<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 2, 1999
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) Securities registered pursuant to Section 12(b)
of the of the
Act: Act:
NONE NONE
Securities registered pursuant to Section 12(g) Securities registered pursuant to Section 12(g)
of the of the
Act: 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: 196,420 SHARES OF COMMON STOCK, $.01 PAR VALUE,
AT APRIL 2, 1999. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF COMMON
STOCK, $.01 PAR VALUE, AT APRIL 2, 1999.
<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>
<S> <C>
PART 1: FINANCIAL INFORMATION
COMMUNICATIONS & POWER INDUSTRIES, INC.
Consolidated Condensed Balance Sheets, April 2, 1999 and October 2, 1998............................2
Consolidated Condensed Statements of Operations, 13-week period ended April 2, 1999 and
13-week period ended April 3, 1998..................................................................3
Consolidated Condensed Statements of Operations, 26-week period ended April 2, 1999 and
26-week period ended April 3, 1998..................................................................4
Consolidated Condensed Statements of Cash Flows, 26-week period ended April 2, 1999 and
26-week period ended April 3, 1998..................................................................5
Notes to Consolidated Condensed Financial Statements................................................6
Management's Discussion and Analysis of Financial Condition and Results of Operations..............12
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
Consolidated Condensed Balance Sheets, April 2, 1999 and October 2, 1998............................7
Consolidated Condensed Statements of Operations, 13-week period ended April 2, 1999 and
13-week period ended April 3, 1998..................................................................8
Consolidated Condensed Statements of Operations, 26-week period ended April 2, 1999 and
26-week period ended April 3, 1998..................................................................9
Consolidated Condensed Statements of Cash Flows, 26-week period ended April 2, 1999 and
26-week period ended April 3, 1998.................................................................10
Notes to Consolidated Condensed Financial Statements...............................................11
Management's Discussion and Analysis of Financial Condition and Results of Operations..............12
PART II: OTHER INFORMATION
Other Information .................................................................................16
SIGNATURES..............................................................................................17
</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>
April 2, October 2,
ASSETS 1999 1998
------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,761 $ 448
Accounts receivable, net 45,097 49,484
Inventories 56,893 52,923
Deferred taxes 6,981 6,981
Other current assets 1,220 1,440
---------- ----------
Total current assets 111,952 111,276
Property, plant, and equipment, net 77,376 78,099
Goodwill and other intangibles, net 30,030 25,147
Debt issue costs, net 6,169 6,522
Deferred taxes 8,161 8,168
---------- ----------
Total assets $ 233,688 $ 229,212
========== ==========
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND EQUITY
--------------------------
CURRENT LIABILITIES
Revolving credit facility $ 24,200 $ 13,300
Current portion of term loans 6,200 6,200
Current portion of capital leases 742 541
Accounts payable 11,808 13,140
Accrued expenses 15,525 15,612
Product warranty 3,696 3,734
Income taxes payable 8,864 10,259
Advance payments from customers 3,323 2,533
---------- ----------
Total current liabilities 74,358 65,319
Senior term loans 20,504 23,750
Senior subordinated notes 100,000 100,000
Obligations under capital leases 2,402 2,548
---------- ----------
Total liabilities 197,264 191,617
---------- ----------
SENIOR REDEEMABLE PREFERRED STOCK 22,398 20,683
---------- ----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Junior Preferred Stock 1 1
Common Stock -- --
Additional paid-in capital 34,655 33,582
Accumulated deficit (19,549) (15,614)
Less stockholder loans (1,081) (1,057)
---------- ----------
Net stockholders' equity 14,026 16,912
---------- ----------
Total liabilities, redeemable
preferred stock and equity $ 233,688 $ 229,212
========== ==========
</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
April 2, April 3,
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 67,119 $ 68,802
Cost of sales 50,959 50,754
------------ ------------
Gross profit 16,160 18,048
------------ ------------
Operating costs and expenses:
Research and development 2,694 1,915
Marketing 4,992 4,626
General and administrative 4,311 3,958
------------ ------------
Total operating costs and expenses 11,997 10,499
------------ ------------
Operating income 4,163 7,549
Foreign currency loss (283) (205)
Interest expense (4,445) (4,467)
------------ ------------
(Loss) earnings before taxes (565) 2,877
Income tax expense -- 1,079
------------ ------------
Net (loss) earnings (565) 1,798
Preferred dividends:
Senior Redeemable Preferred Stock 818 713
Junior Preferred Stock 545 475
------------ ------------
(Loss) earnings attributable to common stock $ (1,928) $ 610
============ ============
</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>
26-Week 26-Week
period ended period ended
April 2, April 3,
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 124,900 $ 126,175
Cost of sales 94,613 93,480
------------ ------------
Gross profit 30,287 32,695
------------ ------------
Operating costs and expenses:
Research and development 4,760 3,719
Marketing 9,586 9,332
General and administrative 8,219 7,284
------------ ------------
Total operating costs and expenses 22,565 20,335
------------ ------------
Operating income 7,722 12,360
Foreign currency loss (441) (45)
Interest expense (8,851) (9,121)
------------ ------------
(Loss) earnings before taxes (1,570) 3,194
Income tax (benefit) expense (422) 1,198
------------ ------------
Net (loss) earnings (1,148) 1,996
Preferred dividends:
Senior Redeemable Preferred Stock 1,608 1,402
Junior Preferred Stock 1,072 934
------------ ------------
Loss attributable to common stock $ (3,828) $ (340)
============ ============
</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>
26-Week 26-Week
period ended period ended
April 2, April 3,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 6,525 $ 12,437
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment -- 29
Purchase of property, plant and equipment, net (3,922) (2,561)
Product lines acquisitions (8,910) (2,730)
------------ ------------
Net cash used in investing activities (12,832) (5,262)
------------ ------------
FINANCING ACTIVITIES
Net Proceeds/(Repayments) from revolving credit facility 10,900 (6,200)
Net Repayments on senior term loans (3,280) (2,600)
Purchase of treasury stock -- (75)
------------ ------------
Net cash provided by (used in) financing activities 7,620 (8,875)
------------ ------------
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS 1,313 (1,700)
Cash and cash equivalents at beginning of period 448 2,027
============ ============
Cash and cash equivalents at end of period $ 1,761 $ 327
============ ============
</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 2, 1998 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 1999.
During the quarter ended April 2, 1999, CPI paid preferred stock dividends on
its Senior Redeemable Preferred Stock and its Junior Preferred Stock through the
issuance of 8,180 additional shares of its Senior Redeemable Preferred Stock and
5,453 shares of its Junior Preferred Stock, respectively. During the six months
ended April 2, 1999, the Company paid preferred dividends through the issuance
of 16,083 shares of its Senior Redeemable Preferred Stock and 10,722 shares of
its Junior Preferred Stock.
Inventories are stated at the lower of average cost or market (net realizable
value). The main components of inventories are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) April 2, October 2,
1999 1998
-----------------------------
<S> <C> <C>
Raw materials and parts $ 40,956 $ 38,327
Work in process 13,617 13,572
Finished goods 2,320 1,024
-----------------------------
Total inventories $ 56,893 $ 52,923
=============================
</TABLE>
At the beginning of fiscal year 1999, CPI completed the acquisition of the
Microwave Components Division ("MCD") of Aydin Corporation for approximately
$8.9 million with net assets of approximately $2.4 million. The $6.5 million
difference between the purchase price and the fair value of the net assets
acquired was allocated to goodwill and other intangibles and will be amortized
over estimated useful lives ranging from 1 to 15 years. This acquisition was
accounted for as a purchase.
-6-
<PAGE> 8
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)
<TABLE>
<CAPTION>
April 2, October 2,
ASSETS 1999 1998
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,761 $ 448
Accounts receivable, net 45,097 49,484
Inventories 56,893 52,923
Deferred taxes 6,981 6,981
Other current assets 1,220 1,440
------------ ------------
Total current assets 111,952 111,276
Property, plant, and equipment, net 77,376 78,099
Goodwill and other intangibles, net 30,030 25,147
Debt issue costs, net 6,169 6,522
Deferred taxes 8,161 8,168
------------ ------------
Total assets $ 233,688 $ 229,212
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK,
PREFERRED STOCK OF SUBSIDIARY AND EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 24,200 $ 13,300
Current Portion of term loans 6,200 6,200
Current Portion of capital leases 742 541
Accounts payable 11,808 13,140
Accrued expenses 15,525 15,612
Product warranty 3,696 3,734
Income taxes payable 8,864 10,259
Advance payments from customers 3,323 2,533
------------ ------------
Total current liabilities 74,358 65,319
Senior term loans 20,504 23,750
Senior subordinated notes 100,000 100,000
Obligations under capital leases 2,402 2,548
------------ ------------
Total liabilities 197,264 191,617
------------ ------------
SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 22,398 20,683
------------ ------------
JUNIOR PREFERRED STOCK OF SUBSIDIARY 15,473 14,400
------------ ------------
STOCKHOLDERS' (DEFICIT) EQUITY:
Common Stock 2 2
Additional paid-in capital 19,181 19,181
Accumulated deficit (19,549) (15,614)
Less stockholder loans (1,081) (1,057)
------------ ------------
Net stockholders' (deficit) equity (1,447) 2,512
------------ ------------
Total liabilities, redeemable preferred stock, preferred
stock of subsidiary and equity $ 233,688 $ 229,212
============ ============
</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
April 2, April 3,
1999 1998
-------- --------
<S> <C> <C>
Sales $ 67,119 $ 68,802
Cost of sales 50,959 50,754
-------- --------
Gross profit 16,160 18,048
-------- --------
Operating costs and expenses:
Research and development 2,694 1,915
Marketing 4,992 4,626
General and administrative 4,311 3,958
-------- --------
Total operating costs and expenses 11,997 10,499
-------- --------
Operating income 4,163 7,549
Foreign currency loss (283) (205)
Interest expense (4,445) (4,467)
-------- --------
(Loss) earnings before taxes (565) 2,877
Income tax expense -- 1,079
-------- --------
Net (loss) earnings (565) 1,798
Preferred dividends:
Senior Redeemable Preferred Stock 818 713
Junior Preferred Stock 545 475
-------- --------
(Loss) earnings attributable to common stock $ (1,928) $ 610
======== ========
</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>
26-Week 26-Week
period ended period ended
April 2, April 3,
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 124,900 $ 126,175
Cost of sales 94,613 93,480
------------ ------------
Gross profit 30,287 32,695
------------ ------------
Operating costs and expenses:
Research and development 4,760 3,719
Marketing 9,586 9,332
General and administrative 8,219 7,284
------------ ------------
Total operating costs and expenses 22,565 20,335
------------ ------------
Operating income 7,722 12,360
Foreign currency loss (441) (45)
Interest expense (8,851) (9,121)
------------ ------------
(Loss) earnings before taxes (1,570) 3,194
Income tax (benefit) expense (422) 1,198
------------ ------------
Net (loss) earnings (1,148) 1,996
Preferred dividends:
Senior Redeemable Preferred Stock 1,608 1,402
Junior Preferred Stock 1,072 934
------------ ------------
Loss attributable to common stock $ (3,828) $ (340)
============ ============
</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>
26-Week 26-Week
period ended period ended
April 2, April 3,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 6,525 $ 12,437
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment -- 29
Purchase of property, plant and equipment, net (3,922) (2,561)
Product line acquisitions (8,910) (2,730)
------------ ------------
Net cash used in investing activities (12,832) (5,262)
------------ ------------
FINANCING ACTIVITIES
Net Proceeds/(Repayments) from revolving credit facility 10,900 (6,200)
Net Repayments on senior term loans (3,280) (2,600)
Purchase of treasury stock -- (75)
------------ ------------
Net cash provided by (used in) financing activities 7,620 (8,875)
------------ ------------
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS 1,313 (1,700)
Cash and cash equivalents at beginning of period 448 2,027
------------ ------------
Cash and cash equivalents at end of period $ 1,761 $ 327
============ ============
</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 2, 1998 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 1999.
During the quarter ended April 2 1999, CPI paid preferred stock dividends on its
Senior Redeemable Preferred Stock and its Junior Preferred Stock through the
issuance of 8,180 additional shares of its Senior Redeemable Preferred Stock and
5,453 shares of its Junior Preferred Stock, respectively. During the six months
ended April 2, 1999, the Company paid preferred dividends through the issuance
of 16,083 shares of its Senior Redeemable Preferred Stock and 10,722 shares of
its Junior Preferred Stock.
Inventories are stated at the lower of average cost or market (net realizable
value). The main components of inventories are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) April 2, October 2,
1999 1998
-----------------------------
<S> <C> <C>
Raw materials and parts $ 40,956 $ 38,327
Work in process 13,617 13,572
Finished goods 2,320 1,024
-----------------------------
Total inventories $ 56,893 $ 52,923
=============================
</TABLE>
At the beginning of fiscal year 1999, CPI completed the acquisition of the
Microwave Components Division ("MCD") of Aydin Corporation for approximately
$8.9 million with net assets of approximately $2.4 million. The $6.5 million
difference between the purchase price and the fair value of the net assets
acquired was allocated to goodwill and other intangibles and will be amortized
over estimated useful lives ranging from 1 to 15 years. This acquisition was
accounted for as a purchase.
-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 1999 were $63.5 million as compared
to $81.6 million for the second quarter of Fiscal 1998, bringing orders for the
first six months of Fiscal 1999 to a level of $115.1 million as compared to
$143.8 million during the same time period in Fiscal 1998. This decline of $28.6
million, or 19.9%, was in line with Company expectations as a $5 million annual
order for sole-source medical products was delayed until the third quarter and
as Far East economic conditions continue to hinder growth in the Company's
communications and industrial markets. Overall, 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 2, 1999, the Company had order backlog of $152.8 million,
representing approximately seven months of sales , compared to order backlog of
$187.3 million, or approximately eight and a half months of sales as of April 3,
1998.
Sales for the second quarter of Fiscal 1999 were $67.1 million compared to $68.8
million for the same period in Fiscal 1998 and were $124.9 million for the first
six months of Fiscal 1999 compared to $126.2 million for the first six months of
Fiscal 1998. This decline of $1.7 million for the second quarter and $1.3
million for the first six months was primarily due to the Far East economic
conditions mentioned above hindering both orders and sales in the satcom portion
of the Company's communications market and the semiconductor portion of the
Company's industrial market. Communication sales decreased $6.4 million, or
11.1%, during the first six months in spite of the Company's recent acquisition
(completed in October 1998) of solid state products that added $3.0 million of
new sales. Industrial sales also declined by $1.1 million, or 11.9%. On the
upside, sales to the Company's electronic countermeasures, medical and
scientific markets increased by $2.6 million, $2.4 million and $1.1 million,
respectively due to increased production levels of the Company's new transmitter
products, increased business in European x-ray markets and the release of a new
scientific product to one of the National Laboratories. Sales to the radar
market remained consistent with the same time period last year.
Gross profit was $16.2 million, or 24.1% of sales, in the second quarter of
Fiscal 1999 compared to $18.0 million, or 26.2% of sales, in the second quarter
of Fiscal 1998 due to lower sales volume and product mix. Gross profit for the
first six months of Fiscal 1999 was $30.3 million, or 24.2% of sales, compared
to $32.7 million, or 25.9% of sales, during the comparable period in Fiscal
1998. This decrease of $2.4 million, or 7.4%, was the result of the slightly
lower sales volume combined with a shift in product mix that was more heavily
weighted toward new products with lower margins resulting from higher start-up
costs.
-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 $12.3 million, or 18.3% of sales, for the
second quarter of Fiscal 1999, as compared to $10.7 million, or 15.6%, for the
second quarter of Fiscal 1998 primarily due to higher research and development
spending as well as higher costs related to the Company's recent acquisition.
Operating costs and expenses for the first six months of Fiscal 1999 were $23.0
million, or 18.4% of sales, compared to $20.4 million, or 16.2% of sales, for
the first six months of Fiscal 1998. This increase of $2.6 million was driven by
the Company's focus on releasing several new satcom products that resulted in
$1.0 million of higher research and development costs, the Company's recent
acquisition that added marketing, administrative and amortization costs of $1.2
million and currency fluctuations of approximately $0.4 million
Earnings before interest, income taxes, depreciation and amortization
("EBITDA")(1) for the second quarter of Fiscal 1999 were $7.2 million, or 10.8%
of sales, compared to $10.2 million, or 14.8% of sales, for the second quarter
of Fiscal 1998. EBITDA for the first six months of Fiscal 1999 was $14.0
million, or 11.2% of sales, compared to $17.8 million, or 14.1% of sales, for
the same time period in Fiscal 1998. This decrease in EBITDA of $2.9 million for
the second quarter and $3.8 million for the first six months was primarily due
to lower sales volume and changes in product mix combined with the release of
new products with lower margins and higher research and development spending.
FINANCIAL CONDITION
Cash flows provided by operating activities for the first six months of Fiscal
1999 were $6.5 million, a decrease of $5.9 million from the $12.4 million
provided by operating activities during the first six months of Fiscal 1998.
Cash flow decreased due primarily to lower earnings and higher levels of
accounts payable payments partially offset by an increase in advanced payments
from customers.
Investing activities increased to $12.8 million in the first six months of
Fiscal 1999 compared to $5.3 million in the first six months of Fiscal 1998.
This increase of $7.5 million was due the acquisition of the Microwave
Components Division of Aydin Corporation, which was completed in October 1998,
and to slightly higher spending on production equipment.
The Company's current primary source of liquidity, other than funds generated
from operations, is the $45.0 million revolving credit facility provided under
its senior credit agreement (of which $12.2 million was available as of April
30, 1999). In the first six months of Fiscal 1999, the Company borrowed $10.9
million under this facility to repay $3.3 million of term loans and to complete
the acquisition mentioned above. 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.
- ----------
(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)
Market Risk
The Company's market risk disclosures set forth in its Annual Report on Form
10-K for the fiscal year ended October 2, 1998 have not changed significantly.
Year 2000
The Company has conducted a comprehensive review of its computer systems and
applications to identify systems that could be affected by the "Year 2000" issue
and has developed a remediation plan. All systems that are considered to be
mission critical have been identified and addressed in this plan. The Company
has also reviewed its products, process equipment and facilities systems as part
of its overall Year 2000 readiness.
The Company's focus is first on products and business critical systems and
equipment. Evaluation of products is substantially complete as only a few CPI
products contain microprocessors or microcode. To date, no significant problems
have been found in existing CPI products. Also, CPI is contacting its suppliers
to ensure that they have appropriate plans in place to adequately address the
century change issue. CPI's goals for the Year 2000 project are to have all
business critical process Year 2000 conversions, corrective actions, work
arounds and tests completed by October 31, 1999. To date, three of the Company's
seven Divisions have successfully modified or replaced Enterprise Resource
Planning ("ERP") systems. The other four are scheduled to "go-live" on a new ERP
system during the next six months.
Timely completion of its Year 2000 project is a priority of the Company and the
remediation plan, along with the timetable for its completion and budgeted
remediation costs, have been approved by the Company's Year 2000 project team,
management, and the Board of Directors. Management currently estimates that it
will spend approximately $5.2 million primarily through a capital lease program
to replace outdated Varian legacy systems. To date, approximately $4.7 million
has been incurred. Other remediation efforts include a mix of capital
expenditures and operating expense and an estimated $1.5 million is planned for
Fiscal 1999. The Company's estimated timetable and budgeted remediation costs
are based on assumptions which management believes are reasonable and
appropriate. Management is committing and will continue to commit necessary
human and financial resources to complete its remediation plans on a timely
basis.
To date, based on both written and verbal discussions, management has no
information that indicates a significant vendor or service provider may be
unable to sell goods or provide services to the Company or that any significant
customer may be unable to purchase from the Company because of Year 2000 issues.
Further, the Company has not received any notifications from regulatory agencies
to which it is subject indicating that the Company must achieve compliance by a
specific date or significant regulatory action will be taken.
The Company presently believes that, with modifications to existing software and
conversion to new software, the Year 2000 problem will not pose significant
operational problems for the Company's systems as modified and converted.
However, if such modifications and conversions are not completed
-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)
timely, the Year 2000 problem could have a material impact on the operations of
the Company. Management is still in the process of developing contingency plans
but expects that manual processing procedures to maintain accurate processing of
information and data are available. Contingency plans are expected to be
completed by June 1999.
Forward-Looking Information
Except for historical information, this Management's Discussion and Analysis
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those projected. Such risks
and uncertainties include: product demand and market acceptance risks; the
effect of general economic conditions; the impact of competitive products and
pricing; new product development and commercialization; technological
difficulties and the ability to increase margins; the timing of renewed growth
in the Far East; U.S. Government export policies; and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission.
-15-
<PAGE> 17
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 2,
1999.
-16-
<PAGE> 18
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, 1999
By: /s/ Lynn E. Harvey
----------------------------------------------------------
Lynn E. Harvey
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: May 13, 1999
-17-
<PAGE> 19
INDEX TO EXHIBIT
Exhibit
Number Description
- ------- -----------
27.1 Financial Data Schedule (Communications & Power Industries, Inc.)
27.2 Financial Data Schedule (Communications & Power Industries Holding
Corporation)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM
CONDENSED CONSOLIDATED 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 APRIL 2, 1999
</LEGEND>
<CIK> 0001000564
<NAME> COMMUNICATIONS & POWER INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-01-1999
<PERIOD-START> OCT-03-1998
<PERIOD-END> APR-02-1999
<CASH> 1,761
<SECURITIES> 0
<RECEIVABLES> 45,097
<ALLOWANCES> 0
<INVENTORY> 56,893
<CURRENT-ASSETS> 111,952
<PP&E> 77,376
<DEPRECIATION> 0
<TOTAL-ASSETS> 233,688
<CURRENT-LIABILITIES> 74,358
<BONDS> 122,906
22,398
1
<COMMON> 0
<OTHER-SE> 14,025
<TOTAL-LIABILITY-AND-EQUITY> 233,688
<SALES> 124,900
<TOTAL-REVENUES> 124,900
<CGS> 94,613
<TOTAL-COSTS> 94,613
<OTHER-EXPENSES> 4,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,851
<INCOME-PRETAX> (1,570)
<INCOME-TAX> (422)
<INCOME-CONTINUING> (1,148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,148)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM
CONDENSED CONSOLIDATED 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 APRIL 2, 1999
</LEGEND>
<CIK> 0001000654
<NAME> COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-01-1999
<PERIOD-START> OCT-03-1998
<PERIOD-END> APR-02-1999
<CASH> 1,761
<SECURITIES> 0
<RECEIVABLES> 45,097
<ALLOWANCES> 0
<INVENTORY> 56,893
<CURRENT-ASSETS> 111,952
<PP&E> 77,376
<DEPRECIATION> 0
<TOTAL-ASSETS> 233,688
<CURRENT-LIABILITIES> 74,358
<BONDS> 122,906
22,398
0
<COMMON> 2
<OTHER-SE> (1,449)
<TOTAL-LIABILITY-AND-EQUITY> 233,688
<SALES> 124,900
<TOTAL-REVENUES> 124,900
<CGS> 94,613
<TOTAL-COSTS> 94,613
<OTHER-EXPENSES> 4,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,851
<INCOME-PRETAX> (1,570)
<INCOME-TAX> (422)
<INCOME-CONTINUING> (1,148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,148)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
