SOURCE: Channell Commercial Corporation

November 14, 2008 07:00 ET

Channell Announces 2008 Third Quarter Results

TEMECULA, CA--(Marketwire - November 14, 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 September 30, 2008.

Highlights

--  Q3 2008 Non-GAAP EPS were ($0.00).
--  North American telecom Q3 costs savings were $1 million; YTD cost
    savings of $4.8 million.
--  Australian water harvesting business achieved pro forma Q3 operating
    profit break-even vs. loss in Q2 on slightly less revenue.
    

Third Quarter Results

Channell Commercial Corporation (the "Company") reported third quarter 2008 net sales of $26.5 million. This represents a 21.7% decrease compared to net sales of $33.9 million for the third quarter of 2007.

The Company also reported a pro forma non-GAAP loss of $1,000, or ($0.00) per basic and diluted share versus third quarter 2007 non-GAAP net loss of $191,000, or ($0.02) per basic and diluted share. The third quarter 2008 pro forma non-GAAP loss excludes a pre-tax non-cash goodwill and intangibles impairment charge of $8.2 million, non-cash deferred tax valuation allowance reversal of $131,000, restructuring-related costs of $194,000, intangible amortization expense of $51,000, and non-cash foreign exchange related loss of $1.3 million, which together equated to ($1.00) per basic and diluted share on an after-tax basis. Excluded in the pro forma non-GAAP third quarter 2007 net income is stock compensation income of $35,000 (accounted for under SFAS 123R), intangible amortization expense of $47,000 and a non-cash foreign exchange gain of $245,000, which together equate to $0.02 per basic and diluted share. On a GAAP basis, net loss was $9.6 million for the third quarter of 2008, or ($1.00) per basic and diluted share, as compared to net income of $42,000, or $0.00 per basic and diluted share, for the third quarter of 2007.

Gross profit for the third quarter of 2008 was $7.8 million, or 29.5% of net sales, as compared to $10.1 million, or 30% of net sales, for the comparable period last year.

Pro forma operating expenses, excluding the aforementioned items, for the third quarter of 2008 were $7.6 million versus $9.5 million in the comparable period a year ago. The company remains on track towards achieving its goal of reducing costs by $6 million on an annualized basis in its core North American telecom operations. On a GAAP basis, when including the $8.2 million of non-cash goodwill and intangibles impairment charges, $194,000 of restructuring costs, $51,000 of intangible amortization expense, and $1.3 million of non-cash foreign exchange related expenses, operating expenses totaled $17.4 million. Third quarter 2007 GAAP operating expenses were $9.3 million when including $35,000 of stock compensation income, $47,000 amortization expense and a $245,000 non-cash foreign exchange gain.

Liquidity

At September 30, 2008, the Company had total cash and cash equivalents of $0.7 million, which was $0.7 million less than the total at June 30, 2008, and $16.9 million in total outstanding debt and capital lease obligations, which was $1.8 million lower than at June 30, 2008. Net cash used from operating activities was $2.2 million for the third quarter of 2008.

Days sales outstanding of 41 days during the third quarter of 2008 was down from 44 days in comparable period last year and 43 days in the prior quarter. Days inventory for the third quarter of 2008 was 77 days, up from 69 days inventory for the third quarter of 2007 but down from 80 days inventory during the second quarter of 2008. Days payables were 59 days for the third quarter of 2008, up from 53 days payables in the year-ago period but down from 64 days payables in the second quarter of 2008.

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)


                                Nine months ended      Three months ended
                                   September 30,         September 30,
                                --------------------  --------------------
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------

Net sales                       $  78,633  $ 103,431  $  26,525  $  33,856
Cost of goods sold                 55,327     71,382     18,692     23,708
                                ---------  ---------  ---------  ---------
  Gross profit                     23,306     32,049      7,833     10,148
                                ---------  ---------  ---------  ---------

Operating expenses
  Selling                          14,035     16,859      4,122      5,389
  General and administrative       11,698     11,526      4,446      3,452
  Research and development          1,149      1,341        377        426
  Impairment of goodwill
   and other intangibles           12,202          -      8,229          -
  Restructuring charge              1,169          -        194          -
                                ---------  ---------  ---------  ---------
                                   40,253     29,726     17,368      9,267
                                ---------  ---------  ---------  ---------

  Income (loss) from operations   (16,947)     2,323     (9,535)       881
  Interest income                      40         29         19          8
  Interest expense                 (1,464)      (812)      (467)      (329)
                                ---------  ---------  ---------  ---------
    Income (loss) before income
     tax expense                  (18,371)     1,540     (9,983)       560

Income tax expense (benefit)        1,286        434       (429)       414
                                ---------  ---------  ---------  ---------
  Net income (loss) before
   minority interest              (19,657)     1,106     (9,554)       146
    Minority interest in income
     (loss) of subsidiaries          (476)        18          -        104
                                ---------  ---------  ---------  ---------
  Net income (loss)             $ (19,181) $   1,088  $  (9,554) $      42
                                =========  =========  =========  =========


  Net income (loss) per share,
   basic and diluted            $   (2.01) $    0.11  $   (1.00) $       -
                                =========  =========  =========  =========

Net income (loss)               $ (19,181) $   1,088  $  (9,554) $      42
Other comprehensive income,
 net of tax
  Foreign currency translation
   adjustment                       2,404      1,682      1,717        863
                                ---------  ---------  ---------  ---------

Comprehensive income (loss)     $ (16,777) $   2,770  $  (7,837) $     905
                                =========  =========  =========  =========




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


                                                   September     December
                                                      30,          31,
                                                  -----------  -----------
                                                      2008         2007
                                                  -----------  -----------
                    ASSETS
Current assets
  Cash and cash equivalents                       $       731  $     1,825
  Restricted cash                                           -          282
  Accounts receivable, net of allowance for
   doubtful accounts of $290 at September 30,
   2008 and $281 at December 31, 2007                  12,112       12,807
  Inventories, net                                     15,887       15,763
  Prepaid expenses and other current assets             1,183        1,436
  Deferred income taxes, net                              220          936
                                                  -----------  -----------
      Total current assets                             30,133       33,049

Property and equipment, net                            17,870       19,036
Deferred income taxes, net                                 37          642
Goodwill                                                  760       10,998
Intangible assets, net                                      -        2,128
Other assets                                              668          994
                                                  -----------  -----------
                                                  $    49,468  $    66,847
                                                  ===========  ===========
    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable                                $    12,333  $     9,447
  Short-term debt (including current maturities
   of long-term debt)                                  12,865       10,335
  Current maturities of capital lease obligations         361          153
  Income taxes payable                                    206          178
  Accrued expenses                                      4,437        5,444
                                                  -----------  -----------
      Total current liabilities                        30,202       25,557

Long-term debt less current maturities                  3,278        7,467
Capital lease obligations, less current
 maturities                                               353          198
Deferred income taxes                                       -            -
Other long-term liabilities                               632          906
                                                  -----------  -----------
      Total liabilities                                34,465       34,128

Commitments and contingencies
Minority interest                                           -          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
   September  30, 2008 and December 31, 2007
   outstanding - 9,544 shares at September 30,
   2008 and December 31, 2007                              98           98
  Additional paid-in capital                           31,226       31,210
  Treasury stock - 244 shares at September 30,
   2008 and December 31, 2007                          (1,871)      (1,871)
  Retained earnings (accumulated deficit)             (19,068)         113
  Accumulated other comprehensive income -
    Foreign currency translation                        4,618        2,214
                                                  -----------  -----------
      Total stockholders' equity                       15,003       31,764
                                                  -----------  -----------
                                                  $    49,468  $    66,847
                                                  ===========  ===========




                            Channell Commercial
  Reconciliation Tables of GAAP Financial Measures to Non-GAAP Financial
                                Measures(1)


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      Quarter
                                                     Ended        Ended
                                                   September    September
                                                    30, 2008     30, 2007
                                                  -----------  -----------
GAAP net income (loss) per basic and diluted
 share                                            $     (1.00) $      0.00

Add:
   Non-cash after-tax Goodwill & intangibles
    impairment charge                             $      0.85          n/a

   Intangibles amortization                       $      0.01  $      0.00

   Restrucuturing Charges                         $      0.02          n/a

   Non-cash foreign currency exchange loss        $      0.14          n/a

Subtract:
   Reversal of deferred tax valuation allowance
    under SFAS 109                                $     (0.01)         n/a

   Stock compensation expense under SFAS 123R             n/a  $     (0.00)

   Non-cash F/X Gain                                      n/a  $     (0.03)

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


Reconciliation of GAAP net income (loss) to
non-GAAP pro forma net income (loss) (Unaudited)
(in thousands)
                                                    Quarter      Quarter
                                                     Ended        Ended
                                                   September    September
                                                    30, 2008     30, 2007
                                                  -----------  -----------
GAAP earnings (loss)                              $    (9,554) $        42

Add:
   Non-cash after-tax Goodwill & intangibles
    impairment charge                             $     8,119          n/a

   Intangibles amortization                       $        51  $        47

   Restrucuturing Charges                         $       194          n/a

   Non-cash foreign currency exchange loss        $     1,321          n/a

Subtract:
   Reversal of deferred tax valuation allowance
    under SFAS 109                                $      (131)         n/a

   Stock compensation expense under SFAS 123R             n/a  $       (35)

   Non-cash foreign currency exchange gain                n/a  $      (245)

Non-GAAP net income earnings (loss)               $        (1) $      (191)
                                                  ===========  ===========


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)
                                                  Nine Months  Nine Months
                                                    Ended        Ended
                                                   September    September
                                                   30, 2008    30, 2007(1)
                                                  -----------  -----------
GAAP net income (loss) per basic and diluted
 share                                            $     (2.01) $      0.11

Add:
   Non-cash after-tax Goodwill & intangibles
    impairment charge                             $      1.27          n/a

   Stock compensation expense under SFAS 123R and
    intangibles amortization                      $      0.01  $      0.02

   Restrucuturing Charges                         $      0.12          n/a

   Non-cash foreign currency exchange loss        $      0.10          n/a

   Deferred tax valuation allowance under SFAS
    109                                           $      0.14          n/a

Subtract:
   Non-cash foreign currency exchange gain                n/a  $     (0.04)

Non-GAAP pro forma net income (loss) per basic
 and diluted share                                $     (0.36) $      0.10
                                                  ===========  ===========
(1) - Numbers may not add due to rounding


Reconciliation of GAAP net income (loss) to
non-GAAP pro forma net income (loss) (Unaudited)
(in thousands)
                                                  Nine Months  Nine Months
                                                   Ended        Ended
                                                   September    September
                                                   30, 2008     30, 2007
                                                  -----------  -----------
GAAP earnings (loss)                              $   (19,181) $     1,088

Add:
   Non-cash after-tax Goodwill & intangibles
    impairment charge                             $    12,092          n/a

   Stock compensation expense under SFAS 123R and
    intangibles amortization                      $       120  $       226

   Restrucuturing Charges                         $     1,169          n/a

   Non-cash foreign currency exchange loss        $       964          n/a

   Deferred tax valuation allowance under SFAS
    109                                           $     1,360          n/a

Subtract:
   Non-cash foreign currency exchange gain                n/a  $      (380)

Non-GAAP net income earnings (loss)               $    (3,476) $       934
                                                  ===========  ===========

Contact Information

  • CONTACTS

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