UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 2007
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-51928
CPI INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
75-3142681 |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
811 Hansen Way Palo Alto, California 94303-1110
(Address of Principal Executive Offices and Zip Code)
(650) 846-2900
(Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer x Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding for each of the registrants classes of Common Stock, as of the latest practicable date: 16,454,498 shares of Common Stock, $0.01 par value, at January 29, 2008.
CPI INTERNATIONAL, INC.
and Subsidiaries
10-Q REPORT
INDEX
2
CPI INTERNATIONAL, INC.
and Subsidiaries
Cautionary Statements Regarding Forward-Looking Statements
This document contains 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, that relate to future events or our future financial performance. In some cases, readers can identify forward-looking statements by terminology such as may, will, should, expect, plan, anticipate, believe, estimate, predict, potential or continue, the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from the results projected, expected or implied by the forward-looking statements. These risk factors include, without limitation, competition in our end markets; 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. All written and oral forward-looking statements made in connection with this report that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing risk factors and other cautionary statements included herein and in our other filings with the Securities and Exchange Commission (SEC). We are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations.
The information in this report is not a complete description of our business or the risks and uncertainties associated with an investment in our securities. You should carefully consider the various risks and uncertainties that impact our business and the other information in this report and in our other filings with the SEC before you decide to invest in our securities or to maintain or increase your investment.
3
CPI INTERNATIONAL, INC.
and Subsidiaries
(In thousands, except per share data unaudited)
|
|
December 28, |
|
September 28, |
|
||
|
|
2007 |
|
2007 |
|
||
Assets |
|
|
|
|
|
||
Current Assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
27,410 |
|
$ |
20,474 |
|
Restricted cash |
|
2,455 |
|
2,255 |
|
||
Accounts receivable, net |
|
45,946 |
|
52,589 |
|
||
Inventories |
|
69,183 |
|
67,447 |
|
||
Deferred tax assets |
|
9,803 |
|
9,744 |
|
||
Prepaid and other current assets |
|
3,961 |
|
4,639 |
|
||
Total current assets |
|
158,758 |
|
157,148 |
|
||
Property, plant, and equipment, net |
|
65,894 |
|
66,048 |
|
||
Deferred debt issue costs, net |
|
6,230 |
|
6,533 |
|
||
Intangible assets, net |
|
81,045 |
|
81,743 |
|
||
Goodwill |
|
161,548 |
|
161,573 |
|
||
Other long-term assets |
|
3,172 |
|
3,177 |
|
||
Total assets |
|
$ |
476,647 |
|
$ |
476,222 |
|
|
|
|
|
|
|
||
Liabilities and stockholders equity |
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
||
Current portion of long-term debt |
|
$ |
250 |
|
$ |
1,000 |
|
Accounts payable |
|
22,106 |
|
21,794 |
|
||
Accrued expenses |
|
29,007 |
|
26,349 |
|
||
Product warranty |
|
5,376 |
|
5,578 |
|
||
Income taxes payable |
|
7,952 |
|
8,748 |
|
||
Advance payments from customers |
|
9,798 |
|
12,132 |
|
||
Total current liabilities |
|
74,489 |
|
75,601 |
|
||
Deferred income taxes |
|
27,395 |
|
28,394 |
|
||
Long-term debt, less current portion |
|
245,321 |
|
245,567 |
|
||
Other long-term liabilities |
|
1,578 |
|
754 |
|
||
Total liabilities |
|
348,783 |
|
350,316 |
|
||
Commitments and contingencies |
|
|
|
|
|
||
Stockholders equity |
|
|
|
|
|
||
Common stock ($0.01 par value, 90,000 shares authorized; 16,441 and 16,370 shares issued and outstanding) |
|
164 |
|
164 |
|
||
Additional paid-in capital |
|
69,412 |
|
68,763 |
|
||
Accumulated other comprehensive (loss) income |
|
(264 |
) |
937 |
|
||
Retained earnings |
|
58,552 |
|
56,042 |
|
||
Total stockholders equity |
|
127,864 |
|
125,906 |
|
||
Total liabilities and stockholders equity |
|
$ |
476,647 |
|
$ |
476,222 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CPI INTERNATIONAL, INC.
and Subsidiaries
(In thousands, except per share data unaudited)
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
Sales |
|
$ |
85,910 |
|
$ |
83,723 |
|
Cost of sales |
|
61,774 |
|
57,142 |
|
||
Gross profit |
|
24,136 |
|
26,581 |
|
||
Operating costs and expenses: |
|
|
|
|
|
||
Research and development |
|
2,724 |
|
1,891 |
|
||
Selling and marketing |
|
5,172 |
|
4,829 |
|
||
General and administrative |
|
6,153 |
|
4,404 |
|
||
Amortization of acquisition-related intangible assets |
|
781 |
|
548 |
|
||
Net loss on disposition of fixed assets |
|
34 |
|
18 |
|
||
Total operating costs and expenses |
|
14,864 |
|
11,690 |
|
||
Operating income |
|
9,272 |
|
14,891 |
|
||
Interest expense, net |
|
4,812 |
|
5,339 |
|
||
Income before income taxes |
|
4,460 |
|
9,552 |
|
||
Income tax expense |
|
1,950 |
|
3,717 |
|
||
Net income |
|
$ |
2,510 |
|
$ |
5,835 |
|
|
|
|
|
|
|
||
Other comprehensive income, net of tax |
|
|
|
|
|
||
Net unrealized loss on cash flow hedges |
|
(1,201 |
) |
(389 |
) |
||
Comprehensive income |
|
$ |
1,309 |
|
$ |
5,446 |
|
|
|
|
|
|
|
||
Earnings per share - Basic |
|
$ |
0.15 |
|
$ |
0.36 |
|
Earnings per share - Diluted |
|
$ |
0.14 |
|
$ |
0.33 |
|
|
|
|
|
|
|
||
Shares used to compute earnings per share - Basic |
|
16,371 |
|
16,063 |
|
||
Shares used to compute earnings per share - Diluted |
|
17,832 |
|
17,544 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
CPI INTERNATIONAL, INC.
and Subsidiaries
(In thousands unaudited)
|
|
Quarter Ended |
|
||||
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Cash flows from operating activities |
|
|
|
|
|
||
Net cash provided by operating activities |
|
$ |
9,560 |
|
$ |
10,042 |
|
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
||
Capital expenditures |
|
(1,687 |
) |
(2,871 |
) |
||
Payment of patent application fees |
|
(147 |
) |
|
|
||
Net cash used in investing activities |
|
(1,834 |
) |
(2,871 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities |
|
|
|
|
|
||
Repayments of debt |
|
(1,000 |
) |
(5,000 |
) |
||
Proceeds from issuance of common stock to employees |
|
210 |
|
197 |
|
||
Proceeds from exercise of stock options |
|
|
|
66 |
|
||
Excess tax benefit on stock option exercises |
|
|
|
42 |
|
||
Net cash used in financing activities |
|
(790 |
) |
(4,695 |
) |
||
|
|
|
|
|
|
||
Net increase in cash and cash equivalents |
|
6,936 |
|
2,476 |
|
||
Cash and cash equivalents at beginning of period |
|
20,474 |
|
30,153 |
|
||
Cash and cash equivalents at end of period |
|
$ |
27,410 |
|
$ |
32,629 |
|
|
|
|
|
|
|
||
Supplemental cash flow disclosures |
|
|
|
|
|
||
Cash paid for interest |
|
$ |
155 |
|
$ |
961 |
|
Cash paid for income taxes, net of refunds |
|
$ |
2,533 |
|
$ |
5,150 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
1. The Company and a Summary of its Significant Accounting Policies
The Company
Unless the context otherwise requires, CPI International means CPI International, Inc., and CPI means Communications & Power Industries, Inc. CPI is a direct subsidiary of CPI International. CPI International is a holding company with no operations of its own. The term the Company refers to CPI International and its direct and indirect subsidiaries on a consolidated basis.
The accompanying consolidated financial statements represent the consolidated results and financial position of CPI International, which is controlled by affiliates of The Cypress Group L.L.C. (Cypress). CPI International, through its wholly owned subsidiary, CPI, develops, manufactures, and distributes microwave and power grid Vacuum Electron Devices (VEDs), microwave amplifiers, modulators and various other power supply equipment and devices. The Company has two reportable segments, VED and satcom equipment.
Basis of Presentation and Consolidation
The Companys fiscal year is the 52- or 53-week period that ends on the Friday nearest September 30. Fiscal year 2008 comprises the 53-week period ending October 3, 2008 and fiscal year 2007 comprised the 52-week period ending September 28, 2007. The first quarters of fiscal years 2008 and 2007 both include 13 weeks. All period references are to the Companys fiscal periods unless otherwise indicated.
The accompanying unaudited condensed consolidated financial statements of the Company as of December 28, 2007 and for the first quarter of fiscal year 2008 are unaudited and reflect all normal recurring adjustments which are, in the opinion of management, necessary for the fair statement of such financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended September 28, 2007. The condensed consolidated balance sheet as of September 28, 2007 has been derived from the audited financial statements at that date. The results of operations for the interim period ended December 28, 2007 are not necessarily indicative of results to be expected for the full year.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances, transactions, and stockholdings have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and costs and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to provision for revenue recognition; inventory and inventory reserves; product warranty; business combinations; recoverability and valuation of recorded amounts of long-lived assets and identifiable intangible assets, including goodwill; recognition of share-based compensation; and recognition and
7
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
measurement of current and deferred income tax assets and liabilities. The Company bases its estimates on various factors and information, which may include, but are not limited to, history and prior experience, experience of other enterprises in the same industry, new related events, current economic conditions and information from third party professionals that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
Sales are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. The Companys products are generally subject to warranties, and the Company provides for the estimated future costs of repair, replacement or customer accommodation in cost of sales.
The Company has commercial and U.S. Government fixed-price contracts that are accounted for under American Institute of Certified Public Accountants Statement of Position No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. These contracts are generally longer than one year in duration and include a material amount of product development. The Company uses the percentage-of-completion method when reasonably dependable estimates of the extent of progress toward completion, contract revenues and contract costs can be made. The portion of revenue earned or the amount of gross profit earned for a period is determined by measuring the extent of progress toward completion using total cost incurred to date and estimated costs at contract completion.
2. Recently Issued Accounting Standards
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48, Accounting for Income Tax Uncertainties. FIN No. 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as more-likely-than-not to be sustained by the taxing authority. The recently issued literature also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN No. 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties. Effective in the first quarter of fiscal year 2008 starting September 29, 2007, the Company adopted FIN No. 48. The adoption of FIN No. 48 did not have any impact on the Companys financial position, net earnings or prior year financial statements. See Note 9, Income Taxes, for further discussion.
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under other accounting pronouncements that permit or require fair value measurements, changes the methods used to measure fair value and expands disclosures about fair value measurements. In particular, disclosures are required to provide information on: the extent to which fair value is used to measure assets and liabilities; the inputs used to develop measurements; and the effect of certain of the measurements on earnings (or changes in net assets). SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 for financial assets and liabilities and for fiscal years beginning after November 15, 2008 for non-financial assets and liabilities. Early adoption, as of the beginning of an entitys fiscal year, is also
8
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
permitted, provided interim financial statements have not yet been issued. The Company will be required to adopt SFAS No. 157 in its fiscal year 2009 commencing October 4, 2008 for financial assets and liabilities and in its fiscal year 2010 commencing October 2, 2009 for non-financial assets and liabilities. The Company is currently evaluating the potential impact, if any, that the adoption of this new standard will have on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115. SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of SFAS No. 159 is to provide opportunities to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company will be required to adopt SFAS No. 159 in its fiscal year 2009 commencing October 4, 2008 and is currently evaluating the impact, if any, that the adoption of this new standard will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementamendments of ARB No. 51. SFAS No. 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company will be required to adopt SFAS No. 160 in its fiscal year 2010 commencing October 3, 2009 and is currently evaluating the impact, if any, that the adoption of this new standard will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS No. 141(R)), Business Combinations, which replaces SFAS No. 141. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008. The Company will be required to adopt SFAS No. 141(R) in its fiscal year 2010 commencing October 3, 2009 and is currently evaluating the impact, if any, that the adoption of this new standard will have on its consolidated financial statements.
9
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
3. Supplemental Balance Sheet Information
Accounts Receivable: Accounts receivable are stated net of allowances for doubtful accounts as follows:
|
|
December 28, |
|
September 28, |
|
||
|
|
2007 |
|
2007 |
|
||
Accounts receivable |
|
$ |
46,197 |
|
$ |
52,678 |
|
Less: Allowance for doubtful accounts |
|
(251 |
) |
(89 |
) |
||
Accounts receivable, net |
|
$ |
45,946 |
|
$ |
52,589 |
|
Inventories: The following table provides details of inventories, net of reserves:
|
|
December 28, |
|
September 28, |
|
||
|
|
2007 |
|
2007 |
|
||
Raw material and parts |
|
$ |
37,964 |
|
$ |
40,725 |
|
Work in process |
|
19,934 |
|
18,168 |
|
||
Finished goods |
|
11,285 |
|
8,554 |
|
||
|
|
$ |
69,183 |
|
$ |
67,447 |
|
Reserve for excess, slow moving and obsolete inventory: The following table summarizes the activity related to reserves for excess, slow moving and obsolete inventory during the first quarter of fiscal years 2008 and 2007:
|
|
Quarter Ended |
|
||||
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
Balance at beginning of period |
|
$ |
9,784 |
|
$ |
8,822 |
|
Inventory provision, charged to cost of sales |
|
200 |
|
307 |
|
||
Inventory write-offs |
|
(33 |
) |
(60 |
) |
||
Balance at end of period |
|
$ |
9,951 |
|
$ |
9,069 |
|
Reserve for loss contracts: The following table summarizes the activity related to reserves for loss contracts during the first quarter of fiscal years 2008 and 2007:
|
|
Quarter Ended |
|
||||
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
Balance at beginning of period |
|
$ |
2,700 |
|
$ |
1,702 |
|
Provision for loss contracts, charged to cost of sales |
|
746 |
|
149 |
|
||
Reduction upon revenue recognition |
|
(1,012 |
) |
(282 |
) |
||
Balance at end of period |
|
$ |
2,434 |
|
$ |
1,569 |
|
10
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Reserve for loss contracts are reported in the condensed consolidated balance sheet in the following accounts:
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
Inventories |
|
$ |
1,342 |
|
$ |
1,207 |
|
Accrued expenses |
|
1,092 |
|
362 |
|
||
|
|
$ |
2,434 |
|
$ |
1,569 |
|
Intangible Assets: The following tables present the details of the Companys total acquisition-related intangible assets:
|
|
Weighted Average |
|
December28, 2007 |
|
September 28, 2007 |
|
||||||||||||||
|
|
|
Cost |
|
Accumulated |
|
Net |
|
Cost |
|
Accumulated |
|
Net |
|
|||||||
VED Core Technology |
|
50 |
|
$ |
30,700 |
|
$ |
(2,426 |
) |
$ |
28,274 |
|
$ |
30,700 |
|
$ |
(2,273 |
) |
$ |
28,427 |
|
VED Application Technology |
|
25 |
|
19,800 |
|
(3,119 |
) |
16,681 |
|
19,800 |
|
(2,921 |
) |
16,879 |
|
||||||
X-ray Generator and Satcom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Application Technology |
|
15 |
|
8,000 |
|
(2,107 |
) |
5,893 |
|
8,000 |
|
(1,974 |
) |
6,026 |
|
||||||
Antenna and Telemetry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Technology |
|
25 |
|
5,300 |
|
(82 |
) |
5,218 |
|
5,300 |
|
(29 |
) |
5,271 |
|
||||||
Customer backlog |
|
1 |
|
580 |
|
(223 |
) |
357 |
|
580 |
|
(78 |
) |
502 |
|
||||||
Land lease |
|
46 |
|
11,810 |
|
(991 |
) |
10,819 |
|
11,810 |
|
(928 |
) |
10,882 |
|
||||||
Tradename |
|
Indefinite |
|
7,600 |
|
|
|
7,600 |
|
7,600 |
|
|
|
7,600 |
|
||||||
Customer list and programs |
|
25 |
|
6,280 |
|
(751 |
) |
5,529 |
|
6,280 |
|
(684 |
) |
5,596 |
|
||||||
Noncompete agreement |
|
5 |
|
640 |
|
(112 |
) |
528 |
|
640 |
|
(80 |
) |
560 |
|
||||||
Patent application fees |
|
|
|
146 |
|
|
|
146 |
|
|
|
|
|
|
|
||||||
|
|
|
|
$ |
90,856 |
|
$ |
(9,811 |
) |
$ |
81,045 |
|
$ |
90,710 |
|
$ |
(8,967 |
) |
$ |
81,743 |
|
Intangible assets, net as of December 28, 2007 include a total of approximately $0.1 million of application costs and associated legal costs incurred to obtain certain patents. Upon obtaining these patents, they will be amortized on a straight-line basis and charged to operations over their estimated useful lives, not to exceed 17 years.
The amortization of intangible assets amounted to $0.8 million and $0.5 million for the first quarter of fiscal years 2008 and 2007, respectively.
The estimated future amortization expense of intangible assets, excluding the Companys unamortized tradenames, is as follows:
11
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Fiscal Year |
|
Amount |
|
||
2008 (remaining nine months) |
|
$ |
2,462 |
|
|
2009 |
|
2,808 |
|
||
2010 |
|
2,786 |
|
||
2011 |
|
2,786 |
|
||
2012 |
|
2,771 |
|
||
Thereafter |
|
59,832 |
|
||
|
|
$ |
73,445 |
|
|
Goodwill: The following table sets forth the changes in goodwill by reportable segment during the first quarter of fiscal year 2008:
|
|
Reportable Segments |
|
|
|
||||||||
|
|
VED |
|
Satcom |
|
Other |
|
Total |
|
||||
Balance at September 28, 2007 |
|
$ |
132,897 |
|
$ |
13,830 |
|
$ |
14,846 |
|
$ |
161,573 |
|
Other |
|
|
|
|
|
(25 |
) |
(25 |
) |
||||
Balance at December 29, 2007 |
|
$ |
132,897 |
|
$ |
13,830 |
|
$ |
14,821 |
|
$ |
161,548 |
|
Other represents tax benefit from amortization expense for the second component of tax goodwill.
Product Warranty: The following table summarizes the activity related to product warranty during fiscal years 2007 and 2006:
|
|
Quarter Ended |
|
||||
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
Beginning accrued warranty |
|
$ |
5,578 |
|
$ |
5,958 |
|
Estimates for product warranty, charged to cost of sales |
|
872 |
|
1,211 |
|
||
Actual costs of warranty claims |
|
(1,074 |
) |
(1,327 |
) |
||
Ending accrued warranty |
|
$ |
5,376 |
|
$ |
5,842 |
|
4. Acquisition
Malibu Research Associates
On August 10, 2007, the Company completed its acquisition of all outstanding common stock of the privately held Malibu Research Associates, Inc. (Malibu). Malibu, headquartered in Camarillo, California, is a designer, manufacturer and integrator of advanced antenna systems for radar, radar simulators and telemetry systems, as well as for data links used in ground, airborne, unmanned aerial vehicles (UAV) and shipboard systems. Under the terms of the purchase agreement, the Company paid cash of approximately $22.4 million, which included $2.3 million and $1.0 million placed into indemnity and working capital escrow accounts, respectively. The indemnity escrow amount was provided to ensure funds are available to satisfy potential indemnification claims asserted prior to January 1, 2009, and the working capital escrow amount was provided to satisfy any negative differences between the target working capital amount and the actual working capital amount at the acquisition closing date. The Company expects that the working capital calculations will be finalized during fiscal year 2008.
12
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Additionally, the Company may be required to pay a potential earnout to the former stockholders of Malibu of up to $14.0 million, which is primarily contingent upon the achievement of certain financial objectives over the three years following the acquisition; and a discretionary earnout of up to $1.0 million contingent upon achievement of certain succession planning goals by June 30, 2010. As of December 28, 2007, the Company has not accrued any of these contingent earnout amounts as achievement of the objectives and goals has not occurred. Any earnout consideration paid based on financial performance will be recorded as additional goodwill. Any discretionary succession earnout consideration paid will be recorded as general and administrative expense.
Under the purchase method of accounting, the assets and liabilities of Malibu were adjusted to their fair values and the excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The allocation of the purchase price to specific assets and liabilities was based, in part, upon internal estimates of cash flow and recoverability. The valuation of identifiable intangible assets acquired was based on managements estimates, currently available information and reasonable and supportable assumptions. This purchase price allocation was generally based on the fair value of these assets determined using the income approach.
The following table summarizes the allocation of the fair value of the Malibus assets acquired and liabilities assumed:
Net current liabilities |
|
$ |
(3,938 |
) |
Property, plant and equipment |
|
719 |
|
|
Deferred tax liabilities |
|
(703 |
) |
|
Identifiable intangible assets |
|
8,790 |
|
|
Goodwill |
|
14,856 |
|
|
|
|
$ |
19,724 |
|
For financial reporting purposes, consideration of approximately $2.6 million, which is included in the initial cash consideration paid for Malibu, is excluded from the purchase price allocation above and is reported as other long-term assets in the consolidated balance sheet at December 28, 2007 and September 28, 2007. This consideration amount represents the difference between the Companys initial calculation of the target working capital amount and actual working capital amount as of the acquisition closing date. In accordance with SFAS No. 141, any contingent consideration that has not been determined beyond a reasonable doubt is excluded from the purchase price allocation until the contingency is resolved. The Company intends to make a claim against the working capital escrow account of $1.0 million and, if necessary, the indemnity escrow account of $2.3 million to recover the working capital shortfall once the amount of such shortfall has been finally determined.
13
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
The following table presents details of the purchased intangible assets acquired:
|
|
Weighted Average Useful |
|
Amount |
|
|
Non compete agreements |
|
5 |
|
$ |
530 |
|
Tradename |
|
Indefinite |
|
1,800 |
|
|
Antenna and Telemetry technology |
|
25 |
|
5,300 |
|
|
Backlog |
|
1 |
|
580 |
|
|
Customer relationships |
|
15 |
|
580 |
|
|
|
|
|
|
$ |
8,790 |
|
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and indefinite lived intangibles will not be amortized but will be tested for impairment at least annually.
The Companys consolidated financial statements include Malibus financial results from the acquisition date.
Pro Forma Results
Pro forma information giving effect to the Malibu acquisition has not been presented because the pro forma information would not differ materially from the historical results of the Company.
5. Long-Term Debt
Long-term debt comprises the following:
|
|
December 28, |
|
September 28, |
|
||
|
|
2007 |
|
2007 |
|
||
Term loan, expiring 2014 |
|
$ |
98,750 |
|
$ |
99,750 |
|
8% Senior subordinated notes due 2012 |
|
125,000 |
|
125,000 |
|
||
Floating rate senior notes due 2015, net |
|
|
|
|
|
||
of issue discount of $179 and $183 |
|
21,821 |
|
21,817 |
|
||
|
|
245,571 |
|
246,567 |
|
||
Less: Current portion |
|
250 |
|
1,000 |
|
||
Long-term portion |
|
$ |
245,321 |
|
$ |
245,567 |
|
Standby letters of credit |
|
$ |
4,029 |
|
$ |
3,725 |
|
Senior Credit Facilities: On August 1, 2007, CPI amended and restated its then existing senior credit facilities. The amended and restated senior credit facilities (the Senior Credit Facilities) provide for borrowings of up to an aggregate principal amount of $160 million, consisting of a $100 million term loan facility (Term Loan) and a $60 million revolving credit facility (Revolver), with a sub-facility of $15 million for letters of credit and $5 million for swing line loans. Upon certain specified conditions, including maintaining a senior secured leverage ratio of 3.75:1 or less on a pro forma basis, CPI may seek commitments for a new class of term loans, not to exceed $125 million in the aggregate. The Senior Credit Facilities are guaranteed by CPI International and all of CPIs domestic subsidiaries and are secured by substantially all of the assets of CPI International, CPI and CPIs domestic subsidiaries.
14
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Except as provided in the following sentence, the Term Loan will mature on August 1, 2014 and the Revolver will mature on August 1, 2013. However, if, prior to August 1, 2011, CPI has not repaid or refinanced its $125 million 8% Senior Subordinated Notes due 2012, both the Term Loan and the Revolver will mature on August 1, 2011.
The Senior Credit Facilities replaced CPIs previous senior credit facilities of $130 million. On the closing date of the Senior Credit Facilities, CPI borrowed $100 million under the Term Loan. Borrowings under the Senior Credit Facilities bear interest at a rate equal to, at CPIs option, LIBOR or the ABR plus the applicable margin. The ABR is the greater of the (a) the prime rate and (b) the federal funds rate plus 0.50%. For Term Loans, the applicable margin will be 2.00% for LIBOR borrowings and 1.00% for ABR borrowings. The applicable margins under the Revolver vary depending on CPIs leverage ratio, as defined in the Senior Credit Facilities, and range from 1.25% to 2.00% for LIBOR borrowings and from 0.25% to 1.00% for ABR borrowings.
In addition to customary fronting and administrative fees under the Senior Credit Facilities, CPI will pay letter of credit participation fees equal to the applicable LIBOR margin per annum on the average daily amount of the letter of credit exposure, and a commitment fee on the average daily unused commitments under the Revolver. The commitment fee will vary depending on CPIs leverage ratio, as defined in the Senior Credit Facilities, and will range from 0.25% to 0.50%.
The Senior Credit Facilities require that CPI repay $250,000 of the Term Loan at the end of each fiscal quarter prior to the maturity date of the Term Loan, with the remainder due on the maturity date. CPI is required to prepay its outstanding loans under the Senior Credit Facilities, subject to certain exceptions and limitations, with net cash proceeds received from certain events, including, without limitation (1) all such proceeds received from certain asset sales by CPI International, CPI or any of CPIs subsidiaries, (2) all such proceeds received from issuances of debt (other than certain specified permitted debt) or preferred stock by CPI International, CPI or any of CPIs subsidiaries, and (3) all such proceeds paid to CPI International, CPI or any of CPIs subsidiaries from casualty and condemnation events in excess of amounts applied to replace, restore or reinvest in any properties for which proceeds were paid within a specified period.
If CPIs leverage ratio, as defined in the Senior Credit Facilities, exceeds 3.5:1 at the end of any fiscal year, CPI will also be required to make an annual prepayment within 90 days after the end of such fiscal year equal to 50% of excess cash flow, as defined in the Senior Credit Facilities, less optional prepayments made during the fiscal year. CPI can make optional prepayments on the outstanding loans at any time without premium or penalty, except for customary breakage costs with respect to LIBOR loans.
The Senior Credit Facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, the ability of CPI International, CPI or any of CPIs subsidiaries to: sell assets; engage in mergers and acquisitions; pay dividends and distributions or repurchase their capital stock; incur additional indebtedness or issue equity interests; make investments and loans; create liens or further negative pledges on assets; engage in certain transactions with affiliates; enter into sale and leaseback transactions; amend agreements or make prepayments relating to subordinated indebtedness; and amend or waive provisions of charter documents in a manner materially adverse to the lenders. CPI and its subsidiaries must comply with a maximum capital expenditure limitation and a maximum total secured leverage ratio, each calculated on a consolidated basis for CPI.
15
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
CPI made repayments on the Term Loan of $1.0 million during the first quarter of fiscal year 2008 and $250,000 during the fourth quarter of fiscal year 2007, leaving a principal balance of $98.75 million as of December 28, 2007. The $1.0 million Term Loan repayment during the first quarter of fiscal year 2008 comprised the scheduled amortization payment of $250,000 and an optional payment of $750,000. The optional payment will be applied against the scheduled amortization payments due for the second, third and fourth quarters of fiscal year 2008.
At December 28, 2007, the amount available for borrowing under the Revolver, after taking into account the Companys outstanding letters of credit of $4.0 million, was approximately $56.0 million.
8% Senior Subordinated Notes due 2012 of CPI: As of December 28, 2007, CPI had $125.0 million in aggregate principal amount of its 8% Senior Subordinated Notes due 2012 (the 8% Notes). The 8% Notes have no sinking fund requirements.
The 8% Notes bear interest at the rate of 8.0% per year, payable on February 1 and August 1 of each year. The 8% Notes will mature on February 1, 2012. The 8% Notes are unsecured obligations, jointly and severally guaranteed by CPI International and each of CPIs domestic subsidiaries. The payment of all obligations relating to the 8% Notes are subordinated in right of payment to the prior payment in full in cash or cash equivalents of all senior debt (as defined in the indenture governing the 8% Notes) of CPI, including debt under the Senior Credit Facilities. Each guarantee of the 8% Notes is and will be subordinated to guarantor senior debt (as defined in the indenture governing the 8% Notes) on the same basis as the 8% Notes are subordinated to CPIs senior debt.
At any time or from time to time on or after February 1, 2008, CPI, at its option, may redeem the 8% Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below, together with accrued and unpaid interest thereon, if any, to the redemption date, if redeemed during the 12-month period beginning on February 1 of the years indicated below:
Year |
|
Optional |
|
2008 |
|
104 |
% |
2009 |
|
102 |
% |
2010 and thereafter |
|
100 |
% |
|
|
|
|
Upon a change of control, CPI may be required to purchase all or any part of the 8% Notes for a cash price equal to 101% of the principal amount, plus accrued and unpaid interest thereon, if any, to the date of purchase.
The indenture governing the 8% Notes contains a number of covenants that, among other things, restrict, subject to certain exceptions, the ability of CPI and its restricted subsidiaries (as defined in the indenture governing the 8% Notes) to incur additional indebtedness, sell assets, consolidate or merge with or into other companies, pay dividends or repurchase or redeem capital stock or subordinated indebtedness, make certain investments, issue capital stock of their subsidiaries, incur liens and enter into certain types of transactions with their affiliates.
16
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Events of default under the indenture governing the 8% Notes include: failure to make payments on the 8% Notes when due; failure to comply with covenants in the indenture governing the 8% Notes; a default under certain other indebtedness of CPI or any of its restricted subsidiaries that is caused by a failure to make payments on such indebtedness or that results in the acceleration of the maturity of such indebtedness; the existence of certain final judgments or orders against CPI or any of the restricted subsidiaries; and the occurrence of certain insolvency or bankruptcy events.
Floating Rate Senior Notes due 2015 of CPI International: As of December 28, 2007, CPI International had $22 million in aggregate principal amount of its Floating Rate Senior Notes due 2015 (the FR Notes). The FR Notes were issued at a 1% discount. The FR Notes have no sinking fund requirements.
The FR Notes require interest payments at an annual interest rate, reset at the beginning of each semi-annual period, equal to the then six-month LIBOR plus 5.75%, payable semiannually on February 1 and August 1 of each year. The interest rate on the semi-annual interest payment due February 1, 2008 is approximately 11.0625% per annum. CPI International may, at its option, elect to pay interest through the issuance of additional FR Notes for any interest payment date on or after August 1, 2006 and on or before February 1, 2010. If CPI International elects to pay interest through the issuance of additional FR Notes, the annual interest rate on the FR Notes will increase by an additional 1% step-up, with the step-up increasing by an additional 1% for each interest payment made through the issuance of additional FR Notes (up to a maximum of 4%). The FR Notes will mature on February 1, 2015.
The FR Notes are general unsecured obligations of CPI International. The FR Notes are not guaranteed by any of CPI Internationals subsidiaries but are structurally subordinated to all existing and future indebtedness and other liabilities of CPI Internationals subsidiaries. The FR Notes are senior in right of payment to CPI Internationals existing and future indebtedness that is expressly subordinated to the FR Notes.
Because CPI International is a holding company with no operations of its own, CPI International relies on distributions from Communications & Power Industries to satisfy its obligations under the FR Notes. The Senior Credit Facilities and the indenture governing the 8% Notes restrict CPIs ability to make distributions to CPI International. The Senior Credit Facilities prohibit CPI from making distributions to CPI International unless there is no default under the Senior Credit Facilities and CPI satisfies a senior secured leverage ratio of 3.75:1, and in the case of distributions to pay amounts other than interest on the FR Notes, the amount of the distribution and all prior such distributions do not exceed a specified amount. The indenture governing the 8% Notes prohibits CPI from making distributions to CPI International unless, among other things, there is no default under the indenture and the amount of the proposed dividend plus all previous Restricted Payments (as defined in the indenture governing the 8% Notes) does not exceed a specified amount.
17
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
At any time or from time to time on or after February 1, 2007, CPI International, at its option, may redeem the FR Notes in whole or in part at the redemption prices (expressed as percentages of principal amount) set forth below, together with accrued and unpaid interest thereon, if any, to the redemption date, if redeemed during the 12-month period beginning on February 1 of the years indicated below:
Year |
|
Optional |
|
2007 |
|
103 |
% |
2008 |
|
102 |
% |
2009 |
|
101 |
% |
2010 and thereafter |
|
100 |
% |
Upon a change of control, as defined in the indenture governing the FR Notes, CPI International may be required to purchase all or any part of the outstanding FR Notes for a cash price equal to 101% of the principal amount, plus accrued and unpaid interest thereon, if any, to the date of purchase.
The indenture governing the FR Notes contains certain covenants that, among other things, limit the ability of CPI International and its restricted subsidiaries (as defined in the indenture governing the FR Notes) to incur additional indebtedness, sell assets, consolidate or merge with or into other companies, pay dividends or repurchase or redeem capital stock or subordinated indebtedness, make certain investments, issue capital stock of their subsidiaries, incur liens and enter into certain types of transactions with their affiliates.
Events of default under the indenture governing the FR Notes include: failure to make payments on the FR Notes when due; failure to comply with covenants in the indenture governing the FR Notes; a default under certain other indebtedness of CPI International or any of its restricted subsidiaries that is caused by a failure to make payments on such indebtedness or that results in the acceleration of the maturity of such indebtedness; the existence of certain final judgments or orders against CPI International or any of the restricted subsidiaries; and the occurrence of certain insolvency or bankruptcy events.
Debt Maturities: As of December 28, 2007, maturities on long-term debt were as follows:
Fiscal Year |
|
Term |
|
8% Senior |
|
Floating Rate |
|
Total |
|
||||
2008 (remaining nine months) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
2009 |
|
1,000 |
|
|
|
|
|
1,000 |
|
||||
2010 |
|
1,000 |
|
|
|
|
|
1,000 |
|
||||
2011 |
|
96,750 |
|
|
|
|
|
96,750 |
|
||||
2012 |
|
|
|
125,000 |
|
|
|
125,000 |
|
||||
Thereafter |
|
|
|
|
|
22,000 |
|
22,000 |
|
||||
|
|
$ |
98,750 |
|
$ |
125,000 |
|
$ |
22,000 |
|
$ |
245,750 |
|
The above table assumes (1) that the respective debt instruments will be outstanding until their scheduled maturity dates, except for the Term Loan under the Senior Credit Facilities, which is assumed to mature on the earlier date of August 1, 2011 as described above under Senior Credit Facilities, and (2) a debt level based on mandatory repayments according to the contractual amortization schedule. The above table also excludes any optional prepayments.
18
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
As of December 28, 2007, the Company was in compliance with the covenants under the indentures governing the 8% Notes and FR Notes and the agreements governing the Senior Credit Facilities, and the Company expects to remain in compliance with those covenants throughout the remainder of fiscal year 2008.
Interest rate swap agreements: See Note 6 for information on the interest rate swap agreements entered into by the Company to hedge the interest rate exposure associated with the Term Loan.
6. Derivative Financial Instruments
The Company uses forward exchange contracts to hedge the foreign currency exposure associated with forecasted manufacturing costs in Canada. As of December 28, 2007, the Company had outstanding forward contract commitments to purchase Canadian dollars for an aggregate U.S. notional amount of $19.1 million; the last forward contract expires on June 23, 2008. At December 28, 2007 and September 28, 2007, the fair value of foreign currency forward contracts was a net asset of $0.7 million and $1.3 million, respectively, and the unrealized gain, net of related tax expense, was $0.8 million and $1.2 million, respectively.
The Companys foreign currency forward contracts are designated as a cash flow hedge and are considered highly effective, as defined by SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The unrealized gains and losses from foreign exchange forward contracts are included in accumulated other comprehensive income in the condensed consolidated balance sheets, and the Company anticipates recognizing the entire unrealized gain in operating earnings within the next 12 months. Changes in the fair value of foreign currency forward contracts due to changes in time value are excluded from the assessment of effectiveness, and are immediately recognized in general and administrative in the consolidated statements of operations. The time value was not material for the first quarter of fiscal years 2008 and 2007. If the transaction being hedged fails to occur, or if a portion of any derivative is ineffective, then the Company promptly recognizes the gain or loss on the associated financial instrument in the consolidated statements of operations. No ineffective amounts were recognized due to anticipated transactions failing to occur in the first quarter of fiscal years 2008 and 2007. Realized gains and losses from foreign currency forward contracts are recognized in cost of sales and general and administrative in the condensed consolidated statements of operations. Net income for the first quarter of fiscal years 2008 and 2007 includes a recognized gain of $3,000 and a recognized loss of $0.1 million, respectively, from foreign currency forward contracts.
The Company also uses derivatives to hedge the interest rate exposure associated with its long term debt. Most recently, on September 21, 2007, the Company entered into an interest rate swap contract (the 2007 Swap) to receive three-month USD-LIBOR-BBA (British Bankers Association) interest and pay 4.77% fixed rate interest. Net interest positions are settled quarterly. The Company has structured the 2007 Swap with decreasing notional amounts to match the expected pay down of its Term Loan under the Senior Credit Facilities discussed in Note 5. The notional value of the 2007 Swap was $90.0 million at December 28, 2007 and represented approximately 91% of the aggregate Term Loan balance. The Swap agreement is effective through June 30, 2011. Under the provisions of SFAS No. 133, Accounting for
19
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Derivative Instruments and Hedging Activities, as amended, this arrangement was initially designated and qualified as an effective cash flow hedge of interest rate risk related to the Term Loan, which permitted recording the fair value of the 2007 Swap and corresponding unrealized gain or loss to accumulated other comprehensive income in the condensed consolidated balance sheets. The interest rate swap gain or loss is included in the assessment of hedge effectiveness. At December 28, 2007, the fair value of the short-term and long-term portions of the 2007 Swap was a liability of $0.4 million (accrued expenses) and $1.1 million (other long-term liabilities), respectively. At September 28, 2007, the fair value of the short-term and long-term portions of the 2007 Swap was an asset of $0.1 million (other current assets) and a liability of $0.3 million (other long-term liabilities), respectively. At December 28, 2007 and September 28, 2007, the unrealized loss, net of tax, was $0.9 million and $0.1 million, respectively.
7. Commitments and Contingencies
Leases: The Company is committed to minimum rentals under non-cancelable operating lease agreements, primarily for land and facility space, that expire on various dates through 2050. Certain of the leases provide for escalating lease payments. Future minimum lease payments for all non-cancelable operating lease agreements at December 28, 2007 were as follows:
Fiscal Year |
|
Operating Leases |
|
|
2008 (remaining nine months) |
|
$ |
1,432 |
|
2009 |
|
1,290 |
|
|
2010 |
|
1,052 |
|
|
2011 |
|
437 |
|
|
2012 |
|
358 |
|
|
Thereafter |
|
3,094 |
|
|
Total future minimum lease payments |
|
$ |
7,663 |
|
Real estate taxes, insurance, and maintenance are also obligations of the Company. Rental expense under non-cancelable operating leases amounted to $0.6 million and $0.5 million for the first quarter of fiscal years 2008 and 2007, respectively. Assets subject to capital leases at December 28, 2007 and September 28, 2007 were not material.
Guarantees: The Company has restricted cash of $2.5 million and $2.3 million as of December 28, 2007 and September 28, 2007, respectively, consisting primarily of bank guarantees from customer advance payments to the Companys international subsidiaries. The bank guarantees become unrestricted cash when performance under the sales or supply contract is complete.
20
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Purchase commitments: As of December 28, 2007, the Company had the following known purchase commitments, which include primarily future purchases for inventory-related items under various purchase arrangements as well as other obligations in the ordinary course of business that the Company cannot cancel or where it would be required to pay a termination fee in the event of cancellation:
Fiscal Year |
|
Purchase Contracts |
|
|
2008 (remaining nine months) |
|
$ |
38,333 |
|
2009 |
|
2,086 |
|
|
2010 |
|
25 |
|
|
Total purchase commitments |
|
$ |
40,444 |
|
Contingent Earnout Consideration: As discussed in Note 4, in addition to the $22.2 million of net cash consideration paid for the Malibu acquisition, there is a potential earnout payable to the former stockholders of Malibu of up to $14.0 million, which is primarily contingent upon the achievement of certain financial objectives over the three years following the acquisition; and a discretionary earnout of up to $1.0 million contingent upon achievement of certain succession planning goals by June 30, 2010.
Indemnification: As permitted under Delaware law, the Company has agreements whereby the Company indemnifies its officers, directors and certain employees for certain events or occurrences while the employee, officer or director is, or was serving, at the Companys request in such capacity. The term of the indemnification period is for the officers or directors lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has Director and Officer insurance policies that limit its exposure and may enable it to recover a portion of any future amounts paid.
The Company has entered into other standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify, defend, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Companys business partners or customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to its products. The term of these indemnification agreements is generally perpetual after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. The Company believes that the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of December 28, 2007.
Employment Agreements: The Company has entered into employment agreements with certain members of executive management that include provisions for the continued payment of salary, benefits and a pro-rata portion of annual bonus upon employment termination for periods ranging from 12 months to 30 months.
Contingencies: From time to time, the Company may be subject to claims that arise in the ordinary course of business. In the opinion of management, all such matters involve amounts that would not have a material adverse effect on the Companys consolidated financial position if unfavorably resolved.
21
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
8. Stock-based Compensation Plans
As of December 28, 2007, the Company had an aggregate of 1.3 million shares of its common stock available for future grant and approximately 3.4 million options that were outstanding under its various equity plans. Awards are subject to terms and conditions as determined by the Companys Board of Directors.
Stock Options: The following table summarizes stock option activity as of December 28, 2007, and changes during the first quarter of fiscal year 2008 under the Companys stock option plans:
|
|
Oustanding Options |
|
Exercisable Options |
|
||||||||||||||||
|
|
Number
of |
|
Weighted-Average |
|
Weighted-Average |
|
Aggregate |
|
Number
of |
|
Weighted-Average |
|
Weighted-Average |
|
Aggregate |
|
||||
Balance at September 28, 2007 |
|
3,171,081 |
|
$ |
5.61 |
|
6.58 |
|
$ |
42,513 |
|
2,259,528 |
|
$ |
3.00 |
|
5.98 |
|
$ |
36,184 |
|
Granted |
|
208,750 |
|
16.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited or cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 28, 2007 |
|
3,379,831 |
|
$ |
6.30 |
|
6.55 |
|
$ |
39,004 |
|
2,330,778 |
|
$ |
3.34 |
|
5.83 |
|
$ |
33,729 |
|
The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Companys closing stock price of $17.81 as of December 28, 2007, which would have been received by the option holders had all option holders exercised their options as of that date. As of December 28, 2007, 2,328,778 exercisable options were in-the-money.
There were no options exercised during the first quarter of fiscal year 2008. During the first quarter of fiscal year 2007, cash received from option exercises was approximately $0.1 million, and the total intrinsic value of options exercised was $0.2 million. As of December 28, 2007, there was approximately $5.5 million of total unrecognized compensation costs related to nonvested stock options, which is expected to be recognized over a weighted-average vesting period of 2.2 years.
Stock Purchase Plan: Employees purchased approximately 13,000 shares in the first quarter of fiscal year 2008 for $0.2 million under the 2006 Employee Stock Purchase Plan (the 2006 ESPP). As of December 28, 2007, there were no unrecognized compensation costs related to rights to acquire stock under the Companys stock purchase plan.
Restricted Stock and Restricted Stock Units: There were 94,966 and 11,466 shares outstanding of nonvested restricted stock and restricted stock units granted to directors and employees as of December 28, 2007 and September 28, 2007, respectively. The restricted stock and restricted stock units vest over periods of one to four years and have a 10 year contractual life.
22
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
A summary of the status of the Companys nonvested restricted stock awards as of December 28, 2007, and changes during the quarter then ended is presented below:
|
|
Number |
|
Weighted- |
|
|
Nonvested at September 28, 2007 |
|
11,466 |
|
$ |
17.44 |
|
Granted |
|
83,500 |
|
16.79 |
|
|
Vested |
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
Nonvested at December 28, 2007 |
|
94,966 |
|
$ |
16.87 |
|
Aggregate intrinsic value of the nonvested restricted stock awards at December 28, 2007 was $1.7 million. As of December 28, 2007, there was $1.5 million of total unrecognized compensation costs related to nonvested restricted stock and restricted stock units, which is expected to be recognized over a weighted average vesting period of 2.4 years.
The Company settles stock option exercises and restricted stock awards with newly issued common shares.
Valuation and Expense Information under SFAS No. 123(R)
On October 1, 2005, the Company adopted SFAS No. 123 (revised 2004) (SFAS No. 123(R)), Share-Based Payment, which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Companys employees and directors, including employee stock options, restricted stock awards and employee stock purchases related to the 2006 ESPP based on estimated fair values. The following table summarizes stock-based compensation expense for the first quarter of fiscal years 2008 and 2007, which was allocated as follows:
23
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
|
|
Quarter Ended |
|
||||
|
|
December 28, 2007 |
|
December 29, 2006 |
|
||
Share-based compensation cost recognized in the |
|
|
|
|
|
||
Cost of sales |
|
$ |
80 |
|
$ |
39 |
|
Research and development |
|
31 |
|
10 |
|
||
Selling and marketing |
|
45 |
|
19 |
|
||
General and administrative |
|
268 |
|
137 |
|
||
|
|
$ |
424 |
|
$ |
205 |
|
Share-based compensation cost capitalized in inventory |
|
$ |
96 |
|
$ |
44 |
|
Share-based compensation cost remaining in inventory |
|
|
|
|
|
||
at end of period |
|
$ |
64 |
|
$ |
29 |
|
|
|
|
|
|
|
||
Share-based compensation expense by type of award: |
|
|
|
|
|
||
Stock options and stock purchase plan |
|
$ |
374 |
|
$ |
175 |
|
Restricted stock |
|
50 |
|
30 |
|
||
|
|
$ |
424 |
|
$ |
205 |
|
There were no options exercised or restricted stock vested and hence no tax benefit realized during the first quarter of fiscal year 2008. The tax benefit realized from option exercises and restricted stock vesting totaled approximately $0.1 million during the first quarter of fiscal year 2007.
The weighted-average estimated fair value of stock options granted during the first quarter of fiscal years 2008 and 2007 was $7.83 and $7.66 per share, respectively, using the Black-Scholes model with the following weighted-average assumptions:
|
|
Quarter Ended |
|
||
|
|
December 28, 2007 |
|
December 29, 2006 |
|
Expected term (in years) |
|
6.25 |
|
6.25 |
|
Expected volatility |
|
41.20 |
% |
49.33 |
% |
Risk-free rate |
|
3.82 |
% |
4.56 |
% |
Dividend yield |
|
0 |
% |
0 |
% |
Since the Companys common stock has not been publicly traded for a sufficient time period, the expected volatility is based on expected volatilities of similar companies that have a longer history of being publicly traded. The expected term of options granted is based on the simplified method for plain vanilla options in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 107. The risk-free rates are based on the U.S. Treasury yield in effect at the time of the grant.
The weighted-average fair value of shares issued under the 2006 ESPP during the first quarter of fiscal years 2008 and 2007 was $2.61 and $2.20, respectively, based on the 15% discount received by the employees.
The weighted-average estimated fair value of restricted stock and restricted stock units granted during the first quarter of fiscal year 2008 was $16.79 per share using the market price of the Companys common stock on the date of grant. There were no restricted stock and restricted stock units granted during the first quarter of fiscal year 2007.
24
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
As stock-based compensation expense recognized in the condensed consolidated statement of operations for the first quarter of fiscal years 2008 and 2007 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
9. Income Taxes
The Companys effective tax rate was approximately 44% and 39% for the first quarter of fiscal years 2008 and 2007, respectively.
CPI International adopted FIN No. 48, Accounting for Uncertainty in Income Taxes, in the first quarter of fiscal year 2008 commencing on September 29, 2007. Prior to adoption, the Companys policy was to establish reserves that reflected the probable outcome of known tax contingencies. The effects of final resolution, if any, were recognized as changes to the effective income tax rate in the period of resolution.
Under FIN No. 48, tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. In connection with the Companys adoption of FIN No. 48, there was no cumulative effect adjustment necessary to the September 29, 2007 balance of retained earnings. The total unrecognized tax benefit was $6.6 million and $6.3 million as of December 28, 2007 and September 29, 2007, respectively, and is reported as a current liability (income taxes payable) since it is expected to be settled within 12 months of the reporting date. Of the total unrecognized tax benefit balance, $5.9 million and $5.7 million of unrecognized tax benefits would reduce the effective tax rate if recognized as of December 28, 2007 and September 29, 2007, respectively. The interest expense with uncertain tax positions are accrued as a component of income tax expense in the consolidated statement of operations. As of December 28, 2007 and September 29, 2007, the Company had accrued $1.5 million and $1.3 million of interest, respectively. The Company had minimal penalties accrued in income tax expense.
The Company is subject to U.S. federal, California, Massachusetts and Canada income tax as well as income tax in various other states, local and international jurisdictions. Fiscal years 2004 to 2007 remain open to examination by the major taxing jurisdictions to which the Company is subject, with the exception of California which is open from 2003 to 2007. The Company has not been audited for U.S. federal income tax matters. The Company has income tax audits in progress in Canada and in several states, local and international jurisdictions in which it operates. The years under examination by the Canadian taxing authorities are 2001 to 2002. The years under examination by other taxing authorities vary, with the earliest year being 2004.
25
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Based on the outcome of examinations of the Company, the result of the expiration of statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the statement of financial position. The majority of the Companys unrecognized tax benefit is attributable to the Canada Revenue Agency (CRA) income tax contingency. The CRA is conducting an audit of the Companys income tax returns in Canada for fiscal years 2001 and 2002. The Company received a proposed tax assessment, including interest expense from the CRA for fiscal years 2001 and 2002. The tax assessment is based on tax deductions related to the valuation of the Satcom business, which was purchased by Communications & Power Industries Canada Inc. from CPI in fiscal years 2001 and 2002. While the Company believes that it has meritorious defenses and intends to vigorously defend its position, it is reasonably possible that the CRA may issue a formal tax assessment requiring the Company to settle the tax deficiency within 12 months.
10. Earnings Per Share
Basic earnings per share are computed using the weighted-average number of common shares outstanding during the period excluding outstanding nonvested restricted shares subject to repurchase. Diluted earnings per share are computed using the weighted-average number of common and dilutive potential common equivalent shares outstanding during the period. Potential common equivalent shares consist of common stock issuable upon exercise of stock options and nonvested restricted shares using the treasury stock method.
The following table is a reconciliation of the shares used to calculate basic and diluted earnings per share (in thousands):
|
|
Quarter Ended |
|
||
|
|
December 28, 2007 |
|
December 29, 2006 |
|
Weighted average common shares outstanding Basic |
|
16,371 |
|
16,063 |
|
Effect of dilutive stock options and nonvested restricted stock awards and units |
|
1,461 |
|
1,481 |
|
Weighted average common shares outstanding Diluted |
|
17,832 |
|
17,544 |
|
The calculation of diluted net income per share excludes all anti-dilutive shares. For the first quarter of fiscal years 2008 and 2007, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Companys common stock for the periods, was approximately 0.5 million and 0.4 million shares, respectively.
11. Segments, Geographic and Customer Information
The Companys reportable segments are VED and satcom equipment. The VED segment develops, manufactures and distributes high power/high frequency microwave and radio frequency signal components. The satcom equipment segment manufactures and supplies high power amplifiers and networks for satellite communication uplink and industrial applications. Segment information reported below is consistent with the manner in which it is reviewed and evaluated by the Companys chief operating decision maker (CODM), its chief executive officer, and is based on the nature of the Companys operations and products offered to customers.
26
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Amounts not reported as VED or satcom equipment are reported as Other. In accordance with quantitative and qualitative guidelines established by SFAS No. 131, Other includes the activities of the Companys recently acquired Malibu division and unallocated corporate expenses, such as business combination-related expenses, share-based compensation expense, and certain non-recurring or unusual expenses. The Malibu division is a designer, manufacturer and integrator of advanced antenna systems for radar, radar simulators and telemetry systems, as well as for data links used in ground, airborne, UAV and shipboard systems.
Summarized financial information concerning the Companys reportable segments is shown in the following tables:
|
|
Quarter Ended |
|
||||
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
Sales from external customers |
|
|
|
|
|
||
VED |
|
$ |
63,990 |
|
$ |
66,975 |
|
Satcom equipment |
|
17,575 |
|
16,748 |
|
||
Other |
|
4,345 |
|
|
|
||
|
|
$ |
85,910 |
|
$ |
83,723 |
|
Intersegment product transfers |
|
|
|
|
|
||
VED |
|
$ |
5,861 |
|
$ |
5,123 |
|
Satcom equipment |
|
49 |
|
|
|
||
|
|
$ |
5,910 |
|
$ |
5,123 |
|
Capital expenditures |
|
|
|
|
|
||
VED |
|
$ |
842 |
|
$ |
2,802 |
|
Satcom equipment |
|
444 |
|
|
|
||
Other |
|
401 |
|
69 |
|
||
|
|
$ |
1,687 |
|
$ |
2,871 |
|
EBITDA |
|
|
|
|
|
||
VED |
|
$ |
13,640 |
|
$ |
17,584 |
|
Satcom equipment |
|
1,721 |
|
1,497 |
|
||
Other |
|
(3,439 |
) |
(1,996 |
) |
||
|
|
$ |
11,922 |
|
$ |
17,085 |
|
|
|
December 28, |
|
September 28, |
|
||
|
|
2007 |
|
2007 |
|
||
Total assets |
|
|
|
|
|
||
VED |
|
$ |
334,094 |
|
$ |
335,926 |
|
Satcom equipment |
|
48,805 |
|
49,266 |
|
||
Other |
|
93,748 |
|
91,030 |
|
||
|
|
$ |
476,647 |
|
$ |
476,222 |
|
EBITDA represents earnings before provision for income taxes, net interest expense and depreciation and amortization. For the reasons listed below, the Company believes that GAAP-based financial information for leveraged businesses such as the Companys business should be supplemented by EBITDA so that investors better understand the Companys financial performance in connection with their analysis of the Companys business:
27
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
· EBITDA is a component of the measures used by the Companys board of directors and management team to evaluate the Companys operating performance;
· the Senior Credit Facilities contain a covenant that requires the Company to maintain a senior secured leverage ratio that contains EBITDA as a component, and the Companys management team uses EBITDA to monitor compliance with this covenant;
· EBITDA is a component of the measures used by the Companys management team to make day-to-day operating decisions;
· EBITDA facilitates comparisons between the Companys operating results and those of competitors with different capital structures and therefore is a component of the measures used by the Companys management to facilitate internal comparisons to competitors results and the Companys industry in general; and
· the payment of management bonuses is contingent upon, among other things, the satisfaction by the Company of certain targets that contain EBITDA as a component.
Other companies may define EBITDA differently and, as a result, the Companys measure of EBITDA may not be directly comparable to EBITDA of other companies. Although the Company uses EBITDA as a financial measure to assess the performance of its business, the use of EBITDA is limited because it does not include certain material costs, such as interest and taxes, necessary to operate the Companys business. When analyzing the Companys performance, EBITDA should be considered in addition to, and not as a substitute for, net income, cash flows from operating activities or other statements of operations or statements of cash flows data prepared in accordance with GAAP.
The following table reconciles net income to EBITDA:
|
|
Quarter Ended |
|
||||
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
Net income |
|
$ |
2,510 |
|
$ |
5,835 |
|
Depreciation and amortization |
|
2,650 |
|
2,194 |
|
||
Interest expense, net |
|
4,812 |
|
5,339 |
|
||
Income tax expense |
|
1,950 |
|
3,717 |
|
||
EBITDA |
|
$ |
11,922 |
|
$ |
17,085 |
|
Net property, plant and equipment by geographic area was as follows:
|
|
December 28, |
|
September 28, |
|
||
|
|
2007 |
|
2007 |
|
||
United States |
|
$ |
51,569 |
|
$ |
51,704 |
|
Canada |
|
14,298 |
|
14,308 |
|
||
Other |
|
27 |
|
36 |
|
||
|
|
$ |
65,894 |
|
$ |
66,048 |
|
With the exception of goodwill, the Company does not identify or allocate assets by operating segment, nor does its CODM evaluate operating segments using discrete asset information.
28
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
Goodwill by geographic area was as follows:
|
|
December 28, |
|
September 28, |
|
||
|
|
2007 |
|
2007 |
|
||
United States |
|
$ |
113,234 |
|
$ |
113,310 |
|
Canada |
|
48,314 |
|
48,263 |
|
||
|
|
$ |
161,548 |
|
$ |
161,573 |
|
The decrease in goodwill from September 28, 2007 to December 28, 2007 was due to a tax benefit related to the amortization of the second component of tax goodwill associated with the acquisition of Malibu.
Geographic sales by customer location were as follows for external customers:
|
|
Quarter Ended |
|
||||
|
|
December 28, |
|
December 29, |
|
||
|
|
2007 |
|
2006 |
|
||
United States |
|
$ |
54,523 |
|
$ |
49,504 |
|
All foreign countires |
|
31,387 |
|
34,219 |
|
||
Total sales |
|
$ |
85,910 |
|
$ |
83,723 |
|
There were no individual foreign countries with sales greater than 10% of total sales for the periods presented.
The U.S. Government is the only customer that accounted for 10% or more of the Companys consolidated sales in the first quarter of fiscal years 2008 and 2007. Direct sales to the U.S. Government were $14.8 million and $14.9 million for the first quarter of fiscal years 2008 and 2007, respectively. Accounts receivable from this customer represented 12% and 15% of consolidated accounts receivable as of December 28, 2007 and September 28, 2007, respectively.
12. Supplemental Guarantors Condensed Consolidating Financial Information (Unaudited)
On January 23, 2004, CPI issued $125.0 million of 8% Notes that are guaranteed by CPI International and all of CPIs domestic subsidiaries. Separate financial statements of the guarantors are not presented because (i) the guarantors are wholly-owned and have fully and unconditionally guaranteed the 8% Notes on a joint and several basis and (ii) the Companys management has determined that such separate financial statements are not material to investors. Instead, presented below are the consolidating financial statements of: (a) the parent, CPI International, (b) the issuer, CPI, (c) the guarantor subsidiaries (all of the domestic subsidiaries), (d) the non-guarantor subsidiaries, (e) the consolidating elimination entries, and (f) the consolidated totals. The accompanying consolidating financial information should be read in connection with the condensed consolidated financial statements of CPI International.
Investments in subsidiaries are accounted for based on the equity method. The principal elimination entries eliminate investments in subsidiaries, intercompany balances, intercompany transactions and intercompany sales.
29
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 28, 2007
|
|
Parent |
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Consolidating |
|
Consolidated |
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash and cash equivalents |
|
$ |
1,390 |
|
$ |
21,237 |
|
$ |
1,198 |
|
$ |
3,585 |
|
$ |
|
|
$ |
27,410 |
|
Restricted cash |
|
|
|
|
|
2,127 |
|
328 |
|
|
|
2,455 |
|
||||||
Accounts receivable, net |
|
|
|
19,857 |
|
10,651 |
|
15,438 |
|
|
|
45,946 |
|
||||||
Inventories |
|
(678 |
) |
44,901 |
|
7,100 |
|
17,229 |
|
631 |
|
69,183 |
|
||||||
Deferred tax assets |
|
|
|
9,291 |
|
3 |
|
509 |
|
|
|
9,803 |
|
||||||
Intercompany receivable |
|
|
|
26,070 |
|
3,040 |
|
4,064 |
|
(33,174 |
) |
|
|
||||||
Prepaid and other current assets |
|
|
|
2,645 |
|
576 |
|
740 |
|
|
|
3,961 |
|
||||||
Total current assets |
|
712 |
|
124,001 |
|
24,695 |
|
41,893 |
|
(32,543 |
) |
158,758 |
|
||||||
Property, plant and equipment, net |
|
|
|
48,297 |
|
3,275 |
|
14,322 |
|
|
|
65,894 |
|
||||||
Deferred debt issue costs, net |
|
777 |
|
5,453 |
|
|
|
|
|
|
|
6,230 |
|
||||||
Intangible assets, net |
|
|
|
66,376 |
|
6,550 |
|
8,119 |
|
|
|
81,045 |
|
||||||
Goodwill |
|
|
|
107,437 |
|
5,848 |
|
48,263 |
|
|
|
161,548 |
|
||||||
Other long-term assets |
|
|
|
3,072 |
|
|
|
100 |
|
|
|
3,172 |
|
||||||
Intercompany notes receivable |
|
|
|
1,035 |
|
|
|
|
|
(1,035 |
) |
|
|
||||||
Investment in subsidiaries |
|
177,305 |
|
65,669 |
|
|
|
|
|
(242,974 |
) |
|
|
||||||
Total assets |
|
$ |
178,794 |
|
$ |
421,340 |
|
$ |
40,368 |
|
$ |
112,697 |
|
$ |
(276,552 |
) |
$ |
476,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Current portion of long-term debt |
|
$ |
|
|
$ |
250 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
250 |
|
Accounts payable |
|
249 |
|
10,699 |
|
2,170 |
|
8,988 |
|
|
|
22,106 |
|
||||||
Accrued expenses |
|
1,000 |
|
18,689 |
|
3,128 |
|
6,190 |
|
|
|
29,007 |
|
||||||
Product warranty |
|
|
|
3,080 |
|
481 |
|
1,815 |
|
|
|
5,376 |
|
||||||
Income taxes payable |
|
|
|
1,507 |
|
346 |
|
6,099 |
|
|
|
7,952 |
|
||||||
Advance payments from customers |
|
|
|
4,745 |
|
3,622 |
|
1,431 |
|
|
|
9,798 |
|
||||||
Intercompany payable |
|
27,852 |
|
|
|
|
|
|
|
(27,852 |
) |
|
|
||||||
Total current liabilities |
|
29,101 |
|
38,970 |
|
9,747 |
|
24,523 |
|
(27,852 |
) |
74,489 |
|
||||||
Deferred income taxes |
|
8 |
|
21,939 |
|
|
|
5,448 |
|
|
|
27,395 |
|
||||||
Intercompany notes payable |
|
|
|
|
|
|
|
1,035 |
|
(1,035 |
) |
|
|
||||||
Long-term debt, less current portion |
|
21,821 |
|
223,500 |
|
|
|
|
|
|
|
245,321 |
|
||||||
Other long-term liabilities |
|
|
|
1,381 |
|
|
|
197 |
|
|
|
1,578 |
|
||||||
Total liabilities |
|
50,930 |
|
285,790 |
|
9,747 |
|
31,203 |
|
(28,887 |
) |
348,783 |
|
||||||
Common stock |
|
164 |
|
|
|
|
|
|
|
|
|
164 |
|
||||||
Parent investment |
|
|
|
61,314 |
|
19,167 |
|
57,809 |
|
(138,290 |
) |
|
|
||||||
Additional paid-in capital |
|
69,412 |
|
|
|
|
|
|
|
|
|
69,412 |
|
||||||
Accumulated other comprehensive (loss) income |
|
(264 |
) |
(277 |
) |
|
|
234 |
|
43 |
|
(264 |
) |
||||||
Retained earnings |
|
58,552 |
|
74,513 |
|
11,454 |
|
23,451 |
|
(109,418 |
) |
58,552 |
|
||||||
Net stockholders equity |
|
127,864 |
|
135,550 |
|
30,621 |
|
81,494 |
|
(247,665 |
) |
127,864 |
|
||||||
Total liabilities and stockholders equity |
|
$ |
178,794 |
|
$ |
421,340 |
|
$ |
40,368 |
|
$ |
112,697 |
|
$ |
(276,552 |
) |
$ |
476,647 |
|
30
CPI INTERNATIONAL, INC.
and Subsidiaries
(All tabular dollar amounts in thousands except share and per share amounts)
CONDENSED CONSOLIDATING BALANCE
SHEET
As of September 28, 2007
|
|
Parent |
|
Issuer |
|
Guarantor |
|
Non-Guarantor |
|
Consolidating |
|
Consolidated |
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash and cash equivalents |
|
$ |
1,378 |
|
$ |
16,518 |
|
$ |
958 |
|
$ |
1,620 |
|
$ |
|
|
$ |
20,474 |
|
Restricted cash |
|
|
|
|
|
1,945 |
|
310 |
|
|
|
2,255 |
|
||||||
Accounts receivable, net |
|
|
|
25,857 |
|
10,816 |
|
15,916 |
|
|
|
52,589 |
|
||||||
Inventories |
|
|
|
43,949 |
|
7,092 |
|
17,084 |
|
(678 |
) |
67,447 |
|
||||||
Deferred tax assets |
|
|
|
9,272 |
|
3 |
|
469 |
|
|
|
9,744 |
|
||||||
Intercompany receivable |
|
|
|
23,323 |
|
2,076 |
|
2,725 |
|
(28,124 |
) |
|
|
||||||
Prepaid and other current assets |
|
|
|
3,250 |
|
545 |
|
844 |
|
|
|
4,639 |
|
||||||
Total current assets |
|
1,378 |
|
122,169 |
|
23,435 |
|
38,968 |
|
(28,802 |
) |
157,148 |
|
||||||
Property, plant and equipment, net |
|
|
|
48,327 |
|
3,382 |
|
14,339 |
|
|
|
66,048 |
|
||||||
Deferred debt issue costs, net |
|
795 |
|
5,738 |
|
|
|
|
|
|
|
6,533 |
|
||||||
Intangible assets, net |
|
|
|
67,008 |
|
6,465 |
|
8,270 |
|
|
|
81,743 |
|
||||||
Goodwill |
|
|
|
107,462 |
|
5,848 |
|
48,263 |
|
|
|
161,573 |
|
||||||
Other long-term assets |
|
|
|
3,077 |
|
|
|
100 |
|
|
|
3,177 |
|
||||||
Intercompany notes receivable |
|
|
|
1,035 |
|
|
|
|
|
(1,035 |
) |
|
|
||||||
Investment in subsidiaries |
|
175,889 |
|
65,491 |
|
|
|
|
|
(241,380 |
) |
|
|
||||||
Total assets |
|
$ |
178,062 |
|
$ |
420,307 |
|
$ |
39,130 |
|
$ |
109,940 |
|
$ |
(271,217 |
) |
$ |
476,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Current portion of long-term debt |
|
$ |
|
|
$ |
1,000 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
1,000 |
|
Accounts payable |
|
224 |
|
10,421 |
|
2,430 |
|
8,719 |
|
|
|
21,794 |
|
||||||
Accrued expenses |
|
404 |
|
16,695 |
|
3,991 |
|
5,259 |
|
|
|
26,349 |
|
||||||
Product warranty |
|
|
|
3,141 |
|
481 |
|
1,956 |
|
|
|
5,578 |
|
||||||
Income taxes payable |
|
|
|
1,888 |
|
562 |
|
6,298 |
|
|
|
8,748 |
|
||||||
Advance payments from customers |
|
|
|
5,926 |
|
4,933 |
|
1,273 |
|
|
|
12,132 |
|
||||||
Intercompany payable |
|
28,124 |
|
|
|
|
|
|
|
(28,124 |
) |
|
|
||||||
Total current liabilities |
|
28,752 |
|
39,071 |
|
12,397 |
|
23,505 |
|
(28,124 |
) |
75,601 |
|
||||||
Deferred income taxes |
|
31 |
|
22,833 |
|
|
|
5,530 |
|
|
|
28,394 |
|
||||||
Intercompany notes payable |
|
|
|
|
|
|
|
1,035 |
|
(1,035 |
) |
|
|
||||||
Long-term debt, less current portion |
|
21,817 |
|
223,750 |
|
|
|
|
|
|
|
245,567 |
|
||||||
Other long-term liabilities |
|
|
|
547 |
|
|
|
207 |
|
|
|
754 |
|
||||||
Total liabilities |
|
50,600 |
|
286,201 |
|
12,397 |
|
30,277 |
|
(29,159 |
) |
350,316 |
|
||||||
Common stock |
|
164 |
|
|
|
|
|
|
|
|
|
164 |
|
||||||
Parent investment |
|
|
|
60,705 |
|
19,167 |
|
57,746 |
|
(137,618 |
) |
|
|
||||||
Additional paid-in capital |
|
68,763 |
|
|
|
|
|
|
|