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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: OCTOBER 31, 2000 Commission File Number 0-26714
---------------- -------
ADE CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2441829
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 WILSON WAY, WESTWOOD, MASSACHUSETTS 02090
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(Address of principal executive offices, including area code)
(781) 467-3500
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(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
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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 13,507,132 shares
-------------------------------------- -------------------------------
Class Outstanding at December 8, 2000
Page 1 of 22
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ADE CORPORATION
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheet-
October 31, 2000 and April 30, 2000 3
Condensed Consolidated Statement of Operations-
Three and Six Months Ended October 31, 2000 and 1999 4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended October 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 19
EXHIBIT INDEX 20
2
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ADE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
October 31, April 30,
2000 2000
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31,994 $ 35,001
Accounts receivable, net 22,192 14,549
Inventories 35,566 29,968
Prepaid expenses and other current assets 1,467 756
Deferred income taxes 5,724 4,484
----------- ----------
Total current assets 96,943 84,758
----------- ----------
Fixed assets, net 28,958 30,724
Deferred income taxes 4,866 6,106
Investments 3,298 3,331
Intangible assets, net 3,297 3,892
Restricted cash 3,675 3,705
Other assets 376 354
----------- ----------
$ 141,413 $ 132,870
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 610 $ 598
Accounts payable 6,396 4,017
Accrued expenses and other current liabilities 20,064 14,096
Deferred income on sales to affiliates 1,165 337
----------- ----------
Total current liabilities 28,235 19,048
----------- ----------
Long-term debt 11,647 11,950
STOCKHOLDERS' EQUITY:
Common stock 135 135
Capital in excess of par value 101,991 101,580
Retained earnings (accumulated deficit) (595) 178
----------- ----------
101,531 101,893
Deferred compensation - (21)
----------- ----------
Total stockholders' equity 101,531 101,872
----------- ----------
$ 141,413 $ 132,870
=========== ==========
</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 Six months
ended October 31, ended October 31,
2000 1999 2000 1999
---------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 24,044 $13,625 $45,861 $ 25,987
Cost of revenue 12,090 8,904 23,090 16,153
---------------- ------------- ------------- ---------------
Gross profit 11,954 4,721 22,771 9,834
---------------- ------------- ------------- ---------------
Operating expenses:
Research and development 5,176 4,571 10,331 10,127
Marketing and sales 4,284 3,367 8,545 6,084
General and administrative 2,624 2,877 4,851 6,437
---------------- ------------- ------------- ---------------
Total operating expenses 12,084 10,815 23,727 22,648
---------------- ------------- ------------- ---------------
Loss from operations (130) (6,094) (956) (12,814)
Interest income, net 326 374 665 522
---------------- ------------- ------------- ---------------
Income (loss) before provision for income taxes and
equity in net earnings (loss) of affiliated companies 196 (5,720) (291) (12,292)
Provision for income taxes 64 - 64 -
---------------- ------------- ------------- ---------------
Income (loss) before equity in net earnings (loss) 132 (5,720) (355) (12,292)
of affiliated companies
Equity in net earnings (loss) of affiliated companies 304 (149) (418) (763)
---------------- ------------- ------------- ---------------
Net income (loss) $ 436 $ (5,869) $ (773) $ (13,055)
================ ============= ============= ===============
Basic earnings (loss) per share $0.03 $ (0.44) $(0.06) $(0.98)
Diluted earnings (loss) per share $0.03 $ (0.44) $(0.06) $(0.98)
Weighted average shares outstanding - basic 13,497 13,360 13,490 13,277
Weighted average shares outstanding - diluted 13,781 13,360 13,490 13,277
</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>
Six months
ended
October 31,
2000 1999
------------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (773) $ (13,055)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,292 2,961
Equity in net loss of affiliated companies,
net of dividends received 482 817
Changes in assets and liabilities:
Accounts receivable, net (7,643) 322
Inventories (5,598) (4,677)
Prepaid expenses and other current assets (711) (334)
Accounts payable 2,379 439
Accrued expenses and other current liabilities 5,968 (1,425)
Deferred income on sales to affiliate 828 (1,357)
------------------ --------------
Net cash used in operating activities (1,776) (16,309)
------------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (931) (4,001)
Change in restricted cash 30 (272)
Advances to affiliated company (449) (405)
Increase in other assets (22) (1,102)
------------------ --------------
Net cash used in investing activities (1,372) (5,780)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (291) (288)
Proceeds from issuance of common stock 432 575
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Net cash provided by financing activities 141 287
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Net decrease in cash and cash equivalents (3,007) (21,802)
Cash and cash equivalents, beginning of period 35,001 61,278
------------------ --------------
Cash and cash equivalents, end of period $31,994 $ 39,476
================== ==============
</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, 2000.
2. INVENTORIES
Inventories consist of the following:
(in thousands)
October 31, April 30,
2000 2000
------------ ------------
(unaudited)
Raw materials and purchased parts $ 15,843 $ 13,202
Work-in-process 18,088 15,437
Finished goods 1,635 1,329
------------ ------------
$ 35,566 $ 29,968
============ ============
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
(in thousands)
October 31, April 30,
2000 2000
------------- -----------
(unaudited)
<S> <C> <C>
Accrued salaries, wages, vacation pay and bonuses $ 2,120 $ 1,844
Accrued commissions 1,895 647
Accrued warranty costs 2,092 1,083
Accrued severance 166 278
Deferred revenue 9,983 6,436
Other 3,808 3,808
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$ 20,064 $14,096
============= ===========
</TABLE>
6
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4. EARNING (LOSS) PER SHARE
Basic earnings (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 earnings (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. For the three months
ended October 31, 2000, 144,200 common shares issuable upon the exercise of
stock options have been excluded from the computation of diluted earnings per
share, as their effect would have been antidilutive. For the six months ended
October 31, 2000 and 1999, respectively, and the three months ended October 31,
1999, basic and diluted loss per share is the same due to the antidilutive
effect of potential common shares outstanding.
The following is a reconciliation of the shares used in calculating basic
and diluted earnings per share:
<TABLE>
<CAPTION>
(in thousands) (in thousands)
Three months ended Six months ended
October 31, October 31,
2000 1999 2000 1999
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Shares used in computation:
a. Weighted average common stock outstanding used 13,497 13,360 13,490 13,277
in computation of basic earnings (loss) per share
b. Dilutive effect of stock options outstanding 284 - - -
------------ ------------- ------------ ------------
c. Shares used in computation of diluted earnings (loss) per share 13,781 13,360 13,490 13,277
============ ============= ============ ============
</TABLE>
5. INVESTMENTS
In July 2000, the Company sold its 67.5% investment in Microspec
Technologies Ltd. ("Microspec") for $1. The balance of the Company's investment
in Microspec was approximately zero at the time of the sale. Therefore, no gain
or loss was recorded in the transaction.
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 provision for (benefit from) income taxes
and the equity in net earnings (losses) of affiliated companies are not included
in segment profitability.
7
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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 QUARTER ENDED OCTOBER 31, 2000
Revenue from external customers $18,773 $1,883 $2,461 $ 536 $ 23,653
Intersegment revenue 11 - 211 274 496
Income (loss) from operations 930 (483) (536) (149) (238)
Depreciation and amortization expense 1,212 63 102 94 1,471
Capital expenditures 297 61 57 4 419
FOR THE QUARTER ENDED OCTOBER 31, 1999
Revenue from external customers $10,341 $1,874 $1,118 $ 38 $ 13,371
Intersegment revenue 13 - 64 243 320
Loss from operations (4,329) (233) (1,203) (629) (6,394)
Depreciation and amortization expense 1,167 4 103 111 1,385
Capital expenditures 1,659 6 36 13 1,714
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
SSG PST ATI OTHER TOTAL
----------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000
Revenue from external customers $37,973 $3,124 $5,406 $ 650 $47,153
Intersegment revenue 288 - 342 471 1,101
Income (loss) from operations 2,076 (869) (506) (1,001) (300)
Depreciation and amortization expense 2,522 127 213 430 3,292
Capital expenditures 769 88 70 4 931
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999
Revenue from external customers $17,876 $3,109 $2,945 $ 162 $24,092
Intersegment revenue 127 - 115 326 568
Loss from operations (10,263) (634) (1,828) (1,483) (14,208)
Depreciation and amortization expense 2,411 7 205 338 2,961
Capital expenditures 3,883 39 59 20 4,001
</TABLE>
8
<PAGE>
6. SEGMENT REPORTING (CONTINUED)
The following is a reconciliation for the above items where aggregate reportable
segment amounts differ from amounts contained in the Company's consolidated
financial statements.
<TABLE>
<CAPTION>
Three months Six months
ended October 31, ended October 31,
2000 1999 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total external revenue for reportable segments $ 23,653 $ 13,371 $ 47,153 $ 24,092
Net impact of revenue recognition on sales to affiliate 391 254 (1,292) 1,895
------------ ------------ ----------- -----------
Total consolidated revenue $ 24,044 $ 13,625 $ 45,861 $ 25,987
============ ============ =========== ===========
Total operating loss for reportable segments $ (238) $ (6,394) $ (300) $(14,208)
Net impact of intercompany gross profit eliminations
and deferred profit on sales to affiliate 108 300 (656) 1,394
------------ ------------ ----------- -----------
Total consolidated operating loss $ (130) $ (6,094) $ (956) $(12,814)
============ ============ =========== ===========
</TABLE>
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 fourth quarter of fiscal 2001. The impact of
SAB 101 on the Company's financial statements has not yet been determined.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which required adoption in
periods beginning after June 15, 1999. SFAS No. 133 was subsequently amended by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133" and will
now be effective for fiscal years beginning after June 15, 2000. The Company
does not expect SFAS No. 133 to have a material effect on its financial
condition or results of operations.
8. ADOPTION OF 2000 EMPLOYEE STOCK OPTION PLAN
On June 21, 2000, the Board of Directors adopted, subject to the approval
of the stockholders, the Company's 2000 Employee Stock Option Plan (the "Plan").
Under the Plan, stock rights may be granted which are either (i) options
intended to qualify as "incentive stock options" under Section 422(b) of the
Internal Revenue Code of 1986, as amended, (ii) non-qualified stock options or
(iii) awards of shares of common stock or the opportunity to make a direct
purchase of shares of common stock. The adoption of the 2000 Employee Stock Plan
was formally approved by the stockholders at the 2000 Annual Meeting of
Stockholders held on September 21, 2000.
The Plan authorizes the issuance of up to 900,000 shares of the Company's
common stock plus the number of shares of common stock previously reserved for
granting of options under the Company's 1995 Stock Option Plan or its 1997 Stock
Option Plan which are not granted under either of these plans or which are not
exercised and cease to be outstanding by reason of cancellation or otherwise. As
of June 21, 2000, 153,705 shares of common stock remained available for granting
of options under the 1995 Stock Option Plan or the 1997 Stock Option Plan
9
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8. ADOPTION OF 2000 EMPLOYEE STOCK OPTION PLAN (CONTINUED)
and 725,405 shares of common stock were reserved for issuance under outstanding,
unexercised options under all of the Company's plans.
9. PENDING LITIGATION
On October 11, 2000, the Company filed a patent infringement lawsuit
against KLA-Tencor (KLA), a competitor, in the U.S. District Court in
Delaware. The Company seeks damages and a permanent injunction against
further infringement of United States Patent Number 6,118,525, entitled
"Wafer Inspection System for Distinguishing Pits and Particles." On November
16, 2000, KLA filed a counterclaim in the United States District Court in
Delaware alleging that ADE has infringed three patents owned by KLA. KLA is
seeking damages for the alleged patent infringement and a permanent
injunction against future infringement. In addition, KLA has asked the
District Court for a declaration that United States Patent Number 6,118,525,
owned by ADE, is invalid and not infringed by KLA. Since these matters are at
a preliminary stage, the Company cannot predict the outcome or the amount of
gain or loss, if any.
10
<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, 2000.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking
statements that are subject to known and unknown risks and uncertainties that
could cause actual results to differ materially from those expressed by such
statements. Those statements that make reference to the Company's
expectations, predictions and anticipations should be considered
forward-looking statements. These statements include, but are not limited to,
risks and uncertainties associated with the strength of the semiconductor and
hard disk markets, wafer pricing and wafer demand, the results of its product
development efforts, the success of ADE's product offerings to meet customer
needs within the timeframes required by customers in these markets, further
increases in backlog, our visibility and the Company's predictions of future
financial outcomes. Further information on potential factors that could
affect ADE Corporation's business is described in "Other Risks" appearing at
the end of this Management's Discussion and Analysis of Financial Condition
and Results of Operations and in the Company's reports on file with the
Securities and Exchange Commission, including its Form 10-K for the fiscal
year ended April 30, 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2000 COMPARED TO THREE MONTHS ENDED
OCTOBER 31, 1999
REVENUE. Revenue increased 76% to $24.0 million in the second quarter of
fiscal 2001 from $13.6 million in the second quarter of fiscal 2000. Increased
sales of the Company's products in all segments were primarily due to an
increase in demand for capital equipment in the semiconductor wafer and device
industries as well as the data storage industry. Increased demand in the
semiconductor market indicates the continued health of these industries since
the most recent down cycle. Wafer and device manufacturers have continued to
focus on maximizing production at existing fabs, resulting in capital equipment
purchases to increase capacity. Advanced industry requirements have also
resulted in technology purchases of the Company's next generation of products.
For the three months ended October 31, 2000, 88% of the Company's revenue was
derived from the semiconductor industry compared to 78% 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 October 31, 2000, 77% of semiconductor
revenue was derived from wafer manufacturers while 23% was derived from device
manufacturers compared to 89% and 11%, 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 data storage industry has been experiencing pricing pressure,
consolidation and excess supply in many data storage market segments, which had
resulted in reduced production and capital equipment purchases. However, unit
demand for disks is beginning to ramp up and the Company is beginning to
experience increased
11
<PAGE>
revenue in each of its metrology product lines that are marketed to the data
storage industry. Data storage industry revenue comprised 12% of total revenue
for the three months ended October 31, 2000, compared to 22% for the year
earlier period.
GROSS MARGIN. Gross margin increased to 50% in the second quarter of
fiscal 2001 from 35% in the second quarter of fiscal 2000. The increase in gross
margin was primarily due to the high volume of shipments of legacy products and
increased absorption of overhead expenses due to significantly increased
manufacturing activity and improved utilization of direct labor in the
Semiconductor Systems Group. Gross margin for ADE Technologies in three months
ended October 31, 2000 was consistent with the year earlier period while ADE
Phase Shift gross margin decreased by 17% of segment revenues in the three
months ended October 31, 2000 compared to the year earlier period. The Company
expects slightly lower margins in the short term due to an expected increase in
shipments of newer technologies, which, in their initial stages, carry a
somewhat lower margin than the Company's legacy products.
RESEARCH AND DEVELOPMENT. Research and development expense increased
$605,000 or 13% to $5.2 million in the second quarter of fiscal 2001 from $4.6
million in the second quarter of 2000 and decreased as a percentage of revenue
to 22% from 34% in the second quarter of 2000. The increase in expense resulted
primarily from continued investment by the Semiconductor Systems Group to
develop its AFS and AWIS advanced wafer inspection systems to capitalize on the
next wave of worldwide capital spending, which is expected to be focused on
300mm wafer production. The decrease in expense as a percentage of sales
resulted primarily from the increase in revenues in the second quarter of fiscal
2001 compared to the second quarter of fiscal 2000. The Company has continued
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 data storage industry, including those that 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 $917,000 or 27%
to $4.3 million in the second quarter of fiscal 2001 from $3.4 million in the
second quarter of 2000 and decreased as a percentage of revenue to 18% from 25%
in the second quarter of fiscal 2000. The increased expense resulted primarily
from increased commissions expense on sales made through both internal and
external sales representatives due to increased sales volume during the second
quarter of fiscal 2001 compared to the second quarter of fiscal 2000. 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 second quarter of fiscal 2001
as discussed above.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$253,000 or 9% to $2.6 million in the second quarter of fiscal 2001 from $2.9
million in the second quarter of fiscal 2000 and decreased as a percentage of
revenue to 11% from 21% in the second quarter of 2000. Expenses decreased
primarily due to cost savings achieved as a result of the consolidation of the
Charlotte operations into the Westwood, Massachusetts facility, which was
completed in the latter half of fiscal 2000.
INTEREST INCOME, NET. Net interest income was $326,000 in the second
quarter of fiscal 2001 compared to net interest income of $374,000 in the second
quarter of fiscal 2000. The decrease in interest income resulted primarily from
lower interest returns due to reduced principal balances during the second
quarter of fiscal 2001 compared to the year earlier period.
INCOME TAXES. There was a provision for income taxes of $64,000 in the
second quarter of fiscal 2001 compared to no provision or benefit from income
taxes in the second quarter of fiscal 2000. The provision for income taxes in
the second quarter of fiscal 2001 consists primarily of estimated federal taxes
recorded in relation
12
<PAGE>
to the federal alternative minimum tax. 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.
EQUITY IN NET EARNINGS (LOSS) OF AFFILIATED COMPANIES. Equity in net
earnings (loss) of affiliated companies was $304,000 in the second quarter of
fiscal 2001 compared to equity in net earnings (loss) of affiliated companies of
$(149,000) in the second quarter of fiscal 2000. The Company's affiliates sell
primarily to the semiconductor industry and the current period earnings reflect
both the overall health of the semiconductor industry as well as the timing of
shipments and the recognition of revenue by the Company's affiliate in Japan.
The net loss from affiliated companies in the quarter ended October 31, 1999 was
the result of losses incurred by the Company's former affiliate, Microspec,
which was sold during the first quarter of fiscal 2001.
SIX MONTHS ENDED OCTOBER 31, 2000 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1999
REVENUE. Revenue increased 76% to $45.9 million in the six months ended
October 31, 2000 from $26.0 million in the year earlier period. Increased sales
of the Company's products in all segments were primarily due to an increase in
demand for capital equipment in the semiconductor wafer and device industries as
well as the data storage industry. Increased demand in the semiconductor market
indicates the continued health of these industries since the most recent down
cycle. Wafer and device manufacturers have continued to focus on maximizing
production at existing fabs, resulting in capital equipment purchases to
increase capacity. Advanced industry requirements have also resulted in
technology purchases of the Company's next generation of products. For the six
months ended October 31, 2000, 86% of the Company's revenue was derived from
sales to the semiconductor industry compared to 77% 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 six months ended October 31, 2000, 80% of semiconductor
revenue was derived from wafer manufacturers while 20% was derived from device
manufacturers compared to 85% and 15%, 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 data storage industry has been experiencing pricing pressure,
consolidation and excess supply in many data storage market segments, which had
resulted in reduced production and capital equipment purchases. However, unit
demand for disks is beginning to ramp up and the Company is beginning to
experience increased revenue in each of its metrology product lines that are
marketed to the data storage industry. Data storage industry revenue comprised
14% of total revenue for the six months ended October 31, 2000, compared to 23%
for the year earlier period.
GROSS MARGIN. Gross margin increased to 50% for the six months ended
October 31, 2000 from 38% in the year earlier period. The increase in gross
margin was primarily due to the high volume of shipments of legacy products and
increased absorption of overhead expenses due to significantly increased
manufacturing activity and improved utilization of direct labor in the
Semiconductor Systems Group. Gross margins for ADE Technologies and ADE Phase
Shift for the three months ended October 31, 2000 was consistent with the year
earlier period. The Company expects slightly lower margins in the short term due
to an expected increase in shipments of newer technologies, which, in their
initial stages, carry a somewhat lower margin than the Company's legacy
products.
RESEARCH AND DEVELOPMENT. Research and development expense increased
$204,000 or 2% to $10.3 million in the six months ended October 31, 2000 from
$10.1 million in the year earlier period and decreased as a percentage of
revenue to 23% from 39% in the second quarter of 2000. The increase in expense
resulted primarily from continued investment by the Semiconductor Systems Group
to develop its AFS and AWIS advanced wafer inspection systems to capitalize on
the next wave of worldwide capital spending, which is expected to be focused on
300mm wafer production. The decrease in expense as a percentage of sales
resulted from the significant increase in revenue as discussed above. The
Company has continued development efforts to enhance its existing 200mm and
advanced 200mm wafer systems as its semiconductor industry customers seek to
improve their yields
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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 data storage industry, including those that 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 $2.4 million or
40% to $8.5 million in the six months ended October 31, 2000 from $6.1 million
during the year earlier period and decreased as a percentage of revenue to 19%
from 23% in the year earlier period. The increased expense resulted primarily
from increased commissions expense on sales made through both internal and
external sales representatives due to increased sales volume, particularly in
Asia, during the first six months of fiscal 2001 compared to the first six
months of fiscal 2000. 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 first six months of fiscal 2001 as discussed above.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$1.5 million or 25% to $4.9 million for the six months ended October 31, 2000
from $6.4 million for the year earlier period and decreased as a percentage of
revenue to 11% from 25% in the year earlier period. Expenses decreased primarily
due to cost savings achieved as a result of the consolidation of the Charlotte
operations into the Westwood, Massachusetts facility, which was completed in the
latter half of fiscal 2000. The decrease in general and administrative expenses
as a percent of revenue resulted from both the increase in revenue during the
first six months of fiscal 2001 as discussed above as well as the significant
decrease in expenses during the first six months of fiscal 2001 compared to the
year earlier period.
INTEREST INCOME, NET. Net interest income was $665,000 in the six months
ended October 31, 2000 compared to net interest income of $522,000 million in
the year earlier period. The increase in net interest income resulted primarily
from decreased costs associated with maintaining the Company's stand-by letters
of credit. The standby letters of credit are required by the Company's
obligations under separate $4.5 million and $5.5 million Industrial Development
Bonds ("IDB") issued in June 1999 and June 1996, respectively, through various
state and local bonding authorities.
INCOME TAXES. There was a provision for income taxes of $64,000 in the
second quarter of fiscal 2001 compared to no provision or benefit from income
taxes in the second quarter of fiscal 2000. The provision for income taxes in
the first six months of fiscal 2001 consists primarily of estimated federal
taxes recorded in relation to the federal alternative minimum tax. 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.
EQUITY IN NET EARNINGS (LOSS) OF AFFILIATED COMPANIES. Equity in net
earnings (loss) of affiliated companies was $(418,000) in the six months ended
October 31, 2000 compared to equity in net earnings (loss) of affiliated
companies of $(763,000) in the year earlier period. The net loss from affiliated
companies is the result of losses incurred by the Company's former affiliate,
Microspec, which was sold during the first quarter of fiscal 2001. The losses
from Microspec have been partially offset by the net earnings of the Company's
affiliate in Japan during the first six months of fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, the Company had $32.0 million in cash and cash
equivalents and $68.7 million in working capital. In addition, the Company had
$3.7 million in restricted cash used as security for a tax-exempt Industrial
Development Bond issued through the Massachusetts Industrial Finance Agency in
December 1997. 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
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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.
Cash used in operating activities for the six months ended October 31,
2000 was $1.8 million. This amount resulted from a net loss of $773,000 adjusted
for non-cash charges of $3.8 million and a $4.8 million net increase in working
capital accounts. The increase in working capital accounts consisted primarily
of increases in inventories of $7.6 million and accounts receivable of $5.6
million. The increase in inventories is the result of the ramp up in production
due to the increase in demand for the Company's products and the increase in
receivables is due to the increase in sales volume during the first six months
of fiscal 2001. These increases in working capital were somewhat offset by
increases in accounts payable and accrued expenses of $6.0 million and $2.4
million, respectively. The increase in accounts payable is due to the build up
of inventory as discussed above and the increase in accrued expenses is
primarily due to increases in accrued commissions of $1.2 million, accrued
warranty of $1.0 million and deferred revenue of $3.5 million. Non-cash items
consisted primarily of $3.3 million of depreciation and amortization and
$482,000 of the Company's share of the net loss of affiliated companies.
Cash used in investing activities was $1.4 million, and consisted of
primarily of $931,000 for purchases of fixed assets and $449,000 in advances
to an affiliated company.
Cash provided by financing activities was $141,000, which consisted of
$432,000 of aggregate proceeds from the issuance of common stock from the
exercise of stock options and stock purchased through the employee stock
purchase plan, partially offset by $291,000 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 and its
available cash and cash equivalents.
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 have recovered from the most recent down cycle, it is not clear how
long semiconductor wafer manufacturers, who account for approximately 69% of the
Company's revenue, will be in a position to sustain or increase their purchases
of capital equipment. The data storage industry has been in a period of
oversupply and excess manufacturing capacity and this has also had an adverse
impact on the Company. At October 31, 2000, the Company's backlog was $53.5
million, which represents a 98% increase from the second quarter of fiscal 2000.
The Company remains uncertain about how long sustained growth in revenue will
last. 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.
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 fourth quarter of fiscal 2001. The impact of
SAB 101 on the Company's financial statements has not yet been determined.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which required
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adoption in periods beginning after June 15, 1999. SFAS No. 133 was subsequently
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133" and will
now be effective for fiscal years beginning after June 15, 2000. The Company
does not expect SFAS No. 133 to have a material effect on its financial
condition or results of operations.
16
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On October 11, 2000, the Company filed a patent infringement
lawsuit against KLA-Tencor (KLA), a competitor, in the U.S.
District Court in Delaware. The Company seeks damages and a
permanent injunction against further infringement of United
States Patent Number 6,118,525, entitled "Wafer Inspection
System for Distinguishing Pits and Particles." On November 16,
2000, KLA filed a counterclaim in the United States District
Court in Delaware alleging that ADE has infringed three patents
owned by KLA. KLA is seeking damages for the alleged patent
infringement and a permanent injunction against future
infringement. In addition, KLA has asked the District Court for
a declaration that United States Patent Number 6,118,525, owned
by ADE, is invalid and not infringed by KLA. Since these
matters are at a preliminary stage, the Company cannot predict
the outcome or the amount of gain or loss, if any.
ITEM 2. CHANGES IN SECURITIES:
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The Annual Meeting of Stockholders was held on September 21,
2000. The stockholders voted on the following matters:
1. Election of Directors
NOMINEE FOR AGAINST
Robert C. Abbe 11,823,908 846,854
Harris Clay 12,011,407 659,355
Landon T. Clay 12,011,007 659,755
H. Kimball Faulkner 12,011,407 659,355
Chris L. Koliopoulos 12,010,801 659,961
Francis B. Lothrop, Jr. 12,010,907 659,855
Kendall Wright 12,011,007 659,755
There were no abstentions and 820,210 broker non-votes with
respect to this matter.
2. Approval of ADE 2000 Employee Stock Option Plan
FOR AGAINST ABSTAIN
9,330,705 951,214 85,625
These were 820,210 broker non-votes with respect to this
matter.
3. Appointment of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the fiscal
year ending April 30, 2001
FOR AGAINST ABSTAIN
11,620,320 1,046,107 4,335
There were 820,210 broker non-votes with respect to this
matter.
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ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. See Exhibit Index, Page 20
b. Reports on Form 8-K
None
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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, 2000 /s/ BRIAN C. JAMES
---------------------------------------------
Brian C. James
Vice President and Chief Financial Officer
Date: December 12, 2000
/S/ ROBERT C. ABBE
---------------------------------------------
Robert C. Abbe
President and Chief Executive Officer
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EXHIBIT INDEX
Exhibit
NO. Description
------- ----------------------------------------------------------------
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).
2.3 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).
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 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).
4.2 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).
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 and
incorporated herein by reference).
10.1 Form of Employee Confidentiality Agreement (filed as Exhibit
10.1 to the Company's Registration Statement on Form S-1
(333-96408) or amendments thereto and incorporated herein by
reference).
10.2 2000 Stock Option Plan (filed as Exhibit A to the Company's
Proxy Statement with respect to its Annual Meeting of
Shareholders for the fiscal year ended April 30, 2000 and
incorporated herein by reference).
10.3 1997 Stock Option Plan (filed as Exhibit 4.3 to the Company's
Registration Statement on Form S-8(333-46505) or amendments
thereto and incorporated herein by reference).
10.4 Amendment to 1997 Stock Option Plan dated April 7, 1999 (filed
as Exhibit 10.3 to the Company's Form 10-K for the fiscal year
ended April 30, 1999 and incorporated herein by reference).
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10.5 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).*
10.6 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).*
10.7 Amendment to 1992 Stock Option Plan dated April 7, 1999 (filed
as Exhibit 10.6 to the Company's Form 10-K for the fiscal year
ended April 30, 1999 and incorporated herein by reference).
10.8 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).*
10.9 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).*
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
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10.19 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).
10.20 Escrow Agreement dated as of May 31, 1998 by and among ADE
Corporation, Chris Koliopoulos, David Basila, and Norman Fenton
as Escrow Agent (as Exhibit 10.20 to the Company's Form 10-K for
the fiscal year ended April 30, 1998, 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,
1998, 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, 1998,
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, 1998, 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, 1998, and incorporated herein by reference).
21.1 Subsidiaries of the Company (filed herewith).
23.1 Consent of PricewaterhouseCoopers LLP (filed as Exhibit 23.1 to
the Company's Form 10-K for the fiscal year ended April 30, 1999
and incorporated herein by reference).
27 Financial Data Schedule (filed herewith).
--------------------------
* Compensatory plan or agreement applicable to management and employees.
22
