10-Q 1 a2033084z10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------------- FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 28, 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. (1) Yes /X/ No / / (2) Yes / / No /X/ Number of Common Shares outstanding at December 12, 2000: 1,082.7429 shares. CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS Consolidated Balance Sheets at October 28, 2000 (Unaudited) and April 29, 2000 (Audited)....... 3 Consolidated Statements of Operations for the Three and Six Months ended October 28, 2000 (Unaudited) and October 30, 1999 (Unaudited).................................. 4 Consolidated Statements of Stockholders' Deficiency for the Six Months ended October 28, 2000 (Unaudited) and for the Years ended April 29, 2000 (Audited) and April 24, 1999 (Audited)................................................................... 5 Consolidated Statements of Cash Flows for the Six Months ended October 28, 2000 (Unaudited) and October 30, 1999 (Unaudited).................................. 6 Notes to Consolidated Financial Statements (Unaudited)......................................... 8 ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 18 ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................. 26 PART II - OTHER INFORMATION ITEM 1. - LEGAL PROCEEDINGS....................................................................... 27 ITEM 2. - CHANGES IN SECURITIES................................................................... 27 ITEM 3. - DEFAULTS UPON SENIOR SECURITIES......................................................... 27 ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................... 27 ITEM 5. - OTHER INFORMATION....................................................................... 27 ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K........................................................ 28 SIGNATURES............................................................................................ 29

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

~~PART~~OCTOBER I28, -APRIL ~~FINANCIAL~~29, ~~INFORMATION~~2000 ~~ITEM~~2000 1.----------- ----------- ~~FINANCIAL~~(Unaudited) ~~STATEMENTS~~(Audited) ~~Consolidated~~ASSETS ~~Balance~~CURRENT ~~Sheets~~ASSETS: atCash ~~July 29, 2000 (Unaudited)~~ and ~~April~~cash ~~29, 2000 (Audited)~~equivalents......................... $ 7,550 $ 5,433 Restricted cash................................... 4,241 4,061 Accounts receivable, net.......................... ~~3 Consolidated Statements of Operations for the Three Months ended July 29~~83,211 ~~2000 (Unaudited) and July 31~~91,594 ~~1999~~Refundable ~~(Unaudited)~~income taxes........................... 495 1,075 Inventories....................................... 453,115 ~~Consolidated~~51,918 ~~Statements~~Costs ofand ~~Stockholders'~~earnings ~~Deficiency~~in ~~for~~excess ~~the~~of ~~Three~~billings.......... ~~Months~~10,473 ~~ended July 29~~7,414 ~~2000~~Prepaid ~~(Unaudited)~~expenses and ~~for~~other ~~the~~current ~~Years~~assets......... ~~ended~~16,985 ~~April 29~~11,207 ~~2000~~---------- ~~(Audited)~~---------- ~~and~~Total ~~April~~current ~~24, 1999 (Audited)~~assets............................ 176,070 172,702 PROPERTY, PLANT AND EQUIPMENT, NET..................~~.....~~ 598,081 ~~Consolidated Statements of Cash Flows for the Three Months ended July 29~~101,787 ~~2000~~INVESTMENT ~~(Unaudited)~~IN ~~and~~JOINT ~~July 31, 1999 (Unaudited)~~VENTURE......................... 2,772 1,829 ASSETS HELD FOR SALE................................ 62,583 ~~Notes~~3,825 toOTHER ~~Consolidated~~ASSETS, ~~Financial Statements (Unaudited)~~NET................................... 44,098 47,210 COST IN EXCESS OF NET ASSETS ACQUIRED, NET.......... 839,080 ~~ITEM~~36,646 2.---------- ---------- ~~MANAGEMENT'S~~$ ~~DISCUSSION~~362,684 ~~AND~~$ ~~ANALYSIS~~363,999 OF========== ~~FINANCIAL~~========= ~~CONDITION~~LIABILITIES AND ~~RESULTS~~STOCKHOLDERS' OFDEFICIENCY ~~OPERATIONS......~~CURRENT 17LIABILITIES: ~~ITEM~~Current 3.maturities of long-term ~~QUANTITATIVE~~debt ~~AND~~obligations.. ~~QUALITATIVE~~$ ~~DISCLOSURES~~3,345 ~~ABOUT~~$ ~~MARKET~~10,067 ~~RISK~~Foreign credit line................................. 231,599 ~~PART II - OTHER INFORMATION ITEM~~ 1.,937 -Accounts ~~LEGAL PROCEEDINGS~~payable.................................. 85,207 84,554 Accrued interest.................................. 3,996 4,207 Accrued liabilities...... ~~24 ITEM 2~~. ~~- CHANGES IN SECURITIES~~........................ 42,546 43,837 Billings in excess of costs....................... 6,262 5,788 Advance payments by customers....................... 2418,219 ~~ITEM~~7,450 3.Federal, -foreign ~~DEFAULTS~~and ~~UPON~~state ~~SENIOR~~income ~~SECURITIES~~taxes payable... 3,558 3,754 Deferred income taxes............................. 1,935 1,024 Redeemable put warrants............................ 242,900 ~~ITEM~~2,900 4.---------- ---------- ~~SUBMISSION~~Total OFcurrent ~~MATTERS TO A VOTE OF SECURITY HOLDERS~~liabilities....................... 169,567 165,518 LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES......~~...........~~ 24205,203 ~~ITEM~~193,626 5.DEFERRED -INCOME ~~OTHER INFORMATION~~TAXES............................... 6,448 6,485 OTHER LIABILITIES................................... 29,184 31,979 REDEEMABLE PREFERRED STOCK (AGGREGATE LIQUIDATION PREFERENCE OF $45,863 AS OF OCTOBER 28, 2000).....~~...~~ 2442,247 ~~ITEM~~40,642 6.COMMITMENTS ~~- EXHIBITS~~ AND ~~REPORTS~~CONTINGENCIES ONSTOCKHOLDERS' ~~FORM~~DEFICIENCY ~~8-K~~Common stock...................................... 1 1 Paid-in-capital................................... 2520,140 ~~SIGNATURES~~19,527 Accumulated deficit............................... (111,533) (94,863) Common stock warrants............................. 2,813 2,200 Other comprehensive (loss)........................ (1,386) (1,116) ---------- ---------- Total stockholders' deficiency.................. 26(89,965) (74,251) ---------- ---------- $ 362,684 $ 363,999 ========== ==========

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)

~~JULY~~THREE 29MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- OCTOBER 28, ~~APRIL~~OCTOBER 2930, OCTOBER 28, OCTOBER 30, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (~~Audited~~Unaudited) ~~ASSETS~~(Unaudited) ~~CURRENT~~(Unaudited) ~~ASSETS:~~Net ~~Cash and cash equivalents~~sales......................... ~~$ 8,379 $ 5,433 Restricted cash~~.............~~......................~~ ~~4,707~~$ 4109,~~061~~417 ~~Accounts~~$ ~~receivable~~62,227 ~~net..........................~~$ ~~100~~220,~~594~~170 91$ 117,~~594~~034 ~~Refundable~~Cost ~~income~~of ~~taxes~~sales........................... ~~1,128 1,075 Inventories~~.......~~................................~~ 5686,~~342~~830 5141,~~918~~183 ~~Costs and earnings in excess of billings.......... 9~~170,~~615~~749 777,~~414~~299 ~~Prepaid~~----------- ~~expenses~~----------- ~~and other current assets......... 15,814 11,207~~ ----------- ----------- ~~Total~~Gross ~~current assets~~profit................................. ~~196~~22,~~579~~587 ~~172~~21,~~702~~044 ~~PROPERTY~~49,421 ~~PLANT~~39,735 ~~AND~~Administrative ~~EQUIPMENT,~~and ~~Net~~selling expenses............ 17,490 12,774 37,326 24,961 Research and development expenses.............. ~~101~~4,~~827~~958 ~~101~~4,~~787~~445 ~~INVESTMENT~~10,167 IN9,341 ~~JOINT~~Write ~~VENTURE~~off of purchased in-process research and development.............................. ~~3,017~~-- -- -- 1,~~829~~650 ~~ASSETS~~Restructuring ~~HELD FOR SALE~~charge...........................~~.....~~ ~~2,697~~-- ~~3,825~~-- ~~OTHER~~-- ~~ASSETS,~~900 ~~Net~~Other................................... ~~46,208 47,210 COST IN EXCESS OF NET ASSETS ACQUIRED,NET~~.......~~....~~ 381,~~835~~828 36(82) 2,~~646~~393 (145) ----------- ----------- $----------- ~~389,163~~----------- $(Loss) ~~363,999~~income ~~==========~~from ~~========= LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Current maturities of long-term debt obligations~~operations................ $(1,689) 143,~~144~~907 $(465) 103,~~067~~028 ~~Foreign~~Interest ~~credit line~~expense............................... 15,~~882~~993 15,~~937~~369 ~~Accounts~~11,772 ~~payable~~10,281 Interest income.................................. ~~96,475~~49 8417 124 375 ----------- ----------- ----------- ----------- Loss from continuing operations before income taxes,~~554~~ ~~Accrued~~discontinued ~~interest~~operations and extraordinary items..................~~................~~ (7,~~827~~633) 4(1,~~207~~445) ~~Accrued~~(12,113) ~~liabilities~~(6,878) Income taxes................................... 38551 367 1,~~290~~361 43748 ----------- ----------- ----------- ----------- Loss from continuing operations,~~837~~ ~~Billings~~before indiscontinued ~~excess~~operations ofand ~~costs~~extraordinary items....................... ~~11,108 5,788 Advance payments by customers~~.............~~........~~ (8,184) (1,812) (13,~~777~~474) (7,~~450~~626) ~~Federal,~~Discontinued ~~foreign~~operations ~~and~~Gain ~~state~~on ~~income~~disposal ~~taxes~~of ~~payable...~~discontinued 4operations,~~799~~ ~~3,754~~net ~~Deferred~~of income taxes..........~~...................~~ ~~1,013~~-- 1414 -- 414 Extraordinary loss,~~024~~ ~~Redeemable~~net ~~put~~of ~~warrants~~income taxes........~~...................~~ ~~2,900~~(365) ~~2,900~~-- (365) -- ----------- ----------- ~~Total~~----------- ~~current liabilities....................... 192,215 165,518 LONG~~-~~TERM~~---------- ~~OBLIGATIONS,~~NET ~~LESS CURRENT MATURITIES~~LOSS...... ~~198,279 193,626 DEFERRED INCOME TAXES~~................................. 6(8,~~486~~549) 6(1,~~485~~398) ~~OTHER~~(13,839) ~~LIABILITIES~~(7,212) Preferred dividends............................~~.......~~ 32(1,~~161~~213) 31(1,~~979~~319) ~~REDEEMABLE PREFERRED STOCK~~ (~~AGGREGATE~~2,609) ~~LIQUIDATION PREFERENCE OF $44~~(2,~~451~~630) ASAccretion OFof ~~JULY~~redeemable ~~29,~~preferred ~~2000)~~stock........ ~~42,149~~(111) ~~40,642~~(109) ~~COMMITMENTS~~(222) ~~AND~~(227) ~~CONTINGENCIES~~----------- ~~STOCKHOLDERS'~~----------- ~~DEFICIENCY~~----------- ~~Common~~----------- ~~stock......................................~~Net 1loss 1applicable ~~Paid-in-capital~~to common stockholders.............................~~......~~ 19$ (9,~~527~~873) 19$ (2,~~527~~826) ~~Accumulated~~$ ~~deficit~~(16,670) $ (10,069) =========== =========== =========== =========== Net loss per common share: Continuing operations...................... $(8,683.11) $(2,991.~~.......~~69) $(~~101~~14,~~660~~972.45) $(949,~~863~~679.59) ~~Common~~Gain ~~stock~~on ~~warrants~~disposal of discontinued operations............................... ~~2,200~~-- ~~2,200~~382.27 ~~Other~~-- ~~comprehensive~~382.27 ~~(loss)~~Extraordinary item......................... (~~2,195~~333.33) -- (~~1,116~~335.17) -- ----------- ----------- ~~Total~~------------ ~~stockholders'~~----------- ~~deficiency~~Net loss applicable to common stockholders............................. $(829,~~127~~016.44) $(742,~~251~~609.42) ~~----------~~$(15,307.62) ~~----------~~ $(9,297.32) ~~389~~=========== =========== ============ =========== Weighted average common stock outstanding 1,~~163~~095 $1,083 ~~363~~1,~~999~~089 1,083 Weighted average common stock and dilutive equivalents outstanding 1,270 1,237 1,256 1,237 ======= ======= ======= =======

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

~~THREE~~COMMON ~~MONTHS~~OTHER ~~ENDED~~COMMON PAID-IN ACCUMULATED STOCK COMPREHENSIVE STOCK CAPITAL DEFICIT WARRANTS (LOSS) TOTAL ------ --------- ----------- ~~JULY~~--------- ~~29, JULY 31, 2000 1999~~ ------------ ----------- ~~(Unaudited)~~Balance, ~~(Unaudited)~~April ~~Net~~25, ~~sales~~1998 (Audited)................. 1 19,527 (72,603) 2,200 (342) (51,217) Net income.................. 15,033 15,033 Preferred stock dividends.... ~~$110~~(4,~~753~~329) ~~$ 54~~(4,~~807~~329) ~~Cost~~Accretion of ~~sales~~redeemable preferred stock........... (443) (443) Change in foreign currency translation...............~~.........~~ ~~83,919~~(384) ~~36,116~~(384) ------ --------- ----------- ~~Gross~~--------- ~~profit..................................~~------------ ~~26,834~~---------- 18Balance,~~691~~ ~~Administrative~~April ~~and~~24, ~~selling~~1999 ~~expenses~~(Audited)............. ~~19,836 12,187 Research and development expenses~~....~~...........~~ 51 19,~~209~~527 4(62,~~896~~342) ~~Write~~2,200 ~~off~~(726) of(41,340) ~~purchased~~Net ~~in-process research and development~~loss....................~~...........~~ --(27,108) 1(27,~~650~~108) ~~Restructuring~~Preferred ~~charge~~stock dividends...~~.........................~~ --(4,965) ~~900~~(4,965) ~~Reimbursed~~Accretion ~~environmental~~of ~~and~~redeemable ~~litigation~~preferred ~~costs, net~~stock...........~~.........................~~ 3(448) 2(448) ~~Other~~Change in foreign currency translation...............~~............................~~ ~~562~~(390) (65390) ------~~---~~ --------- ~~Income (loss) from operations................. 1,224 (879) Interest expense................................ 5,779 4,912 Interest income................................. 75 358~~ ----------- --------- ~~Loss from continuing operations before income taxes.............................. (4,480) (5,433) Income taxes.................................... 810 381~~ ------------ ---------- ~~NET~~Balance, ~~LOSS~~April 29, 2000 (Audited)................. 1 19,527 (94,863) 2,200 (1,116) (74,251) Net loss....................~~...~~ (513,~~290~~839) (513,~~814~~839) Preferred stock dividends...~~..........................~~ (12,~~396~~609) (12,~~311~~609) Accretion of redeemable preferred stock........... (~~111~~222) (~~118~~222) ~~---------~~Issuable ~~---------~~shares ~~Net~~of ~~loss~~common ~~applicable~~stock toand common ~~stockholders~~stock warrants...... ~~$ (6,797) $ (7,243) ========= ========= Basic loss per common share: Continuing operations~~............ 613 613 1,226 Change in foreign currency translation............... $(~~6,276.08~~270) $(~~6,687.90~~270) ------ --------- ----------- ~~Net~~--------- ~~loss~~------------ ~~applicable~~---------- toBalance, ~~common~~October ~~stockholders.... $(6~~28,~~276.08)~~ $2000 (~~6,687.90~~Unaudited) ~~=========== =========== Diluted loss per common share: Continuing operations~~...............~~..........~~ $(6 1 $ 20,~~276.08)~~140 $ (6111,~~687.90~~533) ~~-----------~~$ ~~-----------~~2,813 ~~Net loss applicable to common stockholders....~~ $ (61,~~276.08~~386) $ (689,~~687.90~~965) ====== ========= =========== ~~Weighted~~========= ~~average common stock outstanding....... 1,083 1,083 Weighted average common stock outstanding and dilutive equivalents outstanding.............. 1,237 1,237~~ ============ ===========

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

~~COMMON~~SIX ~~OTHER~~MONTHS ~~COMMON~~ENDED ~~PAID~~-~~IN ACCUMULATED STOCK COMPREHENSIVE STOCK CAPITAL DEFICIT WARRANTS (LOSS) TOTAL~~ ------ --------- ----------- ~~---------~~OCTOBER 28, OCTOBER 30, 2000 1999 ------------ ----------- ~~Balance,~~(Unaudited) ~~April~~(Unaudited) 25Cash flows from operating activities: Net loss................................................ $(13,839) ~~1998~~$ (~~Audited~~7,212) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization......................... 10,282 6,879 Write-off of other assets and purchased research and development......................................... -- 1,650 19Extraordinary item,~~527~~ net of income taxes............... 365 -- Non-cash interest..................................... 595 612 Deferred income taxes................................. (~~72,603~~46) ~~2,200~~-- Undistributed earnings of affiliate................... 101 (~~342~~133) (~~51,217~~Gain)on ~~Net~~sale ~~income~~of discontinued operation............... -- (414) Loss on sale of assets................................ 1556 169 Change in assets and liabilities net of effects of business acquisition: Accounts receivable,~~033~~ 15net............................ 4,~~033~~553 ~~Preferred~~8,054 ~~stock~~Proceeds ~~dividends~~from the sale of accounts receivable....... (4,~~329~~693 -- Refundable income taxes............................. 580 479 Inventories......................................... (1,197) (42,~~329~~097) ~~Accretion~~Costs and earnings in excess of ~~redeemable~~billings............ ~~preferred~~(3,059) ~~stock~~-- Prepaid expenses and other current assets........... (~~443~~5,778) (~~443~~3,751) ~~Change~~Other inassets........................................ ~~foreign~~(747) ~~currency~~(842) ~~translation~~Accounts payable, accrued interest and accrued liabilities....................................... (~~384~~8,303) (~~384~~11,364) ~~------~~Billings in excess of costs......................... 474 --~~-------~~ Advance payments by customers....................... 10,769 (914) Federal, foreign and state income taxes payable..... 47 (2,761) ----------- --------- Net cash used in operating activities ....................................... (454) (11,645) ---------~~---~~ ---------- ~~Balance,~~Cash ~~April~~flows 24from investing activities: Additions to property, ~~1999~~plant ~~(Audited)~~and equipment..............~~...~~ ~~1 19~~(6,~~527~~802) (625,~~342~~861) ~~2,200~~Acquisition ~~(726)~~of ~~(41~~Charles Evans & Associates,~~340)~~ ~~Net~~net ~~loss~~of cash acquired......................................... ~~(27,108)~~-- (2734,~~108~~377) ~~Preferred~~Acquisition ~~stock~~of ~~dividends...~~Vivirad-High ~~(4,965)~~Voltage (4Corporation,~~965)~~ ~~Accretion~~net of ~~redeemable~~cash ~~preferred stock~~acquired...................................... (~~448~~2,281) ~~(448)~~-- ~~Change~~Proceeds infrom ~~foreign~~the ~~currency~~sale ~~translation~~of discontinued operations, net of expenses....................................... ~~(390) (390)~~ --~~----~~ ~~---------~~690 Other................................................... 1,061 1,584 ----------- --------- Net cash used in investing activities............... (8,022) (37,964) ---------~~---~~ ---------- ~~Balance,~~Cash ~~April~~flows ~~29,~~from ~~2000~~financing ~~(Audited)~~activities: Net payments on foreign credit line..................... ~~1 19,527~~ (~~94,863~~209) ~~2,200~~-- ~~(1,116)~~Net (~~74,251~~increase) ~~Net~~decrease ~~loss~~in restricted cash.............. (180) 16,305 Principal payments on long-term obligations............. (52,~~290~~591) (51,~~290~~292) ~~Preferred~~Net ~~stock~~borrowings ~~dividends~~under credit agreements.................. (17,~~396)~~747 (14,~~396)~~568 ~~Accretion~~Proceeds from the issue of ~~redeemable~~long-term ~~preferred~~obligation, ~~stock~~net of issuance cost...................................... ~~(111)~~1,526 ~~(111)~~-- ~~Change~~Cash ~~in foreign currency translation~~overdraft.......................................... (14,~~079)~~660 (1,~~079)~~464 ------ --- ------ --- Net cash provided by financing activities............. 10,953 21,045 --------- --------- Effect of foreign exchange rate changes on cash............ (360) -- ---------- ---------- ~~Balance,~~Net ~~July~~increase ~~29, 2000~~ (~~Unaudited~~decrease) in cash and cash equivalents.... 2,117 (28,564) Cash and cash equivalents, beginning of the period......~~.....~~ $5,433 131,459 $--------- ~~19,527~~--------- $Cash ~~(101,660)~~and $cash 2equivalents,~~200~~ end of the period............ $ (27,~~195)~~550 $ ~~(82~~2,~~127)~~895 ====== ===~~======~~ =========~~== ========= ============ ==========~~

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

~~THREE~~SIX MONTHS ENDED --------------------------- ~~JULY~~OCTOBER 2928, ~~JULY~~OCTOBER 3130, 2000 1999 ----------- ----------- (Unaudited) (Unaudited) ~~Cash~~Supplemental ~~flows~~Disclosure ~~from~~of ~~operating~~Cash ~~activities~~Flow Information: ~~Net~~Cash ~~loss................................................~~paid ~~$ (5,290) $ (5,814) Adjustments to reconcile net loss to net cash provided by (used in)operating activities~~for: ~~Depreciation and amortization~~Interest......................... ~~5,260 3,115 Write-off of other assets and purchased research and development~~.......................~~..................~~ --$ ~~1,650 Non-cash interest..................................... 291 307 Deferred income taxes................................. (~~10) 77 Undistributed earnings of affiliate................... 122 22 (Gain) loss on sale of assets......................... (5) 4 Change in assets and liabilities net of effects of business acquisition: Accounts receivable,710 ~~net............................~~$ ~~(11~~9,~~841)~~290 ~~11,068~~Income ~~Proceeds from the sale of accounts receivable....... 2,636 -- Refundable income~~ taxes............................. ~~(53) 479 Inventories~~...............~~..........................~~ ~~(4,424)~~584 (2,~~981)~~876 ~~Costs~~Supplemental ~~and~~Schedule ~~earnings in excess~~ of ~~billings............ 3,119~~ Non--cash ~~Prepaid~~Investing ~~expenses~~ and ~~other~~Financing ~~current~~Activities: ~~assets...........~~Preferred ~~(4,607)~~stock (978) Other assets........................................ (1,319) (188) Accounts payable, accrued interest and accrued liabilities....................................... 8,893 (8,045) Advance payments by customers....................... 6,327 501 Federal, foreign and state income taxes payable..... 1,045 (2,151) dividends-~~-------- --------- Net cash provided by (used~~ in~~) operating activities. 144 (2,934)~~ -~~--------~~kind ~~--------- Cash flows from investing activities: Additions to property, plant~~ and ~~equipment..............~~issuable ~~(3,714)~~preferred ~~(2,757)~~stock ~~Acquisition of Charles Evans & Associates, net of cash acquired.........................................~~ dividends-- (34,377) Acquisition of Vivirad-High Voltage Corporation, net of cash acquired...................................... (2,281) -- Other................................................... 1,061 11 --------- --------- Net cash used in ~~investing activities............... (4,934) (37,123)~~ -~~-------- --------- Cash flows from financing activities: Net payments on foreign credit line~~kind..................... ~~(87) -- Net (increase) decrease in restricted cash~~..........~~....~~ ~~(646)~~$ 152,~~208~~609 ~~Principal~~$ ~~payments on long-term obligations............. (1~~2,~~466)~~630 ~~(653)~~Leased ~~Net~~asset ~~borrowings under credit agreements~~additions.................. ~~8,512 -- Proceeds from the issue of long-term obligation, net of issuance cost~~................~~......................~~ ~~1,348~~317 --90 ~~Cash~~Fixed ~~overdraft..........................................~~assets ~~1,291~~transferred ~~771~~to ~~--------- --------- Net cash provided by financing activities~~inventory............. ~~8,952 15,326 --------- --------- Effect of foreign exchange rate changes on cash~~......~~......~~ ~~(1,216) (18)~~ --~~-------~~ --------- Net increase (decrease) in cash and cash equivalents.... 2,946 (24,749) Cash and cash equivalents, beginning of the period...... 5,433 31,459 --------- --------- Cash and cash equivalents, end of the period............ $ 8,379 $ 6,710 ========= =========

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 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 six months ended October 28, 2000 and October 30, 1999 include the results of operations of the Company for 26 week and 27 week periods, respectively. The terms "fiscal 2001" and "fiscal 2000" refer to the Company's fiscal years ended April 28, 2001 and April 29, 2000, 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 29, 2000, as filed with the SEC on August 18, 2000, and are not necessarily indicative of the results that may be expected for the year ending April 28, 2001. NOTE 2 - INVENTORIES Inventories consisted of the following as of:

~~THREE~~OCTOBER ~~MONTHS~~28, ~~ENDED~~APRIL ~~--------------------------- JULY~~ 29, ~~JULY~~2000 ~~31,~~ 2000 ~~1999~~ ----------- ----------- (Unaudited) (~~Unaudited~~Audited) ~~Supplemental~~Raw ~~Disclosure of Cash Flow Information: Cash paid for: Interest~~materials...........................~~.....................~~ $ 132,~~008~~617 $ ~~527~~26,628 ~~Income taxes~~Work-in-process.........................~~...................~~ 5515,558 219,~~534~~875 ~~Supplemental~~Finished ~~Schedule of Non-cash Investing and Financing Activities: Preferred stock dividends-in-kind and issuable preferred stock dividends-in-kind~~goods..........................~~.....~~ ~~$ 1~~4,~~396~~940 ~~$ 1~~5,~~311~~415 ~~Leased~~--------- ~~asset~~----------- ~~additions~~Total.................................. --$ 5553,115 $ 51,918 ========== ===========

NOTE 3 - ACQUISITIONS AND OTHER TRANSACTIONS 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 was 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 $29,061 in cash and Italian bank financing. The acquisition was completed on January 18, 2000. The purchase price is subject to an adjustment based on the difference between the actual working capital, as defined, at the closing date and a minimum contractual amount per the Purchase Agreement. The Company has filed for arbitration in Italy to settle this final purchase price adjustment and both parties are continuing negotiations. 8 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 3 - ACQUISITIONS AND OTHER TRANSACTIONS (CONTINUED) 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 Company has estimated that there is an excess of book value over cost which has been allocated to certain long term assets. 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 $38,624 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. On June 2, 2000, PHI acquired all of the outstanding shares of Vivirad U.S.A Corporation ("Holdings"), the holding company of Vivirad-High Voltage Corporation ("Vivirad") pursuant to a Stock Purchase Agreement ("Agreement") among PHI, the Company, Vivirad, and Holdings, and Vivirad S.A. ("Seller"), a French corporation and the sole stockholder of Holdings. Under the Agreement, the Seller would receive in exchange for the stock of Holdings an aggregate purchase price of $2,281 comprised of $981 in cash and $1,300 in certain deferred payments. The deferred payments are represented by Promissory Notes of PHI in the aggregate amount of $1,300, with such notes due at various times. The Agreement also provides for the Seller to receive a contingent payment equal to $550 provided Vivirad achieves certain milestones, as defined. The net purchase prices have been allocated as follows:

~~JULY~~CE&A ~~29,~~ASI ~~APRIL~~VIVIRAD ~~29,~~TOTAL ~~2000 2000~~ --------- --------- --------- --------- ~~(Unaudited)~~Working ~~(Audited)~~capital, ~~Raw~~other ~~materials~~than cash acquired...... $ 836 $ 13,089 $ -- $ 13,925 Property, plant and equipment..................~~...~~ $15,737 2836,~~387~~583 $-- 2652,~~628~~320 ~~Work-~~Other assets (includes purchased in-process research and development)................... 10,014 2,785 -- 12,799 Cost in excess of assets acquired.............. 2514,~~815~~104 19-- 3,~~875~~201 ~~Finished~~17,305 ~~goods~~Other liabilities.............................. (2,~~140~~690) 5(28,~~415~~255) (920) (31,865) --------- --------- --------- ~~Total~~--------- Purchase price, net of cash received...........~~.....................~~ $ 5638,~~342~~001 $ 5124,~~918~~202 $ 2,281 $ 64,484 ========= ========= ========= =========

9 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 3 - ACQUISITIONS AND OTHER TRANSACTIONS (CONTINUED) The operating results of CE&A and Vivirad have been included in the Company's Consolidated Statement of Operations from the dates 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. The unaudited pro forma financial information for Vivirad for the first half of fiscal 2000 has not been presented because the effect of the transaction would not have been material to the results of operations of the Company. 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 $218,684 for the first half of fiscal 2000. Consolidated pro forma loss from continuing operations would have been $19,018 for the first half of fiscal 2000. Consolidated pro forma net loss applicable to common stockholders would have been $21,461 for the first half of fiscal 2000. Consolidated pro forma net loss from continuing operations per common share applicable to common shareholders would have been $19,816.25 for the first half of fiscal 2000. 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. 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, domestic subsidiaries of the Company sell a defined pool of domestic trade accounts receivable ("Pool Assets"), and the related rights inherited from the Company and its 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 $22,500. 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 receivables to HV-FC. The limited purpose subsidiary has the risk of credit loss on the receivables. At October 28, 2000, $18,330 was utilized under the Receivables Purchase Facility. 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 $785 at October 28, 2000, is accounted for as a loss on the sale of receivables and has been included in other expenses in the Company's Consolidated Statements of Operations. The Company's operating subsidiaries retain the collections and administrative responsibilities for the participating interests in the Pool Assets. As of April 29, 2000, the Receivables Purchase Facility was amended (the "First Amendment to Receivables Purchase Agreement") to conform certain restrictive covenants to the Third Amendment to the Revolving Credit Facility. The Receivables Purchase Facility was refinanced on November 30, 2000. See note 10 "Subsequent Events". ADDITIONAL COMMON STOCK WARRANTS AND ADDITIONAL SHARES OF HVE COMMON STOCK On August 8, 1997, the Company issued common stock warrants. Each common stock warrant entitles the holder thereof to purchase .0025 shares of the Company's common stock at an exercise price of $.01 per .0025 shares subject, under certain circumstances, to adjustment or exchange for warrants to purchase shares of common stock of certain of the Company's subsidiaries. The common stock warrants are exercisable through August 15, 2005 and represent 6.6% of the Company's common stock on a fully-diluted basis. Pursuant to the Warrant Agreement, if on August 15, 2000, neither a Qualified Subsidiary IPO has occurred nor the Company has effected an initial public offering of HVE Common Stock, the 10 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 3 - ACQUISITIONS AND OTHER TRANSACTIONS (CONTINUED) Company shall issue and sell to the then existing holders of Warrants, warrants for additional shares of HVE Common stock representing 1.25% of the HVE Common Stock on a fully-diluted basis. In addition, pursuant to the Warrant Agreement, if on August 15, 2000, if neither a Qualified Subsidiary IPO has occurred nor the Company has effected an initial public offering of HVE Common Stock, as defined, the Company shall issue and sell to the then existing holders of certain Common Shares, as defined, additional Common Shares representing 1.25% of the HVE Common Stock on a fully- diluted basis. In connection with the above, the Company has recorded the fair value of the additional common shares issuable and additional warrants issuable of $613 and $613, respectively offset by an incremental discount to the redeemable preferred stock of $1,226. REDEEMABLE PUT WARRANTS In connection with the above, as of August 15, 2000 the Company has issued and issuable 79.6688 warrants to purchase shares of common stock at $.01 per share, subject to a dilution adjustment, as defined. For financial reporting purposes, the Company has assigned an estimated fair value of $2,900 to the warrants. The warrants expire on May 9,2004. As of May 1, 2000, the holders of the warrants may "put" the warrants to the Company at amounts which are the greater of the then appraised valueor by formula as defined in the agreement. The Company does not believe these matters will have a material change to its financial statements. 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. In 1998, Robicon entered into a contract with a customer to supply a number of drives for installation in a municipal pumping station. Robicon in turn contracted with a supplier to supply the transformers for the drives. The supplier failed to deliver the transformers on a timely basis. The transformer for the first unit was delivered to the jobsite on May 29, 2000, but the transformer was damaged in transit. The transformer was repaired and on the shipment back to the customer was damaged in transit again. Robicon's contract provided for liquidating damages of $3 per day from June 15, 2000 until delivery to the jobsite. The first completed unit was delivered with a replacement transformer on October 31, 2000. Robicon has determined that the original transformer cannot be repaired and the cost which have been and will be expended to replace the damaged transformer are approximately $246. A claim has been processed with Robicon's insurance carrier. Robicon believes that the customer is currently re-phasing the timing of the entire project and any liquidated damages, if assessed, would be immaterial. Robicon purchased transformers from a second supplier, which it incorporated into variable frequency drives "VFDs". Robicon has been advised by two of its customers, one in China and one in Mexico, that the transformers have failed, resulting in explosions which damaged the transformer, VFD and other property. Robicon's investigation has concluded that 111 of the supplier's transformers in the field will require a retrofit to correct the problem, which is now underway. The supplier is cooperating in that effort, supplying parts at no cost and in some instances service personnel. To date, Robicon has expended in excess of $148 in service time to accomplish the retrofit, and estimated that costs could run as much as $500 before the project is concluded. Robicon and the supplier have notified their product liability carriers. To the extent damage is determined to be due to fire or explosion, (e.g. an incident), Robicon's management believes Robicon's losses to be covered by its own insurance. Robicon has also advised the supplier that Robicon is seeking reimbursement for all losses resulting from defects in the transformers for which its insurance carrier does not reimburse Robicon. 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. 11 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 5 - RESTRUCTURING CHARGE In fiscal 2000, the Company recorded various restructuring charges in the High Power Conversion Products segment for headcount reductions and a facility closing in connection with the acquisition of ASI along with severance relating to the reduction of some engineering and administrative headcount at Robicon. The Company also recorded restructuring charges in the Advanced Surface Analysis Instruments segment at PHI for severance. HIGH POWER CONVERSION PRODUCTS Restructuring charge for headcount reductions consisted of the following:

~~CE&A~~OCTOBER ~~ASI~~28, ~~VIVIRAD~~2000 ~~TOTAL~~ --------- ~~---------~~Balance ~~---------~~at ~~---------~~April ~~Working capital~~29, ~~other than cash acquired~~2000...... ~~$ 836 $ 13,089 $ -- $ 13,925 Property, plant and equipment~~............................. ~~15,737~~$ ~~36,583~~812 --Restructuring ~~52,320~~accrual ~~Other~~associated ~~assets~~with ~~(includes~~the ~~purchased~~acquisition ~~in-process~~of ~~research~~ASI ~~and~~615 ~~development)~~Charges................... ~~10,014 2,785 -- 12,799 Cost in excess of assets acquired~~.............. ~~14,104 -- 2,281 16,385 Other liabilities~~.................... (1,128) Effect of foreign currency translation...................... (~~2,690~~23) ~~(28,255)~~ -- ~~(30,945)~~ --------- ~~---------~~Balance ~~---------~~at ~~---------~~October ~~Purchase price~~28, ~~net of cash received~~2000................................. $ ~~38,001~~276 ~~$ 24,202 $ 2,281 $ 64,484~~ ========= ~~========= ========= =========~~

Restructuring charge for facility closing consisted of the following:

~~JULY~~OCTOBER 2928, 2000 --------- Balance at April 29, 2000................................... $ ~~812~~2,134 Charges..................................................... (~~329~~201) Effect of foreign currency translation...................... (150) --------- Balance at ~~July~~October 2928, 2000.................................~~...~~ $ ~~483~~1,783 =========

ADVANCED SURFACE ANALYSIS INSTRUMENTS Restructuring charge for headcount reductions consisted of the following:

~~JULY~~OCTOBER 2928, 2000 --------- Balance at April 29, 2000................................... $ ~~2,134~~863 Charges..................................................... (43459) --------- Balance at ~~July~~October 2928, 2000.................................~~...~~ $ ~~2,091~~404 =========

12 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 6 - 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:

~~JULY~~DEPRECIATION ~~29,~~NET ~~2000~~OPERATING IDENTIFIABLE AND CAPITAL SALES INCOME (LOSS) ASSETS AMORTIZATION EXPENDITURES --------- ~~Balance~~------------- at------------ ~~April~~------------ 29------------ SIX MONTHS ENDED OCTOBER 30, ~~2000~~1999 Restricted Subsidiaries (Robicon) $ 36,768 $ (1,553) $ 48,606 $ 931 $ 242 Unrestricted Subsidiaries (ASI).. -- -- -- -- -- --------- ---------- ------------ ----------- ------------ High power conversion products... 36,768 (1,553) 48,606 931 242 Advanced surface analysis instruments and services....... 29,290 (1,796) 110,586 3,526 5,008 High performance modular power connectors .............. 15,133 2,930 15,848 867 478 Customized monitoring instrumentation ......... ~~$ 863 Charges~~...... 30,899 3,131 47,757 1,252 191 Corporate and other ............. 4,944 316 16,826 303 32 --------- ---------- ------------ ----------- ------------ Consolidated (Unaudited)....... $117,034 $ 3,028 $ 239,623 $ 6,879 $ 5,951 ========= ========== ============ =========== ============ SIX MONTHS ENDED OCTOBER 28, 2000 Restricted Subsidiaries (Robicon) $ 40,053 $ (1,901) $ 38,004 $ 1,278 $ 1,118 Unrestricted Subsidiaries (ASI).. 94,646 670 134,445 1,603 779 --------- ---------- ------------ ----------- ------------ High power conversion products... 134,699 (1,231) 172,449 2,881 1,897 Advanced surface analysis instruments and services....... 37,541 (1,602) 94,839 4,863 3,193 High performance modular power connectors ............... ~~(186)~~14,578 ~~--------~~3,038 ~~Balance~~14,708 at898 ~~July 29~~1,618 ~~2000~~Customized monitoring instrumentation ............... 29,149 1,332 39,354 1,218 363 Corporate and other ............. 4,203 (2,002) 41,334 422 48 --------- ---------- ------------ ----------- ------------ Consolidated (Unaudited)........ $220,170 ~~677~~$ (465) $ 362,684 $ 10,282 $ 7,119 ========= ========== ============ =========== ============

13 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 6 - SEGMENT DATA (CONTINUED) The following represents the supplemental consolidating balance sheet for the Company's restricted and unrestricted subsidiaries at October 28, 2000.

~~DEPRECIATION~~TOTAL ~~NET~~ELIMINATION ~~OPERATING~~RESTRICTED ~~IDENTIFIABLE~~ASI ~~AND~~ADJUSTMENTS ~~CAPITAL~~TOTAL ~~SALES INCOME ASSETS AMORTIZATION EXPENDITURES~~ --------- -~~--------~~ ---------~~---~~ ------------ ---------~~---~~ ~~THREE~~ASSETS ~~MONTHS~~CURRENT ~~ENDED~~ASSETS ~~JULY~~Cash ~~31,~~and ~~1999~~cash ~~High power conversion products~~equivalents........................ $ 171,~~219~~404 $ (26,~~138)~~146 $ ~~48,778~~-- $ ~~464~~7,550 $Restricted ~~44 Advanced surface analysis instruments~~cash.................................. 114,~~142~~121 ~~(2,124)~~120 ~~114,598~~-- 14,~~402~~241 2Accounts receivable,~~480~~ ~~High performance modular power connectors~~net......................... 718,~~950~~692 164,~~497~~519 18-- 83,~~251~~211 ~~452~~Refundable ~~234~~income ~~Customized~~taxes.......................... ~~monitoring~~495 ~~instrumentation~~-- -- 495 Inventories...................................... 1639,~~198~~713 113,~~966~~402 46-- 53,~~957~~115 ~~640~~Costs 38and ~~Corporate~~earnings ~~and~~in ~~other~~excess of billings......... 3,889 6,584 -- 10,473 Prepaid expenses and other current assets........ 25,~~298~~274 11,881 (80170) 1816,~~833~~985 ~~157 16~~ ---------- ---------- ---------~~---~~ --------- Total current assets........................... 73,588 102,652 (170) 176,070 PROPERTY, PLANT AND EQUIPMENT, NET................. 68,633 29,448 --- 98,081 INVESTMENT IN JOINT VENTURE........................ 2,772 -- -- 2,772 ASSETS HELD FOR SALE............................... 2,568 15 -- 2,583 OTHER ASSETS, NET.................................. 41,598 2,500 -- 44,098 COST IN EXCESS OF NET ASSETS ACQUIRED.............. 39,080 -- -- ~~Consolidated~~39,080 ~~(Unaudited)~~INTERCOMPANY ACCOUNTS, NET......................... $11,070 547,~~807~~059 $ (~~879~~18,129) -- ---------- --------- --------- --------- $ ~~247~~239,~~417~~309 $ 3141,~~115~~674 $(18,299) 2$362,~~812~~684 ========= =~~=========~~ =========~~===~~ =========~~===~~ =========~~===~~ ~~THREE~~LIABILITIES ~~MONTHS~~AND ~~ENDED~~STOCKHOLDERS' ~~JULY~~DEFICIENCY ~~29,~~CURRENT ~~2000~~LIABILITIES ~~Restricted~~Current ~~Subsidiaries~~maturities ~~(Robicon)~~of $long-term ~~18,212~~debt obligations.................................... $ (13,~~713)~~236 $ ~~40,081~~109 $ ~~632~~-- $ ~~984~~3,345 ~~Unrestricted~~Foreign ~~Subsidiaries~~credit ~~(ASI)~~line.............................. 481,~~300~~599 -- -- 1,~~310~~599 ~~154,651~~Accounts ~~825~~payable ~~384~~and accrued liabilities......... 54,800 76,949 -- 131,749 Billings in excess of costs...................... 180 6,082 -- 6,262 Advance payments by customers.................... 9,842 8,377 -- 18,219 Federal, foreign and state income taxes payable........................................ 2,711 847 --- 3,558 Deferred income taxes............................ 2,036 69 (170) 1,935 Redeemable put warrants.......................... 2,900 -- -- 2,900 ------ ---- --------- ---------~~---~~ ---------~~---~~ ~~High~~Total ~~power~~current ~~conversion products~~liabilities...................... 6677,~~512~~304 92,433 (~~403~~170) ~~194~~169,~~732~~567 ~~1,457~~LONG-TERM 1OBLIGATIONS,~~368~~ ~~Advanced~~LESS ~~surface~~CURRENT ~~analysis instruments and services~~MATURITIES....... 17184,~~280~~606 ~~(430) 95~~20,~~663~~597 ~~2,514~~-- 1205,~~301~~203 ~~High~~DEFERRED ~~performance~~INCOME ~~modular power connectors~~ TAXES.............................. 76,~~291~~448 ~~1,436~~-- 14-- 6,~~197~~448 ~~487~~OTHER ~~814 Customized monitoring instrumentation~~ LIABILITIES.................................. 168,~~211~~552 120,~~151~~632 41-- 29,~~681~~184 ~~614~~REDEEMABLE ~~202~~PREFERRED ~~Corporate~~STOCK ~~and~~(AGGREGATE ~~other~~LIQUIDATION PREFERENCE OF $45,863 AS OF OCTOBER 28, 2000)....... 42,247 -- -- 42,247 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIENCY, NET...................... 3(79,~~459~~848) 8,012 (~~530~~18,129) 42(89,~~890~~965) ~~188 29~~ --------- -~~---------~~ ---------~~---~~ ---------~~---~~ ---------~~---~~ ~~Consolidated (Unaudited).......~~ $~~110,753~~ ~~$ 1~~239,~~224~~309 $ ~~389~~141,~~163~~674 $ 5(18,~~260~~299) $ 3362,~~714~~684 ========= =~~=========~~ =========~~===~~ =========~~===~~ =========~~===~~

14 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 6 - SEGMENT DATA (CONTINUED) The following represents the supplemental consolidating statement of operation for the Company's restricted and unrestricted subsidiaries for the six months ended October 28, 2000.

TOTAL ELIMINATION RESTRICTED ASI ADJUSTMENTS TOTAL ---------- --------- ----------- --------- ~~ASSETS~~Net ~~CURRENT ASSETS Cash and cash equivalents~~sales........................ ~~$ 2,405 $ 5,974 $ -- $ 8,379 Restricted cash~~...................~~...............~~ ~~4,587~~$ ~~120 -- 4~~126,~~707~~722 ~~Accounts receivable~~$94,~~.............................~~646 ~~26,042~~$ 74(1,~~552~~198) ~~-- 100~~$220,~~594~~170 ~~Refundable~~Cost ~~income~~of ~~taxes~~sales.......................... ~~1,128 -- -- 1,128 Inventories~~.............~~.........................~~ 3888,~~854~~905 1783,~~488~~042 ~~-- 56,342 Costs and earnings in excess of billings......... -- 9,615 -- 9,615 Prepaid expenses and other current assets........ 4,606 11,422~~ (~~214~~1,198) 15170,~~814~~749 ---------- --------- ----------- --------- ~~Total~~Gross ~~current assets~~profit........................... ~~77,622 119,171 (214) 196,579 PROPERTY, PLANT AND EQUIPMENT, NET~~.........~~........~~ 6937,~~151~~817 3211,~~676~~604 -- ~~101~~49,~~827~~421 ~~INVESTMENT~~Administrative INand ~~JOINT~~selling ~~VENTURE~~expenses.................~~.......~~ 327,~~017~~500 --9,826 -- 337,~~017~~326 ~~ASSETS~~Research ~~HELD~~and ~~FOR~~development ~~SALE~~expenses...................~~............~~ 29,~~597~~034 ~~100~~1,133 -- 210,~~697~~167 ~~OTHER ASSETS~~Other, ~~NET~~net.................................. ~~43,504 2,704 -- 46,208 COST IN EXCESS OF NET ASSETS ACQUIRED~~........~~......~~ 382,~~835~~418 --(25) -- 382,~~835~~393 ~~INTERCOMPANY ACCOUNTS, NET......................... 11,976 5,708 (17,684)~~ -- ---------- --------- ----------- --------- ~~$ 246,702 $160,359 $~~(~~17,898~~Loss) ~~$389,163~~income ~~==========~~from ~~========= ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES Current maturities of long-term debt obligations~~operations...................~~.................~~ ~~$ 13~~(1,~~757~~135) $670 ~~387 $~~ -- $(465) ~~14,144~~Interest ~~Foreign credit line~~expense.............................. ~~1,882 -- -- 1,882 Accounts Payable and accrued expense~~......~~.......~~ 5210,~~620~~478 891,~~972~~294 -- ~~142~~11,~~592~~772 ~~Billings~~Interest ~~in excess of costs~~income...................... ~~3,966 7,142 -- 11,108 Advance payments by customers~~...............~~.....~~ ~~7,693~~118 6~~,084~~ -- ~~13,777~~124 ~~Federal,~~---------- ~~foreign~~-------- ~~and~~----------- ~~state~~--------- Loss from continuing operations before income taxes, ~~payable~~discontinued operations and extraordinary item............................~~............~~ 4(11,~~022~~495) ~~777~~(618) -- 4(12,~~799~~113) ~~Deferred~~Income ~~income~~ taxes............................ ~~1,227 -- (214) 1,013 Redeemable put warrants~~............~~..............~~ ~~2,900~~392 --969 -- 21,~~900~~361 ---------- --------- ----------- --------- ~~Total~~Net ~~current~~loss ~~liabilities~~before discontinued operations and extraordinary item...................... ~~88,067 104,362 (214) 192,215 LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES~~...... ~~173~~$ (11,~~164~~887) 25$(1,~~115~~587) $ -- ~~198~~$(13,~~279~~474) ~~DEFERRED~~========== ~~INCOME~~======== ~~TAXES..............................~~=========== ~~6,486~~========= --Supplemental --Data: ~~6,486~~Depreciation ~~OTHER~~and ~~LIABILITIES~~Amortization...................~~...............~~ ~~9,207~~$ 228,~~954~~679 --$ 321,~~161~~603 ~~REDEEMABLE~~$ ~~PREFERRED~~-- ~~STOCK (AGGREGATE LIQUIDATION PREFERENCE OF~~ $~~44,451~~ ~~AS OF JULY 29~~10,282 ~~2000)~~Capital Expenditures....... ~~42,149 -- -- 42,149 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIENCY, NET~~...................... ~~(72~~6,~~371)~~340 ~~7,928~~779 ~~(17,684) (82,127)~~ --~~--------~~ ~~--------- --------- --------- $ 246~~7,~~702 $160,359 $(17,898) $389,163 ========== ========= ========= =========~~119

NOTE 7 - COMPREHENSIVE INCOME The components of other comprehensive income consist solely of foreign currency translation adjustments. 15 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 8 - 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. In June 1999, the FASB issued SFAS 137, "Deferral of the Effective Date of FASB Statement No. 133", to defer for one year the effective date of implementation of SFAS 133. SFAS 133, as amended by SFAS 137, is effective for fiscal years beginning after June 15, 2000, with earlier application encouraged. The Company does not believe adoption will have a material impact on its financial statement disclosures. 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 Company is currently evaluating the impact that SAB 101 will have on its financial reporting requirements. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, or FIN No. 44, "Accounting for Certain Transactions Involving Stock Compensation." This Interpretation clarifies the application of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and is generally effective July 1, 2000, with certain conclusions in this Interpretation covering specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this Interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. Management believes the adoption of FIN No. 44 will not have a material impact on our financial position, results of operations or cash flows. NOTE 9 - 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. In certain cases the Company must rely on third-parties vendors, suppliers and others and is monitoring the adequacy of the processes and progress of these parties. However, there can be no assurance that the third-party vendors, suppliers and others will timely resolve their own euro conversion compliance issues. 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. 16 HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE 10 - SUBSEQUENT EVENT On November 30, 2000, the Company simultaneously closed a Financing Agreement ("Financing Agreement") and Receivables Purchase Agreement ("Refinanced Receivables Purchase Agreement") for the purpose of refinancing the existing revolving credit facility ("Revolving Credit Facility") and Trade Receivables Purchase Facility ("Receivables Purchase Facility"). The Financing Agreement provides for a $25,800 credit facility consisting of (i) a $5,000 revolving credit facility ("Refinanced Revolving Credit Facility") including a $5,000 sub-facility for the issuance of letters of credit; (ii) a $5,000 term loan ("Term Loan A"), and (iii) a $15,800 term loan ("Term Loan B"). The Financing Agreement generally provides for the full payment of principal at October 31, 2003 with the exception of $800 of Term Loan B which is due January 31, 2001. Availability under Refinanced Revolving Credit Facility Agreement is limited to the lesser of (i) 60% of eligible inventory less an amount of $1,128 which represents three months of payments of rented or owned real property of the Company's domestic operations adjusted for the receipt of landlord waivers, mortgagee waivers or collateral access agreements and (ii) 125% of the appraised orderly liquidation value of the eligible inventory less certain reserves as is reasonable and customary by the lenders. Availability under Term Loan A is limited to 70% of the appraised orderly liquidation value of the eligible machinery and equipment. Interest under the Refinanced Revolving Credit Facility and Term Loan A is computed and payable monthly at the greater of the lender's reference rate (9.5% at November 30, 2000) or 9.0% plus (i) 2.5% through November 30, 2001, (ii) 3.0% from December 1, 2001 through November 30, 2002 and (iii) 4.5% after November 30, 2002. Interest under the Term Loan B is computed and payable monthly at the greater of the lender's reference rate or 9.0% plus (i) 3.25% through November 30, 2001, (ii) 3.75% from December 1, 2001 through November 30, 2002 and (iii) 5.25% after November 30, 2002. The Company is required to pay monthly in arrears an unused line fee of 0.5% of the available funds of the Refinanced Revolving Credit Facility. The Financing Agreement provides for liens on substantially all domestic property and assets of the company. The Company entered into the Refinanced Receivables Purchase Facility with High Voltage Funding Corporation, ("HV-FC"), a limited purpose subsidiary of the Company. Under the Refinanced Receivables Purchase Facility, the domestic subsidiaries of the Company sell a defined pool of trade accounts receivable ("Pool Assets"), and the related rights inherited of the Company and its domestic subsidiaries to HV-FC. The Refinanced 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 $25.0 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 receivables to HV-FC. The limited purpose subsidiary has the risk of credit loss on the receivables. 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 Company's domestic operating subsidiaries retain the collections and administrative responsibilities for the participating interests in the Pool Assets. The Financing Agreement and Refinanced Receivables Purchase 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. Pursuant to the closing of the Financing Agreement and Refinanced Receivables Purchase Facility, the Company has reclassified $12,183 to long term debt which represents the current portion of the Revolving Credit Facility. In connection with the above, the Company recorded an extraordinary loss of $365 to write off the deferred financing costs and prepayment penalties of the Revolving Credit Facility and Receivables Purchase Facility. 17 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 2001" and "fiscal 2000" refer to the Company's fiscal years ended April 28, 2001 and April 29, 2000, respectively. The Company operates on a 52 or 53 week fiscal year. The six months ended October 28, 2000 and October 30, 1999 include the results of operations of the Company for 26 week and 27 week periods, respectively. 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"), and Ansaldo Sistemi Industriali, S.p.A. and subsidiaries ("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. 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 foreign factory shutdowns during holiday periods along with 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 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 of Vivirad-High Voltage Corporation ("Vivirad") pursuant to a Stock Purchase Agreement ("Agreement") among PHI, the Company, Vivirad, and Holdings, and Vivirad S.A. ("Seller"), a French corporation and the sole stockholder of Holdings. Under the Agreement, the Seller would receive in exchange for the stock of Holdings an aggregate purchase price of $2.3 million comprised of $1.0 million in cash and $1.3 million in certain deferred payments. The deferred payments were represented by Promissory Notes of PHI in the aggregate amount of $1.3 million with such notes due at various times. The Agreement also provides for the Seller to receive a contingent payment equal to $0.6 million provided Vivirad achieves certain milestones, as defined. The unaudited pro forma financial information for fiscal 2001 and fiscal 2000, respectively, has not been presented because the effect of the transaction would not have been material to the results of operations. 18 ACQUISITION OF ANSALDO SISTEMI INDUSTRIALI S.p.A. 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 $29.1 million in cash, and the refinancing of ASI's outstanding debt. The acquisition was completed on January 18, 2000. The purchase price is subject to an adjustment based on the difference between the actual working capital, as defined, at the closing date and a minimum contractual amount per the Purchase Agreement. The Company has filed for arbitration in Italy to settle this final purchase price adjustment and both parties are continuing negotiations. ACQUISITION OF CHARLES EVANS & ASSOCIATES On July 2, 1999, PHI acquired all the outstanding capital stock of CE&A for an aggregate consideration of $38.6 million in cash reduced by the amount of all debt of CE&A outstanding at the closing. CONSOLIDATED Net sales for the first half of fiscal 2001 were $220.2 million, which was a $103.1 million or 88.1% increase from the first half of fiscal 2000. The following discussion does not address the financial results of the first half of fiscal 2001 for Vivirad, which was acquired on June 2, 2000, because the results of operations for Vivirad were deemed immaterial. Excluding net sales of ASI, which was acquired on December 22, 1999, and CE&A, which was acquired on July 2, 2000, net sales increased $3.6 million, or 3.3%, during the first half of fiscal 2001. Net loss for the first half of fiscal 2001 increased $6.6 million to $13.8 million compared same period in fiscal 2000. The primary difference in the results of operation of the first half of fiscal 2001 as compared to the first half of fiscal 2000 were the addition of the operations of ASI and CE&A which were included for the full first half of fiscal 2001, lower selling, general and administrative expenses, the absence of certain acquisition and restructuring related expenses, offset by lower margins and increases in research and development expenses as well as borrowing costs associated with acquisitions. SEGMENT ANALYSIS: THREE MONTHS ENDED OCTOBER 28, 2000 COMPARED TO THREE MONTHS ENDED OCTOBER 30, 1999 THE HIGH POWER CONVERSION PRODUCTS SEGMENT reported net sales of $68.2 million for second quarter of fiscal 2001 which was an increase of $48.6 million, or 248.8% from fiscal 2000. Excluding net sales from ASI, which was acquired on December 22, 1999, net sales for Robicon increased $2.3 million during the second quarter of fiscal 2001 as compared to the second quarter of fiscal 2000 primarily due to an increase in revenue from the power control systems product line. Gross margin percentage on net sales at Robicon for the three months ended October 28, 2000 was 3.9% less than the same period in fiscal 2000. The decrease in margin can be attributed to a $0.3 million cost overrun on a Power Control Systems contract, lower medium voltage margins due to price erosion on orders taken in the prior fiscal year and margin erosion in the low voltage drives product line due to a higher mix of low horsepower drives which historically provide lower margins. The segment's operating loss increased $1.4 million to a loss of $0.8 million during the second quarter of fiscal 2001 as compared to operating income of $0.6 million in the first half of fiscal 2000. Excluding the operating loss of $0.6 million at ASI, operating loss increased $0.8 million during the second quarter of fiscal 2001 to a loss of $0.2 million as compared to operating income of $0.6 million during the same period of fiscal 2000. The loss is primarily due to the decrease in the gross profit margin and an increase of $0.2 million of administrative and selling expense. 19 ASI reported net sales of $46.3 million for the second quarter of fiscal 2001. The quarter was impacted by the August factory shutdown period in Europe that specifically reduced revenues from the Motor and Power Controls manufacturing based product lines. However, revenues exceeded expectations for medium voltage induction motors. The Metals and Automation divisions recorded strong revenues with completion and continued invoicing of a number of important systems and automation projects in Europe and the US. ASI reported an operating loss of $0.6 million for the second quarter of fiscal 2001. The result was in line with expectations reflecting losses in Italy and the US. The Italian net loss was due to an adverse product mix combined with a negative impact on margins due to the customary August factory shutdown. The US losses were due to high levels of warranty and service costs at the unit in Houston. It is the Company's belief that the acquisition of ASI will improve the operating results of both Robicon and ASI. The combination of these businesses should substantially improve the competitive position of the High Power Conversion Products Segment by expanding the product offerings, expanding domain expertise, eliminating niche competition between the businesses, and providing critical mass with regards to sourcing volume. In addition, the Company has implemented a plan to improve operating profitability specifically at ASI by reducing headcount, limiting the use of outside contractors, the simultaneous closing and integration of the ASI U.S. operations into Robicon, the selling of the ASI U.K. systems business and the upgrade of the ASI leadership team. Certain cost savings related to shared services and facility rent were also negotiated in connection with the acquisition of ASI. THE ADVANCED SURFACE ANALYSIS INSTRUMENTS AND SERVICES SEGMENT reported net sales of $20.3 million for the second quarter of fiscal 2001 which was an increase of $2.1 million, or 11.6% from the second quarter of fiscal 2000. The increase in net sales was due to the shipping of three additional more systems during the first half of fiscal 2001 compared to the same period in fiscal 2000. Operating loss increased $1.5 million to a loss of $1.2 million during the second quarter of fiscal 2001 compared to an operating income of $0.3 million during the second quarter of fiscal 2000, primarily due to increased operating losses in the Ulvac-PHI joint venture, outsourcing of subassemblies, CE&A moving costs, as well as higher administrative and selling expenses due to higher recruiting and selling costs. . THE HIGH PERFORMANCE MODULAR POWER CONNECTORS SEGMENT reported net sales of $7.3 million during the second quarter of fiscal 2001 which was an increase of $0.1 million or 1.4% from the second quarter of fiscal 2000. Adjusting net sales for the divestiture of the Carbolon product line during fiscal 2000, net sales are up $1.0 million or 16.2%. Higher sales from telecom, data and uninterruptable power supplies ("UPS") markets were partially offset by lower sales in material handling markets. The gross margin percentage on net sales for second quarter of fiscal 2001 increased 4.3% as compared to the second quarter of fiscal 2000. The higher margin is attributable to the sale of the lower margin Carbolon business, coupled with Anderson's increased penetration into the higher margin end markets of telecom, data and UPS. Anderson continues to improve results by focusing on their niche custom high power/current connectors and continues to have high quote activity in the telecom, data and UPS industries. Operating income increased $0.2 million during the second quarter of fiscal 2001 as compared to the second quarter of fiscal 2000. 20 THE CUSTOMIZED MONITORING INSTRUMENTATION SEGMENT reported net sales of $12.9 million for the second quarter of fiscal 2001 which is a decrease of $1.8 million as compared to the second quarter of fiscal 2000. The decrease in net sales is primarily a result of lost business from a large customer due to a planned model year changeover of $0.6 million, and lost business from a major heavy truck manufacturing company that was placed on credit hold of $0.3 million. These factors plus the slowdown in our distribution markets coupled with forced price concessions from certain key accounts reflect the major cause for the sales decline. Operating income for the second quarter of fiscal 2001 decreased $1.0 million to $0.2 million compared to the second quarter of fiscal 2000. This decrease is the result of lower sales volume, a shift toward lower margin products as well as certain price reductions effective during the fourth quarter of fiscal 2000. The decrease was partially offset by $0.8 million in selling, general and administrative expense reductions during the second quarter of fiscal 2001 as compared to the second quarter of fiscal 2000. The Company continued to create operating efficiencies by combining the operations of Maxima-Juarez/El Paso with these of Maxima-Lancaster. SIX MONTHS ENDED OCTOBER 28, 2000 COMPARED TO THE SIX MONTHS ENDED OCTOBER 30, 1999 THE HIGH POWER CONVERSION PRODUCTS SEGMENT reported net sales of $134.7 million for the six months ended October 28, 2000, which was an increase of $97.9 million, or 266.3% from the six months ended October 30, 1999. Excluding net sales from ASI, net sales for Robicon increased $3.3 million during the first half of fiscal 2001 as compared to the first half of fiscal 2000. The increase in net sales was due to an increase in revenue from the power control systems product line. The backlog increased $5.1 million or 11.4% to $49.4 million as compared to backlog of $44.3 million at April 29, 2000. Operating loss decreased $0.3 million during the six months ended October 28, 2000 as compared to an operating loss of $1.6 million for the same period in fiscal 2000. Excluding the operating income from ASI, operating loss increased $0.3 million to a loss of $1.9 million during the first half of fiscal 2001 as compared to the first half of fiscal 2000. This increase in operating loss was primarily due to $0.9 million cost over run on a Power Control Systems contract, lower medium voltage margins due to price erosion on orders taken in the prior fiscal year and margin erosion in the low voltage drives product line due to a higher mix of low horsepower drives which historically provide lower margins offset by a non-recurring fiscal 2000 restructuring charge of $0.9 million and lower service expense. THE ADVANCED SURFACE ANALYSIS INSTRUMENTS SEGMENT reported net sales of $37.5 million for the six months ended October 28, 2000, was an increase of $8.3 million from the six months ended October 30, 1999. Excluding net sales from CE&A, which was acquired on July 2, 1999, net sales increased $3.6 million or 16.3% during the first half of fiscal 2001, as compared to the first half of fiscal 2000. The increase was the result of shipping five additional systems during the first half of fiscal 2001 as compared to the same period in fiscal 2000. Operating loss decreased $0.2 million to $1.6 million for the six months ended October 28, 2000 compared to the six months ended October 30, 1999. Excluding the operating loss of CE&A of $0.7 million, which included a charge of $1.6 million to write off purchased in-process research and development expense in the first half of fiscal 2000, which had been valued in accordance with purchase accounting procedures, operating loss increased $0.5 million. This increase in operating loss was the result of reduced gross profit due to a shift to ESCA systems which have lower margins. Higher manufacturing variances of $0.5 million during the first half of fiscal 2001 also contributed to the increase in the operating loss. 21 THE HIGH PERFORMANCE MODULAR POWER CONNECTORS SEGMENT reported net sales of $14.6 million for the six months ended October 28, 2000, was a decrease of $0.5 million, or 3.7% from the six months ended October 30, 1999. Adjusting the net sales for the divestiture of the Carbolon product line during fiscal 2000, net sales are up $0.1 million or 6.9%. Overall, on a same sales basis, and after adjusting for unfavorable foreign exchange differences of $0.3 million, net sales for the first half of fiscal 2001 have increased $1.2 million or 9.3% compared to the first half of fiscal 2000. Growth in the telecommunications networking equipment markets and certain industrial markets continued to fuel the growth in this segment. The gross margin percentage on net sales in the first half of fiscal 2001 increased 2.7% as compared to the first half of fiscal 2000. The higher margin is attributable to the sale of the lower margin Carbolon business, coupled with Anderson's increased penetration into the higher margin end markets of telecom, data and UPS. Anderson continues to improve results by focusing on their niche custom high power/current connectors and continue to have high quote activity in the telecom, data and UPS industries. Operating income has increased $0.1 million to $3.0 million for the first half of fiscal 2001 as compared to the first half of fiscal 2000. THE CUSTOMIZED MONITORING INSTRUMENTATION SEGMENT reported net sales of $29.1 million for the six months ended October 28, 2000 was a decrease of $1.7 million, or 5.7%, from the six months ended October 30, 1999. The reduction in this segment was primarily a result of lost business from a large customer due to a planned model year changeover of $0.6 million, and lost business from a major heavy truck manufacturing company that was placed on credit hold of $0.3 million. These factors plus the slowdown in our distribution markets coupled with forced price concessions from certain key accounts reflect the major cause for the sales decline. Operating income decreased $1.8 million to $1.3 million during the six months ended October 28, 2000 as compared to the six months ended October 30, 1999. The gross profit declined $3.0 million, due to a decrease in the gross margin percentage 8.6% during the first half of fiscal 2001 as compared to the first half of fiscal 2000. The decrease in profit margin is a result of higher warranty cost on some discontinued Stewart Warner brand products and a shift towards lower margin products. The decrease in operating income was partially offset by expense savings during the first half of fiscal 2001 of $0.8 million compared to the first half of fiscal 2000 due to the efficiencies by combining the operations of Maxima-Juarez/El Paso with these of Maxima-Lancaster. 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. Through November 30, 2000 the Company maintained a $25.0 million revolving credit facility (the "Revolving Credit Facility") which was primarily maintained to fund the Company's working capital requirements and has a $10.0 million sub-limit 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, among other things, to exclude as collateral certain domestic receivables sold pursuant to the Receivable Purchase Facility, described below, and included certain property, plant and equipment of certain domestic subsidiaries. As of April 29, 2000, the Revolving Credit Facility was amended (the "Third Amendment to Revolving Credit Facility"). Borrowings outstanding under the Revolving Credit Facility as of October 28, 2000 were $14.0 million, and there were $3.2 million in letters of credit commitments outstanding resulting in credit availability under this facility of $6.2 million as of such date. 22 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 from the Company and its 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 receivables to HV-FC. The limited purpose subsidiary has the risk of credit loss on the receivables. At October 28, 2000, $18.3 million was utilized under the Receivables Purchase Facility. 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 $0.8 million at October 28, 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. As of April 29, 2000, the Receivables Purchase Facility was amended (the "First Amendment to Receivables Purchase Agreement") to conform certain restrictive covenants to the Third Amendment to the Revolving Credit Facility. On November 30, 2000, the Company simultaneously closed a Financing Agreement ("Financing Agreement") and Receivables Purchase Agreement ("Refinanced Receivables Purchase Agreement") for the purpose of refinancing the existing revolving credit facility ("Revolving Credit Facility") and Trade Receivables Purchase Facility ("Receivables Purchase Facility")as described above. The Financing Agreement provides for a $25.8 million credit facility consisting of (i) a $5.0 million revolving credit facility ("Refinanced Revolving Credit Facility") including a $5.0 million, sub-facility for the issuance of letters of credit; (ii) a $5.0 million, term loan ("Term Loan A"), and (iii) a $15,800 term loan ("Term Loan B"). The Financing Agreement generally provides for the full payment of principal at October 31, 2003 with the exception of $0.8 million of Term Loan B which is due January 31, 2001. Availability under Refinanced Revolving Credit Facility Agreement is limited to the lesser of (i) 60% of eligible inventory less an amount of $1.1 million which represents three months of payments of rented or owned real property of the Company's domestic operations adjusted for the receipt of landlord waivers, mortgagee waivers or collateral access agreements and (ii) 125% of the appraised orderly liquidation value of the eligible inventory less certain reserves as is reasonable and customary by the lenders. Availability under Term Loan A is limited to 70% of the appraised orderly liquidation value of the eligible machinery and equipment. Interest under the Refinanced Revolving Credit Facility and Term Loan A is computed and payable monthly at the greater of the lender's reference rate (9.5% at November 30, 2000) or 9.0% plus (i) 2.5% through November 30, 2001, (ii) 3.0% from December 1, 2001 through November 30, 2002 and (iii) 4.5% after November 30, 2002. Interest under the Term Loan B is computed and payable monthly at the greater of the lender's reference rate or 9.0% plus (i)3.25% through November 30, 2001, (ii) 3.75% from December 1, 2001 through November 30, 2002 and (iii) 5.25% after November 30, 2002. The Company is required to pay monthly in arrears an unused line fee of 0.5% of the available funds of the Refinanced Revolving Credit Facility. The Financing Agreement provides for liens on substantially all domestic property and assets of the Company. Pursuant to the closing of the Financing Agreement and Refinanced Receivables Purchase Facility, the Company has reclassified $12,183 to long term debt which represents the current portion of the Revolving Credit Facility. In connection with the above the Company's recorded an extraordinary loss of $365 to write off the deferred financing costs and prepayment penalties of the Revolving Credit Facility and Receivables Purchase Facility. 23 The Company entered into the Refinanced Receivables Purchase Facility with High Voltage Funding Corporation, ("HV-FC"), a limited purpose subsidiary of the Company. Under the Refinanced Receivables Purchase Facility, the domestic subsidiaries of the Company sell a defined pool of trade accounts receivable ("Pool Assets"), and the related rights inherited from the Company and its domestic subsidiaries to HV-FC. The Refinanced 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 $25.0 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 receivables to HV-FC. The limited purpose subsidiary has the risk of credit loss on the receivables. 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 Company's domestic operating subsidiaries retain the collections and administrative responsibilities for the participating interests in the Pool Assets. The Financing Agreement and Refinanced Receivables Purchase 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 October 28, 2000, the Company had total indebtedness (including redeemable put warrants) of $213.0 million and mandatory redeemable preferred stock with an aggregate liquidation preference of $45.9 million. On December 22, 1999, the Company received the consent (the "Consent Solicitation") of the holders of its 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 5.0% unsecured notes of 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; and (iv) entrance by the Company into the Receivables Purchase Facility. The purpose of the waivers was 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 were (i) to designate Nicole Corporation as an unrestricted subsidiary of the Company, as defined under the Indenture; (ii) to amend the amount available to the Company to make Restricted Payments; and (iii) to include as Permitted Investment certain arrangements made pursuant to the Receivables Purchase Facility. In consideration of the Consent Solicitation, the Company, (i) paid a Consent Fee and related costs of $3.5 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; and (iii) pledged as collateral for the Notes the PHI Eden Prairie facility and the Nicole Intercompany Notes. As of October 28, 2000, 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, as of May 1, 2000, 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 does not anticipate any significant principal payment obligations under any of its outstanding indebtedness prior to maturity of the Financing Agreement. 24 The Company's working capital was $6.5 million and $7.2 million at October 28, 2000 and April 29, 2000, respectively. The Company's cash flows used in continuing operations were $0.5 million in the first half of fiscal 2001, as compared to a use of cash of $11.6 million for the same period in fiscal 2000. The Company invested $7.1 million in capital expenditures during the first Half of fiscal 2001, including facility improvements at CE&A, Anderson and Robicon. 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. In June 1999, the FASB issued SFAS 137, "Deferral of the Effective Date of FASB Statement No. 133", to defer for one year the effective date of implementation of SFAS 133. SFAS 133, as amended by SFAS 137, is effective for fiscal years beginning after June 15, 2000, with earlier application encouraged. The Company does not believe adoption will have a material impact on its financial statement disclosures. 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 Company is currently evaluating the impact that SAB 101 will have on its financial reporting requirements. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, or FIN No. 44, "Accounting for Certain Transactions Involving Stock Compensation." This Interpretation clarifies the application of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and is generally effective July 1, 2000, with certain conclusions in this Interpretation covering specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this Interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. Management believes the adoption of FIN No. 44 will not have a material impact on our financial position, results of operations or cash flows. 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 known material adverse impacts on our current products, internal information systems, and non information technology systems (equipment and systems) as a result of the year 2000 issue. 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 were expensed during the period in which they were incurred. The financial impact to the Company of implementing the systems changes necessary to become Year 2000 compliant was not 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 but the Company believes that any future costs will not be material to its financial condition. 25 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. In certain cases the Company must rely on third-parties vendors, suppliers and others and is monitoring the adequacy of the processes and progress of these parties. However, there can be no assurance that the third-party vendors, suppliers and others will timely resolve their own euro conversion compliance issues. 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 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 $250,000 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. 26 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 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. In 1998, Robicon entered into a contract with a customer to supply a number of drives for installation in a municipal pumping station. Robicon in turn contracted with a supplier to supply the transformers for the drives. The supplier failed to deliver the transformers on a timely basis. The transformer for the first unit was delivered to the jobsite on May 29, 2000, but the transformer was damaged in transit. The transformer was repaired and on the shipment back to the customer was damaged in transit again. Robicon's contract provided for liquidating damages of $3,000 per day from June 15, 2000 until delivery to the jobsite. The first completed unit was delivered with a replacement transformer on October 31, 2000. Robicon has determined that the original transformer cannot be repaired and the cost which have been and will be expended to replace the damaged transformer are approximately $246,000. A claim has been processed with Robicon's insurance carrier. Robicon believes that the customer is currently re-phasing the timing of the entire project and any liquidated damages, if assessed, would be immaterial. Robicon purchased transformers from a second supplier, which it incorporated into variable frequency drives "VFDs". Robicon has been advised by two of its customers, one in China and one in Mexico, that the transformers have failed, resulting in explosions which damaged the transformer, VFD and other property. Robicon's investigation has concluded that 111 of the supplier's transformers in the field will require a retrofit to correct the problem, which is now underway. The supplier is cooperating in that effort, supplying parts at no cost and in some instances service personnel. To date, Robicon has expended in excess of $148,000 in service time to accomplish the retrofit, and estimated that costs could run as much as $0.5 million before the project is concluded. Robicon and the supplier have notified their product liability carriers. To the extent damage is determined to be due to fire or explosion, (e.g. an incident), Robicon's management believes Robicon's losses to be covered by its own insurance. Robicon has also advised the supplier that Robicon is seeking reimbursement for all losses resulting from defects in the transformers for which its insurance carrier does not reimburse Robicon. 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. 27 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. (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. 28 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: December 12, 2000 By: /s/ Joseph W. McHugh, Jr. ------------------------------------- Joseph W. McHugh, Jr. Chief Financial Officer and Principal Accounting Officer 29

TOTAL ELIMINATION RESTRICTED ASI ADJUSTMENTS TOTAL ---------- -------- ----------- --------- Net sales........................................... $ 63,290 $48,300 $ (837) $110,753 Cost of sales....................................... 44,326 40,430 (837) 83,919 ---------- -------- ----------- --------- Gross profit.................................... 18,964 7,870 -- 26,834 Administrative and selling expenses................. 14,091 5,745 -- 19,836 Research and development expenses................... 4,394 815 -- 5,209 Reimbursed environmental and litigation costs, net............................................... 3 -- -- 3 Other, net.......................................... 562 -- -- 562 ---------- -------- ----------- --------- (Loss) income from operations................... (86) 1,310 -- 1,224 Interest expense.................................... 5,120 659 -- 5,779 Interest income..................................... 75 -- -- 75 ---------- -------- ----------- --------- (Loss) income from continuing operations before income taxes.................................. (5,131) 651 -- (4,480) Income taxes........................................ 356 454 -- 810 ---------- -------- ----------- --------- Net (loss) income................................... $ (5,487) $ 197 $ -- $ (5,290) ========== ======== =========== ========= Supplemental Data: Depreciation and Amortization................... $ 4,435 $ 825 $ -- $ 5,260 Capital Expenditures............................ 3,330 384 -- 3,714

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