News & Events

CPI International Announces Fourth Quarter and Fiscal Year 2009 Financial Results

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)
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
(in thousands, except per share data)
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
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
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.
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)
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