================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: July 31, 1996 Commission File Number 0-26714 ------------- ------- ADE CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2441829 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 77 Rowe Street, Newton, Massachusetts 02166 -------------------------------------------- (Address of principal executive offices, including area code) (617) 969-0600 -------------- (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 7,623,316 shares - --------------------------------------- -------------------------------- Class Outstanding at September 9, 1996 Page 1 of 14 pages Exhibit Index on page 13 ADE CORPORATION INDEX Page ---- Part I. - Financial Information Item 1. Condensed Consolidated Financial Statements (unaudited)- Condensed Consolidated Balance Sheet July 31, 1996 and April 30, 1996 3 Condensed Consolidated Statement of Income- Three Months Ended July 31, 1996 and 1995 4 Condensed Consolidated Statement of Cash Flows - Three Months Ended July 31, 1996 and 1995 5 Notes to Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. - Other Information 11 Signatures 12 Exhibit Index 13 ADE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) July 31, April -------------- --------- 1996 1996 ------------ ----------- Assets Current assets: Cash and cash equivalents $16,436,000 $20,997,000 Restricted cash 3,500,000 -- Accounts receivable, net 13,877,000 15,760,000 Inventories 16,340,000 12,981,000 Prepaid expenses and other current assets 400,000 325,000 Deferred income taxes 2,874,000 2,874,000 ----------- ----------- Total current assets 53,427,000 52,937,000 Fixed assets, net 7,476,000 6,538,000 Restricted cash 3,620,000 -- Deferred income taxes 329,000 329,000 Investments 2,156,000 -- Other assets 248,000 198,000 ----------- ----------- $67,256,000 $60,002,000 =========== =========== Liabilities and Stockholders' equity Current liabilities: Current portion of long-term debt $ 230,000 $ 38,000 Accounts payable 4,006,000 4,618,000 Accrued expenses 7,796,000 8,536,000 Income taxes payable 968,000 289,000 ----------- ----------- Total current liabilities 13,000,000 13,481,000 ----------- ----------- Long-term debt 5,346,000 38,000 ----------- ----------- Excess of net assets acquired over cost 373,000 436,000 ----------- ----------- Stockholders' equity: Common stock 76,000 76,000 Capital in excess of par value 27,055,000 27,032,000 Retained earnings 21,652,000 19,198,000 ----------- ----------- 48,783,000 46,306,000 Deferred compensation (246,000) (259,000) ----------- ----------- 48,537,000 46,047,000 ----------- ----------- $67,256,000 $60,002,000 =========== =========== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 ADE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited) Three months ended July 31, --------------------------- 1996 1995 ---- ---- Revenues $19,194,000 $13,542,000 Cost of sales 8,362,000 6,223,000 ----------- ----------- Gross profit 10,832,000 7,319,000 ----------- ----------- Operating expenses: Research and development 3,045,000 1,666,000 Marketing and sales 2,922,000 2,206,000 General and administrative 1,444,000 1,405,000 Amortization of excess of net assets acquired over cost (63,000) (63,000) ----------- ----------- Total operating expenses 7,348,000 5,214,000 ----------- ----------- Income from operations 3,484,000 2,105,000 Interest income (expense), net 179,000 (34,000) ----------- ----------- Income before provision for income taxes 3,663,000 2,071,000 Provision for income taxes 1,209,000 741,000 ----------- ----------- Net income $ 2,454,000 $ 1,330,000 =========== =========== Net income per share $0.31 $0.22 =========== =========== Weighted average common and common equivalent shares outstanding 8,043,000 5,989,000 =========== =========== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 ADE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Three months ended July 31, --------------------------------- 1996 1995 ---- ---- Cash flows provided by (used in) operating activities: Net income $ 2,454,000 $ 1,330,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 400,000 368,000 Deferred profits on sales to affiliates 407,000 -- Change in assets and liabilities: Accounts receivable 1,883,000 1,784,000 Inventories (3,359,000) (980,000) Prepaid expenses and other current assets (75,000) (24,000) Accounts payable (612,000) (762,000) Accrued expenses (740,000) 255,000 Income taxes payable 679,000 (1,327,000) ------------ ----------- Net cash provided by operating activities 1,037,000 644,000 ------------ ----------- Cash flows provided by (used in) investing activities: Purchases of fixed assets (1,388,000) (70,000) Change in restricted cash (7,120,000) -- Equity investments (2,563,000) -- Change in other assets (50,000) 95,000 ------------ ----------- Net cash provided by (used in) investing activities (11,121,000) 25,000 ------------ ----------- Cash flows provided by (used in) financing activities: Repayment of long-term debt -- (63,000) Proceeds from long-term debt 5,500,000 -- Proceeds from common stock issuance 23,000 -- ------------ ----------- Net cash provided by (used in) financing activities 5,523,000 (63,000) ------------ ----------- Net increase (decrease) in cash and cash equivalents (4,561,000) 606,000 Cash and cash equivalents, beginning of period 20,997,000 2,767,000 ------------ ----------- Cash and cash equivalents, end of period $ 16,436,000 $ 3,373,000 ============ =========== 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 as of July 31, 1996 and the results of operations for the three month periods ended July 31, 1996 and 1995. 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 (the "SEC") applicable to quarterly reports on Form 10-Q, the accompanying unaudited condensed consolidated financial statements and these notes do not include all disclosures required by generally accepted accounting principles for complete financial statements. Accordingly, these statements should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1996. 2. Inventories Inventories consist of the following: July 31, April 30, 1996 1996 (unaudited) Raw materials and purchased parts $10,712,000 $ 6,099,000 Work-in-process 5,570,000 6,728,000 Finished goods 58,000 154,000 ----------- ----------- $16,340,000 $12,981,000 =========== =========== 3. Equity Investments (unaudited) The Company's investments in affiliated companies which are not majority owned or controlled are accounted for using the equity method. Investments carried at equity and the percentage interest owned consist of Japan ADE Ltd (50%) and Microspec Technologies Ltd (25.1%). Profits resulting from sales to the affiliates subsequent to the respective acquisition dates in July 1996 have been eliminated, have been charged against the investment account and will be recognized upon the sale to unrelated third parties. 6 ADE CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Pro forma results of operations as though the investments were made at the beginning of the periods presented, including the effect of eliminating the profit on affiliated sales in beginning and ending inventory for the period, are as follows: Three months ended July 31, ------------------------ 1996 1995 ----------- ----------- Revenue $19,334,000 $13,680,000 Net income 2,516,000 1,114,000 Earnings per share $0.31 $0.19 4. Long Term Debt (unaudited) In June 1996, the Company issued a $5.5 million tax exempt Industrial Development Bond through the Massachusetts Industrial Finance Agency. The bond carries a 5.74% interest rate for 10 years with level amortization of 50% of the principal with the remaining 50% due in June 2006. The proceeds of the bond will be used to fund the acquisition and renovation of the manufacturing facility in the Company's new headquarters site. The Company secured the issuance of the bond with a standby letter of credit from a financial institution. The standby letter of credit, bearing a fee of 1.25% of the outstanding bond balance, is secured by a mortgage on the building and land and by a cash amount equal to the difference between the amount of the bond and 75% of the appraised value of the land and building. Under the terms of the letter of credit, the Company is required to comply with certain financial covenants, including a limitation on the payment of dividends. The cash currently used to secure the letter of credit is carried as restricted cash. The proceeds of the Industrial Development Bond that have not yet been disbursed are carried as long-term restricted cash. 5. Earnings Per Share (unaudited) Earnings per share are determined by dividing net income by the weighted average number of common shares and common share equivalents outstanding during the period. Common share equivalents consist of common stock which may be issuable upon exercise of outstanding stock options and warrants using the treasury stock method. Common stock, warrants and options issued or granted at prices below the public offering price per share during the twelve-month period prior to the initial filing of the Registration Statement have been included in the calculation as if outstanding for all periods presented through July 31, 1995, using the treasury stock method and an initial public offering price of $14.00 per share. 7 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 in the audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1996. Results of Operations Three Months Ended July 31, 1996 compared to Three Months Ended July 31, 1995 Revenues increased 41.7% to $19.2 million in the first quarter of fiscal 1997 from $13.5 million in the first quarter of 1996. The increase was due to increased unit sales of the Company's products. The increase in unit sales resulted primarily from stronger demand for capital equipment in the semiconductor industry and an increase in demand for gaging equipment in the computer disk drive industry. Gross margin increased to 56.4% in the first quarter of fiscal 1997 from 54.0% in the first quarter of 1996. The increase resulted primarily from operating manufacturing facilities close to their capacity. Research and development expense increased 82.8% to $3.0 million in the first quarter of fiscal 1997 from $1.7 million in the first quarter of 1996 and increased as a percentage of revenue to 15.9% from 12.3% in the first quarter of 1996. The Company is committed to increasing its investment in research and development to continue its position as a technological leader. New product development and improvements have lead to higher research and development expenses. Marketing and sales expense increased 32.5% to $2.9 million in the first quarter of fiscal 1997 from $2.2 million in the first quarter of 1996, but decreased as a percentage of sales to 15.2% in the first quarter of fiscal 1997 from 16.3% in 1996. The increase in total marketing and sales expense is a result of supporting higher sales volumes. General and administrative expenses remained constant at $1.4 million in the first quarter of fiscal 1997 versus 1996. 8 Net interest income was $179,000 in the first quarter of fiscal 1997 compared to a net interest expense of $34,000 in the first quarter of 1996. The increase in income resulted from interest earned on the proceeds of the initial public offering of the Company's common stock completed in October 1995, and the cancellation of subordinated debt related to the exercise of warrants in connection with the initial public offering, partially offset by interest expense on the Industrial Development Bond. Liquidity and Capital Resources At July 31, 1996, the Company had $16.4 million in cash and cash equivalents and $40.4 million in working capital. The undisbursed proceeds from a $5.5 million sale of a tax-exempt Industrial Development Bond on June 7, 1996, amounting to $3.6 million, are carried as long-term restricted cash. This cash may only be used to finance the renovation of the Westwood, MA manufacturing facility that the Company purchased in January 1996. These funds will continue to be disbursed as construction is completed. Additionally, $3.5 million of restricted cash is pledged to a bank to secure a standby letter of credit to securitize the Industrial Development Bond. The Company is committed to pledge cash to make up the difference between 75% of the appraised value of the building and the outstanding amount of the Industrial Development Bond. Management anticipates the restriction will be reduced or eliminated in the current fiscal year, when the appraisal of the building is done upon completion of renovations. Net cash provided by operating activities for the first quarter of fiscal 1997 was $1.0 million. Part of the cash provided was the result of increased collections of accounts receivable during the quarter. The primary use of cash was to increase inventory in anticipation of increasing manufacturing capacity in Charlotte, to provide sufficient inventory to meet customer shipments during the period of the move to the new facility in Westwood, MA, and to provide service inventory in Europe, as the Company began direct service of customers in Europe during the first quarter of 1997. Cash used in investing activities consisted of approximately $7.1 million reclassified as restricted cash as part of the financing of the Company's new facility in Westwood, MA, $2.5 million used in equity investments and $1.3 million used to purchase fixed assets. Cash provided by financing activities consisted primary of $5.5 million received as the proceeds of an Industrial Development Bond issued by the Company through the Massachusetts Industrial Development Agency. This bond carries a 5.74% annual interest rate over its ten year life. Fifty percent of the bond principle amortizes equally on a monthly basis over the life of the bond. 9 The Company expects to meet its near-term working capital needs and purchases of fixed assets primarily through its available cash and cash equivalents. During the 1996 calendar year, the semiconductor industry experienced a well- publicized slowdown. The Company's business depends in large part upon the capital expenditures of semiconductor wafer and device manufacturers. While the Company has not experienced any significant reduction in its backlog during the three months ended July 31, 1996, there can be no assurance that the Company's sales will not be affected adversely in the future as a result of this recent slowdown in the semiconductor industry. 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings: ----------------- None Item 2. Changes in Securities: --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders: --------------------------------------------------- None Item 5. Other Information: ----------------- In June 1996, the Company issued a tax-exempt Industrial Development Bond through the Massachusetts Industrial Finance Authority to finance the purchase and renovation of the Company's new manufacturing facility in Westwood, Massachusetts. This bond carries a 5.74% interest rate for a term of ten years. The bond is secured by a letter or credit from a bank. The letter of credit is secured by a mortgage on the Westwood property and cash. In July 1996, the Company purchased 47% of the stock of Japan ADE Ltd.(JAL), the distributor of most of the Company's equipment in Japan, for approximately $1,300,000, bringing the Company's total investment in JAL to 50%. In July 1996, the Company purchased 25.1% of the outstanding stock of Microspec Technologies Ltd., an Israeli company, for $1,250,000. Item 6. Exhibits and Reports on Form 8-K: -------------------------------- a. See Exhibit Index, Page 13 b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. 11 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 13, 1996 /s/ Michael J. Ellsworth -------------------------------- Michael J. Ellsworth Vice President and Chief Operating Officer Date: September 13, 1996 /s/ Mark D. Shooman ------------------------------ Mark D. Shooman Vice President and Chief Financial Officer 12 ADE CORPORATION EXHIBIT INDEX Exhibit Page - ------- ---- 11 Statement Regarding Computation of Net Income per Share 14 27 Financial Data Schedule 15 13