Cherokee International Corporation (NASDAQ: CHRK), a leading
designer and manufacturer of power supplies, today announced its
financial results for the second quarter ended June 29, 2008,
marked by record global sales and further improvement in its gross
margins. Net sales for the second quarter of 2008 were $40.5
million, up 37% compared to $29.6 million for the second quarter
ended July 1, 2007. Sequentially, net sales for the second quarter
of 2008 were up $5.8 million or 17% when compared to $34.7 million
for the first quarter of 2008. The Company�s backlog at June 29,
2008 was $54.1 million compared with $47.6 million at July 1, 2007.
The book to bill for the second quarter of 2008 was 0.98 to 1.00,
compared to 0.94 to 1.00 for the second quarter of 2007. Net loss
for the second quarter of 2008 was $0.6 million, or $0.03 per
diluted share. Included in these results is a non-cash impairment
charge, related to the Company�s European operation, for goodwill
under SFAS 142 of $1.1 million, or $0.06 per diluted share, and a
non-cash $1.7 million charge or $0.09 per diluted share for a
valuation allowance against the Company�s European deferred tax
assets, as required by SFAS No. 109. Net of these non-recurring
items, the Company had non-GAAP net income for the second quarter
of 2008 of $2.2 million, or $0.11 per diluted share. The Company
reported a GAAP net loss of $1.7 million, or $0.09 per diluted
share for the second quarter of 2007, and GAAP net income of $12
thousand for the first quarter of 2008. �We experienced continued
improvement in our operating results, in which sales, gross margin,
and operating profit all improved significantly and continue on a
positive trend,� said Jeffrey M. Frank, Cherokee�s President and
Chief Executive Officer. �We were pleased to report non-GAAP net
income of $2.2 million or $0.11 per share, net of the non-recurring
items. We continue to experience improved gross margin and
operating leverage through increased production levels at our China
facility.� Gross profit for the second quarter of 2008 was $11.3
million, up 104%, or $5.8 million, compared to $5.6 million for the
same period in 2007, and up 31% sequentially from the first quarter
of 2008. Gross profit was higher sequentially during the second
quarter due primarily to higher net sales from existing programs
along with the continued introduction of new programs. Gross margin
increased to 28.0% for the second quarter of 2008, up from the
18.8% realized in the second quarter of 2007 and up sequentially
from 24.9% in the first quarter of 2008. Gross margins improved due
primarily to increased production volumes in China, the
introduction of new models and better overall volumes of products.
Operating expenses were $9.5 million for the second quarter of
2008. Excluding the non-cash impairment charge for goodwill of $1.1
million, operating expenses, on a non-GAAP basis, were $8.4 million
for the second quarter of 2008. This compares to GAAP operating
expenses of $8.1 million for the second quarter of 2007, and $8.1
million for the first quarter of 2008 on a GAAP basis. As a
percentage of sales, operating expenses were 23.5% on a GAAP basis
and 20.7% net of non-recurring items. This compares to GAAP
operating expenses as a percentage of sales of 27.2% in the second
quarter of 2007 and 23.3% sequentially for the first quarter of
2008. Operating income increased by $4.3 million to $1.8 million
for the second quarter of 2008 compared to a loss of $2.5 million
in the second quarter of 2007. Excluding the non-cash impairment
charge for goodwill of $1.1 million, non-GAAP operating income
increased by $5.4 million to $2.9 million. This compares to a GAAP
operating loss of $2.5 million for the second quarter of 2007. GAAP
operating margin for the second quarter of 2008 increased to 4.5%
income from an 8.5% loss in the prior year period. On a non-GAAP
basis, the operating margin was 7.2% for the second quarter of
fiscal 2008, net of non-recurring items. Mr. Frank added, �Overall,
we experienced anywhere from 20% to 40% growth in each of our
markets, and more importantly, a 104% increase in gross profit over
the second quarter last year.� For the six months ended June 29,
2008, net sales increased approximately 26.3%, or $15.7 million, to
$75.3 million, compared to $59.6 million for the same period in
2007. Gross profit increased by 77.3%, or $8.7 million, to $20.0
million compared to $11.3 million for the six months ended July 1,
2007. Gross margin for the six months ended June 29, 2008 increased
to 26.5% from 18.9% in the prior year period. Operating income on a
GAAP basis increased by $7.0 million to $2.4 million for the six
months ended June 29, 2008, compared to an operating loss of $4.6
million for the same period in 2007. Excluding the non-cash
impairment charge for goodwill of $1.1 million, non-GAAP operating
income for the six months ended June 29, 2008 increased to $3.5
million. Net loss for the six months ended June 29, 2008 was $0.6
million, or $0.03 per diluted share. Excluding the non-cash
impairment charge for goodwill of $1.11 million and the non-cash
valuation allowance charge of $1.7 million, non-GAAP net income for
the six months ended June 29, 2008 was $2.2 million or $0.11 per
share. This compares to a GAAP net loss of $3.7 million, or $0.19
per diluted share for the six months ended July 1, 2007. Conference
Call Information The senior management of Cherokee will hold a
conference call on Tuesday, August 12, 2008 at 10:00 a.m. Eastern
(7:00 a.m. Pacific). The earnings press release will be available
on the major newswires and on Cherokee�s website after market close
on Monday, August 11th. This conference call will be webcast live
and can be accessed from the Investor Relations section of
Cherokee�s website at www.cherokeepwr.com. A replay of the webcast
will be available on Cherokee�s website shortly after the call.
Investors who prefer to dial into the conference may call
877-397-0298 (or 719-325-4873 for International callers). The
conference ID is 1465412. Please call in 10 minutes before the
start of the call. A telephone replay will be available shortly
after the live call. The telephone replay number in the U.S. is
888-203-1112 (or 719-457-0820 for International callers). Passcode
for the telephone replay is 1465412. The telephone replay will be
available from 1:00 p.m. Eastern until Midnight, Thursday, August
14, 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 future operations,
including our expectations regarding the continued improvement of
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) changes in general economic and business conditions,
domestically and internationally, (2) reductions in sales to, or
the loss of, any of the Company's significant customers or in
customer capacity generally, (3) changes in the Company's sales mix
to lower margin products, (4) increased competition in the
Company's industry, (5) disruptions of the Company's established
supply channels, (6) the Company's level of debt and restrictions
imposed by its debt agreements, and (7) the additional risk factors
identified in the Company's filings with the Securities and
Exchange Commission, including its annual report on Form 10-K filed
with the Securities and Exchange Commission on March 28, 2008.
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. To supplement the consolidated
financial results prepared in accordance with Generally Accepted
Accounting Principles ("GAAP"), this press release and its
attachments include non-GAAP financial measures (non-GAAP net
income, non-GAAP operating expenses, non-GAAP operating expenses as
a percentage of sales, non-GAAP operating income and non-GAAP
operating margin) that exclude, as applicable, a non-cash
impairment charge for goodwill of $1.1 million related to the
Company�s European operation and a non-cash $1.7 million charge for
a valuation allowance against the Company�s European deferred tax
assets. Management excludes these items because it believes that
the non-GAAP measures enhance an investor's overall understanding
of the Company's financial performance and future prospects by
being more reflective of the Company's core operational activities
and to be more comparable with the results of the Company over
various periods. By disclosing non-GAAP financial measures,
management intends to provide investors with a more meaningful,
consistent comparison of the Company's core operating results and
trends for the periods presented. Non-GAAP financial measures are
not prepared in accordance with GAAP; therefore, the information is
not necessarily comparable to other companies' financial
information and should be considered as a supplement to, not a
substitute for, or superior to, the corresponding measures
calculated in accordance with GAAP. CHEROKEE INTERNATIONAL
CORPORATION Condensed Consolidated Statements of Operations (In
Thousands, Except Per Share Amounts) (Unaudited) � � Three Months
Ended � Year to date Jun 29, � Jul 1, Jun 29, � Jul 1, � 2008 � �
2007 � � 2008 � � 2007 � � Net sales $ 40,549 $ 29,574 $ 75,287 $
59,594 Cost of sales � 29,214 � � 24,023 � � 55,311 � � 48,326 �
Gross profit � 11,335 � � 5,551 � � 19,976 � � 11,268 � Operating
Expenses: Engineering and development 2,900 2,837 5,681 5,479
Selling and marketing 2,100 1,873 3,835 3,737 General and
administrative 3,396 3,380 6,989 6,517 Goodwill impairment 1,120 -
1,120 - Restructuring costs � - � � (38 ) � - � � 155 � Total
operating expenses � 9,516 � � 8,052 � � 17,625 � � 15,888 �
Operating income (loss) 1,819 (2,501 ) 2,351 (4,620 ) � Interest
expense (717 ) (692 ) (1,459 ) (1,377 ) Gain on sale of Mexico
Facility building - 430 - 430 Other income, net � 26 � � 152 � �
239 � � 314 � Income (loss) before income taxes 1,128 (2,611 )
1,131 (5,253 ) Provision (benefit) for income taxes � 1,697 � �
(958 ) � 1,688 � � (1,578 ) Net income (loss) $ (569 ) $ (1,653 ) $
(557 ) $ (3,675 ) � Net income (loss) per share: Basic $ (0.03 ) $
(0.09 ) $ (0.03 ) $ (0.19 ) Diluted $ (0.03 ) $ (0.09 ) $ (0.03 ) $
(0.19 ) � Weighted average shares outstanding: Basic 19,465 19,359
19,459 19,350 Diluted 19,465 19,359 19,459 19,350 � Pro forma
earnings reconciliation Net income (loss) $ (569 ) $ (557 )
Goodwill impairment 1,120 1,120 Deferred taxes � 1,678 � � 1,660 �
Pro forma net income (loss) $ 2,229 $ 2,223 � Pro forma net income
(loss) per share Basic 0.11 0.11 Diluted 0.11 0.11 � Pro forma
weighted average shares outstanding: Basic 19,470 19,466 Diluted
19,470 19,466 CHEROKEE INTERNATIONAL CORPORATION Condensed
Consolidated Balance Sheets (In Thousands) (Unaudited) � � � � June
29, December 30, 2008 Unaudited 2007 Audited ASSETS � Current
Assets: Cash and cash equivalents $ 9,283 $ 8,484 Accounts
receivable, net 33,804 31,237 Inventories, net 30,973 28,021
Prepaid expenses and other current assets 1,730 1,583 Deferred
Income taxes � - � � 363 � Total current assets 75,790 69,688 �
Property and equipment, net 18,511 19,194 Deposits and other assets
1,161 1,515 Deferred financing costs, net 379 86 Deferred income
taxes-long term portion - 1,257 Goodwill � - � � 1,120 � Total
Assets $ 95,841 � $ 92,860 � � LIABILITIES AND STOCKHOLDERS� EQUITY
� Current Liabilities: Accounts payable $ 16,244 $ 15,140 Accrued
liabilities 4,253 4,667 Accrued compensation and benefits 7,970
6,876 Accrued restructuring costs 545 431 Other short-term
borrowings 319 0 Borrowings under revolving line of credit 3,502
3,395 Current debt 24,485 24,485 Current debt payable to affiliates
� 22,145 � � 22,145 � Total current liabilities 79,463 77,139 �
Other long-term obligations 4,511 4,534 � � Total liabilities $
83,974 � $ 81,673 � � Common stock $ 19 $ 19 Paid-in capital
186,601 186,035 Accumulated deficit (178,880 ) (178,323 )
Accumulated other comprehensive income � 4,127 � � 3,456 � Total
stockholders' equity � 11,867 � � 11,187 � Total Liabilities and
Stockholders' Equity $ 95,841 � $ 92,860 �
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