Quarterly Report

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

Orders during the second quarter of Fiscal 1998 were $81.6 million as compared to $75.5 million for the second quarter of Fiscal 1997, an increase of 8.2%. Orders during the first six months of Fiscal 1997 were $143.8 million, an increase of $2.0 million, or 1.4%, over the comparable period in the prior fiscal year. However, 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 April 3, 1998, the Company had order backlog of $184.3 million, representing approximately eight months of sales, compared to order backlog of $173.2 million as of April 4, 1997.

Sales for the second quarter of Fiscal 1998 were $68.8 million compared to $63.9 million for the same period in Fiscal 1997, an increase of 7.7% due primarily to increased demand for products used in radar applications. Sales for the first six months of Fiscal 1998 were $126.2 million compared to $119.2 million for the first six months of Fiscal 1997. This increase of $7.0 million for the first six months, or 5.9%, was, as mentioned above, primarily the result of increased demand for products used in the radar market, but also resulted from progress being made on a number of product development contracts and improved production uniformity since the first half of Fiscal 1998 was not disrupted by consolidation efforts that negatively impacted the first half of Fiscal 1997.

In terms of markets, the sales increase for the first six months of Fiscal 1998 was reflected in higher sales to four of the Company's six markets, with a slight decline in sales of products to the industrial and scientific markets. In the communications market, sales were $58.1 million, or 46.0% of total sales, compared to $55.1 million, or 46.2% of total sales, in the first six months of Fiscal 1997. Communications sales were up by $3.0 million, or 5.4%, primarily due to demand for amplifier products in the area of satellite communications. Sales to the radar market, the Company's second largest market, were $40.7 million, or 32.2% of total sales, during the first six months of Fiscal 1998 compared to $38.1 million, or 32.0% of total sales, during the same period in Fiscal 1997. This increase of $2.6 million, or 6.7%, was the result of increased demand over the past eighteen months for logistic spares and receipt of funding for several large upgrade programs. Sales to the Company's other four markets (electronic countermeasures, industrial, medical and scientific) were $27.4 million, or 21.7% of total sales, in the first six months of Fiscal 1998 compared to $26.0 million, or 21.8% of total sales, in the first six months of Fiscal 1997.

Gross profit was $18.0 million, or 26.2% of sales, in the second quarter of Fiscal 1998 compared to $17.8 million, or 27.8% of sales, in the second quarter of Fiscal 1997 as higher volume was offset by changes in product mix. Gross profit for the first six months of Fiscal 1998 was $32.7 million, or 25.9% of sales compared to $30.6 million, or 25.7% of sales, over the comparable period in Fiscal 1997. This increase of $2.1 million, or 6.7% was the result of additional sales volume and improvements from consolidation efforts partially offset by an increase in depreciation (approximately $.7 million, or 20%, higher in the first half of Fiscal 1998 than in the same time period in Fiscal 1997) and lower margins on several new product development contracts.

COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries

COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries

(A wholly owned subsidiary of Communications & Power Industries Holding Corporation)

Operating costs and expenses were $10.7 million for the second quarter of Fiscal 1998, as compared to $10.0 million for the second quarter of Fiscal 1997. Although operating costs and expenses as a percentage of sales remained flat at 15.6% between the two time periods, the mix between marketing and general and administrative costs changed somewhat. During the second quarter of Fiscal 1998, marketing costs decreased $.6 million compared to the second quarter of Fiscal 1997 as the result of specific cost reduction efforts in both the Company's domestic and international field sales offices and the impact of favorable currency valuation rates in Europe. This was offset, however, by higher general and administrative costs of $1.3 million primarily related to recent product line acquisition activity, software upgrade costs that address Year 2000 compliance at the Company's Massachusetts facility and a $.4 million bad debt reserve established due to economic problems in Indonesia affecting the collectibility of a receivable from an Indonesian customer. Operating costs and expenses for the first six months of Fiscal 1998 were $20.4 million compared to $19.4 million for the first six months of Fiscal 1997 but, again, as a percentage of sales, both were consistent at 16.2%. During the first half of Fiscal 1998, lower marketing costs of $.8 million were offset by $1.8 million of higher general and administrative costs as a result of the second quarter issues mentioned above plus higher management incentive accruals due to improved year-to-date performance and the fact that the first quarter of Fiscal 1997 was favorably impacted by the sale of a small product line.

Earnings before interest, income taxes, depreciation and amortization ("EBITDA")(1) for the second quarter of Fiscal 1998 was $10.2 million, or 14.8% of sales, compared to $10.2 million, or 15.9% of sales, for the second quarter of Fiscal 1997. EBITDA for the first six months of Fiscal 1998 was $17.8 million, or 14.1% of sales, compared to $15.8 million, or 13.3% of sales, for the same time period in Fiscal 1997. This improvement was, as mentioned above, related to higher volume and efficiencies resulting from consolidation efforts.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities for the first six months of Fiscal 1998 were $12.4 million, an increase of $12.7 million from the $.3 million used by operating activities during the first six months of Fiscal 1997. The primary reasons for this increase in cash were improved earnings, decreased levels of current operating assets and increases to accounts payable and accrued expenses. In the first six months of Fiscal 1997, the timing of payments required for payroll, supplemental property taxes and interest payments consumed cash of $7.0 million compared to providing cash of $1.2 million in the first six months of Fiscal 1998. Inventory levels have also been more stable in the first half of Fiscal 1998 consuming only $2.3 million of cash, offset by a $2.0 million increase in accounts payable, compared to inventory changes in the first half of Fiscal 1997 that consumed $5.0 million of cash, only partially offset by a $1.1 million increase in accounts payable. Overall, operating activities funded $8.8 million of repayments against the Company's revolving credit facility and senior term loans during the first half of Fiscal 1998.

(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.

COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries

COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries

(A wholly owned subsidiary of Communications & Power Industries Holding Corporation)

Cash flows used by investing activities were comprised of expenditures for property and equipment as well as product line enhancement. During the first six months of Fiscal 1998, the Company invested $2.6 million in new capital equipment compared to $6.5 million spent in the first half of Fiscal 1997. This capital expenditure reduction of $3.9 million was anticipated by the Company and was primarily related to completing consolidation efforts in Fiscal 1997. Also during the first half of Fiscal 1998, the Company invested $2.7 million in two small product line acquisitions to add to products currently being manufactured in the Company's Beverly, Massachusetts and Palo Alto, California facilities.

Non-cash financing activities during the first six months of Fiscal 1998 included $.9 million of purchases under capital leases. These purchases were related to the implementation of a new business enterprise system that is part of the Company's overall plan to address "Year 2000" issues.

The Company's current primary source of liquidity, other than funds generated from operations, is the $35.0 million revolving credit facility provided under its senior credit agreement (of which $11.9 million was available as of May 1, 1998). Management believes that the Company will have adequate capital resources and liquidity (including cash flow from operations and borrowing under its revolving credit facility) to meet its obligations, fund all required capital expenditures and pursue its business strategy for the foreseeable future and, in any event, for the next 12 months.

COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries

COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries

(A wholly owned subsidiary of Communications & Power Industries Holding Corporation)