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 December 29, 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
(Exact name of registrant as specified in its charter) COMMUNICATIONS & POWER INDUSTRIES, INC.
DELAWARE (Exact name of registrant as specified in its charter)
(State of Incorporation) DELAWARE
77-0407395 (State of Incorporation)
(I.R.S. employer identification number) 77-0405693
607 HANSEN WAY (I.R.S. employer identification number)
PALO ALTO, CALIFORNIA 94303-1110 607 HANSEN WAY
(650) 846-2900 PALO ALTO, CALIFORNIA 94303-1110
(Address, including zip code, and telephone (650) 846-2900
number, including area code, of registrant's (Address, including zip code, and telephone number,
principal executive offices) including area code, of registrant's
Securities registered pursuant to Section principal executive offices)
12(b) of the Act: Securities registered pursuant to Section
NONE 12(b) of the Act:
Securities registered pursuant to Section NONE
12(g) of the Act: Securities registered pursuant to Section
NONE 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: 4,908,172 SHARES OF COMMON STOCK, $.01 PAR
VALUE, AT DECEMBER 29, 2000. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF
COMMON STOCK, $.01 PAR VALUE, AT DECEMBER 29, 2000.
2
PART I: FINANCIAL INFORMATION
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
Consolidated Condensed Balance Sheets, December 29, 2000 and September 29, 2000 ........... 2
Consolidated Condensed Statements of Operations for the 13-week periods ended December
29, 2000 and December 31, 1999 ............................................................ 3
Consolidated Condensed Statements of Cash Flows for the 13-week periods ended December
29, 2000 and December 31, 1999 ............................................................ 4
Notes to Consolidated Condensed Financial Statements ...................................... 8
Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 11
COMMUNICATIONS & POWER INDUSTRIES, INC.
Consolidated Condensed Balance Sheets, December 29, 2000 and September 29, 2000 ........... 5
Consolidated Condensed Statements of Operations for the 13-week periods ended December
29, 2000 and December 31, 1999 ............................................................ 6
Consolidated Condensed Statements of Cash Flows for the 13-week periods ended December
29, 2000 and December 31, 1999 ............................................................ 7
Notes to Consolidated Condensed Financial Statements ...................................... 8
Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 11
PART II: OTHER INFORMATION
Other Information ......................................................................... 15
SIGNATURES .................................................................................... 17
-1-
3
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)
December 29, September 29,
ASSETS 2000 2000
------------ -------------
CURRENT ASSETS
Cash and cash equivalents $ 5,585 $ 4,766
Accounts receivable, net 40,057 42,434
Inventories 66,738 63,949
Deferred taxes 6,972 6,972
Other current assets 1,639 1,603
--------- ---------
Total current assets 120,991 119,724
Property, plant, and equipment, net 66,870 68,656
Goodwill and other intangibles, net 25,437 26,090
Debt issue costs, net 6,178 4,627
Deferred taxes 7,889 7,888
--------- ---------
Total assets $ 227,365 $ 226,985
========= =========
LIABILITIES, PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Revolving credit facility $ 20,742 $ 39,800
Current portion of term loans -- 6,012
Current portion of capital leases 980 960
Accounts payable 15,251 18,462
Accrued expenses 19,300 16,903
Accrued dividends 1,041 --
Product warranty 2,981 2,978
Income taxes payable 9,765 9,518
Advance payments from customers 5,869 5,210
--------- ---------
Total current liabilities 75,929 99,843
Senior term loans 20,000 10,000
Mortgage financing 18,000 --
Senior subordinated notes 100,000 100,000
Obligations under capital leases 647 895
--------- ---------
Total liabilities 214,576 210,738
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 28,318 28,265
--------- ---------
JUNIOR PREFERRED STOCK OF SUBSIDIARY 19,864 19,170
--------- ---------
Commitments and contingencies
STOCKHOLDERS' DEFICIT
Common stock 49 49
Additional paid-in capital 19,111 19,111
Accumulated deficit (53,408) (49,215)
Stockholder loans (1,145) (1,133)
--------- ---------
Net stockholders' deficit (35,393) (31,188)
--------- ---------
Total liabilities, preferred stock and
stockholders' deficit $ 227,365 $ 226,985
========= =========
See accompanying notes to the unaudited consolidated
condensed financial statements.
-2-
4
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
13-Week 13-Week
period ended period ended
December 29, December 31,
2000 1999
------------ ------------
Sales $ 60,376 $ 54,990
Cost of sales 47,578 42,838
-------- --------
Gross profit 12,798 12,152
-------- --------
Operating costs and expenses:
Research and development 1,388 1,923
Selling and marketing 3,912 4,574
General and administrative 4,300 3,953
-------- --------
Total operating costs and expenses 9,600 10,450
-------- --------
Operating income 3,198 1,702
Foreign currency loss (186) (80)
Interest expense (5,167) (4,550)
-------- --------
Loss before taxes (2,155) (2,928)
Income tax expense 250 195
-------- --------
Net loss (2,405) (3,123)
Preferred dividends:
Senior redeemable preferred stock 1,041 907
Junior preferred stock 694 605
-------- --------
Net loss attributable to common stock $ (4,140) $ (4,635)
======== ========
See accompanying notes to the unaudited consolidated condensed financial
statements.
-3-
5
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
13-Week 13-Week
period ended period ended
December 29, December 31,
2000 1999
------------ ------------
OPERATING ACTIVITIES
Net cash provided by operating activities $ 1,203 $ 8,353
-------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net (896) (1,417)
-------- --------
Net cash used in investing activities (896) (1,417)
-------- --------
FINANCING ACTIVITIES
Repayments on capital leases (228) (200)
Payment of debt issue costs (2,153) --
Repayment of terminated revolving credit facility (40,000) (5,400)
Proceeds from revolving credit facility 20,942 --
Repayments on terminated senior term loans (16,049) (1,825)
Proceeds from senior term loan 20,000 --
Proceeds from mortgage financing 18,000 --
-------- --------
Net cash provided by (used in) financing activities 512 (7,425)
-------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 819 (489)
Cash and cash equivalents at beginning of period 4,766 4,247
-------- --------
Cash and cash equivalents at end of period $ 5,585 $ 3,758
======== ========
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 BALANCE SHEETS
(in thousands-unaudited)
December 29, September 29,
ASSETS 2000 2000
------------ -------------
CURRENT ASSETS
Cash and cash equivalents $ 5,129 $ 4,766
Accounts receivable, net 40,057 42,434
Inventories 66,738 63,949
Deferred taxes 6,972 6,972
Other current assets 1,674 1,603
--------- ---------
Total current assets 120,570 119,724
Property, plant, and equipment, net 52,357 68,656
Goodwill and other intangibles, net 25,437 26,090
Debt issue costs, net 5,744 4,627
Note receivable from parent 5,750 --
Deferred taxes 7,889 7,888
--------- ---------
Total assets $ 217,747 $ 226,985
========= =========
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND DEFICIT
CURRENT LIABILITIES
Revolving credit facility $ 20,742 $ 39,800
Current portion of term loans -- 6,012
Current portion of capital leases 980 960
Accounts payable 15,157 18,462
Accrued expenses 19,633 16,903
Accrued dividends 1,041 --
Product warranty 2,981 2,978
Income taxes payable 9,765 9,518
Advance payments from customers 5,869 5,210
--------- ---------
Total current liabilities 76,168 99,843
Senior term loans 20,000 10,000
Senior subordinated notes 100,000 100,000
Deferred income on sale-leaseback 8,052 --
Obligations under capital leases 647 895
--------- ---------
Total liabilities 204,867 210,738
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK 28,318 28,265
--------- ---------
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Junior preferred stock 2 2
Common stock -- --
Additional paid-in capital 39,022 38,328
Accumulated deficit (53,317) (49,215)
Stockholder loans (1,145) (1,133)
--------- ---------
Net stockholders' deficit (15,438) (12,018)
--------- ---------
Total liabilities, senior redeemable
preferred stock and stockholders' defici$ $ 217,747 $ 226,985
========= =========
See accompanying notes to the unaudited consolidated condensed financial
statements.
-5-
7
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
December 29, December 31,
2000 1999
------------ ------------
Sales $ 60,376 $ 54,990
Cost of sales 47,578 42,838
-------- --------
Gross profit 12,798 12,152
-------- --------
Operating costs and expenses:
Research and development 1,388 1,923
Selling and marketing 3,912 4,574
General and administrative 4,289 3,953
-------- --------
Total operating costs and expenses 9,589 10,450
-------- --------
Operating income 3,209 1,702
Foreign currency loss (186) (80)
Interest expense (5,087) (4,550)
-------- --------
Loss before taxes (2,064) (2,928)
Income tax expense 250 195
-------- --------
Net loss (2,314) (3,123)
Preferred dividends:
Senior redeemable preferred stock 1,041 907
Junior preferred stock 694 605
-------- --------
Net loss attributable to common stock $ (4,049) $ (4,635)
======== ========
See accompanying notes to the unaudited consolidated condensed financial
statements.
-6-
8
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)
13-Week 13-Week
period ended period ended
December 29, December 31,
2000 1999
------------ ------------
OPERATING ACTIVITIES
Net cash provided by operating activities $ 1,053 $ 8,353
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of property to parent 17,250 --
Purchase of property, plant and equipment, net (896) (1,417)
-------- --------
Net cash provided by (used in) investing activities 16,354 (1,417)
-------- --------
FINANCING ACTIVITIES
Repayments on capital leases (228) (200)
Payment of debt issue costs (1,709) --
Repayments of terminated revolving credit facility (40,000) (5,400)
Proceeds from revolving credit facility 20,942 --
Repayments of terminated senior term loans (16,049) (1,825)
Proceeds from senior term loan 20,000 --
-------- --------
Net cash used by financing activities (17,044) (7,425)
-------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 363 (489)
Cash and cash equivalents at beginning of period 4,766 4,247
-------- --------
Cash and cash equivalents at end of period $ 5,129 $ 3,758
======== ========
See accompanying notes to the unaudited consolidated condensed financial
statements.
-7-
9
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) December 29, September 29,
2000 2000
------- -------
Raw materials and parts $48,804 $46,859
Work in process 15,807 14,731
Finished goods 2,127 2,359
------- -------
Total inventories $66,738 $63,949
======= =======
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $1.9 million and $1.3 million for the 13-week periods
ended December 29, 2000 and December 31, 1999, respectively. Cash (refunded)
paid for taxes was $(0.23) million and $0.04 million for the 13-week periods
ended December 29, 2000 and December 31, 1999, respectively.
Non-cash financing activities of CPI included the payment of preferred stock
dividends on its Junior Preferred Stock through the issuance of 6,938 shares of
its Junior Preferred Stock during the quarter ended December 29, 2000.
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").
-8-
10
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
- -------------------- ----- --------- ----- -----
December 29, 2000:
Revenues from external customers $ 47,344 $ 11,516 $ 1,516 $ 60,376
Intersegment product transfers 3,558 -- 414 3,972
EBITDA 7,460 (62) (1,050) 6,348
December 31, 1999:
Revenues from external customers 41,141 12,055 1,794 54,990
Intersegment product transfers 2,588 -- 179 2,767
EBITDA 5,578 494 (695) 5,377
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) December 29, December 31, December 29, December 31,
2000 1999 2000 1999
------- ------- ------- -------
Segment EBITDA $ 6,348 $ 5,377 $ 6,348 $ 5,377
Less:
Depreciation and amortization 3,336 3,755 3,325 3,755
Interest expense 5,167 4,550 5,087 4,550
------- ------- ------- -------
Loss before taxes $(2,155) $(2,928) $(2,064) $(2,928)
======= ======= ======= =======
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 December 29, 2000, CPI had $16.4
million of availability.
-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)
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 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.
7. ADOPTION OF ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As of September 30, 2000, the Company adopted Statement of Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that derivatives be recognized
in the statement of financial position at fair value and specifies the
accounting for changes in fair value. Historically, the Company has not entered
into derivative contracts either to hedge existing risks or for speculative
purposes. The adoption had no impact on the Company's current consolidated
financial position, results of operations or cash flows.
-10-
12
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 Consolidated Condensed Financial Statements.
Orders during the first quarter of Fiscal 2001 were $67.8 million as compared to
$61.6 million for the first quarter of Fiscal 2000. This increase of $6.2
million for the quarter reflects a higher demand for products in four of the
Company's six markets. Communications orders increased by $3.9 million, or
18.2%, primarily due to higher orders for medium power satellite communication
amplifiers and an increase in spare tube requirements for both military
communication and satellite communication applications. Radar orders increased
by $4.2 million, or 19.6%, due to higher demand for spare and rebuilt VED's
primarily for military applications. Medical and industrial orders also
increased by $2.8 million and $1.0 million, respectively. Orders for products
sold to the electronic countermeasures market declined by $5.7 million from the
comparable quarter of Fiscal 2000 due to an unusually high volume of orders in
the first quarter of Fiscal 2000 caused by an exercise of a contract option for
airborne decoy products. Orders in the scientific market were consistent with
the first quarter of Fiscal 2000. 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 December 29, 2000, the Company had an order backlog of $166.8 million,
representing approximately seven-and-a-half months of sales, compared to order
backlog of $153.3 million, or approximately seven months of sales, as of
December 31, 1999. Order backlog increased during the first quarter of Fiscal
2001 by $5.2 million from $161.6 million at the end of Fiscal 2000.
Sales for the first quarter of Fiscal 2001 were $60.4 million, an increase of
$5.4 million, or 9.8%, compared to $55.0 million for the same period in Fiscal
2000. This increase was driven primarily by growth in the medical, radar and
industrial markets of 53.6%, 10.3%, and 31.2% respectively. Medical sales
increased significantly due to a new line of INDICO generators, used in x-ray
applications, which were introduced in the second half of Fiscal 2000. Sales to
the communications, electronic countermeasures and scientific markets were
consistent with the first quarter of Fiscal 2000.
-11-
13
Gross profit for the first quarter of Fiscal 2001 was $12.8 million, or 21.2% of
sales, compared to $12.2 million, or 22.1% of sales, for the first quarter of
Fiscal 2000. The slight decrease in gross profit, as a percent of sales, from
the first quarter of Fiscal 2000 was due to changes in product mix and higher
start-up costs on several new satcom products.
Operating costs and expenses were $9.6 million, or 15.9 % of sales, for the
first quarter of Fiscal 2001 as compared to $10.5 million, or 19% of sales, for
the first quarter of Fiscal 2000. This improvement was primarily due to lower
sales and marketing costs that resulted from cost control measures implemented
in the latter half of Fiscal 2000 and 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.
Earnings before interest, income taxes, depreciation and amortization
("EBITDA")(1) for the first quarter of Fiscal 2001 were $6.3 million, or 10.5%
of sales, compared to 5.4 million, or 9.8% of sales, for the first quarter of
Fiscal 2000. This increase in EBITDA can be attributed to the improved sales
volume coupled with the impact of lower research and development and sales and
marketing expenses in the current quarter.
FINANCIAL CONDITION
For Holding, cash flows provided by operating activities for the first quarter
of Fiscal 2001 were $1.2 million, a decrease of $7.2 million from the $8.4
million provided by operating activities during the first quarter of Fiscal
2000. This decrease was due primarily to changes in accounts receivable that
contributed $6.3 million less cash flow in the first quarter of Fiscal 2001
compared to Fiscal 2000 as a result of shipments that were lower at the end of
Fiscal Year 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
first quarter of Fiscal 2001 was 60 days compared to 67 days at the end of the
first quarter of Fiscal 2000. Other items contributing to the cash flow decrease
were the timing of accounts payable payments and advanced payments from
customers that reduced cash by $1.4 million and $0.6 million, respectively, in
the first quarter of Fiscal 2001. Partially offsetting the above was higher
earnings of $0.8 million in the first quarter of Fiscal 2001.
For CPI, cash flows provided by operating activities for the first quarter of
Fiscal 2001 were $1.1 million, a decrease of $7.3 million from the $8.4 million
provided by operating activities during the first quarter of Fiscal 2000. This
decrease was due primarily to changes in accounts receivable that contributed
$6.3 million less cash flow in the first quarter of Fiscal 2001 compared to
Fiscal 2000 (see detailed explanation in above paragraph). Other items
contributing to the cash flow decrease were the timing of accounts payable
payments and advanced payments from customers that reduced cash by $1.5 million
and $0.6 million, respectively, in the first quarter of Fiscal 2001. Partially
offsetting the above was higher earnings of $0.9 million in the first quarter of
Fiscal 2001.
- --------
(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.
-12-
14
For Holding, investing activities decreased cash by $0.9 million in the first
quarter of Fiscal 2001 compared to $1.4 million in the first quarter of Fiscal
2000 due to reduced spending on capital expenditures. For CPI, in addition to
the capital expenditures 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. The Company currently
anticipates that capital expenditure requirements for Fiscal 2001 will be
similar to the amount spent in Fiscal 2000, with the exception that
consolidation efforts discussed below could add additional requirements of
approximately $3.0 to $4.4 million.
For Holding, financing activities during the first quarter 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 $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. In a further effort to
provide capital and liquidity in the long term and in an effort to decrease
production costs and more efficiently use the Company's facilities, the Company
has reorganized its manufacturing divisions under two co-Chief Operating
Officers and has approved the relocation its Satcom Division's production
operation from Palo Alto, California to its facility in Ontario, Canada.
Concurrently, the Company plans to relocate its administrative offices into a
single building in Palo Alto and will look to sublease up to 52,300 square feet
of office space. The Company expects to complete this consolidation over the
next 12 to 18 months. Although still under development, this new plan could add
additional capital spending requirements of approximately $3.0 to $4.4 million.
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.
-13-
15
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.
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 ability to increase margins;
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.
-14-
16
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2: CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are being filed as part of this report:
Exhibit No. Description
----------- -----------
10.1 Loan and Security Agreement by and among CPI as borrower, the
other obligors named therein, the lenders that are signatories
hereto as the senders, and Foothill Capital Corporation as the
arranger and administrative agent, dated as of December 15, 2000.
10.2 Intellectual Property Security Agreement between CPI and Foothill
Capital Corporation as Agent for the Lenders dated December 15,
2000
10.3 Stock Pledge and Security Agreement by CPI to and in favor of
Foothill Capital Corporation, as agent for itself and the other
lenders dated December 15, 2000.
10.4 Stock Pledge and Security Agreement by Holding and various CPI
subsidiaries to and in favor of Foothill Capital Corporation, as
agent for itself and the other lenders, dated December 15, 2000.
10.5 Environmental Indemnity Agreement for the benefit of Foothill
Capital Corporation, as agent for itself and the other lenders
and the lenders, dated December 15, 2000.
-15-
17
Exhibit No. Description
----------- -----------
10.6 Deed of Trust with Absolute Assignment of Leases and Rents,
Security Agreement and Fixture Filing by and among CPI, First
American Title Company and Foothill Capital Corporation, as agent
for itself and the other lenders, dated December 15, 2000.
10.7 Guaranty and Security Agreement in favor of Foothill Capital
Corporation as Agent for itself and the lenders and the other
lenders pursuant to that certain Loan and Security Agreement by
and among CPI, the other obligors, Foothill and the other lenders
named herein, dated December 15, 2000.
10.8 Continuing Guaranty in favor of Foothill Capital Corporation, as
agent for itself and the lenders and the other lenders pursuant
to that certain Loan and Security Agreement by and among CPI, the
other obligors named therein, Foothill and the other lenders
named herein, dated December 15, 2000.
10.9 Intercreditor Agreement among the CPI Parties and Foothill
Capital Corporation, as agent for itself and other lenders, dated
December 15, 2000.
10.10 Fourth Amendment of Lease by and between The Board of Trustees of
the Leland Stanford Junior University and CPI, dated December 15,
2000.
10.11 Loan Agreement between Holding and Wells Fargo Bank, National
Association, executed as of December 15, 2000.
10.12 Promissory Note Secured by Deed of Trust by Holding in favor of
Wells Fargo Bank, National Association, dated December 15, 2000.
10.13 Deed of Trust with Absolute Assignment of Leases and Rents,
Security Agreement and Fixture Filing by and among Holding,
American Securities Company and Wells Fargo Bank, National
Association, dated December 15, 2000.
10.14 Subordination Agreement by CPI and Holding in favor of Wells
Fargo Bank, National Association, dated December 15, 2000.
10.15 Hazardous Materials Indemnity Agreement by Holding in favor of
Wells Fargo Bank, National Association, dated December 15, 2000.
10.16 Unsecured Promissory Note by Holding in favor of CPI, dated
December 15, 2000.
10.17 Lease dated as of December 1, 2000 by and between Holding, as
lessor, and CPI, as lessee.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended December 29,
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: February 9, 2001
By: /s/ Lynn E. Harvey
-------------------------------------------------
Lynn E. Harvey
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: February 9, 2001
-17-
19
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Loan and Security Agreement by and among CPI as borrower, the
other obligors named therein, the lenders that are signatories
hereto as the senders, and Foothill Capital Corporation as the
arranger and administrative agent, dated as of December 15, 2000.
10.2 Intellectual Property Security Agreement between CPI and Foothill
Capital Corporation as Agent for the Lenders dated December 15,
2000.
10.3 Stock Pledge and Security Agreement by CPI to and in favor of
Foothill Capital Corporation, as agent for itself and the other
lenders dated December 15, 2000.
10.4 Stock Pledge and Security Agreement by Holding and various CPI
subsidiaries to and in favor of Foothill Capital Corporation, as
agent for itself and the other lenders, dated December 15, 2000.
10.5 Environmental Indemnity Agreement for the benefit of Foothill
Capital Corporation, as agent for itself and the other lenders
and the lenders, dated December 15, 2000.
10.6 Deed of Trust with Absolute Assignment of Leases and Rents,
Security Agreement and Fixture Filing by and among CPI, First
American Title Company and Foothill Capital Corporation, as agent
for itself and the other lenders, dated December 15, 2000.
10.7 Guaranty and Security Agreement in favor of Foothill Capital
Corporation as Agent for itself and the lenders and the other
lenders pursuant to that certain Loan and Security Agreement by
and among CPI, the other obligors, Foothill and the other lenders
named herein, dated December 15, 2000.
10.8 Continuing Guaranty in favor of Foothill Capital Corporation, as
agent for itself and the lenders and the other lenders pursuant
to that certain Loan and Security Agreement by and among CPI, the
other obligors named therein, Foothill and the other lenders
named herein, dated December 15, 2000.
10.9 Intercreditor Agreement among the CPI Parties and Foothill
Capital Corporation, as agent for itself and other lenders, dated
December 15, 2000.
10.10 Fourth Amendment of Lease by and between The Board of Trustees of
the Leland Stanford Junior University and CPI, dated December 15,
2000.
10.11 Loan Agreement between Holding and Wells Fargo Bank, National
Association, executed as of December 15, 2000.
10.12 Promissory Note Secured by Deed of Trust by Holding in favor of
Wells Fargo Bank, National Association, dated December 15, 2000.
10.13 Deed of Trust with Absolute Assignment of Leases and Rents,
Security Agreement and Fixture Filing by and among Holding,
American Securities Company and Wells Fargo Bank, National
Association, dated December 15, 2000.
10.14 Subordination Agreement by CPI and Holding in favor of Wells
Fargo Bank, National Association, dated December 15, 2000.
10.15 Hazardous Materials Indemnity Agreement by Holding in favor of
Wells Fargo Bank, National Association, dated December 15, 2000.
10.16 Unsecured Promissory Note by Holding in favor of CPI, dated
December 15, 2000.
10.17 Lease dated as of December 1, 2000 by and between Holding, as
lessor, and CPI, as lessee.