<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 29, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________to_________
Commission file number 1-4737
------
HIGH VOLTAGE ENGINEERING CORPORATION
(Exact name of registrant as specified in its charter)
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 No X
Number of Common Shares outstanding at March 14, 2000: 1,082.7429 shares.
<PAGE>
CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets at January 29, 2000 (Unaudited) and
April 24, 1999 (Audited).......................................................................... 3
Consolidated Statements of Operations for the Three and Nine Months ended
January 29, 2000 (Unaudited) and January 23, 1999 (Unaudited)..................................... 4
Consolidated Statements of Stockholders' Deficiency for the Nine Months
ended January 29, 2000 (Unaudited) and for the Years ended April
24, 1999 (Audited) and April 25, 1998 (Audited)................................................... 5
Consolidated Statements of Cash Flows for the Nine Months ended
January 29, 2000 (Unaudited) and January 23, 1999 (Unaudited)..................................... 6
Notes to Consolidated Financial Statements (Unaudited)............................................ 8
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 12
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................. 18
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS.......................................................................... 19
ITEM 2. - CHANGES IN SECURITIES...................................................................... 20
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES............................................................ 20
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 20
ITEM 5. - OTHER INFORMATION.......................................................................... 20
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K........................................................... 20
SIGNATURES................................................................................................ 22
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 29, APRIL 24,
2000 1999
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 8,984 $ 31,459
Restricted cash................................... 2,732 1,281
Accounts receivable, net.......................... 88,520 58,057
Refundable income taxes........................... 917 479
Inventories....................................... 64,554 39,340
Prepaid expenses and other current assets......... 6,158 1,939
---------- ----------
Total current assets............................ 171,865 132,555
PROPERTY, PLANT AND EQUIPMENT, Net.................. 95,651 53,481
INVESTMENT IN JOINT VENTURE......................... 2,321 1,805
ASSETS HELD FOR SALE................................ 3,609 3,759
OTHER ASSETS, Net................................... 54,429 16,494
RESTRICTED CASH..................................... -- 16,376
COST IN EXCESS OF NET ASSETS ACQUIRED............... 34,007 25,765
---------- ----------
$ 361,882 $ 250,235
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current maturities of long-term debt obligations.. $ 3,737 $ 4,139
Foreign credit line............................... 1,278 44
Accounts payable.................................. 61,486 22,010
Accrued interest.................................. 7,510 3,071
Accrued liabilities............................... 45,015 24,399
Advance payments by customers..................... 16,805 6,119
Federal, foreign and state income taxes payable... 4,405 3,904
Deferred income taxes............................. 846 1,570
Redeemable put warrants........................... 2,900 --
---------- ----------
Total current liabilities....................... 143,982 65,256
REDEEMABLE PUT WARRANTS............................. -- 2,900
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES...... 195,718 171,704
DEFERRED INCOME TAXES............................... 6,831 6,838
OTHER LIABILITIES................................... 37,813 9,648
REDEEMABLE PREFERRED STOCK.......................... 39,496 35,229
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock..................................... 1 1
Paid-in-capital................................... 19,527 19,527
Accumulated deficit............................... (82,713) (62,342)
Common stock warrants............................. 2,200 2,200
Cumulative foreign currency translation adjustment (973) (726)
---------- ----------
Total stockholders' deficiency.................. (61,958) (41,340)
---------- ----------
$ 361,882 $ 250,235
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
JANUARY 29, JANUARY 23, JANUARY 29, JANUARY 23,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales...................................... $ 71,473 $ 56,179 $ 188,507 $ 176,786
Cost of sales.................................. 50,353 37,182 127,652 115,561
----------- ----------- ----------- -----------
Gross profit................................. 21,120 18,997 60,855 61,225
Administrative and selling expenses............ 14,935 12,321 39,896 38,082
Research and development expenses.............. 4,805 4,056 14,146 13,489
Write off of purchased in-process research
and development.............................. -- -- 1,650 --
Restructuring charge........................... 475 -- 1,375 390
Reimbursed environmental and litigation
costs, net................................... 7 274 12 292
Other.......................................... 4,046 439 3,896 (519)
----------- ----------- ----------- -----------
(Loss) income from operations................ (3,148) 1,907 (120) 9,491
Interest expense............................... 5,435 4,885 15,716 14,647
Interest income................................ 8 450 383 1,529
----------- ----------- ----------- -----------
Loss from continuing operations
before income taxes(benefit)and
discontinued operations.................. (8,575) (2,528) (15,453) (3,627)
Income taxes(benefit) ......................... 317 (5) 1,065 197
----------- ----------- ----------- -----------
Loss from continuing operations
before discontinued operations........... (8,892) (2,523) (16,518) (3,824)
Discontinued operations:
Income from discontinued operations, net
of income taxes.......................... -- 420 -- 914
Gain on disposal of discontinued
operations, net of income taxes.......... -- -- 414 --
----------- ----------- ----------- -----------
NET LOSS....................................... (8,892) (2,103) (16,104) (2,910)
Preferred dividends............................ (1,300) (1,092) (3,930) (3,182)
Accretion of redeemable preferred stock........ (110) (96) (337) (286)
----------- ----------- ----------- -----------
Net loss applicable to common stockholders..... $ (10,302) $ (3,291) $ (20,371) $ (6,378)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per common share:
Continuing operations...................... $(9,512.47) $(3,426.59) $(19,192.06) $(6,733.15)
Income from discontinued operations........ -- 387.81 843.95
Gain on disposal of discontinued
operations............................... -- -- 382.27 --
Net loss applicable to common
stockholders............................. $(9,512.47) $(3,038.78) $(18,809.79) $(5,889.20)
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Weighted average common stock outstanding...... 1,083 1,083 1,083 1,083
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON CURRENCY
COMMON PAID-IN ACCUMULATED STOCK TRANSLATION
STOCK CAPITAL DEFICIT WARRANTS ADJUSTMENT TOTAL
------ --------- ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 26, 1997
(Audited)................. $ 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
(Audited)................. 1 19,527 (72,603) 2,200 (342) (51,217)
Net income.................. 15,033 15,033
Preferred stock dividends... (4,329) (4,329)
Accretion of redeemable
preferred stock........... (443) (443)
Change in foreign currency
translation............... (384) (384)
------ --------- ----------- --------- ------------ ----------
Balance, April 24, 1999
(Audited)................. 1 19,527 (62,342) 2,200 (726) (41,340)
Net loss.................... (16,104) (16,104)
Preferred stock dividends... (3,930) (3,930)
Accretion of redeemable
preferred stock........... (337) (337)
Change in foreign currency
translation............... (247) (247)
------ --------- ----------- --------- ------------ ----------
Balance, January 29, 2000
(Unaudited)............... $ 1 $ 19,527 $ (82,713) $ 2,200 $ (973) $ (61,958)
------ --------- ----------- --------- ------------ ----------
------ --------- ----------- --------- ------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
JANUARY 29, JANUARY 23,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (16,104) $ (2,910)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Income from discontinued operations, net of income tax -- (914)
Depreciation and amortization......................... 11,126 7,419
Write-off of other assets and purchased research and
development......................................... 1,650 --
Non-cash interest..................................... 903 809
Deferred income taxes................................. (797) (88)
Undistributed earnings of affiliate................... (231) (102)
Gain on sale of discontinued operations............... (414) --
Loss (gain) on sale of assets......................... 174 (19)
Change in assets and liabilities net of effects of
business acquisition and divestitures:
Accounts receivable, net............................ 7,562 7,701
Proceeds from of Account Receivable Sale............ 13,736 --
Refundable income taxes............................. (438) --
Inventories......................................... 1,534 (5,794)
Prepaid expenses and other current assets........... (3,793) 286
Other assets........................................ (1,028) (884)
Accounts payable, accrued interest and accrued
liabilities....................................... (7,751) (1,684)
Advance payments by customers....................... (358) 193
Federal, foreign and state income taxes payable..... (453) 1,043
----------- ----------
Net cash provided by continuing operations 5,318 5,056
Net cash provided by discontinued operations........ -- 1,088
---------- ----------
Net cash provided by operating activities........... 5,318 6,144
Cash flows from investing activities:
Additions to property, plant and equipment, continuing
operations............................................ (7,231) (6,370)
Additions to property, plant and equipment,
discontinued operations............................... -- (444)
Acquisition of Charles Evans & Associates, net of
cash acquired......................................... (36,977) --
Acquisition of Industrial Power Rectifiers product line,
net of cash acquired.................................. -- (3,226)
Acquisition of Ansaldo Sistemi Industriali, S.p.A.,
net of cash acquired.................................. (28,084) --
Proceeds from the sale of discontinued operations,
net of expenses....................................... 690 --
Proceeds from the sale of assets and other,
net of expenses, continuing operations................ 1,591 181
Proceeds from the sale of assets and other,
net of expenses, discontinued operations.............. -- 171
Other................................................... -- 25
---------- ----------
Net cash used in investing activities .............. (70,011) (9,663)
---------- ----------
</TABLE>
6
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
JANUARY 29, JANUARY 23,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net payments on foreign credit line..................... 1,286 (2,070)
Net decrease (increase) in restricted cash.............. 14,925 11,224
Net borrowing (payments) under senior credit agreement.. 5,589 --
Net borrowing (payments) on long-term obligations....... 18,271 (1,386)
Cash overdraft, continuing operations................... 1,613 (20)
Cash overdraft, discontinued operations................. -- (48)
---------- ----------
Net cash provided by financing activities............. 41,684 7,700
---------- ----------
Effect of foreign exchange rate changes on cash............ 534 199
---------- ----------
Net (decrease) increase in cash and cash equivalents.. (22,475) 4,380
Cash and cash equivalents, beginning of the period...... 31,459 16,518
---------- ----------
Cash and cash equivalents, end of the period............ $ 8,984 $ 20,898
---------- ----------
---------- ----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest................................................ $ 10,346 $ 9,699
Income taxes............................................ 3,119 1,854
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Preferred stock dividends-in-kind and issuable preferred
stock dividends-in-kind............................... $ 3,930 $ 3,182
Leased asset additions.................................. 190 3,495
Fixed assets transferred to inventory................... -- 102
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of High Voltage Engineering
Corporation and Subsidiaries (the "Company") include accounts of High Voltage
Engineering Corporation and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The
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 Company operates on a 52 or 53 week fiscal year. The nine months ended
January 29, 2000 and January 23, 1999 include the results of operations of the
Company for 40 week and 39 week periods, respectively.
The consolidated financial statements do not contain all disclosures
included in financial statements normally prepared in accordance with generally
accepted accounting principles pursuant to SEC rules and regulations. These
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 24, 1999, as filed with the SEC on July 9, 1999, and are not
necessarily indicative of the results that may be expected for the year ending
April 29, 2000.
NOTE 2 - INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
JANUARY 29, APRIL 24,
2000 1999
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Raw materials........................... $ 23,310 $ 20,240
Work-in-process......................... 37,954 15,885
Finished goods.......................... 3,290 3,215
--------- -----------
Total................................ $ 64,554 $ 39,340
---------- -----------
---------- -----------
</TABLE>
NOTE 3 - ACQUISITION, DIVESTITURE AND OTHER TRANSACTIONS
On July 2, 1999, Physical Electronics, Inc. ("PHI"), a wholly owned
subsidiary of the Company, acquired all the outstanding capital stock of Charles
Evans & Associates ("CE&A") pursuant to a Stock Purchase Agreement ("Agreement")
among PHI and the shareholders of CE&A. Under the Agreement, the former
shareholders of CE&A received in exchange for their stock an aggregate
consideration of $37,600 in cash reduced by the amount of all debt of CE&A
outstanding at the closing.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based the fair values at the date of the
acquisition. The Company has charged historical earnings $1,650 for purchased
research and development which had been revalued. The excess of the purchase
price over the fair value of the net assets acquired has been recorded as cost
in excess of assets acquired, which will be amortized on a straight-line basis
over 20 years.
8
<PAGE>
On December 22, 1999, the Company acquired all the outstanding capital
stock of Ansaldo Sistemi Industriali, S.p.A., an Italian corporation, and
subsidiaries ("ASI"), from Ansaldo Invest, S.p.A., an Italian corporation,
which is the corporate parent of ASI and a wholly owned subsidiary of
Finmeccanica S.p.A. pursuant to a Stock Purchase Agreement ("Purchase
Agreement") for an aggregate purchase price of $28,084 for cash and Italian
bank financing. The acquisition became effective on January 18, 2000.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon management's preliminary
estimate of the fair value at the date of acquisition. Adjustments to the asset
values, including inventories, fixed assets and liabilities in the final
allocation may differ from these estimates, which could impact future earnings.
The excess of the purchase price over the fair value of the net assets acquired
has been recorded as cost in excess of assets acquired, which will be amortized
on a straight line basis over 20 years.
The net purchase prices have been allocated as follows:
<TABLE>
<CAPTION>
CE&A ASI TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Working capital, other than cash acquired...... $ 100 $ 15,315 $ 15,415
Property, plant and equipment................... 15,737 29,471 45,208
Other assets (includes purchased in-process
research and development).................... 15,724 10,192 25,916
Cost in excess of assets acquired............... 8,406 2,113 10,519
Other liabilities................................ (2,990) (29,007) (31,997)
--------- --------- ---------
Purchase price, net of cash received........... $ 36,977 $ 28,084 $ 65,061
--------- --------- ---------
--------- --------- ---------
</TABLE>
The operating results of CE&A has been included in the Company's
Consolidated Statement of Operations from the date of acquisition. Pursuant
to the Purchase Agreement, the operating results of ASI have been included in
the Company's Consolidated Statement of Operations from January 1, 2000.
The following pro forma financial information illustrates the effects of the
acquisitions of CE&A and ASI after giving effect to the impact of certain
adjustments, such as amortization, depreciation and certain purchase accounting
adjustments. On the basis of a pro forma consolidation of the results of
operations as if the acquisitions had taken place at the beginning of the
periods presented, consolidated net sales would have been $331,988 and $322,629,
for the nine months ended January 29, 2000 and January 23, 1999, respectively.
Consolidated pro forma loss from continuing operations before discontinued
operations would have been $39,492 and $6,873 for the nine months ended January
29, 2000 and January 23, 1999, respectively. Consolidated pro forma net loss
applicable to common stockholders would have been $43,345 and $9,427, for the
nine months ended January 29, 2000 and January 23, 1999, respectively.
Consolidated pro forma net loss from continuing operations per common share
applicable to common shareholders would have been $40,405.36 and $9,548.48 for
the nine months ended January 29, 2000 and January 23, 1999, respectively. The
pro forma results are not necessarily indicative of the actual results as if the
transactions had been in effect for the entire periods presented. In addition,
they are not intended to be a projection of future results.
DIVESTITURE
On April 23, 1999, the Company sold substantially all of the assets and
liabilities of its Natvar operating unit. The price for Natvar was $26,000, paid
in cash. Of the aggregate $26,000 received by the Company in connection with the
sale, $1,250 was placed into escrow for periods up to one year to secure certain
indemnification obligations of the Company and to satisfy possible purchase
price adjustments. Revenues applicable to discontinued operations were
approximately $11,692 for the nine months ended January 23, 1999.
9
<PAGE>
SALE OF ACCOUNTS RECEIVABLE
On December 29, 1999 the Company entered into a Trade Receivables
Purchase Facility (the "Receivables Purchase Facility") with High Voltage
Funding Corporation, ("HV-FC"), a limited purpose subsidiary of the Company.
Under this agreement, other domestic subsidiaries of the Company sell a
defined pool of domestic trade accounts receivable ("Pool Assets"), and the
related rights inherited of the Company and it domestic subsidiaries to
HV-FC. The Receivables Purchase Facility allows the domestic subsidiaries to
sell to the Company who, in turn, sells to HV-FC an undivided ownership
interest in the Pool Assets, up to a limit of $22.5 million. HV-FC owns all
of its assets and sells participating interests in such accounts receivable
to a third party who, in turn, purchases and receives ownership and security
interests in those assets. As collections reduce accounts receivable included
in the pool, the operating subsidiaries sell new receivable to HV-FC. The
limited purpose subsidiary has the risk of credit loss on the receivables
and, accordingly, an allowance for doubtful accounts has been retained on the
Consolidated Balance Sheets. At January 29, 2000, $13.9 million was utilized
under the Receivables Purchase Facility. The proceeds from the sale were used
to reduce borrowings and to fund operations and acquisitions. The proceeds
are less than face value of accounts receivable sold, by an amount that
approximates the cost that HV-FC would incur if it were to issue commercial
backed paper by these accounts receivable. The discount from the face value,
which amounted to $0.2 million at January 29, 2000, is accounted for as a
loss on the sale of receivables and has been included in other income and
expenses in the Company's Consolidated Statement of Operations. The Company's
operating subsidiaries retain the collections and administrative
responsibilities for the participating interests in the Pool Assets.
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 March 1998, the Company was dismissed without prejudice as a defendant in
an action commenced in November 1996 against the Company and six others by
Chicago-Dubuque Foundry Corporation, and its property insurer. In May 1998, the
remaining claims against the Company by intervenor plaintiffs were also
dismissed without prejudice. During fiscal 1999, a plaintiff named the Company
as a Third-Party Defendant, claiming indemnity under the terms of its purchase
orders and under a "failure to warn" claim. Most, if not all, other defendants
have now also filed cross-claims against the Company for contribution or
indemnity. The Company moved for summary judgement on the basis that since the
connectors involved were not manufactured by the Company, it can have no
liability. In August 1999, the motion for summary judgement was sustained and
all claims against the Company were dismissed.
In March 1998, the Company's Robicon Corporation subsidiary 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, 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 March 1999, the Texas District Court dismissed without prejudice all claims
except the alleged patent infringement by Robicon and the request for
declaratory judgement. These claims were then transferred to the Western
District of Pennsylvania. Also in March 1999, Toshiba filed a petition in Harris
County, Texas in which it realleged the claims dismissed by the Texas district
court, citing the additional costs by Toshiba to reinstate its purchase order
and damages to its reputation not exceeding $5.0 million. On November 29, 1999,
the Pennsylvania district court granted Robicon's Motion to dismiss Toshiba's
patent infringement claim against Robicon. The only remaining transferred claim
is Toshiba's request for declaratory judgment. In November 1999, Toshiba filed a
motion to dismiss without prejudice all of the claims pending in Harris County,
Texas pursuant to a Tolling Agreement which permits Toshiba one (1) year to
re-file its claims. In December 1999, the Texas state court granted Toshiba's
motion.
10
<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 resolved unfavorably to the Company. 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 five industry segments. The Company's reportable
segments are individual business units that offer different products and
services. Each business unit has its own management team and manufacturing
facilities and maintains its own independent market identity. The Company
evaluates performance based on operating earnings of the respective business
units. Information concerning operations in these businesses is as follows:
<TABLE>
<CAPTION>
DEPRECIATION
NET OPERATING IDENTIFIABLE AND CAPITAL
SALES INCOME ASSETS AMORTIZATION EXPENDITURES
--------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
Corporate and other ............. 7,205 (2,333) 33,814 482 260
--------- ---------- ------------ ------------ ------------
Consolidated (Unaudited)....... $176,786 $ 9,491 $ 219,172 $ 7,419 $ 9,865
--------- ---------- ------------ ------------ ------------
--------- ---------- ------------ ------------ ------------
NINE MONTHS ENDED JANUARY 29, 2000
Restricted Subsidiary (Robicon).. $ 54,032 $ (1,866) $ 49,360 $ 1,445 $ 695
Unrestricted Subsidiary (ASI).... 11,725 (1,284) 129,277 438 18
--------- ---------- ------------ ------------ ------------
High power Conversion products... 65,757 (3,150) 178,637 1,883 713
Advanced surface analysis
instruments and services....... 50,505 (1,567) 116,109 5,828 5,740
High performance modular
power connectors .............. 21,488 4,424 15,787 1,124 656
Customized monitoring
instrumentation ............... 44,625 4,177 45,882 1,875 259
Corporate and other ............. 6,132 (4,004) 5,467 416 53
--------- ---------- ------------ ------------ ------------
Consolidated (Unaudited)....... $188,507 $ (120) $ 361,882 $ 11,126 $ 7,421
--------- ---------- ------------ ------------ ------------
--------- ---------- ------------ ------------ ------------
</TABLE>
11
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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 29, 2000 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 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
Except as otherwise indicated, the following discussion relates to the
Company on a historical basis without giving effect to acquisitions. This report
may make forward-looking statements regarding future events or the future
financial performance of the Company. We caution you that these statements are
only predictions and that actual events or results may differ materially. We
refer you to documents the Company files from time to time with the Securities
and Exchange Commission, and specifically the most recent Annual Report on Form
10-K and the "Risk Factors" section in the Company's most recent Registration
Statement on Form S-4 on file. This document identifies and describes important
factors that can cause the after-results to differ materially from those
contained in any forward-looking statements we may make. The following
discussion should be read in conjunction with the consolidated financial
statements and notes thereto contained elsewhere herein.
The consolidated financial statements of the Company include the accounts of
High Voltage Engineering Corporation and its subsidiaries after elimination of
material inter-company transactions and balances. As used in this filing, the
terms "fiscal 2000" and "fiscal 1999" refer to the Company's fiscal years ended
April 29, 2000 and April 24, 1999, respectively. The Company operates on a 52 or
53 week fiscal year. The nine months ended January 29, 2000 and January 23, 1999
include the results of operations of the Company for 40 week and 39 week
periods, respectively.
As a result of the sale by the Company of substantially all of the assets of
the Company's Natvar operating unit on April 23, 1999, the Company's
consolidated results have been restated to reclassify the results of Natvar's
operations as discontinued operations.
The Company conducts its business through six independent operating units,
in five industry segments. Those segments are High power conversion products
which include Robicon Corporation and subsidiaries ("Robicon"), Ansaldo Sistemi
Industriali, S.p.A., ("ASI"), Advanced surface analysis instruments which
include Physical Electronics, Inc. and subsidiaries ("PHI"), High performance
modular power connectors which include Anderson Interconnect, Inc. and
subsidiaries ("Anderson") Customized monitoring instrumentation, which include
Maxima Technologies, Inc. and subsidiaries ("Maxima"), Corporate and other which
includes High Voltage Engineering Europa, B.V. ("HVE Europa"), each of which has
its own management team and manufacturing facilities and maintains its own
independent market identity.
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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.
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.
ACQUISITION OF CHARLES EVANS & ASSOCIATES
On July 2, 1999, PHI acquired all the outstanding capital stock of Charles
Evans & Associates ("CE&A"). Under the Stock Purchase Agreement ("Agreement"),
the former shareholders of CE&A received in exchange for their stock an
aggregate consideration of $37.6 million in cash reduced by the amount of all
debt of CE&A outstanding at the closing.
ACQUISITION OF ANSALDO SISTEMI INDUSTRIALI
On December 22, 1999, the Company acquired all the outstanding capital
stock of Ansaldo Sistemi Industriali, S.p.A., an Italian corporation, and
subsidiaries ("ASI"), from Ansaldo Invest, S.p.A., an Italian corporation,
which is the corporate parent of ASI and a wholly owned subsidiary of
Finmeccanica S.p.A. pursuant to a Stock Purchase Agreement ("Purchase
Agreement") for an aggregate purchase price of $28,084 in cash and Italian
bank financing. The acquisition became effective on January 18, 2000.
Integrating ASI's strong presence in the European and Asian markets with
Robicon's strong presence in North and South America is intended to yield a
stronger global presence for each company. In addition, management believes
Ansaldo's expertise in the metals processing, pulp and paper, materials
handling, marine and cable transport industries, will act as a strong complement
to Robicon's traditional strengths in the water and wastewater, oil and gas,
silicon and glass, cement and chemical industries. Furthermore, the
complementary nature of Ansaldo and Robicon's respective geographic and industry
strengths may provide significant cross selling opportunities to both
enterprises.
CONSOLIDATED
Net sales for the nine months ended January 29, 2000 were $188.5 million,
which was a $11.7 million or 6.6% increase from the same period in fiscal 1999.
Excluding net sales from CE&A, which was acquired on July 2, 1999, and net sales
from ASI, which was acquires on December 22, 1999, net sales decreased $12.4
million, or 7.0%, during the first half of fiscal 2000. Net loss increased for
the nine months ended January 29, 2000 to $16.1 million from $2.9 million during
the same period in fiscal 1999. The loss increase was due primarily to: (i)
lower sales volume, (ii) a restructuring charge at Robicon for a reduction in
headcount, (iii) a write off of purchased in-process research and development in
connection with the CE&A acquisition, and (iv) a decrease in interest income due
to lower cash balances.
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SEGMENT ANALYSIS:
THREE MONTHS ENDED JANUARY 29, 2000 COMPARED TO THREE MONTHS ENDED
JANUARY 23, 1999
THE HIGH POWER CONVERSION PRODUCTS SEGMENT reported net sales of $29.0
million for the third quarter of fiscal 2000 which was a increase of $10.7
million, or 58.8% from the third quarter of fiscal 1999. Excluding net sales
from ASI, which was acquired on December 22, 1999, net sales for Robicon
decreased $1.0 million during the third quarter of fiscal 2000 as compared to
the third quarter of fiscal 1999. The reduction in net sales was a result of
reduced shipments of power control systems. The power control systems
decrease was a result a continued slow down in major capital equipment
projects in this area. Operating loss increased $1.0 million to $1.6 million
in the third quarter of fiscal 2000 as compared to the third quarter of
fiscal 1999. Excluding operating loss from ASI, operating loss decreased $0.3
million during the third quarter of fiscal 2000 as compared to the third
quarter of fiscal 1999. Operating loss in the third quarter of fiscal 2000
included $0.3 million expense relating to the Toshiba litigation. The
remaining decrease was primarily the result of lower gross profit due to
lower net sales which was offset by lower administrative and selling expenses
due to actions taken in first and third quarters to reduce headcount.
THE ADVANCED SURFACE ANALYSIS INSTRUMENTS SEGMENT reported net sales of $21.2
million for the third quarter of fiscal 2000 which was an increase of $5.2
million, or 32.4% from the third quarter of fiscal 1999. Excluding net sales
from CE&A, which was acquired on July 2, 1999. Net sales for PHI remained flat
at $16.0 million during the third quarter of fiscal 2000 as compared to the
third quarter of fiscal 1999. Operating income decreased $1.0 million to $0.2
million in the third quarter of fiscal 2000 as compared to the third quarter of
fiscal 1999. Excluding operating income from CE&A, operating income decreased
$1.3 million during the third quarter of fiscal 2000 as compared to the third
quarter of fiscal 1999. This decrease in operating income was the net result of
lower gross profit due to the higher mix of shipments into Japan, which have a
lower gross margin combined with loss in the Company's Joint Venture with ULVAC.
THE HIGH PERFORMANCE MODULAR POWER CONNECTORS SEGMENT reported net sales of
$6.4 million for the third quarter of fiscal 2000 which was a slight decrease of
$0.2 million from the third quarter of fiscal 1999. Operating income increased
$0.3 million to $1.5 million for the third quarter of fiscal 2000 as compared to
the third quarter of fiscal 1999 due to favorable product mix during the
quarter.
THE CUSTOMIZED MONITORING INSTRUMENTATION SEGMENT reported net sales of
$13.7 million for the third quarter of fiscal 2000 which was an increase of $0.7
million, or 5.3%, from the third quarter of fiscal 1999. The increase was due to
new customers acquired, along with new products being sold to some existing
customers. Operating income increased slightly to $1.0 million during the period
ended January 29, 2000 compared to the same period in fiscal 1999. The gross
profit from the increased sales and expense savings due to operational
efficiencies were offset by higher warranty costs on some discontinued Stewart
Warner brand products.
NINE MONTHS ENDED JANUARY 29, 2000 COMPARED TO THE NINE MONTHS ENDED
JANUARY 23, 1999
THE HIGH POWER CONVERSION PRODUCTS SEGMENT reported net sales of $65.8
million for the nine month ended January 29, 2000, which was an increase of
$5.4 million, or 8.9% from the nine months ended January 23, 1999. Excluding
net sales from ASI, which was acquired on December 22, 1999, net sales for
Robicon decreased $6.3 million during the third quarter of fiscal 2000 as
compared to the third quarter of fiscal 1999. The reduction in net sales was
a result of reduced shipments of medium voltage variable frequency drives
into the international oil and gas markets which, until recently, suffered
from reduced capital spending due to low energy prices, combined with a slow
down in demand for Robicon's low voltage drives due to the softness in the
municipal market place, and the cyclical nature of power control systems
orders. Operating income decreased $4.5 million to a loss of $3.2 million
during the nine months ended January 29, 2000 as compared to the same period
in fiscal 1999. Excluding the operating loss from ASI, operating income
decreased $3.2 million to a loss of $1.9 million during the third quarter of
fiscal 2000 as compared to the third quarter of fiscal 1999. This increase
was primarily the result of lower gross profit due to the lower net sales,
litigation costs of $0.9 million relating to a patent infringement case and
the recording of a higher restructuring charge.
14
<PAGE>
During the first and third quarters of fiscal 2000, the Company took actions
to reduce costs at Robicon to compensate for the slow down in some of its served
markets mentioned above and to leverage the new ASI synergies. These actions
resulted in the Company recording a $1.4 million restructuring charge for
severance relating to the reduction of headcount at Robicon.
THE ADVANCED SURFACE ANALYSIS INSTRUMENTS SEGMENT reported net sales of
$50.5 million for the nine months ended January 29, 2000, was an increase of
$6.4 million from the nine months ended January 23, 1999. Excluding net sales
from CE&A, which was acquired on July 2, 1999, net sales decreased $5.9 million
or 13.4% during the nine months ended January 29, 2000, as compared to the nine
months ended January 23, 1999. The decrease was the result of softness in the
semiconductor market, weaker sales of PHI's Trift products, as well as reduced
ESCA product sales to industrial lab markets. Operating loss increased $3.4
million to $1.6 million for the nine months ended January 29, 2000 compared to
the nine months ended January 23, 1999. Excluding the operating loss of CE&A,
which included a charge of $1.7 million to write off purchased in-process
research and development expense, which had been valued in accordance with
purchase accounting procedures, operating income decreased $3.0 million. This
decrease in operating income was the result of reduced gross profit due to lower
net sales and a mix shift towards lower margin business in Japan, offset by a
small reduction in administrative and selling expenses due to lower commissions
relating to the lower net sales and incremental income from the Joint Venture
with ULVAC.
THE HIGH PERFORMANCE MODULAR POWER CONNECTORS SEGMENT reported net sales of
$21.5 million for the nine months ended January 29, 2000, was an increase of
$1.3 million, or 6.6% from the nine months ended January 23, 1999. Growth in the
telecommunications networking equipment markets and certain industrial markets
continued to fuel the growth in this segment. Operating income was increased
$0.2 to $4.4 million for the nine months ended January 29, 2000 as compared to
the nine months ended January 23, 1999. Incremental gross profit from higher
sales were slightly offset by additional investment in infrastructure to support
this segment's growth strategy.
THE CUSTOMIZED MONITORING INSTRUMENTATION SEGMENT reported net sales of
$44.6 million for the nine months ended January 29, 2000 was a decrease of
$0.4 million, or 0.9%, from the nine months ended January 23, 1999. The
reduction in this segment was due to the phase out of some older products
being sold under the Stewart Warner brand and continued softness in the
European agricultural market. Operating income decreased $0.3 million to $4.2
million during the nine months ended January 29, 2000 as compared to the nine
months ended January 23, 1999. The gross profit declined $0.3 million, due to
lower net sales, higher warranty cost on some discontinued Stewart Warner
brand products and a shift towards lower margin products, and were partially
offset by expense savings due to the efficiencies obtained in combining the
acquired Stewart Warner Instrument Company operations with those of the
Company's existing Maxima Technologies subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for working capital, capital
expenditures and acquisitions. The Company's primary sources of liquidity have
been funds provided by operations, proceeds from the sale of discontinued
operations and asset sales, as well as proceeds from financing activities.
The Company maintains a $25.0 million revolving credit facility (the
"Revolving Credit Facility") which is primarily maintained to fund the
Company's working capital requirements and has a $10.0 million sublimit for
the issuance of standby letters of credit. On December 29, 1999, in
connection with the Receivables Purchase Facility, the Revolving Credit
Facility was amended to exclude certain domestic receivables sold pursuant to
the Receivable Purchase Facility and included certain property, plant and
equipment of certain domestic subsidiaries. The Revolving Credit Facility was
also amended to extend the expiration date to August 1, 2003. Borrowings
outstanding under the Revolving Credit Facility as of January 29, 2000 was
$5.6 million. There were $3.2 million in letters of credit commitments
outstanding resulting in credit availability under this facility of $16.2
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 to the Company.
15
<PAGE>
On December 29, 1999 the Company entered into a Trade Receivables
Purchase Facility (the "Receivables Purchase Facility") with High Voltage
Funding Corporation, ("HV-FC"), a limited purpose subsidiary of the Company.
Under this agreement, other domestic subsidiaries of the Company sell a
defined pool of domestic trade accounts receivable ("Pool Assets"), and the
related rights inherited of the Company and it domestic subsidiaries to
HV-FC. The Receivables Purchase Facility allows the domestic subsidiaries to
sell to the Company which, in turn, sells to HV-FC an undivided ownership
interest in the Pool Assets, up to a limit of $22.5 million. HV-FC owns all
of its assets and sells participating interests in such accounts receivable
to a third party which, in turn, purchases and receive ownership and security
interests in those assets. As collections reduce accounts receivable included
in the pool, the operating subsidiaries sell new receivable to HV-FC. The
limited purpose subsidiary has the risk of credit loss on the receivables. At
January 29, 2000 $13.9 million was utilized under the Receivables Purchase
Facility. The proceeds from the sale were used to reduce borrowings and to
fund operations and acquisitions. The proceeds are less than face value of
accounts receivable sold, by an amount that approximates the cost that HV-FC
would incur if it were to issue commercial backed paper by these accounts
receivable. The discount from the face value, which amounted to $0.2 million
at January 29, 20000, is accounted for as a loss on the sale of receivables
and has been included in other income and expenses in the Company's
Consolidated Statement of Operations. The Company's operating subsidiaries
retain the collections and administrative responsibilities for the
participating interests in the Pool Assets.
As of January 29, 2000, the Company had total indebtedness (including
redeemable put warrants) of $203.6 million and mandatory redeemable preferred
stock with an aggregate liquidation preference of $39.6 million.
On December 22, 1999 the Company received the consent (the "Consent
Solicitation") of the holders of the outstanding $155.0 million, 10 1/2%
Senior Notes (the "Notes") due 2004, for the waiver of, and amendment to,
certain provisions of the indenture governing the Notes (the "Indentures").
As more fully described in the Consent Solicitation the Company entered into
a series of transactions including (i) the acquisition of ASI; (ii) the
simultaneous purchase by the Company of $8.5 million of 5.0% unsecured notes
of the Nicole Corporation (the "Nicole Intercompany Notes"), a wholly owned
subsidiary of the Company; (iii) the pledge by the Company of the Nicole
Intercompany Notes to secure the Company's obligations under the Notes; (iv)
allow the Company to sell certain account receivables to a limited purpose
unrestricted subsidiary of the Company, pursuant to the Receivables Purchase
Facility. The purpose of the waivers is to waive, any default arising under
the Indenture as a result of the completion of the ASI acquisition and the
purchase by the Company of the Nicole Intercompany Notes. The principal
purposes of the amendments are (i) to designate Nicole Corporation as an
unrestricted subsidiary of the Company, as defined under the Indenture; and
(ii) to amend the amount available to the Company to make Restricted
Payments; and (iii) to include as Permitted Investment the transfer of
certain accounts receivable of the Company's subsidiaries pursuant to the
Receivables Purchase Facility. In consideration of the Consent Solicitation,
the Company, (i) paid a Consent Fee of $3.1 million; (ii) increased the
amount of interest payable on the Notes to 10 3/4% until such time the
Company is able to incur additional indebtedness under the Indenture; (iii)
offered as collateral the PHI Eden Prarie facility and (iv) a pledge of the
Nicole Intercompany Notes.
The Company does not anticipate any significant principal payment
obligations under any of its outstanding indebtedness prior to maturity of
the Company's 10 3/4% Senior Notes due 2004, other than the Revolving Credit
Facility in 2003, as well as $1.6 million of unsecured seller notes related
to the acquisition of Maxima-Barcelona which are due on March 16, 2000 and
$2.9 million of redeemable put warrants puttable on or after May 1, 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.
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<PAGE>
The Company's working capital was $27.9 million and $67.3 million at
January 29, 2000 and April 24, 1999, respectively. The Company's results from
continuing operations for the nine months ended January 29, 2000 provided
$2.7 million in cash, compared to the $5.0 million provided by operations for
the same period in fiscal 1999. Net loss after adjustments to reconcile to
net cash from operating activities used cash of $3.7 million, plus cash
provided by working capital of $9.0 million.
The Company invested $7.4 million in capital expenditures during the nine
months ended January 29, 2000, primarily at PHI for the planned introduction of
a new product line. The Company used $65.1 million for the purchase of Charles
Evans & Associates on July 2, 1999, and ASI on December 22, 1999, net of cash
acquired.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Company does not believe adoption will have a
material impact on its financial statement disclosures.
YEAR 2000
An issue which the Company faced was whether computer systems and
applications would recognize and process the Year 2000 and beyond. The Company
has not experienced any Year 2000 failures nor has any of the Company's
subsidiaries, to the best of management knowledge, experienced loss of revenue
due to Year 2000 failures with customers and suppliers during the nine months
ended January 29, 2000. In addition, the Company believes it had devoted
sufficient resources to identify and monitor customers, suppliers and others
whose failure to identify and remediate their internal systems or product
offerings would have adversely affect the operations of the Company. However,
there can be no assurance that the customers, suppliers and others will continue
to operate without incurring Year 2000 compliance issues.
Costs related to the Year 2000 issues are being expensed during the period in
which they are incurred. The financial impact to the Company of implementing the
systems changes necessary to become Year 2000 compliant has not been and is not
anticipated to be material to its business, operations, financial condition,
liquidity and capital resources. 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 date change
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.
17
<PAGE>
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risks for the Company is interest rate risk and foreign
currency risk. Other risks dealing with contingencies are described in Note 4 to
the Company's notes to the consolidated financial statements included under Item
1 provided elsewhere herein and in Item 1 of Part II of this report.
INTEREST RATE RISK
The Company's exposure to interest rate risk is limited to the Company's
borrowing arrangements under the Revolving Credit Facility. The interest rates
on the Company's other long-term debt are fixed and the majority of this debt
matures in the Company's fiscal year ended April 24, 2004. The Company has not
engaged in derivative transactions, such as interest rate swaps, caps or
collars, in order to reduce it risk, nor does the Company have any plans to do
so in the future. Assuming a maximum draw-down of the Revolving Credit Facility,
a 100 basis point increase in interest rates would have approximately a $200,000
negative impact on the earnings of the Company.
FOREIGN CURRENCY RISK
The Company manufactures products in the U.S., The Netherlands, Spain,
Ireland, Italy, Germany, France, UK and Mexico and sells products worldwide.
With the acquisition of ASI on December 22, 1999, the Company now maintains a
significant presence in Europe. Therefore the Company's operating results are
subject to fluctuations in foreign currency exchange rates, as well as the
translation of its foreign operations into U.S. dollars. The risks associated
with operating in foreign currencies could adversely affect the Company's future
operating results. Additionally, currency fluctuations could improve the
competitive position of the Company's foreign competition if the value of the
U.S. dollar rises in relation to the local currencies of such competition. The
Company sometimes enters into forward exchange contracts to manage exposure
related to certain foreign currency commitments, certain foreign currency
denominated balance sheet positions and anticipated foreign currency denominated
expenditures. All forward exchange contracts are designated as and effective as
a hedge and are highly inversely correlated to the hedged item. If a derivative
contract terminates prior to maturity, the investment is shown at its fair value
with the resulting gain or loss reflected in operating results.
Gains and losses on contracts to hedge identifiable foreign currency
commitments are deferred and accounted for as part of the related foreign
currency transaction. Gains and losses on all other forward exchange contracts
are included in current income.
18
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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, the Company was dismissed without prejudice as a defendant in
an action commenced in November 1996 against the Company and six others by
Chicago-Dubuque Foundry Corporation, and its property insurer. In May 1998, the
remaining claims against the Company by intervenor plaintiffs were also
dismissed without prejudice. During fiscal 1999, a plaintiff named the Company
as a Third-Party Defendant, claiming indemnity under the terms of its purchase
orders and under a "failure to warn" claim. Most, if not all, other defendants
have now also filed cross-claims against the Company for contribution or
indemnity. The Company moved for summary judgement on the basis that since the
connectors involved were not manufactured by the Company, it can have no
liability. In August 1999, the motion for summary judgement was sustained and
all claims against the Company were dismissed.
In March 1998, the Company's Robicon Corporation subsidiary 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 March 1999, the Texas District Court dismissed without prejudice all claims
except the alleged patent infringement by Robicon and the request for
declaratory judgement. These claims were then transferred to the Western
District of Pennsylvania. Also in March 1999, Toshiba filed a petition in Harris
County, Texas in which it realleged the claims dismissed by the Texas district
court, citing the additional costs by Toshiba to reinstate its purchase order
and damages to its reputation not exceeding $5.0 million. On November 29, 1999,
the Pennsylvania district court granted Robicon's motion to dismiss Toshiba's
patent infringement claim against Robicon. The only remaining transferred claim
is Toshiba's request for declaratory judgment. In November 1999, Toshiba filed a
motion to dismiss without prejudice all of the claims pending in Harris County,
Texas pursuant to a Tolling Agreement which permits Toshiba one (1) year to
re-file its claims. In December 1999, the Texas state court granted Toshiba's
motion.
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 resolved unfavorably to the Company. If estimates change, there
is no assurances these items will not require additional accruals by the
Company.
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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
27 Financial Data Schedule
(b) Reports on Form 8-K
(i) On May 7, 1999, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K, dated May 7, 1999, in which the
Company reported under Item 2 of Form 8-K the disposition of certain
assets relating to its Natvar Company business division. This report also
included the following financial statements under Item 7 thereof:
High Voltage Engineering Corporation and Subsidiaries Unaudited Pro
Forma Condensed Consolidated Balance Sheet as of January 23, 1999
High Voltage Engineering Corporation and Subsidiaries Unaudited Pro
Forma Condensed Consolidated Statement of Operations for the Fiscal
Year Ended April 25, 1998
High Voltage Engineering Corporation and Subsidiaries Unaudited Pro
Forma Condensed Consolidated Statement of Operations for the Nine
Months Ended January 23, 1999
The Company also filed as part of Item 7 an exhibit copy of the Asset
Purchase Agreement, dated as of April 8, 1999, among the Company, Natvar
Holdings, Inc. and Tekni-Plex, Inc.
(ii) On July 19, 1999, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K, dated July 19, 1999, in which
the Company reported under Item 2 of Form 8-K the acquisition of all of
the outstanding capital stock of Charles Evans & Associates. The
Company also filed as part of Item 7 of this report an exhibit copy of
the Stock Purchase Agreement, dated as of June 2, 1999, among (i)
Physical Electronics, Inc., (ii) Charles Evans & Associates, (iii) the
Trustee of the Charles Evans & Associates Employee Stock Ownership
Plan, and (iv) the stockholders of Charles Evans & Associates named on
Schedule A thereto.
On September 17, 1999, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K/A, dated September 17, 1999, in
which the Company reported under Item 2 of Form 8-K/A the acquisition of
all of the outstanding capital stock of Charles Evans & Associates. The
Company also filed as part of Item 7 of this report an exhibit copy of the
Stock Purchase Agreement, dated as of June 2, 1999, among (i) Physical
Electronics, Inc., (ii) Charles Evans & Associates, (iii) the Trustee of
the Charles Evans & Associates Employee Stock Ownership Plan, and (iv) the
stockholders of Charles Evans & Associates named on Schedule A thereto.
20
<PAGE>
(iii) On October 20, 1999, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K, dated October 20, 1999, in which
the Company reported under Item 5 of Form 8-K that it has entered into a
definitive purchase agreement to acquire all the outstanding common stock
of Ansaldo Sistemi Industriali, S.p.A. ("ASI"), a wholly owned subsidiary
of Finmeccanica, S.p.A. In connection with the announcement, the Company
issued a press Release which is attached to the Form 8-K as exhibit 2.1.
On February 2, 2000, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K, dated February 2, 2000, in which
the Company reported under Item 2 of Form 8-K the acquisition of all of
the outstanding capital stock of Ansaldo Sistemi Industriali, S.p.A. The
Company also filed as part of Item 7 of this report an exhibit copy of the
Share Purchase Agreement, dated as of October 7, 1999, by and between the
Company and Ansaldo Invest, S.p.A.
21
<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 14, 2000 By: /s/ Joseph W. McHugh, Jr.
-------------------------------------
Joseph W. McHugh, Jr.
Chief Financial Officer and Principal
Accounting Officer
22
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