Quarterly Report


Table of Contents

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 28, 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
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
(State of Incorporation)
  Delaware
(State of Incorporation)
77-0407395   77-0405693
(I.R.S. employer identification number)
811 Hansen Way
  (I.R.S. employer identification number)
811 Hansen Way
Palo Alto, California 94303-1110
(650) 846-2900
  Palo Alto, California 94303-1110
(650) 846-2900
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
  (Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:   Securities registered pursuant to Section 12(b) of the Act:
None   None
Securities registered pursuant to Section 12(g) of the Act:   Securities registered pursuant 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 February 5, 2002. Communications & Power Industries, Inc.: 1 share of Common Stock, $.01 par value, at February 5, 2002.

 


TABLE OF CONTENTS

COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ITEM 2: CHANGES IN SECURITIES.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
SIGNATURES


Table of Contents

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        
 
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        
 
  COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION        
 
    Consolidated Condensed Balance Sheets, December 28, 2001 and September 28, 2001     2  
 
    Consolidated Condensed Statements of Operations for the 13-week periods ended December 28, 2001 and December 29, 2000     3  
 
    Consolidated Condensed Statements of Cash Flows for the 13-week periods ended December 28, 2001 and December 29, 2000     4  
 
    Notes to Consolidated Condensed Financial Statements     8  
 
  COMMUNICATIONS & POWER INDUSTRIES, INC.        
 
    Consolidated Condensed Balance Sheets, December 28, 2001 and September 28, 2001     5  
 
    Consolidated Condensed Statements of Operations for the 13-week periods ended December 28, 2001 and December 29, 2000     6  
 
    Consolidated Condensed Statements of Cash Flows for the 13-week periods ended December 28, 2001 and December 29, 2000     7  
 
    Notes to Consolidated Condensed Financial Statements     8  
 
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     10  
 
PART II: OTHER INFORMATION     15  
 
SIGNATURES     16  

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Table of Contents

COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries

CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)

                   
      December 28,   September 28,
      2001   2001
     
 
ASSETS
               
Current Assets
               
 
Cash and cash equivalents
  $ 3,490     $ 2,903  
 
Accounts receivable, net
    42,629       46,738  
 
Inventories
    50,835       57,678  
 
Deferred taxes
    2,960       3,500  
 
Other current assets
    1,965       2,241  
 
   
     
 
Total current assets
    101,879       113,060  
Property, plant, and equipment, net
    60,685       62,698  
Goodwill and other intangibles, net
    23,038       23,452  
Debt issue costs, net
    4,404       4,857  
 
   
     
 
Total assets
  $ 190,006     $ 204,067  
 
   
     
 
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
               
Current Liabilities
               
 
Revolving credit facility
  $ 12,986     $ 21,293  
 
Current portion of capital leases
    697       919  
 
Mortgage financing
    18,000       18,000  
 
Senior term loans
    20,000       20,000  
 
Accounts payable
    10,380       14,729  
 
Accrued expenses
    19,765       17,859  
 
Product warranty
    4,210       4,225  
 
Income taxes payable
    671       407  
 
Accrued dividends payable
    5,581       4,387  
 
Advance payments from customers
    6,934       9,193  
 
   
     
 
Total current liabilities
    99,224       111,012  
Senior subordinated notes
    100,000       100,000  
Obligations under capital leases
    55       90  
 
   
     
 
Total liabilities
    199,279       211,102  
 
   
     
 
Senior Redeemable Preferred Stock of Subsidiary
    28,532       28,479  
 
   
     
 
Junior Preferred Stock of Subsidiary
    22,891       22,094  
 
   
     
 
Commitments and contingencies
               
Stockholders’ Deficit
               
 
Common stock
    49       49  
 
Additional paid-in capital
    19,111       19,111  
 
Accumulated deficit
    (78,664 )     (75,587 )
 
Stockholder loans
    (1,192 )     (1,181 )
 
   
     
 
Net stockholders’ deficit
    (60,696 )     (57,608 )
 
   
     
 
Total liabilities, preferred stock and stockholders’ deficit
  $ 190,006     $ 204,067  
 
   
     
 

See accompanying notes to the unaudited consolidated condensed financial statements.

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Table of Contents

COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries

CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS

(in thousands — unaudited)
                       
          13-Week   13-Week
          period ended   period ended
          December 28,   December 29,
          2001   2000
         
 
 
Sales
  $ 66,228     $ 60,376  
 
Cost of sales
    52,069       47,578  
 
   
     
 
 
Gross profit
    14,159       12,798  
 
   
     
 
 
Operating costs and expenses:
               
     
Research and development
    1,255       1,388  
     
Selling and marketing
    3,946       3,912  
     
General and administrative
    4,662       4,300  
 
   
     
 
 
Total operating costs and expenses
    9,863       9,600  
 
   
     
 
 
Operating income
    4,296       3,198  
 
Foreign currency gain (loss)
    75       (186 )
 
Interest expense
    (4,725 )     (5,167 )
 
   
     
 
 
Loss before taxes
    (354 )     (2,155 )
 
Income tax expense
    680       250  
 
   
     
 
 
Net loss
    (1,034 )     (2,405 )
 
Preferred dividends:
             
     
Senior redeemable preferred stock
    1,194       1,041  
     
Junior preferred stock
    796       694  
 
   
     
 
Net loss attributable to common stock
  $ (3,024 )   $ (4,140 )
 
   
     
 

See accompanying notes to the unaudited consolidated condensed financial statements.

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Table of Contents

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 28,   December 29,
      2001   2000
     
 
OPERATING ACTIVITIES
               
 
Net cash provided by operating activities
  $ 9,815     $ 1,203  
 
   
     
 
INVESTING ACTIVITIES
               
 
Purchase of property, plant and equipment, net
    (664 )     (896 )
 
   
     
 
 
Net cash used in investing activities
    (664 )     (896 )
 
   
     
 
FINANCING ACTIVITIES
               
 
Repayments on capital leases
    (257 )     (228 )
 
Payment of debt issue costs
          (2,153 )
 
Repayment of terminated revolving credit facility
          (40,000 )
 
(Repayment) proceeds from revolving credit facility
    (8,307 )     20,942  
 
Repayments on terminated senior term loans
          (16,049 )
 
Proceeds from senior term loan
          20,000  
 
Proceeds from mortgage financing
          18,000  
 
   
     
 
 
Net cash (used in) provided by financing activities
    (8,564 )     512  
 
   
     
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    587       819  
Cash and cash equivalents at beginning of period
    2,903       4,766  
 
   
     
 
Cash and cash equivalents at end of period
  $ 3,490     $ 5,585  
 
   
     
 

See accompanying notes to the unaudited consolidated condensed financial statements.

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Table of Contents

COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding Corporation)

CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands — unaudited)
                   
      December 28,   September 28,
ASSETS   2001   2001

 
 
Current Assets
               
 
Cash and cash equivalents
  $ 3,490     $ 2,903  
 
Accounts receivable, net
    42,629       46,738  
 
Inventories
    50,835       57,678  
 
Deferred taxes
    3,100       3,500  
 
Other current assets
    1,965       2,241  
 
   
     
 
Total current assets
    102,019       113,060  
Property, plant, and equipment, net
    46,818       48,672  
Goodwill and other intangibles, net
    23,038       23,452  
Debt issue costs, net
    4,331       4,715  
Note receivable from parent
    5,750       5,750  
 
   
     
 
Total assets
  $ 181,956     $ 195,649  
 
   
     
 
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND DEFICIT
               
Current Liabilities
               
 
Revolving credit facility
  $ 12,986     $ 21,293  
 
Current portion of capital leases
    697       919  
 
Senior term loans
    20,000       20,000  
 
Accounts payable
    10,380       15,175  
 
Accrued expenses
    20,700       18,196  
 
Product warranty
    4,210       4,225  
 
Income taxes payable
    641       407  
 
Accrued dividends
    5,581       4,387  
 
Advance payments from customers
    6,934       9,193  
 
   
     
 
Total current liabilities
    82,129       93,795  
Senior subordinated notes
    100,000       100,000  
Deferred income on sale-leaseback
    7,630       7,735  
Obligations under capital leases
    55       90  
 
   
     
 
Total liabilities
    189,814       201,620  
 
   
     
 
Senior Redeemable Preferred Stock
    28,532       28,479  
 
   
     
 
Commitments and contingencies
               
Stockholders’ Deficit:
               
 
Junior preferred stock
    2       2  
 
Common stock
           
 
Additional paid-in capital
    42,048       41,252  
 
Accumulated deficit
    (77,248 )     (74,523 )
 
Stockholder loans
    (1,192 )     (1,181 )
 
   
     
 
Net stockholders’ deficit
    (36,390 )     (34,450 )
 
   
     
 
Total liabilities, senior redeemable preferred stock and stockholders’ deficit
  $ 181,956     $ 195,649  
 
   
     
 

See accompanying notes to the unaudited consolidated condensed financial statements.

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Table of Contents

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 28,   December 29,
          2001   2000
         
 
 
Sales
  $ 66,228     $ 60,376  
 
Cost of sales
    52,069       47,578  
 
   
     
 
 
Gross profit
    14,159       12,798  
 
   
     
 
 
Operating costs and expenses:
               
     
Research and development
    1,255       1,388  
     
Selling and marketing
    3,946       3,912  
     
General and administrative
    5,008       4,289  
 
   
     
 
 
Total operating costs and expenses
    10,209       9,589  
 
   
     
 
 
Operating income
    3,950       3,209  
 
Foreign currency gain (loss)
    75       (186 )
 
Interest expense
    (4,197 )     (5,087 )
 
   
     
 
 
Loss before taxes
    (172 )     (2,064 )
 
Income tax expense
    510       250  
 
   
     
 
 
Net loss
    (682 )     (2,314 )
 
Preferred dividends:
               
     
Senior redeemable preferred stock
    1,194       1,041  
     
Junior preferred stock
    796       694  
 
   
     
 
Net loss attributable to common stock
  $ (2,672 )   $ (4,049 )
 
   
     
 

See accompanying notes to the unaudited consolidated condensed financial statements.

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Table of Contents

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 28,   December 29,
      2001   2000
     
 
OPERATING ACTIVITIES
               
 
Net cash provided by operating activities
  $ 9,815     $ 1,053  
 
   
     
 
INVESTING ACTIVITIES
               
 
Proceeds from sale of property to parent
          17,250  
 
Purchase of property, plant and equipment, net
    (664 )     (896 )
 
   
     
 
 
Net cash (used in) provided by investing activities
    (664 )     16,354  
 
   
     
 
FINANCING ACTIVITIES
               
 
Repayments on capital leases
    (257 )     (228 )
 
Payment of debt issue costs
          (1,709 )
 
Repayments of terminated revolving credit facility
          (40,000 )
 
(Repayments) proceeds from revolving credit facility
    (8,307 )     20,942  
 
Repayments of terminated senior term loans
          (16,049 )
 
Proceeds from senior term loan
          20,000  
 
   
     
 
 
Net cash used by financing activities
    (8,564 )     (17,044 )
 
   
     
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    587       363  
Cash and cash equivalents at beginning of period
    2,903       4,766  
 
   
     
 
Cash and cash equivalents at end of period
  $ 3,490     $ 5,129  
 
   
     
 

See accompanying notes to the unaudited consolidated condensed financial statements.

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Table of Contents

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 28, 2001 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 2002.

2. Inventories

Inventories are stated at the lower of average cost or market (net realizable value). The main components of inventories are as follows:

                 
    December 28,   September 28,
(Dollars in thousands)   2001   2001

 
 
Raw materials and parts
  $ 37,299     $ 40,776  
Work in process
    10,894       14,874  
Finished goods
    2,642       2,028  
 
   
     
 
Total inventories
  $ 50,835     $ 57,678  
 
   
     
 

3. Supplemental Cash Flow Information

Cash paid by Holding for interest was $1.2 million and $1.9 million for the 13-week periods ended December 28, 2001 and December 29, 2000, respectively. Cash paid by CPI for interest was $0.9 million and $1.9 million for the 13-week periods ended December 28, 2001 and December 29, 2000, respectively. Cash paid (refunded) for taxes was $0.2 million and $(0.2) million for the 13-week periods ended December 28, 2001 and December 29, 2000, respectively.

Non-cash financing activities included the following: Dividends on Senior Redeemable Preferred Stock of $1.2 million and $1.0 million for the fiscal quarters ended December 28, 2001 and December 29, 2000, respectively. Preferred stock dividends on Junior Preferred Stock through the issuance of 7,962 and 6,938 shares of Junior Preferred Stock during the quarters ended December 28, 2001 and December 29, 2000, respectively.

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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)

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, 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 28, 2001:
                               
Revenues from external customers
  $ 51,329     $ 15,861     $ (962 )   $ 66,228  
Intersegment product transfers
    2,259       0       76       2,335  
EBITDA — Holding
    8,073       281       (889 )     7,465  
EBITDA — CPI
    8,073       281       (1,398 )     6,956  
December 29, 2000:
                               
Revenues from external customers
  $ 47,344     $ 11,516     $ 1,516     $ 60,376  
Intersegment product transfers
    3,558             414       3,972  
EBITDA — Holding
    7,460       (62 )     (1,050 )     6,348  
EBITDA — CPI
    7,460       (62 )     (1,050 )     6,348  

A reconciliation of EBITDA from reportable segments to Loss before Taxes is as follows:

                                 
    Holding   CPI
   
 
    13-Week Period Ended   13-Week Period Ended
   
 
    December 28,   December 29,   December 28,   December 29,
(Dollars in thousands)   2001   2000   2001   2000

 
 
 
 
Segment EBITDA
  $ 7,465     $ 6,348     $ 6,956     $ 6,348  
Less:
                               
Depreciation and amortization
    3,094       3,336       2,931       3,325  
Interest expense
    4,725       5,167       4,197       5,087  
 
   
     
     
     
 
Loss before taxes
  $ (354 )   $ (2,155 )   $ (172 )   $ (2,064 )
 
   
     
     
     
 

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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)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion reflects the condensed consolidated results of Communications & Power Industries Holding Corporation, which are materially consistent with those of CPI except as identified below and should be read in conjunction with the condensed consolidated financial statements and notes thereto:

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 2002 were $71.4 million as compared to $67.8 million for the first quarter of Fiscal 2001. This increase of $3.6 million for the quarter reflects a higher demand for products in the radar and scientific markets, offset somewhat by decreases in orders for the Company’s remaining four markets. Radar orders increased by $7.6 million, or 29.7%, due to higher demand for spare and rebuilt VED’s used in military applications. Orders in the scientific market increased $5.0 million from approximately $1.0 million in the first quarter of Fiscal 2001 due primarily to the booking of the final phase of an order from a government research laboratory. Communication orders decreased $4.4 million or 17.3% from the first quarter of Fiscal 2001 due to reduced capital spending by the Company’s customers driven by current economic conditions. Medical, electronic countermeasures and industrial orders also decreased by $1.9 million, $0.7 million and $1.9 million, respectively, due primarily to timing of order releases from quarter to quarter. 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 28, 2001, the Company had an order backlog of $157.0 million, representing approximately seven-and-a-half months of sales, compared to order backlog of $166.8 million, or approximately eight months of sales, as of December 29, 2000. Order backlog increased during the first quarter of Fiscal 2002 by $5.5 million from $151.5 million at the end of Fiscal 2001.

Sales for the first quarter of Fiscal 2002 were $66.2 million, an increase of $5.8 million, or 9.6%, from the same period in Fiscal 2001. This increase was driven primarily by sales in the communications and scientific markets, which demonstrated growth of 20.1% and 113.9% respectively, compared to the first quarter of Fiscal 2001 . Sales in the communications market for the first quarter of Fiscal 2002 included the final units of the XM Radio project, which contributed sales of approximately $5.0 million. Sales to

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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)

the Company’s other markets were up slightly on average from the first quarter of Fiscal 2001.

Gross profit for the first quarter of Fiscal 2002 was $14.2 million, or 21.4% of sales, consistent with the $12.8 million, or 21.2% of sales, earned in the first quarter of Fiscal 2001. Margin fluctuations are expected due to the mix of products sold during any quarter.

Operating costs and expenses were $9.9 million, or 14.9 % of sales, for the first quarter of Fiscal 2002 as compared to $9.6 million, or 15.9 % of sales, for the first quarter of Fiscal 2001. This improvement as a percentage of sales reflects the cost savings resulting from the Company’s cost cutting measures implemented in the latter half of Fiscal 2001 and in the first quarter of Fiscal 2002. The reduction in expenses was offset in part by approximately $370,000 associated with the relocation of the Satcom Division operation from Palo Alto, California to the facility in Ontario, Canada.

Earnings before interest, income taxes, depreciation and amortization (“EBITDA”) 1 for the first quarter of Fiscal 2002 were $7.5 million, or 11.3% of sales, compared to $6.3 million, or 10.5% of sales, for the first quarter of Fiscal 2001. This increase in EBITDA can be attributed to the improved sales volume coupled with the impact of lower operating costs in the current quarter.

Net loss was $1.0 million for Fiscal 2002 compared to a net loss of $2.4 million for Fiscal 2001. The decrease in the net loss from the first quarter of Fiscal 2001 resulted from improved operating income and reduced interest expense partially offset by an increase in tax expense as a result of a U.S. tax gain on the sale of the Satcom Division to Canada.

CPI’s operating results differ slightly from Holding due to a sale-leaseback transaction between CPI and Holding which took place in December 2000. In the first quarter of Fiscal 2002, CPI’s net loss before taxes was $172,000, which was approximately $182,000 lower than Holdings’ net loss before taxes of $354,000. As a result of this transaction, operating costs for CPI were approximately $346,000 higher than those of Holding due to rental payments paid by CPI to Holding for use of the San Carlos facility offset by amortization of the deferred gain on the sales-leaseback and additional depreciation on the San Carlos facility. Interest expense, net, for CPI was approximately $528,000 lower than that of Holding. The decrease primarily relates to the fact that Holding’s interest expense figure includes interest paid on the mortgage financing of the San Carlos facility. All other operations data for CPI is consistent with Holding’s for the first quarter of Fiscal 2002.

FINANCIAL CONDITION

Cash flows provided by operating activities for the first quarter of Fiscal 2002 were $9.8 million, an increase of $8.6 million from the $1.2 million provided by operating activities during the first quarter of Fiscal 2001. The positive cash flow was generated primarily from reductions in accounts receivable and inventories, offset by decreases in accounts payable and advance payments from customers.

Investing activities were comprised principally of investment in property, plant and equipment totaling


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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COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries

COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries Holding Corporation)

$664,000 for the first quarter of Fiscal 2002. Purchases of property, plant and equipment were down slightly from approximately $896,000 in the first quarter of Fiscal 2001. The Company currently anticipates that capital expenditure requirements for Fiscal 2002 will be approximately $4.5 million, similar to the amounts spent in Fiscal 2001 and 2000 for normal operations.

Financing activities during the first quarter of Fiscal 2002 were related to repayments on the Company’s secured credit facility (“Credit Facility”) of $8.3 million and repayments on capital leases of $257,000.

During Fiscal 2001, the Company relocated its administrative offices into a single building in Palo Alto and as a result, is actively looking to sublease up to 52,300 square feet of office space. Also during Fiscal 2001, the Company relocated its Satcom Division’s production operation from Palo Alto, California to its facility in Ontario, Canada. The relocation is substantially complete, however additional expenses of $300,000 to $500,000 are expected to be incurred during the remainder of Fiscal 2002.

The Company’s short-term debt includes mortgage financing of $18.0 million and senior term loans of $20.0 million that expire on June 1, 2002 and December 22, 2002, respectively. Management expects that cash to be generated by operations and borrowing under its Credit Facility in conjunction with either extending or finding alternative financing will allow it to meet the obligations.

There can be no assurance that the combination of cash generated by operations, borrowing availability from the Company’s Credit Facility and additional collateral-based financing will be sufficient to meet the Company’s cash requirements. If the Company is unable to satisfy such cash requirements from these sources, the Company will adopt one or more alternatives, such as reducing or delaying capital expenditures, reducing discretionary costs, negotiating an increase to the Company’s borrowing capacity under its line of credit, and selling and leasing back its facility in San Carlos, California in a transaction with an outside party.

Market Risk

The Company’s market risk disclosures set forth in its Annual Report on Form 10-K for the fiscal year ended September 28, 2001, have not changed significantly.

Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. Upon adoption of SFAS No. 142, amortization of goodwill recorded for business combinations will cease. Companies are required to adopt SFAS No. 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company plans to adopt this Statement beginning in the first quarter of Fiscal 2003 and therefore has not yet determined the impact on its consolidated financial position or results of operations.

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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)

The FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”, in August 2001, and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”, in October 2001. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 and will require that the fair value of an asset retirement obligation be recorded as a liability in the period in which it incurs the obligation. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. It provides a single accounting model for long-lived assets to be disposed of and replaces SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.” The Company does not expect the adoption of these statements to have a material effect on the Company’s consolidated financial position or results of operations.

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 the ability to increase margins; production interruptions due to power shutdowns and volatility in energy costs; 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

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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)

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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COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries

COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications & Power Industries)

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)    None
 
(b)    Reports on Form 8-K:
 
     No reports were filed on Form 8-K during the quarter ended December 28, 2001.

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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 8, 2002
     
  By:  /s/ Joel Littman
 
  Joel Littman
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: February 8, 2002

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