Current Report






UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
_______________________
 
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of report (Date of earliest event reported):   August 12, 2009
_______________________
 
CPI INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Charter)
 
 
Delaware
 
000-51928    
 
75-3142681
(State or Other Jurisdiction
of Incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)
         
811 Hansen Way, Palo Alto, CA
 
94303-1110
(Address of Principal Executive Offices)
 
(Zip Code)
 
Registrant's telephone number, including area code:  (650) 846-2900
 
N/A
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction  A.2.):
 
 
      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act  (17 CFR 240.14d-2(b))

      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (7 CFR 240.13e-4(c)) ))

 


 

 


Item 2.02. Results of Operations and Financial Condition.
 
On August 12, 2009, CPI International, Inc. issued a press release announcing its financial results for its third quarter of fiscal 2009 ended July 3, 2009.
 
A copy of the press release is furnished as Exhibit 99.1 to this report.
 
Item 9.01. Financial Statements and Exhibits.
 
(d)            Exhibits
 
99.1           CPI International, Inc. press release dated August 12, 2009
 
The information in this Form 8-K and the exhibit attached hereto pursuant to Item 9.01 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act by CPI International, Inc., except as expressly set forth by specific reference in such a filing.
 
 
 
2

 
 
SIGNATURE
 
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
CPI INTERNATIONAL, INC.
(Registrant)
 
Date: August 12, 2009                                                                                    By:                       /s/ Joel A. Littman
        Joel A. Littman
   Chief Financial Officer
 


 
3

 

Exhibit 99.1

CPI INTERNATIONAL ANNOUNCES THIRD QUARTER 2009 FINANCIAL RESULTS

Sales, net income and EBITDA increase from previous quarter
 
Company continues debt reduction program, retires additional $5 million

PALO ALTO, Calif. - August 12, 2009 – CPI International, Inc. (Nasdaq: CPII), 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, today announced financial results for its third quarter of fiscal 2009 ended July 3, 2009.
 
In the third quarter of fiscal 2009, sales, net income and EBITDA results all increased in comparison to the previous quarter.  Sales increased $0.6 million to $82.5 million.  Excluding non-recurring tax benefits recognized in the second quarter, net income increased by approximately 45 percent to $3.9 million, or $0.22 per share on a diluted basis.  EBITDA increased by approximately 28 percent to $13.8 million, or approximately 17 percent of sales, in the third quarter.  CPI International (CPI) had previously announced that it expected its third quarter financial performance to be similar to, or slightly better than, its performance in the second quarter.
 
“We are pleased by CPI’s financial performance in the third quarter.  Our sales, net income and EBITDA results increased from the previous quarter.  We continued to operate responsibly and profitably, enabling us to generate positive cash flow and retire debt.  We also successfully cut costs without sacrificing our ability to provide the high level of service expected by our customers,” said Joe Caldarelli, chief executive officer of CPI.  “Furthermore, our end markets are stabilizing, leading to respectable orders and sales levels during the quarter.  As a result of record high orders of $116 million in the previous quarter and a healthy orders rate in the third quarter, our backlog now exceeds $230 million for the first time, indicating continued demand for our products.  Many of the orders in our current backlog are for long-term programs and have extended delivery schedules, which will benefit our sales levels in fiscal 2010.”
 
In the twelve months ending July 3, 2009, CPI’s cash flow from operating activities totaled $29.5 million, or $1.69 per share on a diluted basis.  Free cash flow totaled $26.2 million, or $1.50 per share on a diluted basis.  CPI remains committed to using its positive cash flow to retire debt, and, during the first nine months of fiscal 2009, retired $12.75 million principal amount of debt, including repurchasing, in the most recent quarter, $5.0 million of Communications & Power Industries, Inc.’s 8% Senior Subordinated Notes.  As of July 3, 2009, CPI’s cash and cash equivalents totaled $35.2 million, as compared to $28.7 million as of October 3, 2008.
 
Net income totaled $3.9 million in the third quarter of fiscal 2009, or $0.22 per share on a diluted basis, as compared to net income of $5.8 million, or $0.33 per share on a diluted basis, in the corresponding quarter of the previous year.  The decrease in net income was primarily due to the impact of lower sales volume, and was partially counteracted by reduced expenses due to the recent implementation of cost-saving measures and by lower interest expense in the third quarter of fiscal 2009.
 
CPI generated $13.8 million in EBITDA, or 17 percent of sales, in the third quarter of fiscal 2009, as compared to $16.1 million, or 18 percent of sales, in the same quarter of the prior year.  The decrease in EBITDA was primarily the result of the impact of lower sales volume, and was partially offset by reduced expenses due to the recent implementation of cost-saving measures.
 
In the first nine months of fiscal 2009, CPI has instituted a number of permanent and temporary cost-saving measures, including workforce reductions, salary freezes and reductions, temporary shutdowns of its facilities, increased mandatory time off, participation in work-share programs and reductions in contributions to certain employee retirement plans.  The company believes that these measures enable it to mitigate the impact of the challenging economic environment while preserving the flexibility and resources necessary to continue to meet the requirements of its customers at current and improved activity levels.
 
Orders and Sales Highlights
 
In recent quarters, CPI’s defense markets have experienced delays in the receipt of orders that have resulted in subsequent delays in the corresponding shipments and sales in those markets.  The company believes that order levels are stabilizing in these markets.
 
In commercial markets, which include CPI’s medical, commercial communications, industrial and scientific markets, customers have delayed, reduced or cancelled a number of their equipment upgrade or infrastructure expansion programs in recent quarters due to economic conditions.
 
In the first nine months of fiscal 2009, key orders highlights included:
  • Overall orders booked totaled $271.3 million, compared with $279.9 million in the same period of the previous year.
In the third quarter of fiscal 2009, key sales highlights included:
Fiscal 2009 Outlook
 
The company believes that stabilizing defense and commercial end markets will have a positive impact on its financial performance in the fourth quarter.  Therefore, affirming its previously issued guidance, CPI expects its financial performance in the fourth quarter to exceed that of the previous three quarters.
 
CPI is also affirming its previous guidance of free cash flow in excess of $20 million in fiscal 2009.
 
The company believes that its financial results in fiscal 2010 will be better than its results in fiscal 2009.  Furthermore, the company believes that its historical seasonal pattern of lower first quarter financial results, as compared to the subsequent three quarters of the year, will continue in fiscal 2010.
 
Financial Community Conference Call
 
In conjunction with this announcement, CPI will hold a conference call on Thursday, August 13, 2009 at 11:00 a.m. (EDT) that will be simultaneously broadcast live over the Internet on the company’s Web site.  To participate in the conference call, please dial (800) 474-8920, or (719) 457-2637 for international callers, enter participant pass code 5032848 and ask for the CPI International Third Quarter 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 operations 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; U.S. government contracts laws and regulations; changes in technology; the impact of unexpected costs; 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.

Contact:
Amanda Mogin, Communications & Power Industries, investor relations, 650.846.3998, amanda.mogin@cpii.com

 
 

 
 
CPI International, Inc.
 
and Subsidiaries
 
   
CONDENSED CONSOLIDATED
 
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 
(in thousands, except per share data - unaudited)
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
 Sales
  $ 82,520     $ 90,734     $ 241,569     $ 271,448  
 Cost of sales
    58,236       63,502       175,603       192,014  
 Gross profit
    24,284       27,232       65,966       79,434  
 Operating costs and expenses:
                               
 Research and development
    2,731       2,766       8,071       8,420  
 Selling and marketing
    4,762       5,012       14,552       15,512  
 General and administrative
    5,066       5,136       15,466       16,781  
 Amortization of acquisition-related intangible assets
    691       782       2,076       2,344  
 Net loss on disposition of fixed assets
    7       128       71       203  
 Total operating costs and expenses
    13,257       13,824       40,236       43,260  
 Operating income
    11,027       13,408       25,730       36,174  
 Interest expense, net
    4,204       4,627       12,965       14,244  
 (Gain) loss on debt extinguishment
    (51 )     121       (248 )     514  
 Income before income taxes
    6,874       8,660       13,013       21,416  
 Income tax expense (benefit)
    3,004       2,836       (2,201 )     6,928  
 Net income
  $ 3,870     $ 5,824     $ 15,214     $ 14,488  
                                 
 Other comprehensive income, net of tax
                               
Net unrealized gain (loss) on cash flow hedges and
                               
minimum pension liability adjustment
    3,346       1,268       84       (1,934 )
Comprehensive income
  $ 7,216     $ 7,092     $ 15,298     $ 12,554  
                                 
 Earnings per share - Basic
  $ 0.24     $ 0.36     $ 0.93     $ 0.88  
 Earnings per share - Diluted
  $ 0.22     $ 0.33     $ 0.87     $ 0.82  
                                 
 Shares used to compute earnings per share - Basic
    16,362       16,395       16,316       16,384  
 Shares used to compute earnings per share - Diluted
    17,577       17,669       17,428       17,719  
                                 

 
 

 

CPI International, Inc.
 
and Subsidiaries
 
   
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(in thousands, except per share data - unaudited)
 
             
   
July 3,
   
October 3,
 
   
2009
   
2008
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 35,185     $ 28,670  
Restricted cash
    767       776  
Accounts receivable, net
    41,369       47,348  
Inventories
    68,900       65,488  
Deferred tax assets
    12,916       11,411  
Prepaid and other current assets
    4,382       3,823  
Total current assets
    163,519       157,516  
Property, plant, and equipment, net
    58,907       62,487  
Deferred debt issue costs, net
    3,923       4,994  
Intangible assets, net
    76,251       78,534  
Goodwill
    162,230       162,611  
Other long-term assets
    3,448       806  
Total assets
  $ 468,278     $ 466,948  
                 
Liabilities and stockholders’ equity
               
Current liabilities:
               
Current portion of long-term debt
  $ -     $ 1,000  
Accounts payable
    19,200       21,109  
Accrued expenses
    22,419       23,044  
Product warranty
    3,802       4,159  
Income taxes payable
    5,562       7,766  
Advance payments from customers
    12,355       12,335  
Total current liabilities
    63,338       69,413  
Deferred income taxes
    26,910       27,321  
Long-term debt, less current portion
    212,919       224,660  
Other long-term liabilities
    2,974       1,689  
Total liabilities
    306,141       323,083  
Commitments and contingencies
               
Stockholders’ equity
               
Common stock ($0.01 par value, 90,000 shares
               
authorized; 16,792 and 16,538 shares issued;
               
16,586 and 16,332 shares outstanding)
    168       165  
Additional paid-in capital
    74,789       71,818  
Accumulated other comprehensive loss
    (1,725 )     (1,809 )
Retained earnings
    91,705       76,491  
Treasury stock, at cost (206 shares)
    (2,800 )     (2,800 )
Total stockholders’ equity
    162,137       143,865  
Total liabilities and stockholders' equity
  $ 468,278     $ 466,948  
                 

 
 

 
 
CPI International, Inc.
and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
             
   
Nine Months Ended
 
   
July 3,
   
June 27,
 
   
2009
   
2008
 
Cash flows from operating activities
           
Net cash provided by operating activities
  $ 20,308     $ 24,699  
                 
Cash flows from investing activities
               
Capital expenditures
    (2,349 )     (3,288 )
Proceeds from adjustment to acquisition purchase price
    -       1,615  
Payment of patent application fees
    -       (147 )
  Net cash used in investing activities
    (2,349 )     (1,820 )
                 
Cash flows from financing activities
               
  Purchases of treasury stock
    -       (1,800 )
  Repayments of debt
    (12,358 )     (16,000 )
  Proceeds from issuance of common stock to employees
    781       639  
  Proceeds from exercise of stock options
    82       3  
  Excess tax benefit on stock option exercises
    51       2  
  Net cash used in financing activities
    (11,444 )     (17,156 )
                 
Net increase in cash and cash equivalents
    6,515       5,723  
  Cash and cash equivalents at beginning of period
    28,670       20,474  
  Cash and cash equivalents at end of period
  $ 35,185     $ 26,197  
                 
Supplemental cash flow disclosures
               
  Cash paid for interest
  $ 9,742     $ 10,020  
  Cash paid for income taxes, net of refunds
  $ 2,417     $ 9,846  
                 
 
 
 

 

CPI International, Inc.
 
and Subsidiaries
 
   
NON-GAAP SUPPLEMENTAL INFORMATION
 
EBITDA and Adjusted EBITDA
 
(in thousands - unaudited)
 
                               
         
Three Months Ended
   
Nine Months Ended
 
         
July 3,
   
June 27,
   
July 3,
   
June 27,
 
         
2009
   
2008
   
2009
   
2008
 
Net income
        $ 3,870     $ 5,824     $ 15,214     $ 14,488  
Depreciation and amortization
          2,703       2,779       8,080       8,171  
Interest expense, net
          4,204       4,627       12,965       14,244  
Income tax expense (benefit)
          3,004       2,836       (2,201 )     6,928  
EBITDA
          13,781       16,066       34,058       43,831  
                                       
Adjustments to exclude certain non-recurring or non-cash items:
                 
Stock-based compensation expense
    (1 )     702       594       2,024       1,568  
(Gain) loss on debt extinguishment
    (2 )     (51 )     121       (248 )     514  
Total adjustments
            651       715       1,776       2,082  
Adjusted EBITDA
          $ 14,432     $ 16,781     $ 35,834     $ 45,913  
                                         
EBITDA margin
    (3 )     16.7 %     17.7 %     14.1 %     16.1 %
Adjusted EBITDA margin
    (4 )     17.5 %     18.5 %     14.8 %     16.9 %
Net income margin
    (5 )     4.7 %     6.4 %     6.3 %     5.3 %
                                         
 
 
 (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 three month and nine month periods ended July 3, 2009, respectively, represents the following related to repurchase of $5.0 million and $8.0 million of 8% Senior Subordinated Notes at a discount of 2.75%  and 4.9%: $0.137 million and $0.392 million discount, partially offset by $0.086 million and $0.144 million write-off of unamortized deferred debt issue costs. For the three and nine month periods ended June 27, 2008, respectively, represents the following expenses related to the redemption of $6.0 million and $8.0 million of floating rate senior notes: $0.084 million and $0.339 million for non-cash costs associated with the write-off of unamortized deferred debt issue costs and issue discount costs; and $0.037 million and $0.175 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
 
         
July 3,
 
         
2009
 
Net cash provided by operating activities
        $ 29,490  
Capital expenditures
          (3,323 )
Free cash flow
          26,167  
               
Adjustments to exclude certain non-recurring items:
             
Cash paid for debt extinguishment costs, net of taxes
    (1 )     24  
Total adjustments
            24  
Adjusted free cash flow
          $ 26,191  
                 
Free cash flow
          $ 26,167  
Net income
          $ 21,175  
Free cash flow conversion
    (2 )     124 %
                 
Free cash flow per share
    (3 )   $ 1.50  
                 
 
 
(1)
Represents redemption premiums and other expenses associated with the repurchase and redemption of CPI’s floating rate senior notes, net of taxes.
(2)
Represents free cash flow divided by net income, expressed as a percentage.
(3)
 
Represents free cash flow divided by the simple average of the last four fiscal quarters’ “Shares used to compute earnings per share: Diluted.” The simple average of the last four fiscal quarters’ “Shares used to compute earnings per share: Diluted” is 17,480,000 shares.