HIGH VOLTAGE ENGINEERING CORP, 10-Q, 1998-12-04

HIGH VOLTAGE ENGINEERING CORP
10-Q, 1998-12-04
ELECTRICAL INDUSTRIAL APPARATUS

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended October 24, 1998

[ ] 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)

MASSACHUSETTS
(State or other jurisdiction of incorporation)

04-2035796
(I.R.S. Employer Identification No.)

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

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

Number of Common Shares outstanding at December 4, 1998: 1,082.7429 shares.

<PAGE>

CONTENTS

PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. - FINANCIAL STATEMENTS

Consolidated Balance Sheets October 24, 1998 (unaudited) and
April 25, 1998................................................................................... 3

Consolidated Statements of Operations for the Three and Six Months ended
October 24, 1998 (unaudited) and October 25, 1997 (unaudited).................................... 4

Consolidated Statements of Stockholders' Deficiency for the Six Months
ended October 24, 1998 (unaudited) and for the Years ended April
25, 1998 and April 26, 1997...................................................................... 5

Consolidated Statements of Cash Flows for the Six Months ended
October 24, 1998 (unaudited) and October 25, 1997 (unaudited).................................... 6

Notes to Consolidated Financial Statements....................................................... 7

ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 9

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................. 16

PART II - OTHER INFORMATION

ITEM 1. - LEGAL PROCEEDINGS.......................................................................... 16

ITEM 2. - CHANGES IN SECURITIES...................................................................... 17

ITEM 3. - DEFAULTS UPON SENIOR SECURITIES............................................................ 17

ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 17

ITEM 5. - OTHER INFORMATION.......................................................................... 17

ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K........................................................... 17

SIGNATURES................................................................................................ 18
</TABLE>

<PAGE>

PART I

FINANCIAL INFORMATION

ITEM 1. - FINANCIAL STATEMENTS

HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

APRIL 25, OCTOBER 24,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 16,518 $ 25,484
Restricted cash .................................. 14,671 2,936
Accounts receivable - net ........................ 59,403 50,367
Refundable income taxes .......................... 626 670
Inventories ...................................... 36,136 39,441
Prepaid expenses and other current assets ........ 2,018 2,131
---------- ----------
Total current assets ........................... 129,372 121,029

PROPERTY, PLANT AND EQUIPMENT ...................... 54,161 57,880
INVESTMENT IN JOINT VENTURE ........................ 1,735 1,742
ASSETS HELD FOR SALE ............................... 3,830 3,865
OTHER ASSETS - Net ................................. 17,158 16,413
COST IN EXCESS OF NET ASSETS ACQUIRED .............. 25,148 24,428
---------- ----------
$ 231,404 $ 225,357
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS DEFICIENCY
CURRENT LIABILITIES:
Current maturities of long-term debt obligations . $ 1,351 $ 2,634
Foreign credit line .............................. 2,002 350
Accounts payable ................................. 22,923 20,736
Accrued interest ................................. 3,118 3,163
Accrued liabilities .............................. 26,932 22,793
Advance payments by customers .................... 6,613 5,483
Federal, foreign and state income taxes payable .. 2,369 3,757
Deferred income taxes ............................ 1,641 1,667
---------- ----------
Total current liabilities ...................... 66,949 60,583

REDEEMABLE PUT WARRANTS ............................ 2,590 2,590
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES ..... 172,976 174,446
DEFERRED INCOME TAXES .............................. 2,698 2,727
OTHER LIABILITIES .................................. 6,951 6,431
REDEEMABLE PREFERRED STOCK ......................... 30,457 32,738
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock ..................................... 1 1
Paid-in-capital .................................. 19,527 19,527
Accumulated deficit .............................. (72,603) (75,690)
Common stock warrants ............................ 2,200 2,200
Cumulative foreign currency translation adjustment (342) (196)
---------- ----------
Total stockholders' deficiency ................. (51,217) (54,158)
---------- ----------
$ 231,404 $ 225,357
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
OCTOBER 25, OCTOBER 24, OCTOBER 25, OCTOBER 24,
1997 1998 1997 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales...................................... $ 56,117 $ 67,357 $ 97,613 $128,530
Cost of sales.................................. 37,067 43,563 64,151 83,798
--------- --------- --------- ---------
Gross profit................................. 19,050 23,794 33,462 44,732

Administrative and selling expenses............ 13,070 13,873 22,653 27,075
Research and development expenses.............. 4,439 4,552 6,582 9,433
Write off of purchased in-process research
and development.............................. 5,800 -- 5,800 --
Restructuring charge........................... -- 110 -- 390
Reimbursed environmental and litigation
costs - net.................................. 275 13 320 18
Other.......................................... 55 (917) (43) (990)
--------- --------- --------- ---------
Income (loss) from operations................ (4,589) 6,163 (1,850) 8,806

Interest expense............................... 4,030 4,901 9,718 9,783
Interest income................................ (213) (372) (213) (701)
--------- --------- --------- --------
Income (loss) from continuing operations
before income taxes, discontinued
operations and extraordinary item........ (8,406) 1,634 (11,355) (276)
Income taxes................................... 1,437 266 1,599 531
--------- --------- --------- --------
Income (loss) from continuing operations
before discontinued operations and
extraordinary item....................... (9,843) 1,368 (12,954) (807)

Discontinued operations:
Income from discontinued operations, net
of income taxes.......................... 99 -- 260 --

Extraordinary loss, net of income taxes........ (7,861) -- (7,861) --
--------- --------- ---------- ---------
NET INCOME (LOSS).............................. (17,605) 1,368 (20,555) (807)
Preferred dividends............................ (900) (1,061) (1,028) (2,090)
Accretion of redeemable preferred stock........ (80) (102) (80) (190)
--------- --------- ---------- ---------
Net income (loss) applicable to common
stockholders............................... $(18,585) $ 205 $ (21,663) $ (3,087)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Net income (loss) per common share:
Continuing operations...................... $(10,105.51) $ 189.29 $ (13,586.47) $ (2,850.42)
Income from discontinued operations........ 92.44 -- 251.21 --
Extraordinary item......................... (7,339.87) -- (7,595.17) --
Net income (loss) applicable
to common stockholders................... $(17,352.94) $ 189.29 $ (20,930.43) $ (2,850.42)
------------ --------- ------------- ------------
------------ --------- ------------- ------------
Net income (loss) per common share - assuming dilution:
Continuing operations...................... $ 165.72
Income from discontinued operations........ --
Extraordinary item......................... --
Net income (loss) applicable
to common stockholders................... $ 165.72
---------
---------
Weighted average common stock outstanding 1,071 1,083 1,035 1,083
Weighted average common stock and dilutive
equivalents outstanding 1,237
------- ------- ------- -------
------- ------- ------- -------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(DOLLARS IN THOUSANDS)

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 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)
Net loss ................... (807) (807)
Preferred stock dividends .. (2,090) (2,090)
Accretion of redeemable
preferred stock .......... (190) (190)
Change in foreign currency
translation .............. 146 146
------ -------- ----------- --------- ------------ ---------
Balance, October 24, 1998
(Unaudited) .............. $ 1 $ 19,527 $ (75,690) $ 2,200 $ (196) $(54,158)
------ -------- ----------- --------- ------------ ---------
------ -------- ----------- --------- ------------ ---------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

SIX MONTHS ENDED
----------------------------
OCTOBER 25, OCTOBER 24,
1997 1998
----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Increase (decrease) in Cash and Cash Equivalents Cash
flows from operating activities:
Net loss ............................................... $(20,555) $ (807)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Extraordinary item, net of income taxes............... 1,574 --
Depreciation and amortization ........................ 3,695 5,374
Write-off of purchased research and development....... 5,800 --
Non-cash interest..................................... 2,970 557
Deferred income taxes ................................ (3,603) 55
Undistributed earnings of affiliate .................. (84) (89)
Other................................................. -- (34)
Change in assets and liabilities net of effects
of business acquisition:
Accounts receivable ................................ 2,645 9,036
Refundable income taxes ............................ 2,157 (44)
Inventories ........................................ (1,743) (3,305)
Prepaid expenses and other current assets .......... 181 (218)
Accounts payable, accrued interest and accrued
liabilities ...................................... (6,108) (5,779)
Advance payments by customers ...................... 1,755 (1,130)
Federal, foreign and state income taxes payable .... (2,485) 1,388
--------- ---------
Net cash (used in) provided by operating activities. (13,801) 5,004
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment ............. (2,145) (4,494)
Proceeds from sales of assets, net of expenses ......... -- 48
Acquisition of Physical Electronics, net of cash
acquired.............................................. (54,272) --
Other .................................................. (166) 25
--------- ---------
Net cash used in investing activities .............. (56,583) (4,421)
--------- ---------
Cash flows from financing activities:
Cash overdraft ......................................... 137 (1,036)
Proceeds from the issuance of long-term obligations,
net of issuance costs................................. 129,672 --
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............................. 2,200 --
Net payments on foreign credit line .................... 58 (1,836)
Net (increase) decrease in restricted cash ............. (1,293) 11,735
Net proceeds (payments) under senior credit agreement .. (7,702) --
Distribution to fund Letitia Common Stock repurchase.... (2,250) --
Redemption of redeemable put warrants................... (2,500) --
Redemption of redeemable preferred stock................ (11,621) --
Principal payments on long-term obligations ............ (56,258) (856)
--------- ---------
Net cash provided by financing activities ............ 82,035 8,007
--------- ---------
Effect of foreign exchange rate changes on cash ........... (340) 376
-------- ---------
Net increase in cash and cash equivalents ............ 11,311 8,966
Cash and cash equivalents, beginning of the period ..... 1,542 16,518
-------- ---------
Cash and cash equivalents, end of the period ........... $ 12,853 $ 25,484
-------- ---------
-------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest ............................................... $ 12,013 $ 9,175
Income taxes ........................................... 1,212 1,196
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Preferred stock dividends-in-kind and issuable preferred
stock dividends-in-kind .............................. $ 1,028 $ 2,090
Leased asset additions ................................. 196 3,252
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The condensed consolidated financial statements of High Voltage Engineering
Corporation and Subsidiaries (the "Company") include accounts of the Company and
its direct and indirect subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The condensed consolidated
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and, in the opinion of management
include all adjustments, which are of a normal and recurring nature, necessary
to fairly present the financial position for the interim periods presented.

The condensed consolidated financial statements do not contain all
disclosures normally included in financial statements normally prepared in
accordance with generally accepted accounting principles pursuant to SEC rules
and regulations. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements of the Company as
of and for the fiscal year ended April 25, 1998, as filed with the SEC on July
24, 1998, and are not necessarily indicative of the results that may be expected
for the year ending April 24, 1999.

NOTE 2 - INVENTORIES

Inventories consisted of the following as of:

APRIL 25, OCTOBER 24,
1998 1998
--------- -----------
<S> <C> <C>
Raw materials .......................... $ 20,232 $ 20,664
Work-in-process ........................ 6,509 16,175
Finished goods ......................... 9,395 2,602
--------- -----------
Total ............................... $ 36,136 $ 39,441
--------- -----------
--------- -----------
</TABLE>

NOTE 3 - ACQUISITIONS AND OTHER TRANSACTIONS

On August 8, 1997, the Company acquired PHI Acquisition Holdings, Inc. ("PHI
Holdings") through the merger of a wholly owned subsidiary of the Company with
and into PHI Holdings. Immediately thereafter, PHI Holdings was merged with and
into Physical Electronics, Inc. ("PHI"), its wholly owned subsidiary, and PHI
became a direct, 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 former Chief
Executive Officer of PHI.

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 the 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.

<PAGE>

The net purchase price was allocated as follows:

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 these acquired businesses have been included in the
consolidated statement of operations from the dates of acquisition.

In connection with the PHI acquisition described above, the Company
completed a Rule 144A offering in the amount of $170.2 million including $135.0
million of Senior Notes, due 2004 and $35.2 million consisting of 33,000 units
comprised in the aggregate of 33,000 shares of Series A Senior 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. The Company also
entered into a $25.0 million revolving credit facility. Both of these financings
closed simultaneously with the PHI acquisition, and were used to finance the
acquisition, repay certain indebtedness and all existing redeemable Preferred
Stock, repurchase certain existing put warrants, make distributions to Letitia,
the owner of 92.36% of the Company's common stock, extinguish the Company's
obligations under two existing Contingent Interest Payments Agreements (the "CIP
Agreements"), pay fees and for general corporate purposes. As a result the
Company recorded interest expense of approximately $1 million during the three
months ended July 26, 1997.

In connection with the Stewart Warner acquisition described above, the
Company completed a Rule 144A offering in the amount of $20.0 million of Senior
Notes, due 2004.

NOTE 4 - CONTINGENCIES

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.

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. 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 damages of an unspecified amount in excess of $1.0 million. A trial
date of April 5, 1999 has been set. 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, 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.

<PAGE>

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.

NOTE 5 - 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):

OPERATING DEPRECIATION
NET INCOME IDENTIFIABLE AND CAPITAL
SALES (LOSS) ASSETS AMORTIZATION EXPENDITURES
--------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED OCTOBER 25, 1997
High power conversion
products ...................... $ 45,935 $ 4,040 $ 40,489 $ 253 $ 76
Advanced surface analysis
instruments ................... 11,346 (7,357) 68,492 1,318 394
High performance modular
power connectors .............. 11,816 2,443 16,240 480 503
Customized monitoring
instrumentation ............... 17,544 1,535 20,542 828 515
Disposable customized medical
grade plastic tubing .......... 8,482 477 9,251 429 394
Corporate and other ............. 2,490 (2,988) 42,368 226 39
--------- --------- --------- --------- ---------
Consolidated .................. $ 97,613 $ (1,850) $197,382 $ 3,534 $ 1,921
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SIX MONTHS ENDED OCTOBER 24, 1998
High power conversion
products ...................... $ 42,098 $ 1,907 $ 39,986 $ 516 $ 3,497
Advanced surface analysis
instruments ................... 28,024 594 71,159 2,029 2,366
High performance modular
power connectors .............. 13,629 3,057 17,328 709 685
Customized monitoring
instrumentation ............... 31,997 3,465 49,794 1,291 772
Disposable customized medical
grade plastic tubing .......... 7,923 1,222 8,953 517 166
Corporate and other ............. 4,859 (1,439) 38,137 312 260
---------- --------- --------- --------- ---------
Consolidated .................. $128,530 $ 8,806 $225,357 $ 5,374 $ 7,746
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>

NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS

Comprehensive Income

In February 1998, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income. For the six months ended October 25, 1997 and October 24,
1998, respectively, the components of other comprehensive income were
immaterial. The components of other comprehensive income consist solely of
foreign currency translation adjustments.

In February 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 benefit plans. The Company does not
believe adoption will have a material impact on its financial disclosures.

ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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 SEC, and specifically the most recent Annual Report on Form 10-K and the
"Risk Factors" section of the Company's most recent Registration Statement on
Form S-4 on file. This document identifies and describes important factors

<PAGE>

that can cause the after-results to differ materially from those contained in
any forward-looking statements we may make.

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 used in this filing, the terms "fiscal year 1998" and "fiscal year 1999"
refer to the Company's fiscal years ended April 25, 1998 and April 24, 1999,
respectively.

The Company conducts its business through six independent operating units,
Robicon Corporation and subsidiaries ("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").

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
to 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 PHI, its
wholly owned subsidiary, and PHI became a direct, wholly owned subsidiary of the
Company.

ACQUISITION OF STEWART WARNER

On March 19, 1998, Datcon Instrument Company 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 in
the Stock Purchase Agreement. 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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED OCTOBER 24, 1998 COMPARED TO THREE MONTHS ENDED OCTOBER 25,
1997

Net sales increased $11.2 million, or 20.0%, from $56.1 million in the
second quarter of fiscal year 1998 to $67.4 million in the second quarter of
fiscal year 1999. Excluding net sales from Stewart Warner ($6.3 million) which
was acquired during the fourth quarter of fiscal year 1998, net sales increased
$5.0 million, or 8.9%, during the second quarter of fiscal year 1999. The
overall net increase was primarily attributable to: (i) an increase of $5.4
million, or 47.3%, at PHI due to the timing customer requested delivery dates;
(ii) an increase of $1.2 million, or 110.4%, at HVE Europa due to the shipments
of two particle accelerator systems in the second quarter of fiscal year 1999
compared to no systems shipped in the second quarter of fiscal year 1998; (iii)
an increase of $0.6 million, or 10.1%, at APP due to continued growth in the
uninterruptible power supply markets as well as telecommunications and
networking equipment markets, particularly in Europe; (iv) an increase of
$370,000 or 4.3% (excluding the operations of Stewart Warner), at Maxima
Technologies due to higher shipments in both North America and Europe; offset by
(vi) a decrease in sales of $2.4 million, or 9.8%, at Robicon primarily due to a
$3.5 million decrease in power control systems primarily related to reduced
shipments to

<PAGE>

polysilicon extraction markets in fiscal year 1999 and a decrease of $1.3
million due to reduced orders and the timing of shipments of low voltage VFDs,
but offset by a $2.4 million increase in shipments of medium voltage VFDs in
second quarter of fiscal year 1999 compared to the second quarter of fiscal year
1998; and (v) a decrease of $218,000, or 5.1%, at Natvar due to the disposition
of certain electrical sleeving product lines in the fourth quarter of fiscal
year 1998, despite a $255,000 increase in shipments to medical markets in the
second quarter of fiscal year 1999.

Gross profit increased by $4.7 million, or 24.9%, from $19.1 million during
the second quarter of fiscal year of 1998 to $23.8 million in the second quarter
of fiscal year 1999. This increase resulted from: (i) $2.1 million from Stewart
Warner, which was purchased during the fourth quarter of fiscal year 1998; (ii)
a $1.0 million charge to cost of sales at PHI in the second quarter of fiscal
year 1998, resulting from the shipments of finished goods inventory which had
been revalued in accordance with purchase accounting procedures; (iii) net
increase in sales volume; and (iv) productivity improvements at Robicon, PHI,
and Natvar. These productivity improvements more than offset mix shifts, during
this period, at Robicon towards lower margin products and at PHI towards lower
margin customers. Overall the Company's gross margin rate increased from 33.9%
in second quarter of fiscal 1998 to 35.3% in the second quarter of fiscal year
1999.

Administrative and selling expenses increased $0.8 million, or 6.1%,
including $1.3 million from the acquisition of Stewart Warner. Excluding Stewart
Warner, administrative and selling expense decreased $0.5 million primarily
related to cost reductions at Robicon, PHI and Natvar. Excluding the
operations of Stewart Warner for the second quarter of fiscal year 1999
administrative and selling expenses as a percentage of sales was 20.6% in the
second quarter of fiscal year 1999 as compared to 23.3% in the second quarter
of fiscal year 1998. This reduction results from an increase in sales volume
combined with the cost reductions mentioned above.

Research and development expenses increased $113,000, or 2.5%, including
$284,000 related to the operations of Stewart Warner. Excluding Stewart Warner
research and development expenses decreased $171,000, which primarily related to
cost reductions at Robicon, PHI and Natvar. Excluding the operations of Stewart
Warner for the second quarter of fiscal year 1999 research and development
expenses as a percentage of sales was 7.0% in the second quarter of fiscal year
1999 as compared to 7.9% in the second quarter of fiscal year 1998. This
reduction results from an increase in sales volume combined with the cost
reductions mentioned above.

During the second quarter of fiscal year 1998, PHI took a charge of $5.8
million to write off purchased in-process research and development expenses
which had been valued in accordance with purchase accounting procedures.

Depreciation and amortization from continuing operations increased $461,000
from $2.4 million to $2.8 million during the second quarter of fiscal year 1999
as compared to the second quarter of fiscal year 1998. The increase was
primarily due to the addition of the operations of Stewart Warner.

The second quarter of fiscal year 1999 included a restructuring charge of
$110,000 at Robicon primarily related to severance costs for cost reductions
related to the re-layout of certain assembly operations, more simplified designs
in newer technology products, and a product mix change to less labor intensive
products.

Robicon recorded a gain of $0.9 million from recoveries related to the
settlement of certain claims, net of certain litigation and settlement costs.

As a result of the factors described above, operating income increased $10.8
million, to income of $6.2 million in the second quarter of fiscal year 1999
from a loss of $4.6 million in the second quarter of fiscal year 1998.

Interest expense increased $0.9 million, or 21.6%, from $4.0 million in the
second quarter of fiscal year 1998 to $4.9 million in the second quarter of
fiscal year 1999, primarily due to higher average indebtedness associated with
the issuance of $20 million of Senior Notes on March 19, 1998 relating to the
acquisition of Stewart Warner. Interest income increased $159,000 primarily due
to a higher average cash balances held during the second quarter of fiscal year
1999 compared to fiscal year 1998.

As a result of the above items, the Company recorded income from continuing
operations before income taxes and discontinued operations of $1.6 million in
the second quarter of fiscal year 1999 compared to a loss of $8.4 million in the
second quarter of fiscal year 1998.

Income tax expense, including amounts allocated to discontinued operations,
was $266,000 in the second quarter of fiscal year 1999 compared to $1.5 million
in the second quarter of fiscal year 1998.

As a result of the above, the Company recorded income from continuing
operations before discontinued operations of $1.4 million in the second quarter

<PAGE>

of fiscal year 1999 as compared to losses of $9.8 million in the second quarter
of fiscal year 1998. Income from discontinued operations of $99,000, net of
taxes, was recorded in the second quarter of fiscal year 1998, relating to the
sale of the General Eastern Instruments division in the fourth quarter of fiscal
year 1998.

During the second quarter of fiscal year 1998 the Company recorded
extraordinary losses on debt extinguishment, net of income taxes, in the amount
of $7.9 million relating to the Company's refinancing transactions completed on
August 8, 1997. See Note 3 of Notes to Condensed Consolidated Financial
Statements.

The foregoing factors contributed to net income of $1.4 million in the
second quarter of fiscal year 1999 compared to a net loss of $17.6 million in
the second quarter of fiscal year 1998.

SIX MONTHS ENDED OCTOBER 24, 1998 COMPARED TO SIX MONTHS ENDED OCTOBER 25, 1997

Net sales increased $30.9 million, or 31.7%, from $97.6 million in the first
half of fiscal year 1998 to $128.5 million in first half of fiscal year 1999.
This increase includes: (i) $11.3 million in sales for the first quarter of
fiscal year 1999 from the operations of PHI which was acquired on August 8,
1997, (ii) and $13.2 million in sales for the first half of fiscal year 1999
from the operations of Stewart Warner that was acquired March 19, 1998.
Excluding the sales from the operations of PHI for the first quarter of fiscal
year 1999 and Stewart Warner for the first half of fiscal year 1999 sales
increased $6.4 million, or 6.5%. This overall net increase is comprised of: (i)
an increase of $5.4 million, or 47.3%, at PHI in the second quarter of fiscal
year 1999 compared to the same period a year ago due to higher shipments
resulting from the timing of customer requested delivery dates; (ii) an increase
of $2.4 million, or 95.1%, at HVE Europa attributable to the shipment of three
particle accelerator systems in the first half of fiscal year 1999 compared to
no systems shipped in the first half of fiscal year 1998; (iii) an increase of
$1.8 million, or 15.3%, at APP due to continued growth in the uninterruptible
power supply markets as well as telecommunications and networking equipment
markets in North America and Europe; (iv) an increase of $1.2 million, or 7.0%,
at Maxima Technologies due to higher shipments in both North America and Europe;
offset by (v) a decrease in sales of $3.8 million, or 8.4%, at Robicon primarily
due to a $7.4 million decrease in power control systems primarily related to
reduced shipments to polysilicon extraction markets and a decrease of $2.9
million due to reduced orders and the timing of shipments of low voltage VFDs,
but offset by a $6.7 million increase in shipments of medium voltage VFDs (vi) a
decrease of $0.6 million, or 6.6%, at Natvar due to the disposition of certain
electrical sleeving product lines in the fourth quarter of fiscal year 1998,
despite a $250,000 increase in shipments to medical markets in the first half of
fiscal 1999.

Gross profit increased $11.3 million, or 33.7%, from $33.5 million in the
first half of fiscal year 1998 to $44.7 million in first half of fiscal year
1999. This increase includes: (i) $4.0 million in the first quarter of fiscal
year 1999 from the operations of PHI that was acquired on August 8, 1997; and
(ii) $4.5 million for the first half of fiscal year 1999 from the operations of
Stewart Warner that was acquired March 19, 1998. Excluding the gross profit from
the operations of PHI for the first quarter of fiscal year 1999 and Stewart
Warner for the first half of fiscal year 1999 gross profit increased $2.8
million, or 8.4%. This increase resulted from: (i) a $1.0 million charge to cost
of sales at PHI in the second quarter of fiscal year 1998, resulting from the
shipments of finished goods inventory which had been revalued in accordance with
purchase accounting procedures; (ii) net increase in sales volume; and (iii)
productivity improvements at Robicon, PHI, and Natvar. These productivity
improvements more than offset mix shifts, during the second quarter of fiscal
year 1999, at Robicon towards lower margin products and at PHI towards lower
margin customers. Overall the Company's gross margin rate increased from 34.3%
in first half of fiscal 1998 to 35.3% in the first half of fiscal year 1999.

Administrative and selling expenses of the Company increased $4.4
million, or 19.5%, from $22.7 million in the first half of fiscal year 1998
to $27.1 million in the first half of fiscal year 1999. This increase
includes: (i) $2.8 million in the first quarter of fiscal year 1999 from the
operations of PHI that was acquired on August 8, 1997; (ii) and $2.9 million
for the first half of fiscal year 1999 from the operations of Stewart Warner
that was acquired March 19, 1998. Excluding the operations of PHI for the
first quarter of fiscal year 1999 and Stewart Warner for the first half of
fiscal year 1999 administrative and selling expenses decreased $1.2 million,
or 5.4%. This decrease is primarily attributable to cost reductions at
Robicon, PHI and Natvar. Excluding the operations of PHI for the first
quarter of fiscal year 1999 and Stewart Warner for the first half of fiscal
year 1999 administrative and selling expenses as a percentage of sales was
20.6% in the first half of fiscal year 1999 as compared to 23.2% in the first
half of fiscal year 1998. This reduction was the result of increased sales
volume.

Research and development expenses increased $2.9 million, from $6.6 million
in the first half of fiscal year 1998 to $9.4 million in the first half of

<PAGE>

fiscal year 1999. This increase is primarily attributable to: (i) the
inclusion of $2.2 million in the first quarter of fiscal year 1999 from the
operations of PHI; and (ii) $0.7 million for the first half of fiscal year
1999 from the operations of Stewart Warner. Excluding the operations of PHI
for the first quarter of fiscal year 1999 and Stewart Warner for the first
half of fiscal year 1999 research and development expenses as a percentage of
sales was 6.3% in the first half of fiscal year 1999 as compared to 6.7% in
the first half of fiscal year 1998. This reduction was the result of
increased sales volume.

During the second half of fiscal year 1998, PHI took a charge of $5.8
million to write off purchased in-process research and development expenses
which had been valued in accordance with purchase accounting procedures.

Depreciation and amortization increased $1.8 million from $3.6 million in
the first half of fiscal year 1998 to $5.4 million in the first half of fiscal
year 1999. This increase is primarily attributable to: (i) the inclusion of $1.0
million in the first quarter of fiscal year 1999 from the operations of PHI; and
(ii) $0.8 million for the first half of fiscal year 1999 from the operations of
Stewart Warner.

The second quarter of fiscal year 1999 includes a restructuring charge of
$390,000 at Robicon primarily related to severance costs for headcount
reductions related to the re-layout of certain assembly operations, more
simplified designs in newer technology products, and a product mix change to
less labor intensive products.

Reimbursed environmental and litigation costs, declined from $320,000 in the
first half of fiscal year 1998 to $18,000 in the first half of fiscal 1999. The
fist half of fiscal year 1998 included a change in estimate on certain
environmental cleanup costs.

During the first half of fiscal year 1999, Robicon recorded a gain of $0.9
million from recoveries related to the settlement of certain claims, net of
certain litigation and settlement costs.

As a result of the factors described above, operating income increased $10.7
million, to $8.8 million in the first half of fiscal year 1999 from a loss of
$1.9 million in the first half of fiscal year 1998.

Interest expense increased $65,000 to $9.8 million in the first half of
fiscal year 1999 as compared to $9.7 million in the first half of fiscal year
1998. Interest expense for the first half of fiscal year 1998 includes a
provision of $2.2 million for the accretion of redeemable put warrants, as well
as a $1.0 million provision for contingent interest payments recorded in the
first half of fiscal year 1998. Excluding these provisions, interest expense
increased $3.2 million to $9.8 million in the first half of fiscal year 1999
from $6.6 million in the first half of fiscal year 1998. This increase is due to
higher average indebtedness associated with the sale of senior notes on August
8, 1997 and March 19, 1998. Interest income increased $488,000 to $0.7 million
primarily due to the higher average cash balance after the sale of the senior
notes.

As a result of the above items, the Company recorded a loss income from
continuing operations before income taxes and discontinued operations of
$$276,000 in the first half of fiscal year 1999 compared to a loss of $11.4
million in the first half of fiscal year 1998.

Income tax expense, including amounts allocated to discontinued operations
was $0.5 million in the first half of fiscal year 1999 as compared to $1.6
million in the first half of fiscal year 1998.

As a result of the foregoing, losses from operations before discontinued
operations decreased $12.1 million from a loss $0.8 million for the first half
of fiscal year 1999 as compared to a loss of $13.0 million for the first half of
fiscal year 1998. Income from discontinued operations of $260,000, net of taxes,
was recorded in the first half of fiscal year 1998, relating to the sale of the
General Eastern Instruments division in the fourth quarter of fiscal year 1998.

During the first half of fiscal year 1998 the Company recorded extraordinary
losses on debt extinguishment, net of income taxes, in the amount of $7.9
million relating to the Company's refinancing transactions completed on August
8, 1997. See Note 3 of notes to Condensed Consolidated Financial Statements.

The foregoing factors contributed to a net loss of $0.8 million in the
second half of fiscal year 1999 compared to a net loss of $20.6 million in the
second half of fiscal year 1998.

<PAGE>

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, asset
sales and proceeds from financing activities.

On August 8, 1997, the Company entered into a $25.0 million revolving credit
facility (the "Revolving Credit Facility") which is intended to be used 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 October 24, 1998; however, there were $4.8 million in
letters of credit commitments outstanding. Accordingly, credit availability
under this facility was $20.2 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.

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 of the Company and warrants to purchase
common stock of the Company. A portion of the net proceeds of the Original
Offering was used to repay existing indebtedness, 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.

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 having terms identical to those sold in the Original Offering
(collectively with the notes sold in the Original Offering the "Senior Notes").
The net proceeds of the Second Offering were used to finance part of the
purchase price for Stewart Warner.

At October 24, 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 8.0 times
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.

As of October 24, 1998, the Company had total indebtedness (including
redeemable put warrants) of $180.0 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 $1.8 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 $62.4 million and $60.4 million at April
25, 1998 and October 24, 1998, respectively. The decrease of $2.0 million in
working capital from April 25, 1998 to October 24, 1998 is primarily
attributable to (i) a $2.8 million decrease in cash and cash equivalents and
unrestricted cash on hand; (ii) a decrease in accounts receivable of $9.0
compared to the fourth quarter of fiscal year 1998; (iii) offset by an increase
in inventories of $3.3 million during the first half of fiscal year 1999
primarily due to procurement and assembly related to an anticipated increase in
shipments in the second half of fiscal year 1999; and (iv) a decrease in
accounts payable of $2.2 million due to the timing of purchases during the
fourth quarter of fiscal year 1998 and the second quarter of fiscal year 1999;
(v) a decrease in accrued liabilities of $4.1 million primarily related to the

<PAGE>

pay out of gain-sharing and incentive compensation plans, as well as reduced
warranty and installation reserves.

Net cash provided by operating activities was $5.0 million in the first half
of fiscal year 1999 compared to net cash used by operating activities of $13.8
million in the first half fiscal year 1998. The increase in net cash provided by
operating activities of $18.8 million is primarily attributable to: (i) the
payment of $6.8 million to extinguish the Company's obligations under certain
CIP Agreements in fiscal year 1998; (ii) the payment of $6.3 million in
prepayment penalties and make whole premiums related the Original Offering in
fiscal year 1998; and (iii) a reduction in accounts receivable of $6.4 million
due to higher collections in fiscal year 1999.

Net cash used in investing activities decreased $52.2 million to $4.4
million in the first half of fiscal year 1999 from $56.6 million in the first
half of fiscal year 1998. The cash used in investing activities in the first
half of fiscal year 1998 was primarily for the acquisition of PHI for $54.3
million, net of cash acquired. This was offset by a $2.3 million increase in
capital expenditures in the first half of fiscal year 1999.

Net cash provided by financing activities was $8.0 million in the first half
of fiscal year 1999 compared to net cash provided by financing activities $82.0
million in the first half of fiscal year 1998. Net cash provided by financing
activities of $8.0 million in the first half of fiscal year 1999 is primarily
attributable to the reclassification from restricted cash from the Asset Sale
Proceeds relating to the sale of the Company's General Eastern Instruments
division in the fourth quarter of fiscal year 1998. See below for additional
information. The cash provided by financing activities in fiscal year 1998 was
substantially the result of the Original Offering consummated on August 8, 1997.

As of October 24, 1998, the Company had assets held for sale, consisting of
two former manufacturing facilities, of $3.9 million. These properties are
recorded at the lower of the carrying amount or fair value less selling costs.

The Indenture governing the Senior Notes (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 its
General Eastern Instruments division ("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. Certain of these
proceeds have been invested by the Company during the period since April 15,
1998. As a result of these investments, the Company believes that it has
complied with all relevant provisions of the Indenture with respect to the sale
of General Eastern. While the Company has and may continue to explore
acquisition opportunities, the Company has no definitive plans for the use of
the balance of the cash proceeds from the disposition of General Eastern.

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 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

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.

<PAGE>

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 generally anticipated to be material to its business, operations, financial
condition, liquidity and capital resources. The Company does expect to spend
approximately $100,000 to $150,000 during the remaining six months of fiscal
year 1999 to complete the installation of an enterprise resource planning system
at Natvar. Those estimates do not include any allocation with respect to time
devoted by regular employees of the Company to these efforts, since the Company
does not separately track that time. 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. Recognizing the many factors that are outside its
control, the Company cannot state that it will be unaffected by the Year 2000
issue.

If the Company's Year 2000 remediation efforts are not successful, the
most likely worst case scenario would include some or all of the Company's
operating subsidiaries or divisions being unable to manufacture or distribute
products for a period of time. The Company cannot currently estimate the
likelihood of such a scenario or the financial impact of such an occurence
upon the Company because it cannot predict the extent or duration of any such
disruption. As a result, the Company may consider the adoption of formal
contingency plans to deal with any possible disruptions.

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

PART II

OTHER INFORMATION

ITEM 1. - 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.

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

<PAGE>

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 2. - CHANGES IN SECURITIES

None.

ITEM 3. - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. - OTHER INFORMATION

None.

ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

11 Statement of Computation of Earnings Per Share

27 Financial Data Schedule

(b) Reports on Form 8-K

None.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.

HIGH VOLTAGE ENGINEERING CORPORATION

Dated: December 4, 1998 By: /s/ Joseph W. McHugh, Jr.
----------------------------------------
Joseph W. McHugh, Jr.
Chief Financial Officer and Principal
Accounting Officer

<PAGE>

Exhibit 11

HIGH VOLTAGE ENGINEERING CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
October 24,
1998
-----------
<S> <C>
Income (loss) from operations before
extraordinary item $ 1,368
Income from discontinued operations,
net of income taxes --
Extraordinary item, net of income
taxes --
-----------
Net income (loss) applicable to common
stockholders 1,368

Net income (loss) per common share - assuming dilution:
Net income (loss) per share from operations
before extraordinary item $ 189.29
Net income per share from discontinued
operations, net of income taxes --
Net income (loss) per share from extraordinary
item, net of income taxes --
Net income (loss) per share applicable to
common stockholders $ 189.29
-----------
-----------
Weighted average common stock
and dilutive equivalents
outstanding 1,237
</TABLE>

The earnings from operations before extraordinary item and the net income
or loss applicable to the common stockholders, for the purpose of calculating
earnings per share, is net of preferred stock dividends of $1,061 and the
accretion of redeemable preferred stock of $102 for the three months ended
October 24, 1998.

<PAGE>
<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> APR-25-1998 APR-24-1999
<PERIOD-START> APR-27-1997 APR-26-1998
<PERIOD-END> OCT-25-1997 OCT-24-1998
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30,457 32,738
0 0
<COMMON> 1 1
<OTHER-SE> (51,218) (54,159)
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<INCOME-PRETAX> (11,355) (276)
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<EXTRAORDINARY> (7,861) 0
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<EPS-PRIMARY> (20,930.43) (2,850.42)
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</TABLE>