UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2001
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 No. 0-27122
ADEPT TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
California 94-2900635
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 Rose Orchard Way San Jose, California 95134
(Address of Principal executive offices) (Zip Code)
(408) 432-0888
(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 [ ]
The number of shares of the Registrant's common stock outstanding as of October
30, 2001 was 13,521,966.
1
ADEPT TECHNOLOGY, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
September 29, 2001 and June 30, 2001...................................... 3
Condensed Consolidated Statements of Operations
Three months ended September 29, 2001 and September 30, 2000.............. 4
Condensed Consolidated Statements of Cash Flows
Three months ended September 29, 2001 and September 30, 2000............ 5
Notes to Condensed Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 11
Item 3. Qualitative and Quantitative Disclosures About Market Risk.......... 27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................... 29
Item 6. Exhibits and Reports on Form 8-K.................................... 29
Signatures.................................................................. 30
Index to Exhibits........................................................... 31
2
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 29, June 30,
2001 2001
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 13,678 $ 18,700
Short-term investments -- 2,800
Accounts receivable, less allowance for doubtful accounts of
$695 at September 29, 2001 and $742 at June 30, 2001 16,930 21,272
Inventories 18,076 17,750
Deferred tax and other current assets 2,691 2,069
------------- -------------
Total current assets 51,375 62,591
Property and equipment at cost 6,987 34,520
Less accumulated depreciation and amortization 2,164 23,789
------------- -------------
Property and equipment, net 4,823 10,731
Goodwill and other intangibles, net 16,118 16,332
Other assets 5,781 5,919
------------- -------------
Total assets $ 78,097 $ 95,573
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,468 $ 10,369
Other accrued liabilities 13,230 12,438
Accrued restructuring charges 3,118 --
------------- -------------
Total current liabilities 23,816 22,807
Long-term liabilities:
Accrued restructuring charges 2,876 --
Deferred income tax and other long term liabilities 1,271 1,284
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
5,000 shares authorized, none issued and outstanding -- --
Common stock, no par value:
70,000 shares authorized, 13,184 shares issued and outstanding
at September 29, 2001, and 13,165 shares at June 30, 2001 103,208 103,138
Accumulated deficit (53,074) (31,656)
-------------- --------------
Total shareholders' equity 50,134 71,482
------------- -------------
Total liabilities and shareholders' equity $ 78,097 $ 95,573
============= =============
<FN>
See accompanying notes.
</FN>
3
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three months ended
-----------------------------------
September 29, September 30,
------------- -------------
2001 2000
---- ----
Net revenues $ 13,385 $ 27,621
Cost of revenues 8,737 14,783
-------------- --------------
Gross margin 4,648 12,838
Operating charges:
Research, development and engineering 5,838 4,866
Selling, general and administrative 7,714 7,836
Restructuring expenses 12,336 --
Amortization of goodwill and other intangibles 180 1,425
-------------- --------------
Total operating expenses 26,068 14,127
-------------- --------------
Operating loss (21,420) (1,289)
Interest income, net 83 189
-------------- --------------
Loss before income taxes (21,337) (1,100)
Provision for (benefit) from income taxes 81 (385)
-------------- ---------------
Net loss $ (21,418) $ (715)
============== ==============
Net loss per share:
Basic $ (1.63) $ (0.07)
============== ==============
Diluted $ (1.63) $ (0.07)
============== ==============
Number of shares used in computing per share amounts:
Basic 13,169 10,743
============== ==============
Diluted 13,169 10,743
============== ==============
<FN>
See accompanying notes.
</FN>
4
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months ended
-------------------------------------
September 29, September 30,
------------- -------------
2001 2000
---- ----
Operating activities
Net loss $ (21,418) $ (715)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 1,152 746
Amortization 180 1,486
Write-off of property and equipment 5,601 --
Loss on disposal of property and equipment -- 12
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable 4,342 2,909
Inventories (326) (2,665)
Deferred tax assets and other prepaid expenses (622) 495
Other assets 138 (655)
Accounts payable (2,901) (2,770)
Other accrued liabilities 792 (2,344)
Accrued restructuring charges 5,994 --
Deferred income tax and other long term liabilities (13) 181
-------------- --------------
Total adjustments 14,337 (2,605)
-------------- --------------
Net cash used in operating activities (7,081) (3,320)
-------------- --------------
Investing activities
Business acquisitions 34 (7,050)
Purchase of property and equipment (845) (2,355)
Purchases of short-term available-for-sale investments (1,400) (10,680)
Sales of short-term available-for-sale investments 4,200 14,776
-------------- --------------
Net cash provided by (used in) investing activities 1,989 (5,309)
-------------- --------------
Financing activities
Proceeds from employee stock incentive program and employee
stock purchase plan, net of repurchases and cancellations 70 863
-------------- --------------
Net cash provided by financing activities 70 863
-------------- --------------
Decrease in cash and cash equivalents (5,022) (7,766)
Cash and cash equivalents, beginning of period 18,700 13,487
-------------- --------------
Cash and cash equivalents, end of period $ 13,678 $ 5,721
============== ==============
Supplemental disclosure of noncash activities:
Inventory capitalized into property and equipment including related tax $ -- $ 228
Cash paid during the period for:
Interest $ 1 $ 4
Taxes paid (refunded) $ -- $ 256
<FN>
See accompanying notes.
</FN>
5
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General
The accompanying condensed consolidated financial statements have been prepared
in conformity with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished in this report reflects all
adjustments which, in the opinion of management, are necessary for a fair
statement of the consolidated financial position, results of operations and cash
flows as of and for the interim periods. Such adjustments consist of items of a
normal recurring nature. The condensed consolidated financial statements
included herein should be read in conjunction with the audited financial
statements and notes thereto for the fiscal year ended June 30, 2001 included in
the Company's Form 10-K as filed with the Securities and Exchange Commission on
September 21, 2001. Results of operations for interim periods are not
necessarily indicative of the results of operations that may be expected for the
fiscal year ending June 30, 2002 or for any other future period.
Net Loss per Share
Basic net loss per share is based on the weighted average number of shares of
common stock outstanding during the period, excluding restricted stock, while
diluted net loss per share is based on the weighted average number of shares of
common stock outstanding during the period and the dilutive effects of common
stock equivalents (mainly stock options), determined using the treasury stock
method, outstanding during the period, unless the effect of including the common
stock equivalents is anti-dilutive.
Derivative Financial Instruments
The Company's product sales are predominantly denominated in U.S. dollars.
However, certain international operating expenses are predominately paid in
their respective local currency. During 2000, the Company began a foreign
currency hedging program to hedge its exposure to foreign currency exchange risk
on local international operational expenses and revenues. Realized and
unrealized gains and losses on forward currency contracts that are effective as
hedges of assets and liabilities, are recognized in income. The Company
recognized a loss of $354,000 for the three months ended September 29, 2001 and
a gain of $196,000 for the three months ended September 30, 2000.
The Company may enter into foreign exchange contracts as a hedge against foreign
currency denominated receivables. The Company does not engage in currency
speculation. Market value gains and losses on contracts are recognized
currently, offsetting gains or losses on the associated receivables. Foreign
currency transaction gains and losses are included in current earnings. Foreign
exchange contracts totaled $3,588,800 at September 29, 2001, and $3,931,400 at
September 30, 2000.
2. Financial Instruments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Short-term investments
consist principally of commercial paper and tax exempt municipal bonds with
maturities between three and 12 months, market auction rate preferred stock and
auction rate notes with maturities of 12 months or less. Investments are
classified as held-to-maturity, trading, or available-for-sale at the time of
purchase.
3. Inventories
Inventories are stated at the lower of standard cost, which approximates actual
(first-in, first-out method) or market (estimated net realizable value). The
components of inventory are as follows:
6
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 29, June 30,
(in thousands) 2001 2001
---- ----
Raw materials......... $ 7,220 $ 7,397
Work-in-process....... 5,411 4,908
Finished goods........ 5,445 5,445
-------- --------
$ 18,076 $ 17,750
======== ========
4. Property and Equipment
Property and equipment are recorded at cost.
The components of property and equipment are summarized as follows:
September 29, June 30,
(in thousands) 2001 2001
---- ----
Cost:
Machinery and equipment......................... $ 1,882 $ 14,922
Computer equipment.............................. 4,132 14,779
Office furniture and equipment.................. 973 4,819
---------- ----------
6,987 34,520
Accumulated depreciation and amortization 2,164 23,789
---------- ----------
Net property and equipment...................... $ 4,823 $ 10,731
---------- ==========
In connection with a plan to restructure its operations (Note 6), the Company
recorded an impairment charge of $5.6 million representing the net book value of
machinery, computer equipment and office furniture and improvements associated
with the non-strategic product lines to be eliminated and manufacturing and
support facilities to be consolidated. The Company expects to have fully
disposed of these assets during the third quarter of fiscal 2002. These assets
relate to all three of the Company's reportable business segments and the
Company's depreciation expense will be reduced by approximately $200,000 per
quarter as a result of these asset write offs.
5. Credit Facility
On April 9, 2001, the Company signed a set of agreements establishing a
revolving line of credit with the CIT Group/Business Credit, Inc. to borrow up
to the lesser of $25.0 million or the sum of 85% of eligible domestic accounts
receivables, plus 90% of eligible foreign accounts receivables, less a dilution
reserve equivalent to one percent of eligible domestic and foreign accounts
receivables for every one percentage point in excess of a standard five percent
dilution rate. The agreements have an initial term of three years with automatic
renewals on identical terms thereafter unless terminated by either party within
60 days of the then current term. The Company is required to meet certain
restrictive covenants as defined by the new credit agreement. The Company was in
compliance with these covenants as of September 29, 2001. To date, the Company
has no outstanding borrowings under this revolving line of credit.
6. Restructuring Charges
During the three months ended September 29, 2001, the Company implemented a plan
to restructure certain of its operations across all three of its reportable
business segments. The Company recorded restructuring charges of $12.3 million
relating to the exiting of certain non-strategic product lines and the
consolidation of certain manufacturing and support facilities. The Company
expects to be substantially complete with its
7
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
restructuring plan during the third quarter of fiscal 2002.
The restructuring charges include employee severance costs, lease termination
costs and asset impairment charges (Note 4) and are as follows:
Balance
Amounts September 29,
(in thousands) Charges Utilized 2001
------- -------- ----
Employee severance costs................ $ 1,372 $ 555 $ 817
Lease termination costs................. 5,363 186 5,177
Asset impairment charges................ 5,601 5,601 --
----------- ----------- -----------
Total................................. $ 12,336 $ 6,342 $ 5,994
=========== =========== ===========
Employee severance costs of $1.4 million represent a reduction of approximately
144 employees in most functional areas across all three of the reportable
business segments. Lease termination costs and asset impairment charges result
from the exiting of certain non-strategic product lines and the consolidation of
manufacturing facilities in San Jose and Livermore, California into Adept's
technology center in Livermore, California, plus the consolidation of certain
support facilities in Europe. At September 29,2001, the long term accrued
restructuring charges relate to future rent commitments on non-cancelable lease
agreements.
7. Income Taxes
The Company typically provides for income taxes during interim reporting periods
based upon an estimate of its annual effective tax rate. The Company has ceased
to recognize the current tax benefit of its operating losses because realization
is not assured as required by SFAS No. 109. For the quarter ended September 29,
2001, the Company has recorded a tax provision related to the operations of its
French subsidiary.
8. Net Loss per Share
Three months ended
------------------------------------
(in thousands) September 29, September 30,
2001 2000
---- ----
Net loss ........................................... $(21,418) $ (715)
Basic:
Weighted average shares outstanding ................ 13,169 10,743
======== ========
Net loss per share ................................. $ (1.63) $ (.07)
======== ========
Diluted:
Weighted average shares outstanding ................ 13,169 10,743
Effect of dilutive securities
- - employee stock options ........................... -- --
-------- --------
Adjusted weighted average shares outstanding
- - assumed conversion ............................... 13,169 10,743
======== ========
Net loss per share ................................. $ (1.63) $ (.07)
======== ========
8
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
9. Impact of Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. The Company has adopted FAS 141, and does not expect this Statement to
have a material effect on the Company's financial position or results of
operations.
Under SFAS 142, goodwill (and intangible assets deemed to have indefinite lives)
will no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets with finite lives will
be amortized over those useful lives. The Company has implemented SFAS 142
during the first quarter of fiscal 2002. Application of the non-amortization
provision of SFAS 142 is expected to result in a decrease in net loss of $7.5
million per year. The Company is currently performing the first of the required
impairment tests of goodwill and indefinite lived intangible assets and has not
yet determined what the effect of this test will be on its earnings and
financial position.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), which is effective for fiscal periods beginning after December 15, 2001.
SFAS 144 provides a single accounting model for, and supersedes previous
guidance on, accounting and reporting for the impairment /disposal of long-lived
assets. SFAS 144 sets new criteria for the classification of an assets
held-for-sale and changes the reporting of discontinued operations. The Company
does not believe that the adoption of SFAS 144 will have a significant impact on
its financial statements.
10. Segment Information
The Company has three reportable business segments, the Assembly and Material
Handling ("AMH") operations segment, the Semiconductor operations segment and
the SILMA Software operations segment.
The AMH operations segment provides intelligent automation software and hardware
products for assembly, material handling and packaging applications.
The Semiconductor operations segment provides semiconductor contamination
control products, such as, standard and customized products for contamination
control (mini and micro environments), Standard Mechanical Interfaces ("SMIF")
wafer integration and front-end wafer handling solutions for semiconductor OEMs.
In addition, the segment provides end users guidance and inspection vision
products and robots to end users.
The SILMA Software ("SILMA") operations segment provides 3-D graphical
simulation tools for assembly process design, simulation and analysis.
The reportable segments are each managed separately because they manufacture and
distribute distinct products with different production processes.
The Company evaluates performance and allocates resources based on segment
revenues and segment operating (loss) income. Segment operating (loss) income is
comprised of income before unallocated research and development expenses,
unallocated selling, general and administrative expenses, amortization of
intangibles, interest income, interest and other expenses and income taxes.
Management does not fully allocate research and development expenses and
selling, general and administrative expenses when making capital spending
decisions, expense funding decisions or assessing segment performance. There
were no inter-segment sales or transfers between segments.
Segment information for total assets and capital expenditures is not presented
as such information is not used
9
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
in measuring segment performance or allocating resources among segments.
Three months ended
------------------
September 29, September 30,
(in thousands) 2001 2000
---- ----
Revenue:
Assembly and Material Handling operations.............. $ 11,192 $ 22,480
Semiconductor operations............................... 860 3,749
SILMA Software operations.............................. 1,333 1,392
---------- ----------
Total revenue.......................................... $ 13,385 $ 27,621
========== ==========
Operating (loss) income:
Assembly and Material Handling operations.............. $ (96) $ 5,713
Semiconductor operations............................... (1,045) 709
SILMA Software operations.............................. (92) (148)
---------- ----------
Segment profit (loss).................................. (1,233) 6,274
Unallocated research, development and engineering
and selling, general and administrative.............. (7,851) (7,563)
Restructuring charges.................................. (12,336) --
Interest income........................................ 84 193
Interest expense....................................... (1) (4)
---------- ----------
Loss before income taxes............................... $ (21,337) $ (1,100)
========== ==========
11. Comprehensive Income
For the three months ended September 29, 2001 and September 30, 2000, there were
no significant differences between the Company's comprehensive loss and its net
loss.
12. Reclassification
Certain amounts presented in the financial statements for prior periods have
been reclassified to conform to the presentation for fiscal 2002.
13. Subsequent Events
On October 9, 2001, the Company completed the acquisition of CHAD Industries,
Inc. (CHAD), a design and manufacturing company specializing in precision
assembly automation based in Orange, California. Under the terms of the
agreement, the acquisition price of approximately $8.1 million in cash and
200,000 shares of common stock will be paid out over three years in exchange for
all of the issued and outstanding shares of CHAD. This acquisition was accounted
for under the purchase method of accounting.
On October 29, 2001, the Company completed an automation development alliance
agreement with JDS Uniphase Corporation (JDS Uniphase). Through this alliance,
Adept will be JDS Uniphase's development partner for optical automation
processes and solutions. JDS Uniphase has made an investment of $25 million in
Adept convertible preferred stock.
10
ADEPT TECHNOLOGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:
o marketing and commercialization of our products under development;
o our estimates regarding our capital requirements and our needs for
additional financing;
o plans for future products and services and for enhancements of existing
products and services:
o our ability to attract customers and market our products;
o our intellectual property;
o our ability to establish relationships with suppliers, systems
integrators and OEMs for the supply and distribution of our products;
o plans for future acquisitions and for the integration of recent
acquisitions; and
o sources of revenues and anticipated revenues, including the
contribution from the growth of new products and markets.
In some cases, forward-looking statements can be identified by terms such as
"may," "intend,", "might," "will," "should," "could," "would," "expect,"
"believe," "estimate," "predict," "potential," or the negative of these terms,
and similar expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions subject to risks and uncertainties. Given these uncertainties,
undue reliance should not be placed on these forward-looking statements. Also,
these forward-looking statements represent our estimates and assumptions only as
of the date of this report.
OVERVIEW
We provide intelligent production automation solutions to our customers in many
industries including the semiconductor, wireless communications, photonics,
food, automotive, life sciences and electronics industries. We utilize our
comprehensive portfolio of high precision mechanical components and application
development software to deliver automation solutions that meet our customer's
increasingly complex manufacturing requirements. We offer our customers a
comprehensive and tailored automation solution that we call Rapid Deployment
Automation, or RDA, that reduces the time and cost to design, engineer and
launch products into high-volume production. We market and sell our products
worldwide through more than 300 system integrators, our direct sales force and
OEMs.
This discussion summarizes the significant factors affecting our consolidated
operating results, financial condition, liquidity and cash flow during the
quarter ended September 29, 2001. Unless otherwise indicated, references to any
quarter in this Management's Discussion and Analysis of Financial Condition and
Results of Operations refer to our fiscal quarter ended September 29, 2001. This
discussion should be read with the consolidated financial statements and
financial statement footnotes included in this Quarterly Report on Form 10-Q.
11
ADEPT TECHNOLOGY, INC.
Results of Operations
Three Months Ended September 29, 2001 and September 30, 2000
Net revenues. Our net revenues decreased by 51.5% to $13.4 million for the three
months ended September 29, 2001 from $27.6 million for the three months ended
September 30, 2000. The decrease is primarily attributable to the continued
decline in overall market conditions, in particular the wireless communications,
semiconductor, and fiber optics markets. Sales to the wireless communications
industry were down approximately 99.8% from a year ago, semiconductor sales were
down approximately 86.7% from a year ago and although sales to the fiber optics
industry were relatively flat, we had expected growth for that industry this
fiscal year. Further deterioration of our base business as our customers reduced
capital spending in an effort to deal with excess manufacturing capacity also
contributed to the overall decline in revenue.
Our domestic sales totaled $6.0 million for the three months ended September 29,
2001, compared with $16.1 million for the three months ended September 30, 2000,
a decrease of 63.0%. The decrease is due, in large part, to the decline in
semiconductor markets where most of our sales are domestic.. Broad softening of
sales to household electronics, automotive and wireless communications accounted
for most of the remaining decline.
Our international sales totaled $7.4 million for the three months ended
September 29, 2001, compared with $11.5 million for the three months ended
September 30, 2000, a decrease of 35.7%. Generally the European markets have not
deteriorated as broadly as the domestic markets, however we have experienced
declining sales to the wireless communications market as well as pricing
pressures as competitors seek to maintain market share.
Gross margin. Gross margin as a percentage of net revenue was 34.7% for the
three months ended September 29, 2001 compared to 46.5% for the three months
ended September 30, 2000. This was primarily due to fixed facilities expenses
and 59.0% reduction in production units. We continued to experience excess fixed
capacity, lower margins from pricing pressure and lower volumes. All this
combined to produce an unfavorable manufacturing variance resulting in lower
margins as compared to the same quarter a year ago.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 20.0% to $5.8 million, or 43.6% of net
revenues, for the three months ended September 29, 2001 from $4.9 million, or
17.6% of net revenues, for the three months ended September 30, 2000. The
increase in the three months ended September 29, 2001 was primarily due to
increases in project material expenses of $476,000 and other project development
expenses of $364,000. We did not receive any third party funding during the
three months ended September 29, 2001 as compared to third party funding of
$18,000 during the three months ended September 30, 2000. We do not expect to
receive third party development funding from the government or other third
parties for the remainder of fiscal 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $7.7 million, or 57.6% of net revenues, for the
three months ended September 29, 2001, as compared with $7.8 million, or 28.4%
of net revenues, for the three months ended September 30, 2000. As a result of
cost cutting strategies implemented during the three months ended September 29,
2001, we expect that selling, general and administrative expenses will continue
to decrease or remain flat.
Restructuring Charge. We recorded restructuring charges of $12.3 million
relating to the exiting of certain non-strategic product lines and the
consolidation of certain manufacturing and support facilities for the three
months ended September 29, 2001. We expect to be substantially complete with our
restructuring plans during the third quarter of fiscal 2002.
Amortization of Goodwill and Other Intangibles. We incurred non-cash expenses of
$180,000 in amortization of other intangibles for the three months ended
September 29, 2001 as compared to non-cash expenses of $1.4 million in
amortization of goodwill and other intangibles relating to the acquisition of
HexaVision, Nanomotion and Pensar for the three months ended September 30, 2000.
Effective July 1, 2001, we no longer amortize goodwill under the terms of a new
accounting standard, Statement of the Financial Accounting Standards No. 142.
12
ADEPT TECHNOLOGY, INC.
Interest Income, Net. Interest income for the three months ended September 29,
2001 was $83,000 compared to $189,000 for the three months ended September 30,
2000. The decrease was due to the combination of lower interest rates and a
lower average cash balance attributable to our decreased revenue stream.
Provision for (Benefit) from Income Taxes. Our effective tax rate was less than
1% for the three months ended September 29, 2001 and 35% for the three months
ended September 30, 2000. We expect to be in a loss position for U.S. tax
purposes for the tax year ended June 30, 2002. However, we estimate that our
French subsidiary will be in a taxable position and recorded a provision for the
quarter ended September 29, 2001, resulting in a 1% overall tax rate. For the
three months ended September 29, 2001, the effective tax rate was based on
estimates of the annual effective tax rate.
Derivative Financial Instruments. Our product sales are predominantly
denominated in U.S. dollars. However, certain international operating expenses
are predominately paid in their respective local currency. During 2000, we began
a foreign currency hedging program to hedge our exposure to foreign currency
exchange risk on local international operational expenses and revenues. Realized
and unrealized gains and losses on forward currency contracts that are effective
as hedges of assets and liabilities are recognized in income. We recognized a
loss of $354,000 for the three months ended September 29, 2001 and a gain of
$196,000 for the three months ended September 30, 2000.
Impact of Inflation.
The effect of inflation on our business and financial position has not been
significant to date.
Liquidity and Capital Resources.
As of September 29, 2001, we had working capital of approximately $27.6 million,
including $13.7 million in cash and cash equivalents.
Cash and cash equivalents decreased $5.0 million from June 30, 2001. Net cash
used in operating activities of $7.1 million was primarily attributable to the
net loss adjusted by restructuring charges and decreased accounts receivable.
The restructuring charges included $6.0 million in severance and lease
termination costs and $5.6 million in asset impairment charges. The decrease in
accounts payable was offset by increases in other accrued liabilities. Cash
provided by investing activities during the quarter was $2.0 million, which was
attributable to sales of short term investments of $4.2 million offset by
purchases of short term investments of $1.4 million. Cash flows from financing
activities during the quarter consisted of $70,000 in proceeds from our employee
stock incentive plan.
We currently anticipate net capital expenditures of approximately $1.7 million
for the remainder of fiscal 2002.
On April 9, 2001, we signed a set of agreements establishing a revolving line of
credit with the CIT Group/Business Credit, Inc. to borrow up to the lesser of
$25.0 million or the sum of 85% of eligible domestic accounts receivables, plus
90% of eligible foreign accounts receivables, less a dilution reserve equivalent
to one percent of eligible domestic and foreign accounts receivables for every
one percentage point in excess of a standard five percent dilution rate. The
agreements have an initial term of three years with automatic renewals on
identical terms thereafter unless terminated by either party within 60 days of
the then current term. We are required to meet certain restrictive covenants as
defined by the new credit agreement. We were in compliance with these covenants
at September 29, 2001. To date, we have no outstanding borrowings under this
revolving line of credit.
Subsequent to our quarter ended September 29, 2001, we closed a preferred stock
transaction with net cash proceeds of approximately $25.0 million (refer to Note
13 - Subsequent Events and attached exhibits 3.1, 4.1, and 10.1).
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ADEPT TECHNOLOGY, INC.
New Accounting Pronouncements.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets SFAS 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. We have adopted FAS 141, and do not expect this Statement to have material
effect on the Company's financial position or results of operations.
Under SFAS 142, goodwill (and intangible assets deemed to have indefinite lives)
will no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets with finite lives will
be amortized over those useful lives. We have implemented SFAS 142 during the
first quarter of fiscal 2002. Application of the non-amortization provision of
SFAS 142 is expected to result in a decrease in net loss of $7.5 million per
year. We are currently performing the first of the required impairment tests of
goodwill and indefinite lived intangible assets and have not yet determined what
the effect of this test will be on our earnings and financial position.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), which is effective for fiscal periods beginning after December 15, 2001.
SFAS 144 provides a single accounting model for, and supersedes previous
guidance on accounting and reporting for the impairment/disposal of long lived
assets. SFAS 144 sets new criteria for the classification of an assets
held-for-sale and changes the reporting of discontinued operations. We do not
believe that the adoption of SFAS 144 will have a significant impact on our
financial statements.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Risks Related to Our Business
You should not rely on our past results to predict our future performance
because our operating results fluctuate due to factors which are difficult to
forecast, and which can be extremely volatile.
Our past revenues and other operating results may not be accurate indicators of
our future performance. Our operating results have been subject to significant
fluctuations in the past, and we expect this to continue in the future. The
factors that may contribute to these fluctuations include:
o fluctuations in aggregate capital spending, cyclicality and other economic
conditions domestically and internationally in one or more industries in
which we sell our products;
o changes in demand in the semiconductor and electronics industries;
o new product introductions by us or by our competitors;
o changes in product mix and pricing by us, our suppliers or our competitors;
o availability of components and raw materials for our products;
o our failure to manufacture a sufficient volume of products in a timely and
cost-effective manner;
o our failure to anticipate the changing product requirements of our customers;
o a change in market acceptance of our products or a shift in demand for our
products;
o changes in the mix of sales by distribution channels;
o exchange rate fluctuations;
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ADEPT TECHNOLOGY, INC.
o extraordinary events such as litigation or acquisitions; and
o slower than expected growth in the photonics industry.
Our gross margins may vary greatly depending on the mix of sales of lower margin
hardware products,particularly mechanical subsystems purchased from third party
vendors, and higher margin software products.
Our operating results may also be affected by general economic and other
conditions affecting the timing of customer orders and capital spending. For
example, our operations during the third and fourth quarters of fiscal 1998, the
first three quarters of fiscal 1999, the first quarter of fiscal 2000, all of
fiscal 2001, and the first quarter of fiscal 2002 were adversely affected by a
continuing downturn in hardware purchases by customers in the electronics
industry, particularly disk-drive manufacturers and to a lesser extent
communication manufacturers. In addition, we have experienced reduced demand
during the last three quarters in our base industries, especially the
semiconductor industry, as OEMs reduced inventories as they adjusted their
businesses from a period of high growth to moderate growth. We cannot estimate
when or if a sustained revival in these key hardware markets will occur.
We generally recognize product revenue upon shipment or, for certain
international sales, upon receipt by the customers. As a result, our net
revenues and results of operations for a fiscal period will be affected by the
timing of orders received and orders shipped during the period. A delay in
shipments near the end of a fiscal period, for example, due to product
development delays or delays in obtaining materials may cause sales to fall
below expectations and harm our operating results for the period.
In addition, our continued investments in research and development, capital
equipment and ongoing customer service and support capabilities result in
significant fixed costs that we cannot reduce rapidly. As a result, if our sales
for a particular fiscal period are below expected levels, our operating results
for the period could be materially adversely affected.
In the event that in some future fiscal quarter our net revenues or operating
results fall below the expectations of public market analysts and investors, the
price of our common stock may fall. We may not be able to increase or sustain
our profitability on a quarterly or annual basis in the future.
Sales of our products depend on the capital spending patterns of our customers,
which tend to be cyclical; we are currently experiencing reduced demand in the
electronics and semiconductor industries, which may adversely affect our
revenues.
Intelligent automation systems using our products can range in price from
$75,000 to several million dollars. Accordingly, our success is directly
dependent upon the capital expenditure budgets of our customers. Our future
operations may be subject to substantial fluctuations as a consequence of
domestic and foreign economic conditions, industry patterns and other factors
affecting capital spending. Although the majority of our international customers
are not in the Asia-Pacific region, we believe that any instability in the
Asia-Pacific economies could also have a material adverse effect on the results
of our operations as a result of a reduction in sales by our customers to those
markets. Domestic or international recessions or a downturn in one or more of
our major markets, such as the electronics, wireless communications,
semiconductor, appliances, pharmaceutical, food processing or automotive
components industries, and resulting cutbacks in capital spending would have a
direct, negative impact on our business. We are currently experiencing reduced
demand in some of the industries we serve including the electronics and
semiconductor industries and expect this reduced demand to adversely affect our
revenues for at least the first two quarters of fiscal 2002. During the third
and fourth quarter of fiscal 2001, and the first quarter of fiscal 2002, Adept
received fewer orders than expected, experienced delivery schedule postponements
on several existing orders and had some order cancellations. Such changes in
orders may adversely affect revenue for future quarters.
We sell some of our products to the semiconductor industry, which is subject to
sudden, extreme, cyclical variations in product supply and demand. The timing,
length and severity of these cycles are difficult to predict. In
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ADEPT TECHNOLOGY, INC.
some cases, these cycles have lasted more than a year. Semiconductor
manufacturers may contribute to these cycles by misinterpreting the conditions
in the industry and over- or under-investing in semiconductor manufacturing
capacity and equipment. We may not be able to respond effectively to these
industry cycles.
Downturns in the semiconductor industry often occur in connection with, or
anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. Industry downturns
have been characterized by reduced demand for semiconductor devices and
equipment, production over-capacity and accelerated decline in average selling
prices. During a period of declining demand, we must be able to quickly and
effectively reduce expenses and motivate and retain key employees. Our ability
to reduce expenses in response to any downturn in the semiconductor industry is
limited by our need for continued investment in engineering and research and
development and extensive ongoing customer service and support requirements. The
long lead time for production and delivery of some of our products creates a
risk that we may incur expenditures or purchase inventories for products which
we cannot sell. A downturn in the semiconductor industry could therefore harm
our revenues and gross margin if demand drops or average selling prices decline.
Industry upturns have been characterized by abrupt increases in demand for
semiconductor devices and equipment and production under-capacity. During a
period of increasing demand and rapid growth, we must be able to quickly
increase manufacturing capacity to meet customer demand and hire and assimilate
a sufficient number of qualified personnel. Our inability to ramp-up in times of
increased demand could harm our reputation and cause some of our existing or
potential customers to place orders with our competitors.
Many of the key components and materials of our products come from single source
suppliers; their procurement requires lengthy lead times or supplies of such
components are limited.
We obtain many key components and materials and some significant mechanical
subsystems from sole or single source suppliers with whom we have no guaranteed
supply arrangements. In addition, some of our sole or single sourced components
and mechanical subsystems incorporated into our products have long procurement
lead times. Our reliance on sole or single source suppliers involves certain
significant risks including:
o loss of control over the manufacturing process;
o potential absence of adequate supplier capacity;
o potential inability to obtain an adequate supply of required components,
materials or mechanical subsystems; and
o reduced control over manufacturing yields, costs, timely delivery,
reliability and quality of components, materials and mechanical subsystems.
We depend on Sanmina Corporation for the supply of our circuit boards, NSK
Corporation for the supply of our linear modules, which are mechanical devices
powered by an electric motor that move in a straight line, and which can be
combined as building blocks to form simple robotic systems, Yaskawa Electric
Corp. for the supply of our 6-axis robots, Samsung Electronics Co., Ltd. for the
supply of semiconductor robots, Hirata Corporation for the supply of our Adept
Cobra 600 robot mechanism and Adept Cobra 800 robot mechanisms and we are
transitioning from Imaging Technology Incorporated to Matrox Electronic Systems
Ltd. for the supply of our computer vision processors, which are used to
digitize images from a camera and perform measurements and analysis. If any one
of these significant sole or single source supplier were unable or unwilling to
manufacture the components, materials or mechanical subsystems we need in the
volumes we require, we would have to identify and qualify acceptable
replacements. The process of qualifying suppliers may be lengthy, and additional
sources may not be available to us on a timely basis, on acceptable terms or at
all. If supplies of these items were not available from our existing suppliers
and a relationship with an alternative vendor could not be developed in a timely
manner, shipments of our products could be interrupted and reengineering of
these products could be required. In the past, we have experienced quality
control or specification problems with certain key components provided by sole
source suppliers, and have had to design around the particular flawed item. We
have also experienced delays in filling customer orders due to the failure of
certain suppliers to meet our volume and schedule requirements. Some
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ADEPT TECHNOLOGY, INC.
of our suppliers have also ceased manufacturing components that we require for
our products, and we have been required to purchase sufficient supplies for the
estimated life of its product line. Problems of this nature with our suppliers
may occur in the future.
In addition, some of the components that we use in our products are in short
supply. Many of our products have longer lives than those of the components and
materials included in our products. As a result, supplies of components for our
products may not be available throughout the life span of our products.
Disruption or termination of our supply sources could require us to seek
alternative sources of supply, and could delay our product shipments and damage
relationships with current and prospective customers, any of which could have a
material adverse effect on our business. If we incorrectly forecast product mix
for a particular period and we are unable to obtain sufficient supplies of any
components or mechanical subsystems on a timely basis due to long procurement
lead times, our business, financial condition and results of operations could be
substantially impaired. Moreover, if demand for a product for which we have
purchased a substantial amount of components fails to meet our expectations, we
would be required to write off the excess inventory. A prolonged inability to
obtain adequate timely deliveries of key components could have a material
adverse effect on our business, financial condition and results of operations.
Because our product sales are seasonal, we may not be able to maintain a steady
revenue stream.
Our product sales are seasonal. We have historically had higher bookings for our
products during the June quarter of each fiscal year and lower bookings during
the September quarter of each fiscal year, due primarily to the slowdown in
sales to European markets and summer vacations. In the event bookings for our
products in the June fiscal quarter are lower than anticipated and our backlog
at the end of the June fiscal quarter is insufficient to compensate for lower
bookings in the September fiscal quarter, our results of operations for the
September fiscal quarter and future quarters will suffer.
A significant percentage of our product shipments occur in the last month of
each fiscal quarter. Historically, this has been due in part, at times, to our
inability to forecast the level of demand for our products or of the product mix
for a particular fiscal quarter. To address this problem we periodically stock
inventory levels of completed robots, machine controllers and certain strategic
components. If shipments of our products fail to meet forecasted levels, the
increased inventory levels and increased operating expenses in anticipation of
sales that do not materialize could adversely affect our business.
Orders constituting our backlog are subject to changes in delivery schedules and
customer cancellations resulting in lower than expected revenues.
Backlog should not be relied on as a measure of anticipated activity or future
revenues, because the orders constituting our backlog are subject to changes in
delivery schedules and in certain instances are subject to cancellation without
significant penalty to the customer. We have in the past experienced changes in
delivery schedules and customer cancellations that resulted in our revenues in a
given quarter being materially less than would have been anticipated based on
backlog at the beginning of the quarter. We experienced greater customer delays
and cancellations in the second half of fiscal 2001 and the first quarter of
fiscal 2002, compared to prior periods, and this increase may continue. Similar
delivery schedule changes and order cancellations may adversely affect our
operating results in the future.
Because we do not have long-term contracts with our customers, they may cease
purchasing our products at any time.
We generally do not have long-term contracts with our customers and existing
contracts may be cancelled. As a result, our agreements with our customers do
not provide any assurance of future sales. Accordingly our customers are not
required to make minimum purchases and may cease purchasing our products at any
time without penalty. Because our customers are free to purchase products from
our competitors, we are exposed to competitive price pressure on each order. Any
reductions, cancellations or deferrals in customer orders could have a negative
impact on our financial condition and results of operations.
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ADEPT TECHNOLOGY, INC.
We are expanding development of intelligent automation solutions for the
photonics industry, and our entry into this industry will require us to develop
significant new capabilities and may not be successful.
We are expanding development of our intelligent automation solutions targeted at
the photonics industry. We expect to devote significant financial, engineering
and management resources to expand our development and marketing of these
solutions. Our success in the photonics industry depends upon our ability to,
among other things:
o accurately determine the features and functionality that our photonics
customers require or prefer;
o successfully design and implement intelligent automation solutions that
include these features and functionality;
o enter into agreements with system integrators, manufacturers and
distributors; and
o achieve market acceptance for our photonics solutions.
Our photonics solutions may not achieve broad market acceptance for a variety of
reasons including:
o photonics companies may continue their current production methods and may not
adopt our intelligent automation solutions;
o photonics companies may determine that the costs and resources required to
switch to our intelligent automation solutions are unacceptable to them;
o system integrators, manufacturers, and OEMs may not enter into agreements
with us; and
o competition from traditional, well-established photonics manufacturing
methods.
We have limited experience in developing and marketing products for the
photonics industry. If we do not successfully develop and achieve market
acceptance of products for the photonics industry, our ability to increase our
revenue may be limited and our business and our results of operations will
suffer.
We charge a fixed price for a certain products which may make us vulnerable to
cost overruns.
Our operating results fluctuate when our gross margins vary. Our gross margins
vary for a number of reasons, including:
o the mix of products we sell;
o the average selling prices of products we sell;
o the costs to manufacture, market, service and support our new products and
enhancements;
o the costs to customize our systems; and
o our efforts to enter new markets.
We charge a fixed price for certain of our products, including the products that
we added as a result of our acquisition of Pensar. If the costs we incur in
completing a customer order for these products exceed our expectations, we
generally cannot pass those costs on to our customer.
We have significant fixed costs which are not easily reduced during a downturn.
We continue to invest in research and development, capital equipment and
extensive ongoing customer service and support capability worldwide. These
investments create significant fixed costs that we may be unable to
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ADEPT TECHNOLOGY, INC.
reduce rapidly if we do not meet our sales goals. Moreover, if we fail to obtain
a significant volume of customer orders for an extended period of time, we may
have difficulty planning our future production and inventory levels, which could
also cause fluctuations in our operating results.
If our targeted photonics market develops more slowly than we expect, our
revenue will not grow as fast as anticipated, if at all.
Segments of the photonics market that we target as an element of our growth
strategy are either emerging or rapidly changing and the potential size of these
market segments and the timing of their development are difficult to predict. If
our targeted segments of this market develop more slowly than we expect, our
ability to increase our revenue may be limited. We depend, in part, upon the
broad acceptance by photonic manufacturers of our material handling and
component assembly solutions, as well as our simulation software and robot
vision and motion control technology. Much of our acquisition and subsequent
development efforts have been directed toward this market, and a delay in the
evolution and growth of this market could significantly adversely impact the
return on these investments, or even prevent the realization of a return on
these investments.
We rely on systems integrators and OEMs to sell our products.
We believe that our ability to sell products to system integrators and OEMs will
continue to be important to our success. Our relationships with system
integrators and OEMs are generally not exclusive, and some of our system
integrators and OEMs may expend a significant amount of effort or give higher
priority to selling products of our competitors. In the future, any of our
system integrators or our OEMs may discontinue their relationships with us or
form additional competing arrangements with our competitors. The loss of, or a
significant reduction in revenues from, system integrators or OEMs to which we
sell a significant amount of our product could negatively impact our business,
financial condition or results of operations.
As we enter new geographic and applications markets, we must locate system
integrators and OEMs to assist us in building sales in those markets. We may not
be successful in obtaining effective new system integrators or OEMs or in
maintaining sales relationships with them. In the event a number of our system
integrators and/or OEMs experience financial problems, terminate their
relationships with us or substantially reduce the amount of our products they
sell, or in the event we fail to build an effective systems integrator or OEM
channel in any new markets, our business, financial condition and results of
operations could be adversely affected.
In addition, a substantial portion of our sales is to system integrators that
specialize in designing and building production lines for manufacturers. Many of
these companies are small operations with limited financial resources, and we
have from time to time experienced difficulty in collecting payments from
certain of these companies. As a result, we perform ongoing credit evaluations
of our customers. To the extent we are unable to mitigate this risk of
collections from system integrators, our results of operations may be harmed.
Our products generally have long sales cycles and implementation periods, which
increase our costs in obtaining orders and reduces the predictability of our
earnings.
Our products are technologically complex. Prospective customers generally must
commit significant resources to test and evaluate our products and to install
and integrate them into larger systems. Orders expected in one quarter may shift
to another quarter or be cancelled with little advance notice as a result of the
customers' budgetary constraints, internal acceptance reviews, and other factors
affecting the timing of customers' purchase decisions. In addition, customers
often require a significant number of product presentations and demonstrations,
in some instances evaluating equipment on site, before reaching a sufficient
level of confidence in the product's performance and compatibility with the
customer's requirements to place an order. As a result, our sales process is
often subject to delays associated with lengthy approval processes that
typically accompany the design and testing of new products. The sales cycles of
our products often last for many months or even years. In addition, the time
required for our customers to incorporate our products into their systems can
vary significantly with the needs of our customers and generally exceeds several
months, which further complicates our planning processes and reduces the
predictability of our operating results. Longer sales cycles require us to
invest significant resources in attempting to make sales, which may not be
realized in the near term and therefore may delay the generation of
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ADEPT TECHNOLOGY, INC.
revenue, or which may not be realized at all.
If we are unable to identify and make acquisitions, our ability to expand our
operations and increase our revenue may suffer.
In the latter half of fiscal 2000, a significant portion of our growth was
attributable to acquisitions of other businesses and technologies. We expect
that acquisitions of complementary companies, products and technologies in the
future will play an important role in our ability to expand our operations, hire
additional personnel and increase our revenue. We are currently reviewing
several possible acquisition candidates as part of our strategy to market
intelligent automation solutions targeted at the photonics industry. If we are
unable to identify suitable targets for acquisition or complete acquisitions on
acceptable terms, our ability to expand our service offerings and increase our
revenue may be impaired. Even if we are able to identify and acquire acquisition
candidates, we may be unable to realize the benefits anticipated as a result of
these acquisitions.
Any acquisitions we make could disrupt our business, increase our expenses and
adversely affect our financial condition or operations.
During fiscal 2000, we acquired Pensar, NanoMotion and BYE/Oasis. In July 2000,
we acquired HexaVision. In October 2001, we acquired Chad Industries, Inc. These
acquisitions introduced us to industries and technologies in which we have
limited previous experience. In the future we may make material acquisitions of,
or large investments in, other businesses that offer products, services, and
technologies that management believes will further our strategic objectives. We
cannot be certain that we would successfully integrate any businesses,
technologies or personnel that we might acquire, and any acquisitions might
divert our management's attention away from our core business. Any future
acquisitions or investments we might make would present risks commonly
associated with these types of transactions, including:
o difficulty in combining the product offerings, operations, or work force of
an acquired business;
o potential loss of key personnel of an acquired business;
o adverse effects on existing relationships with suppliers and customers;
o disruptions of our on-going businesses;
o difficulties in realizing our potential financial and strategic position
through the successful integration of the acquired business;
o difficulty in maintaining uniform standards, controls, procedures and
policies;
o potential negative impact on results of operations due to potential
impairment of goodwill and amortization of other intangible assets acquired
or assumption of anticipated liabilities;
o risks associated with entering markets in which we have limited previous
experience; and
o the diversion of management attention.
The risks described above, either individually or in the aggregate, could
significantly harm our business, financial condition and results of operations.
We expect that future acquisitions, if any, could provide for consideration to
be paid in cash, shares of our common stock, or a combination of cash and common
stock. In addition, we may issue additional equity in connection with future
acquisitions, which could result in dilution of our shareholders' equity
interest. Fluctuations in our stock price may make acquisitions more expensive
or prevent us from being able to complete acquisitions on terms that are
acceptable to us.
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ADEPT TECHNOLOGY, INC.
Our international operations may subject us to divergent regulatory requirements
and other risks that may harm our operating results.
International sales were $7.4 million for the quarter ended September 29, 2001,
$36.4 million for the fiscal year ended June 30, 2001, $44.9 million for the
fiscal year ended June 30, 2000 and $41.2 million for the fiscal year ended June
30, 1999. This represented 55.5%, 36.3%, 45.2%, and 47.2% of net revenues for
the respective periods. We also purchase some components and mechanical
subsystems from foreign suppliers. As a result, our operating results are
subject to the risks inherent in international sales and purchases, which
include the following:
o unexpected changes in regulatory requirements;
o political and economic changes and disruptions;
o transportation costs and delays;
o foreign currency fluctuations;
o export/import controls;
o tariff regulations and other trade barriers;
o higher freight rates;
o difficulties in staffing and managing foreign sales operations;
o greater difficulty in accounts receivable collection in foreign
jurisdictions; and
o potentially adverse tax consequences.
Foreign exchange fluctuations may render our products less competitive relative
to locally manufactured product offerings, or could result in foreign exchange
losses. In calendar year 2001, the value of major European currencies has
dropped against the U.S. dollar. To date, we have not reflected that change in
currency value in our selling prices. In order to maintain a competitive price
for our products in Europe, we may have to provide discounts or otherwise
effectively reduce our prices, resulting in a lower margin on products sold in
Europe. Continued change in the values of European currencies or changes in the
values of other foreign currencies could have a negative impact on our business,
financial condition and results of operations.
In addition, duty, tariff and freight costs can materially increase the cost of
crucial components for our products. We anticipate that past turmoil in Asian
financial markets and the deterioration of the underlying economic conditions in
certain Asian countries may continue to have an impact on our sales to customers
located in or whose projects are based in those countries due to the impact of
restrictions on government spending imposed by the International Monetary Fund
on those countries receiving the International Monetary Fund's assistance. In
addition, customers in those countries may face reduced access to working
capital to fund component purchases, such as our products, due to higher
interest rates, reduced bank lending due to contractions in the money supply or
the deterioration in the customer's or our bank's financial condition or the
inability to access local equity financing.
Maintaining operations in different countries requires us to expend significant
resources to keep our operations coordinated and subjects us to differing laws
and regulatory regimes that may affect our service offerings and revenue.
We may incur currency exchange-related losses in connection with our reliance on
our single or sole source foreign suppliers.
We make yen-denominated purchases of certain components and mechanical
subsystems from certain of our sole or single source Japanese suppliers.
Depending on the amount of yen-denominated purchases, we may engage in hedging
transactions in the future. However, notwithstanding these precautions, we
remain subject to the
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transaction exposures that arise from foreign exchange movements between the
dates foreign currency export sales or purchase transactions are recorded and
the dates cash is received or payments are made in foreign currencies. Our
current or any future currency exchange strategy may not be successful in
avoiding exchange-related losses. Any exchange-related losses or exposure may
negatively affect our business, financial condition or results of operations.
If our hardware products do not comply with standards set forth by the European
Union, we will not be able to sell them in Europe.
Our hardware products are required to comply with European Union Low Voltage,
Electro-Magnetic Compatibility, and Machinery Safety Directives. The European
Union mandates that our products carry the CE mark denoting that these products
are manufactured in strict accordance to design guidelines in support of these
directives. These guidelines are subject to change and to varying
interpretation. New guidelines impacting machinery design go into effect each
year. To date, we have retained TUV Rheinland to help certify that our
controller-based products, including some of our robots, meet applicable
European Union directives and guidelines. Although our existing certified
products meet the requirements of the applicable European Union directives, we
cannot provide any assurance that future products can be designed, within market
window constraints, to meet the future requirements. If any of our robot
products or any other major hardware products do not meet the requirements of
the European Union directives, we would be unable to legally sell these products
in Europe. Thus, our business, financial condition and results of operations
could be harmed. Such directives and guidelines could change in the future,
forcing us to redesign or withdraw from the market one or more of our existing
products that may have been originally approved for sale.
Our hardware and software products may contain defects that could increase our
expenses exposure to liabilities and harm our reputation and future business
prospects.
Our hardware and software products are complex and, despite extensive testing,
our new or existing products or enhancements may contain defects, errors or
performance problems when first introduced, when new versions or enhancements
are released or even after these products or enhancements have been used in the
marketplace for a period of time. We may discover product defects only after a
product has been installed and used by customers. We may discover defects,
errors or performance problems in future shipments of our products. These
problems could result in expensive and time consuming design modifications or
large warranty charges, expose us to liability for damages, damage customer
relationships and result in loss of market share, any of which could harm our
reputation and future business prospects. In addition, increased development and
warranty costs could reduce our operating profits and could result in losses.
The existence of any defects, errors or failures in our products could also lead
to product liability claims or lawsuits against us or against our customers. A
successful product liability claim could result in substantial cost and divert
management's attention and resources, which could have a negative impact on our
business, financial condition and results of operations. Although we are not
aware of any product liability claims to date, the sale and support of our
products entail the risk of these claims.
The success of our business depends on our key employees.
We are highly dependent upon the continuing contributions of our key management,
sales, and product development personnel. In particular, we would be adversely
affected if we were to lose the services of Brian Carlisle, Chief Executive
Officer and Chairman of the Board of Directors, who has provided significant
leadership to us since our inception, or Bruce Shimano, Vice President, Research
and Development and a Director, who has guided our research and development
programs since inception. In addition, the loss of the services of any of our
senior managerial, technical or sales personnel could impair our business,
financial condition, and results of operations. We do not have employment
contracts with any of our executive officers and do not maintain key man life
insurance on the lives of any of our key personnel.
Our future success depends on our continuing ability to attract, retain and
motivate highly-qualified managerial, technical and sales personnel.
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Competition for qualified technical personnel in the intelligent automation
industry is intense. Our inability to recruit and train adequate numbers of
qualified personnel on a timely basis would adversely affect our ability to
design, manufacture, market and support our products.
In addition, our success will depend on our ability to hire and retain
experienced engineers, senior management and sales and marketing personnel.
Competition for these personnel is intense, particularly in geographic areas
recognized as high technology centers such as the Silicon Valley area, where our
principal offices are located, and other locations where we maintain design
sites. To attract and retain individuals with the requisite expertise, we may be
required to grant large option or other stock-based incentive awards, which may
be dilutive to shareholders. We may also be required to pay significant base
salaries and cash bonuses, which could harm our operating results. If we do not
succeed in hiring and retaining candidates with appropriate qualifications, we
will not be able to grow our business and our operating results will be harmed.
If we become subject to unfair hiring claims, we could be prevented from hiring
needed personnel, incur liability for damages and incur substantial costs in
defending ourselves.
Companies in our industry whose employees accept positions with competitors
frequently claim that these competitors have engaged in unfair hiring practices
or that the employment of these persons would involve the disclosure or use of
trade secrets. These claims could prevent us from hiring personnel or cause us
to incur liability for damages. We could also incur substantial costs in
defending ourselves or our employees against these claims, regardless of their
merits. Defending ourselves from these claims could divert the attention of our
management away from our operations.
Our failure to protect our intellectual property and proprietary technology may
significantly impair our competitive advantage.
Our success and ability to compete depend in large part upon protecting our
proprietary technology. We rely on a combination of patent, trademark and trade
secret protection and nondisclosure agreements to protect our proprietary
rights. The steps we have taken may not be sufficient to prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. The patent and trademark law and trade secret protection may not be
adequate to deter third party infringement or misappropriation of our patents,
trademarks and similar proprietary rights. In addition, patents issued to Adept
may be challenged, invalidated or circumvented. Our rights granted under those
patents may not provide competitive advantages to us, and the claims under our
patent applications may not be allowed. We may be subject to or may initiate
interference proceedings in the United States Patent and Trademark Office, which
can demand significant financial and management resources. The process of
seeking patent protection can be time consuming and expensive and patents may
not be issued from currently pending or future applications. Moreover, our
existing patents or any new patents that may be issued may not be sufficient in
scope or strength to provide meaningful protection or any commercial advantage
to us.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of our competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel.
We may face costly intellectual property infringement claims.
We have from time to time received communications from third parties asserting
that we are infringing certain patents and other intellectual property rights of
others or seeking indemnification against such alleged infringement. For
example, some end users of our products have notified us that they have received
a claim of patent infringement from the Jerome H. Lemelson Foundation, alleging
that their use of our machine vision products infringes certain patents issued
to Mr. Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from the Lemelson Foundation which refer to Mr.
Lemelson's patent portfolio and offer the end user a license to the particular
patents. As claims arise, we evaluate their merits. Any claims of infringement
brought by third
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ADEPT TECHNOLOGY, INC.
parties could result in protracted and costly litigation, that damages for
infringement, and the necessity of obtaining a license relating to one or more
of our products or current or future technologies, which may not be available on
commercially reasonable terms or at all. Litigation, which could result in
substantial cost to us and diversion of our resources, may be necessary to
enforce our patents or other intellectual property rights or to defend us
against claimed infringement of the rights of others. Any intellectual property
litigation and the failure to obtain necessary licenses or other rights could
have a material adverse effect on our business, financial condition and results
of operations. Some of our end users have notified us that they may seek
indemnification from us for damages or expenses resulting from any claims made
by the Jerome H. Lemelson Foundation. We cannot predict the outcome of this or
any similar litigation which may arise in the future. Litigation of this kind
may have a material adverse effect on our business, financial condition or
results of operations.
Risks Related to Our Industry
We face intense competition in the market for intelligent automation products.
The market for intelligent automation products is highly competitive. We believe
that the principal competitive factors affecting the market for our products
are:
o product functionality and reliability;
o customer service;
o price;
o delivery; and
o product features such as flexibility, programmability and ease of use.
We compete with a number of robot companies, motion control companies, machine
vision companies and simulation software companies. Many of our competitors have
substantially greater financial, technical and marketing resources than us. In
addition, we may in the future face competition from new entrants in one or more
of our markets.
Many of our competitors in the robot market are integrated manufacturers of
products that produce robotics equipment internally for their own use and may
also compete with our products for sales to other customers. Some of these large
manufacturing companies have greater flexibility in pricing because they
generate substantial unit volumes of robots for internal demand and may have
access through their parent companies to large amounts of capital. Any of our
competitors may seek to expand their presence in other markets in which we
compete.
Our current or potential competitors may develop products comparable or superior
in terms of price and performance features to those developed by us or adapt
more quickly than we can to new or emerging technologies and changes in customer
requirements. We may be required to make substantial additional investments in
connection with our research, development, engineering, marketing and customer
service efforts in order to meet any competitive threat, so that we will be able
to compete successfully in the future. We expect that in the event the
intelligent automation market expands, competition in the industry will
intensify, as additional competitors enter our markets and current competitors
expand their product lines. Increased competitive pressure could result in a
loss of sales or market share, or cause us to lower prices for our products, any
of which could harm our business.
We offer products for multiple industries and must face the challenges of
supporting the distinct needs of each of our markets.
We market products for the semiconductor, wireless communications, photonics,
food processing, automotive, lie sciences and electronics industries. Because we
operate in multiple industries, we must work constantly to understand the needs,
standards and technical requirements of several different industries and must
devote
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ADEPT TECHNOLOGY, INC.
significant resources to developing different products for these industries.
Product development is costly and time consuming. Many of our products are used
by our customers to develop, manufacture and test their own products. As a
result, we must anticipate trends in our customers' industries and develop
products before our customers' products are commercialized. If we do not
accurately predict our customers' needs and future activities, we may invest
substantial resources in developing products that do not achieve broad market
acceptance. Our decision to continue to offer products to a given market or to
penetrate new markets is based in part on our judgment of the size, growth rate
and other factors that contribute to the attractiveness of a particular market.
If our product offerings in any particular market are not competitive or our
analyses of a market are incorrect, our business and results of operations could
be harmed.
We may not be able to keep up with the rapid pace of technological change and
new product development that characterize the intelligent automation industry.
The intelligent automation industry is characterized by rapid technological
change and new product introductions and enhancements. Our ability to remain
competitive depends greatly upon the technological quality of our products and
processes compared to those of our competitors and our ability both to continue
to develop new and enhanced products and to introduce those products at
competitive prices and on a timely and cost-effective basis. We may not be
successful in selecting, developing and manufacturing new products or in
enhancing our existing products on a timely basis or at all. Our new or enhanced
products may not achieve market acceptance. Our failure to successfully select,
develop and manufacture new products, or to timely enhance existing technologies
and meet customers' technical specifications for any new products or
enhancements on a timely basis, or to successfully market new products, could
harm our business. If we cannot successfully develop and manufacture new
products or meet specifications, our products could lose market share, our
revenues and profits could decline, or we could experience operating losses. New
technology or product introductions by our competitors could also cause a
decline in sales or loss of market acceptance for our existing products or force
us to significantly reduce the prices of our existing products.
From time to time we have experienced delays in the introduction of, and certain
technical and manufacturing difficulties with, some of our products, and we may
experience technical and manufacturing difficulties and delays in future
introductions of new products and enhancements. Our failure to develop,
manufacture and sell new products in quantities sufficient to offset a decline
in revenues from existing products or to successfully manage product and related
inventory transitions could harm our business.
Our success in developing, introducing, selling and supporting new and enhanced
products depends upon a variety of factors, including timely and efficient
completion of hardware and software design and development, implementation of
manufacturing processes and effective sales, marketing and customer service.
Because of the complexity of our products, significant delays may occur between
a product's initial introduction and commencement of volume production.
The development and commercialization of new products involve many difficulties,
including:
o the identification of new product opportunities;
o the retention and hiring of appropriate research and development personnel;
o the determination of the product's technical specifications;
o the successful completion of the development process;
o the successful marketing of the product and the risk of having customers
embrace new technological advances; and
o additional customer service costs associated with supporting new product
introductions and/or effecting subsequent potential field upgrades.
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ADEPT TECHNOLOGY, INC.
For example, we have recently released our new micro and nano positioning
mechanisms, NanoMotion process modules, SmartModules, Standard Platforms and
Semiconductor front-ends. These products include significant new networking,
hardware and software technology. The development of these products may not be
completed in a timely manner, and these products may not achieve acceptance in
the market. The development of these products has required, and will require,
that we expend significant financial and management resources. If we are unable
to continue to successfully develop these or other new products in response to
customer requirements or technological changes, our business may be harmed.
If we fail to adequately invest in research and development, we may be unable to
compete effectively.
We have limited resources to allocate to research and development and must
allocate our resources among a wide variety of projects. Because of intense
competition in our industry, the cost of failing to invest in strategic products
is high. If we fail to adequately invest in research and development, we may be
unable to compete effectively in the intelligent automation markets in which we
operate.
If we do not comply with environmental regulations, our business may be harmed.
We are subject to a variety of environmental regulations relating to the use,
storage, handling, and disposal of certain hazardous substances used in the
manufacturing and assembly of our products. We believe that we are currently in
compliance with all material environmental regulations in connection with our
manufacturing operations, and that we have obtained all necessary environmental
permits to conduct our business. However, our failure to comply with present or
future regulations could subject us to a variety of consequences that could harm
our business, including:
o the imposition of substantial fines;
o suspension of production; and
o alteration of manufacturing processes or cessation of operations.
Compliance with environmental regulations could require us to acquire expensive
remediation equipment or to incur substantial expenses. Our failure to control
the use, disposal, removal, storage, or to adequately restrict the discharge of,
or assist in the cleanup of, hazardous or toxic substances, could subject us to
significant liabilities, including joint and several liability under certain
statutes. The imposition of liabilities of this kind could harm our financial
condition.
We rely on a continuous supply of electrical power to conduct our operations,
and a recurrence of California's recent energy crisis could disrupt our
operations and increase our expenses.
California recently experienced an energy crisis. If the crisis recurs, it could
disrupt our operations and increase our expenses. In the event of an acute power
shortage, that is, when power reserves for the State of California fall below
1.5%, California has on some occasions implemented, and may in the future
continue to implement, rolling blackouts throughout California. We currently do
not have backup generators or alternate sources of power in the event of a
blackout, and our current insurance does not provide coverage for any damages we
or our customers may suffer as a result of any interruption in our power supply.
If blackouts interrupt our power supply, we would be temporarily unable to
continue operations at our facilities. Any such interruption in our ability to
continue operations at our facilities could damage our reputation, harm our
ability to retain existing customers and to obtain new customers, and could
result in lost revenue, any of which could substantially harm our business and
results of operations.
Failure to obtain export licenses could harm our business.
We must comply with U.S. Department of Commerce regulations in shipping our
software products and other technologies outside the United States. Any
significant future difficulty in complying could harm our business, financial
condition and results of operations.
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ADEPT TECHNOLOGY, INC.
Risks Related to our Stock
Our stock price has fluctuated and may continue to fluctuate widely.
The market price of our common stock has fluctuated substantially in the past.
Between September 30, 2000 and September 29, 2001, the sales price of our common
shares, as reported on the Nasdaq National Market, has ranged from a low of
$3.01 to a high of $49.13. The market price of our common stock will continue to
be subject to significant fluctuations in the future in response to a variety of
factors, including:
o future announcements concerning our business or that of our competitors or
customers;
o the introduction of new products or changes in product pricing policies by us
or our competitors;
o litigation regarding proprietary rights or other matters;
o change in analysts' earnings estimates;
o developments in the financial markets;
o quarterly fluctuations in operating results; and
o general conditions in the intelligent automation industry.
Furthermore, stock prices for many companies, and high technology companies in
particular, fluctuate widely for reasons that may be unrelated to their
operating results. Those fluctuations and general economic, political and market
conditions, such as recessions, damage caused by terrorist actions or other
military actions, or international currency fluctuations, may adversely affect
the market price of our common stock.
We may be subject to securities class action litigation if our stock price is
volatile, which could result in substantial costs, distract management and
damage our reputation.
In the past, securities class action litigation has often been brought against
companies following periods of volatility in the market price of their
securities. Companies, like us, that are involved in rapidly changing technology
markets are particularly subject to this risk. We may be the target of
litigation of this kind in the future. Any securities litigation could result in
substantial costs, divert management's attention and resources from our
operations and negatively affect our public image and reputation.
We may need to raise additional capital in the future, and if we are unable to
secure adequate funds on acceptable terms, we may be unable to execute our
business plan or make future acquisitions deemed essential to our long term
strategy.
If our capital requirements vary significantly from those currently planned, we
may require additional financing sooner than anticipated. If our existing cash
balances and cash flow expected from future operations are not sufficient to
meet our liquidity needs, we will need to raise additional funds. If adequate
funds are not available on acceptable terms or at all, we may not be able to
take advantage of market opportunities, develop or enhance new products, pursue
acquisitions that would complement our existing product offerings or enhance our
technical capabilities, execute our business plan or otherwise respond to
competitive pressures or unanticipated requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio. We maintain an investment policy designed to ensure
the safety and preservation of our invested funds by limiting default risk,
market risk and reinvestment risk. The table below presents principal amounts
and related weighted-average interest rates by year of maturity for our
investment portfolio.
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ADEPT TECHNOLOGY, INC.
2001 2002 2003 Total
---- ---- ---- ----- Fair
(in thousands) Value
-------------- -----
Cash equivalents
Fixed rate...................... $ 13,678 -- -- $ 13,678 $ 13,678
Average rate.................... 4.15% -- -- 4.15%
Total Investment Securities.. $ 13,678 -- -- $ 13,678 $ 13,678
============= == == ============= =============
Average rate.................... 4.15% -- -- 4.15%
We mitigate default risk by investing in high credit quality securities and by
positioning our portfolio to respond appropriately to a significant reduction in
a credit rating of any investment issuer of guarantor. Our portfolio includes
only marketable securities with active secondary or resale markets to ensure
portfolio liquidity and maintains a prudent amount of diversification. We
conduct business on a global basis. Consequently, we are exposed to adverse or
beneficial movements in foreign currency exchange rates. We enter into foreign
currency forward contracts to minimize the impact of exchange rate fluctuations
on certain foreign currency commitments and balance sheet positions and may
enter into foreign exchange forward contracts in the future. The realized gains
and losses on these contracts are deferred and offset against realized and
unrealized gains and losses when the transaction occurs.
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ADEPT TECHNOLOGY, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are party to various legal proceedings or claims, either
asserted or unasserted, which arise in the ordinary course of our business.
Management has reviewed pending legal matters and believes that the resolution
of these matters will not have a material adverse effect on our business,
financial condition or results of operations.
Some end users of our products have notified us that they have received a claim
of patent infringement from the Jerome H. Lemelson Foundation, alleging that
their use of our machine vision products infringes certain patents issued to Mr.
Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from Mr. Lemelson which refer to Mr. Lemelson's
patent portfolio and offer the end user a license to the particular patents.
Some of these end users have notified us that they might seek indemnification
from us for any damages or expenses resulting from this matter.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are filed as part of this report.
3.1 Statement of Preferences of Series A Preferred Stock and Series B
Preferred Stock of the Registrant.
4.1 Securities Purchase and Investor Rights Agreement between the
Registrant and JDS Uniphase Corporation, dated October 22, 2001.+
10.1 Supply, Development and License Agreement between the Registrant and
JDS Uniphase Corporation, dated October 22, 2001.**
** Confidential treatment has been requested as to certain portion of this
exhibit. An unredacted version of this exhibit has been filed separately
with the SEC.
+ Schedules have been omitted and will be provided to the SEC upon request.
b) Reports on Form 8-K.
On July 27, 2001, a Form 8-K was filed by Adept announcing a press release
related to a cost reduction program and a revision to its business outlook for
its fourth quarter ending June 30, 2001.
On August 2, 2001, a Form 8-K was filed by Adept announcing its financial
results for its fourth quarter and fiscal year ended June 30, 2001.
On October 10, 2001, a Form 8-K was filed by Adept announcing the completion of
the acquisition of CHAD Industries.
On October 24, 2001, a Form 8-K was filed by Adept announcing a definitive
agreement between Adept and JDS Uniphase Corporation to enter into an automation
development alliance for optical component and module manufacturing and JDS
Uniphase's investment of $25 million in Adept convertible preferred stock.
On October 31, 2001, a Form 8-K was filed by Adept announcing its financial
results for its first quarter ended September 29, 2001 and that it had completed
agreements to enter into an automation development alliance with JDS Uniphase
Corporation.
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ADEPT TECHNOLOGY, INC.
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.
Date: November 13, 2001 ADEPT TECHNOLOGY, INC.
By: /s/ Michael W. Overby
----------------------------------
Michael W. Overby
Vice President, Finance and
Chief Financial Officer
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ADEPT TECHNOLOGY, INC.
INDEX TO EXHIBITS
3.1 Statement of Preferences of Series A Preferred Stock and Series B
Preferred Stock of the Registrant.
4.1 Securities Purchase and Investor Rights Agreement between the
Registrant and JDS Uniphase Corporation, dated October 22, 2001.+
10.1 Supply, Development and License Agreement between the Registrant and
JDS Uniphase Corporation, dated October 22, 2001.**
** Confidential treatment has been requested as to certain portion of this
exhibit. An unredacted version of this exhibit has been filed separately
with the SEC.
+ Schedules have been omitted and will be provided to the SEC upon request.
31