================================================================================ UNITED STATES 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, 1997 Commission File Number 0-26714 ------------- ------- ADE CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2441829 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 80 Wilson Way, Westwood, Massachusetts 02090 --------------------------------------------- (Address of principal executive offices, including area code) (617) 467-3500 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, par value $.01 per share 11,080,335 shares - -------------------------------------- -------------------------------- Class Outstanding at August 29, 1997 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, 1997 and April 30, 1997 3 Condensed Consolidated Statement of Income- Three Months Ended July 31, 1997 and 1996 4 Condensed Consolidated Statement of Cash Flows - Three Months Ended July 31, 1997 and 1996 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 (In thousands) July 31, April 30, ------- -------- 1997 1997 (Unaudited) Assets Current assets: Cash and cash equivalents $17,289 $19,374 Accounts receivable, net 22,401 20,331 Inventories 25,558 22,160 Prepaid expenses and other current assets 582 310 Deferred income taxes 5,348 5,348 -------- -------- Total current assets 71,178 67,523 Fixed assets, net 16,377 15,735 Deferred income taxes 234 234 Investments 3,196 3,162 Other assets 1,777 1,763 -------- -------- $92,762 $88,417 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 266 $ 899 Accounts payable 7,053 5,535 Accrued expenses 11,307 10,744 Deferred income on sale to affiliate 2,030 2,661 Income taxes payable 1,397 1,915 -------- -------- Total current liabilities 22,053 21,754 -------- -------- Long-term debt 5,032 5,091 -------- -------- Excess of net assets acquired over cost 121 184 -------- -------- Stockholders' equity: Common stock 86 86 Capital in excess of par value 28,929 28,660 Retained earnings 36,729 32,846 -------- -------- 65,744 61,592 Deferred compensation (188) (204) -------- -------- 65,556 61,388 -------- -------- $92,762 $88,417 ======== ======= The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 ADE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data, unaudited) Three months ended July 31, -------------------- 1997 1996 ---- ---- Revenue $31,446 $19,991 Cost of revenue 14,151 8,685 ------- ------- Gross profit 17,295 11,306 Operating expenses: Research and development 5,252 3,221 Marketing and sales 3,669 2,977 General and administrative 2,672 1,484 Amortization of excess of net assets acquired over cost (63) (63) ------- ------- Total operating expenses 11,530 7,619 ------- ------- Income from operations 5,765 3,687 Interest income, net 156 151 ------- ------- Income before provision for income taxes and equity in net earnings of affiliated companies 5,921 3,838 Provision for income taxes 2,072 1,290 ------- ------- Income before equity in net earnings of affiliated companies 3,849 2,548 ------- ------- Equity in net earnings of affiliated companies 34 -- Net income $ 3,883 $ 2,548 ======= ======= Net income per share $0.43 $0.29 ======= ======= Weighted average common and common equivalent shares outstanding 9,124 8,864 ======= ======= 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, ------------------ 1997 1996 ---- ---- Cash flows provided by (used in) operating activities: Net income $ 3,883 $ 2,548 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 554 404 Equity in net earnings of affiliated companies (34) -- Change in assets and liabilities: Accounts receivable (2,070) 1,707 Inventories (3,398) (3,457) Prepaid expenses and other current assets (272) (75) Accounts payable 1,518 (586) Accrued expenses 563 (468) Deferred income on sales to affiliate (631) 407 Income taxes payable (518) 752 ------ ------ Net cash provided by (used in) operating activities (405) 1,232 Cash flows provided by (used in) investing activities: Purchases of fixed assets (1,243) (1,423) Change in restricted cash -- (7,120) Equity investments -- (2,563) Change in other assets (14) (50) ------ ------ Net cash used in investing activities (1,257) (11,156) ------ ------ Cash flows provided by (used in) financing activities: Repayment of long-term debt (692) -- Proceeds from long-term debt -- 5,520 Proceeds from common stock issuance 195 23 Tax benefit related to the exercise of common stock options 74 -- ------ ------ Net cash provided by (used in) financing activities (423) 5,543 ------ ------ Net decrease in cash and cash equivalents (2,085) (4,381) Cash and cash equivalents, beginning of period 19,374 21,513 ------ ------ Cash and cash equivalents, end of period $17,289 $ 17,132 ====== ====== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 ADE CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share data) 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, 1997 and the results of operations for the three month periods ended July 31, 1997 and 1996. 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, 1997. 2. Inventories Inventories consist of the following: July 31, April 30, 1997 1997 ---- ---- (unaudited) Raw materials and purchased parts $12,657 $ 9,867 Work-in-process 12,059 11,464 Finished goods 842 829 ------- ------- $25,558 $22,160 ======= ======= 3. Earnings Per Share 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 using the treasury stock method. 6 ADE CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This statement establishes and simplifies standards for computing and presenting earnings per share. SFAS No. 128 will be effective beginning with the Company's quarter ended January 31, 1998 and requires the restatement of all previously reported earnings per share data that are presented. Early adoption of SFAS No. 128 is not permitted. SFAS 128 replaces primary and fully diluted earnings per share with basic and diluted earnings per share. Pro forma earnings per share under SFAS No. 128 would have been as follows: Three months ended July 31, ---------------------- 1997 1996 ---- ---- Pro forma basic net income per share $ 0.45 $ 0.30 Pro forma diluted net income per share $ 0.43 $ 0.29 4. Subsequent Events Public Offering of Common Stock In August 1997, the Company completed a public offering of 2,300,000 shares of its common stock. The net proceeds to the Company were approximately $67.8 million. 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 hard 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, 1997. Results of Operations Three Months Ended July 31, 1997 compared to Three Months Ended July 31, 1996 Revenues increased 57.3% to $31.4 million in the first quarter of fiscal 1998 from $20.0 million in the first quarter of 1997. 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 wafer manufacturing industry and the introduction of integrated measurement systems for the computer hard disk industry. These integrated systems are priced significantly higher than the gaging equipment that previously has comprised the bulk of the Company's revenue from the computer hard disk industry. Gross margin decreased to 55.0% in the first quarter of fiscal 1998 from 56.6% in the first quarter of 1997. The decrease resulted from increased overhead costs associated with the opening of the new manufacturing facility in Westwood, Massachusetts and changes in product and distribution channel mix, which affect gross margins. Research and development expense increased 63.1% to $5.3 million in the first quarter of fiscal 1998 from $3.2 million in the first quarter of 1997 and increased as a percentage of revenue to 16.7% from 16.1%. New product development and product improvements have led to higher research and development expenses. The Company is committed to increasing its investment in research and development to continue its position as a technological leader in the rapidly changing semiconductor and computer hard disk industries. Marketing and sales expense increased 23.2% to $3.7 million in the first quarter of fiscal 1998 from $3.0 million in the first quarter of 1997, but decreased as a percentage of revenue to 11.7% in the first quarter of fiscal 1998 from 14.9% in 1997. The decrease as a percentage of revenue is a result of marketing and sales expense growing at a lower rate than revenue. 8 General and administrative expenses increased to $2.7 million in the first quarter of fiscal 1998 from $1.5 million in the first quarter of fiscal 1998. This increase resulted from the need for additional personnel to support increased revenue and the acquisition of Digital Measurement Systems, Inc. Net interest income was $156,000 in the first quarter of fiscal 1998 compared to $151,000 in the first quarter of 1997. Net income from equity in affiliates was $34,000 in first quarter of fiscal 1998. The tax rate used during the first quarter of fiscal 1998 for the provision for income taxes was 35% versus 33.6% during the first quarter of fiscal 1997. The Company does not expect to receive as much investment tax credit or research and development credits during fisca1 1998 as it did during 1997. 9 Liquidity and Capital Resources At July 31, 1997, the Company had $17.3 million in cash and cash equivalents and $49.1 million in working capital. In August, 1997, the Company completed a public offering of 2,300,000 shares of its common stock, with net proceeds to the Company of approximately $67.8 million. Net cash used in operating activities for the three months ended July 31, 1997 was $0.4 million. Cash generated from operations totaled $4.4 million prior to investments in working capital of $4.8 million, which consisted primarily of increased accounts receivable and inventory of $2.1 million and $3.4 million respectively, offset in part by an increase in current liabilities of $0.9 million. Cash used in investing activities consisted of $1.3 million to purchase fixed assets, consisting primarily of computers, machinery and equipment used in operations. Cash used in financing activities was $0.4 million of which $0.6 million was associated with the repayment of a mortgage on property purchased as part of the acquisition of Digital Measurement Systems, Inc. offset by $0.2 million provided by issuance of common stock associated with employee stock option and stock purchase plans. The Company expects to meet its near-term working capital and fixed assets needs primarily with existing cash and cash equivalents and future cash generated from operations. The Company's business depends in large part upon the capital expenditures of semiconductor wafer and device manufacturers. While the Company has experienced a minor reduction in its backlog during the three months ended July 31, 1997, the Company believes that this reduction was primarily due to customer order patterns rather than any fundamental changes in the industry. However, there can be no assurance that the Company's sales will not be affected adversely in the future if there are slowdowns in the semiconductor industry. 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 could adversely affect the performance of the Company. 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: ----------------- Item 6. Exhibits and Reports on Form 8-K: -------------------------------- a. See Exhibit Index, Page 14 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 11, 1997 /s/ Mark D. Shooman ------------------------------------------ Mark D. Shooman Vice President and Chief Financial Officer Date: September 11, 1997 /s/ Robert C. Abbe ------------------------------------------ Robert C. Abbe President and Chief Executive Officer 12 ADE CORPORATION EXHIBIT INDEX Exhibit Page - ------- ---- 4 Employee Stock Purchase Plan /1/ 11 Statement Regarding Computation of Net Income per Share 14 (Filed herewith) - ------------------------ 1. Filed as an exhibit to the Registration Statement on Form S-8 (Registration Number 333-4652) and incorporated by reference herein.