CPI Aerostructures, Inc. (“CPI Aero®” or the “Company”) (NYSE
American: CVU) today announced that the Company’s Annual Report on
Form 10-K for the year ended December 31, 2020 and its Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2020, June
30, 2020, and September 30, 2020 as filed with the Securities and
Exchange Commission (the “SEC”) will be amended and that the
financial statements which were included therein should no longer
be relied upon due to errors in such financial statements.
Similarly, management’s reports on the effectiveness of internal
control over financial reporting, press releases, and investor
communications describing the Company’s financial statements for
such periods should no longer be relied upon.
On May 17, 2021, the Company filed a Notification of Late Filing
on Form 12b-25 (the “Form 12b-25”) with the SEC which stated that
it was unable to file its Quarterly Report on Form 10-Q for the
period ended March 31, 2021 (the “Delayed Form 10-Q”) by the
prescribed due date without unreasonable effort or expense due to,
among other things, long-term COVID-19 related absences of
personnel whose functions are essential to the financial closing
process. After the filing of the Form 12b-25, as part of the
delayed financial closing process, management identified errors
relating to the recording and reporting of inventory costing and
related internal controls (the “Inventory Costing Errors”) during
its inventory testing procedures for the preparation of the
Company’s financial statements for the quarterly period ended March
31, 2021. The Company announced in a press release on June 1, 2021
(the “June 1st Press Release”) that it had not timely filed the
Delayed Form 10-Q because additional time was needed to complete
the Company’s delayed financial closing process and to evaluate the
scope and impact of the Inventory Costing Errors.
Currently, the Company’s internal review indicates that the
Inventory Costing Errors resulted from the sequence in which
Company personnel used the Company’s manufacturing software to
receive manufactured goods into stock and code errors in a
customization of the Company’s core manufacturing software that
miscalculated average costs of certain manufactured items.
The Company believes that the Inventory Costing Errors resulted
in incorrectly reported inventory values and reported income for
the quarterly periods ended March 31, 2020, June 30, 2020,
September 30, 2020 and for the year ended December 31, 2020. The
errors affect the income reported with respect to the Company’s
product lines for which revenue is recognized when a product ships
to customers, which accounted for approximately 15% of total 2020
revenue. The Company believes that the errors did not affect income
reported with respect to the Company’s products for which revenue
is recognized over time using percentage of completion
accounting.
The Company is conducting an analysis of the impact of the
Inventory Costing Errors on previously reported financial results.
The Company currently estimates fiscal year 2020 net income will be
reduced by between $1.9 million and $2.3 million, spread over the
four fiscal quarters. The Company believes that the Inventory
Costing Errors affect neither the reported revenue nor the
Company’s reported cash flows for the affected periods.
The Company expects to amend its Annual Report on Form 10-K for
the year ended December 31, 2020 and its Quarterly Reports on Form
10-Q for the quarters ended March 31, 2020, June 30, 2020,
September 30, 2020, and to restate the financial statements and
other disclosures contained therein as soon as reasonably
practicable. Although the June 1st Press Release reported that the
Company was evaluating the scope and impact of the Inventory
Costing Errors for fiscal year 2019, the Company believes that such
errors do not require amendment of the Company’s Annual Report on
Form 10-K for the year ended December 31, 2019 or Quarterly Reports
on Form 10-Q for the quarterly periods ended March 31, 2019, June
30, 2019 or September 30, 2019 or restatement of the financial
statements or other disclosures contained therein and a
non-reliance determination has not been made by the audit and
finance committee of the board of directors of the Company with
respect thereto.
At this time, the Company has not fully completed its review and
the expected financial impact of the Inventory Costing Errors
described above is preliminary and subject to change. The Company
cannot predict the outcome or timing of the Company’s filing of
restated financial statements for the affected periods.
Management has considered the effect of the Inventory Costing
Errors on the Company’s prior conclusions of the adequacy of its
internal control over financial reporting and disclosure controls
and procedures as of the end of each of the applicable periods. As
a result of the errors, management has determined that a material
weakness existed in the Company’s internal control over financial
reporting as of the end of the quarterly periods ended March 31,
2020, June 30, 2020, September 30, 2020 and for the year ended
December 31, 2020. Accordingly, the Company’s Chief Executive
Officer and Acting Chief Financial Officer have concluded that the
Company’s disclosure controls and procedures were not effective at
the reasonable assurance level as of the end of the quarterly
periods ended March 31, 2020, June 30, 2020, September 30, 2020 and
for the year ended December 31, 2020. The Company believes it has
identified the corrective action to remediate the cause of the
errors. The Company plans to include a discussion of the Company’s
plan to remediate the material weakness in the Delayed Form 10-Q,
which the Company intends to file concurrently with the amended
prior period reports referred to above.
Andrew L. Davis, Experienced Financial Executive, Joins
CPI Aero
Separately, CPI Aero announced the recent hiring of Andrew L.
Davis, a financial executive with more than 30-years of experience
in finance and accounting. The Company expects Mr. Davis to be
appointed as the Company’s chief financial officer following
completion of the amended periodic reports referred to above and
the Delayed Form 10-Q, replacing Thomas Powers who has been serving
as acting chief financial officer since February 2020. Mr. Powers
will remain with the Company.
Mr. Davis joined CPI Aero in May 2021. Prior to joining the
Company, he served as chief financial officer of Altice Technical
Services, a division of Altice USA, Inc. (NYSE:ATUS), one of the
largest broadband communications and video services providers in
the United States. Before that, Mr. Davis worked ten years at
Emerson Radio Corporation, an NYSE-listed distributor of consumer
electronics, first as vice president of finance and corporate
controller and then executive vice president and chief financial
officer, a position he held for more than six years.
About CPI AeroCPI Aero is a U.S. manufacturer
of structural assemblies for fixed wing aircraft, helicopters and
airborne Intelligence Surveillance and Reconnaissance pod systems
in both the commercial aerospace and national security markets.
Within the global aerostructure supply chain, CPI Aero is either a
Tier 1 supplier to aircraft OEMs or a Tier 2 subcontractor to major
Tier 1 manufacturers. CPI also is a prime contractor to the U.S.
Department of Defense, primarily the Air Force. In conjunction with
its assembly operations, CPI Aero provides engineering, program
management, supply chain management, and MRO services. CPI Aero is
included in the Russell Microcap® Index.
Important Cautions Regarding Forward-Looking
StatementsThis press release 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. All statements, other than statements of
historical fact, included or incorporated in this press release are
forward-looking statements. The words “believes,” “anticipates,”
“estimates,” “plans,” “expects,” “intends,” “may,” “could,”
“should,” “potential,” “likely,” “projects,” “continue,” “will,”
and “would” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking
statements contain these identifying words. These forward-looking
statements include, among others, those statements regarding CPI
Aero’s expectations as to the causes of the Inventory Costing
Errors, the scope and impact of the Inventory Costing Errors on
reported inventory values and net income, the Company’s plans to
amend its previously filed Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q and restated financial statements and other
disclosures contained therein and the timing of such amendments,
the timing of the filing of the Quarterly Report on Form 10-Q for
the period ended March 31, 2021, and the ability of the Company to
identify and remediate material weaknesses in the Company’s
internal control over financial reporting and related disclosure
controls and procedures not effective at the reasonable assurance
level.
These forward-looking statements involve risks and
uncertainties, and actual results could vary materially from these
forward-looking statements. Factors that may cause future results
to differ materially from the Company’s current expectations
include, among other things, the timing and nature of the
resolution of the issues discussed in this press release, any delay
in the filing of required periodic reports, the timing and results
of the Company’s review of the effectiveness of internal control
over financial reporting and related disclosure controls and
procedures, whether a restatement of financial results will be
required for other accounting issues, adverse effects on the
Company’s business related to the disclosures made in this press
release or the reactions of customers or suppliers, any adverse
developments in existing legal proceedings or the initiation of new
legal proceedings, and volatility of the Company’s stock price.
CPI Aero does not guarantee that it will actually achieve the
plans, intentions or expectations disclosed in its forward-looking
statements and you should not place undue reliance on CPI Aero’s
forward-looking statements. There are a number of important factors
that could cause CPI Aero’s actual results to differ materially
from those indicated or implied by its forward-looking statements,
including those important factors set forth under the caption “Risk
Factors” in CPI Aero’s Annual Report on Form 10-K for the period
ended December 31, 2020. Although CPI Aero may elect to do so at
some point in the future, CPI Aero does not assume any obligation
to update any forward-looking statements and it disclaims any
intention or obligation to update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
CPI Aero® is a registered trademark of CPI Aerostructures, Inc.
For more information, visit www.cpiaero.com, and follow us on
Twitter @CPIAERO.
Contact:Investor Relations Counsel:LHA Investor
RelationsJody Burfening(212)
838-3777cpiaero@lhai.comwww.lhai.com
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