10-Q 1 a2059694z10-q.txt FORM 10-Q 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 July 28, 2001 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. (1) Yes /X/ No / / (2) Yes / / No /X/ Number of Common Shares outstanding at September 21, 2001: 1,082.7429 shares. CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS Consolidated Balance Sheets at July 28, 2001 (Unaudited) and April 28, 2001 (Audited).......................................................................... 3 Consolidated Statements of Operations for the Three Months ended July 28, 2001 (Unaudited) and July 29, 2000 (Unaudited)........................................... 4 Consolidated Statements of Stockholders' Deficiency for the Three Months ended July 28, 2001 (Unaudited) and for the Years ended April 28, 2001 (Audited) and April 29, 2000 (Audited)................................................... 5 Consolidated Statements of Cash Flows for the Three Months ended July 28, 2001 (Unaudited) and July 29, 2000 (Unaudited)........................................... 6 Notes to Consolidated Financial Statements (Unaudited)............................................ 8 ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 17 ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................. 22 PART II - OTHER INFORMATION ITEM 1. - LEGAL PROCEEDINGS.......................................................................... 22 ITEM 2. - CHANGES IN SECURITIES...................................................................... 23 ITEM 3. - DEFAULTS UPON SENIOR SECURITIES............................................................ 23 ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 23 ITEM 5. - OTHER INFORMATION.......................................................................... 23 ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K........................................................... 23 SIGNATURES................................................................................................ 25

2 PART I FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)

See accompanying notes to consolidated financial statements. 3 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to consolidated financial statements. 4 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (DOLLARS IN THOUSANDS)

See accompanying notes to consolidated financial statements. 5 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)

6 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)

See accompanying notes to consolidated financial statements. 7 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of High Voltage Engineering Corporation and Subsidiaries (the "Company") include the accounts of the Company and its domestic and foreign subsidiaries after 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 results of operations for the three months ended July 28, 2001 and July 29, 2000 are for 13 week periods, respectively. The terms "fiscal 2002", and "fiscal 2001" refer to the Company's fiscal years ended April 27, 2002, and April 28, 2001, respectively. The consolidated financial statements do not contain all disclosures included in financial statements normally prepared in accordance with accounting principles generally accepted in the United States of America 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 28, 2001, as filed with the SEC on August 2, 2001, and are not necessarily indicative of the results that may be expected for the year ending April 27, 2002. LIQUIDITY 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 expects it will be able to refinance its principal payment obligations under its outstanding indebtedness prior to maturity of the Senior Notes. RECLASSIFICATION Certain reclassifications have been made to the fiscal 2001 consolidated financial statements in order to conform with the current year presentations. NOTE 2 - INVENTORIES Inventories consisted of the following as of:

8 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 3 - ACQUISITIONS, DIVESTITURES AND OTHER TRANSACTIONS On June 19, 2001, the Company signed an amendment to the Financing Agreement ("First Amendment"). The First Amendment amends certain financial ratios and restates the Refinanced Revolving Credit Facility, Term Loan A, and Term Loan B to a combined $25,000 revolving credit facility ("New Revolving Credit Facility") with a sub-facility of $5,000 for the issuance of letters of credit. Availability under the New Revolving Credit Facility is limited to the sum of (i) 85% of eligible receivables, (ii) 50% of eligible joint venture receivables, (iii) 125% of the appraised orderly liquidation value of the eligible inventory less certain reserves as is reasonable and customary by the lenders and (iv) $5,000. Interest under the New Revolving Credit Facility is computed and payable monthly at the lender's reference Rate plus 2.5%. On June 11, 2001, the Company terminated the Refinanced Receivables Purchase Facility and purchased certain outstanding accounts receivable for $25,000. In connection with the above, the Company has recorded an extraordinary loss of $327, net of taxes, to write off the deferred financing costs of the Refinanced Receivables Purchase Facility. On March 7, 2001, the Company completed the sale of substantially all the net assets of its Anderson Power division and all the capital stock of Anderson Power Products Ireland B.V. (together "Anderson") to Ideal Industries, Inc. for $78,722 in cash. The Company recorded a gain on the disposal in fiscal 2001 of $34,270, net of income taxes and transaction related expenses. Revenues attributable to Anderson discontinued operations were approximately $7,291 for the first quarter of fiscal 2001. As a result of this sale the Company's consolidated results of operations have been restated to reclassify the results of operations of Anderson to discontinued operations. The Asset Sale Proceeds, as defined, received by the Company in connection with the disposition of Anderson was subject to a covenant of the Senior Notes Indenture which requires the Company to apply cash to (i) repay debt ranking PARI PASSU to the Senior Notes within 180 days, (ii) contractually commit to acquisitions, capital expenditures or investments relating to the Company's presently conducted business within 180 days and paid within 360 days or (iii) offer to repurchase the 1998 Senior Notes pursuant to an Excess Proceeds Offer (as defined). The Company has invested a portion of the Asset Sale Proceeds through the purchase of certain receivables in connection with the termination of the Refinanced Receivables Purchase Facility, and invested in certain capital expenditures. On June 2, 2000, Physical Electronics, Inc. and subsidiaries ("PHI") acquired all of the outstanding shares of Vivirad U.S.A Corporation ("Holdings"), the holding company of Vivirad-High Voltage Corporation ("VHV") pursuant to a Stock Purchase Agreement ("Agreement") among PHI, the Company, VHV, and Holdings, and Vivirad S.A. ("Seller"), a French corporation and the sole stockholder of Holdings. Under the Agreement, the Seller received in exchange for the stock of Holdings an aggregate purchase price of $2,281. 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 an assessment by management. 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 is being amortized on a straight-line basis over 5 years. The net purchase price of $2,281 has been allocated entirely to cost in excess of assets acquired. The operating results of VHV have been included in the Company's consolidated statement of operations from the dates of acquisition. The unaudited pro forma financial information for VHV for the first quarter of fiscal 2001 has not been presented because the effect of the transaction would not have been material to the results of operations of the Company. 9 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 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'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 $5,000. 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. There has been no substantive change in the status of this litigation. 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 are no assurances these items will not require additional accruals by the Company. 10 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 5 - SEGMENT DATA The Company operates in three industry segments. Each segment operates independently with its own management team and manufacturing facilities and maintains its own independent market identity. During the fourth quarter of fiscal 2001, the Company revised the grouping within the reportable segments to more accurately reflect how the businesses are managed. The Industrial Power Control segment includes Ansaldo Sistemi Industriali S.p.A. ("ASI") and Robicon Corporation and subsidiaries ("Robicon"), together operated as "ASIRobicon". The Advanced Surface Analysis segment has two main components, equipment sales and analytical services. The segment consists of PHI and High Voltage Engineering Europa, B.V. ("HVE Europa") together operated as "Phymetrics". The results of operations of VHV have been included with the results of operations of HVE Europa. The third industry segment, Customized Monitoring Instrumentation, reflect the results of operations of Maxima Technologies, Inc. and subsidiaries ("Maxima").

11 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 5 - SEGMENT DATA (CONTINUED) The following represents the supplemental consolidating balance sheet for the Company's restricted and unrestricted subsidiaries at July 28, 2001.

12 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 5 - SEGMENT DATA (CONTINUED) The following represents the supplemental consolidating statement of operation for the Company's restricted and unrestricted subsidiaries for the three months ended July 28, 2001.

13 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 5 - SEGMENT DATA (CONTINUED) The following represents the supplemental consolidating balance sheet for the Company's restricted and unrestricted subsidiaries at July 29, 2000.

14 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 5 - SEGMENT DATA (CONTINUED) The following represents the supplemental consolidating statement of operation for the Company's restricted and unrestricted subsidiaries for the three months ended July 29, 2000.

NOTE 6 - COMPREHENSIVE INCOME For the first quarter of fiscal 2002, comprehensive loss consisted of foreign currency translation of $1,931 and pension liability adjustments of $616, net of taxes. 15 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS No. 141"), Business Combinations, and Goodwill and intangible Assets ("SFAS No. 142"). SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. Major provisions of these statements and their effective dates for the Company are as follows: (i) all business combinations initiated after June 30, 2001 must use the purchase method of accounting;(ii) under certain conditions intangible assets acquired in a business combination must be recorded separately from goodwill; (iii) goodwill and intangible assets with indefinite lives acquired after June 30, 2001, will not be amortized. Effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives (i) will no longer be subject to amortization; (ii) will be tested for impairment annually and whenever there is an impairment indicator; and (iii) will be assigned to reporting units for purposes of impairment testing and segment reporting. The Company is currently evaluating the impact the SFAS No. 141 and SFAS No. 142 will have on its financial reporting requirements. Effective April 29, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and that changes in a derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized as a charge or credit to earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized as a charge or credit to earnings. The Company does use derivative instruments to manage exposures to foreign currency, commodity price, and interest rate risks. There were no derivative instruments outstanding at July 28, 2001, which would have a material effect on the consolidated financial statements. The Company's objectives for holding derivatives are to minimize these risks using the most effective methods to eliminate or reduce the impacts of these exposures. In March 2000, the Financial Accounting Standards Board issued FIN No. 44, "Accounting For Certain Transactions Involving Stock Compensation, an Interpretation Of Accounting Principles Board Opinion No. 25", which is intended to clarify certain problems that have arisen since the issuance of APB Opinion No. 25, "Accounting For Stock Issued To Employees", in certain situations, as defined. FIN No. 44 which is effective July 1, 2000, generally provides for prospective application for grants or modifications to existing stock options or awards made after June 30, 2000 but is retroactive for specified events occurring after December 15, 1998. Adoption of FIN No. 44 did not have a material impact on the Company's financial position or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000, the SEC issued SAB 101A, to defer for one quarter the effective date of implementation of SAB No. 101 with earlier application encouraged. In June 2000, the SEC issued SAB 101B which defers the effective date of implementation of SAB 101 to the fourth fiscal quarter of fiscal 2001. The adoption of SAB101 did not have a material impact on the Company's financial position or results of operations. 16 NOTE 8 - EURO CONVERSION On January 1, 1999, member countries of the European Monetary Union (EMU) began a three-year transition from their national currencies to a new common currency, the euro. In the first phase, the permanent rates of exchange between the members' national currency and the euro were established and monetary, capital, foreign exchange, and interbank markets were converted to the euro. National currencies will continue to exist as legal tender and may continue to be used in commercial transactions. By January 2002, euro currency will be issued and by July 2002, the respective national currencies will be withdrawn. The Company has significant operations in member countries of the EMU. The Company is implementing a plan to address the euro's impact on information systems, currency exchange rate risk and commercial contracts. Costs of the euro conversion to date have not been material. Management believes that future conversion costs will not have a material impact on the operations, cash flows or financial condition of the Company. However, there are uncertainties as to the future costs associated with the euro conversion 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, 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 ability of the Company to successfully renegotiate or amend its commercial contracts. 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 certain acquisitions completed by the Company. 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. These documents identify and describe important factors that can cause the after-results to differ materially from those contained in any forward-looking statements we may make. The following discussion should be read in conjunction with the Selected Historical Consolidated Financial Data and the consolidated financial statements and notes thereto contained elsewhere in this document. The consolidated financial statements of the Company include the accounts of High Voltage Engineering Corporation and its subsidiaries after elimination of material inter-company transactions and balances. As a result of the sale by the Company of substantially all of the assets of the Company's Anderson operating unit on March 7, 2001, the Company's consolidated results have been restated to reclassify the results of such operations as discontinued operations. As used in this filing, the terms "fiscal 2002" and "fiscal 2001" refer to the Company's fiscal years ended April 27, 2002 and April 28, 2001, respectively. The Company operates on a 52 or 53 week fiscal year. The three months ended July 28, 2001 and July 29, 2000 include the results of operations of the Company for 13 week periods, respectively. The Company's products and services are divided into three segments: Industrial Power Control segment includes Ansaldo Sistemi Industriali S.p.A. ("ASI") and Robicon Corporation and subsidiaries ("Robicon"), together operated as "ASIRobicon". The Advanced Surface Analysis segment has two main components, equipment sales and analytical services. The segment consists of Physical Electronics, Inc. and subsidiaries ("PHI") and High Voltage Engineering Europa, B.V. ("HVE Europa") together operated as "Phymetrics". The third industry segment, Customized Monitoring Instrumentation, reflect the results of operations of Maxima Technologies, Inc. and subsidiaries ("Maxima"). Financial information concerning the Company's industry segments is summarized in Note 6 to the Notes to the Consolidated Financial Statements included in Item 1, herein. 17 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. ACQUISITION OF VIVIRAD-HIGH VOLTAGE CORPORATION On June 2, 2000, PHI acquired all of the outstanding shares of Vivirad U.S.A Corporation ("Holdings"), the holding company VHV pursuant to a Stock Purchase Agreement ("Agreement") among PHI, the Company, VHV, and Holdings, and Vivirad S.A. ("Seller"), a French corporation and the sole stockholder of Holdings. Under the Agreement, the Seller received in exchange for the stock of Holdings an aggregate purchase price of $2.3 million. The unaudited pro forma financial information for the first quarter of fiscal 2001 has not been presented because the effect of the transaction would not have been material to the results of operations. The results of operations of VHV have been included in the results of operations of HVE Europa. CONSOLIDATED Net sales for the first quarter of fiscal 2002 were $94.7 million, which was a $8.7 million or 8.4% lower as compared to the first quarter of fiscal 2001. The following discussion does not address the financial results for the first quarter of fiscal 2001 for VHV, which was acquired on June 2, 2000, because the results of operations for VHV were deemed immaterial. The Company reported a net loss from continuing operations before extraordinary item and discontinued operations of $9.2 million for the first quarter of fiscal 2002 compared to net loss of $5.7 million for the first quarter of fiscal 2001. The increase in the loss was due primarily to: (i) lower sales volume, (ii) lower margins due to mix, (iii) higher foreign tax provisions and (iv) higher interest costs due to higher levels of debt. SEGMENT ANALYSIS: THREE MONTHS ENDED JULY 28, 2001 COMPARED TO THREE MONTHS ENDED JULY 29, 2000 THE INDUSTRIAL POWER CONTROL SEGMENT reported net sales of $62.9 million for the first quarter of fiscal 2002 which was a decrease of $3.6 million, or 5.4%, from the first quarter of fiscal 2001. Net sales for Robicon increased $2.2 million or 12.1% during the first quarter of fiscal 2002 as compared to the first quarter of fiscal 2001. The increase in net sales was due to incremental increases across all Robicon product lines with the greatest increase in revenue from medium voltage product line. Order levels remain strong and backlog for Robicon has increased $5.0 million or 9.5% to $57.8 million compared to backlog at April 28, 2001 of $52.8 million. Robicon continues to see stronger activity in the energy market compared to some weakening in other markets. Net sales for ASI decreased $5.8 million or 12.0% during the first quarter of fiscal 2002 as compared to the first quarter of fiscal 2001. The decrease in net sales is primarily due to lower revenue for ASI in the US and UK which had included additional contracts during the first quarter of fiscal 2001. Operating loss for the first quarter of fiscal 2002 of $0.7 million increased $253,000 compared to a loss of $403,000 in the first quarter of fiscal 2001. The operating loss increase for the segment was due primarily to lower sales volume offset by gross margin improvements at ASI which increased by 1.4% as a result of greater productivity and cost reductions following the restructuring programs. Operating loss for Robicon decreased $0.8 million to a loss of $0.9 million in the first quarter of fiscal 2002. The improvement in the operating results for Robicon was primarily due to higher sales volume during the first quarter of fiscal 2002. Operating income for ASI was $254,000 for the first quarter of fiscal 2002 compared to income of $1.3 million in the first quarter of fiscal 2001. The decrease was primarily attributable to lower gross profit due to lower sales volume and certain severance costs partially offset by gross margin improvements as noted above. 18 THE ADVANCED SURFACE ANALYSIS SEGMENT reported net sales of $18.6 million for the first quarter of fiscal 2002 which was a decrease of $2.1 million, or 10.2% from the first quarter of fiscal 2001. The decrease in net sales was primarily the result of HVE Europa shipping fewer ion accelerator sub-systems for the semiconductor market during the first quarter of fiscal 2002. Operating income decreased $1.3 million to a loss of $1.1 million in the first quarter of fiscal 2002 as compared to income of $0.2 million in the first quarter of fiscal 2001. The decrease in the operating income was partially due to a decline in the gross margin percentage of 5.1% at PHI in the first quarter of fiscal 2002 due to a higher mix of systems to Ulvac-PHI, which historically have lower sales margins, during the first quarter of fiscal 2002 compared the same period in fiscal 2001 in addition to HVE Europa reduced sales volume. THE CUSTOMIZED MONITORING INSTRUMENTATION SEGMENT reported net sales of $13.2 million for the first quarter of fiscal 2002 which was a decrease of $3.1 million or 18.8%, from the first quarter of fiscal 2001. The reduction in net sales was primarily a result of lower business at the end of the first quarter of fiscal 2001 from a large customer due to a planned model year changeover and reduced volume from the heavy truck market including a major company that was placed on credit hold in fiscal 2001. These factors plus the slowdown in distribution markets coupled with reduced pricing for certain key accounts reflect the major cause for the sales decline. New products such as the digital tachometer and instrument clusters partially offset the sales reduction. Gross margin declined $1.5 million, due to a decrease in the gross margin percentage of 5.3% during the first quarter of fiscal 2002 as compared to the first quarter of fiscal 2001. The decrease in gross margin is a result of higher warranty cost on some discontinued Stewart Warner brand products, reduced sales volume and pricing as discussed above, partially offset by certain price increases implemented in the second half of fiscal 2001. Operating income decreased $0.6 million to $0.6 million for the first quarter of fiscal 2002 as compared to the first quarter of fiscal 2001. The decrease in operating income was attributable to lower gross margin due to lower sales volume partially offset by lower operating expenses in the first quarter of fiscal 2002. 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, and proceeds from financing activities. The Company has made significant acquisitions, which are inherently subject to risk. The successful integration of the acquired operations and the substantial demands on the attention of senior management may adversely impact their ability to manage the Company's existing businesses. On March 7, 2001, the Company completed the sale of substantially all the net assets of its Anderson Power division and all the capital stock of Anderson Power Products Ireland B.V. (together "Anderson") to Ideal Industries, Inc. for $78.7 million in cash. The Asset Sale Proceeds, as defined, received by the Company in connection with the disposition of Anderson was subject to a covenant of the Senior Notes Indenture which requires the Company to apply cash to (i) repay debt ranking PARI PASSU to the Senior Notes within 180 days, (ii) contractually commit to acquisitions, capital expenditures or investments relating to the Company's presently conducted business within 180 days and paid within 360 days or (iii) offer to purchase the 1998 Senior Notes pursuant to an Excess Proceeds Offer (as defined). In connection with the sale of Anderson the Company has invested a portion of the Asset Sale Proceeds through the purchase of certain receivables in connection with the termination of the Refinanced Receivables Purchase Facility, and invested in certain capital expenditures. Through June 11, 2001, the Company maintained a Refinanced Receivables Purchase Facility with HV-FC. Under the Refinanced Receivables Purchase Facility, the domestic subsidiaries of the Company would sell a defined pool of trade accounts receivable ("Pool Assets"), and the related rights inherited from 19 the Company and its domestic subsidiaries to HV-FC. The Refinanced Receivables Purchase Facility allowed the domestic subsidiaries to sell to the Company which, in turn, sold to HV-FC an undivided ownership interest in the Pool Assets, up to a limit of $25.0 million. HV-FC owned all of its assets and sold participating interests in such accounts receivable to a third party which, in turn, purchased and received ownership and security interests in those assets. On June 11, 2000, the Company terminated the Refinanced Receivables Purchase Facility and purchased certain outstanding accounts receivable for $25.0 million. In connection with the above, the Company has recorded an extraordinary loss of $0.3 million, net of taxes, to write off the deferred financing costs of the Refinanced Receivables Purchase Facility. On June 19, 2001, in connection with a consent received for the sale of the assets of Anderson, the Company amended certain financial ratios of the Financing Agreement ("First Amendment"). The First Amendment amended certain financial ratios and converted the Refinanced Revolving Credit Facility, Term Loan A and Term Loan B to a combined revolving credit facility ("New Revolving Credit Facility") which provides $25.0 million of credit availability with a sub-facility of $5.0 million for the issuance of letters of credit. Availability under the New Revolving Credit Facility is limited to the sum of (i) 85% of eligible receivables, (ii) 50% of eligible joint venture receivables, (iii) 125% of the appraised orderly liquidation value of the eligible inventory less certain reserves as is reasonable and customary by the lenders and (iv) $5.0 million. Interest under the New Revolving Credit Facility is computed and payable monthly at the lender's reference rate plus 2.5%. Borrowings outstanding under the New Revolving Credit Facility as of July 28, 2001 were $5.0 million. The New Revolving Credit Facility contain restricted provisions relating to the maintenance of certain financial ratios, as defined in the respective agreements, restrictions on the payment of common stock dividends, leases, capital expenditures, borrowings, the acquisition or disposition of material assets and other matters. As of July 28, 2001, the Company had total indebtedness (including redeemable put warrants) of $214.8 million and mandatory redeemable preferred stock with an aggregate liquidation preference of $50.5 million. As of July 28, 2001, the Company had outstanding and issuable redeemable put warrants representing 6.25% of its fully diluted common stock. The holders of such warrants have the right to require the Company to purchase all or any portion of such warrants or any shares of common stock issued upon the exercise of such warrants at the greater of (i) a valuation prepared by an independent financial advisor or (ii) a formula value calculated as 8.0x the Company's EBITDA (as defined therein) less preferred stock and debt outstanding plus excess cash. 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 expects it will be able to refinance its principal payment obligations under its outstanding indebtedness prior to maturity of the Senior Notes. The Company's working capital was $54.2 million at July 28, 2001. The Company's cash flows used in continuing operations were $24.8 million during the first quarter of fiscal 2002, as compared to cash used in continuing operations of $0.9 million in the first quarter of fiscal 2001. The Company invested $2.6 million in capital expenditures during the first quarter of fiscal 2002 including $0.6 million at ASI for facility upgrades and investment in information technology and $1.2 million in upgrades and additions to PHI's demo and lab equipment. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS No. 141"), Business Combinations, and Goodwill and intangible Assets ("SFAS No. 142"). SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. Major provisions of these statements and their effective dates for the Company are 20 as follows: (i) all business combinations initiated after June 30, 2001 must use the purchase method of accounting;(ii) under certain conditions intangible assets acquired in a business combination must be recorded separately from goodwill; (iii) goodwill and intangible assets with indefinite lives acquired after June 30, 2001, will not be amortized. Effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives (i) will no longer be subject to amortization; (ii) will be tested for impairment annually and whenever there is an impairment indicator and (iii) be assigned to reporting units for purposes of impairment testing and segment reporting. The Company is currently evaluating the impact the SFAS No. 141 and SFAS No. 142 will have on its financial reporting requirements. Effective April 29, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and that changes in a derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized as a charge or credit to earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized as a charge or credit to earnings. The Company does use derivative instruments to manage exposures to foreign currency, commodity price, and interest rate risks. There were no derivative instruments outstanding at July 28, 2001, which would have a material effect on the consolidated financial statements. The Company's objectives for holding derivatives are to minimize these risks using the most effective methods to eliminate or reduce the impacts of these exposures. In March 2000, the Financial Accounting Standards Board issued FIN No. 44, "Accounting For Certain Transactions Involving Stock Compensation, an Interpretation Of Accounting Principles Board Opinion No. 25", which is intended to clarify certain problems that have arisen since the issuance of APB Opinion No. 25, "Accounting For Stock Issued To Employees", in certain situations, as defined. FIN No. 44 which is effective July 1, 2000, generally provides for prospective application for grants or modifications to existing stock options or awards made after June 30, 2000 but is retroactive for specified events occurring after December 15, 1998. Adoption of FIN No. 44 did not have a material impact on the Company's financial position or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000, the SEC issued SAB 101A, to defer for one quarter the effective date of implementation of SAB No. 101 with earlier application encouraged. In June 2000, the SEC issued SAB 101B which defers the effective date of implementation of SAB 101 to the fourth fiscal quarter of fiscal 2001. The adoption of SAB101 did not have a material impact on the Company's financial position or results of operations. EURO CONVERSION On January 1, 1999, member countries of the European Monetary Union (EMU) began a three-year transition from their national currencies to a new common currency, the euro. In the first phase, the permanent rates of exchange between the members' national currency and the euro were established and monetary, capital, foreign exchange, and interbank markets were converted to the euro. National currencies will continue to exist as legal tender and may continue to be used in commercial transactions. By January 2002, euro currency will be issued and by July 2002, the respective national currencies will be withdrawn. The Company has significant operations in member countries of the EMU. The Company is implementing a plan to address the euro's impact on information systems, currency exchange rate risk and commercial contracts. Costs of the euro conversion to date have not been material. Management believes that future 21 conversion costs will not have a material impact on the operations, cash flows or financial condition of the Company. However, there are uncertainties as to the future costs associated with the euro conversion 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, 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 ability of the Company to successfully renegotiate or amend its commercial contracts. 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 primarily matures in fiscal 2005. The Company has not, to date, 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. 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 product in the U.S., Italy, The Netherlands, Spain Germany, France, England and Mexico and sells products worldwide. 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. 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'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 22 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 $5,000. 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. There has been no substantive change in the status of this litigation. 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. 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 None. (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 23 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. (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. 24 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: September 21, 2001 By: /s/ Joseph W. McHugh, Jr. ---------------------------------------- Joseph W. McHugh, Jr. Chief Financial Officer and Principal Accounting Officer 25

HIGH VOLTAGE ENGINEERING CORP 10-Q