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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1997
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-26714
ADE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2441829
(State of incorporation) (I.R.S. Employer Identification No.)
80 Wilson Way 02090
Westwood, Massachusetts (Zip Code)
(Address of principal executive offices)
(617) 467-3500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 of 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of July 22, 1997, there were outstanding 8,630,145 shares of Common Stock,
$.01 par value per share. The aggregate market value of shares of Common Stock
held by non-affiliates of the registrant, based upon the last sale price for
such stock on that date as reported by Nasdaq, was approximately $141,954,764.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III.
================================================================================
Number of Pages: _______ Exhibit Index on Page: _______
PART I
ITEM 1. BUSINESS
Certain statements in this report are forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements may be found in the material set forth in this Item 1
("Business") and in Item 7 (''Management's Discussion and Analysis of Financial
Condition and Results of Operations") as well as elsewhere in this report. The
Company's actual results could differ materially from those anticipated in such
forward-looking statements as a result of certain factors, including those
discussed under the heading "Risk Factors" beginning on page 12 below and
elsewhere in this report. Any forward-looking statements are made as of the date
of this report and the Company assumes no obligation to update any such forward-
looking statements or to update the reasons why actual results could differ
materially from those anticipated in such forward-looking statements.
ADE Corporation is a leader in the design, manufacture, marketing and
service of metrology and inspection systems for the semiconductor wafer
manufacturing industry. In addition, the Company is a growing supplier of
metrology systems to the semiconductor device and computer hard disk industries.
The Company's systems analyze and report product quality at critical
manufacturing process steps, sort wafers and disks and provide manufacturers
with quality certification data. Semiconductor wafer and device and computer
hard disk manufacturers use the Company's systems to improve yield and capital
productivity. The Company's products have evolved from single instruments used
in off-line engineering analysis to multi-function systems for automated in-line
monitoring of process-induced defects throughout the wafer and disk
manufacturing processes. The Company's systems are designed to deliver the high
throughput, reliability and information delivery and analysis necessary to meet
the demands of increasingly complex and time-sensitive manufacturing processes.
The Company has over 35 major products currently in use by the wafer, device and
disk manufacturing industries and has shipped more than 1,700 systems.
PRODUCTS
ADE's product strategy is to develop versatile, modular instrumentation and
automation sub-systems that can be assembled to form a number of integrated
products. These products support multiple metrology and inspection functions and
sorting in the semiconductor wafer and device and hard disk fabrication
processes. The Company has over 35 major products currently in use by the
semiconductor wafer and device and hard disk manufacturing industries and has
shipped more than 1,700 systems. During the past fiscal year, semiconductor
equipment sales to wafer manufacturers have generated approximately 77% of the
Company's annual revenues. The Company, however, must continue to develop and
introduce new products and product enhancements to keep pace with technological
developments and changing customer requirements.
The Company's principal products in the semiconductor wafer, semiconductor
device and computer hard disk and disk drive industries and OEM automation are
described below. All
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metrology and inspection systems have the capability to record, print and store
measurement data locally, as well as distribute the data via a network for yield
and process management, future analysis and Silicon Wafer Order Form ("SWOF")
quality certification.
Semiconductor Industry Products
WAFERCHECK 7000 SERIES. The WaferCheck 7000 series of products are
flexible, modular systems capable of automatically characterizing, inspecting
and sorting semiconductor wafers. The WaferCheck 7000, the first large-scale,
automated metrology system for the wafer manufacturing market, was introduced by
the Company in 1983. To meet the industry's increasing demand for the
manufacture of 200 millimeter wafers, the Company introduced the WaferCheck 7200
in 1987. These systems measure thickness, flatness, shape, conductivity type,
and resistivity on as-cut and etched wafers and provide high speed sorting. The
products combine an automated transfer belt module with one or more customer
selected measurement modules into a single, floor mounted system. These systems,
which are capable of operating in a class 1000 cleanroom environment, provide a
non-destructive in-line sorting capability and precise wafer classification at
submicron accuracies. The WaferCheck 7000 ranges in price from $160,000 to
$475,000. The WaferCheck 7200 ranges in price from $200,000 to $750,000.
ULTRASCAN 9000 SERIES. The UltraScan 9000 series of products are high
throughput, in-line production systems that perform metrology and sorting at
various stages of the wafer manufacturing and device fabrication processes. The
9300 and 9350 systems, introduced in 1990, employ the Company's E station
measurement module to measure thickness down to an accuracy of 0.5 microns. The
9600 and 9650 systems, introduced in 1994 and based on the more advanced E-Plus
station, measure thickness down to an accuracy of 0.25 microns. The 9350 and
9650 systems have a smaller footprint than their larger counterparts, making
them more suitable for applications in the device fabrication process, including
photolithography, thermal processing, CMP and thin film deposition. The
UltraScan 9000 systems are capable of being operated in a class 10 cleanroom
environment. The UltraScan 9000 systems measure wafer thickness, flatness,
shape, conductivity type and resistivity and can be integrated with factory
automation systems using industry standard protocols. The UltraScan 9300 and
9350 systems range in price from $250,000 to $500,000. The UltraScan 9600 and
9650 systems range in price from $360,000 to $590,000.
ULTRAGAGE 9000 SERIES. The UltraGage 9000 series of products are benchtop
metrology systems containing a single measurement module, which is capable of
making selected measurements, including flatness, thickness and stress. The
UltraGage 9500 system, introduced in 1992, is based on the Company's E station
measurement module. The UltraGage 9700 system, introduced in 1995, is based on
the E-Plus station measurement module. The UltraGage 9000 systems are capable of
being operated in a class 10 cleanroom environment. These systems were designed
to operate together with applications software to be used by device
manufacturers in applications such as chemical mechanical planarization ("CMP")
and thermal processing. The UltraGage 9500 system ranges in price from $150,000
to $220,000. The UltraGage 9700 system ranges in price from $210,000 to
$260,000.
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DCS AUTOMATIC DEFECT CLASSIFICATION SERIES. The MicroSpec DCS-II series is
a fully integrated in-line automatic defect classification (ADC) system. The
OpenADC(TM) approach to yield management of the DCS-II tool allows device
process engineers to mix and match automated defect inspection, yield management
and defect review tools for their inspection strategies. The DCS-II streamlines
and strengthens the yield enhancement process, providing greater accuracy and
repeatability than previously possible and eliminating the need for human
operators. The DCS-II system ranges in price from $160,000 to $220,000.
WIS SERIES The WIS series products are high throughput, in-line production
systems that are used to detect, measure and characterize particles and other
defects on wafer surfaces and provide process analysis and control information
for the wafer manufacturer. The first of these optical-based systems was
introduced in 1981. Based on the Company's existing CR80 production tool design,
the WIS-CR81 and WIS-CR82, introduced in 1997, detect particles down to 0.1
microns on wafers up to 200 millimeters in diameter. The WIS systems can be
integrated with factory automation systems using industry standard protocols. A
variety of software packages are available from the Company to tailor the system
to specific customer requirements. The WIS systems are capable of being operated
in a class 10 cleanroom environment. The WIS0 systems ranges in price from
$300,000 to $450,000.
Disk Industry Products
VIBRATING SAMPLE AND TORQUE LABORATORY MAGNETOMETERS. These computerized
systems are used for the magnetic characterization of a broad range of materials
(i.e. disks, tapes, powders, crystals, magneto-optic materials and
superconducting materials). Since only a small piece of a magnetic material can
be measured in these laboratory systems, a magnetic disk must be cut in order to
be measured in such systems. Model 1660 is the only magnetometer which combines
Vibrating Sample Magnetometer (VSM) and torque measurements in a single tool.
The VSM and torque measurement systems ranges in price from $110,000 to
$275,000.
ROBOTIC KERR-EFFECT AND MRT MAGNETOMETERS. These are fully automated in-
line robotic systems used for fast and accurate mapping of the important
magnetic properties of computer hard disks. The systems have the capability to
record, store, process and print measurement results locally, as well as to
transmit the data to a network for process tune-up, quality control,
certification, and subsequent sorting of the disks. The Company believes these
robotic systems are the only commercially available automated high speed in-line
magnetic properties measurement tools available for the disk manufacturing
industry. These robotic systems range in price from $185,000 to $300,000.
AUTOGAGER 1500 SERIES. The Autogager 1500 series of products are modular
systems capable of automatically characterizing, inspecting and sorting hard
disks. The Autogager 1500, the first large-scale, automated dimensional
metrology system for the hard disk market, was introduced by the Company in 1996
to meet the industry's increasing demand for the manufacture of Magneto-
Resistive ("MR") quality hard disks. These systems measure thickness and
thickness variation on advanced hard disks and provide high speed sorting. The
products combine an industrial robot with the company's capacitive dimensional
metrology into a single, floor-mounted system. These systems, which are capable
of operating in a class 1000 cleanroom
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environment, provide a non-destructive in-line sorting capability and precise
disk classification at submicron accuracies. The Autogager 1500 systems range in
price from $250,000 to $350,000.
OEM Automation Components
The Company has developed a series of robots, prealigners and wafer
elevators for use in its automated systems. The Company also markets and sells
these automation components to semiconductor equipment manufacturers. These
automation components range in price from $7,000 to $29,000. The Company's OEM
product revenues accounted for approximately 3% of revenues in fiscal 1997.
PRODUCTS IN DEVELOPMENT
In order to maintain its technology leadership, the Company continues to
introduce new products. Among those products under development are the Company's
Galaxy 10000 Series, specifically designed for 300 millimeter wafers, and the
EpiScan 9900 Series.
GALAXY 10000 SERIES. The Galaxy series of products are modular, high
throughput, in-line production systems that perform metrology and sorting at
various stages of the wafer manufacturing and device fabrication processes. A
key feature of the systems is their unique ability to measure both the front and
back surface of the wafer, holding the wafer gently and only by the edges, so as
not to introduce any damage or contamination on either the front or the back
surface of the wafer. The AFS-300 and the AWIS-300 systems employ the identical
wafer handling platform. The AFS-300 and the AWIS-300 systems will range in
price from $650,000 to $1,000,000.
The AFS-300 series systems, introduced in 1997, are generally operated in a
class 10 cleanroom environment, and are based on ADE's advanced E-Plus station,
measure thickness down to an accuracy of 0.25 microns. The AFS-300 series
systems measure wafer thickness, flatness, shape, conductivity type and
resistivity and can be integrated with factory automation systems using industry
standard protocols. The Company has delivered beta units to certain customers.
The AWIS-300 series systems, currently in the final stages of development,
are based on ADE's proprietary ARS (Angle Resolved Scatter) technologies for the
optical inspection of bare and film wafer surfaces, and are intended for use in
a class 1 or better cleanroom environment. The AWIS-300 is designed to provide
the combination of front and backside measurement, sensitivity, throughput and
sorting capabilities required by wafer manufacturers.
EPISCAN 9900 SERIES. The EpiScan 9900 series of products are benchtop
metrology systems containing a single measurement module, which is capable of
making selected measurements, including Epi thickness, thickness variation and
dopant profile. The EpiScan 9900 system, introduced in 1997, is based on
advanced, model-based FTIR (Fourier Transform Infrared Spectroscopy) technology
licensed to the Company by On-Line Technologies, Inc. The
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EpiScan 9900 system is capable of being operated in a class 10 cleanroom
environment. The EpiScan 9900 system will range in price from $150,000 to
$220,000.
TECHNOLOGY
The Company's metrology and inspection products use its proprietary non-
contact capacitive, magnetic and optical technologies to measure the
dimensional, magnetic and surface characteristics of semiconductor wafers and
devices and hard disks.
Dimensional Technology
The Company's non-contact capacitive gaging technology, which is the
subject of a series of patents, is used to measure the dimensional parameters
(thickness, flatness, shape) of semiconductor wafers, computer hard disks and
other objects. Non-contact technology has largely displaced traditional contact
gages, which can damage the wafer through physical contact.
The Company's capacitive dimensional gaging technology is based on the
measurement of the capacitance between a measurement probe and the surface of
the object. The capacitance varies as a precise function of the distance between
the probe and the object being measured, permitting the distance to be measured
with a precision of better than 0.01 microns. For example, in the measurement of
a semiconductor wafer, two probes, one on each side of the wafer, map both wafer
surfaces simultaneously. Electronic circuitry converts the probe capacitance
signal into distance signals which are translated by the Company's software to
produce information concerning the wafer's thickness, flatness and shape.
ADE's capacitive dimensional technology has a number of advantages over
other non-contact measurement methods. Unlike optical, magnetic or acoustic
technologies, capacitive gaging is not significantly affected by environmental
conditions such as temperature and humidity or by the optical properties and
material characteristics of the wafer. As a result, the Company believes that
its capacitive dimensional technology provides a superior combination of
accuracy, precision and stability, greater bandwidth and a broader range of
potential applications than these other technologies.
Surface Inspection Technology
The Company uses optical methods to detect microscopic surface defects. A
finely focused laser beam is scanned over the surface of the wafer. Surface
particles or defects cause some of the beam's energy to scatter. Sensitive
detectors quantify this scattering signal, which is translated by the Company's
software to produce information about particles, microscratches, haze and other
process induced defects on the wafer surface. Although the principles of the
Company's optical technology are similar to those used by other manufacturers,
the Company believes its theoretical modeling and patented optical engineering
and proprietary software result in products having a superior combination of
high sensitivity and throughput.
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Fourier Transform Infrared Spectroscopy Technology
Fourier Transform Infrared Spectroscopy Technology (''FTIR'') is used in a
broad range of laboratory applications for examining various technical
properties of materials and chemicals. On-Line Technologies, Inc., a
Connecticut- based technology company, has licensed its FTIR technology to ADE
for incorporation into metrology tools for the wafer market.
ADE is integrating this technology, which primarily has been confined to
laboratory devices, as a metrology module into its automated in-line metrology
tools in order to provide the increasing precision and accuracy needed to
support the SWOF in the face of ever-tightening Epi specifications.
Magnetics Characterization Technology
The Company's products for characterizing magnetic materials use a variety
of non-contact measurement technologies including lasers (the Kerr effect),
vibrating sample and torque-effect inductive sensing techniques. The Company
believes its theoretical modeling and magnetics engineering enable it to offer
automated products with superior sensitivity, speed, accuracy, and
reproducibility.
Proprietary Software
ADE's proprietary software analyzes and transforms the large amounts of
data generated by ADE's metrology and inspection systems to produce information
about process induced defects that aids in process control. The flexible design
of the software permits reconfiguration of the Company's products to serve new
applications with a minimum of hardware or software redesign or development. The
Company's software is designed to integrate the Company's various metrology
functions with one another and to implement industry standards for integrating
the Company's products with the manufacturing facility's information systems.
The Company currently is seeking patent protection on certain features of its
software.
MARKETING, SALES AND CUSTOMER SUPPORT
The Company markets and sells its semiconductor metrology and inspection
products through its direct sales force, distributors and independent sales
representatives. The Company markets and sells its metrology and inspection
products in the United States, Europe and Malaysia through full-time
salespersons located in Milpitas, Dallas, Portland and Boston, in the United
States, in the United Kingdom, in Germany, and in Malaysia. During the past
fiscal year, approximately 50% of the Company's revenues were derived through
its direct sales organization. The Company's direct sales force is supported by
applications engineers in selected field offices and in its manufacturing
locations.
Sales of dimensional systems in Japan are supported by Japan ADE Limited, a
joint venture of the Company and Kanematsu Electronics, Ltd. Sales of optical
surface inspection products are provided in Japan by a separate distributor. The
Company also sells its semiconductor metrology and inspection products in
Israel, South Korea, Singapore, Taiwan, India and the People's
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Republic of China through independent sales representatives. The Company markets
and sells its computer hard disk products in the United States through two full-
time salespersons and internationally through distributors and sales
representatives. The Company's gaging products are sold worldwide through
distributors and independent sales representatives.
The selling process for the Company's products frequently involves
participation by sales, marketing and customer support personnel. Customers and
potential customers often evaluate the Company's products by sending
semiconductor wafers to the Company for measurement or by installing
demonstration equipment at their facilities. The Company maintains demonstration
equipment at its manufacturing sites and some of its sales offices for this
purpose. The Company plans to increase its investment in demonstration equipment
to accelerate the introduction of products. The Company's marketing activities
also include participation in international standards organizations, trade
shows, publication of articles in trade journals, participation in industry
forums and distribution of sales literature.
The Company believes that its strong commitment to service is essential,
based on the growing complexity of the equipment used in the semiconductor
manufacturing process. This complexity makes it difficult for semiconductor
wafer and device manufacturers to maintain an internal workforce sufficiently
skilled and specialized to support the disparate equipment and technologies used
in their processes. ADE has customer support centers in Boston, Charlotte,
Austin, Dallas, Milpitas, Portland, Milton Keynes, England, Munich, Germany and
Kuala Lumpur, Malaysia. The Company's customer support and service staff
currently consists of 74 persons. In addition, the Company's distributors and
sales representatives provide customer support. ADE also offers training
programs and maintenance contracts for its customers. The Company offers
warranties of up to twelve months covering the performance and reliability of
its products. In each of the past four years, the Company was selected as one of
the ''ten-best'' semiconductor measurement equipment manufacturers in the world
in customer surveys conducted by VLSI Research Inc.
CUSTOMERS
The Company's customers include all of the leading semiconductor wafer
manufacturers and many of the leading semiconductor device and computer hard
disk and disk drive manufacturers throughout the world. Historically, a
relatively limited number of customers have accounted for a substantial portion
of the Company's revenues. In fiscal years 1995, 1996 and 1997, sales to the
Company's top five customers accounted for approximately 51%, 45% and 50%,
respectively, of the Company's revenue. During fiscal year 1997, one of the
Company's customers, Shin-Etsu Handotai Co., accounted for 16% of the
Company's revenue. During the past fiscal year, approximately 77% of the
Company's revenues were derived from sales made to wafer manufacturers, with the
remainder of the Company's revenues derived from sales to manufacturers of
semiconductor devices, and computer hard disks and disk drives and semiconductor
equipment. The Company's principal customers are as follows:
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SEMICONDUCTOR WAFER MANUFACTURERS
Komatsu
LG Silicon
MEMC Electronic Materials
Mitsubishi International Corporation
Posco Huls Company
Shin-Etsu Handotai Co.
Sumitomo Sitix Silicon
Toshiba Corporation
Wacker Siltronic Corporation
SEMICONDUCTOR DEVICE MANUFACTURERS
IBM Corporation
Intel Corporation
Lucent Technologies
Motorola
SGS Thomson
Texas Instruments
Winbond Electronic Corporaton
COMPUTER HARD DISK AND DISK DRIVE MANUFACTURERS
Akashic Memories
HMT Corporation
Hyundai Electronics
IBM Corporation
Komag
Seagate Technology
Trace
Western Digital
RESEARCH AND DEVELOPMENT
The market for semiconductor wafer and device and computer hard disk and
disk drive equipment is characterized by rapid technological change and product
innovation. The Company's research and development efforts are designed to
enhance the Company's current products and develop and introduce new products to
keep pace with technological developments and respond to constantly evolving
customer requirements. The Company devotes significant resources to programs
directed towards developing new and enhanced products, as well as developing new
applications for existing products.
As of April 30, 1997, the Company employed a full-time research and
development staff of 131 persons. In fiscal years 1995, 1996 and 1997, the
Company's research and development expenditures were $6.3 million, $7.8 million
and $17.0 million respectively, representing 13.7%, 11.6% and 16.8% of revenues.
Research and development expenditures consist primarily of salaries, project
materials and other costs associated with the Company's ongoing research and
development efforts.
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Industry standards organizations, such as Semiconductor Equipment and
Materials International ("SEMI") and American Standards for Testing and
Materials (''ASTM''), are pivotal in defining the test methods, measurement
parameters and specifications governing commercial transactions within the
semiconductor industry. The Company maintains a significant presence on
standards committees of SEMI, ASTM and other international standards
organizations. The Company believes that its involvement with these
organizations has helped to ensure that the Company's new products conform to
industry standards.
BACKLOG
Backlog increased to approximately $61 million at April 30, 1997 from $58
million at April 30, 1996, as a result of increases in orders for the Company's
products. The Company schedules production based on firm customer commitments
and anticipated orders during the planning cycle. The Company includes in its
backlog only those customer orders for which it has accepted written purchase
orders against which it expects to ship within the following twelve months. All
orders are subject to cancellation or delay by the customer with limited or no
penalty. The Company does not believe that the level of backlog is an accurate
indicator of the Company's future performance.
MANUFACTURING
The Company's principal manufacturing activities take place at its ISO
9001-registered facility near Boston, Massachusetts, where dimensional metrol-
ogy systems are manufactured, and Charlotte, North Carolina, where optical
surface inspection equipment is manufactured. Certain of the Company's gaging
products for the computer disk and disk drive and other industries are
manufactured in Milpitas, California. Manufacturing activities consist primarily
of assembling and testing components and subassemblies which are supplied by
third party vendors and then integrated into the Company's finished products.
Many of the components and subassemblies are standard products, although certain
items are made to Company specifications. The Company manufactures its
semiconductor metrology and inspection systems in a cleanroom environment.
Certain components and subassemblies, including certain system controllers
and robotics components incorporated into the Company's systems, are obtained
from a single source or a limited group of suppliers. Management routinely
monitors single or limited source supply parts, and the Company endeavors to
ensure that adequate inventory is available to maintain manufacturing schedules
should the supply of any part be interrupted. Although the Company seeks to
reduce its dependence on sole and limited source suppliers, it has not qualified
a second source for these products and the partial or complete loss of certain
of these sources could have an adverse effect on the Company's results of
operations and damage customer relationships. Further, a significant increase in
the list price of one or more of these components could adversely affect the
Company's results of operations.
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COMPETITION
The semiconductor and computer hard disk equipment industries are highly
competitive. While the Company believes that it does not presently have
significant established competitors in the metrology area of the semiconductor
wafer equipment industry, there can be no assurance that companies with
complementary technologies and greater financial resources will not enter the
industry and develop products that are superior to the Company's products or
achieve market acceptance. In the market for optical defect inspection
equipment, the Company competes directly with Hitachi Electronics Engineering
Co., Ltd. and KLA-Tencor Corporation, both of which have significantly greater
financial resources than the Company. In the metrology area of the device
industry, the Company has encountered, and expects to encounter in the future,
competition from companies offering similar and competing technologies, some of
which have significantly greater financial resources than the Company or an
existing market presence in the device industry, or both. The Company also
expects to encounter intense competition in the areas of metrology and
inspection for the hard disk industry. The Company's competitors can be expected
to continue to improve the design and performance of their products and to
introduce new products with competitive price/performance characteristics.
Competitive pressures can necessitate price reduction which can adversely affect
operating results. Although the Company believes that it has certain technical
and other advantages over its competitors, maintaining such advantages will
require a continued high level of investment by the Company in research and
development and sales, marketing and service. There can be no assurance that the
Company will have sufficient resources to continue to make such investment or
that the Company will be able to make the technological advances necessary to
maintain such competitive advantages.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret laws and license agreements to establish and protect its
proprietary rights in its products. The Company believes, however, that its
success depends to a greater extent upon innovation, technological expertise and
distribution strength. The Company requires each of its employees, including its
executive officers, to enter into standard employee agreements pursuant to which
the employee agrees to keep confidential all proprietary information of the
Company and to assign to the Company all rights in any proprietary information
or technology made or contributed by the employee during his or her employment
or made thereafter as a result of any inventions conceived or work done during
such employment. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's products or technology without
authorization or to develop similar technology independently. In addition,
effective patent, copyright and trade secret protection may be unavailable or
limited in certain foreign countries.
As of July 22, 1997, the Company holds 26 United States patents and 15
foreign patents covering existing and potential products and has applied for 4
additional patents in the United States and 14 additional foreign patents.
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The Company has licensed its prealigner patents to a number of companies
following the settlement of a patent infringement suit brought by the Company.
The Company is actively pursuing similar licensing arrangements with a number of
other companies.
As is typical in the Company's industry, the Company and its customers from
time to time receive letters from third parties, including some of the Company's
competitors, alleging infringement of such parties' patent rights by the
Company's products. There can be no assurance that the Company would prevail in
any litigation seeking damages or expenses from the Company or to enjoin the
Company from selling its products on the basis of such alleged infringement or
that the Company would be able to license any valid and infringed patents on
reasonable terms.
EMPLOYEES
As of April 30, 1997, the Company employed a total of 538 persons at all of
its locations, including 227 in manufacturing, 131 in research and development,
50 in marketing and sales, 74 in customer service and 56 in administration.
Management believes that the Company's ongoing success depends on its
continued ability to attract and retain highly skilled employees. There can be
no assurance that the Company will be successful in attracting or retaining such
personnel. None of the Company's employees is represented by a labor union, and
the Company has experienced no work stoppages. The Company considers its
employee relations to be good.
EXECUTIVE OFFICERS
The names, ages and positions held by the executive officers of the Company
are as follows:
Name Age Position
- ---- --- --------
Robert C. Abbe 59 President and Chief Executive Officer
E. Fred Schiele 45 Vice President and General Manager, ADE
Semiconductor Systems
Mark D. Shooman 50 Vice President and Chief Financial Officer
Noel S. Poduje 52 Vice President of Strategic Technology
Development
William H. Ohm 50 Vice President and General Manager of ADE
Technologies, Inc.
Barry Glasgow 51 Vice President of Worldwide Sales and
Customer Support
All executive officers are elected by the Board of Directors to serve in
their respective capacities until their successors are elected and qualified or
until their earlier resignations or removal.
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Robert C. Abbe founded the Company in 1967. Since that time, he has served
as President, Chief Executive Officer and a director of the Company. Mr. Abbe
received an AB in Physics from Harvard College.
E. Fred Schiele joined the Company in 1996 and serves as the Vice President
and General Manager of the ADE Semiconductor Group (Dimensional Systems -
Westwood and Optical Systems - Charlotte). Prior to joining ADE, Mr. Schiele was
a Vice President at Electro Scientific Industries, Inc. and has held senior
level positions at Xerox Corporation, Inmos Corporation, RTE Corporation (Cooper
Industries) and UVC Corporation. Mr. Schiele holds a B.S. in Physics from
Principia College and an M.B.A. from the University of Wisconsin.
Mark D. Shooman joined the Company in April 1992 and has served as Vice
President and Chief Financial Officer since May 1994. From January 1991 to March
1992, Mr. Shooman served as President of Asbury Associates, Inc., a management
consulting firm he founded in 1988. From 1989 to January 1991, he served as a
Vice President and the Chief Financial Officer of the retail sales division of
Fidelity Investments. Mr. Shooman received a BS in Electrical Engineering from
Renesselaer Polytechnic Institute and a MBA from The Ohio State University. Mr.
Shooman is a Certified Public Accountant.
Noel S. Poduje joined the Company in 1972 and has served as Vice President
of Strategic Technology Development since 1985. Mr. Poduje received a BS in
Electrical Engineering from the Massachusetts Institute of Technology.
William Ohm joined the Company in 1994 and serves as Vice President and
General Manager of ADE Technologies, Inc. From 1992 through 1994, Mr. Ohm served
as Director of Sales and Marketing for Holographix, Inc. From 1990 to 1991, Mr.
Ohm was Marketing Manager for Presstek, Inc. and from 1976 to 1990, Product Line
Manager and Engineering Manager for Agfa Compugraphic, a Division of Agfa
Corporation. Mr. Ohm received a B.S. in Electrical Engineering from the
Massachusetts Institute of Technology and an M.B.A. from Harvard Business
School.
Barry Glasgow joined the Company in 1997 as Vice President of Sales and
Customer Support (Worldwide). From July 1995 to June 1997, he served as Director
of Worldwide Sales for Semiconductor Systems Group of Electro Scientific
Industries, Inc. From May 1987 to July 1995, he served as Vice President of
Sales and Marketing of XRL, Inc. Mr. Glasgow received a B.S. in Physics and
Psychology from University of Massachusetts, and studied experimental psychology
in the Ph.D. programs at Indiana University and University of Minnesota.
RISK FACTORS
An investment in the Common Stock of the Company involves a high degree of
risk. Investors and prospective investors should consider carefully the
following risk factors and those discussed elsewhere in this report.
Cyclicality of the Company's Business. The Company's business depends in
large part upon the capital expenditures of semiconductor wafer and device and
computer hard disk and disk
-12-
drive manufacturers, which in turn depend on the current and anticipated market
demand for integrated circuits, products utilizing integrated circuits and
systems requiring hard disk drives, respectively. The semiconductor and hard
disk industries are cyclical and have historically experienced periodic
downturns, which have had a severe effect on the demand for capital equipment.
Two of the principal companies in the disk drive industry have recently
announced less than expected demand for their disk drive products. Prior
semiconductor and hard disk industry downturns and construction of excess
capacity by the industry have adversely affected the Company's revenues, gross
margin and net income and have also adversely affected the market price for the
Company's Common Stock. No assurance can be given that the Company will continue
to achieve the revenue growth it has experienced in recent years. In addition,
the need for continued investment in research and development and extensive
customer service and support capability worldwide will limit the Company's
ability to reduce expenses in the event of a downturn in the industry.
Fluctuations of Quarterly Operating Results. The Company's quarterly
operating results have varied and may continue to vary significantly. The
Company's quarterly revenues typically are derived from a relatively small
number of customer orders. These customer orders often consist of multiple
systems, each of which are priced between approximately $100,000 and $750,000.
As a result, the timing of significant orders or a reduction in the number of
systems shipped in a quarter could have a material effect on the Company's
revenues and results of operations for that quarter. The results for a
particular quarter may also vary due to a number of factors, including economic
conditions in the semiconductor and hard disk industries, the timing of
shipments of orders to major customers, the mix of products sold by the Company,
competitive pricing pressures and the Company's ability to design, introduce and
manufacture new products on a cost effective and timely basis. Moreover,
customers may cancel or reschedule shipments, and production difficulties or the
inability to obtain critical components could delay shipments. In addition, the
Company's product sales have fluctuated, and are likely to continue to
fluctuate, based on seasonal factors, such as customers' capital budget approval
cycles, among others. These factors could have a material adverse effect on the
Company's results of operations. The Company has increased its research and
development spending in recent periods, in part to support its development of
systems for next-generation 300 millimeter semiconductor wafers. The Company's
expense levels are fixed in advance and based in part on its expectations as to
future revenues. As a consequence, any material shortfall in revenue in a given
quarter could have a material adverse effect on the Company's earnings.
Rapid Technological Change and Introduction of New Products. The market for
semiconductor wafer and device and computer hard disk metrology and inspection
equipment is characterized by rapid technological advances, changing customer
requirements, evolving industry standards and frequent new product introductions
and enhancements. The Company's future success will depend in large part on the
Company's ability to enhance its current products and to develop and introduce
new products that keep pace with technological developments, achieve market
acceptance and respond to customer requirements that are constantly evolving.
New product introductions may contribute to fluctuations in quarterly operating
results, as customers may defer ordering products from the Company's existing
product lines. If new products have reliability or quality problems, then
reduced orders, higher manufacturing costs,
-13-
delays in collecting accounts receivable and additional service and warranty
expense may result. Responding to rapid technological change and the need to
develop and introduce new products to meet customers' expanding needs and
evolving industry standards will require the Company to make substantial
investments in research and product development. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements or any significant delays in product development or introduction
could result in a loss of competitiveness and could materially adversely affect
the Company's operating results. There can be no assurance that the Company will
successfully develop and manufacture new products or that any product
enhancements or new products developed by the Company will gain market
acceptance. The semiconductor wafer industry is currently undergoing a gradual
evolution from 200 millimeter to 300 millimeter wafers. Wafer manufacturers are
beginning to establish pilot production lines and specifications for the
manufacture of 300 millimeter wafers. The Company is currently developing
product enhancements and new products designed to meet increasing demand for
metrology and inspection equipment for 300 millimeter wafers. One of the
Company's competitors recently began shipping an optical inspection product for
300 millimeter wafers. Until the Company begins shipping its next generation
product, the Company's sales of its wafer inspection systems could be adversely
affected. There can be no assurance that the Company will be able to develop
enhancements and new products successfully or in time to meet emerging demand,
or that enhancements and new products developed by the Company will be accepted
by the Company's customers.
Competition. The semiconductor and computer hard disk equipment industries
are highly competitive. There can be no assurance that companies with
complementary technologies and greater financial resources will not enter these
industries and develop products that are superior to the Company's products or
achieve market acceptance. In the market for optical defect inspection
equipment, the Company competes directly with Hitachi Electronics Engineering
Co., Ltd. and KLA-Tencor Corporation, both of which have significantly greater
financial resources than the Company. In the metrology area of the device
industry, the Company has encountered, and expects to encounter in the future,
competition from companies offering similar and competing technologies, some of
which have significantly greater financial resources than the Company or an
existing market presence in the device industry, or both. The Company also
expects to encounter intense competition in the areas of metrology and
inspection for the hard disk industry. The Company's competitors can be expected
to continue to improve the design and performance of their products and to
introduce new products with competitive price/performance characteristics.
Competitive pressures often necessitate price reduction which can adversely
affect operating results. In order to remain competitive, the Company must
maintain a high level of investment in research and development and sales,
marketing and service. There can be no assurance that the Company will have
sufficient resources to continue to make such investment or that the Company
will be able to make the technological advances necessary to remain competitive.
Currently, the Company's lead times for the delivery of products to its
customers are longer than the industry average, and, as a consequence, the
Company has in a limited number of cases failed to obtain customer orders.
Although the Company is taking steps to reduce lead times, there can be no
assurance that the Company will be successful in sufficiently reducing its lead
times. The failure to sufficiently reduce lead times may result in lost business
in the future and may have an adverse impact on the Company's business and
results of operations.
-14-
KLA Corporation recently acquired a competitor of the Company in the market
for optical defect inspection equipment, Tencor Corporation, to form KLA-Tencor
Corporation. The Company expects that similar acquisitions and business
combinations by competitors and potential competitors of the Company, in the
metrology as well as in the defect inspection markets, may continue in the
future. Acquisitions by the Company's competitors and potential competitors
could allow them to offer new products without the lengthy time delays typically
associated with internal product development, which could afford such
competitors and potential competitors an advantage in meeting customers'
demands. Such acquisitions by others could also have the effect of limiting the
Company's access to commercially significant technologies. The greater
resources, including financial and marketing and support resources, of
competitors engaged in these acquisitions could permit them to accelerate the
development and commercialization of new competitive products and the marketing
of existing competitive products to their larger installed bases. Accordingly,
such business combinations and acquisitions by competitors and potential
competitors could have an adverse impact on both the Company's market share and
the pricing of its products, which could have a material adverse effect on the
Company's business and results of operations.
The Company relies upon a combination of internal product development and
partnerships with certain other companies to broaden its product line to meet
customer demand. The increasing competitiveness within the industry, together
with acquisitions by the Company and its competitors of businesses possessing
complementary technologies, could materially limit the Company's ability to
continue to partner with other companies for new or complementary products,
which could have a material adverse effect upon the Company's ability to offer
in a timely manner products that meet customers' needs.
Management of Growth. The Company has been experiencing a period of
significant growth that could place a strain on its management and other
resources. To support the Company's growth, the Company will need to hire more
engineering, manufacturing, sales and marketing, and support and administrative
personnel, expand customer service capabilities, and update or expand management
information systems, procedures and controls. Competition for the necessary
personnel in the Company's industries is high. There can be no assurance that
the Company will be able to attract and retain the necessary personnel to
accomplish its growth strategies or that it will be able to satisfy customer
demand in a timely fashion and satisfactorily support its customers and
operations or that its information systems, procedures and controls will be
adequate to support the Company's operations. If the Company's management is
unable to manage growth effectively, the Company's business, operating results
and financial condition could be materially adversely affected.
Customer and Industry Concentration. A relatively limited number of
customers have historically accounted for a substantial portion of the Company's
revenues in each year. In fiscal years 1995, 1996 and 1997, sales to the
Company's top five customers in each period, all of which are in the
semiconductor wafer industry, accounted for approximately 51%, 45% and 50%,
respectively, of the Company's revenue. In fiscal 1997, one of the Company's
customers accounted for 16% of the Company's revenue. The loss of or any
reduction in orders by any of
-15-
these customers, including reductions due to market, economic or competitive
conditions in the semiconductor industry or in other industries that manufacture
products utilizing semiconductors, could adversely affect the Company's
business, financial condition and results of operations. In each of the last
three fiscal years the Company has derived over 70% of its revenue, including
approximately 77% in fiscal 1997, from customers in the semiconductor wafer
industry. While the Company is focusing on expanding the level of its business
in the device and hard disk industries, there can be no assurance that the
Company's efforts will be successful. The Company's ability to maintain or
increase its sales levels in the future will depend in part upon its ability to
obtain orders from new customers as well as the financial condition and success
of its existing customers and the general economy. There can be no assurance
that the Company will be able to maintain or continue to increase the level of
its revenues in the future or that the Company will be able to retain existing
customers or to attract new customers. In addition, given the limited number of
customers, any delay in collecting, or inability to collect, accounts receivable
could have a material adverse effect on the Company's financial results. See
Note 11 of Notes to Consolidated Financial Statements.
Dependence on Suppliers. Certain of the components and subassemblies,
including certain systems controllers and robotics components, incorporated in
the Company's systems are obtained from a single source or a limited group of
suppliers. The Company has not qualified a second source for these products and
the partial or complete loss of certain of these sources could have an adverse
effect on the Company's results of operations and damage customer relationships.
Further, a significant increase in the price of one or more of these components
could adversely affect the Company's results of operations.
Risks Associated with International Operations. International sales
accounted for 53%, 59% and 60% of the Company's revenues for the fiscal years
1995, 1996 and 1997, respectively. See Note 11 of Notes to Consolidated
Financial Statements. The Company expects that international sales will continue
to represent a significant percentage of revenues. The Company's international
business may be affected by changes in demand resulting from fluctuations in
interest and currency exchange rates as well as by factors such as the risk of
government financed competition, changes in trade policies, tariff regulations
and difficulties in obtaining U.S. export licenses.
Patents and Other Intellectual Property. The Company's success depends in part
on its proprietary technology. The Company attempts to protect its proprietary
technology through patents, copyrights, trademarks, trade secrets and license
agreements. The Company believes, however, that its success will depend to a
greater extent upon innovation, technological expertise and distribution
strength. There can be no assurance that the Company will be able to protect its
technology or that competitors will not be able to develop similar technology
independently. No assurance can be given that the claims allowed on any patents
held by the Company will be sufficiently broad to protect the Company's
technology. In addition, no assurance can be given that any patents issued to
the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to the Company. In
addition, effective patent, copyright and trade secret protection may be
unavailable or limited in certain foreign countries.
-16-
As is typical in the Company's industry, the Company and its customers from
time to time receive letters from third parties, including some of the Company's
competitors, alleging infringement of such parties' patent rights by the
Company's products. There can be no assurance that the Company would prevail in
any litigation seeking damages or expenses from the Company or to enjoin the
Company from selling its products on the basis of such alleged infringement or
that the Company would be able to license any infringed patents on reasonable
terms.
Some customers using certain products of the Company have received a notice of
infringement from Technivision Corporation and Jerome H. Lemelson, alleging that
equipment used in the manufacture of semiconductor products infringes patents
issued to Mr. Lemelson relating to ''computer image analysis'' or ''digital
signal generation and analysis.'' Certain of these customers have notified the
Company that they may seek indemnification from the Company for any damages and
expenses resulting from this matter. Neither the Company nor any of its products
has been identified by Mr. Lemelson as infringing his patents. There can be no
assurance, however, that Mr. Lemelson would not bring a claim against the
Company for infringement or that the Company would prevail in any such action.
If Mr. Lemelson were to prevail in any such action, the Company might be
required to pay license fees or royalties to Mr. Lemelson, which could have an
adverse impact on the Company's profitability.
Risks Associated with Acquisitions and Alliances. The Company has addressed
the need to offer new products, in part, through the acquisition of technology
and other businesses. The acquisition of other businesses involves numerous
risks, including the difficulty of assimilating the operations, technologies and
products of the acquired business, the diversion of management's attention from
other business concerns, the risks of entering markets in which the Company has
no or limited direct prior experience and must compete with competitors having
stronger market positions, and the potential loss of key employees of the
acquired business. The integration of other businesses into ADE requires, among
other things, integration of product offerings and coordination of sales,
marketing, research, development, and management organizations. There can be no
assurance that such integration will be accomplished smoothly or successfully.
The difficulties of such integration may be increased by the necessity of
coordinating organizations which are separated geographically. The inability of
management to successfully integrate the operations of such acquired businesses
could have a material adverse effect on the business and results of operations
of the Company.
Control By Existing Stockholders. The Company's directors and executive
officers and members of their immediate families beneficially own over one-third
of the Company's outstanding shares of Common Stock. Accordingly, these
stockholders acting together have the ability to significantly influence
corporate actions requiring stockholder approval, including the election of the
Company's directors. This concentration of ownership may also have the effect of
delaying or preventing a change of control of the Company.
Volatility of Stock Price. The stock market in general and the market for
shares of technology companies in particular recently have experienced extreme
price fluctuations, which have often
-17-
been unrelated to the operating performance of the affected companies. Many
companies in the semiconductor and semiconductor equipment industries, including
the Company, experienced dramatic volatility in the market prices of their
common stock during the last two years. The Company believes that factors such
as announcements of developments related to the Company's business or its
competitors' or customers' businesses, fluctuations in the Company's financial
results, general conditions or developments in the semiconductor and
semiconductor equipment industries and the worldwide economy, sales of the
Company's Common Stock into the market, the number of market makers for the
Company's Common Stock, announcements of technological innovations or new or
enhanced products by the Company or its competitors or customers, a shortfall in
revenue, gross margin, earnings or other financial results from or changes in
analysts' expectations and developments in the Company's relationships with its
customers and suppliers, or a variety of factors beyond the Company's control
could cause the price of the Company's Common Stock to fluctuate, perhaps
substantially. There can be no assurance that the market price of the Company's
Common Stock will not experience significant fluctuations in the future,
including fluctuations that are material, adverse and unrelated to the Company's
performance.
ITEM 2. PROPERTIES
The Company's principal operations are located in an approximately 117,000
square foot company-owned building in Westwood, Massachusetts; a 46,000 square
foot building in Newton, Massachusetts under a five-year lease that expires in
May 2002 and a 38,000 square foot building in Charlotte, North Carolina under a
ten-year lease that expires in September 2004. The Company also owns a 14,400
square foot building in Burlington, Massachusetts and leases space for sales and
customer support offices in various other locations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended April 30, 1997.
-18-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
The Company's Common Stock trades on the Nasdaq Nasdaq Stock Market
("NasdaqNasdaq") under the symbol "ADEX." The following table sets forth the
high and low sale prices for each quarter for the Common Stock as reported by
Nasdaq Nasdaq for the periods indicated.
FISCAL YEAR ENDED APRIL 30, 1996 HIGH LOW
Second quarter (beginning 10/18/96) 18 1/2 14 1/8
Third quarter 18 1/4 12
Fourth quarter 16 12 1/2
FISCAL YEAR ENDED APRIL 30, 1997 HIGH LOW
First quarter 22 1/4 8 3/4
Second quarter 11 5/8 8 1/4
Third quarter 20 5/8 8 3/8
Fourth quarter 20 3/4 16 1/2
The last sale price of the Common Stock on July 22, 1997, as reported by
Nasdaq, was $28 per share. As of July 22, 1997, there were 122 holders of record
of the Common Stock (approximately 2,040 beneficial holders).
The Company has never declared or paid any cash dividends on its Common
Stock and currently expects that future earnings will be retained for use in its
business.
RECENT SALES OF UNREGISTERED SECURITIES
In February 1997, the Company issued an aggregate of 821,000 shares of
Common Stock in consideration for the Company's acquisition by merger of all of
the outstanding capital stock of Digital Measurement Systems, Inc. ("DMS"), a
privately-owned company, and a building which is integral to the operations of
DMS. All of the recipients of shares except one were "accredited investors"
under the definition of that term in Regulation D under the Securities Act. The
issuance of the shares was privately negotiated in the context of negotiations
for the Company's acquisition of DMS, and was exempt from the registration
requirements of Section 5 of the Securities Act of 1933 pursuant to Section 4(2)
of that Act.
-19-
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data of the Company for and
as of the fiscal years ended April 30, 1993, 1994, 1995, 1996 and 1997. The
selected financial data as of April 30, 1996 and 1997 and for the three years
ended April 30, 1997 have been derived from the Company's consolidated financial
statements which have been audited by Price Waterhouse LLP, independent
accountants. The selected financial data as of April 30, 1993, 1994 and 1995 and
for the two years ended April 30, 1994 have been derived from the Company's
audited consolidated financial statements, together with the unaudited financial
statements of DMS as of March 31, 1993, 1994 and 1995 and for the two years
ended March 31, 1994. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto. No cash
dividends were declared or paid in any of the periods presented.
YEAR ENDED APRIL 30,
---------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenue.................................................... $ 27,564 $ 32,828 $ 46,152 $ 67,339 $101,403
Cost of revenue............................................ 14,278 16,861 23,293 31,135 44,838
--------- --------- --------- --------- ---------
Gross profit............................................. 13,286 15,967 22,859 36,204 56,565
--------- --------- --------- --------- ---------
Operating expenses:
Research and development................................. 5,532 6,073 6,318 7,798 17,012
Marketing and sales...................................... 4,389 5,981 6,842 10,169 13,665
General and administrative............................... 2,953 4,186 4,445 6,759 7,446
--------- --------- --------- --------- ---------
Total operating expenses............................... 12,874 16,240 17,615 24,726 38,123
--------- --------- --------- --------- ---------
Income (loss) from operations.............................. 412 (273) 5,244 11,478 18,442
--------- --------- --------- --------- ---------
Other income (expense):
Interest income expense, net............................. (88) (392) (404) 331 329
Gain on sale of land and building........................ 376 229 -- -- --
--------- --------- --------- --------- ---------
Total other income (expense)............................... 288 (163) (404) 331 329
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes
and equity in net earnings of affiliated companies..... 700 (436) 4,840 11,809 18,771
Provision (benefit) for income taxes....................... 249 (83) 1,709 4,004 5,705
--------- --------- --------- --------- ---------
Income (loss) before equity in net earnings of
affiliated companies................................... 451 (353) 3,131 7,805 13,066
Equity in net earnings of affiliated companies............. -- -- -- -- 99
--------- --------- --------- --------- ---------
Net income (loss)...................................... $ 451 $ (353) $ 3,131 $ 7,805 $ 13,165
========= ========= ========= ========= =========
Net income (loss) per share................................ $0.07 $(0.05) $0.47 $0.98 $1.48
========= ========= ========= ========= =========
Weighted average common and common equivalent
shares outstanding........................................ 6,609 6,524 6,651 7,965 8,880
========= ========= ========= ========= =========
APRIL 30,
----------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 2,259 $ 1,870 $ 3,277 $21,513 $ 19,374
Working capital......................... 12,223 11,856 15,415 39,828 45,769
Total assets............................ 22,796 25,758 28,763 61,978 88,417
Long-term debt, less current portion.... 1,474 2,121 2,166 677 5,091
Total stockholders' equity.............. $ 13,523 $ 13,200 $ 16,205 $46,502 $ 61,388
-20-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides an analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
"Selected Consolidated Financial Data" and the Consolidated Financial
Statements and Notes thereto.
OVERVIEW
The Company was founded in 1967 to develop and market certain advanced
concepts and designs in capacitive and other measurement technologies suitable
for industrial applications requiring precise, reliable, damage-free and
repeatable measurements. The Company's products have evolved from single
instruments used in off-line engineering analysis to multi-function systems for
automated in-line monitoring of process-induced defects throughout the wafer and
disk manufacturing processes. The Company operates in two major business areas,
the Semiconductor Group and the Computer Disk Group. The Semiconductor Group
manufactures multifunctional semiconductor metrology and automation systems and
optical wafer defect inspection equipment used to detect particles and other
defects on wafer surfaces. The Computer Disk Group is primarily engaged in the
production of metrology systems for the computer hard disk industry.
A relatively limited number of customers have accounted for a substantial
portion of the Company's revenue. Moreover, during the past fiscal year
approximately 77% of the Company's revenue was derived from sales made to wafer
manufacturers, with the remainder of the revenue derived principally from sales
to manufacturers of semiconductor devices and computer hard disks. The Company
derives a substantial portion of its revenue from a relatively small number of
customer orders. These customer orders often consist of multiple systems, which
can range in price from approximately $100,000 to $750,000. As a result, the
timing of significant orders or a reduction in the number of systems shipped in
a quarter could have a material effect on the Company's revenue and results of
operations for that quarter.
The Company records revenue from product sales upon shipment to the customer.
The Company accrues for warranty costs upon shipment and recognizes service
revenue when the service is performed. Revenue under certain long-term contracts
containing custom engineering is recognized under the percentage of completion
method.
In February 1997, the Company acquired all of the outstanding stock of and a
building used by Digital Measurement Systems, Inc. (''DMS'') of Burlington,
Massachusetts. DMS provides magnetic measurement equipment and systems to the
computer hard disk manufacturing industry. This transaction has been accounted
for as a pooling-of-interests and, therefore, the accompanying financial
information has been retroactively restated to reflect the financial position
and results of operations and cash flows of the Company and DMS for all periods
presented.
-21-
RESULTS OF OPERATIONS
For the periods indicated, the following table sets forth the percentage of
total revenue represented by the respective line items in the Company's
consolidated statement of income.
YEAR ENDED APRIL 30,
--------------------
1995 1996 1997
-------- -------- --------
Revenue..................... 100.0% 100.0% 100.0%
Cost of revenue............. 50.5 46.2 44.2
Gross profit................ 49.5 53.8 55.8
Operating expenses:
Research and development.... 13.7 11.6 16.8
Marketing and sales......... 14.8 15.1 13.5
General and administrative.. 9.7 10.0 7.3
Income from operations...... 11.4 17.0 18.2
Other income (expense)...... (0.9) 0.5 0.3
Net income.................. 6.8% 11.6% 13.0%
FISCAL YEAR ENDED APRIL 30, 1997 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1996
Revenue. Revenue increased 50.6% to $101.4 million in fiscal 1997 from $67.3
million in fiscal 1996. The increase was primarily due to increased unit sales
of the Company's products. The increase in unit sales resulted primarily from
strong demand for capital equipment in the semiconductor industry and increased
demand for gaging equipment in the computer disk drive industry. In fiscal 1997,
$6.3 million of revenue was provided by the operations of DMS versus $1.7
million in fiscal 1996. The Company is currently developing product enhancements
and new products designed to meet increasing demand for metrology and inspection
equipment for 300 millimeter wafers. A competitor of the Company has recently
begun shipping an optical inspection product for 300 millimeter wafers. The
Company believes that its next generation product, which has not yet been
shipped to customers, will be technologically superior to the competitor's new
product. Until the Company begins shipping its next generation product, the
Company's sales of its wafer inspection systems could be adversely affected.
Gross Margin. Gross margin increased to 55.8% in fiscal 1997 from 53.8% in
fiscal 1996. The increase was primarily due to distributing relatively fixed
overhead costs over increased sales. Gross margins were higher in the first and
second quarters of fiscal 1997, as the Company operated near capacity in its
facilities, as compared to the third and fourth quarters of fiscal 1997. During
the third and fourth quarters of the fiscal year, the Company increased capacity
and overhead by moving into a new facility in Westwood, Massachusetts and by
increasing the capacity of its existing facility in Charlotte, North Carolina.
Gross margins in the immediate future are expected to be consistent with the
margins experienced during the third and fourth quarters of fiscal 1997.
-22-
Research and Development. Research and development expense in fiscal 1997
increased 118.2% to $17.0 million from $7.8 million in fiscal 1996 and increased
as a percent of revenue to 16.8% from 11.6%. This increase was primarily due to
increased spending on next generation products and expenses recognized during
the fourth quarter for products under development, a portion of which had been
capitalized during the previous three quarters. While future research and
development expenses are expected to increase over previous quarters as the
Company continues development of next generation products, the Company expects
that expenses as a percent of revenue should return to levels experienced during
the first three quarters of fiscal 1997.
Marketing and Sales. Marketing and sales expense increased 34.4% to $13.7
million in fiscal 1997 from $10.2 million in fiscal 1996, but decreased as a
percentage of revenue to 13.5% in fiscal 1997 from 15.1% in fiscal 1996.
General and Administrative. General and administrative expenses increased
10.2% to $7.4 million in fiscal 1997 from $6.8 million in fiscal 1996 and
decreased as a percent of revenue to 7.3% from 10.0%. General and administrative
expenses increased at a lower rate than revenue growth, as these expenses are
relatively stable compared to revenue growth.
Other Income (Expense). Net interest income was $329,000 in fiscal 1997 versus
net interest income of $331,000 in fiscal 1996. Interest income was offset by
interest expense associated with an Industrial Development Bond used to finance
the acquisition and renovation of the Westwood manufacturing facility.
Provision for Income Taxes. The effective tax rates for fiscal 1997 and 1996
were 30.4% and 33.9%, respectively, and differed from the federal statutory rate
primarily because of benefits from the use of a foreign sales corporation by the
Company and state income taxes. The fiscal 1997 rate was lower than the fiscal
1996 rate due to the benefit of investment tax credits resulting from increased
capital spending in fiscal 1997 and the benefit from federal and state research
and development tax credits realized in the fourth quarter of fiscal 1997.
FISCAL YEAR ENDED APRIL 30, 1996 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1995
Revenue. Revenue increased 45.9% to $67.3 million in fiscal 1996 from $46.2
million in fiscal 1995. The increase was due to increased unit sales of the
Company's products and a price increase announced in January 1995. The increase
in unit sales resulted primarily from strong demand for capital equipment in the
semiconductor industry and increased demand for gaging equipment in the computer
disk drive industry.
Gross Margin. Gross margin increased to 53.8% in fiscal 1996 from 49.5% in
fiscal 1995. The increase was primarily due to distributing relatively fixed
overhead costs over increased sales and a price increase announced in January
1995, the impact of which occurred during fiscal 1996.
-23-
Research and Development. Research and development expense in fiscal 1996
increased 23.4% to $7.8 million from $6.3 million in fiscal 1995, but decreased
as a percentage of revenue to 11.6% in fiscal 1996 from 13.7% in fiscal 1995, as
revenue increased at a rate greater than the increase in research and
development expense. Total expense for research and development increased as the
Company made significant investments in next generation products.
Marketing and Sales. Marketing and sales expense increased 48.6% to $10.2
million in fiscal 1996 from $6.8 million in fiscal 1995, and increased as a
percentage of revenue to 15.1% in fiscal 1996 from 14.8% in fiscal 1995. This
increase in expenditures was due to additions in staffing required to support
increased demand for the Company's products.
General and Administrative. General and administrative expenses increased
51.7% to $6.8 million in fiscal 1996 from $4.5 million in fiscal 1995. The
increase was due to higher bonus expenses associated with improved performance,
higher employee benefit costs, increased legal fees associated with various
legal matters and additional expenses associated with being a public company.
Other Income (Expense). Net interest income was $331,000 in fiscal 1996 versus
net interest expense of $404,000 in fiscal 1995. 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, repayment in full of the
outstanding balance of the Company's line of credit in fiscal 1995 and the
cancellation of subordinated debt related to the exercise of warrants in
connection with the initial public offering.
Provision for Income Taxes. The effective tax rates for fiscal 1996 and 1995
were 33.9% and 35.3% respectively, and differed from the federal statutory rate
primarily because of benefits from the use of a foreign sales corporation by the
Company and state income taxes.
-24-
SELECTED CONSOLIDATED QUARTERLY OPERATING RESULTS
The following tables set forth consolidated statement of income data for
each of the eight quarters in the period beginning May 1, 1995 and ending April
30, 1997. This information has been derived from the Company's unaudited
financial statements. The unaudited financial statements have been prepared on
the same basis as the audited financial statements contained herein and include
all adjustments, consisting only of normal recurring adjustments, that the
Company considers necessary to present fairly this information when read in
conjunction with the Company's annual audited financial statements and notes
thereto appearing elsewhere in this Form 10-K. The Company's operating results
for any one quarter are not necessarily indicative of results for any future
period.
QUARTER ENDED
------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
1995 1995 1996 1996 1996 1996 1997 1997
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenue.................... $ 13,559 $ 15,525 $ 18,693 $ 19,562 $ 19,991 $ 22,882 $ 26,193 $ 32,337
Cost of revenue............ 6,332 7,242 8,670 8,891 8,685 9,882 11,898 14,373
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Gross profit............... 7,227 8,283 10,023 10,671 11,306 13,000 14,295 17,964
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Operating expenses:
Research and development. 1,712 1,858 1,768 2,460 3,221 3,783 3,757 6,251
Marketing and sales...... 2,214 2,258 3,056 2,641 2,977 2,868 3,272 4,548
General and
administrative.......... 1,373 1,590 1,699 2,097 1,421 1,676 1,738 2,611
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Total operating
expenses.............. 5,299 5,706 6,523 7,198 7,619 8,327 8,767 13,410
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Income from operations..... 1,928 2,577 3,500 3,473 3,687 4,673 5,528 4,554
Interest income
(expense), net............ (62) (46) 247 192 151 79 (14) 113
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Income before provision
for income taxes
and equity in net
earnings (loss) of
affiliated companies...... 1,866 2,531 3,747 3,665 3,838 4,752 5,514 4,667
Provision for income taxes. 684 915 1,339 1,066 1,290 1,650 1,851 914
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Income before equity in
net earnings (loss) of
affiliated companies...... 1,182 1,616 2,408 2,599 2,548 3,102 3,663 3,753
Equity in net earnings
(loss) of affiliated
companies................. -- -- -- -- -- 15 156 (72)
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Net income................. $ 1,182 $ 1,616 $ 2,408 $ 2,599 $ 2,548 $ 3,117 $ 3,819 $ 3,681
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Net income per share....... $0.17 $0.22 $0.27 $0.29 $0.29 $0.36 $0.43 $0.41
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
Weighted average common
and common equivalent
shares outstanding........ 6,810 7,323 8,884 8,843 8,864 8,772 8,871 9,012
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
QUARTER ENDED
------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
1995 1995 1996 1996 1996 1996 1997 1997
----------- ----------- ----------- ------------ ----------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERCENTAGE OF REVENUE:
Revenue.................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue............ 46.7 46.6 46.4 45.5 43.4 43.2 45.4 44.4
Gross profit............... 53.3 53.4 53.6 54.5 56.6 56.8 54.6 55.6
Operating expenses:
Research and development. 12.6 12.0 9.5 12.6 16.1 16.5 14.3 19.3
Marketing and sales...... 16.3 14.5 16.3 13.5 14.9 12.5 12.5 14.1
General and
administrative.......... 10.1 10.2 9.1 10.7 7.1 7.3 6.6 8.1
Income from operations..... 14.2 16.6 18.7 17.8 18.4 20.4 21.1 14.1
Interest income
(expense), net............ (0.5) (0.3) 1.3 1.0 0.8 0.3 (0.1) 0.3
Net income................. 8.7% 10.4% 12.9% 13.3% 12.7% 13.6% 14.6% 11.4%
-25-
The Company's quarterly operating results have varied and may continue to
vary significantly due to a number of factors, including economic conditions in
the semiconductor and computer hard disk industries, the timing of shipments of
orders to major customers, the mix of products sold by the Company and
competitive pricing. Customers may cancel or reschedule shipments. Production
difficulties or the inability to obtain critical components could delay
shipments. These factors could have a material adverse effect on the Company's
results of operations. As cost of revenue includes manufacturing overhead, which
is relatively constant from quarter to quarter, gross margins can vary
significantly from quarter to quarter due to varying levels of production and
revenue. There can be no assurance that the Company will be profitable in any
future period. Marketing and sales expenses can vary from quarter to quarter
based on a number of factors, including mix of sales channels, geographic mix
and timing of marketing events.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1997, the Company had cash and cash equivalents of $19.4
million and working capital of $45.8 million. Net cash provided by operating
activities was $6.6 million. Net income was $13.2 million. This amount was
offset by a $4.4 million increase in accounts receivable resulting from
increased sales and a $8.6 million increase in inventory. Management believes
that inventory levels are larger than necessary for current sales volumes and
has instituted a number of programs to improve inventory turnover in all
facilities. Depreciation and amortization for fiscal 1997 was $1.6 million.
During fiscal 1997, the Company increased its ownership in its Japanese
distributor, Japan ADE Ltd. (''JAL''), from 3.0% to 50.0%. Consequently, in
fiscal 1997, $2.7 million in gross profit from sales to JAL have been deferred
rather than included in income from operations.
During fiscal 1997, $15.0 million of cash was used in investing activities.
Purchases of fixed assets represented $10.4 million of this amount. During the
next fiscal year, the Company does not anticipate investing in fixed assets to
the extent of fiscal 1997. Investments in three companies used an additional
$3.1 million.
Net cash provided by financing activities was $6.3 million. The primary
source of this cash was a $5.5 million Industrial Development Bond used to
finance the purchase and renovation of the manufacturing facility in Westwood,
Massachusetts.
Since inception, the Company has satisfied its cash requirements primarily
through cash flow from operations, private placements and an initial public
offering of the Company's Common Stock, bank borrowings and equipment financing.
On July 9, 1997, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-3 with respect to a public
offering by the Company of up to 2,300,000 shares of Common Stock and by certain
stockholders of the Company of up to 540,500 shares of Common Stock, in each
case including an underwriters' overallotment option of 15%. The Company may use
a portion of the net proceeds to the Company from the offering
-26-
for acquisitions of complementary businesses and technologies. The Company
believes that cash from operations, existing cash resources and bank borrowings,
together with the net proceeds of the sale of Common Stock by the Company in the
offering, will be adequate to fund operations for at least the next 18 months.
The Company's long-term capital requirements will be affected by many
factors, including the success of the Company's current product offerings, the
Company's ability to enhance its current products and to develop and introduce
new products that keep pace with technological developments and general trends
in the semiconductor wafer and device industries. The Company plans to finance
its long-term capital needs with the net proceeds of the currently pending
public offering, together with existing cash reserves and interest earned
thereon, revenue from product sales, bank loans, leases and debt financings. To
the extent that such funds are insufficient to finance the Company's activities,
or if the public offering is not completed, the Company will have to raise
additional funds through the issuance of additional equity or debt securities or
through other means. There can be no assurance that additional financing will be
available on acceptable terms.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (''FASB'')
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 No. 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:
YEAR ENDED APRIL 30,
---------------------------------------------
1993 1994 1995 1996 1997
------- --------- ------- ------- -------
Pro forma basic net income (loss) per
share.................................. $ 0.07 $ (0.05) $ 0.48 $ 1.04 $ 1.55
Pro forma diluted net income (loss) per
share.................................. 0.07 (0.05) 0.47 0.98 1.48
In June 1997, the FASB issued SFAS No. 130, ''Reporting Comprehensive
Income.'' The statement establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. This standard will require that an enterprise display
an amount representing total comprehensive income for the period. SFAS No. 130
will be effective for the Company's fiscal year ending April 30, 1998. Adoption
of SFAS No. 130 is not expected to significantly impact the Company's financial
position or results of operations.
In June 1997, the FASB issued SFAS No. 131, ''Disclosures about Segments of
an Enterprise and Related Information'' which supersedes SFAS No. 14. This
statement changes the
-27-
way that public business enterprises report segment information, including
financial and descriptive information about their operating segments, in annual
financial statements and would require that those enterprises report selected
segment information in interim financial reports to stockholders. Operating
segments are defined as revenue-producing components of the enterprise which are
generally used internally for evaluating segment performance. SFAS No. 131 will
be effective for the Company beginning with the Company's fiscal year ending
April 30, 1998. Adoption of SFAS No. 131 will not impact the Company's financial
position or results of operations.
INFLATION
To date, inflation has not had a significant impact on the Company's
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages F-1 though F-26 of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors required by this Item is included in
the definitive Proxy Statement for the Company's 1997 Annual Meeting of
Stockholders, to be filed with the Commission on or about August 20, 1997 (the
"1997 Proxy Statement"), under "Election of Directors" and is incorporated
herein by reference. The information regarding executive officers required by
this Item is included in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1997 Proxy
Statement under "Executive Compensation" and is incorporated herein by reference
(excluding, however, the "Report on Executive Compensation" and the Performance
Graph contained in the 1997 Proxy Statement, which shall not be deemed
incorporated herein).
-28-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 1997 Proxy
Statement under "Security Ownership of Certain Beneficial Owners and Management"
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The Financial Statements required to be
filed by Item 8 of Form 10-K, and filed herewith, are as follows:
Page Number in
this Form 10-K
--------------
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet as of April 30, 1996 and 1997.. F-3
Consolidated Statements of Income for the three years ended
April 30, 1997............................................ F-5
Consolidated Statements of Stockholders' Equity for the three
years ended April 30, 1997................................ F-6
Consolidated Statements of Cash Flows for the three years ended
April 30, 1997............................................ F-7
Notes to Consolidated Financial Statements................ F-9
(a)(2) Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves
for the three years ended April 30, 1997........... S-1
All other schedules are omitted because they are either not applicable or
the required information is included in the financial statements or notes
thereto.
(a)(3) Exhibits.
-29-
Exhibit
Number Description
- ------- ----------------------------------------------------------------------
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 Specimen Common Stock Certificate (filed as Exhibit 4 to the Company's
Registration Statement on Form S-1 (33-96408) or amendments thereto
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 (33-96408) or
amendments thereto and incorporated herein by reference).
10.2 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).*
10.3 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).*
10.4 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).*
10.5 Stock Option Agreement dated October 22, 1992 between the Registrant
and Kendall Wright (filed as Exhibit 4.6 to the Company's Registration
Statement on Form S-8 (333-2280) and incorporated herein by
reference).*
10.6 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).*
10.7 Lease of Corporate Headquarters in Newton, Massachusetts, dated
December 9, 1988, as amended, between the Company and Wellco Newton
Limited Partnership (which Lease and amendment were filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1 (33-96408) or
amendments thereto and incorporated herein by reference); and Third
Amendment dated June 6, 1997 (filed herewith).
10.8 Lease of ADE Optical Systems' Charlotte, North Carolina facility,
dated June 26, 1984, as assigned and renewed, between Pine Brook
Center Limited Partnership and ADEde Optical Systems Corporation
(filed as Exhibit 10.7 to the Company's Registration Statement on Form
S-1 (33-96408) or amendments thereto and incorporated herein by
reference).
-30-
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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
-31-
Corporation, David C. Bono and Alan Sliski (filed herewith exclusive
of exhibits).
10.19 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 herewith).
10.20 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 herewith).
10.21 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 herewith).
11.1 Statement re: computation of per share earnings (filed herewith).
21.1 Subsidiaries of the Company (filed as Exhibit 21 to the Company's
Registration Statement on Form S-1 (33-96408) or amendments thereto
and incorporated herein by reference).
23.1 Consent of Price Waterhouse LLP (filed herewith).
__________________________
* Compensatory plan or agreement applicable to management and employees.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended April 30, 1997.
-32-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
July 28, 1997 By: /s/ Robert C. Abbe
---------------------
Robert C. Abbe
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert C. Abbe President, Chief Executive Officer July 28, 1997
- --------------------------- and Director (Principal Executive
Robert C. Abbe Officer)
/s/ Mark D. Shooman Vice President and July 28, 1997
- --------------------------- Chief Financial Officer (Principal
Mark D. Shooman Financial Officer)
/s/ Joseph E. Rovatti Controller (Principal Accounting July 28, 1997
- --------------------------- Officer)
Joseph E. Rovatti
/s/ Landon T. Clay Chairman of the Board July 28, 1997
- ---------------------------
Landon T. Clay
/s/ Francis B. Lothrop, Jr. Director July 28, 1997
- ---------------------------
Francis B. Lothrop, Jr.
/s/ H. Kimball Faulkner Director July 28, 1997
- ---------------------------
H. Kimball Faulkner
/s/ Kendall Wright Director July 28, 1997
- ---------------------------
Kendall Wright
-33-
ADE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants................................................................................ F-2
Consolidated Balance Sheet at April 30, 1996 and 1997............................................................ F-3
Consolidated Statement of Income for the three years ended April 30, 1997........................................ F-5
Consolidated Statement of Stockholders' Equity for the three years ended April 30, 1997.......................... F-6
Consolidated Statement of Cash Flows for the three years ended April 30, 1997.................................... F-7
Notes to Consolidated Financial Statements....................................................................... F-9
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves for the three years ended April 30, 1997................... S-1
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of ADE Corporation
In our opinion, the consolidated financial statements listed in the index
appearing on page F-1, present fairly, in all material respects, the financial
position of ADE Corporation and its subsidiaries at April 30, 1996 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended April 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
July 1, 1997
F-2
ADE CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
APRIL 30,
--------------------
1996 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $21,513 $19,374
Accounts receivable:
Trade, less allowance for doubtful accounts of $476 and $577 at April 30, 1996
and 1997, respectively....................................................... 15,872 19,248
Affiliate..................................................................... -- 1,083
Inventories...................................................................... 13,525 22,160
Prepaid expenses and other current assets........................................ 327 310
Deferred income taxes............................................................ 2,954 5,348
-------- --------
Total current assets....................................................... 54,191 67,523
Fixed assets, net.................................................................. 7,260 15,735
Deferred income taxes.............................................................. 329 234
Investments........................................................................ 13 3,162
Other assets....................................................................... 185 1,763
-------- --------
$61,978 $88,417
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to related party.................................................... $ 577 $ --
Current portion of long-term debt................................................ 44 899
Accounts payable................................................................. 4,717 5,535
Accrued expenses................................................................. 8,736 10,744
Deferred income on sales to affiliate............................................ -- 2,661
Income taxes payable............................................................. 289 1,915
-------- --------
Total current liabilities.................................................. 14,363 21,754
-------- --------
Long-term debt..................................................................... 677 5,091
-------- --------
Excess of net assets acquired over cost............................................ 436 184
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized; none
issued or outstanding........................................................... -- --
Common stock, $.01 par value; 25,000,000 shares authorized; 8,439,716 and
8,604,160 shares issued and outstanding at April 30, 1996 and 1997,
respectively.................................................................... 84 86
Capital in excess of par value................................................... 27,104 28,660
Retained earnings................................................................ 19,573 32,846
-------- --------
46,761 61,592
Deferred compensation............................................................ (259) (204)
-------- --------
F-3
46,502 61,388
-------- --------
Commitments (Note 14)..............................................................
-------- --------
$61,978 $88,417
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ADE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED APRIL 30,
--------------------------------
1995 1996 1997
--------- --------- ----------
Revenue $46,152 $67,339 $ 89,218
Revenue from affiliate............................................................. -- -- 12,185
-------- -------- ---------
- -
Total revenue................................................................... 46,152 67,339 101,403
-------- -------- ---------
Cost of revenue.................................................................... 23,293 31,135 39,762
Cost of revenue from affiliate..................................................... -- -- 5,076
-------- -------- ---------
- -
Total cost of revenue........................................................... 23,293 31,135 44,838
-------- -------- ---------
Gross profit.................................................................. 22,859 36,204 56,565
-------- -------- ---------
Operating expenses:
Research and development........................................................ 6,318 7,798 17,012
Marketing and sales............................................................. 6,842 10,169 13,665
General and administrative...................................................... 4,707 7,011 7,698
Amortization of excess of net assets acquired over cost......................... (252) (252) (252)
-------- -------- ---------
Total operating expenses...................................................... 17,615 24,726 38,123
-------- -------- ---------
Income from operations............................................................. 5,244 11,478 18,442
Other income (expense):
Interest income................................................................. 24 535 752
Interest expense................................................................ (428) (204) (423)
-------- -------- ---------
Income before provision for income taxes and equity in net earnings of
affiliated companies.............................................................. 4,840 11,809 18,771
Provision for income taxes......................................................... 1,709 4,004 5,705
-------- -------- ---------
Income before equity in net earnings of affiliated companies....................... 3,131 7,805 13,066
Equity in net earnings of affiliated companies..................................... -- -- 99
-------- -------- ---------
Net income.................................................................... $ 3,131 $ 7,805 $ 13,165
======== ======== =========
Net income per share............................................................... $ 0.47 $ 0.98 $ 1.48
======== ======== =========
Weighted average common and common equivalent shares outstanding................... 6,651 7,965 8,880
======== ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
ADE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
CAPITAL IN TOTAL
---------- -----
EXCESS OF RETAINED TREASURY DEFERRED STOCKHOLDERS'
--------- -------- -------- -------- -------------
COMMON STOCK PAR VALUE EARNINGS STOCK COMPENSATION EQUITY
-------------------- --------- -------- ----- ------------ ------
NUMBER PAR
------ ---
OF SHARES VALUE
--------- -----
Balance at April 30, 1994........... 6,416,554 $64 $ 4,739 $ 8,637 $(240) $13,200
Board of Director fees.............. 1 11 12
Exercise of common stock
options............................ (15) 29 14
Repurchase of 34,430 shares of
common stock....................... (152) (152)
Compensation related to the grant
of common stock options............ 251 $(251) --
Net income.......................... 3,131 3,131
--------- --- ------- ------- ----- ----- -------
Balance at April 30, 1995........... 6,416,554 64 4,976 11,768 (352) (251) 16,205
Exercise of warrants................ 241,578 2 702 352 1,056
Sale of common stock in
connection with initial public
offering in October 1995, net of
issuance costs of $2,315........... 1,617,600 16 20,315 20,331
Exercise of common stock
options............................ 163,984 2 660 662
Compensation related to the grant
of common stock options............ 58 (58) --
Amortization of deferred
compensation....................... 50 50
Tax benefit related to exercise of
common stock options............... 393 393
Net income.......................... 7,805 7,805
--------- --- ------- ------- ----- ----- -------
Balance at April 30, 1996........... 8,439,716 84 27,104 19,573 -- (259) 46,502
Exercise of common stock
options............................ 154,400 2 660 662
Sale of common stock pursuant to
the Employee Stock Purchase
Plan............................... 10,044 -- 102 102
Amortization of deferred
compensation....................... 55 55
Tax benefit related to exercise of
common stock options............... 794 794
Net income.......................... 13,165 13,165
Net income of Digital Measurement
Systems, Inc. for the one month
ended April 30, 1997 (Note 3)...... 108 108
--------- --- ------- ------- ----- ----- -------
Balance at April 30, 1997........... 8,604,160 $86 $28,660 $32,846 $ -- $(204) $61,388
========= === ======== ======= ===== ====== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
ADE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
YEAR ENDED APRIL 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income....................................................................... $ 3,131 $ 7,805 $13,165
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................. 1,318 1,052 1,646
Equity in net earnings of affiliated companies................................ -- -- (99)
Deferred income taxes......................................................... (743) (1,275) (2,299)
Amortization of deferred compensation......................................... -- 50 55
Change in assets and liabilities:
Accounts receivable, trade................................................. (2,105) (6,192) (3,329)
Accounts receivable, affiliate............................................. -- -- (1,083)
Costs and estimated earnings in excess of billings on uncompleted
contracts................................................................. 500 -- --
Inventories................................................................ 95 (3,382) (8,626)
Prepaid expenses and other current assets.................................. 6 (102) 18
Accounts payable........................................................... 844 862 833
Accrued expenses........................................................... 937 4,751 2,044
Deferred income on sales to affiliate...................................... -- -- 2,661
Income taxes payable....................................................... 966 (1,278) 1,626
-------- -------- --------
Net cash provided by operating activities................................ 4,949 2,291 6,612
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of fixed assets........................................................ (935) (5,337) (10,363)
Equity investments............................................................... -- -- (3,050)
Decrease (increase) in other assets.............................................. 13 6 (1,578)
-------- -------- --------
Net cash used in investing activities.................................... (922) (5,331) (14,991)
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayments of line of credit, net................................................ (2,750) -- --
Proceeds from (repayment of) note payable to related party....................... 228 69 (577)
Proceeds from issuance of long-term debt......................................... -- -- 5,500
Repayments of long-term debt..................................................... (74) (179) (231)
Proceeds from issuance of common stock........................................... 14 20,993 764
Tax benefit related to the exercise of common stock options...................... -- 393 794
Repurchase of common stock....................................................... (38) -- --
-------- -------- --------
Net cash provided by (used in) financing activities...................... (2,620) 21,276 6,250
-------- -------- --------
F-7
Adjustment for DMS activity for the one month ended April 30, 1997(Note 3)......... -- -- (10)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents............................... 1,407 18,236 (2,139)
Cash and cash equivalents, beginning of year....................................... 1,870 3,277 21,513
-------- -------- --------
Cash and cash equivalents, end of year............................................. $ 3,277 $21,513 $19,374
======== ======== ========
See supplemental disclosures of cash flow information (Note 15)
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS
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,
integrated circuits and computer memory disks. The predominant market for the
Company consists of semiconductor wafer and device manufacturing concerns
located in the United States, Japan, Europe and the Far East.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed in the preparation of
the financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Effective February 28, 1997, the Company
acquired all of the outstanding shares of common stock of Digital Measurement
Systems, Inc. (''DMS'') in exchange for 821,000 shares of common stock of the
Company. This transaction has been accounted for as a pooling-of-interests and,
therefore, the accompanying financial statements have been retroactively
restated to reflect the financial position and results of operations and cash
flows of the Company and DMS for all periods presented (Note 3). All material
intercompany transactions and balances have been eliminated.
Investments in 50% or less owned companies over which the Company has the
ability to exercise significant influence are accounted for using the equity
method. Investments in 20% or less owned companies are accounted for using the
cost method. (Note 4)
Revenue Recognition
Revenue from product sales is recorded upon shipment. The Company accrues
for anticipated warranty costs upon shipment. Service revenue is recognized as
the services are performed. The Company does not provide the right to return
products.
F-9
Revenue under certain long-term contracts containing custom engineering is
recognized under the percentage-of-completion method. The percentage of
completion is determined by relating the actual cost of the work performed to
date to the estimated total cost of the respective contracts. Contract costs
include all direct material and labor costs as well as an allocated share of
indirect costs incurred. Actual costs incurred and estimated earnings on
contracts in progress at year end are included in operations for the year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash in money market accounts. These investments are subject
to minimal credit and market risks. At April 30, 1996 and 1997, the Company has
classified its cash equivalent investments totaling $18,092 and $10,465,
respectively, as available for sale. The carrying amount of these investments
approximates fair market value.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis.
Fixed Assets
Fixed assets are stated at cost. Additions and betterments, unless of a
relatively minor amount, are capitalized. Expenditures for normal maintenance
and repairs are charged to expense as incurred. Depreciation is provided by use
of the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of their useful life or
the remaining life of the lease.
Excess of Net Assets Acquired Over Cost
The excess of net assets acquired over cost represents the unamortized
excess of the fair market value of the net assets acquired determined at the
date ADE Optical Systems, Inc. (''AOS'') was acquired over the purchase price of
AOS, after reducing the basis in noncurrent assets acquired to zero. The
original amount of the excess of net assets acquired over cost is being
amortized using the straight-line method over five years.
F-10
Concentrations
Credit Risk
Financial instruments which potentially expose the Company to concentration of
credit risk include cash, cash equivalents and trade accounts receivable. A
significant amount of the Company's cash and cash equivalents are held by four
financial institutions. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100. Uninsured cash balances totaled
approximately $2,859 and $8,117 at April 30, 1996 and 1997, respectively. The
Company does not believe that such deposits are subject to any unusual credit
risk associated with operating its business.
The Company's customer base primarily consists of semiconductor wafer,
semiconductor device and computer hard disk manufacturers. Accounts receivable
from two customers accounted for approximately 42% and 36% of total accounts
receivable at April 30, 1996 and 1997, respectively. The Company performs
ongoing credit evaluations of customers' financial condition, although
collateral is not required. In addition, the Company maintains reserves for
potential credit losses and such losses, in aggregate, have not exceeded
management expectations.
Suppliers
Certain of the components and subassemblies incorporated into the Company's
systems are obtained from a single source or a limited group of suppliers. The
Company seeks to reduce the impact from its dependence on those sole and limited
source suppliers by considering alternate sources of supply, alternate designs
for its products and by maintaining an adequate supply of the components and
subassemblies. However, the loss of one or more of the sole or limited suppliers
could cause a delay in manufacturing and a potential loss of sales, which could
affect operating results adversely.
Financial Instruments
The carrying amount of the Company's financial instruments, which include
cash, cash equivalents, accounts receivable, accounts payable, accrued expenses,
and long-term debt, approximates their fair value at the balance sheet dates. It
was not practicable to estimate the fair value of the Company's long-term
investments as the stock of the related investees is not publicly traded.
F-11
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Stock-Based Compensation
Stock-based compensation awards to employees under the Company's stock plans
are accounted for using the intrinsic value method prescribed in Accounting
Principles Board Opinion (''APB'') No.25, Accounting for Stock Issued to
Employees and related interpretations. The Company has adopted the disclosure
requirements of Statement of Financial Accounting Standards (''SFAS'') No. 123,
''Accounting for Stock-Based Compensation.''
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 year. 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
initial public offering price per share during the twelve-month period prior to
the initial filing of the Company's registration statement on Form S-1 have been
included in the calculation as if outstanding for all periods presented through
July 31, 1995 using the treasury stock method and the initial public offering
price of $14.00 per share.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingencies at April 30, 1996 and 1997, and the reported amounts of revenues
and expenses during the three year period ended April 30, 1997. Actual results
could differ from those estimates.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (''FASB'') issued
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 No.
F-12
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:
YEAR ENDED APRIL 30,
------------------------
1995 1996 1997
------ ------- -------
Pro forma basic net income per share................. $ 0.48 $ 1.04 $ 1.55
Pro forma diluted net income per share............... 0.47 0.98 1.48
In June 1997, the FASB issued SFAS No. 130, ''Reporting Comprehensive
Income.'' The statement establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. This standard will require that an enterprise display
an amount representing total comprehensive income for
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
the period. SFAS No. 130 will be effective for the Company's fiscal year ending
April 30, 1998. Adoption of SFAS No. 130 is not expected to significantly impact
the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, ''Disclosures about Segments of
an Enterprise and Related Information'' which supersedes SFAS No. 14. This
statement changes the way that public business enterprises report segment
information, including financial and descriptive information about their
operating segments, in annual financial statements and would require that those
enterprises report selected segment information in interim financial reports to
stockholders. Operating segments are defined as revenue-producing components of
the enterprise which are generally used internally for evaluating segment
performance. SFAS No. 131 will be effective for the Company beginning with the
Company's fiscal year ending April 30, 1998. Adoption of SFAS No. 131 will not
impact the Company's financial position or results of operations.
3. ACQUISITION OF SUBSIDIARY; POOLING-OF-INTERESTS
On February 28, 1997, pursuant to an Agreement and Plan of Merger (the
''DMS Agreement''), the Company, through its wholly-owned subsidiary ADE
Technologies, Inc. (''ATI''), acquired Digital Measurement Systems, Inc.
(''DMS''), a Massachusetts corporation, and a building which is integral to the
operations of DMS and which was controlled by a significant stockholder of DMS.
DMS designs, manufactures, markets and services magnetic measurement devices
with current applications in the production of computer memory disks. Pursuant
to the DMS Agreement, each outstanding share of DMS capital stock was converted
into 759.73 shares of the Company's common stock. Immediately prior to the
acquisition, there were 1,000 shares of DMS Class A common stock and 53 shares
of DMS Class B common stock outstanding.
F-13
Pursuant to the terms of the DMS Agreement, the Company also issued 21,000
shares in connection with the acquisition of the building. In total, 821,000
shares of the Company's common stock were issued in this transaction. This
transaction has been accounted for as a pooling-of-interests and, therefore, all
prior period financial statements presented have been restated as if the
acquisition took place at the beginning of such periods.
DMS had a March 31 year end and, accordingly, the results of operations for
DMS for the three years ended March 31, 1997 have been combined with the results
of operations for the Company's three years ended April 30, 1997. Additionally,
the financial position of DMS as of March 31, 1996 has been combined with the
Company's financial position as of April 30, 1996. In order to conform DMS to
the Company's fiscal year end, the financial position of DMS and the Company
have been combined as of April 30, 1997. Accordingly, an adjustment has been
made to retained earnings in fiscal 1997 to record the net income of DMS for the
one month period ended April 30, 1997 totaling $108. Other results of operations
for such one month period of DMS included revenues of $684 and operating costs
and expenses of $527.
There were no material transactions between the Company and DMS during any
of the periods presented prior to the DMS Agreement. All material intercompany
transactions and balances subsequent to the DMS Agreement have been eliminated.
No material adjustments to net assets or the results of operations were
necessary to conform the accounting practices of DMS to those of the Company.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Separate results of operations for the periods prior to the acquisition of
DMS by the Company were as follows:
YEAR ENDED NINE
MONTHS
APRIL 30, ENDED
------------------- JANUARY 31,
1995 1996 1997
------- ---------- ------------
(UNAUDITED)
Revenue:
ADE Corporation......... $45,070 $65,616 $64,749
DMS, Inc................ 1,082 1,723 4,317
------- -------- -------
Combined................ $46,152 $67,339 $69,066
======= ======== =======
Net income (loss):
ADE Corporation......... $ 3,107 $ 7,832 $ 8,448
DMS, Inc................ 24 (27) 1,036
------- -------- -------
Combined................ $ 3,131 $ 7,805 $ 9,484
======= ======== =======
F-14
4. Investments
The Company's investments of 50% or less owned companies over which the
Company has the ability to exercise significant influence are accounted for
using the equity method. Investments carried at equity consist of Japan ADE Ltd.
("JAL"), a Japanese corporation, and Microspec Technologies Ltd.
("Microspec"), an Israeli corporation.
In July 1996, the Company acquired 1,410 shares of JAL for $1,300, which
increased the Company's investment in JAL from 3% to 50%. JAL has been the
exclusive distributor of ADE dimensional products in Japan since 1986. In
connection with this investment, JAL and the Company also agreed to reduce the
discount provided on sales to JAL. Sales to JAL which have not in turn been sold
to unrelated third parties at April 30, 1997 have been eliminated, and the
related profit on such sales is recorded as deferred income on sales to
affiliate.
In July 1996, the Company acquired a 25.1% interest in Microspec for
$1,250. In connection with this investment, the Company also executed an
exclusive five-year agreement to distribute Microspec products, subject to
certain performance criteria. During fiscal year 1997, there were no material
purchases from or sales to Microspec.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The summarized unaudited financial information below for fiscal year 1997
represents an aggregation of the Company's nonsubsidiary affiliates:
YEAR
ENDED
APRIL 30,
1997
----
Revenue................. $26,933
Gross profit............ 9,820
Net income.............. 419
APRIL 30,
1997
----
Current assets.......... $16,664
Noncurrent assets....... 1,381
Current liabilities..... 14,832
Noncurrent liabilities.. 418
F-15
The Company's share of undistributed earnings of one affiliated company and
the Company's share of the losses of the other affiliated company included in
consolidated retained earnings was $507 and $136 at April 30, 1997,
respectively. The Company has received no dividends from affiliated companies
during fiscal year 1997. At April 30, 1997, the Company's investment exceeds the
underlying net assets of affiliated companies by $1,476, which is being
amortized by decreasing the equity in net earnings of affiliated companies using
the straight-line method over five years. Related amortization expense of $273
was recorded in fiscal 1997.
Pro forma revenue, net income and net income per share as though the
investments in affiliated companies were made at the beginning of fiscal year
1996, including the effect of eliminating the profit on affiliated sales in
beginning and ending inventory for the period, have not been included as they
are not materially different from actual revenue, net income and net income per
share for the two years ended April 30, 1997.
The Company also has a less than 20% investment in a company in the amount
of $500 that is accounted for using the cost method.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. INVENTORIES
Inventories consist of the following:
APRIL 30,
-----------------
1996 1997
-------- -------
Raw materials and purchased parts. $ 6,380 $ 9,867
Work-in-process................... 6,926 11,464
Finished goods.................... 219 829
------- --------
$13,525 $22,160
======= ========
6. FIXED ASSETS
Fixed assets consist of the following:
APRIL 30,
USEFUL LIFE ----------------
IN YEARS 1996 1997
-------- ------ ------
Land.............................. $ 1,288 $ 1,288
Building and improvements......... 15-25 3,475 8,967
Machinery and equipment........... 3-10 9,994 6,976
Office equipment.................. 3-10 4,100 2,370
Leasehold improvements............ 5 278 1,374
F-16
Construction-in-progress............... 263 414
------- -------
19,398 21,389
12,138 5,654
------- -------
Less--accumulated depreciation and
amortization........................ $ 7,260 $15,735
======= =======
Depreciation expense for the years ended April 30, 1995, 1996 and 1997 was
$1,570, $1,304 and $1,912, respectively. Fully depreciated assets with a
historical cost of $8,396 were written off during fiscal 1997.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
APRIL 30,
-----------------
1996 1997
------- -------
Accrued commissions............... $ 2,560 $ 1,852
Accrued salaries, wages, vacation 2,489 2,972
pay and bonuses.................
Accrued warranty costs............ 1,151 1,832
Accrued loss on abandonment of
facilities...................... 911 671
Other............................. 1,625 3,417
------- -------
$ 8,736 $10,744
======= =======
The Company purchased a building in February 1996 in which it relocated its
headquarters and one of its manufacturing facilities. Upon the purchase of the
building, the Company recorded a charge of $911 for the estimated future costs
of the abandoned facility for the period subsequent to the relocation.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. BORROWINGS
Note Payable to Related Party
At April 30, 1996, the Company had a $577 note payable due to a company
affiliated with a principal stockholder of DMS, which bore interest at an annual
rate of 15%. Interest expense for the years ended April 30, 1995, 1996 and 1997
totaled $48, $88 and $87, respectively. During the year ended April 30, 1997,
DMS repaid the entire principal on the note.
F-17
Long-term Debt
In June 1994, the Company entered into an agreement with a former executive
to purchase 34,430 shares of the Company's common stock by paying cash of $38
and issuing a promissory note payable for $114. The note bears interest at the
prime rate (8.5% at April 30, 1997) and the remaining principal balance of $38
at April 30, 1997 is payable on August 1, 1997.
Under the terms of the DMS Agreement, the Company assumed a mortgage loan
which was secured by the acquired building. The principal balance outstanding
totaled $645 and $639 at April 30, 1996 and 1997, respectively. The Company paid
the remaining principal balance in full in June 1997; accordingly, the balance
has been included in the current portion of long-term debt at April 30, 1997.
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 amortization of 50% of the
principal and with the remaining 50% due in June 2006. Monthly payments
consisting of principal and interest total $43. The proceeds of the bond were
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. Under the terms of the letter of credit,
the Company is required to comply with certain financial covenants. Future
maturities of this bond are as follows:
Year ending April 30,
1998........ $ 222
1999........ 235
2000........ 249
2001........ 264
2002........ 279
Thereafter.. 4,064
------
$5,313
======
In December 1992, the Company entered into a $1,250 unsecured, Subordinated
Note and Warrant Purchase Agreement (the ''Agreement'') with a financial
institution. The subordinated note bore interest at 10% and was scheduled to
mature in November 1999. As part of the Agreement, the Company issued a warrant
for 325,000 shares of the Company's common stock at an exercise price of $3.25
per share. Upon the closing of the Company's initial public offering, the
financial institution exercised the warrant through the cancellation of $1,056
of related debt. The remaining outstanding principal of the note totaling $131
was paid by the Company during fiscal 1996.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
F-18
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. EMPLOYEE COMPENSATION PLANS
In 1982, the Company adopted the 1982 Stock Option Plan (the "1982 Plan")
which provided for the granting of incentive stock options and non-qualified
stock options through 1992 and was administered by a committee of the Board of
Directors (the "Compensation Committee"). The Company had reserved 900,000
shares of common stock for grant to employees under the 1982 Plan. In April
1992, the Company adopted the 1992 Stock Option Plan (the "1992 Plan"). The
1992 Plan provides for the issuance to employees of options to purchase 479,000
shares of common stock plus any expired or canceled options granted pursuant to
the 1982 Plan. In August 1995, the Company adopted the 1995 Stock Option Plan
(the "1995 Plan"). The 1995 Plan provides for the issuance to employees of
stock options or stock awards to purchase 400,000 shares of common stock. At
April 30, 1997, 27,290 shares and 80,000 shares were available for future grants
under the 1992 Plan and the 1995 Plan, respectively. Options are granted under
the 1992 and 1995 Plan as either incentive stock options or non-qualified stock
options and at exercise prices not less than the fair value of the stock on the
date of grant or less than 110% of the fair value in the case of optionees
holding more than 10% of the total combined voting power of all classes of stock
of the Company. The terms of the options generally may not exceed ten years or
five years in the case of optionees holding more than 10% of the total combined
voting power of all classes of stock of the Company. The options are exercisable
over periods determined by the Compensation Committee, generally at the rate of
20% per year, on a cumulative basis, beginning with the first anniversary of the
date of grant.
In October 1992, the Company granted non-qualified, fully vested stock
options to purchase 30,000 shares of the Company's common stock at an exercise
price of $4.15 per share. These options were not granted pursuant to either the
1992 Plan or the 1982 Plan. These options are exercisable from the date of grant
through October 2002.
In October 1996, the Board of Directors adopted the Employee Stock Purchase
Plan (the ''Purchase Plan'') effective as of October 1, 1996. The Purchase Plan
provides its full-time employees, nearly all of whom are eligible to
participate, the opportunity to purchase common shares, on a quarterly basis, at
85% of the fair market value of the shares on either the first or last day of
the applicable quarter, whichever is lower. The term of the Purchase Plan is for
five years, and the Company has authorized 1,000,000 shares of the Company's
common stock for issuance under the Purchase Plan. Under the Purchase Plan, the
Company sold 10,044 shares to employees in fiscal year 1997.
F-19
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company applies APB No. 25 and related interpretations in accounting
for stock-based compensation. During fiscal years 1995 and 1996, the Company
recorded deferred compensation of $251 and $58, respectively, which is
equivalent to the difference between the fair market value of the underlying
securities and the exercise price of the related options granted. Such
compensation is being amortized over the vesting periods of the related options.
The Company has recognized no compensation expense in fiscal year 1995 and has
recognized $50 and $55 in fiscal years 1996 and 1997, respectively, for all of
its stock-based compensation. Had compensation cost for the stock-based
compensation been determined based on the fair value at the grant dates of
awards consistent with the provisions of SFAS No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts as
follows:
YEAR ENDED
----------------
APRIL 30,
----------------
1996 1997
------- -------
Net income
As reported.......... $ 7,805 $13,165
Pro forma............ 7,768 12,840
Net income per share
As reported.......... $ 0.98 $ 1.48
Pro forma............ 0.98 1.46
The fair value of each option and purchase right grant was estimated on the
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for fiscal years 1996 and 1997: no dividend yield;
risk free interest rate of 5.7% and 6.4% in fiscal 1996 and 1997, respectively;
expected option term of 6 years and expected purchase right term of three
months; no volatility for options granted prior to the initial filing of the
Company's registration statement on Form S-1 in August 1995 and 50% for options
and purchase rights granted subsequent to August 1995. The weighted average fair
value per option for options granted with option exercise prices equal to the
fair value of the underlying common stock in fiscal years 1996 and 1997 was
$8.09 and $7.25, respectively. The weighted average fair value per option for
options granted with exercise prices below the fair value of the underlying
common stock in fiscal year 1996 was $9.08. The weighted average fair value per
purchase right for purchase rights granted in fiscal year 1997 was $2.82.
Because options vest over several years and additional option and purchase
right grants are expected to be made in subsequent years, the pro forma impact
on fiscal years 1996 and 1997 is not necessarily representative of the pro forma
effects of reported net income and earnings per share for future years.
F-20
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Stock option activity is summarized as follows:
WEIGHTED
--------
NUMBER AVERAGE
------ -------
OF SHARES EXERCISE PRICE
---------- --------------
Options outstanding at April 30, 1994 669,400 $ 3.99
Granted................................. 226,000 4.43
Exercised............................... (7,010) 2.00
Canceled................................ (91,390) 3.63
--------
Options outstanding at April 30, 1995 797,000 4.17
Granted................................. 137,500 14.23
Exercised............................... (163,984) 4.04
Canceled................................ (8,000) 3.25
--------
Options outstanding at April 30, 1996 762,516 6.02
Granted................................. 211,500 12.94
Exercised............................... (154,400) 4.24
Canceled................................ (45,400) 8.21
--------
Options outstanding at April 30, 1997 774,216 $ 8.14
========
The number and weighted average exercise price of options exercisable at
April 30, 1995, 1996 and 1997 is 206,800 and $3.93; 190,916 and $4.11; and
199,316 and $5.40, respectively.
The following table summarizes information about stock options outstanding
at April 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------- ----------------------- ------------------------
WEIGHTED
--------
AVERAGE
-------
REMAINING WEIGHTED WEIGHTED
--------- -------- --------
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
-------- ------ ----------- ------- ------ -------
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------- ------------ ------------ -------------- ----------- --------------
$ 3.25- 3.88 22,000 3.87 $ 3.73 22,000 $ 3.73
4.13- 5.88 433,216 6.94 4.27 153,816 4.21
9.38-11.25 129,000 9.49 10.51 -- --
14.75-17.63 190,000 9.27 15.85 23,500 14.75
------- ------ ------- ------
774,216 $ 8.14 199,316 $ 5.40
======= ====== ======= ======
F-21
10. STOCKHOLDERS' EQUITY
Common Stock
On August 17, 1995, the stockholders of the Company increased the number of
authorized shares of common stock from 6,000,000 to 25,000,000 shares. On the
same date, the Board of Directors approved a 2-for-1 split of the common shares
to be effected in the form of a stock dividend on all issued stock which was
distributed on October 2, 1995. Accordingly, all share and per share data have
been restated for all periods presented to reflect the increase in the
authorized shares and the split. The par value of the additional shares of
common stock issued in connection with the stock split was credited to common
stock and a like amount was charged to capital in excess of par value.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
In October 1995, the Company completed an initial public offering of 1,617,600
shares of its common stock. The net proceeds to the Company were $20,331.
Reserved Shares
At April 30, 1997, the Company has reserved 1,871,462 shares of common stock
for issuance upon the exercise of outstanding and available common stock options
and for issuance to employees under the Purchase Plan.
Preferred Stock
The Company has 1,000,000 shares of $1.00 par value preferred stock
authorized. Shares of preferred stock may be issued at the discretion of the
Board of Directors of the Company with such designation, rights and preferences
as the Board may determine from time to time. The preferred stock may have
voting rights, preferences as to dividends and liquidation, conversion and
redemption rights and sinking fund provisions which are more expansive than
those of the holders of the common stock.
11. EXPORT SALES AND MAJOR CUSTOMERS
Revenue by geographic area is summarized as follows:
F-22
YEAR ENDED APRIL 30,
----------------------------
1995 1996 1997
-------- -------- --------
United States.. $21,771 $27,635 $ 40,600
Far East....... 9,891 21,582 27,098
Japan.......... 7,653 11,404 24,199
Europe......... 6,837 6,718 9,506
------- ------- --------
$46,152 $67,339 $101,403
======= ======= ========
Revenue from JAL in fiscal years 1995, 1996 and 1997 totaled $7,519 (17%),
$8,380 (13%) and $12,185 (12%), respectively. Revenue from another foreign
distributor in fiscal year 1997 totaled $9,823 (10%). Revenue from this
distributor in fiscal years 1995 and 1996 was less than 10%. In fiscal 1995,
revenue approximating $5,816 (13%) and $5,032 (11%) was attributable to two
separate customers. In fiscal year 1996, revenue approximating $7,703 (12%) and
$6,759 (10%) was attributable to two separate customers. In fiscal 1997, revenue
approximating $16,269 (16%) was attributable to one customer.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
12. INCOME TAXES
The provision for income taxes consists of:
YEAR ENDED APRIL 30,
--------------------------------------
1995 1996 1997
--------- -------- ----------
Current tax expense: $ 2,069 $ 4,540 $ 7,037
Federal........................ 383 739 967
State.......................... -------- -------- --------
2,452 5,279 8,004
-------- -------- --------
Deferred tax benefit:
Federal........................ (667) (1,131) (2,046)
State.......................... (76) (144) (253)
-------- -------- --------
(743) (1,275) (2,299)
-------- -------- --------
$ 1,709 $ 4,004 $ 5,705
======== ======== ========
Deferred tax assets consist of the
following:
APRIL 30,
-------------------------
1996 1997
-------- --------
Deferred tax assets:
Inventories, due to reserves and additional costs inventoried
for tax purposes............................................ $1,353 $2,332
F-23
Accrued expenses............................................. 1,263 1,625
Deferred profit on sales to affiliates....................... -- 1,038
ATI net operating loss carryforwards......................... 421 409
Depreciation................................................. 223 140
Bad debt reserve............................................. 187 225
Other........................................................ 182 159
-------- --------
Gross deferred tax assets.................................... 3,629 5,928
Deferred tax valuation allowance............................. (346) (346)
-------- --------
$ 3,283 $ 5,582
======== ========
ATI net operating loss carryforwards remaining at April 30, 1996 and 1997, not
limited in their use due to ownership changes, totaled $195 and $164,
respectively. These carryforwards expire in years 2000 through 2007. A valuation
allowance of $346, equal to the ATI net operating carryforwards which will
expire before they can be used due to ownership change limitations, was recorded
at April 30, 1996 and 1997. There have been no changes in the valuation
allowance during fiscal 1995, 1996 and 1997.
The Company does not provide for taxes which would be payable if undistributed
earnings of its foreign affiliates were remitted because the Company either
considers these earnings to be invested for an indefinite period or anticipates
that if such earnings were distributed, the U.S. income taxes payable would be
substantially offset by foreign tax credits.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following is a reconciliation between the amount of reported income tax
expense and the amount computed using the U.S. Federal Statutory rate of 34% for
1995 and 35% for 1996 and 1997:
YEAR ENDED APRIL 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
Statutory federal rate............ $ 1,637 $ 4,133 $ 6,570
State taxes, net of federal
benefit.......................... 202 449 415
Foreign sales corporation benefit. (264) (601) (1,117)
Research and development credits.. -- -- (389)
Other............................. 134 23 226
-------- -------- --------
$ 1,709 $ 4,004 $ 5,705
======== ======== ========
The income tax benefits related to the exercise and certain disqualifying
dispositions of stock options reduces taxes currently payable and is credited to
additional paid-in capital. Such amount approximated $393 and $794 for the years
ended April 30, 1996 and 1997, respectively. No such tax benefits were realized
in the year ended April 30, 1995.
F-24
13. INCENTIVE SAVINGS AND PROFIT SHARING PLAN
The Company has an incentive savings and profit sharing plan covering
substantially all employees who wish to participate and meet minimum age and
service requirements. Annual Company contributions are determined by the Board
of Directors and are limited to the maximum amount deductible under the Internal
Revenue Code. Company contributions for fiscal 1995, 1996 and 1997 were
approximately $125, $196 and $325, respectively.
14. COMMITMENTS
Operating Leases
The Company leases land and certain buildings, machinery and equipment under
operating leases which expire through 2004. Under the terms of the leases, the
Company is responsible for normal maintenance and utility expenses and taxes and
pays a monthly property management fee on certain leases.
Future minimum lease payments under operating leases, including management
fees, are as follows:
Year ending April 30,
1998................. $1,276
1999................. 1,147
2000................. 723
2001................. 642
2002................. 522
Thereafter........... 809
------
Total minimum lease $5,119
payments............ ======
Total rent expense under noncancelable operating leases was approximately
$1,188, $1,150, and $1,266 for the years ended April 30, 1995, 1996 and 1997,
respectively.
ADE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
F-25
15. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
YEAR ENDED APRIL 30,
--------------------------
1995 1996 1997
------ ------ ------
Cash paid during the year
Interest..................... $ 429 $ 221 $ 423
Income taxes, net of refunds
received.................... 1,484 6,164 5,584
Non-Cash Investing and Financing Activities
During fiscal 1996, $1,056 of long-term debt was canceled as consideration for
the exercise of a warrant to purchase 325,000 shares of the Company's common
stock (Note 8).
During fiscal 1995, the Company repurchased 34,430 shares of the Company's
common stock by paying cash of $38 and issuing a promissory note payable for
approximately $114 (Note 8). In addition, 2,856 shares of treasury stock with a
cost of $11 were issued in lieu of $12 of board of directors fees included in
accrued expenses.
F-26
FINANCIAL STATEMENT SCHEDULE
(IN THOUSANDS)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
CHARGED TO BALANCE AT
---------- ----------
BALANCE AT COSTS AND CHARGED TO DEDUCTIONS/ APRIL 30,
---------- --------- ---------- ----------- ---------
MAY 1, 1994 EXPENSES OTHER ACCOUNTS WRITE-OFFS 1995
----------- -------- -------------- ---------- ----
DESCRIPTION
- --------------------------
Allowance for doubtful accounts......... $ 57 $ 125 -- $ 44 $ 138
Inventory obsolescence.................. 259 413 -- -- 672
Deferred tax asset valuation
allowance............................... 346 -- -- -- 346
CHARGED TO BALANCE AT
---------- ----------
BALANCE AT COSTS AND CHARGED TO DEDUCTIONS/ APRIL 30,
----------- --------- ---------- ----------- ---------
MAY 1, 1995 EXPENSES OTHER ACCOUNTS WRITE-OFFS 1996
----------- ---------- -------------- ----------- ----
DESCRIPTION
- --------------------------
Allowance for doubtful accounts......... $138 $ 338 -- -- $ 476
Inventory obsolescence.................. 672 295 -- -- 967
Deferred tax asset valuation
allowance............................... 346 -- -- -- 346
CHARGED TO BALANCE AT
---------- ----------
BALANCE AT COSTS AND CHARGED TO DEDUCTIONS/ APRIL 30,
---------- --------- ---------- ----------- ----------
MAY 1, 1996 EXPENSES OTHER ACCOUNTS WRITE-OFFS 1997
----------- ---------- -------------- ----------- ----
DESCRIPTION
- ------------------------
Allowance for doubtful accounts......... $476 $ 112 -- $ 11 $ 577
Inventory obsolescence.................. 967 1,034 -- 370 1,631
Deferred tax asset valuation
allowance............................... 346 -- -- -- 346
S-1