<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: OCTOBER 31, 1996 Commission File Number 0-26714
ADE CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2441829
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 WILSON WAY, WESTWOOD, MASSACHUSETTS 02090
---------------------------------------------
(Address of principal executive offices, including area code)
(617) 467-3500
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 7,650,616 shares
-------------------------------------- -------------------------------
Class Outstanding at December 6, 1996
<PAGE>
ADE CORPORATION
INDEX
PAGE
----
PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(unaudited)-
Condensed Consolidated Balance Sheet
October 31, 1996 and April 30, 1996 3
Condensed Consolidated Statement of Income-
Three and Six Months Ended October 31, 1996 and 1995 4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended October 31, 1996 and 1995 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. - OTHER INFORMATION 11
SIGNATURES 12
EXHIBIT INDEX 13
<PAGE>
ADE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 31, April 30,
----------- ---------
1996 1996
----------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,835,000 $20,997,000
Restricted cash 3,523,000 --
Accounts receivable, net 19,060,000 15,760,000
Inventories 20,268,000 12,981,000
Prepaid expenses and other current assets 1,195,000 325,000
Deferred income taxes 2,874,000 2,874,000
----------- -----------
Total current assets 53,755,000 52,937,000
Fixed assets, net 11,626,000 6,538,000
Restricted cash 3,642,000 --
Deferred income taxes 329,000 329,000
Investments 1,367,000 --
Other assets 185,000 198,000
----------- -----------
$70,904,000 $60,002,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 254,000 $ 38,000
Accounts payable 6,406,000 4,618,000
Accrued expenses 7,174,000 8,536,000
Income taxes payable --- 289,000
----------- -----------
Total current liabilities 13,834,000 13,481,000
----------- -----------
Long-term debt 5,166,000 38,000
----------- -----------
Excess of net assets acquired over cost 310,000 436,000
----------- -----------
Stockholders' equity:
Common stock 76,000 76,000
Capital in excess of par value 27,167,000 27,032,000
Retained earnings 24,585,000 19,198,000
----------- -----------
51,828,000 46,306,000
Deferred compensation (234,000) (259,000)
----------- -----------
51,594,000 46,047,000
----------- -----------
$70,904,000 $60,002,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
<PAGE>
ADE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
------------------------ -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $21,780,000 $15,328,000 $40,974,000 $28,870,000
Cost of revenue 9,420,000 7,090,000 17,782,000 13,313,000
----------- ----------- ----------- -----------
Gross profit 12,360,000 8,238,000 23,192,000 15,557,000
----------- ----------- ----------- -----------
Operating expenses:
Research and development 3,564,000 1,806,000 6,609,000 3,472,000
Marketing and sales 2,827,000 2,254,000 5,749,000 4,460,000
General and administrative 1,694,000 1,614,000 3,138,000 3,019,000
Amortization of excess of net
assets acquired over cost (63,000) (63,000) (126,000) (126,000)
----------- ----------- ----------- -----------
Total operating expenses 8,022,000 5,611,000 15,370,000 10,825,000
----------- ----------- ----------- -----------
Income from operations 4,338,000 2,627,000 7,822,000 4,732,000
Interest income (expense), net 106,000 (18,000) 285,000 (52,000)
----------- ----------- ----------- -----------
Income before provision for 4,444,000 2,609,000 8,107,000 4,680,000
income taxes and equity in
net earnings of affiliated
companies
Provision for income taxes 1,526,000 937,000 2,735,000 1,678,000
----------- ----------- ----------- -----------
Income before equity in net
earnings of affiliated
companies 2,918,000 1,672,000 5,372,000 3,002,000
Equity in net earnings of
affiliated companies 15,000 --- 15,000 ---
----------- ----------- ----------- -----------
Net income $2,933,000 $1,672,000 $ 5,387,000 $ 3,002,000
=========== ========== ========== ===========
Net income per share $0.37 $0.26 $0.67 $0.47
=========== ========== ========== ===========
Weighted average common and
common equivalent shares
outstanding 7,951,000 6,502,000 7,997,000 6,387,000
=========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
<PAGE>
ADE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
October 31,
------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 5,387,000 $ 3,002,000
Adjustments to reconcile net income to
net cash used in operating
activities:
Depreciation and amortization 824,000 795,000
Equity in net earnings of affiliated companies (15,000) --
Deferred profits on sales to affiliates 1,211,000 --
Change in assets and liabilities:
Accounts receivable (3,300,000) (833,000)
Inventories (7,287,000) (1,606,000)
Prepaid expenses and other current assets (870,000) (88,000)
Accounts payable 1,788,000 (780,000)
Accrued expenses (1,362,000) (820,000)
Income taxes payable (289,000) 111,000
------------ -----------
Net cash used in operating activities (3,913,000) (219,000)
------------ -----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of fixed assets (6,013,000) (306,000)
Change in restricted cash (7,165,000) --
Equity investments (2,563,000) --
Change in other assets 13,000 94,000
------------ -----------
Net cash used in investing activities (15,728,000) (212,000)
------------ -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayment of long-term debt (156,000) (169,000)
Proceeds from long-term debt 5,500,000 --
Proceeds from common stock issuance, net of expenses 135,000 20,920,000
------------ -----------
Net cash provided by financing activities 5,479,000 20,751,000
------------ -----------
Net increase (decrease) in cash and cash equivalents (14,162,000) 20,320,000
Cash and cash equivalents, beginning of period 20,997,000 2,767,000
------------ -----------
Cash and cash equivalents, end of period $ 6,835,000 $23,087,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
<PAGE>
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements of ADE
Corporation (the "Company") include, in the opinion of management, all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair statement of the Company's financial position as of October 31, 1996 and
the results of operations for the three and six month periods ended October 31,
1996 and 1995. Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.
Pursuant to accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, the accompanying unaudited
condensed consolidated financial statements and these notes do not include all
disclosures required by generally accepted accounting principles for complete
financial statements. Accordingly, these statements should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1996.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, April 30,
1996 1996
(unaudited)
<S> <C> <C>
Raw materials and purchased parts............ $10,325,000 $6,099,000
Work-in-process.............................. 9,278,000 6,728,000
Finished goods............................... 665,000 154,000
----------- ----------
$20,268,000 $12,981,000
=========== ===========
</TABLE>
3. EQUITY INVESTMENTS (UNAUDITED)
The Company's investments in affiliated companies which are not majority owned
or controlled are accounted for using the equity method. Investments carried at
equity and the percentage interest owned consist of Japan ADE Ltd. (50%) and
Microspec Technologies Ltd. (25.1%). Profits resulting from sales to these
affiliates subsequent to the respective acquisition dates in July 1996 have been
eliminated, have been charged against the investment account and are recognized
upon resale to unrelated third parties.
6
<PAGE>
Pro forma results of operations as though the investments were made at the
beginning of the periods presented, including the effect of eliminating the
profit on affiliated sales in beginning and ending inventory for the period, are
as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
---------- ----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $21,780,000 $16,127,000 $41,114,000 $29,807,000
Net income 2,933,000 2,091,000 5,332,000 3,078,000
Earnings per share $ 0.37 $ 0.32 $ 0.67 $ 0.48
</TABLE>
4. LONG-TERM DEBT (UNAUDITED)
In June 1996, the Company issued a $5.5 million tax exempt Industrial
Development Bond through the Massachusetts Industrial Finance Agency. The bond
carries a 5.74% interest rate for 10 years with amortization of 50% of the
principal with the remaining 50% due in June 2006. The proceeds of the bond
will be used to fund the acquisition and renovation of the manufacturing
facility in the Company's new headquarters site. The Company secured the
issuance of the bond with a standby letter of credit from a financial
institution. The standby letter of credit, bearing a fee of 1.25% of the
outstanding bond balance, is secured by a mortgage on the building and land and
by a cash amount equal to the difference between the amount of the bond and 75%
of the appraised value of the land and building. Under the terms of the letter
of credit, the Company is required to comply with certain financial covenants,
including a limitation on the payment of dividends. The cash currently used to
secure the letter of credit is carried as restricted cash. The proceeds of the
Industrial Development Bond that have not yet been disbursed are carried as
long-term restricted cash.
5. EARNINGS PER SHARE (UNAUDITED)
Earnings per share are determined by dividing net income by the weighted average
number of common shares and common share equivalents outstanding during the
period. Common share equivalents consist of common stock which may be issuable
upon exercise of outstanding stock options and warrants using the treasury stock
method. Common stock and options issued or granted at prices below the public
offering price per share during the twelve-month period prior to the initial
filing of the Registration Statement have been included in the calculation as if
outstanding for all periods presented through July 31, 1995, using the treasury
stock method and an initial public offering price of $14.00 per share.
7
<PAGE>
ADE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
ADE Corporation (the "Company") designs, manufactures, markets and services
highly precise, automated measurement, defect detection and handling equipment
with current applications in the production of semiconductor wafers,
semiconductor devices and computer disks.
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in this
Quarterly Report and the audited consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1995
Revenues increased 42.1% to $21.8 million in the second quarter of fiscal 1997
from $15.3 million in the second quarter of 1996. The increase was due to
increased unit sales of the Company's products. The increase in unit sales
resulted primarily from stronger demand for capital equipment in the
semiconductor industry and an increase in demand for gaging equipment in the
computer disk drive industry.
Gross margin increased to 56.7% in the second quarter of fiscal 1997 from 53.7%
in the second quarter of 1996. The increase resulted from operating
manufacturing facilities close to their capacity, a reduction in the discount to
the Company's Japanese distributor, the direct distribution of the Company's
semiconductor products in Europe, as opposed to previous distribution through a
distributor, and an increase in the sales of software products, which produce a
higher margin than equipment.
Research and development expense increased 97.3% to $3.6 million in the second
quarter of fiscal 1997 from $1.8 million in the second quarter of 1996 and
increased as a percentage of revenue to 16.4% from 11.8% in the second quarter
of 1996. New product development and product improvements have led to higher
research and development expenses. The Company is committed to increasing its
investment in research and development to continue its position as a
technological leader.
Marketing and sales expense increased 25.4% to $2.8 million in the second
quarter of fiscal 1997 from $2.3 million in the second quarter of 1996, but
decreased as a percentage of sales to 13.0% in the second quarter of fiscal 1997
from 14.7% in 1996. The increase in total marketing and
8
<PAGE>
sales expense is a result of supporting higher sales volumes and establishing a
direct sales force in Europe.
General and administrative expenses were $1.7 million in the second quarter of
fiscal 1997 versus $1.6 million in the second quarter of 1996.
Net interest income was $106,000 in the second quarter of fiscal 1997 compared
to a net interest expense of $18,000 in the second quarter of 1996. The
increase in income resulted from interest earned on the proceeds of the initial
public offering of the Company's common stock completed in October 1995, and the
cancellation of subordinated debt related to the exercise of warrants in
connection with the initial public offering, partially offset by interest
expense on the Industrial Development Bond.
SIX MONTHS ENDED OCTOBER 31, 1996 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1995
Revenues increased 41.9% to $41.0 million for the first six months of fiscal
1997 from $28.9 million for the first six months of 1996. The increase was due
to increased unit sales of the Company's products. The increase in unit sales
resulted primarily from stronger demand for capital equipment in the
semiconductor industry and increased demand for gaging equipment in the computer
disk drive industry.
Gross margin increased to 56.6% for the first six months of fiscal 1997 from
53.9% for the first six months of 1996. The increase resulted from lower
overhead rates resulting from higher production levels during the first six
months of fiscal 1996 and a decrease in lower margin sales through distributors.
Research and development expense increased 90.4% to $6.6 million from $3.5
million for the first six months of 1996, and increased as a percentage of
revenue to 16.1% from 12.0% for the first six months of 1996. Higher expenses
resulted from new product development and product improvements aimed at
maintaining the Company's technological leadership.
Marketing and sales expense increased 28.9% to $5.7 million for the first six
months of fiscal 1997 from $4.5 million for the first six months of 1996, and
decreased as a percentage of sales to 14.0% for the first six months of fiscal
1997 from 15.4% in 1996. This increase in expenditures was due to additions in
staffing and to increased commissions required to sustain high revenue levels.
General and administrative expenses were $3.1 million for the first six months
of fiscal 1997 compared to $3.0 million for the first six months of 1996.
Net interest income increased to $285,000 for the first six months of fiscal
1997 compared to a net interest expense of $52,000 for the first six months of
1996. This change resulted from the interest earned on the proceeds of the
initial public offering of the Company's common stock completed in October 1995,
and the cancellation of subordinated debt related to the exercise of
9
<PAGE>
warrants in connection with the initial public offering, partially offset by
interest expense on the Industrial Development Bond.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1996, the Company had $6.8 million in cash and cash equivalents
and $39.9 million in working capital. The undisbursed proceeds from a $5.5
million sale of a tax-exempt Industrial Development Bond on June 7, 1996,
amounting to $3.6 million, are carried as long-term restricted cash. This cash
may only be used to finance the renovation of the Westwood, MA manufacturing
facility that the Company purchased in January 1996. These funds will be
disbursed as construction is completed. Additionally, $3.5 million of
restricted cash is pledged to a bank to secure a standby letter of credit to
secure the Industrial Development Bond. The Company is committed to pledge cash
to make up the difference between 75% of the appraised value of the building and
the outstanding amount of the Industrial Development Bond. Most of the
renovations were completed during the second quarter of 1997 and the appraisal
of the building and property was underway at the end of the quarter.
Net cash used by operating activities for the six months ended October 31, 1996
was $3.9 million. The primary use of cash was to increase inventory in support
of increasing manufacturing capacity in Charlotte, to provide sufficient
inventory to meet customer shipments during the period of the move to the new
facility in Westwood, MA, and to provide service inventory in Europe, as the
Company began direct service of customers in Europe during the second quarter of
1997. Significant cash was also used as accounts receivable increased as a
result of increasing sales.
Cash used in investing activities consisted of approximately $7.1 million
reclassified as restricted cash as part of the financing of the Company's new
facility in Westwood, MA, and $6 million to purchase fixed assets, which
primarily consisted of the renovations and furnishing of the Westwood facility.
Cash provided by financing activities consisted primary of $5.5 million received
as the proceeds of an Industrial Development Bond issued by the Company through
the Massachusetts Industrial Development Agency. This bond carries a 5.74%
annual interest rate over its ten year life. Fifty percent of the bond
principal amortizes on a monthly basis over the life of the bond.
The Company expects to meet its near-term working capital needs and purchases of
fixed assets primarily through cash generated from operations and its available
cash and cash equivalents.
During the 1996 calendar year, the semiconductor industry experienced a well-
publicized slowdown. The Company's business depends in large part upon the
capital expenditures of semiconductor wafer and device manufacturers. While the
Company has not experienced any significant reduction in its backlog during the
six months ended October 31, 1996, there can be no assurance that the Company's
sales will not be affected adversely in the future as a result of this slowdown
in the semiconductor industry.
10
<PAGE>
Furthermore, the Company's success is dependent upon supplying technologically
superior products to the marketplace at appropriate times to satisfy customer
needs. Product development requires substantial investment and is subject to
technological risks. Delays or difficulties in product development could
adversely affect the performance of the Company.
11
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings:
-----------------
None
Item 2. Changes in Securities:
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders:
---------------------------------------------------
At the annual meeting held on September 19, 1996 the
stockholders approved the ADE Corporation Employee Stock
Purchase Plan under which up to 1,000,000 shares of the
Company's common stock, in the aggregate, may be purchased
by employees at a discount to the market price. Of the
6,922,699 shares represented at the meeting 5,090,843 were
voted in favor, 368,200 were voted against and 7,300
abstained.
Item 5. Other Information:
-----------------
Michael E. Ellsworth has relinquished his position as Chief
Operating Officer of the Company and is expected to be
nominated as a Director. Mr. Ellsworth will continue as a
Vice President. In his capacity as Vice President and
Director he will assist the president with a wide range of
strategic opportunities.
E. Fred Schiele has joined the Company as Vice President and
General Manager of ADE Dimensional Systems, the dimensional
semiconductor measurement business unit of the Company. Mr.
Schiele joins the Company with over 20 years experience in
marketing, manufacturing, and operations in the
semiconductor industry.
Item 6. Exhibits and Reports on Form 8-K:
--------------------------------
a. See Exhibit Index, Page 14
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
for which is report is filed.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADE CORPORATION
Date: December 12, 1996 /s/ Mark D. Shooman
------------------------------
Mark D. Shooman
Vice President and Chief Financial Officer
Date: December 12, 1996 /s/ Joseph E. Rovatti
-----------------------------
Joseph E. Rovatti
Controller (Principle Accounting Officer)
13
<PAGE>
ADE CORPORATION
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
4 Employee Stock Purchase Plan (1)
11 Statement Regarding Computation of Net Income per Share 15
(Filed herewith)
27 Financial Data Schedule
- ---------------
(1) Filed as an exhibit to the Registration Statement on Form S-8 (Registration
Number 333-4652) and incorporated by reference herein.
<PAGE>
EXHIBIT 11
ADE CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $2,933,000 $1,672,000 $5,387,000 $3,002,000
========== ========== ========== ==========
Weighted average common and
common equivalent shares outstanding
during the period 7,951,000 6,502,000 7,997,000 6,305,000
Shares issuable pursuant to Staff Accounting
Bulletin No. 83 (SAB 83) using
treasury stock method --- --- --- 82,000
Shares used in computation 7,951,000 6,502,000 7,997,000 6,387,000
========== ========== ========== ==========
Net income per share $ 0.37 $ 0.26 $ 0.67 $ 0.47
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 6,835
<SECURITIES> 0
<RECEIVABLES> 19,060
<ALLOWANCES> 0
<INVENTORY> 20,268
<CURRENT-ASSETS> 53,755
<PP&E> 11,626
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,904
<CURRENT-LIABILITIES> 13,834
<BONDS> 5,166
0
0
<COMMON> 76
<OTHER-SE> 51,752
<TOTAL-LIABILITY-AND-EQUITY> 70,904
<SALES> 0
<TOTAL-REVENUES> 21,780
<CGS> 9,420
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,444
<INCOME-TAX> 1,526
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,933
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
