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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: JANUARY 31, 2001 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 13,520,128 shares
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Class Outstanding at March 14, 2001
Page 1 of 20
ADE CORPORATION
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheet -
January 31, 2001 and April 30, 2000 3
Condensed Consolidated Statement of Operations-
Three and Nine Months Ended January 31, 2001 and 2000 4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended January 31, 2001 and 2000 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 16
SIGNATURES 17
EXHIBIT INDEX 18
2
ADE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
January 31, April 30,
2001 2000
-------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 29,960 $ 35,001
Accounts receivable, net 23,029 14,549
Inventories 37,336 29,968
Prepaid expenses and other current assets 1,816 756
Deferred income taxes 5,798 4,484
-------------- -------------
Total current assets 97,939 84,758
Fixed assets, net 29,126 30,724
Deferred income taxes 4,792 6,106
Investments 3,237 3,331
Intangible assets, net 3,125 3,892
Restricted cash 3,675 3,705
Other assets 366 354
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Total assets $ 142,260 $ 132,870
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 615 $ 598
Accounts payable 7,254 4,017
Accrued expenses and other current liabilities 16,669 14,096
Deferred income on sales to affiliates 2,801 337
-------------- -------------
Total current liabilities 27,339 19,048
Long-term debt 11,493 11,950
STOCKHOLDERS' EQUITY:
Common stock 135 135
Capital in excess of par value 102,161 101,580
Retained earnings 1,132 178
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103,428 101,893
Deferred compensation - (21)
-------------- -------------
Total stockholders' equity 103,428 101,872
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Total liabilities and stockholders' equity $ 142,260 $ 132,870
============== =============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
ADE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data, unaudited)
Three months Nine months
ended January 31, ended January 31,
2001 2000 2001 2000
------------ ----------- ----------- ------------
Revenue $28,130 $ 16,576 $ 73,991 $ 42,563
Cost of revenue 14,133 9,225 37,224 25,379
------------ ----------- ----------- ------------
Gross profit 13,997 7,351 36,767 17,184
------------ ----------- ----------- ------------
Operating expenses:
Research and development 5,731 5,411 16,062 15,538
Marketing and sales 3,508 3,134 12,054 9,218
General and administrative 3,203 2,964 8,054 9,402
------------ ----------- ----------- ------------
Total operating expenses 12,442 11,509 36,170 34,158
------------ ----------- ----------- ------------
Income (loss) from operations 1,555 (4,158) 597 (16,974)
Interest income, net 281 318 947 841
------------ ----------- ----------- ------------
Income (loss) before provision for income taxes
and equity in net loss of affiliated companies 1,836 (3,840) 1,544 (16,133)
Provision for income taxes 47 - 111 -
------------ ----------- ----------- ------------
Income (loss) before equity in net loss of affiliated
companies 1,789 (3,840) 1,433 (16,133)
Equity in net loss of affiliated companies (61) (676) (479) (1,438)
------------ ----------- ----------- ------------
Net income (loss) $ 1,728 $ (4,516) $ 954 $ (17,571)
============ =========== =========== ============
Basic earnings (loss) per share $0.13 $(0.34) $0.07 $(1.32)
Diluted earnings (loss) per share $0.13 $(0.34) $0.07 $(1.32)
Weighted average shares outstanding - basic 13,511 13,403 13,498 13,319
Weighted average shares outstanding - diluted 13,748 13,403 13,768 13,319
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
ADE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
Nine months ended
January 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 954 $ (17,571)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 4,465 4,045
Equity in net loss of affiliated companies,
net of dividends received 543 1,493
Changes in assets and liabilities:
Accounts receivable, net (8,480) (200)
Inventories (7,368) (6,094)
Prepaid expenses and other current assets (1,060) (371)
Accounts payable 3,237 1,580
Accrued expenses and other current liabilities 2,573 (3,936)
Deferred income on sales to affiliate 2,464 (812)
-------------- ---------------
Net cash used in operating activities (2,672) (21,866)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (2,100) (4,862)
Change in restricted cash 30 (222)
Advances to affiliated company (449) (685)
Increase in other assets (12) (1,048)
-------------- ---------------
Net cash used in investing activities (2,531) (6,817)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (440) (425)
Proceeds from issuance of common stock 602 1,136
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Net cash provided by financing activities 162 711
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Net decrease in cash and cash equivalents (5,041) (27,972)
Cash and cash equivalents, beginning of period 35,001 61,278
-------------- ---------------
Cash and cash equivalents, end of period $ 29,960 $ 33,306
============== ===============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
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)
January 31, April 30,
2001 2000
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(unaudited)
Raw materials and purchased parts $ 16,577 $ 13,202
Work-in-process 19,308 15,437
Finished goods 1,451 1,329
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$ 37,336 $ 29,968
============= =============
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the
following:
(in thousands)
January 31, April 30,
2001 2000
------------ ------------
(unaudited)
Accrued salaries, wages, vacation pay and bonuses $ 2,625 $ 1,844
Accrued commissions 1,756 647
Accrued warranty costs 2,372 1,083
Accrued severance 71 278
Deferred revenue 6,244 6,436
Other 3,601 3,808
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$ 16,669 $ 14,096
============ ============
6
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
4. EARNINGS (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 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 and nine
months ended January 31, 2001, respectively, 385,525 and 369,325 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 three and nine months ended January 31, 2000,
respectively, 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:
(in thousands) (in thousands)
Three months ended Nine months ended
January 31, January 31,
2001 2000 2001 2000
-------------------- --------------------
Shares used in computation:
a. Weighted average common stock outstanding used 13,511 13,403 13,498 13,319
in computation of basic earnings (loss) per share
b. Dilutive effect of stock options outstanding 237 - 270 -
-------------------- --------------------
c. Shares used in computation of diluted earnings (loss) per share 13,748 13,403 13,768 13,319
==================== ====================
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
Beginning in the third quarter of fiscal 2001, the Company
consolidated its reported segments to conform with how the Company now
manages its business. Prior to the third quarter of fiscal 2001, the Company
reported three 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 were included in the
"other" category and are now reported in the SSG segment. Prior year segment
information has been recast to conform with the current year presentation.
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
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6. SEGMENT REPORTING (CONTINUED)
(IN THOUSANDS)
SSG PST ATI TOTAL
-------------------------------------------
FOR THE QUARTER ENDED JANUARY 31, 2001
Revenue from external customers $ 24,089 $ 3,848 $ 2,764 $ 30,701
Intersegment revenue (48) - 129 81
Income (loss) from operations 2,028 763 24 2,815
Depreciation and amortization expense 1,074 64 35 1,173
Capital expenditures 1,073 20 76 1,169
FOR THE QUARTER ENDED JANUARY 31, 2000
Revenue from external customers $ 13,297 $ 1,842 $ 2,889 $ 18,028
Intersegment revenue 344 - 82 426
Loss from operations (3,356) (203) (110) (3,669)
Depreciation and amortization expense 1,252 63 92 1,407
Capital expenditures 761 54 46 861
(IN THOUSANDS)
SSG PST ATI TOTAL
-------------------------------------------
FOR THE NINE MONTHS ENDED JANUARY 31, 2001
Revenue from external customers $ 62,712 $ 6,972 $ 8,170 $ 77,854
Intersegment revenue 241 - 471 712
Income (loss) from operations 3,102 (106) (482) 2,514
Depreciation and amortization expense 4,027 190 248 4,465
Capital expenditures 1,846 108 146 2,100
FOR THE NINE MONTHS ENDED JANUARY 31, 2000
Revenue from external customers $ 31,335 $ 4,951 $ 5,834 $ 42,120
Intersegment revenue 472 - 196 668
Loss from operations (15,103) (837) (1,938) (17,878)
Depreciation and amortization expense 3,582 190 273 4,045
Capital expenditures 4,664 93 105 4,862
8
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
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.
Three months Nine months
ended January 31, ended January 31,
2001 2000 2001 2000
---------- ----------- ----------- -----------
Total external revenue for reportable segments $ 30,701 $ 18,028 $ 77,854 $ 42,120
Net impact of revenue recognition on sales to affiliate (2,571) (1,452) (3,863) 443
---------- ----------- ----------- -----------
Total consolidated revenue $ 28,130 $ 16,576 $ 73,991 $ 42,563
========== =========== =========== ===========
Total operating income (loss) for reportable segments $ 2,815 $ (3,669) $ 2,514 $ (17,878)
Net impact of intercompany gross profit eliminations and
deferred profit on sales to affiliate (1,260) (489) (1,917) 904
---------- ----------- ----------- -----------
Total consolidated operating income (loss) $ 1,555 $ (4,158) $ 597 $ (16,974)
========== =========== =========== ===========
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. Management has reviewed SAB 101 and has determined the nature of
the impact that SAB 101 will have on the Company's financial statements. For
some of the Company's sales transactions, a portion, usually 10%, of the fee
is not due until installation occurs and the customer accepts the product.
SAB 101 will require the deferral of that portion of the fee not due until
installation is complete and customer acceptance has occurred. In addition,
the Company's financial statements will also reflect a change in the
classification of the revenue associated with training and the installation
of the Company's products. The Company is in the process of quantifying the
cumulative effect of the change in accounting principle that will be recorded
in the Company's financial statements for the fiscal year ending April 30,
2001.
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 and
9
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
8. ADOPTION OF 2000 EMPLOYEE STOCK OPTION PLAN (CONTINUED)
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
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 JANUARY 31, 2001 COMPARED TO THREE MONTHS ENDED
JANUARY 31, 2000
REVENUE. Revenue increased 70% to $28.1 million in the third quarter of
fiscal 2001 from $16.6 million in the third quarter of fiscal 2000. Increased
sales of the Company's products in the Semiconductor Systems Group ("SSG")
segment and the Phase Shift ("PST") segment reflected an increase in demand for
capital equipment in the semiconductor wafer and device industries. 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 January 31,
2001, 88% of the Company's revenue was derived from the semiconductor industry
compared to 71% 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, 2001, 85% of semiconductor revenue was derived from wafer
manufacturers while 15% was derived from device manufacturers compared to 75%
and 25%, 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 has
resulted in reduced production and capital equipment purchases. Consequently,
revenues in each of the metrology product lines that are marketed to the data
storage industry by the Company's ADE Technologies ("ATI") segment have
decreased slightly in the third quarter of fiscal 2001
11
compared with the year earlier period. Data storage industry revenue comprised
12% of total revenue for the three months ended January 31, 2001, compared to
29% for the year earlier period.
GROSS MARGIN. Gross margin increased to 50% in the third quarter of
fiscal 2001 from 44% in the third 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 SSG
segment. 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
$320,000 or 6% to $5.7 million in the third quarter of fiscal 2001 from $5.4
million in the third quarter of 2000 and decreased as a percentage of revenue to
20% from 33% in the third quarter of fiscal 2000. The increase in expense
resulted primarily from continued investment by the SSG segment 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 revenues resulted
primarily from the increase in revenues in the third quarter of fiscal 2001
compared to the third 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 $374,000 or
12% to $3.5 million in the third quarter of fiscal 2001 from $3.1 million in the
third quarter of 2000 and decreased as a percentage of revenue to 12% from 19%
in the third 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 third
quarter of fiscal 2001 compared to the third 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 third quarter of fiscal 2001 as
discussed above.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $239,000 or 8% to $3.2 million in the third quarter of fiscal 2001
from $3.0 million in the third quarter of fiscal 2000 and decreased as a
percentage of revenue to 11% from 18% in the third quarter of 2000. Expenses
increased primarily due to an increase in the reserve for bad debts.
INTEREST INCOME, NET. Net interest income was $281,000 in the third
quarter of fiscal 2001 compared to net interest income of $318,000 in the third
quarter of fiscal 2000. The decrease in interest income resulted primarily from
lower interest returns due to reduced principal balances during the third
quarter of fiscal 2001 compared to the year earlier period.
INCOME TAXES. There was a provision for income taxes of $47,000 in the
third quarter of fiscal 2001 compared to no provision or benefit from income
taxes in the third quarter of fiscal 2000. The provision for income taxes in the
third quarter 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 LOSS OF AFFILIATED COMPANIES. Equity in net loss of
affiliated companies was $61,000 in the third quarter of fiscal 2001 compared to
equity in net loss of affiliated companies of $676,000 in the third quarter of
fiscal
12
2000. The decrease in the net loss from affiliated companies in the third
quarter of fiscal 2001 compared to the year earlier period was due primarily to
the absence of the losses incurred by the Company's former affiliate, Microspec,
which was sold during the first quarter of fiscal 2001. The Company's Japanese
affiliate sells primarily to the semiconductor industry and the current period
loss reflects the timing of shipments and the recognition of revenue by the
affiliate.
NINE MONTHS ENDED JANUARY 31, 2001 COMPARED TO NINE MONTHS ENDED
JANUARY 31, 2000
REVENUE. Revenue increased 74% to $74.0 million in the nine months
ended January 31, 2001 from $42.6 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. 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 nine months ended January 31, 2001, 87% of the Company's
revenue was derived from sales to the semiconductor industry compared to 75% 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, 2001, 82% of
semiconductor revenue was derived from wafer manufacturers while 18% was derived
from device manufacturers compared to 82% and 18%, 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 has
resulted in a reduction of production and capital equipment purchases. However,
for the nine months ended January 31, 2001, due to a slight increase in demand,
the Company's ATI segment has experienced increased revenue in its metrology
product lines that are marketed to the data storage industry compared to the
year earlier period. Data storage industry revenue comprised 13% of total
revenue for the nine months ended January 31, 2001, compared to 25% for the year
earlier period.
GROSS MARGIN. Gross margin increased to 50% for the nine months ended
January 31, 2001 from 40% 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 SSG
segment. 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
$524,000 or 3% to $16.1 million in the nine months ended January 31, 2001 from
$15.5 million in the year earlier period and decreased as a percentage of
revenue to 22% from 37% in the third quarter of fiscal 2000. The increase in
expense resulted primarily from continued investment by the SSG segment 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 revenues
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 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.
13
MARKETING AND SALES. Marketing and sales expense increased $2.8 million
or 31% to $12.1 million in the nine months ended January 31, 2001 from $9.2
million during the year earlier period and decreased as a percentage of revenue
to 16% from 22% 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 nine months of fiscal 2001 compared to the first nine
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 nine months of fiscal 2001 as discussed above.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased $1.3 million or 14% to $8.1 million for the nine months ended January
31, 2001 from $9.4 million for the year earlier period and decreased as a
percentage of revenue to 11% from 22% in the year earlier period. Expenses
decreased primarily due to cost savings achieved as a result of the
consolidation of the Charlotte, North Carolina 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 nine months of
fiscal 2001 as discussed above as well as the significant decrease in expenses
during the first nine months of fiscal 2001 compared to the year earlier period.
INTEREST INCOME, NET. Net interest income was $947,000 in the nine
months ended January 31, 2001 compared to net interest income of $841,000 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 $111,000 in the
nine months ended January 31, 2001 compared to no provision or benefit from
income taxes in the year earlier period. The provision for income taxes in the
first nine 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 LOSS OF AFFILIATED COMPANIES. Equity in net loss of
affiliated companies was $479,000 in the nine months ended January 31, 2001
compared to equity in net loss of affiliated companies of $1.4 million in the
year earlier period. The decrease in the net loss from affiliated companies is
due to the absence 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 nine months of fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2001, the Company had $30.0 million in cash and cash
equivalents and $70.6 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 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 nine months ended January 31,
2001 was $2.7 million. This amount resulted from net income of $954,000 adjusted
for non-cash charges of $5.0 million and a $8.6 million net increase in working
capital accounts. Non-cash items consisted primarily of $4.5 million of
depreciation and amortization and $543,000 of the Company's share of the net
loss of affiliated companies.
14
Cash used in investing activities was $2.5 million, and consisted of
primarily of $2.1 million for purchases of fixed assets and an $449,000 in
advances to an affiliated company.
Cash provided by financing activities was $162,000, which consisted of
$602,000 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 $440,000 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 be embarking on its next wave of capital spending, which appears to
be focused on 300mm wafer production, it is not clear how long semiconductor
wafer manufacturers, who account for approximately 71% 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 January 31, 2001, the Company's backlog was $54.5 million. 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
where necessary.
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. Management has reviewed SAB 101 and has determined the nature of
the impact that SAB 101 will have on the Company's financial statements. For
some of the Company's sales transactions, a portion, usually 10%, of the fee
is not due until installation occurs and the customer accepts the product.
SAB 101 will require the deferral of that portion of the fee not due until
installation is complete and customer acceptance has occurred. In addition,
the Company's financial statements will also reflect a change in the
classification of the revenue associated with training and the installation
of the Company's products. The Company is in the process of quantifying the
cumulative effect of the change in accounting principle that will be recorded
in the Company's financial statements for the fiscal year ending April 30,
2001.
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.
15
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On October 12, 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 upon United
States Patent Number 6,118,525, entitled "Wafer Inspection
System for Distinguishing Pits and Particles." On November 22,
2000, KLA filed a counterclaim in the United States District
Court in Delaware that ADE has infringed upon three patents
owned by KLA. KLA is seeking damages for patent infringement
and a permanent injunction against any future infringement
activity. 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 upon 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:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. See Exhibit Index, Page 18
b. Reports on Form 8-K
None
16
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 14, 2001 /s/ Brian C. James
------------------------------
Brian C. James
Vice President and Chief Financial Officer
Date: March 14, 2001
/s/ Robert C. Abbe
------------------------------
Robert C. Abbe
President and Chief Executive Officer
17
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).*
18
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).*
10.11 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).
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).
10.21 Noncompetition Agreement dated as of May 31, 1998 by and between
ADE Corporation and Chris
19
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 as Exhibit 21.1 to the
Company's Form 10-Q for the quarter ended October 31, 2000 and
incorporated herein by reference).
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).
--------------------------
* Compensatory plan or agreement applicable to management and employees.
20