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CPI International Announces Fourth Quarter and Fiscal Year 2009 Financial Results

Business gains momentum, driving strong Q4 results and reinforcing positive outlook for FY 2010

PALO ALTO, Calif., Dec 10, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- CPI International, Inc. (Nasdaq: CPII), the parent company of Communications & Power Industries, Inc. (CPI), today announced financial results for its fourth quarter and fiscal year ended October 2, 2009.

(Logo: http://www.newscom.com/cgi-bin/prnh/20060426/CPILOGO)

"In the past several months, CPI's business has been gaining momentum, and we ended fiscal 2009 with the strongest quarter of the year. We are well-positioned for continued progress in fiscal 2010," said Joe Caldarelli, chief executive officer.

CPI's notable financial achievements during the most recent fiscal year include:

    --  Quarter-over-quarter increases in sales, net income (excluding
        non-recurring discrete tax benefits) and adjusted EBITDA, culminating in
        robust fourth quarter results that illustrate improving market
        conditions;
    --  Record high end-of-the-year backlog, totaling $226 million;
    --  Strong cash flow from operating activities, totaling $30.1 million, or
        $1.72 per share on a diluted basis.  Free cash flow exceeded the
        company's expectations, totaling $26.7 million, or $1.53 per share on a
        diluted basis; and
    --  Retirement of $30.8 million of aggregate principal amount of debt,
        contributing to a $2.1 million, or 11 percent, decrease in interest
        expense in comparison to the previous fiscal year.

In fiscal 2009, CPI generated total sales of $333 million and booked total orders of $356 million. In comparison, in fiscal 2008, sales and orders totaled $370 million and $374 million, respectively.

Fiscal 2009 net income totaled $23.5 million, or $1.34 per share on a diluted basis. In comparison, fiscal 2008's net income totaled $20.4 million, or $1.16 per share on a diluted basis. The increase in net income was the result of the recognition of $8.0 million, or $0.46 per share on a diluted basis, in non-recurring tax benefits in the most recent fiscal year, as well as reduced expenses due to the implementation of cost-savings initiatives and lower interest expense, partially offset by the impact of lower sales in fiscal 2009.

CPI generated adjusted EBITDA of $53.5 million, or 16.1 percent of sales, in fiscal 2009, as compared to $64.0 million, or 17.3 percent of sales, in the previous fiscal year. The decrease was primarily due to lower sales volume in the most recent year, partially offset by reduced expenses from the implementation of cost-savings initiatives.

As of October 2, 2009, the company's cash and cash equivalents totaled $26.2 million.

Fourth Quarter 2009 Financial Results

The fourth quarter was the strongest quarter of the fiscal year, and CPI's sales, net income and EBITDA results increased in comparison to each of the first three quarters of fiscal 2009. In the fourth quarter, CPI generated total sales of $91.3 million, as compared to $82.5 million in the previous quarter.

Net income totaled $8.3 million, or $0.47 per share on a diluted basis, in the fourth quarter of fiscal 2009. In the previous fiscal year, fourth quarter net income totaled $6.0 million, or $0.34 per share on a diluted basis. The increase in net income was, in part, the result of the recognition of $1.3 million, or $0.07 per share on a diluted basis, in non-recurring tax benefits in the fourth quarter of fiscal 2009, as well as reduced expenses due to the implementation of cost-savings initiatives in the most recent fiscal year and lower interest expense. Excluding these non-recurring tax benefits, net income and net income per share in the most recent quarter were approximately 17 percent higher than in the comparable quarter of fiscal 2008.

CPI's fourth quarter adjusted EBITDA equaled $17.6 million, or 19.3 percent of sales, in fiscal 2009. In comparison, in the fourth quarter of fiscal 2008, adjusted EBITDA equaled $18.1 million, or 18.4 percent of sales.

Fiscal 2010 Outlook

"Our end markets have stabilized and are showing tangible signs of improvement in recent months, and we are confident that fiscal 2010 will be a stronger year than fiscal 2009. In particular, we have seen further indications that our defense markets have stabilized, our medical market is showing signs of improvement, and we are enjoying very high backlog in our communications market," said Caldarelli.

For fiscal 2010, CPI expects:

    --  Total sales of between $350 million and $360 million;
    --  Net income of between $1.05 and $1.13 per share on a diluted basis; and
    --  Adjusted EBITDA of between $58 million and $61 million.

The company is assuming an effective tax rate of approximately 36 percent for fiscal 2010.

CPI expects the seasonal pattern of fiscal 2010 to be similar to that of fiscal 2009, and, as economic conditions continue to improve, financial results in all quarters are expected to exceed the results in the corresponding quarters of fiscal 2009.

Financial Community Conference Call

In conjunction with this announcement, CPI will hold a conference call on Friday, December 11, 2009 at 11:00 a.m. (EST) that will be simultaneously broadcast live over the Internet on the company's Web site. To participate in the conference call, please dial (888) 599-4879, or (913) 312-1432 for international callers, enter participant pass code 7360844 and ask for the CPI International Fourth Quarter and Fiscal Year 2009 Financial Results Conference Call. To access the call via the Internet, please visit http://investor.cpii.com.

About CPI International, Inc.

CPI International, Inc., headquartered in Palo Alto, California, is the parent company of Communications & Power Industries, Inc., a leading provider of microwave, radio frequency, power and control solutions for critical defense, communications, medical, scientific and other applications. Communications & Power Industries, Inc. develops, manufactures and distributes products used to generate, amplify, transmit and receive high-power/high-frequency microwave and radio frequency signals and/or provide power and control for various applications. End-use applications of these systems include the transmission of radar signals for navigation and location; transmission of deception signals for electronic countermeasures; transmission and amplification of voice, data and video signals for broadcasting, Internet and other types of commercial and military communications; providing power and control for medical diagnostic imaging; and generating microwave energy for radiation therapy in the treatment of cancer and for various industrial and scientific applications.

Non-GAAP Supplemental Information

EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow presented above and in the financial information attached hereto are non-generally accepted accounting principles (GAAP) financial measures. EBITDA represents earnings before net interest expense, provisions for income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA further adjusted to exclude certain non-recurring or non-cash items. EBITDA margin represents EBITDA divided by sales. Adjusted EBITDA margin represents adjusted EBITDA divided by sales. Free cash flow represents net cash provided by operating activities minus capital expenditures and patent application fees. Free cash flow per share represents free cash flow divided by average shares outstanding on a fully diluted basis. Free cash flow conversion represents free cash flow divided by net income, expressed as a percentage. Adjusted free cash flow represents free cash flow further adjusted to exclude certain non-recurring items. For more information regarding these non-GAAP financial measures for the periods presented and a reconciliation of these measures to GAAP financial information, please see the attached financial information. In addition, this press release and the attached financial information are available in the investor relations section of the company's Web site at http://investor.cpii.com.

CPI believes that GAAP-based financial information for leveraged businesses, such as the company's business, should be supplemented by EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow so that investors better understand the company's operating performance in connection with their analysis of the company's business. In addition, CPI's management team uses EBITDA and adjusted EBITDA to evaluate the company's operating performance, to monitor compliance with its senior credit facility, to make day-to-day operating decisions and as a component in the calculation of management bonuses. Other companies may define EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow differently and, as a result, the company's measures may not be directly comparable to EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow of other companies. Because EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow do not include certain material costs, such as interest and taxes in the case of EBITDA-based measures, necessary to operate the company's business, when analyzing the company's business, these non-GAAP measures should be considered in addition to, and not as a substitute for, net income (loss), net cash provided by (used in) operating activities, net income margin or other statements of income or statements of cash flows data prepared in accordance with GAAP.

Certain statements included above constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide our current expectations, beliefs or forecasts of future events. Forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual events or results to differ materially from the results projected, expected or implied by these forward looking statements. These factors include, but are not limited to, competition in our end markets; the impact of a general slowdown in the global economy; our significant amount of debt; changes or reductions in the U.S. defense budget; currency fluctuations; goodwill impairment considerations; U.S. government contracts laws and regulations; changes in technology; the impact of unexpected costs; the impact of environmental laws and regulations; and inability to obtain raw materials and components. These and other risks are described in more detail in our periodic filings with the Securities and Exchange Commission. As a result of these uncertainties, you should not place undue reliance on these forward-looking statements. All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We undertake no duty or obligation to publicly revise any forward-looking statement to reflect circumstances or events occurring after the date hereof or to reflect the occurrence of unanticipated events or changes in our expectations.



                    CPI INTERNATIONAL, INC.
                       and Subsidiaries

     CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
            (in thousands, except per share data)

                            Three Months Ended      Twelve Months Ended
                             ------------------      -------------------
                            October 2, October 3, October 2,   October 3,
                              2009        2008      2009         2008
                              ----        ----      ----         ----
Sales                       $91,307     $98,566  $332,876     $370,014
Cost of sales                63,782      69,072   239,385      261,086
                             ------      ------   -------      -------
Gross profit                 27,525      29,494    93,491      108,928

Operating costs and
 expenses:
   Research and
    development expense       2,449       2,369    10,520       10,789
   Selling and
    marketing expense         4,914       5,632    19,466       21,144
   General and
    administrative            5,220       5,967    20,757       22,951
   Amortization of
    acquisition-
    related intangibles
    assets                      693         759     2,769        3,103
                                ---         ---     -----        -----
Total operating
 costs and expenses          13,276      14,727    53,512       57,987

Operating income             14,249      14,767    39,979       50,941

Interest expense              4,014       4,811    16,979       19,055
Loss (gain) on debt
 extinguishment                   -         119      (248)         633
                                ---         ---      ----          ---
Income before income
 taxes                       10,235       9,837    23,248       31,253

Income tax expense
 (benefit)                    1,983       3,876      (218)      10,804
                              -----       -----      ----       ------
Net income                   $8,252      $5,961   $23,466      $20,449
                             ======      ======   =======      =======


Other comprehensive
 income, net of tax
   Net unrealized gain
    (loss) on cash flow
    hedges and
    minimum pension
    liability
    adjustment                2,323        (812)    2,407       (3,711)
                              -----        ----     -----       ------
Comprehensive income        $10,575      $5,149   $25,873      $16,738
                            =======      ======   =======      =======

Earnings per share -
 Basic                        $0.50       $0.37     $1.44        $1.25
Earnings per share -
 Diluted                      $0.47       $0.34     $1.34        $1.16

Shares used to
 compute earnings
 per share -Basic            16,425      16,278    16,343       16,356
Shares used to
 compute earnings
 per share -Diluted          17,627      17,637    17,478       17,697



                             CPI INTERNATIONAL, INC.
                                and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except per share data)


                                                  October 2,    October 3,
                                                     2009          2008
                                                     ----          ----
Assets
Current Assets:
  Cash and cash equivalents                         $26,152       $28,670
  Restricted cash                                     1,561           776
  Accounts receivable, net                           45,145        47,348
  Inventories                                        66,996        65,488
  Deferred tax assets                                 8,652        11,411
  Prepaid and other current assets                    6,700         3,823
                                                      -----         -----
    Total current assets                            155,206       157,516
Property, plant, and equipment,
 net                                                 57,912        62,487
Deferred debt issue costs, net                        3,609         4,994
Intangible assets, net                               75,430        78,534
Goodwill                                            162,225       162,611
Other long-term assets                                3,872           806
                                                      -----           ---
    Total assets                                   $458,254      $466,948
                                                   ========      ========

Liabilities and stockholders' equity
Current Liabilities:
  Current portion of long-term debt                      $-        $1,000
  Accounts payable                                   22,665        21,109
  Accrued expenses                                   19,015        23,044
  Product warranty                                    3,845         4,159
  Income taxes payable                                4,305         7,766
  Advance payments from customers                    12,996        12,335
                                                     ------        ------
    Total current liabilities                        62,826        69,413
Deferred income taxes                                24,726        27,321
Long-term debt, less current
 portion                                            194,922       224,660
Other long-term liabilities                           2,227         1,689
                                                      -----         -----
    Total liabilities                               284,701       323,083
Commitments and contingencies
Stockholders' equity
  Preferred stock ($0.01 par value; 10,000 shares
    authorized and none issued and
     outstanding)                                         -             -
  Common stock ($0.01 par value, 90,000 shares
    authorized; 16,807 and 16,538 shares issued;
    16,601 and 16,332 shares
     outstanding)                                       168           165
  Additional paid-in capital                         75,630        71,818
  Accumulated other comprehensive
   income (loss)                                        598        (1,809)
  Retained earnings                                  99,957        76,491
  Treasury stock, at cost (206
   shares)                                           (2,800)       (2,800)
                                                     ------        ------
    Total stockholders' equity                      173,553       143,865
                                                    -------       -------
    Total liabilities and
     stockholders' equity                          $458,254      $466,948
                                                   ========      ========




                                  CPI INTERNATIONAL, INC.
                                     and Subsidiaries

                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     (in thousands)


                                               Year Ended
                                               ----------
                                 October 2,     October 3,   September 28,
                                   2009           2008            2007
                                   ----           ----            ----
Cash flows from
 operating
 activities
Net income                         $23,466        $20,449         $22,503
Adjustments to
 reconcile net
 income to net
 cash provided by
 operating
 activities:
    Depreciation                     7,773          7,607           6,562
    Amortization of
     intangibles                     3,021          3,356           2,536
    Write-off of patent
     application fees                   83              -               -
    Amortization of
     deferred debt issue
     costs                           1,241          1,197           1,401
    Amortization of
     discount on
     floating rate
     senior notes                       12             15              49
    Non-cash loss on
     debt extinguishment               144            420           4,659
    Discount on
     repayment of debt                (392)             -               -
    Non-cash defined
     benefit pension
     expense                            39             55               -
    Stock-based
     compensation
     expense                         2,679          2,135           1,239
    Allowance for
     doubtful accounts                   6              -            (329)
    Deferred income
     taxes                          (1,000)        (1,360)           (561)
    Net loss on the
     disposition of
     assets                            130            205             129
    Tax benefit from
     stock option
     exercises                         212             50           1,281
    Excess tax benefit
     on stock option
     exercises                         (54)           (18)           (781)
    Changes in operating
     assets and
     liabilities,  net
     of acquired assets
     and assumed
     liabilities:
        Restricted cash               (785)         1,479            (509)
        Accounts receivable          2,197          5,241          (7,388)
        Inventories                 (1,495)         1,986          (8,473)
        Prepaid and other
         current assets                841           (470)           (811)
        Other long-term
         assets                     (3,167)          (208)            476
        Accounts payable             1,556           (685)           (215)
        Accrued expenses            (4,107)        (4,953)           (320)
        Product warranty              (314)        (1,419)           (653)
        Income taxes payable        (3,461)          (779)         (2,262)
        Advance payments
         from customers                661            203           2,202
        Other long-term
         liabilities                   828           (625)            924
                                       ---           ----             ---
    Net cash provided by
     operating
     activities                     30,114         33,881          21,659
                                    ------         ------          ------

Cash flows from
 investing
 activities
  Capital expenditures              (3,365)        (4,262)         (8,169)
  Acquisitions, net of
   cash acquired                         -          1,615         (22,174)
  Payment of patent
   application fees                      -           (147)              -
                                       ---           ----             ---
    Net cash used in
     investing
     activities                     (3,365)        (2,794)        (30,343)
                                    ------         ------         -------

Cash flows from
 financing
 activities
  Proceeds from
   issuance of debt                      -              -         100,000
  Proceeds from stock
   purchase plan and
   exercises of stock
   options                           1,037            891           1,436
  Repayments of debt               (30,358)       (21,000)       (100,750)
  Debt issuance costs                    -              -          (2,462)
  Purchase of treasury
   stock                                 -         (2,800)              -
  Excess tax benefit
   on stock option
   exercises                            54             18             781
                                       ---            ---             ---
    Net cash used in
     financing
     activities                    (29,267)       (22,891)           (995)
                                   -------        -------            ----

Net (decrease)
 increase in cash
 and cash
 equivalents                        (2,518)         8,196          (9,679)
  Cash and cash
   equivalents at
   beginning of year                28,670         20,474          30,153
                                    ------         ------          ------
  Cash and cash
   equivalents at end
   of year                         $26,152        $28,670         $20,474
                                   =======        =======         =======

Supplemental cash
 flow disclosures
  Cash paid for
   interest                        $16,081        $18,720         $22,255
                                   =======        =======         =======
  Cash paid for income
   taxes, net of
   refunds                          $6,539        $13,099         $13,631
                                    ======        =======         =======




                             CPI International, Inc.
                                 and Subsidiaries

                        NON-GAAP SUPPLEMENTAL INFORMATION
                            EBITDA and Adjusted EBITDA
                            (in thousands - unaudited)


                           Three Months Ended         Year Ended
                           ------------------         ----------
                         October 2,   October 3, October 2,  October 3,
                           2009          2008     2009         2008
                           ----          ----     ----         ----
Net income                $8,252        $5,961  $23,466      $20,449
  Depreciation and
   amortization            2,714         2,792   10,794       10,963
  Interest expense,
   net                     4,014         4,811   16,979       19,055
  Income tax expense
   (benefit)               1,983         3,876     (218)      10,804
                           -----         -----     ----       ------
EBITDA                    16,963        17,440   51,021       61,271
                          ------        ------   ------       ------

Adjustments to
 exclude certain
 non-recurring or
 non-cash items:
  Stock-based
   compensation
   expense           (1)     655           567    2,679        2,135
  Loss (gain) on
   debt
   extinguishment    (2)       -           119     (248)         633
                             ---           ---     ----          ---
Total adjustments            655           686    2,431        2,768
                             ---           ---    -----        -----
Adjusted EBITDA          $17,618       $18,126  $53,452      $64,039

  EBITDA margin      (3)    18.6%         17.7%    15.3%        16.6%
  Adjusted EBITDA
   margin            (4)    19.3%         18.4%    16.1%        17.3%
  Net income margin  (5)     9.0%          6.0%     7.0%         5.5%

(1) Represents a non-cash charge for stock options, restricted stock
    awards, restricted stock unit awards and the employee discount
    related to CPI's Employee Stock Purchase Plan.
(2) For the year ended October 2, 2009, represents the following
    related to repurchase of $8.0 million of 8% Senior Subordinated
    Notes at a discount of 4.9%: $0.392 million discount, partially
    offset by $0.144 million write-off of unamortized deferred debt
    issue costs. For the three months and year ended October 3, 2008,
    respectively, represents the following expenses related to the
    redemption of $2.0 million and $10.0 million of floating rate senior
    notes: $0.081 million and $0.420 million for non-cash costs
    associated with the write-off of unamortized deferred debt issue
    costs and issue discount costs; and $0.038 million and $0.213
    million in cash payments for redemption premiums and other expenses.
(3) Represents EBITDA divided by sales.
(4) Represents adjusted EBITDA divided by sales.
(5) Represents net income divided by sales.




                         CPI International, Inc.
                            and Subsidiaries

                    NON-GAAP SUPPLEMENTAL INFORMATION
   Free Cash Flow, Adjusted Free Cash Flow, Free Cash Flow Conversion
                      and Free Cash Flow per Share
      (in thousands, except per share and percent data - unaudited)

                                                       Twelve Months Ended
                                                            October 2,
                                                              2009
                                                              ----
Net cash provided by operating activities                    $30,114
Capital expenditures                                          (3,365)
                                                              ------
Free cash flow                                                26,749

Adjustments to exclude certain non-
 recurring items:
  Cash paid for prior year transfer pricing
   audit                                    (1)                  917
                                                                 ---
Total adjustments                                                917
                                                                 ---
Adjusted free cash flow                                      $27,666
                                                             =======

Free cash flow                                               $26,749
Net income                                                   $23,466
Free cash flow conversion                   (2)                  114%

Free cash flow per share                    (3)                $1.53

(1) Represents a payment made to the Canada Revenue Agency ("CRA")
    related to an audit of Communications & Power Industries Canada
    Inc.'s ("CPI Canada") income tax returns for fiscal years 2001 and
    2002. CPI Canada has received a tax assessment, including interest
    expense, from the CRA for fiscal years 2001 and 2002, based on tax
    deductions related to the valuation of the Satcom business, which
    was purchased by CPI Canada from Communications & Power Industries,
    Inc. in fiscal years 2001 and 2002. While the Company believes it
    has meritorious defenses and is in the process of pursuing these
    defenses, certain payments are required to be made in the meantime.
    The Company considers this a non-recurring use of cash as it
    pertains to previous years.
(2) Represents free cash flow divided by net income, expressed as a
    percentage.
(3) Represents free cash flow divided by the "Shares used to compute
    earnings per share: Diluted" for the year ended October 2, 2009, or
    17,478,000 shares.

SOURCE CPI International, Inc.

http://www.cpii.com

Copyright (C) 2009 PR Newswire. All rights reserved

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