDIARIES
               CONDENSED CONSOLIDATED BALANCE SHEETS
                          (UNAUDITED)
          (amounts in thousands, except per share data)


                                                    March 31,  December 31,
                                                       2008        2007
                                                    ----------  ----------
                      ASSETS
Current assets
  Cash and cash equivalents                         $    1,706  $    1,825
  Restricted cash                                            -         282
  Accounts receivable, net of allowance for doubtful
   accounts of $254 at March 31, 2008 and $281 at
   December 31, 2007                                    12,909      12,807
  Inventories, net                                      16,777      15,763
  Prepaid expenses and other current assets              1,586       1,436
  Income taxes receivable                                  274           -
  Deferred income taxes, net                               980         936
                                                    ----------  ----------
                 Total current assets                   34,232      33,049

Property and equipment, net                             18,428      19,036
Deferred income taxes, net                                 672         642
Goodwill                                                11,442      10,998
Intangible assets, net                                   2,174       2,128
Other assets                                               875         994
                                                    ----------  ----------
                                                    $   67,823  $   66,847
                                                    ==========  ==========

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable                                  $   11,497  $    9,447
  Short-term debt (including current maturities of
   long-term debt)                                      11,261      10,335
  Current maturities of capital lease obligations          416         153
  Income taxes payable                                       -         178
  Accrued expenses                                       5,195       5,444
                                                    ----------  ----------
             Total current liabilities                  28,369      25,557

Long-term debt, less current maturities                  6,859       7,467
Capital lease obligations, less current maturities         420         198
Other long-term liabilities                                816         906
                                                    ----------  ----------
       Total liabilities                                36,464      34,128

Commitments and contingencies                                -           -
Minority interest                                          719         955

  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 March 31, 2008 and December 31, 2007;
     outstanding -- 9,544 shares at March 31, 2008
     and December 31, 2007                                  98          98
    Additional paid-in capital                          31,220      31,210
    Treasury stock - 244 shares in 2008 and 2007        (1,871)     (1,871)
    Retained earnings (accumulated deficit)             (1,493)        113
    Accumulated other comprehensive income -
      Foreign currency translation                       2,686       2,214
                                                    ----------  ----------
                   Total stockholders' equity           30,640      31,764
                                                    ----------  ----------
                                                    $   67,823  $   66,847
                                                    ==========  ==========



       CHANNELL COMMERCIAL CORPORATION AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (UNAUDITED)
                  (amounts in thousands)


                                                        Three months ended
                                                            March 31,
                                                        ------------------
                                                          2008      2007
                                                        --------  --------
Cash flows from operating activities:
     Net income (loss)                                  $ (1,606) $    115
     Adjustments to reconcile net income (loss) to net
      cash used in operating activities:
          Depreciation and amortization                    1,269     1,187
          Stock-based compensation                            10        60
          Loss (gain) on disposal of fixed assets             (5)       23
          Amortization of deferred gain on sale
           leaseback                                         (15)      (15)
          Provision for doubtful accounts                    201        (7)
          Provision for inventory obsolescence                26        33
          Minority interest in income loss of
           subsidiaries                                     (276)      (65)
     Changes in operating assets and liabilities:
          Accounts receivable                               (110)   (4,824)
          Inventories                                       (692)   (2,583)
          Prepaid expenses and other current assets         (121)      (25)
          Income taxes receivable                           (453)      105
          Other assets                                       136      (128)
          Accounts payable                                 1,217     4,795
          Accrued expenses and other liabilities            (457)      946
                                                        --------  --------
               Net cash used in operating activities        (876)     (383)
                                                        --------  --------
Cash flows from investing activities:
     Purchase of property and equipment                   (1,011)     (339)
     Proceeds from sale of property and equipment          1,331        66
                                                        --------  --------
               Net cash provided by (used in) investing
                actitivities                                 320      (273)
                                                        --------  --------
Cash flows from financing activities:
     Repayment of debt                                    (1,392)     (792)
     Borrowings from credit facilities                     1,259       402
     Borrowings (repayment) of obligations under
      capital lease, net                                     463       (61)
                                                        --------  --------
               Net cash provided by (used in) financing
                activities                                   330      (451)
                                                        --------  --------
Effect of exchange rates on cash                            (175)       97
                                                        --------  --------
     Decrease in cash and cash equivalents                  (401)   (1,010)
Cash and cash equivalents, beginning of period             2,107     2,235
                                                        --------  --------
Cash and cash equivalents, end of period                $  1,706  $  1,225
                                                        ========  ========
Cash paid during the period for:
     Interest                                           $    499  $    289
                                                        ========  ========
     Income taxes                                       $      6  $     11
                                                        ========  ========
Non-cash investing activities:
     Purchases of property and equipment which are
      included in obligations under capital leases
      and accounts payable                              $    609  $    295
                                                        ========  ========



                            Channell Commercial
  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
                                            March 31, 2008  March 31, 2007
                                            --------------  ---------------
GAAP net income (loss) per basic and
 diluted share                              ($        0.17) $          0.01
Add:
   Stock compensation expense under SFAS
    123R                                    $         0.00  $          0.01

   Intangible amortization                  $         0.01  $          0.00

   Restructuring charges                    $         0.04  $          0.00
Non-GAAP pro forma net income (loss) per
 basic and diluted
   share                                    ($        0.12) $          0.02
                                            ==============  ===============

Reconciliation of GAAP net income (loss) to
non-GAAP pro forma net income (loss)(Unaudited)
(in thousands)
                                             Quarter Ended    Quarter Ended
                                            March 31, 2008   March 31, 2007
                                            --------------  ---------------
GAAP earnings (loss)                        ($       1,606) $           115
Add:
   Stock compensation expense under SFAS
    123R                                    $           10  $            60

   Intangible amortization                  $           52  $            46

   Restructuring charges                    $          405  $             0

Non-GAAP net income earnings (loss)         ($       1,139) $           221
                                            ==============  ===============



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



Reconciliation of GAAP net income per basic and diluted
 share estimate to non-GAAP pro forma net income (loss)
 per basic and diluted share estimate (Unaudited)           Second Quarter
                                                                2008
                                                          -----------------
                                                            Low      High
                                                          -------- --------
Estimated GAAP net income (loss) per basic and diluted
 share                                                    ($ 0.01) $   0.02

Add:
   Estimated stock compensation expense
   under SFAS 123R and intangibles amortization           $   0.01 $   0.01

   Restructuring charges                                  $   0.04 $   0.05
                                                          -------- --------

Estimated non-GAAP net income per basic and diluted
 share                                                    $   0.04 $   0.08
                                                          ======== ========

Contact Information

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