q22009_pressrelease.htm

Exhibit 99.1

CPI INTERNATIONAL ANNOUNCES SECOND QUARTER 2009 FINANCIAL RESULTS

PALO ALTO, Calif. – May 13, 2009 – CPI International, Inc. (Nasdaq: CPII), the parent company of Communications & Power Industries, Inc., a leading provider of microwave, radio frequency, power and control solutions for critical defense, communications, medical, scientific and other applications, today announced financial results for its second quarter of fiscal 2009 ended April 3, 2009.

CPI International (CPI) booked $115.5 million in orders in the second quarter of fiscal 2009, a record high for the company. CPI had previously indicated that it expected to book more than $100 million in orders during the second quarter.

During the first six months of fiscal 2009, CPI booked orders totaling $182.5 million, essentially unchanged from the $185.2 million in orders booked in the corresponding period of the prior year. Orders in the defense (radar and electronic warfare) and medical markets increased during the period, while orders in the communications, industrial and scientific markets decreased.

Commenting on the recent order bookings, Joe Caldarelli, chief executive officer of CPI, said, “We sense that business in CPI’s end markets may be stabilizing and that conditions are improving, increasing the likelihood of an upturn in business later this calendar year. In the second quarter, CPI received a number of previously delayed orders and several notably large orders, including sizeable orders for significant radar, military communications and radiation therapy programs, which are expected to ship over a period of several quarters.”

CPI generated total sales of $81.9 million in the second quarter of fiscal 2009, a decrease from the $94.8 million generated in the same quarter of fiscal 2008.

In the twelve months ending April 3, 2009, CPI produced cash flow from operating activities totaling $31.3 million, or $1.79 per share on a diluted basis, and free cash flow totaling $27.8 million, or $1.59 per share on a diluted basis. During the first six months of fiscal 2009, CPI has used its positive cash flow to retire $7.75 million principal amount of debt, including a second quarter repurchase of $3.0 million of Communications & Power Industries, Inc.’s 8% Senior Subordinated Notes due 2012. Retiring debt remains a high priority for the company. As of April 3, 2009, CPI’s cash and cash equivalents totaled $27.9 million, as compared to $28.7 million as of October 3, 2008.

CPI’s net income in the second quarter of fiscal 2009 equaled $3.7 million, or $0.21 per share on a diluted basis, a decrease from the $6.2 million, or $0.35 per share on a diluted basis, generated in the same quarter of fiscal 2008. Net income in the second quarter of fiscal 2009 included $1.0 million, or $0.06 per share on a diluted basis, in non-recurring tax benefits.

EBITDA totaled $10.8 million, or 13 percent of sales, in the second quarter of fiscal 2009, a decrease from the $15.8 million, or 17 percent of sales, in the same quarter of the prior year. The decreases in net income and EBITDA in the most recent quarter were primarily the result of the impact of lower sales volume on gross profit in the most recent quarter, and were offset, in part, by the positive impact of cost-reduction initiatives put in place by CPI in recent months.

Cost-saving Measures

CPI has implemented a number of cost-saving measures throughout the company to counter the impact of the challenging economic environment, including reducing its worldwide workforce by approximately seven percent, or approximately 110 people, since the beginning of fiscal 2009. In addition, the company has implemented a salary freeze and salary reductions. The chief executive officer has reduced his salary by 20 percent, the board of directors have reduced their fees by 20 percent and other senior executives have taken voluntary salary reductions of at least 10 percent. CPI has also instituted additional temporary shutdowns of its facilities, increased employees’ mandatory time off, initiated work-share programs and reduced its contributions to certain employee retirement plans. On an annualized basis going forward, the company estimates that the combination of these permanent and temporary measures will result in approximately $10 million in savings, while preserving the flexibility and resources to continue to meet the requirements of its customers.

Orders and Sales Highlights

During fiscal 2008 and the first six months of fiscal 2009, CPI has experienced ongoing delays in the receipt of orders in its defense markets that have resulted in a decrease in near-term demand for its radar and electronic warfare products. In recent quarters, customers in the company’s medical, commercial communications, industrial and scientific markets have also delayed, reduced or cancelled a number of their equipment upgrade or infrastructure expansion programs in light of the challenging economy.

In the first six months of fiscal 2009, key orders highlights included:

Orders in the defense markets increased from $66.7 million in the first six months of fiscal 2008 to $75.6 million in the same period in fiscal 2009, primarily due to increased orders for products to support certain U.S. and foreign radar programs. This increase principally resulted from the timing of order receipts for those programs, and was partially offset by continued delays in the receipt of orders for certain other defense programs. CPI believes that its defense markets have stabilized at recent levels, and that these levels will not vary significantly for the foreseeable future. Notable defense orders included an approximately $3.1 million contract for the U.S. Navy’s APN-245 Automatic Carrier Landing System (ACLS) Beacon and an approximately $2 million contract for the AN/SPY-1B/D radar system on the Aegis weapons system.

Orders in the medical market increased from $36.7 million in the first six months of fiscal 2008 to $39.7 million in the first six months of fiscal 2009. This increase was the result of improved demand for products to support radiation therapy applications, and was partially offset by a decrease in demand for x-ray imaging products.

Orders in the communications market decreased from $59.9 million in the first six months of fiscal 2008 to $54.8 million in the first six months of fiscal 2009, primarily as a result of decreased demand for products to support commercial communications applications. These decreases were partially offset by an increase in orders for military communications programs, including an approximately $13 million order for the Warfighter Information Network – Tactical (WIN-T) program, orders to upgrade communications terminals from the Joint Network Node (JNN) program, amplifier orders to support a multinational organization and several other orders for military communications programs.

In the second quarter of fiscal 2009, key sales highlights included:

Sales in the defense markets decreased from $39.7 million in the second quarter of fiscal 2008 to $34.3 million in the second quarter of fiscal 2009. This decrease was primarily due to an expected $1.9 million decrease in sales of CPI products to support the Aegis weapons system, as well as decreases in sales for several other radar programs due to the timing of order receipts for those programs. As previously announced, CPI expects its sales of products to support the Aegis weapons system in fiscal 2009 to total approximately $10 million, or approximately half of its fiscal 2008 sales, because the company has completed supplying products for funded new ship builds for that system.

Medical sales decreased from $17.0 million in the second quarter of fiscal 2008 to $15.6 million in the most recent quarter due to decreased sales of x-ray imaging products.

Communications sales decreased from $28.5 million in the second quarter of fiscal 2008 to $25.3 million in the second quarter of fiscal 2009, as demand for products to support commercial communications applications softened. These decreases were partially offset by increased sales of products for military communications programs.

Fiscal 2009 Outlook

“We are taking aggressive and necessary action to preserve CPI’s bottom line and to maintain a strong balance sheet during the current economic downturn. We continue to generate healthy cash flow and expect to deliver on our promise of adjusted free cash flow in excess of $20 million in fiscal 2009, enabling CPI to continue to retire debt,” said Caldarelli. “Business appears to be stabilizing in the defense markets, our military communications business continues to do well and we sense that the weakening of the economy may be easing. We are continuing to take the necessary steps to ensure that CPI remains well-prepared to act on the opportunities that will undoubtedly arise as the economy recovers.”

CPI expects its financial performance in the third quarter of fiscal 2009 to be similar to, or slightly better than, its performance, excluding non-recurring tax benefits, in the second quarter. Based on the assumption that the global economy is stabilizing, the company believes that there is an opportunity for its fourth quarter results to improve in comparison to its results in the previous three quarters.

Financial Community Conference Call

In conjunction with this announcement, CPI will hold a conference call on Thursday, May 14, 2009 at 11:00 a.m. (EDT) that will be simultaneously broadcast live over the Internet on the company’s Web site. To participate in the conference call, please dial (877) 857-6144, or (719) 325-4796 for international callers, enter participant pass code 1612034 and ask for the CPI International Second Quarter 2009 Financial Results Conference Call. To access the call via the Internet, please visit http://investor.cpii.com.

About CPI International, Inc.

CPI International, Inc., headquartered in Palo Alto, California, is the parent company of Communications & Power Industries, Inc., a leading provider of microwave, radio frequency, power and control solutions for critical defense, communications, medical, scientific and other applications. Communications & Power Industries, Inc. develops, manufactures and distributes products used to generate, amplify, transmit and receive high-power/high-frequency microwave and radio frequency signals and/or provide power and control for various applications. End-use applications of these systems include the transmission of radar signals for navigation and location; transmission of deception signals for electronic countermeasures; transmission and amplification of voice, data and video signals for broadcasting, Internet and other types of commercial and military communications; providing power and control for medical diagnostic imaging; and generating microwave energy for radiation therapy in the treatment of cancer and for various industrial and scientific applications.

Non-GAAP Supplemental Information

EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow presented above and in the financial information attached hereto are non-generally accepted accounting principles (GAAP) financial measures. EBITDA represents earnings before net interest expense, provisions for income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA further adjusted to exclude certain non-recurring or non-cash items. EBITDA margin represents EBITDA divided by sales. Adjusted EBITDA margin represents adjusted EBITDA divided by sales. Free cash flow represents net cash provided by operating activities minus capital expenditures and patent application fees. Free cash flow per share represents free cash flow divided by average shares outstanding on a fully diluted basis. Free cash flow conversion represents free cash flow divided by net income, expressed as a percentage. Adjusted free cash flow represents free cash flow further adjusted to exclude certain non-recurring items. For more information regarding these non-GAAP financial measures for the periods presented and a reconciliation of these measures to GAAP financial information, please see the attached financial information. In addition, this press release and the attached financial information are available in the investor relations section of the company’s Web site at http://investor.cpii.com.

CPI believes that GAAP-based financial information for leveraged businesses, such as the company’s business, should be supplemented by EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow so that investors better understand the company’s operating performance in connection with their analysis of the company’s business. In addition, CPI’s management team uses EBITDA and adjusted EBITDA to evaluate the company’s operating performance, to monitor compliance with its senior credit facility, to make day-to-day operating decisions and as a component in the calculation of management bonuses. Other companies may define EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow differently and, as a result, the company’s measures may not be directly comparable to EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow of other companies. Because EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, free cash flow, free cash flow per share, free cash flow conversion and adjusted free cash flow do not include certain material costs, such as interest and taxes in the case of EBITDA-based measures, necessary to operate the company’s business, when analyzing the company’s business, these non-GAAP measures should be considered in addition to, and not as a substitute for, net income (loss), net cash provided by (used in) operating activities, net income margin or other statements of operations or statements of cash flows data prepared in accordance with GAAP.

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Certain statements included above constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide our current expectations, beliefs or forecasts of future events. Forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual events or results to differ materially from the results projected, expected or implied by these forward looking statements. These factors include, but are not limited to, competition in our end markets; the impact of a general slowdown in the global economy; our significant amount of debt; changes or reductions in the U.S. defense budget; currency fluctuations; U.S. government contracts laws and regulations; changes in technology; the impact of unexpected costs; and inability to obtain raw materials and components. These and other risks are described in more detail in our periodic filings with the Securities and Exchange Commission. As a result of these uncertainties, you should not place undue reliance on these forward-looking statements. All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We undertake no duty or obligation to publicly revise any forward-looking statement to reflect circumstances or events occurring after the date hereof or to reflect the occurrence of unanticipated events or changes in our expectations.

Contact:

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

CPI International, Inc.
and Subsidiaries

CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data - unaudited)

	Three Months Ended						Six Months Ended
	April 3, 2009			March 28, 2008			April 3, 2009			March 28, 2008
Sales	$	81,903		$	94,804		$	159,049		$	180,714
Cost of sales		60,137			66,738			117,367			128,512
Gross profit		21,766			28,066			41,682			52,202
Operating costs and expenses:
Research and development		3,157			2,930			5,340			5,654
Selling and marketing		4,801			5,328			9,790			10,500
General and administrative		5,196			5,492			10,400			11,645
Amortization of acquisition-related intangible assets		691			781			1,385			1,562
Net loss on disposition of fixed assets		44			41			64			75
Total operating costs and expenses		13,889			14,572			26,979			29,436
Operating income		7,877			13,494			14,703			22,766
Interest expense, net		4,306			4,805			8,761			9,617
(Gain) loss on debt extinguishment		(197	)		393			(197	)		393
Income before income taxes		3,768			8,296			6,139			12,756
Income tax expense (benefit)		79			2,142			(5,205	)		4,092
Net income	$	3,689		$	6,154		$	11,344		$	8,664

Other comprehensive income, net of tax
Net unrealized gain (loss) on cash flow hedges and other
comprehensive income		617			(2,001	)		(3,262	)		(3,202	)
Comprehensive income	$	4,306		$	4,153		$	8,082		$	5,462

Earnings per share - Basic	$	0.23		$	0.38		$	0.70		$	0.53
Earnings per share - Diluted	$	0.21		$	0.35		$	0.65		$	0.49

Shares used to compute earnings per share - Basic		16,317			16,387			16,293			16,379
Shares used to compute earnings per share - Diluted		17,319			17,656			17,353			17,744

CPI International, Inc.
and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data - unaudited)

	April 3,			October 3,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	27,863		$	28,670
Restricted cash		1,101			776
Accounts receivable, net		41,882			47,348
Inventories		68,321			65,488
Deferred tax assets		13,146			11,411
Prepaid and other current assets		3,808			3,823
Total current assets		156,121			157,516
Property, plant, and equipment, net		60,346			62,487
Deferred debt issue costs, net		4,321			4,994
Intangible assets, net		77,024			78,534
Goodwill		162,293			162,611
Other long-term assets		3,651			806
Total assets	$	463,756		$	466,948

Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	-		$	1,000
Accounts payable		21,065			21,109
Accrued expenses		21,924			23,044
Product warranty		3,981			4,159
Income taxes payable		3,612			7,766
Advance payments from customers		12,898			12,335
Total current liabilities		63,480			69,413
Deferred income taxes		26,508			27,321
Long-term debt, less current portion		217,916			224,660
Other long-term liabilities		1,897			1,689
Total liabilities		309,801			323,083
Commitments and contingencies
Stockholders’ equity
Common stock ($0.01 par value, 90,000 shares
authorized; 16,723 and 16,538 shares issued;
16,517 and 16,332 shares outstanding)		167			165
Additional paid-in capital		73,824			71,818
Accumulated other comprehensive loss		(5,071	)		(1,809	)
Retained earnings		87,835			76,491
Treasury stock, at cost (206 shares)		(2,800	)		(2,800	)
Total stockholders’ equity		153,955			143,865
Total liabilities and stockholders' equity	$	463,756		$	466,948

CPI International, Inc.
and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands - unaudited)

	Six Months Ended
	April 3,			March 28,
	2009			2008

Cash flows from operating activities
Net cash provided by operating activities	$	7,865		$	10,439

Cash flows from investing activities
Capital expenditures		(1,818	)		(2,558	)
Proceeds from adjustment to acquisition purchase price		-			1,615
Payment of patent application fees		-			(147	)
Net cash used in investing activities		(1,818	)		(1,090	)

Cash flows from financing activities
Repayments of debt		(7,495	)		(10,000	)
Proceeds from issuance of common stock to employees		605			418
Proceeds from exercise of stock options		36			-
Net cash used in financing activities		(6,854	)		(9,582	)

Net decrease in cash and cash equivalents		(807	)		(233	)
Cash and cash equivalents at beginning of period		28,670			20,474
Cash and cash equivalents at end of period	$	27,863		$	20,241

Supplemental cash flow disclosures
Cash paid for interest	$	8,323		$	8,293
Cash paid for income taxes, net of refunds	$	2,270		$	8,722

CPI International, Inc.
and Subsidiaries

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

			Three Months Ended						Six Months Ended
			April 3,			March 28,			April 3,			March 28,
			2009			2008			2009			2008
Net income			$	3,689		$	6,154		$	11,344		$	8,664
Depreciation and amortization				2,679			2,742			5,377			5,392
Interest expense, net				4,306			4,805			8,761			9,617
Income tax (benefit) expense				79			2,142			(5,205	)		4,092
EBITDA				10,753			15,843			20,277			27,765

Adjustments to exclude certain non-recurring or non-cash items:
Stock-based compensation expense	(1	)		701			550			1,322			974
(Gain) loss on debt extinguishment	(2	)		(197	)		393			(197	)		393
Total adjustments				504			943			1,125			1,367
Adjusted EBITDA			$	11,257		$	16,786		$	21,402		$	29,132

EBITDA margin	(3	)		13.1	%		16.7	%		12.7	%		15.4	%
Adjusted EBITDA margin	(4	)		13.7	%		17.7	%		13.5	%		16.1	%
Net income margin	(5	)		4.5	%		6.5	%		7.1	%		4.8	%

(1)	Represents a non-cash charge for stock options, restricted stock awards, restricted stock unit awards and the employee discount related to CPI's Employee Stock Purchase Plan.
(2)	For the periods ended April 3, 2009, represents the following related to repurchase of $3.0 million of 8% Senior Subordinated Notes at a discount of 8.5%: $0.255 million discount, partially offset by $0.058 million write-off of unamortized deferred debt issue costs. For the periods ended March 28, 2008, represents the following expenses related to the redemption of floating rate senior notes: $0.255 million for non-cash costs associated with the write-off of unamortized deferred debt issue costs and issue discount costs; and $0.138 million in cash payments for redemption premiums and other expenses.
(3)	Represents EBITDA divided by sales.
(4)	Represents adjusted EBITDA divided by sales.
(5)	Represents net income divided by sales.

CPI International, Inc.
and Subsidiaries

NON-GAAP SUPPLEMENTAL INFORMATION
Free Cash Flow, Adjusted Free Cash Flow, Free Cash Flow Conversion
and Free Cash Flow per Share
(in thousands, except per share and percent data - unaudited)

			Twelve Months Ended
			April 3,
			2009
Net cash provided by operating activities			$	31,307
Capital expenditures				(3,522	)
Free cash flow				27,785

Adjustments to exclude certain non-recurring items:
Cash paid for debt extinguishment costs, net of taxes	(1	)		47
Cash paid for prior year transfer pricing audit	(2	)		197
Total adjustments				244
Adjusted free cash flow			$	28,029

Free cash flow			$	27,785
Net income			$	23,129
Free cash flow conversion	(3	)		120	%

Free cash flow per share	(4	)	$	1.59

(1)	Represents redemption premiums and other expenses associated with the repurchase and redemption of CPI's floating rate senior notes, net of taxes.
(2)	Represents a payment made to the Canada Revenue Agency ("CRA") related to an audit of Communications & Power Industries Canada Inc.'s ("CPI Canada") income tax returns for fiscal years 2001 and 2002. CPI Canada has received a tax assessment, including interest expense, from the CRA for fiscal years 2001 and 2002, based on tax deductions related to the valuation of the Satcom business, which was purchased by CPI Canada from Communications & Power Industries, Inc. in fiscal years 2001 and 2002. While the Company believes it has meritorious defenses and is in the process of pursuing these defenses, certain payments are required to be made in the meantime. The Company considers this a non-recurring use of cash as it pertains to previous years.
(3)	Represents free cash flow divided by net income, expressed as a percentage.
(4)	Represents free cash flow divided by the simple average of the last four fiscal quarters Shares used to compute earnings per share: Diluted. The simple average of the last four fiscal quarters Shares used to compute earnings per share: Diluted is 17,503,000 shares.