<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
FOR ANNUAL REPORT AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 25, 1998
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to .
COMMISSION FILE NUMBER 1-4737
------------------------
HIGH VOLTAGE ENGINEERING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2035796
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
401 EDGEWATER PLACE, SUITE 680, WAKEFIELD, MA 01880
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code
(781) 224-1001
------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: None
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
None None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: NONE
Indicate by check mark whether the 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 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. / /
The number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding as of July 21, 1998 was 1082.7429.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I
Item 1. Business.................................................................................. 1
Item 2. Properties................................................................................ 16
Item 3. Legal Proceedings......................................................................... 16
Item 4. Submission of Matters to a Vote of Securitiy Holders...................................... 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 17
Item 6. Selected Historical Consolidated Financial Data........................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 21
Item 7A. Quantative and Qualitative Disclosures About Market Risk.................................. 28
Item 8. Financial Statements and Supplementary Data............................................... 28
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...... 29
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 29
Item 11. Executive Compensation.................................................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 34
Item 13. Certain Relationships and Related Transactions............................................ 35
PART IV
Item 14. Exhibits and Financial Statement Schedules................................................ 37
</TABLE>
<PAGE>
PART I.
ITEM 1.--BUSINESS
COMPANY OVERVIEW
High Voltage Engineering Corporation (the "Company") owns and operates a
diversified group of six middle market industrial manufacturing businesses. The
Company was incorporated in Massachusetts in 1946 by Robert J. van de Graaff, a
Massachusetts Institute of Technology professor of nuclear physics. In the
1970s, the Company began acquiring a diversified group of industrial
manufacturing businesses. In 1988, the Company was acquired by Letitia
Corporation, which is beneficially owned primarily by Laurence S. Levy, the
Chairman of the Board, Chief Executive Officer, Vice President and a Director of
the Company, and Clifford Press, the Deputy Chairman of the Board, President and
a Director of the Company, and certain of their affiliates and family members.
Since the Company's acquisition by Letitia Corporation, the Company has disposed
of 13 non-core businesses and has made five acquisitions.
The Company's businesses focus on designing and manufacturing high quality,
applications-engineered products which are designed to address specific customer
needs. The Company's products are sold to a broad range of domestic and foreign
Original Equipment Manufacturers and end-users in a variety of industries
including process automation, freshwater and wastewater treatment,
petrochemicals, semiconductor fabrication, chemicals, construction, agriculture,
materials handling, computers, telecommunications, medical equipment and for
scientific and educational research. The diversified nature of the products sold
and end-markets served by the Company's businesses limits the effect on the
Company of operating performance fluctuations in any single operating unit and
cyclical downturns within individual industries and end-markets, while the
Company believes that its focus on middle market manufacturing enhances its
growth prospects. As used in this filing, the terms "fiscal year 1994", "fiscal
year 1995", "fiscal year 1996", "fiscal year 1997", "fiscal year 1998", and
"fiscal year 1999" refer to the Company's fiscal years ended April 30, 1994,
April 29, 1995, April 27, 1996 April 26, 1997, April 25, 1998, and April 24,
1999, respectively.
BUSINESS SEGMENT INFORMATION
The Company's products and services are divided into six segments: High
Power Conversion Products, Advanced Surface Analysis Instruments, High
Performance Modular Power Connectors, Customized Monitoring Instrumentation,
Disposable Customized Medical Grade Plastic Tubing and Other, consisting of
particle accelerator systems. The principal products and services offered by the
Company in the six industry segments are described in detail below (see "The
Operating Units"). Financial information concerning the Company's industry
segments is summarized in Note Q to the Consolidated Financial Statements
included in Item 8, herein.
THE OPERATING UNITS
The Company conducts its business through six independent operating units,
Halmar Robicon Group, Inc. ("Robicon"), Physical Electronics, Inc. and
subsidiaries ("PHI"), Datcon Instrument Company and subsidiaries ("Maxima
Technologies"), Anderson Interconnect, Inc. ("APP"), Natvar and High Voltage
Engineering Europa, B.V. ("HVE Europa"), each of which has its own management
team and manufacturing facilities and maintains its own independent market
identity. A discussion of the businesses conducted by each of the operating
units follows.
ROBICON
Robicon is a leading designer and manufacturer of high power conversion
products, which are used to regulate electric power, reduce energy costs and
improve process control in a wide variety of industrial applications. Products
include variable frequency drives ("VFDs") for large electric motors and power
1
<PAGE>
control systems for other applications. These products are used in process
automation, freshwater and wastewater treatment, oil and gas extraction and
transportation, petrochemical processing, silicon processing, glass
manufacturing, cement production and other general industrial applications. In
general, Robicon's products are designed to provide engineered solutions to
specific customer requirements by utilizing a combination of standard product
platforms and options, with customized features. Robicon's growth strategy is to
increase sales of existing product lines through focused global penetration of
existing markets and entrance into select new end markets and to add products
and services complementary to its existing product lines. The Company believes
that Robicon is able to differentiate itself from its competitors through the
use of proprietary technology, innovative product development, superior customer
service, and the ability to offer applications-engineered solutions based on
standard products. Robicon's headquarters are located in New Kensington,
Pennsylvania, a facility opened in August, 1995. For fiscal year 1998, Robicon
had net sales of $94.2 million, which represented 40.2% of the Company's
consolidated net sales for such period.
PRODUCTS
According to an article in SCIENTIFIC AMERICAN (September 1990), industry
sources estimate that motors consume 65% to 70% of all electricity used for
industrial applications, or more than half of the electric power generated in
the United States, at an annual cost of over $90 billion. In a single year, a
typical large industrial motor typically consumes electricity that costs 10 to
20 times its total capital cost. Many machines driven by electric motors,
particularly pumps and fans, need to vary their speed in response to changing
process needs. Particularly in large motor applications, this is often done by
operating the pump or fan at full power while "throttling" its output with a
partly closed valve or damper, which is comparable to driving a car with the
accelerator completely depressed and using the brake pedal to vary the car's
speed. Operating the pump or fan at full power wastes tremendous amounts of
electricity at significant cost and results in poor process control. A VFD is
analogous to an electric dimmer switch which regulates the brightness of light
in a lamp. VFDs regulate the amount of electricity supplied to electric motors
as an alternative means of varying output. For example, when only half the flow
from a pump is needed, the VFD supplies a reduced amount of electricity to the
electric motor driving the pump. As a result, according to industry sources,
electricity savings on motors using VFDs can range from 10% to 40%. Of
particular importance to Robicon, which participates in the VFD market for large
motors, is the estimate by industry sources that the largest 10% of the domestic
motor population accounts for at least 80% of all motor energy consumption. Use
of VFDs has been growing steadily, driven by the desire to achieve energy cost
savings, the need to control large industrial processes more accurately and
technological advances that have improved the cost and practicality of using
VFDs in large motor applications.
Historically, Robicon primarily manufactured low voltage (480 volts) VFDs
for small and medium size electric motors (20 to 1,500 horsepower) for use in
industrial applications such as commercial building climate control,
incinerators and freshwater and wastewater treatment plants, and in other
general industrial uses.
Recently, Robicon introduced the Perfect Harmony-TM- series of medium
voltage (2,300 to 7,200 volts) VFDs for large electric motors (400 to 15,000
horsepower). Heavy industrial processes such as freshwater and wastewater
treatment, oil and gas extraction and transportation, petrochemical processing,
and cement production, utilize large electric motors that require high levels of
power to drive pumps and fans. An undesirable byproduct of using medium voltage
VFDs on a large electric motor is the creation of harmonic distortion which
causes stress and fatigue to the electric motor and shortens its useful life, as
well as current and voltage fluctuations which may result in damage to other
equipment on the power grid. Most VFDs also place greater demands on a power
grid than the actual power consumed by the motor, an occurrence referred to as
reduced power factor, which can result in assessments of penalty charges against
the user by the local utility. Perfect Harmony, Robicon's patented technology
for medium voltage VFDs,
2
<PAGE>
virtually eliminates harmonic distortion and poor power factor in large electric
motors and as a result has significantly expanded the market for medium voltage
VFDs. The Company believes that Perfect Harmony is the leading technology for
reducing harmonic distortion and improving power factor in medium voltage VFD
applications and that this technology complements Robicon's applications
expertise and long-term customer relationships. Perfect Harmony drives can be
installed on virtually any large electric motor without costly modifications and
can be customized using a standard set of options. Robicon has recently expanded
its Perfect Harmony series to include synchronous transfer, a feature that
allows a single VFD to regulate multiple motors sequentially. These VFDs are
currently targeted at new end users in the oil and gas pipeline markets.
Introduced in November 1994, Perfect Harmony medium voltage VFDs accounted for
approximately $37.7 million of Robicon's net sales for fiscal year 1998, or
approximately 40% of Robicon's total net sales for such period.
While VFDs regulate electricity for motors, power control systems regulate
electric power for other applications. Typical applications for Robicon's power
control systems include: (i) power supplies for high-power melting applications,
such as glass and fiberglass furnaces and plasma arc torches used in steel mills
and smelters; (ii) power supplies for polysilicon extraction and silicon crystal
growing for use in the semiconductor industry; and (iii) power supplies for
plasma generators used in sputtering equipment for coating the surface of glass
or plastics. Power control systems are critical to process control and reducing
overall energy costs in these applications. Robicon's power control systems
incorporate patented technology that virtually eliminates harmonic distortion
and "flicker."
MARKETS AND CUSTOMERS
Robicon markets and sells VFDs primarily in North America and Southeast Asia
with an expanding presence in Europe, South America and the Middle East. The
market for VFDs is comprised primarily of two customer segments: industrial and
municipal. The industrial market for VFDs is comprised of large power users such
as metals smelting plants, cement plants, pulp and paper mills, chemical
processing plants and power generation facilities. Robicon's industrial
customers include Amoco, Exxon, Interprovincial Pipeline, Lafarge, Mead Paper,
Medusa Cement, Petrobras and Yaskawa Electric. The municipal market for VFDs is
comprised primarily of municipalities which operate freshwater and wastewater
treatment facilities.
Customers for Robicon's power control systems include OEMs such as British
Oxygen (Airco), Kayex and Wheelabrator and end-users such as Advanced Silicon
Materials, Geneva Steel and Owens-Corning. Demand for power control systems is
driven by the construction of new, or the upgrading of existing, steel mills or
smelting facilities, semiconductor fabrication facilities, glass and fiberglass
furnaces and other large electrical process manufacturing facilities. Because of
the long lead time required to design, permit and build such facilities, demand
for power systems does not necessarily correlate to general economic cycles.
SALES AND MARKETING
Robicon's VFDs and power control systems are sold through Robicon's direct
sales force and by independent manufacturers' representatives. Robicon targets
large industrial users in select markets and segments and specifying engineers
in both industrial and commercial projects. Bids for large municipal VFD
contracts are typically conducted through a "request for proposal" process and
handled by Robicon's independent manufacturers' representatives. In addition to
direct sales efforts in the United States, Robicon has sales offices in
Edmonton, Alberta; Shanghai, China; and London, England.
COMPETITION
Robicon's principal competitor in the VFD market is Rockwell Automation
(Allen-Bradley). Other competitors include divisions of multinational
corporations such as Ansaldo, Asea Brown Boveri ("ABB"),
3
<PAGE>
Eaton (Cutler Hammer), Toshiba and Siemens. Robicon's major competitors in the
power control systems market include multinational corporations such as ABB and
Siemens, and several niche engineering firms such as InverPower, Rapid
Technology and Spang & Company. As with VFDs, power systems are often produced
by divisions of large multinational corporations that may offer a broader
product range than that of Robicon.
PHI
PHI is a leading designer and manufacturer of advanced surface analysis
instruments and components used to determine the elemental and/or chemical
composition of materials found on or near the surface of a sample. Advanced
surface analysis instruments are used in commercial applications in central
support laboratories and at or near the production line in the semiconductor
fabrication, computer peripherals, chemicals, aerospace, metals, polymer,
automotive and biomaterials industries, among others, for product and process
development, process control, defect review and failure analysis. Advanced
surface analysis instruments are also used for materials science research by
universities and government institutions. PHI is also a leading supplier of
ultrahigh vacuum ion pumps and controls required for highly accurate surface
analysis and for other applications. PHI's headquarters are located in Eden
Prairie, Minnesota. For fiscal year 1998, PHI had net sales of $50.5 million,
which represented 21.6% of the Company's consolidated net sales for such period.
PHI's growth strategy is to increase sales of its products through
identification of new applications for its existing products, increased
penetration of international markets, enhancements in the technological
capability of its instruments, development of application-specific hardware
configurations for its instruments and the continued improvement in the
operating ease and efficiency of its instruments through increased automation
and software development. The Company believes that PHI differentiates itself
from its competitors through its patented and proprietary technology, expertise
in the manufacture of instruments incorporating ultrahigh vacuum technology,
superior customer service, support and training and a reputation for product
quality, ease of operation and reliability.
PRODUCTS
PHI's products include Auger Electron Spectroscopy ("Auger"), Electron
Spectroscopy for Chemical Analysis ("ESCA"), Time-of-Flight Secondary Ion Mass
Spectrometry ("TOF-SIMS") and Dynamic Secondary Ion Mass Spectrometry ("Dynamic
SIMS") instruments. Under ultrahigh vacuum conditions, PHI's surface analysis
instruments direct a particle beam at the surface of a solid under
investigation, causing the emission of particles from the specimen that may be
analyzed to determine the elemental and/ or chemical composition of the sample
surface. Highly sophisticated software, customized for each of PHI's surface
analysis instruments, interprets data received from the instrument's analyzer
and creates images that show the distribution of elements or molecules on a
surface. Graphical and numerical data may also be obtained. In addition, by
removing and analyzing successive layers of material each surface analysis
instrument is capable of generating a depth profile, which indicates how
elemental and/or chemical composition varies throughout the thickness of a
sample.
PHI's Auger surface analysis instruments direct a highly focused continuous
electron beam onto a sample, which causes high energy "Auger electrons" to be
emitted from the sample surface. Because the energy level of such Auger
electrons is unique to the element from which they were emitted, it may be
measured to identify the elements present on the surface. Auger offers the
highest spatial resolution of all of PHI's surface analysis instruments,
providing high definition images of the distribution of elements on a
microscopic region of a surface. In general, Auger may be used to examine
inorganic samples that are electrically conductive, such as semiconductors and
metals. While PHI's Auger instruments are well-suited to a variety of
applications, they are primarily used in the semiconductor industry for process
development, process control, defect review and failure analysis. For example,
PHI's Auger instruments are used to create high resolution images showing the
location of elements on a selected region of a semiconductor
4
<PAGE>
wafer. The Company believes that, because of its high resolution capabilities,
Auger will be of increasing significance in semiconductor fabrication as the
dimensions of semiconductor devices are reduced. Auger also offers high
elemental sensitivity, enabling the identification of impurities in or on
semiconductor devices which may affect production yields in semiconductor
fabrication. PHI's 680 Auger instrument is primarily used in central support
laboratories to analyze materials in a variety of industries, including the
semiconductor, aerospace, computer peripherals, metals and automotive
industries. PHI's introduction in 1994 of the SMART-200, an Auger surface
analysis instrument which has the ability to analyze every point on an 8-inch
semiconductor wafer, enabled PHI to expand the market for its Auger instruments
within the semiconductor industry. Another typical application of PHI's Auger
instruments is the analysis of corrosion of the read/write heads of computer
hard drives.
PHI's ESCA surface analysis instruments direct a continuous x-ray beam onto
a sample, which causes "photoelectrons" to be emitted from the sample surface.
Because the energy level of such photoelectrons is unique to the element or
arrangement of atoms from which they were emitted, it may be measured to
identify the elements and/or determine the chemical composition of molecules on
the surface. ESCA may be used to analyze a wide variety of materials, including
both conductive and non-conductive solids, and provides both elemental and
chemical data, although with lower spatial resolution than Auger. While PHI's
ESCA instruments are well-suited to a variety of applications, they are
primarily used by PHI's customers for the analysis of polymers, semiconductors,
chemicals, computer peripherals, biomaterials and automotive components. Typical
applications include the development and optimization of chemical processing for
etching semiconductor wafers, the application of thin polymer films on bulk
materials, such as polymer coatings on aluminum cans, anti-corrosion coatings on
metal surfaces and non-stick coatings for kitchen utensils, as well as the
analysis of multi-layered paint. PHI's ESCA product line currently includes the
5800 as its standard model and the Quantum 2000 Scanning ESCA-TM-, which offers
enhanced resolution and operation on a fully-automated "turn-key" basis.
PHI's TOF-SIMS surface analysis instruments direct short, intermittent
bursts of charged atoms or molecules called "ions" onto a sample, which causes
other ions to be emitted from the sample surface. These emitted ions traverse a
long flight path, with the time required for an ion to reach the analyzer (the
"time of flight") being directly related to its mass. Because the mass of such
ions is unique to the material from which they were emitted, it may be measured
to identify the elements or molecules present. The "time of flight" method of
determining the mass of the emitted ions is highly precise and can be used to
accurately identify both the elemental and chemical composition of a surface. In
addition, TOF-SIMS is the best-suited of PHI's instruments to the detection of
very large molecules, such as those found in plastics and biomaterials, and
PHI's TOF-SIMS instruments can detect trace impurities in a sample at levels of
one part per million. PHI's TOF-SIMS products are used in a variety of
applications including the semiconductor industry for quality control and
process development, primarily in central support laboratories. For example,
PHI's TOF-SIMS instruments are capable of detecting contamination on
semiconductor devices, including photoresist used in semiconductor device
manufacturing, which may affect production yields. PHI's TOF-SIMS products are
also sold for use in a variety other industries, including polymers, computer
peripherals and biomaterials. Applications include the process development of
the application of thin films on printer paper and lubricants on computer hard
disks. In 1994, PHI introduced the TRIFT II, a TOF-SIMS instrument which may be
configured to analyze every point on an 8-inch semiconductor wafer.
PHI's Dynamic SIMS surface analysis instruments direct a highly focused
continuous beam of ions onto a sample, which causes other ions to be emitted
from the sample surface. Because the mass of such ions is unique to the material
from which they were emitted, it may be measured to identify the elements
present. In general, Dynamic SIMS is used to examine inorganic samples. PHI's
Dynamic SIMS instruments are capable of detecting trace impurities with a
sensitivity of greater than one part per billion, although without the chemical
sensitivity of PHI's TOF-SIMS instruments. While PHI's Dynamic SIMS instruments
are well-suited to a variety of applications, they are predominantly used in
central support
5
<PAGE>
laboratories in the semiconductor industry for process control to monitor the
precise elemental composition of semiconductor devices and in quality control to
identify contaminants that may affect yields in semiconductor fabrication.
Because the ion beam in PHI's Dynamic SIMS instruments removes the surface layer
of a material under investigation, depth profiles are generated as a result of
the operation of the instrument. This is in contrast to PHI's other surface
analysis instruments in which an additional ion beam is required to remove
successive layers of material. The 6650 Dynamic SIMS is PHI's standard model. In
1997, PHI introduced the 6800 Dynamic SIMS instrument, which has the ability to
analyze every point on an 8-inch semiconductor wafer. All of PHI's Dynamic SIMS
surface analysis instruments are designed for ease of use and rapid sample
change for efficiency of sample analysis in industrial applications.
MARKETS AND CUSTOMERS
PHI markets and sells its surface analysis instruments worldwide, with Japan
representing its largest market and North America its second largest market. The
Company believes that demand for advanced surface analysis instruments will
increase most rapidly in Asia and the Pacific Rim region over the next several
years due primarily to an increased level of semiconductor fabrication facility
construction in those regions.
Historically, customers have operated PHI's surface analysis instruments
primarily in industrial central support laboratories to conduct research and
development, pre-production testing of pilot processes, materials
characterization and process control and verification, typically where
understanding the elemental and/or chemical composition of a material's surface
is critical to product or process development. In addition, the Company believes
that production support applications, such as failure analysis, defect review
and quality control, represent an important growth area, particularly in
semiconductor fabrication. PHI's surface analysis instruments are also used by
universities and government institutions for materials science research.
Due to the diversity of applications for PHI's surface analysis instruments,
PHI is not dependent on sales to customers in any single industry. PHI's
products are suitable for a wide variety of applications without the need for
customization or modification. This versatility of function permits PHI to
respond quickly to changes in the marketplace that favor new technologies or
demonstrate new applications. In addition, PHI has the ability to tailor each
surface analysis instrument to specific applications through changes in hardware
configuration, software customization and varying degrees of automation of
operation in response to industry-specific demands or customer requirements.
PHI's customer base is principally comprised of industrial laboratories,
OEMs and research facilities, including those associated with universities and
government institutions. Demand for PHI's products is driven by the need for
precise chemical and/or elemental analysis of materials. Some of PHI's customers
include Advanced Micro Devices, Alcoa, DuPont, Hewlett-Packard, IBM, Matsushita,
Motorola, Nippon Steel, Samsung, Seagate, Siemens, Texas Instruments, Toshiba
and numerous universities and government institutions worldwide. PHI seeks to
cultivate long-term relationships with its various customers through the
continuous provision of post-sale technical support and on-site training of new
users of PHI's installed base of surface analysis instruments.
SALES AND MARKETING
PHI markets its products domestically and internationally on the basis of
product performance and quality, availability and quality of after-sales
support, and industry reputation in the manufacture of advanced surface analysis
instruments. The significant cost of surface analysis instruments (ranging from
approximately $250,000 to $1.5 million) leads to careful consideration among
potential purchasers not only of product reliability and performance, but also
availability and quality of technical support and training,
6
<PAGE>
factors which the Company believes favor PHI and enable it to realize a pricing
premium over competitors' comparable products.
PHI's experienced and technically-oriented sales force is organized
geographically and consists of teams responsible for North America, Japan, the
Pacific Rim region and Europe. Technical service personnel (most of whom are
scientists and engineers) are decentralized within each region and strategically
situated in close proximity to major customers. PHI presently has a 50% interest
in a joint venture with ULVAC, a Japanese company, which resells and services
PHI's surface analysis instruments in the Japanese market This joint venture
(ULVAC-PHI) has enabled PHI to successfully sell products into Japan, currently
the largest market for advanced surface analysis instruments. In addition, PHI
provides surface analysis services on a contract basis in its analytical
laboratories located in the United States and Japan. Such services often serve
as an effective means of demonstrating the capabilities of PHI's surface
analysis instruments to customers who may then consider purchasing an
instrument.
COMPETITION
Competition in the surface analysis market is highly concentrated. The only
broad line competitors in the markets served by PHI's products are Cameca and VG
Scientific (Thermo Electron). The Company believes that PHI has leading market
shares in the Auger, ESCA and TOF-SIMS and that PHI has the second largest
market share in Dynamic SIMS. In Auger, PHI's primary competitors are VG
Scientific and JEOL (Nihon Densi). In ESCA, PHI's primary competitors are Kratos
Analytical (Shimadzu) and VG Scientific. In TOF-SIMS, PHI's primary competitor
is ION-TOF, which is partially-owned by and markets its products through Cameca.
In Dynamic SIMS, PHI's primary competitor is Cameca. The Company believes that
the technical expertise required for the design, production and support of
instruments incorporating ultrahigh vacuum technology is a significant barrier
to entry to potential competitors.
MAXIMA TECHNOLOGIES (DATCON/STEWART WARNER)
On March 19, 1998, Datcon acquired, directly or indirectly, all of the
capital stock of Stewart Warner Instrument Corporation ("Stewart Warner"), for
an aggregate consideration of $24.7 million in cash (the "Stewart Warner
Acquisition"). The operations of Stewart Warner have been combined with those of
Datcon and its wholly owned subsidiary Industrias Jorda S.L. ("Jorda") to form
Maxima Technologies. The Company believes that the combined entity is a leading
designer, manufacturer and distributor of customized monitoring instrumentation
for heavy duty and off-highway vehicles and equipment.
DATCON INSTRUMENT COMPANY. Datcon together with its wholly owned
subsidiary, Jorda, designs and manufactures customized monitoring
instrumentation for heavy duty and off-highway vehicles. Datcon's products
include instrument clusters, speedometers, tachometers and fuel, temperature and
pressure gauges which are used in construction equipment, agricultural
machinery, materials handling equipment, generator and compressor engines, and
marine products. Jorda, based in Barcelona, Spain, was acquired by the Company
in March 1995, and is a leading manufacturer of instrument clusters for farm
tractors in Europe. Datcon's headquarters are located in Lancaster,
Pennsylvania. For fiscal year 1998, Datcon had net sales of $34.9 million
(excluding sales of Stewart Warner), which represented 14.9% of the Company's
consolidated net sales for such period.
A principal element of Datcon's strategy is to provide its customers a broad
line of "mass customized" products in the niche market for monitoring
instrumentation for heavy duty and off-highway vehicles. Mass customization
involves several steps, from manufacturing instrumentation to a customer's
specific tolerances to incorporating the customer's logo and design profile in
the product. In order to mass customize products profitably, a manufacturer must
be able to meet short lead times and operate short production runs, both areas
in which Datcon has significant expertise. Datcon seeks to increase its market
share by introducing complementary new products that leverage its applications
expertise. Datcon has designed many innovative products capable of performing
accurately under the harsh conditions that are endemic to the construction,
agriculture and mining industries, including high vibration, extreme
temperature, exposure to ultra-violet light and humidity, which can cause
fogging.
7
<PAGE>
PRODUCTS
The Company believes that Datcon has one of the broadest lines of mass
customized monitoring instrumentation for heavy duty and off-highway vehicles.
Datcon's line of gauges and meters includes electrical instruments such as
speedometers, tachometers, fuel, temperature and pressure gauges and hour meters
in a variety of styles. Datcon offers its customers integrated monitoring
instrumentation packages comprised of gauges and/or senders or sensors. Sensors
and senders are devices that collect information at its source and relay it to
gauges and meters. Sensors are generally more technologically sophisticated than
senders and are used where the provision of precise measurement is
cost-justified. Datcon also manufactures and sells instrument clusters, which
are distinct from stand-alone vehicle monitoring instrumentation as they combine
multiple instruments in a single package with one set of electronics. Datcon
believes that its ability to offer its customers instrument clusters, through
the acquisition of Jorda, has enhanced its market position. In furtherance of
its strategy to increase market share through the introduction of innovative
products, Datcon has introduced several products including: (i) the
IllumaSeal-TM- line of heavy duty instruments that deliver no-fog, waterproof
performance and high levels of night visibility; (ii) the Smart Instrument-TM-
line of instruments that provide visual indication of operational problems and
can offer such feature enhancements on a simple plug-in replacement basis to
existing vehicle designs; (iii) the Illuma Deluxe-TM- line of field-programmable
speedometers and tachometers which enable customers to custom-calibrate these
new microprocessor controlled instruments to match individual vehicle
specifications; and (iv) the Intellisensor series of fuel measurement systems
which allow for electronic measurement of fluid levels through the use of solid
state technology, thereby eliminating moving parts and increasing accuracy and
durability.
MARKETS AND CUSTOMERS
Datcon sells its products in 40 countries worldwide. Approximately 75% of
Datcon's product sales are to OEM markets (including OEM after market sales) to
a diverse group of customers. Datcon has multi-year relationships with some of
the largest OEMs in its markets including Caterpillar, Cummins Engine,
Harley-Davidson, Case, Landini, Massey Ferguson, SAME and Toro. The remaining
25% of Datcon's products are sold through third-party distributors under the
Datcon-Registered Trademark- and AST-TM- brand names to other OEM customers and
to the after market. Datcon believes that it has developed significant customer
loyalty by consistently providing high quality products and exceptional service.
The acquisition of Jorda has provided Datcon with direct access to additional
European customers and an immediate presence in the European instrument cluster
market.
SALES AND MARKETING
Datcon's products are sold through direct sales representatives in the
United States and Europe, as well as by manufacturers' sales agents in regions
where sales volume does not necessitate the assignment of a direct
representative. In addition, Datcon is represented by a worldwide network of
authorized distributors that carry Datcon products in inventory.
COMPETITION
The market for monitoring instrumentation for heavy duty and off-highway
vehicles is highly fragmented. The U.S. Gauge/Dixson division of AMETEK, a
diversified manufacturer, is the largest competitor in the industry. Other
competitors are Beede, Frank W. Murphy Manufacturing, Hobbs, Joseph Pollack
(Stoneridge), Kysor/Medallion (Kuhlman) and Teleflex. The Company believes that
Datcon's largest competitor in Europe is VDO, a subsidiary of Mannesman.
STEWART WARNER. Stewart Warner is a manufacturer and marketer of a broad
range of gauges, senders, sensors, switches, lamps and other accessories that
are sold to both the OEM and aftermarket segments in specialty applications,
including the heavy duty truck, agricultural, bus, emergency equipment,
8
<PAGE>
marine, government and performance automotive hobby markets. Stewart Warner
products are characterized by strong brand name recognition and a reputation
within the industry for quality. For fiscal year 1998, Stewart Warner Instrument
Corporation had net sales of $3.1 million, which represented 1.3% of the
Company's consolidated net sales for such period.
Stewart Warner maintains three separate operating facilities: a Des Plaines,
Illinois headquarters which houses its new product design and engineering and
sales and marketing groups, and a twin-plant "Maquiladora Program" comprised of
a 20,000 square foot warehouse in El Paso, Texas and a 75,000 square foot
manufacturing facility in Juarez, Mexico which employs approximately 400 people.
PRODUCTS
Like Datcon, Stewart Warner currently markets its instruments as individual
units or as "engineered systems" incorporating groups of instruments which are
integrated into a vehicle's electrical system or onto a stand-alone industrial
engine. More sophisticated product offerings of Stewart Warner include
instrument "clusters" or "panels" which combine several instruments into one
mechanism designated to fit into a specified space in the dashboard or control
panel of an OEM's product. Clusters and panels are offered in either a
conventional or advanced technology configuration, the latter incorporating
solid state electronics with the option of microprocessor control.
Stewart Warner currently has several products in production which utilize
"SAE Data Bus" technology, a state-of-the-art microprocessor driven
communications network which carries information concerning the operating
parameters of engines, braking systems, etc. to the vehicle's driver through a
system of gauges and digital displays or warning lights. Like Datcon, Stewart
Warner has employed a strategy of "mass customization" which involves several
steps, from manufacturing instrumentation and instrument packages to specific
customer requirements (including customer-specified functions) to incorporating
the customer's logo and design profile into the product. This strategy is
attractive to OEMs because it offers a product designed to fit within a specific
place in the OEM's product and provides the look of a customized product without
the significant investment previously required for such customization. Like
Datcon, Stewart Warner has designed its production processes to be capable of
meeting the short lead times and operating the short production runs required to
be successful in its marketplace.
While many of Stewart Warner's products overlap with those sold by Datcon or
Jorda in certain markets, each company's products are be differentiated on the
basis of appearance, application, features offered and, in some cases, price,
with certain of the products of Stewart Warner having generally higher prices
than those of Datcon in the aftermarket segment. Stewart Warner also distributes
forward lamps and fuel pumps, which Datcon does not currently manufacture or
distribute.
Since 1992, all of Stewart Warner's products have been manufactured at
Stewart Warner's "Maquiladora" facility located in Juarez, Mexico, and
distributed from Stewart Warner's warehouse located in El Paso, Texas (the
sister city to Juarez). This production plan permits Stewart Warner to cost-
effectively manufacture products requiring significant labor content due to the
advantageous labor costs. All of Stewart Warner's operations (including its
Mexican manufacturing operations) are ISO 9001 certified and recently received
QS-9000 certification.
In addition to its own products, Stewart Warner markets and distributes
products of other manufacturers, such as Hobbs hourmeters, that supplement its
own products.
MARKETS AND CUSTOMERS
Stewart Warner's products are sold to both the OEM and aftermarket segments
for many specialty applications, including heavy truck, bus, emergency
equipment, agricultural and construction equipment,
9
<PAGE>
marine, government and performance automotive markets, with North America
representing its largest market.
Stewart Warner's major OEM customers include Case, Caterpillar,
Freightliner, Hyundai, John Deere, Komatsu, MCI Bus and New Holland. Stewart
Warner intends to continue to leverage the breadth of its product line, its
reputation for product quality, the competitive pricing it is able to provide as
a result of its Maquiladora Program and its strong relationships with many OEMs
to continue to increase its share of the OEM market. OEM products typically
require significant product engineering, design and customization which can
include lead times of six to 18 months to develop an appropriate gauge or
display and then a five to 15 year model production cycle. In general, these
relationships are characterized by exclusive contracts for specific parts,
closely tied to plant production schedules and requiring "just in time"
delivery.
Stewart Warner supplies its aftermarket customers, including wholesalers,
specialty distributors, repair shops and parts suppliers (such as CarQuest and
NAPA) with products that are used to replace defective instruments or to upgrade
the sophistication and appearance of an existing functional product. Product
life cycles in the aftermarket can be extremely long, with many current Stewart
Warner products replacing products installed thirty years earlier. Stewart
Warner's customer base includes over 300 active accounts, ranging from small
shops to large chain stores and OEMs.
SALES AND MARKETING
To date, Stewart Warner's marketing efforts have been primarily focused on
North America, primarily the United States and, to a lesser extent, Canada and
Mexico. Stewart Warner uses a combination of direct sales personnel and
manufacturer representatives in both the OEM and aftermarket applications. Most
major OEM sales functions are performed by a technically skilled factory sales
force that coordinates with product managers in Stewart Warner's Des Plaines
facility to provide engineering support. Domestic aftermarket sales are handled
by more than 150 sales representatives nationwide. International sales functions
are performed by a combination of manufacturers' representatives and factory
direct sales staff.
COMPETITION
Stewart Warner faces competition from both OEM and, to a lesser extent,
aftermarket manufacturers. Stewart Warner's primary competitors in the high
volume OEM market are the U.S. Gauge/Dixson division of AMETEK and Joseph Pollak
(Stoneridge). Other current competitors include ISSPRO, Kysor/ Medallion
(Kuhlman) and Teleflex and VDO, a subsidiary of Mannesman.
APP (ANDERSON)
APP is a leading designer and manufacturer of high performance modular power
connectors for use in high current, quick connect/ disconnect applications.
Current markets include Uninterruptible Power Supply (UPS), Telecom, Datacom,
Electric-powered vehicles, and Office Panel Electrification. APP specializes in
modular connectors and housings that are designed to provide application
specific solutions for power distribution and power management challenges. APP
is focused on increasing our penetration of the high growth Telecom and Datacom
markets by targeting new application requirements of the key accounts which lend
themselves to a broad base of customers. In addition, APP will continue to
search for new opportunities for its rugged, industry standard connectors which
were designed and patented by APP. APP headquarters are located in Sterling,
Massachusetts. For fiscal year 1998, APP had net sales of $25.2 million, which
represented 10.8% of the Company's consolidated net sales for such period.
PRODUCTS
Power connectors allow for the transmission of electric current to provide
distributed power within a device or system. APP focuses on the niche market for
wire-to-wire and wire-to-board, high current, quick
10
<PAGE>
disconnect electric power connectors. APP's modular disconnect power connectors,
in contrast to lugs and terminal blocks, allow for easy and repeated
disconnection and reconnection to the power source without the requirement to
power-down a system (hot plug-able/hot swap-able). APP manufactures a broad
range of both applications custom and standard power connectors. APP connectors
utilize a flat interlock contact design. These contacts are supplied in a
variety of housings and a wide range of cable and Amperage sizes in two product
families. The SB-Registered Trademark- series consists of two contacts,
spring-mounted in a genderless plastic housing design for easy connection and
disconnection. The Powerpole-Registered Trademark- series consists of a single
contact, mounted in a modular, genderless housing which can be assembled with
other connectors in any configuration or quantity, offering customers wide
flexibility in customized connector packages at reasonable cost for low and high
volume applications.
APP differentiates its power connectors from those of its competitors by
focusing on applications that require unique, engineered solutions. As an
example, APP designed a special power connector for electric golf carts
manufactured by E-Z-GO (Textron). This "smart" design disables the electric
drive control while the cart is being recharged, thereby eliminating the
possibility of inadvertent drive-aways while the cart remains connected to the
charging stand. APP also specializes in uncovering new applications for its
standard power connectors. As an example, APP successfully applied its existing
power connector technology to the rapidly growing market for uninterruptible
power supply products.
MARKETS AND CUSTOMERS
APP's connectors are primarily used in OEM applications that require high
current capacity, high reliability and ease of installation, as well as
blind-mate, hot plug-able and quick disconnect capabilities. Typical
applications include: (i) electric-powered vehicles (including forklifts, golf
carts, wheelchairs, etc.) (ii) uninterruptible power supply (UPS) products and
other peripherals; (iii) telecommunications; (iv) data communications; and (v)
office panel electrification. APP's products are purchased both directly by OEMs
and indirectly through distributors.
A majority of APP's sales are derived from products which are incorporated
into the design of an OEM's product. Therefore, APP focuses its sales and
marketing efforts on OEMs and engineers work directly with an OEM's in-house
product development team during the design phase to facilitate the engineering
of an effective interconnect solution. Frequently, this collaborative effort
results in a design for which APP is designated by the OEM as a sole source
supplier through the life of the program. APP believes that OEMs choose APP's
power connector products in large part due to its reputation for innovative and
customized solutions, ability to quickly design products and create prototypes,
and its long-term customer relationships. APP's product design and prototyping
capabilities were recently enhanced by the addition in fiscal year 1997 of a
technical center located in Leominster, Massachusetts which was established
specifically for such purposes. The technical center also houses APP's tool
company which designs and builds molds to allow quick cycle times from concept
to production.
APP's current customer base includes industry leaders Ericsson, Lucent,
Motorola, E-Z-GO (Textron), Hyster-Yale, American Power Conversion (APC) and
Yuasa-Exide.
SALES AND MARKETING
APP markets and sells the majority of its products under the Anderson Power
Products-Registered Trademark- name primarily in North America, Europe, Japan
and the Pacific Rim region both through an in-house direct sales force and
through a global third-party network of manufacturers' representatives, stocking
agents and authorized distributors. APP's products are generally purchased
directly by OEMs and by distributors for resale to OEMs and the after market.
11
<PAGE>
COMPETITION
The connector market served by APP is highly fragmented, although the
Company believes that the segment in which APP participates is less fragmented
than the overall connector market. APP's principal competitors in its niche
markets include Hypertronics, Multi-Contact, SMH, ODU, and Positronics
Industries. In addition, AMP and Molex produce low power connectors for certain
applications which compete directly with APP products. AMP and Molex are
beginning to recognize the trend toward higher power and are expected compete
with APP in additional areas in the near future.
NATVAR
Natvar is a manufacturer of disposable customized medical grade plastic
tubing used primarily in medical devices and for less-invasive surgical
procedures. Medical grade tubing is made from PVC, polyethylene, polyurethane
and radiopaque resin compounds extruded in conformity with customer requirements
and tolerances. The Company believes that Natvar differentiates itself from
other medical grade plastic tubing manufacturers by selling products customized
on a highly accurate basis to medical device manufacturers' exacting standards.
Natvar also produces electrical tubing and sleeving used to protect multiple
insulated wires. The electrical tubing product is UL recognized and CSA
certified. Natvar's headquarters are located in Clayton, North Carolina, with an
additional facility located in Lakewood, Colorado. For fiscal year 1998, Natvar
had net sales of $16.5 million, which represented 7.0% of the Company's
consolidated net sales for such period.
PRODUCTS
Natvar manufactures a variety of disposable customized medical grade plastic
tubing products. These products are primarily incorporated in single use,
disposable products used in medical devices and for less-invasive surgical
procedures as opposed to products used in administering long-term patient care.
Specialty medical grade tubing products include: (i) co-extruded combinations of
PVC and polyethylene used for administering unstable solutions such as
nitroglycerin, insulin and chemotherapy drugs; (ii) profile extrusion tubing
used as connectors to medical devices; (iii) transition tubing with specially
designed bubble spaces that reduce platelet damage during blood hemolysis; (iv)
heat exchanger coils used during cardioplegia procedures when warming or cooling
of blood is required; and (v) anesthesia monitoring lines. Custom medical grade
tubing can also be solvent bonded into paratubing or thermal bonded which allows
for multiple fluids to be infused or removed without the need for separate
lines. Natvar has developed proprietary products such as Natvar 151 tubing, a
bonded tri-layer tubing which does not react with drugs being administered, and
thereby combines the low cost of PVC with the inert properties of more expensive
materials such as silicone. Natvar also manufactures precision medical and
surgical tubing, which is designed for less-invasive surgical procedures
involving the use of products such as catheters, dilators and arthroscopic
applicators. Natvar manufactures electrical tubing and sleeving for the
secondary electrical insulation market for use in a variety of applications,
including low voltage electric motors, instrument wiring, electric heater
elements, wire harnesses and cable assemblies. Electrical tubing differs from
standard primary wire insulation in that it provides a secondary layer of
protection for an insulated wire. Electrical tubing is made of PVC and various
urethanes. Natvar's sleeving product is an expandable monofilament which is used
to protect critical components in aircraft engines.
MARKETS AND CUSTOMERS
Substantially all of Natvar's customers for disposable customized medical
grade plastic tubing products are medical equipment OEMs. Typically,
manufacturing specifications for such tubing are established by the customer in
advance of placing the order. Although many medical device companies utilize
Natvar's products, each requires slight variances in hardness, tint level,
plasticity and thickness. All of these customer specifications must be approved
by the Food and Drug Administration (the "FDA") prior to sale. OEMs closely
monitor their suppliers to ensure that tubing is being produced within FDA-
12
<PAGE>
approved specifications, and have lengthy qualification procedures for new
products to assure compliance. As a consequence of this level of oversight,
medical equipment manufacturers tend to maintain only a limited number of
customized medical grade tubing suppliers. Natvar's major customers include COBE
Laboratories, Haemonetics, Medtronics and 3M Healthcare. Unlike customized
medical grade tubing, the majority of electrical tubing sales are made through
distributors, while the balance is made to OEMs. Products are sold primarily on
the basis of price and performance considerations. Electrical tubing and
sleeving is sold for use in motors and appliances as well as applications in the
automotive and aerospace industries.
SALES AND MARKETING
All of Natvar's products are sold primarily by a direct sales force to
customers located primarily in the United States. Natvar maintains a performance
guarantee and marketing campaign for its customized medical grade tubing
products that guarantees that its products will be shipped on the date quoted to
the customer or the product and shipping is provided free to the customer. Since
the introduction of this policy, known as "On Time or On Us", Natvar has
consistently met this performance guarantee.
COMPETITION
Competitors in the disposable customized medical grade plastic tubing market
are typically small, private companies, such as Kelcourt, Pexco and Sunlite, and
divisions of larger companies, including Norton and Plastron. Major competitors
in the electrical tubing and sleeving market include Bentley-Harris and Suflex.
HVE EUROPA
HVE Europa is a leading designer and manufacturer of particle accelerator
systems used in scientific, educational and industrial research. HVE Europa's
products are used primarily for materials science, semiconductor research and
"carbon dating." HVE Europa's headquarters are located in Amersfoort, The
Netherlands. For fiscal year 1998, HVE Europa had net sales of $10.0 million,
which represented 4.3% of the Company's consolidated net sales for such period.
In addition to focusing on its core research markets, HVE Europa has begun
to pursue a strategy of identifying new markets for its existing products. In
furtherance of this strategy, HVE Europa has developed and begun to market a new
ion accelerator subsystem to a launch customer in the industrial ion
implantation market which supplies complete systems to semiconductor
manufacturers. In addition, HVE Europa is currently assessing the feasibility of
adapting its carbon dating systems for biomedical and biochemical applications.
PRODUCTS
HVE Europa's products include ion accelerator systems, research ion
implanters, accelerator mass spectrometer systems and component parts such as
accelerator tubes. In a particle accelerator, ions are accelerated to a high
velocity under the influence of a strong electrical field and then fired into
the material to modify its properties and/or analyze its structure. Accelerator
mass spectrometer systems are specialized ion accelerator systems used for
carbon dating materials.
MARKETS AND CUSTOMERS
Historically, demand for HVE Europa's products was driven by nuclear physics
research. However, since the end of the Cold War, HVE Europa's products have
been sold for various applications in materials science, including semiconductor
research. Other applications include ratio spectrometry in archaeology,
oceanography, geosciences, materials science and biochemistry. Accelerator mass
spectrometer systems are used by universities and research institutes for carbon
dating in the fields of archaeology, oceanography
13
<PAGE>
and geosciences. The demand for particle accelerator systems has historically
been tied to the construction of new or expanded research facilities, which for
educational institutions is mainly dependent upon grants and fund raising.
SALES AND MARKETING
HVE Europa's products are sold worldwide by its direct sales force. Due to
the complex, custom-built nature of HVE Europa's particle accelerators, frequent
and extensive interaction is required between HVE Europa and the customer. HVE
Europa presents technical papers at, and participates in, scientific
conferences, advertises in scientific periodicals and distributes product
literature and information on new developments to its existing customers.
COMPETITION
Competition in HVE Europa's market is highly concentrated. HVE Europa's
sales in the particle accelerator market are often bid competitively against
National Electrostatics Corporation, a privately-held U.S. manufacturer. HVE
Europa's primary competitor in Japan is Nissin High Voltage.
BACKLOG
The Company's backlog was as follows as of the dates indicated (dollars in
thousands):
<TABLE>
<CAPTION>
APRIL 27, 1996 APRIL 26, 1997 APRIL 25, 1998
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
----------- --------------- ----------- --------------- ----------- ---------------
Robicon............................... $ 38,158 62.0% $ 41,661 61.4% $ 36,790 45.7%
PHI................................... -- -- -- -- 11,644 14.4
Maxima Technologies(1)................ 6,773 11.0 7,655 11.3 12,394 15.4
APP................................... 2,584 4.2 3,425 5.0 4,133 5.1
Natvar................................ 3,579 5.8 3,239 4.8 4,040 5.0
HVE Europa............................ 10,466 17.0 11,848 17.5 11,604 14.4
----------- ----- ----------- ----- ----------- -----
Total................................. $ 61,560 100.0% $ 67,828 100.0% $ 80,605 100.0%
----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- -----
</TABLE>
- ------------------------
(1) Does not include the backlog of Stewart Warner for the fiscal years ended
April 27, 1996 and April 26, 1997, respectively.
The Company believes that its backlog as of any particular date may not be
indicative of sales for any future period. The Company expects that its backlog
will be shipped before April 24, 1999.
RESEARCH AND DEVELOPMENT
Research and development activities are conducted separately by each
operating unit. The Company's operating units focus on developing
applications-engineered products designed to meet their customers' needs. Teams
representing different functional areas within an operating unit work closely
with customers early in the product design process to ensure that the product
meets the customer's specifications and is designed for ease of manufacturing.
As a general matter, with the exception of Robicon and PHI, the Company's
operating units have not required substantial research and development
expenditures. Research and development expenditures that the Company has made
have resulted in innovative new products such as Robicon's Perfect Harmony
series of medium voltage VFDs, Datcon's Intellisensor fuel measurement systems,
Natvar's bonded tri-layer 151 tubing and numerous applications-engineered
products for APP's customers. PHI incurs significant research and development
expenses due to the high technology content of its surface analysis instruments
and its growth strategy of increasing sales through the identification of new
applications for its existing products, enhancements in the technological
capability
14
<PAGE>
of its instruments, the development of application-specific hardware
configurations for its instruments and the continued improvement in the
operating ease and efficiency of its instruments through increased automation
and software development. The Company's research and development expenses were
$7.3 million, $8.6 million and $23.8 million for fiscal years 1996, 1997 and
1998, respectively, including $8.1 million of purchased research and development
related to the acquisition of PHI and the Stewart Warner acquisition in fiscal
year 1998. Substantially all research and development expenses of the Company
are related to Company-sponsored research.
PATENTS AND TRADEMARKS
The Company holds domestic and foreign patents covering certain products and
processes in all of its operating units, as well as trademarks covering certain
of its products. While these patents and trademarks are considered important to
the ability of the various operating units to compete, the Company believes that
these patents and trademarks are less important than the quality and
applications-engineered nature of its products and its unpatented manufacturing
expertise. Certain patents relating to Robicon's Perfect Harmony series of
medium voltage VFDs are of particular significance; these patents issued in
April and June of 1997 and expire in 2014. In addition, PHI holds key patents
relating to its Auger, ESCA and TOF-SIMS surface analysis instruments that
issued between 1991 and 1995 and expire between 2009 and 2014, and filed a
provisional patent application in December 1996 relating to its ESCA surface
analysis instruments. The Company also holds patents on certain products which,
although valuable to the Company, are not critical to its operations. Management
does not believe that the future profitability of the Company's operating units
is dependent upon any one patent or group of related patents.
EMPLOYEES
At April 25, 1998 the Company had a total of 1,909 employees, of whom 1,893
were employed by the Company's operating units. The Company's domestic employees
are not covered by collective bargaining agreements, however, substantially all
of the personnel employed by its foreign subsidiaries belong to national
Workers' Councils. The Company considers it relations with its employees to be
good. The following table provides information relating to the employees of the
Company's operating units as of April 25, 1998:
<TABLE>
<CAPTION>
TOTAL
OPERATING UNIT EMPLOYEES
- ------------------------------------------------------------------------------- ---------------
<S> <C>
Robicon........................................................................ 441
PHI............................................................................ 365
Maxima Technologies............................................................ 748
APP............................................................................ 151
Natvar......................................................................... 113
HVE Europa..................................................................... 75
-----
Total Operating Unit Employees............................................. 1,893
-----
-----
</TABLE>
15
<PAGE>
ITEM 2.--PROPERTIES
The following are the principal operating facilities of the Company listed
by operating unit, each of which also has limited general office and
administrative space:
<TABLE>
<CAPTION>
USABLE SPACE
(SQUARE
OPERATING UNIT FUNCTION FEET) OWNED/LEASED
- -------------------------------------- -------------------------------------- --------------- -----------------
<S> <C> <C> <C>
ROBICON:
New Kensington,
Pennsylvania...................... Design and assembly 124,800 Leased(a)
Pittsburgh, Pennsylvania............ Design and assembly 79,000 Owned
PHI:
Eden Prairie, Minnesota............. Design and assembly 207,000 Owned(b)
Redwood City, California............ Design 11,800 Leased
MAXIMA TECHNOLOGIES:
Lancaster, Pennsylvania............. Design and assembly 70,700 Leased(a)
Barcelona, Spain.................... Design and assembly 35,500 Leased(a)
Des Plaines, Illinois............... Design and administration 15,000 Leased
El Paso, Texas...................... Warehouse 20,000 Leased
Juarez, Mexico...................... Assembly 75,000 Leased
APP:
Sterling, Massachusetts............. Plastic injection molding and assembly 42,400 Leased(a)
Sterling, Massachusetts............. Plastic injection molding and assembly 31,000 Leased(a)
Leominster, Massachusetts........... Technical center (design and tooling) 10,000 Leased(a)
Fermoy, Ireland..................... Plastic injection molding and assembly 8,500 Leased
NATVAR:
Clayton, North Carolina............. Plastic extrusion 75,000 Owned
Lakewood, Colorado.................. Plastic extrusion 17,300 Leased
HVE EUROPA:
Amersfoort, The Netherlands......... Design and assembly 60,000 Owned
</TABLE>
- ------------------------
(a) The Company holds a fair value purchase option on these facilities.
(b) Approximately 26,000 square feet of space at the PHI facility in Eden
Prairie, Minnesota is currently leased by PHI to a third party.
In addition to the facilities described above, the Company leases various
warehouses and sales and administrative facilities. The Company believes that
its manufacturing facilities are properly maintained and that production
capacity is adequate to meet the requirements of its operating units.
ITEM 3.--LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved
in legal proceedings incidental to its business and the Company believes that
none of these proceedings are material.
Natvar received a notice of intent to sue on December 11, 1996 from a
California citizens group regarding alleged violations of notice and labeling
requirements under California Proposition 65, a "right to know" provision
intended to give consumers clear and reasonable warnings of the presence of
certain
16
<PAGE>
potentially hazardous substances in products. Natvar has reached a settlement
and has agreed to pay $20,000 and plaintiff has dismissed the case with
prejudice.
In March 1998, the Company was dismissed without prejudice as a defendant in
an action commenced in November 1996 against the Company and six others by
Chicago-Dubuque Foundry Corporation and its property insurer, Employers Mutual
Casualty Co., in Iowa state court. In May 1998, the remaining claims against the
Company by intervenor plaintiffs were also dismissed without prejudice.
In February 1997, the Company commenced litigation in Massachusetts federal
court against TVM Group, Inc., ("TVM") of Fremont, California, and TVM's
principal stockholder, Mr. T. Lyn Morris, seeking damages on account of breach
by TVM and Mr. Morris of a December 1996 agreement pursuant to which a
subsidiary of the Company was to acquire TVM. The Company is seeking total
damages of approximately $31.0 million. In April 1997, TVM and Mr. Morris filed
a counterclaim alleging breaches by the Company and its subsidiary of that
agreement and seeking damages. In September 1997, TVM and Mr. Morris amended
their counterclaim to add, among other things, a claim for fraudulent
inducement. TVM and Mr. Morris are seeking actual damages in an amount which has
varied, but in each instance the amount claimed (including punitive,
consequential and multiple damages) has been less than $1.0 million. A motion
for summary judgment dismissing TVM and Mr. Morris' counterclaim is pending
before the court. In light of the current stage of the proceedings, the Company
is unable to assess the likelihood of liability, if any, in this action, the
amount of any damages that may be assessed against the Company, and the extent
to which any assessed liability will be covered by the Company's insurance. The
Company believes the counterclaim to be without merit.
In March 1998, Robicon initiated litigation against Toshiba International
Corporation ("Toshiba") in the United States District Court for the Western
District of Pennsylvania alleging infringement of one of Robicon's Perfect
Harmony patents. In June 1998 Toshiba filed suit against Robicon and several
other defendants in the United States District Court for the Southern District
of Texas alleging, among other things, false and disparaging comments concerning
Toshiba, interference with contract, violation of the Texas Competition and
Trade Practices Statute and civil conspiracy to restrict Toshiba's business and
cause the wrongful termination of a purchase order of one of its customers.
Damages under each section are claimed to be in excess of $75,000, the federal
statutory minimum, in addition to a claim for punitive damages. In its suit,
Toshiba has also claimed that Robicon is infringing a patent held by Toshiba and
requested a declaratory judgment that Robicon's patent, which is the subject of
the Pennsylvania action, is invalid. In light of the preliminary stage of the
proceedings, Robicon is unable to assess the likelihood of liability, if any,
arising from this Texas action; however, Robicon believes that it has valid
claims against Toshiba.
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5.-- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is not publicly traded.
On August 8, 1997, the Company completed an unregistered, exempt offering
(the "Original Offering") pursuant to Section 4(2) of the Securities Act of
1933, as amended (including the rules and regulations promulgated thereunder,
the "Securities Act"), in which the Company issued to qualified institutional
buyers and accredited investors (each as defined under the Securities Act) an/or
to foreign investors pursuant to Regulation S of the Securities Act, 33,000
units ("Units") consisting of 33,000 shares of its Series A Senior Redeemable
Preferred Stock, warrants to purchase 82.7429 shares of common stock, and
82.7429 shares of common stock. (Non-convertible debt securities were also
issued in the Original Offering.) The principal underwriters in connection with
the Original Offering were CIBC Oppenheimer Corp. ("CIBC") and
17
<PAGE>
PaineWebber Incorporated. The aggregate offering price of the Units was
$35,200,000, with an aggregate underwriting discount in the amount of
$1,408,000.
The warrants to purchase common stock issued in the Original Offering became
exercisable, at an exercise price equal to $.01 per .0025 shares (subject to
adjustment under certain circumstances), immediately upon the consummation of
the Original Offering. Under certain circumstances, such warrants may be
exchanged for warrants to purchase shares of common stock of certain of the
Company's subsidiaries.
ITEM 6.--SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The Selected Historical Consolidated Financial Data presented below under
the captions "Statement of Operations Data" and "Balance Sheet Data" as of-and
for each of the fiscal years in the five-year period ended April 25, 1998, are
derived from the audited consolidated financial statements of High Voltage
Engineering Corporation and its subsidiaries, as restated.
The Selected Historical Consolidated Financial Data of the Company should be
read in conjunction with the audited historical consolidated financial
statements of Company for the fiscal years in the three-year period ended April
25, 1998 and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 29, APRIL 27, APRIL 26, APRIL 25,
1994 1995 1996 1997 1998
----------- ---------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ 92,129 $ 106,375 $ 137,007 $ 160,847 $ 234,380
Cost of sales...................................... 58,751 68,218 91,442 108,786 151,360
----------- ---------- ---------- ---------- ----------
Gross profit................................... 33,378 38,157 45,565 52,061 83,020
Administrative and selling expenses(a)............. 21,627 22,794 30,972 33,174 52,067
Research and development expenses.................. 6,421 7,408 7,321 8,622 23,763
Restructuring charge(b)............................ -- 1,294 150 -- 293
Reimbursed environmental and litigation
costs--net(c).................................... (6,725) (2,130) (450) 26 3,633
Other--net(d)...................................... 703 892 1,163 2,234 540
----------- ---------- ---------- ---------- ----------
Income from operations......................... 11,352 7,899 6,409 8,005 2,724
Interest expense................................... 7,503 8,256 10,912 11,631 18,819
Interest income.................................... (99) (74) (278) (351) (1,008)
Income (loss) from continuing operations before
income taxes, discontinued operations and
extraordinary item............................. 3,948 (283) (4,225) (3,275) (15,087)
Income taxes (credit).............................. 3,966 (63) (3,076) 4 (430)
----------- ---------- ---------- ---------- ----------
Loss from continuing operations before discontinued
operations and extraordinary item................ (18) (220) (1,149) (3,279) (14,657)
Discontinued operations:
Income from discontinued operations, net of
income taxes................................... 471 996 551 782 606
Gain (loss) on disposal of discontinued
operations, net of income taxes................ -- (331) 1,633 -- 8,771
Extraordinary loss, net of income taxes............ -- -- (422) (259) (7,464)
----------- ---------- ---------- ---------- ----------
Net income (loss).................................. $ 453 $ 445 $ 613 $ (2,756) $ (12,744)
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 29, APRIL 27, APRIL 26, APRIL 25,
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................... $ 19,157 $ 10,685 $ 11,894 $ 9,371 $ 62,423
Total assets....................................... 92,664 105,974 113,718 113,587 231,404
Total debt (including redeemable put warrants)..... 78,190 82,232 84,671 88,201 178,919
Redeemable preferred stock......................... 10,134 10,549 10,995 11,474 30,457
Stockholders' deficiency........................... (34,728) (33,897) (33,482) (36,736) (51,217)
OTHER DATA:
Adjusted EBITDA(e)................................. $ 8,420 $ 10,928 $ 11,087 $ 14,387 $ 24,904
Depreciation and amortization(f)................... 3,090 2,859 3,359 4,122 7,658
Capital expenditures(g)............................ 2,979 8,940 5,580 4,723 6,164
Backlog............................................ 26,254 40,972 61,560 67,828 80,605
Ratio of earnings to fixed charges(h).............. 1.4x -- -- -- --
OPERATING UNIT DATA:
Net sales:
Robicon(i)....................................... $ 34,738 $ 40,061 $ 56,145 $ 83,096 $ 94,192
PHI.............................................. -- -- -- -- 50,531
Maxima Technologies.............................. 16,875 21,514 32,514 32,482 37,958
APP(i)........................................... 15,471 18,136 21,509 21,554 25,249
Natvar........................................... 13,948 16,828 17,101 15,227 16,473
HVE Europa....................................... 6,008 8,048 9,738 8,488 9,977
---------- ---------- ---------- ---------- ----------
Subtotal....................................... 87,040 104,587 137,007 160,847 234,380
Divested product lines(i)........................ 5,089 1,788 -- -- --
---------- ---------- ---------- ---------- ----------
Total net sales................................ $ 92,129 $ 106,375 $ 137,007 $ 160,847 $ 234,380
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Adjusted EBITDA:(j)
Robicon.......................................... $ 3,057 $ 2,212 $ 1,425 $ 6,030 $ 8,140
PHI.............................................. -- -- -- -- 7,305
Maxima Technologies.............................. 2,233 3,444 4,230 4,338 5,491
APP.............................................. 3,271 3,922 5,240 4,885 6,342
Natvar........................................... 2,357 2,881 1,784 1,328 2,046
HVE Europa....................................... 155 463 1,146 673 1,408
---------- ---------- ---------- ---------- ----------
Total operating unit Adjusted EBITDA........... 11,073 12,922 13,825 17,254 30,732
Corporate overhead............................... (2,653) (1,994) (2,738) (2,867) (5,828)
---------- ---------- ---------- ---------- ----------
Total Adjusted EBITDA.......................... $ 8,420 $ 10,928 $ 11,087 $ 14,387 $ 24,904
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
CASH FLOW PROVIDED BY (USED FOR):
Operating activities............................... $ 7,806 $ 10,127 $ (6,360) $ 627 $ (9,004)
Investing activities............................... (3,464) (12,278) 5,729 (3,066) (61,012)
Financing activities............................... (4,823) 1,221 1,853 1,893 85,459
</TABLE>
See accompanying Notes to Selected Historical Consolidated Financial Data.
19
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) Adjusted EBITDA excludes severance expenses of $246, $456 and $636 included
in administrative and selling expenses in fiscal years 1995, 1996, and 1998,
respectively. See note (e) below.
(b) In fiscal year 1995, the Company incurred a total restructuring charge of
$1,294 comprised primarily of $548 due to the closure of a duplicate
manufacturing facility, and costs related to the consolidation of the
operations of this manufacturing facility into another existing facility and
$746 in connection with the write-off of the cumulative foreign currency
translation adjustment resulting from the liquidation of a subsidiary of HVE
Europa. In fiscal year 1996, the Company incurred restructuring costs of
$150 in connection with the closing of a sales office in Europe. The fiscal
year 1998, the Company incurred restructuring costs of $293. These costs
include $186 at PHI relating to a program designed to reduce costs to manage
the weaker order rates expected from Asia and $107 at Natvar relating to a
program designed to reduce costs due to the lower sales volume relating to
the sale of the electrical sleeving product line.
(c) Represents insurance recoveries related to environmental litigation,
remediation and consequential damages, net of actual legal costs, estimated
settlement costs and changes in cost remediation estimates in connection
with two properties formerly owned by the Company in Burlington,
Massachusetts and Woodbridge Township, New Jersey.
(d) Other is comprised of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 29, APRIL 27, APRIL 26, APRIL 25,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
Writedown of assets held for sale.......... $ -- $ 815 $ 1,200 $ -- $ --
Net gain on disposition of miscellaneous
assets................................... -- (47) (83) (230) (621)
Division relocation and moving costs....... 488 124 103 -- --
Facilities (income) expense, net........... -- -- (57) 319 (390)
Aborted acquisition, offering costs and
related litigation....................... -- -- -- 2,145 1,442
Acquisition costs and loss on write-off of
purchased assets......................... 215 -- -- -- --
Equity in earnings of joint venture........ -- -- -- -- 109
------------ ------------ ------------ ------------ ------------
Total...................................... $ 703 $ 892 $ 1,163 $ 2,234 $ 540
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
(e) Adjusted EBITDA is defined as earnings from continuing operations before
interest, income taxes, depreciation, amortization and non-recurring items.
Non-recurring items are comprised of: (i) restructuring charge, reimbursed
environmental and litigation costs--net, and other, and (ii) non-recurring
severance payments of $246, $456 and $636 to certain former senior
executives included in administrative and selling expenses of the Company in
fiscal years 1995, 1996 and 1998, respectively, and (iii) purchase
accounting expenses relating to the acquisition of PHI of $6,800 and
purchase accounting expenses relating to the acquisition of Stewart Warner
of $2,620 in fiscal year 1998. See notes (a) through (d) above and notes G,
L and O to "Notes to Consolidated Financial Statements" of High Voltage
Engineering Corporation and subsidiaries. Adjusted EBITDA is not a measure
of performance under GAAP. While Adjusted EBITDA should not be considered as
a substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with GAAP, or as a
measure of profitability or liquidity, management understands that some form
of EBITDA is often used as a measurement in evaluating companies. In
particular, since Adjusted EBITDA excludes the non-recurring items described
above, the Company believes that
20
<PAGE>
trends in Adjusted EBITDA may provide meaningful information as to the
Company's ability to satisfy its cash requirements on an on-going basis.
Moreover, substantially all of the Company's financing agreements contain
covenants in which EBITDA, as defined therein, is used as a measure of
financial performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of other
measures of performance determined in accordance with GAAP and an analysis
of changes in Adjusted EBITDA in recent periods. Investors should note,
however, that "Adjusted EBITDA" as used in this document may not be
comparable to similarly titled measures presented by other companies and
could be misleading, since not all companies and analysts calculate such
measures in the same fashion or on the same basis.
(f) Depreciation and amortization excludes $775, $254 and $328 attributable to
discontinued operations in fiscal years 1996, 1997 and 1998, respectively,
and $147 related to assets held for sale in fiscal year 1998.
(g) Capital expenditures include assets acquired under capital leases and
exclude capital expenditures from discontinued operations in the amounts of
$383, $287 and $617 in fiscal years 1996, 1997 and 1998, respectively.
(h) For purposes of this computation, earnings are defined as income or loss
from continuing operations before income taxes, discontinued operations and
extraordinary item and fixed charges. Fixed charges are the sum of: (i)
interest cost; (ii) accretion of redeemable put warrants; (iii) amortization
of deferred financing costs; (iv) the portion of operating lease rental
expense that is representative of the interest factor (deemed to be one
third); (v) accretion of preferred stock; (vi) preferred stock dividends;
and (vii) capitalized interest. Earnings were inadequate to cover fixed
charges by $283, $4,225, $3,275, and $15,087 in fiscal years 1995, 1996,
1997 and 1998, respectively.
(i) APP's net sales exclude net sales of $4,100 and $1,443 from divested product
lines for fiscal years 1994 and 1995, respectively. Robicon's net sales
exclude net sales of $1,000 and $345 from divested product lines for fiscal
years 1994 and 1995, respectively.
(j) Adjusted EBITDA has not been adjusted to exclude divested product lines.
ITEM 7.-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except as otherwise indicated, the following discussion relates to the
Company on a historical basis without giving effect to the acquisition of PHI or
Stewart Warner. This report may make forward-looking statements regarding future
events or the future financial performance of the Company. We caution you that
these statements are only predictions and that actual events or results may
differ materially. We refer you to documents the Company files from time to time
with the Securities and Exchange Commission, and specifically the latest "Risk
Factors" section, in the Company's most recent Registration Statement on Form
S-4 on file. This document identifies and describes important factors that can
cause the after-results to differ materially from those contained in any
forward-looking statements we may make. The following discussion should be read
in conjunction with the Selected Historical Consolidated Financial Data and the
consolidated financial statements and notes thereto contained elsewhere in this
document.
The consolidated financial statements of the Company include the accounts of
High Voltage Engineering Corporation and its subsidiaries after elimination of
material intercompany transactions and balances.
As a result of the sale by the Company of substantially all of the assets of
the Company's Specialty Connector operating unit on November 9, 1995 and General
Eastern operating unit on April 15, 1998, the Company's consolidated results
have been restated to reclassify the results of such operations as discontinued
operations.
21
<PAGE>
SEASONALITY; VARIABILITY OF OPERATING RESULTS
The majority of the Company's operating units have historically recorded the
strongest operating results in the fourth quarter of the fiscal year due in part
seasonal considerations and other factors, although in some recent years,
seasonal fluctuations have been partially mitigated by overall business growth.
The timing of orders placed by the Company's customers has varied with,
among other factors, the introduction of new products, product life cycles,
customer attempts to manage inventory levels, competitive conditions, general
economic conditions and the availability of funding for scientific and
educational research. The variability of the level and timing of orders has,
from time to time, resulted in significant periodic and quarterly fluctuations
in the operations of the Company's operating units. Such variability is
particularly evident at HVE Europa, which ships on average four particle
accelerator systems per year. These systems are typically sold for between $1.0
million and $2.0 million each and have long lead times. As a result, the timing
of HVE Europa's shipments within any fiscal year can have a material impact on
an individual quarter's results.
THE PHI MERGER
On August 8, 1997, the Company acquired PHI Acquisition Holdings, Inc. ("PHI
Holdings") for $54.6 million in cash, excluding transaction costs and cash
acquired. The acquisition was consummated through the merger of Lauren
Corporation, a wholly owned subsidiary of the Company, with and into PHI
Holdings. Immediately thereafter, PHI Holdings was merged with and into Physical
Electronics, Inc., its wholly owned subsidiary, and Physical Electronics, Inc.
became a direct, wholly owned subsidiary of the Company.
ACQUISITION OF STEWART WARNER
On March 19, 1998, Datcon acquired, directly or indirectly, all of the
capital stock of Stewart Warner, for an aggregate consideration of $24.7 million
in cash, subject to adjustments, as defined. After the repayment of all of
Stewart Warner's outstanding indebtedness, the remainder of the cash purchase
price was distributed to the stockholders of Stewart Warner. Management's
discussion and analysis of changes are exclusive of the operating results of
Stewart Warner since such results are not material.
RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1998
Net sales increased $73.5 million, or 45.7%, from $160.8 million in fiscal
year 1997 to $234.4 million in fiscal year 1998. Excluding net sales from PHI
($50.5 million) and Stewart Warner ($3.1 million) which were both acquired
during fiscal year 1998, net sales increased $20.0 million, or 12.4%, during
fiscal year 1998. The overall increase was primarily attributable to: (i) $53.6
million related to the operations of PHI and Stewart Warner which were added
during fiscal year 1998, (ii) an $11.1 million, or 13.4%, increase in sales at
Robicon primarily due to the continued growth in sales of medium voltage VFD's,
(iii) $3.7 million, an increase of 17.1%, at APP due to continued growth in the
uninteruptible power supply markets as well as telecommunications and networking
equipment markets in North America and Europe, (iv) an increase of $2.4 million,
or 7.4% (excluding the operations of Stewart Warner), at Datcon due to higher
shipments in both the United States and Europe, (v) an increase of $1.5 million,
or 17.5%, at HVE Europa due to increased sales of subsystems to a manufacturer
of high energy ion implanters used in semiconductor manufacturing and (vi) an
increase of $1.2 million, or 8.2%, at Natvar due to increased medical tubing
shipments compared to a weak period in the prior fiscal year.
Gross profit increased $31.0 million, or 59.5%, from $52.1 million during
fiscal year 1997 to $83.0 million in fiscal year 1998. This increase included
$18.4 million at PHI and $0.7 million at Stewart Warner. Gross margin from
fiscal year 1998 acquisitions was reduced by $1.3 million for a charge to cost
of sales resulting from the shipments of finished goods inventory which had been
revalued in accordance with
22
<PAGE>
purchase accounting procedures. The remaining increase of $11.9 million was
primarily attributable to higher shipments at all operating units, as well as
improved gross margin rates at Robicon, Datcon and Natvar. The Company's gross
margin rate increased from 32.4% to 35.4% overall, a result of productivity
improvements at Robicon, Datcon and Natvar.
Administrative and selling expenses increased $18.9 million, or 57.0%, from
$33.2 million to $52.1 million, including: (i) $9.5 million related to the
operations of PHI and Stewart Warner, (ii) $4.6 million at Robicon primarily due
to a step level increase in information technology and other selling and
administrative costs to support higher sales, (iii) $1.1 million related to
higher selling and administrative costs to support higher sales at Datcon and
APP, (iv) $0.7 million for an accrual under a long term incentive plan for the
new Chief Operating Officer, (v) $0.6 million of severance accrued for certain
former executives of the Company, (vi) $1.3 million due to bonuses for the
Company's CEO and President primarily related to the completion of successful
acquisitions of PHI and Stewart Warner, the financings as well as the successful
divestiture of General Eastern, and (vii) an increase of $1.1 million corporate
administrative expenses primarily due to the consummation of the three major
transactions, long-term incentive accruals, and increased recruiting costs.
Research and development expenses increased $15.1 million, or 175.6%, from
$8.6 million to $23.8 million, including $14.4 million related to the operations
of PHI and Stewart Warner completed fiscal year 1998. Such expenses totaled
$12.0 million at PHI and $2.4 million at Stewart Warner, including $5.8 million
and $2.3 million, respectively, of purchased research and development as
allocated from the respective purchase prices, for which such costs were
expensed in fiscal year 1998 in accordance with purchase accounting procedures.
The remaining increases included increased new product applications development
at Robicon, Datcon and Natvar.
Depreciation and amortization from continuing operations increased $3.7
million from $4.4 million to $8.1 million during fiscal year 1998, including
$3.2 million related to the operations of PHI and Stewart Warner. The remaining
increase is attributable to capital investments United States and Europe.
The Company has, from time to time, received cash settlements and insurance
recoveries relating to environmental litigation, remediation and consequential
damages incurred in connection with properties formerly owned or leased by the
Company. The Company recorded losses of $26,000 and $3.6 million for fiscal
years 1997 and 1998, respectively, net of actual legal costs, estimated
settlement costs and changes in cost remediation estimates. Cash recoveries of
$1.1 million and $0 in were received fiscal years 1997 and 1998, respectively.
The cash recoveries have generally been received from insurance companies in
reimbursement of costs previously incurred, or scheduled to be incurred, by the
Company in remediation efforts or the payment of damages to third parties, from
other responsible or potentially responsible parties in settlement of potential
claims relating to remediation responsibilities, and from the recovery of
expenses incurred both in the recovery of such amounts and the remediation of
affected properties. Amounts incurred in fiscal year 1998 relate primarily to
changes in the estimated time to complete the clean up at certain sites as well
as approximately $500,000 in costs higher than estimated to clean up a leased
facility which is held for sale.
In fiscal year 1997, the Company recorded a $2.1 million provision to write
off the costs associated with an aborted acquisition and related offerings
costs, and $319,000 in net expenses incurred in connection with assets held for
sale, offset by a $230,000 gain on the sale of a small product line at Robicon.
In fiscal year 1998 other expenses were $540,000 which primarily reflected $1.4
million of litigation costs related to the aborted acquisition and offerings
costs offset by a gain of $0.6 million on the sale of a vacant facility in
Boston and income on the leases of certain excess facilities held for sale.
As a result of the factors described above, income from operations decreased
$5.3 million, from $8.0 million in fiscal year 1997 to $2.7 million in fiscal
year 1998.
Interest expense increased $7.2 million, from $11.6 million in fiscal year
1997 to $18.8 million in fiscal year 1998 due to (i) higher average indebtedness
associated with the issuance of Senior Notes on August 8, 1997 and March 19,
1998, (ii) increase in accretion of redeemable put warrants in the amount of
$2.3
23
<PAGE>
million, and (iii) $1.0 million provision for contingent interest payments.
Interest income increased $0.7 million to $1.0 million primarily due to a higher
average cash balances resulting from the proceeds from the Senior Notes.
As a result of the above items, the Company recorded losses from continuing
operations before income taxes, discontinued operations and extraordinary item
of $3.3 million in fiscal year 1997, and $15.1 million in fiscal year 1998.
Total income tax expense, including amounts allocated to discontinued
operations and extraordinary item, increased by $1.6 million from $367,000 in
fiscal year 1997 to $2.0 million in fiscal year 1998 primarily as a result of a
fiscal year 1998 increase in income at the Company's foreign subsidiaries and a
fiscal year 1997 non-recurring credit to income taxes following the conclusion
of a federal tax audit of prior fiscal years.
As a result of the above, losses from continuing operations before
discontinued operations and extraordinary items increased $11.4 million from
$3.3 million to $14.7 million in fiscal year 1998. Income from discontinued
operations totaling $0.7 million and $0.6 million were recorded in fiscal years
1997 and 1998, respectively, relating to the sale of the General Eastern
Instruments division for which the Company recorded a gain of $8.8 million in
fiscal year 1998. The Company recorded extraordinary losses of $259,000 and $7.5
million, net of income taxes, related to the write off of deferred finance
charges, prepayment penalties and make whole premiums in fiscal years 1997 and
1998, respectively.
The foregoing factors contributed to a net loss of $2.8 million in fiscal
year 1997 compared to a net loss of $12.7 million in fiscal year 1998.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1997
Net sales increased $23.8 million, or 17.4%, from $137.0 million in fiscal
year 1996 to $160.8 million in fiscal year 1997. This increase was primarily
attributable to a $27.0 million, or 48.0%, increase at Robicon due to the
continued growth in sales of medium voltage VFD's. Robicon's net sales increase
was slightly offset by a $1.9 million, or 11.0%, decline in Natvar's net sales,
due to weakness in medical markets and related market price reductions, as well
as a decrease of $1.3 million, or 12.8%, at HVE Europa which was primarily
attributable to weaker foreign currencies. Net sales at Datcon remained flat as
a sales increase in domestic markets was offset by weakness in agricultural
equipment markets in Europe. Net sales at APP remained flat as higher domestic
shipments of connectors for new applications and new customers were offset by
weaker markets in traction batteries for materials handling equipment.
Gross profit increased $6.5 million, or 14.3%, from $45.6 million during
fiscal year 1996 to $52.1 million in fiscal year 1997. The increase was
primarily attributable to the growth in shipments at Robicon, but was somewhat
offset by lower sales at Natvar and HVE Europa. Gross margin declined from 33.3%
to 32.4% primarily due to the shipment by Robicon of certain higher cost
prototype units for new applications, the investment in a leased facility (a
technical center for new applications) at APP and the inclusion of the first
full year of costs of Natvar's Colorado facility.
Administrative and selling expenses increased $2.2 million, or 7.1%,
primarily due to a $1.6 million increase at Robicon due to increased commissions
and other selling and administrative costs attributable to higher sales levels.
Administrative and selling expenses declined as a percentage of net sales from
22.6% to 20.6% during the periods compared, including a decline from 21.9% to
20.0% at Robicon.
Research and development expenses increased $1.3 million, or 17.8%, from
$7.3 million to $8.6 million, which was primarily attributable to new product
investments at Robicon, as well as volume related applications engineering to
support the aforementioned sales increase at Robicon. Such expenses increased
slightly as a percentage of net sales from 5.3% to 5.4% during fiscal year 1997.
Depreciation and amortization from continuing operations increased from $4.1
million to $4.4 million as a result of continued capital investment in
automation at APP and Datcon as well as a full year of depreciation in
connection with a new facility at Natvar.
24
<PAGE>
The net reimbursed environmental and litigation costs and other increased
from a charge of $0.7 million in fiscal year 1996 to a charge of $2.3 million in
fiscal year 1997. In fiscal years 1996 and 1997, the Company recorded a net gain
of $450,000 (including insurance recoveries of $1.5 million) and a loss of
$26,000 (net of insurance recoveries of $1.1 million), respectively resulting
from reimbursements from insurance companies of environmental and litigation
expenses. Other expenses in fiscal year 1996 included a $1.2 million provision
to write down certain assets held for sale to estimated net realizable value and
costs incurred by Robicon to move to a newly constructed facility, which were
partially offset by a net gain on the sale of vacant land and income from
certain facilities held for sale. In fiscal year 1997, other expenses reflected
a $2.1 million provision to write-off costs associated with an aborted
acquisition and related offering costs, and $319,000 in net expenses incurred
for assets held for sale. In addition, Robicon recorded a gain on the sale of a
small product line of $230,000 in fiscal year 1997.
As a result of the factors described above, income from operations increased
$1.6 million, or 25.0%, from $6.4 million in fiscal year 1996 to $8.0 million in
fiscal year 1997.
Interest expense increased $0.7 million, from $10.9 million in fiscal year
1996 to $11.6 million in fiscal year 1997 due to higher average interest rates
in fiscal year 1997 and accretion of redeemable put warrants which were
partially offset by a reduction in CIP expense.
As a result of the above items, the Company recorded a loss from continuing
operations before income taxes, discontinued operations and extraordinary item
of $4.2 million in fiscal year 1996, as compared to a loss of $3.3 million in
fiscal year 1997.
The Company recorded an income tax credit of $3.0 million in fiscal year
1996 compared to income taxes of $4,000 in fiscal year 1997. The change in tax
provision was largely attributable to a fiscal year 1996 reversal of a tax
reserve previously accrued in connection with a federal tax audit of prior
years.
Loss from continuing operations before discontinued operations and
extraordinary items increased $2.1 million to a loss of $3.3 million in fiscal
year 1997. Income from discontinued operations totaling $551,000 and $0.8
million were recorded for fiscal years 1996 and 1997, respectively, relating to
the Specialty Connector and General Eastern operating units.
The Company recorded an extraordinary loss related to debt extinguishment,
net of income taxes, of $422,000 in fiscal year 1996 and $259,000 in fiscal year
1997.
The foregoing factors contributed to net income of $0.6 million in fiscal
year 1996 compared to a net loss of $2.8 million in fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for working capital and capital
expenditures. The Company's primary sources of liquidity have been funds
provided by operations, proceeds from the sale of discontinued operations and
asset sales and proceeds from financing activities.
On March 19, 1998, the Company completed a private placement (the "Second
Offering") of $20.0 million in aggregate principal amount of 10 1/2% Senior
Notes due 2004 (the "Senior Notes"). The net proceeds of the Second Offering
were used to finance part of the purchase price for Stewart Warner.
On August 8, 1997, the Company entered into a $25.0 million revolving credit
facility (the "Revolving Credit Facility") which is being used primarily to fund
the Company's working capital requirements and has a $10.0 million sublimit for
the issuance of standby letters of credit. The Revolving Credit Facility has a
term of five years and replaced the $20.0 million revolving credit facility in
place on such date. There were no borrowings outstanding under the Revolving
Credit Facility as of April 25, 1998; however, there were $5.1 million in
letters of credit commitments outstanding. Accordingly, credit availability
under this facility was $19.9 million as of such date. The Revolving Credit
Facility contains covenants restricting the ability of the Company's operating
units to, among other things, pay dividends or make other restricted payments to
the Company.
25
<PAGE>
On August 8, 1997, the Company completed a private placement (the "Original
Offering") of $135.0 million in aggregate principal amount of 10 1/2% Senior
Notes due 2004 and $35.2 million in Units consisting of the Company's Series A
Redeemable Preferred Stock, common stock and warrants to purchase common stock.
A portion of the net proceeds of the Original Offering was used to repay
existing indebtedness described below, including accrued and unpaid interest
thereon and associated prepayment penalties. In connection with the issuance of
the Company's Series A Redeemable Preferred Stock, the Company issued to the
holders thereof warrants representing 6.6% of the Company's fully-diluted common
stock. On January 16, 1998, the Company's outstanding Senior Notes and Series A
Redeemable Preferred Stock were exchanged by the holders thereof for a like
amount of Senior Notes and shares of Series A Exchange Redeemable Preferred
Stock registered pursuant to the Securities Act.
At April 25, 1998, the Company had outstanding redeemable put warrants
representing 6.25% of its fully-diluted common stock. The holders of such
warrants have the right, after May 1, 2000, to require the Company to purchase
all or any portion of such warrants or any shares of common stock issued upon
exercise of such warrants at the greater of (i) a valuation prepared by an
independent financial advisor or (ii) a formula value calculated as 8.0x the
Company's EBITDA (as defined therein) less preferred stock and debt outstanding
plus excess cash. During fiscal year 1998, the Company used $2.5 million of the
net proceeds of the Original Offering to repurchase redeemable put warrants
previously issued by the Company representing 6.25% of the Company's
fully-diluted common stock.
On February 17, 1998, in connection with a misinterpretation of the
Indenture governing the Company's Senior Notes (the "Indenture"), the Company
paid a dividend in cash in the aggregate amount of approximately $2.1 million to
the holders of the Company's Series A Exchange Redeemable Preferred Stock in
accordance with the terms thereof. Because the Company is currently unable to
incur additional indebtedness unless certain conditions contained in the
Indenture are met, the payment of this dividend, which constitutes a Restricted
Payment under the Indenture, is prohibited and constituted a default under the
Indenture. Under the terms of the Company's Amended and Restated Articles of
Organization (the "Restated Charter") the Company is permitted to pay any
dividends that become due and payable on its Series A Exchange Redeemable
Preferred Stock pursuant to the Restated Charter on or prior to August 15, 2002
through the issuance of additional shares of Series A Exchange Preferred Stock.
The Company reported the default to the Trustee under the Indenture and obtained
the consent of the holders of a majority of the Senior Notes to waive the
default and any Event of Default (as defined herein) that may arise therefrom,
represented by this dividend payment.
As of April 25, 1998, the Company had total indebtedness (including
redeemable put warrants) of $178.9 million and mandatory redeemable preferred
stock with an aggregate liquidation preference of $33.0 million.
The Company does not anticipate any significant principal payment
obligations under any of its outstanding indebtedness prior to maturity of the
Senior Notes except with respect to the Revolving Credit Facility which has a
term of five years, as well as $1.6 million of unsecured seller notes related to
the Jorda acquisition which are due on March 16, 2000. The ability of the
Company to satisfy its obligations under existing indebtedness and preferred
stock will be primarily dependent upon the future financial and operating
performance of its operating units and upon the Company's ability to renew or
refinance borrowings or to raise additional equity capital as necessary.
The Company's working capital was $9.4 million and $62.4 million at April
26, 1997 and April 25, 1998, respectively. The $53.0 million increase in working
capital from April 26, 1997 to April 25, 1998 is primarily attributable to (i) a
$15.0 million increase in unrestricted cash on hand as a result of the Original
Offering; (ii) an increase in accounts receivable of $26.1 million, of which
$22.0 million and $4.1 million were attributable to the acquisitions of PHI and
Stewart Warner, respectively, and offset by a reduction of $2.0 million due to
the fiscal year 1998 sale of General Eastern; (iii) an increase in inventories
aggregating $13.8 million, of which $13.2 million and $4.3 million were
attributable to the acquisitions of PHI and Stewart Warner, respectively, and
offset by a reduction of $1.0 million due to the fiscal year 1998 sale of
General Eastern and reductions of $2.7 million in other operating units; (iv) a
reduction in working capital
26
<PAGE>
due to increased accounts payables and accrued liabilities of $20.6 million, of
which $11.7 million and $4.1 million were attributable to the PHI and Stewart
Warner acquisitions and offset by $1.2 million due to the sale of General
Eastern; and (v) an increase in working capital of $5.3 million due to a
reduction in accrued interest, which primarily relates to the payment of
Contingent Interest Payment obligations to a former lender on August 8, 1997.
Cash and cash equivalents of $16.5 million on the Company's balance sheet as of
April 25, 1998, excludes $2.6 million of restricted cash in uninsured foreign
bank accounts which was used as collateral for bank guarantee facilities for
customer advances and $12.1 million of restricted cash related to the proceeds
from the sale of General Eastern.
Net cash used in operating activities was $9.0 million in fiscal year 1998
compared to net cash provided of $0.6 million in fiscal year 1997. The decrease
in net cash provided by operations was primarily attributable to an increase in
accounts receivable of $8.5 million.
The increase in net cash used in investing activities from $3.1 million in
fiscal year 1997 to $61.0 million in fiscal year 1998 was primarily due to (i)
$54.3 million for the acquisition of PHI, (ii) $24.7 million for the acquisition
of Stewart Warner, (iii) an increase of $2.6 million in capital expenditures,
including $2.3 million expended by PHI which was acquired in fiscal year 1998,
and offset by (iv) an increase of $24.0 million in cash received from assets
sales including $20.1 million for the sale of General Eastern, and with most of
the remaining value attributable to the sale of a facility in fiscal year 1998.
Net cash provided by financing activities was $1.9 million and $97.6 million
for fiscal years 1997 and 1998, respectively. The increase in cash for fiscal
year 1998 was substantially the result of the Original Offering, consummated on
August 8, 1997, and the Second Offering, consummated on March 19, 1998, which in
aggregate provided $181.4 million of cash net of expenses. The proceeds of these
offerings redeemed indebtedness, existing redeemable preferred stock, redeemable
put warrants, and dividends totaling $82.8 million.
As of April 25, 1998, the Company had assets held for sale, consisting of
two former manufacturing facilities, of $3.8 million. These properties are
recorded at the lower of the carrying amount or fair value less selling costs.
The Indenture permits each Restricted Subsidiary, as defined therein, that
is an obligor under an Intercompany Note, as defined therein, to effect a
Qualified Subsidiary IPO, as defined therein. Upon completion of a Qualified
Subsidiary IPO, such Restricted Subsidiary will become an Unrestricted
Subsidiary, as defined under the Indenture, and the cash flow of such
Unrestricted Subsidiary will no longer be available (i) to service debt
obligations of the Company or its remaining Restricted Subsidiaries or (ii) for
purposes of determining whether the Company or its remaining Restricted
Subsidiaries will be able to incur additional indebtedness, either of which
could affect the liquidity of the Company.
On April 15, 1998, the Company sold all of the assets and ordinary course
business trade payables and capital and operating lease obligations of General
Eastern to Bowthorpe, plc, pursuant to an asset purchase agreement. This sale
generated cash, net of expenses and cash acquired, of approximately $20.1
million. The cash received by the Company in connection with the disposition of
General Eastern is subject to a covenant of the Indenture which requires the
Company to apply such cash to (i) repay debt ranking PARI PASSU to the Senior
Notes within 180 days, (ii) contractually commit to make an acquisition relating
to the Company's presently conducted business within 180 days or (iii) offer to
repurchase the Senior Notes pursuant to an Excess Proceeds Offer (as defined
under the Indenture). While the Company has and may continue to explore
acquisition possibilities the Company has no definitive plans for the use of the
cash proceeds from the disposition of General Eastern and unless the Company
develops a plan for such proceeds in the interim, the Company will be required
to commence an offer to repurchase the Senior Notes on October 15, 1998. The
Company has classified $12.1 million as restricted cash to reflect Asset Sale
Proceeds, as defined under the Indenture.
While the Company believes that internally generated funds, funds generated
by sales of assets and amounts available under the Revolving Credit Facility
will be sufficient to satisfy its operating cash requirements and make required
interest and principal payments under the Revolving Credit Facility, the
27
<PAGE>
Senior Notes and existing capital leases, industrial revenue bonds, mortgage
notes, notes payable and the foreign credit line and payments with respect to
the redeemable put warrants, there can be no assurance that such sources will be
adequate and that the Company will not require additional capital from
borrowings or securities offerings to satisfy such requirements. In addition,
the Company may require additional capital to fund future acquisitions. There
can be no assurance that such capital will be available.
NEW ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE. During 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," which changes the calculation of earnings per share to be
more consistent with countries outside the United States. In general, the
statement requires two calculations of earnings per share to be disclosed, basic
EPS and diluted EPS. Basic EPS is to be computed using only weighted average
shares outstanding, while diluted EPS is computed considering the dilution of
options and warrants. This statement has been adopted by the Company and all
prior, interim and annual periods have been restated.
OTHER PRONOUNCEMENTS. During 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which introduces a new model for segment
reporting. In February of 1998, the FASB issued SFAS No. 132, "Employers'
Disclosure about Pension and Other Post Retirement Benefits" which revises
employers' disclosures about pension and other post-retirement benefits plans.
The Company does not believe adoption will have a material impact on its
financial statement disclosures.
YEAR 2000
An issue affecting the Company is whether computer systems and applications
will recognize and process the Year 2000 and beyond. The Company is currently in
various stages of the assessment, remediation and internal testing of the
systems affected by this issue at each operating unit with respect to the impact
on business operations, product offerings, customers, suppliers and others.
Management believes that it is devoting the necessary resources to timely
address all Year 2000 issues over which it has control and all critical systems
are scheduled to be Year 2000 compliant by the end of fiscal year 1999. The
Company is also monitoring the adequacy of the processes and progress of its
customers, suppliers and others. However, there can be no assurance that the
customers, suppliers and others will timely resolve their own Year 2000
compliance issues.
Costs related to the Year 2000 issues are being expensed during the period
in which they are incurred. The financial impact to the Company of implementing
the systems changes necessary to become Year 2000 compliant has not been and is
not anticipated to be material to its business, operations, financial condition,
liquidity and capital resources. However, there are uncertainties as to the
future costs associated with the Year 2000 which may affect the Company's
expectations. Factors that could influence the amount and timing of future costs
include the success of the Company in identifying systems and programs that are
not Year 2000 compliant, the nature and amount of programming required to
upgrade or replace each of the affected programs or systems, the availability,
rate and magnitude of related labor and consulting costs and the success of the
Company's customers and suppliers.
ITEM 7A.--QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.--FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Company's Financial Statements, together with the auditors' reports
thereon, appear at pages F-1 through F-33 of this Form 10-K.
28
<PAGE>
ITEM 9.-- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10.--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and key employees of the Company as of
April 25, 1998 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ----- ---------------------------------------------------------------
<S> <C> <C>
Laurence S. Levy.......................... 41 Chairman of the Board, Chief Executive Officer, Vice President
and Director
Clifford Press............................ 44 Deputy Chairman of the Board, President and Director
Russell L. Shade, Jr. .................... 48 Chief Operating Officer and Director
Joseph W. McHugh, Jr. .................... 43 Vice President and Chief Financial Officer
Jody E. Kurtzhalts........................ 51 President of Robicon
John R. Haddock (1)....................... 51 President of PHI
Oddie V. Leopando......................... 52 President of Datcon Instrument Company
James A. Colony (2)....................... 40 President of APP
Scott M. Kelley........................... 44 President of Natvar
Renee Koudijs............................. 52 Managing Director of HVE Europa
Edward Levy............................... 34 Director
H. Cabot Lodge III........................ 42 Director
</TABLE>
- ------------------------
(1) Mr. Haddock has been appointed President of PHI effective July 6, 1998.
(2) Mr. Colony has been appointed President of APP effective July 6, 1998.
LAURENCE S. LEVY is the Chairman of the Board, Chief Executive Officer and a
Vice President of the Company. Mr. Levy joined the Company in 1988 in connection
with its acquisition and reorganization and has been a member of the Board of
Directors since that time. Since 1988, he has served as Chairman and since 1991
he has been the Company's Chief Executive Officer. From 1983 to 1986, Mr. Levy
was a consultant with Bain & Co., a leading strategic management company. Mr.
Levy is a graduate of the University of Witwatersrand in South Africa and the
Harvard Business School. Mr. Levy is also a director of Safety 1st, Inc.
CLIFFORD PRESS is the Deputy Chairman of the Board, President and a Director
of the Company. Mr. Press joined the Company in 1988 in connection with its
acquisition and reorganization and has been a member of the Board of Directors
since that time. Since 1991, he has served as President. From 1983 to 1986, Mr.
Press was employed by Morgan Stanley & Co., Incorporated in its Mergers and
Acquisitions Department. Mr. Press is a graduate of Oxford University and the
Harvard Business School. Mr. Press is also a director of Buck Hill Falls
Company.
RUSSELL L. SHADE, JR. is the Chief Operating Officer and a Director of the
Company. Prior to joining the Company, Mr. Shade was Vice President, Industrial
Systems, at General Electric Company ("GE"). Mr. Shade was named a Corporate
Officer of GE and Vice President of GE Drive Systems in March 1995. During his
25-year career with GE, Mr. Shade held numerous design, engineering, and
manufacturing positions in power generation, as well as general management
positions in the military and industrial product lines. Mr. Shade graduated from
M.I.T with a Master of Science degree in Mechanical Engineering and holds five
U.S. patents.
29
<PAGE>
JOSEPH W. MCHUGH, JR. is a Vice President and the Chief Financial Officer of
the Company. Mr. McHugh joined the Company in January 1992. From 1983 to 1992,
Mr. McHugh worked at GCA Corporation as a Division Controller and later as
Controller. In the former capacity, he participated in the workout and
recapitalization of GCA before its purchase in 1988 by General Signal. From 1977
to 1983, Mr. McHugh served in various financial management positions at
Honeywell Information Systems. Mr. McHugh is a Certified Management Accountant
and received both a Bachelor of Science degree in accounting and a Masters
degree in Business Administration from Bentley College.
JODY E. KURTZHALTS has served as President of Robicon since April 1995.
Prior to joining the Company, Mr. Kurtzhalts was employed by Giddings & Lewis
Corp., from November 1992 to March 1995 as the Vice President/General Manager of
its Automation Control Division. Prior to November 1992, Mr. Kurtzhalts was the
Vice President, Electronics and Software Engineering of Giddings & Lewis. Mr.
Kurtzhalts has a Bachelor of Science in Electrical Engineering from Marquette
University.
JOHN R. HADDOCK became the President of PHI effective July 6, 1998. Prior to
being appointed President of PHI, Mr. Haddock was Senior Vice President,
Marketing for Ryder Systems, Inc. from 1994 to 1997. Prior to 1997, Mr. Haddock
was employed by GE. During his 13-year career with GE, Mr. Haddock held numerous
general manager and senior marketing positions. Mr. Haddock holds a Masters
degree in business from the Harvard Business School and a Bachelor of Science
degree in Mechanical Engineering from the University of Birmingham, England.
ODDIE V. LEOPANDO has served as President of Datcon Instrument Company since
November 1995. Prior to joining the Company, Mr. Leopando was employed by
MascoTech, Inc. as President of the MascoTech Body Systems & Assembly Division
from 1994 to 1995. From 1991 to 1994, Mr. Leopando was the Senior Vice
President/General Manager of MascoTech Manufacturing & Assembly Division. Prior
to 1991, Mr. Leopando acted in managerial roles in several other companies,
including Massey Ferguson, Inc. and the Chrysler Corporation. Mr. Leopando
earned a Masters of Business Administration in Finance and Operations from the
University of Detroit and a Bachelor of Science in Mechanical Engineering from
the Mapua Institute of Technology in Manila, Philippines. Mr. Leopando is a
licensed professional engineer.
JAMES A. COLONY became the president of APP effective July 6, 1998. Prior to
being appointed President of APP, Mr. Colony was employed by ITT Cannon as the
General Manager of Mobile Communications. From 1987 to 1995, Mr. Colony was
employed by FMS Corporation, most recently as the Vice President, Business
Development. From 1978 to 1987, Mr. Colony held various general manager,
engineering and manufacturing positions at the Electro-Optical Division of the
Hughes Aircraft Company.
SCOTT M. KELLEY, who has been employed by the Company since 1993, has served
as President of Natvar since January 1996. Prior to being appointed as President
of Natvar, Mr. Kelley was the President of the Company's General Eastern
division, from August 1994 to January 1996, and the Acting President of the
Company's Specialty Connector division from December 1993 to August 1994. Prior
to joining the Company, Mr. Kelley was the Vice President of Operations at Data
Translation Inc. from 1990 to 1993. Mr. Kelley also served as a management
consultant at Ernst & Young LLP and Coopers & Lybrand L.L.P. Mr. Kelley is a
graduate of Eastern Connecticut State University.
RENEE KOUDIJS has served as Managing Director of HVE Europa since May 1993,
and served as Engineering and Research and Development Manager at HVE Europa
from 1978 to 1993. From 1976 to 1978, Mr. Koudijs served as Engineering Manager
at Unicorp. Prior to that, Mr. Koudijs founded the Netherlands division of Sola
Basic Industries. Mr. Koudijs graduated from the Industrial and Commercial
Mechanical and Electrical College in The Netherlands and has a License for
Business Operation in The Netherlands through the General Commercial School.
30
<PAGE>
EDWARD LEVY became a Director of the Company effective August 8, 1997. Mr.
Levy has been a Managing Director of CIBC Oppenheimer, since August 1995.
Between 1991 and 1995, Mr. Levy held various positions at The Argosy Group L.P.
culminating in the position of Managing Director. Mr. Levy has also held
positions in the Mergers and Acquisitions Group of Drexel Burnham Lambert
Incorporated and the Corporate Finance Department of Kidder, Peabody & Co.
Incorporated. Mr. Levy is a graduate of Connecticut College. Mr. Levy is also a
director of Heating Oil Partners, L.P., Norcross Safety Products L.L.C. and
DSMax International Inc.
H. CABOT LODGE III became a Director of the Company effective August 8,
1997. Mr. Lodge is a principal of Carmel Lodge LLC, a New York based financial
advisory firm he founded in 1996. Mr. Lodge also served as Executive Vice
President, Managing Director and in other senior management positions at W.P.
Carey & Co., an investment banking firm, from 1983 to 1995. Mr. Lodge is a
graduate of Harvard University and the Harvard Business School. Mr. Lodge is
also a director of American General Hospitality Corp., TelAmerica Media, Inc.
and Chairman of Superconducting Core Technologies, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Not applicable.
ITEM 11.--EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal years 1998, 1997 and 1996 Laurence S. Levy and Clifford Press,
the Company's Chairman of the Board, Chief Executive Officer and a Director and
President and a Director, respectively (who together comprised the Board of
Directors during such period) established the compensation of the Company's
executive officers, including their own compensation. The Board of Directors
established the Compensation Committee and appointed Mr. Edward Levy and Mr.
Clifford Press as members during the second quarter of fiscal year 1998.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during fiscal years 1998, 1997 and 1996 to the
Company's Chairman of the Board and Chief Executive Officer, President and four
other most highly-compensated executive officers.
31
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL OTHER ANNUAL ALL OTHER LTIP
NAME AND PRINCIPAL POSITION PERIOD SALARY BONUS COMPENSATION(1) COMPENSATION(2) PAYOUTS
- --------------------------------- ----------- ----------- --------- --------------------- --------------------- -----------
Laurence S. Levy................. 1998 $ 126,667(3) $ 650,000(5) $ 5,800
Chairman of the Board and Chief 1997 100,000(3) -- 3,300
Executive Officer 1996 100,000(3) 250,000(5) 4,000
Clifford Press................... 1998 $ 126,667(3) $ 650,000(5) $ 5,800
President and Director 1997 100,000(3) -- 3,300
1996 100,000(3) 250,000(5) 4,000
Paul H. Snyder(4)................ 1998 $ 232,500(4) $ 75,000 -- $ 120,000(4)
1997 210,000 50,000 4,050 --
1996 203,850 45,600 4,500 --
Joseph W. McHugh, Jr. ........... 1998 $ 155,000 $ 125,000 $ 5,800
Chief Financial Officer 1997 107,871 30,000 4,050
1996 102,123 100,000 3,459
Oddie V. Leopando................ 1998 $ 232,500 $ 85,000 $ 5,800
President of Maxima Technologies 1997 181,750 74,000 5,850
1996(6) 87,500 35,000 7,914 --
Jody E. Kurtzhalts............... 1998 $ 181,250 $ 46,250 $ 7,600
President of Robicon 1997 168,750 40,000 51,480 3,415
1996 165,000 18,250 31,492 3,335
</TABLE>
- ------------------------
(1) Represents relocation expenses.
(2) Represents matching employer contributions and profit-sharing under the
Company's Section 401(k) savings plan. See "Retirement Plans" below.
(3) Amounts shown as salary do not include management and transaction fees paid
to Hyde Park Holdings, Inc. ("Hyde Park"), and certain of its affiliates at
the request of the named executive officers, aggregating $769,535, $780,901
and $758,424 in fiscal years 1998, 1997 and 1996, respectively. See "Certain
Relationships and Related Transactions."
(4) Mr. Snyder ceased to be Chief Operating Officer and a Director of the
Company as of November 2, 1997. Mr. Snyder has been receiving severance
since November 1997. LTIP payout represents Mr. Snyder's payout related to
the Company's Value Creation Plan.
(5) Represents $150,000 paid directly as bonus and $500,000 paid to affiliates
of Hyde Park at the request of the named executive officers.
(6) Mr. Leopando became an employee of the Company in November 1995.
EMPLOYMENT AGREEMENTS
Russell L. Shade, Jr., the Company's Chief Operating Officer and a Director,
entered into an employment agreement with the Company (the "Employment
Agreement"), dated February 24, 1998. Pursuant to the Employment Agreement, Mr.
Shade receives an annual base salary of $250,000, reviewed annually. In
addition, for each year of Mr. Shade's employment, the Compensation Committee of
the Company's Board of Directors will establish an incentive compensation
program with a target of 80% of Mr. Shade's base salary, with payment under the
plan generally based upon the Company's performance. The Employment Agreement
contains a customary confidentiality provision and an agreement that Mr. Shade
will not, for three years after his employment ends, engage in business
competitive with the Company or solicit customers or employees of the Company.
32
<PAGE>
The Employment Agreement also provides shadow stock benefits, shadow stock
appreciation benefits and deferred compensation benefits described in the
following paragraphs.
Upon the commencement of his employment with the Company, Mr. Shade received
twenty-two shadow stock units. The stock units vest in yearly increments over a
period of five years, beginning on April 30, 1998, with each vested stock unit
representing the right to receive, following the fifth anniversary after the
vesting thereof, an amount of cash equal to the market value of a share of the
Letitia common stock determined as of the end of the most recent fiscal quarter.
Upon termination of employment for any reason other than death, all unvested
stock units shall be forfeited, and any vested units shall become redeemable by
the Company, at the market value of a share of Letitia Common Stock determined
as of the end of the most recent fiscal quarter preceding redemption, at any
time, but in any event the Company shall redeem the vested units on the
scheduled payment date therefor. Upon death, all stock units vest and each stock
unit shall be promptly redeemed at the market value of a share of Letitia Common
Stock at the end of the most recent fiscal quarter.
The Employment Agreement further provides for a stock appreciation
arrangement whereby Mr. Shade is entitled to receive additional shadow stock
units each year during the term of the Employment Agreement. For the Company's
1999 fiscal year, the shadow stock units granted pursuant to this arrangement
shall represent 0.4% of the Company's outstanding common stock. For the
Company's fiscal year 2000 and each subsequent year, the number of shadow stock
units granted shall be calculated based on a formula taking into account Mr.
Shade's base salary and the market value of Letitia Common Stock.
Under the deferred compensation arrangement, the Company shall contribute
$35,000 per year into a designated account and Mr. Shade may elect to make
additional contributions. Mr. Shade will receive distributions from the account
in ten installments, commencing in 2011, or earlier upon termination of
employment or death.
The Employment Agreement terminates upon Mr. Shade's resignation or
discharge, with or without cause. Upon termination by reason of disability,
death, or resignation or discharge under certain circumstances, Mr. Shade shall
be entitled to receive compensation through the date of his termination,
including all benefits enjoyed under the Employment Agreement. Upon termination
by reason of resignation or discharge under certain other circumstances, Mr.
Shade shall be entitled to receive his base salary and all benefits until the
earlier of one year following the date of termination or receipt of income
earned from a source unaffiliated with the Company.
VALUE CREATION PLAN AND RELATED PLANS
The Company's Value Creation Plan (the "VCP") is a long-term cash incentive
compensation plan for certain key officers and employees of the Company which is
intended to provide participants in the VCP with an opportunity to share in an
increase in the value of the Company or operating unit with which the
participating employee is associated. The VCP is designed to provide incentives
for employees in the Company's by tracking increases in the economic value based
generally upon a multiple of EBITDA, as defined in the VCP, but also reflecting
actual proceeds of dispositions of operating units or public offerings of
operating units. An aggregate amount equal to up to 5-7% of the incremental
increases in value achieved in the is allocated to the VCP. In the event that
the value of the Company or any of the operating units increases over time, the
interests of its participating employees in the VCP will increase
proportionally.
Interests are granted in the VCP to certain key employees as they are hired
or promoted and vest over five years. The value of an employee's interest is
based on increases in value (based generally on a multiple of EBITDA but also
reflecting actual proceeds of dispositions of operating units or public
offerings by operating units) from the date of grant to the end of the year
prior to the determination date. Vested interests are cashed out when an
employee leaves the Company or retires, or when his operating unit is
33
<PAGE>
sold or he is transferred to another division; provided that if the is dismissed
for cause, his interests (vested and unvested) are forfeited. Subject to the
Company's discretion to defer cash payments, an employee may cash out up to 50%
of his vested interest while remaining employed. The VCP is a non-qualified and
non-funded plan. While Messrs. Leopando, Kurtzhalts and McHugh have each
received interests in the VCP, Mr. Laurence S. Levy, Mr. Press and Mr. Shade
currently do not participate in the VCP. As of April 25, 1998, the Company had
an accrued liability of $2.8 million under the VCP.
Paul H. Snyder, who was the Chief Operating Officer and a director of the
Company until November 2, 1997 was the beneficiary of an incentive compensation
plan of the Company pursuant to which Mr. Snyder received a one-time accrued
bonus payment of $120,000 upon his resignation in the third quarter of fiscal
year 1998. This payment was calculated pursuant to a formula established by the
Company with respect to the value of the Letitia Common Stock (as defined
herein) at the time of such payment.
RETIREMENT PLANS
The Company maintains the High Voltage Engineering Corporation 401(k)
Retirement Plan, a Section 401(k) savings plan for qualified domestic employees,
pursuant to which the Company matches discretionary employee contributions up to
$1,800, and also contributes an annual profit-sharing amount equal to 2.5% of
the employee's annual salary and bonus. Messrs. Laurence S. Levy, Press,
Leopando, Shade, McHugh and Kurtzhalts currently participate in this plan.
The Company also maintains the High Voltage Engineering Corporation
Retirement Plan (the "Retirement Plan"), a defined benefit plan, which provides
for the payment of annual pension benefits, payable on retirement, based on the
participating employee's salary during the time of accrual. Participation in the
Retirement Plan, and the accrual of additional benefits thereunder, was frozen
by the Company in 1992. Messrs. Laurence S. Levy and Press will receive monthly
benefits under the Retirement Plan of $191.05 and $148.35, respectively,
beginning upon their retirement. Messrs. Leopando, McHugh, Shade and Kurtzhalts
do not participate in the Retirement Plan.
BONUS PLAN
The Company has in effect various plans pursuant to which the Company's
executive officers and certain other employees may receive incentive cash
bonuses based upon the achievement of certain earnings goals in the preceding
fiscal year by an operating unit or by the Company as a whole, and upon
individual performance. The amounts of incentive and discretionary awards, and
the performance criteria for such awards, are currently fixed by the Board of
Directors. Such amounts, and the related performance criteria, will be set by
the Compensation Committee.
ITEM 12.--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of the Company's common stock, as of the date of this filing by: (i)
each person known to the Company to own beneficially more than 5% of the
outstanding shares of common stock; (ii) each director and each executive
officer named in the "Summary Compensation Table;" and (iii) all directors and
executive officers of the Company as a group. All shares are owned by such
person with sole voting and investment power.
34
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------
<S> <C> <C>
NUMBER OF PERCENT OF
NAME OF STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS SHARES COMMON SHARES
- ------------------------------------------------------------------------------ --------------- -----------------------
Letitia Corporation(1)........................................................ 1,000 92.4%
Laurence S. Levy(1)(2)........................................................ 1,000 92.4%
Clifford Press(1)(3).......................................................... 1,000 92.4%
Jody E. Kurtzhalts............................................................ -- --
Oddie V. Leopando............................................................. -- --
Joseph W. McHugh, Jr. ........................................................ 0.12(4) (5)
Paul H. Snyder................................................................ -- --
Edward Levy................................................................... -- --
H. Cabot Lodge III............................................................ -- --
Directors and executive officers as a group................................... 1,000 92.4%
</TABLE>
- ------------------------
(1) The address of each of these persons or organizations is c/o Hyde Park
Holdings, Inc., 595 Madison Avenue, 35th Floor, New York, New York 10022.
(2) All of such shares of the Company's Common Stock (92.4% of the outstanding
common stock) are held by Letitia Corporation. Mr. Laurence S. Levy is the
Chairman of the Board, Treasurer and Secretary of Letitia Corporation. Mr.
Laurence S. Levy is also a limited partner of, and an executive officer and
50% shareholder of the corporate general partner of, a limited partnership
that owns all of the stock of Letitia Corporation. Mr. Laurence S. Levy
disclaims beneficial ownership of any shares of the Company's common stock.
(3) All of such shares of the Company's common stock (92.4% of the outstanding
common stock) are held by Letitia Corporation. Mr. Press is the President of
Letitia Corporation. Mr. Press is also a limited partner of, and an
executive officer and 50% shareholder of the corporate general partner of, a
limited partnership that owns all of the stock of Letitia Corporation. Mr.
Press disclaims beneficial ownership of any shares of the Company's common
stock.
(4) Represents shares issuable upon exercise of warrants to purchase shares of
the Company's common stock.
(5) Mr. McHugh beneficially owns less than 1% of the Company's common stock.
ITEM 13.--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Laurence S. Levy and Clifford Press, officers and directors of the Company,
are directors of Letitia Corporation, which owns 92.4% of the Company's
outstanding Common Stock. Hyde Park Holdings, Inc. ("Hyde Park"), a corporation
wholly owned by Laurence S. Levy and Clifford Press, is a minority stockholder
of Letitia Corporation.
Historically, the Company has paid to Hyde Park and its affiliates: (i) an
annual fee for services performed in managing the Company; (ii) an acquisition
fee payable upon the closing of certain acquisitions by the Company of
additional businesses; and (iii) a disposition fee payable upon the closing of
the disposition of certain divisions or subsidiaries (or significant groups of
assets) of the Company.
The management fees paid to Hyde Park and its affiliates were $769,535,
$780,901 and $648,424 for fiscal years 1998, 1997 and 1996, respectively. Under
the terms of the Indenture, while there are any of the Senior Notes outstanding,
management fees to Hyde Park in excess of $750,000 for any fiscal year of the
Company subsequent to August 8, 1997 will be limited by the Indenture.
Acquisition and disposition fees have been calculated as an amount equal to 1%
of the sum of the total price paid or received for shares of stock (or in the
case of an asset acquisition or disposition, the total price paid for such
assets) in such acquisition or divestiture. In fiscal year 1996, the Company
paid a fee of $110,000 in connection with the disposition of the Company's
Specialty Connector division. No acquisition or divestiture fees were paid in
fiscal year 1997. The Company did not pay an acquisition fee in connection with
either the PHI Merger or the Stewart Warner Acquisition and did not pay a
disposition fee in connection with the disposition of General Eastern.
In connection with the refinancing, the Company redeemed all of its
outstanding Series B Preferred Stock for an aggregate redemption price of $4.8
million. All of the outstanding 25,705 shares of Series B Preferred Stock were
held by Letitia Corporation. Messrs. Laurence S. Levy and Clifford Press, the
Company's Chairman of the Board and Chief Executive Officer, and President and
Director, respectively,
35
<PAGE>
and certain of their affiliates and family members beneficially own 100% of the
outstanding common stock of Letitia Corporation (the "Letitia Common Stock")
and, accordingly, were the sole beneficiaries of such redemption and could
through dividends or other distributions receive a majority of the proceeds of
such redemption.
In connection with the refinancing, the Company redeemed 6,871 shares of the
Company's Series C Preferred Stock (the "Series C Preferred Stock"), comprising
all of the shares of Series C Preferred Stock then issued or issuable, for its
aggregate liquidation preference of $6.9 million. All of the shares of Series C
Preferred Stock were held by Letitia Corporation, which had issued to Quest
Equities Corp. ("Quest") a class of its own capital stock (the "Letitia
Preferred Stock") having identical rights and preferences to the Series C
Preferred Stock. Simultaneously with the closing of the Original Offering,
Letitia redeemed, from the proceeds of the redemption of the Series C Preferred
Stock, 6,871 shares of the Letitia Preferred Stock, comprising all of the shares
of Letitia Preferred Stock then issued or issuable, for its aggregate
liquidation preference of $6.9 million. In connection with the redemption of the
Letitia Preferred Stock, certain rights of Quest to demand "contingent interest
payments" equal to a minimum of 3.1% of the Company's common stock equity value
at the time payment is demanded, were extinguished.
In connection with the acquisition of PHI, CIBC Oppenheimer Corp. received a
transaction fee of $500,000 for advisory services provided to the Company in
connection with the transaction. A predecessor of CIBC Oppenheimer also provided
investment banking services in connection with the May 1996 refinancing of
certain of the Company's indebtedness, for which it received customary
compensation. On July 24, 1997, CIBC Oppenheimer purchased existing Subordinated
Notes Warrants to purchase 71.43 shares of Common Stock, representing 6.25% of
the Company's common stock on a fully diluted basis, for an aggregate purchase
price of $2.5 million. Such Subordinated Notes Warrants were immediately
thereafter repurchased from CIBC Oppenheimer by the Company for the same
purchase price from the proceeds of the refinancing. Mr. Edward Levy, who became
a director of the Company effective upon the consummation of the refinancing, is
a managing director of CIBC Oppenheimer.
On October 3, 1997, Letitia Corporation repurchased 59.091 shares of Letitia
Common Stock from the High Voltage Engineering Retirement Plan for an aggregate
purchase price of $2.25 million. The purchase price for these shares of Letitia
Common Stock was determined based on an appraisal rendered by an independent
appraisal firm engaged by Letitia Corporation for this purpose. After the
completion of this purchase, all of the remaining outstanding shares of Letitia
Common Stock were held by Clifford Press, Laurence S. Levy or certain of their
affiliates or family members.
The Company paid $54.6 million in cash consideration in connection with the
acquisition of PHI, of which approximately $3.8 million was paid to David J.
Chalmers, formerly the President of PHI, under a certain executive equity
compensation plan. In addition, 93 officers, directors and employees of, and
consultants to, PHI received an aggregate of approximately $12.9 million in cash
in exchange for their capital stock and options to purchase capital stock of
PHI.
36
<PAGE>
PART IV.
ITEM 14.--EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 7, 1997, by and between PHI Acqusition Holdings, Inc. and
Chase Venture Capital Associates, L.P.*
2.2 Stock Purchase Agreement, by and among Carolyn Corporation and the Sellers and the Seller
Representative named therein, dated as of February 4, 1998.**
2.3 Asset Purchase Agreement between GEI Acquisition Inc. and High voltage Engineering Corporation, dated
as of March 25, 1998.**
3.1 Restated Articles of Organization of the Registrant.*
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Indenture, dated as of August 8, 1997, by and between Registrant and State Street Bank and Trust
Company.*
4.2 First Supplemental Indenture, dated as of March 19, 1998 to Indenture, dated as of August 8, 1997, by
and between the Registrant and State Street Bank and Trust Company, as Trustee.**
4.3 Registration Rights Agreement, dated as of March 19, 1998, by and among the Registrant and CIBC
Oppenheimer Corp.**
4.4 Form of Exchange Note.**
10.1 Senior Secured Revolving Credit Agreement, dated as of August 8, 1997, by and between the Registrant
and Fleet National Bank.*
10.2 Lease Agreement, dated as of November 10, 1988, by and between Corporate Property Associates 8, L.P.
and Datcon Instrument Company (Lancaster, PA).*
10.3 Lease Agreement, dated as of November 10, 1988, by and between Corporate Property Associates 8, L.P.
and the Registrant (Sterling, MA).*
10.4 Installment Sale Agreement, dated as of September 23, 1994, by and between Monroeville Area Industrial
Development Corporation and Halmar Robicon Group, Inc. (New Kensington, PA).*
10.5 Lease with Option to Purchase, dated as of July 15, 1996, by and between Raija Olkkola & Joseph
Grammel, Co-Trustees of THO Trust and Registrant. (Sterling, MA).*
10.6 Amendment to Lease Agreement, dated as of May 8, 1996, by and between Corporate Property Associates 8,
L.P. and the Registrant (Sterling, MA).*
10.7 Value Creation Plan of the Registrant.*
10.8 High Voltage Engineering Corporation Employment Agreement, by and between Registrant and Russell L.
Shade, Jr., dated as of February 24, 1998.**
10.9 Agreement and Plan of Merger, dated as of May 7, 1997, by and between PHI Acquisition Holdings, Inc.
and Chase Venture Capital Associates, L.P.*
12 Statement of Computation of Financial Ratios.
21.1 List of Subsidiaries.
24.1 Power of Attorney (included in signature page to Form 10-K).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Incorporated by reference from the Registrant's Registration Statement No.
333-33969, on Form S-4, filed by the Registrant with respect to $135,000,000
aggregate principal amount of the Registrant's 10 1/2% Senior Notes due
2004.
** Incorporated by reference from the Registrant's Registration Statement No.
333-51643, on Form S-4, filed by the Registrant with respect to $20,000
aggregate principal amount of the Registrants 10 1/2% Senior Notes due 2004.
(b) All schedules have been omitted because either they are not required, are
not applicable, or the information is otherwise set forth in the
Consolidated Financial Statements and notes thereto.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HIGH VOLTAGE ENGINEERING CORPORATION
By: /s/ LAURENCE S. LEVY
-----------------------------------------
Laurence S. Levy, CHAIRMAN OF BOARD,
CHIEF EXECUTIVE OFFICER
AND VICE PRESIDENT
38
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Clifford Press,
Laurence S. Levy, Joseph W. McHugh, Jr. and Ronald R. Fortier, and each of them
severally, acting alone and without the other, his true and lawful
attorney-in-fact with the authority to execute in the name of each such person,
including exhibits thereto and other documents therewith, any and all amendments
to this Report on Form 10-K necessary or advisable to enable the Form 10-K to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof
which amendments may make such other changes in the Form 10-K as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ LAURENCE S. LEVY Chairman of the Board,
- ------------------------------ Chief Executive Officer, July 22, 1998
Laurence S. Levy Vice President
/s/ CLIFFORD PRESS Deputy Chairman of the
- ------------------------------ Board, President July 22, 1998
Clifford Press
/s/ EDWARD LEVY Director
- ------------------------------ July 22, 1998
Edward Levy
/s/ H. CABOT LODGE III Director
- ------------------------------ July 22, 1998
H. Cabot Lodge III
/s/ RUSSELL L. SHADE, JR. Director
- ------------------------------ July 22, 1998
Russell L. Shade, Jr.
Vice President and Chief
/s/ JOSEPH W. MCHUGH, JR. Financial Officer
- ------------------------------ (principal financial and July 22, 1998
Joseph W. McHugh, Jr. accounting officer)
39
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Consolidated Financial Statements--April 27, 1996, April 26, 1997, April 25, 1998
Report of Grant Thornton LLP, Independent Certified Public Accountants.................................. F-2
Consolidated Balance Sheets............................................................................. F-3
Consolidated Statements of Operations................................................................... F-4
Consolidated Statements of Stockholders' Deficiency..................................................... F-5
Consolidated Statements of Cash Flows................................................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
High Voltage Engineering Corporation
We have audited the accompanying consolidated balance sheets of High Voltage
Engineering Corporation and Subsidiaries as of April 26, 1997 and April 25, 1998
and the related consolidated statements of operations, stockholders' deficiency,
and cash flows for each of the three years in the period ended April 25, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the 1998 financial statements
of Physical Electronics, Inc. and Subsidiaries, a wholly-owned subsidiary
acquired on August 8, 1997, which reflect total assets and revenues constituting
31% and 22%, respectively, of the consolidated totals. Those statements were
audited by other auditors whose report thereon has been furnished to us and our
opinion, insofar as it relates to the amounts included for Physical Electronics,
Inc. and Subsidiaries, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of High Voltage Engineering
Corporation and Subsidiaries as of April 26, 1997 and April 25, 1998 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended April 25, 1998, in conformity with
generally accepted accounting principles.
Boston, Massachusetts GRANT THORNTON LLP
June 12, 1998
F-2
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................... $ 1,542 $ 16,518
Restricted cash......................................................................... 2,210 14,671
Accounts receivable--net of allowance for doubtful accounts............................. 33,333 59,403
Refundable income taxes................................................................. -- 626
Inventories............................................................................. 22,334 36,136
Prepaid expenses and other current assets............................................... 1,164 2,018
---------- ----------
Total current assets................................................................ 60,583 129,372
PROPERTY, PLANT AND EQUIPMENT--Net........................................................ 30,966 54,161
INVESTMENT IN JOINT VENTURE............................................................... -- 1,735
ASSETS HELD FOR SALE...................................................................... 5,248 3,830
OTHER ASSETS--Net......................................................................... 7,432 17,158
COST IN EXCESS OF NET ASSETS ACQUIRED..................................................... 9,358 25,148
---------- ----------
$ 113,587 $ 231,404
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Current maturities of long-term debt obligations........................................ $ 2,609 $ 1,351
Foreign credit line..................................................................... 2,284 2,002
Accounts payable........................................................................ 17,199 22,923
Accrued interest........................................................................ 8,394 3,118
Accrued liabilities..................................................................... 12,000 26,932
Advance payments by customers........................................................... 5,294 6,613
Federal, foreign and state income taxes payable......................................... 1,261 2,369
Deferred income taxes................................................................... 2,171 1,641
---------- ----------
Total current liabilities........................................................... 51,212 66,949
REDEEMABLE PUT WARRANTS................................................................... 2,800 2,590
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES............................................ 80,508 172,976
DEFERRED INCOME TAXES..................................................................... 1,834 2,698
OTHER LIABILITIES......................................................................... 2,495 6,951
REDEEMABLE PREFERRED STOCK (aggregate liquidation preference of $33,000 as of April 25,
1998)................................................................................... 11,474 30,457
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock............................................................................ 1 1
Paid-in-capital......................................................................... 17,326 19,527
Accumulated deficit..................................................................... (54,104) (72,603)
Common stock warrants................................................................... -- 2,200
Cumulative foreign currency translation adjustment...................................... 41 (342)
---------- ----------
Total stockholders' deficiency...................................................... (36,736) (51,217)
---------- ----------
$ 113,587 $ 231,404
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------
<S> <C> <C> <C>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -------------
Net sales.............................................................. $ 137,007 $ 160,847 $ 234,380
Cost of sales.......................................................... 91,442 108,786 151,360
----------- ----------- -------------
Gross profit......................................................... 45,565 52,061 83,020
Administrative and selling expenses.................................... 30,972 33,174 52,067
Research and development expenses...................................... 7,321 8,622 23,763
Restructuring charge................................................... 150 -- 293
Reimbursed environmental and litigation costs--net..................... (450) 26 3,633
Other, net............................................................. 1,163 2,234 540
----------- ----------- -------------
Income from operations............................................... 6,409 8,005 2,724
Interest expense....................................................... 10,912 11,631 18,819
Interest income........................................................ (278) (351) (1,008)
----------- ----------- -------------
Loss from continuing operations before income taxes, discontinued
operations and extraordinary item.................................. (4,225) (3,275) (15,087)
Income taxes (credit).................................................. (3,076) 4 (430)
----------- ----------- -------------
Loss from continuing operations before discontinued operations and
extraordinary item................................................. (1,149) (3,279) (14,657)
Discontinued operations:
Income from discontinued operations, net of income taxes............. 551 782 606
Gain on disposal of discontinued operations, net of income taxes..... 1,633 -- 8,771
----------- ----------- -------------
2,184 782 9,377
Extraordinary loss, net of income taxes................................ (422) (259) (7,464)
----------- ----------- -------------
Net income (loss)...................................................... 613 (2,756) (12,744)
Preferred dividends.................................................... (446) (479) (3,085)
Accretion of redeemable preferred stock................................ -- -- (270)
----------- ----------- -------------
Net income (loss) applicable to common stockholders.................... $ 167 $ (3,235) $ (16,099)
----------- ----------- -------------
----------- ----------- -------------
Net income (loss) per common share:
Continuing operations................................................ $ (1,595.00) $ (3,758.00) $ (17,008.50)
Income from discontinued operations.................................. 551.00 782.00 572.24
Gain on disposal of discontinued operations.......................... 1633.00 -- 8,282.34
Extraordinary item................................................... (422.00) (259.00) (7,048.16)
----------- ----------- -------------
Net income (loss) applicable to common stockholders.................. $ 167.00 $ (3,235.00) $ (15,202.08)
----------- ----------- -------------
----------- ----------- -------------
Weighted average common stock outstanding.............................. 1,000 1,000 1,059
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON CURRENCY
COMMON PAID-IN ACCUMULATED STOCK TRANSLATION
STOCK CAPITAL DEFICIT WARRANTS ADJUSTMENT TOTAL
------ ------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 29, 1995....... $1 $17,326 $(51,036) $-- $(188) $(33,897)
Net income, as restated....... 613 613
Preferred stock dividends..... (446) (446)
Change in foreign currency
translation................. 248 248
------ ------- ----------- -------- ----- --------
Balance, April 27, 1996....... 1 17,326 (50,869) -- 60 (33,482)
Net loss...................... (2,756) (2,756)
Preferred stock dividends..... (479) (479)
Change in foreign currency
translation................. (19) (19)
------ ------- ----------- -------- ----- --------
Balance, April 26, 1997....... 1 17,326 (54,104) -- 41 (36,736)
Net loss...................... (12,744) (12,744)
Preferred stock dividends..... (3,085) (3,085)
Accretion of redeemable
preferred stock............. (270) (270)
Distribution to fund Letitia
common stock repurchase..... (2,400) (2,400)
Change in foreign currency
translation................. (383) (383)
Common stock warrants......... 2,200 2,200
Proceeds from issuance of
common stock................ 2,201 2,201
------ ------- ----------- -------- ----- --------
Balance, April 25, 1998....... $1 $19,527 $(72,603) $2,200 $(342) $(51,217)
------ ------- ----------- -------- ----- --------
------ ------- ----------- -------- ----- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents Cash flows from operating activities:
Net income (loss).......................................................................... $ 613 $ (2,756) $ (12,744)
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary item, net of income taxes.................................................. 422 -- 1,574
Depreciation and amortization............................................................ 4,134 4,376 8,133
Write-off of other assets and purchased research and development......................... 1,200 -- 8,100
Non-cash interest........................................................................ 2,533 2,897 3,079
Deferred income taxes.................................................................... (2,714) (1,143) 803
Undistributed earnings of affiliate...................................................... (88) (201) (175)
(Gain) loss on sale of discontinued operations........................................... (1,633) -- (8,771)
(Gain) loss on sale of assets and other.................................................. (37) (186) (1,229)
Change in assets and liabilities, net of effects of business acquisitions and
divestitures:
Accounts receivable.................................................................... (7,547) 257 (8,730)
Refundable income taxes................................................................ 997 -- 1,968
Inventories............................................................................ (5,754) (1,482) 5,088
Prepaid expenses and other current assets.............................................. 67 857 (31)
Other assets........................................................................... (576) (3,094) (2,902)
Accounts payable, accrued interest and accrued liabilities............................. 893 1,868 2,133
Advance payments by customers.......................................................... 2,511 (1,030) (161)
Federal, foreign and state income taxes payable........................................ (1 381) 264 (5,139)
----------- ----------- -----------
Net cash provided by (used in) operating activities.................................. (6,360) 627 (9,004)
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment................................................. (5,791) (3,516) (6,146)
Proceeds from sales of discontinued operation.............................................. 11,000 -- 20,075
Proceeds from sales of assets and other, net of expenses................................... 402 260 4,138
Acquisition of Stewart Warner, net of cash acquired........................................ -- -- (24,690)
Acquisition of Physical Electronics, net of cash acquired.................................. -- -- (54,272)
Other...................................................................................... 118 190 (117)
----------- ----------- -----------
Net cash provided by (used in) investing activities.................................. 5,729 (3,066) (61,012)
----------- ----------- -----------
Cash flows from financing activities:
Cash overdraft............................................................................. 2,416 (1,306) (363)
Proceeds from the issuance of long-term obligations, net of issuance costs................. 4,813 66,267 147,597
Proceeds from the issuance of preferred stock, net of issuance costs....................... -- -- 29,392
Proceeds from the issuance of common stock................................................. -- -- 2,200
Proceeds from the issuance of redeemable put warrants and common stock warrants............ -- 2,413 2,200
Net proceeds/(payments) from foreign credit line........................................... 663 (469) (282)
Net (increase) decrease in restricted cash................................................. (1,696) 2,385 (12,461)
Net proceeds/(payments) under senior credit agreement...................................... (515) (2,957) (7,702)
Distribution to fund Letitia common stock repurchase....................................... -- -- (2,250)
Cash dividends paid........................................................................ -- -- (2,142)
Redemption of redeemable put warrants...................................................... -- -- (2,500)
Redemption of redeemable preferred stock................................................... -- -- (11,621)
Principal payments on long-term obligations................................................ (3,828) (64,440) (56,609)
----------- ----------- -----------
Net cash provided by financing activities............................................ 1,853 1,893 85,459
----------- ----------- -----------
Effect of foreign exchange rate changes on cash.............................................. 380 (19) (467)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents................................. 1,602 (565) 14,976
Cash and cash equivalents, beginning of year................................................. 505 2,107 1,542
----------- ----------- -----------
Cash and cash equivalents, end of year....................................................... $ 2,107 $ 1,542 $ 16,518
----------- ----------- -----------
----------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest................................................................................. $ 8,272 $ 7,568 $ 21,014
Income taxes............................................................................. 408 1,246 1,043
Supplemental Schedule of Non-cash Investing and Financing Activities:
Preferred stock dividends-in-kind and issuable preferred stock dividends-in-kind........... $ 446 $ 479 $ 942
Leased asset additions..................................................................... 172 1,494 635
Transfer from property, plant and equipment to assets held for sale, net................... 1,178 (1,378) --
Fixed assets transferred to inventory...................................................... -- -- 740
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
NATURE OF OPERATIONS
The Company operates a diversified portfolio of specialty industrial
manufacturing businesses with multiple product lines that serve a broad spectrum
of original equipment manufacturers and end-users. Business and customer
concentration is minimal due to the diversified nature of its portfolio of
businesses, with respect to products sold and end-markets served on a world-wide
basis. Examples of end-markets served include process automation, freshwater and
wastewater treatment, petrochemicals, semiconductor fabrication, chemical,
construction, agriculture, materials handling, computers, telecommunications,
medical equipment, scientific and educational research.
FINANCIAL STATEMENT PRESENTATION
High Voltage Engineering Corporation (the "Company") is 92.4% owned by
Letitia Corporation ("Letitia"). The Company's wholly owned subsidiaries include
Datcon Instrument Company and subsidiaries, High Voltage Engineering Europa
B.V., a subsidiary of HIVEC B.V., Halmar Robicon Group, Inc., Physical
Electronics, Inc. and subsidiaries and Anderson Interconnect, Inc.
The consolidated financial statements include the accounts of the Company
and its domestic and foreign subsidiaries after elimination of material
intercompany transactions and balances.
The Company owns 49% of an affiliated company which is accounted for using
the equity method. Separate disclosure is not presented as the amounts are not
significant.
ACCOUNTING PERIOD
The Company operates on a 52 or 53 week fiscal period. Each of the fiscal
periods presented are 52 week periods.
REVENUE RECOGNITION
Revenue is recognized when goods are shipped and the risk of loss passes to
the customer or in the case of significant long-term contracts on the
percentage-of-completion method. Provisions for estimated losses on long-term
contracts are charged to operations when identified.
When customers, under the terms of specific orders, request that the Company
manufacture, invoice and ship goods on a bill and hold basis, the Company
recognizes revenue based on the completion date required in the order and actual
completion of the manufacturing process. At the time such goods are ready for
delivery, title and risk of ownership pass to the customer.
Accounts receivable include retainages of approximately $1,279 and $1,900 as
of April 26, 1997 and April 25, 1998, respectively. Bill and hold receivables
were not significant as of April 26, 1997 and April 25, 1998.
F-7
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
Balance at beginning of year.................................................. $ 973 $ 1,973 $ 1,857
Provision..................................................................... 1,412 813 703
Charge-offs, net of recoveries................................................ (412) (929) (475)
----------- ----------- -----------
Balance at end of year........................................................ $ 1,973 $ 1,857 $ 2,085
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
CASH EQUIVALENTS
For purposes of the statements of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Cash overdrafts included in trade accounts payable were $2,281 and $1,918 at
April 26, 1997 and April 25, 1998, respectively.
At April 26, 1997 and April 25, 1998, cash in the amounts of $2,712 and
$3,762, respectively, was in uninsured foreign bank accounts, including $2,210
and $2,578, respectively which was used for collateral for a bank guarantee
facility for customer advances. See note B for other restricted cash.
INVENTORIES
Inventories are primarily stated at the lower of cost (first-in, first-out
or average cost method) or market. Certain inventories are stated at the lower
of cost or market determined by the last-in, first-out method. The amount by
which the replacement cost exceeds the LIFO value was not material at April 25,
1998.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter. Leased property under
capital leases is amortized over the lives of the respective leases or over the
service lives of the assets for those leases which substantially transfer
ownership. The straight-line method of depreciation is followed for
substantially all assets for financial reporting purposes, while accelerated
methods are used for tax purposes. Future income taxes resulting from
depreciation temporary differences have been provided for as deferred income
taxes.
F-8
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is based upon the following estimated useful lives:
<TABLE>
<S> <C>
30 to 40
Building and building improvements........................................... years
Leasehold improvements....................................................... 5 to 20 years
Machinery and equipment...................................................... 2 to 15 years
</TABLE>
COST IN EXCESS OF NET ASSETS ACQUIRED
The cost in excess of net assets acquired (goodwill) is amortized on a
straight-line basis over the expected period of benefit of twenty to forty
years. The Company continually evaluates the carrying value of goodwill. Any
impairments would be recognized when the expected undiscounted future operating
cash flows derived from such goodwill is less than the carrying value.
INTANGIBLE ASSETS
Costs incurred to obtain debt financing are amortized over the expected term
of the related debt. Amortization of deferred financing costs is recorded as
interest expense. The costs associated with non-compete and consulting
agreements are amortized over the period to which the agreements relate. Patents
are amortized on a straight line basis over the remaining legal lives.
LONG-TERM COMPENSATION PLAN
Costs associated with a Valuation Creation Plan ("VCP") which provides
long-term compensation for key individuals are recorded, on a quarterly basis,
based on the formula as defined in the VCP.
FOREIGN CURRENCY TRANSLATION
Foreign subsidiaries primarily use the local currency as their functional
currency. Assets and liabilities of these entities are translated into U.S.
dollars at rates of exchange in effect at the balance sheet date. The resulting
translation adjustments are accumulated in a separate component of stockholders'
deficiency and are included in operations only upon the sale or liquidation of
the underlying foreign investment. Revenue and expense transactions are
translated at the weighted average exchange rates for the fiscal month in which
the transaction occurred. The financial statements of subsidiaries operating in
highly inflationary economies use the U.S. dollar as the functional currency.
Property and accumulated depreciation is translated at historical rates; other
assets and liabilities principally at rates in effect at the balance sheet date;
and income and expense accounts, other than depreciation and amortization; at
average rates of exchange in effect during the year. Gains and losses resulting
from the remeasurement are included in the statement of operations as exchange
gains and losses.
DERIVATIVES
The Company enters into forward exchange contracts to manage exposure
related to certain foreign currency commitments, certain foreign currency
denominated balance sheet positions and anticipated foreign currency denominated
expenditures. All forward exchange contracts are designated as and effective as
a hedge and are highly inversely correlated to the hedged item as required by
generally accepted accounting principles. If a derivative contract terminates
prior to maturity, the investment is
F-9
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shown at its fair value with the resulting gain or loss reflected in operating
results. Gains and losses on contracts to hedge identifiable foreign currency
commitments are deferred and accounted for as part of the related foreign
currency transaction. Gains and losses on all other forward exchange contracts
are included in income currently.
At April 25, 1998, the notional amounts of forward exchange contracts,
primarily to sell U.S. Dollars and Japanese yen, totaled $2,309. All of these
contracts mature in fiscal year 1998. Deferred unrealized losses from hedging
firm commitments are immaterial.
The Company's forward exchange contracts contain credit risk in that its
banking counterparties may be unable to meet the terms of the agreements. The
Company minimizes such risk by limiting its counterparties to major financial
institutions. In addition, the potential risk of loss with any one party
resulting from this type of credit risk is monitored. Management does not expect
any material losses as a result of default by other parties.
The Company does not use derivative financial instruments for speculative
trading purposes, nor does it hold or issue leveraged derivative financial
instruments.
CERTAIN RISKS AND CONCENTRATION
The Company operates in highly competitive and rapidly changing markets and
some competitors have substantially greater sales and financial resources. Entry
into the market by new competition or the development of new technologies could
adversely affect operating results. Significant concentration of credit risk is
with trade receivables, which is somewhat mitigated due to the Company's
diversity of regions and customers.
The Company has manufacturing operations in four foreign countries (Spain,
Ireland, the Netherlands and Mexico). Risks inherent in foreign operations
include changes in social, political and economic conditions, changes in
currency exchange rates, changes in the laws and policies that govern foreign
investments in countries and to a lesser extent, changes in United States laws
and regulations relating to foreign trade and investment.
The Company has made significant acquisitions which are inherently subject
to risk. The successful integration of the acquired operations and the
substantial demands on the attention of senior management may adversely impact
their ability to manage the Company's existing businesses.
LIQUIDITY
The Company believes that its current financing together with internally
generated funds will be sufficient to fund its operations over the next twelve
months.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-10
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax basis of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse, subject to a valuation allowance.
Deferred income taxes result from changes in deferred tax assets, deferred
tax liabilities and changes in the valuation allowance. Income tax expense
consists of the taxes payable for the year and deferred income taxes as
discussed above.
NET INCOME (LOSS) PER SHARE
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which changes the calculation of earnings per share to be more
consistent with countries outside the United States. In general, the statement
requires two calculations of earnings per share to be disclosed, basic EPS and
diluted EPS. Basic EPS is to be computed using only weighted average shares
outstanding, while diluted EPS is computed considering the dilution of options
and warrants. This statement has been adopted by the Company and all prior
periods have been restated. Diluted EPS is not presented because losses from
continuing operations exist for fiscal years 1996, 1997 and 1998, and result in
an antidilutive effect.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was $1,135,
$1,546 and $3,509 for the fiscal years 1996, 1997 and 1998, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
ENVIRONMENTAL EXPENDITURES
Costs associated with remediation activities are expensed. Liabilities
relating to probable remedial activities are recorded when the cost of such
activities can be reasonably estimated. The liability is discounted when the
amount and timing of the cash payments for that remediation site are fixed or
reliably determinable. The liabilities are adjusted as further information
develops or circumstances change.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value.
The fair value of notes receivable which approximates carrying value is
estimated by discounting the expected future cash flows at interest rates
commensurate with the creditworthiness of the parties to the notes receivable.
The carrying amounts of borrowings under short-term revolving credit
agreements, and variable rate long-term debt instruments approximate their fair
value as the floating rates applicable to the financial instruments reflect
changes in overall market interest rates. The fair value of other long-term debt
is estimated using discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the Company's long-term debt is
F-11
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimated based on the quoted market prices for the same or similar issues. At
April 26, 1997, the carrying amount and estimated fair value of long-term debt
was $83,117 and $82,196, respectively. At April 25, 1998, the carrying amount
and estimated fair value of long-term debt was $174,327 and $179,012,
respectively.
The carrying value of the redeemable put warrants approximates the fair
value based on estimates prepared by management.
The Company believes that it is not practical to estimate a fair value
different from the carrying value of its redeemable preferred stock at April 26,
1997, as these securities were issued to Letitia, a related party, and had
numerous unique features. The fair value of the Company's redeemable preferred
stock at April 25, 1998, is estimated based on the quoted market prices for the
same or similar issues. At April 25, 1998, the carrying amount and estimated
fair value of redeemable preferred stock was $30,457 and $34,403, respectively.
The estimate fair value of forward currency exchange contracts is calculated
using the exchange rate at the Company's year end as quoted by the respective
brokers and at April 25, 1998 was approximately $2,272.
Fair value estimates are subjective in nature and involve uncertainties and
matters of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for the reporting and display of comprehensive
income and SFAS No. 131, "Disclosures about Segment of an Enterprise and Related
Information. In February of 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post Retirement Benefits" which revises
employers' disclosures about pension and other post-retirement benefit plans.
The Company will adopt these standards in fiscal year 1999 and does not believe
adoption will have a material change to its financial statement disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal years 1996 and 1997
consolidated financial statements in order to conform with the current year's
presentation.
NOTE B--ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
On August 8, 1997, the Company acquired PHI Acquisition Holdings, Inc.
through a merger with and into Physical Electronics, Inc. ("PHI"), a
wholly-owned subsidiary of the Company. Under the Agreement and Plan of Merger,
the shareholders of PHI received in exchange for their stock an aggregate of
$54,536 in cash. The $54,536 was reduced by the payment of PHI's debt, certain
transaction costs, and contractual payments to the current and former Chief
Executive Officer of PHI.
F-12
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE B--ACQUISITIONS AND DIVESTITURES (CONTINUED)
On March 19, 1998, a wholly owned subsidiary of the Company acquired,
directly or indirectly, all of the outstanding capital stock of Stewart Warner
Instrument Corporation ("Stewart Warner"), for $24,721 in cash, subject to a
possible reduction based on the net amount of certain of Stewart Warner's assets
and liabilities as of the closing date. Pursuant to a Stock Purchase Agreement,
the sellers have agreed to indemnify the Company, up to an aggregate of $5,000,
for breaches of representations and warranties. Most of these representations
and warranties will expire on the first anniversary of the closing.
The acquisitions have been accounted for using the purchase method of
accounting, and, accordingly, the purchase prices have been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
dates of the acquisitions. The excess of the purchase prices over the fair value
of the net assets acquired has been recorded as goodwill, which will be
amortized on a straight-line basis over 20 years. The amount of goodwill
amortization for fiscal year 1998 was $393.
The net purchase price was allocated as follows:
<TABLE>
<CAPTION>
STEWART
PHI WARNER TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Working capital, other than cash acquired..................................... $ 33,707 $ 8,733 $ 42,440
Property, plant and equipment................................................. 18,822 5,856 24,678
Other assets.................................................................. 14,696 2,300 16,996
Cost in excess of assets acquired............................................. 8,985 14,571 23,556
Other liabilities............................................................. (21,938) (6,770) (28,708)
---------- ----------- ----------
Purchase price, net of cash received.......................................... $ 54,272 $ 24,690 $ 78,962
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The operating results of theses acquired businesses have been included in
the consolidated statement of operations from the dates of acquisition. The
following pro forma financial information illustrates the effects of the
acquisitions of PHI and Stewart Warner after giving effect to the impact of
certain adjustments, such as amortization, depreciation, certain purchase
accounting adjustments and the expense resulting from the incremental
indebtedness incurred to finance the acquisitions. The effects of certain
nonrecurring charges to historical earnings resulting from the transactions have
been reversed. On the basis of a pro forma consolidation of the results of
operations as if the acquisitions had taken place at the beginning of the
periods presented, consolidated net sales would have been $252,894 and $280,744
for the fiscal years 1997 and 1998, respectively. Consolidated pro forma loss
from continuing operations before discontinued operations and extraordinary item
would have been $8,076 and $11,620 for the fiscal years 1997 and 1998,
respectively. Consolidated pro forma net loss applicable to common stockholders
would have been $12,105 and $14,643 for the fiscal years 1997 and 1998,
respectively. Consolidated pro forma net loss per common share applicable to
common shareholders would have been $12,105.00 and $13,827.20 for the fiscal
years 1997 and 1998, respectively. The pro forma results are not necessarily
indicative of the actual results as if the transactions had been in effect for
the entire periods presented. In addition, they are not intended to be a
projection of future results.
DIVESTITURES
On April 15, 1998, the Company sold all the assets and ordinary course
business trade payables and capital and operating lease obligations of its
General Eastern Instruments division. The price for General
F-13
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE B--ACQUISITIONS AND DIVESTITURES (CONTINUED)
Eastern assets was $21,000, paid in cash, including $3.0 million in
consideration for an agreement on the part of the Company not to compete in the
conduct of the business of General Eastern for three years after the closing. Of
the aggregate $21,000 received by the Company in connection with the sale, $850
was placed into escrow for a limited period to secure certain indemnification
obligations of the Company and to satisfy possible purchase price adjustments.
The Company recorded a gain on the disposal of $8,771, net of taxes and
transaction related expenses. Revenues applicable to discontinued operations
were approximately $12,093, $12,256 and $12,520 for fiscal years 1996, 1997 and
1998, respectively.
The cash received by the Company in connection with the disposition of
General Eastern is subject to a covenant of the 1998 Senior Notes Indenture
which requires the Company to apply such cash to (i) repay debt ranking PARI
PASSU to the 1998 Senior Notes within 180 days, (ii) contractually commit to
make an acquisition relating to the Company's presently conducted business
within 180 days or (iii) offer to repurchase the 1998 Senior Notes pursuant to
an Excess Proceeds Offer (as defined under the Indenture). While the Company has
and may continue to explore acquisition possibilities the Company has no
definitive plans for the use of the cash proceeds from the disposition of
General Eastern and unless the Company develops a plan for such proceeds in the
interim, the Company will be required to commence an offer to repurchase the
1998 Senior Notes on October 15, 1998. The Company has classified $12.1 million
as restricted cash to reflect Asset Sale Proceeds, as defined under the
Indenture.
During fiscal year 1996, the Company sold substantially all of the assets of
the Specialty Connector Company division in exchange for cash proceeds totaling
$11,000. The Company recorded a gain on disposal of $1,633, net of taxes.
Revenues applicable to discontinued operations were approximately $6,900 for
fiscal year 1996.
NOTE C--INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
----------- -----------
<S> <C> <C>
Raw materials............................................................................. $ 14,912 $ 20,232
Work in process........................................................................... 3,977 6,509
Finished goods............................................................................ 3,445 9,395
----------- -----------
Total..................................................................................... $ 22,334 $ 36,136
----------- -----------
----------- -----------
</TABLE>
F-14
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE D--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
----------- -----------
<S> <C> <C>
Land and land improvements................................................................ $ 5,788 $ 7,285
Buildings and building improvements....................................................... 16,494 23,826
Machinery and equipment................................................................... 30,681 48,342
Construction in progress.................................................................. 644 829
----------- -----------
Total................................................................................. 53,607 80,282
Less accumulated depreciation and amortization............................................ (22,641) (26,121)
----------- -----------
Total................................................................................. $ 30,966 $ 54,161
----------- -----------
----------- -----------
</TABLE>
Property under capital leases is included in these amounts (see note N).
NOTE E -- OTHER NON-CURRENT ASSETS
INVESTMENT IN JOINT VENTURE
In connection with the acquisition of PHI, the Company acquired a 50%
interest in a joint venture which is being accounted for under the equity
method. During the fiscal year 1998, the Company recorded a loss of $109,
related to this investment.
ASSETS HELD FOR SALE
At April 26, 1997 and April 25, 1998, assets held for sale consisted of
former manufacturing facilities. These properties are recorded at the lower of
the carrying amount or fair value less costs to sell. It is reasonably possible
that the proceeds from the sales of these properties will differ significantly
from the carrying amount and additional losses may be recorded.
During fiscal year 1998, a facility was sold for cash total approximately
$2,100. The Company recorded a gain of $639, net of expenses.
At April 25, 1998, assets held for sale consist of two properties leased to
third parties One lease is for a term of five years which commenced in March,
1997 with annual payments of $336 in year one, $360 in year two, $468 in year
three, $528 in year four and $567 in year five. This lease contains a buyout
provision. The other lease also has a five year term which commenced in
November, 1995 with annual payments of $120.
F-15
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE E -- OTHER NON-CURRENT ASSETS (CONTINUED)
COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER ASSETS
Other assets and costs in excess of net assets acquired consisted of the
following as of:
<TABLE>
<CAPTION>
APRIL 26,
1997 APRIL 25, 1998
----------- ------------------------------------------
NET NET
CARRYING GROSS ACCUMULATED CARRYING
AMOUNT AMOUNT AMORTIZATION AMOUNT
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Cost in excess of net assets acquired (note B)........... $ 9,358 $ 28,050 $ (2,902) $ 25,148
----------- ----------- ------- -----------
----------- ----------- ------- -----------
Deferred financing costs (note F)........................ $ 3,588 $ 9,194 $ (1,399) $ 7,795
Covenant not-to-compete.................................. 426 1,280 (1,280) --
Prepaid consulting agreement............................. 267 800 (800) --
Prepaid pension cost (note J)............................ 2,119 2,258 -- 2,258
Patents (note B)......................................... -- 7,023 (441) 6,582
Other.................................................... 1,032 535 (12) 523
----------- ----------- ------- -----------
Total.................................................. $ 7,432 $ 21,090 $ (3,932) $ 17,158
----------- ----------- ------- -----------
----------- ----------- ------- -----------
</TABLE>
Amortization expense was $1,729, $1,664 and $2,699 for fiscal years 1996,
1997 and 1998, respectively.
NOTE F--LONG-TERM OBLIGATIONS AND FOREIGN CREDIT LINE
On May 9, 1996, the Company entered into new revolving and long-term credit
agreements which refinanced existing indebtedness.
On August 8, 1997, the Company completed a Rule 144A offering whereby the
Company issued $135,000 of 10.5% Senior Notes, due 2004 and $35,200 representing
33,000 units consisting of 33,000 shares of Series A Redeemable Preferred Stock,
warrants to purchase 82.7429 shares of common stock of the Company and 82.7429
shares of common stock of the Company. Management assigned an initial value of
$2,200 to the warrants for financial reporting purposes based of the fair value
of common stock issued concurrently. The Company also entered into a $25,000
revolving credit facility. Both of these financings closed simultaneous with the
acquisition of PHI, and were used to finance the PHI acquisition and repay all
the 1996 Senior Indebtedness and all the existing Redeemable Preferred Stock,
fund a distribution to Letitia Corporation, repurchased certain Redeemable Put
Warrants and settle Contingent Interest Payments ("CIP"). The Company settled
the CIP Agreements for a cash payment of $6,750. As a result, the Company
recorded interest expense of approximately $951 in fiscal year 1998.
On March 19, 1998, the Company completed a Rule 144A offering whereby the
Company issued $20,000 of 10.5% Senior Notes, due 2004. These Senior Notes were
issued at premium of $100 plus accrued interest of $198. This financing closed
simultaneous with the acquisition of Stewart Warner, and was used, along with
funds from the revolving credit facility to finance the acquisition.
In connection with the aforementioned refinancings, the Company incurred
financing costs of approximately $3,192 and $5,584 in fiscal years 1997 and
1998, respectively. The Company's extraordinary losses relate to the write off
of deferred financing costs, prepayment penalties and make whole premiums.
F-16
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE F--LONG-TERM OBLIGATIONS AND FOREIGN CREDIT LINE (CONTINUED)
Long-term obligations consisted of the following as of:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
---------- ----------
<S> <C> <C>
1998 Senior Notes......................................................................... -- $ 155,000
1998 Senior Notes Premium................................................................. -- 98
1996 Senior Credit Agreement.............................................................. $ 16,630 --
1996 Senior Secured Notes................................................................. 20,000 --
1996 Senior Unsecured Notes............................................................... 7,000 --
1996 Senior Subordinated Notes (face value $25,000)....................................... 19,374 --
Capital lease obligations (note N)........................................................ 10,382 10,076
Mortgage notes payable.................................................................... 8,035 7,445
Notes payable............................................................................. 1,696 1,708
---------- ----------
Total................................................................................... 83,117 174,327
Less current maturities................................................................. (2,609) (1,351)
---------- ----------
Long-term obligations, net of current maturities........................................ $ 80,508 $ 172,976
---------- ----------
---------- ----------
</TABLE>
1998 CREDIT AGREEMENT
The 1998 Credit Agreement, as amended, provides for a $25,000 maximum
revolving credit facility including a $10,000 sublimit for outstanding letters
of credit with principal due at August 1, 2002. Availability under the Credit
Agreement is limited to 85% of eligible accounts receivable and 60% of eligible
inventory. Letters of credit at April 25, 1998 were $5,056, including $2,720
relating to environmental matters (see note O). There were no borrowings
outstanding at April 25, 1998. Interest under the revolving credit facility is
computed and payable monthly at the bank's base rate (8.5% at April 25, 1998)
plus 0.25% or LIBOR (5.65625% at April 25, 1998) plus 1.5%. The Company is
required to pay on a quarterly basis a commitment fee of 0.5% of the available
funds. Obligations under the Credit Facility are collateralized under a Security
Agreement dated August 8, 1998. This agreement provides for liens on all
domestic accounts receivable and inventory.
1998 SENIOR NOTES
In fiscal year 1998, the Company issued $155,000 of 10.5% Senior Notes, due
2004. The 1998 Senior Notes are general unsecured obligations of the Company and
rank senior to any subordinated indebtedness and subordinated to all existing
and future secured indebtedness, including the Credit Agreement. Interest is
payable semiannually on February 15 and August 15. The 1998 Senior Notes may be
redeemed in whole or in part at any time on or after August 15, 2001 at
redemption prices expressed as a percentage of the face value of the 1998 Senior
Notes plus accrued and unpaid interest.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
2001.................................................................................................. 105.250%
2002.................................................................................................. 102.625%
2003.................................................................................................. 100.000%
</TABLE>
F-17
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE F--LONG-TERM OBLIGATIONS AND FOREIGN CREDIT LINE (CONTINUED)
The Company, at its option, may redeem in the aggregate up to 35% of the
original principal amount, subject to certain provisions, at any time and from
time to time prior to August 15, 2000, at a redemption price equal to 110.500%
of the aggregate principal amount thereof, plus accrued and unpaid interest to
the redemption date, with the Net Proceeds, as defined, from one or more
Qualified Equity Offerings, as defined, of the Company or Letitia Corporation to
the extent such proceeds are contributed to the Company as common equity.
The Company is obligated in certain instances to make an offer to purchase
the Senior Notes at a purchase price in cash equal to 100% of the principal
amount thereof, plus accrued and unpaid interest to the purchase date, with the
Available Asset Sale Proceeds, as defined, of certain asset sales.
Upon occurrence of a Change of Control, as defined, each holder of the 1998
Senior Notes will be entitled to require the Company to purchase such holder's
1998 Senior Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the purchase date.
RESTRICTIVE COVENANTS
The 1998 Credit Agreement, the 1998 Senior Notes and mortgage notes payable
contain restrictive provisions relating to the maintenance of certain financial
ratios, as defined in the respective agreements, restrictions on the payment of
common stock dividends, leases, capital expenditures, borrowings, the
acquisition or disposition of material subsidiaries and other matters (see note
B and H). The borrowings under certain capital leases contain cross default
provisions.
ANNUAL MATURITIES
Aggregate maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
- ------------------------------------------------------------------------------------------------------
<S> <C>
1999.................................................................................................. $ 1,351
2000.................................................................................................. 2,974
2001.................................................................................................. 1,159
2002.................................................................................................. 1,014
2003.................................................................................................. 916
Thereafter............................................................................................ 166,913
----------
$ 174,327
----------
----------
</TABLE>
MORTGAGE NOTES PAYABLE
The mortgage notes generally are due April 1999, June 2004, September 2009,
July 2011 and January 2016, and bear interest between 2% and 9.75% (weighted
average interest rate of 6.4% at April 25, 1998). The notes are collateralized
by land and buildings with a net book value of approximately $10,317 as of April
25, 1998. Certain of these mortgages were issued through the Pennsylvania
Economic Development Financing Authority and the Pennsylvania Industrial
Development Authority in conjunction with the construction of a new facility for
a subsidiary of the Company. The subsidiary may prepay the
F-18
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE F--LONG-TERM OBLIGATIONS AND FOREIGN CREDIT LINE (CONTINUED)
mortgage before maturity, subject to a prepayment premium ranging from 101% to
105% of the principal amount thereof.
REDEEMABLE PUT WARRANTS
In connection with the sale of the 1996 Senior Subordinated Notes, the
Company issued to such noteholders warrants to purchase and aggregate of 142.86
shares of the Company's Common Stock subject to a dilution adjustment, as
defined, which represented 12.5% of the fully diluted common stock, at an
exercise price of $0.01 per share. On August 8, 1998 the Company purchased 71.43
shares representing 6.25% of then outstanding Common Stock on a fully diluted
basis for $2,500. The remaining warrants expire on May 9, 2004. In the event the
Company does not consummate an initial public offering of its common stock prior
to May 1, 2000, the holders of the warrants may "put" the warrants to the
Company at amounts which are the greater of the then appraised value or by
formula as defined in the agreement. Included in interest expense is $387 and
$2,290 in fiscal years 1997 and 1998, respectively, reflecting changes in the
value of the warrants. It is reasonably possible that the value of the warrants
will differ significantly from the carrying amount and additional adjustments
may be recorded.
FOREIGN CREDIT LINE
At April 25, 1998, the foreign credit line outstanding balance is $2,002.
The borrowing bears interest at 10% per annum, and matures at the earlier of the
collection of the receivables securing the credit line or 120 days.
NOTE G--ACCRUED LIABILITIES AND OTHER LIAILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
----------- -----------
<S> <C> <C>
Employee compensation, including long term compensation (see note J)...................... $ 5,158 $ 10,451
Product warranty costs.................................................................... 921 3,877
Deferred maintenance revenue.............................................................. -- 3,612
Other..................................................................................... 5,921 8,992
----------- -----------
Total................................................................................. $ 12,000 $ 26,932
----------- -----------
----------- -----------
</TABLE>
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
----------- -----------
<S> <C> <C>
Environmental cleanup and related litigation costs (note O)............................... $ 3,267 $ 5,103
Other..................................................................................... 1,739 4,605
----------- -----------
Total................................................................................. 5,006 9,708
Less current portion included in accrued liabilities.................................. (2,511) (2,757)
----------- -----------
$ 2,495 $ 6,951
----------- -----------
----------- -----------
</TABLE>
F-19
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE H--REDEEMABLE PREFERRED STOCK
On August 8, 1997, in connection with the refinancing of substantially all
of the Company's existing indebtedness and the acquisition of PHI, the Company
redeemed all the outstanding shares of its Series B Preferred Stock and Series C
Preferred Stock, amended its Articles of Incorporation to terminate the Series A
Junior Participating Preferred Stock and established Series A Redeemable
Preferred Stock and Series A Exchange Redeemable Preferred Stock. The Company
issued 33,000 shares Series A Redeemable Preferred Stock that was subsequently
exchanged for Series A Exchange Redeemable Preferred Stock.
Redeemable Preferred Stock consisted of the following:
<TABLE>
<CAPTION>
SHARES ISSUED
AND ISSUABLE
------------------------
PAR SHARES APRIL 26, APRIL 25,
VALUE AUTHORIZED 1997 1998
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Series A........................................................ $ 1 25,000 -- --
Series B........................................................ $ 1 30,000 25,705 --
Series C........................................................ $ 1 10,000 6,724 --
Series A Exchange Redeemable Preferred Stock.................... $ 1 110,000 -- 33,000
</TABLE>
Changes in Redeemable Preferred Stock (issued and issuable) were as follows:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C TOTAL
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at April 27, 1996......................................... $ -- $ 4,750 $ 6,245 $ 10,995
Dividends declared................................................ -- -- 479 479
----------- ----------- ----------- ----------
Balance at April 26, 1997......................................... -- 4,750 6,724 11,474
Issued............................................................ 29,392 -- -- 29,392
Preferred stock dividends......................................... 795 -- 147 942
Accretion of redeemable preferred stock........................... 270 -- -- 270
Shares redeemed................................................... (4,750) (6,871) (11,621)
----------- ----------- ----------- ----------
Balance at April 25, 1998......................................... $ 30,457 $ -- $ -- $ 30,457
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
DIVIDENDS AND REDEMPTIONS
On February 17, 1998, in connection with a misinterpretation of certain
provisions of the Indenture, the Company paid a cash dividend in the amount of
$2,143 to the holders of the Series A Preferred Stock pursuant to the terms
thereof. The payment constituted a Restricted Payment that was at the time
prohibited under the terms of the Indenture and thus constituted a default
thereunder. On March 13, 1998, the Company obtained a waiver of this default.
Dividends on Series A Exchange Redeemable Preferred Stock are cumulative and
accrue at a rate of 12 1/2% per annum on the liquidation preference of $1,000
per share and are paid semiannually on February 15 and August 15. Dividends are
payable in cash or additional shares at the Company's option, on any dividend
payment date, occurring on or prior to August 15, 2002, except to the extent
restricted by other agreements of the Company. If any dividend payable on any
dividend payment date subsequent to August 15, 2000 is not paid in full in cash,
the per annum dividend rate will be increased by 0.50% from such dividend
payment date, and following two such non-cash payments, the per annum dividend
rate will be
F-20
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE H--REDEEMABLE PREFERRED STOCK (CONTINUED)
increased by 1.00% for each additional semiannual period in which such non-cash
payment occurs, up to a maximum of 2.0%. After the date on which such dividend
default is cured, the dividend rate will revert to the original rate. After
August 15, 2002, dividends must be paid in cash. Holders of Series A Exchange
Redeemable Preferred Stock have preference as to payments of dividends over
holders of common stock.
REDEMPTION PROVISIONS
Except to the extent restricted by other agreements, the Series A Exchange
Redeemable Preferred Stock has the following redemption preferences. The Company
may redeem the Series A Exchange Redeemable Preferred Stock in whole or in part
at any time on or after August 15, 2002 at redemption prices expressed as a
percentage of the liquidation preference plus accrued and unpaid dividends. The
Series A Exchange Redeemable Preferred Stock has a mandatory redemption date of
August 15, 2005, at a redemption price equal to the liquidation preference
together with all accumulated and unpaid dividends.
VOTING RIGHTS
The holders of Series A Exchange Redeemable Preferred Stock have no voting
rights except as provided by law or if: the Company after August 15, 2002 is in
arrears in the payment of dividends in an amount equal to or exceeding two
quarterly dividend payments; the Company fails to redeem the Series A Exchange
Redeemable Preferred Stock on or before August 15, 2007 or fails to discharge
any redemption obligation; the Company fails to make an offer to redeem the
Series A Exchange Redeemable Preferred Stock in the event of a change of control
or fails to purchase shares pursuant to a change of control offer; or the
Company is in default of any covenants as defined in the Exchange Description or
fails to pay the stated maturity of any indebtedness in excess of $3,000,000. In
each event, the holders of the Series A Exchange Redeemable Preferred Stock have
the right to elect directors to the board of the Company.
NOTE I--COMMON STOCK AND COMMON STOCK WARRANTS
At April 26, 1997, the Company had two thousand shares of $.01 par value
common stock authorized, and one thousand shares issued and outstanding. On
August 11, 1997 the Company amended its Articles of Incorporation to increase
the number of shares authorized to 4,000 and issued an additional 82.7429 shares
in connection with the refinancing and acquisition of PHI. In connection with
the refinancing the Company paid a dividend to Letitia Corporation of $2,250 to
fund the repurchase of Letitia Common Stock held by the High Voltage Engineering
Corporation Retirement Plan and a proportional accrual of $150 relating to the
Redeemable Put Warrants not repurchased. The declaration or payment of dividends
is restricted as discussed in notes F and H.
On August 8, 1997, the Company issued common stock warrants (see note F).
Each common stock warrant entitles the holder thereof to purchase .0025 shares
of the Company's common stock at an exercise price of $.01 per .0025 shares
subject, under certain circumstances, to adjustment or exchange for warrants to
purchase shares of common stock of certain of the Company's subsidiaries. The
common stock warrants are exercisable through August 15, 2005 and represent 6.6%
of the Company's common stock on a fully-diluted basis.
F-21
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE J--BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company and its subsidiaries have a frozen pension plan (a U.S. Pension
Plan). The benefit accruals for certain remaining former employees became frozen
in February 1995. Pension costs are determined in accordance with Statement of
Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for
Pensions." Service cost is determined using the projected unit credit actuarial
cost method. It is the Company's policy to make annual contributions to the plan
in amounts at least equal to the amounts required by law.
Net pension costs are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
Interest cost............................................. $ 1,227 $ 1,351 $ 1,369
----------- ----------- -----------
1,227 1,351 1,369
----------- ----------- -----------
----------- ----------- -----------
Return on plan assets:
Actual.................................................. $ (3,834) $ (2,215) $ (4,463)
Deferred................................................ 2,592 763 2,955
Unrecognized loss....................................... -- -- --
----------- ----------- -----------
Net recognized.......................................... (1,242) (1,452) (1,508)
----------- ----------- -----------
Total pension expense................................. $ (15) $ (101) $ (139)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The funded status and prepaid net pension cost are as follows:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
----------- -----------
<S> <C> <C>
Vested and accumulated benefit obligation............................. $ 16,378 $ 17,715
----------- -----------
----------- -----------
Fair value of plan assets............................................. $ 17,505 $ 20,585
Projected benefit obligation.......................................... 16,378 17,715
----------- -----------
Excess of plan assets over projected benefit obligation............... 1,127 2,870
Unrecognized net (gain) loss.......................................... 992 (612)
----------- -----------
Prepaid pension cost--(note E)........................................ $ 2,119 $ 2,258
----------- -----------
----------- -----------
Assumed discount rate................................................. 8.5% 8.0%
Expected rate of return............................................... 9.0% 9.0%
</TABLE>
No compensation increases have been assumed due to the plan being frozen.
The plan assets as of April 26, 1997 and April 25, 1998 consisted primarily of
equity securities, pooled real estate funds, guaranteed interest contracts,
fixed income securities and cash equivalents. The plan held stock in Letitia who
is the sole shareholder of the Company. The plan had valued this stock at $2,088
(unaudited) as of April 26, 1997. In connection with the refinancing and the
acquisition of PHI, the Company made a distribution of $2,250 to Letitia which
was used to repurchase the stock held by the plan.
F-22
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE J--BENEFIT PLANS (CONTINUED)
The Company elected to adopt a revised discount rate in the current year to
more accurately reflect market conditions. The Company elected to adopt a
revised mortality rate in the prior year to more accurately reflect employees
life expectancies.
In fiscal year 1998, the Company acquired a subsidiary that has a defined
benefit pension plan (a non-U.S. Pension Plan) which is covered by a group
insurance policy. The plan covers 24 employees. The benefits are based upon the
number of years of service and the employees' past compensation.
The funded status and net pension liability cost are as follows:
<TABLE>
<CAPTION>
APRIL 25,
1998
-------------
<S> <C>
Actuarial present value of benefit obligations:
Vested.......................................................................... $ 469
Nonvested....................................................................... 146
-----
Accumulated benefit obligation.................................................... 615
Effect of projected future salary increases....................................... 199
-----
Projected benefit obligation...................................................... 814
Fair value of plan assets......................................................... 299
-----
Unfunded Status................................................................... 515
Unrecognized net (gain) loss...................................................... --
-----
Prepaid liability................................................................. $ 515
-----
-----
Net pension expense includes the following components:
Service cost--benefits earned during the period................................... $ 70
Interest cost on projected benefit obligation..................................... 50
-----
Net pension expense............................................................... $ 120
-----
-----
Assumed discount rate............................................................. 7.0%
Long-term rate of compensation increase........................................... 4.0%
</TABLE>
MULTI-EMPLOYER PLAN
Certain foreign employees participate in a multiemployer pension plan.
Foreign pension expense totaled $163, $199 and $176 in fiscal years 1996, 1997
and 1998, respectively.
DEFINED CONTRIBUTION PLANS
The Company has 401(k) savings plans (the "Plans") covering substantially
all U.S. employees. Contributions to the Plans were $1,289, $1,581 and $2,442 in
fiscal years 1996, 1997 and 1998, respectively. The Company provides certain
other retirement benefits, which are not material, to some former officers and
former key management employees which have been provided for in the consolidated
financial statements.
F-23
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE J--BENEFIT PLANS (CONTINUED)
LONG-TERM COMPENSATION PLANS
The Company maintains a Valuation Creation Plan which provides long-term
compensation for key individuals. Upon joining the VCP, benefits vest at twenty
percent a year and participants can "cash out", as defined, up to fifty percent
of their vested value anytime with the remainder paid at retirement or
termination. All payments under the VCP are subject to the availability of
general funds of the Company. The VCP is a nonqualified and non-funded plan. The
Company has accrued $1,266 and $2,750 as of fiscal years 1997 and 1998,
respectively and administrative and selling expenses includes $439, $698 and
$1,699 for fiscal years 1996, 1997 and 1998, respectively related to VCP. In the
event of the sale or certain other changes in ownership of a subsidiary or
division, impacted key individuals would become 100% vested. Benefits, if any,
would be calculated up to that date based upon fair values as established by the
transaction. Such benefits would be charged to operations immediately and may be
greater than that which would have been calculated under the original terms of
the VCP.
An officer of the Company is the beneficiary of an incentive compensation
plan pursuant to which such officer shall be entitled to receive twenty-two
Shadow Stock Units, as defined. Such units vest in yearly increments over a
period of five years beginning on April 30, 1998, and each vested stock unit
represents the right to receive, following the fifth anniversary after the
vesting thereof, an amount of cash equal to the market value of Letitia Common
Stock determined as of the end of the most recent prior fiscal quarter. The plan
further provides for a stock appreciation arrangement whereby the officer is
entitled to receive additional Shadow Stock Units for each year during the term
of the plan. The Company has accrued the estimated vested balance.
NOTE K--INCOME TAXES
The foreign and domestic components of income (loss) from continuing
operations before income taxes, discontinued operation and extraordinary item
were as follows:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Domestic.................................................. $ (7,938) $ (5,711) $ (19,164)
Foreign................................................... 3,713 2,436 4,077
----------- ----------- -----------
Total..................................................... $ (4,225) $ (3,275) $ (15,087)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-24
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE K--INCOME TAXES (CONTINUED)
The components of income taxes expense (credit) are:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
Continuing operations:
Current:
Federal............................................... $ (1,130) $ (444) $ (2,175)
State................................................. 51 322 250
Foreign............................................... 717 1,269 692
----------- ----------- -----------
(362) 1,147 (1,233)
----------- ----------- -----------
Deferred (net of impact of valuation allowance):
Federal............................................... (3,228) (592) 161
Foreign............................................... 514 (551) 642
----------- ----------- -----------
(2,714) (1,143) 803
----------- ----------- -----------
Total continuing operations............................. (3,076) 4 (430)
----------- ----------- -----------
Discontinued operations:
Current:
Federal............................................... 1,131 444 6,516
State................................................. 200 78 1,150
----------- ----------- -----------
Total discontinued operations:.......................... 1,331 522 7,666
----------- ----------- -----------
Extraordinary item:
Current:
Federal............................................... (211) (159) (4,409)
State................................................. (37) -- (778)
----------- ----------- -----------
Total extraordinary item:............................... (248) (159) (5,187)
----------- ----------- -----------
Total discontinued operations and extraordinary item:... 1,083 363 2,479
----------- ----------- -----------
Income taxes (benefit).................................... $ (1,993) $ 367 $ 2,049
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-25
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE K--INCOME TAXES (CONTINUED)
Total income taxes (benefit) from continuing operations differed from
"expected" income tax expense, computed by applying the U.S. Federal statutory
tax rate of 35 percent to income before income tax, as follows:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate applied to income before income
taxes, discontinued operations and extraordinary item... $ (1,479) $ (1,146) $ (5,280)
State and local taxes, net of Federal tax benefit......... 80 264 163
Effect of foreign operations.............................. (66) (1,684) 170
Nondeductible Costs in excess of net assets acquired...... 246 234 355
Change in valuation reserve............................... 1,669 3,093 777
Nondeductible purchased research and development cost..... -- -- 2,835
Provision (benefit) for Internal Revenue Service ("IRS")
examination............................................. (3,429) (696) 246
Other items............................................... (97) (61) 304
----------- ----------- -----------
Income tax expense (benefit)--continuing operations....... $ (3,076) $ 4 $ (430)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-26
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE K--INCOME TAXES (CONTINUED)
A deferred income tax (expense) benefit results from temporary differences
in the recognition of income and expense for income tax and financial reporting
purposes. The temporary differences which gave rise to the following deferred
income tax assets and liabilities are:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable................................................. $ 1,027 $ 1,079
Inventory........................................................... 915 2,767
Accrued liabilities................................................. 2,858 5,040
Net operating losses................................................ 2,677 2,507
Tax credits......................................................... 2,873 2,185
Assets held for sale................................................ 580 580
Accrued interest.................................................... 1,074 --
Other............................................................... 94 420
----------- -----------
Total gross deferred income tax assets............................ 12,098 14,578
Valuation allowance................................................. (9,586) (10,363)
----------- -----------
Total net deferred income tax assets.............................. 2,512 4,215
Deferred income tax liabilities:
Depreciation........................................................ (2,291) (3,129)
Cost in excess of net assets acquired............................... -- (698)
Reserve for IRS examination......................................... (2,382) (1,873)
Foreign items....................................................... (1,090) (1,732)
Other............................................................... (754) (1,122)
----------- -----------
Total gross deferred income tax liabilities....................... (6,517) (8,554)
----------- -----------
Net deferred income tax liability................................. $ (4,005) $ (4,339)
----------- -----------
----------- -----------
</TABLE>
These deferred income tax assets and liabilities are presented as follows in
the consolidated balance sheets:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
----------- -----------
<S> <C> <C>
Current deferred tax liability........................................ $ 2,171 $ 1,641
Noncurrent deferred tax liability..................................... 1,834 2,698
----------- -----------
$ 4,005 $ 4,339
----------- -----------
----------- -----------
</TABLE>
A valuation allowance against the recoverability of deferred tax assets has
been established because more likely than not the Company will not be able to
utilize certain credits and net operating loss carryforwards in future years.
The Company has offset certain deferred tax liabilities, with deferred tax
assets which are expected to generate offsetting deductions within the same
periods.
F-27
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE K--INCOME TAXES (CONTINUED)
A summary of the activity in the allowance for deferred tax assets is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
Balance at beginning of period............................ $ 4,824 $ 6,493 $ 9,586
Net change................................................ 1,669 3,093 777
----------- ----------- -----------
Balance at end of period.................................. $ 6,493 $ 9,586 $ 10,363
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During fiscal year 1995, the IRS completed an examination of the Company's
income tax returns for the years ended December 1986 through April 1991. During
fiscal year 1996, the Company and the IRS reached a proposed settlement of this
liability which was subsequently approved by the Joint Committee on Taxation.
During fiscal year 1998, the Company and the IRS settled on the interest to be
paid related to the assessment. The item was resolved and paid during fiscal
year 1998. During fiscal year 1998, the Company filed a ten-year carryback claim
for part of its net operating losses which is currently under review by the IRS.
No amounts have been recorded for this claim as of April 25, 1998.
At April 25, 1998, the Company has available net operating loss
carryforwards of approximately $6,267 which generally expire in the fiscal year
ending in 2007. Such carryforwards are substantially limited upon an "ownership
change" as defined in the Internal Revenue Code. No such ownership change is
currently anticipated. The Company also has foreign tax credits of $732 the
majority of which expire in the fiscal year 2002.
NOTE L--OTHER EXPENSE--NET
Other expense--net includes the following:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 27, APRIL 26, APRIL 25,
1996 1997 1998
----------- ----------- -----------
Writedown of assets held for sale......................... $ 1,200 $ -- $ --
Net gain on disposition of miscellaneous assets........... (83) (230) (621)
Division relocation and moving costs...................... 103 -- --
Facilities (income) expense (note E)...................... (57) 319 (390)
Aborted acquisition, offering costs and related
litigation.............................................. -- 2,145 1,442
Equity in earnings of joint venture....................... -- -- 109
----------- ----------- -----
Total................................................. $ 1,163 $ 2,234 $ 540
----------- ----------- -----
----------- ----------- -----
</TABLE>
F-28
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE M--RELATED-PARTY TRANSACTIONS
MANAGEMENT FEES
Management fees were incurred with respect to services rendered in
connection with financing, merger and acquisitions and various operational and
strategic matters. Management fees were $648, $781 and $769 for fiscal years
1996, 1997 and 1998, respectively.
TRANSACTION FEES
The Company has agreed to pay a related party a transaction fee of 1% of the
gross proceeds of all asset acquisitions and divestitures. Transaction fees of
$110 (reflected in gain/(loss) on disposal of discontinued operations) were paid
in fiscal year 1996. There were no transaction fees for fiscal years 1997 and
1998.
NOTE N--LEASES
CAPITAL AND OPERATING LEASES
The Company conducts a portion of its operations in facilities under capital
and operating leases and also has capital and operating leases covering certain
machinery and equipment. Certain of the leases contain renewal and purchase
options. Rental expense charged to operations in fiscal years 1996, 1997 and
1998, was approximately $863, $1,447, and $2,049 respectively.
Property under capital leases consisted of the following:
<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1997 1998
----------- -----------
<S> <C> <C>
Land, buildings and improvements...................................... $ 9,650 $ 9,650
Machinery and equipment............................................... 2,160 2,282
Less accumulated amortization......................................... (2,647) (3,149)
----------- -----------
Total............................................................. $ 9,163 $ 8,783
----------- -----------
----------- -----------
</TABLE>
F-29
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE N--LEASES (CONTINUED)
At April 25, 1998, the minimum rental commitments for noncancelable leases
that have initial or remaining terms of more than one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -------------
<S> <C> <C>
1999................................................................ $ 1,870 $ 2,795
2000................................................................ 1,807 2,181
2001................................................................ 1,588 1,080
2002................................................................ 1,384 375
2003................................................................ 1,225 177
Thereafter through 2014............................................. 12,621 78
---------- ------
Minimum commitments................................................. 20,495 $ 6,686
---------- ------
---------- ------
Less amount representing interest................................... (10,419)
----------
Capital lease obligations (included in long-term obligations) (note
F)................................................................ $ 10,076
----------
----------
</TABLE>
NOTE O--LITIGATION, CLAIMS AND ENVIRONMENTAL MATTERS
The Company is obligated to clean-up three sites relating to former
manufacturing facilities and has accrued the estimated costs of remediation (see
note G). Estimated costs are determined by external and internal environmental
remediation experts. The estimated costs of remediation of one site is based on
its estimated present value. The discount rate used was 6%. The gross
undiscounted amount differs from the estimated present value by approximately
$326 as of April 25, 1998. There are no assurances that additional costs will
not be incurred or that significant changes in estimates or changes in
environmental laws will not require additional amounts to be accrued. The
Company believes that it can continue to meet these environmental standards
without material adverse effect on its financial condition. In the fourth
quarter of fiscal year 1998 the estimated completion of the clean-up relating to
two sites has been revised from 10 years to 20 years. The effect of this change
in connection with a change of other estimates resulted in a charge to earnings
of $2,747. The expected future payments for the environmental liabilities is
$1,197 in fiscal year 1999, $247 in fiscal year 2000, $251 in fiscal year 2001,
$254 in fiscal year 2002 and $3,154 thereafter.
During fiscal years 1996 and 1997, the Company recorded operating cash
proceeds of $1,500 and $1,100, respectively, from insurance recoveries related
to environmental litigation, remediation and consequential damages. Such amounts
were recorded as Reimbursed Environmental and Litigation Costs, net of actual
legal costs, estimated settlement costs, and changes in cost remediation
estimates. These settlements relate to recoveries of environmental and legal
costs incurred primarily in fiscal years 1995 and prior.
During fiscal year 1996, the Company reached an agreement with the owners of
two separate properties adjacent to the remediation sites on the principal terms
of a settlement and are currently preparing the documentation of such
settlements. The settlement terms principally include a mutual release of claims
for past costs and an undertaking by the Company to perform certain future
remediation work on the site, for which the Company will pay up to the first
$500 in costs and two thirds of any cost
F-30
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE O--LITIGATION, CLAIMS AND ENVIRONMENTAL MATTERS (CONTINUED)
over this threshold for the first property and $200 for the second property. At
April 25, 1998, the Company has accrued the estimated remediation cost with
respect to this matter (see note G). There are no assurances that additional
costs will not be incurred or that significant changes in estimates or changes
in environmental laws will not require additional amounts to be accrued.
In connection with matters referred to above, the Company has posted
financial assurances that the remediation will be completed in the form of
$2,720 of letters of credit.
In February 1997, the Company commenced litigation seeking damages for
breaches in connection with an aborted acquisition. The other party has filed a
counterclaim. The Company believes the case has merit and there are substantial
defenses to the counterclaim. In light of the preliminary stage of the
proceedings, the Company is unable to assess the likelihood of liability, if
any, arising from this action the amount of any damages that may be assessed
against the Company, and the extent to which any assessed liability will be
covered by the Company's insurance. The Company believes the counterclaim to be
without merit.
In March 1998, the Company was dismissed without prejudice as a defendant in
an action commenced in November 1996 against the Company and six others by
Chicago-Dubuque Foundry Corporation, and its property insurer, Employers Mutual
Casualty Co., in Iowa state court. In May 1998, the remaining claims against the
Company by intervenor plaintiffs were also dismissed without prejudice.
The Company received a notice of intent to sue on December 11, 1996 from a
California citizens group regarding alleged violations of notice and labeling
requirements under California Proposition 65, a "right to know" provision
intended to give consumers clear and reasonable warnings of the presence of
certain potentially hazardous substances in products. The Company has reached a
settlement and has agreed to pay $20 and the plaintiff dismissed the case with
prejudice.
In March 1998, the Company initiated litigation against Toshiba
International Corporation ("Toshiba") in the United States District Court for
the Western District of Pennsylvania alleging infringement of one of the
Company's Perfect Harmony patents. In June 1998 Toshiba filed suit against the
Company and several other defendants in the United States District Court for the
Southern District of Texas alleging, among other things, false and disparaging
comments concerning Toshiba, interference with contract, violation of the Texas
Competition and Trade Practices Statute and civil conspiracy to restrict
Toshiba's business and cause the wrongful termination of a purchase order of one
of its customers. Damages under each section are claimed to be in excess of
$75,000, the federal statutory minimum, in addition to a claim for punitive
damages. In its suit, Toshiba has also claimed that the Company is infringing a
patent held by Toshiba and requested a declaratory judgment that the Company's
patent, which is the subject of the Pennsylvania action, is invalid. In light of
the preliminary stage of the proceedings, the Company is unable to assess the
likelihood of liability, if any, arising from this Texas action; however, the
Company believes that it has valid claims against Toshiba.
Certain other claims, suits and complaints have been filed or are pending
against the Company. In the opinion of the Company, all such matters are without
merit or are of such kind, or involve such amounts, as would not have a material
effect on the consolidated financial position or the results of operations of
the Company if disposed of unfavorably. If estimates change, there is no
assurances these items will not require additional accruals by the Company.
F-31
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE P--FOREIGN SALES
International sales represented 27%, 28% and 36% of the Company's net sales
in fiscal years 1996, 1997 and 1998, respectively. These sales represented the
combined total of export sales made by United States operations and all sales
made by foreign operations.
Export sales made by United States operations were less than 10% of the
Company's net sales for fiscal years 1996, 15% for fiscal year 1997 and 22% for
fiscal year 1998.
The following table summarizes the Company's sales and selected operating
data in different geographic areas:
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED AND
STATES EUROPE ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
FISCAL 1996
Sales to unaffiliated customers... $ 110,859 $ 26,148 $ 137,007
Transfers between geographic
locations....................... 1,939 103 $ (2,042) --
---------- ----------- --------------- --------
Net sales......................... 112,798 26,251 (2,042) 137,007
Income from operations............ 2,906 3,503 6,409
Identifiable assets............... 90,771 22,947 113,718
FISCAL 1997
Sales to unaffiliated customers... $ 136,809 $ 24,038 $ 160,847
Transfers between geographic
locations....................... 1,660 76 $ (1,736) --
---------- ----------- --------------- --------
Net sales......................... 138,469 24,114 (1,736) 160,847
Income from operations............ 6,337 1,668 8,005
Identifiable assets............... 94,293 19,294 113,587
FISCAL 1998
Sales to unaffiliated customers... $ 201,112 $ 33,268 $ 234,380
Transfers between geographic
locations....................... 5,318 193 $ (5,511) --
---------- ----------- --------------- --------
Net sales......................... 206,430 33,461 (5,511) 234,380
Income from operations............ (231) 2,955 2,724
Identifiable assets............... 200,227 31,177 231,404
</TABLE>
Identifiable assets by geographic area are those assets used in the
Company's operations in each area.
Net assets for European operations amounted to approximately $43,207 as of
April 25, 1998. Included in net assets of European operations were intercompany
payables to affiliated companies amounting to approximately $6,822 as of April
25, 1998.
Insofar as can be reasonably determined, there are no foreign-exchange
restrictions that materially affect the financial position or the operating
results of the Company and its subsidiaries.
F-32
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE Q--SEGMENT DATA
The Company operates in six industry segments. Information concerning
operations in these businesses is as follows (all amounts are from continuing
operations only, except identifiable assets):
<TABLE>
<CAPTION>
OPERATING DEPRECIATION
NET INCOME IDENTIFIABLE AND CAPITAL
SALES (LOSS) ASSETS AMORTIZATION EXPENDITURES
--------- ------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
YEAR END APRIL 27, 1996
High power conversion
products................... $ 56,145 $ (265) $ 40,580 $ 569 $ 1,142
High performance modular
power connectors........... 21,509 4,628 13,659 612 1,090
Customized monitoring
instrumentation............ 32,514 2,378 21,338 1,474 492
Disposable customized medical
grade plastic tubing....... 17,101 1,024 9,885 532 2,666
Corporate and other.......... 9,738 (1,356) 28,256 172 190
--------- ------------- --------------- ------ ------
Consolidated............... $ 137,007 $ 6,409 $ 113,718 $ 3,359 $ 5,580
--------- ------------- --------------- ------ ------
--------- ------------- --------------- ------ ------
YEAR END APRIL 26, 1997
High power conversion
products................... $ 83,096 $ 5,292 $ 41,849 $ 591 $ --
High performance modular
power connectors........... 21,554 1,907 15,049 833 1,794
Customized monitoring
instrumentation............ 32,482 2,676 20,457 1,662 1,261
Disposable customized medical
grade plastic tubing....... 15,227 531 8,938 797 360
Corporate and other.......... 8,488 (2,401) 27,294 239 1,308
--------- ------------- --------------- ------ ------
Consolidated............... $ 160,847 $ 8,005 $ 113,587 $ 4,122 $ 4,723
--------- ------------- --------------- ------ ------
--------- ------------- --------------- ------ ------
YEAR END APRIL 25, 1998
High power conversion
products................... $ 94,192 $ 7,560 $ 38,693 $ 543 $ 519
Advanced surface analysis
instruments................ 50,531 (2,851) 71,946 3,061 2,256
High performance modular
power connectors........... 25,249 5,254 17,046 1,088 1,368
Customized monitoring
instrumentation............ 37,958 1,082 49,080 1,789 932
Disposable customized medical
grade plastic tubing....... 16,473 1,109 8,883 741 738
Corporate and other.......... 9,977 (9,430) 45,756 436 351
--------- ------------- --------------- ------ ------
Consolidated............... $ 234,380 $ 2,724 $ 231,404 $ 7,658 $ 6,164
--------- ------------- --------------- ------ ------
--------- ------------- --------------- ------ ------
</TABLE>
F-33
<PAGE>
Exhibit 12
HIGH VOLTAGE ENGINEERING CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio amounts)
(Unaudited)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------
APRIL 30, APRIL 29, APRIL 27, APRIL 26, APRIL 25,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing
operations before income taxes,
discontinued operations and
extraordinary item................. $3,948 $(283) $(4,225) $(3,275) $(15,087)
---------- ---------- ---------- ----------- ----------
Fixed charges:
Interest expense, accretion of
redeemable put warrants and
amortization of debt discount
and premium on all indebtedness.... 7,503 8,256 10,912 11,631 18,819
Portion of rent under long-term
operating leases representative
of an interest factor (1/3)........ 294 344 287 483 683
Accretion of redeemable preferred
stock.............................. -- -- -- -- 270
Preferred stock dividend requirement. 443 896 446 479 3,085
Capitalized interest................. -- 113 -- -- --
--------- ----------- ----------- ----------- ----------
Total fixed charges............. 8,240 9,609 11,645 12,980 24,877
--------- ----------- ----------- ---------- ----------
Earnings from continuing operations
before income taxes, discontinued
operations, extraordinary item
and fixed charges.................. $12,188 $9,326 $7,420 $9,705 $9,790
--------- ----------- ----------- ---------- ----------
--------- ----------- ----------- ---------- ----------
Ratio of earnings to fixed charges....... 1.48x -- -- -- --
</TABLE>
The Company's earnings were insufficient to cover fixed charges by $283,
$4,225, $3,275 and $15,087 for the fiscal years 1995, 1996, 1997, and 1998,
respectively.
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF DIRECT ("D")
COMPANY NAME AND ADDRESS (1) D/B/A ORGANIZATION /INDIRECT ("I")
- ---------------------------- ------ --------------- ---------------
<S> <C> <C> <C>
Anderson Interconnect, Inc. Massachusetts D
13 Pratts Junction Road
Sterling, MA 01564-0579
Halmar Robicon Group, Inc. Robicon Pennsylvania D
500 Hunt Valley Drive
New Kensington, PA 15068
Datcon Instrument Company Pennsylvania D
1811 Rohrerstown Road
Lancaster, PA 17601
Physical Electronics, Inc. Delaware D
6509 Flying Cloud Drive
Eden Prairie, MN 55344
HVE Acquisition Corp. Illinois I
401 Edgewater Drive
Suite 680
Wakefield, MA 01880-6210
HIVEC Holdings, Inc. Delaware D
401 Edgewater Drive
Suite 680
Wakefield, MA 01880-6210
HVEC, Inc. California D
401 Edgewater Drive
Suite 680
Wakefield, MA 01880-6210
HIVEC B.V. Anderson The Netherlands I
Amersterdamseweg 63 Ireland,
3812 RR Amersfoort HIVEC
P.O. Box 99, 3800 AB Ireland
Amersfoort
The Netherlands
</TABLE>
(1) High Voltage Engineering Corporation is located at 401 Edgewater Place,
Suite 680, Wakefield, MA 01880-6210. It does business under the names High
Voltage Engineering Corporation and Natvar. High Voltage Engineering Corporation
is organized under the laws of Massachusetts.
<PAGE>
<TABLE>
<CAPTION>
COMPANY NAME AND JURISDICTION OF DIRECT ("D")
ADDRESS D/B/A ORGANIZATION /INDIRECT ("I")
- ---------------------------- ------ --------------- ---------------
<S> <C> <C> <C>
High Voltage Engineering Europa B.V. The Netherlands I
Amersterdamseweg 63
3812 RR Amersfoort
P.O. Box 99, 3800AB
Amersfoort
The Netherlands
Stewart Warner Instrument Corporation Illinois I
200 E. Howard Avenue
Des Plaines, IL 60018
TTS Mexican Holding Company, Inc.
200 E. Howard Avenue
Des Plains, IL 60018 Illinois I
Stewart Warner Instruments (Barbados), Inc. Barbados I
200 E. Howard Avenue
Des Plaines, IL 60018
Instrumentos Stewart Warner de Mexico Mexico I
S.A. de C.V.
1917 Neptuno Col.. Satelite.
Ciudad, Juarez
Chihuahua, Mexico C.P. 3254
Aproma, A.G. The Netherlands I
Amersterdamseweg 63
3812 RR Amersfoort
P.O. Box 99, 3800AB
Amersfoort
The Netherlands
Crisrolo S.L. Spain I
c/ Valencia 229
Barcelona, Spain
Industrias Jorda, S.L. Spain I
c/ Progreso 32
Rubi, Barcelona
Spain
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> APR-26-1997 APR-25-1998
<PERIOD-START> APR-28-1996 APR-27-1997
<PERIOD-END> APR-28-1997 APR-25-1998
<CASH> 1,542 16,518
<SECURITIES> 0 0
<RECEIVABLES> 33,333 59,403
<ALLOWANCES> 0 0
<INVENTORY> 22,334 36,136
<CURRENT-ASSETS> 60,583 129,372
<PP&E> 30,966 54,161
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 113,587 231,404
<CURRENT-LIABILITIES> 51,212 66,949
<BONDS> 0 0
1 1
11,474 30,457
<COMMON> 0 0
<OTHER-SE> (36,736) (51,217)
<TOTAL-LIABILITY-AND-EQUITY> 113,587 231,404
<SALES> 160,847 234,380
<TOTAL-REVENUES> 0 0
<CGS> 108,786 151,360
<TOTAL-COSTS> 10,882 28,229
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,631 18,819
<INCOME-PRETAX> (3,275) (15,087)
<INCOME-TAX> 4 (430)
<INCOME-CONTINUING> (3,279) (14,657)
<DISCONTINUED> 782 9,377
<EXTRAORDINARY> (259) (7,464)
<CHANGES> 0 0
<NET-INCOME> (2,756) (12,744)
<EPS-PRIMARY> (3,235.00) (15,202.08)
<EPS-DILUTED> 0 0
</TABLE>
