-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HlP8YYed78YO5U2hna6Jxi9rZBgA5wReZu2sVtl5FJ+uE54hsDDE3HVsdsArEIWl 604YVcKEPckA/EdY13BK6A== 0000891618-00-002844.txt : 20000516 0000891618-00-002844.hdr.sgml : 20000516 ACCESSION NUMBER: 0000891618-00-002844 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNICATIONS & POWER INDUSTRIES HOLDING CORP CENTRAL INDEX KEY: 0001000654 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 770407395 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-96858-01 FILM NUMBER: 632853 BUSINESS ADDRESS: STREET 1: 607 HANSEN WY CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154934000 MAIL ADDRESS: STREET 1: 607 HANSEN WAY M/S A2000 STREET 2: P O BOX 51110 CITY: PALO ALTO STATE: CA ZIP: 94303-1110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNICATIONS & POWER INDUSTRIES INC CENTRAL INDEX KEY: 0001000564 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 770405693 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-96858 FILM NUMBER: 632854 BUSINESS ADDRESS: STREET 1: 607 HANSEN WAY CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154934000 MAIL ADDRESS: STREET 1: 607 HANSEN WAY M/S A200 STREET 2: P O BOX 51110 CITY: PALO ALTO STATE: CA ZIP: 94303-1110 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 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 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ 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 executive offices) principal executive offices) Securities registered pursuant to Section Securities registered pursuant to Section 12(b) of the Act: 12(b) of the Act: NONE NONE Securities registered pursuant to Section Securities registered pursuant to Section 12(g) of the Act: 12(g) of the Act: NONE 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: 4,910,500 SHARES OF COMMON STOCK, $.01 PAR VALUE, AT MARCH 31, 2000. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF COMMON STOCK, $.01 PAR VALUE, AT MARCH 31, 2000. 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. Consolidated Condensed Balance Sheets, March 31, 2000 and October 1, 1999 .................. 2 Consolidated Condensed Statements of Operations, 13-week period ended March 31, 2000 and 13-week period ended April 2, 1999 ......................................................... 3 Consolidated Condensed Statements of Operations, 26-week period ended March 31, 2000 and 26-week period ended April 2, 1999 ......................................................... 4 Consolidated Condensed Statements of Cash Flows, 26-week period ended March 31, 2000 and 26-week period ended April 2, 1999 ......................................................... 5 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION Consolidated Condensed Balance Sheets, March 31, 2000 and October 1, 1999 .................. 6 Consolidated Condensed Statements of Operations, 13-week period ended March 31, 2000 and 13-week period ended April 2, 1999 ......................................................... 7 Consolidated Condensed Statements of Operations, 26-week period ended March 31, 2000 and 26-week period ended April 2, 1999 ......................................................... 8 Consolidated Condensed Statements of Cash Flows, 26-week period ended March 31, 2000 and 26-week period ended April 2, 1999 ..................................................... 9 Notes to Consolidated Condensed Financial Statements ....................................... 10 Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................................. 13 PART II: OTHER INFORMATION Other Information .......................................................................... 16 SIGNATURES .......................................................................................... 17
- 1 - 3 COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands-unaudited)
March 31, October 1, ASSETS 2000 1999 --------- ---------- CURRENT ASSETS Cash and cash equivalents $ 4,090 $ 4,247 Accounts receivable, net 39,117 49,596 Inventories 60,332 52,526 Deferred taxes 6,899 6,899 Other current assets 1,124 1,524 --------- --------- Total current assets 111,562 114,792 Property, plant, and equipment, net 72,646 76,225 Goodwill and other intangibles, net 27,386 28,723 Debt issue costs, net 5,093 5,594 Deferred taxes 8,250 8,250 --------- --------- Total assets $ 224,937 $ 233,584 ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY CURRENT LIABILITIES Revolving credit facility $ 30,300 $ 35,000 Current portion of term loans 6,447 7,700 Current portion of capital leases 922 885 Accounts payable 14,462 13,522 Accrued expenses 15,052 16,489 Product warranty 3,521 3,575 Income taxes payable 8,878 8,978 Advance payments from customers 8,393 1,736 --------- --------- Total current liabilities 87,975 87,885 Senior term loans 14,000 15,986 Senior subordinated notes 100,000 100,000 Obligations under capital leases 1,374 1,825 --------- --------- Total liabilities 203,349 205,696 --------- --------- SENIOR REDEEMABLE PREFERRED STOCK 26,181 24,228 --------- --------- Commitments and contingencies STOCKHOLDERS' (DEFICIT) EQUITY: Junior preferred stock 1 1 Common stock -- -- Additional paid-in capital 37,034 35,804 Accumulated deficit (40,497) (31,039) Stockholder loans (1,131) (1,106) --------- --------- Net stockholders' (deficit) equity (4,593) 3,660 --------- --------- Total liabilities, senior redeemable preferred stock and stockholders' equity $ 224,937 $ 233,584 ========= =========
See accompanying notes to the unaudited consolidated condensed financial statements. - 2 - 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)
13-Week 13-Week period ended period ended March 31, April 2, 2000 1999 ------------ ------------ Sales $ 60,340 $ 67,119 Cost of sales 47,040 50,959 -------- -------- Gross profit 13,300 16,160 -------- -------- Operating costs and expenses: Research and development 2,186 2,694 Selling and marketing 4,524 4,992 General and administrative 4,770 4,311 -------- -------- Total operating costs and expenses 11,480 11,997 -------- -------- Operating income 1,820 4,163 Foreign currency loss (90) (283) Interest expense (4,677) (4,445) -------- -------- Loss before taxes (2,947) (565) Income tax expense 206 -- -------- -------- Net loss (3,153) (565) Preferred dividends: Senior redeemable preferred stock 939 818 Junior preferred stock 626 545 -------- -------- Net loss attributable to common stock $ (4,718) $ (1,928) ======== ========
See accompanying notes to the unaudited consolidated condensed financial statements. - 3 - 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)
26-Week 26-Week period ended period ended March 31, April 2, 2000 1999 ------------ ------------ Sales $ 115,330 $ 124,900 Cost of sales 89,878 94,613 --------- --------- Gross profit 25,452 30,287 --------- --------- Operating costs and expenses: Research and development 4,109 4,760 Selling and marketing 9,098 9,586 General and administrative 8,723 8,219 --------- --------- Total operating costs and expenses 21,930 22,565 --------- --------- Operating income 3,522 7,722 Foreign currency loss (170) (441) Interest expense (9,227) (8,851) --------- --------- Loss before taxes (5,875) (1,570) Income tax expense (benefit) 401 (422) --------- --------- Net loss (6,276) (1,148) Preferred dividends: Senior redeemable preferred stock 1,846 1,608 Junior preferred stock 1,231 1,072 --------- --------- Net loss attributable to common stock $ (9,353) $ (3,828) ========= =========
See accompanying notes to the unaudited consolidated condensed financial statements. - 4 - 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)
26-Week 26-Week period ended period ended March 31, April 2, 2000 1999 ------------ ------------ OPERATING ACTIVITIES Net cash provided by operating activities $ 11,116 $ 6,525 -------- -------- INVESTING ACTIVITIES Purchase of property, plant and equipment, net (2,764) (3,977) Purchase of net current assets in connection with acquisitions -- (1,991) Purchase of property, plant and equipment in connection with acquisitions -- (523) Purchase of intangible assets in connection with acquisitions -- (6,396) -------- -------- Net cash used in investing activities (2,764) (12,887) -------- -------- FINANCING ACTIVITIES Net (repayments)/proceeds on capital leases (414) 55 Net (repayments)/proceeds from revolving credit facility (4,700) 10,900 Net repayments on senior term loans (3,395) (3,280) -------- -------- Net cash (used in) provided by financing activities (8,509) 7,675 -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (157) 1,313 Cash and cash equivalents at beginning of period 4,247 448 -------- -------- Cash and cash equivalents at end of period $ 4,090 $ 1,761 ======== ========
See accompanying notes to the unaudited consolidated condensed financial statements. - 5 - 7 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands-unaudited)
March 31, October 1, ASSETS 2000 1999 --------- ---------- CURRENT ASSETS Cash and cash equivalents $ 4,090 $ 4,247 Accounts receivable, net 39,117 49,596 Inventories 60,332 52,526 Deferred taxes 6,899 6,899 Other current assets 1,124 1,524 --------- --------- Total current assets 111,562 114,792 Property, plant, and equipment, net 72,646 76,225 Goodwill and other intangibles, net 27,386 28,723 Debt issue costs, net 5,093 5,594 Deferred taxes 8,250 8,250 --------- --------- Total assets $ 224,937 $ 233,584 ========= ========= LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Revolving credit facility $ 30,300 $ 35,000 Current portion of term loans 6,447 7,700 Current portion of capital leases 922 885 Accounts payable 14,462 13,522 Accrued expenses 15,052 16,489 Product warranty 3,521 3,575 Income taxes payable 8,878 8,978 Advance payments from customers 8,393 1,736 --------- --------- Total current liabilities 87,975 87,885 Senior term loans 14,000 15,986 Senior subordinated notes 100,000 100,000 Obligations under capital leases 1,374 1,825 --------- --------- Total liabilities 203,349 205,696 --------- --------- SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 26,181 24,228 --------- --------- JUNIOR PREFERRED STOCK OF SUBSIDIARY 17,852 16,622 --------- --------- Commitments and contingencies STOCKHOLDERS' DEFICIT: Common stock 49 49 Additional paid-in capital 19,134 19,134 Accumulated deficit (40,497) (31,039) Stockholder loans (1,131) (1,106) --------- --------- Net stockholders' deficit (22,445) (12,962) --------- --------- Total liabilities, preferred stock and stockholders' deficit $ 224,937 $ 233,584 ========= =========
See accompanying notes to the unaudited consolidated condensed financial statements. - 6 - 8 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands - unaudited)
13-Week 13-Week period ended period ended March 31, April 2, 2000 1999 ------------ ------------ Sales $ 60,340 $ 67,119 Cost of sales 47,040 50,959 -------- -------- Gross profit 13,300 16,160 -------- -------- Operating costs and expenses: Research and development 2,186 2,694 Selling and marketing 4,524 4,992 General and administrative 4,770 4,311 -------- -------- Total operating costs and expenses 11,480 11,997 -------- -------- Operating income 1,820 4,163 Foreign currency loss (90) (283) Interest expense (4,677) (4,445) -------- -------- Loss before taxes (2,947) (565) Income tax expense 206 -- -------- -------- Net loss (3,153) (565) Preferred dividends: Senior redeemable preferred stock 939 818 Junior preferred stock 626 545 -------- -------- Net loss attributable to common stock $ (4,718) $ (1,928) ======== ========
See accompanying notes to the unaudited consolidated condensed financial statements. - 7 - 9 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands - unaudited)
26-Week 26-Week period ended period ended March 31, April 2, 2000 1999 ------------ ------------ Sales $ 115,330 $ 124,900 Cost of sales 89,878 94,613 --------- --------- Gross profit 25,452 30,287 --------- --------- Operating costs and expenses: Research and development 4,109 4,760 Selling and marketing 9,098 9,586 General and administrative 8,723 8,219 --------- --------- Total operating costs and expenses 21,930 22,565 --------- --------- Operating income 3,522 7,722 Foreign currency loss (170) (441) Interest expense (9,227) (8,851) --------- --------- Loss before taxes (5,875) (1,570) Income tax expense (benefit) 401 (422) --------- --------- Net loss (6,276) (1,148) Preferred dividends: Senior redeemable preferred stock 1,846 1,608 Junior preferred stock 1,231 1,072 --------- --------- Net loss attributable to common stock $ (9,353) $ (3,828) ========= =========
See accompanying notes to the unaudited consolidated condensed financial statements. - 8 - 10 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands - unaudited)
26-Week 26-Week period ended period ended March 31, April 2, 2000 1999 ------------ ------------ OPERATING ACTIVITIES Net cash provided by operating activities $ 11,116 $ 6,525 -------- -------- INVESTING ACTIVITIES Purchase of property, plant and equipment, net (2,764) (3,977) Purchase of net current assets in connection with acquisitions -- (1,991) Purchase of property, plant and equipment in connection with acquisitions -- (523) Purchase of intangible assets in connection with acquisitions -- (6,396) -------- -------- Net cash used in investing activities (2,764) (12,887) -------- -------- FINANCING ACTIVITIES Net (repayments)/proceeds on capital leases (414) 55 Net (repayments)/proceeds from revolving credit facility (4,700) 10,900 Net repayments on senior term loans (3,395) (3,280) -------- -------- Net cash (used in) provided by financing activities (8,509) 7,675 -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (157) 1,313 Cash and cash equivalents at beginning of period 4,247 448 ======== ======== Cash and cash equivalents at end of period $ 4,090 $ 1,761 ======== ========
See accompanying notes to the unaudited consolidated condensed financial statements. - 9 - 11 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements of Communications & Power Industries, Inc. ("CPI") and Communications & Power Industries Holding Corporation ("Holding", both companies together referred to as the "Company") 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 the Company's October 1, 1999 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 the Company, 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 complete fiscal year 2000. 2. INVENTORIES Inventories are stated at the lower of average cost or market (net realizable value). The main components of inventories are as follows:
(Dollars in thousands) March 31, October 1, 2000 1999 --------- ---------- Raw materials and parts $44,809 $39,953 Work in process 13,366 9,878 Finished goods 2,157 2,695 ------- ------- Total inventories $60,332 $52,526 ======= =======
3. SUPPLEMENTAL CASH FLOW INFORMATIOn Cash paid for interest was $8.6 million and $8.1 million for the 26-week period ended March 31, 2000 and April 2, 1999, respectively. Cash paid for taxes was $0.1 million and $0.5 million for the 26-week period ended March 31, 2000 and April 2, 1999, respectively. Non-cash financing activities of CPI included the payment of preferred stock dividends on its Senior Redeemable Preferred Stock and its Junior Preferred Stock through the issuance of 9,387 additional shares of its Senior Redeemable Preferred Stock and 6,258 shares of its Junior Preferred Stock, respectively during the quarter ended March 31, 2000. During the six months ended March 31, 2000, CPI paid preferred stock dividends on its Senior Redeemable Preferred Stock and its Junior Preferred Stock through the issuance of 18,456 additional shares of its Senior Redeemable Preferred Stock and 12,304 shares of its Junior Preferred Stock, respectively. - 10 - 12 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) 4. SEGMENTS AND RELATED INFORMATION The Company has two reportable segments: vacuum electronic devices ("VEDs") and satcom equipment. The CEO, identified as the Chief Operating Decision Maker, evaluates performance and allocates resources based on the Company's principle performance measure, earnings before income taxes, interest, depreciation and amortization ("EBITDA"). Summarized financial information concerning the Company's reportable segments is shown in the following table. Included in the "Other" column is financial information for the Company's Solid State Products Division, which did not meet the quantitative thresholds of SFAS 131, and certain unallocated corporate-level operating expenses. Intersegment product transfers are recorded at cost.
(Dollars in thousands) Satcom 13-Week Period Ended VED's Equipment Other Total ------------------------------------------------------------------------------------- March 31, 2000: Revenues from external customers $ 46,513 $ 12,638 $ 1,189 $ 60,340 Intersegment product transfers 1,921 -- 228 2,149 EBITDA 6,593 272 (1,206) 5,659 April 2, 1999: Revenues from external customers 48,108 15,822 3,189 67,119 Intersegment product transfers 4,121 -- 720 4,841 EBITDA 6,536 853 (146) 7,243
Satcom 26-Week Period Ended VED's Equipment Other Total ------------------------------------------------------------------------------------- March 31, 2000: Revenues from external customers $ 87,654 $ 24,693 $ 2,983 $115,330 Intersegment product transfers 4,509 -- 407 4,916 EBITDA 12,171 766 (1,901) 11,036 April 2, 1999: Revenues from external customers $ 89,976 31,026 3,898 $124,900 Intersegment product transfers 7,422 -- 720 8,142 EBITDA 12,888 2,147 (999) 14,036
- 11 - 13 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) A reconciliation of EBITDA from reportable segments to Loss before Taxes is as follows:
13-Week Period Ended 26-Week Period Ended ----------------------------------------------------------- (Dollars in thousands) March 31, April 2, March 31, April 2, 2000 1999 2000 1999 ----------------------------------------------------------- Segment EBITDA $ 5,659 $ 7,243 $ 11,036 $ 14,036 Less: Depreciation and amortization 3,929 3,316 7,684 6,615 Other -- 47 -- 140 Interest expense 4,677 4,445 9,227 8,851 ----------------------------------------------------------- Loss before taxes $ (2,947) $ (565) $ (5,875) $ (1,570) ===========================================================
5. STOCK SPLIT AND STOCK OPTION DISCLOSURE In March 2000, the Board of Directors approved an increase in the number of common shares authorized to 6,500,000 and a twenty-five (25) for one (1) stock split on all of its issued and outstanding shares of Common Stock. The Board of Directors also approved the adoption of the 2000 Stock Option Plan ("the Plan"). The number of shares of Common Stock that will be reserved for issuance under the Plan is 250,000. There were no stock options outstanding as of March 31, 2000. Prior year statements have been restated to give affect to the stock split. This section on stock split and stock options applies only to Holding. - 12 - 14 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 The Company serves the communications, radar, electronic countermeasures, industrial, medical and scientific markets. In addition, the Company divides the communications market into applications for ground-based satellite uplinks for military and commercial uses ("satcom") and broadcast sectors. The Company defines and discusses its orders and sales trends by the end markets to more clearly relate its business to outside investors. Internally, however, the Company is organized into six operating units that are differentiated based on products. Four of these operating units comprise the Company's vacuum electronic device ("VED") segment. The Company also has a satellite communications equipment segment and a solid state products segment. Segment data is included in Note 4 of the Notes to Unaudited Consolidated Condensed Financial Statements. Orders during the second quarter of Fiscal 2000 were $84.3 million as compared to $63.5 million for the second quarter of Fiscal 1999. This increase of $20.8 million, or 32.7%, was due primarily to the Company's participation in the terrestrial wireless portion of the XM Radio satellite service, which will provide digital-quality audio programming across the United States. This new business opportunity generated an order for $14.0 million in the second quarter of Fiscal 2000 with delivery scheduled to start in the fourth quarter of this fiscal year. Orders for the first six months of Fiscal 2000 were $145.9 million as compared to $115.1 million during the same time period in Fiscal 1999. This increase of $30.8 million, or 26.7%, was due to higher demand for products in five of the Company's six markets. Communications increased by $16.7 million, or 38.4%, primarily due to the XM Radio opportunity. Radar, medical, electronic countermeasures and industrial orders also increased by $8.2 million, $3.8 million. $2.4 million and $2.2 million, respectively. Orders for products sold to the scientific market declined modestly by $2.6 million. 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 March 31, 2000, the Company had order backlog of $175.2 million, representing approximately eight months of sales, compared to order backlog of $152.8 million, or approximately seven months of sales, as of April 2, 1999. Order backlog increased during the first six months of Fiscal 2000 by $28.8 million from $146.4 million at the end of Fiscal 1999 reflecting the increase in orders mentioned above. Sales for the second quarter of Fiscal 2000 were $60.3 million, a decrease of $6.8 million, or 10.1%, compared to $67.1 million for the same period in Fiscal 1999. This decrease was anticipated by the Company based on the release of new products and the timing of order receipts that have customer-defined delivery schedules that are more heavily weighted in the third and fourth quarters of Fiscal 2000. In other words, low backlog entering Fiscal 2000 (since improved by strong order receipts as described above) resulted in the lower sales performance for the first and second quarters of the year. Rapidly improving backlog is expected to result in higher sales in the third and fourth quarters. Sales for the second quarter did increase $5.3 million, or 9.7%, from the $55.0 million reported in the first quarter of Fiscal 2000. Sales for the first six months of Fiscal 2000 were $115.3 million compared to $124.9 million for the first six months of Fiscal 1999, a decrease of $9.6 million, or 7.7%, due to a planned - 13 - 15 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) facility shutdown in the first quarter of Fiscal 2000 and due to customer-defined delivery schedules mentioned above. In terms of markets, sales for the first six months to the communications, medical and scientific markets were down by $7.9 million, $1.8 million and $1.1 million, respectively, primarily due to the timing of order receipts. This was partially offset by products sold into the radar, electronic countermeasures and industrial markets that collectively increased by $1.3 million. Gross profit for the second quarter of Fiscal 2000 was $13.3 million, or 22.0% of sales, which was consistent with the margin percentage of the first quarter of Fiscal 2000 but was down $2.9 million compared to gross profit of $16.2 million (24.1% of sales) generated in the second quarter of Fiscal 1999. Gross profit for the first six months of Fiscal 2000 was $25.5 million, or 22.1% of sales compared to $30.3 million, or 24.2% of sales, during the first six months of Fiscal 1999. This decrease of $4.8 million was primarily attributable to lower volume and shifts in product mix. Operating costs and expenses were $11.5 million, or 19.0% of sales, for the second quarter of Fiscal 2000 as compared to $12.0 million, or 17.9% of sales, for the second quarter of Fiscal 1999. Operating costs and expenses for the first six months of Fiscal 2000 were $21.9 million, or 19.0% of sales, compared to $22.6 million, or 18.1% of sales, for the first six months of Fiscal 1999. This decrease of $0.7 million was attributable to lower research and development costs now that the Company has put its new Gen IV amplifier product line into production and lower third party commissions related to lower sales volume. These reductions were partially offset by higher general and administrative expenses related to information system enhancements. Earnings before interest, income taxes, depreciation and amortization ("EBITDA")(1) for the second quarter of Fiscal 2000 were $5.7 million, or 9.4% of sales, compared to $7.2 million, or 10.8% of sales, for the second quarter of Fiscal 1999. EBITDA for the first six months of Fiscal 2000 was $11.0 million, or 9.6% of sales, compared to $14.0 million, or 11.2% of sales, for the same time period in Fiscal 1999. This decrease in EBITDA of $1.5 million for the second quarter and $3.0 million for the first six months was primarily due to lower sales volume and shifts in product mix partially offset by lower operating costs and expenses. FINANCIAL CONDITION Cash flows provided by operating activities for the first six months of Fiscal 2000 were $11.1 million, an increase of approximately $4.6 million from the $6.5 million provided by operating activities during the first six months of Fiscal 1999. This increase was due primarily to a $5.9 million increase in advanced payments from customers related to the increase in order receipts partially offset by higher net losses in the first six months of Fiscal 2000. Investing activities decreased cash by $2.8 million in the first six months of Fiscal 2000 compared to $12.8 million in the first six months of Fiscal 1999. This decrease of $10.0 million was primarily related - ---------- 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. - 14 - 16 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) to the fact that Fiscal 1999 was impacted by the Company's $8.9 million acquisition of its Solid State Products Division. Capital expenditures have also been reduced by $1.2 million during the first six months of Fiscal 2000 but capital expenditures are anticipated to return to Fiscal 1999 spending levels in the second half of the year when sales volumes are also expected to increase. The Company's 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 $10.8 million was available as of March 31, 2000). In the six months of Fiscal 2000, the Company reduced its borrowing under this facility by $4.7 million and also repaid $3.1 million of term loans and $0.4 million of its debt related to capital leases. 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 nine months. The Company's Senior Credit Agreement is scheduled to terminate on January 1, 2001 but management anticipates extending this agreement or replacing it before the end of Fiscal 2000. Market Risk The Company's market risk disclosures set forth in its Annual Report on Form 10-K for the fiscal year ended October 1, 1999 have not changed significantly. 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 - 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 In March 2000, the Board of Directors approved an increase in the number of common shares authorized from 400,000 to 6,500,000 and a twenty-five (25) for one (1) stock split on all of its issued and outstanding shares of Common Stock. This increase in shares and stock split applies only to Communication & Power Industries Holding Corporation. 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 March 31, 2000. - 16 - 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/ Bart F. Petrini --------------------------------------------------- Bart F. Petrini Chief Executive Officer and President Date: May 10, 2000 By: /s/ Lynn E. Harvey --------------------------------------------------- Lynn E. Harvey Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) Date: May 10, 2000 - 17 - 19 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 27.1 Financial Data Schedule (Communications & Power Industries, Inc.) 27.2 Financial Data Schedule (Communications & Power Industries Holding Corporation)
EX-27.1 2 FDS COMMUNICATIONS & POWER INDUSTRIES INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q COMMUNICATIONS & POWER INDUSTRIES, INC. FOR THE QUARTER ENDED MARCH 31, 2000. 0001000564 COMMUNICATIONS & POWER INDUSTRIES, INC. 1,000 6-MOS SEP-29-2000 OCT-02-1999 MAR-31-2000 4,090 0 39,117 0 60,332 111,562 72,646 0 224,937 87,975 115,374 26,181 1 0 (4,594) 224,937 115,330 115,330 89,878 89,878 4,109 0 9,227 (5,875) 401 (6,276) 0 0 0 (6,276) 0 0
EX-27.2 3 FDS COMMUNICATIONS & POWER INDUSTRIES HOLDING CORP
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION FOR THE QUARTER ENDED MARCH 31, 2000. 0001000654 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION 1,000 6-MOS SEP-29-2000 OCT-02-1999 MAR-31-2000 4,090 0 39,117 0 60,332 111,562 72,646 0 224,937 87,975 115,374 26,181 0 49 (22,494) 224,937 115,330 115,330 89,878 89,878 4,109 0 9,227 (5,875) 401 (6,276) 0 0 0 (6,276) 0 0
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