-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6sTWwpvJFukljcbSq4Ull7CfhQk8H1N7+yp96YFJa+wRfxWqq3BzkGlXZQJBXbS Gw/D1oLGZ2esmn0crOAJgw== 0001047469-99-035726.txt : 19990915 0001047469-99-035726.hdr.sgml : 19990915 ACCESSION NUMBER: 0001047469-99-035726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADE CORP CENTRAL INDEX KEY: 0000884498 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042441829 STATE OF INCORPORATION: MA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26714 FILM NUMBER: 99711455 BUSINESS ADDRESS: STREET 1: 80 WILSON WAY CITY: WESTWOOD STATE: MA ZIP: 02090 BUSINESS PHONE: 6174673500 MAIL ADDRESS: STREET 1: 77 ROWE ST CITY: NEWTON STATE: MA ZIP: 02166 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: JULY 31, 1999 Commission File Number 0-26714 ------------- ------- ADE CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2441829 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 80 WILSON WAY, WESTWOOD, MASSACHUSETTS 02090 -------------------------------------------- (Address of principal executive offices, including area code) (781) 467-3500 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ______ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, par value $.01 per share 13,356,390 shares - -------------------------------------------- --------------------------------- Class Outstanding at September 3, 1999 Page 1 of 19
ADE CORPORATION INDEX PAGE ---- PART I. - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) Condensed Consolidated Balance Sheet- July 31, 1999 and April 30, 1999 3 Condensed Consolidated Statement of Operations- Three Months Ended July 31, 1999 and 1998 4 Condensed Consolidated Statement of Cash Flows - Three Months Ended July 31, 1999 and 1998 5 Notes to Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. - OTHER INFORMATION 16 SIGNATURES 17 EXHIBIT INDEX 18
2 ADE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
July 31, April 30, 1999 1999 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 49,758 $ 61,278 Accounts receivable, net 11,934 11,843 Inventories 23,435 22,178 Prepaid expenses and other current assets 8,395 8,007 Deferred income taxes 6,459 7,419 ------------- -------------- Total current assets 99,981 110,725 Fixed assets, net 29,259 28,268 Deferred income taxes 3,924 2,964 Investments 3,403 3,869 Intangible assets, net 3,402 3,669 Restricted cash 3,483 3,533 Other assets 392 402 ------------- -------------- $ 143,844 $ 153,430 ------------- -------------- ------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 582 $ 575 Accounts payable 2,167 2,256 Accrued expenses and other current liabilities 14,096 15,449 Deferred income on sales to affiliates 671 1,791 ------------- -------------- Total current liabilities 17,516 20,071 Long-term debt 12,379 12,537 ------------- -------------- STOCKHOLDERS' EQUITY: Common stock 133 133 Capital in excess of par value 100,442 100,146 Retained earnings 13,440 20,625 ------------- -------------- 114,015 120,904 Deferred compensation (66) (82) ------------- -------------- 113,949 120,822 ------------- -------------- $ 143,844 $ 153,430 ------------- -------------- ------------- -------------- The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 3 ADE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data, unaudited) Three months ended July 31, 1999 1998 ------------ ----------- Revenue $ 12,362 $ 24,028 Cost of revenue 7,249 13,457 ------------ ----------- Gross profit 5,113 10,571 ------------ ----------- Operating expenses: Research and development 5,556 6,652 Marketing and sales 2,717 3,122 General and administrative 3,560 2,878 ------------ ----------- Total operating expenses 11,833 12,652 ------------ ----------- Loss from operations (6,720) (2,081) Interest income, net 149 761 ------------ ----------- Loss before benefit from income taxes and equity in net loss of affiliated companies (6,571) (1,320) Benefit from income taxes - (514) ------------ ----------- Loss before equity in net loss of affiliated companies (6,571) (806) Equity in net loss of affiliated companies (614) (7) ------------ ----------- Net loss $(7,185) $ (813) ------------ ----------- ------------ ----------- Basic loss per share $(0.54) $ (0.06) Diluted loss per share $(0.54) $ (0.06) Weighted average shares outstanding - basic 13,198 12,923 Weighted average shares outstanding - diluted 13,198 12,923
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 4 ADE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands, unaudited)
Three months ended July 31, 1999 1998 -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (7,185) $ (813) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,591 1,731 Equity in net loss of affiliated companies, net of dividends received 669 115 Changes in assets and liabilities: Accounts receivable, net (91) (4,470) Inventories (1,257) (2,357) Prepaid expenses and other current assets (388) 4,578 Accounts payable (89) (1,258) Accrued expenses and other current liabilities (1,353) (17) Deferred income on sales to affiliate (1,120) (490) -------------- ------------- Net cash used in operating activities (9,223) (2,981) -------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (2,299) (1,125) Change in restricted cash 50 125 Advances to affiliated company (203) (350) Increase in other assets 10 11 -------------- ------------- Net cash used in investing activities (2,442) (1,339) -------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (151) (107) Proceeds from issuance of common stock 223 310 Tax benefit related to the exercise of common stock options 73 5 -------------- ------------- Net cash provided by financing activities 145 208 -------------- ------------- Net increase (decrease) in cash and cash equivalents (11,520) (4,112) Cash and cash equivalents, beginning of period 61,278 72,711 -------------- ------------- Cash and cash equivalents, end of period $ 49,758 $68,599 -------------- ------------- -------------- -------------
5 ADE CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PREPARATION The accompanying unaudited condensed consolidated financial statements of ADE Corporation (the "Company") include, in the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair statement of the Company's financial position, results of operations and cash flows at the dates and for the periods indicated. Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years. Pursuant to accounting requirements of the Securities and Exchange Commission applicable to Quarterly Reports on Form 10-Q, the accompanying unaudited condensed consolidated financial statements and these notes do not include all disclosures required by generally accepted accounting principles for complete financial statements. Accordingly, these statements should be read in conjunction with the financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1999. On June 11, 1998, pursuant to an Agreement and Plan of Merger (the "PST Agreement"), the Company, through a wholly owned subsidiary, merged with Phase Shift Technology, Inc. ("PST"), an Arizona corporation. PST designs, manufactures, markets and services high-performance, non-contact surface metrology equipment using advanced optical interferometric technology that provides enhanced yield management for computer hard disk, semiconductor and optics manufacturers. Pursuant to the PST Agreement, 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 financial statements presented have been restated as if the merger took place at the beginning of such periods. There were no material transactions between the Company and PST prior to the PST Agreement. 2. INVENTORIES
Inventories consist of the following: (in thousands) July 31, April 30, 1999 1999 ------------ ------------ (unaudited) Raw materials $ 12,141 $ 13,190 Work-in-process 9,573 8,211 Finished goods 1,721 777 ----------- ----------- $ 23,435 $ 22,178 ----------- ----------- ----------- -----------
6 3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following:
(in thousands) July 31, April 30, 1999 1999 ------------- ----------- (unaudited) Accrued salaries, wages, vacation pay and bonuses $ 1,995 $ 1,901 Accrued commissions 594 1,305 Accrued warranty costs 934 1,340 Accrued severance, restructuring 763 1,246 Deferred revenue 7,845 6,070 Other 1,965 3,587 ------------- ---------- $ 14,096 $ 15,449 ------------- ---------- ------------- ----------
4. LOSS PER SHARE Basic loss per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted 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 outstanding include shares issuable upon the assumed exercise of dilutive stock options reflected under the treasury stock method and shares issued in the PST merger (Note 1) held in escrow. For each of the periods presented, basic and diluted loss per share are the same due to the antidilutive effect of potential common shares outstanding. 7 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 revenue reductions resulting from the decline in capital equipment expenditures in the semiconductor and computer hard disk 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 in the period ended January 31, 1999, comprised of the following: severance charges of $1,202,000 related to the termination of 76 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 on or about October 1999. As of July 31, 1999, the Company had made lease termination payments of $185,000. Of the $1,202,000 in severance costs in accrued expenses as of May 1, 1999, $440,000 was paid during the quarter ended July 31, 1999. Consolidation expenses are expected to continue through December 31, 1999. Restructuring charge activity during the first quarter of fiscal 2000 and the related accrual as of July 31, 1999 is as follows: Balance at May 1, 1999 $ 1,202 Restructuring provision - Severance payments (439) -------- Balance at July 31, 1999 $ 763 -------- --------
6. SEGMENT REPORTING The Company has three reportable segments: ADE Semiconductor Systems Group ("SSG"), ADE Phase Shift ("PST") and ADE Technologies ("ATI"). SSG manufactures and markets metrology and inspection systems to the semiconductor wafer and device manufacturing industries that are used to improve yield and capital productivity. 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. Management fees representing certain services provided by corporate offices have been allocated to each of reportable segments based upon the usage of those services by each segment. Additionally, other income (loss), the provision for (benefit from) income taxes and the equity in earnings (losses) of affiliated companies are not included in segment profitability. 8 ADE CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SSG PST ATI OTHER TOTAL ----------- ---------- ----------- ---------- ------------ FOR THE QUARTER ENDED JULY 31, 1999 Revenue from external customers $ 7,536 $ 1,235 $ 1,827 $ 124 $ 10,722 Intersegment revenue 114 51 83 $ 248 Loss from operations (5,935) (401) (625) (853) $ (7,814) Depreciation and amortization expense 1,169 4 102 33 $ 1,308 Capital expenditures 2,283 33 24 7 $ 2,347 FOR THE QUARTER ENDED JULY 31, 1998 Revenue from external customers $ 17,512 $ 3,070 $ 2,222 $ 413 $ 23,217 Intersegment revenue 21 - 153 175 $ 349 Income (loss) from operations (2,410) 1,185 (582) (502) $ (2,309) Depreciation and amortization expense 911 4 102 34 $ 1,051 Capital expenditures 852 3,401 6 74 $ 4,333
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.
For the Quarter ended July 31, 1999 1998 -------- -------- Total external revenue for reportable segments 10,722 23,217 Net impact of revenue recognition on sales to affiliate 1,640 811 -------- -------- Total Consolidated Revenue 12,362 24,028 -------- -------- -------- -------- Total operating profit (loss) from reportable segments (7,814) (2,309) Net impact of intercompany gross profit eliminations and deferred profit on sales to affiliate 1,094 228 -------- -------- Total Consolidated operating profit (loss) (6,720) (2,081) -------- -------- -------- --------
9 ADE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION ADE Corporation (the "Company") designs, manufactures, markets and services highly precise, automated measurement, defect detection and handling equipment with current applications in the production of semiconductor wafers, semiconductor devices and computer disks. On June 11, 1998, pursuant to an Agreement and Plan of Merger (the "PST Agreement"), the Company, through a wholly owned subsidiary, merged with Phase Shift Technology, Inc. ("PST"), an Arizona corporation. PST designs, manufactures markets and services high-performance, non-contact surface metrology equipment using advanced optical interferometric technology that provides enhanced yield management for computer hard disk, semiconductor and optics manufacturers. Pursuant to the PST Agreement, 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 financial statements presented have been restated as if the acquisition took place at the beginning of such periods. There were no material transactions between the Company and PST prior to the PST Agreement. The following information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report and the audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1999. RESULTS OF OPERATIONS RESTRUCTURING In January 1999, the Company commenced efforts to consolidate its Charlotte, North Carolina operations into its Massachusetts facilities to better align the Company's cost structure with prevailing semiconductor market conditions and to position the Company with more efficient operations for the expected industry recovery. Non-recurring expenses associated with this consolidation incurred in the current period totaled $1,497,000. These non-recurring expenses included travel, recruiting, and employee training and have been included in general and administrative expenses. The Company anticipates costs in future periods associated with replacing certain personnel who have elected not to relocate to the Company's Massachusetts operations. THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998 REVENUE. Revenue decreased 48.6% to $12.4 million in the first quarter of fiscal 2000 from $24.0 million in the first quarter of 1999. Decreased sales of the Company's products were primarily due to reduced demand for capital equipment in the semiconductor wafer and device industries as well as the data storage industry. Reduced demand in the semiconductor market resulted from excess manufacturing capacity for 200mm wafers, continued delays in large-scale production of 300mm wafers and an overall uncertainty about chip demand. For the three months ended July 31, 1999, 75% of the Company's revenue was derived from the semiconductor industry compared to 77 % for the year earlier period. The Company remains uncertain about when growth in the semiconductor industry will return. Similarly, the data storage industry has been in a period of excess supply, which has resulted in lower production levels and reduced capital equipment purchases. Consequently, revenue from the Company's metrology product lines that are marketed to the data storage industry decreased. Data storage industry revenue comprised 25% of total revenue for the three months ended July 31, 1999, compared to 23% for the year earlier period. GROSS MARGIN. Gross margin decreased to 41.4% in the first quarter of fiscal 2000 from 44.0% in the first quarter of 1999. This decrease resulted primarily from lower absorption of overhead expenses due to significantly 10 reduced manufacturing activity and costs associated with maintaining the Company's worldwide customer service organization. The lower absorption of overhead expenses impacted both the semiconductor and computer disk drive product lines and resulted from fixed manufacturing costs that could not be reduced proportionally with the decline in production sales volume, while costs associated with the customer service organization were primarily incurred in the semiconductor industry. Additionally, there was a significant decrease in sales made through external sales representatives in certain foreign markets, primarily in Asia. These sales typically carry a higher per unit selling price than domestic sales or sales through distributors. RESEARCH AND DEVELOPMENT. Research and development expense decreased 16.5% to $5.6 million in the first quarter of fiscal 2000 from $6.7 million in the first quarter of 1999 and increased as a percentage of revenue to 44.9% from 27.7% in the first quarter of 1999. The decrease in expense resulted primarily from decreased project materials and consulting expenditures related to the Company's first generation surface inspection and wafer thickness 300mm tools and other cost containment measures. The increase in expense as a percentage of sales resulted from the significant decrease in revenue during the first quarter of fiscal 2000 discussed above. The Company has increased development efforts to enhance its existing 200mm and advanced 200mm wafer systems as its semiconductor industry customers seek to improve their yields on 200mm wafers as well as efforts to develop and enhance bridge tools, which can be used with either 200mm or 300mm wafers. The Company also continues to develop new products for the computer disk industry, including those which measure the magnetic properties of materials used in manufacturing disk drives. The Company is committed to continuing its investment in research and development to maintain its position as a technological leader, which may necessitate continued research and development spending at or above current levels. MARKETING AND SALES. Marketing and sales expense decreased 13.0% to $2.7 million in the first quarter of fiscal 2000 from $3.1 million in the first quarter of 1999 and increased as a percentage of revenue to 22.0% from 13.0% in the first quarter of 1999. The reduced expense resulted primarily from reduced commissions expense related to a lower volume of sales made through external sales representatives in certain foreign markets, primarily in Asia. The mix of sales channels through which the Company's products are sold may have a significant impact on the Company's marketing and sales expense and the results in any period may not be indicative of marketing and sales expense for future periods. The increase in marketing and sales expense as a percentage of revenue resulted from the significant decrease in revenue during the first quarter of fiscal 2000 discussed above. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 23.7% to $3.6 million in the first quarter of fiscal 2000 from $2.9 million in the first quarter of 1999 and increased as a percentage of revenue to 28.8% from 12.0% in the first quarter of 1999. Expenses increased primarily due to the costs of the consolidation of the Charlotte operations into the Westwood, Massachusetts facility. INTEREST INCOME, NET. Net interest income was $149,000 in the first quarter of fiscal 2000 compared to $761,000 in the first quarter of 1999. The decrease in interest income resulted primarily from lower interest returns on reduced cash principal balances during the current period compared to the three months ended July 31, 1999, and interest expense related to the Company's obligations under separate $4.5 million, $4.0 million and $5.5 million Industrial Development Bonds ("IDB") issued in June, 1999, December 1997, and June 1996, respectively, through the various state and local bonding authorities. INCOME TAXES. At April 30, 1999 the valuation allowance against deferred tax assets was increased by $3 million, as the full value of the Company's net operating loss carryforwards and temporary differences may not be realized. This increase was based upon the evidence currently available to management. During the quarter ended July 31, 1999, the deferred tax assets were increased by $2.3 million. The valuation allowance against the asset was also increased by the same amount, resulting in no tax benefit being shown on the Statement of Operations. In future quarters, if evidence available to management shows that the deferred tax assets may not be utilized, it may be necessary to further increase the reserve. EQUITY IN LOSS OF AFFILIATED COMPANIES. Equity in net loss of affiliated companies was $614,000 in the first quarter of fiscal 2000 compared to equity in net loss of affiliated companies of $7,000 in the first quarter of 1999. The Company's affiliates sell primarily to the semiconductor industry and the current period loss reflects the overall 11 downturn in the semiconductor industry. The Company remains uncertain about when growth in the semiconductor industry will result in increased improved financial results for its affiliates. Furthermore, there can be no assurance that any overall growth in the semiconductor industry will result in increased profitability for the Company's affiliates. LIQUIDITY AND CAPITAL RESOURCES At July 31, 1999, the Company had $49.8 million in cash and cash equivalents and $82.5 million in working capital. In addition, the Company had $3.5 million in restricted cash used as security for a tax-exempt Industrial Development Bond issued through the Massachusetts Industrial Finance Agency in December 1997. Under the terms of the bond agreement, the Company may substitute a letter of credit in an amount equal to approximately 105% of the outstanding principal balance as collateral for the Company's obligations under the IDB, assuming the Company has the ability to borrow under the Credit Facility described below or another facility. Such actions would allow the restricted cash balance to be used for general corporate purposes. The Company also has an unsecured revolving line of credit facility (the "Credit Facility") with a bank, with a maximum borrowing amount of $8 million. 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. There were no borrowings outstanding under the Credit Facility at July 31, 1999. At July 31, 1999, the Company was 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 the Company's cash deposits with the bank against any outstanding borrowings under the Credit Facility. The Company is currently in negotiations with the bank to revise the terms of the Credit Facility to so that it may borrow against it in the future if needed. Cash used in operating activities for the three months ended July 31, 1999 was $9.3 million. This amount resulted from a net loss of $7.2 million, adjusted for non-cash charges of $2.0 million and a $4.1 million net decrease in working capital accounts. Non-cash items consisted primarily of $1.6 million of depreciation and amortization and $669,000 of the Company's share of the net loss of affiliated companies. Cash used in investing activities was $2.4 million, primarily used for the purchase of fixed assets. The Company anticipates investing approximately $2,300,000 in renovating its Westwood, Massachusetts facility to accommodate the consolidation of its semiconductor surface inspection operations from Charlotte, North Carolina. Cash provided by financing activities was $218,000, which consisted of $369,000 of aggregate proceeds from the issuance of common stock and tax benefits from the exercise of stock options, partially offset by $151,000 in repayments of long-term debt. The Company expects to meet its next twelve months working capital needs and capital expenditures primarily through its available cash and cash equivalents. YEAR 2000 The Company has a Task Force that is assessing on a continuing basis the nature, extent and cost of remediation of any Year 2000 ("Y2K") readiness issues confronting the Company and its suppliers, customers and other critical third parties. The project encompasses reviewing the Company's products and internal systems, both information technology ("IT") and non-information technology ("non-IT") as well as the Year 2000 readiness of companies with which the Company has a material relationship, including customers, suppliers, creditors, financial organizations, utility providers and governmental agencies. This assessment is continuing at each of its operating units and the Company has identified certain requisite corrective actions. 12 PRODUCTS. The Company utilizes Y2K testing guidelines prepared by a consortium of semiconductor manufacturers. Corrective actions for software included in the Company's 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. The Company also sells software products that are bundled with or sold separately from the Company's 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 which the Company's products will interact. The readiness status of specific Company products is posted on the Company's website located at WWW.ADE.COM. The Company anticipates all testing and corrective actions related to Year 2000 issues in its products will be completed by December 1999. However, notwithstanding such efforts, any failure of the Company's products to perform, including system malfunctions due to the onset of the Year 2000, could result in claims against the Company, which could have a material adverse effect on the Company's business, results of operations or financial condition. INFORMATION TECHNOLOGY. The Company has completed its review of its internal software applications and has determined that all network systems and server architecture are Y2K-ready. The Company utilizes standard, vendor supplied software for its electronic mail, corporate communications, engineering design, manufacturing and materials purchasing/planning, accounting, desktop and database systems. The Company has contacted these vendors to obtain assurances that these IT systems are or will be Y2K compliant. The failure of any such IT system to be Y2K compliant could have a material adverse effect on the Company and no assurance can be provided that all such programs will be implemented on a timely basis. NON-INFORMATION TECHNOLOGY. The Company is aware of potential non-IT system (building security, voice mail, telecommunications, utility and water systems, etc.) risk associated with the Y2K issue and has evaluated its potential exposure at each of its facilities. The Company anticipates that any necessary renovation of its non-IT systems as well as the validation of any repairs will be completed by November 1999. Formal queries to landlords, water, utility and telecommunications providers for the Company's domestic and international locations, and other third parties with whom the Company has material relationships have been sent to these suppliers to assess the systems' Y2K readiness. SUPPLIERS AND CUSTOMERS. The Company is in the process of inquiring of its significant suppliers and customers the status of their Y2K 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 July 31, 1999 and the Company has received responses to approximately 90% of these inquiries. Each of the responses received has indicated the respective third party is or will be Y2K ready by December 31, 1999. However, the Company has no means of assuring that third parties will achieve Y2K readiness. Furthermore, there can be no assurance that IT, non-IT and other suppliers who have provided Y2K readiness documentation will be Y2K compliant or that such documentation accurately and fully reflects the Y2K readiness of their systems. The Company's assessments of the effects of Y2K on the Company are based, in part, upon information received from third parties and the Company's reliance on that information. The failure of any such supplier's systems to be Y2K compliant may have a material adverse effect on the Company's business, results of operations or financial condition. YEAR 2000 COSTS AND EXPENSES. The Company has used both internal and external resources to address Y2K readiness and to program, test and implement software for Y2K modifications. The Company specifically tracks the costs associated with Task Force meetings (including related travel expenditures), Y2K 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 Y2K status, and postage and related costs associated with providing patches and upgrades to customers for software utilized in the Company's products. The Company has not separately tracked the costs of utilizing its internal information systems personnel in addressing its Y2K readiness, with these costs principally relating to payroll and related benefits. Total costs for Y2K readiness are currently estimated to be approximately $250,000, of which approximately $156,000 have been incurred throughout all phases of the Y2K project. Costs incurred to date have been and anticipated future costs are expected to be funded through operations. As the Company continues to complete its Y2K readiness plan, actual costs may exceed the current estimate. 13 CONTINGENCY PLANS. The Company's contingency plan with respect to the Y2K issue is currently being developed. The Company is currently in the process of reviewing the status of all third party suppliers. Replacement suppliers will be identified for critical suppliers who the Company believes will not be Y2K ready. The Company is considering contingency plans on a global basis relative to systematic failure of electricity or telecommunications beyond the control of the Company. There can be no assurance that any contingency plan measures will mitigate the impact of Y2k problems. If unforeseen Y2K readiness efforts are required or if the cost of any updating, modification or replacement of the Company's systems or products exceeds the Company's estimates, the Y2K issue could result in material costs and have a material adverse effect on the business, results of operations or financial condition of the Company. There can be no assurance that the Company will be successful in addressing Y2K problems as they relate to its products and internal systems. In addition, there can be no assurance that the systems of third parties with which the Company interacts will not suffer from Y2K problems. Furthermore, Y2K problems that have been or may in the future be identified with respect to the IT and non-IT 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 the Company's financial condition or results of operations. The most reasonably likely worst case Y2K scenario, in the event that the Company does not identify or fails to fix material non-ready IT systems or non-IT systems operated by the Company or third parties with which it has a material relationship, is the disruption of its own business operations and/or those of customers, which could have a material adverse effect on the Company's business and financial condition. Another reasonably likely worst case scenario is a systematic failure beyond the control of the Company, 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 the Company. The Company is in the process of attempting to quantify the financial impact the occurrence of any of these worst case scenarios might have on the Company and prepare specific contingency plans specific to each scenario. OTHER RISK FACTORS Capital expenditures by semiconductor wafer and device manufacturers historically have been cyclical as they in turn depend upon the current and anticipated demand for integrated circuits. While the semiconductor industry appears to be recovering from a severe down cycle, it is not clear when semiconductor wafer manufacturers, who account for approximately 60% of the Company's revenue, will be in a position to increase their purchases of capital equipment. The computer disk drive industry has been in a period of oversupply and excess manufacturing capacity and this has also had an adverse impact on the Company. At July 31, 1999, the Company's backlog was $24.1 million, which represents a 8.1% increase from the first quarter of fiscal 1999. The Company remains uncertain about when growth in revenue will return. The Company continues to evaluate its cost structure relative to expected revenue and will continue to implement aggressive cost containment measures. The Company sells its semiconductor products to both wafer and device manufacturers. Historically, the Company's semiconductor revenue has been derived to a greater extent from wafer manufacturers than device manufacturers. The Company also believes that any increase in short-term chip demand or increases in semiconductor market capital expenditures is expected to impact device manufacturers prior to wafer manufacturers as wafer manufacturers are further down on the overall semiconductor industry supply chain. Capital expenditures within the semiconductor industry are increasingly focused on yield improvement rather than increased capacity. Certain customers of the Company have experienced excess manufacturing capacity and are consolidating some of their manufacturing facilities. Additionally, the Company believes that its customer's capital equipment expenditures related to increased capacity will be focused on replicating processes at multiple production locations, which has increased the importance of the Company maintaining its position as a technological leader. 14 During the third quarter of fiscal 1999 the Company implemented a restructuring plan to address the current downturn in the semiconductor and computer hard disk industries which resulted in a pre-tax charge of $2.3 million. This restructuring plan includes a consolidation of facilities, a write-down of fixed assets and employee severance costs. There can be no assurance that this plan will be sufficient to address the Company's cost structure relative to current and expected revenue and current market conditions. Furthermore, the Company's success is dependent upon supplying technologically superior products to the marketplace at appropriate times to satisfy customer needs. Product development requires substantial investment and is subject to technological risks. There can be no assurance that the Company will be able to retain or attract personnel necessary for the continued development of its business. Delays or difficulties in product development or market acceptance of newly developed products could adversely affect the future performance of the Company. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS: None ITEM 2. CHANGES IN SECURITIES: . None ITEM 3. DEFAULTS UPON SENIOR SECURITIES: None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None ITEM 5. OTHER INFORMATION: None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: a. See Exhibit Index, Page 18 b. Reports on Form 8-K-None 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADE CORPORATION Date: September 13, 1999 /s/ Mark D. Shooman ------------------- Mark D. Shooman Vice President and Chief Financial Officer Date: September 13, 1999 /s/ Robert C. Abbe ------------------ Robert C. Abbe President and Chief Executive Officer 17 ADE CORPORATION EXHIBIT INDEX Exhibit - ------- 27 Financial Data Schedule 18 EX-27 2 EXHIBIT 27
5 3-MOS APR-30-2000 MAY-01-1999 JUL-31-1999 49,758 0 11,394 0 23,435 99,981 29,259 0 143,844 17,516 12,379 0 0 133 113,816 143,844 12,362 12,362 7,249 7,249 0 0 (149) (6,571) 0 (6,571) 0 0 0 (7,185) (0.54) (0.54)
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