<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended April 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
<TABLE>
<S> <C>
Commission File Number: 33-96858-01 Commission File Number: 33-96858
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION COMMUNICATIONS & POWER INDUSTRIES, INC.
(Exact name of registrant as specified in its (Exact name of registrant as specified in its
charter) charter)
DELAWARE DELAWARE
(State of Incorporation) (State of Incorporation)
77-0407395 77-0405693
(I.R.S. employer identification number) (I.R.S. employer identification number)
607 HANSEN WAY 607 HANSEN WAY
PALO ALTO, CALIFORNIA 94303-1110 PALO ALTO, CALIFORNIA 94303-1110
(415) 846-2900 (415) 846-2900
(Address, including zip code, and telephone (Address, including zip code, and telephone
number, number,
including area code, of registrant's including area code, of registrant's
principal executive offices) principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(b) of the Act:
NONE NONE
Securities registered pursuant to Section 12(g) of the Act: Securities registered pursuant to Section 12(g) of the Act:
NONE NONE
</TABLE>
Indicate by check mark whether each 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 [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding for each of the Registrant's classes
of Common Stock, as of the latest practicable date: COMMUNICATIONS & POWER
INDUSTRIES HOLDING CORPORATION: 198,850 SHARES OF COMMON STOCK, $.01 PAR VALUE,
AT APRIL 3, 1998. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF COMMON
STOCK, $.01 PAR VALUE, AT APRIL 3, 1998.
<PAGE> 2
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
<TABLE>
PART 1: FINANCIAL INFORMATION
<S> <C>
COMMUNICATIONS & POWER INDUSTRIES, INC.
Consolidated Condensed Balance Sheets, April 3, 1998 (unaudited) and
October 3, 1997................................................................... 2
Consolidated Condensed Statements of Operations, 13-week period ended
April 3, 1998 (unaudited) and 13-week period ended April 4, 1997
(unaudited)....................................................................... 3
Consolidated Condensed Statements of Operations, 26-week period ended
April 3, 1998 (unaudited) and 27-week period ended April 4, 1997
(unaudited)....................................................................... 4
Consolidated Condensed Statements of Cash Flows, 26-week period ended
April 3, 1998 (unaudited) and 27-week period ended April 4, 1997
(unaudited)....................................................................... 5
Notes to Consolidated Condensed Financial Statements (unaudited).................. 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited)................................................. 12
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
Consolidated Condensed Balance Sheets, April 3, 1998 (unaudited) and
October 3, 1997................................................................... 7
Consolidated Condensed Statements of Operations, 13-week period ended
April 3, 1998 (unaudited) and 13-week period ended April 4, 1997
(unaudited)....................................................................... 8
Consolidated Condensed Statements of Operations, 26-week period ended
April 3, 1998 (unaudited) and 27-week period ended April 4, 1997
(unaudited)....................................................................... 9
Consolidated Condensed Statements of Cash Flows, 26-week period ended
April 3, 1998 (unaudited) and 27-week period ended April 4, 1997
(unaudited)....................................................................... 10
Notes to Consolidated Condensed Financial Statements (unaudited).................. 11
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited)................................................. 12
PART II: OTHER INFORMATION
Other Information ................................................................ 14
SIGNATURES............................................................................ 15
</TABLE>
-1-
<PAGE> 3
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
April 3, October 3,
1998 1997
ASSETS (unaudited) (audited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 327 $ 2,027
Accounts receivable, net 47,730 52,326
Inventories 53,405 50,750
Deferred taxes 7,133 7,133
Other current assets 1,397 1,221
------------ ------------
Total current assets 109,992 113,457
Property, plant, and equipment, net 78,562 79,994
Goodwill, net 23,858 24,144
Debt issue costs, net 7,077 7,893
Deferred taxes 11,916 11,908
Other assets 1,995 --
------------ ------------
Total assets $ 233,400 $ 237,396
============ ============
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 16,600 $ 22,800
Current portion of term loans 6,200 5,700
Current portion of capital leases 165 --
Accounts payable - trade 12,438 10,419
Accrued expenses 16,288 15,088
Product warranty 3,878 4,211
Income taxes payable 12,487 11,975
Advance payments from customers 1,444 2,797
------------ ------------
Total current liabilities 69,500 72,990
Senior term loans 26,850 29,950
Senior subordinated notes 100,000 100,000
Obligations under capital leases 2,287 1,584
------------ ------------
Total liabilities 198,637 204,524
------------ ------------
SENIOR REDEEMABLE PREFERRED STOCK 19,075 17,566
------------ ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Junior Preferred Stock 1 1
Common Stock -- --
Additional paid-in capital 33,002 32,143
Accumulated deficit (16,185) (15,738)
Less stockholder loans (1,130) (1,100)
------------ ------------
Net stockholders' equity 15,688 15,306
------------ ------------
Total liabilities, redeemable
preferred stock and equity $ 233,400 $ 237,396
============ ============
</TABLE>
See accompanying notes to the unaudited interim condensed consolidated financial
statements.
-2-
<PAGE> 4
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
13-Week 13-Week
period ended period ended
April 3, April 4,
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 68,802 $ 63,869
Cost of sales 50,754 46,096
------------ ------------
Gross profit 18,048 17,773
------------ ------------
Operating costs and expenses:
Research and development 1,915 1,831
Marketing 4,626 5,250
General and administrative 4,163 2,885
------------ ------------
Total operating costs and expenses 10,704 9,966
------------ ------------
Operating income 7,344 7,807
Interest expense 4,467 4,722
------------ ------------
Earnings before taxes 2,877 3,085
Income tax expense 1,079 195
------------ ------------
Net earnings 1,798 2,890
Preferred dividends:
Senior Redeemable Preferred Stock 713 621
Junior Preferred Stock 475 414
------------ ------------
Earnings attributable to common stock $ 610 $ 1,855
============ ============
</TABLE>
See accompanying notes to the unaudited interim condensed consolidated financial
statements.
-3-
<PAGE> 5
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
26-Week 27-Week
period ended period ended
April 3, April 4,
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 126,175 $ 119,191
Cost of sales 93,480 88,562
------------ ------------
Gross profit 32,695 30,629
------------ ------------
Operating costs and expenses:
Research and development 3,719 3,724
Marketing 9,332 10,088
General and administrative 7,329 5,555
------------ ------------
Total operating costs and expenses 20,380 19,367
------------ ------------
Operating income 12,315 11,262
Interest expense 9,121 9,492
------------ ------------
Earnings before taxes 3,194 1,770
Income tax expense 1,198 195
------------ ------------
Net earnings 1,996 1,575
Preferred dividends:
Senior Redeemable Preferred Stock 1,402 1,221
Junior Preferred Stock 934 814
------------ ------------
Loss attributable to common stock $ (340) $ (460)
============ ============
</TABLE>
See accompanying notes to the unaudited interim condensed consolidated financial
statements.
-4-
<PAGE> 6
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
<TABLE>
<CAPTION>
26-Week 27-Week
period ended period ended
April 3, April 4,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 12,437 $ (347)
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 29 --
Purchase of property, plant and equipment, net (2,561) (6,528)
Product lines acquisitions (2,730) --
------------ ------------
Net cash used in investing activities (5,262) (6,528)
------------ ------------
FINANCING ACTIVITIES
Net (Repayments)/Proceeds from debt issue costs -- (192)
Net (Repayments)/Proceeds from revolving credit facility (6,200) 9,600
Net (Repayments)/Proceeds from senior term loans (2,600) (2,900)
Purchase of treasury stock (75) --
------------ ------------
Net cash provided by (used in) financing activities (8,875) 6,508
------------ ------------
NET DECREASE IN
CASH AND CASH EQUIVALENTS (1,700) (367)
Cash and cash equivalents at beginning of period 2,027 1,753
============ ============
Cash and cash equivalents at end of period $ 327 $ 1,386
============ ============
</TABLE>
See accompanying notes to the unaudited interim condensed consolidated financial
statements.
-5-
<PAGE> 7
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying unaudited interim condensed consolidated financial statements
of Communications & Power Industries, Inc. ("CPI") have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements have been condensed or omitted and, accordingly, these financial
statements should be read in conjunction with the financial statements and the
notes thereto contained in CPI's October 3, 1997 Annual Report on Form 10-K.
Management believes that these unaudited interim condensed financial statements
contain all adjustments, all of which are of a normal, recurring nature,
necessary to a fair statement of the results for the interim period presented.
The results for the interim periods reported are not necessarily indicative of
the results for the full fiscal year 1998.
During the quarter ended April 3, 1998, CPI paid preferred dividends on its
Senior Redeemable Preferred Stock and its Junior Preferred Stock through the
issuance of 7,128 additional shares of its Senior Redeemable Preferred Stock and
4,752 shares of its Junior Preferred Stock, respectively. During the first half
ended April 3, 1998, the Company paid preferred dividends through the issuance
of 14,015 shares of its Senior Redeemable Preferred Stock and 9,344 shares of
its Junior Preferred Stock.
-6-
<PAGE> 8
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
April 3, October 3,
1998 1997
ASSETS (unaudited) (audited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 327 $ 2,027
Accounts receivable, net 47,730 52,326
Inventories 53,405 50,750
Deferred taxes 7,133 7,133
Other current assets 1,397 1,221
------------ ------------
Total current assets 109,992 113,457
Property, plant, and equipment, net 78,562 79,994
Goodwill, net 23,858 24,144
Debt issue costs, net 7,077 7,893
Deferred taxes 11,916 11,908
Other assets 1,995 --
------------ ------------
Total assets $ 233,400 $ 237,396
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK,
PREFERRED STOCK OF SUBSIDIARY AND EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 16,600 $ 22,800
Current Portion of term loans 6,200 5,700
Current Portion of capital leases 165 --
Accounts payable - trade 12,438 10,419
Accrued expenses 16,288 15,088
Product warranty 3,878 4,211
Income taxes payable 12,487 11,975
Advance payments from customers 1,444 2,797
------------
Total current liabilities 69,500 72,990
Senior term loans 26,850 29,950
Senior subordinated notes 100,000 100,000
Obligations under capital leases 2,287 1,584
------------ ------------
Total liabilities 198,637 204,524
------------ ------------
SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 19,075 17,566
------------ ------------
JUNIOR PREFERRED STOCK OF SUBSIDIARY 13,399 12,465
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock 2 2
Additional paid-in capital 19,602 19,677
Accumulated deficit (16,185) (15,738)
Less stockholder loans (1,130) (1,100)
------------ ------------
Net stockholders' equity 2,289 2,841
------------ ------------
Total liabilities, redeemable preferred stock, preferred
stock of subsidiary and equity $ 233,400 $ 237,396
============ ============
</TABLE>
See accompanying notes to the unaudited interim condensed consolidated financial
statements.
-7-
<PAGE> 9
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
13-Week 14-Week
period ended period ended
April 3, April 4,
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 68,802 $ 63,869
Cost of sales 50,754 46,096
------------ ------------
Gross profit 18,048 17,773
------------ ------------
Operating costs and expenses:
Research and development 1,915 1,831
Marketing 4,626 5,250
General and administrative 4,163 2,885
------------ ------------
Total operating costs and expenses 10,704 9,966
------------ ------------
Operating income 7,344 7,807
Interest expense 4,467 4,722
------------ ------------
Earnings before taxes 2,877 3,085
Income tax expense 1,079 195
------------ ------------
Net earnings 1,798 2,890
Preferred dividends:
Senior Redeemable Preferred Stock 713 621
Junior Preferred Stock 475 414
------------ ------------
Earnings attributable to common stock $ 610 $ 1,855
============ ============
</TABLE>
See accompanying notes to the unaudited interim condensed consolidated financial
statements.
-8-
<PAGE> 10
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
26-Week 27-Week
period ended period ended
April 3, April 4,
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 126,175 $ 119,191
Cost of sales 93,480 88,562
------------ ------------
Gross profit 32,695 30,629
------------ ------------
Operating costs and expenses:
Research and development 3,719 3,724
Marketing 9,332 10,088
General and administrative 7,329 5,555
------------ ------------
Total operating costs and expenses 20,380 19,367
------------ ------------
Operating income 12,315 11,262
Interest expense 9,121 9,492
------------ ------------
Earnings before taxes 3,194 1,770
Income tax expense 1,198 195
------------ ------------
Net earnings 1,996 1,575
Preferred dividends:
Senior Redeemable Preferred Stock 1,402 1,221
Junior Preferred Stock 934 814
------------ ------------
Loss attributable to common stock $ (340) $ (460)
============ ============
</TABLE>
See accompanying notes to the unaudited interim condensed consolidated financial
statements.
-9-
<PAGE> 11
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
<TABLE>
<CAPTION>
26-Week 27-Week
period ended period ended
April 3, April 4,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 12,437 $ (347)
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 29 --
Purchase of property, plant and equipment, net (2,561) (6,528)
Product line acquisitions (2,730) --
------------ ------------
Net cash used in investing activities (5,262) (6,528)
------------ ------------
FINANCING ACTIVITIES
Net (Repayments)/Proceeds from debt issue costs -- (192)
Net (Repayments)/Proceeds from revolving credit facility (6,200) 9,600
Net (Repayments)/Proceeds from senior term loans (2,600) (2,900)
Purchase of treasury stock (75) --
------------ ------------
Net cash provided by (used in) financing activities (8,875) 6,508
------------ ------------
NET DECREASE IN
CASH AND CASH EQUIVALENTS (1,700) (367)
Cash and cash equivalents at beginning of period 2,027 1,753
============ ============
Cash and cash equivalents at end of period $ 327 $ 1,386
============ ============
</TABLE>
See accompanying notes to the unaudited interim condensed consolidated financial
statements.
-10-
<PAGE> 12
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying unaudited interim condensed consolidated financial statements
of Communications & Power Industries Holding Corporation ("Holding") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in annual
financial statements have been condensed or omitted and, accordingly, these
financial statements should be read in conjunction with the financial statements
and the notes thereto contained in Holding's October 3, 1997 Annual Report on
Form 10-K. Management believes that these unaudited interim condensed financial
statements contain all adjustments, all of which are of a normal, recurring
nature, necessary to a fair statement of the results for the interim period
presented. The results for the interim periods reported are not necessarily
indicative of the results for the full fiscal year 1998.
During the quarter ended April 3, 1998, CPI paid preferred dividends on its
Senior Redeemable Preferred Stock and its Junior Preferred Stock through the
issuance of 7,128 additional shares of its Senior Redeemable Preferred Stock and
4,752 shares of its Junior Preferred Stock, respectively. During the first half
ended April 3, 1998, the Company paid preferred dividends through the issuance
of 14,015 shares of its Senior Redeemable Preferred Stock and 9,344 shares of
its Junior Preferred Stock.
-11-
<PAGE> 13
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Orders during the second quarter of Fiscal 1998 were $81.6 million as compared
to $75.5 million for the second quarter of Fiscal 1997, an increase of 8.2%.
Orders during the first six months of Fiscal 1997 were $143.8 million, an
increase of $2.0 million, or 1.4%, over the comparable period in the prior
fiscal year. However, incoming order levels fluctuate significantly on a
quarterly basis and a particular quarter's order rate may not be indicative of
future order levels. In addition, the Company's sales are highly dependent upon
manufacturing scheduling, performance and shipments and, accordingly, it is not
possible to accurately predict when these orders will be recognized as sales.
As of April 3, 1998, the Company had order backlog of $184.3 million,
representing approximately eight months of sales, compared to order backlog of
$173.2 million as of April 4, 1997.
Sales for the second quarter of Fiscal 1998 were $68.8 million compared to $63.9
million for the same period in Fiscal 1997, an increase of 7.7% due primarily to
increased demand for products used in radar applications. Sales for the first
six months of Fiscal 1998 were $126.2 million compared to $119.2 million for the
first six months of Fiscal 1997. This increase of $7.0 million for the first six
months, or 5.9%, was, as mentioned above, primarily the result of increased
demand for products used in the radar market, but also resulted from progress
being made on a number of product development contracts and improved production
uniformity since the first half of Fiscal 1998 was not disrupted by
consolidation efforts that negatively impacted the first half of Fiscal 1997.
In terms of markets, the sales increase for the first six months of Fiscal 1998
was reflected in higher sales to four of the Company's six markets, with a
slight decline in sales of products to the industrial and scientific markets. In
the communications market, sales were $58.1 million, or 46.0% of total sales,
compared to $55.1 million, or 46.2% of total sales, in the first six months of
Fiscal 1997. Communications sales were up by $3.0 million, or 5.4%, primarily
due to demand for amplifier products in the area of satellite communications.
Sales to the radar market, the Company's second largest market, were $40.7
million, or 32.2% of total sales, during the first six months of Fiscal 1998
compared to $38.1 million, or 32.0% of total sales, during the same period in
Fiscal 1997. This increase of $2.6 million, or 6.7%, was the result of increased
demand over the past eighteen months for logistic spares and receipt of funding
for several large upgrade programs. Sales to the Company's other four markets
(electronic countermeasures, industrial, medical and scientific) were $27.4
million, or 21.7% of total sales, in the first six months of Fiscal 1998
compared to $26.0 million, or 21.8% of total sales, in the first six months of
Fiscal 1997.
Gross profit was $18.0 million, or 26.2% of sales, in the second quarter of
Fiscal 1998 compared to $17.8 million, or 27.8% of sales, in the second quarter
of Fiscal 1997 as higher volume was offset by changes in product mix. Gross
profit for the first six months of Fiscal 1998 was $32.7 million, or 25.9% of
sales compared to $30.6 million, or 25.7% of sales, over the comparable period
in Fiscal 1997. This increase of $2.1 million, or 6.7% was the result of
additional sales volume and improvements from consolidation efforts partially
offset by an increase in depreciation (approximately $.7 million, or 20%, higher
in the first half of Fiscal 1998 than in the same time period in Fiscal 1997)
and lower margins on several new product development contracts.
-12-
<PAGE> 14
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
Operating costs and expenses were $10.7 million for the second quarter of Fiscal
1998, as compared to $10.0 million for the second quarter of Fiscal 1997.
Although operating costs and expenses as a percentage of sales remained flat at
15.6% between the two time periods, the mix between marketing and general and
administrative costs changed somewhat. During the second quarter of Fiscal 1998,
marketing costs decreased $.6 million compared to the second quarter of Fiscal
1997 as the result of specific cost reduction efforts in both the Company's
domestic and international field sales offices and the impact of favorable
currency valuation rates in Europe. This was offset, however, by higher general
and administrative costs of $1.3 million primarily related to recent product
line acquisition activity, software upgrade costs that address Year 2000
compliance at the Company's Massachusetts facility and a $.4 million bad debt
reserve established due to economic problems in Indonesia affecting the
collectibility of a receivable from an Indonesian customer. Operating costs and
expenses for the first six months of Fiscal 1998 were $20.4 million compared to
$19.4 million for the first six months of Fiscal 1997 but, again, as a
percentage of sales, both were consistent at 16.2%. During the first half of
Fiscal 1998, lower marketing costs of $.8 million were offset by $1.8 million of
higher general and administrative costs as a result of the second quarter issues
mentioned above plus higher management incentive accruals due to improved
year-to-date performance and the fact that the first quarter of Fiscal 1997 was
favorably impacted by the sale of a small product line.
Earnings before interest, income taxes, depreciation and amortization
("EBITDA")(1) for the second quarter of Fiscal 1998 was $10.2 million, or 14.8%
of sales, compared to $10.2 million, or 15.9% of sales, for the second quarter
of Fiscal 1997. EBITDA for the first six months of Fiscal 1998 was $17.8
million, or 14.1% of sales, compared to $15.8 million, or 13.3% of sales, for
the same time period in Fiscal 1997. This improvement was, as mentioned above,
related to higher volume and efficiencies resulting from consolidation efforts.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities for the first six months of Fiscal
1998 were $12.4 million, an increase of $12.7 million from the $.3 million used
by operating activities during the first six months of Fiscal 1997. The primary
reasons for this increase in cash were improved earnings, decreased levels of
current operating assets and increases to accounts payable and accrued expenses.
In the first six months of Fiscal 1997, the timing of payments required for
payroll, supplemental property taxes and interest payments consumed cash of $7.0
million compared to providing cash of $1.2 million in the first six months of
Fiscal 1998. Inventory levels have also been more stable in the first half of
Fiscal 1998 consuming only $2.3 million of cash, offset by a $2.0 million
increase in accounts payable, compared to inventory changes in the first half of
Fiscal 1997 that consumed $5.0 million of cash, only partially offset by a $1.1
million increase in accounts payable. Overall, operating activities funded $8.8
million of repayments against the Company's revolving credit facility and senior
term loans during the first half of Fiscal 1998.
- --------
(1) EBITDA is presented because some investors may use it as a financial
indicator of the ability to service or incur indebtedness. EBITDA should
not be considered as an alternative to net earnings (loss), as a measure
of operating results, cash flows or liquidity.
-13-
<PAGE> 15
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
Cash flows used by investing activities were comprised of expenditures for
property and equipment as well as product line enhancement. During the first six
months of Fiscal 1998, the Company invested $2.6 million in new capital
equipment compared to $6.5 million spent in the first half of Fiscal 1997. This
capital expenditure reduction of $3.9 million was anticipated by the Company and
was primarily related to completing consolidation efforts in Fiscal 1997. Also
during the first half of Fiscal 1998, the Company invested $2.7 million in two
small product line acquisitions to add to products currently being manufactured
in the Company's Beverly, Massachusetts and Palo Alto, California facilities.
Non-cash financing activities during the first six months of Fiscal 1998
included $.9 million of purchases under capital leases. These purchases were
related to the implementation of a new business enterprise system that is part
of the Company's overall plan to address "Year 2000" issues.
The Company's current primary source of liquidity, other than funds generated
from operations, is the $35.0 million revolving credit facility provided under
its senior credit agreement (of which $11.9 million was available as of May 1,
1998). Management believes that the Company will have adequate capital resources
and liquidity (including cash flow from operations and borrowing under its
revolving credit facility) to meet its obligations, fund all required capital
expenditures and pursue its business strategy for the foreseeable future and, in
any event, for the next 12 months.
-14-
<PAGE> 16
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2: CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are being filed as part of this report:
27.1 Financial Data Schedule (Communications & Power Industries,
Inc.)
27.2 Financial Data Schedule (Communications & Power Industries
Holding Corporation)
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended April 3, 1998.
-15-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMUNICATIONS & POWER INDUSTRIES, INC.
By: /s/ Al D. Wilunowski
---------------------------------------------------
Al D. Wilunowski
Chief Executive Officer and President
Date: May 13, 1998
By: /s/ Lynn E. Harvey
---------------------------------------------------
Lynn E. Harvey
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: May 13, 1998
-16-
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