CHANNELL COMMERCIAL CORP - 10-Q Quarterly Report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2002

	OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _______________ to _______________

Commission File No. 0-28582

CHANNELL COMMERCIAL CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of incorporation or organization)

95-2453261
(I.R.S. Employer 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)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

9,124,993 shares of common stock of the Registrant were outstanding at November 8, 2002.

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)

			Nine months ended September 30,						Three months ended September 30,

			2002			2001			2002			2001

Net sales			$	65,065		$	70,065		$	19,401		$	22,336
Cost of goods sold				43,160			56,870			13,966			24,036

	Gross profit (loss)			21,905			13,195			5,435			(1,700	)

Operating expenses
	Selling			6,973			10,237			2,012			3,135
	General and administrative			8,799			12,235			2,144			6,268
	Research and development			1,215			1,859			377			606
	Impairment of goodwill			—			11,772			—			11,772
	Impairment of fixed assets			—			4,322			—			4,322
	Restructuring charges			—			2,999			—			2,999

				16,987			43,424			4,533			29,102

	Income (loss) from operations			4,918			(30,229	)		902			(30,802	)
Interest expense, net				(1,812	)		(2,806	)		(491	)		(1,093	)

	Income (loss) before income taxes			3,106			(33,035	)		411			(31,895	)
Income taxes (benefit)				1,640			(8,207	)		261			(7,986	)

	Net income (loss)		$	1,466		$	(24,828	)	$	150		$	(23,909	)

	Net income (loss) per share
		Basic	$	0.16		$	(2.74	)	$	0.02		$	(2.64	)

		Diluted	$	0.16		$	(2.74	)	$	0.02		$	(2.64	)

Net income (loss)			$	1,466		$	(24,828	)	$	150		$	(23,909	)
Other comprehensive income (loss), net of tax
	Foreign currency translation adjustments			635			(1,320	)		20			391

Comprehensive net income (loss)			$	2,101		$	(26,148	)	$	170		$	(23,518	)

Page 1 of 22

CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)

				September 30, 2002			Dec. 31, 2001

				(unaudited)
ASSETS
	Current assets
		Cash and cash equivalents		$	2,910		$	8,762
		Accounts receivable, net			10,190			13,301
		Inventories			7,312			9,776
		Deferred income taxes			803			1,473
		Prepaid expenses and misc. receivables			1,229			1,238
		Income taxes receivable			—			5,076

			Total current assets		22,444			39,626
	Property and equipment at cost, net				29,611			38,718
	Deferred income taxes				5,479			5,509
	Intangible assets, net				1,463			1,463
	Other assets				422			446

				$	59,419		$	85,762

LIABILITIES AND STOCKHOLDERS’ EQUITY
	Current liabilities
		Accounts payable		$	5,493		$	5,090
		Income taxes payable			479			—
		Short term debt (including current maturities of long term debt)			716			30,228
		Current maturities of capital lease obligations			814			1,983
		Accrued restructuring liability			1,122			2,420
		Accrued expenses			4,434			3,939

			Total current liabilities		13,058			43,660

	Long term debt, less current maturities				6,094			3,991
	Deferred gain on sale leaseback transaction				589			—
	Capital lease obligations, less current maturities				73			614
	Commitments and contingencies				—			—
	Stockholders’ equity
		Preferred stock			—			—
		Common stock, par value $.01 per share, authorized –19,000 shares; issued – 9,269 shares; outstanding – 9,027 shares at September 30, 2002 and 9,025 shares at December 31, 2001			93			93
		Additional paid-in capital			28,341			28,334
		Treasury stock - 244 shares			(1,871	)		(1,871	)
		Retained earnings			15,088			13,622
		Accumulated other comprehensive income (loss) - Foreign currency translation			(2,046	)		(2,681	)

		Total stockholders’ equity			39,605			37,497

		Total liabilities and stockholders’ equity		$	59,419		$	85,762

Page 2 of 22

CHANNELL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(amounts in thousands)

				Nine months ended September 30,

				2002		2001

Cash flows from operating activities:
	Net income (loss)			$	1,466	$	(24,828	)
			Depreciation and amortization		5,405		6,611
			Impairment of fixed assets		—		4,322
			Impairment of goodwill		—		11,772
			Deferred income taxes		670		(8,158	)
			Loss on disposal of fixed assets		168		254
			Foreign currency transaction (loss)		—		(368	)
	Change in assets and liabilities:
		(Increase) decrease in assets:
			Accounts receivable		3,113		6,108
			Inventories		2,522		10,368
			Income taxes receivable		5,076		—
			Prepaid expenses		36		(230	)
			Other assets		24		(25	)
		Increase (decrease) in liabilities:
			Accounts payable		414		(3,743	)
			Accrued expenses		385