Back to GetFilings.com
UNITED STATES
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, 1999
OR
// 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)
(781) 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 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ------
Indicate 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 16, 1999, there were outstanding 13,305,090 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 $169,640,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Number of Pages: 51 Exhibit Index on Page: 24
PART I
ITEM 1. BUSINESS
EXCEPT FOR HISTORICAL INFORMATION, THE FOLLOWING DESCRIPTION OF ADE'S
BUSINESS CONTAINS FORWARD LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE OUTCOME OF THE EVENTS DESCRIBED IN THESE FORWARD LOOKING
STATEMENTS IS SUBJECT TO RISKS AND ACTUAL RESULTS COULD DIFFER MATERIALLY. THE
SECTIONS ENTITLED "RISK FACTORS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS ANNUAL REPORT CONTAIN A DISCUSSION OF SOME OF THE
FACTORS THAT COULD CONTRIBUTE TO THESE DIFFERENCES. ANY FORWARD-LOOKING
STATEMENTS ARE MADE AS OF THE DATE OF THIS REPORT AND WE ASSUME 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 engaged in the design, manufacture, marketing and
service of metrology and inspection systems for the semiconductor wafer
manufacturing industry. In addition, we are a supplier of metrology systems
to the semiconductor device, data storage and optics industries. Our 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 data storage manufacturers use our
systems to improve yield and capital productivity. Our 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. Our systems
are designed to deliver the high throughput, reliability and information and
analysis necessary to meet the demands of increasingly complex and
time-sensitive manufacturing processes.
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, inspection
and sorting functions in the semiconductor wafer, semiconductor device and
data storage device manufacturing processes. We have over 39 major products
currently in use by the semiconductor wafer and device and data storage
device manufacturing industries and have shipped more than 1,900 systems.
During the past fiscal year, semiconductor equipment sales to wafer
manufacturers generated approximately 57.7% of our annual revenues.
Our principal products in the semiconductor wafer, semiconductor device and
data storage device industries are described below. All 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 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. These systems measure thickness, flatness,
shape, conductivity type, and resistivity on raw and processed 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 non-destructive in-line sorting and
classification capability.
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
UltraScan 9000 systems are capable of being operated in a class 10 cleanroom
environment. The UltraScan 9000 systems measure wafer thickness, flatness,
shape, and other critical dimensional properties and can be integrated with
factory automation systems. The 9300 and 9350 systems employ our E station
measurement module to measure thickness down to an accuracy of 0.5 microns. The
9600 and 9650 systems, based on the more advanced E-Plus station, measure
thickness down to an accuracy of 0.25 microns. The 9350 and 9650 systems have
1
a smaller footprint than their larger counterparts, making them more suitable
for applications in the devicfabrication process.
ULTRAGAGE 9000 SERIES. The UltraGage 9000 series of products are automated
benchtop metrology systems containing a single measurement module, which is
capable of making selected measurements, including flatness, thickness and
stress. The UltraGage 9000 systems are capable of being operated in a class 10
cleanroom environment. The UltraGage 9500 system is based on our E station
measurement module. The newest system in the 9500 series of equipment, is the
9530. This system has been optimized to handle ultra thin, processed wafers for
device manufacturers. The UltraGage 9700 system is based on the E-Plus station
measurement module. These systems were designed to operate together with
applications software to be used during device manufacturing. The 9900 system
provides dimensional measurement capabilities to an accuracy of 0.18 microns,
utilizing our new E Squared technology. This system has allowed customers to
meet the industry needs for flat wafers without having to retool their
manufacturing plants.
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. Based on our 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. We offer a variety of software
packages to tailor the system to specific customer requirements. The WIS systems
are capable of being operated in a class 10 cleanroom environment.
EPISCAN 1000 SERIES. The EpiScan 1000 series of products are high speed
tools used to measure and map the thickness of certain film layers, sometimes
referred to as epi layers, that are applied to wafers. The EpiScan 1000 system,
introduced in 1997, is based on advanced optical technology we have licensed
from On-Line Technologies, Inc. The system is capable of being operated in a
class 10 cleanroom environment. The EpiScan 1000 system ranges in price Episcan
1000 was released as a production system in July 1998.
CONSTELLATION. The Constellation is a fully automated inspection tool
designed to handle the needs of both 200mm and 300mm polished and epi wafers.
Constellation offers advanced inspection capabilities for high volume 200 mm
production, while offering simple, software-driven conversions to handle 300 mm
pilot and production requirements. This system reduces the need for manual
inspection of the wafers. The Constellation is the only high volume inspection
equipment available with an edge gripping wafer handling system.
INFOTOOLS SOFTWARE SUITE. InfoTools is an off-line application suite of
productivity tools for ADE's UltraScan, UltraGage and WaferCheck systems.
InfoTools includes ReportTools for off-line processing of wafer data and
RecipeTools for centralized recipe storage. InfoTools increases machine
availability and leads to a lower cost of ownership of an ADE tool. InfoTools is
modularly priced based on the number of users and applications required.
InfoTools was released as a product in July 1998.
DISK INDUSTRY PRODUCTS
VIBRATING SAMPLE AND TORQUE LABORATORY MAGNETOMETERS. These systems are
used for the magnetic characterization of a broad range of materials (i.e.
disks, tapes, powders, crystals 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.
ROBOTIC KERR-EFFECT AND MRT MAGNETOMETERS. These are fully automated
in-line robotic systems used for rapid 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.
2
AUTOMATIC HEAD WAFER TEST SYSTEM. The Automatic Head Wafer Test System
rapidly and automatically creates a map of the magnetic properties of entire
wafers or coupons cut from those head wafers used to fabricate advanced heads
for disk drives. It provides rapid feedback to the fabrication process of these
heads, allowing users to make adjustments to the process to improve overall
yield.
MOTOR TEST SYSTEMS. Utilizing ADE's non-contact dimensional gaging, the
3700 and MTS series of motor test systems provides disk motor manufacturers with
motor shaft runout measurements in both time and frequency function. Software
allows the user to define pass/fail criteria for production testing.
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 to meet the
industry's increasing demand for the manufacture of advanced 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 our
capacitive dimensional metrology 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 disk
MINIFIZ SERIES OF INTERFEROMETERS. MiniFIZ is a family of laser-based
Fizeau interferometers that test the surface flatness, curvature and other shape
characteristics of polished precision components such as optical mirrors, lenses
and computer disks. The MinFIZ provides interactive 3D modeling, statistical
reporting, and user-selectable production or research modes. The product can be
combined with full robotic automation to meet the needs of disk media and
substrate process control.
MICROXAM OPTICAL PROFILERS. These 3D optical profilers are interference
microscopes which produce measurements of the shape, density and distribution of
laser bumps in the laser-textured area of hard disks. MicroXAM is the industry
standard for measuring the laser-textured area of hard disk media. Other
configurations of MicroXAM measure disk dub-off. Dub-off is the transition
between the top (usable) surface of the disk, and the rough edge of the disk.
MicroXAM, consequently, is used widely by disk media manufacturers and by hard
drive manufacturers.
OPTIFLAT FLATNESS GAGE. Similar to MiniFIZ, OptiFLAT is an accurate
surface flatness tester, but primarily characterizes the surface waviness of
hard disks to improve and maintain process control in the hard disk
manufacturing process. Waviness is a range of medium to high frequency surface
features which is now an important category of topology that affects disk drive
performance and product yield. OptiFLAT is also uniquely suited to measure the
flatness of uncoated transparent disk substrates.
PRODUCTS IN DEVELOPMENT
In order to maintain our technology leadership, we continue to introduce
new products. Among those products are SQM for high speed inspection,
WaferAnalyzer software for offline wafer inspection, MicroSense II for disk
drive motor runout, the EpiScan 3000 for 300mm epitaxial film measurements,
E-Squared for next generation wafer dimensional measurements, and NanoMapper for
semiconductor wafers.
SQM. The Surface Quality Monitor is a high speed inspection option with
nanometer scale resolution available as an option on ADE's Wafer Inspection
Systems. This inspection capability has become a requirement in advanced wafer
manufacturing, and will become more important with the device manufacturers
seeking to increase the number of products they can produce per wafer.
WAFERANALYZER. This offline software package increases productivity in a
wafer production polishing area by providing advanced analytical capability
for wafer inspection data. In beta tests this software has proven to reduce
the engineering man hours required for process characterization and to add
increased flexibility in analysis. The software is modularly priced based on
the number of users and equipment connections.
3
MICROSENSE II Disk drive manufacturers are incorporating motors with lower
non-repetitive runout to achieve higher track densities. This requires
improved non-contact dimensional gaging. Introduced at Diskcon Japan in
April 1999, MicroSense II provides a 100% improvement in measurement
accuracy over our previous products.
EPISCAN 3000 The EpiScan 3000 is based on the same production proven
technology as the EpiScan 1000 but is specifically designed to meet the advanced
performance requirements of 300mm wafers. Using edge grip wafer handling and
holding the wafer in vertical position during the measurement process has
minimized the potential for contamination. Continuous scanning of the wafer and
increased measurement speed has optimized wafer throughput. The EpiScan 3000
meets the demanding requirements of the epi process development engineer as well
as quality control of high volume production.
E-SQUARED The E-Squared gage extends the UltraGage and UltraScan 9000
Series product family to support the demanding metrology requirements of next
generation wafer processes. The advanced hardware and software of the E-Squared
gage provides dimensional measurements to support the 0.18 micron device process
level. Data generated by the E-Squared system can also be processed offline for
increased yield productivity using ADE Windows-based software products.
NANOMAPPER Introduced in July 1999, NanoMapper measures nanotopology, or
how well a semiconductor wafer was polished, on both 200mm and 300mm wafer
surfaces with atomic level resolution. Using non-contact optical techniques for
wafer, semiconductor equipment, and semiconductor device process development
manufacturers, the NanoMapper is currently used to quantify nanotopology in the
development of certain wafer manufacturing processes.and also measures how well
the epitaxial layer on certain wafers was grown. NanoMapper is capable of
characterizing the surface at the edge of wafers as well, making it possible for
device manufacturers to increase yield per wafer by increasing the wafer usable
area.
TECHNOLOGY
Our metrology and inspection products use our proprietary non-contact
capacitive, optical, interferometric and magnetic technologies to measure the
dimensional, magnetic and surface characteristics of semiconductor wafers and
devices and computer hard disks and disk drives.
DIMENSIONAL TECHNOLOGY
Our 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.
This 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. 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 our software to produce information concerning the
wafer's thickness, flatness and shape.
SURFACE INSPECTION TECHNOLOGY
We use 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 our software to produce
information about particles, micro scratches, haze and other process-induced
defects on the wafer surface. Although the principles of our optical technology
are similar to those used by other manufacturers, we believe our theoretical
modeling and patented optical engineering and proprietary software result in
products having a superior combination of high sensitivity and throughput.
4
INTERFEROMETRY TECHNOLOGY
Optical interference is a technique used to produce surface images of
alternating bright and dark images, called fringes, which correspond to a
surface's height changes. Using reflection, optical interference can measure
changes in the height of a surface as small as a few atomic layers. Our software
provides the ability to create and analyze three-dimensional surface maps, which
are used by our customers in advanced process development and in production
control.
FOURIER TRANSFORM INFRARED SPECTROSCOPY TECHNOLOGY
Fourier Transform Infrared Spectroscopy Technology 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 Fourier Transform Infrared Spectroscopy
Technology to us for incorporation into metrology tools for the wafer market. We
are integrating this technology to provide the increasing precision and accuracy
needed to support ever-tightening Epi specifications.
MAGNETICS CHARACTERIZATION TECHNOLOGY
Our 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. We believe our
theoretical modeling and magnetics engineering enable us to offer automated
products with superior sensitivity, speed, accuracy and reproducibility.
PROPRIETARY SOFTWARE
Our proprietary software analyzes and transforms the large amounts of data
generated by our 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 our products to serve new applications with
a minimum of hardware or software redesign or development. Our software is
designed to integrate our various metrology functions with one another and to
implement industry standards for integrating our products with the manufacturing
facility's information systems. We currently are seeking patent protection on
certain features of our software.
MARKETING, SALES AND CUSTOMER SUPPORT
We market and sell our semiconductor metrology and inspection products
through our direct sales force, distributors and independent sales
representatives. We market and sell our metrology and inspection products in the
United States, Europe and Malaysia through full-time salespersons located
throughout the United States in Milpitas, Dallas, Portland and Boston as well as
in the United Kingdom, in Germany, and in Malaysia. During the past fiscal year,
approximately 50% of our revenue was derived through our direct sales
organization. Our direct sales force is supported by applications engineers in
selected field offices and in our manufacturing locations.
Sales of dimensional systems in Japan are supported by Japan ADE Limited, a
joint venture between us and Kanematsu Electronics, Ltd.. Sales of optical
surface inspection products are provided in Japan by a separate distributor. We
also sell our semiconductor metrology and inspection products in Israel, South
Korea, Singapore, Taiwan, India and the People's Republic of China through
independent sales representatives. We market and sell our non-contact
capacitive, dimensional metrology and magnetic characterization data storage
products in the United States through two full-time salespersons and
internationally through distributors and sales representatives. We market and
sell our interferometric based surface metrology products through three full
time salespersons and internationally through distributors and sales
representatives.
The selling process for our products frequently involves participation by
sales, marketing and customer support personnel. Customers and potential
customers often evaluate our products by sending semiconductor wafers to us for
measurement or by installing demonstration equipment at their facilities. We
maintain demonstration equipment at our manufacturing sites and at some of our
sales offices for this purpose. We plan to increase our investment in
demonstration equipment to accelerate the introduction of products. Our
marketing activities also include
5
participation in international standards organizations, trade shows, publication
of articles in trade journals, in industry forums and distribution of sales
literature.
We believe that our 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. We have customer support centers in Boston, Charlotte, Austin,
Dallas, Milpitas, Vancouver, WA, Tucson, Phoenix, Milton Keynes, England,
Munich, Germany and Kuala Lumpur, Malaysia. In addition, our distributors and
sales representatives provide customer support. We also offer training programs
and maintenance contracts for our customers. We offer warranties of up to twelve
months covering the performance and reliability of our products.
CUSTOMERS
Our customers include all of the leading semiconductor wafer manufacturers
and many of the leading semiconductor device and data storage and disk drive
manufacturers throughout the world. Historically, a relatively limited number of
customers have accounted for a substantial portion of our revenue. In fiscal
years 1999, 1998 and 1997, sales to our top five customers accounted for
approximately 45.1%, 44.7% and 45.6%, respectively, of our revenue. During
fiscal year 1999 one of our customers, Wacker Siltronic Inc., accounted for
10.8% of our revenue. During the past fiscal year, approximately 57.7% of our
revenue was derived from sales made to wafer manufacturers, with the remainder
derived from sales to manufacturers of semiconductor devices, data storages and
disk drives and semiconductor equipment. Our principal customers are as follows:
SEMICONDUCTOR WAFER MANUFACTURERS
Komatsu
MEMC Electronic Materials
Mitsubishi International
Posco Huls
Shin-Etsu Handotai
Sumitomo Sitix Silicon
Toshiba
Wacker Siltronic
SEMICONDUCTOR DEVICE MANUFACTURERS
ASM Lithography
ETEC
Hitachi
IBM
Lucent Technologies
Motorola
ST Microsystems
Tatung
Texas Instruments
Worldwide Semiconductor
DATA STORAGE AND DISK DRIVE MANUFACTURERS
HMT
IBM
Seagate Technology
RESEARCH AND DEVELOPMENT
The market for semiconductor wafer and device and data storage and disk
drive equipment is characterized by rapid technological changes and product
innovations. Our research and development efforts are designed to enhance our
current products and develop new products to keep pace with technological
developments and constantly
6
evolving customer requirements. We devote significant resources to programs
directed towards developing new and enhanced products, as well as developing new
applications for existing products.
In fiscal years 1999, 1998 and 1997, our research and development
expenditures were $24.0 million, $27.6 million and $17.7 million respectively,
representing 39.5%, 20.3% and 15.9% of revenue. Research and development
expenditures consist primarily of salaries, project materials, consulting fees
and other costs associated with our ongoing research and development efforts.
Industry standards organizations, such as Semiconductor Equipment and
Materials International and American Standards for Testing and Materials are
pivotal in defining the test methods, measurement parameters and specifications
governing commercial transactions within the semiconductor industry. We maintain
a significant presence on standards committees of these two organizations and
other international standards organizations. We believe that our involvement
with these organizations has helped to ensure that our new products conform to
industry standards.
BACKLOG
Backlog decreased to approximately $20.6 million at April 30, 1999 from
approximately $37.2 million at April 30, 1998. This decrease in backlog is
primarily attributable to excess capacity and the resulting reduction in demand
for capital equipment in the semiconductor and data storage industries during
calendar 1998 and the first four months of calendar 1999. During calendar 1999
there have been certain indicators of increased capital equipment demand in the
semiconductor industry, however, we have not currently experienced significant
orders related to capacity increases by our semiconductor customers. Backlog at
April 30, 1999 increased 34.6% from approximately $15.3 million at January 31,
1999. We schedule production based on firm customer commitments and anticipated
orders during the planning cycle. Backlog is comprised of written purchase
orders from customers which we have accepted and expect to ship the related
product or service within the following twelve months. Customers may cancel or
delay orders with limited or no penalty. We do not believe that the level of
backlog is an accurate indicator of our performance in future periods.
MANUFACTURING
Our principal manufacturing activities take place at our ISO
9001-registered facility in Westwood, Massachusetts, where semiconductor
dimensional metrology systems are manufactured, in Charlotte, North Carolina,
where semiconductor optical surface inspection equipment is manufactured, in
Newton, Massachusetts, where non-contact capacitive, dimensional metrology for
gaging products and magnetic characterization products for the data storage
industry are manufactured, and Tucson, Arizona, where interferometric based
surface metrology products are manufactured. We are in the process of
consolidating our Charlotte operations into our Westwood facility. The transfer
of the operations is expected to be completed in calendar 1999. Manufacturing
activities consist primarily of assembling and testing components and
subassemblies which are supplied by third party vendors and then integrated into
our finished products. Many of the components and subassemblies are standard
products, although certain items are made to our specification. We manufacture
many of our semiconductor metrology and inspection systems in a cleanroom
environment.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of patent, copyright, trademark and trade secret
laws and license agreements to establish and protect our proprietary rights in
our products. We believe, however, that our success depends to a greater extent
upon innovation, technological expertise and distribution strength. We enter
into standard confidentiality agreements with our employees and consultants and
seek to control access to and distribution of our proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our 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.
7
As of July 21, 1999 we hold 28 United States patents and 15 foreign patents
covering existing and potential products and have applied for 12 additional
patents in the United States and 24 additional foreign patents. We have licensed
certain patents and other intellectual property to a number of companies.
EMPLOYEES
As of April 30, 1999, we employed approximately 560 persons at all of our
locations. Management believes that our ongoing success depends on our continued
ability to attract and retain highly skilled employees. There can be no
assurance that we will be successful in attracting or retaining such personnel.
None of our employees are represented by a labor union, and we have experienced
no work stoppages. We consider our employee relations to be good.
EXECUTIVE OFFICERS
The names, ages and positions held by our executive officers are as
follows:
Name Age Position
- ---- --- --------
Robert C. Abbe 61 President and Chief Executive Officer
Mark D. Shooman 52 Vice President and Chief Financial Officer
AK Lum 50 Vice President and General Manager of ADE Semiconductor Systems
Chris L. Koliopoulos 46 Vice President and President of ADE Phase Shift, Inc.
Noel S. Poduje 54 Vice President of Strategic Technology Development
William H. Ohm 52 Vice President and General Manager of ADE Technologies, Inc.
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.
Robert C. Abbe founded ADE in 1967. Since that time, he has served as
President, Chief Executive Officer and a Director of ADE. Mr. Abbe received an
AB in Physics from Harvard College.
Mark D. Shooman joined ADE 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 Chief Financial Officer of the retail sales division of Fidelity
Investments. Mr. Shooman received a BS in Electrical Engineering from
Renesselaer Polytechnic Institute and an MBA from The Ohio State University. Mr.
Shooman is a Certified Public Accountant.
Chris L. Koliopoulos joined ADE in June 1998 through the merger with
Phase Shift Technology, Inc., which became a wholly owned subsidiary of ADE.
Dr. Koliopoulos was President and founder of Phase Shift Technology, has
served as a Vice President of ADE and President of ADE Phase Shift since the
merger and is a Director of ADE. Dr. Koliopoulos received a BS from the
University of Rochester and a MS and PhD from the University of Arizona,
where he is currently an Adjunct Professor of Optical Sciences.
AK Lum joined ADE in 1998 and has served as Vice President and General
Manager of ADE Semiconductor Systems Group. From 1997 to 1998, Mr. Lum served as
Vice President of Manufacturing of Epson Portland Inc. From 1974 to 1997, Mr.
Lum served Shin-Etsu Handotai-Group in various senior management positions. Mr.
Lum received a BA in electrical engineering from University of Technology,
Malaysia, and an MBA from City University, State of Washington.
Noel S. Poduje joined ADE 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.
8
William Ohm joined ADE in 1994 and has served 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.
CYCLICALITY OF OUR BUSINESS
Our business depends in large part upon the capital expenditures of
semiconductor wafer and device and data storage manufacturers, which in turn
depend on the current and anticipated market demand for integrated circuits,
products utilizing integrated circuits and systems requiring data storages,
respectively. The semiconductor and data storage industries are cyclical and
have historically experienced periodic downturns, which have had a severe
effect on the demand for capital equipment. Prior semiconductor and data
storage industry downturns and construction of excess capacity by the
industries have adversely affected our revenue, gross margin and net income
and have also adversely affected the market price of our common stock. In
addition, the need for continued investment in research and development and
extensive customer service and support capability worldwide will continue to
limit our ability to reduce expenses during industry downturns.
COMPETITION
The semiconductor and data storage equipment industries are highly
competitive. Companies with complementary technologies and greater financial
resources may enter these industries and develop products that are superior
to our products or achieve market acceptance. In the market for optical
defect inspection equipment, we compete directly with Hitachi Electronics
Engineering Co., Ltd. and KLA-Tencor Corporation, both of which have
significantly greater total assets and annual revenue than we do. In the
metrology area of the device industry, we have encountered, and expect to
encounter in the future, competition from companies offering similar and
competing technologies, some of which have significantly greater total assets
and annual revenue than we do or have an existing market presence in the
device industry, or both. We also expect to encounter intense competition in
the areas of metrology and inspection for the data storage industry. Our
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 reductions or non-revenue generating shipments of new products to
certain strategic customers for evaluation purposes, which can adversely
affect our operating results. In order to remain competitive, we must
maintain a high level of investment in research and development, sales,
marketing and customer service. There can be no assurance that we will have
sufficient resources to continue to make such investment or that we will be
able to make the technological advances necessary to remain competitive.
We expect acquisitions and business combinations by our competitors and
potential competitors in the metrology as well as in the defect inspection
markets. The impact of this activity could:
- - Allow them to offer new products without the lengthy time delays typically
associated with internal product development
- - Limit our access to commercially significant technologies and/or new or
complementary products
- - 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 these companies
could have an adverse impact on both our market share and the pricing of our
products, which could have a material adverse effect on our business.
CUSTOMER AND INDUSTRY CONCENTRATION
A relatively limited number of customers have historically accounted for
a substantial portion of our revenue in each year. In fiscal years 1999, 1998
and 1997, sales to our top five customers in each period accounted for
approximately 45.1%, 44.7% and 45.6%, respectively, of our revenue. The loss
of or any reduction in orders by any of 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 our business, financial condition and
results of operations. In fiscal 1999, 1998 and 1997, we derived 57.7%, 64.7%
and 70.1% of our revenue, respectively, from customers in the semiconductor
wafer industry. While we are increasing our emphasis on expanding the level
of our business in the
9
device and data storage industries, there can be no assurance that our efforts
will be successful. Our ability to maintain or increase our sales levels in the
future will depend in part upon our ability to obtain orders from new customers
as well as the financial condition and success of our existing customers and the
general economy. There can be no assurance that we will be able to increase the
level of our revenue in the future or that we 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 our financial results. See Notes 2 and
12 of Notes to Consolidated Financial Statements.
DEPENDENCE ON SUPPLIERS
Certain of the components and subassemblies, including certain systems
controllers and robotics components, incorporated in our current systems and
those under development are obtained from a single source or a limited group
of suppliers. We have 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 our results of operations and damage customer
relationships. Further, a significant increase in the price of one or more of
these components or failure to perform up to specification could adversely
affect our results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
International sales accounted for 59.3%, 60.6% and 57.3% of our revenue
for fiscal years 1999, 1998 and 1997, respectively. See Note 12 of Notes to
Consolidated Financial Statements. We expect that international sales will
continue to represent a significant percentage of revenue. Our international
business may be affected by changes in demand resulting from:
- - Fluctuations in interest and currency exchange rates
- - The investment policies of foreign countries
- - Changes in trade policies and/or tariff regulations
- - Difficulties in obtaining U.S. export licenses.
The current trend in foreign exchange rates raises the cost of equipment
manufactured in the United States to Asian companies. Given that historically
approximately 45% - 50% of our revenue has come from Asia, the continued
financial instability in certain Asian countries could materially affect our
competitive position and consequently, financial results.
ACQUISITIONS AND ALLIANCES
ADE 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:
- - Difficulties assimilating the operations, technologies and products of
acquired businesses.
- - Diversion of management's attention from other business concerns.
- - Entering markets in which we have no or limited direct prior experience
and must compete with competitors having stronger market positions.
- - Potential loss of key employees of the acquired business.
Integrating acquired businesses requires, among other things, integration of
product offerings and coordination of sales, marketing, research and development
and management organizations. There can be no assurance that such integration
will be accomplished smoothly or successfully. The difficulties of integration
may be increased by the necessity of coordinating organizations that are
separated geographically. The inability of management to successfully integrate
the operations of any acquired businesses could have a material adverse effect
on our business and results of operations.
10
ITEM 2. PROPERTIES
Our principal operations are located in an approximately 117,000 square
foot company-owned building in Westwood, Massachusetts. We completed
construction of and occupied a 60,000 square foot building in Tucson, Arizona
which was completed in May 1999. We also own a 46,000 square foot building in
Newton, Massachusetts. In addition, we lease a 38,000 square foot building in
Charlotte, North Carolina under a lease that expires in January 2000 and a
14,200 square foot building in Milpitas, California under a five year lease that
expires in December 2001. We also lease space for sales and service support
offices in various other locations.
ITEM 3. LEGAL PROCEEDINGS
We are 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, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
Our common stock trades on the Nasdaq National Market System under the
symbol "ADEX." The following table presents the high and low sale prices for
each quarter for the common stock as reported for the periods indicated.
FISCAL YEAR ENDED APRIL 30, 1999 HIGH LOW
First quarter 18 1/4 12 1/2
Second quarter 14 6 1/2
Third quarter 14 7/8 8 1/16
Fourth quarter 15 3/8 9 1/2
FISCAL YEAR ENDED APRIL 30, 1998 HIGH LOW
First quarter 30 1/4 18 1/4
Second quarter 45 1/2 19 3/4
Third quarter 32 1/2 14 7/16
Fourth quarter 21 14 5/8
The last sale price of the common stock on July 21, 1999, as reported by
Nasdaq, was $12 1/8 per share. As of July 16, 1999, there were 110 holders of
record of the common stock (approximately 2,292 beneficial holders).
We have never declared or paid any cash dividends on our common stock and
currently expect to retain future earnings for use in our business.
11
RECENT ISSUANCE OF UNREGISTERED SECURITIES
In June 1998, in consideration of a merger between ADE and Phase Shift
Technology, Inc., a privately-owned company, ADE issued an aggregate of
2,000,000 shares of common stock to the Phase Shift shareholders. All of the
recipients of shares 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 merger with Phase
Shift, and was exempt from the registration requirements of Section 5 of the
Securities Act of 1933 pursuant to Section 4(2) of that Act.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business. You
should read the selected financial data in conjunction with our historical
financial statements and related notes and the section of this annual report
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
YEAR ENDED APRIL 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue $60,885 $135,700 $111,133 $73,078 $48,723
Cost of revenue 46,489 61,755 49,414 34,125 24,940
----------- ---------- ---------- ----------- ----------
Gross profit 14,396 73,945 61,719 38,953 23,783
----------- ---------- ---------- ----------- ----------
Operating expenses:
Research and development 24,026 27,580 17,689 8,049 6,452
Purchased in-process research and development - 6,100 - - -
Marketing and sales 12,280 15,638 14,501 10,555 7,149
General and administrative 11,153 13,701 8,043 7,208 4,880
Restructuring charges 2,318 - - - -
----------- ---------- ---------- ----------- ----------
Total operating expenses 49,777 63,019 40,233 25,812 18,481
----------- ---------- ---------- ----------- ----------
Income (loss) from operations (35,381) 10,926 21,486 13,141 5,302
Other income (expense), net: 2,600 2,347 387 348 (402)
----------- ---------- ---------- -----------------------
Income (loss) before provision for (benefit from) income
taxes and equity in net earnings (loss) of affiliated
companies (32,781) 13,273 21,873 13,489 4,900
Provision for (benefit from) income taxes (9,335) 3,301 6,926 4,615 1,731
----------- ---------- ---------- ----------- ----------
Income (loss) before equity in net earnings (loss) of
affiliated companies (23,446) 9,972 14,947 8,874 3,169
Equity in net earnings (loss) of affiliated companies (1,082) (1,005) 99
----------- ---------- ---------- ----------- ----------
Net income (loss) $(24,528) $ 8,967 $ 15,046 $ 8,874 $3,169
----------- ---------- ---------- ----------- ----------
Basic earnings (loss) per share $ (1.89) $ 0.73 $ 1.46 $ 0.95 $ 0.39
----------- ---------- ---------- ----------- ----------
Diluted earnings (loss) per share $ (1.89) $ 0.70 $ 1.38 $ 0.89 $ 0.37
----------- ---------- ---------- ----------- ----------
Weighted average common shares - basic 12,989 12,215 10,301 9,302 8,217
----------- ---------- ---------- ----------- ----------
Weighted average common shares - diluted 12,989 12,822 10,880 9,938 8,490
----------- ---------- ---------- ----------- ----------
APRIL 30,
------------------------------------------------------------
----------- ---------- ---------- ----------- ----------
1999 1998 1997 1996 1995
----------- ---------- ---------- ----------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents $61,278 $72,711 $22,485 $22,495 $3,666
Working capital 90,654 111,840 49,043 41,245 15,767
Total assets 153,430 173,643 94,508 65,139 30,244
Long-term debt, less current portion 12,537 8,613 5,091 677 2,166
Total stockholders' equity $120,822 $144,186 $64,730 $47,513 $16,598
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ TOGETHER WITH THE DESCRIPTION OF BUSINESS, FINANCIAL
STATEMENTS AND THE RELATED NOTES OF ADE WHICH APPEAR ELSEWHERE IN THIS ANNUAL
REPORT. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
REFLECT ADE'S PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED BELOW AND IN THE FORWARD-LOOKING STATEMENTS
APPEARING ELSEWHERE IN THIS ANNUAL REPORT.
OVERVIEW
ADE was founded in 1967 to develop and market certain advanced concepts
and designs in capacitance and other measurement technologies suitable for
industrial applications requiring precise, reliable, damage-free and
repeatable measurements. Our 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 semiconductor
wafer, device and data storage manufacturing processes. We operate three
major business segments, the Semiconductor Systems Group, ADE Phase Shift and
ADE Technologies. The Semiconductor Systems Group manufactures
multifunctional semiconductor metrology and automation systems and optical
wafer defect inspection equipment used to detect particles and other defects
on silicon wafer surfaces. ADE Phase Shift manufactures high performance,
non-contact surface metrology equipment using advanced interferometric
technology that provides enhanced yield management to the data storage,
semiconductor and optics industries. ADE Technologies manufactures high
precision magnetic characterization and non-contact dimensional metrology
gaging systems primarily for the data storage industry.
Revenue from product sales is recorded upon shipment, provided collection
of the related receivable is probable. We accrue for anticipated warranty costs
upon shipment. Service revenue is recognized as the services are performed
provided collection of the related receivable is probable. Service contract
revenue is recognized ratably over the contractual periods the services are
provided. We do not provide the right to return products. Revenue from software
licenses is recognized when an agreement has been executed, software has been
delivered, fees are fixed and determinable and collection of the related
receivable is probable. Revenue from software consulting services provided on a
time and reimbursable expense basis is recognized as the services are provided.
On June 11, 1998, ADE merged with Phase Shift Technology, Inc., an Arizona
corporation. Each outstanding share of Phase Shift's common stock was exchanged
for two shares of the ADE's common stock. A total of 2,000,000 shares of our
common stock were issued in this transaction. This transaction has been
accounted for as a pooling-of-interests. Accordingly, all prior period financial
statements have been restated to reflect the inclusion of Phase Shift
operations.
13
RESULTS OF OPERATIONS
The following table presents the percentage of total revenue for the
respective line items in ADE's consolidated statements of operations.
YEAR ENDED APRIL 30,
--------------------------------
1999 1998 1997
---------- ---------- ----------
Revenue 100.0% 100.0% 100.0%
Cost of revenue 76.3% 45.5% 44.5%
Gross profit 23.7% 54.5% 55.5%
Operating expenses:
Research and development 39.5% 20.3% 15.9%
Purchased in-process research and development - 4.5% -
Marketing and sales 20.2% 11.5% 13.0%
General and administrative 18.3% 10.1% 7.2%
Restructuring charges 3.8% - -
Income (loss) from operations -58.1% 8.1% 19.3%
Other income, net 4.3% 1.7% 0.3%
Net income (loss) -40.3% 6.6% 13.5%
RESTRUCTURING
In January 1999, we began to consolidate our Charlotte, North Carolina
operations and certain of our Milpitas, California operations into our
Massachusetts facilities to better align our cost structure with prevailing
semiconductor and data storage market conditions and to position ourselves with
more efficient operations for expected industry recoveries. Anticipated savings
when the consolidation efforts are completed include reduced cost of sales due
to reduced capacity-related expense, reduced payroll and related costs and
reduced travel costs. Expenses associated with these consolidations incurred in
fiscal 1999 totaled $4.5 million, including a restructuring charge of $2.3
million and $2.2 million in other non-recurring expenses. The restructuring
charges include severance costs of $1.2 million related to the termination of 71
employees in general and administrative, marketing and sales, manufacturing, and
engineering functions; $185,000 in lease termination penalties and $931,000 in
non-cash fixed asset impairments related to furniture, fixtures and building
improvements on the terminated leased facilities. Other non-recurring expenses
include travel, consulting, and employee retention bonuses and have been
included in general and administrative expenses. Retention bonus expense relates
to payments to employees who have been notified of their termination dates, but
whose services are required through specified dates during the consolidation
process. This expense is recorded ratably over the respective estimated service
periods. We anticipate recruiting costs and labor redundancy costs in future
periods associated with replacing certain personnel currently in Charlotte who
have elected not to relocate to Massachusetts. Additionally, we anticipate
moving and related costs to be incurred through calendar 1999, which will be
included in general and administrative expenses in future reporting periods.
Restructuring charge activity during fiscal 1999 and the related accrual as of
April 30, 1999 is as follows:
Balance at May 1, 1998 $ --
Restructuring provision 2,318
Non-cash fixed asset impairments (931)
Lease termination payments (185)
------------
Balance at April 30, 1999 $ 1,202
------------
------------
These consolidation efforts may have an adverse impact on our near term
ability to complete the development and manufacture of certain of our new
semiconductor industry inspection products within the time frames required by
our customers. There can be no assurance that we will be able to attract and
retain the necessary personnel to accomplish our strategic goals,
satisfactorily support our customers or operations or successfully bring new
products to market on a timely basis while aligning our cost structure with
market conditions.
14
REALIZABILITY OF DEFERRED TAX ASSETS
At April 30, 1999, we increased our valuation allowance against deferred
tax assets by $3.0 million, as the full value of our net operating loss
carryforwards and temporary differences may not be realized. This increase
was based upon weighing all evidence available to management, including
fiscal 1999 pre-tax losses of $32.8 million, current estimates of future
taxable income, the cyclicality of the semiconductor and data storage
industries and the current uncertainty within those markets. Net operating
loss carryforwards generated in fiscal 1999 begin to expire in fiscal 2004
for state income tax purposes. We will need to generate approximately $25.6
million of future taxable income to realize the benefit of our net deferred
tax assets as of April 30, 1999. The amount of the deferred tax assets
considered realizable could materially change in the near term if estimates
of future taxable income change or do not materialize.
FISCAL YEAR ENDED APRIL 30, 1999 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1998
REVENUE. Revenue decreased 55.1% to $60.9 million in fiscal 1999 from
$135.7 million in fiscal 1998. Decreased sales of our products were primarily
due to reduced demand for capital equipment. Semiconductor Systems Group revenue
decreased 60.7%, reflecting the excess capacity for 200mm wafer production and
continued delays in implementing production of 300mm wafers. Our capital
equipment systems are sold primarily at the beginning of the semiconductor
production process, with 57.7% percent of consolidated revenue coming from
semiconductor wafer manufacturers. Within the semiconductor device market, which
accounted for approximately 18.3% of consolidated revenue, there have been
positive statements of an industry recovery by leading device manufacturers.
Most of our wafer-making customers, however, have not been profitable for more
than a year. Consequently, these customers continue to implement strict controls
on capital expenditures, which has adversely impacted sales of our equipment.
A competitor has shipped multiple optical inspection products for advanced
200 millimeter and 300 millimeter wafers to some of our semiconductor customers.
We believe that our next generation optical inspection product, which has been
shipped to customers on a limited basis, is in many ways technologically
superior to the competitor's product. However, unless and until we are able to
achieve broad market acceptance of this product and implement volume production,
our sales of wafer inspection systems could be adversely affected.
ADE Phase Shift and ADE Technologies revenue decreased 36.3% and 44.5%,
respectively. Decreased sales of these segments were primarily due to excess
capacity and the ongoing consolidation occurring in the data storage industry
creating reduced demand for capital equipment. ADE Phase Shift also experienced
decreased sales of its products to the optics and other industries. While
recognition of the importance of a production metrology strategy within the data
storage industry is increasing, which would create increased demand for
metrology products, we remain cautious as to when capacity-driven purchases of
our equipment will return.
Revenue from sales to Japan ADE Ltd, our 50% owned affiliate and a
distributor of our products, by the Semiconductor Systems Group and ADE
Technologies are reflected in segment revenue during the period they are shipped
by the respective segment, which can differ from the period the revenue is
recognized for consolidated financial reporting purposes. Consolidated revenue
on sales to Japan ADE Ltd is recognized when the related product or software is
shipped to and accepted by the end user of the product or software. Consolidated
revenue in fiscal 1999 was $1.2 million more than aggregate segment revenue for
this period and reflects the impact of revenue that was recognized in fiscal
1999 for consolidated reporting purposes but recognized in a prior period on a
segment basis.
GROSS MARGIN. Gross margin decreased to 23.7% in fiscal 1999 from 54.5% in
fiscal 1998. Semiconductor Systems Group gross margins decreased primarily due
to excess manufacturing capacity and incremental increases in excess and
obsolete inventory expense combined with relatively fixed costs associated with
its customer service organization. ADE Phase Shift gross margins remained
consistent in fiscal 1999 with fiscal 1998, while ADE Technologies gross margins
decreased due to excess manufacturing capacity and significant increases in
excess and obsolete inventory expense compared to that incurred in fiscal 1998.
In order to increase our capacity utilization, ADE has completed relocation of
ADE Technologies' Milpitas, California manufacturing operations into its
15
Newton, Massachusetts facility. The consolidation of the Semiconductor Systems
Group manufacturing operations from Charlotte, North Carolina into Westwood,
Massachusetts is expected to be completed in calendar year 1999.
RESEARCH AND DEVELOPMENT. Research and development expense in fiscal 1999
decreased 12.9% to $24.0 million from $27.6 million in fiscal 1998 and increased
as a percentage of revenue to 39.5% from 20.3%. The increase as a percentage of
revenue despite the decrease in absolute expense occurred due to the 55.1%
decrease in revenue in the current year. Semiconductor Systems Group expense
decreased primarily due to significantly reduced consulting expense. ADE Phase
Shift expense decreased primarily due to strict cost control measures
implemented as a result of the adverse impact on its revenue of the data storage
industry downturn. ADE Technologies expense increased due to payroll and project
materials increase related to the development of next generation magnetics
characterization systems for the data storage industry.
ADE continues to develop and enhance advanced 200mm and 300mm metrology and
surface inspection tools, including bridge tools that provide for the transition
to 300mm, for the semiconductor industry. Increased capacity demand for advanced
200mm wafers is expected prior to adoption of the 300mm wafer standard. There is
currently no significant production capacity for 300mm wafers. We are currently
accelerating our 300mm development efforts in order to ensure the availability
of second-generation 300mm systems to meet the current short-cycle budgeting
environment in the semiconductor industry. We expect research and development
expense to continue to be significant as a percentage of revenue due to these
near term development efforts.
MARKETING AND SALES. Marketing and sales expense decreased 21.5% to $12.3
million in fiscal 1999 from $15.7 million in fiscal 1998, and increased as a
percentage of revenue to 20.2% from 10.1%. The decrease in expense results from
decreased sales commissions expense to external sales representatives, primarily
in Asia, for the Semiconductor Systems Group and ADE Technologies due to
significantly reduced revenue during the period. The mix of sales channels
through which our products are sold may have a significant impact on our
marketing and sales expense and the results in any period may not be indicative
of expense in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expense decreased
18.6% to $11.2 million in fiscal 1999 from $13.7 million in fiscal 1998 and
increased as a percentage of revenue to 18.3% from 11.5%. Expense decreased at
each of our reportable segments primarily due to our aggressive cost reduction
strategy implemented throughout fiscal 1999, which included strict controls over
discretionary spending at each of our segments and reductions in workforce at
the Semiconductor Systems Group and ADE Technologies. These decreases were
partially offset by $2.2 million in non-recurring expenses associated with the
restructuring discussed above.
OTHER INCOME. Other income was $2.6 million in fiscal 1999 versus $2.3
million in fiscal 1998. Fiscal 1999 interest income of $3.2 million was
partially offset by interest expense of $620,000 associated with the Industrial
Development Bonds used to finance the acquisition and renovation of our
corporate headquarters and Semiconductor Systems Group manufacturing facility in
Westwood, Massachusetts and the headquarters and manufacturing facility of ADE
Technologies in Newton, Massachusetts.
PROVISION FOR INCOME TAXES. The effective tax rates for fiscal 1999 and
1998 were 28.5% and 24.9%, respectively. The fiscal 1999 rate differed from the
federal statutory rate primarily because of a $3 million increase in the
valuation allowance against deferred tax assets as of April 30, 1999, partially
offset by alternative minimum tax credit carryforwards. The fiscal 1998 rate
differed from the federal statutory rate primarily because of the benefits from
ADE's foreign sales corporation, state income taxes and various tax credits. The
fiscal 1999 rate was higher than the fiscal 1998 rate due primarily to the
benefit from increased federal and state research and development tax credits
primarily realized in the fourth quarter of fiscal 1998, partially offset by the
impact of increase in the valuation allowance discussed above.
FISCAL YEAR ENDED APRIL 30, 1998 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1997
REVENUE. Revenue increased 22.1% to $135.7 million in fiscal 1998 from
$111.1 million in fiscal 1997. The increase was primarily due to increased unit
sales our products. Revenue for the Semiconductor Systems Group, ADE Phase Shift
and ADE Technologies increased 16.0%, 27.8% and 16.2% from the year earlier
period, respectively. The increase in unit sales resulted primarily from strong
demand for capital equipment in the
16
semiconductor and data storage industries, as well as increased throughput in
each of the segment's manufacturing operations.
Revenue from sales to Japan ADE Ltd, our 50% owned affiliate and a
distributor of our products, by the Semiconductor Systems Group and ADE
Technologies are reflected in segment revenue during the period they are shipped
by the respective segment, which can differ from the period the revenue is
recognized for consolidated financial reporting purposes. Consolidated revenue
on sales to Japan ADE Ltd is recognized when the related product or software is
shipped to and accepted by the end user of the product or software. Consolidated
revenue for in fiscal 1998 was $197,000 more than aggregate segment revenue for
this period and reflects the impact of revenue that was recognized in fiscal
1998 for consolidated reporting purposes but recognized in a prior period on a
segment basis.
GROSS MARGIN. Gross margin decreased to 54.5% in fiscal 1998 from 55.5% in
fiscal 1997. The decrease was primarily due to costs associated with increased
manufacturing capacity and overhead expense associated with the Semiconductor
Systems Group operating in ADE's new headquarters and expanded manufacturing
facility in Westwood, Massachusetts. The Semiconductor System Group also
operated in expanded facilities in Charlotte, North Carolina during all of
fiscal 1998 compared to only the third and fourth quarters of fiscal 1997. We
also purchased and renovated our former manufacturing facility in Newton,
Massachusetts during fiscal 1998, which currently serves as the headquarters of
ADE Technologies. Additionally, we increased our worldwide customer service
organization to support our higher levels of semiconductor system sales, with
the related personnel and travel costs contributing to a lower overall gross
margin. Gross margin for ADE Phase Shift remained consistent in fiscal 1998
compared to fiscal 1997.
RESEARCH AND DEVELOPMENT. Research and development expense in fiscal 1998
increased 55.9% to $27.6 million from $17.7 million in fiscal 1997 and increased
as a percentage of revenue to 20.3% from 15.9%. The continued delays in expected
volume sales of 300 millimeter equipment and our belief that a second generation
of 300 millimeter products will become available by the time volume purchases
begin resulted in significantly increased expenditures on the Semiconductor
System Group's 300 millimeter surface inspection and wafer thickness products.
ADE Phase Shift increased research and development expense as it continued to
expand and enhance its interferometric metrology products for the data storage,
optics and other industries. ADE Technologies increased research and development
expenses primarily due to increased project materials associated with
development of its magnetics characterization systems for the data storage
industry.
MARKETING AND SALES. Marketing and sales expense increased 7.8% to $15.6
million in fiscal 1998 from $14.5 million in fiscal 1997, but decreased as a
percentage of revenue to 11.5% from 13.0%. The increase in expenses reflected
the growth of the marketing and sales organizations to support the Semiconductor
Systems Group's and ADE Technologies increased sales volume, with the decrease
as a percentage of revenue reflecting growth in expense at a slower rate than
the overall increase in sales. ADE Phase Shift's marketing and sales expense
decreased in fiscal 1998 compared to fiscal 1997, due primarily to strict cost
control procedures.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
70.3% to $13.7 million in fiscal 1998 from $8.0 million in fiscal 1997 and
increased as a percentage of revenue to 10.1% from 7.2%. Expenses increased at
each of ADE's segments as we continued to develop management infrastructure to
support our rapid growth. Fiscal 1998 expenses for the Semiconductor Systems
Group included $1.1 million in additional bad debt reserves due to the adverse
economic conditions in certain Asian countries as well as the impact of the
semiconductor industry downturn on certain domestic customers.
OTHER INCOME. Other income was $2.3 million in fiscal 1998 versus $387,000
in fiscal 1997. Fiscal 1998 interest income of $2.8 million was partially offset
by interest expense of $507,000 associated with the Industrial Development Bonds
used to finance the acquisition and renovation of ADE's corporate headquarters
and manufacturing facility in Westwood, Massachusetts and the headquarters and
primary manufacturing facility of the ADE Technologies in Newton, Massachusetts.
PROVISION FOR INCOME TAXES. The effective tax rates for fiscal 1998 and
1997 were 24.9% and 31.7%, respectively, and differed from the federal statutory
rate primarily because of benefits from the use of ADE's foreign sales
corporation and state income taxes. The fiscal 1998 rate was lower than the
fiscal 1997 rate due to the benefit
17
of investment tax credits resulting from increased capital spending in fiscal
1998, and the benefit from increased federal and state research and development
tax credits primarily realized in the fourth quarter of fiscal 1998.
SELECTED CONSOLIDATED QUARTERLY OPERATING RESULTS
The following table presents consolidated statement of operations data
for each of the eight quarters in the period beginning May 1, 1997 and ending
April 30, 1999. This information has been derived from ADE's unaudited
consolidated financial statements. The unaudited financial statements have
been prepared on the same basis as the audited financial statements and
include all normal recurring adjustments considered necessary to present
fairly this information when read in conjunction with ADE's annual audited
financial statements and related notes appearing elsewhere in this annual
report. Our quarterly operating results have varied and may continue to vary
significantly. Our quarterly revenue typically is derived from a relatively
small number of customer orders. These customer orders may 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 our
revenue and results of operations for that quarter. The results for a
particular quarter may also vary due to a number of other factors, including:
- - Economic conditions in the semiconductor and data storage industries
- - Product mix of our sales for the period
- - The sales distribution channel of our sales for the period
- - Competitive pricing pressures
- - Our ability to design, introduce and manufacture new products on a cost
effective and timely basis
- - Customer cancellations or rescheduled shipments
- - Production difficulties or the inability to obtain critical components
resulting in delayed shipments
- - Seasonal factors such as customers' capital budget approval cycles.
These factors could have a material adverse effect on our results of operations.
Significant levels of our expenses are fixed in advance and based in part on our
expectations as to future revenue. As a consequence, any material shortfall in
revenue in a given quarter could have a material adverse effect on our earnings.
18
QUARTER ENDED
--------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1997 1997 1998 1998 1998 1998 1999 1999
---------- ---------- --------- ---------- ---------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue $34,181 $ 37,335 $ 36,269 $ 27,915 $24,028 $ 12,239 $ 12,432 $12,186
Cost of revenue 15,272 15,557 17,033 13,893 13,457 12,799 10,209 10,023
---------- --------- -------- -------- -------- -------- -------- --------
Gross profit 18,909 21,778 19,236 14,022 10,571 (560) 2,223 2,163
---------- --------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and development 5,708 6,343 7,059 8,469 6,652 6,463 5,084 5,827
Purchased in-process
research and development - 6,100 - - - - - -
Marketing and sales 3,812 4,625 3,283 3,918 3,122 3,240 2,707 3,211
General and administrative 2,963 3,066 3,348 4,325 2,878 2,213 2,463 3,598
Restructuring charges - - - - - - 2,318 -
---------- --------- -------- -------- -------- -------- -------- --------
Total operating expenses 12,483 20,134 13,690 16,712 12,652 11,916 12,572 12,636
---------- --------- -------- -------- -------- -------- -------- --------
Income (loss) from operations 6,426 1,644 5,546 (2,690) (2,081) (12,476) (10,349) (10,473)
Other income, net 189 625 711 821 761 701 653 485
Income (loss) before provision
for (benefit from) income
taxes and equity in net earnings
(loss) of affiliated companies 6,615 2,269 6,257 (1,869) (1,320) (11,775) (9,696) (9,988)
Provision for (benefit from)
income taxes 2,342 848 2,106 (1,996) (514) (4,201) (3,519) (1,100)
---------- --------- -------- -------- -------- -------- -------- --------
Income (loss) before equity in net
earnings (loss) of affiliated
companies 4,273 1,421 4,151 127 (806) (7,574) (6,177) (8,888)
Equity in net earnings (loss) of
affiliated companies 34 58 216 (1,313) (7) (324) (422) (329)
---------- --------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 4,307 $ 1,479 $ 4,367 $ (1,186) $ (813) $ (7,898) $ (6,599) $ (9,217)
---------- --------- -------- -------- -------- -------- -------- --------
---------- --------- -------- -------- -------- -------- -------- --------
Basic earnings (loss) per share $ 0.41 $ 0.12 $ 0.34 $ (0.09) $ (0.06) $ (0.61) $ (0.51) $ (0.71)
Diluted earnings (loss) per share $ 0.39 $ 0.11 $ 0.32 $ (0.09) $ (0.06) $ (0.61) $ (0.51) $ (0.71)
Weighted average shares
outstanding - basic 10,417 12,638 12,896 12,900 12,923 12,965 13,001 13,065
Weighted average shares
outstanding - diluted 11,124 13,316 13,447 12,900 12,923 12,965 13,001 13,065
QUARTER ENDED
--------------------------------------------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1997 1997 1998 1998 1998 1998 1999 1999
---------- ---------- --------- ---------- ---------- --------- ---------- ----------
Percentage of Revenue:
Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue 44.7% 41.7% 47.0% 49.8% 56.0% 105.0% 82.1% 82.3%
Gross profit 55.3% 58.3% 53.0% 50.2% 44.0% -5.0% 17.9% 17.7%
Operating expenses:
Research and development 16.7% 17.0% 19.5% 30.3% 27.7% 52.8% 40.9% 47.8%
Marketing and sales 11.1% 12.4% 9.1% 14.0% 13.0% 26.5% 21.8% 26.3%
General and administrative 8.7% 8.2% 9.2% 15.5% 12.0% 18.1% 19.8% 29.5%
Income (loss) from operations 18.8% 4.4% 15.3% -9.6% -8.7% -102.0% -83.2% -85.9%
Other income, net 0.6% 1.7% 2.0% 2.9% 3.2% 5.7% 5.3% 4.0%
Net income (loss) 12.6% 4.0% 12.0% -4.2% -3.4% -64.5% -53.1% -75.6%
Our quarterly operating results have varied and may continue to vary
significantly due to a number of factors, including economic conditions in the
semiconductor and data storage industries, the timing of shipments of orders to
major customers, the mix of products sold and competitive pricing. Customers may
cancel or reschedule shipments. Product shipments could be delayed by production
difficulties or critical component inventory shortages. These factors could have
a material adverse effect on our results of operations. As cost of revenue
includes manufacturing overhead, which is relatively constant from quarter to
quarter, gross margin can vary significantly from quarter to quarter due to
varying levels of production and revenue. Marketing and sales expenses can vary
from quarter to quarter based on a number of factors, including mix of sales
channels, geographic mix and the timing of marketing events. There can be no
assurance that we will be profitable in any future period.
FOURTH QUARTER ADJUSTMENTS
At April 30, 1999, we increased our valuation allowance against deferred
tax assets by $3 million, as the full value of our net operating loss
carryforwards and temporary differences may not be realized. This increase was
based upon weighing all evidence available to management. Recording this
increase to the valuation allowance decreased our annual effective tax rate to
28.5%, compared to the estimated annual effective tax rate of 36.1% utilized
during the first three quarters of fiscal 1999. Also during the fourth quarter
of fiscal 1999, we increased our reserve for excess and obsolete inventory by
$1.3 million for ADE Technologies and $1.0 million for the Semiconductor Systems
Group.
19
We recorded a $2.3 million credit to the provision for income taxes during
the fourth quarter of fiscal 1998, which included a $1.8 million credit
resulting from the difference between our actual effective tax rate for fiscal
1998 of 24.9% and the estimated effective tax rate of 35.0% utilized during the
first three quarters of fiscal 1998. Also in the fourth quarter of 1998, we
reversed accrued bonus expense of $1.3 million, which had been recorded in the
first two quarters of fiscal 1998. The difference between our actual effective
tax rate and the estimated effective tax rate used in the first three quarters
of fiscal 1998 resulted primarily from the effect of a $1.9 million pre-tax loss
for the fourth quarter of fiscal 1998, compared to pre-tax income of $15.1
million for the first three quarters of fiscal 1998. Also contributing to the
difference in the estimated and actual effective tax rates were larger than
anticipated federal and state research and development tax credits due in part
to expenditures in the fourth quarter The reversal of the accrued bonus expense
reflects our cost reduction measures initiated in the fourth quarter of fiscal
1998. Pro forma net income for the nine months ended January 31, 1998, including
the reversal of the bonus accrual and utilizing the actual effective tax rate of
24.9%, is 12,673,000, compared to reported net income for the nine months ended
January 31, 1998 of $10,152,000
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1999, we had $61.3 million in cash and cash equivalents and
$90.7 million in working capital. In addition, we had $3.5 million in restricted
cash used as security for a tax-exempt Industrial Development Bond issued
through the Massachusetts Industrial Finance Agency in December 1997. We may
substitute a letter of credit in an amount equal to approximately 105% of the
outstanding principal balance as collateral for our obligations under this bond,
assuming we have the ability to borrow under the credit facility described below
or another facility. This substitution would allow the restricted cash balance
to be used for general corporate purposes. We also have an unsecured revolving
line of credit facility with a bank, with a maximum borrowing amount of $8
million or a specified percentage of accounts receivable, whichever is less. The
credit facility provides us the option of borrowing at either the bank's prime
rate or the bank's LIBOR rate plus 2%. The credit facility expires and any
balance is due December 21, 1999. There were no borrowings outstanding under the
credit facility at April 30, 1999. At April 30, 1999, we were in violation of
certain financial covenants related to the credit facility, which provides the
bank with the right to withhold future advances under the credit facility, to
require cash deposits as security for any future advances or to offset any and
all of our cash deposits with the bank against any outstanding borrowings under
the credit facility. We are renegotiating the terms and conditions of the credit
facility, in the event that we seek to obtain funds under the credit facility.
At April 30, 1999, ADE was in violation of certain financial covenants related
to a standby letter of credit used as security for a tax-exempt Industrial
Development Bond issued through the Massachusetts Industrial Finance Agency in
June 1996. We received a waiver of this default and have renegotiated these
covenants and other terms and conditions of this letter of credit.
Cash used in operating activities for the year ended April 30, 1999 was
$7.8 million. This amount resulted from a net loss of $24.5 million, adjusted
for net non-cash charges of $7.3 million and a $9.4 million net decrease in
working capital accounts. Non-cash items consisted of $6.0 million of
depreciation and amortization, $931,000 in non-cash restructuring charges and
$1.2 million as our share of the net loss of affiliated companies, net of cash
dividends received from the affiliates, partially offset by an $808,000 increase
in deferred tax assets. The non-cash restructuring charge related to a $931,000
write-down of fixed assets. The increase in deferred tax assets resulted
primarily from the asset write-down, increased accrued severance liabilities
discussed below and net operating loss carry-forwards generated by fiscal 1999
pre-tax operating losses as of April 30, 1999. The amount of the deferred tax
assets considered realizable could materially change in the near term if
estimates of future taxable income change or do not materialize.
The net decrease in working capital total of $9.4 million was comprised of
decreased accounts receivable, inventories and prepaid expenses of $5.1 million,
$6.6 million and $640,000 respectively, and a $3.2 million increase in accrued
expenses and other current liabilities. These amounts were partially offset by
decreased accounts payable and deferred income on sales to Japan ADE Ltd., our
50% owned Japanese affiliate, of $3.4 million and $720,000, respectively, and
increased income tax refund receivable of $2.1 million.
The decrease in accounts receivable resulted from the significantly
decreased billings and revenue during the last three quarters of fiscal 1999 and
collections of outstanding receivable balances. The decrease in inventory
resulted primarily from a $6.2 million increase in our reserve for excess and
obsolete inventory and $400,000 in
20
gross inventory decreases. Some of our major semiconductor wafer maker customers
have significant open floor space they had constructed in anticipation of a
300mm ramp up. Demand for equipment to fill that space could occur abruptly, and
we therefore anticipate increases in our inventory balances in the near future
to be able to quickly respond to customer needs. The decrease in prepaid
expenses results primarily from the timing of payments. The increase in accrued
liabilities and other current liabilities resulted from approximately $1.3
million in accrued employee severance and retention bonus expense related to the
operations consolidation and timing differences in the receipt of
vendor/supplier invoices and the accounts payable cycle.
The decrease in accounts payable resulted primarily from decreased
inventory purchases and reductions in other purchase commitments, including
research and development project materials and consulting, as well as the timing
of the payables cycle. The decreased deferred income on sales to affiliate
resulted from decreased product shipments to Japan ADE Ltd. The increase in
income tax receivable resulted from increased income tax refunds due to ADE
through net operating loss carrybacks generated by fiscal 1999 pre-tax operating
losses.
Cash used in investing activities was $8.8 million, and consisted of $7.8
million for purchases of fixed assets and $1.2 million in advances to affiliated
companies, partially offset by aggregate reductions of $275,000 in restricted
cash and other assets. Through April 30, 1999, we have invested $4.5 million in
a new manufacturing facility for ADE Phase Shift in Tucson, Arizona to provide
additional manufacturing capacity as ADE Phase Shift's products and technology
are integrated with our other business segments. We anticipate total costs of
this facility to be $6.5 million. We also anticipate investing approximately $2
million in renovating our Westwood, Massachusetts facility to accommodate the
consolidation of the Semiconductor Systems Group's surface inspection operations
from Charlotte, North Carolina.
Cash provided by financing activities was $5.2 million, which resulted
primarily from $4.5 million in proceeds from an industrial development bond
issued through the Industrial Development Authority of the County of Pima,
Arizona and $1.1 million of aggregate proceeds from the issuance of common stock
and tax benefits from the exercise of stock options. These amounts were
partially offset by $435,000 in repayments of long-term debt. The industrial
development bond carries an interest rate of 5.52%. Monthly principal and
interest payments on this bond are approximately $31,000 through March 2009,
with the remaining 50% principal balance due at that time. The proceeds were
used to partially fund the construction of a new manufacturing facility for ADE
Phase Shift in Tucson, Arizona. The bonds are secured with a standby letter of
credit from a financial institution, which has annual fees of 1.5% of the
outstanding bond balance and is secured by a mortgage on the building.
We expect to meet our near-term working capital needs and capital
expenditures primarily through our available cash and cash equivalents and the
above-referenced Credit Facility assuming waiver of the existing default.
YEAR 2000
ADE has formed a Task Force to assess the nature, extent and cost of
remediation of any Year 2000 readiness issues confronting us and our suppliers,
customers and other critical third parties. The project encompasses reviewing
our products and internal systems, both information technology and
non-information technology as well as the Year 2000 readiness of companies with
which we have a material relationship, including customers, suppliers,
creditors, financial organizations, utility providers and governmental agencies.
This assessment has begun at each of our operating units and we have identified
certain requisite corrective actions.
PRODUCTS. We are in the process of completing Year 2000 readiness testing
utilizing testing guidelines prepared by a consortium of semiconductor
manufacturers. Corrective actions for noncomplying software included in our
products have included formulating software patches that provide proper system
operation or a combination of software patches and upgrades that provide proper
system operation and the reporting of the Year 2000. These patches and upgrades
have been or will be provided to customers. Additionally, we have demonstration
beta systems installed at customer sites that are not currently Year 2000 ready.
These systems are expected to be removed from customer sites by October 1999 and
replaced with new, Year 2000 ready systems that will be purchased by the
customers. We also sell software products that are bundled with or sold
separately from our capital equipment products. The ability of a majority of
these software products to function as a Year 2000 ready product is dependent
upon the Year 2000 readiness of the user's operating system and any other
software with
21
which our products will interact. Testing and corrective actions related to Year
2000 issues in our products has been completed except for the above-mentioned
demonstration units. However, notwithstanding such efforts, any failure of our
products to perform, including system malfunctions due to the onset of the Year
2000, could result in claims against us, which could have a material adverse
effect on our business, results of operations or financial condition.
INFORMATION TECHNOLOGY. We have substantially completed our review of our
internal software applications and have determined that all network systems and
server architecture are Year 2000 ready. We utilize standard, vendor supplied
software for our electronic mail, corporate communications, engineering design,
manufacturing and materials purchasing/planning, accounting, desktop and
database systems. We have contacted these vendors to obtain assurances that
these information technology systems are or will be Year 2000 compliant. This
testing will be completed by August 1999. To the extent that some older versions
of these software systems may not be Year 2000 compliant and are currently being
utilized by employees, we intend to upgrade such systems to achieve Year 2000
readiness. The failure of any of our information technology systems to be Year
2000 compliant could have a material adverse effect on us and no assurance can
be provided that all such programs will be implemented on a timely basis.
NON-INFORMATION TECHNOLOGY. We are aware of potential non-information
technology system (building security, voice mail, telecommunications, utility
and water systems, etc.) risk associated with the Year 2000 issue and are
currently evaluating our potential exposure at each of our facilities. We
anticipate that any necessary renovation of our non-information technology
systems as well as the validation of any repairs will be substantially completed
by August 1999. Formal queries to landlords, water, utility and
telecommunications providers for our domestic and international locations , and
other third parties with whom we have a material relationships have been sent to
these suppliers to assess the systems' Year 2000 readiness.
SUPPLIERS AND CUSTOMERS. We are in the process of inquiring of our
significant suppliers and customers the status of their Year 2000 readiness
through completion of a Year 2000 Readiness Supplier Questionnaire that has been
developed by a consortium of semiconductor manufacturers. All such requests have
been sent as of April 30, 1999 and we have received responses to approximately
90% of these inquiries. Each of the responses received has indicated the
respective third party is or will be Year 2000 ready by December 31, 1999.
However, we have no means of assuring that third parties will achieve Year 2000
readiness. Furthermore, there can be no assurance that IT, non-IT and other
suppliers who have provided Year 2000 readiness documentation will be Year 2000
compliant or that such documentation accurately and fully reflects the Year 2000
readiness of their systems. Our assessments of the effects of Year 2000 on us
are based, in part, upon information received from third parties and our
reliance on that information. The failure of any such supplier's systems to be
Year 2000 compliant may have a material adverse effect on our business, results
of operations or financial condition.
YEAR 2000 COSTS AND EXPENSES. We have used both internal and external
resources to address Year 2000 readiness and to program, test and implement
software for Year 2000 modifications. We specifically track the costs associated
with Task Force meetings (including related travel expenditures), Year 2000
educational seminars, product software testing and patch development costs
(consulting and internal payroll costs), network server upgrades, internal
payroll costs related to the contacting of third parties to determine Year 2000
status, and postage and related costs associated with providing patches and
upgrades to customers for software utilized in our products. We have not
separately tracked the costs of utilizing our internal information systems
personnel in addressing our Year 2000 readiness, with these costs principally
relating to payroll and related benefits. Total costs for Year 2000 readiness
are currently estimated to be approximately $250,000, of which approximately
$156,000 have been incurred through April 30, 1999. Costs incurred to date have
been, and anticipated future costs are expected to be funded through operations.
As we continue to complete our Year 2000 readiness plan, actual costs may exceed
the current estimate.
CONTINGENCY PLANS. Our contingency plan with respect to the Year 2000
issue is currently being developed. We are in the process of reviewing the
status of all third party suppliers. Replacement suppliers will be identified
for critical suppliers who we believe will not be Year 2000 ready. We are
considering contingency plans on a global basis relative to systemic failure
of electricity or telecommunications beyond our control. There can be no
assurance that any contingency plan measures will mitigate the impact of Year
2000 problems.
22
If unforeseen Year 2000 readiness efforts are required or if the cost of
any updates, modifications or replacement of our systems or products exceeds our
estimates, the Year 2000 issue could result in material costs and have a
material adverse effect on our business, results of operations or financial
condition. There can be no assurance that we will be successful in addressing
Year2000 problems as they relate to our products and internal systems. In
addition, there can be no assurance that the systems of third parties with which
we interact will not suffer from Year 2000 problems. Furthermore, Year 2000
problems that have been or may in the future be identified with respect to the
information technology and non-information technology systems of third parties
having widespread national and international interactions with persons and
entities generally (for example, certain systems of governmental agencies,
utilities and information and financial networks) could have a major impact on
our financial condition or results of operations. The most reasonably likely
worst case Year2000 scenario, is the disruption of our business operations
and/or those of our customers. Another reasonably likely worst case scenario is
a systemic failure beyond our control, including but not limited to prolonged
electrical or telecommunications failures or general disruptions in global
business activities. Risks associated with such disruptions include, but are not
limited to, increased operating costs, disruption in product shipments, loss of
customer orders, and claims of mismanagement, misrepresentation or breach of
contract, any of which could have a material adverse effect on ADE.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). This statement establishes new standards for the
recognition of gains and losses on derivative instruments and provides guidance
as to whether a derivative may be accounted for as a hedging instrument. SFAS
No. 133 will be effective for us beginning in fiscal 2002. We currently do not
utilize derivative instruments or engage in hedging activities and, therefore,
the adoption of SFAS No. 133 is not expected to have a material impact on our
financial position or our results of operations.
INFLATION
To date, inflation has not had a significant impact on our operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages F-1 through F-23
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 1999 Annual Meeting of
Stockholders, to be filed with the Commission on or about August 16, 1999 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 1999 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 1999 Proxy Statement, which shall not be deemed
incorporated herein).
23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 1999 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-1
Consolidated Balance Sheet as of April 30, 1999 and 1998............................ F-2
Consolidated Statement of Operations for the three years ended
April 30, 1999...................................................................... F-3
Consolidated Statement of Stockholders' Equity for the three
years ended April 30, 1999.......................................................... F-4
Consolidated Statement of Cash Flows for the three years ended
April 30, 1999...................................................................... F-5
Notes to Consolidated Financial Statements.......................................... F-6
(a)(2) Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves
for the three years ended April 30, 1999..................................... S-1
All other schedules are omitted because they are either not applicable or
the required information is included in the financial statements or related
notes.
24
(a)(3) Exhibits.
Exhibit
Number Description
- ------ ----------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated as of February 27, 1997 by and
between ADE Corporation, ADE Technologies, Inc., Digital Measurement
Systems, Inc., Dennis E. Speliotis, Elias Speliotis, Evanthia
Speliotis, Ismene Speliotis, Advanced Development Corporation, David
C. Bono and Alan Sliski (filed as Exhibit 10.18 to the Company's Form
10-K for the fiscal year ended April 30, 1997 and incorporated herein
by reference).
2.2 Agreement and Plan of Merger dated as of May 31, 1998 by and among ADE
Corporation, Theta Acquisition Corp., Phase Shift Technology, Inc.,
Chris Koliopoulos and David Basila (filed as Exhibit 2 to the
Company's Form 8-K dated June 25, 1998 and incorporated herein by
reference).
2.3 Purchase and Sale Agreement dated as of February 28, 1997 by and
between ADE Corporation and Dennis E. Speliotis, individually and as
Trustee of Thouria Investment Trust under a Declaration of Trust dated
August 18, 1992, Elias Speliotis, Evanthia Speliotis and Ismene
Speliotis (filed as Exhibit 10.20 to the Company's Form 10-K for the
fiscal year ended April 30, 1997 and incorporated herein by
reference).
3.1 Restated Articles of Organization (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (33-96408) or amendments
thereto and incorporated herein by reference).
3.2 By-laws (filed as Exhibit 3.2 to the Company's Registration Statement
on Form S-1 (33-96408) or amendments thereto and incorporated herein
by reference).
4.1 Registration Rights Agreement dated as of February 28, 1997 by and
between ADE Corporation and Dennis E. Speliotis, individually and as
Trustee of Thouria Investment Trust under a Declaration of Trust dated
August 18, 1992 recorded in the Middlesex South District Registry of
Deeds at Book 22305, Page 375 (filed as Exhibit 10.21 to the Company's
Form 10-K for the fiscal year ended April 30, 1997 and incorporated
herein by reference).
4.2 Registration Rights Agreement dated as of February 27, 1997, by and
among ADE Corporation and Advanced Development Corporation, David C.
Bono and Alan Sliski (filed as Exhibit 10.19 to the Company's Form
10-K for the fiscal year ended April 30, 1997 and incorporated herein
by reference).
4.3 Registration Rights Agreement dated as of May 31, 1998 by and among
ADE Corporation, Chris Koliopoulos and David Basila (filed as Exhibit
4.6 to the Company's Form 8-K dated June 25, 1998 and incorporated
herein by reference).
10.1 Form of Employee Confidentiality Agreement (filed as Exhibit 10.1 to
the Company's Registration Statement on Form S-1 (333-96408) or
amendments thereto and incorporated herein by reference).
10.2 1997 Stock Option Plan (filed as Exhibit 4.3 to the Company's
Registration Statement on Form S-8(333-46505) or amendments thereto
and incorporated herein by reference).*
10.3 Amendment to 1997 Stock Option Plan dated April 7, 1999 (filed
herewith).
10.4 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).*
10.5 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).*
10.6 Amendment to 1992 Stock Option Plan dated April 7, 1999 (filed
herewith).
10.7 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).*
10.8 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).*
10.9 Lease of ADE Optical Systems' Charlotte, North Carolina facility,
dated June 26, 1984, as assigned and renewed, between Pine Brook
Center Limited Partnership and ADE Optical Systems Corporation (filed
as
25
Exhibit 10.7 to the Company's Registration Statement on Form S-1
(33-96408) or amendments thereto and incorporated herein by
reference).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 Escrow Agreement dated as of May 31, 1998 by and among ADE
Corporation, Chris Koliopoulos, David Basila, and Norman Fenton as
Escrow Agent (as Exhibit 10.20 to the Company's Form 10-K for the
fiscal year ended April 30, 1998, and incorporated herein by
reference).
10.20 Noncompetition Agreement dated as of May 31, 1998 by and between ADE
Corporation and Chris Koliopoulos (filed as Exhibit 10.21 to the
Company's Form 10-K for the fiscal year ended April 30, 1998, and
incorporated herein by reference).
10.21 Noncompetition Agreement dated as of May 31, 1998 by and between ADE
Corporation and David Basila
26
(filed as Exhibit 10.22 to the Company's Form 10-K for the fiscal year
ended April 30, 1998, and incorporated herein by reference).
10.22 Employment Agreement dated as of May 31, 1998 by and between Phase
Shift Technology, Inc. and Chris Koliopoulos (filed as Exhibit 10.23
to the Company's Form 10-K for the fiscal year ended April 30, 1998,
and incorporated herein by reference).
10.23 Employment Agreement dated as of May 31, 1998 by and between Phase
Shift Technology, Inc. and David Basila (filed as Exhibit 10.24 to the
Company's Form 10-K for the fiscal year ended April 30, 1998, and
incorporated herein by reference).
21.1 Subsidiaries of the Company (filed as Exhibit 21.1 to the Company's
Form 10-K for the fiscal year ended April 30, 1998 and incorporated
herein by reference).
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith).
24.1 Power of Attorney (filed herewith as part of the signature page
hereto).
27 Financial Data Schedule (filed herewith).
- --------------------------
* Compensatory plan or agreement applicable to management and employees.
27
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS ANNUAL REPORT ON FORM
10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ADE CORPORATION
July 29, 1999 By: /s/ Robert C. Abbe
---------------------------
Robert C. Abbe
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints
Robert C. Abbe, Mark D. Shooman, Willard G. McGraw, Jr., and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution in each of them, for him and in his name, place, and stead,
and in any and all capacities, to sign this annual report on Form 10-K of ADE
Corporation and any amendments thereto, and to file the same, with all exhibits
thereto and any other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully and to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
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
COMPANY IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
--------- ----- ----
/s/ Robert C. Abbe President, Chief Executive Officer July 29, 1999
- ------------------------------------------ and Director (Principal Executive
Robert C. Abbe Officer)
/s/ Mark D. Shooman Vice President and July 29, 1999
- ------------------------------------------ Chief Financial Officer (Principal
Mark D. Shooman Financial Officer)
/s/ Joseph E. Rovatti Controller (Principal Accounting July 29, 1999
- ------------------------------------------ Officer)
Joseph E. Rovatti
/s/ Landon T. Clay Chairman of the Board July 29, 1999
- ------------------------------------------
Landon T. Clay
/s/ Chris L. Koliopoulos Vice President, July 29, 1999
- ------------------------------------------ President of ADE Phase
Chris L. Koliopoulos Shift and Director
/s/ Francis B. Lothrop, Jr. Director July 29, 1999
- ------------------------------------------
Francis B. Lothrop, Jr.
/s/ H. Kimball Faulkner Director July 29, 1999
- ------------------------------------------
H. Kimball Faulkner
/s/ Kendall Wright Director July 29, 1999
- ------------------------------------------
Kendall Wright
/s/ Harris Clay Director July 29, 1999
- ------------------------------------------
Harris Clay
28
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 under Item 14 (a)(1) on page 25 present fairly, in all
material respects, the financial position of ADE Corporation and its
subsidiaries at April 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended April
30, 1999, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14 (a)(2) on page 25 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule 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.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
June 24, 1999
F-1
ADE CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
April 30, April 30,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 61,278 $ 72,711
Accounts receivable:
Trade, less allowance for doubtful accounts
of $820 and $1,805, respectively 10,192 15,545
Affiliate 1,651 1,393
Inventories 22,178 28,792
Income tax refund receivable 7,425 5,351
Prepaid expenses and other current assets 582 1,222
Deferred income taxes 7,419 7,670
------------ ------------
Total current assets 110,725 132,684
Fixed assets, net 28,268 26,058
Deferred income taxes 2,964 1,905
Investments 3,869 3,892
Intangible assets, net 3,669 4,996
Restricted cash 3,533 3,808
Other assets 402 300
------------ ------------
$ 153,430 $ 173,643
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 575 $ 434
Accounts payable 2,256 5,694
Accrued expenses and other current liabilities 15,449 12,205
Deferred income on sale to affiliate 1,791 2,511
------------ ------------
Total current liabilities 20,071 20,844
Long-term debt 12,537 8,613
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; 13,276,402 and
13,116,052 issued and outstanding at April 30, 1999 and 1998, respectively 133 131
Capital in excess of par value 100,146 99,045
Retained earnings 20,625 45,153
------------ ------------
120,904 144,329
Deferred compensation (82) (143)
------------ ------------
120,822 144,186
------------ ------------
Commitments (Note 15) $ 153,430 $ 173,643
------------ ------------
------------ ------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
ADE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended April 30,
------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenue $51,631 $117,925 $98,948
Revenue from affiliate 9,254 17,775 12,185
----------- ----------- -----------
Total revenue 60,885 135,700 111,133
----------- ----------- -----------
Cost of revenue 42,477 54,645 44,338
Cost of revenue from affiliate 4,012 7,110 5,076
----------- ----------- -----------
Total cost of revenue 46,489 61,755 49,414
----------- ----------- -----------
Gross profit 14,396 73,945 61,719
----------- ----------- -----------
Operating expenses:
Research and development 24,026 27,580 17,689
Purchased in-process research and development - 6,100 -
Marketing and sales 12,280 15,638 14,501
General and administrative 11,153 13,885 8,295
Restructuring charges 2,318 - -
Amortization of excess of net assets
acquired over cost - (184) (252)
----------- ----------- -----------
Total operating expenses 49,777 63,019 40,233
----------- ----------- -----------
----------- ----------- -----------
Income (loss) from operations (35,381) 10,926 21,486
Other income (expense):
Interest income 3,220 2,854 810
Interest expense (620) (507) (423)
----------- ----------- -----------
Income (loss) before provision for (benefit from)
income taxes and equity in net earnings (loss) of
affiliated companies (32,781) 13,273 21,873
Provision for (benefit from) income taxes (9,335) 3,301 6,926
----------- ----------- -----------
Income (loss) before equity in net earnings (loss) of
affiliated companies (23,446) 9,972 14,947
Equity in net earnings (loss) of affiliated companies (1,082) (1,005) 99
----------- ----------- -----------
Net income (loss) $(24,528) $ 8,967 $15,046
----------- ----------- -----------
----------- ----------- -----------
Basic earnings (loss) per share $(1.89) $0.73 $1.46
Diluted earnings (loss) per share $(1.89) $0.70 $1.38
Weighted average shares outstanding - basic 12,989 12,215 10,301
Weighted average shares outstanding - diluted 12,989 12,822 10,880
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
ADE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock
------------------------ Capital in Total
Number Par excess of Retained Deferred stockholders'
of shares value of par earnings compensation equity
------------ ----------- ------------- ------------- ---------------- --------------
Balance at April 30, 1996 10,439,716 $ 104 $ 27,085 $ 21,032 $ (259) $ 47,962
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 15,046 15,046
Net income of Digital Measurement
Systems, Inc. for the one month ended
April 30, 1997 (Note 3) 108 108
------------ ----------- ------------- ------------- ---------------- --------------
Balance at April 30, 1997 10,604,160 106 28,641 36,186 (204) 64,729
Sale of common stock in connection with
public offering in August 1997, net
of issuance costs of $4,320 2,300,000 23 67,820 67,843
Exercise of common stock options 183,896 2 834 836
Sale of common stock pursuant to the
Employee Stock Purchase Plan 27,279 -- 452 452
Common stock issued in lieu of
Board of Directors fees 717 -- 12 12
Amortization of deferred compensation 61 61
Tax benefit related to exercise of common
stock options 1,286 1,286
Net income 8,967 8,967
------------ ----------- ------------- ------------- ---------------- --------------
Balance at April 30, 1998 13,116,052 131 99,045 45,153 (143) 144,186
Exercise of common stock options 106,820 2 517 519
Sale of common stock pursuant to the
Employee Stock Purchase Plan 53,530 -- 469 469
Amortization of deferred compensation 61 61
Tax benefit related to exercise of common
stock options 115 115
Net loss (24,528) (24,528)
------------ ----------- ------------- ------------- ---------------- --------------
Balance at April 30, 1999 13,276,402 $ 133 $ 100,146 $ 20,625 $ (82) $ 120,822
------------ ----------- ------------- ------------- ---------------- --------------
------------ ----------- ------------- ------------- ---------------- --------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ADE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
Year ended April 30,
-------------------------------------------
1999 1998 1997
------------ ---------- -----------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $(24,528) $ 8,967 $ 15,046
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 5,945 3,436 1,667
In-process research and development from business acquisition -- 6,100 --
Non-cash portion of restructuring charge 931 -- --
Equity in net (earnings) loss of affiliated companies,
net of dividends received 1,192 1,060 (99)
Deferred income taxes (808) (3,702) (2,472)
Shares issued in lieu of directors' fees -- 12 --
Amortization of deferred compensation 61 61 55
Changes in assets and liabilities, net of acquisition:
Accounts receivable, trade 5,353 5,495 (3,847)
Accounts receivable, affiliate (258) (310) (1,083)
Inventories 6,614 (5,923) (8,546)
Income tax refund receivable (2,074) (4,954) --
Prepaid expenses and other current assets 640 (1,189) (87)
Accounts payable (3,438) (232) 919
Accrued expenses and other current liabilities 3,244 (3,171) 4,582
Deferred income on sales to affiliate (720) (150) 2,661
-------- -------- --------
Net cash provided by (used in) operating activities (7,846) 5,500 8,796
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of fixed assets (7,759) (13,075) (10,418)
Change in restricted cash 275 (3,808) --
Equity investments and advances (1,169) (1,790) (3,050)
Acquisition of business for cash -- (10,048) --
Increase in other assets (102) (27) (1,578)
-------- -------- --------
Net cash used in investing activities (8,755) (28,748) (15,046)
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayment of long-term debt (435) (943) (231)
Repayment of note payable to related party -- -- (577)
Proceeds from issuance of long-term debt 4,500 4,000 5,500
Proceeds from issuance of common stock, net of issuance costs 988 69,131 764
Tax benefit related to the exercise of common stock options 115 1,286 794
-------- -------- --------
Net cash provided by financing activities 5,168 73,474 6,250
-------- -------- --------
Adjustment for DMS activity for the one month ended
April 30, 1997 (Note 3) -- -- (10)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (11,433) 50,226 (10)
Cash and cash equivalents, beginning of year 72,711 22,485 22,495
-------- -------- --------
Cash and cash equivalents, end of year $ 61,278 $ 72,711 $ 22,485
-------- -------- --------
-------- -------- --------
See supplemental disclosures of cash flow information (Note 16)
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, data storage and optics industries. The predominant markets for the
Company consist of semiconductor wafer and device manufacturing concerns as well
as data storage device and disk drive manufacturers located in the United
States, Japan, Europe and the Far East.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated.
Investments in companies in which the Company has a majority voting
interest but does not have control due to significant minority stockholder
rights and 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, provided collection
of the related receivable is probable. We accrue for anticipated warranty costs
upon shipment. Service revenue is recognized as the services are performed,
provided collection of the related receivable is probable. Service contract
revenue is recognized ratably over the contractual periods the services are
provided. We do not provide the right to return products. Revenue from software
licenses is recognized when an agreement has been executed, software has been
delivered, fees are fixed and determinable and collection of the related
receivable is probable. Revenue from software consulting services provided on a
time and reimbursable expense basis is recognized as the services are provided.
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, 1999 and 1998, the Company has
classified its cash equivalent investments totaling $51,914,000 and $67,587,000,
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.
F-6
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of capitalized license fees for software included
in the Company's products as well as the estimated fair value of certain assets
obtained through the acquisition of the Semiconductor Solutions Division of LPA
Software, Inc.("SSD") (Note 3). Goodwill and assembled workforce acquired in
connection with the acquisition of SSD are amortized on a straight-line basis
over ten and six years, respectively. Capitalized software is amortized at the
greater of 1) the ratio that current gross revenue for the related products bear
to the total current and anticipated future gross revenue for those products or
2) on a straightline basis over its estimated useful life.
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 three
financial institutions. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured cash balances totaled
approximately $8,437,000 and $4,087,000 at April 30, 1999 and 1998,
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 data storage manufacturers. Accounts receivable from
two customers accounted for approximately 32% and 33% of total accounts
receivable at April 30, 1999 and 1998, respectively. The Company performs
ongoing credit evaluations of customers' financial condition and has used
letters of credit from financial institutions to secure payments, although it
generally does not require collateral. The Company maintains reserves for
potential credit losses.
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.
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 No. 123,
("SFAS No.123") "Accounting for Stock-Based Compensation."
F-7
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are presented in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which requires the presentation of "basic" earnings per share and "diluted"
earnings per share. Basic earnings (loss) per share is computed by dividing
net income (loss) available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings (loss)
per share is computed using the weighted average number of common shares
outstanding and gives effect to all dilutive potential common shares
outstanding during the period. Potential common shares include shares
issuable upon the assumed exercise of dilutive stock options and shares
issued in the PST merger held in escrow. For the year ended April 30, 1999,
233,582 common shares issuable upon the exercise of stock options and 200,000
shares issued in the PST merger held in escrow are antidilutive because the
Company recorded a net loss for the year and, therefore, have been excluded
from the diluted earnings (loss) per share computation.
The following is a reconciliation of the shares used in calculating basic
and diluted earnings (loss) per share:
(IN THOUANDS)
YEAR ENDED APRIL 30,
---------------------------------
1999 1998 1997
----------- ---------- ----------
Shares used in computation:
a. Weighted average common stock outstanding
used in computation of basic earnings (loss) per share 12,989 12,215 10,301
b. Dilutive effect of stock options and warrants - 407 379
c. Dilutive effect of shares held in escrow - 200 200
----------- ---------- ----------
d. Shares used in computation of diluted earnings
(loss) per share 12,989 12,822 10,880
----------- ---------- ----------
----------- ---------- ----------
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, 1999 and 1998, and the reported amounts
of revenue and expenses during the three year period ended April 30, 1999. Areas
particularly subject to estimation include the allowance for doubtful accounts,
the reserve for potential excess and obsolete inventory, the carrying value of
the Company's intangible assets and the valuation allowance on deferred tax
assets. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform with the 1999 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). This statement establishes new standards for the recognition of gains
and losses on derivative instruments and provides guidance as to whether a
derivative may be accounted for as a hedging instrument. SFAS No. 133 will be
effective for the Company beginning in fiscal 2002. The Company currently does
not utilize derivative instruments or engage in hedging activities and,
therefore, the adoption of SFAS No. 133 is not expected to have a material
impact on the Company's financial position or its results of operations.
F-8
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. BUSINESS ACQUISITIONS
On June 11, 1998, the Company merged with Phase Shift Technology, Inc.
("PST"), an Arizona corporation. PST designs, manufactures and markets a broad
line of high-performance, non-contact surface metrology equipment using advanced
optical interoferometric technology. Each outstanding share of PST common stock
was exchanged for two shares of the Company's common stock. A total of 2,000,000
shares of the Company's common stock were issued in this transaction. This
transaction has been accounted for as a pooling-of-interests. Accordingly, all
prior period financial statements have been restated to reflect the inclusion of
PST's operations. There were no material transactions between the Company and
PST prior to the PST Agreement. No material adjustments to net assets or the
results of operations were necessary to conform the accounting practices of PST
to those of the Company.
Separate results of operations for the periods prior to the merger for PST
and the Company were as follows:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED APRIL 30,
1998 1997
Revenue:
ADE Corporation $123,265 $ 101,403
PST 12,435 9,730
------------ ------------
Combined $135,700 $ 111,133
------------ ------------
------------ ------------
Net income:
ADE Corporation $ 6,647 $ 13,165
PST 2,320 1,881
------------ ------------
Combined $ 8,967 $ 15,046
------------ ------------
------------ ------------
On September 17, 1997, ADE Software Corporation, a wholly owned subsidiary
of the Company, acquired substantially all of assets of the Semiconductor
Solutions Division of LPA Software, Inc. ("SSD") in exchange for $10,000,000 in
cash and the assumption of certain liabilities. The Company also incurred
$48,000 in transaction costs related to the acquisition. SSD, which has been
integrated into the Company as ADE Yield Enhancement Solutions, provides yield
management and defect analysis software applications to the semiconductor
industry.
The SSD acquisition has been accounted for under the purchase method.
Accordingly, the results of operations of SSD and the estimated fair market
values of the acquired assets and assumed liabilities have been included in the
Company's financial statements as of the date of the acquisition. Unaudited pro
forma results of operations presenting the acquisition as though it had been
made at the beginning of fiscal 1998 and fiscal 1997, including the write-off of
purchased in-process research and development, amortization of acquired
intangible assets and elimination of intercompany transactions, are as follows:
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
YEAR ENDED APRIL 30,
1998 1997
------------ -----------
Revenue $136,293 $ 113,333
Net income $ 8,226 $ 9,928
Basic earnings per share $ 0.67 $ 0.96
Diluted earnings per share $ 0.64 $ 0.91
F-9
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. BUSINESS ACQUISITIONS (CONTINUED)
The purchase price has been allocated to the acquired assets and assumed
liabilities as follows:
(IN THOUSANDS)
----------------
Property and equipment $ 354
In-process research and development 6,100
Acquired software 1,100
Assembled workforce 450
Goodwill 2,403
Current liabilities (359)
----------------
$ 10,048
----------------
----------------
The amount allocated to in-process research and development was determined
by an independent appraiser and represented technology which had not reached
technological feasibility and had no alternative future use. Accordingly, this
amount of $6,100,000 was charged to operations at the acquisition date. There
have not been any released products derived from the purchased in-process
research and development as of April 30, 1999. The $2,403,000 allocated to
goodwill and $450,000 allocated to assembled workforce are being amortized on a
straight line basis over their estimated useful lives of ten and six years,
respectively. Accumulated amortization for the goodwill at April 30, 1999 and
1998 was $383,000 and $143,000, respectively. Accumulated amortization for the
assembled workforce at April 30, 1999 and 1998 was $122,000 and $47,000,
respectively. The $1,100,000 allocated to acquired software is being amortized
at the greater of 1) the ratio that current gross revenue for the related
products bear to the total current and anticipated future gross revenue for
those products or 2) on a straight line basis over its estimated useful life of
2 years. This capitalized software had accumulated amortization at April 30,
1999 and 1998 of $984,000 and $267,000, respectively.
On February 28, 1997, the Company acquired Digital Measurement Systems,
Inc. ("DMS"), a Massachusetts corporation, and a building which was integral to
the operations of DMS and which was controlled by a significant stockholder of
DMS. DMS designs, manufactures, markets and services magnetic measurement
systems with current applications in the production of data storage devices.
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. 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 to reflect the inclusion of DMS operations.
DMS had a March 31 year end and, accordingly, the results of operations for
DMS for the year ended March 31, 1997 have been combined with the results of
operations for the Company's years ended April 30, 1997. 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 $108,000. Other results of
operations for such one month period of DMS included revenue of $684,000 and
operating costs and expenses of $527,000.
There were no material transactions between the Company and DMS during any
of the periods presented prior to the DMS Agreement. 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.
F-10
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENTS
Investments in companies in which the Company has a majority voting
interest but does not have control due to significant minority stockholder
rights and 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 carried on the equity method 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 $1,300,000 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, 1999, 1998 and 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
$1,250,000. In connection with this investment, the Company also executed an
exclusive five-year agreement to distribute Microspec products, subject to
certain performance criteria. In April 1998, the Company acquired an additional
37.5% of Microspec, bringing the Company's total investment to 62.6%, by
purchasing shares owned by one of the two other stockholders for $1,500,000.
Accordingly, the Company has allocated the cost of its additional investment to
its proportional share of the estimated fair values of the assets and
liabilities of Microspec at the date of acquisition. In-process research and
development, which represented technology that had not reached technological
feasibility and had no alternative future use, was valued at $1,664,000. This
amount was recorded in the equity in net earnings (loss) of affiliated companies
in the statement of operations. During fiscal 1999, the Company advanced $1.2
million in short term notes receivable to Microspec. On May 1, 1999, $1,000,000
of these advances converted into additional shares of Microspec's common stock,
increasing the Company's ownership to 67.5%. The Company has allocated the cost
of its additional investment to its proportional share of the estimated fair
values of the assets and liabilities of Microspec at the date of acquisition.
The Company continues to account for this investment under the equity method of
accounting due to certain significant contractual minority rights of the
remaining stockholder. There were no material purchases from or sales to
Microspec during fiscal 1999, 1998 or 1997.
The financial positions and results of operations of JAL and Microspec were
not significant, individually or in the aggregate, compared to those of the
Company as of and for the year ended April 30, 1999. The summarized unaudited
financial information below for fiscal years 1998 and 1997 represents an
aggregation of the Company's nonsubsidiary affiliates:
(IN THOUSANDS)
YEAR ENDED APRIL 30,
--------------------
1998 1997
--------- ---------
Revenue $37,856 $26,933
Gross Profit 12,852 9,820
Net income 1,791 419
APRIL 30,
--------------------
1998 1997
--------- ---------
Current assets $27,378 $16,664
Noncurrent assets 1,981 1,381
Current liabilities 24,160 14,382
Noncurrent liabilities 723 418
The Company's share of undistributed earnings of one affiliated company was
$1,744,000 at April 30, 1999 and the Company's share of the losses of the other
affiliated company included in consolidated retained earnings was $(1,126,000)
at April 30, 1999. The Company received $109,000 in dividends from JAL during
fiscal year 1999. At April 30, 1999, the Company's investment exceeds the
underlying net assets of affiliated companies by $750,000. This excess is being
amortized by decreasing the equity in net earnings of affiliated companies using
the straight-
F-11
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENTS (CONTINUED)
line method over five years. Related amortization expense of $363,000, $363,000
and $273,000 was recorded in fiscal 1999, 1998 and 1997, respectively.
The Company also has a less than 20% investment in a company in the amount
of $500,000 that is accounted for using the cost method. The Company has paid
$1,500,000 to license technology for use in its products from this investee
company. This license fee has been capitalized and will be amortized upon the
sale of the equipment at the greater of 1) the ratio that current gross revenue
for the related products bear to the total current and anticipated future gross
revenue for those products or 2) on a straight line basis over its estimated
useful life of 5 years. Related amortization expense of $300,000 was recognized
in fiscal 1999. This capitalized license technology had accumulated amortization
of $300,000 at April 30, 1999.
5. RESTRUCTURING CHARGES
In January 1999, the Company implemented a restructuring of operations plan
designed to better align the Company's cost structure with its reduced revenue
resulting from the decline in capital equipment expenditures in the
semiconductor and data storage industries. The plan includes workforce
reductions as well as the consolidation of manufacturing and other operational
facilities. The Company recorded restructuring charges of $2,318,000 for the
year ended April 30, 1999, comprised of the following: severance charges of
$1,202,000 related to the termination of 71 employees in general and
administrative, marketing and sales, manufacturing, and engineering functions;
$185,000 in lease termination penalties and $931,000 in non-cash fixed asset
impairments related to furniture, fixtures and building improvements on the
terminated leased facilities. The fair value of the impaired assets was
determined as their estimated salvage value at the time of their eventual
disposition increased by their estimated utility during their related service
period through disposition. The Company anticipates these impaired assets will
be removed from service in December 1999. As of April 30, 1999, the Company has
made lease termination payments of $185,000. The full amount of severance costs
remained in accrued expenses as of April 30, 1999 and is expected to be paid out
through December 1999, when substantially all of the consolidation efforts are
expected to be complete. Restructuring charge activity during fiscal 1999 and
the related accrual as of April 30, 1999 is as follows:
Balance at May 1, 1998 $ --
Restructuring provision 2,318
Non-cash fixed asset impairments (931)
Lease termination payments (185)
------------
Balance at April 30, 1999 $ 1,202
------------
------------
6. INVENTORIES
Inventories consist of the following:
(IN THOUSANDS)
APRIL 30,
----------------------------
1999 1998
--------------- ------------
Raw materials and purchased parts 13,190 15,817
Work-in-process 8,211 11,053
Finished goods 777 1,922
--------------- ------------
22,178 28,792
--------------- ------------
--------------- ------------
F-12
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. FIXED ASSETS
Fixed assets consist of the following:
(IN THOUSANDS)
----------------------------------------
APRIL 30,
USEFUL LIFE --------------------------
IN YEARS 1999 1998
-------------------------- ------------
Land 2,722 2,722
Building and improvements 15-25 13,198 12,787
Machinery and equipment 3-10 13,997 12,857
Office equipment 3-10 5,329 4,639
Leasehold improvements 5 1,569 1,530
Construction-in-progress 4,998 329
------------ ------------
41,813 34,864
Less accumulated depreciation 13,545 8,806
------------ ------------
28,268 26,058
------------ ------------
------------ ------------
Depreciation expense for the years ended April 30, 1999, 1998 and 1997 was
$4,618,000, $3,148,000 and $1,968,000, respectively.
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
(IN THOUSANDS)
APRIL 30,
----------------------
----------- ----------
1999 1998
----------- ----------
Accrued salaries, wages, vacation pay and bonuses 1,901 2,471
Accrued commissions 1,305 1,392
Accrued warranty costs 1,340 2,306
Accrued severance 1,246 -
Deferred revenue 6,070 2,649
Other 3,587 3,387
----------- ----------
15,449 12,205
----------- ----------
----------- ----------
9. BORROWINGS
NOTE PAYABLE TO RELATED PARTY
During the year ended April 30, 1997, DMS repaid a $577,000 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 year ended April 30,
1997 was $87,000.
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
$38,000 and issuing a promissory note payable for $114,000. The Company paid the
remaining principal balance of $38,000 in full in August 1997.
Under the terms of the DMS Agreement, the Company assumed a mortgage loan
which was secured by the acquired building. The Company paid the remaining
principal balance of $639,000 in full in June 1997.
F-13
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. BORROWINGS (CONTINUED)
In April 1999, the Company issued a tax exempt Industrial Development Bond
through the Industrial Development Authority of the County of Pima, Arizona. The
Company also issued tax exempt Industrial Development Bonds through the
Massachusetts Industrial Finance Agency in December 1997 and June 1996. The face
values of the April 1999 bond (the "1999 bond"), the December 1997 bond (the
"1997 bond") and the June 1996 bond (the "1996 bond") were $4,500,000,
$4,000,000 and $5,500,000, respectively. The 1999 bond, 1997 bond and the 1996
bond bear interest at a rate of 5.52%, 5.79% and 5.74%, respectively, and
provide for 50% of the principal to be paid over ten years from the dates of
issuance with the remaining 50% due in March 2009, December 2007 and June 2006,
respectively. Monthly payments of principal and accrued interest for the 1999
bond are approximately $31,000. Monthly payments of principal and accrued
interest for the 1997 bond commence at approximately $36,000 and decrease to
approximately $27,000 over the ten-year payment period. Monthly payments of
principal and accrued interest for the 1996 bond are approximately $43,000. The
proceeds of the 1999 bond were used to fund the construction of a new
manufacturing facility in Tucson, Arizona. The Company secured the issuance of
this bond with a standby letter of credit from a financial institution. The
standby letter of credit, bearing a fee of 1.5% 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.
The proceeds of the 1997 bond were used to fund the acquisition and renovation
of a manufacturing facility. The Company secured the issuance of this bond with
cash, which is classified as restricted cash on the April 30, 1998 balance
sheet. The proceeds of the June 1996 bond were used to fund the acquisition and
renovation of the manufacturing facility in the Company's headquarters site. The
Company secured the issuance of this 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.
At April 30, 1999, the Company was in violation of certain financial covenants
related to the letter of credit agreement. The Company obtained a waiver of this
default as of April 30, 1999. Future maturities of these bonds are as follows:
YEAR ENDING APRIL 30, (IN THOUSANDS)
2000 $ 575
2001 600
2002 621
2003 646
2004 663
Thereafter 10,007
----------------
$ 13,112
----------------
----------------
In December 1997, the Company entered into an unsecured revolving line of
credit facility (the "Credit Facility") with a bank, with a maximum borrowing
amount of $8,000,000 which is limited by certain receivables. The Credit
Facility provides the Company the option of borrowing at either the bank's prime
rate or the bank's LIBOR rate plus 2%. The Credit Facility expires and all
outstanding amounts thereunder are due December 21, 1999. Interest on
outstanding borrowings is payable monthly in arrears. Under the credit facility,
the Company is obligated to comply with certain financial covenants. At April
30, 1999, the Company was in default of certain of these covenants. There were
no borrowings outstanding under the Credit Facility at April 30, 1999.
10. EMPLOYEE COMPENSATION PLANS
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 Company's expired 1982 Stock Option 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. In October 1997, the Company adopted
the 1997 Employee Stock Option Plan (the "1997 Plan"). The 1997 Plan provides
for the issuance to
F-14
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE COMPENSATION PLANS (CONTINUED)
employees of stock options or stock awards to purchase 500,000 shares plus the
number of shares reserved under the 1995 Plan that have not been issued or have
been issued and subsequently cancelled. At April 30, 1999, 331,040 shares were
available for future grants under the Company's stock option plans. Options are
granted under the 1992, 1995 and 1997 Plans 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 of
the board of directors, generally at the rate of 20% per year, on a cumulative
basis, beginning with the first anniversary of the date of grant.
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 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 53,530, 27,279 and 10,044 shares to employees in fiscal years 1999,
1998 and 1997, respectively.
In September 1998, the Compensation Committee of the Board of Directors of
the Company granted employees with outstanding stock options the opportunity to
cancel their existing options and receive new options on a one for one basis
with a new five year vesting schedule commencing on the new date of grant. On
October 2, 1998, 298,850 options with exercise prices between $12.94 and $41.25
per share and an average exercise price of $17.72 per share were cancelled and
298,850 new options were granted with an exercise price of $8.66 per share, the
fair market value of the Company's common stock on October 2, 1998. No executive
officer of the Company participated in the stock option repricing.
The Company applies APB No. 25 and related interpretations in accounting
for stock-based compensation. The Company has recognized $61,000, $61,000 and
$55,000 as compensation expense in fiscal years 1999, 1998 and 1997,
respectively, for 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 (loss) and earnings (loss) per share would have been reduced to the
pro forma amounts as follows:
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
YEAR ENDED APRIL 30,
-----------------------------------
----------- ---------- -----------
1999 1998 1997
----------- ---------- -----------
Net income (loss):
As reported $(24,528) $8,967 $ 15,046
Pro forma (25,625) 8,102 14,721
Basic earnings (loss) per share:
As reported $ (1.89) $ 0.73 $ 1.46
Pro forma $ (1.97) $ 0.66 $ 1.43
Diluted earnings (loss) per share:
As reported $ (1.89) $ 0.70 $ 1.38
Pro forma $ (1.97) $ 0.63 $ 1.35
F-15
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE COMPENSATION PLANS (CONTINUED)
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 1999, 1998 and 1997: no dividend
yield; risk free interest rates of 5.2%, 5.7% and 6.4%, respectively; expected
option terms of 7 years, 6 years and 6 years, respectively, and expected
purchase right terms of three months; volatility of 70% for options and purchase
rights granted in fiscal 1999, 60% for options and purchase rights granted in
fiscal year 1998 and 50% for options and purchase rights granted in fiscal 1997.
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 1999, 1998 and 1997 was $7.19, $14.49 and $7.25, respectively. The
weighted average fair value per option for options granted with exercise prices
above the fair value of the underlying common stock in fiscal 1998 was $10.48.
The weighted average fair value per purchase right for purchase rights granted
in fiscal years 1999, 1998 and 1997 was $3.48, $7.08 and $2.82, respectively.
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 1999, 1998 and 1997 is not necessarily representative of the pro
forma effects of reported net income and earnings per share for future years.
Stock option activity is summarized as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
------------- -----------
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
Granted 170,100 22.52
Exercised (183,896) 4.54
Canceled (44,400) 12.64
-------------
Options outstanding at April 30, 1998 716,020 12.20
Granted 558,850 10.16
Exercised (106,820) 4.84
Canceled (408,300) 17.23
-------------
Options outstanding at April 30, 1999 759,750 $ 9.06
-------------
-------------
The number and weighted average exercise price of options exercisable at
April 30, 1999, 1998 and 1997 was 198,900 and $7.34; 198,220 and $8.04; and
199,916 and $5.40; respectively.
F-16
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE COMPENSATION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at April 30, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ---------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------------------- ------------- ------------- ----------- ------------- ------------
$3.25 - $5.88 164,100 5.0 $ 4.32 131,300 $ 4.28
$8.34 - $12.50 472,550 9.0 9.13 29,200 9.94
$13.50 - $19.32 122,900 7.8 15.08 38,200 15.69
$41.25 200 8.3 41.25 200 41.25
------------- ------------- ----------- ------------- ------------
759,750 8.0 $ 9.06 198,900 $ 7.34
------------- ------------- ----------- ------------- ------------
------------- ------------- ----------- ------------- ------------
11. STOCKHOLDERS' EQUITY
RESERVED SHARES
At April 30, 1999, the Company has reserved 1,999,937 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.
12. SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
The Company has three reportable segments: ADE Semiconductor Systems Group
("SSG"), ADE Phase Shift ("PST") and ADE Technologies ("ATI"). SSG manufactures
and markets metrology and inspection systems to the semiconductor wafer and
device manufacturing industries that are used to improve yield and capital
productivity. PST manufactures and markets high performance, non-contact surface
metrology equipment using advanced interferometric technology that provides
enhanced yield management to the data storage, semiconductor and optics
industries. ATI manufactures and markets high precision magnetic
characterization and non-contact dimensional metrology gaging systems primarily
to the data storage industry. Sales of the Company's stand-alone software
products and software consulting services are included in the "other" category.
The Company's reportable segments are determined based upon the nature of the
products, the external customers and customer industries and the sales and
distribution methods used to market the products. The Company evaluates
performance based upon profit or loss from operations. The Company does not
measure the assets allocated to the segments. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. For the three years ended April 30, 1999, certain corporate
expenses, primarily general and administrative costs, have been recorded in the
Company's SSG segment, with an allocation charged to ATI at the rate of 3
percent of ATI revenue. There were no corporate allocations to PST for the three
years ended April 30, 1999. Additionally, other income (loss), the provision for
(benefit from) income taxes and the equity in earnings (losses) of affiliated
companies are not included in segment profitability.
F-17
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION (CONTINUED)
Sales to JAL, ADE's 50% affiliate, are reflected in segment revenue during the
period they are shipped by the respective segment, which can differ from the
period the revenue is recognized for consolidated financial reporting purposes.
For the reportable segments, intercompany sales are recorded at 60% of the
domestic list price of the respective product.
(IN THOUSANDS)
SSG PST ATI OTHER TOTAL
----------- ---------- ----------- ---------- ------------
FOR THE YEAR ENDED APRIL 30, 1999
Revenue from external customers $ 42,046 $ 7,916 $ 8,594 $1,177 $ 59,733
Intersegment revenue 42 - 456 590 1,088
Income (loss) from operations (29,590) 1,343 (5,107) (2,731) (36,085)
Depreciation and amortization expense 4,055 16 411 1,163 5,645
Capital expenditures 7,384 92 75 208 7,759
Restructuring charges 2,318 - - - 2,318
FOR THE YEAR ENDED APRIL 30, 1998
Revenue from external customers $ 107,098 $ 12,435 $ 15,206 $ 764 $135,503
Intersegment revenue 161 - 1,114 102 1,377
Income (loss) from operations 13,094 3,683 2,153 (7,861) 11,069
Depreciation and amortization expense 2,617 23 255 541 3,436
Capital expenditures 12,178 540 322 35 13,075
Purchased in-process research and development - - - 6,100 6,100
-
FOR THE YEAR ENDED APRIL 30, 1997
Revenue from external customers $ 92,287 $ 9,730 $ 13,088 $ - $115,105
Intersegment revenue 126 - 1,222 1,348
Income (loss) from operations 17,351 3,044 3,870 - 24,265
Depreciation and amortization expense 1,584 21 62 - 1,667
Capital expenditures 10,094 45 279 - 10,418
The following is a reconciliation for the above items where aggregate
reportable segment amounts differ from amounts contained in the Company's
consolidated financial statements.
(IN THOUSANDS)
YEAR ENDED APRIL 30,
1999 1998 1997
--------- --------- ---------
Total external revenue for reportable segments $ 59,733 $ 135,503 $ 115,105
Net impact of revenue recognition on sales to affiliate 1,152 197 (3,972)
--------- --------- ---------
Total consolidated revenue $ 60,885 $ 135,700 $ 111,133
--------- --------- ---------
--------- --------- ---------
Total operating profit (loss) for reportable segments $ (36,085) $ 11,069 $ 24,265
Net impact of intercompany gross profit eliminations
and deferred profit on sales to affiliate 704 143 2,779
--------- --------- ---------
Total consolidated operating profit (loss) $ (35,381) $ 10,926 $ 21,486
--------- --------- ---------
--------- --------- ---------
F-18
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION (CONTINUED)
Revenue by geographic area is summarized as follows:
(IN THOUSANDS)
YEAR ENDED APRIL 30,
-----------------------------------------
1999 1998 1997
------------ ------------- ------------
United States $ 24,723 $ 53,415 $ 47,427
Japan 15,809 30,090 25,761
Taiwan 4,451 14,292 8,543
Europe 7,953 16,111 10,137
Asia 7,949 21,792 19,265
------------ ------------- ------------
$ 60,885 $ 135,700 $111,133
------------ ------------- ------------
------------ ------------- ------------
Revenue from JAL in fiscal years 1999, 1998 and 1997 totaled $9,254,000
(16%), $17,775,000 (13%), $12,185,000 (11%), respectively. Revenue from another
customer in fiscal year 1999 totaled $9,484,000 (11%). Revenue from a third
customer in fiscal 1998 and 1997 totaled $20,988,000 (15%) and $16,269,000
(15%), respectively. As of April 30, 1999 and 1998, all of the Company's long
lived assets are located in the United States except for $245,000 and
$338,000, respectively.
13. INCOME TAXES
The provision for (benefit from) income taxes consists of:
(IN THOUSANDS)
YEAR ENDED APRIL 30,
------------------------------------
----------- ---------- ------------
1999 1998 1997
----------- ---------- ------------
Current tax expense (benefit):
Federal $ (8,997) $ 6,368 $ 8,070
Foreign 66 49 -
State 55 826 1,202
----------- ---------- ------------
(8,876) 7,243 9,272
----------- ---------- ------------
Deferred tax expense (benefit):
Federal 445 (3,413) (2,083)
State (904) (529) (263)
----------- ---------- ------------
(459) (3,942) (2,346)
----------- ---------- ------------
$ (9,335) $ 3,301 $ 6,926
----------- ---------- ------------
----------- ---------- ------------
F-19
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES (CONTINUED)
The significant components of deferred tax assets and liabilities consist of the
following:
(IN THOUSANDS)
APRIL 30,
----------------------
---------- ----------
1999 1998
---------- ----------
Deferred tax assets:
Inventories, due to reserves and additional costs inventoried
for tax purposes $ 4,347 $3,084
Acquired in-process research and development and intangibles 2,533 2,335
Accrued expenses 1,667 1,612
Deferred revenue 2,307 1,002
Deferred profit on sales to affiliates 680 954
Net operating loss carryforwards 2,212 450
Bad debt reserve 312 689
Other 1 182
---------- ----------
Gross deferred tax assets 14,059 10,308
Deferred tax valuation allowance (3,336) (352)
---------- ----------
Net deferred tax assets 10,723 9,956
Deferred tax liabilities:
Depreciation (340) (381)
---------- ----------
Total net deferred tax assets $ 10,383 $9,575
---------- ----------
---------- ----------
Deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. Under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", the
benefit associated with future deductible temporary differences is recognized if
it is more likely than not that the benefit will be realized. The measurement of
deferred tax assets is reduced by a valuation allowance if, based upon the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
At April 30, 1999, the Company increased its valuation allowance
against deferred tax assets by $3,000,000, as the full value of its net
operating loss carryforwards and temporary differences may not be realized.
This increase was based upon weighing all evidence available to management,
including fiscal 1999 pre-tax losses of $32,800,000, current estimates of
future taxable income, the cyclicality of the semiconductor and data storage
industries and the uncertainty within those markets. The amount of the
deferred tax assets considered realizable could materially change in the near
term if estimates of future taxable income change or do not materialize. Net
operating loss carryforwards generated in fiscal 1999 begin to expire in
fiscal 2004 for state purposes and in fiscal 2019 for federal purposes.
Additionally, a valuation allowance of $336,000 and $352,000 has been
recorded at April 30, 1999 and 1998 to reflect net operating loss
carryforwards which will expire before they can be used due to ownership
change limitations. These carryforwards begin to expire in the Year 2000. Net
operating loss carryforwards remaining at April 30, 1999 and 1998, not
limited in their use due to ownership changes, totaled $1,119,000 and
$939,000, respectively. Included in the net operating loss carryforwards for
April 30, 1999 are $865,000 of state net operating losses that are only
available to offset taxable state income.
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.
F-20
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES (CONTINUED)
The following is a reconciliation between the amount of reported income tax
expense (benefit) and the amount computed using the U.S. Federal Statutory rate
of 35% for fiscal 1999, 1998 and 1997:
(IN THOUSANDS)
YEAR ENDED APRIL 30,
---------------------------------------
------------ --------------------------
1999 1998 1997
------------ ------------- -----------
Statutory federal rate $ (11,170) $ 4,645 $ 7,688
State taxes, net of federal benefit (566) 206 573
Foreign sales corporation benefit (72) (663) (1,131)
Research and development tax credits - (986) (472)
AMT credit carryforwards (634) - -
Valuation allowance 3,000 - -
Other 107 99 268
------------ ------------- -----------
$ (9,335) $ 3,301 $ 6,926
------------ ------------- -----------
------------ ------------- -----------
The income tax benefits related to the exercise and disqualifying
dispositions of certain stock options reduces taxes currently payable and is
credited to additional paid-in capital. Such amount approximated $115,000,
$1,286,000 and $794,000 for the years ended April 30, 1999, 1998 and 1997,
respectively.
14. 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 1999, 1998 and 1997 were
approximately $726,000, $632,000 and $196,000, respectively.
15. COMMITMENTS
OPERATING LEASES
The Company leases land and certain buildings, machinery and equipment
under operating leases which expire through 2005. Under the terms of the leases,
the Company is responsible for normal maintenance, 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:
(IN THOUSANDS)
YEAR ENDING APRIL 30,
2000 $ 975
2001 596
2002 323
2003 129
2004 129
Thereafter 43
-----------------
$ 2,195
-----------------
-----------------
Total rent expense under noncancelable operating leases was
approximately $1,181,000, $1,240,000, and $1,347,000 for the years ended
April 30, 1999, 1998 and 1997, respectively.
F-21
ADE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(IN THOUSANDS)
YEAR ENDED APRIL 30,
---------------------------------
Cash paid during the year 1999 1998 1997
---------- ----------- ----------
Interest $ 620 $ 506 $ 423
Income taxes, paid (refunds received), net $ (5,885) $ 13,058 $ 6,696
17. FOURTH QUARTER ADJUSTMENTS
At April 30, 1999, the Company increased its valuation allowance against
deferred tax assets by $3,000,000, as the full value of its net operating loss
carryforwards and temporary differences may not be realized. This increase was
based upon weighing all evidence available to management. Recording this
increase to the valuation allowance decreased the Company's annual effective tax
rate to 28.5%, compared to the estimated annual effective tax rate of 36.1%
utilized during the first three quarters of fiscal 1999. Unaudited pro forma net
loss for the nine months ended January 31, 1999 utilizing the actual effective
tax rate of 28.5% was $17,050,000, compared to reported net loss for the nine
months ended January 31, 1999 of $15,311,000. Also in the fourth quarter of
fiscal 1999, the Company recorded an increase to it's reserve for excess and
obsolete inventory of $2,335,000.
The Company recorded a $2,294,000 credit to the provision for income
taxes during the fourth quarter of fiscal 1998, which included a $1,789,000
credit resulting from the difference between the Company's actual effective
tax rate for fiscal 1998 of 24.9% and the estimated effective tax rate of
35.0% utilized during the first three quarters of fiscal 1998. Also in the
fourth quarter of 1998, the Company reversed accrued bonus expense of
$1,323,000, which had been recorded in the first two quarters of fiscal 1998.
Pro forma net income for the nine months ended January 31, 1998, including
the reversal of the bonus accrual and utilizing the actual effective tax rate
of 24.9%, was $12,673,000, compared to reported net income for the nine months
ended January 31, 1998 of $10,152,000.
F-22
FINANCIAL STATEMENT SCHEDULE
(IN THOUSANDS)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
CHARGED TO CHARGED TO DEDUCTIONS
BALANCE AT COSTS AND OTHER AND BALANCE AT
DESCRIPTION MAY 1, 1996 EXPENSES ACCOUNTS WRITE-OFFS APRIL 30, 1997
- --------------------------------------- -------------- ------------ ------------ -------------- ---------------
Allowance for doubtful accounts 576 112 - (11) 677
Inventory obsolescence 1,475 1,034 - (370) 2,139
Deferred tax asset valuation allowance 346 - - - 346
CHARGED TO CHARGED TO DEDUCTIONS
BALANCE AT COSTS AND OTHER AND BALANCE AT
DESCRIPTION MAY 1, 1997 EXPENSES ACCOUNTS WRITE-OFFS APRIL 30, 1998
- --------------------------------------- -------------- ------------ ------------ ------------------------------
Allowance for doubtful accounts 677 1,140 - (12) 1,805
Inventory obsolescence 2,139 2,867 - (971) 4,035
Deferred tax asset valuation allowance 346 6 - - 352
CHARGED TO CHARGED TO DEDUCTIONS
BALANCE AT COSTS AND OTHER AND BALANCE AT
DESCRIPTION MAY 1, 1998 EXPENSES ACCOUNTS WRITE-OFFS APRIL 30, 1999
- --------------------------------------- -------------- ------------ ------------ ------------------------------
Allowance for doubtful accounts 1,805 - - (985) 820
Inventory obsolescence 4,035 6,167 - (1,523) 8,679
Deferred tax asset valuation allowance 352 3,000 - (16) 3,336
S-1