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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: JULY 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
----- -----
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 13,569,871 shares
-------------------------------------- ---------------------------------
Class Outstanding at September 13, 2001
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ADE CORPORATION
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheet-
July 31, 2001 and April 30, 2001 3
Condensed Consolidated Statement of Operations-
Three Months Ended July 31, 2001 and 2000 4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended July 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 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. - OTHER INFORMATION 14
SIGNATURES 15
EXHIBIT INDEX 16
2
ADE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
JULY 31, APRIL 30,
2001 2001
----------- ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 30,936 $ 29,220
Marketable securities 1,941 1,913
Accounts receivable, net 17,198 24,424
Inventories 37,806 39,025
Prepaid expenses and other current assets 1,305 1,566
Deferred income taxes 6,293 6,514
--------- ---------
Total current assets 95,479 102,662
Fixed assets, net 29,192 29,569
Deferred income taxes 4,297 4,076
Investments 3,180 3,221
Intangible assets, net 3,115 3,286
Restricted cash 3,475 3,525
Other assets 281 368
--------- ---------
Total assets $ 139,019 $ 146,707
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 627 $ 621
Accounts payable 4,644 6,833
Accrued expenses and other current liabilities 16,545 21,134
Deferred income on sales to affiliates 2,045 2,116
--------- ---------
Total current liabilities 23,861 30,704
--------- ---------
Long-term debt 11,184 11,339
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STOCKHOLDERS' EQUITY:
Common stock 136 136
Capital in excess of par value 102,901 102,429
Retained earnings (Accumulated deficit) (505) 686
Accumulated other comprehensive income 1,442 1,413
--------- ---------
Total stockholders' equity 103,974 104,664
--------- ---------
Total liabilities and stockholders' equity $ 139,019 $ 146,707
========= =========
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
ENDED JULY 31,
----------------
2001 2000
---- ----
Revenue $ 25,371 $ 21,387
Cost of revenue 14,919 11,111
-------- --------
Gross profit 10,452 10,276
-------- --------
Operating expenses:
Research and development 6,115 5,154
Marketing and sales 3,588 4,262
General and administrative 2,312 2,228
-------- --------
Total operating expenses 12,015 11,644
-------- --------
Loss from operations (1,563) (1,368)
Interest and other income, net 311 340
-------- --------
Loss before provision for income taxes, equity in net
earnings (loss) of affiliated companies and
cumulative effect of change in accounting principle (1,252) (1,028)
Provision for income taxes 7 --
-------- --------
Loss before equity in net earnings (loss) of
affiliated companies and cumulative effect of change
in accounting principle (1,259) (1,028)
Equity in net earnings (loss) of affiliated companies 68 (722)
-------- --------
Loss before cumulative effect of change in
accounting principle (1,191) (1,750)
Cumulative effect of change in accounting
principle, net of tax -- (1,785)
-------- --------
Net loss $ (1,191) $ (3,535)
======== ========
Net loss per share:
Basic and diluted
Loss before cumulative effect of change
in accounting principle $ (0.09) $ (0.13)
Cumulative effect of change in accounting principle $ -- $ (0.13)
-------- --------
Basic and diluted loss per share $ (0.09) $ (0.26)
======== ========
Weighted average shares outstanding
Basic 13,567 13,483
Diluted 13,567 13,483
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)
THREE MONTHS ENDED
JULY 31,
------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,191) $ (3,535)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,489 1,821
Equity in net earnings (loss) of affiliated companies,
net of dividends received 41 786
Cumulative effect of change in accounting principle -- 1,785
Changes in assets and liabilities:
Accounts receivable, net 7,226 (1,073)
Inventories 1,219 (1,561)
Prepaid expenses and other current assets 261 (481)
Accounts payable (2,189) (169)
Accrued expenses and other current liabilities (4,588) 358
Deferred income on sales to affiliate (72) 1,035
-------- --------
Net cash provided by (used in) operating activities 2,196 (1,034)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (941) (513)
Change in restricted cash 50 30
Advances to affiliated company -- (449)
(Increase) decrease in other assets 88 (6)
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Net cash used in investing activities (803) (938)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (149) (144)
Proceeds from issuance of common stock 472 195
-------- --------
Net cash provided by financing activities 323 51
-------- --------
Net increase (decrease) in cash and cash equivalents 1,716 (1,921)
Cash and cash equivalents, beginning of period 29,220 35,001
-------- --------
Cash and cash equivalents, end of period $ 30,936 $ 33,080
======== ========
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, 2001.
2. CHANGE IN ACCOUNTING POLICIES
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes
certain areas of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Historically, for
some of the Company's sales transactions, a portion of the sales price,
usually 10%, was not due until installation occurs and the customer accepts
the product. Under SAB 101 the Company now defers the portion of the sales
price not due until the customer has accepted the product. Effective during
the first quarter of the year ended April 30, 2001, the Company implemented
the SEC's SAB 101 guidelines, which was reported as a cumulative effect of a
change in accounting principle as of May 1, 2000. The cumulative effect of
the change in accounting principle resulted in a charge to income of $1.8
million (net of income taxes of $0), or $0.13 per share, in the first quarter
of fiscal 2001. For the first quarter of fiscal 2002, the Company recognized
approximately $0.1 million in revenue that was included in the cumulative
effect adjustment as of May 1, 2000. The effect of that revenue was to
increase income for the first quarter of fiscal 2002 by $0.1 million (net of
income taxes of $0). The results for the three months ended July 31, 2000
have been adjusted to reflect the adoption of SAB 101.
3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was as follows:
(in thousands)
Three months ended
July 31, July 31,
2001 2000
--------- ---------
Net loss $(1,191) $(3,535)
Other comprehensive income:
Unrealized gain on marketable securities,
net of $0 tax 28 --
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Other comprehensive income 28 --
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Comprehensive loss $(1,163) $(3,535)
========= =========
4. INVENTORIES
Inventories consist of the following:
(in thousands)
JULY 31, APRIL 30,
2001 2001
----------- ---------
(unaudited)
Raw materials and purchased parts $16,666 $16,910
Work-in-process 18,655 18,749
Finished goods 2,485 3,366
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$37,806 $39,025
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5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
(in thousands)
JULY 31, APRIL 30,
2001 2001
----------- ---------
(unaudited)
Accrued salaries, wages, vacation pay and bonuses $ 2,324 $ 2,342
Accrued commissions 982 1,341
Accrued warranty costs 1,867 1,899
Deferred revenue 8,616 11,655
Other 2,756 3,897
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$16,545 $21,134
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6
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6. LOSS PER SHARE
Basic and diluted loss per share is computed by dividing income (loss)
available to common stockholders by the weighted average number of common
shares outstanding for the period. For the three months ended July 31, 2001
and 2000, respectively, 241,695 and 286,608 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 months ended July 31, 2001 and 2000, respectively, basic and diluted
loss per share is the same due to the antidilutive effect of potential common
shares outstanding.
7. 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. Sales of the Company's stand-alone software products and
software consulting services are also included in the SSG segment. 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.
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 (loss) of affiliated companies are not included
in segment profitability.
(in thousands)
SSG PST ATI TOTAL
--------- --------- --------- ---------
FOR THE QUARTER ENDED JULY 31, 2001
Revenue from external customers $ 19,557 $ 1,154 $ 1,735 $ 22,446
Intersegment revenue 198 -- 303 501
Loss from operations (1,536) (1,282) (316) (3,134)
Depreciation and amortization expense 1,337 96 56 1,489
Capital expenditures 821 50 70 941
FOR THE QUARTER ENDED JULY 31, 2000
Revenue from external customers $ 18,774 $ 1,241 $ 3,054 $ 23,069
Intersegment revenue 278 -- 131 409
Income (loss) from operations (235) (387) 19 (603)
Depreciation and amortization expense 1,647 63 111 1,821
Capital expenditures 472 28 13 513
7
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
7. 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
ENDED JULY 31,
2001 2000
---- ----
Total external revenue for reportable segments $ 22,446 $ 23,069
Net impact of revenue recognition on sales to affiliate 2,924 (1,682)
-------- --------
Total consolidated revenue $ 25,370 $ 21,387
======== ========
Total operating loss for reportable segments $ (3,134) $ (603)
Net impact of intercompany gross profit eliminations and
deferred profit on sales to affiliate 1,571 (765)
-------- --------
Total consolidated operating loss $ (1,563) $ (1,368)
======== ========
8. NEW ACCOUNTING PRONOUNCEMENTS
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", as amended by SFAS No. 137,
"Accounting for Derivative Instrument and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities-an amendment of
FASB Statement No. 133," which establishes accounting and reporting standards
for derivative instruments and hedging activities. The Company has adopted SFAS
No. 133, as amended, in the first quarter of fiscal year 2002. To date the
Company has not utilized derivative instruments or hedging activities and,
therefore, the adoption of SFAS 133 did not have a significant impact on our
financial position or results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
all business combinations be accounted for under the purchase method only and
that certain acquired intangible assets in a business combination be recognized
as assets apart from goodwill. SFAS No. 142 requires that ratable amortization
of goodwill be replaced with periodic tests of
8
ADE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
8. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
the goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method for which the date of acquisition is after
June 30, 2001. The provisions of SFAS No. 142 will be effective for fiscal years
beginning after December 15, 2001, and will thus be adopted by the Company, as
required, in fiscal year 2003. The impact of SFAS No. 141 and SFAS No. 142 on
the Company's financial statements has not yet been determined.
9. PENDING LITIGATION
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 of 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
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.
9
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, 2001.
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, 2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2001 COMPARED TO THREE MONTHS ENDED JULY 31, 2000
REVENUE. Revenue increased 19% to $25.4 million in the first quarter of
fiscal 2002 from $21.4 million in the first quarter of fiscal 2001. Increased
sales of the Company's products in the Semiconductor Systems Group ("SSG") and
ADE Phase Shift ("PST") segments reflected an increase in demand for capital
equipment in the semiconductor wafer industry, which was somewhat offset by a
decline in demand in the semiconductor device industry. Wafer manufacturer's
capital equipment purchases have focused on advanced industry requirements,
which resulted in technology purchases of the Company's next generation of
products. For the three months ended July 31, 2001, 89% of the Company's revenue
was derived from the semiconductor industry compared to 83% 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 July 31, 2001, 91% of semiconductor
revenue was derived from wafer manufacturers while 9% was derived from device
manufacturers compared to 87% and 13%, 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 in the first quarter of fiscal 2002 compared with
10
the year earlier period. Data storage industry revenue comprised 11% of total
revenue for the three months ended July 31, 2001, compared to 17% for the year
earlier period.
GROSS MARGIN. Gross margin decreased to 41% in the first quarter of
fiscal 2002 from 48% in the first quarter of fiscal 2001. The decrease in gross
margin was primarily due to the higher volume of shipments of new products in
the SSG segment, which carry lower margins in their initial stages than the
Company's legacy products. The Company expects these lower margins to continue
in the short term due to expected shipments of newer technologies. Also
contributing to the decrease in gross margins was the delay of orders for ATI's
data storage products. Gross margins for the Company's PST segment declined
slightly due to an increase in manufacturing overhead expenses.
RESEARCH AND DEVELOPMENT. Research and development expense increased
$961,000 or 19% to $6.1 million in the first quarter of fiscal 2002 from $5.2
million in the first quarter of 2001 and remained consistent as a percentage of
revenue at 24% compared to the first quarter of fiscal 2001. 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 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 decreased $674,000 or
16% to $3.6 million in the first quarter of fiscal 2002 from $4.3 million in the
first quarter of 2001 and decreased as a percentage of revenue to 14% from 20%
in the first quarter of fiscal 2001. The decreased expense resulted primarily
from decreased commissions expense on sales made through external sales
representatives. 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 both from the increase in revenue and the
decrease in expense during the first quarter of fiscal 2002 as discussed above.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$84,000 or 4% to $2.3 million in the first quarter of fiscal 2002 from $2.2
million in the first quarter of fiscal 2001 and decreased as a percentage of
revenue to 9% from 10% in the first quarter of 2001. Expenses increased
primarily due to an increase in payroll and patent expenses offset by decreases
in recruiting costs.
INTEREST AND OTHER INCOME, NET. Net interest and other income was
$311,000 in the first quarter of fiscal 2002 compared to net interest and other
income of $340,000 in the first quarter of fiscal 2001. The decrease in interest
and other income resulted primarily from lower interest returns due to reduced
principal balances during the first quarter of fiscal 2002 compared to the year
earlier period.
INCOME TAXES. There was a provision for income taxes of $7,000 in the
first quarter of fiscal 2002 compared to no provision or benefit from income
taxes in the first quarter of fiscal 2001. The provision for income taxes in
the first quarter of fiscal 2002 consists primarily of foreign income taxes.
The Company continues to monitor the realizability of its current and long
term deferred tax assets and provides for valuation allowances against these
assets as appropriate. The amount of the valuation allowance considered
realizable could materially change in the near term if industry conditions
continue to decline and estimates of future taxable income change or do not
materialize.
EQUITY IN NET EARNINGS (LOSS) OF AFFILIATED COMPANIES. Equity in net
earnings of affiliated companies was $68,000 in the first quarter of fiscal
2002 compared to equity in net loss of affiliated companies of $722,000 in
the first quarter of fiscal 2001. The net earnings from affiliated companies
in the first quarter of fiscal 2002 compared to the loss in 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
11
primarily to the semiconductor industry and the current period earnings reflect
the timing of shipments and the recognition of revenue by the affiliate.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2001, the Company had $30.9 million in cash and cash
equivalents and $71.6 million in working capital. In addition, the Company had
$3.5 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 provided by operating activities for the three months ended July
31, 2001 was $2.2 million. This amount resulted from net loss of $1.2 million
adjusted for non-cash charges of $1.5 million and a $1.9 million net decrease
in working capital accounts. Non-cash items consisted primarily of $1.5
million of depreciation and amortization and $41,000 of the Company's share
of the net earnings of affiliated companies. Working capital items consisted
primarily of decreases in accounts receivable of $7.2 million, inventories of
$1.2 million, accounts payable of $2.2 million and accrued expenses and other
current liabilities of $4.6 million. The decrease in accounts receivable was
due to strong collections in the first quarter of fiscal 2002. The decrease
in inventory was due to the high volume of shipments during the first quarter
of fiscal 2002 as well as a decrease in purchases of raw materials. The
decrease in accounts payable was due to the timing of payments. The decrease
in accrued expenses and other current liabilities was primarily due to the
decrease in deferred revenue.
Cash used in investing activities was $803,000, and consisted of
primarily of $941,000 for purchases of fixed assets and a combined decrease in
other assets and restricted cash of $138,000.
Cash provided by financing activities was $323,000, which consisted of
$472,000 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 $149,000 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
is in the midst of a severe down cycle, it is not clear when semiconductor
wafer manufacturers, who account for approximately 81% of the Company's
revenue, will be in a position to increase their purchases of capital
equipment. The data storage industry has been in a period of oversupply and
excess manufacturing capacity for quite some time and this has also had an
adverse impact on the Company. At July 31, 2001, the Company's backlog was
$40.5 million. The Company remains uncertain about when sustained growth in
revenue will return. The Company continues to evaluate its cost structure
relative to expected revenue and will continue to implement aggressive cost
containment measures 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.
CHANGE IN ACCOUNTING POLICIES
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes
certain areas of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Historically, for
some of the Company's sales transactions, a portion of the sales price, usually
10%, was not due until installation occurs and the customer accepts the product.
Under SAB 101 the Company now defers the portion of the sales price not due
until the customer has accepted the product. During the first quarter of the
year ended April 30, 2001, the Company implemented the
12
SEC's SAB 101 guidelines, which was reported as a cumulative effect of a
change in accounting principle as of May 1, 2000. The cumulative effect of
the change in accounting principle resulted in a charge to income of $1.8
million (net of income taxes of $0), or $0.13 per share, in the first quarter
of fiscal 2001. For the first quarter of fiscal 2002, the Company recognized
approximately $0.1 million in revenue that was included in the cumulative
effect adjustment as of May 1, 2000. The effect of that revenue was to
increase income for the first quarter of fiscal 2002 by $0.1 million (net of
income taxes of $0). The results for the three months ended July 31, 2000
have been adjusted to reflect the adoption of SAB 101.
NEW ACCOUNTING PRONOUNCEMENTS
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", as amended by SFAS No. 137,
"Accounting for Derivative Instrument and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities-an amendment of
FASB Statement No. 133," which establishes accounting and reporting standards
for derivative instruments and hedging activities. The Company has adopted SFAS
No. 133, as amended, in the first quarter of fiscal year 2002. To date the
Company has not utilized derivative instruments or hedging activities and,
therefore, the adoption of SFAS 133 did not have a significant impact on our
financial position or results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
all business combinations be accounted for under the purchase method only and
that certain acquired intangible assets in a business combination be recognized
as assets apart from goodwill. SFAS No. 142 requires that ratable amortization
of goodwill be replaced with periodic tests of the goodwill's impairment and
that intangible assets other than goodwill be amortized over their useful lives.
SFAS No. 141 is effective for all business combinations initiated after June 30,
2001 and for all business combinations accounted for by the purchase method for
which the date of acquisition is after June 30, 2001. The provisions of SFAS No.
142 will be effective for fiscal years beginning after December 15, 2001, and
will thus be adopted by the Company, as required, in fiscal year 2003. The
impact of SFAS No. 141 and SFAS No. 142 on the Company's financial statements
has not yet been determined.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's exposure to market
risk from April 30, 2001.
13
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 16
b. Reports on Form 8-K
None
14
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: September 14, 2001 /s/ BRIAN C. JAMES
--------------------------------------
Brian C. James
Vice President, Treasurer and
Chief Financial Officer
Date: September 14, 2001 /s/ ROBERT C. ABBE
--------------------------------------
Robert C. Abbe
President and Chief Executive Officer
15
EXHIBIT INDEX
EXHIBIT
NUMBER 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). *
16
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).
10.20 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).
17
10.21 Noncompetition Agreement dated as of May 31, 1998 by and between ADE
Corporation and David Basila (filed 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).
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, 2001 and
incorporated herein by reference).
---------
* Compensatory plan or agreement applicable to management and employees.
18