Cherokee International Reports Third Quarter 2008 Financial Results
Cherokee International Corp. announced its financial results for the third quarter ended September 28, 2008. Net sales for the third quarter of 2008 were $36.4 million, up $6.0 million or 20% compared to $30.4 million for the third quarter ended September 30, 2007. Sequentially, net sales for the third quarter of 2008 were down $4.1 million or 10% when compared to $40.5 million for the second quarter of 2008.
The company’s backlog at September 28, 2008 was $50.6 million compared with $47.8 million at September 30, 2007. The book to bill for the third quarter of 2008 was 0.92 to 1.00, compared to 1.00 to 1.00 for the third quarter of 2007.
Net income for the third quarter of 2008 was $0.1 million, or $0.01 per diluted share, compared to a net loss of $1.3 million, or $0.07 per diluted share, for the third quarter a year ago. On a sequential basis, net income increased $0.7 million from a net loss of $0.6 million, or $0.03 per diluted share, for the second quarter of 2008.
Gross profit for the third quarter was $9.2 million, up $3.5 million or 61%, compared to $5.7 million for the same period in 2007, and down 19% sequentially from $11.3 million for the second quarter of 2008. Gross profit was up mainly due to higher revenue and operating leverage from increased production levels at our China facility. Gross margin of 25.4% for the third quarter 2008 was up from the 18.9% realized in the third quarter of 2007 and down sequentially from 28.0% for the second quarter of 2008. Gross margins improved primarily due to higher net sales, increased production volumes from our China facility and overall product mix.
Operating income increased by $1.8 million to $0.8 million for the third quarter of 2008 compared to a loss of $1.0 million in the third quarter of 2007. Operating expenses were $8.5 million for the third quarter of 2008 compared to $6.7 million for the third quarter of 2007, and down from $9.5 million sequentially for the second quarter of 2008. As a percentage of sales, operating expenses were 23.2% compared to 22.1% in the same quarter of 2007 and 23.5% sequentially for the second quarter of 2008.
General and administrative expenses increased by $1.5 million due to $0.8 million of professional and legal fees related to the pending merger with Lineage Power Holdings, Inc., $0.4 million of professional and legal fees related to efforts prior to entering into the merger agreement to refinance our 5.25% Senior Notes that became due and payable November 1, 2008, $0.2 million in other legal expenses, and $0.1 million in foreign currency exchange rate fluctuations from our Cherokee European operation. Cherokee Europe was sold to a third party on October 18, 2008. For more information, please refer to our 8-K filed October 23, 2008.
"We experienced continued improvement in our operating results for the third quarter when compared to the same period in 2007. Gross profit was up 61%, sales were up 20%, backlog increased 6% and we continue to improve cash flow," said Jeffrey M. Frank, Cherokee’s President and Chief Executive Officer. "The strength in our business came from our North America and Asia operations. Higher sales and a complementary product mix resulted in higher production volume and improved operating efficiencies from our China facility. In October, we reported the sale of our European business. We remain focused on continuing our great strides in growing the top line and improving profitability in our North America and Asia operations."
For the nine months ended September 28, 2008, net sales increased approximately 24.1%, or $21.7 million, to $111.7 million, compared to $90.0 million for the same period in 2007. Gross profit increased by 72.0%, or $12.2 million, to $29.2 million, compared to $17.0 million for the nine months ended September 30, 2007. Gross margin for the nine months ended September 28, 2008 increased to 26.2% from 18.9% in the prior year period.
The company said that its previously announced merger with Lineage Power Holdings, Inc. remains on schedule and is expected to close on or about November 21, 2008. A Special Meeting of Stockholders will be held November 18, 2008 to vote on the transaction. For more information, please refer to our 8-K filed September 30, 2008.
