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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

     For the transition period from __________ to __________

     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     

     Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( X )

     Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes      No  X 

     The aggregate market value of voting stock of Communications & Power Industries Holding Corporation held by non-affiliates is $288,750, based upon the price at which it was last sold. No voting stock of Communications & Power Industries, Inc. is held by non-affiliates of Communications & Power Industries, Inc. Communications & Power Industries, Inc.’s voting stock is wholly owned by Communications & Power Industries Holding Corporation, a Delaware corporation. Neither Communications & Power Industries, Inc.’s nor Communications & Power Industries Holding Corporation’s common stock is publicly traded.

     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: 5,008,172 shares of Common Stock, $.01 par value, at December 8, 2003. Communications & Power Industries, Inc.: 1 share of Common Stock, $.01 par value, at December 8, 2003.

DOCUMENTS INCORPORATED BY REFERENCE:
(None)

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Forward-Looking Statements

     This document contains forward-looking statements. These statements 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,” “expect,” “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.

     You should read the following discussion and analysis in conjunction with the Financial Statements and related Notes thereto contained elsewhere in this report. 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 Securities and Exchange Commission (the “SEC”).

PART 1

Item 1: Business

General

     Communications & Power Industries Holding Corporation (“Holding”), through its wholly owned subsidiary, Communications & Power Industries, Inc. (“CPI”, both companies together referred to as the “Company”), is a world leader in the development, manufacture and distribution of components for systems used primarily to generate, control and transmit high-power/high-frequency microwave and radio frequency signals. End-use applications of these systems include the transmission of radar signals for location and tracking of threats and navigation; transmitting decoy and jamming signals for electronic warfare; the transmission and amplification of voice, data and video signals for broadcasting, internet and telecommunications; providing power and control for medical diagnostic imaging and generating microwave energy for radiation therapy in the treatment of cancer; and various other uses in the industrial and scientific markets.

     The Company’s products include microwave and power grid vacuum electron devices, microwave amplifiers, modulators, and various other power supply equipment and devices. The majority of the Company’s products are consumable and have a finite life. The Company operates four manufacturing facilities in North America, and sells and services its products and customers worldwide primarily through a direct sales force.

     CPI is a wholly owned subsidiary of Holding. Both Holding and CPI are Delaware corporations formed in 1995. Prior to August 11, 1995, the Company’s operations were part of the Electron Devices Business of Varian Associates, Inc., as the predecessor of Varian Medical Systems, Inc. (“Varian”). The principal executive offices of Holding and CPI are located at 811 Hansen Way, Palo Alto, California 94303, and their telephone number is (650) 846-2900.

Recent Events

Merger Agreement

     On November 17, 2003, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), under which a corporation (“Acquiror”) owned by The Cypress Group L.L.C., a New York-based private equity firm, agreed to acquire the Company in a cash-for-stock transaction with a total value of approximately $300 million. As more fully described in Item 12 “Security Ownership of Certain Beneficial

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Owners and Management and Related Stockholder Matters”, the acquirer has entered into a Voting and Indemnification Agreement with stockholders of Holding to vote in favor of the Merger Agreement.

     Pursuant to the Merger Agreement, a wholly owned subsidiary of Acquiror will merge with and into the Company (the “Merger”), with the Company as the surviving corporation. In connection with the Merger, it is anticipated that all outstanding debt of the Company will be refinanced. Consummation of the merger is subject to customary conditions, including a condition that Acquiror obtain the requisite debt financing. Subject to satisfaction of the applicable conditions, it is currently anticipated that the Merger will close in the second quarter of fiscal year 2004.

Redemption of 12% Senior Subordinated Notes of CPI

     On December 4, 2003, CPI instructed the trustee under the Indenture (the “Indenture”) relating to CPI’s 12% Senior Subordinated Notes (the “Notes”) to send a notice to all of the registered holders of the Notes, notifying them that CPI has elected to redeem $26,000,000 in principal amount of the Notes on January 5, 2004, pursuant to and in accordance with the terms of the Indenture. The redemption will occur at a price equal to 101.5% of the principal amount of such notes plus accrued and unpaid interest to January 5, 2004. In connection with the redemption, CPI and Holding entered into an amendment to the Company’s credit facility that, among other things, permits CPI to redeem up to an aggregate maximum amount of $30,000,000 of the Notes in any fiscal year.

Products

     The Company offers a comprehensive range of microwave and power grid vacuum electron devices, microwave amplifiers, modulators and various other power supply equipment and devices for use in the radar, electronic countermeasures, medical, communications, industrial and scientific markets. The Company offers over 6,000 products that generally have selling prices from $2,000 to $50,000, with certain products ranging in price up to $1,000,000. Most of these products are consumable and have a finite life based upon hours of usage, operating environment and application. Certain of the Company’s products are sold in more than one market depending on the specific power and frequency requirements of the end-user and the physical operating conditions of the environment in which the vacuum electron device will be located.

Markets

The Company operates in six different markets:

•

Radar Market - The radar market utilizes microwave and power grid vacuum electron devices, amplifiers, receiver protectors and related equipment for air, ground and shipboard radar systems. The Company’s vacuum electron devices have been an integral component of radar systems for over five decades. Sales in the radar market were $102.6 million in fiscal year 2003, compared to $93.2 million in fiscal year 2002 and $87.9 million in fiscal year 2001.

•

Electronic Countermeasures Market - The electronic countermeasures market utilizes microwave vacuum electron devices for systems that provide protection for ships, aircraft and high-value land targets against radar-guided munitions. Sales in the electronic countermeasures market were $22.5 million in fiscal year 2003, compared to $21.7 million in fiscal year 2002 and $21.8 million in fiscal year 2001.

•

Medical Market - The Company participates in the diagnostic and treatment sectors of the medical market. In the diagnostic market, the Company provides x-ray generators, including state-of-the-art, high-efficiency, lightweight power supplies and modern digital consoles for diagnostic equipment. In the treatment market, the Company provides microwave generators (klystrons) for high-end cancer therapy machines. Sales in this market were $38.2 million in fiscal year 2003, compared to $29.3 million in fiscal year 2002 and $27.4 million in fiscal year 2001.

•

Communications Market - The communications market is comprised of applications for satellite communications (“satcom”), wireless point-to-point and point-to-multipoint radio and broadcast sectors. In this market, the Company’s products generate, amplify and transmit signals and data within an overall communication system. Sales in the communications market were $82.5 million in fiscal year 2003 compared to $84.8 million in fiscal year 2002 and $109.9 million in fiscal year 2001.

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•

Industrial Market - The industrial market includes applications for a wide range of systems used for materials processing, instrumentation and voltage generation. Sales in this market were $11.3 million in fiscal year 2003, compared to $15.5 million in fiscal year 2002, and $20.0 million in fiscal year 2001.

•

Scientific Market - The scientific market consists primarily of equipment utilized in reactor fusion programs and accelerators for high-energy particle physics, referred to as “Big Science.” Sales in the scientific market were $8.3 million in fiscal year 2003, compared to $6.7 million in fiscal year 2002, and $5.5 million in fiscal year 2001.

     The Company’s products have applications among commercial and government customers. The commercial sector represents all sales for which the U.S. Government is not the end-user. However, the end-user markets identified above are not categorized based upon whether they consist entirely of sales into commercial or government sectors. Therefore, sales in any one of the Company’s markets may consist of sales to commercial customers, the U.S. Government, or both. The commercial sector contributed approximately $174.9 million, or 65.9%, of the Company’s total sales in fiscal year 2003, compared to $187.0 million, or 74.4%, of the Company’s total sales in fiscal year 2002, and $212.1 million, or 77.8%, of the Company’s total sales in fiscal year 2001. U.S. Government sales, both direct and through original equipment manufacturers (“OEMs”), contributed approximately $90.5 million, or 34.1%, of the Company’s total sales in fiscal year 2003 compared to $64.2 million, or 25.6%, of the Company’s total sales in fiscal year 2002 and $60.4 million, or 22.2%, in fiscal year 2001. The Company believes the fiscal year 2003 increase in U.S. Government sales reflects the Department of Defense’s recent expanded emphasis on addressing terrorism and homeland security. Based on a stable trend of order receipts for spares and upgrades from fiscal year 1995 to fiscal year 2003, management expects that U.S. Government and defense-related end-users will continue to provide a steady source of revenue. Segment data is included in Note 13 of the Notes to Consolidated Financial Statements.

     In fiscal year 2003, approximately 66.3% of sales were derived from U.S. customers, while approximately 33.7% of sales were derived from international customers, compared to fiscal year 2002 when approximately 69.7% of sales were derived from U.S. customers and approximately 30.3% of sales were derived from international customers and fiscal year 2001 when approximately 67.0% of sales were derived from U.S. customers and approximately 33.0% of sales were derived from international customers. However, many domestic OEMs, primarily those in the satcom market, export their products, and management believes that some percentage of the Company’s sales to U.S. customers ultimately have international end-users. Excluding sales directly to the U.S. Government, which accounted for 19.3% of sales in fiscal year 2003, 17.5% of sales in fiscal year 2002 and 15.7% of sales in fiscal year 2001, no single customer accounted for more than 5% of the Company’s total sales in fiscal years 2003, 2002, or 2001.

Sales, Marketing and Service

     As of October 3, 2003, the Company had over 100 direct sales, marketing and technical support professionals representing the largest direct sales, service and technical support organization focused exclusively on high-power/high-frequency signal generation, amplification and transmission. Most of the Company’s sales professionals are responsible for marketing the Company’s entire product line. Company sales professionals receive extensive technical training in all of the Company’s products, which allows them to provide customers with appropriate technical support, including information on product application and implementation.

     In addition to its direct sales force, the Company utilizes over 35 external sales organizations and one stocking distributor, Richardson Electronics, Ltd., to service the needs of low volume customers. The majority of the third-party organizations that the Company utilizes are located outside the U.S. and focus primarily on customers in South America, Southeast Asia, the Far East, the Middle East, Africa and Eastern Europe. Through the use of third-party sales organizations, the Company has been better able to meet the needs of its foreign customers by establishing a local presence in lower volume markets.

     The Company also has a specialized network of thirteen service centers for the satcom replacement market. These service centers are located in the United States (California and New Jersey), Amsterdam, Brazil, China (2), India (2), Taiwan, Japan, Russia, Singapore and South Africa.

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Manufacturing

     The Company manufactures its products within five manufacturing operations in North America. The Company has implemented modern manufacturing methodologies based upon “continuous improvement”, including Just In Time (“JIT”) materials handling, Demand Flow Technology (“DFT”), Statistical Process Control and Value Managed Relationships with suppliers and customers. The Company has achieved the ISO-9000 international certification standard.

     Generally, each of the Company’s manufacturing units use similar processes consisting of product development, purchasing, high level assembly and test. For satcom equipment, the process is primarily one of integration, and contract manufacturers are used whenever possible. Satcom equipment utilizes both vacuum electron devices (“VEDs”) and solid-state technology, and the satcom division procures certain of its components from the Company’s other manufacturing units. For VEDs, the process starts with procurement of raw material and sub-assemblies from qualified suppliers, who often deliver on a JIT basis. Raw materials are then formed, primarily by machining, cleaning and plating certain parts. These steps utilize statistical process control techniques to assure quality and high production yields. Subassembly is then performed to produce a vacuum envelope, the essential part of a vacuum electron device. This subassembly process is performed utilizing DFT, which helps to minimize inventory. Vacuum assemblies are processed by pumping the atmosphere from the assemblies while heating them in a furnace and simultaneously stimulating them with an electrical current. When this step is complete, final assembly and testing is performed on each product before shipment. The Company has developed sophisticated test programs to assure that each product meets operating specifications.

     Certain materials necessary for the manufacture of the Company’s products, such as molybdenum, cupernickel, OFHC copper, and some cathodes, are obtained from sole, or a limited group of, suppliers.

Competition

     The industries and markets in which the Company operates are highly competitive. The Company encounters competition in most of its business areas from numerous other companies, including L3 Electron Devices, E2V Technologies, Xicom Technologies and Thales Electron Devices, some of which have resources substantially greater than those of the Company. Some of these competitors are also customers of the Company. The Company’s ability to compete in its markets depends to a large extent on its ability to provide high quality products with shorter lead times at competitive prices, and its readiness in facilities, equipment and personnel.

     The Company must also continually engage in effective research and development efforts in order to introduce innovative new products for technologically sophisticated customers and markets. There is an inherent risk that advances in existing technology, including solid-state technology, or the development of new technology could adversely affect the Company’s market position and financial condition. Solid-state devices generally serve end-users’ low-power requirements, while only microwave vacuum electron devices currently serve higher-power and higher-frequency demands. The laws of physics limit the ability of solid-state technology to efficiently or cost effectively serve the high-power/high-frequency applications of the Company’s customers. The extreme operating parameters of these applications necessitate heat dissipation capabilities that are best satisfied by the Company’s vacuum electron device products. The Company’s management believes that each technology currently serves its own niche without significant overlap.

Backlog

     As of October 3, 2003, the Company had an order backlog of $172.1 million, representing approximately eight months of sales, compared to an order backlog of $145.1 million, or approximately seven months of sales, as of September 27, 2002. Although the backlog consists of firm orders for which goods and services are yet to be provided, these orders can be, and sometimes are, modified or terminated. However, the amount of modifications and terminations has historically not been material as compared to total contract volume.

Intellectual property

     The Company owns a number of United States and foreign patents having various expiration dates (collectively, the “Patents”). The Patents relate to various aspects of the technologies used by the Company in many of its operations. In addition to the Patents, the Company has certain trade secrets, know-how, trademarks

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and copyrights related to its technology and products. The Company also has acquired certain intellectual property rights and incurred certain obligations through license and research and development agreements with third parties. These agreements may include royalty-bearing licenses, technology cross licenses and manufacturing supply agreements. Management does not believe that any single patent or license is material to the success of the Company as a whole. As a result of contracts with the U.S. Government that contain patent and/or data rights clauses, the U.S. Government also has acquired royalty-free licenses or other rights in inventions and technology resulting from certain work done by the Company on behalf of the U.S. Government. The Company also has certain software license agreements with vendors and suppliers that affect the Company’s intellectual property rights. The Company generally enters into confidentiality agreements with its employees, consultants and vendors, and generally limits access to, and distribution of, its proprietary information. The Company maintains an intellectual property protection program designed to preserve the intellectual property assets for the Company’s future products. This program includes the filing of new domestic and foreign patent applications, copyright and trademark applications and the pursuit of enforcement of its intellectual property rights. Nevertheless, the Company cannot provide assurance that the steps taken by it will prevent misappropriation or loss of its technology.

     Six United States patents and one United States patent application, and their foreign counterparts, are jointly owned by the Company and Varian, along with related trade secrets and know-how, including drawings, manufacturing and testing processes and designs (the “Key Component Technology”). The Key Component Technology relates to the manufacture and testing of certain key electron beam guns and key medical klystrons, and any improvements thereto. The Company and Varian are parties to a Cross-License Agreement that allocates the rights to the Key Component Technology between the Company and Varian, on a royalty free basis.

Research and Development

     Company-sponsored research and development (“R&D”) expense was approximately $6.9 million, $5.9 million, and $5.8 million during fiscal year 2003, fiscal year 2002, and fiscal year 2001, respectively. Research and development expenses increased during fiscal year 2003 related to new product development for the communications, radar and medical markets. Customer-sponsored R&D was approximately $3.7 million, $5.2 million, and $5.0 million during fiscal year 2003, fiscal year 2002 and fiscal year 2001, respectively. For customer-sponsored R&D, the costs were charged to cost of sales to match revenue earned.

Employees

     As of October 3, 2003, the Company had approximately 1,490 employees, as compared to 1,480 employees as of September 27, 2002. The Company’s workforce has stabilized at this level after being reduced from approximately 1,720 at the end of fiscal year 2001. None of the Company’s employees is subject to a collective bargaining agreement although a limited number of the Company’s sales force members located in Europe are members of work councils or unions. The Company has not experienced any work stoppages and believes that it has good relations with its employees.

     Because of the specialized and technical nature of the Company’s business, the Company is dependent on the continued service of, and on its ability to attract and retain, qualified technical, marketing, sales and managerial personnel. There exists competition for such personnel, and the failure to retain and/or recruit additional or substitute key personnel in a timely manner could have a material adverse effect on the Company’s business and operating results.

U.S. Government Contracts and Regulations

     Management expects that in the foreseeable future a significant portion of the Company’s sales will continue to result from contracts with the U.S. Government, either directly or through prime contractors or subcontractors. The Company’s business with the U.S. Government is performed primarily under fixed-price contracts and, to a lesser degree, cost-plus contracts. Fixed-price contracts accounted for 96.9% of the Company’s U.S. Government sales in fiscal year 2003 and cost-plus contracts accounted for 3.1% of the Company’s U.S. Government sales in fiscal year 2003, as compared to fiscal year 2002, in which approximately 95.2% of U.S. Government sales were from fixed-price contracts and approximately 4.8% of U.S. Government sales were from cost-plus contracts and fiscal year 2001, in which approximately 96.2% of U.S. Government sales was from fixed-price contracts and approximately 3.8% of U.S. Government sales was from cost-plus contracts.

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     Under fixed-price contracts, the Company agrees to perform certain work for a fixed price and, accordingly, realizes all the benefit or detriment from decreases or increases in the costs of performing the contract. In addition, under U.S. Government regulations, certain costs, including certain financing costs, portions of research and development costs, and certain expenses related to the preparation of competitive bids and proposals and international sales are not reimbursable. The U.S. Government also regulates the methods under which costs are allocated to U.S. Government contracts.

     U.S. Government contracts are, by their terms, subject to termination by the U.S. Government either for its convenience or upon default by the contractor. Cost-plus contracts provide that, upon termination, the contractor is generally entitled to reimbursement of its incurred costs and, if the termination is for convenience, a fee proportionate to the percentage of the work completed under the contract is permitted. If the termination is for default, a contractor may also receive a fee proportionate to any items delivered to and accepted by the U.S. Government. Fixed-price contracts provide for payment upon termination for items delivered to and accepted by the U.S. Government, and, if the termination is for convenience, for reimbursement of its other incurred costs and a reasonable profit on incurred costs. If a contract termination is for default, however, (i) the contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. Government, (ii) the U.S. Government is not liable for the contractor’s incurred costs with respect to unaccepted items and is entitled to repayment of advance payments and progress payments, if any, related to the terminated portions of the contracts and (iii) the contractor may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.

     In addition to the right of the U.S. Government to terminate its contracts, U.S. Government contracts are conditioned upon the availability of congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance may take many years. Consequently, at the outset of a major program, multi-year contracts are usually funded for only the first year (including any termination penalty), and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years.

     The Company’s contracts with foreign governmental defense agencies are subject to certain similar limitations and risks as those encountered with U.S. Government contracts. Licenses are required from U.S. Government agencies to export many of the Company’s products. Certain of the Company’s products are not permitted to be exported.

     Due to its business with the U.S. Government, the Company may also be subject to “qui tam” (whistle blower) suits brought by private plaintiffs in the name of the U.S. Government upon the allegation that the Company submitted a false claim to the U.S. Government, as well as to false claim suits brought by the U.S. Government. A judgment against the Company in a qui tam or false claim suit could cause the Company to be liable for substantial damages and could carry penalties of suspension or debarment which would make the Company ineligible to be awarded any U.S. Government contracts for a period of up to three years and, as a result, could potentially have a material adverse effect on the Company’s financial condition and results of operations.

     Similar to other companies that derive a substantial portion of their sales from contracts with the U.S. Government for defense-related products, the Company is subject to business risks, including changes in governmental appropriations, national defense policies or regulations and availability of funds. Any of these factors could adversely affect the Company’s business with the U.S. Government in the future.

Environmental Matters

     The Company is subject to a variety of federal, state and local environmental laws and regulations and utilizes in its operations a number of chemicals or similar substances that are classified as hazardous. Management believes that the Company’s current operations are in substantial compliance with current environmental laws and regulations. However, changes in law or limitations on chemical uses or certain manufacturing processes could restrict the ability of the Company to operate in the manner in which the Company is currently operated or is permitted to be operated. In addition, it is possible that the Company may experience releases of certain chemicals or other events that could cause the incurrence of material cleanup costs or other damages. The Company is involved from time to time in legal proceedings involving compliance with

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environmental requirements applicable to its ongoing operations, and may be involved in legal proceedings involving regulatory compliance, exposure to chemicals or the remediation of environmental contamination.

     Varian has agreed to indemnify the Company for environmental claims arising from the operations of Varian’s Electron Devices Business (including pre-existing contamination) prior to August 11, 1995, subject to certain exceptions and limitations. Environmental investigation and remedial work is being undertaken by Varian at three of the Company’s manufacturing facilities, Palo Alto, California, Beverly, Massachusetts and Georgetown, Ontario, Canada. Although the Company believes that Varian currently has sufficient financial resources to satisfy its environmental indemnification obligations to the Company, because of the long-term nature of Varian’s remediation obligations, there can be no assurance that Varian will continue to have the financial resources to comply fully with its indemnification obligations to the Company. Unreimbursed liabilities arising from environmental claims, if significant, could have a material adverse effect on the Company’s results of operations and financial condition.

     The Company subleases a portion of the larger Varian Palo Alto campus, for which Varian has entered into a Consent Order with the California Environmental Protection Agency for remediation of soil and groundwater contamination. The Palo Alto site abuts a federal Superfund site and a state Superfund site. In addition, Varian has been sued or threatened with suit with respect to some of the Company’s facilities. To date, Varian has, generally at its expense, conducted required investigation and remediation work at the Company’s facilities and responded to environmental claims arising from Varian’s prior operations of the Electron Devices Business.

     The Company’s San Carlos, California facility also has soil and groundwater contamination that may require remediation. On February 7, 2003, Holding entered into an agreement for the sale of the San Carlos real property. In addition to customary closing and due diligence conditions, the sale of the property is contingent upon completion of environmental remediation and demolition of existing structures, to be agreed upon by the parties. The purchaser has not completed or approved its due diligence investigations of the property, and there is no assurance that it will do so or that the other conditions to closing will be satisfied.

     With certain limited exceptions, the Company is not indemnified by Varian for environmental claims arising from the Company’s operations after August 11, 1995. The Company cannot provide assurance that it will not incur material costs or liabilities in connection with proceedings or claims related to environmental conditions arising from its operations after 1995.

Item 2: Properties

     The Company owns, leases or subleases manufacturing, assembly, warehouse, service and office properties having an aggregate floor space of approximately 1,075,000 square feet, of which approximately 29,000 square feet are leased or subleased to third parties. The table that follows provides summary information regarding principal properties owned or leased by the Company:

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     The lenders under CPI’s secured credit facility, have a security interest in all of the Company’s interest in the real property that it owns and leases, excluding its San Carlos, California real property.

     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 property, consisting of $17.25 million in cash and an unsecured promissory note in the principal amount of $5.75 million maturing in December 2009, 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 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. During fiscal year 2002, the loan was extended until June 1, 2003 and a principal payment of $0.2 million was made. During fiscal year 2003, the loan was extended until January 31, 2004 and another principal payment of $0.3 million was made. The loan bears interest at LIBOR plus 4.25% and is secured on a non-recourse basis (subject to normal and customary exceptions) by the San Carlos real property. Holding has entered into an agreement for the sale of the San Carlos property to an unrelated party. As discussed above in Item 1 “Business—Environmental Matters,” the proposed sale is subject to various conditions.

     The Company’s headquarters and one principal complex, including one of the Company’s manufacturing facilities, located at the Palo Alto, California site are leased by way of assignment, or subleased, from Varian or one of its affiliates or former affiliates. Therefore, the Company’s occupancy rights are dependent on the tenant’s fulfillment of its responsibilities to the master lessor, including its obligation to continue environmental remediation activities under a consent order with the California Environmental Protection Agency. The consequences of the loss by the Company of such occupancy rights could include the loss of valuable improvements and favorable lease terms, the incurrence of substantial relocation expenses and the disruption of the Company’s business operations.

Item 3: Legal Proceedings

     The Company is involved from time to time in various legal proceedings and is the subject of various cost accounting and other government pricing claims. Pursuant to the agreement between CPI and Varian dated August 11, 1995, Varian has agreed to indemnify the Company against liabilities arising from litigation and governmental claims pertaining to the operation of the Electron Devices Business of Varian prior to August 11, 1995. Accordingly, management believes that litigation and governmental claims pending against Varian and relating to the operation of the Electron Devices Business prior to August 1995, will not have a material adverse effect on the Company’s financial condition or results of operations. See “Business — Environmental Matters.”

Item 4: Submission of Matters to a Vote of Security Holders

     There were no matters submitted to a vote of security holders during the fourth quarter of fiscal year 2003.

PART II

Item 5: Market for the Registrant’s Common Equity and Related Shareholder Matters

     CPI is a wholly owned subsidiary of Holding. There is no established public trading market for the common stock of CPI or Holding. As of December 8, 2003, there were approximately forty-five holders of record of common stock of Holding and one holder of the common stock of CPI. No cash dividends have been declared on the common stock of CPI or Holding during the two most recent fiscal years. Restrictive covenants under the Company’s credit facility generally restrict the declaration or payment of dividends on common stock of CPI or Holding. The Indenture and the Senior Notes also restrict the declaration and payment of dividends unless, among other things, certain financial covenants are satisfied.

     See Item 11 “Executive Compensation—Holding’s 2000 Stock Option Plan” for a discussion of Securities Authorized for Issuance Under Equity Compensation Plans.

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Item 6: Selected Financial Data

     The following selected financial data has been derived from the consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

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COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION AND SUBSIDIARIES
FIVE-YEAR SELECTED FINANCIAL DATA

     The Company has paid no cash dividend on its common stock in any of the years presented above.

(a)

On September 26, 2002, the Company sold its Solid state Products Division (SSPD). The net pretax loss of $3.0 million included approximately $2.5 million for the write-off of goodwill.

(b)

EBITDA represents earnings before provision for income taxes, interest expense, depreciation and amortization and certain non-recurring charges. A reconciliation of EBITDA to income (loss) before taxes is as follows:

			In fiscal year 2002, EBITDA also excludes the non-cash write-off of goodwill associated with the sale of SSPD of $2.5 million and the non-cash impairment loss of $0.5 million related to plant and equipment used in the satcom equipment segment.
			EBITDA is presented because the Company believes that EBITDA is used by some investors as a financial indicator of a company’s ability to service indebtedness. While management considers EBITDA to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for or superior to, operating income, net earnings (loss), cash flow and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States. EBITDA does not reflect cash available to fund cash requirements, and the items excluded from EBITDA, such as depreciation and amortization, are significant components in assessing the Company’s financial performance. Other significant uses of cash flows are required before cash will be available to the Company including debt service, taxes and cash expenditures for various long-term assets. The Company’s calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

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COMMUNICATIONS & POWER INDUSTRIES, INC. AND SUBSIDIARIES
FIVE-YEAR SELECTED FINANCIAL DATA

     The Company has paid no cash dividend on its common stock in any of the years presented above.

(a)

On September 26, 2002, the Company sold its Solid state Products Division (SSPD). The net pretax loss of $3.0 million included approximately $2.5 million for the write-off of goodwill.

(b)

EBITDA represents earnings before provision for income taxes, interest expense, depreciation and amortization and certain non-recurring charges. A reconciliation of EBITDA to income (loss) before taxes is as follows:

In fiscal year 2002, EBITDA also excludes the non-cash write-off of goodwill associated with the sale of SSPD of $2.5 million and the non-cash impairment loss of $0.5 million related to plant and equipment used in the satcom equipment segment.

EBITDA is presented because the Company believes that EBITDA is used by some investors as a financial indicator of a company’s ability to service indebtedness. While management considers EBITDA to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for or superior to, operating income, net earnings (loss), cash flow and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States. EBITDA does not reflect cash available to fund cash requirement, and the items excluded from EBITDA, such as depreciation and amortization, are significant components in assessing the Company’s financial performance. Other significant uses of cash flows are required before cash will be available to the Company including debt service, taxes and cash expenditures for various long-term assets. The Company’s calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

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Item 7: Management’s Discussion and Analysis of Financial Condition and Results of operations

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

Overview

     The Company serves the radar, electronic countermeasures, medical, communications, industrial and scientific markets. In addition, the Company divides the communications market into applications for ground-based satellite uplinks for military and commercial uses and broadcast sectors. The Company defines and discusses its orders and sales trends by these end markets in order to more clearly relate its business to outside investors. Internally, however, the Company is organized into five operating units that are differentiated based on products. Four of these operating units comprise the Company’s vacuum electron device (“VED”) segment. The Company also has a satcom equipment segment. Segment data is included in Note 13 of the Notes to Consolidated Financial Statements.

     Orders for fiscal year 2003 were $291.4 million, an increase of $43.2 million from fiscal year 2002. The increase from fiscal year 2002 levels reflects higher demand for products in the radar, electronic countermeasures, medical and communications markets. Radar orders were $124.1 million, an increase of $23.1 million, or 22.9%, from $101.0 million in fiscal year 2002. Orders in the electronic countermeasures market have increased $9.7 million, or 63.8%, to $24.9 million from $15.2 million in fiscal year 2002. The increase in radar and electronic countermeasure orders reflect continued growth in the U.S. defense budget stemming principally from the Department of Defense’s recent expanded emphasis on addressing terrorism and homeland security. This funding has resulted in an increase in new radar system development and deployment, including increases in the rate at which naval surface combat ships are being built. In addition, protection of military assets has become a very high priority resulting in the continuing funding of new, upgrade and replenishment programs in the electronic countermeasure area. The Company has enjoyed growth in both the radar and electronic countermeasures market due to its strong participation in these various initiatives and platforms. Medical orders increased by $6.0 million, or 18.0%, to $39.3 million from $33.3 million in fiscal year 2002. The increase was due to higher orders for VED’s used in cancer therapy systems and magnetic resonance imaging, and x-ray generator and power supply products used in x-ray imaging. Communication orders increased by $10.8 million, or 14.9%, to $83.1 million from fiscal year 2002, due principally to several large orders from direct-to-home service suppliers. These orders shipped by the end of fiscal year 2003. The Company anticipates a slight rebound in the traditional communications market and expects order levels of approximately $80 million for fiscal year 2004. These order increases were offset in part by declines in the industrial and scientific markets of $2.3 million and $4.1 million, respectively, from fiscal year 2002. The slight decline in the industrial market is attributable to the weakness in the semiconductor market. Order levels for the industrial market for fiscal year 2004 are expected to continue at the $13 million level. Orders for products sold to the scientific market, the Company’s smallest market, decreased from $9.8 million in fiscal year 2002 to $5.6 million in fiscal year 2003. Orders in this market are historically one-time type projects and thus difficult to predict. Also, incoming order levels fluctuate significantly on a quarterly basis and a particular year’s order rate may not be indicative of future order levels. In addition, the Company’s sales are highly dependent upon manufacturing scheduling and performance and, accordingly, it is not possible to accurately predict when orders will be recognized as sales.

     Sales for fiscal year 2003 were $265.4 million compared to sales of $251.2 million in fiscal year 2002, an increase of $14.2 million, or 5.7%. This increase was primarily related to higher sales in the radar and medical markets. Sales in the radar market increased $9.4 million to $102.6 million in fiscal year 2003 due to higher spending by the Department of Defense. Sales of products in the medical market of $38.2 million have increased $8.9 million, or 30.4%, from fiscal year 2002 due to sales of VED’s in cancer treatment applications and the Company’s x-ray generator products. The increase in the radar and medical markets were offset in part by a $4.2 million decrease in sales in the industrial market attributable primarily to a weak semiconductor market. With respect to the remaining markets, sales for fiscal year 2003 remained stable as compared to fiscal year 2002 levels.

     In fiscal 2004, orders are expected to decrease by approximately five to ten percent from the record high fiscal year 2003 levels. The Company expects that orders in the commercial communications market will decrease slightly from the 2003 levels as the orders from direct-to-home service suppliers are not expected to recur at the same levels. Radar and medical orders are expected to remain strong during fiscal year 2004. Orders

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in the electronic countermeasure market are likely to decline from their 2003 levels, as logistic agencies are catching up on needed repairs and spares. Orders in the industrial and scientific markets are expected to be relatively stable as compared to fiscal year 2003.

     On September 26, 2002, the Company sold the assets used in its Solid State Products Division (“SSPD”) to KMIC Technology Inc., a company owned by the former management of SSPD. The Company received approximately $0.9 million in cash and a $0.3 million unsecured promissory note. The note bears interest at 12% per annum and is payable as follows: one-third of the principal plus unpaid interest is due October 1, 2003 with the remaining balance payable in eight equal, quarterly installments of principal and interest beginning January 1, 2004 and ending October 1, 2005. During fiscal year 2002, the sale resulted in a charge to operations of approximately $3.0 million, which represents the net assets sold including approximately $2.5 million in goodwill and costs and expenses of the transaction, net of $0.9 million of cash received from the sale of the operation’s net assets. Due to the uncertainty of ultimate collection, the proceeds from the promissory note will be recognized when the cash payments are received. During fiscal year 2003, a principal payment of $0.1 million was received from KMIC Technology Inc. In connection with the SSPD transaction, the Company agreed, subject to certain limitations and exceptions, not to engage in the manufacture of intermediate power amplifiers for satcom amplifiers (“IPA’s”) for a 3-year period. In addition, the Company agreed to purchase from KMIC Technology Inc. $0.7 million of its IPA’s per year for such 3-year period at market value.

Critical Accounting Policies

     Management is required to make judgments, assumptions and estimates in preparing its financial statements and related disclosures in conformity with accounting principles generally accepted in the United States. The following critical accounting policies are those policies that management believes affect its more significant estimates and assumptions used in preparation of its consolidated financial statements.

     Revenue Recognition

     The estimated sales values of performance under certain contracts to commercial customers and U. S. Government fixed-price and fixed-price incentive contracts are recognized under the percentage of completion method of accounting. When applying the percentage of completion method, the Company relies on estimates of total expected contract revenue and costs. Recognized revenues and profit are subject to revisions as the contract progresses towards completion. Revisions in profit estimates are charged to income in the period in which they become determinable.

     Allowance for Doubtful Accounts

     The Company monitors the creditworthiness of its customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, economic conditions and historical experience. If collectibility is considered uncertain, then the Company will record a reserve to reduce the receivable to the amount considered collectable. If circumstances change, then further adjustments could be required.

     Warranty Reserves

     The Company’s products are generally subject to warranties, and the Company provides for the estimated future costs of repair, replacement or customer accommodation at the time of sale as an additional cost of the product. Management’s estimates are based on historical costs for warranty, and adjusted when circumstances indicate that future costs are expected to vary from historical levels. If actual product failure rates or material usage incurred differs from the Company’s estimates, then revisions to the estimated warranty liability would be required.

     Inventory Valuation

     Inventories are stated at the lower of average cost or market (net realizable value). The carrying value of inventory is reduced for estimated obsolescence or unmarketability based upon assumptions about future demand, market conditions, product lifecycles and product pricing. If the Company’s assumptions were to be substantially different than estimated, further adjustments could be required. While these estimates require management to make assumptions and judgments, management believes its understanding of the markets and

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customers the Company serves, as well as the mature nature of many of the products the Company manufactures, provides it with the ability to make reliable estimates. Management also evaluates the carrying value of inventory for lower of cost or market on an individual product or contract basis. Analyses are performed based on the estimated costs at completion, and if necessary, a provision is recorded to properly reflect the inventory value of the products or contracts at the lower of cost or net realizable value (selling price less estimated cost of disposal. If estimated contract costs based on these analyses for fixed-price contracts, which represent virtually all of our contracts, were to be substantially higher than originally estimated, provisions could also be required, and in such a case, the Company would record a reserve that would be charged to costs of goods sold.

     Impairment of Long-Lived Assets

     The Company reviews long-lived assets excluding intangible assets which are covered by Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to future net cash flows expected to be generated from the operation and sale of long-lived assets. If such assets are considered to be impaired, the Company’s carrying value is reduced to its estimated fair value. Adverse changes in the customers and markets served by the Company could result in future impairments of long-lived assets.

     Goodwill and Intangible Asset Impairment

     Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The Company performed a goodwill impairment test in the first quarter of fiscal year 2003, upon adoption of SFAS No. 142. The Company also performed another goodwill impairment test during the fourth quarter of the 2003 fiscal year. No impairment was noted based on either test. Goodwill and certain other corporate assets and liabilities are assigned to the reporting units which are consistent with the Company’s operating divisions. The fair value of the reporting units are then compared to the carrying value to determine if there is any potential impairment. The process of evaluating potential impairment is subjective and requires judgments regarding revenue forecasts, discount rates, and weighted average cost of capital among other things. Adverse changes in the industries served by the Company, customer demand or other market conditions could result in future impairments of goodwill.

Results of Operations

     The following table sets forth Holding’s historical results of operations as a percentage of sales for each of the periods indicated.

(a) General and administrative expense includes foreign currency gain (loss).

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     Fiscal Year 2003 Compared to Fiscal Year 2002

     Sales. Sales for fiscal year 2003 of $265.4 million were $14.2 million higher than the prior year level of $251.2 million due primarily to increased demand for radar and medical products. Radar sales increased $9.4 million from fiscal year 2002 due to growth in the U.S. defense budget related to the Department of Defense’s recent expanded emphasis on addressing terrorism and homeland security. This funding has resulted in an increase in new radar system development and deployment, including increases in the rate at which naval surface combat ships are being built. Sales of products in the medical market of $38.2 million have increased by $8.9 million, or 30.4%, from fiscal year 2002 due to sales of VEDs in cancer treatment applications and the Company’s x-ray generator products. Electronic countermeasure and scientific sales were $22.5 million and $8.3 million, respectively, represents increases of $0.8 million and $1.6 million, respectively, from fiscal year 2002. These increases were offset in part by decreased sales in the communications and industrial markets. Communications sales were $82.5 million, a decrease of $2.3 million, or 2.7%, from fiscal year 2002 sales of $84.8 million. The decrease is primarily a result of the Company’s exit from the solid state business at the end of fiscal year 2002. The solid state business contributed approximately $3.5 million in sales in fiscal year 2002. Sales in the industrial market decreased $4.2 million from fiscal year 2002 due primarily to a weak semiconductor market.

     Gross Margin. Gross margin as a percentage of sales increased to 30.7% in fiscal year 2003 from 23.5% of sales in fiscal year 2002. The increase in gross profit as a percentage of sales resulted primarily from gains in production efficiencies from the increase in sales volume, resolution of technical problems, favorable product mix, improved pricing for certain products and completion of contracts with lower pricing in prior periods. In addition, gross profit for fiscal year 2003 does not include lower margin products from SSPD , which was sold in September of 2002. In addition, margin fluctuations are expected from period to period due to the variation in the mix of products sold during any period.

     Research and Development Expenses. Research and development expenses in fiscal year 2003 increased by $1.0 million to $6.9 million, or 2.6% of sales, compared to fiscal year 2002’s level of $5.9 million, or 2.3% of sales. The increase can be attributed to new product development including outdoor amplifiers for the satcom communications market, new low cost x-ray generators for the medical market and air-cooled transmitter products for the synthetic aperture radar market.

     Selling, Marketing, General and Administrative Expenses. Selling, marketing, general and administrative expenses in fiscal year 2003 were $33.6 million, or 12.7% of sales, compared to $35.9 million, or 14.3% of sales, in fiscal year 2002. The total amount of selling and marketing costs decreased slightly as compared to fiscal year 2002. General and administrative costs decreased by $1.8 million to $17.9 million from fiscal year 2002. The decrease relates to the elimination of goodwill amortization expense in fiscal year 2003 upon adoption of SFAS No. 142, a reduction in capital lease amortization related to the Company’s enterprise resource planning system which was fully amortized in fiscal year 2002, and elimination of operating expenses from the SSPD Division that was sold in September 2002. The decreases in general and administrative expenses were offset in part by stock compensation expense of $0.8 million recorded by the Company related to 100,000 shares of common stock purchased by certain executive officers for $0.1 million in cash in March 2003 at a price subsequently determined to be less than fair value as determined by an independent appraisal. In addition, $0.2 million of stock compensation expense was recognized related to stock option grants in fiscal year 2003.

     Gain on Sale of SSPD. The $0.1 million gain on sale of SSPD represents a principal payment on the unsecured promissory note due from KMIC Technology Inc. for the purchase of SSPD as described above in “—Overview.”

     Interest Expense. Interest expense in fiscal year 2003 was $14.5 million, a decrease of $2.0 million from fiscal year 2002. The decrease can be attributed primarily to the prepayment of the $20.0 million term loan in June 2002. The interest on the term loan accrued at a rate equal to the prime rate plus 5.50% which resulted in approximately $1.7 million of interest expense in fiscal year 2002.

     Net Income. Net income before taxes and preferred dividends was $26.6 million for fiscal year 2003 compared to a net loss before taxes and preferred dividends of $2.2 million for fiscal year 2002. Net income after taxes but before preferred dividends was $16.5 million, an improvement of $23.3 million compared to losses of $6.7 million for fiscal year 2002. The tax expense for fiscal year 2003 represents an effective tax rate of approximately 38%. The Company’s net loss for fiscal year 2002 reflected income tax expense in spite of a

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consolidated pretax loss, as a result of the recognition of a 100% valuation allowance for net operating losses previously recognized.

     Differences Between Holding and CPI. CPI’s operating results differ slightly from Holding’s operating results due to a sale-leaseback transaction between CPI and Holding that took place in December 2000. (See further discussion under “Financial Condition of Holding”). In fiscal year 2003, CPI’s net income before taxes was $27.2 million, which was approximately $0.6 million higher than Holding’s net income before taxes. As a result of this transaction, operating costs for CPI were approximately $1.5 million 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 sale-leaseback and additional depreciation by Holding on the San Carlos facility. Interest expense, net, for CPI was approximately $2.0 million lower than that of Holding. The decrease primarily relates to the fact that Holding’s interest expense includes interest paid on the mortgage financing of the San Carlos facility. In addition, interest income from Holding of $0.9 million related to an intercompany receivable is included in CPI’s results, but is eliminated upon consolidation for Holding. All other operations data for CPI is consistent with Holding’s operations data for fiscal year 2003.

     Fiscal Year 2002 Compared to Fiscal Year 2001

     Sales. Sales for fiscal year 2002 of $251.2 million were $21.3 million lower than the prior year level of $272.5 million due primarily to the continued weakness in the commercial communications market. Communications sales were $84.8 million, a decrease of $25.0 million, or 22.8%, from fiscal year 2001 sales of $109.8 million. Industrial and electronic countermeasure sales were $15.5 million and $21.7 million, respectively, which represents a decrease of $4.5 million and $0.2 million, respectively, from fiscal year 2001. Radar, medical and scientific sales, on the other hand, increased by $5.3 million, $1.9 million and $1.2 million, respectively from fiscal year 2001. Sales in the radar and scientific markets of $93.2 million and $6.7 million, respectively benefited from increased military and research spending. Sales of products in the medical market of $29.3 million have increased due to sales of VEDs in cancer treatment applications and the Company’s new line of generators used in x-ray applications.

     Gross Margin. Gross margin as a percentage of sales increased 5.5% to 23.5% in fiscal year 2002 from 18.0% of sales in fiscal year 2001. Gross margins were negatively affected in fiscal year 2001 by higher start-up and warranty costs on several new satcom products and increased provisions for potentially excess and obsolete inventories. In addition, margin fluctuations are expected from period to period due to the variation in the mix of products sold during any period.

     Research and Development Expenses. Research and development expenses in fiscal year 2002 increased by $0.1 million to $5.9 million, or 2.3% of sales, compared to fiscal year 2001’s level of $5.8 million, or 2.1% of sales. The slight increase can be attributed to increased research and development activities at the Company’s satcom equipment segment offset by increased customer funded development at the Company’s division in Beverly, Massachusetts.

     Selling, Marketing, General and Administrative Expenses. Selling, marketing, general and administrative expenses in fiscal year 2002 were $35.9 million or 14.3% of sales compared to $38.6 million, or 14.2% of sales in fiscal year 2001. Selling and marketing costs decreased approximately $1.4 million in fiscal year 2002 due primarily to reductions in commissions as a result of weaker sales, lower headcount in Europe and various cost reduction programs. General and administrative costs decreased by $1.1 million to $19.8 million from fiscal year 2001. The decrease primarily relates to reduced general and administrative costs associated with the relocation of the satcom division to Canada as well as a reduction in overall spending due to cost reduction programs in place. These decreases were offset in part by higher management performance incentives. In addition, fiscal year 2001 general and administrative costs included a gain of $0.9 million on the sale of rental property in Beverly, Massachusetts.

     Loss on Sale of SSPD. On September 26, 2002, the Company sold SSPD to KMIC Technology Inc., a company owned by the former management of SSPD. The Company received approximately $0.9 million in cash and a $0.3 million unsecured promissory note. The sale resulted in a fourth quarter charge to operations of approximately $3.0 million which represents the book value of the net assets sold including approximately $2.5 million in goodwill and costs and expenses of the transaction, net of $0.9 million of cash received from the sale of the operation’s net assets. Due to the uncertainty of ultimate collection, the proceeds from the promissory note will be recognized when the cash payments are received.

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     Interest Expense. Interest expense in fiscal year 2002 was $16.5 million, a decrease of $4.2 million from fiscal 2001. The decrease is due primarily to a reduction in outstanding debt as well as lower interest rates.

     Net Loss. Net loss before taxes and preferred dividends was $2.2 million for fiscal year 2002 compared to a net loss before taxes and preferred dividends of $15.9 million for fiscal year 2001. Net loss after taxes but before preferred dividends was $6.7 million, an improvement of $12.1 million compared to losses of $18.8 million for fiscal year 2001. In spite of a consolidated pretax loss, a provision for income tax expense was booked in fiscal year 2002 based on the establishment of a 100% valuation allowance. The fiscal year 2001 provision for income tax expense was primarily due to the release of amounts previously accrued for potential examinations by tax authorities and deferred income tax expense resulting from the recognition of a 100% valuation allowance for net operating losses previously recognized, carryforwards in the United States, and foreign taxes.

     Differences Between Holding and CPI. CPI’s operating results differ slightly from Holding’s operating results due to a sale-leaseback transaction between CPI and Holding that took place in December 2000. (See further discussion under “Financial Condition of Holding”). In fiscal year 2002, CPI’s net loss before taxes was $1.5 million, which was approximately $0.7 million lower than Holding’s net loss before taxes. As a result of this transaction, operating costs for CPI were approximately $1.4 million 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 sale-leaseback and additional depreciation by Holding on the San Carlos facility. Interest expense, net, for CPI was approximately $2.0 million lower than that of Holding. The decrease primarily relates to the fact that Holding’s interest expense includes interest paid on the mortgage financing of the San Carlos facility. In addition, interest income from Holding of $0.9 million related to an intercompany receivable is included in CPI’s results, but is eliminated upon consolidation for Holding. All other operations data for CPI is consistent with Holding’s operations data for fiscal year 2002.

Financial Condition of Holding

     As of October 3, 2003, cash and cash equivalents were $33.8 million, as compared to $2.7 million at September 27, 2002. The majority of the $31.0 million increase relates to cash generated from operating activities, offset in part by cash used in investing and financing activities in fiscal year 2003 of $2.9 million and $1.3 million, respectively. Cash provided by operating activities of $35.3 million was generated primarily from $16.5 million in net income, non-cash depreciation and amortization of $7.7 million and increases in current liabilities of $9.2 million. Cash provided by operating activities in fiscal year 2002 was $44.0 million despite a net loss of $6.7 million due to significant reductions in accounts receivable and inventories from the prior year.

     Net cash used in investing activities was $2.9 million in fiscal year 2003, $2.5 million in fiscal year 2002, and $3.8 million in fiscal year 2001. Investing activities were comprised principally of investment in property, plant and equipment totaling $3.1 million in fiscal year 2003, $3.4 million in fiscal year 2002, and $5.8 million in fiscal year 2001. The use of cash for investment in property, plant and equipment in fiscal year 2003 and 2002 was partially offset by cash proceeds from the fiscal year 2002 sale of SSPD of $0.1 million and $0.9 million, respectively. The use of cash for investment in property, plant and equipment in fiscal year 2001 was partially offset by cash proceeds for the sale of property, plant and equipment of $1.9 million. The Company’s continuing operations typically do not have large capital requirements. Capital expenditures are generally made to replace existing assets, increase productivity, facilitate cost reductions or meet regulatory requirements. The Company expects the level of capital expenditures in fiscal year 2004 to be moderately higher than fiscal year 2003 levels; however, the Company will continue to manage capital expenditures consistent with business conditions.

     Financing activities during fiscal year 2003 were related primarily to payment of debt issuance costs and principal on Holding’s mortgage financing, offset by proceeds from the sale by Holding of common stock to members of management.

     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 relocated its satcom division’s production operation from Palo Alto, California to its facility in Ontario, Canada during fiscal year 2001 and 2002. Also, during fiscal year 2001, the Company relocated its administrative offices into a single building in Palo Alto.

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     As of October 3, 2003, the Company had $30.0 million available under its revolving line of credit that expires May 31, 2005. The following table provides a summary of the effect on liquidity and cash flows from the Company’s contractual obligations as of October 3, 2003:

(a) See December 4, 2003 notice to registered holders of Notes below.

     The Company’s debt obligations include mortgage financing of Holding in the amount of $17.5 million incurred by Holding in connection with the purchase by Holding of the San Carlos real property. This mortgage financing was refinanced in June 2003. Under the terms of the refinancing, the loan was extended until January 31, 2004. During fiscal years 2002 and 2003, the Company repaid $0.5 million in principal amount of loan in two installments, one on June 1, 2002 and one on December 1, 2002. Restrictions in the Indenture and the Senior Notes and in the Company’s credit facility prohibit CPI from distributing cash to Holding to satisfy this obligation. Management expects to either refinance this obligation or to enter into a sale or other transaction with respect to this property. Holding has entered into an agreement to sell the San Carlos property. As discussed above in Item 1 “Business—Environmental Matters,” the proposed sale is subject to various conditions.

     On December 4, 2003, the trustee under the Indenture on behalf of, CPI, issued a notice to all of the registered holders of the Senior Notes, notifying them that CPI has elected to redeem $26,000,000 in principal amount of the Senior Notes on January 5, 2003. The redemption will occur at a price equal to 101.5% of the principal amount of such notes plus accrued and unpaid interest to January 5, 2003. See Item 1 “Business—Recent Events—Redemption of Senior Subordinated Notes of CPI.”

     Upon the occurrence of a change in control, the Company shall make an offer to each holder of the Senior Preferred Stock at a purchase price in cash equal to 101.0% of the aggregate liquidation preference thereof plus accumulated and unpaid dividends thereon to the date of repurchase.

     Generally, 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, and negotiating an increase to the Company’s borrowing capacity under its line of credit.

Financial Condition of CPI

     As of October 3, 2003, cash and cash equivalents were $33.8 million, as compared to $2.7 million at September 27, 2002. The majority of the $31.0 million increase relates to cash generated from operating activities, offset in part by cash used in investing and financing activities in fiscal year 2003 of $2.9 million and $1.1 million, respectively. Cash provided by operating activities of $35.1 million was generated primarily from $16.9 million in net income, non-cash depreciation and amortization of $7.0 million and increases in current liabilities of $9.8 million. Cash provided by operating activities in fiscal year 2002 was $43.8 million despite a net loss of $6.1 million due to significant reductions in accounts receivable and inventories from the prior year.

     Net cash used in investing activities was $2.9 and $2.5 million in fiscal years 2003 and 2002, respectively. Net cash provided by investing activities was $13.4 million in fiscal year 2001. Net cash used in investing activities were comprised principally of investment in property, plant and equipment totaling $3.1 million in fiscal year 2003, $3.4 million in fiscal year 2002, and $5.8 million in fiscal year 2001. The use of cash for investment in property, plant and equipment in fiscal year 2003 and 2002 was partially offset by cash proceeds

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from the fiscal year 2002 sale of SSPD of $0.1 million and $0.9 million, respectively. In fiscal year 2001, the use of cash for investment in property, plant and equipment was offset by cash proceeds from the sale by CPI of the San Carlos, California facility to Holding of $17.3 million and the sale of rental property at the Company’s Beverly, Massachusetts facility of $1.9 million. The Company’s continuing operations typically do not have large capital requirements. Capital expenditures are generally made to replace existing assets, increase productivity, facilitate cost reductions or meet regulatory requirements. The Company expects the level of capital expenditures in fiscal year 2004 to be moderately higher than fiscal year 2003 levels; however, the Company will continue to manage capital expenditures consistent with business conditions.

     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 relocated its Satcom Division’s production operation from Palo Alto, California to its facility in Ontario, Canada during fiscal year 2001 and 2002. Also, during fiscal year 2001, the Company relocated its administrative offices into a single building in Palo Alto.

     As of October 3, 2003, the Company had $30.0 million available under its revolving line of credit that expires May 31, 2005. The following table provides a summary of the effect on liquidity and cash flows from the Company’s contractual obligations as of October 3, 2003:

(a) See December 4, 2003 notice to registered holders of Notes below.

     On December 4, 2003, the trustee under the Indenture on behalf of CPI, issued a notice to all of the registered holders of the Senior Notes, notifying them that CPI has elected to redeem $26,000,000 in principal amount of the Senior Notes on January 5, 2003. The redemption will occur at a price equal to 101.5% of the principal amount of such notes plus accrued and unpaid interest to January 5, 2003. See Item 1 “Business—Recent Events—Redemption of Senior Subordinated Notes of CPI.”

     Upon the occurrence of a change in control, the Company shall make an offer to each holder of the Senior Preferred Stock at a purchase price in cash equal to 101.0% of the aggregate liquidation preference therof plus accumulated and unpaid dividends thereon to the date of repurchase.

     Generally, 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, and negotiating an increase to the Company’s borrowing capacity under its line of credit.

     Recent Accounting Pronouncements

     The Financial Accounting Standards Board (“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 requires 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 adopted these Statements on September 28, 2002. The adoption did not have a material impact on the Company’s consolidated financial position or results of operations.

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     In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This Statement rescinds SFAS Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of that Statement, SFAS Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” SFAS No. 145 Statement amends SFAS Statement No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of SFAS No. 145 are effective in fiscal years beginning after May 15, 2002, with early adoption permitted, and, in general, are to be applied prospectively. The Company adopted this Statement on September 28, 2002. The adoption did not have a material impact on the Company’s consolidated financial position or results of operations.

     In June 2002, the Financial Accounting Standard Board (“FASB”) issued SFAS No. 146, “Accounting for Costs Associated with Exit and Disposal Activities.” SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Adoption of this statement did not have a material effect on the Company’s consolidated financial position or results of operations.

     In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires a guarantor to include disclosure of certain obligations, and if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The recognition requirement is effective for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material impact on the Company’s consolidated financial position or results of operations.

     In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of SFAS 123.” SFAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of SFAS 123, “Accounting for Stock-Based Compensation.” In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the provisions under this Statement in the second quarter of fiscal year 2003. Adoption of SFAS 148 did not have a material impact on the Company’s consolidated financial position or results of operations.

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”, in an effort to expand upon and strengthen existing accounting guidance as to when a company should consolidate the financial results of another entity. This interpretation requires “variable interest entities” as defined to be consolidated by a company if that company is subject to a majority of expected losses of the entity or is entitled to receive a majority of expected residual returns of the entity, or both. A company that is required to consolidate a variable interest entity is referred to as the entity’s primary beneficiary. The interpretation also requires certain disclosures about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. The consolidation and disclosure requirements apply immediately to variable interest entities created after January 31, 2003. The Company is not the primary beneficiary of any variable interest entity created after January 31, 2003, nor does the Company have a significant variable interest in a variable interest entity created after January 31, 2003.

     For variable interest entities that existed prior to February 1, 2003, the consolidation requirements were initially effective for reporting periods beginning after June 15, 2003. On October 9, 2003, the FASB Staff Issued Position No. FIN46-6 which delayed the effective date of consolidation provisions of this interpretation for variable interest entities created before February 1, 2003 if the reporting entity had not yet issued financial statements reporting the variable interest entities in accordance with the consolidation provision of Interpretation 46. The new effective date is for reporting periods ending after December 15, 2003. The Company will apply the provisions of this interpretation to variable interest entities created before February 1, 2003 as of January 3, 2004. The Company has evaluated the impact of the provisions of Interpretation 46 and it believes it will not have a material impact on the Company’s consolidated financial statements.

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     In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement will be applied prospectively for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. Adoption of SFAS No. 149 in the Company’s fourth quarter did not have a material impact on the Company’s consolidated financial position or results of operations.

     In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 requires that certain financial instruments with characteristics of both liabilities and equity, be classified as liabilities in statements of financial position. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to existing financial instruments at the beginning of the first fiscal period beginning after December 15, 2003 for non-public entities. The Company is currently analyzing this Statement and has not yet determined its impact on the Company’s consolidated financial position or results of operations.

     Risk Factors

     Investors should carefully consider the following risks and the other information in this report and the Company’s other filings with the SEC before deciding to invest in the Company or to maintain or increase any investment. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties may also adversely impact and impair the Company’s business. If any of the following risks actually occur, the Company’s business, results of operations, or financial condition would likely suffer. In such case, the trading price of the Company’s securities could decline and investors might lose all or part of their investment.

•

The Company had historical losses. In fiscal year 2003, the Company had its first profitable year since fiscal year 1998. The Company has an accumulated deficit, as of October 3, 2003, of $84.5 million. The Company’s ability to generate revenues and profits is subject to the risks and uncertainties encountered by companies in very competitive markets.

•

The Company’s leverage is substantial, which could adversely affect its financial health and ability to obtain financing in the future and to react to changes in its business. The Company has a significant amount of debt, which could have important consequences, including, but not limited to the following: it could make it more difficult for the Company to satisfy its obligations under its credit facilities and to its noteholders; it could require the Company to dedicate a substantial portion of its cash flow from operations to payments on debt, which will reduce the funds available for working capital, capital expenditures, and other general corporate expenses; it could have the effect of limiting the Company’s flexibility in planning for, or reacting to, changes in its business and the markets in which it competes; it could place the Company at a disadvantage compared to its competitors that have proportionately less debt; and it could limit the Company’s ability to borrow additional funds in the future, if needed, due to applicable financial and restrictive covenants in the debt.

•

The Company’s ability to generate the significant amount of cash needed to service its debt and grow its business depends on many factors beyond the Company’s control. The Company’s ability to make payments on its debt and to fund its planned capital expenditures will depend on its ability to generate cash and to secure financing in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond the Company’s control. If the business does not generate sufficient cash flow from operations, and sufficient future borrowings are not available to the Company under its credit facilities or from other sources of financing, the Company may not be able to repay its debt, grow its business or fund its other liquidity needs.

•

The markets in which the Company operates are competitive. The Company encounters competition in certain business areas from other companies, some of which have resources substantially greater than those of the Company. The Company’s ability to compete in such markets depends to a large extent on its ability

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to provide high quality products with shorter lead times at competitive prices, and its readiness in facilities, equipment and personnel.

•

Certain markets in which the Company operates are subject to technological change. The Company must continually engage in effective research and development efforts in order to introduce innovative new products for technologically sophisticated customers and markets. There is an inherent risk that advances in existing technology, including solid-state technology, or the development of new technology could adversely affect the Company’s financial condition and results of operations. The Company’s success will depend on its ability to anticipate or adapt to new technology on a timely basis, and if it fails to adapt successfully to technological changes or fails to obtain access to important technologies, the business may suffer.

•

Changes to governmental environmental regulation and legislation could adversely affect the Company’s business. The Company is subject to a variety of federal, state and local environmental laws and regulations and utilizes in its operations a number of chemicals or similar substances that are classified as hazardous. Management believes that the Company’s current operations are in substantial compliance with current environmental laws and regulations. However, changes in law or limitations on chemical uses or certain manufacturing processes could restrict the ability of the Company to operate in the manner in which the Company is currently operated or is permitted to be operated. In addition, it is possible that the Company may experience releases of certain chemicals or other events that could cause the incurrence of material cleanup costs or other damages.

•

A portion of the Company’s sales are, and are expected to continue to be, from contracts through the United States Government, which are subject to Government regulation, changes in Governmental appropriations, national defense policies and availability of government funds. United States Government contracts are conditioned upon the availability of congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance may take many years. Consequently, at the outset of a major program, multi-year contracts are usually funded for only the first year, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. Government contracts are, by their terms, subject to termination by the United States Government at its convenience or upon default by the contractor. Changes in governmental regulations, national defense policies or congressional appropriation could negatively impact the Company’s revenues.

•

The Company depends on a limited group of suppliers for certain materials necessary for the manufacture of its products. If the Company is unable to procure the necessary materials from its suppliers, its ability to manufacture products could be severely impaired, and the Company’s growth, financial condition and results of operations could suffer. In addition, the prices of these raw materials are subject to fluctuation and could also negatively impact the Company’s financial condition.

•

The Company depends on its ability to attract and retain qualified personnel. Because of the specialized and technical nature of the Company’s business, the Company is dependent on the continued service of, and on its ability to attract and retain, qualified technical, marketing, sales and managerial personnel. There exists competition for such personnel, and the failure to retain and/or recruit additional or substitute key personnel in a timely manner could have a material adverse effect on the Company’s business and operating results.

•

The Company’s principal common stockholders can exercise significant control over the Company and could limit the ability of the Company’s other stockholders to influence the outcome of transactions requiring shareholder vote. As of December 8, 2003, approximately 76% of the Company’s outstanding common stock is owned by the Company’s executive officers, directors and principal stockholders. These stockholders will have the ability to exercise influence over all matters requiring approval by the Company’s stockholders, including the election of directors and approval of significant corporate transactions.

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

     The Company is exposed to interest rate risk on a portion of its outstanding debt, as well as foreign currency exchange rate risk inherent in its sales commitments and non-U.S. dollar denominated expenses, and non-U.S. dollar denominated assets and liabilities. The Company regularly assesses the potential impact of these

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risks and does not anticipate any material losses in these areas. The Company does not use derivative financial instruments for speculative or trading purposes.

     The Company’s Senior Subordinated Notes mature in August 2005, and bear a fixed interest rate of 12% per annum. As discussed above in Item 1 “Business-Recent Events,” in December 2003, the Company notified the holders of the Notes of its election to redeem $26.0 million of the Notes. The Company’s remaining outstanding debt, with a carrying value of approximately $17.5 million at October 3, 2003, is subject to changes in the prime rate or LIBOR rates.

     The majority of the Company’s revenue and expense activities are transacted in U.S. dollars. However, CPI does enter into these transactions in other currencies, primarily the Canadian dollar, the British pound, the Euro, the Australian dollar and the Swiss franc. The Company limits its foreign currency exposure primarily through natural hedging (offsetting foreign currency payables with foreign currency receivables), but may enter into forward contracts if necessary. These efforts reduce, but do not eliminate, the impact of foreign currency rate movements. The Company estimates that a one cent strengthening in the Canadian dollar against the U.S. dollar will increase the Company’s costs of goods sold and operating expenses by $0.4 million on an annual basis, and a one cent weakening will cause a decrease of an equivalent amount.

     The Company performed a sensitivity analysis in which it assessed the potential loss in future income from the impact of a 10% adverse movement in interest and foreign currency exchange rates on outstanding debt and non-U.S. dollar denominated assets and liabilities. The impact was determined based on the hypothetical change from shifts in the market rates over a period of one year. Other market sensitive financial instruments were not included in the analysis as they were not material. In terms of interest rate risk, a 10% adverse movement in the Base Rate or Effective Rate on the Company’s variable rate debt would result in a decrease in future income of less than $0.1 million. In terms of foreign currency exchange rate risk, a 10% adverse movement in the levels of foreign currency exchange rates against the U.S. dollar with all other variables held constant would have virtually no effect on future income as foreign payable and receivable balances have similar values, minimizing the foreign exchange exposure. Actual results, however, could differ materially.

Item 8: Financial Statements and Supplementary Data

     Information called for by this item is set forth in the consolidated financial statements of Holding and CPI contained in this report. Specific financial statements and schedules can be found at the pages listed in the Index to Financial Statements on page F-1.

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Item 9: Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

     Not applicable.

Item 9a: Controls and Procedures

     Management, including the Company’s principal executive officer and principal financial officer, has evaluated, as of the end of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures with respect to the information generated for use in this report. Based upon, and as of the date of that evaluation, the principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

     In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the above evaluation, management believes that its controls do provide such reasonable assurances.

     There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal year that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10: Directors and Executive Officers

Directors and Executive Officers of Holding

     The following is a table setting forth certain information with respect to the directors and executive officers of Holding. All directors serve for a period of one year or until their successors are duly elected and qualified.

Directors and Executive Officers of CPI

     The following is a table setting forth certain information with respect to the individuals who are the directors and executive officers of CPI. All directors serve for a period of one year or until their successors are duly elected and qualified.

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     William P. Rutledge became Chairman of the Board of Holding and CPI in June 1999. He was also interim Chief Executive Officer during the period June 1999 to November 1999. Prior to this appointment, Mr. Rutledge served as President and Chief Executive Officer of Allegheny Teledyne Incorporated (“Teledyne, Inc”) from August 1996 to March 1997. Mr. Rutledge held several other positions at Teledyne, Inc. beginning with Group Executive in 1986, Vice President in 1987, Senior Vice President 1988, Executive Vice President in 1989, and President in 1990. In 1991 he was elected as Chief Executive Officer and appointed as Chairman in 1993. Prior to joining Teledyne, Inc. Mr. Rutledge held several management positions at FMC from 1971 to 1986. Mr. Rutledge received a BS in Metallurgical Engineering from Lafayette College and an MS in Financial Management from George Washington University.

     O. Joe Caldarelli became Chief Executive Officer and a director of Holding and CPI in March 2002. Prior to this, Mr. Caldarelli was a Co-Chief Operating Officer since October 2000 and Vice President of CPI since August 1995. Mr. Caldarelli is also the Division President of the Communications and Medical Products (“CMP”) and Satcom Divisions. Mr. Caldarelli was Vice President and General Manager for CMP under the Electron Device Business of Varian, from 1985 until August 1995 and was President and a director of Varian Canada, Inc. from 1992 until August 1995. From 1982 until 1985, Mr. Caldarelli was Marketing Manager of CMP and served as its Equipment Operations Manager from 1979 until 1982. Prior to joining Varian, Mr. Caldarelli served as Manufacturing Engineering Manager for Medtronic Canada, Inc. Mr. Caldarelli holds a B.S. in Mechanical Engineering from the University of Toronto.

     Robert A. Fickett became President, Chief Operating Officer and a director of Holding and CPI in March 2002. Prior to this, Mr. Fickett was a Co-Chief Operating Officer since October 2000 and Vice President of CPI since April 1998. Mr. Fickett has also been the Division President of the Microwave Power Products (“MPP”) Division since April 1998. From January 1996 to April 1998, Mr. Fickett was Vice President of Operations for MPP. From 1993 until January 1996, he was President and Chief Executive Officer of Altair Technologies, Inc., a contract manufacturer. From 1982 until 1993, Mr. Fickett held a number of positions with Varian, including Engineering Manager of MPP’s Klystron Engineering Group, which he was promoted to in 1989. Mr. Fickett received a B.S. degree in Mechanical Engineering from the University of California, Berkeley.

     Joel A. Littman became Chief Financial Officer of Holding and CPI in September 2001. Mr. Littman was Corporate Controller for CPI from November 1996 to September 2001. From September 1989 to November 1996 Mr. Littman served as Controller of the Microwave Power Products Division of Varian Associates and CPI. Prior to that Mr. Littman held various finance positions with Varian Associates and TRW. Mr. Littman received a B.A. degree in economics and a MBA, both from the University of California at Los Angeles.

     John R. Beighley became a Vice President of CPI in March 1997 and currently heads the Company’s Worldwide Field Sales Organization. From May 1992 to March 1997, Mr. Beighley was Western Hemisphere Sales Manager responsible for sales in the Americas, as well as the Far East and Australia. From June 1989 to May 1992, Mr. Beighley was the North American Sales Manager. From March 1981 to June 1989, Mr. Beighley held a number of Product Marketing and Field Sales positions with CPI’s predecessor, Varian. Mr. Beighley received a BS degree in Marketing from San Francisco State University and a MBA from Santa Clara University.

     Don C. Coleman became a Vice President of CPI and Division President of the Beverly Microwave Division (“BMD”) in February 1999. Mr. Coleman was Vice President of Manufacturing for BMD from February of 1996 until accepting his current position. From 1990 until 1996, Mr. Coleman held the position of Engineering Manager for Receiver Protector Products at BMD. Mr. Coleman held a variety of manufacturing and development engineering positions at Varian from the time he joined Varian in 1976 until 1990. Prior to being employed by Varian, Mr. Coleman attended the University of Massachusetts where he received a B.S. degree in Engineering.

     Mike Cheng became a Vice President of CPI in August 2000 and currently heads the Company’s Eimac Division. From April 1999 to August 2000, Mr. Cheng was Vice President of Operations for MPP. From 1994 until April 1999, he was Vice President of Marketing for MPP. From 1980 until 1994, Mr. Cheng held a number of manufacturing and engineering positions with Varian, including Production Manager of MPP’s Klystron Engineering Group, which he was promoted to in 1989. Prior to joining Varian, Mr. Cheng was an engineer in

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the Nuclear Energy Division of General Electric Corporation. Mr. Cheng received a B.S. degree in Chemical Engineering from the University of California, Berkeley and an MBA from Golden Gate University.

     John G. Danhakl became a director of the Company in August 1995. He has been a partner of Leonard Green & Partners, L.P. (“LGP”), a merchant-banking firm that manages Green Equity Investors II, L.P. (“GEI II”), since 1995. Prior to becoming a partner at LGP, Mr. Danhakl was a Managing Director at Donaldson, Lufkin & Jenrette Securities Corporation (“DLJ”) since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert from 1985 to 1990. Mr. Danhakl currently serves on the Boards of Directors of the Arden Group, Inc., Big 5 Sporting Goods, Diamond Triumph, Auto Glass, Inc., Leslie’s Poolmart, Inc., VCA Antech, Inc., Petco Animal Supplies, Inc., MEMC Electronic Materials, Inc., and Phoenix Scientific, Inc. Mr. Danhakl is a 1980 graduate of the University of California at Berkeley. He received his MBA in 1985 from the Harvard Business School.

     John M. Baumer became a director of the Company in October 2001. He has been a partner of LGP since 2001. Mr. Baumer had previously been a Vice President at LGP since 1999. Prior to joining LGP, he had been a Vice President at DLJ, and had been with DLJ since 1995. Prior to joining DLJ, Mr. Baumer worked at Fidelity Investments and Arthur Andersen. Mr. Baumer currently serves on the Boards of Directors of Intercontinental Art, Inc., VCA Antech, Inc., Petco Animal Supplies, Inc., Leslie’s Poolmart, Inc., and Phoenix Scientific, Inc. Mr. Baumer is a 1990 graduate of the University of Notre Dame. He also received his MBA in 1995 from the Wharton School at the University of Pennsylvania.

     J. Kristofer Galashan became a director of the Company in March 2003. He joined LGP as an associate in August 2002. Prior to joining LGP, Mr. Galashan was in the Investment Banking Division of Credit Suisse First Boston (formerly DLJ) in their Los Angeles office. Mr. Galashan earned a Bachelor of Arts degree in Honors Business Administration from the Richard Ivey School of Business at the University of Western Ontario.

Audit Committee and Audit Committee Financial Expert

     Neither CPI nor Holding has an audit committee. No member of the Board of Directors of CPI or Holding has the qualifications required to be considered an audit committee financial expert for purposes of the SEC rules and regulations. Currently, the Company is not required to have an audit committee or an audit committee financial expert.

Code of Ethics

     The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and to its controller. The code of ethics is filed as an exhibit to this annual report on Form 10-K.

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Item 11: Executive Compensation

     The following table shows certain information concerning compensation paid or accrued by the Company to the Chief Executive Officer and the next four most highly compensated executive officers of Holding and CPI (collectively, the “Named Executive Officers”) for each of the last three fiscal years.

     Summary Compensation Table