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 30, 2001
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 COMMUNICATIONS & POWER
INDUSTRIES HOLDING INDUSTRIES, INC.
CORPORATION
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
DELAWARE DELAWARE
(State of Incorporation) (State of Incorporation)
77-0407395 77-0405693
(I.R.S. employer (I.R.S. employer
identification number) identification number)
811 HANSEN WAY 811 HANSEN WAY
PALO ALTO, CALIFORNIA 94303-1110 PALO ALTO, CALIFORNIA 94303-1110
(650) 846-2800 (650) 846-2800
(Address, including zip code, (Address, including zip code,
and telephone number, including and telephone number, including
area code, of registrant's principal area code, of registrant's principal
executive offices) executive offices)
Securities registered pursuant Securities registered pursuant
to Section 12(b) of the Act: to Section 12(b) of the Act:
NONE NONE
Securities registered pursuant Securities registered pursuant
to Section 12(g) of the Act: to Section 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: 4,908,172 SHARES OF COMMON STOCK, $.01 PAR
VALUE, AT MARCH 30, 2001. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF
COMMON STOCK, $.01 PAR VALUE, AT MARCH 30, 2001.
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 I: FINANCIAL INFORMATION
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
Consolidated Condensed Balance Sheets, March 30, 2001 and September 29, 2000 .................. 2
Consolidated Condensed Statements of Operations for the 13-week periods ended March
30, 2001 and March 31, 2000 ................................................................... 3
Consolidated Condensed Statements of Operations for the 26-week periods ended March
30, 2001 and March 31, 2000 ................................................................... 4
Consolidated Condensed Statements of Cash Flows for the 26-week periods ended March
30, 2001 and March 31, 2000 ................................................................... 5
Notes to Consolidated Condensed Financial Statements .......................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................................... 14
COMMUNICATIONS & POWER INDUSTRIES, INC.
Consolidated Condensed Balance Sheets, March 30, 2001 and September 29, 2000 .................. 6
Consolidated Condensed Statements of Operations for the 13-week periods ended March
30, 2001 and March 31, 2000 ................................................................... 7
Consolidated Condensed Statements of Operations for the 26-week periods ended March
30, 2001 and March 31, 2000 ................................................................... 8
Consolidated Condensed Statements of Cash Flows for the 26-week periods ended March
30, 2001 and March 31, 2000 ................................................................... 9
Notes to Consolidated Condensed Financial Statements .......................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................................... 14
PART II: OTHER INFORMATION
Other Information ............................................................................. 19
SIGNATURES ........................................................................................ 20
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COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)
March 30, September 29,
2001 2000
--------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,584 $ 4,766
Accounts receivable, net 42,654 42,434
Inventories 69,862 63,949
Deferred taxes 6,972 6,972
Other current assets 1,745 1,603
--------- ---------
Total current assets 124,817 119,724
Property, plant, and equipment, net 64,595 68,656
Goodwill and other intangibles, net 24,782 26,090
Debt issue costs, net 5,658 4,627
Deferred taxes 7,891 7,888
--------- ---------
Total assets $ 227,743 $ 226,985
========= =========
LIABILITIES, PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Revolving credit facility $ 24,105 $ 39,800
Current portion of term loans -- 6,012
Current portion of capital leases 1,035 960
Accounts payable 19,949 18,462
Accrued expenses 15,205 16,903
Accrued dividends 2,118 --
Product warranty 3,071 2,978
Income taxes payable 9,412 9,518
Advance payments from customers 6,512 5,210
--------- ---------
Total current liabilities 81,407 99,843
Senior term loans 20,000 10,000
Mortgage financing 18,000 --
Senior subordinated notes 100,000 100,000
Obligations under capital leases 472 895
--------- ---------
Total liabilities 219,879 210,738
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 28,372 28,265
--------- ---------
JUNIOR PREFERRED STOCK OF SUBSIDIARY 20,582 19,170
--------- ---------
Commitments and contingencies
STOCKHOLDERS' DEFICIT
Common stock 49 49
Additional paid-in capital 19,111 19,111
Accumulated deficit (59,093) (49,215)
Stockholder loans (1,157) (1,133)
--------- ---------
Net stockholders' deficit (41,090) (31,188)
--------- ---------
Total liabilities, preferred stock and
stockholders' deficit $ 227,743 $ 226,985
========= =========
See accompanying notes to the unaudited consolidated condensed financial
statements.
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COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
13-Week 13-Week
period ended period ended
March 30, March 31,
2001 2000
------------ ------------
Sales $ 66,570 $ 60,340
Cost of sales 53,947 47,040
-------- --------
Gross profit 12,623 13,300
-------- --------
Operating costs and expenses:
Research and development 1,541 2,186
Selling and marketing 4,415 4,524
General and administrative 6,057 4,770
-------- --------
Total operating costs and expenses 12,013 11,480
-------- --------
Operating income 610 1,820
Gain on the sale of property, plant and equipment 887 --
Foreign currency gain (loss) 281 (90)
Interest expense (5,364) (4,677)
-------- --------
Loss before taxes (3,586) (2,947)
Income tax expense 250 206
-------- --------
Net loss (3,836) (3,153)
Preferred dividends:
Senior redeemable preferred stock 1,077 939
Junior preferred stock 718 626
-------- --------
Net loss attributable to common stock $ (5,631) $ (4,718)
======== ========
See accompanying notes to the unaudited consolidated condensed financial
statements.
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5
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
26-Week 26-Week
period ended period ended
March 30, March 31,
2001 2000
------------- ------------
Sales $ 126,946 $ 115,330
Cost of sales 101,525 89,878
--------- ---------
Gross profit 25,421 25,452
--------- ---------
Operating costs and expenses:
Research and development 2,929 4,109
Selling and marketing 8,327 9,098
General and administrative 10,357 8,723
--------- ---------
Total operating costs and expenses 21,613 21,930
--------- ---------
Operating income 3,808 3,522
Gain on the sale of property, plant and equipment 887 --
Foreign currency gain (loss) 95 (170)
Interest expense (10,531) (9,227)
--------- ---------
Loss before taxes (5,741) (5,875)
Income tax expense 500 401
--------- ---------
Net loss (6,241) (6,276)
Preferred dividends:
Senior redeemable preferred stock 2,118 1,846
Junior preferred stock 1,412 1,231
--------- ---------
Net loss attributable to common stock $ (9,771) $ (9,353)
========= =========
See accompanying notes to the unaudited consolidated condensed financial
statements.
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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 30, March 31,
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities $ (4,527) $ 11,116
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 1,922 --
Purchase of property, plant and equipment, net (2,332) (2,764)
-------- --------
Net cash used in investing activities (410) (2,764)
-------- --------
FINANCING ACTIVITIES
Repayments on capital leases (348) (414)
Payment of debt issue costs (2,153) --
Repayment of terminated revolving credit facility (40,000) (4,700)
Proceeds from revolving credit facility 24,305 --
Repayments on terminated senior term loans (16,049) (3,395)
Proceeds from senior term loan 20,000 --
Proceeds from mortgage financing 18,000 --
-------- --------
Net cash provided by (used in) financing activities 3,755 (8,509)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,182) (157)
Cash and cash equivalents at beginning of period 4,766 4,247
======== ========
Cash and cash equivalents at end of period $ 3,584 $ 4,090
======== ========
See accompanying notes to the unaudited consolidated condensed financial
statements.
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7
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding
Corporation)
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)
March 30, September 29,
2001 2000
--------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,128 $ 4,766
Accounts receivable, net 43,225 42,434
Inventories 69,862 63,949
Deferred taxes 6,972 6,972
Other current assets 1,719 1,603
--------- ---------
Total current assets 124,906 119,724
Property, plant, and equipment, net 50,245 68,656
Goodwill and other intangibles, net 24,782 26,090
Debt issue costs, net 5,345 4,627
Note receivable from parent 5,750 --
Deferred taxes 7,891 7,888
--------- ---------
Total assets $ 218,919 $ 226,985
========= =========
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND DEFICIT
CURRENT LIABILITIES
Revolving credit facility $ 24,105 $ 39,800
Current portion of term loans -- 6,012
Current portion of capital leases 1,035 960
Accounts payable 20,547 18,462
Accrued expenses 15,303 16,903
Accrued dividends 2,118 --
Product warranty 3,071 2,978
Income taxes payable 9,412 9,518
Advance payments from customers 6,512 5,210
--------- ---------
Total current liabilities 82,103 99,843
Senior term loans 20,000 10,000
Senior subordinated notes 100,000 100,000
Deferred income on sale-leaseback 7,947 --
Obligations under capital leases 472 895
--------- ---------
Total liabilities 210,522 210,738
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK 28,372 28,265
--------- ---------
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Junior preferred stock 2 2
Common stock -- --
Additional paid-in capital 39,740 38,328
Accumulated deficit (58,560) (49,215)
Stockholder loans (1,157) (1,133)
--------- ---------
Net stockholders' deficit (19,975) (12,018)
--------- ---------
Total liabilities, senior redeemable
preferred stock and stockholders' deficit $ 218,919 $ 226,985
========= =========
See accompanying notes to the unaudited consolidated condensed financial
statements.
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8
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
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 30, March 31,
2001 2000
------------ ------------
Sales $ 66,570 $ 60,340
Cost of sales 53,947 47,040
-------- --------
Gross profit 12,623 13,300
-------- --------
Operating costs and expenses:
Research and development 1,541 2,186
Selling and marketing 4,415 4,524
General and administrative 6,343 4,770
-------- --------
Total operating costs and expenses 12,299 11,480
-------- --------
Operating income 324 1,820
Gain on the sale of property, plant and equipment 887 --
Foreign currency gain (loss) 281 (90)
Interest expense (4,636) (4,677)
-------- --------
Loss before taxes (3,144) (2,947)
Income tax expense 250 206
-------- --------
Net loss (3,394) (3,153)
Preferred dividends:
Senior redeemable preferred stock 1,077 939
Junior preferred stock 718 626
-------- --------
Net loss attributable to common stock $ (5,189) $ (4,718)
======== ========
See accompanying notes to the unaudited consolidated condensed financial
statements.
-7-
9
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
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 30, March 31,
2001 2000
------------ ------------
Sales $ 126,946 $ 115,330
Cost of sales 101,525 89,878
--------- ---------
Gross profit 25,421 25,452
--------- ---------
Operating costs and expenses:
Research and development 2,929 4,109
Selling and marketing 8,327 9,098
General and administrative 10,632 8,723
--------- ---------
Total operating costs and expenses 21,888 21,930
--------- ---------
Operating income 3,533 3,522
Gain on the sale of property, plant and equipment 887 --
Foreign currency gain (loss) 95 (170)
Interest expense (9,723) (9,227)
--------- ---------
Loss before taxes (5,208) (5,875)
Income tax expense 500 401
--------- ---------
Net loss (5,708) (6,276)
Preferred dividends:
Senior redeemable preferred stock 2,118 1,846
Junior preferred stock 1,412 1,231
--------- ---------
Net loss attributable to common stock $ (9,238) $ (9,353)
========= =========
See accompanying notes to the unaudited consolidated condensed financial
statements
-8-
10
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
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 30, March 31,
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities $ (4,677) $ 11,116
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of property to parent 17,250 --
Proceeds from sale of property, plant and equipment 1,922 --
Purchase of property, plant and equipment, net (2,332) (2,764)
-------- --------
Net cash provided by (used in) investing activities 16,840 (2,764)
-------- --------
FINANCING ACTIVITIES
Repayments on capital leases (348) (414)
Payment of debt issue costs (1,709) --
Repayments of terminated revolving credit facility (40,000) (4,700)
Proceeds from revolving credit facility 24,305 --
Repayments of terminated senior term loans (16,049) (3,395)
Proceeds from senior term loan 20,000 --
-------- --------
Net cash used in financing activities (13,801) (8,509)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,638) (157)
Cash and cash equivalents at beginning of period 4,766 4,247
-------- --------
Cash and cash equivalents at end of period $ 3,128 $ 4,090
======== ========
See accompanying notes to the unaudited consolidated condensed financial
statements.
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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 Holding Corporation ("Holding") and
Communications & Power Industries, Inc. ("CPI", 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 September 29, 2000 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 2001.
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 30, September 29,
2001 2000
--------- -------------
Raw materials and parts $49,439 $46,859
Work in process 18,308 14,731
Finished goods 2,115 2,359
------- -------
Total inventories $69,862 $63,949
======= =======
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $10.0 million and $8.6 million for the 26-week
periods ended March 30, 2001 and March 31, 2000, respectively. Cash paid for
taxes was $0.6 million and $0.1 million for the 26-week periods ended March 30,
2001 and March 31, 2000, respectively.
Non-cash financing activities of CPI included the payment of preferred stock
dividends on its Junior Preferred Stock through the issuance of 7,181 shares of
its Junior Preferred Stock during the quarter ended March 30, 2001. During the
six months ended March 30, 2001, CPI paid preferred stock dividends on its
Junior Preferred Stock through the issuance of 14,119 shares of Junior Preferred
Stock.
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").
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COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding
Corporation)
Summarized financial information concerning Holding'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, 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 30, 2001:
Revenues from external customers $48,700 $ 15,551 $ 2,319 $66,570
Intersegment product transfers 4,469 -- 284 4,753
EBITDA -- Holding 7,621 (599) (1,918) 5,104
EBITDA -- CPI 7,621 (599) (2,366) 4,656
March 31, 2000:
Revenues from external customers 46,513 12,638 1,189 60,340
Intersegment product transfers 1,921 -- 228 2,149
EBITDA -- Holding 6,593 272 (1,206) 5,659
EBITDA -- CPI 6,593 272 (1,206) 5,659
(Dollars in thousands)
Satcom
26-Week Period Ended VED's Equipment Other Total
-------------------- ------- --------- ------- --------
March 30, 2001:
Revenues from external customers $96,044 $ 27,067 $ 3,835 $126,946
Intersegment product transfers 8,740 -- 698 9,438
EBITDA -- Holding 15,081 (661) (2,968) 11,452
EBITDA -- CPI 15,081 (661) (3,416) 11,004
March 31, 2000:
Revenues from external customers 87,654 24,693 2,983 115,330
Intersegment product transfers 4,509 -- 407 4,916
EBITDA -- Holding 12,171 766 (1,901) 11,036
EBITDA -- CPI 12,171 766 (1,901) 11,036
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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:
Holding CPI
----------------------------- -----------------------------
13-Week Period Ended 13-Week Period Ended
----------------------------- -----------------------------
(Dollars in thousands) March 30, March 31, March 30, March 31,
2001 2000 2001 2000
--------- --------- --------- ---------
Segment EBITDA $ 5,104 $ 5,659 $ 4,656 $ 5,659
Less:
Depreciation and amortization 3,326 3,929 3,164 3,929
Interest expense 5,364 4,677 4,636 4,677
------- ------- ------- -------
Loss before taxes $(3,586) $(2,947) $(3,144) $(2,947)
======= ======= ======= =======
Holding CPI
----------------------------- -----------------------------
26-Week Period Ended 26-Week Period Ended
----------------------------- -----------------------------
(Dollars in thousands) March 30, March 31, March 30, March 31,
2001 2000 2001 2000
-------- -------- -------- --------
Segment EBITDA $ 11,452 $ 11,036 $ 11,004 $ 11,036
Less:
Depreciation and amortization 6,662 7,684 6,489 7,684
Interest expense 10,531 9,227 9,723 9,227
-------- -------- -------- --------
Loss before taxes $ (5,741) $ (5,875) $ (5,208) $ (5,875)
======== ======== ======== ========
5. NEW CREDIT FACILITY
On December 22, 2000, the Company terminated the Senior Credit Agreement and
replaced it with a $61.0 million secured credit facility ("Credit Facility").
This new facility consists of a $41.0 million revolving line of credit, with a
sub-facility of $10.0 million for letters of credit, which expires on December
22, 2004, and a $20.0 million term loan that expires on December 22, 2002. The
Credit Facility is secured by substantially all of the assets of CPI and is
guaranteed by Holding and all of CPI's subsidiaries. Availability under the
revolving credit facility is based upon eligible receivables, machinery and
equipment and certain real estate and, as of March 30, 2001, CPI had $12.7
million of availability.
The revolving line of credit provides for borrowings that will bear interest at
a rate equal to LIBOR plus 3.25% per annum or Prime plus 1.75% per annum. The
term loan provides for borrowings that will bear interest at rate equal to Prime
plus 5.50% per annum. Additionally, the terms of the facility require the
Company to maintain certain financial covenants and limit the payment of cash
dividends on the Senior and Junior Preferred Stock. In addition to customary
fronting and other fees, CPI will pay a fee equal to
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14
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding
Corporation)
1.25% per annum on outstanding but undrawn amounts of letters of credit; and
additionally CPI will pay customary collateral management fees and a commitment
fee of 0.375% per annum on unused facilities under the Credit Facility.
6. SALE-LEASEBACK TRANSACTION
On December 22, 2000, a sale-leaseback transaction related to CPI's facilities
in San Carlos, California was accomplished between CPI and Holding. Holding paid
CPI aggregate consideration of $23.0 million for the San Carlos real estate,
consisting of $17.25 million in cash and an unsecured promissory note in the
principal amount of $5.75 million maturing in nine years, with interest-only
payments on a quarterly basis at the rate of 15.5% per annum, with up to 35.25%
of each interest payment payable in kind, at Holding's option, by its issuance
of additional notes. CPI and Holding entered into a lease of the San Carlos real
property for a term of twenty (20) years on a net basis with a fixed annual rent
(payable in equal monthly installments) of $2.45 million. Holding financed the
cash portion of the San Carlos purchase price and its fees and expenses with
respect to the transaction by borrowing $18.0 million from Wells Fargo Bank,
which loan matures June 1, 2002, bears interest at Prime or LIBOR plus 3.25%,
and is secured on a non-recourse basis (subject to normal and customary
exceptions) by the San Carlos real property. CPI realized a gain of
approximately $8.5 million on the transaction that will be amortized over the
term of the lease. The current portion of the unrealized gain of $0.4 million is
included in CPI's accrued expenses. The unrealized gain is not shown for Holding
as it is eliminated upon consolidation.
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15
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 following discussion reflects the consolidated results of Communications &
Power Industries Holding Corporation, which are materially consistent with those
of CPI except as identified below.
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 2001 were $78.1 million as compared
to $84.3 million for the second quarter of Fiscal 2000. The decrease of $6.2
million, or 7.4%, was driven primarily by the decrease in orders in the
communications market as compared to the second quarter of Fiscal 2000 when the
company generated an order for $13.6 million related to the XM Radio satellite
service. The decrease in the communications market was offset by increased
orders in CPI's other markets. Orders for the first six months of Fiscal 2001 of
$145.9 million were essentially flat compared to the same time period in Fiscal
2000. Offsetting the decrease in the communications market related to the large
XM Radio order in Fiscal 2000, there was higher demand for products in the
non-XM Radio communications, radar, industrial, medical and scientific markets
of $1.4 million, $6.7 million, $4.6 million, $2.9 million and $1.2 million,
respectively, partially offset by $3.2 million lower orders for products used in
electronic countermeasures. Radar orders increased due to higher demand for
spare and rebuilt VED's primarily for military applications. Industrial orders
increased due to orders for build-to-print power supplies manufactured by CPI's
Canadian operation. Medical orders were higher in Fiscal 2001 due primarily to
increased demand for the Company's line of x-ray generators. Scientific demand
increased primarily due to an order for vacuum electronic devices to be used on
a collaborative project with five United States national laboratories.
Electronic countermeasure orders for the first half of Fiscal 2001 were lower
than the comparable period in Fiscal 2000 due to the exercise of a contract
option for airborne decoy products in the prior year. 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 30, 2001, the Company had order backlog of $173.7 million, compared
to order backlog of $175.2 million, as of March 31, 2000, both of which
represent approximately eight months of sales. Order backlog as of March 30,
2001, increased by $12.1 million, or 7.5%, from $161.6 million at the end of
Fiscal 2000.
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16
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding
Corporation)
Sales for the second quarter of Fiscal 2001 were $66.6 million, an increase of
$6.2 million, or 10.3%, compared to $60.3 million for the same period in Fiscal
2000. The increase from a year ago was primarily attributed to the
communications and medical markets with increases of $5.2 million, or 24.1% and
$3.1 million, or 62.2%, respectively. Sales in the communications market
increased as a result of two new products. The Gen IV, the Company's next
generation, high power amplifier, and the XM Radio project both began shipping
in volume in Fiscal 2001. Medical sales increased as a result of a new line of
INDICO generators which are used in x-ray applications. These increases were
partially offset by a decline in sales to the radar market of $3.0 million, or
13.2%, that resulted from customer-defined shipping schedules. Sales to the
Company's other markets were up slightly from the same time last year.
Sales for the first six months of Fiscal 2001 were $126.9 million compared to
$115.3 million for the first six months of Fiscal 2000, an increase of $11.6
million, or 10.1%, due to improved sales in the communication and medical
markets as discussed above.
Gross profit for the second quarter of Fiscal 2001 was $12.6 million, or 19.0%
of sales, compared with $13.3 million, or 22.0% generated in the second quarter
of Fiscal 2000. Gross profit for the first half of Fiscal 2001 was $25.4
million, or 20.0% compared to $25.5 million, or 22.1% of sales, for the same
period of Fiscal 2000. The decline as a percentage of sales for both periods was
primarily attributable to higher start-up costs on several new satcom products,
and to a lesser degree, due to increases in energy related costs at the
Company's California operations.
Operating costs and expenses were $12.0 million, or 18.0% of sales, for the
second quarter of Fiscal 2001 compared to $11.5 million, or 19.0% of sales, a
year ago. The increase in operating cost dollars, despite the decline as a
percentage of sales, is attributable to the costs associated with certain
consolidation activities including the relocation of the Satcom Division's
production from Palo Alto, California to the Company's facility in Ontario,
Canada, and the relocation of the Company's administrative offices into a single
building in Palo Alto. Costs-to-date attributable to these consolidation efforts
were approximately $1.7 million. These increases are offset somewhat by lower
research and development costs in the satcom equipment segment as that segment's
engineering resources were predominantly focused on production ramp-up issues
rather than new product development. Operating costs and expenses for the first
six months of Fiscal 2001 were $21.6 million, or 17.0% of sales, compared to
$21.9 million, or 19.0% of sales, for the same period of Fiscal 2000. Excluding
the effects of the Company's consolidation efforts, operating costs as a
percentage of sales for the first half of Fiscal 2001 were 15.7% compared to
19.0% for the same period of Fiscal 2000. The decline in operating costs and
expenses from a year ago reflects cost control measures implemented in the
latter half of Fiscal 2000 as well as lower research and development costs in
the satcom equipment segment.
Earnings before interest, income taxes, depreciation and amortization
("EBITDA")(1) for the second quarter of Fiscal 2001 were $5.1 million, or 7.7%
of sales, compared to $5.7 million, or 9.4% of sales,
(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.
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17
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding
Corporation)
for the second quarter of Fiscal 2000. EBITDA for the first six months of Fiscal
2001 was $11.5 million, or 9.0% of sales, compared to $11.0 million, or 9.6% of
sales, for the same period in Fiscal 2000. The decrease in EBITDA of $0.5
million for the first six months was attributable to the Company's consolidation
costs, as previously discussed, offset in part by a $0.9 million gain on the
sale of a building in Beverly, Massachusetts, which had been previously leased
to various third parties. Excluding the effects of the consolidation costs and
the building sale, adjusted EBITDA for the first six months was $12.3 million,
or 9.7% of sales, compared to $11.0 million, or 9.6% of sales, during the same
period in Fiscal 2000.
FINANCIAL CONDITION
For Holding, cash flows used in operating activities for the first six months of
Fiscal 2001 were $4.5 million, compared to cash flows provided by operating
activities of $11.1 million during the first six months of Fiscal 2000. The
decrease in cash provided of $15.6 million was due primarily to changes in
accounts receivable and advance payments from customers that contributed $10.7
million and $5.3 million less cash flow, respectively, in the first half of
Fiscal 2001 compared to Fiscal 2000. The lower cash provided by accounts
receivable was the result of higher shipments during the second quarter of
Fiscal 2001 compared to the same period in Fiscal 2000, and shipments that were
lower at the end of Fiscal 2000 compared to the end of Fiscal 1999. The credit
worthiness of accounts receivable remains strong and days sales outstanding at
the end of the second quarter of Fiscal 2001 was 58 days compared to 62 days at
the end of Fiscal 2000. For CPI, cash flows used in operating activities for the
first six months of Fiscal 2001 were $4.7 million, compared to cash flows
provided by operating activities of $11.1 million during the first six months of
Fiscal 2000. The decrease in cash provided of $15.8 million was due primarily to
the causes discussed above.
For Holding, investing activities decreased cash by $0.4 million in the first
six months of Fiscal 2001 compared to $2.8 million in the first six months of
Fiscal 2000. This decrease in cash used of $2.4 million was related to a
reduction in capital expenditures compared to the first six months of Fiscal
2000 of $0.4 million, coupled with $1.9 million proceeds from the sale of the
building in Beverly, Massachusetts. For CPI, in addition to the investing
activities discussed in the previous sentence, there were net proceeds of $17.25
million from the sale of CPI's facilities in San Carlos to its parent as part of
a sale-leaseback transaction. Capital expenditure requirements for both Holding
and CPI for Fiscal 2001 are expected to be similar to the amount spent in Fiscal
2000, with the exception that consolidation efforts discussed below could add
additional requirements of approximately $2.5 to $3.0 million, of which $0.6
million has been expended in the first half of Fiscal 2001.
For Holding, financing activities during the first half of Fiscal 2001 were
related primarily to repayments on its Senior Credit Agreement, which was
terminated on December 22, 2000, and proceeds and expenses from its new $61.0
million secured credit facility ("Credit Facility"). This new facility consists
of a $41.0 million revolving line of credit, with a sub-facility of $10.0
million for letters of credit, which expires December 22, 2004, and a $20.0
million term loan which expires December 22, 2002. The facility is secured by
substantially all of the assets of CPI, and is guaranteed by Holding and all of
CPI's subsidiaries. Availability under the revolving credit facility is based
upon eligible receivables, machinery and equipment and certain real estate. Also
on December 22, 2000, a sale-leaseback transaction related to CPI's facilities
in San Carlos was accomplished between CPI and Holding. Holding paid CPI
aggregate consideration of $23.0 million for the San Carlos real estate,
consisting of
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18
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding
Corporation)
$17.25 million in cash and an unsecured promissory note of $5.75 million
maturing in nine years. CPI and Holding entered into a lease of the San Carlos
real property for a term of twenty years on a net basis with a fixed annual rent
of $2.45 million. Holding financed the cash portion of the San Carlos purchase
price by borrowing $18.0 million, which loan matures June 1, 2002. For CPI,
financing activities were similar to those discussed above for Holding with the
exception that the $18.0 million of mortgage financing and its related debt
issue costs of $0.4 million did not apply to CPI.
The Company continues to focus on strategic consolidation efforts approved by
the Company's Board of Directors on October 18, 2000. As of the end of the
second quarter of Fiscal 2001, the Company has completed the transfer of one of
its satcom product lines to the facility in Ontario, Canada and is in the
process of transferring others. The relocation of its administrative offices
into a single building in Palo Alto is nearly complete and the Company is
actively looking for tenants to sublease up to 52,300 square feet of office
space. The Company expects to complete this consolidation over the next 9 to 15
months.
Management believes that as a result of its recent debt restructuring, 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 related to consolidation efforts described above for at least the next
twelve months.
Market Risk
The Company's market risk disclosures set forth in its Annual Report on Form
10-K for the fiscal year ended September 29, 2000, have not changed
significantly.
Forward-Looking Statements
This document contains forward-looking statements that relate to future events
or the Company's future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"except," "plan," "anticipate," "believe," "estimate," "predict," "potential" or
"continue," the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company nor any other person assumes responsibility for the accuracy and
completeness of the forward-looking statements. All written and oral
forward-looking statements made in connection with this report which are
attributable to the Company or persons acting on the Company's behalf are
expressly qualified in their entirety by the "risk factors" and other cautionary
statements included herein. The Company is under no duty to update any of the
forward-looking statements after the date of this report to conform such
statements to actual results or to changes in the Company's expectations.
The information in this report is not a complete description of the Company's
business or the risks associated with an investment in the Company's securities.
We urge you to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the SEC.
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19
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding
Corporation)
Risk Factors
You should carefully consider the various risks and uncertainties that impact
the Company's business and the other information in this report and the
Company's other filings with the SEC before you decide to invest in the Company
or to maintain or increase your investment. Such risks and uncertainties
include, but are not limited to, the following: 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; production
interruptions and cost increases resulting from California's energy crisis; U.S.
Government export policies; changes in Governmental appropriations, national
defense policies and availability of Government funds; changes in environmental
regulation and legislation; availability of certain critical materials and raw
material price fluctuations; the Company's ability to generate the significant
amount of cash needed to service its debt; and the Company's ability to obtain
financing in the future. If any of the following risks actually occur, the
Company's business, results of operations, or financial condition would likely
suffer and actual results could differ materially from those projected.
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20
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.
None.
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21
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 11, 2001
By: /s/ Lynn E. Harvey
----------------------------------------------------
Lynn E. Harvey
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: May 11, 2001
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