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FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDING MARCH 31, 2000
Date of Report: May 22, 2000
CHANNELL COMMERCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 0-28582 95-2453261
- -------- ------- ----------
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation or organization) Identification No.)
26040 Ynez Road, Temecula, California
(Address of principal executive offices)
92591
(Zip Code)
(909) 719-2600
(Registrant's telephone number, including area code)
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Part 1 FINANCIAL INFORMATION, Items 1 and 2, of the Registrant's Current Report
on Form 10-Q (filed on May 12, 2000), event date March 31, 2000, is amended to
read in its entirety as follows:
CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
2000 1999
--------- --------
<S> <C> <C>
Net sales $32,250 $24,703
Cost of goods sold 21,009 15,104
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Gross profit 11,241 9,599
Operating expenses
Selling 3,985 3,335
General and administrative 3,156 2,253
Research and development 610 627
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7,751 6,215
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Income from operations 3,490 3,384
Interest income (expense), net (603) (537)
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Income before income taxes 2,887 2,847
Income taxes 1,276 1,137
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Net income $ 1,611 $ 1,710
======= =======
Net income per share
Basic $ 0.18 $ 0.19
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Diluted $ 0.17 $ 0.19
======= =======
Net income $ 1,611 $ 1,710
Other comprehensive income, net of tax
Foreign currency translation adjustments (772) 5
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Comprehensive net income $ 839 $ 1,715
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</TABLE>
Page 1 of 9
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CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,142 $ 2,733
Accounts receivable, net 23,346 23,235
Inventories 18,338 19,449
Deferred income taxes 622 707
Prepaid expenses 2,439 2,294
Income taxes receivable 309 389
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Total current assets 47,196 48,807
Property and equipment at cost, net 50,500 49,452
Deferred income taxes 154 124
Intangible assets, net 14,239 14,450
Other assets 1,759 1,707
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$ 113,848 $ 114,540
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,628 $ 11,643
Short term debt (including current maturities of long term debt) 470 4,135
Current maturities of capital lease obligations 2,859 2,608
Accrued expenses 1,954 2,497
Income taxes payable 2,018 --
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Total current liabilities 14,929 20,883
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Long term debt, less current maturities 31,547 26,240
Capital lease obligations, less current maturities 4,149 5,078
Stockholders' equity
Preferred stock -- --
Common stock, par value $.01 per share, authorized --
19,000 shares; issued - 9,242 shares at March 31, 2000
and 9,237 at December 31, 1999; 9,081 outstanding at
March 31, 2000; 9,076 outstanding at December 31, 1999 92 92
Additional paid-in capital 28,036 27,991
Treasury stock - 161 shares (1,352) (1,352)
Retained earnings 36,863 35,252
Accumulated other comprehensive income -
Foreign currency translation (416) 356
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Total stockholders' equity 63,223 62,339
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Total liabilities and stockholders' equity $ 113,848 $ 114,540
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</TABLE>
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CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,611 $ 1,710
Depreciation and amortization 1,881 1,424
Deferred income taxes (72) (16)
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (342) 1,543
Inventories 1,135 (1,418)
Prepaid expenses (68) 460
Other (52) (16)
Increase (decrease) in liabilities:
Accounts payable (4,015) (1,691)
Accrued expenses (543) 1,048
Income taxes payable 2,098 641
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Net cash provided by operating activities 1,633 3,685
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Cash flows from investing activities:
Acquisition of property and equipment (2,745) (1,680)
Dispositions of property and equipment 28 27
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Net cash used in investing activities (2,717) (1,653)
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Cash flows from financing activities:
Repayment of debt (3,926) (4,463)
Proceeds from issuance of long term debt 5,568 --
Repayment of obligations under capital lease (697) (191)
Exercise of stock options 45 --
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Net cash provided (used) in financing activities 990 (4,654)
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Effect of exchange rates on cash (497) 5
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(Decrease) in cash and cash equivalents (591) (2,617)
Cash and cash equivalents, beginning of period 2,733 5,828
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Cash and cash equivalents, end of period $ 2,142 $ 3,211
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Cash paid during the period for:
Interest $ 512 $ 376
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Income taxes $ 173 $ 338
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</TABLE>
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CHANNELL COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2000 and 1999
(amounts in thousands, except per share data)
1. Unaudited financial statements: In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of (a) the consolidated statements of income for the
three-months ended March 31, 2000 and 1999, (b) the consolidated balance
sheets at March 31, 2000, and (c) the consolidated statements of cash flows
for the three-month periods ended March 31, 2000 and 1999 have been made.
The results for the three-month period ended March 31, 2000, are not
necessarily indicative of the results for the entire year.
2. Inventories: Inventories stated at the lower of cost or market (first-in,
first-out method) are summarized as follows:
<TABLE>
<S> <C>
March 31,
2000
----------
Raw Materials $ 9,239
Work-in-Process 2,356
Finished Goods 6,743
----------
$18,338
==========
</TABLE>
3. Income per share: Basic income per share excludes dilution and is computed
by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted income
per share reflects the potential dilution that could occur if options to
acquire common stock were exercised. The following is a reconciliation of
the number of shares (denominator) used in the basic and diluted income per
share computations for the quarters ending March 31st:
<TABLE>
2000 1999
----------------- -------------------
Per Per
Share Share
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic income per
share 9,078 $ .18 9,099 $.19
Effect of dilutive
stock options 230 (.01) -- --
----- ----- ----- ----
Diluted income per
share 9,308 $ .17 9,099 $.19
===== ===== ===== ====
</TABLE>
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The following options were not included in the computation of diluted
income per share as a result of the options' exercise price exceeding the
average market price of the common shares:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Options to purchase shares of
common stock -- 678
Exercise price -- $10.06 - $13.25
July 2007 -
Expiration dates -- October 2009
</TABLE>
4. Segments: The Company operates in one industry segment as a manufacturer
and supplier of telecommunications equipment. Currently, the Company is
organized into four geographic regions: the United States, Europe/Middle
East, Canada and Australia/Asia. The following tables summarize segment
information for the three-month periods ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
<S> <C> <C>
2000 1999
---- ----
Revenues from unrelated entities:
United States $22,556 $16,326
Europe/Middle East 5,835 3,602
Canada 1,138 834
Australia/Asia 2,721 3,941
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$32,250 $24,703
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Income from operations:
United States $ 4,388 $ 3,036
Europe/Middle East (513) (625)
Canada 57 126
Australia/Asia (442) 847
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$ 3,490 $ 3,384
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</TABLE>
There has not been any significant change in the total assets of each
reportable segment from the amounts disclosed in the Audited Financial
Statements and Notes thereto for the year ended December 31, 1999.
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Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Comparison of the Three Months Ended March 31, 2000 With the Three Months Ended
March 31, 1999
Net Sales. Net sales increased $7.6 million or 30.6% from $24.7 million in
the first three months of 1999 to $32.3 million in the first three months of
2000, as a result of increased sales of telecommunications enclosure and
component products in both the domestic and international markets.
Domestic net sales increased $6.3 million or 38.7% from $16.3 million in
the first three months of 1999 to $22.6 million in the first three months of
2000, primarily due to continued growth in both upgrade and rebuild construction
to facilitate enhanced voice, data and video requirements. International net
sales increased $1.3 million or 15.5% from $8.4 million in the first three
months of 1999 to $9.7 million in the first three months of 2000 as a result of
increased sales of $2.2 million in Europe / Middle East and $0.3 million in
Canada offset by decreased sales of $1.2 million in Australia / Asia.
Gross Profit. Gross profit increased $1.6 million or 16.7% from $9.6
million in the first three months of 1999 to $11.2 million in the first three
months of 2000. Of this improvement, $2.8 million was attributable to increased
sales volume of the Company's domestic telecommunications enclosure and
component products, while gross profit decreased $1.2 million on international
sales. Gross margin decreased from 38.9% to 34.9% during the comparable periods
primarily due to a 16.2% margin contribution from international revenues. The
decline is a result of margin contributions of 14.5%, 33.0% and 9.8% in Europe /
Middle East, Canada and Australia / Asia respectively. The gross margin on the
Company's domestic telecommunications enclosure and component products increased
slightly from 42.3% the first quarter of 1999 to 42.9% in the first quarter of
2000.
Selling. Selling expense increased $0.7 million or 21.2% from $3.3 million
in the first three months of 1999 to $4.0 million in the first three months of
2000, primarily as a result of $0.3 million in increased payroll and related
expenses associated with staffing to support increased sales and marketing
activities worldwide. Advertising and marketing expenses increased $0.2 million
and freight expense increased $0.2 million as a result of increased sales for
the quarter. As a percentage of net sales, selling expense decreased from 13.4%
in the 1999 period to 12.4% in the 2000 period.
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General and Administrative. General and administrative expenses increased
$0.9 million or 39.1% from $2.3 million in the first quarter of 1999 to $3.2
million in the first quarter of 2000. The increase is primarily as a result of
the completion of the new business information system using i2 Rhythm Factory
Planner, Oracle ERP software and associated hardware in the fourth quarter of
1999. As a result of this program completion, depreciation expense in the first
quarter of 2000 increased by $0.2 million over the first quarter of 1999.
Business information system expenses increased in the first quarter of 2000 by
$0.4 million over the first quarter of 1999 in support of the completed program.
Wages and related payroll expenses increased $0.3 million. As a percentage of
net sales, general and administrative expenses increased from 9.3% in the 1999
period to 9.9% in the 2000 period.
Research and Development. Research and development expenses were $0.6
million in the first three months of both 1999 and 2000. As a percentage of net
sales, research and development expense decreased from 2.4% in the 1999 period
to 2.0% in the 2000 period.
Income from Operations. As a result of the items discussed above, income
from operations increased $0.1 million or 2.9% from $3.4 million in the first
three months of 1999 to $3.5 million in the first three months of 2000, while
operating margin decreased from 13.8% to 10.8%.
Income Taxes. Income taxes increased $0.2 million or 18.2% from $1.1
million to $1.3 million in the first three months of 2000. The net effective
tax rate increased from 40.6% in 1999 to 44.2% in 2000, due primarily to an
increase in income derived from higher tax rate countries in the first quarter
of 2000 as compared to lower tax rate countries in the first quarter of 1999 and
the decrease in available state tax credits due to decreased capital
expenditures in California.
Liquidity and Capital Resources
Net cash provided by operating activities was $3.7 million and $1.9 million
for the three months ended March 31, 1999 and 2000, respectively. Net cash used
in financing activities was $4.7 million for the three months ended March 31,
1999 and net cash provided by financing activities was $1.0 million for the
three months ended March 31, 2000. Net cash used in investing activities was
$1.7 million and $2.7 million for the periods ending March 31, 1999 and 2000,
respectively.
Accounts receivable increased from $23.2 million at December 31, 1999, to
$23.3 million at March 31, 2000, as a result of slightly higher sales in the
first quarter of 2000 as compared to the fourth quarter of 1999. Inventories
decreased from $19.4 million at December 31, 1999, to $18.3 million at March 31,
2000, primarily as a result of improved inventory management from the newly
installed business information system. Accounts payable decreased from $11.6
million at December 31, 1999 to $7.6 million at March 31, 2000 due to reduced
inventory purchases in the first quarter of 2000 as compared to the fourth
quarter of 1999, as well as additional bank financing to repay outstanding trade
payables.
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The Company made capital expenditures of $1.7 million and $2.8 million for
the first three months of 1999 and 2000.
The Company, in the fourth quarter of 1999, amended its Senior Revolving
Loan Agreement ("Revolving Facility") with a bank which provided funds for the
Egerton acquisition, as well as for working capital and equipment acquisition
purposes. The Revolving Facility is in the amount of $30.0 million of which
$27.4 million had been drawn down as of March 31, 2000. The outstanding balance
bears interest payable monthly, at a variable rate based on either the bank's
base rate or the applicable LIBOR rate depending on the nature of the borrowing.
At March 31, 2000, the weighted average interest rate was 7.61%. The loan is
collateralized by substantially all of the Company's tangible and intangible
assets and up to 65% of the capital stock of the Company's subsidiaries and is
due April 30, 2003.
The Revolving Facility contains various financial and operating covenants
which, among other things, impose limitations on the Company's ability to incur
additional indebtedness, merge or consolidate, sell assets except in the
ordinary course of business, make certain investments, enter into leases and pay
dividends. The Company is also required to comply with covenants related to
minimum net worth and other financial ratios.
The Company also had a credit facility available to the Egerton
subsidiaries, which included an overdraft facility totaling approximately $5.0
million plus the combined cash balances of those subsidiaries. The facility also
included approximately $2.0 million to provide financing for international
letters of credit, forward exchange contracts and other items. The outstanding
balance (net of cash balances) bear interest at the bank's base rate plus a
spread ranging from 1.25% to a maximum of 4% depending on the amount borrowed.
The facility was collateralized by the assets of the subsidiaries. In February
2000, the Egerton facility was repaid using additional borrowings from the
Revolving Facility.
In view of the substantial increase in the Company's revenue in the first
quarter of 2000 over the first quarter of 1999 and the Company's historical
pattern of significant higher revenues in both the second and third quarters as
compared to the first quarter, the Company is currently negotiating an increase
to the Revolving Facility to allow for incremental capital expenditures and
working capital requirements necessitated by revenue growth. The Company
believes that cash flow from operations, coupled with borrowings under an
increased credit facility will be sufficient to fund the Company's capital
expenditure and working capital requirements through 2000.
Forward-looking statements contained within this 10-Q are subject to many
uncertainties in the Company's operations and business environments. Examples
of such uncertainties include customer demand, low material costs, integration
of acquired businesses and worldwide economic conditions among others. Such
uncertainties are discussed further in the Company's annual report and S-1 filed
with the Securities and Exchange Commission.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHANNELL COMMERCIAL CORPORATION
(Registrant)
Dated: May 22, 2000 By: /s/ Gary W. Baker
-----------------------------
Gary W. Baker
Vice President, Finance
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