<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 March 29, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from ___________________ to _____________
- - --------------------------------------------------------------------------------
Commission File Number: 33-96858-01
- - --------------------------------------------------------------------------------
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State of Incorporation)
77-0407395
(I.R.S. employer identification number)
607 Hansen Way
Palo Alto, California 94303-1110
(415) 846-2900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive
offices) Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
- - --------------------------------------------------------------------------------
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: 200,000 SHARES OF COMMON STOCK, $.01 PAR VALUE,
AT FEBRUARY 1, 1996.
<PAGE> 2
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
PART 1
PART 1: FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets, March 29, 1996 (Unaudited) and
September 29, 1995..................................................... 2
Consolidated Condensed Statements of Operations, 13-week period ended
March 29, 1996 (unaudited) and March 31, 1995 (unaudited) ............. 3
Consolidated Condensed Statements of Operations, 26-week period ended
March 29, 1996 (unaudited) and March 31, 1995 (unaudited) ............. 4
Consolidated Condensed Statements of Cash Flows, 26-week period ended
March 29,1996 (unaudited) and March 31, 1995 (unaudited) .............. 5
Notes to Consolidated Condensed Financial Statements
(unaudited)............................................................ 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited)..................................... 7
PART II: OTHER INFORMATION
Other Information ..................................................... 9
Signatures ............................................................ 10
-1-
<PAGE> 3
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
INTERIM CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands - unaudited)
<TABLE>
<CAPTION>
March 29, September 29,
ASSETS 1996 1995
--------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,804 8,267
Accounts receivable, net 44,950 44,743
Inventories 49,805 44,765
Other current assets 2,509 2,566
--------- ---------
Total current assets 102,068 100,341
Property, plant, and equipment, net 75,288 74,071
Goodwill, net 25,693 26,098
Other assets 12,615 14,392
========= =========
Total assets $ 215,664 214,902
========= =========
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Revolving credit facility $ 17,300 19,600
Accounts payable - trade 12,624 16,474
Accrued expenses 30,332 25,863
Current portion of term loans 3,200 3,200
--------- ---------
Total current liabilities 63,456 65,137
Senior term loans 38,000 38,800
Senior subordinated notes 100,000 100,000
Deferred taxes 343 43
--------- ---------
Total liabilities 201,799 203,980
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 13,575 12,460
--------- ---------
MINORITY INTEREST-JUNIOR PREFERRED STOCK OF
SUBSIDIARY 10,019 9,346
--------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock 2 2
Additional paid-in capital 19,741 19,741
Accumulated deficit (28,482) (29,627)
Less stockholder loans (990) (1,000)
--------- ---------
Net stockholders' equity (deficit) (9,729) (10,884)
--------- ---------
Total liabilities, redeemable
preferred stock and equity (deficit) $ 215,664 214,902
========= =========
</TABLE>
See accompanying notes to the unaudited interim
condensed consolidated financial statements.
-2-
<PAGE> 4
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
------------ ------------
13-Week 13-Week
period ended period ended
March 29, March 30,
1996 1995
------------ ------------
<S> <C> <C>
Sales $63,467 64,047
Cost of sales 45,861 46,396
------- -------
Gross Profit 17,606 17,651
------- -------
Operating costs and expenses:
Research and development 1,919 2,173
Marketing 4,892 5,054
General and administrative 2,801 5,301
------- -------
Total operating costs and expenses 9,612 12,528
------- -------
Operating income 7,994 5,123
Interest expense 4,620 --
------- -------
Earnings before taxes 3,374 5,123
Income tax expense 1,249 1,898
------- -------
Net earnings (loss) 2,125 3,225
Preferred dividends:
Senior Redeemable Preferred Stock 541 --
Junior Preferred Stock 361 --
------- -------
Earnings attributable to common stock $ 1,223 3,225
======= =======
</TABLE>
See accompanying notes to the unaudited interim
condensed consolidated financial statements.
-3-
<PAGE> 5
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
INTERIM CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
------------ ------------
26-Week 26-Week
period ended period ended
March 29, March 30,
1996 1995
------------ ------------
<S> <C> <C>
Sales $126,100 122,739
Cost of sales 91,839 90,851
-------- --------
Gross Profit 34,261 31,888
-------- --------
Operating costs and expenses:
Research and development 3,700 3,999
Marketing 9,733 9,640
General and administrative 6,547 10,244
-------- --------
Total operating costs and expenses 19,980 23,883
-------- --------
Operating income 14,281 8,005
Interest expense 9,620 --
-------- --------
Earnings before taxes 4,661 8,005
Income tax expense 1,725 2,964
-------- --------
Net earnings (loss) 2,936 5,041
Preferred dividends:
Senior Redeemable Preferred Stock 1,008 --
Junior Preferred Stock 672 --
-------- --------
Earnings attributable to common stock $ 1,256 5,041
======== ========
</TABLE>
See accompanying notes to the unaudited interim
condensed consolidated financial statements.
-4-
<PAGE> 6
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
------------ ------------
26-Week 26-Week
period ended period ended
March 29, March 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 4,395 6,922
------- -------
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net (4,396) (3,160)
(Increase) decrease in other non current assets (122) 638
------- -------
Net cash used in investing activities (4,518) (2,522)
------- -------
FINANCING ACTIVITIES
Repayment of intercompany funding to Varian -- (2,527)
Debt issue costs (250)
Proceeds from Stockholder loans 10
Borrowings on revolving credit facility, net (3,100) --
------- -------
Net cash provided by (used in) financing activities (3,340) (2,527)
------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (3,463) 1,873
Cash and cash equivalents at beginning of period 8,267 5,713
------- -------
Cash and cash equivalents at end of period $ 4,804 7,586
======= =======
</TABLE>
See accompanying notes to the unaudited interim
condensed consolidated financial statements.
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<PAGE> 7
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 Communication & Power Industries Holding Corporation (the "Company" or
"Successor") 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 the Company's
September 29, 1995 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.
Prior to August 11, 1995, the Company's operations were the principal operations
of the Electron Devices Business (the "Predecessor"), a segment of Varian
Associates, Inc. ("Varian"), except they exclude the Tempe, Arizona operations.
The Predecessor consisted of substantially all of the assets of Varian and its
affiliates that were used primarily in developing, manufacturing and
distributing microwave and power grid vacuum electron devices, microwave
amplifiers, modulators and various other power supply equipment and devices. On
August 11, 1995, the Company's subsidiary Communications & Power Industries,
Inc. ("CPII"), acquired these assets from Varian (the "Acquisition") and was
then merged with a wholly owned subsidiary of the Company, a corporation newly
formed by a group of investors, including management of the Company,. As a
result of the Acquisition, operations of the Company for the first six months of
1996 are not necessarily comparable to the operations of the corresponding
period of the prior year.
During the quarter ended March 29, 1996, the CPII paid preferred dividends on
its Senior Redeemable Preferred Stock and its Junior Preferred Stock through the
issuance of 5,410 additional shares of its Senior Redeemable Preferred Stock and
3,610 shares of its Junior Preferred Stock, respectively. During the first half
ended March 29, 1996, CPII paid preferred dividends through the issuance of
10,080 shares of its Senior Redeemable Preferred Stock and 6,720 shares of its
Junior Preferred Stock.
Certain reclassifications have been made to the September 29, 1995 consolidated
financial statements to conform with the 1996 presentation.
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<PAGE> 8
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During the second quarter of Fiscal 1996, sales were $63.5 million, a slight
decrease of .9% from the second quarter of Fiscal 1995. During the first half of
1996, sales were $126.1 million, an increase of $3.4 million, or 2.7%, over the
comparable period in the prior fiscal year. This increase was primarily due to
increases in communication and industrial sales partially offset by radar and
scientific sales declines. Communication sales increased approximately $4.2
million, or 7.9%, due to the increased demand for satellite communication
uplinks. Industrial sales increased approximately $2.7 million, or 26.4%, due to
stronger marketing efforts and continued strength in the semiconductor area.
Sales to the radar market, which continue to decline but at a slower pace,
decreased $1.6 million, or 4.3%. Sales to the scientific market decreased $1.1
million, or 36.3%, due to a slow down of development programs for the Department
of Energy.
Incoming orders during the second quarter of Fiscal 1996 were $66.6 million as
compared to $60.5 for the second quarter of Fiscal 1995, an increase of 10.2%.
Orders during the first half of Fiscal 1996 were $136.8 million as compared to
$122.1 million over the comparable period in the prior fiscal year, a growth
rate of 12.1%. However, incoming order levels fluctuate significantly on a
quarterly basis and a particular quarters 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 predict when or if these orders will be recognized as sales.
Gross profit decreased from $17.7 million in the second quarter of Fiscal 1995
to $17.6 million in the second quarter of Fiscal 1996, principally related to
lower sales volume. A $1.2 million reduction in depreciation expense in the
second quarter of Fiscal 1996 was offset by a $.3 million charge to cost of
sales relating to the write-up of inventory, both recorded in connection with
the Acquisition. Lower depreciation expense in this time period was also offset
by increased product cost related to the relocation of the Company's Salt Lake
City, Utah plant to San Carlos, California. Gross profit increased from $31.9
million, or 26% of sales, in the first half of Fiscal 1995 to $34.3 million, or
27.2% of sales, in the first half of Fiscal 1996 as a result of increased sales
volume and $2.5 million reduction in depreciation expense offset partially by
the charge to cost of sales of $1.7 million relating to the inventory write-up.
Research and development expenses decreased by $.3 million for the 13-week and
26-week periods ended March 29, 1996 as compared to the same time periods ended
March 30, 1995. As a percentage of sales, these expenses have dropped from 3.3%
in the first half of Fiscal 1995 to 2.9% in the first half of Fiscal 1996,
primarily as a result of several product development milestones being moved into
the second half of Fiscal 1996. Overall the Company continues its emphasis on
new products and is currently working on several customer-funded projects.
Marketing, General and Administrative expenses as a percentage of sales were
12.1% and 12.9%, respectively, for the 13-week and 26-week periods ended March
29, 1996 as compared to 16.2% for the 13-week and 26-week periods ended March
30, 1995. The reduced level of these costs as a percentage of sales reflects the
Company's new cost structure as an independent company in Fiscal 1996, as
opposed to being an operating division of Varian during the first half of Fiscal
1995.
-7-
<PAGE> 9
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
Operating income was $8.0 million (12.6% of sales) for the second quarter of
Fiscal 1996, as compared to $5.1 million (8.0% of sales) for the second quarter
of Fiscal 1995, a 56% improvement. Operating income was $14.3 million (11.3% of
sales) for the first half of Fiscal 1996, as compared to $8.0 million (6.5% of
sales) for the first half of Fiscal 1995, a 78% improvement. In addition to the
various items mentioned, operating income was positively affected by a reduction
in depreciation expense due to the revaluation of the Company's assets in
connection with the Acquisition, which lowered depreciation from $6.4 million in
the first half of Fiscal 1995 to $3.7 million in the first half of Fiscal 1996.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for the second quarter of Fiscal 1996 was $10.1 million (excluding the effect of
the $.3 million charge during the quarter relating to the write-up of inventory
as described above), compared to $8.4 million for the second quarter of 1995.
EBITDA for the first half of Fiscal 1996 was $19.7 million (excluding the $1.7
million charge for the write-up of inventory), compared to $14.4 million for the
first half of 1995. Earnings before taxes amounted to $3.4 million and $4.7
million for the 13-week and 26-week periods ended March 29, 1996, respectively,
as compared to $5.1 million and $8.0 million for the same time periods ended
March 30, 1995. The decrease of $1.7 million, or 34.1%, for the second quarter
and the decrease of $3.3 million, or 41.8%, for the first half is due to the
incurrence of $4.6 million and $9.6 million, respectively, of interest expense
($4.3 million and $8.6 million, respectively, of cash interest expense)
associated with the debt incurred in connection with the Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities for the first half of Fiscal 1996
were $4.4 million, a decrease in cash flow of $2.5 million from the $6.9 million
provided by operating activities during the first half of Fiscal 1995. The
primary reason for the decrease in cash provided was an increase in inventories
of $5.0 million affected by a build up of transition stock for product lines
being relocated from Salt Lake City to San Carlos as well as delayed shipments
caused primarily by late vendor deliveries. This was partially offset by an
increase in cash advances primarily related to customer-funded research and
development. Operating activities funded $3.1 million of paydowns during the
first half against the Company's revolving credit facility.
Cash flow from investing activities was comprised principally of capital
expenditures for property and equipment, which amounted to $4.4 million for the
first half of Fiscal 1996 as compared to $3.2 million for the first half of
Fiscal 1995.
As of March 29, 1996, the Company had working capital of approximately $38.6
million, an increase of approximately $3.4 million (9.7%) from September 29,
1995. The increase of working capital is substantially attributable to higher
inventory levels and a lower balance on the Company's revolving credit facility.
Prior to the Acquisition, the Predecessor's short-term cash requirements were
provided by Varian through an intercompany credit facility arrangement. 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 $15.4 million was available as of April 26,
1996). 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.
-8-
<PAGE> 10
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
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.
No reports were filed on Form 8-K during the quarter ended March 29, 1996.
-9-
<PAGE> 11
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 HOLDING
CORPORATION
By: /s/ Al D. Wilunowski
---------------------------------------------------
Al D. Wilunowski
Chief Executive Officer and President
Date: May 6, 1996
By: /s/ Lynn E. Harvey
---------------------------------------------------
Lynn E. Harvey
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: May 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATION AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q - COMMUNICATIONS & POWER
INDUSTRIES HOLDING CORPORATION FOR QUARTER ENDED MARCH 29, 1996.
</LEGEND>
<CIK> 0001000654
<NAME> COMMUNICATIONS & POWER INDUSTRIES HOLDING CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-START> SEP-30-1995
<PERIOD-END> MAR-29-1996
<CASH> 4,804
<SECURITIES> 0
<RECEIVABLES> 44,950
<ALLOWANCES> 0
<INVENTORY> 49,805
<CURRENT-ASSETS> 102,068
<PP&E> 75,288
<DEPRECIATION> 0
<TOTAL-ASSETS> 215,664
<CURRENT-LIABILITIES> 63,456
<BONDS> 138,000
13,575
0
<COMMON> 2
<OTHER-SE> (9,731)
<TOTAL-LIABILITY-AND-EQUITY> 215,664
<SALES> 63,467
<TOTAL-REVENUES> 63,467
<CGS> 45,861
<TOTAL-COSTS> 45,861
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,620
<INCOME-PRETAX> 3,374
<INCOME-TAX> 1,249
<INCOME-CONTINUING> 2,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,125
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
