CPI Aerostructures, Inc. (“CPI Aero®” or the “Company”) (NYSE
American: CVU) today announced that the Audit Committee of the
Board of Directors of CPI Aero determined, based on the
recommendation of management and in consultation with CPI Aero’s
independent registered public accounting firm, that the Company’s
financial statements included in its annual report on Form 10-K for
the year ended December 31, 2018, quarterly reports on Forms 10-Q
for the quarters ended March 31, 2018, June 30, 2018, and September
30, 2018, and quarterly reports on Forms 10-Q for the quarters
ended March 31, 2019, June 30, 2019, and September 30, 2019 should
no longer be relied upon due to an error in those financial
statements relating to the Company’s recognition of revenue from
contracts with customers under ASC Topic 606. Similarly, the
independent auditor’s reports on the effectiveness of internal
control over financial reporting for the year ended December 31,
2018, management’s reports on the effectiveness of internal control
over financial reporting, press releases, and investor
communications describing the Company’s financial statements for
such periods should no longer be relied upon. The Company’s cash
flows from operations for the affected periods are not expected to
be impacted.
The error was uncovered as part of the preparation of the
Company’s 2019 annual financial statements. After reconsideration
of the terms of the Company’s contracts with customers,
Management’s preliminary conclusion is that certain revenues and
net income were recognized prematurely or inaccurately due to an
incorrect application of generally accepted accounting principles.
Therefore, previously reported revenue and net income are believed
to have been overstated. The error is also expected to have an
impact on the Company’s balance sheets for the affected periods.
Specifically, retained earnings and contract assets are believed to
be overstated.
The Company expects to amend its annual report on Form 10-K for
the year ended December 31, 2018 and its quarterly reports on Form
10-Q for the quarters ended March 31, 2018, June 30, 2018,
September 30, 2018, March 31, 2019, June 30, 2019, and September
30, 2019, and to restate the financial statements and other
disclosures contained therein as soon as reasonably practical.
Management has determined that a material weakness existed in
the Company’s internal control over financial reporting as of the
end of each of the affected periods. The Company has reviewed its
financial closing process and believes it has identified the
corrective action necessary to remediate the cause of the error.
The Company plans to include a discussion of the Company’s plan to
remediate the material weakness in its annual report on Form 10-K
for the year ended December 31, 2019.
“The quality and integrity of our financial reporting process
are of paramount importance to all of us at CPI Aero,” stated
Douglas McCrosson, president and CEO of CPI Aero. “We are currently
assessing the precise impact of the stated error in CPI Aero’s
revenue recognition in previously issued financial statements. I
want to stress that we do not believe this error will have an
impact on the reported operating cash flows of the Company during
the affected periods, or on projected future cash flows going
forward. Similarly, we do not believe that the error will
impact our growth targets derived from the progress we have
made in recent years to build and execute on our record defense
backlog and improve our working capital management.”
The Company also announced that Chief Financial Officer Dan
Azmon resigned from the Company, effective February 11, 2020. The
Board of Directors appointed current director of financial planning
and analysis, Thomas Powers, a senior financial executive with over
three decades of revenue accounting for long-term contracts and
defense and aerospace manufacturing experience, to the position of
acting chief financial officer. Mr. Powers joined CPI Aero in
January 2019. Prior to joining the Company, Mr. Powers was
previously with Triumph Group, a multi-billion dollar publicly
owned aerospace manufacturer listed on the New York Stock Exchange,
where he last served as vice president of financial planning and
analysis. At Triumph, he previously held positions of segment
controller, division controller and served as interim chief
financial officer.
Concluded Mr. McCrosson, “Tom’s successful career at a major
aerospace manufacturer included the adoption of the new ASC Topic
606 accounting standard. That first-hand, practical experience,
combined with his detailed knowledge of CPI Aero’s business and
financial operations make him uniquely qualified to lead our
financial organization at this time.”
About CPI AeroCPI Aero is a U.S. manufacturer
of structural assemblies for fixed wing aircraft, helicopters and
airborne Intelligence Surveillance and Reconnaissance pod systems
in both the commercial aerospace and national security markets.
Within the global aerostructure supply chain, CPI Aero is either a
Tier 1 supplier to aircraft OEMs or a Tier 2 subcontractor to major
Tier 1 manufacturers. CPI also is a prime contractor to the U.S.
Department of Defense, primarily the Air Force. In conjunction with
its assembly operations, CPI Aero provides engineering, program
management, supply chain management, and MRO services. CPI Aero is
included in the Russell Microcap® Index.
When used in this press release, statements about the Company’s
plans to amend its financial statements, the timing of such
amendments, and their effect on the financial statements, which may
be indicated by the words or phrases “management expects” or “the
Company expects,” “is anticipated,” or similar expressions, are
intended to identify “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those
expressed in these statements, including, among others: the timing
and nature of the final resolution of the accounting issues
discussed in this press release, any delay in the filing of
required periodic reports, the timing and results of the Company’s
review of the effectiveness of internal control over financial
reporting and related disclosure controls and procedures, whether a
restatement of financial results will be required for other periods
or for other accounting issues, adverse effects on the Company’s
business related to the disclosures made in this press release or
the reactions of customers or suppliers, any adverse developments
in existing legal proceedings or the initiation of new legal
proceedings, and volatility of the Company’s stock price.
Additional risks are included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2018. Because the risks,
assumptions, and uncertainties referred to above could cause actual
results or outcomes to differ materially from those expressed in
any forward-looking statements, readers are cautioned not to place
undue reliance on any such forward-looking statements, each of
which speaks only as of the date made. The Company has no
obligation to update any forward-looking statement to reflect
events or circumstances after the date hereof.
CPI Aero® is a registered trademark of CPI Aerostructures, Inc.
For more information, visit www.cpiaero.com, and follow us on
Twitter @CPIAERO.
Contact:
Investor Relations Counsel:LHA Investor RelationsSanjay M.
Hurry/ Jody Burfening(212)
838-3777cpiaero@lhai.com www.lhai.com
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