<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 July 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 charter) (Exact name of registrant as specified in its 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 number, (Address, including zip code, and telephone number,
including area code, of registrant's principal including area code, of registrant's principal
executive offices) 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: 198,770 SHARES OF COMMON STOCK, $.01 PAR VALUE,
AT JULY 3, 1998. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF COMMON
STOCK, $.01 PAR VALUE, AT JULY 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)
PART 1: FINANCIAL INFORMATION
COMMUNICATIONS & POWER INDUSTRIES, INC.
<TABLE>
<S> <C>
Consolidated Condensed Balance Sheets, July 3, 1998 (unaudited) and
October 3, 1997.................................................................. 2
Consolidated Condensed Statements of Operations, 13-week period ended
July 3, 1998 (unaudited) and 13-week period ended July 4, 1997 (unaudited)....... 3
Consolidated Condensed Statements of Operations, 39-week period ended
July 3, 1998 (unaudited) and 40-week period ended July 4, 1997 (unaudited)....... 4
Consolidated Condensed Statements of Cash Flows, 39-week period ended
July 3, 1998 (unaudited) and 40-week period ended July 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, July 3, 1998 (unaudited) and
October 3, 1997.................................................................. 7
Consolidated Condensed Statements of Operations, 13-week period ended
July 3, 1998 (unaudited) and 13-week period ended July 4, 1997 (unaudited)....... 8
Consolidated Condensed Statements of Operations, 39-week period ended
July 3, 1998 (unaudited) and 40-week period ended July 4, 1997 (unaudited)....... 9
Consolidated Condensed Statements of Cash Flows, 39-week period ended
July 3, 1998 (unaudited) and 40-week period ended July 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)
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)
<TABLE>
<CAPTION>
July 3, October 3,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,283 $ 2,027
Accounts receivable, net 46,850 52,326
Inventories 55,871 50,750
Deferred taxes 7,133 7,133
Other current assets 653 1,221
--------- ---------
Total current assets 112,790 113,457
Property, plant, and equipment, net 78,074 79,994
Goodwill, net 23,593 24,144
Debt issue costs, net 6,781 7,893
Deferred taxes 11,920 11,908
Other assets 1,913 --
--------- ---------
Total assets $ 235,071 $ 237,396
========= =========
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 15,700 $ 22,800
Current portion of term loans 6,200 5,700
Current portion of capital leases 351 --
Accounts payable - trade 11,012 10,419
Accrued expenses 20,323 15,088
Product warranty 3,625 4,211
Income taxes payable 12,511 11,975
Advance payments from customers 1,923 2,797
--------- ---------
Total current liabilities 71,645 72,990
Senior term loans 25,300 29,950
Senior subordinated notes 100,000 100,000
Obligations under capital leases 2,406 1,584
--------- ---------
Total liabilities 199,351 204,524
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK 19,866 17,566
--------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Junior Preferred Stock 1 1
Common Stock -- --
Additional paid-in capital 33,542 32,143
Accumulated deficit (16,588) (15,738)
Less stockholder loans (1,101) (1,100)
--------- ---------
Net stockholders' equity 15,854 15,306
--------- ---------
Total liabilities, redeemable
preferred stock and equity $ 235,071 $ 237,396
========= =========
</TABLE>
See accompanying notes to the unaudited interim consolidated condensed financial
statements.
-2-
<PAGE> 4
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
13-Week 13-Week
period ended period ended
July 3, July 4,
1998 1997
-------- --------
<S> <C> <C>
Sales $ 64,450 $ 66,198
Cost of sales 48,702 46,754
-------- --------
Gross profit 15,748 19,444
-------- --------
Operating costs and expenses:
Research and development 1,687 1,941
Marketing 5,065 4,783
General and administrative 3,192 3,758
-------- --------
Total operating costs and expenses 9,944 10,482
-------- --------
Operating income 5,804 8,962
Interest expense 4,399 4,753
-------- --------
Earnings before taxes 1,405 4,209
Income tax expense 527 463
-------- --------
Net earnings 878 3,746
Preferred dividends:
Senior Redeemable Preferred Stock 738 643
Junior Preferred Stock 492 429
-------- --------
(Loss)/earnings attributable to common stock $ (352) $ 2,674
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-3-
<PAGE> 5
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
39-Week 40-Week
period ended period ended
July 3, July 4,
1998 1997
--------- ---------
<S> <C> <C>
Sales $ 190,625 $ 185,389
Cost of sales 142,181 135,316
--------- ---------
Gross profit 48,444 50,073
--------- ---------
Operating costs and expenses:
Research and development 5,406 5,665
Marketing 14,397 14,871
General and administrative 10,521 9,313
--------- ---------
Total operating costs and expenses 30,324 29,849
--------- ---------
Operating income 18,120 20,224
Interest expense 13,520 14,245
--------- ---------
Earnings before taxes 4,600 5,979
Income tax expense 1,725 658
--------- ---------
Net earnings 2,875 5,321
Preferred dividends:
Senior Redeemable Preferred Stock 2,140 1,864
Junior Preferred Stock 1,426 1,243
--------- ---------
(Loss)/earnings attributable to common stock $ (691) $ 2,214
========= =========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-4-
<PAGE> 6
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
<TABLE>
<CAPTION>
39-Week 40-Week
period ended period ended
July 3, July 4,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 18,592 $ 5,677
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 29 --
Purchase of property, plant and equipment, net (4,387) (7,937)
Product lines acquisitions (2,730) --
(Increase) decrease in other non current assets (1) --
-------- --------
Net cash used in investing activities (7,089) (7,937)
-------- --------
FINANCING ACTIVITIES
Net (Repayments)/Proceeds from debt issue costs -- (193)
Net (Repayments)/Proceeds from revolving credit facility (7,100) 6,900
Net (Repayments)/Proceeds from senior term loans (4,150) (3,950)
Net (Repayments)/Proceeds from stockholder loans 30 --
Purchase of treasury stock (723) (15)
Issuance of treasury stock 696 --
-------- --------
Net cash provided by (used in) financing activities (11,247) 2,742
-------- --------
NET DECREASE IN
CASH AND CASH EQUIVALENTS 256 482
Cash and cash equivalents at beginning of period 2,027 1,753
-------- --------
Cash and cash equivalents at end of period $ 2,283 $ 2,235
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-5-
<PAGE> 7
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power
Industries Holding Corporation)
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(unaudited)
The accompanying unaudited consolidated condensed 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 footnote 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 present fairly the financial position of CPI, and its results of
operations and cash flows, 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 July 3, 1998, CPI paid preferred stock dividends on its
Senior Redeemable Preferred Stock and its Junior Preferred Stock through the
issuance of 7,378 additional shares of its Senior Redeemable Preferred Stock and
4,919 shares of its Junior Preferred Stock, respectively. During the nine months
ended July 3, 1998, the Company paid preferred stock dividends through the
issuance of 21,393 shares of its Senior Redeemable Preferred Stock and 14,263
shares of its Junior Preferred Stock.
-6-
<PAGE> 8
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)
<TABLE>
<CAPTION>
July 3, October 3,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,283 $ 2,027
Accounts receivable, net 46,850 52,326
Inventories 55,871 50,750
Deferred taxes 7,133 7,133
Other current assets 653 1,221
--------- ---------
Total current assets 112,790 113,457
Property, plant, and equipment, net 78,074 79,994
Goodwill, net 23,593 24,144
Debt issue costs, net 6,781 7,893
Deferred taxes 11,920 11,908
Other assets 1,913 --
--------- ---------
Total assets $ 235,071 $ 237,396
========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK
PREFERRED STOCK OF SUBSIDIARY AND EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 15,700 $ 22,800
Current Portion of term loans 6,200 5,700
Current Portion of capital leases 351 --
Accounts payable - trade 11,012 10,419
Accrued expenses 20,323 15,088
Product warranty 3,625 4,211
Income taxes payable 12,511 11,975
Advance payments from customers 1,923 2,797
--------- ---------
Total current liabilities 71,645 72,990
Senior term loans 25,300 29,950
Senior subordinated notes 100,000 100,000
Obligations under capital leases 2,406 1,584
--------- ---------
Total liabilities 199,351 204,524
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 19,866 17,566
--------- ---------
JUNIOR PREFERRED STOCK OF SUBSIDIARY 13,891 12,465
--------- ---------
STOCKHOLDERS' EQUITY:
Common Stock 2 2
Additional paid-in capital 19,650 19,677
Accumulated deficit (16,588) (15,738)
Less stockholder loans (1,101) (1,100)
--------- ---------
Net stockholders' equity 1,963 2,841
--------- ---------
Total liabilities, redeemable preferred stock, preferred
stock of subsidiary and equity $ 235,071 $ 237,396
========= =========
</TABLE>
See accompanying notes to the unaudited consolidated condensed
financial statements.
-7-
<PAGE> 9
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
13-Week 13-Week
period ended period ended
July 3, July 4,
1998 1997
-------- --------
<S> <C> <C>
Sales $ 64,450 $ 66,198
Cost of sales 48,702 46,754
-------- --------
Gross profit 15,748 19,444
-------- --------
Operating costs and expenses:
Research and development 1,687 1,941
Marketing 5,065 4,783
General and administrative 3,192 3,758
-------- --------
Total operating costs and expenses 9,944 10,482
-------- --------
Operating income 5,804 8,962
Interest expense 4,399 4,753
-------- --------
Earnings before taxes 1,405 4,209
Income tax expense 527 463
-------- --------
Net earnings 878 3,746
Preferred dividends:
Senior Redeemable Preferred Stock 738 643
Junior Preferred Stock 492 429
-------- --------
(Loss)/earnings attributable to common stock $ (352) $ 2,674
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-8-
<PAGE> 10
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
39-Week 40-Week
period ended period ended
July 3, July 4,
1998 1997
--------- ---------
<S> <C> <C>
Sales $ 190,625 $ 185,389
Cost of sales 142,181 135,316
--------- ---------
Gross profit 48,444 50,073
--------- ---------
Operating costs and expenses:
Research and development 5,406 5,665
Marketing 14,397 14,871
General and administrative 10,521 9,313
--------- ---------
Total operating costs and expenses 30,324 29,849
--------- ---------
Operating income 18,120 20,224
Interest expense 13,520 14,245
--------- ---------
Earnings before taxes 4,600 5,979
Income tax expense 1,725 658
--------- ---------
Net earnings 2,875 5,321
Preferred dividends:
Senior Redeemable Preferred Stock 2,140 1,864
Junior Preferred Stock 1,426 1,243
--------- ---------
(Loss)/earnings attributable to common stock $ (691) $ 2,214
========= =========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-9-
<PAGE> 11
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
<TABLE>
<CAPTION>
39-Week 40-Week
period ended period ended
July 3, July 4,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 18,592 $ 5,677
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 29 --
Purchase of property, plant and equipment, net (4,387) (7,937)
Product line acquisitions (2,730) --
(Increase) decrease in other non current assets (1) --
-------- --------
Net cash used in investing activities (7,089) (7,937)
-------- --------
FINANCING ACTIVITIES
Net (Repayments)/Proceeds from debt issue costs -- (193)
Net (Repayments)/Proceeds from stockholder loans 30 --
Net (Repayments)/Proceeds from revolving credit facility (7,100) 6,900
Net (Repayments)/Proceeds from senior term loans (4,150) (3,950)
Purchase of treasury stock (723) (15)
Issuance of treasury stock 696 --
-------- --------
Net cash provided by (used in) financing activities (11,247) 2,742
-------- --------
NET DECREASE IN
CASH AND CASH EQUIVALENTS 256 482
Cash and cash equivalents at beginning of period 2,027 1,753
-------- --------
Cash and cash equivalents at end of period $ 2,283 $ 2,235
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-10-
<PAGE> 12
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(unaudited)
The accompanying unaudited 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 footnote 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 present fairly the financial position of Holding,
and its results of operations and cash flows, 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 July 3, 1998, CPI paid preferred stock dividends on its
Senior Redeemable Preferred Stock and its Junior Preferred Stock through the
issuance of 7,378 additional shares of its Senior Redeemable Preferred Stock and
4,919 shares of its Junior Preferred Stock, respectively. During the nine months
ended July 3, 1998, the Company paid preferred stock dividends through the
issuance of 21,393 shares of its Senior Redeemable Preferred Stock and 14,263
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 third quarter of Fiscal 1998 were $53.4 million as compared to
$74.1 million for the third quarter of Fiscal 1997, a decrease of 27.9%
primarily related to the economic issues currently being faced by certain Far
East customers and domestic OEM's that sell to the Far East. Orders during the
first nine months of Fiscal 1998 were $197.2 million, a decrease of $18.6
million, or 8.6% below 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 July 3, 1998, the Company had order backlog of $168.5 million,
representing approximately eight months of sales, compared to order backlog of
$180.9 million as of July 4, 1997.
Sales for the third quarter of Fiscal 1998 were $64.5 million compared to $66.2
million for the same period in Fiscal 1997, a decrease of 2.6%, primarily due to
the timing of customer-defined delivery schedules. Sales for the first nine
months of Fiscal 1998 were $190.6 million compared to $185.4 million for the
first nine months of Fiscal 1997. This increase of $5.2 million, or 2.8%, was
primarily the result of increased demand for products used in the radar market
and the successful transition of new transmitter product from development into
production.
In terms of markets, the sales increase for the first nine months of Fiscal 1998
was reflected in higher sales of products to the radar, electronic
countermeasures and medical markets of $7.7 million, $2.2 million and $1.1
million, respectively, partially offset by slight declines in the Company's
other three markets. In the communications market, the Company's largest market,
sales were $85.6 million, or 44.9% of total sales, compared to $88.8 million, or
47.9% of total sales, in the first nine months of Fiscal 1997. Communications
sales were down by $3.2 million, or 3.6%, primarily due to temporary weakness in
Asian markets, the completion of a major military satcom program and delays in
the procurement process of products identified for use in the wireless
communications market. Sales to the radar market, the Company's second largest
market, were $64.3 million, or 33.7% of total sales, during the first nine
months of Fiscal 1998 compared to $56.6 million, or 30.5% of total sales, during
the same period in Fiscal 1997. This increase of $7.7 million, or 13.6%, was the
result of increased demand 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 $40.7
million, or 21.4% of total sales, in the first nine months of Fiscal 1998
compared to $40.0 million, or 21.6% of total sales, in the first nine months of
Fiscal 1997.
Gross profit was $15.7 million, or 24.4% of sales, in the third quarter of
Fiscal 1998 compared to $19.4 million, or 29.4% of sales, in the third quarter
of Fiscal 1997 due to the lower sales volume mentioned above, lower margins
realized on the development and initial production of new products and higher
depreciation costs. Gross profit for the first nine months of Fiscal 1998 was
$48.4 million, or 25.4% of sales compared to $50.1 million, or 27.0% of sales,
over the comparable period in Fiscal 1997. This
-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)
decrease of approximately $1.6 million, or 3.3% was primarily the result of an
increase in depreciation (approximately $1.0 million, or 17.4%, higher in the
first nine months of Fiscal 1998 than in the same time period in Fiscal 1997)
and lower margins on several new product development contracts partially offset
by higher sales volume.
Operating costs and expenses were $9.9 million, or 15.4% of sales for the third
quarter of Fiscal 1998, as compared to $10.5 million, or 15.8%, for the third
quarter of Fiscal 1997. Operating costs and expenses decreased between the two
time periods primarily due to accrual rates for the Company's management
incentive plan and the impact of favorable currency valuation rates in Europe.
Operating costs and expenses for the first nine months of Fiscal 1998 were $30.3
million, or 15.9% of sales, compared to $29.8 million, or 16.1% of sales, for
the first nine months of Fiscal 1997. During the first nine months of Fiscal
1998, operating costs increased by $0.5 million as $1.2 million of higher
general and administrative costs were partially offset by lower marketing and
research and development costs. The increase in general and administrative
expenses was primarily related to higher goodwill amortization from a product
line acquisition completed in the first quarter of Fiscal 1998, software upgrade
costs that address Year 2000 compliance at the Company's Massachusetts facility
and a $0.4 million increase in the Company's bad debt provision required due to
economic problems in Indonesia affecting the collectibility of a customer
receivable, along with 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 third quarter of Fiscal 1998 was $8.8 million, or 13.6% of
sales, compared to $11.4 million, or 17.2% of sales, for the third quarter of
Fiscal 1997. EBITDA for the first nine months of Fiscal 1998 was $26.6 million,
or 13.9% of sales, compared to $27.3 million, or 14.7% of sales, for the same
time period in Fiscal 1997. EBITDA declined by $0.7 million, or 2.5%, due
primarily to product mix and slightly lower margins on new development contract
as mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities for the first nine months of Fiscal
1998 were $18.6 million, an increase of $12.9 million from the $5.7 million
provided by operating activities during the first nine months of Fiscal 1997.
Cash flow increased in spite of a slight decline in earnings due to improvement
in the timing of receivable collections and increased levels of accounts payable
that correspond to an increased level of inventory. Also in the first nine
months of Fiscal 1997, accrued expenses and the timing of payments required for
payroll, supplemental property taxes and interest payments consumed cash of $2.4
million compared to providing cash of $5.3 million in the first nine months of
Fiscal 1998. Overall, operating activities funded $11.2 million of repayments
against the Company's revolving credit facility and senior term loans during the
first nine months 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
nine months of Fiscal 1998, the Company invested $4.4 million in new capital
equipment compared to $7.9 million spent during the same time period in Fiscal
1997. This capital expenditure reduction of $3.5 million was anticipated by the
Company and was primarily related to completing consolidation efforts in Fiscal
1997. Also during 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 nine months of Fiscal 1998
included $1.2 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 $17.1 million was available as of July 31,
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 July 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: August 12, 1998
By: /s/ Lynn E. Harvey
-----------------------------------------------
Lynn E. Harvey
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: August 12, 1998
-16-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27.1 Financial Data Schedule (Communications & Power Industries, Inc.)
27.2 Financial Data Schedule (Communications & Power Industries Holding
Corporation)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS AND BALANCE SHEET AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q COMMUNICATIONS & POWER INDUSTRIES
HOLDING CORPORATION FOR THE QUARTER ENDED JULY 3, 1998.
</LEGEND>
<CIK> 0001000564
<NAME> COMMUNICATION & POWER INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-START> OCT-04-1998
<PERIOD-END> JUL-03-1998
<CASH> 2,283
<SECURITIES> 0
<RECEIVABLES> 46,850
<ALLOWANCES> 0
<INVENTORY> 55,871
<CURRENT-ASSETS> 112,790
<PP&E> 78,074
<DEPRECIATION> 0
<TOTAL-ASSETS> 235,071
<CURRENT-LIABILITIES> 71,645
<BONDS> 127,706
19,866
0
<COMMON> 2
<OTHER-SE> 1,961
<TOTAL-LIABILITY-AND-EQUITY> 235,071
<SALES> 190,625
<TOTAL-REVENUES> 190,625
<CGS> 142,181
<TOTAL-COSTS> 142,181
<OTHER-EXPENSES> 5,406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,520
<INCOME-PRETAX> 4,600
<INCOME-TAX> 1,725
<INCOME-CONTINUING> 2,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,875
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS AND BALANCE SHEET AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q COMMUNICATIONS & POWER INDUSTRIES, INC.
FOR THE QUARTER ENDED JULY 3, 1998.
</LEGEND>
<CIK> 0001000654
<NAME> COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-START> OCT-04-1997
<PERIOD-END> JUL-03-1998
<CASH> 2,283
<SECURITIES> 0
<RECEIVABLES> 46,850
<ALLOWANCES> 0
<INVENTORY> 55,871
<CURRENT-ASSETS> 112,790
<PP&E> 78,074
<DEPRECIATION> 0
<TOTAL-ASSETS> 235,071
<CURRENT-LIABILITIES> 71,645
<BONDS> 127,706
19,866
1
<COMMON> 0
<OTHER-SE> 15,853
<TOTAL-LIABILITY-AND-EQUITY> 235,071
<SALES> 190,625
<TOTAL-REVENUES> 190,625
<CGS> 142,181
<TOTAL-COSTS> 142,181
<OTHER-EXPENSES> 5,406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,520
<INCOME-PRETAX> 4,600
<INCOME-TAX> 1,725
<INCOME-CONTINUING> 2,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,875
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
