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Cpi International Holding Corp. (CPIH) SEC Filing 8-K Material Event for the period ending Thursday, December 10, 2015

Cpi International Holding Corp.

CIK: 1515003 Ticker: CPIH


Exhibit 99.1


CPI INTERNATIONAL ANNOUNCES FISCAL YEAR 2015 FINANCIAL RESULTS

PALO ALTO, Calif. - December 10, 2015 - CPI International Holding Corp., the parent company of CPI International, Inc. (CPI), today announced financial results for its fiscal year ended October 2, 2015.
“Fiscal 2015 was a successful, business-as-usual year for CPI and we achieved respectable financial results. Demand for our products remained healthy, several of our long-term programs were very strong, particularly in defense and military communications, and we expanded our portfolio of radar and communications products with the acquisition of ASC Signal Corporation,” said Joe Caldarelli, chief executive officer.
On September 17, 2015, CPI acquired ASC Signal Corporation, which designs and builds large-aperture antennas and controllers for satellite communications, radar and HF communications applications. CPI’s financial results for fiscal 2015 include approximately two weeks of contributions from this business.
Orders and Sales
CPI booked orders totaling $437 million in fiscal 2015, a four percent increase from the $421 million booked in the previous year. Orders in the defense and communications markets increased, while orders in the medical market decreased slightly. CPI’s fiscal 2015 orders included approximately $3 million of defense and communications bookings from the new ASC Signal Division.
Sales in fiscal 2015 totaled $448 million, a six percent decrease from the $475 million generated in the prior year. Sales were essentially unchanged in the defense market but decreased in the communications and medical markets. The new ASC Signal Division contributed approximately $3 million in defense and communications sales to fiscal 2015.
Net Income and Adjusted EBITDA
CPI recorded fiscal 2015 net income of $4.9 million, as compared to $9.1 million in the previous year. The decrease in net income was primarily due to lower sales and a less profitable mix of products sold in the most recent year, as well as a $4.3 million increase in interest expense, largely resulting from the debt restructuring transaction that was completed in April 2014. Partially offsetting these unfavorable items, CPI’s fiscal 2015 did not include expenses related to debt restructuring, contrasting with the previous year, which had included $7.5 million in expenses related to the April 2014 debt restructuring.
CPI generated adjusted EBITDA of $79.1 million, or 17.7 percent of sales, in fiscal 2015. In comparison, adjusted EBITDA in fiscal 2014 equaled $89.8 million, or 18.9 percent of sales. The decrease in adjusted EBITDA was primarily the result of the lower sales volume and less profitable mix of products sold in the most recent year.
Defense Market
In fiscal 2015, orders in CPI’s defense market increased six percent to $176 million. This increase was primarily due to higher orders for certain naval radar programs, certain foreign radar programs and an airborne electronic warfare program for which CPI provides radomes. Partially offsetting these increases, orders to support the Aegis radar system decreased; despite this decrease, current demand for products to support the Aegis radar systems remains significantly stronger than long-term historical averages.
CPI’s defense market sales were essentially unchanged at $181 million. Sales increased for certain naval radar programs, including the Aegis radar systems. Sales decreased for a radar program with fluctuating annual demand levels and for an airborne electronic warfare program that has been completed.




Communications Market
Orders in the communications market increased 15 percent to $161 million in fiscal 2015. This increase was primarily the result of higher orders for military communications applications, including long-running programs for which CPI provides satellite communications (satcom) amplifiers and advanced tactical common data link (TCDL) antenna products. Radome orders for naval communications applications and satcom amplifier orders for certain commercial communications applications decreased due to the timing of large programs for those applications.
Communications sales decreased eight percent to $166 million. Commercial communications sales were lower primarily because of the timing of large programs for which orders were received, and shipments were made, in fiscal 2014 but not in the most recent year. Military communications sales were lower primarily due to an expected decrease in sales of advanced TCDL antenna products for a specific program at CPI Malibu Division as a result of the completion of the large initial order for this program.
Medical Market
CPI’s orders in the medical market decreased three percent to $69.0 million in fiscal 2015 due to lower orders for x-ray imaging products. An increase in orders to support MRI applications partially offset this decrease.
Medical sales decreased seven percent to $68.1 million in fiscal 2015. This decrease was primarily due to lower sales of x-ray imaging products. An increase in sales to support MRI applications partially offset this decrease.
ASC Acquisition Funding
In September 2015, CPI acquired ASC Signal Corporation for $50.4 million, excluding acquired cash and certain post-closing adjustments. The acquisition was funded using a combination of cash on hand and borrowings of $28.0 million under a new second-lien term loan facility.
Cash Flow
As of October 2, 2015, CPI’s cash and cash equivalents totaled $37.5 million, as compared to $50.6 million as of October 3, 2014. The acquisition of ASC Signal Corporation represented a significant use of CPI’s cash balances in fiscal 2015.
For fiscal 2015, CPI’s cash flow from operating activities totaled $20.6 million. Free cash flow for the period was $14.0 million. Adjusted free cash flow totaled $16.6 million.
Financial Community Conference Call
In conjunction with this announcement, CPI will hold a conference call on Friday, December 11, 2015 at 11:00 a.m. (EST) that will be broadcast simultaneously on the company’s Web site. To participate in this conference call, please dial (800) 649-5127, or (253) 237-1144 for international callers, enter conference ID 86349119 and ask for the CPI International Fiscal 2015 Financial Results Conference Call. To access the Web cast, please visit http://investor.cpii.com and click “Events.”
About CPI International Holding Corp.
CPI International Holding Corp., headquartered in Palo Alto, California, is the parent company of CPI International, Inc., which is the parent company of Communications & Power Industries LLC and Communications & Power Industries Canada Inc. Together, Communications & Power Industries LLC and Communications & Power Industries Canada Inc. develop, manufacture and globally distribute components and subsystems used in the generation, amplification, transmission and reception of microwave signals for a wide variety of systems including radar, electronic warfare and communications (satellite and point-to-point) systems for military and commercial applications, specialty products for medical diagnostic imaging and the treatment of cancer, as well as microwave and RF energy generating products for various industrial and scientific pursuits.




Non-GAAP Supplemental Information
EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow and adjusted free cash flow presented here are non-generally accepted accounting principles (GAAP) financial measures. EBITDA represents earnings before net interest expense, provision for income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA further adjusted to exclude certain non-recurring, non-cash, unusual or other 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. Adjusted free cash flow represents free cash flow further adjusted to exclude certain non-recurring, unusual or other items.
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 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 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 and adjusted free cash flow of other companies. Because EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow 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; our significant amount of debt; changes or reductions in the U.S. defense budget; currency fluctuations; goodwill impairment considerations; customer cancellations of sales contracts; U.S. Government contracts; export restrictions and other laws and regulations; international laws; changes in technology; the impact of unexpected costs; the impact of a general slowdown in the global economy; the impact of environmental or zoning 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.

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






CPI INTERNATIONAL HOLDING CORP.
and Subsidiaries




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
 
 
Three Months Ended
 
Twelve Months Ended
 
October 2,
2015
 
October 3,
2014
 
October 2,
2015
 
October 3,
2014
Sales
$
119,381

 
$
110,850

 
$
447,664

 
$
475,301

Cost of sales, including $150, $0, $150 and $1,539 of utilization of net increase in cost basis of inventory due to purchase accounting, respectively
85,103

 
77,804

 
322,081

 
336,679

Gross profit
34,278

 
33,046

 
125,583

 
138,622

Operating costs and expenses:
 

 
 
 
 

 
 
Research and development
3,560

 
4,139

 
14,930

 
15,825

Selling and marketing
5,521

 
5,887

 
22,539

 
23,542

General and administrative
8,295

 
9,618

 
31,529

 
32,545

Amortization of acquisition-related intangible assets
2,718

 
2,582

 
10,355

 
10,480

Total operating costs and expenses
20,094

 
22,226

 
79,353

 
82,392

Operating income
14,184

 
10,820

 
46,230

 
56,230

Interest expense, net
9,194

 
9,042

 
36,506

 
32,182

Loss on debt restructuring

 

 

 
7,235

Income before income taxes
4,990

 
1,778

 
9,724

 
16,813

Income tax expense
3,383

 
5,172

 
4,785

 
7,696

Net income (loss)
1,607

 
(3,394
)
 
4,939

 
9,117

 
 
 
 
 
 
 
 
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
Unrealized loss on cash flow hedges, net of tax
(580
)
 
(703
)
 
(1,268
)
 
(745
)
Unrealized actuarial (loss) gain and amortization of prior service cost for pension liability, net of tax
(74
)
 
6

 
(74
)
 
6

Total other comprehensive loss, net of tax
(654
)
 
(697
)
 
(1,342
)
 
(739
)
Comprehensive income (loss)
$
953

 
$
(4,091
)
 
$
3,597

 
$
8,378






CPI INTERNATIONAL HOLDING CORP.
and Subsidiaries




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

 
October 2,
2015
 
October 3,
2014
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
37,514

 
$
50,617

Restricted cash
1,681

 
1,798

Accounts receivable, net
61,750

 
43,920

Inventories
103,276

 
97,156

Deferred tax assets
8,461

 
8,070

Prepaid and other current assets
6,200

 
7,960

Total current assets
218,882

 
209,521

Property, plant, and equipment, net
78,592

 
76,659

Deferred debt issue costs, net
11,084

 
12,557

Intangible assets, net
263,273

 
248,838

Goodwill
215,434

 
197,681

Other long-term assets
3,333

 
1,072

Total assets
$
790,598

 
$
746,328

 
 
 
 
Liabilities and stockholders’equity
 

 
 

Current Liabilities:
 

 
 

Current portion of long-term debt
$
3,100

 
$
3,100

Accounts payable
30,349

 
25,565

Accrued expenses
44,196

 
31,328

Product warranty
5,304

 
4,863

Income taxes payable
1,154

 
1,048

Advance payments from customers
13,037

 
15,448

Total current liabilities
97,140

 
81,352

Deferred income taxes
99,507

 
94,835

Long-term debt, less current portion
540,850

 
514,938

Other long-term liabilities
6,384

 
13,059

Total liabilities
743,881

 
704,184

Commitments and contingencies
 

 
 

Stockholders’ equity:
 

 
 

Common stock ($0.01 par value, 2 shares authorized: 1 share issued and outstanding)

 

Additional paid-in capital
26,565

 
25,589

Accumulated other comprehensive loss
(1,995
)
 
(653
)
Retained earnings
22,147

 
17,208

Total stockholders’ equity
46,717

 
42,144

Total liabilities and stockholders’ equity
$
790,598

 
$
746,328






CPI INTERNATIONAL HOLDING CORP.
and Subsidiaries


CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 
Year Ended
 
October 2,
2015
 
October 3,
2014
Cash flows from operating activities
 
 
 
Net income
$
4,939

 
$
9,117

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
12,004

 
12,492

Amortization of intangible assets
11,315

 
11,458

Change in fair value of contingent consideration
2,100

 
3,300

Amortization of deferred debt issue costs
2,588

 
2,437

Amortization of discount on long-term debt
1,572

 
795

Utilization of net increase in cost basis of inventory due to purchase accounting
150

 
1,539

Non-cash loss on debt restructuring

 
3,850

Non-cash defined benefit pension income
(68
)
 
(48
)
Stock-based compensation expense
976

 
1,014

Allowance for (recovery of) doubtful accounts
612

 
(16
)
Deferred income taxes
(4,307
)
 
2,764

Net loss on the disposition of assets
171

 
175

Net gain on derivative contracts
(628
)
 
(27
)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
 

 
 

Restricted cash
117

 
773

Accounts receivable
(11,024
)
 
13,770

Inventories
3,703

 
198

Prepaid and other current assets
1,710

 
(1,191
)
Other long-term assets
59

 
(46
)
Accounts payable
(326
)
 
(2,811
)
Accrued expenses
(2,793
)
 
1,241

Product warranty
134

 
157

Income tax payable, net
1,774

 
(2,152
)
Advance payments from customers
(3,277
)
 
(2,548
)
Other long-term liabilities
(917
)
 
(2,604
)
Net cash provided by operating activities
$
20,584

 
$
53,637

 
 
 
 
Cash flows from investing activities
 

 
 

Capital expenditures
(6,535
)
 
(7,674
)
Acquisitions, net of cash acquired
(50,377
)
 
(36,776
)
Net cash used in investing activities
(56,912
)
 
(44,450
)
 
 
 
 
Cash flows from financing activities
 

 
 

Borrowings under Term Loans
27,440

 
309,225

Payment of debt issue costs
(1,115
)
 
(8,756
)
Payment of debt modification costs

 
(5,365
)
Repayment of borrowings under previous term loan facility

 
(144,175
)
Repayment of borrowings under First Lien Term Loan
(3,100
)
 
(1,550
)
Dividends paid

 
(175,000
)
Net cash provided by (used in) financing activities
23,225

 
(25,621
)
 
 
 
 
Net decrease in cash and cash equivalents
(13,103
)
 
(16,434
)
Cash and cash equivalents at beginning of period
50,617

 
67,051

Cash and cash equivalents at end of period
$
37,514

 
$
50,617

 
 
 
 
Supplemental cash flow disclosures
 

 
 

Cash paid for interest
$
32,343

 
$
28,319

Cash paid for income taxes, net of refunds
$
7,318

 
$
7,084

Unpaid purchase consideration
$
363

 
$

(Increase) decrease in accrued capital expenditures
$
(156
)
 
$
71






CPI INTERNATIONAL HOLDING CORP.
and Subsidiaries




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

 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
 
 
 
 
October 2,
2015
 
October 3,
2014
 
October 2,
2015
 
October 3,
2014
Net income (loss)
 
 
$
1,607

 
$
(3,394
)
 
$
4,939

 
$
9,117

Depreciation and amortization
 
5,779

 
5,894

 
23,319

 
23,950

Interest expense, net
 
9,194

 
9,042

 
36,506

 
32,182

Income tax expense
 
3,383

 
5,172

 
4,785

 
7,696

EBITDA
 
 
19,963

 
16,714

 
69,549

 
72,945

 
 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
Stock-based compensation expense
(1)
 
239

 
267

 
976

 
1,014

Acquisition-related expenses
(2)
 
2,219

 
2,861

 
6,042

 
4,177

Purchase accounting expenses
(3)
 
166

 

 
166

 
1,539

Veritas Capital annual management fee
(4)
 
663

 
608

 
2,411

 
2,698

Refinancing expenses
(5)
 

 
19

 

 
7,456

Total adjustments
 
 
3,287

 
3,755

 
9,595

 
16,884

Adjusted EBITDA
 
 
$
23,250

 
$
20,469

 
$
79,144

 
$
89,829

 
 
 
 
 
 
 
 
 
 
 
 
EBITDA margin
(6)
 
16.7
%
 
15.1
 %
 
15.5
%
 
15.3
%
Adjusted EBITDA margin
(7)
 
19.5
%
 
18.5
 %
 
17.7
%
 
18.9
%
Net income (loss) margin
(8)
 
1.3
%
 
(3.1
)%
 
1.1
%
 
1.9
%
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Represents compensation expense for Class B membership interests by certain members of management and independent directors in the company’s parent, CPI International Holding LLC.
(2)
Represents transaction costs related to the evaluation, negotiation, closing and integration of acquisitions. Costs include fees for attorneys and other professional services, expenses related to the integration of operations into those of CPI and charges for an increase in the fair value of the Radant Technologies contingent consideration liability.
(3)
Represents non-cash charges for utilization of the net increase in cost basis of inventory and net decrease in deferred revenue that resulted from purchase accounting in connection with acquisitions.
(4)
Represents a management fee payable to Veritas Capital for advisory and consulting services.
(5)
Represents expenses incurred in connection with the senior notes consent solicitation, entering into a new senior secured credit facility and the issuance of a special dividend, all of which were consummated in the company’s third quarter of fiscal year 2014.
(6)
Represents EBITDA divided by sales.
(7)
Represents adjusted EBITDA divided by sales.
(8)
Represents net income divided by sales.








CPI INTERNATIONAL HOLDING CORP.
and Subsidiaries




NON-GAAP SUPPLEMENTAL INFORMATION
Free Cash Flow and Adjusted Free Cash Flow
(All dollar amounts in thousands - unaudited)


 
 
 
 
 
Twelve Months Ended
 
 
 
 
 
October 2, 2015
Net cash provided by operating activities
 
 
$
20,584

Cash capital expenditures
 
 
(6,535
)
Free cash flow
 
 
14,049

 
 
 
 
 
 
Adjustments:
 
 
 
Cash paid for acquisition-related expenses, net of taxes
(1)
 
1,288

Cash paid for Veritas Capital management fee, net of taxes
(2)
 
1,701

Cash received for prior year transfer pricing audit
(3)
 
(449
)
Cash paid for refinancing expenses, net of taxes
(4)
 
6

Total adjustments
 
 
2,546

Adjusted free cash flow
 
 
$
16,595

 
 
 
 
 
 
Net income
 
 
$
4,939

 
 
 
(1)
Represents transaction costs, net of income taxes, related to the evaluation, negotiation, closing and integration of acquisitions. Costs include fees for attorneys and other professional services, as well as expenses related to integration of acquired operations into those of CPI.
(2)
Represents a management fee paid to Veritas Capital for advisory and consulting services, net of income taxes.
(3)
Represents the net of income tax refunds, partially offset by payments, with respect to an audit by the Canada Revenue Agency (“CRA”) of Communications & Power Industries Canada Inc.’s (“CPI Canada”) purchase of the Satcom Division from the Company in fiscal years 2001 and 2002. The Company determined that this item should be excluded from this calculation as it pertains to prior years.
(4)
Represents expenses, net of income taxes, incurred in connection with the senior notes consent solicitation, entering into a new senior secured credit facility and the issuance of a special dividend, all of which were consummated in CPI’s third quarter of fiscal year 2014.



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Ticker: CPIH
CIK: 1515003
Form Type: 8-K Corporate News
Accession Number: 0001515003-15-000047
Submitted to the SEC: Thu Dec 10 2015 4:41:56 PM EST
Accepted by the SEC: Thu Dec 10 2015
Period: Thursday, December 10, 2015
Industry: Electronic Components And Accessories
Events:
  1. Earnings Release
  2. Financial Exhibit

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