<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: JANUARY 31, 1997 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 8,570,087 shares
- ---------------------------------------- ----------------------------
Class Outstanding at March 6, 1997
ADE CORPORATION
Page 1 of 14 pages
Exhibit Index on page 13
<PAGE>
INDEX
PAGE
----
PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)-
Condensed Consolidated Balance Sheet-
January 31, 1997 and April 30, 1996 3
Condensed Consolidated Statement of Income-
Three and Nine Months Ended January 31, 1997 and 1996 4
Condensed Consolidated Statement of Cash Flows-
Nine Months Ended January 31, 1997 and 1996 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>
January 31, April 30,
------------- -------------
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $12,543,000 $20,997,000
Accounts receivable, net 20,660,000 15,760,000
Inventories 22,365,000 12,981,000
Prepaid expenses and other current assets 380,000 325,000
Deferred income taxes 2,874,000 2,874,000
----------- -----------
Total current assets 58,822,000 52,937,000
Fixed assets, net 14,998,000 6,538,000
Deferred income taxes 329,000 329,000
Investments in affiliates 2,734,000 --
Other assets 217,000 198,000
----------- -----------
$77,100,000 $60,002,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 254,000 $ 38,000
Accounts payable 4,948,000 4,618,000
Accrued expenses 7,619,000 8,536,000
Deferred income on sale to affiliates 3,662,000 --
Income taxes payable -- 289,000
----------- -----------
Total current liabilities 16,483,000 13,481,000
----------- -----------
Long-term debt 5,107,000 38,000
----------- -----------
Excess of net assets acquired over cost 247,000 436,000
----------- -----------
Stockholders' equity:
Common stock 76,000 76,000
Capital in excess of par value 27,760,000 27,032,000
Retained earnings 27,646,000 19,198,000
----------- -----------
55,482,000 46,306,000
Deferred compensation (219,000) (259,000)
----------- -----------
55,263,000 46,047,000
----------- -----------
$77,100,000 $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 Nine months ended
January 31, January 31,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $23,775,000 $17,715,000 $64,749,000 $46,585,000
Cost of revenue 11,066,000 8,179,000 28,848,000 21,492,000
----------- ----------- ----------- -----------
Gross profit 12,709,000 9,536,000 35,901,000 25,093,000
----------- ----------- ----------- -----------
Operating expenses:
Research and development 3,575,000 1,704,000 10,184,000 5,176,000
Marketing and sales 3,227,000 3,010,000 8,976,000 7,470,000
General and administrative 1,747,000 1,668,000 4,885,000 4,687,000
Amortization of excess of net
assets acquired over cost (63,000) (63,000) (189,000) (189,000)
----------- ----------- ----------- -----------
Total operating expenses 8,486,000 6,319,000 23,856,000 17,144,000
----------- ----------- ----------- -----------
Income from operations 4,223,000 3,217,000 12,045,000 7,949,000
Interest income, net 17,000 275,000 302,000 223,000
----------- ----------- ----------- -----------
Income before provision for income
taxes and equity in net earnings of
affiliated companies 4,240,000 3,492,000 12,347,000 8,172,000
Provision for income taxes 1,335,000 1,268,000 4,070,000 2,946,000
----------- ----------- ----------- -----------
Income before equity in net earnings
of affiliated companies 2,905,000 2,224,000 8,277,000 5,226,000
Equity in net earnings of affiliated
companies 156,000 -- 171,000 --
----------- ----------- ----------- -----------
Net income $ 3,061,000 $ 2,224,000 $ 8,448,000 $ 5,226,000
=========== =========== =========== ===========
Net income per share $0.38 $0.28 $1.05 $0.75
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 8,050,000 8,063,000 8,015,000 6,947,000
=========== =========== =========== ===========
</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>
Nine months ended
January 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net income $8,448,000 $5,226,000
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 1,074,000 1,190,000
Equity in net earnings of
affiliated companies (171,000) --
Deferred profits on sales to
affiliates 3,662,000 --
Change in assets and liabilities:
Accounts receivable (4,900,000) (4,725,000)
Inventories (9,384,000) (2,062,000)
Prepaid expenses and other
current assets (55,000) (431,000)
Accounts payable 330,000 (416,000)
Accrued expenses (917,000) 2,190,000
Income taxes payable (289,000) (1,261,000)
----------- -----------
Net cash used in operating activities (2,202,000) (289,000)
------------ ------------
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of fixed assets (9,683,000) (665,000)
Equity investments (2,563,000) --
Change in other assets (19,000) (20,000)
------------ ------------
Net cash used in investing
activities (12,265,000) (685,000)
------------ ------------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Repayment of long-term debt (215,000) (169,000)
Proceeds from long-term debt 5,500,000 --
Proceeds from common stock
issuance, net of expenses 728,000 20,990,000
------------ ------------
Net cash provided by financing
activities 6,013,000 20,821,000
------------ ------------
Net increase (decrease) in cash and
cash equivalents (8,454,000) 19,847,000
Cash and cash equivalents,
beginning of period 20,997,000 2,767,000
------------ ------------
Cash and cash equivalents,
end of period $12,543,000 $22,614,000
============ ============
</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 January 31, 1997 and
the results of operations for the three and nine month periods ended January 31,
1997 and 1996. 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:
January 31, April 30,
1997 1996
(unaudited)
Raw materials and purchased parts $11,969,000 $6,099,000
Work-in-process 9,731,000 6,728,000
Finished goods 665,000 154,000
----------- -----------
$22,365,000 $12,981,000
=========== ===========
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 which
have not been resold to unrelated third parties, have been eliminated and
recorded as deferred revenue.
6
<PAGE>
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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 Nine months ended
January 31, January 31,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $23,775,000 $16,634,000 $64,889,000 $46,441,000
Net income 3,061,000 1,742,000 8,393,000 4,820,000
Earnings per share $ 0.38 $ 0.22 $ 1.05 $ 0.69
</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
were 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. 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.
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 for the Company's initial public offering
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.
6. SUBSEQUENT EVENT (UNAUDITED)
On February 28, 1997, the Company acquired by merger all of the business and
assets (including plant and equipment), subject to liabilities, of Digital
Measurement Systems, Inc. (DMS), Burlington, Massachusetts in exchange for
approximately 820,000 shares of common stock of the Company. It is intended that
this acquisition be treated as a pooling of interests for accounting purposes.
DMS manufactures equipment that measures the magnetic properties of computer
disks.
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 JANUARY 31, 1997 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1996
Revenues increased 34.2% to $23.8 million in the third quarter of fiscal 1997
from $17.7 million in the third 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 wafer manufacturing industry and an increase in demand for gaging
equipment in the computer disk drive industry.
Gross margin decreased to 53.5% in the third quarter of fiscal 1997 from 53.8%
in the third quarter of 1996. The decrease resulted from increased overhead
costs associated with the opening of a new manufacturing facility and changes in
product and distribution channel mix, which affect gross margins.
Research and development expense increased 109.8% to $3.6 million in the third
quarter of fiscal 1997 from $1.7 million in the third quarter of 1996 and
increased as a percentage of revenue to 15.0% from 9.6% in the third 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 in the rapidly changing semiconductor and computer disk
industries.
Marketing and sales expense increased 7.2% to $3.2 million in the third quarter
of fiscal 1997 from $3.0 million in the third quarter of 1996, but decreased as
a percentage of revenue to 13.6% in the third quarter of fiscal 1997 from 17.0%
in 1996. The decrease as a percentage of revenue is a result of marketing and
sales expense growing at a lower rate than revenue.
8
<PAGE>
General and administrative expenses were $1.7 million in the third quarter of
fiscal 1997 versus $1.6 million in the third quarter of 1996.
Net interest income was $17,000 in the third quarter of fiscal 1997 compared to
$275,000 in the third quarter of 1996. The decrease in income resulted from
additional interest expense on the Industrial Development Bond used to finance
the new facility in Westwood, Massachusetts and lower cash balances resulting
from the increase in inventory and accounts receivable and fixed asset
purchases.
NINE MONTHS ENDED JANUARY 31, 1997 COMPARED TO NINE MONTHS ENDED JANUARY 31,
1996
Revenues increased 39.0% to $64.7 million for the first nine months of fiscal
1997 from $46.6 million for the first nine 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 wafer manufacturing industry and increased demand for gaging
equipment in the computer disk drive industry.
Gross margin increased to 55.4% for the first nine months of fiscal 1997 from
53.9% for the first nine months of 1996. The increase resulted from lower
overhead rates resulting from higher production levels during the first nine
months of fiscal 1997, the switch from a distributor to direct distribution in
Europe and a decrease in discounts offered to the Company's 50% owned Japanese
distributor.
Research and development expense increased 96.8% to $10.2 million from $5.2
million for the first nine months of 1996, and increased as a percentage of
revenue to 15.7% from 11.1% for the first nine 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 20.2% to $9.0 million for the first nine
months of fiscal 1997 from $7.5 million for the first nine months of 1996, and
decreased as a percentage of revenue to 13.9% for the first nine months of
fiscal 1997 from 16.0% in 1996. This increase in expenditures was due to
additional costs required to sustain high revenue levels.
General and administrative expenses were $4.9 million for the first nine months
of fiscal 1997 compared to $4.7 million for the first nine months of 1996.
Net interest income increased to $302,000 for the first nine months of fiscal
1997 compared to a net interest income of $223,000 for the first nine months of
1996. This increase 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 warrants in
connection with the initial public offering, partially offset by interest
expense on the Industrial Development Bond.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997, the Company had $12.5 million in cash and cash equivalents
and $42.3 million in working capital.
Net cash used in operating activities for the nine months ended January 31, 1997
was $2.2 million. Net income generated from operation was $8.4 million. The
primary uses of cash included increased expenditures for inventory and the
financing of accounts receivable. Significant cash was also used to increase
accounts receivable as a result of increasing revenue.
Cash used in investing activities consisted of $9.7 million to purchase fixed
assets, consisting primarily of the purchase, renovation and furnishing of the
Westwood facility and improvements to increase the production capacity of the
Charlotte 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 and fixed assets needs
primarily with existing cash and cash equivalents and future cash generated from
operations.
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 reduction in its backlog during the nine months
ended January 31, 1997, 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.
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.
10
<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:
---------------------------------------------------
None
Item 5. Other Information:
-----------------
On February 28, 1997, the Company acquired by merger all of the
business and assets (including plant and equipment), subject to
liabilities, of Digital Measurement Systems, Inc. (DMS), Burlington,
Massachusetts in exchange for approximately 820,000 shares of common
stock of the Company. It is intended that this acquisition be treated
as a pooling of interests for accounting purposes. DMS manufactures
equipment that measures the magnetic properties of computer disks. The
acquired assets will continue to be operated in that business as the
DMS division of ADE Technologies, Inc., the wholly owned subsidiary of
the Company that provides metrology and inspection equipment to the
computer disk industry. The consideration paid by the Company was
determined by negotiation.
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
this report is filed.
11
<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: March 12, 1997 /s/ Mark D. Shooman
----------------------------------
Mark D. Shooman
Vice President and Chief Financial Officer
Date: March 12, 1997 /s/ Joseph E. Rovatti
----------------------------------
Joseph E. Rovatti
Controller (Principal Accounting Officer)
12
<PAGE>
ADE CORPORATION
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
4 Employee Stock Purchase Plan/1/
11 Statement Regarding Computation of
Net Income per Share (Filed herewith) 14
/1/ Filed as an exhibit to the Registration Statement on Form S-8 (Registration
Number 333-4652) and incorporated by reference herein.
13
<PAGE>
EXHIBIT 11
ADE CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $3,061,000 $2,224,000 $8,448,000 $5,226,000
========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding during the period 8,050,000 8,063,000 8,015,000 6,892,000
Shares issuable pursuant to Staff
Accounting Bulletin No. 83 (SAB 83)
using treasury stock method -- -- -- 82,000
Shares used in computation 8,050,000 8,063,000 8,015,000 6,947,000
========== ========== ========== ==========
Net income per share $ 0.38 $ 0.28 $ 1.05 $ 0.75
========== ========== ========== ==========
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS DATED JANUARY 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 12,543
<SECURITIES> 0
<RECEIVABLES> 20,660
<ALLOWANCES> 0
<INVENTORY> 22,365
<CURRENT-ASSETS> 58,822
<PP&E> 14,998
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,100
<CURRENT-LIABILITIES> 16,483
<BONDS> 5,107
0
0
<COMMON> 76
<OTHER-SE> 55,406
<TOTAL-LIABILITY-AND-EQUITY> 77,100
<SALES> 0
<TOTAL-REVENUES> 23,775
<CGS> 11,066
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,240
<INCOME-TAX> 1,335
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,061
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
