<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, 2000 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)
(781) 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 13,444,602 shares
-------------------------------------- ----------------------------
Class Outstanding at March 9, 2000
Page 1 of 22
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ADE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheet-
January 31, 2000 and April 30, 1999 3
Condensed Consolidated Statement of Operations-
Three and Nine Months Ended January 31, 2000 and 1999 4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended January 31, 2000 and 1999 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. - OTHER INFORMATION 17
SIGNATURES 18
EXHIBIT INDEX 19
</TABLE>
2
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ADE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
January 31, April 30,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,306 $ 61,278
Accounts receivable, net 12,043 11,843
Inventories 28,272 22,178
Prepaid expenses and other current assets 8,378 8,007
Deferred income taxes 4,887 7,419
--------- ---------
Total current assets 86,886 110,725
Fixed assets, net 29,721 28,268
Deferred income taxes 5,496 2,964
Investments 3,061 3,869
Intangible assets, net 4,083 3,669
Restricted cash 3,755 3,533
Other assets 400 402
--------- ---------
$ 133,402 $ 153,430
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 593 $ 575
Accounts payable 3,836 2,256
Accrued expenses and other current liabilities 11,513 15,449
Deferred income on sales to affiliates 979 1,791
--------- ---------
Total current liabilities 16,921 20,071
Long-term debt 12,094 12,537
STOCKHOLDERS' EQUITY:
Common stock 133 133
Capital in excess of par value 101,236 100,146
Retained earnings 3,054 20,625
--------- ---------
104,423 120,904
Deferred compensation (36) (82)
--------- ---------
--------- ---------
104,387 120,822
--------- ---------
$ 133,402 $ 153,430
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
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ADE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended January 31, ended January 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 16,576 $ 12,432 $ 42,563 $ 48,699
Cost of revenue 9,225 10,209 25,379 36,465
-------- -------- -------- --------
Gross profit 7,351 2,223 17,184 12,234
-------- -------- -------- --------
Operating expenses:
Research and development 5,411 5,084 15,538 18,199
Marketing and sales 3,134 2,707 9,218 9,069
General and administrative 2,964 2,463 9,402 7,555
Restructuring charges -- 2,318 -- 2,318
-------- -------- -------- --------
Total operating expenses 11,509 12,572 34,158 37,141
-------- -------- -------- --------
Loss from operations (4,158) (10,349) (16,974) (24,907)
Interest income, net 318 653 841 2,115
-------- -------- -------- --------
Loss before benefit from income
taxes and equity in net loss of
affiliated companies (3,840) (9,696) (16,133) (22,792)
Benefit from income taxes -- (3,519) -- (8,235)
-------- -------- -------- --------
Loss before equity in net loss of
affiliated companies (3,840) (6,177) (16,133) (14,557)
Equity in net loss of affiliated companies (676) (422) (1,438) (754)
-------- -------- -------- --------
Net loss $ (4,516) $ (6,599) $(17,571) $(15,311)
======== ======== ======== ========
Basic and diluted loss per share $ (0.34) $ (0.51) $ (1.32) $ (1.18)
Weighted average shares outstanding -
basic and diluted 13,403 13,001 13,319 12,963
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
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ADE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Nine months ended
January 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(17,571) $(15,311)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 4,045 4,371
Equity in net loss of affiliated companies,
net of dividends received 1,493 862
Restructuring charges -- 931
Deferred income taxes -- (1,387)
Changes in assets and liabilities:
Accounts receivable, net (200) 6,100
Inventories (6,094) 2,735
Prepaid expenses and other current assets (371) (1,148)
Accounts payable 1,580 (3,019)
Accrued expenses and other current liabilities (3,936) (698)
Deferred income on sales to affiliate (812) (1,434)
-------- --------
Net cash used in operating activities (21,866) (7,998)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (4,862) (2,910)
Change in restricted cash (222) 225
Advances to affiliated company (685) (900)
Increase in other assets (1,048) (116)
-------- --------
Net cash used in investing activities (6,817) (3,701)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (425) (325)
Proceeds from issuance of common stock 1,136 829
Tax benefit related to the exercise of common stock options -- 112
-------- --------
Net cash provided by financing activities 711 616
-------- --------
Net decrease in cash and cash equivalents (27,972) (11,083)
Cash and cash equivalents, beginning of period 61,278 72,711
-------- --------
Cash and cash equivalents, end of period $ 33,306 $ 61,628
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
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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, results of operations and
cash flows at the dates and for the periods indicated. 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, 1999.
On June 11, 1998, pursuant to an Agreement and Plan of Merger (the "PST
Agreement"), the Company, through a wholly owned subsidiary, merged with Phase
Shift Technology, Inc. ("PST"), an Arizona corporation. PST designs,
manufactures, markets and services high-performance, non-contact surface
metrology equipment using advanced optical interferometric technology that
provides enhanced yield management for computer hard disk, semiconductor and
optics manufacturers. Pursuant to the PST Agreement, each outstanding share of
PST common stock was exchanged for two shares of the Company's common stock. A
total of 2,000,000 shares of the Company's common stock were issued in this
transaction. This transaction has been accounted for as a pooling-of-interests.
Accordingly, all financial statements presented have been restated as if the
acquisition took place at the beginning of such periods. There were no material
transactions between the Company and PST prior to the PST Agreement.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(in thousands)
January 31, April 30,
2000 1999
------- -------
(unaudited)
<S> <C> <C>
Raw materials and purchased parts $13,371 $13,190
Work-in-process 13,645 8,211
Finished goods 1,256 777
======= =======
$28,272 $22,178
======= =======
</TABLE>
6
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ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
(in thousands)
January 31, April 30,
2000 1999
------- -------
(unaudited)
<S> <C> <C>
Accrued salaries, wages, vacation pay and bonuses $ 1,596 $ 1,901
Accrued commissions 391 1,305
Accrued warranty costs 1,091 1,340
Accrued severance, restructuring 301 1,246
Deferred revenue 6,463 6,070
Other 1,671 3,587
======= =======
$11,513 $15,449
======= =======
</TABLE>
4. LOSS PER SHARE
Basic loss per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted loss per share is computed using the weighted average number of
common shares outstanding and gives effect to all dilutive potential common
shares outstanding during the period. Potential common shares outstanding
include shares issuable upon the assumed exercise of dilutive stock options
reflected under the treasury stock method and, with respect to the three and
nine months ended January 31, 1999, shares issued in the PST merger (Note 1)
held in escrow. For each of the periods presented, basic and diluted loss per
share are the same due to the antidilutive effect of potential common shares
outstanding.
5. RESTRUCTURING CHARGES
In January 1999, the Company implemented a restructuring of operations plan
designed to better align the Company's cost structure with its revenue
reductions resulting from the decline in capital equipment expenditures in the
semiconductor and computer hard disk industries. The plan includes workforce
reductions as well as the consolidation of manufacturing and other operational
facilities. The Company recorded restructuring charges of $2,318,000 in the
period ended January 31, 1999, comprised of the following: severance charges of
$1,202,000 related to the termination of 76 employees in general and
administrative, marketing and sales, manufacturing, and engineering functions;
$185,000 in lease termination penalties and $931,000 in non-cash fixed asset
impairments related to furniture, fixtures and building improvements on the
terminated leased facilities. The fair value of the impaired assets was
determined as their estimated salvage value at the time of their eventual
disposition increased by their estimated utility during their related service
period through disposition. These impaired assets have been removed from service
by January 31, 2000. Of the $1,202,000 in severance costs in accrued expenses as
of May 1, 1999, $901,000 was paid during the nine months ended January 31, 2000.
7
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ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5. RESTRUCTURING CHARGES (CONTINUED)
Restructuring charge activity during the third quarter of fiscal 2000 and the
related accrual as of January 31, 2000 is as follows:
<TABLE>
<S> <C>
Balance at October 31, 1999 $ 555
Restructuring provision --
Severance payments (254)
-----
=====
Balance at January 31, 2000 $ 301
=====
</TABLE>
6. SEGMENT REPORTING
The Company has three reportable segments: ADE Semiconductor Systems Group
("SSG"), ADE Phase Shift ("PST") and ADE Technologies ("ATI"). SSG manufactures
and markets metrology and inspection systems to the semiconductor wafer and
device manufacturing industries that are used to improve yield and capital
productivity. PST manufactures and markets high performance, non-contact surface
metrology equipment using advanced interferometric technology that provides
enhanced yield management to the data storage, semiconductor and optics
industries. ATI manufactures and markets high precision magnetic
characterization and non-contact dimensional metrology gaging systems primarily
to the data storage industry. Sales of the Company's stand-alone software
products and software consulting services are included in the "other" category.
The Company's reportable segments are determined based upon the nature of the
products, the external customers and customer industries and the sales and
distribution methods used to market the products. The Company evaluates
performance based upon profit or loss from operations. The Company does not
measure the assets allocated to the segments. Management fees representing
certain services provided by corporate offices have been allocated to each of
the reportable segments based upon the usage of those services by each segment.
Additionally, other income (loss), the benefit from income taxes and the equity
in losses of affiliated companies are not included in segment profitability.
<TABLE>
<CAPTION>
(IN THOUSANDS)
SSG PST ATI OTHER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FOR THE QUARTER ENDED JANUARY 31, 2000
Revenue from external customers $ 13,213 $ 1,842 $ 2,889 $ 84 $ 18,028
Intersegment revenue 344 -- 82 123 549
Loss from operations (2,507) (203) (110) (849) (3,669)
Depreciation and amortization expense 1,139 63 92 113 1,407
Capital expenditures 747 54 46 14 861
FOR THE QUARTER ENDED JANUARY 31, 1999
Revenue from external customers $ 7,444 $ 1,521 $ 2,222 $ 62 $ 11,249
Intersegment revenue 1 -- 74 85 160
Loss from operations (9,436) (68) (726) (957) (11,187)
Depreciation and amortization expense 1,049 4 105 302 1,460
Capital expenditures 1,525 -- 94 28 1,647
</TABLE>
8
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6. SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
SSG PST ATI OTHER TOTAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED JANUARY 31, 2000
Revenue from external customers ....... $ 31,089 $ 4,951 $ 5,834 $ 246 $ 42,120
Intersegment revenue .................. 472 -- 196 449 1,117
Loss from operations .................. (12,770) (837) (1,938) (2,333) (17,878)
Depreciation and amortization expense . 3,132 190 273 450 4,045
Capital expenditures .................. 4,631 93 105 33 4,862
FOR THE NINE MONTHS ENDED JANUARY 31, 1999
Revenue from external customers ....... $ 32,238 $ 6,600 $ 6,771 $ 917 $ 46,526
Intersegment revenue .................. 42 -- 429 466 937
Income (loss) from operations ......... (23,008) 1,560 (2,795) (2,017) (26,260)
Depreciation and amortization expense . 3,187 11 314 859 4,371
Capital expenditures .................. 2,445 177 145 143 2,910
</TABLE>
The following is a reconciliation for the above items where aggregate reportable
segment amounts differ from amounts contained in the Company's unaudited
condensed consolidated financial statements.
<TABLE>
<CAPTION>
Three months Nine months
ended January 31, ended January 31,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total external revenue for reportable segments ......... 18,028 11,249 42,120 46,526
Net impact of revenue recognition on sales to affiliate (1,452) 1,183 443 2,173
------- ------- ------- -------
Total consolidated revenue ............................. 16,576 12,432 42,563 48,699
======= ======= ======= =======
Total operating loss for reportable segments ........... (3,669) (11,187) (17,878) (26,260)
Net impact of intercompany gross profit eliminations and
deferred profit on sales to affiliate loss .......... (489) 838 904 1,353
------- ------- ------- -------
(4,158) (10,349) (16,974) (24,907)
======= ======= ======= =======
</TABLE>
9
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7. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. The Company is
required to adopt SAB 101 in the first quarter of fiscal 2001. The impact of SAB
101 has not yet been determined on the Company's financial statements.
10
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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.
On June 11, 1998, pursuant to an Agreement and Plan of Merger (the "PST
Agreement"), the Company, through a wholly owned subsidiary, merged with Phase
Shift Technology, Inc. ("PST"), an Arizona corporation. PST designs,
manufactures markets and services high-performance, non-contact surface
metrology equipment using advanced optical interferometric technology that
provides enhanced yield management for computer hard disk, semiconductor and
optics manufacturers. Pursuant to the PST Agreement, each outstanding share of
PST common stock was exchanged for two shares of the Company's common stock. A
total of 2,000,000 shares of the Company's common stock were issued in this
transaction. This transaction has been accounted for as a pooling-of-interests.
Accordingly, all financial statements presented have been restated as if the
acquisition took place at the beginning of such periods.
There were no material transactions between the Company and PST prior to
the PST Agreement.
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, 1999.
RESULTS OF OPERATIONS
RESTRUCTURING OF OPERATIONS
In January 1999, the Company commenced efforts to consolidate its
Charlotte, North Carolina operations into its Massachusetts facilities to better
align the Company's cost structure with prevailing semiconductor market
conditions and to position the Company with more efficient operations for the
expected industry recovery. The plan includes workforce reductions as well as
the consolidation of manufacturing and other operational facilities. The Company
recorded restructuring charges of $2,318,000 in the period ended January 31,
1999, comprised of the following: severance charges of $1,202,000 related to the
termination of 76 employees in general and administrative, marketing and sales,
manufacturing, and engineering functions; $185,000 in lease termination
penalties and $931,000 in non-cash fixed asset impairments related to furniture,
fixtures and building improvements on the terminated leased facilities.
Non-recurring expenses associated with this consolidation incurred in the
three and nine months ended January 31, 2000 were $720,000 and $3.1 million,
respectively. These non-recurring expenses included travel, recruiting, and
employee training and have been included in general and administrative expenses.
The Company does not anticipate significant costs in future periods associated
with replacing certain personnel who had elected not to relocate to the
Company's Massachusetts operations.
THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999
REVENUE. Revenue increased 33.3% to $16.6 million in the third quarter of
fiscal 2000 from $12.4 million in the third quarter of fiscal 1999. Increased
sales of the Company's products were primarily due to an increase in demand for
capital equipment in the semiconductor wafer and device industries as well as
the computer hard disk industry. Increased demand in the semiconductor market
indicates the continued industry recovery from the recent
11
<PAGE>
severe down cycle. Capital equipment utilization at wafer and device
manufacturers has improved, resulting in some capital equipment purchases to
adjust capacity on existing lines. Advanced industry requirements driven by
shrinking device dimensions and larger silicon wafers have resulted in
technology purchases to evaluate the Company's next generation of products. For
the three months ended January 31, 2000, 71.2% of the Company's revenue was
derived from the semiconductor industry compared to 75.4% for the year earlier
period. The Company sells its semiconductor products to both wafer and device
manufacturers. Historically, the Company's semiconductor revenue has been
derived to a greater extent from wafer manufacturers compared to device
manufacturers. For the three months ended January 31, 2000, 75.2% of
semiconductor revenue was derived from wafer manufacturers while 24.8% was
derived from device manufacturers compared to 74.7% and 25.3%, respectively, for
the year earlier period. Any increase in short-term chip demand or increases in
semiconductor market capital expenditures is expected to impact device
manufacturers prior to wafer manufacturers as wafer manufacturers are further
down on the overall semiconductor industry supply chain. Although it is
continuing to show signs of recovery, the computer hard disk industry had been
in a period of excess supply in many disk drive market segments which had
resulted in reduced production and capital equipment purchases. The Company is
beginning to experience increased revenue in each of its metrology product lines
that are marketed to the computer hard disk industry. Disk industry revenue
comprised 28.8% of total revenue for the three months ended January 31, 2000,
compared to 24.6% for the year earlier period.
GROSS MARGIN. Gross margin increased to 44.3% in the third quarter of
fiscal 2000 from 17.9% in the third quarter of fiscal 1999. The increase in the
gross margin resulted primarily from the effect of increased sales volume and a
reduction in material costs during the third quarter of fiscal 2000.
RESEARCH AND DEVELOPMENT. Research and development expense increased 6.4%
to $5.4 million in the third quarter of fiscal 2000 from $5.1 million in the
third quarter of fiscal 1999 and decreased as a percentage of revenue to 32.6%
from 40.9% in the third quarter of 1999. The decrease in expense as a percentage
of sales resulted from the significant increase in revenues in the third quarter
of fiscal 2000 compared to the third quarter of 1999. The Company has continued
its development efforts to enhance its existing 200mm and advanced 200mm wafer
systems as its semiconductor industry customers seek to improve their yields on
200mm wafers as well as efforts to develop and enhance bridge tools, which can
be used with either 200mm or 300mm wafers. The Company also continues to develop
new products for the computer disk industry, including those which measure the
magnetic properties of materials used in manufacturing disk drives. The Company
is committed to continuing its investment in research and development to
maintain its position as a technological leader, which may necessitate continued
research and development spending at or above current levels.
MARKETING AND SALES. Marketing and sales expense increased 15.8% to $3.1
million in the third quarter of fiscal 2000 from $2.7 million in the third
quarter of 1999 and decreased as a percentage of revenue to 18.9% from 21.8% in
the third quarter of fiscal 1999. The increased expense resulted primarily from
increased commissions expense due to increased sales volume during the third
quarter of fiscal 2000. Also contributing to the increase was an increase in
marketing expense due to an investment by the Company to enhance device
marketing. The mix of sales channels through which the Company's products are
sold may have a significant impact on the Company's marketing and sales expense
and the results in any period may not be indicative of marketing and sales
expense for future periods. The decrease in marketing and sales expense as a
percentage of revenue resulted from the increase in revenue during the third
quarter of fiscal 2000 discussed above.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
20.3% to $3.0 million in the third quarter of fiscal 2000 from $2.5 million in
the third quarter of fiscal 1999 and decreased as a percentage of revenue to
17.9% from 19.8% in the third quarter of fiscal 1999. Expenses increased
primarily as a result of expenses related to the final consolidation of the
Charlotte operations into the Westwood, Massachusetts facility. The decrease in
general and administrative expenses as a percent of revenue resulted from the
increase in revenue during the third quarter of fiscal 2000 as discussed above.
INTEREST INCOME, NET. Net interest income was $318,000 in the third quarter
of fiscal 2000 compared to net interest income of $653,000 in the third quarter
of fiscal 1999. The decrease in interest income resulted primarily
12
<PAGE>
from reduced principal balances during the current period compared to the three
months ended January 31, 1999, and interest expense related to the Company's
obligations under separate $4.5 million, $4.0 million and $5.5 million
Industrial Development Bonds ("IDB") issued in June 1999, December 1997 and June
1996, respectively, through various state and local bonding authorities.
INCOME TAXES. There was no provision for or benefit from income taxes in
the third quarter of fiscal 2000 compared to a benefit from income taxes of $3.5
million in the third quarter of fiscal 1999. The benefit from income taxes
recognized in the third quarter of fiscal 1999 reflects the Company's estimated
annual effective tax rate of 36%. The benefit from income taxes was primarily
obtained through income tax refunds resulting from net operating loss
carry-backs and from certain research and development credits. The Company
continues to monitor the realizability of its current and long term deferred tax
assets and provides for valuation allowances against these assets as
appropriate. The Company has increased its valuation allowances during the three
months ended January 31, 2000 by $1.3 million.
EQUITY IN NET LOSS OF AFFILIATED COMPANIES. Equity in net loss of
affiliated companies was $676,000 in the third quarter of fiscal 2000 compared
to equity in net loss of affiliated companies of $422,000 in the third quarter
of fiscal 1999. The Company's affiliates sell primarily to the semiconductor
industry and the current period loss reflects the slow recovery from the overall
downturn in the semiconductor industry. The Company remains uncertain about when
growth in the semiconductor industry will result in improved financial results
for its affiliates. Furthermore, there can be no assurance that any overall
growth in the semiconductor industry will result in increased profitability for
the Company's affiliates.
NINE MONTHS ENDED JANUARY 31, 2000 COMPARED TO NINE MONTHS ENDED JANUARY 31,
1999
REVENUE. Revenue decreased 12.6% to $42.6 million in the nine months ended
January 31, 2000 from $48.7 million in the year earlier period. Decreased sales
of the Company's products were primarily due to reduced demand for capital
equipment in the semiconductor wafer and device industries as well as the
computer hard disk industry. Reduced demand in the semiconductor market resulted
from excess manufacturing capacity for 200mm wafers, continued delays in
large-scale production of 300mm wafers and an overall uncertainty about
short-term chip demand. Additionally, wafer manufacturers continue be affected
by pricing pressure on bare silicon wafers, resulting in a conservative strategy
toward capital spending. For the nine months ended January 31, 2000, 74.6% of
the Company's revenue was derived from sales to the semiconductor industry
compared to 77.3% for the year earlier period. The Company sells its
semiconductor products to both wafer and device manufacturers. Historically, the
Company's semiconductor revenue has been derived to a greater extent from wafer
manufacturers compared to device manufacturers. For the nine months ended
January 31, 2000, 81.7% of semiconductor revenue was derived from wafer
manufacturers while 18.3% was derived from device manufacturers compared to
75.7% and 24.3%, respectively, for the year earlier period. Any increase in
short-term chip demand or increases in semiconductor market capital expenditures
is expected to impact device manufacturers prior to wafer manufacturers as wafer
manufacturers are further down on the overall semiconductor industry supply
chain.
The computer hard disk industry has also been in a period of excess supply,
which had resulted in reduced production and capital equipment purchases. Disk
industry revenue comprised 25.4% of total revenue for the nine months ended
January 31, 2000, compared to 22.7% for the year earlier period.
GROSS MARGIN. Gross margin increased to 40.4% for the nine months ended
January 31, 2000 from 25.1% in the year earlier period. The increase in the
gross margin resulted primarily from the non-reoccurence of a $2.2 million
charge due to increased inventory obsolescence reserves during the nine months
ended January 31, 1999. Also contributing to the increase in gross margin were a
decrease in material costs and lower manufacturing costs. The increased
inventory obsolescence reserves from fiscal 1999 impacted both the semiconductor
and computer disk drive product lines.
13
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expense decreased 14.6%
to $15.5 million in the nine months ended January 31, 2000 from $18.2 million in
the year earlier period and decreased as a percentage of revenue to 36.5% from
37.4% in the nine months ended January 31, 1999. The decrease in expense
resulted primarily from decreased project materials and consulting expenditures
related to the Company's first generation surface inspection and wafer thickness
300mm tools and other cost containment measures. Also contributing to the
decrease in research and development expenses is efficiencies obtained from the
consolidation of the Charlotte, North Carolina operations into the Westwood,
Massachusetts facility. The Company has continued its development efforts to
enhance its existing 200mm and advanced 200mm wafer systems as its semiconductor
industry customers seek to improve their yields on 200mm wafers as well as
efforts to develop and enhance bridge tools, which can be used with either 200mm
or 300mm wafers. The Company also continues to develop new products for the
computer disk industry, including those which measure the magnetic properties of
materials used in manufacturing disk drives. The Company is committed to
continuing its investment in research and development to maintain its position
as a technological leader, which may necessitate continued research and
development spending at or above current levels.
MARKETING AND SALES. Marketing and sales expense increased 1.6% to $9.2
million in the nine months ended January 31, 2000 from $9.1 million during the
year earlier period and increased as a percentage of revenue to 21.7% from 18.6%
in the year earlier period. The increased expense resulted primarily from
increased marketing expenses during the nine months ended of fiscal 2000 due to
an investment by the Company to enhance device marketing. In addition, the mix
of sales channels through which the Company's products are sold may have a
significant impact on the Company's marketing and sales expense and the results
in any period may not be indicative of marketing and sales expense for future
periods. The increase in marketing and sales expense as a percentage of revenue
resulted from the decrease in revenue during the nine months ended January 31,
2000 as discussed above.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
24.4% to $9.4 million for the nine months ended January 31, 2000 from $7.6
million for the year earlier period and increased as a percentage of revenue to
22.1% from 15.5% in the year earlier period. Expenses increased primarily as a
result of the costs associated with the consolidation of the Charlotte
operations into the Westwood, Massachusetts facility, which were offset somewhat
by a decrease in ongoing general and administrative expenses during the first
nine months of fiscal 2000 compared to the year earlier period. The increase in
general and administrative expenses as a percent of revenue resulted from both
the increase in expenses and the decrease in revenue during the first nine
months of fiscal 2000.
INTEREST INCOME, NET. Net interest income was $841,000 in the nine months
ended January 31, 2000 compared to net interest income of $2.1 million in the
year earlier period. The decrease in interest income resulted primarily from
reduced principal balances during the current period compared to the nine months
ended January 31, 1999, and interest expense related to the Company's
obligations under separate $4.5 million, $4.0 million and $5.5 million
Industrial Development Bonds ("IDB") issued in June 1999, December 1997 and June
1996, respectively, through various state and local bonding authorities.
INCOME TAXES. There was no provision for or benefit from income taxes for
the nine months ended January 31, 2000 compared to a benefit from income taxes
of $8.2 million in the year earlier period. The benefit from income taxes
recognized in the nine months ended January 31, 1999 reflects the Company's
estimated annual effective tax rate of 36%. The benefit from income taxes was
primarily obtained through income tax refunds resulting from net operating loss
carry-backs and from certain research and development credits. The Company
continues to monitor the realizability of its current and long term deferred tax
assets and provides for valuation allowances against these assets as
appropriate. The Company has increased its valuation allowances during the nine
months ended January 31, 2000 by $5.5 million.
EQUITY IN NET LOSS OF AFFILIATED COMPANIES. Equity in net loss of
affiliated companies was $1.4 million in the nine months ended January 31, 2000
compared to equity in net loss of affiliated companies of $754,000 in the year
earlier period. The Company's affiliates sell primarily to the semiconductor
industry and the current period loss reflects the slow recovery from the overall
downturn in the semiconductor industry. The Company remains
14
<PAGE>
uncertain about when growth in the semiconductor industry will result in
improved financial results for its affiliates. Furthermore, there can be no
assurance that any overall growth in the semiconductor industry will result in
increased profitability for the Company's affiliates.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000, the Company had $33.3 million in cash and cash
equivalents and $70.0 million in working capital. In addition, the Company had
$3.8 million in restricted cash used as security for tax-exempt Industrial
Development Bonds issued through the Massachusetts Industrial Finance Agency.
Under the terms of the bond agreement, the Company may substitute a letter of
credit in an amount equal to approximately 105% of the outstanding principal
balance as collateral for the Company's obligations under the IDB, assuming the
Company has the ability to borrow under a credit facility. Such actions would
allow the restricted cash balance to be used for general corporate purposes. The
Company's credit facility has expired and all outstanding amounts thereunder
were due December 21, 1999. There were no borrowings outstanding under the
credit facility on the date that it expired. The Company does not intend to
renew the credit facility or to enter into a new credit facility with another
lender at this time.
Cash used in operating activities for the nine months ended January 31,
2000 was $21.9 million. This amount resulted from a net loss of $17.6 million,
adjusted for non-cash charges of $5.5 million and a $9.8 million net increase in
working capital accounts. Non-cash items consisted primarily of $4.0 million of
depreciation and amortization and $1.5 million of the Company's share of the net
loss of affiliated companies.
Cash used in investing activities was $6.8 million, and consisted of
primarily of $4.9 million for purchases of fixed assets and an increase in other
assets of $1.0 million relating primarily to a payment of a license fee.
Cash provided by financing activities was $711,000, which consisted of $1.1
million of aggregate proceeds from the issuance of common stock from the
exercise of stock options, partially offset by $425,000 in repayments of
long-term debt.
The Company expects to meet its near-term working capital needs and capital
expenditures primarily through cash generated from operations, its available
cash and cash equivalents.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues. The Company is
required to adopt SAB 101 in the first quarter of fiscal 2001. The impact of SAB
101 has not yet been determined on the Company's financial statements.
YEAR 2000 IMPACT
We have not experienced any problems with our computer systems relating to
distinguishing twenty-first century dates from twentieth century dates, which
generally are referred to as year 2000 problems. We are also not aware of any
material year 2000 problems with our customers or vendors. Accordingly, we do
not anticipate incurring material expenses or experiencing any material
operational disruptions as a result of any year 2000 problems. The Company
previously incurred total costs of approximately $157,000 to address year
2000 readiness, which included programming, testing and implementing software
for year 2000 modifications. These costs were funded through operations.
15
<PAGE>
OTHER RISK FACTORS
Capital expenditures by semiconductor wafer and device manufacturers
historically have been cyclical as they in turn depend upon the current and
anticipated demand for integrated circuits. While the semiconductor industry
appears to be recovering from a severe down cycle, it is not clear when
semiconductor wafer manufacturers, who account for approximately 61% of the
Company's revenue, will be in a position to increase their purchases of capital
equipment. The computer disk drive industry has been in a period of oversupply
and excess manufacturing capacity and this has also had an adverse impact on the
Company. At January 31, 2000, the Company's backlog was $29.7 million, which
represents a 94.1% increase from the third quarter of fiscal 1999. Although
revenues have increased for the third quarter of fiscal 2000, the Company
remains uncertain about when sustained growth in revenue will return. The
Company continues to evaluate its cost structure relative to expected revenue
and will continue to implement aggressive cost containment measures.
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
or market acceptance of newly developed products could adversely affect the
future performance of the Company.
16
<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:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. See Exhibit Index, Page 19
b. Reports on Form 8-K
None
17
<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 15, 2000 /s/ Daniel F. Harrington
---------------------------------------------
Daniel F. Harrington
Vice President, Chief Financial Officer
and Treasurer
Date: March 15, 2000
/s/ Robert C. Abbe
---------------------------------------------
Robert C. Abbe
President and Chief Executive Officer
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ ---------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of February 27, 1997 by and
between ADE Corporation, ADE Technologies, Inc., Digital Measurement
Systems, Inc., Dennis E. Speliotis, Elias Speliotis, Evanthia
Speliotis, Ismene Speliotis, Advanced Development Corporation, David
C. Bono and Alan Sliski (filed as Exhibit 10.18 to the Company's Form
10-K for the fiscal year ended April 30, 1997 and incorporated herein
by reference).
2.2 Agreement and Plan of Merger dated as of May 31, 1998 by and among ADE
Corporation, Theta Acquisition Corp., Phase Shift Technology, Inc.,
Chris Koliopoulos and David Basila (filed as Exhibit 2 to the
Company's Form 8-K dated June 25, 1998 and incorporated herein by
reference).
3.1 Restated Articles of Organization (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (33-96408) or amendments
thereto and incorporated herein by reference).
3.2 By-laws (filed as Exhibit 3.2 to the Company's Registration Statement
on Form S-1 (33-96408) or amendments thereto and incorporated herein
by reference).
4.1 Specimen Common Stock Certificate (filed as Exhibit 4 to the Company's
Registration Statement on Form S-1 (33-96408) or amendments thereto
and incorporated herein by reference).
4.2 Registration Rights Agreement dated as of February 28, 1997 by and
between ADE Corporation and Dennis E. Speliotis, individually and as
Trustee of Thouria Investment Trust under a Declaration of Trust dated
August 18, 1992 recorded in the Middlesex South District Registry of
Deeds at Book 22305, Page 375 (filed as Exhibit 10.21 to the Company's
Form 10-K for the fiscal year ended April 30, 1997 and incorporated
herein by reference).
4.3 Registration Rights Agreement dated as of May 31, 1998 by and among
ADE Corporation, Chris Koliopoulos and David Basila (filed as Exhibit
4.6 to the Company's Form 8-K dated June 25, 1998).
10.1 Form of Employee Confidentiality Agreement (filed as Exhibit 10.1 to
the Company's Registration Statement on Form S-1 (33-96408) or
amendments thereto and incorporated herein by reference).
10.2 1995 Stock Option Plan (filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (33-96408) or amendments thereto
and incorporated herein by reference).*
10.3 1992 Stock Option Plan (filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (33-96408) or amendments thereto
and incorporated herein by reference).*
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ ---------------------------------------------------------------------
<S> <C>
10.4 1982 Stock Option Plan (filed as Exhibit 4.5 to the Company's
Registration Statement on Form S-8 (333-2280) and incorporated herein
by reference).*
10.5 Stock Option Agreement dated October 22, 1992 between the Registrant
and Kendall Wright (filed as Exhibit 4.6 to the Company's Registration
Statement on Form S-8 (333-2280) and incorporated herein by
reference).*
10.6 Employee Stock Purchase Plan (as amended) (filed as Exhibit 10.6 to
the Company's Form 10-K for the fiscal year ended April 30, 1996 and
incorporated herein by reference).*
10.7 Lease of Corporate Headquarters in Newton, Massachusetts, dated
December 9, 1988, as amended, between the Company and Wellco Newton
Limited Partnership (which Lease and amendment were filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1 (33-96408) or
amendments thereto and incorporated herein by reference); and Third
Amendment dated June 6, 1997 (filed as Exhibit 10.7 to the Company's
Form 10-K for the fiscal year ended April 30, 1999 and incorporated
herein by reference).
10.8 Lease of ADE Optical Systems' Charlotte, North Carolina facility,
dated June 26, 1984, as assigned and renewed, between Pine Brook
Center Limited Partnership and ADE Optical Systems Corporation (filed
as Exhibit 10.7 to the Company's Registration Statement on Form S-1
(33-96408) or amendments thereto and incorporated herein by
reference).
10.9 Purchase and Sale Agreement for 80 Wilson Way, Westwood,
Massachusetts, dated January 11, 1996, between Met Path New England,
Inc., and the Company, with Schedules (filed as Exhibit 10.12 to the
Company's Form 10-K for the fiscal year ended April 30, 1996 and
incorporated herein by reference).
10.10 Loan Agreement dated as of June 7, 1996, among GE Capital Public
Finance, Inc., Massachusetts Industrial Finance Agency and the Company
(filed as Exhibit 10.9 to the Company's Form 10-K for the fiscal year
ended April 30, 1996 and incorporated herein by reference).
10.11 Certificate as to Nonarbitrage and Tax Compliance, dated as of June 7,
1996, from the Company to Massachusetts Industrial Finance Agency
(filed as Exhibit 10.10 to the Company's Form 10-K for the fiscal year
ended April 30, 1996 and incorporated herein by reference).
10.12 Letter of Credit Agreement, dated June 7, 1996, between Citizens Bank
of Massachusetts and the Company (filed as Exhibit 10.11 to the
Company's Form 10-K for the fiscal year ended April 30, 1996 and
incorporated herein by reference).
10.13 Mortgage, Security Agreement, and Assignment, dated June 7, 1996, from
the Company to Citizens Bank of Massachusetts (filed as Exhibit 10.13
to the Company's Form 10-K for the fiscal year ended April 30, 1996
and incorporated herein by reference).
10.14 Pledge Agreement, dated June 7, 1996, from the Company to Citizens
Bank of Massachusetts (filed as Exhibit 10.14 to the Company's Form
10-K for the fiscal year ended April 30, 1996 and incorporated herein
by reference).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ ---------------------------------------------------------------------
<S> <C>
10.15 Oil and Hazardous Materials Indemnification Agreement, dated June 7,
1996, between the Company and Citizens Bank of Massachusetts (filed as
Exhibit 10.15 to the Company's Form 10-K for the fiscal year ended
April 30, 1996 and incorporated herein by reference).
10.16 Indemnification Agreement, dated as of February 28, 1996, among
MetPath of New England, Inc., Corning Life Sciences, Inc. and the
Company (filed as Exhibit 10.16 to the Company's Form 10-K for the
fiscal year ended April 30, 1996 and incorporated herein by
reference).
10.17 Letter Agreement regarding collateral assignment of Indemnification
from the Company to Citizens Bank of Massachusetts, with attachment,
(filed as Exhibit 10.17 to the Company's Form 10-K for the fiscal year
ended April 30, 1996 and incorporated herein by reference).
10.18 Registration Rights Agreement dated as of February 27, 1997, by and
among ADE Corporation and Advanced Development Corporation, David C.
Bono and Alan Sliski (filed as Exhibit 10.19 to the Company's Form
10-K for the fiscal year ended April 30, 1997 and incorporated herein
by reference).
10.19 Purchase and Sale Agreement dated as of February 28, 1997 by and
between ADE Corporation and Dennis E. Speliotis, individually and as
Trustee of Thouria Investment Trust under a Declaration of Trust dated
August 18, 1992, Elias Speliotis, Evanthia Speliotis and Ismene
Speliotis (filed as Exhibit 10.20 to the Company's Form 10-K for the
fiscal year ended April 30, 1997 and incorporated herein by
reference).
10.20 Escrow Agreement dated as of May 31, 1998 by and among ADE
Corporation, Chris Koliopoulos, David Basila, and Norman Fenton as
Escrow Agent (filed as Exhibit 10.20 to the Company's Form 10-K for
the fiscal year ended April 30, 1999 and incorporated herein by
reference).
10.21 Noncompetition Agreement dated as of May 31, 1998 by and between ADE
Corporation and Chris Koliopoulos (filed as Exhibit 10.21 to the
Company's Form 10-K for the fiscal year ended April 30, 1999 and
incorporated herein by reference).
10.22 Noncompetition Agreement dated as of May 31, 1998 by and between ADE
Corporation and David Basila (filed as Exhibit 10.22 to the Company's
Form 10-K for the fiscal year ended April 30, 1999 and incorporated
herein by reference).
10.23 Employment Agreement dated as of May 31, 1998 by and between Phase
Shift Technology, Inc. and Chris Koliopoulos (filed as Exhibit 10.23
to the Company's Form 10-K for the fiscal year ended April 30, 1999
and incorporated herein by reference).
10.24 Employment Agreement dated as of May 31, 1998 by and between Phase
Shift Technology, Inc. and David Basila (filed as Exhibit 10.24 to the
Company's Form 10-K for the fiscal year ended April 30, 1999 and
incorporated herein by reference).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ ---------------------------------------------------------------------
<S> <C>
11.1 Statement re Computation of Per Share Earnings (filed herewith as Note
4 to the Financial Statements).
27 Financial Data Schedule (filed herewith).
</TABLE>
- --------------------------
* Compensatory plan or agreement applicable to management and employees.
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Consolidated Financial Statements of ADE Corporation for the nine
months ended January 31, 2000 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 33,306
<SECURITIES> 0
<RECEIVABLES> 12,043
<ALLOWANCES> (621)
<INVENTORY> 28,272
<CURRENT-ASSETS> 86,886
<PP&E> 29,721
<DEPRECIATION> (14,577)
<TOTAL-ASSETS> 133,402
<CURRENT-LIABILITIES> 16,921
<BONDS> 12,094
0
0
<COMMON> 133
<OTHER-SE> 104,254
<TOTAL-LIABILITY-AND-EQUITY> 133,402
<SALES> 42,563
<TOTAL-REVENUES> 42,563
<CGS> 25,379
<TOTAL-COSTS> 25,379
<OTHER-EXPENSES> 34,158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (841)
<INCOME-PRETAX> (16,133)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,571)
<EPS-BASIC> (1.32)
<EPS-DILUTED> (1.32)
</TABLE>
