PALO ALTO, Calif., May 15 /PRNewswire-FirstCall/ -- 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 the second
fiscal quarter ended March 31, 2006. (Logo:
http://www.newscom.com/cgi-bin/prnh/20060426/CPILOGO ) In the
second quarter of fiscal 2006, CPI International, Inc. (CPI)
generated total sales of $86.9 million, an increase from the $84.5
million recorded in the same quarter of the prior year. This
increase was primarily driven by growth in sales in the company's
radar and communications markets, the two largest markets CPI
serves. "CPI's operating and financial performance met our internal
expectations during the second quarter, and we are pleased with the
continuing strength, growth and profitability of our business,"
said Joe Caldarelli, chief executive officer of CPI. "During the
quarter, we continued to drive sales growth in our four largest
markets, manage our facility consolidation project on schedule and
within budget and run our business profitably. The strength of our
performance in the second quarter was masked somewhat by the impact
of the facility consolidation project that is currently underway."
In February 2003, CPI entered into an agreement to close and sell
the San Carlos, Calif. facility of its Eimac division so that it
could consolidate the division's operations into the company's
existing facilities in nearby Palo Alto, Calif. The facility
consolidation project is expected to be completed by September 30,
2006. During fiscal 2005, in preparation for the expected
manufacturing disruptions resulting from the relocation, many
customers accelerated their demand for Eimac's medical,
communications and industrial products. As a result, in the second
quarter of fiscal 2005, as compared to the average for the Eimac
unit over the preceding three years, Eimac orders were
approximately $6.0 million, or 50 percent, higher, and Eimac sales
were approximately $1.0 million, or nine percent, higher. This
acceleration of orders and sales into fiscal 2005 contributed to
CPI's unusually strong financial performance during the second and
third quarters of fiscal 2005. The advancement of orders and sales
for Eimac products into fiscal 2005, however, has resulted in an
expected, offsetting reduction in demand for Eimac's medical,
communications and industrial products in fiscal 2006, resulting in
a $4.8 million, or 41 percent, reduction in Eimac sales in the
second quarter of fiscal 2006, as compared to the same quarter in
fiscal 2005. Eimac sales of medical, communications and industrial
products decreased $1.2 million, $2.1 million and $1.4 million,
respectively, in the second quarter of fiscal 2006, as compared to
the same period in the prior year. CPI serves six end markets:
radar, electronic warfare, medical, communications, industrial and
scientific: -- In the radar market, the company's sales increased
approximately six percent to $30.3 million in the second quarter of
fiscal 2006, as compared to the $28.5 million recorded in the same
quarter in the prior year, primarily due to increased sales of its
products for a broad range of government and military programs. --
In the electronic warfare market, sales increased by approximately
six percent from $6.9 million in the second quarter of fiscal 2005
to $7.3 million in the second quarter of fiscal 2006, driven by
increased activity on a high- power Active Denial System
development program for the U.S. Air Force. -- In the medical
market, sales increased from $13.9 million in the second quarter of
fiscal 2005 to $14.1 million in the same quarter in fiscal 2006,
principally due to an approximately 15 percent increase in sales of
the company's medical imaging and radiation therapy products from
$11.0 million in the second quarter of fiscal 2005 to $12.6 million
in the most recent quarter. Growth in CPI's medical business during
the second quarter was offset by a $1.2 million reduction in
medical product sales from the company's Eimac division due to the
facility consolidation. -- Sales in the communications market
increased approximately eight percent to $28.6 million in the
second quarter of fiscal 2006, as compared to $26.4 million in the
same quarter in the prior year, primarily driven by growth in
amplifier sales for satellite communication applications. This
growth was partially offset by a $2.1 million decrease in Eimac
communications product sales. -- In the industrial market, one of
CPI's smaller markets, sales decreased from $6.4 million in the
second quarter of fiscal 2005 to $5.3 million in the second quarter
of fiscal 2006, due to a $1.4 million decrease in Eimac industrial
product sales as a result of the ongoing consolidation project. --
Sales to the company's smallest market, the scientific market,
equaled $1.3 million during the second quarter of fiscal 2006, as
compared to the $2.4 million recorded in the same quarter of the
prior year. CPI's scientific business typically consists of large,
non-recurring orders, and the timing of an order can significantly
impact any one quarter's results in this market, particularly given
the relatively small size of this business. CPI generated net
income of $4.3 million, or $0.29 per share on a diluted basis, in
the second quarter of fiscal 2006, a decrease from the $6.3
million, or $0.46 per share on a diluted basis, generated in the
same quarter of the prior year, but consistent with the company's
expectations. The majority of this decrease was due to the impact
of the consolidation of the company's Eimac unit and higher
interest expense related to higher debt levels and higher interest
rates on variable rate debt, which were partially offset by lower
amortization of acquisition-related intangibles in the second
quarter of fiscal 2006, as compared to the same quarter of the
previous year. During the second quarter of fiscal 2006, CPI
achieved EBITDA of $16.1 million, as compared to EBITDA of $18.4
million in the second quarter of fiscal 2005. Both quarters contain
non-cash and/or non-recurring charges, including: -- In the second
quarter of fiscal 2005, the company incurred a $0.4 million
non-cash charge related to performance-based stock options. All
performance-based stock options have fully vested. -- In the second
quarter of both fiscal 2005 and 2006, CPI incurred $0.3 million and
$1.4 million, respectively, of expenses and move-related
inefficiencies in conjunction with the relocation of its San Carlos
facility. During the second quarter of fiscal 2006, the company's
adjusted EBITDA, which excludes these non-cash and non-recurring
items, was $17.5 million, or approximately 20 percent of sales, a
decrease from the $19.1 million, or approximately 23 percent of
sales, recorded in the second quarter of fiscal 2005. This decrease
was primarily due to cost variances at the Eimac division related
to the division's lower sales in the second quarter of fiscal 2006
as compared to the same quarter of fiscal 2005, the shipment of
products with unusually high profit margins in the second quarter
of fiscal 2005, start-up manufacturing costs for new satellite
communication products in the second quarter of fiscal 2006 and the
impact of the weaker U.S. dollar as compared to the Canadian dollar
in fiscal 2006. As of March 31, 2006, CPI's cash and cash
equivalents totaled $7.8 million, a decrease from the $12.5 million
reported as of April 1, 2005. This $4.7 million decrease over the
past 12 months was primarily due to $25.0 million in non-operating
or non-recurring expenditures, including $14.2 million in capital
expenditures related to the Eimac facility consolidation during the
year, $2.4 million in after-tax, non-capital expenses for the
consolidation, $7.0 million in cash utilized to pay a special cash
dividend to stockholders in December 2005 and $1.4 million in costs
for the company's recent initial public offering. Excluding the
impact of these items, the increase in cash over the past 12 months
equaled $20.3 million. On April 28, 2006, CPI's common stock began
trading on the Nasdaq National Market. The company will use its
$47.2 million in net proceeds from this initial public offering to
repay term loan amounts outstanding under its senior credit
facilities. "We are very satisfied with the result of CPI's initial
public offering," said Joel Littman, chief financial officer of
CPI. "After applying the proceeds to reduce debt, we have reached a
comfortable net debt level of approximately $245 million, and we
are well-positioned to continue to grow our business and pay down
our debt." Financial Community Conference Call In conjunction with
this announcement, CPI will hold a telephonic conference on
Tuesday, May 16, 2006 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
800-798-2864, or 617-614-6206 for international callers, enter
participant pass code 94428751 and ask for the CPI International
Second Quarter 2006 Financial Results Conference Call. To access
the call via the Web, 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 and transmit
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 communications; providing power and
control for medical diagnostic imaging; 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 and adjusted EBITDA margin
presented above and in the financial statements attached hereto are
non-generally accepted accounting principles (GAAP) financial
measures. EBITDA represents earnings before provisions for income
taxes, net interest expense and depreciation and amortization.
Adjusted EBITDA represents EBITDA further adjusted to exclude
certain non-cash and non-recurring items. Adjusted EBITDA margin
represents adjusted EBITDA divided by sales. 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 statements; this
press release and the attached financial statements 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 highly leveraged businesses, such as the company's
business, should be supplemented by EBITDA, adjusted EBITDA and
adjusted EBITDA margin 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, as a component in the calculation of management
bonuses, to monitor compliance with certain covenants of its senior
credit facility and to make day-to-day operating decisions. Other
companies may define EBITDA, adjusted EBITDA and adjusted EBITDA
margin differently and, as a result, the company's measures may not
be directly comparable to EBITDA, adjusted EBITDA and adjusted
EBITDA margin of other companies. Because EBITDA, adjusted EBITDA
and adjusted EBITDA margin do not include certain material costs,
such as interest and taxes, 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), cash flows from 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; our significant
amount of debt; changes or reductions in the U.S. defense budget;
U.S. government contracts laws and regulations; changes in
technology; the impact of unexpected costs; inability to obtain raw
materials and components; and currency fluctuations. 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 CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands,
except share and per share data - unaudited) Quarter Ended March
31, 2006 April 1, 2005 Sales $86,929 $84,463 Cost of sales 61,185
55,386 Gross profit 25,744 29,077 Operating costs and expenses:
Research and development 1,941 1,858 Selling and marketing 4,680
4,585 General and administrative 4,676 5,658 Amortization of
acquisition-related intangible assets 546 1,486 Net loss on
disposition of assets 143 192 Total operating costs and expenses
11,986 13,779 Operating income 13,758 15,298 Interest expense, net
6,400 4,732 Income before income taxes 7,358 10,566 Income tax
expense 3,013 4,246 Net income $4,345 $6,320 Other comprehensive
income, net of tax Net unrealized loss on cash flow hedges (306)
(433) Comprehensive income $4,039 $5,887 Net income per share:
Basic $0.33 $0.48 Diluted $0.29 $0.46 Shares used to compute net
income per share: Basic 13,078,954 13,078,954 Diluted 14,784,947
13,849,673 CPI International, Inc. and Subsidiaries CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in
thousands, except share and per share data - unaudited) Six Months
Ended March 31, 2006 April 1, 2005 Sales $169,308 $158,196 Cost of
sales, including $351 of amortization of acquisition-related
inventory write-up for the six months ended April 1, 2005 118,356
105,415 Gross profit 50,952 52,781 Operating costs and expenses:
Research and development 3,851 3,306 Selling and marketing 9,704
8,653 General and administrative 11,978 9,627 Amortization of
acquisition-related intangible assets 1,094 6,392 Net loss on
disposition of assets 208 248 Total operating costs and expenses
26,835 28,226 Operating income 24,117 24,555 Interest expense, net
12,464 8,812 Income before income taxes 11,653 15,743 Income tax
expense 5,093 6,325 Net income $6,560 $9,418 Other comprehensive
income, net of tax Net unrealized (loss) gain on cash flow hedges
(489) 383 Comprehensive income $6,071 $9,801 Net income per share:
Basic $0.50 $0.72 Diluted $0.44 $0.68 Shares used to compute net
income per share: Basic 13,078,954 13,078,954 Diluted 14,776,514
13,788,835 CPI International, Inc. and Subsidiaries CONDENSED
CONSOLIDATED BALANCE SHEETS (in thousands, except share and per
share data - unaudited) March 31, September 30, 2006 2005 Assets
Current Assets: Cash and cash equivalents $7,801 $26,511 Restricted
cash 1,127 1,287 Accounts receivable, net 46,463 39,295 Inventories
53,101 50,620 Deferred tax assets 11,611 12,346 Prepaids and other
current assets 3,470 3,981 Total current assets 123,573 134,040
Property, plant and equipment, net 85,995 83,624 Deferred debt
issue costs, net 10,339 11,061 Intangible assets, net 76,716 77,941
Goodwill 145,462 145,462 Other long-term assets 3,681 2,416 Total
assets $445,766 $454,544 Liabilities and Stockholders' Equity
Current Liabilities: Accounts payable $20,879 $21,421 Accrued
expenses 25,588 27,247 Product warranty 6,418 6,359 Income taxes
payable 2,951 1,546 Advance payments from customers 6,866 12,067
Total current liabilities 62,702 68,640 Deferred income taxes
33,596 35,556 Advance payments from sale of San Carlos property
13,450 13,450 Long-term debt 294,258 284,231 Other long-term
liabilities 21 -- Total liabilities 404,027 401,877 Commitments and
contingencies Stockholders' Equity: Common stock ($0.01 par value,
90,000,000 shares authorized; 13,078,954 shares issued and
outstanding) 131 131 Additional paid-in capital 17,596 34,595
Accumulated other comprehensive income 1,132 1,621 Retained
earnings 22,880 16,320 Total stockholders' equity 41,739 52,667
Total liabilities and stockholders' equity $445,766 $454,544 CPI
International, Inc. and Subsidiaries CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (in thousands - unaudited) Six Months
Ended March 31, April 1, 2006 2005 Operating Activities Net cash
(used in) provided by operating activities $(4,515) $4,875
Investing Activities Deferred expenses relating to sale of San
Carlos property (4) (203) Purchase of Econco, net of cash acquired
-- (18,685) Capital expenditures (5,817) (4,428) Net cash used in
investing activities (5,821) (23,316) Financing Activities Proceeds
from issuance of floating rate senior notes -- 79,200 Payments for
debt issue costs -- (3,375) Proceeds from (repayments on) senior
term loan 10,000 (9,550) Special cash dividends (17,000) (75,809)
Payment of IPO costs (1,374) -- Repayments on capital leases --
(20) Net cash used in financing activities (8,374) (9,554) Net
Decrease in Cash and Cash Equivalents (18,710) (27,995) Cash and
cash equivalents at beginning of period 26,511 40,476 Cash and cash
equivalents at end of period $7,801 $12,481 Supplemental
Disclosures of Cash Flow Information Cash paid for interest $12,378
$7,066 Cash paid for taxes, net of refunds $4,607 $7,699 CPI
International, Inc. and Subsidiaries SUPPLEMENTAL INFORMATION (in
thousands - unaudited) Quarter Ended Six Months Ended March 31,
April 1, March 31, April 1, 2006 2005 2006 2005 Net income $4,345
$6,320 $6,560 $9,418 Depreciation and amortization 2,295 3,150
4,451 9,369 Interest expense, net 6,400 4,732 12,464 8,812 Income
tax expense 3,013 4,246 5,093 6,325 EBITDA 16,053 18,448 28,568
33,924 Add As Defined Adjustments: Compensation expense from
performance-based stock options (1) -- 387 -- 432 Amortization of
acquisition- related inventory write-up (2) -- -- -- 351 Special
bonus (3) -- -- 3,250 -- Move-related expenses (4) 1,400 300 2,523
376 Gross Adjustments 1,400 687 5,773 1,159 Adjusted EBITDA $17,453
$19,135 $34,341 $35,083 Adjusted EBITDA margin (5) 20.1% 22.7%
20.3% 22.2% Net income margin (6) 5.0% 7.5% 3.9% 6.0% (1)
Represents a non-cash charge related to employee performance-based
stock options. All employee performance-based stock options are now
vested. (2) Represents a non-cash charge related to purchase
accounting for the acquisition of Econco Broadcast Service, Inc.
(3) Represents a one-time special bonus to employees and directors
(other than directors who are employees or affiliates of The
Cypress Group) to reward them for the increase in company value.
(4) Represents expenses and move-related inefficiencies related to
the relocation of our San Carlos, California facility to our Palo
Alto, California and Mountain View, California facilities. (5)
Represents adjusted EBITDA divided by sales. (6) Represents net
income divided by sales.
http://www.newscom.com/cgi-bin/prnh/20060426/CPILOGO
http://photoarchive.ap.org/ DATASOURCE: CPI International, Inc.
CONTACT: Amanda Mogin, Communications & Power Industries,
Investor Relations, +1-650-846-3998, or Web site:
http://www.cpii.com/
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