HIGH VOLTAGE ENGINEERING CORP, 10-Q, 1999-03-03

HIGH VOLTAGE ENGINEERING CORP
10-Q, 1999-03-03
ELECTRICAL INDUSTRIAL APPARATUS

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<PAGE>

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 January 23, 1999

[ ] 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 March 3, 1999: 1,082.7429 shares.

<PAGE>

CONTENTS

PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
<S> <C>
ITEM 1. - FINANCIAL STATEMENTS

Consolidated Balance Sheets at January 23, 1999 (unaudited) and
April 25, 1998................................................................................... 3

Consolidated Statements of Operations for the Three and Nine Months ended
January 23, 1999 (unaudited) and January 24, 1998 (unaudited).................................... 4

Consolidated Statements of Stockholders' Deficiency for the Nine Months
ended January 23, 1999 (unaudited) and for the Years ended April
25, 1998 and April 26, 1997...................................................................... 5

Consolidated Statements of Cash Flows for the Nine Months ended
January 23, 1999 (unaudited) and January 24, 1998 (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...................................................................... 16

ITEM 3. - DEFAULTS UPON SENIOR SECURITIES............................................................ 16

ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 16

ITEM 5. - OTHER INFORMATION.......................................................................... 16

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, JANUARY 23,
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 16,518 $ 20,898
Restricted cash .................................. 14,671 3,447
Accounts receivable - net ........................ 59,403 52,006
Refundable income taxes .......................... 626 608
Inventories ...................................... 36,136 41,637
Prepaid expenses and other current assets ........ 2,018 1,717
---------- ----------
Total current assets ........................... 129,372 120,313

PROPERTY, PLANT AND EQUIPMENT ...................... 54,161 57,956
INVESTMENT IN JOINT VENTURE ........................ 1,735 1,763
ASSETS HELD FOR SALE ............................... 3,830 3,812
OTHER ASSETS - Net ................................. 17,158 15,737
COST IN EXCESS OF NET ASSETS ACQUIRED .............. 25,148 28,335
---------- ----------
$ 231,404 $ 227,916
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS DEFICIENCY
CURRENT LIABILITIES:
Current maturities of long-term debt obligations . $ 1,351 $ 2,527
Foreign credit line .............................. 2,002 123
Accounts payable ................................. 22,923 19,643
Accrued interest ................................. 3,118 7,248
Accrued liabilities .............................. 26,932 24,156
Advance payments by customers .................... 6,613 6,806
Federal, foreign and state income taxes payable .. 2,369 3,412
Deferred income taxes ............................ 1,641 1,527
---------- ----------
Total current liabilities ...................... 66,949 65,442

REDEEMABLE PUT WARRANTS ............................ 2,590 2,590
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES ..... 172,976 174,128
DEFERRED INCOME TAXES .............................. 2,698 2,724
OTHER LIABILITIES .................................. 6,951 6,713
REDEEMABLE PREFERRED STOCK ......................... 30,457 33,925
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock ..................................... 1 1
Paid-in-capital .................................. 19,527 19,527
Accumulated deficit .............................. (72,603) (78,981)
Common stock warrants ............................ 2,200 2,200
Cumulative foreign currency translation adjustment (342) (353)
---------- ----------
Total stockholders' deficiency ................. (51,217) (57,606)
---------- ----------
$ 231,404 $ 227,916
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to condensed consolidated financial statements.

<PAGE>

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

THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
JANUARY 24, JANUARY 23, JANUARY 24, JANUARY 23,
1998 1999 1998 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales...................................... $ 57,496 $ 59,948 $155,109 $188,478
Cost of sales.................................. 36,796 39,639 100,947 123,437
--------- --------- --------- ---------
Gross profit................................. 20,700 20,309 54,162 65,041

Administrative and selling expenses............ 13,019 12,872 35,672 39,947
Research and development expenses.............. 4,667 4,056 11,249 13,489
Write off of purchased in-process research
and development.............................. -- -- 5,800 --
Restructuring charge........................... -- -- -- 390
Reimbursed environmental and litigation
costs - net.................................. 138 274 458 292
Other.......................................... 87 300 44 (690)
--------- --------- --------- ---------
Income from operations....................... 2,789 2,807 939 11,613

Interest expense............................... 4,271 4,894 13,989 14,677
Interest income................................ (263) (260) (476) (961)
--------- --------- --------- --------
Loss from continuing operations before
income taxes, discontinued operations
and extraordinary item................... (1,219) (1,827) (12,574) (2,103)
Income taxes................................... 856 276 2,455 807
--------- --------- --------- --------
Loss from continuing operations before
discontinued operations and
extraordinary item....................... (2,075) (2,103) (15,029) (2,910)

Discontinued operations:
Income from discontinued operations, net
of income taxes.......................... 211 -- 471 --

Extraordinary loss, net of income taxes........ -- -- (7,861) --
--------- --------- ---------- ---------
NET LOSS....................................... (1,864) (2,103) (22,419) (2,910)
Preferred dividends............................ (1,029) (1,092) (2,057) (3,182)
Accretion of redeemable preferred stock........ (95) (96) (175) (286)
--------- --------- ---------- ---------
Net loss applicable to common stockholders..... $ (2,988) $ (3,291) $ (24,651) $ (6,378)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Net loss per common share:
Continuing operations...................... $ (2,953.83) $(3,038.78) $ (16,423.40) $ (5,889.20)
Income from discontinued operations........ 194.83 -- 448.14 --
Extraordinary item......................... -- -- (7,479.54) --
Net loss applicable to common stockholders. $ (2,759.00) $(3,038.78) $ (23,454.80) $ (5,889.20)
------------ ----------- ------------- ------------
------------ ----------- ------------- ------------

Weighted average common stock outstanding 1,083 1,083 1,051 1,083
------------ ----------- ------------- ------------
------------ ----------- ------------- ------------
</TABLE>

See accompanying notes to condensed 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 ................... (2,910) (2,910)
Preferred stock dividends .. (3,182) (3,182)
Accretion of redeemable
preferred stock .......... (286) (286)
Change in foreign currency
translation .............. (11) (11)
------ -------- ----------- --------- ------------ ---------
Balance, January 23, 1999
(Unaudited) .............. $ 1 $ 19,527 $ (78,981) $ 2,200 $ (353) $(57,606)
------ -------- ----------- --------- ------------ ---------
------ -------- ----------- --------- ------------ ---------
</TABLE>

See accompanying notes to condensed consolidated financial statements.

<PAGE>

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

NINE MONTHS ENDED
---------------------------
JANUARY 24, JANUARY 23,
1998 1999
----------- -----------
(Unaudited) (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
<S> <C> <C>
Net loss................................................ $(22,419) $ (2,910)
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......................... 6,076 8,152
Write-off of purchased research and development....... 5,800 --
Non-cash interest..................................... 3,231 839
Deferred income taxes................................. (3,496) (88)
Undistributed earnings of affiliate................... (131) (102)
(Gain) loss on sale of assets......................... (1,417) (190)
Change in assets and liabilities net of effects
of business acquisition:
Accounts receivable................................. 6,079 7,415
Inventories......................................... (1,569) (5,501)
Prepaid expenses and other current assets........... 400 (605)
Accounts payable, accrued interest and accrued
liabilities....................................... (4,459) (2,102)
Advance payments by customers....................... (2,787) 193
Federal, foreign and state income taxes payable..... 974 1,043
--------- ---------
Net cash (used in) provided by operating activities. (12,144) 6,144
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment.............. (4,336) (6,814)
Proceeds from sales of assets, net of expenses.......... 3,352 352
Acquisition of Physical Electronics, net of cash
acquired.............................................. (54,272) --
Acquisition of Industrial Power Rectifiers product line,
net of cash acquired.................................. -- (3,226)
Other................................................... (166) 25
--------- ---------
Net cash used in investing activities .............. (55,422) (9,663)
--------- ---------
Cash flows from financing activities:
Proceeds from the issuance of long-term obligations,
net of issuance costs................................. 129,466 --
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 proceeds (payments) on foreign credit line.......... 326 (2,070)
Net (increase) decrease in restricted cash.............. (1,763) 11,224
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............. (56,649) (1,386)
Cash overdraft.......................................... 269 (68)
--------- ---------
Net cash provided by financing activities............. 81,368 7,700
--------- ---------
Effect of foreign exchange rate changes on cash............ (239) 199
--------- ---------
Net increase in cash and cash equivalents............. 13,563 4,380
Cash and cash equivalents, beginning of the period...... 1,542 16,518
--------- ---------
Cash and cash equivalents, end of the period............ $ 15,105 $ 20,898
--------- ---------
--------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest................................................ $ 12,756 $ 9,699
Income taxes............................................ 1,635 1,854
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Preferred stock dividends-in-kind and issuable preferred
stock dividends-in-kind............................... $ 322 $ 3,182
Leased asset additions.................................. 276 3,495
Fixed assets transferred to inventory................... -- 102
</TABLE>

See accompanying notes to condensed 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, JANUARY 23,
1998 1999
--------- -----------
<S> <C> <C>
Raw materials .......................... $ 19,543 $ 20,952
Work-in-process ........................ 12,079 17,241
Finished goods ......................... 4,514 3,444
--------- -----------
Total ............................... $ 36,136 $ 41,637
--------- -----------
--------- -----------
</TABLE>

NOTE 3 - ACQUISITIONS AND OTHER TRANSACTIONS

On December 31, 1998, a wholly owned subsidiary of the Company acquired all
the assets of General Electric's ("GE") Industrial Power Rectifier ("IPR")
product line for $3.2 million in cash and entered into certain related
agreements with GE including a license agreement and a production services
agreement. Pursuant to a transition plan, defined in the Production Service
Agreement, GE will continue to manufacture and deliver IPR products through such
a date as the transition is completed but no later than October 1, 1999. In
addition, GE is entitled to receive the economic benefit of all contracts in
place as of December 31, 1998 and certain other contracts entered into through
March 31, 1999. Due to the extended lead times involved with these products the
Company does not anticipate recognizing material revenue from the assets
acquired from GE until fiscal 2000. The fair value of the asset acquired has
been based on management's preliminary estimate of the fair value and lives of
such assets. Adjustments to asset values and lives, including fixed assets and
intangibles in the final allocation may differ from these estimates, which could
impact future earnings.

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 $24,870 in cash. 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.

<PAGE>

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 net purchase prices were 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) (6,621) (28,708)
--------- --------- ---------
Purchase price, net of cash received .... $ 54,272 $ 24,839 $ 78,962
--------- --------- ---------
--------- --------- ---------
</TABLE>

The operating results of these acquired businesses have been included in the
Company's 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 of the Company , repurchase certain existing put warrants, make
distributions to Letitia Corporation, 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
additional 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 the proceedings to which it is currently a party is 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 patents relating to Robicon Corporation's Perfect Harmony line of
products. 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 the action initiated by Toshiba; 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>
NINE MONTHS ENDED JANUARY 24, 1998
High power conversion
products....................... $ 67,422 $ 4,893 $ 35,786 $ 392 $ 273
Advanced surface analysis
instruments.................... 26,608 (6,026) 70,871 2,447 1,543
High performance modular
power connectors............... 18,219 3,676 16,638 717 713
Customized monitoring
instrumentation................ 25,690 2,112 20,155 1,235 606
Disposable customized medical
grade plastic tubing........... 12,510 748 8,761 670 486
Corporate and other.............. 4,660 (4,464) 41,076 370 335
--------- --------- --------- --------- ---------
Consolidated................... $155,109 $ 939 $193,287 $ 5,831 $ 3,956
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NINE MONTHS ENDED JANUARY 23, 1999
High power conversion
products....................... $ 60,357 $ 1,333 $ 46,261 $ 961 $ 3,674
Advanced surface analysis
instruments.................... 44,044 1,798 72,642 3,034 3,776
High performance modular
power connectors............... 20,147 4,253 17,738 1,039 1,162
Customized monitoring
instrumentation................ 45,033 4,440 48,717 1,903 993
Disposable customized medical
grade plastic tubing........... 11,692 2,122 8,744 733 444
Corporate and other.............. 7,205 (2,333) 33,814 482 260
---------- --------- --------- --------- ---------
Consolidated................... $188,478 $ 11,613 $227,916 $ 8,152 $ 10,309
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>

NOTE 6 - 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 nine months ended January 24, 1998 and January 23,
1999, respectively, the components of other comprehensive income were
immaterial. The components of other comprehensive income consist solely of
foreign currency translation adjustments.

NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS

In February 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132, "Employers' Disclosure About Pension and Other Post Retirement
Benefits" which revises employers' disclosure requirements about pension and
other post retirement benefit plans. The Company does not believe adoption of
SFAS No. 132 will have a material impact on its financial disclosures.

In June 1998, the FASB issued SFAS No. 133, "Accounting For Derivative and
Hedging Activities" which establishes accounting and reporting standards for
derivative and hedging activities. The Company does not believe adoption of SFAS
No. 133 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 include forward-looking statements regarding future events
or the future financial performance of the Company. We caution you that these
statements are only predictions based on known present circumstances 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. These documents identify and
describe important factors that can cause the after-results to differ materially

<PAGE>

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 1998" and "fiscal 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"), Maxima Technologies, Inc. ("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, Maxima Technologies acquired, directly or indirectly, all
of the capital stock of Stewart Warner, for an aggregate consideration of $24.8
million in cash. After the repayment of all of Stewart Warner's outstanding
indebtedness, the remainder of the cash purchase price was distributed to the
former stockholders of Stewart Warner.

ACQUISITION OF INDUSTRIAL POWER RECTIFIER PRODUCT LINE

RESULTS OF OPERATIONS

THREE MONTHS ENDED JANUARY 24, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 23,
1999

Net sales increased $2.5 million, or 4.3%, from $57.5 million in the third
quarter of fiscal 1998 to $59.9 million in the third quarter of fiscal 1999.
Excluding net sales from Stewart Warner ($4.8 million) which was acquired during
the fourth quarter of fiscal 1998, net sales decreased $2.4 million, or 4.1%,
during the third quarter of fiscal 1999. The overall net decrease was primarily
attributable to: (i) a decrease in sales of $3.2 million, or 15.0%, at Robicon

<PAGE>

primarily due to a $1.9 million decrease in sales of power control systems and a
$1.7 million decrease in sales of medium voltage VFDs as a result of customer
requested delays offset by an increase in service parts revenue due to a new
distribution agreement with Argo International Corporation; and (ii) a decrease
of $0.3 million, or 6.4%, at Natvar due to the disposition of certain electrical
sleeving product lines in the fourth quarter of fiscal 1998; offset by (iii) an
increase of $0.8 million, or 5.0%, at PHI; (iv) an increase of $0.2 million, or
8.1%, at HVE Europa, and (v) increases totaling $0.2 million, or 2.8% at APP and
Maxima Technologies (excluding the operations of Stewart Warner).

Gross profit decreased by $0.4 million, or 1.9%, from $20.7 million during
the third quarter of fiscal 1998 to $20.3 million in the third quarter of fiscal
1999. Excluding the gross profit from Stewart Warner ($1.4 million) which was
acquired during the fourth quarter of fiscal 1998, gross profit decreased $1.8
million, or 8.8%, during the third quarter of fiscal 1999. This overall decrease
resulted from: (i) a decrease in sales volume; (ii) lower pricing, a change in
mix, and manufacturing inefficiencies due to lower volume at Robicon; (iii) mix
shifts at PHI towards lower margin customers and at Maxima Technologies towards
lower margin products, partially offset by margin improvements due to
manufacturing efficiencies and mix at APP, Natvar and HVE Europa. Overall the
Company's gross margin rate decreased from 36.0% in third quarter of fiscal 1998
to 33.9% in the third quarter of fiscal 1999.

Administrative and selling expenses decreased $0.1 million, or 1.1%,
including $0.9 million from the operations of Stewart Warner. Excluding Stewart
Warner, administrative and selling expense decreased $1.0 million primarily
related to cost reductions at Robicon, Maxima Technologies and Natvar. Excluding
the operations of Stewart Warner for the third quarter of fiscal 1999,
administrative and selling expenses as a percentage of sales was 21.6% in the
third quarter of fiscal 1999 as compared to 22.6% in the third quarter of fiscal
1998.

Research and development expenses decreased $0.6 million, or 13.1%,
including $0.1 million related to the operations of Stewart Warner. Excluding
the operations of Stewart Warner, research and development expenses decreased
$0.7 million, which primarily related to cost reductions at Robicon in the first
quarter of fiscal 1999. Excluding the operations of Stewart Warner for the third
quarter of fiscal 1999 research and development expenses as a percentage of
sales was 7.1% in the third quarter of fiscal 1999 as compared to 8.1% in the
third quarter of fiscal 1998.

Depreciation and amortization from continuing operations increased $0.5
million from $2.3 million to $2.8 million from the third quarter of fiscal 1998
as compared to the third quarter of fiscal 1999. The increase was primarily due
to the addition of the operations of Stewart Warner as well as the addition of
capital leases at Robicon.

As a result of the factors described above, operating income remained
relatively unchanged at $2.8 million in the third quarter of fiscal 1999 as
compared to the third quarter of fiscal 1998.

Interest expense increased $0.6 million, or 14.6%, from $4.3 million in the
third quarter of fiscal 1998 to $4.9 million in the third quarter of fiscal
1999, primarily due to higher average indebtedness associated with the issuance
of $20 million of Senior Notes due 2004 on March 19, 1998 in connection with the
acquisition of Stewart Warner.

As a result of the above items, the Company recorded losses from continuing
operations before income taxes and discontinued operations of $1.2 million and
$1.8 million in the third quarter of fiscal 1998 and the third quarter of fiscal
1999, respectively.

Income tax expense, including amounts allocated to discontinued operations,
was $0.9 million in the third quarter of fiscal 1998 compared to $0.3 million in
the third quarter of fiscal 1999.

As a result of the above, the Company recorded losses from continuing
operations before discontinued operations of $2.1 million in both the third
quarter of fiscal 1998 and the third quarter of fiscal 1999.

Income from discontinued operations of $211,000, net of taxes, was recorded
in the third quarter of fiscal 1998, relating to the sale of the General Eastern
Instruments division in the fourth quarter of fiscal 1998.

The foregoing factors contributed to a net loss of $1.9 million in the third
quarter of fiscal 1998 compared to a net loss of $2.1 million in the third
quarter of fiscal year 1999.

NINE MONTHS ENDED JANUARY 24, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 23,
1999

Net sales increased $33.4 million, or 21.5%, from $155.1 million for the
nine months ended January 24, 1998 to $188.5 million for the nine months ended
January 23, 1999. This increase includes: (i) $11.3 million in sales for the
first

<PAGE>

quarter of fiscal 1999 from the operations of PHI which was acquired on August
8, 1997, and (ii) $18.0 million in sales for the nine months ended January 23,
1999 from the operations of Stewart Warner which was acquired March 19, 1998.
Excluding sales from the operations of PHI for the first quarter of fiscal 1999
and from Stewart Warner for the nine months ended January 23, 1999, sales
increased $4.0 million, or 2.6%. The overall net increase was primarily
attributable to: (i) an increase in sales of $6.1 million, or 23.0%, at PHI due
to higher shipments resulting from the timing of customer requested delivery
dates; (ii) an increase of $2.5 million, or 54.6%, at HVE Europa due to the
timing of particle accelerator systems shipments in fiscal 1999; (iii) an
increase of $1.9 million, or 10.6%, 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; and (iv) an increase
of $1.3 million, or 5.1%, at Maxima Technologies due to higher shipments in both
North America and Europe; offset by (v) a decrease of $7.1 million, or 10.5%, at
Robicon primarily due to a $9.4 million decrease in power control systems
related to reduced shipments to polysilicon extraction markets and a decrease of
$2.7 million due to reduced orders and the timing of shipments of low voltage
VFDs, but offset by a $5.0 million increase in shipments of medium voltage VFDs;
and (vi) a decrease of $0.8 million, or 6.5%, at Natvar due to the disposition
of certain electrical sleeving product lines in the fourth quarter of fiscal
1998.

Gross profit increased $10.9 million, or 20.1%, from $54.2 million for the
nine months ended January 24, 1998 to $65.0 million for the nine months ended
January 23, 1999. This increase includes: (i) $4.0 million in the first quarter
of fiscal 1999 from the operations of PHI, which was acquired on August 8, 1997;
and (ii) $5.9 million for the nine months ended January 23, 1999 from the
operations of Stewart Warner, which was acquired March 19, 1998. Excluding the
gross profit from the operations of PHI for the first quarter of fiscal 1999 and
Stewart Warner for the nine months ended January 23, 1999, gross profit
increased $1.0 million, or 1.8%. This net increase included a $1.0 million
charge to cost of sales at PHI in the second quarter of fiscal 1998, resulting
from the shipments of finished goods inventory which had been revalued in
accordance with purchase accounting procedures. Overall the Company's gross
margin rate decreased from 34.9% in the nine months ended January 24, 1998 to
34.5% in the nine months ended January 23, 1999.

Administrative and selling expenses of the Company increased $4.3 million,
or 12.0%, from $35.7 million in the nine months ended January 24, 1998 to $39.9
million in the nine months ended January 23, 1999. This increase includes: (i)
$2.8 million in the first quarter of fiscal 1999 from the operations of PHI,
which was acquired on August 8, 1997; (ii) and $3.8 million for the nine months
ended January 23, 1999 from the operations of Stewart Warner, which was acquired
on March 19, 1998. Excluding the operations of PHI for the first quarter of
fiscal 1999 and Stewart Warner for the nine months ended January 23, 1999,
administrative and selling expenses decreased $2.3 million, or 6.5%. This
decrease is primarily attributable to cost reductions at Robicon, PHI and
Natvar. Excluding the operations of PHI for the first quarter of fiscal 1999 and
Stewart Warner for the nine months ended January 23, 1999, administrative and
selling expenses as a percentage of sales was 23.0% in the nine months ended
January 24, 1998 as compared to 21.0% in the nine months ended January 23, 1999.

Research and development expenses increased $2.2 million, from $11.2 million
in the nine months ended January 24, 1998 to $13.5 million in the nine months
ended January 23, 1999. This increase is primarily attributable to: (i) the
inclusion of $2.2 million in the first quarter of fiscal 1999 from the
operations of PHI; and (ii) $0.8 million for the nine months ended January 23,
1999 from the operations of Stewart Warner. Excluding the operations of PHI for
the first quarter of fiscal 1999 and Stewart Warner for the nine months ended
January 23, 1999, research and development expenses as a percentage of sales was
7.3% in the nine months ended January 24, 1998 as compared to 6.6% in the nine
months ended January 23, 1999.

During the nine months ended January 24, 1998, PHI recorded 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 $2.3
million from $5.8 million in the nine months ended January 24, 1998 to $8.2
million in the nine months ended January 23, 1999. This increase is primarily
attributable to: (i) the inclusion of $1.0 million in the first quarter of
fiscal 1999 from the operations of PHI; and (ii) $1.1 million for the nine
months ended January 23, 1999 from the operations of Stewart Warner.

The first half of fiscal 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 $458,000 in the
nine months ended January 24, 1998 to $292,000 in the nine months ended January
23, 1999.

<PAGE>

During the nine months ended January 23, 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, from $0.9 million in the nine months ended January 24, 1998 to $11.6
million in the nine months ended January 23, 1999.

Interest expense increased $0.7 million from $14.0 million in the nine
months ended January 24, 1998 to $14.7 million in the nine months ended January
23, 1998. Interest expense for the nine months ended January 23, 1998 includes
provisions of $2.2 million for the accretion of redeemable put warrants, as well
as $1.0 million for contingent interest payments. Excluding these provisions,
interest expense increased $3.8 million to $14.7 million in the nine months
ended January 23, 1999 from $10.8 million in the nine months ended January 24,
1998. This increase is due to higher average indebtedness associated with the
sale of The Company's Senior Notes due 2004 on August 8, 1997 and March 19,
1998. Interest income increased $485,000 to $1.0 million primarily due to the
higher average cash balance after the issuance of the Senior Notes.

As a result of the above items, the Company recorded losses from continuing
operations before income taxes and discontinued operations of $12.6 million and
$2.1 million in the nine months ended January 24, 1998 and the nine months ended
January 23, 1999, respectively.

Income tax expense, including amounts allocated to discontinued operations
was $2.8 million in the nine months ended January 24, 1998 as compared to $0.8
million in the nine months ended January 23, 1999.

As a result of the foregoing, losses from operations before discontinued
operations decreased $12.1 million from a loss $15.0 million for the nine months
ended January 24, 1998 to a loss of $2.9 million for the nine months ended
January 23, 1999. Income from discontinued operations of $471,000, net of taxes,
was recorded in the nine months ended January 24, 1998, relating to the sale of
the Company's General Eastern Instruments division in the fourth quarter of
fiscal 1998.

During the nine months ended January 24, 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 losses of $22.4 million and $2.9
million in the nine months ended January 24, 1998 and the nine months ended
January 23, 1999, respectively.

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 its commencement date. There were no borrowings outstanding under the
Revolving Credit Facility as of January 23, 1999; however, there were $4.7
million in letters of credit commitments outstanding. Accordingly, credit
availability under this facility was $20.3 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 of
1933.

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

<PAGE>

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 January 23, 1999, 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 January 23, 1999, the Company had total indebtedness (including
redeemable put warrants) of $179.4 million and mandatory redeemable preferred
stock with an aggregate liquidation preference of $35.1 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 under the Revolving Credit Facility which has a term of five
years, as well as $1.7 million of unsecured seller notes related to the
acquisition by the Company of its Industrias Jorda subsidiary, 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 $54.9 million at April
25, 1998 and January 23, 1999, respectively. The decrease of $7.6 million in
working capital from April 25, 1998 to January 23, 1999 is primarily
attributable to (i) a $6.8 million decrease in cash and cash equivalents and
unrestricted cash on hand; (ii) a decrease in accounts receivable of $7.4
million compared to the fourth quarter of fiscal 1998; offset by an increase in
inventories of $5.5 million during the nine months ended January 23, 1999; and
(iii) a decrease in accounts payable of $3.3 million due to the timing of
purchases during the fourth quarter of fiscal 1998 and the third quarter of
fiscal 1999; (iv) a decrease in accrued liabilities of $2.8 million primarily
related to the pay out of gain-sharing and incentive compensation plans, as well
as reduced warranty and installation reserves; and (v) an increase in accrued
interest of $4.1 million attributable to interest payable on the Senior Notes.

Net cash used in operating activities was $12.1 million for the nine months
ended January 24, 1998 as compared to net cash provided by operating activities
of $6.1 million for the nine months ended January 23, 1999. The net cash used in
operating activities for the nine months ended January 24, 1998 was primarily
attributable to: (i) the payment of $6.8 million to extinguish the Company's
obligations under certain CIP Agreements for the nine months ended January 24,
1998; and (ii) the payment of $6.3 million in prepayment penalties and make
whole premiums related to financing of the Company replaced with the proceeds
from the Original Offering for the nine months ended January 24, 1998.

Net cash used in investing activities was $55.4 million for the nine months
ended January 24, 1998 as compared to net cash used in investing activities of
$9.7 million for the nine months ended January 23, 1999. The cash used in
investing activities for the nine months ended January 24, 1998 was primarily
for the acquisition of PHI for $54.3 million, net of cash acquired. The net cash
used in investing activities for the nine months ended January 23, 1999 was
primarily the acquisition of the Power Rectifier product line of GE for $3.2
million as well as $6.8 million of capital expenditures.

Net cash provided by financing activities was $81.4 million for the nine
months ended January 24, 1998 as compared to net cash provided by financing
activities of 7.7 million for the nine months ended January 23, 1999. The net
cash provided by financing activities of $81.4 million for the nine months ended
January 24, 1998 was substantially the result of the Original Offering
consummated on August 8, 1997. See below for additional information. The net
cash provide by financing activities for the nine months ended January 23, 1999
was primarily attributable to the reclassification of $12.1 million from
restricted cash to cash from the proceeds of the sale of the Company's General
Eastern Instruments division in the fourth quarter of fiscal 1998.

As of January 23, 1999, 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 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

<PAGE>

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 of SFAS No. 132 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 calendar 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 $150,000 to $200,000 through the remainder of calendar 1999 to
complete the installation of enterprise resource planning systems at Maxima
Technologies and 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

<PAGE>

likelihood of such a scenario or the financial impact of such an occurrence 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

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 the Company's patents
relating to Robicon Corporation's Perfect Harmony line of products. 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 the action initiated by Toshiba; 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.

<PAGE>

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

(a) Exhibits

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 hereto duly authorized.

HIGH VOLTAGE ENGINEERING CORPORATION

Dated: March 3, 1999 By: /s/ Joseph W. McHugh, Jr.
----------------------------------------
Joseph W. McHugh, Jr.
Chief Financial Officer and Principal
Accounting Officer

<PAGE>
<ARTICLE> 5

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