Cherokee International Corporation (NASDAQ: CHRK), a leading
designer and manufacturer of power supplies, today announced its
financial results for the fourth quarter and year ended December
30, 2007. Net sales for the fourth quarter of 2007 were $38.5
million, up over 2% compared to $37.6 million for the fourth
quarter of 2006. Sequentially, net sales for the fourth quarter
2007 were up $8.1 million or 27% when compared to $30.4 million for
the third quarter of 2007. The Company exceeded its net sales
guidance of $36 million to $37 million given during the Company�s
last analyst conference call. All of the sales growth for the
quarter and year was internally generated as there are no acquired
businesses in the net sales reported. The net loss for the fourth
quarter of 2007 was $4.0 million, or $0.21 per diluted share.
Excluding a non-cash impairment charge, related to the Company�s
European operation, for goodwill under SFAS 142 of $5.2 million, or
$0.27 per diluted share, the Company had net income on a non-GAAP
basis during the fourth quarter of 2007 of $1.2 million, or $0.06
per share. This compares to GAAP net income of $0.3 million, or
$0.01 per diluted share, for the fourth quarter a year ago and a
GAAP net loss of $1.3 million, or $0.07 per diluted share, for the
third quarter of 2007. �The fourth quarter had strong sales
capturing and delivering on new and existing design wins with over
25 new products introduced during the third quarter,� said Jeffrey
M. Frank, Cherokee�s President and Chief Executive Officer. �We
were pleased with our non-GAAP net income of $1.2 million, or $0.06
per diluted share, compared to GAAP net income of $0.3 million, or
$0.01 per diluted share, for the fourth quarter a year ago. We
believe our improved gross margin and operating leverage, as a
result of our China facility�s ability to increase production
levels, will serve as momentum for the coming year.� Gross profit
for the fourth quarter was $8.6 million, up over 13.6% compared to
$7.6 million for the same period in 2006, and up over 49.9%
sequentially from the third quarter of 2007. Our gross margin of
22.3% for the fourth quarter of 2007 was up from the 20.1% realized
in the fourth quarter of 2006 and also up sequentially from the
18.9% realized in the third quarter of 2007. �The strength of our
fourth quarter operating performance came primarily from our North
American and China operations,� said Linster W. Fox, Cherokee�s
EVP, CFO and Secretary. �Greater utilization of our factory in
Shanghai, together with our departure from Mexico last year, has
enabled us to realize direct labor efficiencies in our manufactured
products. More importantly, this has enabled us to exit the fourth
quarter with hard fought ongoing economies that include a shorter
supply chain, lower bill of material costs, improved logistics,
shorter lead times, lower freight, less handling, higher inventory
turns and better cash flow.� Operating expenses for the fourth
quarter of 2007 were $13.0 million. Excluding the non-cash
impairment charge for goodwill of $5.2 million, operating expenses
on a non-GAAP basis were $7.8 million for the fourth quarter of
2007. This compares to GAAP operating expenses of $7.1 million for
the fourth quarter of 2006, and $6.7 million for the third quarter
of 2007. Operating expenses, as a percentage of net sales, were
33.7% on a GAAP basis and 20.2% on a non-GAAP basis in the fourth
quarter of 2007, compared to 18.8% on a GAAP basis in the same
quarter of 2006 and 22.1% on a GAAP basis in the third quarter of
2007. Our 10-K consolidated statement of operations for fiscal year
2006 identified a long-term employment liability reduction of $1.7
million and restructuring costs of $0.4 million in the fourth
quarter of 2006. That $1.3 million net credit did not reoccur in
the fourth quarter of 2007. For the year ended December 30, 2007,
net sales decreased 11% to $128.5 million, compared to $145.0
million for the year ended December 31, 2006. The decrease in net
sales for the year was mainly due to $13.7 million of lower net
sales from two large European customers in the telecom sector. One
customer placed a large order in 2006 and had lower production
volumes in 2007. The other customer�s product reached its end of
life. The net loss for the year ended December 30, 2007 was $9.0
million, or $0.46 per diluted share, including a non-cash fourth
quarter impairment charge for goodwill under SFAS 142 of $5.2
million, or $0.27 per diluted share, compared to net income of $0.1
million, or $0.00 per diluted share, for the year ended December
31, 2006. Gross profit was $25.6 million, compared to $30.6 million
for 2006. Gross margin for the year ended December 30, 2007
decreased to 19.9%, compared to 21.1% the prior year. The Company
also announced today that its financial statements for the fiscal
year ended December 30, 2007 that will be included in its Annual
Report on Form 10-K will contain an audit opinion with a going
concern paragraph from its independent accounting firm. Further
information regarding the going concern issue will be included in
the Company�s Annual Report on Form 10-K that the Company expects
to file with the Securities and Exchange Commission on March 28,
2008. The going concern language addresses the uncertainty caused
by the Company�s $46.6 million 5.25% Senior Notes becoming due on
November 1, 2008 or less than twelve months from their December 30,
2007 balance sheet date. �We, and our investment bankers, are
currently in active negotiations with the majority of our
bondholders to extend the maturity of the Senior Notes,� added Mr.
Fox. Conference Call Information The senior management of Cherokee
will hold a conference call on Friday, March 28, 2008 at 11:00 a.m.
Eastern (8:00 a.m. Pacific) to discuss the quarter and the year in
more detail. This conference call will be webcast live and can be
accessed from Cherokee�s website at www.cherokeepwr.com. A replay
of the webcast will be available on Cherokee�s website immediately
following the call. Investors who prefer to dial into the
conference may call 877-604-9669 (or 719-325-4888 for International
callers). The conference ID is 8028634. 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 8028634. The telephone replay
will be available through 11:59 p.m. Eastern, Sunday, March 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 future operations and
include our statement in this press release that we believe our
China facility�s ability to increase production levels will serve
as a catalyst for a strong and profitable 2008. 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 the
Company�s ability to repay this debt, 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.
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) � � � � � Three Months Ended
Year to date Dec 30, Dec 31, Dec 30, Dec 31, 2007 2006 2007 2006 �
Net sales $ 38,501 $ 37,566 $ 128,496 $ 145,028 Cost of sales �
29,908 � � 30,003 � � 102,904 � � 114,439 � Gross profit � 8,593 �
� 7,563 � � 25,592 � � 30,589 � Operating Expenses: Engineering and
development 2,849 2,617 10,889 9,504 Selling and marketing 1,925
2,145 7,172 6,887 General and administrative 3,000 3,610 12,177
12,483 Goodwill impairment 5,197 - 5,197 - Restructuring costs -
422 155 697 Asset impairment - - - 285 Long-term employment
liabilities reduction � - � � (1,718 ) � - � � (1,718 ) Total
operating expenses � 12,971 � � 7,076 � � 35,590 � � 28,138 �
Operating income (loss) (4,378 ) 487 (9,998 ) 2,451 � Interest
expense (720 ) (688 ) (2,804 ) (2,786 ) Gain on sale of Mexico
Facility building - - 430 - Gain on sale of Mexico Corporation 431
- 431 - Other income, net � 225 � � 14 � � 516 � � 335 � Income
(loss) before income taxes (4,442 ) (187 ) (11,425 ) - Provision
(benefit) for income taxes � (453 ) � (465 ) � (2,452 ) � (83 ) Net
income (loss) $ (3,989 ) $ 278 � $ (8,973 ) $ 83 � � Net income
(loss) per share: Basic $ (0.21 ) $ 0.01 $ (0.46 ) $ - Diluted $
(0.21 ) $ 0.01 $ (0.46 ) $ - � Weighted average shares outstanding:
Basic 19,434 19,316 19,387 19,286 Diluted 19,434 19,323 19,387
19,298 CHEROKEE INTERNATIONAL CORPORATION Condensed Consolidated
Balance Sheets (In Thousands) � � � � December 30, December 31,
2007 2006 ASSETS � Current Assets: Cash and cash equivalents $
8,484 $ 8,881 Accounts receivable, net 31,237 27,403 Inventories,
net 28,021 29,991 Prepaid expenses and other current assets 1,583
2,503 Deferred Income taxes � 363 � � - � Total current assets
69,688 68,778 � Property and equipment, net 19,194 19,888 Deposits
and other assets 1,515 1,376 Deferred financing costs, net 86 216
Deferred income taxes - long-term portion 1,257 318 Goodwill �
1,120 � � 6,317 � Total Assets $ 92,860 � $ 96,893 � LIABILITIES
AND STOCKHOLDERS� EQUITY � Current Liabilities: Accounts payable $
15,140 $ 13,944 Accrued liabilities 4,667 4,968 Accrued
compensation and benefits 6,876 7,882 Accrued restructuring costs
431 879 Borrowings under revolving line of credit 3,395 - Current
debt 24,485 - Current debt payable to affiliates � 22,145 � � - �
Total current liabilities 77,139 27,673 � Long-term debt $ - $
24,485 Long-term debt payable to affiliates � - � � 22,145 � Total
long-term debt - 46,630 � Other long-term obligations $ 4,534 $
6,715 � Common stock $ 19 $ 19 Paid-in capital 186,035 184,813
Accumulated deficit (178,323 ) (169,373 ) Accumulated other
comprehensive income � 3,456 � � 416 � Total stockholders' equity �
11,187 � � 15,875 � Total Liabilities and Stockholders' Equity $
92,860 � $ 96,893 �
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