SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 2002 or
|_| Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________ to
__________________.
Commission file number: 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
incorporation or organization) Identification Number)
150 Rose Orchard Way, San Jose, California 95134
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (408) 432-0888
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on September
9, 2002 as reported on the Nasdaq National Market, was approximately $7,417,948.
Shares of common stock held by each officer and director and by each person who
controls 5% or more of the outstanding voting power of the registrant have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of September 9, 2002, registrant had 14,780,720 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2002 Annual Meeting to be
held on November 15, 2002 are incorporated by reference into Part III hereof.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements.
Forward-looking statements are contained principally in the sections entitled
"Business," "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." 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 the current economic environment affecting us and the markets we
serve;
o sources of revenues and anticipated revenues, including the
contribution from the growth of new products and markets;
o marketing and commercialization of our products under development;
o our estimates regarding our capital requirements and our needs for
additional financing;
o our ability to attract customers and the market acceptance of our
products;
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;
o plans for future products and services and for enhancements of
existing products and services; and
o our intellectual property.
In some cases, you can identify forward-looking statements 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 and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. We discuss many of these risks in this Annual Report on Form 10-K in
greater detail under the heading "Factors Affecting Future Operating Results."
Also, these forward-looking statements represent our estimates and assumptions
only as of the date of this Annual Report on Form 10-K, and we undertake no
obligation to publicly update or revise these forward-looking statements.
In this report, unless the context indicates otherwise, the terms " Adept,"
"we," "us," and "our" refer to Adept Technology, Inc., a California corporation,
and its subsidiaries.
This report contains trademarks and trade names of Adept and other companies.
Adept has 167 trademarks of which 14 are registered trademarks, some of which
include the Adept Technology logo, HexSight, MetaControls, and FireBlox.
ITEM 1. BUSINESS
Our Company
We provide intelligent production automation solutions to our customers in many
industries including the food, communications, automotive, appliance,
semiconductor, photonics, and life sciences industries. We utilize our
comprehensive product 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
1
our customers a comprehensive and tailored automation solution that we call
Rapid Deployment Automation that reduces the time and cost to design, engineer
and launch products into high-volume production. Other benefits of our RDA
solution include increased manufacturing flexibility for future product
generations, less customized engineering and reduced dependence on production
engineers. We intend to continue to enhance our RDA capabilities by providing
differentiated, value added integrated systems to further penetrate selected
emerging markets. Our products currently include system design software, process
knowledge software, real-time vision and motion controls, machine vision
systems, robot mechanisms, precision solutions and other flexible automation
equipment. In recent years, we have expanded our robot product lines and
developed advanced software and sensing technologies that have enabled robots to
perform a wider range of functions. We have recently introduced new systems
products, including our 1394 FireWire based distributed control architecture. As
a result of our introduction and marketing of these new systems, sales of
systems may increase relative to our component sales in future periods, causing
a change in the nature and composition of our revenues over time. Also,
international sales comprise approximately 40% to 60% of our total revenues for
any given quarter.
We market and sell our products worldwide through more than 250 system
integrators, our direct sales force and OEMs. System integrators and OEMs add
application-specific hardware and software to our products, enabling us to
provide solutions to a diversified industry base, including the food,
communications, electronics, automotive, appliance, semiconductor, photonics and
life sciences industries. Due to a worldwide slowdown in the communications,
consumer electronics, semiconductor and precision assembly markets, our net
revenues have been at extremely low levels during this fiscal year compared to
previous years.
We were incorporated in California in 1983. Our principal executive offices are
located at 150 Rose Orchard Way, San Jose, California 95134. Our telephone
number at that address is (408) 432-0888.
Recent Developments
On October 29, 2001, we entered into an automation alliance for optical
component and module manufacturing with JDS Uniphase Corporation. This alliance
enabled Adept to be JDS Uniphase's development partner for optical automation
processes and solutions, and JDS Uniphase made an investment of $25.0 million in
Adept redeemable convertible preferred stock as described under the heading
"Liquidity and Capital Resources."
In response to the current market environment, we implemented a worldwide
restructuring program during fiscal 2002, which was implemented in several
phases, to realign our businesses to the changes in our industry and decreases
in capital spending throughout the industries we serve. In connection with this
program, we took actions including: restructuring of non-strategic business
assets; idling of leased facilities; and workforce reductions and compensation
adjustments. From the beginning of the first quarter through the end of the
third quarter, we recorded $17.7 million in restructuring charges. The charges
consist of $9.2 million in restructuring of non-strategic business assets, $6.8
million in costs for the consolidation of excess facilities, and $1.7 million in
workforce reduction and compensation costs. In response to continued weakness in
demand, we announced in July, a restructuring for the first quarter of fiscal
2003. Adept intends to reduce its global workforce by 24% in the first quarter
of fiscal 2003 and implement other cost saving measures to reduce operating
expenses.
In August 2002 we acquired Meta Control Technologies, Inc. (Meta), a Delaware
corporation. Meta develops, designs, manufactures and markets products that
automate a wide range of manufacturing processes requiring precise motion,
accurate machine vision and rapid process instrumentation. Some of the
applications making use of our technology include semiconductor and electronics
assembly, micro-mechanical and fiber optic assembly, laboratory automation and
discrete process automation. Under the terms of the agreement, we will issue
730,000 shares of our common stock to the shareholders of Meta. Additionally, a
shareholder of Meta and certain of its affiliates will receive discounts and
royalties based on certain product shipments through August 2008 in
consideration for its shares of Meta stock. We do not believe this acquisition
will have a material effect on our results of operation or financial condition.
See "Liquidity and Capital Resources" and Note 13 of our Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K for a further
description.
In September 2002, we engaged Broadview International, an investment bank, to
assist us in evaluating our current business and strategic focus as well as to
assess possible partners that would be synergistic when combined with Adept.
2
PRODUCTS AND TECHNOLOGY COMPRISING RAPID DEPLOYMENT AUTOMATION
Overview
Our vision of making automation easy to install is called Rapid Deployment
Automation, or RDA. We have developed a product strategy to enable RDA. This
product strategy includes simulation tools to help design automation systems,
application software packages that contain automation process knowledge, very
powerful software and hardware for real-time distributed motion control and
integrated sensing, and a family of mechanisms that address different
applications.
[GRAPHIC OMITTED]
3
RDA SYSTEM DESIGN
Production PILOT
Adept employs simulation tools to help system integrators and end users to both
design automation systems and evaluate product designs for ease of manufacture.
Adept's simulation products allow machines to be modeled with 3D graphics and
then animated in response to software control programs. Mechanisms can be
defined graphically; and the mathematics necessary to animate them, known as
kinematic models, are generated automatically. Dynamics of mechanisms can also
be modeled, which enables machine cycle times to be accurately predicted.
Adept's simulation products can either create new computer aided design (CAD)
geometry for simulations, import CAD models from standard libraries of machines
and peripheral devices, or import models directly from common CAD systems.
Adept Digital Workcell
Adept Digital Workcell allows engineers to program a workcell with actual
production software without the physical robot or cell hardware. Adept Digital
Workcell increases productivity by allowing the user to anticipate cycle times,
logic errors, location errors, collision errors and motor overload errors far
earlier in the development process. In addition, Adept Digital Workcell allows
users to quickly generate alternative conceptual layouts and cycle time
estimates for project proposals.
RDA PROCESS KNOWLEDGE
Adept Assembly Information Manager (AIM)
Assembly Information Manager, or AIM software, simplifies the integration,
programming and operation of automation workcells and lines. AIM accomplishes
this goal by providing a formal method for capturing application specific
process knowledge and then allowing users, even those lacking advanced
programming expertise to use this embedded knowledge to accomplish a specific
task.
AIM simplifies the implementation of intelligent automation workcells by
combining a point and click graphical user interface with an icon-based
programming method that does not require advanced computer programming skills.
This method combines task-level statements with a high performance, real-time
database and a structure for representing process knowledge.
The AIM task level statements allow the developer to specify at a very high
level what operations the workcell is to perform, such as "insert a component
into a socket using vision to correct for irregularities." This command is
automatically coupled with data contained in the real-time database that
specifies the physical aspects of the workcell, such as the location of a part.
The information contained in the databases can be created or downloaded from a
computer or simulation system at any time. Finally, the AIM system automatically
invokes the routines that contain the process knowledge and dictate how the
specified operation will be performed. In this way, an AIM workcell can be
programmed by a person who understands as few as ten process actions rather than
hundreds of programming instructions or thousands of lines of conventional
software code.
We sell several application specific versions of AIM, including MotionWare,
which addresses motion applications such as those requiring sophisticated
conveyor tracking, and VisionWare, which simplifies the use of vision in both
guidance and inspection applications, as well as other packages which address
dispensing, packaging, flexible part feeding, semiconductor wafer handling and
precision photonics bonding operations. In addition, end users and system
integrators, many of whom have developed their own AIM application-specific
packages, can add process knowledge. AIM can be accessed via the Windows 98,
2000, NT, and XP environments. AIM programs are written in the V+ language.
4
RDA REAL-TIME CONTROL
AdeptWindows
The AdeptWindows software application suite provides a PC user interface for
Adept controllers plus additional capabilities that allow customers to
effectively integrate their Microsoft Windows based PC with Adept's robots or
AdeptVision systems. In addition to the PC user interface, the suite of programs
includes an off-line program editor for creating robot and vision programs, a
TFTP server for booting the controller over an ethernet network, and a DDE
server that allows customers to communicate with other DDE-capable applications
such as Microsoft Excel.
Adept DeskTop
The Adept DeskTop is a new Microsoft Windows application that provides an
easy-to-use software development environment for Adept controllers and further
enhances the ability to interface a PC to an Adept controller. The development
environment is built on top of a library of ActiveX controls that can be
accessed directly by C, C++, or Visual Basic PC applications to monitor and
control an Adept robot, motion control, or vision system in real time.
Adept AWC Controllers
Our controller products are currently based on the VersaModule Eurocard, or VME,
bus architecture standard, but are migrating to a distributed control
architecture which depends on high-speed networks such as IEEE 1394 FireWire,
Ethernet, and DeviceNet, to link processors and sensors which may be distributed
around a workcell. A large array of controller configurations are possible
depending on the features selected by the customer. Our VME controllers are
configured in four, five, or ten slot chassis. All controllers include a system
processor module. Additional functionality can be incorporated by adding printed
circuit boards and additional software. For example, motion control is added by
inserting a motion control board. Printed circuit boards can be added for
machine vision and additional communication inputs and outputs. The controller
products are sold independently for machine control and inspection vision
applications and are also sold as a component of the robot systems. The heart of
our VME machine controllers is the AdeptWindows Controller board, or AWC, a
single slot central processing unit board based on Motorola 68040/060
processors. All AWC boards include solid-state, mass storage, direct ethernet
connectivity, DeviceNet industrial data network connectivity and international
safety circuitry.
Our AWC controller offers plug-and-play integration of personal computer
hardware and software for users of the Windows platform. Specifically, this new
technology allows customers to do all development work, including vision
applications, on personal computers using Windows 98, NT, 2000, and XP operating
systems. This open architecture product allows customers to combine the features
of our AIM and V+ software products with other personal computer-based software
products using industry standard software tools such as Active X, Visual Basic,
and Visual C++. Finally, all of our controller products support the same Windows
based graphical user interface and can execute the same application programs,
thereby allowing software development investments to be leveraged across a
number of applications.
The controller includes a number of technologically advanced capabilities
designed specifically to address the intelligent automation market. These
capabilities include special application specific integrated circuits for
controlling direct-drive motors, reading encoders, or sensors, and controlling
power up sequencing of complex high power systems. The controller also includes
safety circuits that meet domestic and international specifications and
technology to protect the controller from voltage spikes, electrical noise and
power brownouts. Additionally the controller features high wattage switching
power amplifiers, and networking circuitry for local area network and industrial
data networks.
Distributed Control Architecture
Adept invested heavily in developing an industrially robust network technology.
We have implemented Adept SmartServo(TM), a digital servo network for our robot
and motion control products. Adept SmartServo is based on the IEEE-1394
standard, also known as FireWire(R). Initial products were introduced in 1999,
with the announcement of Adept SmartModules. The product line has since grown to
include a family of controllers, amplifiers, motors and SmartServo enabled
mechanisms that replace most of the traditional control and power electronics
architecture with a digital servo network.
5
The impact to the product line has been sweeping. The traditional panel mounted
power amplifiers and their attendant rack chassis and power supply, have been
replaced by SmartAmps. These self-contained single channel power amplifiers,
with an on-board digital signal processor (DSP), are mounted directly on (or in)
the mechanism. The Adept SmartServo architecture is a distributed processing
network architecture, where the controller's CPU runs the trajectory planner,
while the servo loop is closed in the SmartAmp. This processing scheme delivers
high performance and flexibility, but also demands a highly deterministic time
based network.
In traditional robot architecture, there are heavy multi-conductor cables and
connections between the controller's motion control board and the power amps,
and between the power amps and the robot mechanism. These cables and the
traditional motion control / interface board are now replaced by the Adept
SmartServo network and its twisted pair physical layer.
In addition, the Adept SmartServo digital servo network also becomes the means
to add controller features. In a traditional architecture, the controller
included expansion slots and their attendant power supply capacity, connectors,
rack space and increased footprint. Now, additional features such as digital
I/O, general purpose motion control and additional SmartServo mechanisms can be
added by simply connecting the module directly to the network.
Adept SmartController
Our newest controller, the Adept SmartController is designed to work with the
Adept SmartServo(TM) distributed servo control network. SmartControllers offer
reduced costs, the smallest form factor in the industry, and simplified
installation, wiring, and support costs while maintaining compliance with
domestic and international safety specifications. The Adept SmartController CS
is the first member of a new family of high performance distributed motion and
vision controllers. The SmartController's network control architecture leverages
Adept's SmartAmp technology, which increases system scalability and modularity
while dramatically reducing controller size and cabling up to 70% from Adept's
industry leading MV controller family. The SmartController's distributed
processing architecture improves performance by freeing up 30% more of the
processor's resources. The Adept SmartController CS comes fully configured for
standard applications that do not require vision or conveyor belt tracking. The
Adept SmartController CX includes an expansion slot for AdeptVision sAVI
together with additional communication ports, conveyor belt tracking support and
more CPU capacity. All Adept SmartControllers feature several high-speed
communication interfaces, including Fast Ethernet and SmartServo. SmartServo is
Adept's new IEEE 1394-FireWire based communication interface, which is the
backbone of Adept's new distributed controls architecture. All Adept
SmartControllers offer known scalability and support for Adept's SmartServo
compatible digital I/O and general motion expansion modules.
Adept V+
Our V+ real-time programming language allows software developers to create
automation software systems and is the key enabling technology for our
intelligent automation approach. This programming environment provides a
high-level language coupled with a multitasking operating system and built-in
capability for integrating robots, machine vision, sensors, workcell control and
general communications. These capabilities enable the development of
sophisticated application software that can adaptively control mechanical
systems based upon real-time sensory input while simultaneously maintaining
communication with other factory equipment.
V+ offers the user approximately 300 instructions for programming an intelligent
automation workcell. It includes a trajectory generator and continuous path
planner, which compute the path of the robot's tool in real-time based upon
predefined data or sensory input. V+ also includes a number of network
communication facilities and supports a variety of standard communication
protocols. In addition, this software includes an operating system specifically
designed for factory automation and robot control. This operating system allows
V+ to execute dozens of tasks concurrently and permits control to pass between
tasks in a predictable manner, often several times per millisecond. The V+
operating system also allows the installation of additional processors into the
controller and automatically reassigns tasks to optimize overall system
performance, providing a key scalability feature not found in other controllers.
The primary development environment for V+ is Windows 98, NT, 2000 and XP based
and allows the customer to utilize industry standard personal computers.
6
Adept Vision
AdeptVision is a line of machine vision products that are used for robot
guidance and inspection applications. For guidance applications, AdeptVision is
added into the controller by inserting a printed circuit board and enabling the
vision system software. The integration of our controller and vision systems
software enables high speed vision applications such as vision servoing. For
inspection applications such as gauging and dimensioning, the AdeptVision
product is sold as an integrated inspection vision system comprised of a
controller with the vision board and software.
AdeptVision features a unique tool for robot and machine guidance, the Adept
ObjectFinder 2000. ObjectFinder quickly and robustly recognizes parts that are
randomly positioned and have an unknown orientation ranging up to 360 degrees.
Our vision servoing ability is critical for precision processes such as the
assembly of electronic or fiber optic components. Our machine vision software
can also measure part dimensions for inspection purposes. Machine vision can be
used to acquire parts from stationary locations or from conveyors. Cameras can
be fixed in the workcell or attached to a robot.
We also offer HexSight, a shrink-wrapped library of machine vision software
tools for OEMs and dedicated machine vision integrators. HexSight includes the
ObjectFinder locator tool in addition to other general purpose image enhancement
and analysis algorithms. These tools run directly in a PC environment and can be
adapted to run in an OEM's custom software solution.
RDA MECHANICAL COMPONENTS
We provide a large number of automation mechanisms to address different
application needs. All of these mechanisms are controlled by the software and
hardware control architecture described below. This broad product line allows
system integrators and end users to develop automation solutions for many
industries and applications.
Robot Mechanisms
We offer two floor standing Selective Compliance Assembly Robot Arm, or SCARA,
style robot mechanisms called the AdeptOne-XL and the AdeptThree-XL, as well as
two table top robot mechanisms called the Adept Cobra 600 and 800, all of which
are designed for assembly and material handling tasks. SCARA robots utilize a
combination of rotary and linear joints for high speed, high precision material
handling, assembly and packaging. The Adept-XL robots use direct-drive
technology. Direct-drive technology eliminates gears and linkages from the drive
train of the mechanism, thereby significantly increasing robot speed and
precision and improving the robot's product life, reliability and accuracy. The
Adept Cobra series robots are light-duty SCARA mechanisms that can be table
mounted and offer an efficient range of motions in limited space.
We also offer a family of linear modules called Adept SmartModules. These single
axis devices can be coupled together by the user to form application specific
custom robot mechanisms ranging from 2 to 4 axes. Adept SmartModules are powered
by Adept SmartAmps, which utilize the industry standard IEEE 1394 FireWire
protocol to combine motion control signals and input/output signals for
transmission over a single high-speed cable. Adept SmartModules lowers costs and
installation time increasing modularity and reducing the amount of software
programming and cabling required in a workcell, or a robotic system that
performs a specific automation function. SmartModules are also offered in
single-axis standalone versions, which can operate without any additional
controllers, saving cost and space for simple applications.
We also offer a line of semiconductor wafer handling robots. These wafer
handling robots are supplied by Samsung Corporation. The AdeptVicron series is
designed for semiconductor wafer handling applications and consists of two
models: the AdeptVicron 300S (single arm) and 310D (dual arm) models, which
handle up to 300mm wafers.
In 2001 we expanded our product line to include a family of 6 axis articulated
mechanisms, which are manufactured for us by Yaskawa Corporation. The AdeptSix
300 is a tabletop robot well suited for precision assembly and material handling
applications. The AdeptSix 600 is a larger floor mount robot for material
handling and packaging applications.
7
High Precision Micro Positioners
Adept NanoStages are a series of advanced nanometer positioners for alignment
applications in fiber optic assembly and other high precision applications.
These devices increase the resolution of our mechanisms by a factor of 1000,
from 25 microns for our standard robots to 25 nanometers for our standard micro
positioners. To demonstrate the precision of the resolution for our micro
positioners, the period at the end of the preceding sentence is approximately
225 microns, or 225,000 nanometers, in size. Our micro positioners are capable
of resolutions nearly 9,000 times smaller than the size of that period. Unlike
many micro positioners, which were developed for laboratory environments, these
products are durable, rigid, production-ready devices intended for integration
into continuous production factory environments. We offer various configurations
of Adept NanoStages ranging from one to six axes of motion for disc drive
assembly, semiconductor OEM applications, fiber optic component assembly, fiber
alignment, and laser welding.
Programmable Parts Feeder
Part feeding has historically been accomplished by designing custom devices that
could only accommodate a single part or class of parts. The Adept FlexFeeder 250
can be rapidly reconfigured through software to accommodate new products and a
wide variety of parts ranging from simple rectangular objects to complex molded
or machined parts, thus preserving the flexibility of the workcell or production
line. The Adept FlexFeeder 250 integrates machine vision, software and motion
control technology with a simple mechanical device for separating parts from
bulk bins. The Adept FlexFeeder 250 recirculates the parts and separates them,
relying on vision to identify individual parts.
RDA PRECISION SOLUTIONS
In response to end customer and system integrator needs, we now offer a growing
family of process ready platforms for the semiconductor, electronics and
photonics markets. These platform offerings include Flexible Front End and Wafer
Loader systems for the semiconductor tool market, Adept NanoCell for the
photonics assembly market, Adept ChadIQ for electronics assembly and Adept
NanoBonder EBS for epoxy bonding of photonics components. These platform
offerings integrate all automation components on a single control architecture,
with a unified graphical user interface. Typical systems include a material
handling mechanism such as SmartModules or AdeptSix robot, AdeptWindows or Adept
SmartController, AdeptVision, AIM software and an integrated PC user interface.
Application specific components range from NanoStage positioner, semiconductor
tool loadports, and additional control and network interfaces.
We offer semiconductor wafer handling solutions for both front-end and back-end
process original equipment manufacturers, or OEMs. These offerings include both
standard and customized products for contamination control including robotics
for wafer handling and transport. The Adept Flexible Front End Systems and the
Adept Wafer Loader Systems, including the Adept FFE 200 and the Adept FFE 300,
combine wafer sorting and handling, wafer cassette load ports, wafer aligners
and mappers, and wafer ID functions into one compact integrated system; reducing
cycle times, process complexity and cost. Combining value-added wafer operations
such as wafer orientation, optical character recognition, or OCR, sort and merge
into a compact front-end system, eliminates the need for wafer sorters in the
factory.
Our OEMs, system integrators and end users can quickly configure these standard
platforms to add specific manufacturing processes. Platform products represent a
further extension of our RDA strategy. For industries where high volumes of a
similar basic machine are needed, an integrated platform eliminates the time and
cost of designing equipment frames, assembling and validating control and
mechanism products and developing and debugging generic control software.
Financial information regarding our three business segments is included in Note
12 of the Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K.
Customers
We sell our products to system integrators, end users and OEMs. End users of our
products include a broad range of manufacturing companies in the food,
communications, automotive, appliance, semiconductor, photonics, and life
sciences industries. These companies use our products to perform a wide variety
of functions in assembly, material
8
handling and precision process applications, including mechanical assembly,
printed circuit board assembly, dispensing and inspection. No customer accounted
for more than 10% of our revenues in any of the past three years.
SALES, DISTRIBUTION AND MARKETING
Sales and Distribution
We market our products through system integrators, our direct sales force and
OEMs.
System Integrators. We ship a substantial portion of our products through system
integrators, and we view our relationships with these organizations as important
to our success. We have established relationships with over 250 system
integrators worldwide that provide expertise and process knowledge for a wide
range of specific applications. In the United States and Europe these
relationships are generally mutually nonexclusive and not limited to specific
geographical territories. In certain other international markets, Adept's
integrator relationships may include limited exclusive arrangements for a
limited geographical territory in which the integrator markets and supports
Adept functions directly. Generally a system integrator can purchase both
standard and non-standard Adept solutions and components as opposed to OEM
arrangements where generally one standard component or solution is purchased in
higher volumes.
Direct Sales Force. We employ a direct sales force which directs its sales
efforts to end users to communicate the capabilities of our products and support
services and obtain up-to-date information regarding market requirements. Our
sales force possesses expertise in automation solutions and advises end users on
alternative production line designs, special application techniques, equipment
sources and system integrator selection. Our sales force works closely with
system integrators and OEMs to integrate our product line into their systems,
provide sales leads to certain system integrators and obtain intelligent
automation system quotes from system integrators for end users. As of June 30,
2002, our North American sales organization included approximately 19 employees.
We have six North American sales and customer support offices located in San
Jose, California; Southbury, Connecticut; Livermore, California; Charlotte,
North Carolina; Cincinnati, Ohio; and Dallas, Texas. As of June 30, 2002, our
international sales organization included approximately nine persons covering
Europe, Singapore, and South Korea.
Some of our larger manufacturing end user customers, to whom we sell directly,
have in-house engineering departments that are comparable to a captive system
integrator. These end user customers establish a corporate integrator
relationship with us offering benefits similar to those provided to our
integrator distribution channel, however we may in some cases form strategic
alliances for certain potentially high volume market opportunities with greater
benefits and restrictions to the customer than exist in system integrator
arrangements.
OEMs. Our OEM customers typically purchase one standard product configuration,
which the OEM integrates with additional hardware and software and sells under
the OEM's label to other resellers and end users. Unlike our system integrator
channel, OEMs are responsible for all marketing, sales, customer support and
maintaining the associated spare parts to service the end users of the product.
Marketing
Our marketing organization, which consisted of 22 employees as of June 30, 2002,
supports our system integrators, direct sales force and OEM customers in a
variety of ways. Our product management group works with end users, system
integrators, corporate integrators and our sales engineers to continually gather
input on product performance and end user needs. This information is used to
enhance existing products and to develop new products. Our marketing programs
group generates and qualifies new business through industry trade shows, various
direct marketing programs such as direct mail and telemarketing, public
relations efforts, internet marketing and advertising in industry periodicals.
This marketing team is responsible for tracking customers and prospects through
our marketing database. Our marketing group also publishes a document called the
MV Partner catalog, which lists software and hardware components that we have
certified as compatible with our product line. We also expend considerable
effort on the development of thorough technical documentation and user manuals
for our product line, and we view well-designed manuals as critical to
simplifying the installation, programming, use and maintenance of our products.
9
Services and Support
Our service and support organization, which consisted of approximately 76
full-time employees as of June 30, 2002, is designed to support our customers
from the design of our automation line through ongoing support of the installed
system. This organization includes approximately 16 consulting and application
engineers/programmers based in a number of our sales and customer support
offices in the U.S., Europe and Asia. This team is experienced in applying our
product line to solve a wide array of application issues and operates toll-free
telephone support lines to provide advice on issues such as software programming
structure, layout problems and system installation. End users and system
integrators can also hire these experts on a consulting basis to help resolve
new or difficult application issues.
We also maintain a team of instructors, consisting of four individuals as of
June 30, 2002, who develop training courses on subjects ranging from basic
system maintenance to advanced programming. These courses are geared both for
manufacturing engineers who design and implement automation lines and for
operators who operate and maintain equipment once it is in production, and are
taught in Adept offices and customer sites throughout the world.
Our field service organization, which consisted of 16 persons as of June 30,
2002, maintains and repairs our products at the end user's facilities. Personnel
based at our service centers also provide advice to customers on spare parts,
product upgrades and preventative maintenance. In addition, we provide fee based
service resources located inside some key customers' facilities when the amount
of Adept product inside the customers production facility or the critical nature
of the process warrants the expense of a full time service resource.
Backlog
Our product backlog at June 30, 2002 was approximately $6.0 million, as compared
with approximately $10.5 million at June 30, 2001.
We experienced a significant decline in orders during fiscal year 2002,
reflecting substantial excess manufacturing capacity across most of the
industries we serve. In addition, our backlog has historically been booked late
in the quarter and shipped primarily in the following quarter. Both the
combination of a significant decline in activity due to our customers' excess
capacity throughout the year and timing of bookings in the fourth quarter
contributed to the change in backlog at June 30, 2002 as compared to June 30,
2001.
Increasingly our business is characterized by short-term order and shipment
schedules. Because orders constituting our current backlog are subject to
changes in delivery schedules and in certain instances may be subject to
cancellation without significant penalty to the customer, our backlog at any
date may not be indicative of demand for our products or actual net revenues for
any period in the future.
Research and Development
Our research and development efforts are focused on the design of intelligent
automation products, which address the challenges of designing, implementing,
installing, operating and modifying flexible automated production lines. We
intend to focus our research and development efforts on the development of an
integrated product line, which further implements our RDA approach and which
reduces cost, enhances performance and improves ease of use.
We have devoted, and, despite our expense reductions in connection with our
restructuring, intend to devote in the future, a significant portion of our
resources to research and development programs. As of June 30, 2002, we had 100
persons engaged in research, development and engineering. Our research,
development and engineering expenses were approximately $20.4 million for 2002,
$22.7 million for 2001 and $14.6 million for 2000 and represented 35.8% of net
revenues for 2002, 22.7% for 2001 and 14.7% for 2000.
Manufacturing
Our manufacturing activities include the selective assembly, testing and
configuration of our products. We believe that by performing these operations,
we can better ensure the quality and performance of our products. We outsource
low value-added manufacturing operations, including standard and build-to-print
fabricated parts such as machinery,
10
sheet metal fabrication and assembled printed circuit boards. We also outsource
some robot mechanism manufacturing to Hirata Corporation and Samsung Electronics
Co., Ltd. The purchased robot mechanisms are tested to meet defined quality
standards and then configured into complete products, which are tested again
before shipment to the customer. This strategy enables us to leverage product
development, manufacturing and management resources while retaining greater
control over product delivery, final product configuration and the timing of new
product introductions, all of which are critical to meeting customer
expectations.
Our manufacturing organization has expertise in mechanical, electrical, and
software assembly and testing. Because outstanding quality and reliability over
the life of our products are key to customer satisfaction and customers' repeat
purchases of automation products, we believe our quality plans and organization
are a key part of our business strategy. Our manufacturing engineering
organization develops detailed instructions for all manufacturing and test
operations. These instructions are established in writing, implemented through
training of the manufacturing workforce and monitored to assure compliance. In
addition, our manufacturing organization works closely with vendors to develop
instructions and to remedy quality problems if they arise.
In February 2000, we were awarded ISO 9002 certification from TUV Rheinland of
North America, Inc. The ISO 9000 series standards are internationally recognized
quality management standards developed by the International Organization for
Standardization (ISO). ISO 9002 registration focuses on quality system
requirements for a company's production, delivery and servicing of products and
services around the world.
Employees
At June 30, 2002, we had 398 employees worldwide. Of the total, 100 were in
research and development, 80 in sales and marketing, 76 in service and support,
101 in operations, and 41 in finance and administration. In late July, 2002, we
announced an expense reduction plan for the first quarter of fiscal year 2003
that includes a reduction in our global workforce by an additional 24% from
fiscal 2002 year end levels.
Competition
The market for intelligent automation products is highly competitive. We compete
with a number of robot companies, motion control companies, and machine vision
companies. 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.
Our principal competitors in the assembly robot and linear modules markets
include subsidiaries of Japanese companies, including Fanuc Ltd, Epson
Corporation, Yamaha Corporation, Denso Corporation and Intelligent Actuator. We
also compete with a narrow group of European companies, principally Robert Bosch
GmbH, and some divisions of Parker Hannifin. In the material handling robot
market, we compete with the above companies, as well as manufacturers of 6-axis
robots including Motoman, Kawasaki Robotics, Inc., Reis Robotics, Kuka Robotics,
Staubli Corporation and ABB Group.
Competition for certain products in the semiconductor atmospheric wafer handling
and contamination control markets comes from Brooks-PRI Automation and Asyst
Technologies, Inc. Brooks has the largest installed base of Atmospheric robots,
and Asyst is the leader in isolation technology and 200 millimeter and 300
millimeter load ports.
Our principal competitors in the market for motion control system include
Allen-Bradley Co., a subsidiary of Rockwell International Corporation, in the
United States, and Siemens AG in Europe. In addition, we face motion control
competition from three major suppliers of motion control boards, Galil Motion
Control, Inc., Motion Engineering, Inc. and Delta Tau Data Systems, Inc. OEM's
and end users who engineer their own custom motion control systems purchase
these motion control boards. In the machine vision market, our primary
competition is from Cognex Corporation and DVT Corporation.
Our principal competition in the photonics industry for high precision micro
positioners are Newport Corporation, Axsys, Melles Griot Inc., Aerotech, and
Polytec PI, Inc. Historically, these companies have primarily marketed to the
research community to supply positioners for use in laboratory environments. We
also compete with Newport Corporation and various automation solution providers
to deliver semi-automatic and fully automatic manufacturing
11
platforms for fiber optic component assembly. This market is in its early stages
of development and is changing rapidly; therefore, new competitors could emerge
with alternative processes and solutions.
Intellectual Property
We primarily pursue patent, trademark and copyright protection for our
technology and products. We currently hold 17 patents and six pending patent
applications in the United States and three patents outside of the United
States. There can be no assurance that patents will be issued from any of these
pending applications or that any claims in existing patents, or allowed from
pending patent applications, will be sufficiently broad to protect our
technology.
ITEM 2. PROPERTIES
Our headquarters are located in a 92,000 square foot building we lease in San
Jose, California. The lease expires in December 2003 and provides for lease
payments of approximately $2.0 million in calendar year 2002 and $2.1 million in
calendar year 2003. Our principal research and development and manufacturing
facility is located in a 75,000 square foot building we lease in Livermore,
California. The lease expires in 2011 and provides for lease payments of $1.4
million in calendar year 2003. Additionally, we were obligated to lease an
additional 145,000 square foot facility located in Livermore, which commenced in
March 2002 and provides for lease payments of $2.7 million in calendar year
2003. We lease a 12,000 square foot facility in Santa Barbara, California for
our NanoMotion operations, which commenced on June 1, 2000. The lease expires in
May 2005 and provides for lease payments of approximately $229,000 in calendar
year 2003. We lease a 10,500 square foot facility in Quebec City, Canada for
certain machine vision sales, research and development activities. The lease
expires in 2009 and provides for lease payments of approximately $50,000 in
2003. We also lease facilities for sales and/or customer training in Southbury,
Connecticut; Southfield, Michigan; Charlotte, North Carolina; Cincinnati, Ohio;
Dallas, Texas; Massy, France; Dortmund and Munich, Germany; Arezzo, Italy;
Kenilworth, United Kingdom; Seoul, South Korea; Singapore; and Cerdanyola,
Spain.
In connection with our fiscal 2002 restructuring, we exited certain existing
space in our headquarters in San Jose, California, an additional 10,417 square
foot building adjacent to our headquarters in San Jose, California, a 4,449
square foot facility in Detroit, Michigan, and a 26,000 square foot facility in
Livermore, California, all of which are under noncancellable lease agreements.
ITEM 3. 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. We
have reviewed pending legal matters and believe that the resolution of these
matters will not have a material adverse effect on our business, financial
condition or results of operations.
Adept has in the past received communications from third parties asserting that
we have infringed certain patents and other intellectual property rights of
others, or seeking indemnification against alleged infringement. While it is not
feasible to predict or determine the likelihood or outcome of any actions
against us, we believe the ultimate resolution of these matters will not have a
material adverse effect on our financial position, results of operations or cash
flows.
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 may seek indemnification from
us for any damages or expenses resulting from this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
Adept's executive officers currently include:
Name Age Position
---- --- --------
Brian R. Carlisle 51 Chairman of the Board of Directors and Chief
Executive Officer
Bruce E. Shimano 53 Vice President, Research and Development, Secretary
and Director
Michael W. Overby 45 Vice President, Finance and Chief Financial Officer
Brian R. Carlisle has served as Adept's Chief Executive Officer and Chairman of
the Board of Directors since he co-founded Adept in June 1983. From June 1980 to
June 1983, he served as General Manager of the West Coast Division of Unimation,
Inc., a manufacturer of industrial robots, where he was responsible for new
product strategy and development for Unimation's electric robots, control
systems, sensing systems and other robotics applications. Mr. Carlisle received
B.S. and M.S. degrees in Mechanical Engineering from Stanford University. Mr.
Carlisle was President of the U.S. Robotic Industries Association for 3 years,
served as General Chair in May 2000 for the IEEE International Conference on
Robotics and Automation, is currently a member of the Board of Directors for the
National Coalition for Manufacturing Sciences, and currently serves on the Board
of the National Coalition for Advanced Manufacturing.
Bruce E. Shimano has served as our Vice President, Research and Development,
Secretary and a director since he co-founded Adept in June 1983. Prior to that
time, he was Director of Software Development at Unimation. Mr. Shimano received
B.S., M.S. and Ph.D. degrees in Mechanical Engineering from Stanford University.
Michael W. Overby has served as Adept's Vice President of Finance and Chief
Financial Officer since March 2000. From December 1999 to March 2000, Mr. Overby
held the position of Corporate Controller at Adept. Prior to joining Adept, Mr.
Overby was the financial executive for Digital Generation Systems, Inc., a
leading provider of digital distribution services to the broadcast advertising
industry. From 1996 to 1998 he was Corporate Controller and Director of
Information Systems at Inprise Corporation, formerly Borland, a public software
company. Mr. Overby holds a B.S. in Business Administration from California
Polytechnic State University.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market for Registrant's Common Stock and Related Shareholder Matters
Our common stock is traded on the Nasdaq National Market under the symbol
"ADTK". The following table reflects the range of high and low sale prices as
reported on the Nasdaq National Market for the quarters identified below:
Three Months Ended
Jun. 30, Mar. 30, Dec. 29, Sep. 29, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2002 2002 2001 2001 2001 2001 2000 2000
---- ---- ---- ---- ---- ---- ---- ----
High $ 3.64 $ 4.70 $5.40 $10.60 $14.50 $31.38 $53.25 $58.19
Low $ 1.50 $ 2.05 $3.05 $ 2.85 $ 7.45 $11.00 $12.38 $21.50
At June 30, 2002, there were approximately 230 shareholders of record.
To date, we have neither declared nor paid cash dividends on shares of our
common stock. Shares of our outstanding Preferred Stock are entitled to payment
of dividends prior to payment of any dividends on our common stock as described
under the heading "Liquidity and Capital Resources." We currently intend to
retain all future earnings for our business and do not anticipate paying cash
dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
On October 9, 2001, in connection with our acquisition of CHAD Industries, Inc.,
Adept issued 200,000 shares of its common stock to former shareholders of CHAD
Industries, Inc. pursuant to an exemption from registration under Regulation D
under the Securities Act of 1933, as amended.
On October 29, 2001 Adept issued 78,000 shares of Series A Convertible Preferred
Stock and 22,000 shares of Series B Convertible Preferred Stock to JDS Uniphase
Corporation, an accredited investor, for an aggregate cash purchase price of
$25.0 million. The shares were issued pursuant to an exemption from registration
under Regulation D under the Securities Act of 1933, as amended. The Preferred
Stock may be converted into shares of our common stock at any time after the
earlier of the first anniversary of the original issue date, the public
announcement of a liquidity event, or an event of default, such as bankruptcy,
or the reporting by Adept of a cash balance of less than $15.0 million at the
end of any fiscal quarter through September 30, 2002, and, in the absence of a
prior liquidity event or earlier conversion or redemption will be converted into
common stock upon the third anniversary of the original issue date, as described
under the heading "Liquidity and Capital Resources."
On August 30, 2002, in connection with our acquisition of Meta Control
Technologies, Inc. and the establishment of an $800,000 line of credit with a
stockholder of Meta, Adept issued 830,000 shares of its common stock to former
stockholders of Meta pursuant to an exemption from registration under Regulation
D under the Securities Act of 1933, as amended.
Securities Authorized for Issuance under Equity Compensation Plans
The following table gives information about our common stock that may be issued
upon exercise of options warrants and rights under all of our existing equity
compensation plans as of June 30, 2002, including the Company's 1993 Stock Plan,
1995 Director Plan, and the 2001 Stock Option Plan, (collectively, the "Option
Plans"). For a description of such plans, see Note 8 of our Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
14
Equity Compensation Plan Information
-----------------------------------------------------------------------------
(a) (b) (c)
Number of securities
Number of securities remaining available for
to be issued upon Weighted average future issuance under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
Plan Category and rights and rights reflected in column (a))
Equity compensation plans approved
by security holders 2,683 $ 8.88 743
Equity compensation plans not
approved by security holders (1) 655 3.22 1,945
------------ ------------ ------------
Total 3,338 $ 7.77 2,688
============ ============ ============
(1) Issued under our 2001 Stock Option Plan, which does not require the
approval of and has not been approved by Adept's shareholders.
15
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in this
Form 10-K. The historical results are not necessarily indicative of future
results. On July 16, 1999, we completed the acquisition of BYE/Oasis
Engineering, Inc. in a pooling of interests transaction. The selected financial
data prior to June 30, 2000 has been restated to include the historical results
of BYE/Oasis Engineering, Inc. Fiscal 2002 and 2001 results include the
financial results of Pensar, NanoMotion, and HexaVision subsequent to their
acquisitions on April 28, 2000, May 31, 2000, and July 21, 2000, respectively.
Fiscal 2002 also includes the financial results for CHAD subsequent to its
acquisition on October 9, 2001.
(in thousands, except per share data) Years Ended June 30,
------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Results of Operations:
Net revenues ........................................................ $ 57,039 $ 100,313 $ 99,212 $ 87,374 $ 105,440
Cost of revenues .................................................... 37,868 65,303 56,173 47,902 60,841
--------- --------- --------- --------- ---------
Gross margin .................................................. 19,171 35,010 43,039 39,472 44,599
--------- --------- --------- --------- ---------
Operating expenses:
Research, development and engineering ......................... 20,398 22,727 14,629 11,591 11,844
Selling, general and administrative ........................... 28,994 36,002 29,503 24,676 26,890
Restructuring and other non-recurring charges ................. 17,659 -- -- -- 2,756
Merger-related charges (1) .................................... -- -- 988 -- --
Amortization of goodwill and other intangibles ................ 725 6,818 685 -- --
Impairment of goodwill and other long-lived assets ............ 6,608 -- -- -- --
Gain on sale of assets ........................................ (1,566) -- -- -- --
--------- --------- --------- --------- ---------
Total operating expenses ............................................ 72,818 65,547 45,805 36,267 41,490
--------- --------- --------- --------- ---------
Operating income (loss) ............................................. (53,647) (30,537) (2,766) 3,205 3,109
Interest income, net ................................................ 438 733 746 926 971
--------- --------- --------- --------- ---------
Income (loss) before taxes and cumulative
effect of change in accounting principle ......................... (53,209) (29,804) (2,020) 4,131 4,080
Provision for (benefit from) income taxes ........................... (3,358) 5,396 (593) 1,620 1,819
--------- --------- --------- --------- ---------
Net income (loss) before cumulative effect of change in
accounting principle ............................................ (49,851) (35,200) (1,427) 2,511 2,261
Cumulative effect of change in accounting principle ................. (9,973) -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) ................................................... $ (59,824) $ (35,200) $ (1,427) $ 2,511 $ 2,261
========= ========= ========= ========= =========
Net income (loss) per share:(2)
Before cumulative effect of change in accounting principle:
Basic .......................................................... $ (3.64) $ (3.02) $ (0.15) $ 0.27 $ 0.25
========= ========= ========= ========= =========
Diluted ........................................................ $ (3.64) $ (3.02) $ (0.15) $ 0.26 $ 0.23
========= ========= ========= ========= =========
After cumulative effect of change in accounting principle:
Basic .......................................................... $ (4.37) $ (3.02) $ (0.15) $ 0.27 $ 0.25
========= ========= ========= ========= =========
Diluted ........................................................ $ (4.37) $ (3.02) $ (0.15) $ 0.26 $ 0.23
========= ========= ========= ========= =========
Number of shares used in computing per share amounts:(2)
Basic .......................................................... 13,691 11,637 9,774 9,302 9,154
========= ========= ========= ========= =========
Diluted ........................................................ 13,691 11,637 9,774 9,484 9,689
========= ========= ========= ========= =========
Balance Sheet Data:
Cash, cash equivalents and short-term investments ................... $ 21,681 $ 21,500 $ 20,437 $ 27,016 $ 20,939
========= ========= ========= ========= =========
Working capital ..................................................... 27,326 39,784 46,593 47,614 45,928
========= ========= ========= ========= =========
Total assets ........................................................ 62,494 95,573 93,523 71,677 70,310
========= ========= ========= ========= =========
Long-term liabilities ............................................... 2,692 1,284 1,222 -- 78
========= ========= ========= ========= =========
Redeemable convertible preferred stock .............................. 25,000 -- -- -- --
========= ========= ========= ========= =========
Total shareholders' equity .......................................... 15,904 71,482 70,728 55,186 53,399
========= ========= ========= ========= =========
- ----------
(1) In July 1999, we incurred charges of $988,000 relating to the acquisition
of BYE/OASIS.
(2) See Notes 1 and 11 of Notes to Consolidated Financial Statements for a
discussion of the computation of net income (loss) per share.
16
Quarterly Results of Operations (Unaudited)
In management's opinion, the unaudited quarterly data has been prepared on the
same basis as the audited information and includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
data for the periods presented. Adept's results of operations have varied and
may continue to fluctuate significantly from quarter to quarter. Results of
operations in any period should not be considered indicative of the results to
be expected from any future period. We operate and report financial results
ending on the last Saturday of a 13-week period for each of our first three
fiscal quarters and at June 30 for our fiscal year end. For convenience, we have
indicated in this Annual Report on Form 10-K our fiscal quarters end on March
31, December 31 and September 30.
Fiscal 2002
Three Months Ended,
--------------------------------------------------------------------------------------
(in thousands, except percentages and per share data)
Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2002 2002 2001 2001
-------- -------- -------- --------
Net revenues ............................... $ 14,635 100.0% $ 14,588 100.0% $ 14,431 100.0% $ 13,385 100.0%
Cost of revenues ........................... 10,103 69.0 9,856 67.6 9,172 63.6 8,737 65.3
-------- ----- -------- ----- -------- ----- -------- -----
Gross margin ............................... 4,532 31.0 4,732 32.4 5,259 36.4 4,648 34.7
-------- ----- -------- ----- -------- ----- -------- -----
Operating expenses:
Research, development and engineering ... 4,967 33.9 5,008 34.3 4,585 31.8 5,838 43.6
Selling, general and administrative ..... 6,971 47.6 7,192 49.3 7,117 49.3 7,714 57.6
Restructuring expenses .................. -- -- 5,323 36.5 -- -- 12,336 92.2
Amortization of goodwill and other
intangibles .......................... 149 1.0 216 1.5 180 1.2 180 1.3
Impairment of goodwill .................. 6,608 45.2 -- -- -- -- -- --
(Gain) loss on sale of assets ........... (1,566) (10.6) -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- -----
Total operating expenses ................... 17,129 117.1 17,739 121.6 11,882 82.3 26,068 194.7
-------- ----- -------- ----- -------- ----- -------- -----
Operating loss ............................. (12,597) (86.1) (13,007) (89.2) (6,623) (45.9) (21,420) (160.0)
Interest income, net ....................... 95 0.6 123 0.9 137 1.0 83 0.6
-------- ----- -------- ----- -------- ----- -------- -----
Loss before income taxes and cumulative
effect of change in accounting principle ... (12,502) (85.5) (12,884) (88.3) (6,486) (44.9) (21,337) (159.4)
Provision for (benefit from) income
taxes .................................... (570) (3.9) 2,935 (20.1) 66 0.5 81 0.6
-------- ----- -------- ----- -------- ----- -------- -----
Net loss before cumulative effect of
change in accounting principle .......... $(11,932) (81.6) $ (9,949) (68.2) $ (6,552) (45.4) $(21,418) (160.0)
Cumulative effect of change in accounting
principle ............................... $ -- -- $ -- -- $ -- -- $ (9,973) (74.5)
-------- ----- -------- ----- -------- ----- -------- -----
Net loss ................................... $(11,932) (81.6)% $ (9,949) (68.2)% $ (6,552) (45.4)% $(31,391) (234.5)%
======== ===== ======== ===== ======== ===== ======== =====
Basic and diluted net loss per share:
Before cumulative effect of change
in accounting principle .............. $ (0.85) $ (0.72) $ (0.48) $ (1.63)
======== ======== ======== ========
After cumulative effect of change in
accounting principle .................. $ (0.85) $ (0.72) $ (0.48) $ (2.38)
======== ======== ======== ========
Basic and diluted number of shares
used in computing per share amounts ...... 13,976 13,829 13,567 13,169
======== ======== ======== ========
The cumulative effect of change in accounting principle of $10.0 million was
originally reported in our results of operations in the Form 10-Q for the fiscal
quarter ended March 30, 2002, when the amount of the impairment under SFAS 142
was determined. However, because the impairment relates to the effective date of
SFAS 142, or July 1, 2001 for Adept, the cumulative effect of change in
accounting principle is properly reflected in the fiscal quarter ended September
30, 2001 in the table above.
17
Fiscal 2001
Three Months Ended,
-------------------------------------------------------------------------------------
(in thousands, except percentages and per share data)
Jun. 30, Mar. 31, Dec. 31, Sep. 30,
2001 2001 2000 2000
-------- -------- -------- --------
Net revenues ............................... $ 20,745 100.0% $ 23,913 100.0% $ 28,034 100.0% $ 27,621 100.0%
Cost of revenues ........................... 20,845 100.5 14,393 60.2 15,282 54.5 14,783 53.5
-------- ----- -------- ----- -------- ----- -------- -----
Gross margin (loss) ........................ (100) (0.5) 9,520 39.8 12,752 45.5 12,838 46.5
-------- ----- -------- ----- -------- ----- -------- -----
Operating expenses:
Research, development and engineering ... 7,671 37.0 5,182 21.6 5,008 17.9 4,866 17.6
Selling, general and administrative ..... 10,498 50.6 9,297 38.9 8,371 29.9 7,836 28.4
Amortization of goodwill and other
intangibles .......................... 1,798 8.6 2,077 8.7 1,518 5.4 1,425 5.2
-------- ----- -------- ----- -------- ----- -------- -----
Total operating expenses ................... 19,967 96.2 16,556 69.2 14,897 53.2 14,127 51.2
-------- ----- -------- ----- -------- ----- -------- -----
Operating loss ............................. (20,067) (96.7) (7,036) (29.4) (2,145) (7.7) (1,289) (4.7)
Interest income, net ....................... 313 1.5 165 0.7 66 0.3 189 0.7
-------- ----- -------- ----- -------- ----- -------- -----
Loss before income taxes ................... (19,754) (95.2) (6,871) (28.7) (2,079) (7.4) (1,100) (4.0)
Provision for (benefit from) income
taxes .................................... 568 2.8 4,828 20.2 385 1.4 (385) (1.4)
-------- ----- -------- ----- -------- ----- -------- -----
Net loss ................................... $(20,322) (98.0)% $(11,699) (48.9)% $ (2,464) (8.8)% $ (715) (2.6)%
======== ===== ======== ===== ======== ===== ======== =====
Basic and diluted net loss per share ....... $ (1.55) $ (0.99) $ (0.23) $ (0.07)
======== ======== ======== ========
Basic and diluted number of shares used in
computing per share amounts ............ 13,101 11,795 10,886 10,743
======== ======== ======== ========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We provide intelligent production automation solutions to our customers in many
industries including the food, communications, automotive, appliance,
semiconductor, photonics, and life sciences industries. We utilize our
comprehensive product 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 that reduces the time and cost to design, engineer and
launch products into high-volume production. Our products currently include
system design software, process knowledge software, real-time vision and motion
controls, machine vision systems, robot mechanisms, precision solutions and
other flexible automation equipment. In recent years, we have expanded our robot
product lines and developed advanced software and sensing technologies that have
enabled robots to perform a wider range of functions. We have recently
introduced new systems products, including our 1394 FireWire based distributed
control architecture. As a result of our introduction and marketing of these new
systems, sales of systems may increase relative to our component sales in future
periods, causing a change in the nature and composition of our revenues over
time. Also, international sales comprise approximately 40% to 60% of our total
revenues for any given quarter.
We market and sell our products worldwide through more than 250 system
integrators, our direct sales force and OEMs. System integrators and OEMs add
application-specific hardware and software to our products, enabling us to
provide solutions to a diversified industry base, including the food,
communications, electronics, automotive, appliance, semiconductor, photonics and
life sciences industries. Due to a worldwide slowdown in the communications,
consumer electronics, semiconductor and precision assembly markets, our net
revenues have been at extremely low levels during this fiscal year compared to
previous years.
In response to the continued weak global economic conditions, we implemented a
worldwide restructuring program during fiscal 2002, which was implemented in
several phases, to realign our businesses to the changes in our industry and
decreases in capital spending throughout the industries we serve. In connection
with this program, we took actions including: restructuring of non-strategic
business assets; idling of leased facilities; and workforce reductions and
compensation adjustments. From the beginning of the first quarter through the
end of the third
18
quarter, we recorded $17.7 million in restructuring charges. The charges consist
of $9.2 million in restructuring of non-strategic business assets, $6.8 million
in costs for the consolidation of excess facilities, and $1.7 million in
workforce reduction and compensation costs. In response to continued weakness in
demand, we announced in July, a restructuring for the first quarter of fiscal
2003. Adept intends to reduce its global workforce by 24% in the first quarter
of fiscal 2003 and implement other cost saving measures to reduce operating
expenses. We expect the current challenging economic environment to last for at
least the next several quarters and the uncertainties in the business
environment may make it necessary for us to take further actions, as these and
future announced cost reductions, including workforce reductions, or other
benefits expected from the restructuring may be insufficient to align our
operations with customer demand and the changes affecting our industry, or may
be more costly or extensive than currently anticipated.
This discussion summarizes the significant factors affecting our consolidated
operating results, financial condition, liquidity and cash flow during the
three-year period ended June 30, 2002, each year therein referred to as fiscal
2002, 2001, and 2000. Unless otherwise indicated, references to any year in this
Management's Discussion and Analysis of Financial Condition and Results of
Operation refer to our fiscal year ended June 30. This discussion should be read
with the consolidated financial statements and financial statement footnotes
included in this Annual Report on Form 10-K.
Critical Accounting Policies
Management's discussion and analysis of Adept's financial condition and results
of operations are based upon Adept's consolidated financial statements which
have been prepared in conformity with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates, judgments and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis, we
evaluate our estimates, including those related to fixed price contracts,
product returns, warranty obligations, bad debt, inventories, cancellation costs
associated with long term commitments, investments, intangible assets, income
taxes, restructuring, service contracts, contingencies and litigation. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making estimates and judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Estimates, by
their nature, are based on judgment and available information. Therefore, actual
results could differ from those estimates and could have a material impact on
our consolidated financial statements and it is possible that such changes could
occur in the near term.
We have identified the accounting principles which we believe are most critical
to our reported financial status by considering accounting policies that involve
the most complex or subjective decisions or assessments. These accounting
policies described below include:
o revenue recognition;
o allowance for doubtful accounts;
o inventories;
o warranty reserve;
o goodwill and other intangible assets;
o long-lived assets; and
o deferred tax valuation allowance.
For further discussion of our significant accounting policies, refer to Note 1,
of the Notes to Consolidated Financial Statements in Item 8.
Revenue Recognition. We recognize product revenue, in accordance with SAB 101,
when persuasive evidence of a non-cancelable arrangement exists, delivery has
occurred and/or services have been rendered, the price is fixed or determinable,
collectibility is reasonably assured, legal title and economic risk is
transferred to the customer, and when an economic exchange has taken place. If a
significant portion of the price is due after our normal payment terms, which
are 30 to 90 days from the invoice date, we account for the price as not being
fixed and determinable. In these cases, if all of the other conditions referred
to above are met, we recognize the revenue as the invoice becomes due. For
certain of our products sold in Japan where we maintain pass-through
arrangements with our
19
reseller, all revenue is deferred until receipt by Adept of payment from the end
customer. Revenue is otherwise deferred until the elements described above are
met.
We recognize software revenue, primarily related to our simulation software
products, in accordance with the American Institute of Certified Public
Accountants' Statement of Position 97-2 ("SOP 97-2") on Software Revenue
Recognition. License revenue is recognized on shipment of the product provided
that no significant vendor or post-contract support obligations remain and that
collection of the resulting receivable is deemed probable by management.
Insignificant vendor and post-contract support obligations are accrued upon
shipment of the licensed product. For software that is installed and integrated
by the customer, revenue is recognized upon shipment assuming functionality has
already been proven in prior sales and there are no customizations that would
cause a substantial acceptance risk. For software that is installed and
integrated by Adept, revenue is recognized upon customer signoff of a Final
Product Acceptance (FPA) form.
Service revenue includes training, consulting and customer support. Revenues
from training and consulting are recognized at the time the service is performed
and the customer has accepted the work.
For long-term, fixed contracts, we recognize revenue and profit as work
progresses using the percentage-of-completion method, which relies on estimates
of total expected contract revenue and costs. We follow this method as
reasonably dependable estimates of the revenue and costs applicable to various
stages of a contract can be made. Recognized revenues and profit are subject to
revisions as the contract progresses to completion. Revisions in profit
estimates are charged to income in the period in which the facts that give rise
to the revision become known.
Deferred revenue primarily relates to software support contracts sold. The term
of the software support contract is generally one year, and Adept recognizes the
associated revenue on a pro rata basis over the life of the contract, or if
there are milestone payments, upon milestone achievement.
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to make
required payments. We assess the customer's ability to pay based on a number of
factors, including our past transaction history with the customer and credit
worthiness of the customer. Management specifically analyzes accounts receivable
and historical bad debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in our customer payment terms when
evaluating the adequacy of the allowances for doubtful accounts. We do not
generally request collateral from our customers. If the financial condition of
our customers were to deteriorate in the future, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Specifically our policy is to record specific reserves against known doubtful
accounts. Additionally, a general reserve is calculated based on the greater of
0.5% of consolidated accounts receivable or 20% of consolidated accounts
receivable more than 120 days past due. Specific reserves are netted out of the
respective receivable balances for purposes of calculating the general reserve.
On an ongoing basis, we evaluate the credit worthiness of our customers and
should the default rate change or the financial positions of our customers
change, we may increase the general reserve percentage.
Inventories. Inventories are stated at the lower of standard cost, which
approximates actual (first-in, first-out method) or market (estimated net
realizable value). We perform a detailed assessment of inventory at each balance
sheet date, which includes, among other factors, a review of component demand
requirements, product lifecycle and product development plans, and quality
issues. As a result of this assessment, we write down inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of the inventory and the estimated market value based upon assumptions about
future demand and market conditions. If actual demand and market conditions are
less favorable than those projected by management, additional inventory
write-downs may be required.
Manufacturing inventory includes raw materials, work-in-process, and finished
goods. All work-in-process inventories with work orders that are open in excess
of 180 days are fully written down. The remaining inventory valuation provisions
are based on an excess and obsolete systems report, which captures all obsolete
parts and products and all other inventory, which have quantities on hand in
excess of one year's projected demand. Individual line item exceptions are
identified for either inclusion or exclusion from the inventory valuation
20
provision. The materials control group and cost accounting function monitor the
line item exceptions and make periodic adjustments as necessary.
Warranty Reserve. We provide for the estimated cost of product warranties at the
time revenue is recognized. While we engage in extensive product quality
programs and processes, including activity monitoring and evaluating the quality
of our components suppliers, our warranty obligation is affected by product
failure rates, material usage and service labor and delivery costs incurred in
correcting a product failure. Should actual product failure rates, material
usage, service labor or delivery costs differ from our estimates, revisions to
the estimated warranty liability would be required.
Goodwill and Other Intangible Assets. The purchase method of accounting for
acquisitions requires extensive use of accounting estimates and judgments to
allocate the excess of the purchase price over the fair value of identifiable
net assets of acquired companies allocated to goodwill. Other intangible assets
primarily represent developed technology and non-compete covenants.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS 142"). Under SFAS 142, goodwill (and intangible assets deemed to have
indefinite lives) are no longer amortized but are subject to additional
impairment tests whenever indicators of impairment are present, and at least
annually. Other intangible assets with finite lives are amortized over those
useful lives. We implemented SFAS 142 on July 1, 2001. SFAS 142 requires that
the first of two impairment tests be completed within six months of adoption. We
completed the measurement of the impairment loss in the third quarter of fiscal
2002 and an impairment loss of $10.0 million, resulting from the adoption of
SFAS 142, was recorded as the cumulative effect of a change in accounting
principle as of July 1, 2001. SFAS 142 requires goodwill to be evaluated for
impairment at least annually and we have chosen April 1 as the annual date to
conduct this evaluation. As of April 1, 2002 we recorded an impairment loss of
$6.6 million as a component of operating expenses as a result of the annual
impairment update.
Long-Lived Assets. We evaluate long-lived assets used in operations, including
goodwill and purchased intangible assets. The allocation of the acquisition cost
to intangible assets and goodwill has a significant impact on our future
operating results as the allocation process requires the extensive use of
estimates and assumptions, including estimates of future cash flows expected to
be generated by the acquired assets. An impairment review is performed whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger an impairment
review include, but are not limited to, significant under-performance relative
to historical or projected future operating results, significant changes in the
manner of use of the acquired assets or the strategy for our overall business,
and significant industry or economic trends. When impairment indicators are
identified with respect to previously recorded intangible assets, the values of
the assets are determined using discounted future cash flow techniques using our
weighted average cost of capital. Significant management judgment is required in
the forecasting of future operating results which are used in the preparation of
the projected discounted cash flows and should different conditions prevail,
material write downs of net intangible assets and/or goodwill could occur.
Deferred Tax Valuation Allowance. We record a valuation allowance to reduce
deferred tax assets to the amount that is most likely to be realized. While we
have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize deferred tax assets
in the future in excess of our net recorded amount, an adjustment to the
deferred tax asset would increase the income in the period such determination
was made. Likewise, should we have a net deferred tax asset and determine that
we would not be able to realize all or part of our net deferred tax asset in the
future, an adjustment to the deferred tax assets would be charged to income in
the period that such determination was made.
Acquisitions
During the three-year period ended June 30, 2002, we acquired five companies:
CHAD Industries, Inc. (CHAD), HexaVision Technologies, Inc. NanoMotion
Incorporated, Pensar-Tucson, Inc. and BYE/OASIS. These acquisitions are
described below.
21
CHAD Industries
On October 9, 2001, Adept completed the acquisition of CHAD Industries, Inc.
(CHAD), a design and manufacturing company specializing in precision assembly
automation based in Orange, California. The acquisition of CHAD is the latest
step in Adept's ongoing precision assembly automation strategy. Adept leverages
CHAD's expertise in small part feeding, precision tooling design, handling of
odd-form components to add capacity in precision assembly automation.
Additionally, we support CHAD's line of odd-form component assembly machines.
Adept acquired all of the outstanding common shares of CHAD. The results of
CHAD's operations have been included in Adept's consolidated financial
statements since October 9, 2001.
Under terms of the acquisition agreement, the purchase price of $10.1 million
includes an aggregate of $8.4 million in cash, $150,000 in transaction costs and
200,000 shares of Adept common stock valued at $1.6 million. The value of the
200,000 shares issued was determined based on the average closing price of
Adept's stock over the period of five trading days prior to June 27, 2001, the
date of entry into the definitive agreement. Of the $8.4 million in cash, $4.2
million was paid as of the closing date on October 9, 2001, and $2.6 million and
$1.6 million are to be paid on October 9, 2002, and 2003, respectively. These
future payments are not contingent upon the fulfillment of any employment or
other contingencies. In addition, Adept agreed to make cash payments of $242,000
and potential stock issuances consisting of 61,000 shares equal to approximately
$467,000 over a period of three years after the closing date to certain
specified employees of CHAD, which are contingent on the continued employment of
such employees. As such, those amounts have been appropriately excluded from the
purchase price and will be expensed as paid. This acquisition was accounted for
under the purchase method of accounting.
HexaVision
On July 21, 2000, we completed the acquisition of HexaVision Technologies Inc.,
now named Adept Technology Canada Co., a Canadian corporation. HexaVision was a
machine vision research and development company. HexaVision's core technology
incorporates techniques to achieve accuracies up to 1/40th of a pixel with
machine vision measurement algorithms that can increase our performance in
critical and demanding applications such as vision servoing for the
microelectrical, fiber optic, semiconductor, metrology and precision assembly
applications. In connection with the acquisition, we paid $5.5 million in cash,
which includes transaction costs of $0.4 million, and issued shares of our
common stock to the shareholders of HexaVision with a value of $1.1 million. We
have accounted for the acquisition under the purchase method of accounting. On
July 21, 2001, pursuant to the terms of the share purchase agreement relating to
the acquisition of HexaVision, we made the first anniversary cash payment and
share issuance consisting of 116,000 shares of our common stock with a value of
$1.1 million and released $313,000 in cash from an escrow account to the
employees and former shareholders of HexaVision. On July 21, 2002, we made the
second anniversary cash payment of $53,000 and released $1.4 million in cash
from an escrow account to the employees and former shareholders of HexaVision.
The contingency payments made and shares issued to the employees of HexaVision
were appropriately recorded as operating expenses. The contingent payments made
and shares issued to the former shareholders of HexaVision were allocated to
goodwill and accounted for as additional purchase price.
NanoMotion
On May 31, 2000, we completed the acquisition of NanoMotion Incorporated, a
California corporation. NanoMotion was a manufacturer of ultra-high precision
positioning and alignment devices. In connection with the acquisition, we issued
600,000 shares of our common stock to the shareholders of NanoMotion valued at
$21 per share, which was the fair market value of our common stock at May 31,
2000 and paid $250,000 in cash and incurred $46,000 in transaction costs
resulting in a total purchase price of $12.9 million. The acquisition was
accounted for under the purchase method of accounting. Our acquisition of
NanoMotion was completed to enhance our ability to offer intelligent automation
solutions to the microelectrical, fiber optic, semiconductor, metrology, and
precision machining and precision assembly applications.
Pensar
On April 28, 2000, we completed the acquisition of Pensar-Tucson, Inc., an
Arizona corporation. Pensar was a design and engineering company, which
integrates factory automation systems. In connection with the acquisition, we
issued 100,000 shares of our common stock to the shareholders of Pensar valued
at $11.75 per share, which was the fair market value of our common stock at
April 28, 2000. In addition, we paid $3.0 million in cash incurred
22
$37,000 in transaction costs, resulting in a total purchase price of $4.2
million. The acquisition was accounted for under the purchase method of
accounting. In March 2002, we closed the Tucson operations and wrote off all
related assets.
For further discussion of these acquisitions, see Note 2 to our Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
BYE/OASIS
On July 16, 1999, we completed the acquisition of BYE/OASIS Engineering, Inc., a
Texas corporation. BYE/OASIS was a manufacturer of environmental filtering and
control systems, which create a clean room environment inside a semiconductor
manufacturing machine or tool, and wafer cassette handling devices for the
microelectronics industry. In connection with the acquisition, we issued 720,008
shares of our common stock to the shareholders of BYE/OASIS. In addition, we
assumed outstanding options to acquire BYE/OASIS shares, which were converted
into options to acquire 185,361 shares of our common stock. The acquisition was
accounted for using the pooling of interests method, and, accordingly, all prior
period consolidated financial statements have been restated to include the
combined results of operations, financial position and cash flows of BYE/OASIS.
Prior to the merger, BYE/ OASIS's fiscal year ended on September 30. In
recording the business combination, BYE/OASIS's prior period financial
statements have been restated to conform to our fiscal year. We incurred charges
of $988,000 relating to the acquisition of BYE/OASIS and the closure of
BYE/OASIS facilities in Texas. Included in this amount were merger-related
expenses of $558,000, expenses relating to the closure of facilities in Texas of
$195,000, and other expenses relating to the acquisition of $235,000.
Results of Operations
Comparison of Fiscal 2002 to 2001
Net Revenues. Our net revenue decreased by 43.2% to $57.0 million in 2002 from
$100.3 million in 2001. The dramatic decrease in revenue primarily resulted from
a reduction by our customers of their capital expenditures in an effort to deal
with excess manufacturing capacity. Following the significant drop in our first
quarter revenue, customers continued to experience uncertainty and cancelled
some orders and postponed placing others, which resulted in a further decline in
our revenue in subsequent quarters. As a result of the current challenging
economic environment, we expect to experience continued pressure on our revenue
for at least the remainder of calendar 2002 and until worldwide economic
conditions improve.
Our domestic sales were $25.2 million in 2002 compared to $63.9 million in 2001,
a decrease of 60.5%. Our international sales were $31.8 million in 2002 compared
to $36.4 million in 2001, a decrease of 12.6%. Both our domestic and
international markets have been significantly impacted by the uncertain and weak
global economic conditions, which have caused a dramatic decrease in capital
spending by our customers, especially in the United States.
Gross Margin. Gross margin as a percentage of net revenue was 33.6% in 2002
compared to 34.9% in 2001. We have experienced a downward trend over the past
four quarters associated with an approximately 50% decrease in manufacturing
volume. As less labor and overhead expense is absorbed into inventory, costs
become higher on a relative basis, which is reflected in our lower margins. We
have taken steps to reduce our overhead and at the same time, preserve
sufficient capacity to react to any increase in demand. Additionally, we have
experienced some normal costs associated with the introduction of new products.
We introduced these new products despite the weak current demand because they
bring additional functionality for our customers as well as provide cost
improvements for us. We expect to continue to experience fluctuations in our
gross margin percentage due to changes in volume, changes in availability of
components, changes in product configuration and changes in sales mix.
Research, Development and Engineering Expenses. Research, development and
engineering expenses declined on an absolute basis, but increased as a
percentage of net revenues. Research, development and engineering expenses
decreased by 10.1% to $20.4 million, or 35.8% of net revenues in 2002, from
$22.7 million, or 22.7% of net revenues in 2001. Research, development and
engineering expenses decreased at a slower rate than other expense items due to
our stated intention to maintain research, development and engineering efforts
required to complete several initiatives in product development crucial in
leveraging our position in the market to take advantage of future
23
opportunities expected to arise in a recovering economy. Expenses in 2002
include two of five required quarterly expenditures totaling $2.0 million, which
are part of commitments under a joint development agreement with JDS Uniphase
Corporation.
Over the past several years, we have been involved in several federally-funded
consortiums, which partially offset some of our research and development
expenses. We completed the last of these funded projects in early 2001. We did
not enter into any such consortiums in fiscal 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 19.5% to $29.0 million or 50.8% of net
revenues in 2002 from $36.0 million or 35.9% of net revenues in 2001. The
decreased level of expense was primarily attributable to cost reductions
implemented over three quarters of fiscal 2002. These reductions included
significant reductions in headcount, consolidation of facilities, elimination of
some excess capacity and the sale of certain non-strategic assets, resulting in
the restructuring charges described below. We expect that selling, general and
administrative expenses will decrease through our continuing efforts to reduce
expenses in fiscal 2003 in response to the general decline in the industries we
serve.
Restructuring Charges. In connection with our 2002 restructuring, we recorded
$17.7 million in restructuring charges. The charges consist of $9.2 million in
restructuring of non-strategic business assets, $6.8 million in lease
commitments for idle facilities, and $1.7 million in workforce reduction and
compensation costs. Workforce reduction related costs of $1.7 million represent
a reduction of approximately 114 employees in most functional areas across all
three of our reportable business segments and at June 30, 2002 all of the
affected employees have ceased employment with Adept. Lease commitments for idle
facilities of $6.8 million result from the consolidation of manufacturing
facilities in San Jose and Livermore, California into our technology center in
Livermore, California, plus the consolidation of certain support facilities in
Europe. The consolidation of these facilities has resulted in operating lease
commitments in excess of our current and projected needs for leased properties.
Asset impairment charges of $9.2 million resulted from the exiting of certain
non-strategic product lines of $6.6 million and goodwill and other intangible
assets write-off of $2.6 million. The goodwill and other intangible assets
written off resulted from our acquisition of Pensar-Tucson in April 2000, which
no longer has value to Adept due to the closure of our Tucson Arizona operations
in March 2002. As of June 30, 2002, the long term accrued restructuring charges
relate to future rent commitments on non-cancelable lease agreements. We
completed our 2002 restructuring plan in the third quarter of fiscal 2002. In
response to continued weakness in demand, we announced in July, a restructuring
for the first quarter of fiscal 2003. Adept intends to reduce its global
workforce by 24% in the first quarter of fiscal 2003 and implement other cost
saving measures to reduce operating expenses. These restructuring charges
represent our concerted efforts to respond to the current demands of our
industry. However, these and future announced cost reductions or other benefits
expected from the restructuring, may be insufficient to align our operations
with customer demand and the changes affecting our industry, or may be more
costly or extensive than currently anticipated.
Goodwill and Other Intangibles Amortization. Goodwill and other intangibles
amortization in 2002 decreased to $0.7 million from $6.8 million in 2001. The
decrease in goodwill and other intangibles amortization was a direct result of
the adoption of SFAS 142, effectively discontinuing the amortization of
goodwill. Goodwill is no longer subject to amortization, but instead is now
subject to impairment testing at least on an annual basis, as discussed in Note
4 of our Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K.
Impairment of goodwill. We recorded a goodwill impairment charge of $6.6 million
as a result of our April 2002 annual impairment update required by SFAS 142. See
Note 4 of our Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K for further discussion.
Gain on Sale of Assets. Net gain on sale of assets was $1.6 million in 2002. In
the fourth quarter of 2002, we completed the sale of certain non-strategic
assets of our SILMA business, referred to as the CimStation Inspection product
line. The assets were sold for a purchase price of $2.0 million of which $1.75
million was paid in cash and the remaining $250,000 was deposited in escrow
contingent on certain CimStation revenue projections for the period July 1, 2001
through June 30, 2002 and are due to settle on or before September 30, 2002.
Given the severity of the market downturn, it is unlikely we will realize the
full contingency payment. In addition, we incurred $21,000 in transactions costs
related to the sale of the CimStation Inspection assets resulting in net
proceeds of $1.73 million. The gain on sale of the Cimstation Inspection assets
was partially offset by a loss on sale of other assets of $0.18 million.
24
Interest and Other Income, Net. Interest income, net, in 2002 was $438,000
compared to $733,000 in 2001, with higher average invested cash balances offset
by lower average yields.
Provision for (Benefit From) Income Taxes. Our effective tax rate for 2002 was
(6%) as compared to 18% for 2001. Our tax rate for 2002 differs from the federal
statutory income tax rate of 34% primarily due to a $3.6 million tax refund
resulting from the carry back of our net operating loss from the year ended June
30, 2001. This refund opportunity arose as a result of a recent change in
applicable law enacted on March 9, 2002, which extended the carry back period
from three to five tax years. In 2001, our tax rate differed from the federal
statutory rate of 34% primarily due to the increase in valuation allowance to
fully offset deferred tax assets.
Cumulative effect of change in accounting principle. We recorded $10.0 million
as a cumulative effect of change in accounting principle in 2002 resulting from
our adoption of SFAS 142. We implemented SFAS 142 on July 1, 2001 and completed
the measurement of the impairment loss in the third quarter of fiscal 2002. SFAS
142 requires goodwill and intangible assets to be evaluated for impairment at
least annually beginning 2001.
Derivative Financial Instruments. Our foreign currency hedging program is used
to hedge our exposure to foreign currency exchange risk on local international
operational assets and liabilities. 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 $728,000 for the
year ended June 30, 2002 and a gain of $322,000 on forward currency contracts
for the year ended June 30, 2001. Realized and unrealized gains and losses on
instruments that hedge firm commitments are deferred and included in the
measurement of the subsequent transaction; however, losses are deferred only to
the extent of expected gains on the future commitment at June 30, 2002. We have
deferred recognition of a transaction loss of $83,500, relating to foreign
exchange contracts. We will realize this transaction loss in the first quarter
of 2003.
Comparison of Fiscal 2001 to 2000
Net Revenues. Our net revenues increased by 1.1% to $100.3 million in 2001 from
$99.2 million in 2000, with all of the revenue growth occurring in the first two
quarters of 2001. During the last two quarters of 2001, we experienced reduced
demand in our core North American markets of electronics & mobile phones,
semiconductor, photonics automotive as well as some softening in our base
business in Europe. We believe that substantial excess manufacturing capacity
across most of the industries we serve contributed to this decline in activity.
Our domestic sales were $63.9 million in 2001 compared to $54.3 million in 2000,
an increase of 17.6%. The growth in domestic sales was principally attributable
to increased sales to customers in the precision assembly and OEM industries.
Our international sales were $36.4 million in 2001 compared to $44.9 million in
2000, a decrease of 18.9%. The general economic downturn significantly
negatively affected our European markets. This downturn, coupled with pricing
pressures due to the strength of the U.S. dollar against the euro, contributed
to lower sales in 2001.
Gross Margin. Gross margin as a percentage of net revenue was 34.9% in 2001
compared to 43.4% in 2000. The decrease in gross margin percentage is due
primarily to a $5.8 million inventory write-down, which was attributable to the
rapid decline in sales we experienced during the last quarter of fiscal 2001 and
associated lower forecasted demand for fiscal 2002. In addition, margins were
generally negatively impacted by a significant decline in revenue with customers
in our base business, especially the semiconductor industry, and significantly
reduced shipments in relation to a relatively fixed overhead cost structure.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 55.4% to $22.7 million, or 22.7% of net
revenues in 2001, from $14.6 million, or 14.7% of net revenues in 2000. The
increase for the period was attributable primarily to increased personnel costs
as research, development and engineering headcount increased 28% during the
first nine months of the year ending June 30, 2001 from June 30, 2000, with more
than half of these employees being hired as a result of our three acquisitions
during calendar year 2000. In addition, facilities expenses increased by $1
million or 422% attributable to the addition of the HexaVision facility, Santa
Barbara facility and the new Livermore building that was occupied during the
year ended June 30, 2001.
25
We spent much of fiscal 2001 in intense product development advancing our line
of controllers and integrating the products and technologies of the acquisitions
noted previously, and began releasing new products based on the technologies
resulting from our development efforts in the third and fourth quarters. These
new products include the Nanoline microstages for precision assembly and the
HexSight and Adept AVI vision systems for high precision assembly and material
handling. In addition, we invested heavily in developing new products for our
base business including 6-axis robots, smaller and lower cost Smart Series of
controllers and Cartesian robots with integrated power amplifiers. We also
developed the NanoCell, a platform to integrate these technologies, and
developed two key processes for photonics assembly, epoxy bonding and laser
welding.
Over the past several years, we have been involved in several federally-funded
consortiums, which partially offset some of our research and development
expenses. We completed the last of these funded projects in early 2001. Funding
from these consortiums were $49,000 and $309,000 for the years ended June 30,
2001 and 2000, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 22.0% to $36.0 million or 35.9% of net
revenues in 2001 from $29.5 million or 29.7% of net revenues in 2000. The
increased level of spending was primarily attributable to increased headcount of
15% from June 30, 2000 to June 30, 2001 and compensation-related expenses and
additional costs from companies acquired.
Merger-Related Charges. There were no merger-related charges in 2001.
Merger-related charges were $988,000 in 2000 relating to the acquisition of
BYE/OASIS and the closure of BYE/OASIS facilities in Texas. Merger-related
expenses were $558,000, expenses relating to the closure of facilities in Texas
were $195,000 and other non-recurring expenses relating to the acquisition were
$235,000.
Interest Income, Net. Interest income, net, in 2001 was $733,000 compared to
$746,000 in 2000, with higher average invested cash balances offset by lower
average yields.
Provision for (benefit from) Income Taxes. Our effective tax rate for 2001 was
18% as compared to (29%) for 2000. Our tax rate for 2001 differs from the
federal statutory income tax rate of 34% primarily due to the increase in
valuation allowance to fully offset Adept's deferred tax assets. In 2000, our
tax rate differed from the federal statutory rate of 34% primarily due to items
not deductible for income tax purposes.
Derivative Financial Instruments. Our foreign currency hedging program is used
to hedge our exposure to foreign currency exchange risk on local international
operational assets and liabilities. 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 gain of $322,000 for the
year ended June 30, 2001 and a loss of $50,000 for the year ended June 30, 2000.
Realized and unrealized gains and losses on instruments that hedge firm
commitments were deferred and included in the measurement of the subsequent
transaction; however, losses were deferred only to the extent of expected gains
on the future commitment at June 30, 2001. We deferred recognition of a
transaction loss of $62,000, relating to foreign exchange contracts at June 30,
2001 and realized this transaction loss in the first quarter of 2002.
Impact of Inflation
The effect of inflation on our business and financial position has not been
significant to date.
Long-Lived Assets
Financial information regarding the geographic areas of our long-lived assets is
included in Note 12 of our Notes to Consolidated Financial Statements included
in this Annual Report on Form 10-K.
Liquidity and Capital Resources
As of June 30, 2002, we had working capital of approximately $27.3 million,
including $21.7 million in cash equivalents and short-term investments.
26
During the year ended June 30, 2002, cash and cash equivalents decreased by
approximately $1.3 million. Net cash used in operating activities of $18.2
million was primarily attributable to the net loss adjusted by a cumulative
effect of change in accounting principle, goodwill impairment charges,
restructuring charges, decrease in accounts receivable, and decrease in
inventory. A goodwill impairment charge of $10.0 million was reported as a
cumulative effect of accounting change resulting from the adoption of SFAS 142.
An additional $6.6 million in goodwill impairment was reported as a component of
operating expenses as a result of the annual impairment update. The
restructuring charges include $3.4 million in severance and lease termination
accruals and $9.2 million in asset impairment charges. Additionally, increased
collections resulted in a decrease in accounts receivable of $9.4 million, which
was partially offset by decreased accounts payable of $4.1 million and a
decrease in deferred revenue of $1.2 million. The decrease in inventories of
$3.5 million during the year ended June 30, 2002 relates primarily to a focused
effort to reduce inventories that were built up in fiscal 2001, in anticipation
of stronger demand that did not materialize.
Cash used in investing activities during the year ended June 30, 2002 was $9.6
million, of which $8.4 million was attributable to the purchase price of CHAD
Industries. Additionally, an increase in the purchase of short-term investments
of $36.0 million was partially offset by the sale of short-term investments of
$34.4 million. We added $1.5 million in fixed assets and capital equipment in
fiscal 2002, of which $0.7 million was related to the relocation and
consolidation of our Livermore, California facilities, and $0.8 million was
related to purchases of fixtures and equipment, offset by proceeds from the sale
of assets related to the CimStation Inspection portion of our Silma business of
$1.73 million.
Net cash provided by financing activities of $26.5 million is attributable to
$25.0 million in proceeds received from the issuance of redeemable convertible
preferred stock and $1.5 million in proceeds from common stock issued related to
our employee stock incentive program.
We believe that our existing cash and cash equivalent balances as well as
short-term investments and anticipated cash flow from operations will be
sufficient to support our normal capital requirements for at least the next 12
months. If we pursue additional opportunities, we may seek additional financing
sources.
In fiscal year 2003, we plan to purchase capital items for maintenance of our
production, introduction of new products with near term revenue impact or for
items that result in near term cash savings. Therefore, we currently anticipate
net new capital expenditures of approximately $0.5 million in fiscal 2003. All
currently planned capital expenditures will be financed out of ongoing
operations.
On April 9, 2001, we entered into agreements establishing a revolving line of
credit, consisting of two facilities, with the CIT Group/Business Credit, Inc.
to borrow up to the lesser of $25.0 million or the sum of 85% of our 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. Effective as of August 26,
2002, Adept and CIT terminated Adept's revolving line of credit with CIT and
paid a termination fee of $100,000. Prior to termination, we had made no
borrowings under this revolving line of credit.
On October 29, 2001 and in connection with the signing of a joint development
agreement, we completed a private placement with JDS Uniphase Corporation of
$25.0 million in our convertible preferred stock consisting of 78,000 shares of
Series A Convertible Preferred Stock (the "Series A Preferred") and 22,000
shares of Series B Convertible Preferred Stock (the "Series B Preferred"),
collectively (the "Preferred Stock"). Both the Series A Preferred and the Series
B Preferred are entitled to annual dividends at a rate of $15 per share.
Dividends are cumulative and are payable only in the event of certain liquidity
events as defined in the designation of preferences of the Preferred Stock, such
as a change of control or liquidation or dissolution of Adept. No dividends on
our common stock may be paid until dividends for the fiscal year and any prior
years on the Preferred Stock have been paid or set apart, and the Preferred
Stock will participate in any dividends paid to the common stock on an
as-converted basis. The Preferred Stock may be converted into shares of our
Common Stock at any time after the earlier of the first anniversary of the
original issue date, the public announcement of a liquidity event, or an event
of default, such as bankruptcy, or the reporting by Adept of a cash balance of
less than $15.0 million at the end of any fiscal quarter through September 30,
2002, and, in the absence of a liquidity event or earlier conversion or
redemption, will be converted into common stock upon the third anniversary of
the original issue date. The Preferred Stock may be converted into shares of our
Common Stock at a rate of the initial purchase price divided by a denominator
equal to the lesser of
27
$8.18, or 75% of the 30 day average closing price of our Common Stock
immediately preceding the conversion date ("Conversion Date Price"), provided,
however, that as waived by the preferred stockholder, in no event shall the
denominator for the determination of the conversion rate with respect to the
Series B Preferred be less than $4.09 and with respect to the Series A Preferred
be less than $2.05 other than in connection with certain liquidity events that
are not approved by the Board of Directors of Adept. The Preferred Stock shall
not be convertible, in the aggregate, into 20% or more of our outstanding voting
securities. No holder of Preferred Stock may convert shares of Preferred Stock
if, after the conversion, the holder will hold 20% or more of our outstanding
voting securities. Shares not permitted to be converted remain outstanding,
unless redeemed, and become convertible when such holder holds less than 20% of
our outstanding voting securities. The Preferred Stock has voting rights equal
to the number of shares into which the Preferred Stock could be converted as
determined in the designation of preferences assuming a conversion rate of
$250.00 divided by $8.18.
We have the right, but not the obligation at any time, to redeem shares of the
Series A Preferred which, if converted, would result in the issuance of shares
of common stock using a denominator of $2.05 for determination of the conversion
rate less the number of shares of common stock issuable using a denominator of
$4.09 for determination of the conversion rate. The redemption price is equal to
the sum of the initial Preferred Stock price, plus all cumulated and unpaid
dividends. The redemption shall be paid in the form of a senior unsecured
promissory note bearing interest at a rate of 6% per annum, maturing in two
years. If we redeem shares of Preferred Stock using a promissory note, any
indebtedness incurred while the note is outstanding must be subordinated to the
note, other than certain ordinary course financings. In addition, the holders of
the Preferred Stock are entitled to receive, upon liquidation, the amount equal
to $250.00 per share (adjusted for any stock splits or stock dividends) plus any
unpaid dividends. The liquidation preference may be triggered by several events,
including a change in control of Adept. Since such a change may be outside of
management's control and would trigger the conversion and possible redemption of
the preferred stock, the Preferred Stock are classified outside of shareholders'
equity as redeemable convertible preferred stock in the accompanying
consolidated balance sheet.
In the three months ended June 30, 2002, Adept completed the two of five
quarterly expenditures of $1.0 million, which are made pursuant to the joint
development agreement with the accredited investor. At June 30, 2002, the
remaining quarterly expenditures of $1.0 million are to be made over the next
three quarters for a total of $3.0 million.
Under terms of the acquisition agreement of CHAD Industries, Inc. (CHAD), the
purchase price of $10.1 million includes an aggregate of $8.4 million in cash,
$150,000 in transaction costs and 200,000 shares of Adept common stock valued at
$1.6 million. Of the $8.4 million in cash, $4.2 million was paid as of the
closing date on October 9, 2001, and $2.6 million and $1.6 million are to be
paid on October 9, 2002, and 2003, respectively. Additionally, Adept agreed to
make cash payments of $242,000 and potential stock issuances consisting of
61,000 shares equal to approximately $467,000 over a period of three years after
the closing date to certain specified employees of CHAD, which are contingent on
the continued employment of such employees.
In connection with our acquisition of Meta Control Technologies, Inc., (Meta),
we entered into a $500,000 line of credit with Meta's lender terminating in
September 2003 bearing interest at a rate of 1% plus the prime rate announced by
the Wall Street Journal from time to time. We also entered into a line of credit
for up to $800,000 with a stockholder of Meta, which, in the absence of a
material change in financial condition or impairment of ability to repay and
subject to registration of the shares issued to the lender, permits quarterly
borrowings in increments of up to $200,000 after December 15, 2002, for a one
year term at a rate of 1% plus the prime rate announced by the Wall Street
Journal from time to time. In connection with the line of credit, 100,000 shares
of our common stock were issued to the lender, subject to certain cancellation
rights. Any amounts borrowed under the line of credit shall be due and payable
by August 2006.
New Accounting Pronouncements
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS 143") to be effective
for all fiscal years beginning after June 15, 2002, meaning effective July 1,
2002 for Adept. SFAS 143 establishes accounting standards for the recognition
and measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. We do not believe
the adoption of SFAS 143 will have a material impact on our financial position
or results of operations.
28
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which is effective for fiscal periods beginning
after December 15, 2001, or July 1, 2002 for Adept. 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 asset held-for-sale and changes the
reporting of discontinued operations. We do not believe that the adoption of
SFAS 144 will have a material impact on our financial position or results of
operations.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statement No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS 145
requires that any gains or losses on extinguishment of debt that were classified
as an extraordinary item in prior periods that are not unusual in nature and
infrequent in occurrence be reclassified to other income (expense), beginning
fiscal 2003 for Adept. We do not believe that the adoption of SFAS 145 will have
a material impact on our financial position or results of operations.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities", which is effective for exit or disposal activities
that are initiated after December 31, 2002. SFAS 146, which nullifies EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit and Activity (Including Certain Costs Incurred in a
Restructuring)," requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. We have not yet determined the impact that the
adoption of SFAS 146 will have on our financial position or results of
operations, if any.
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 communications, semiconductor, electronics,
and photonics industries and other markets we serve;
o a change in market acceptance of our products or a shift in demand
for our products;
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 pricing and related 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 changes in the mix of sales by distribution channels;
o exchange rate fluctuations;
o extraordinary events such as litigation or acquisitions;
o decline or slower than expected growth in those industries requiring
precision assembly automation; and
29
o slower than expected adoption of distributed controls architecture.
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 are also 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, and all of fiscal
2001 and 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 significantly reduced demand during this fiscal year in our
base industries, especially the electronics and semiconductor industry, as our
customers reduced inventories as they adjusted their businesses from a period of
high growth to lower rates of growth or downsizing. We cannot estimate when or
if a sustained revival in these key hardware markets and the semiconductor and
electronics industry will occur.
We generally recognize product revenue upon shipment or, for certain
international sales, upon receipt and acceptance 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 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 food, communications, automotive, electronic,
appliance, semiconductor, photonics and life sciences industries, and resulting
cutbacks in capital spending would have a direct, negative impact on our
business. We are currently experiencing reduced demand in most 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 2003 or beyond. During fiscal 2001 and 2002, we received
significantly 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 some cases,
these cycles have lasted more than a year. The industry is currently
experiencing a significant downturn due to decreased worldwide demand for
semiconductors. 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.
30
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. We
implemented a worldwide restructuring program in fiscal 2002 to realign our
businesses to the changes in our industry and our customers' decrease in capital
spending. We intend to make further cost reductions in the first quarter of
fiscal 2003 to further realign our business. Despite this restructuring, 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. We believe our future performance will
continue to be affected by the cyclical nature of the semiconductor industry,
and thus, any future 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 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 suppliers 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 sufficient quantities 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. In addition, some of the components that we use in our
products are in short supply. We have also experienced delays in filling
customer orders due to the failure of certain suppliers to meet our volume and
schedule requirements. Some 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.
31
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 demand for our
products 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. Increasingly, our
business is characterized by short-term order and shipment schedules. 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 fiscal 2002, compared
to prior periods, and this increase may continue in future periods. 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.
We have recently begun to sell our new distributed controls architecture, and we
may not achieve customer acceptance of these new products.
We have recently begun to sell to customers our new distributed controls
architecture based on technology including our 1394 FireWire technology. We are
devoting, and expect to devote in the future significant financial, engineering
and management resources to expand our development, marketing and sales of these
products. Commercial success of these products depends upon our ability to,
among other things;
32
o accurately determine the features and functionality that our
controls 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 design and approach.
Our distributed controls strategy may not achieve broad market acceptance for a
variety of reasons including:
o companies who use machine controls may continue to use their current
design and may not adopt our distributed architecture;
o companies may decide to adopt a different technology than IEEE 1394
FireWire for their distributed controls;
o companies may determine that the costs and resources required to
switch to our distributed architecture are unacceptable to them;
o system integrators, manufacturers, and OEMs may not enter into
agreements with us; and
o competition from traditional, well-established controls solutions.
If we do not achieve market acceptance of these products, our business and
operating results will suffer.
We charge a standard price most of our 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 including changes in
the average discounts offered;
o the costs to manufacture, service and support our new products and
enhancements;
o the costs to customize our systems;
o our efforts to enter new markets; and
o certain inventory related costs including obsolescence of products &
components resulting in excess inventory.
We charge a standard price for certain of our products, including the products
that we have added as a result of our acquisitions. 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.
While we have reduced our absolute amount of expenses in several areas of our
operations in connection with our restructuring, 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 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, utilizing our relatively fixed capacity, which
could also cause fluctuations in our operating results.
33
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 and
establish relationships with system integrators and OEMs to assist us in
building sales in those markets. It can take an extended period of time and
significant resources to establish a profitable relationship with a system
integrator or OEM because of product integration expenses training in product
and technologies and sales training. 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 existing or
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. In
addition, due to their limited financial resources, during extended market
downturns, the viability of some system integrators may be in question, which
would also result in a reduction in our revenues.
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 or prevent the generation of
revenue.
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. In October
2001, we acquired CHAD Industries, Inc., and we announced, in the first quarter
of fiscal 2003, our entry into a definitive agreement to acquire a controlling
interest in Meta Control Technologies, Inc. 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 and increase our revenue.
We are continually reviewing acquisition candidates as part of our strategy to
market intelligent automation solutions targeted at the precision assembly
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.
34
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 and, in the
third quarter of fiscal 2003, we announced our entry into a definitive agreement
to acquire a controlling interest in Meta Control Technologies, 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
objectives 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
amortization of goodwill, other intangible assets acquired or
assumption of anticipated liabilities;
o risks associated with entering markets in which we have limited
previous experience;
o potential negative impact of unanticipated liabilities or
litigation; 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.
Our international operations and sales may subject us to divergent regulatory
requirements and other financial and operating risks that may harm our operating
results.
International sales were $31.8 million for the fiscal year ended June 30, 2002,
$36.4 million for the fiscal year ended June 30, 2001, and $44.9 million for the
fiscal year ended June 30, 2000. This represented 55.7%, 36.3%, and 45.2% 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, military and economic changes and disruptions;
o transportation costs and delays;
35
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 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 Asian 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 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. We
remain subject to the 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. We experienced losses on instruments that hedge our foreign
currency exposure in fiscal 2002 and may experience a loss on such instruments
in the future. 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.
36
Our hardware and software products may contain defects that could increase our
expenses and exposure to liabilities and or 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 key 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.
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 qualified
and experienced engineers, senior management, sales and marketing personnel and
key personnel within other functional organizations. 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 offices. 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,
37
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 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 price
o customer service;
o delivery; and
38
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 food, communications, electronics, automotive,
appliance, semiconductor, photonics and life sciences 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 significant resources to developing different products for these
industries. Our results of operations are also subject to the cyclicality and
downturns in these markets. 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
39
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.
The development of new products may not be completed in a timely manner, and
these products may not achieve acceptance in the market. The development of new
products has required, and will require, that we expend significant financial
and management resources. If we are unable to continue to successfully develop
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.
40
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.
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 June 30, 2001 and June 30, 2002, the sales price of our common shares,
as reported on the Nasdaq National Market, ranged from a low of $1.50 to a high
of $10.60 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 the business environment, including the operating results and stock
prices of companies in the industries we serve;
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, terrorist actions or other military actions, or
international currency fluctuations, as well as public perception of equity
values of publicly traded companies may adversely affect the market price of our
common stock. Failure of the reported price of our common stock to meet the
minimum trading prices required by the Nasdaq National Market or our failure to
meet other listed company requirements, such as minimum shareholder's equity or
aggregate market value of the company's securities, among others, may result in
shares of our common stock no longer being traded on Nasdaq National Market.
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 take advantage of future opportunities essential to our long
term strategy.
If our capital requirements vary significantly from those currently planned, we
may require additional financing sooner than anticipated, or in greater amounts.
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,
41
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.
The ability of our Board of Directors to issue preferred stock could delay or
impede a change of control of the Company and may adversely affect the price an
acquirer is willing to pay for our common stock.
The Board of Directors has the authority to issue, without further action by the
shareholders, up to 5,000,000 shares of preferred stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by the Company's shareholders. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the market price of, and the
voting and other rights of, the holders of common stock. We have issued 100,00
shares of our convertible preferred stock for consideration of $25.0 million
with a liquidation preference that may be triggered by events such as a change
of control of our common stock and that is convertible into shares of common
stock as described in "Liquidity and Capital Resources", which may affect the
price an acquirer is willing to pay for our common stock.
ITEM 7A. 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, which seeks to
ensure the safety and preservation of our invested funds by limiting default
risk, market risk and reinvestment risk. The table below presents principal cash
flow amounts and related weighted-average interest rates by year of maturity for
our investment portfolio.
2002 2003 2004 Total Fair
---------- ---------- ---------- ---------- Value
(in thousands) -------
Cash equivalents
Fixed rate ......................................... $ 17,375 -- -- $ 17,375 $17,375
Average rate ....................................... 1.27% -- -- 1.27%
Short term marketable securities
Fixed rate ......................................... $ 4,306 -- -- $ 4,306 $ 4,306
Average rate ....................................... 1.98% -- -- 1.98%
---------- ---------- ---------- ---------- -------
Total Investment Securities ..................... $ 21,681 -- -- $ 21,681 $21,681
========== ========== ========== ========== =======
Average rate ....................................... 1.41% -- -- 1.41%
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 contains 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.
Our foreign currency hedging program is used to hedge our exposure to foreign
currency exchange risk on local international operational assets and
liabilities. 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. Realized and unrealized gains and losses on instruments that hedge
firm commitments are deferred and included in the measurement of the subsequent
transaction; however, losses are deferred only to the extent of expected gains
on future commitments.
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and Financial Statement Schedules as of June
30, 2002 and 2001 and for each of the three years in the period ended June 30,
2002 are included in Items 14(a)(1) and (2) included in this Annual Report on
Form 10-K.
Supplementary Financial Data is included under Item 6 in this Annual Report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning our directors is incorporated
by reference from the section captioned "Election of Directors" contained in our
Proxy Statement related to the Annual Meeting of Shareholders to be held on
November 15, 2002 to be filed by us with the Securities and Exchange Commission
within 120 days of the end of our fiscal year pursuant to General Instruction
G(3) of Form 10-K, referred to as the Proxy Statement. The information required
by this item concerning executive officers is set forth in Part I of this
Report. The information required by this item concerning compliance with Section
16(a) of the Exchange Act is incorporated by reference from the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" contained in
the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section captioned "Executive Compensation and Other Matters" contained in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
sections captioned "Compensation Committee Interlocks and Insider Participation"
and "Certain Transactions" contained in the Proxy Statement.
ITEM 14. CONTROLS AND PROCEDURES
Not Applicable.
44
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The financial statements (including the Notes thereto listed in the
Index to Consolidated Financial Statements (set forth in Item 8 of
Part II of this Form 10-K) are filed as part of this Annual Report on
Form 10-K.
(a)(2) Financial Statement Schedules
The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying Accounts
Additional schedules are not required under the related schedule
instructions or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
2.1 Share Purchase Agreement among Marc Tremblay, Alain Rivard,
Eric St-Pierre, Pierre Boivin, 9044-0108 Quebec Inc.,
Societe Innovatech Quebec et Chaudiere-Appalaches, Sofinov,
Societe Financiere d'Innovation Inc., Business Development
Bank of Canada, Christian Labbe, Patrick Murphy and certain
other shareholders named therein, Adept Technology Canada
Holding Co., and Registrant, dated July 21, 2000
(incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K/A filed with the
Securities and Exchange Commission on October 25, 2000).+
3.1 Amended and Restated Articles of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S- 1 (No.
33-98816) (the "1995 Form S-1")).
3.2 Certificate of Amendment of Articles of Incorporation of the
Registrant filed with the Secretary of State of California
on November 17, 2000 (incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1
(No. 333-48638)).
3.3 Bylaws of the Registrant, as amended to date (incorporated
by reference to Exhibit 3.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 2000)
(the "2000 Form 10-K")).
3.4 Statement of Preferences of Series A and Series B Preferred
Stock (incorporated by references to Exhibit 3.1 to the
Registrant's Form 10-Q for the fiscal quarter ended
September 29, 2001 (the "2002 First Quarter 10-Q")).
4.1 Form of Stock Certificate (incorporated by reference to
Exhibit 4.2 to the 1995 Form S-1).
4.2 Securities Purchase and Investor Rights agreement, dated
October 22, 2001, between the Registrant and JDS Uniphase
corporation (incorporated by to Exhibit 4.1 to the
Registrant's 2002 First Quarter 10-Q.
10.1* 1993 Stock Plan as amended, and form of agreement thereto
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on November 20, 2000,
No. 333-50292).
10.2* 1998 Employee Stock Purchase Plan as amended, and form of
agreements thereto (incorporated by reference to Exhibit 4.1
to the Registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on November 20,
2000, No. 333-50296).
45
10.3* 1995 Director Option Plan as amended, and form of agreement
thereto (incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-K for the fiscal year ended June 30,
1997 (the "1997 Form 10-K")).
10.4 Form of Indemnification Agreement between the Registrant and
its officers and directors (incorporated by reference to
Exhibit 10.5 to the 1995 Form S-1).
10.5 Office Building Lease between Registrant and Puente Hills
Business Center II dated May 20, 1993, as amended
(incorporated by reference to Exhibit 10.6.2 to the 1995
Form S-1).
10.6 Lease Agreement dated as of April 30, 1998 between the
Registrant and the Joseph and Eda Pell Revocable Trust dated
August 18, 1989 (incorporated by reference to Exhibit 10.9
to the 1998 Form 10-K).
10.7 Lease Agreement dated June 1, 1998 between the Registrant
and Technology Centre Associates LLC for the premises
located at 180 Rose Orchard Way, San Jose, California
(incorporated by reference to Exhibit 10.10 to the 1998 Form
10-K).
10.8 First Amendment to Lease Agreement dated June 1, 1998
between the Registrant and Technology Centre Associates LLC
dated July 31, 1998 (incorporated by reference to Exhibit
10.10.1 to the 1998 Form 10-K).
10.9 Lease Agreement dated June 1, 1998 between Registrant and
Technology Centre Associates LLC for the premises located at
150 Rose Orchard Way, San Jose, California (incorporated by
reference to Exhibit 10.2 to the Registrant's Form 10-Q for
the fiscal quarter ended September 30, 2000 (the "2001 First
Quarter Form 10-Q")).
10.11 Second Amendment to Lease Agreement dated March 31, 2000
between Registrant and Technology Centre Associates LLC
dated July 31, 1998 (incorporated by reference to Exhibit
10.10.3 to the 2000 Form 10-K).
10.12 First Addendum to Lease Agreement dated August 18, 1999
between Registrant and Joseph and Eda Pell Revocable Trust
dated August 18, 1989 (incorporated by reference to Exhibit
10.10.4 to the 2000 Form 10-K).
10.13 Lease Agreement dated April 28, 2000 between Registrant and
Michael and Diane Edwards for premises located in Tucson,
Arizona (incorporated by reference to Exhibit 10.10.5 to the
2000 Form 10-K).
10.14 Lease Agreement dated May 19, 2000 between NanoMotion Inc.
and United Insurance Co. of America for premises located at
Santa Barbara, California (incorporated by reference to
Exhibit 10.10.6 to the 2000 Form 10-K).
10.15** Agreement between Registrant and Altron Systems Corporation
(acquired by Sanmina Corporation) dated January 30, 1998
(incorporated by reference to Exhibit 10.27 to the
Registrant's Amended Annual Report on Form 10-K/A for the
fiscal year ended June 30, 2000 (the "2000 Form 10-K/A).
10.16 Agreement between Registrant and Ramix Incorporated dated
October 27, 1998 (incorporated by reference to Exhibit 10.28
to the 2000 Form 10-K/A).
10.17 Robot Module Purchase and Service Agreement between
Registrant and NSK Corporation dated January 19, 1995
(incorporated by reference to Exhibit 10.29 to the 2000 Form
10-K/A).
10.18** Original Equipment Manufacturer Agreement between Registrant
and Hirata Corporation dated January 31, 1995 (incorporated
by reference to Exhibit 10.31 to the 2000 Form 10-K/A).
10.19** Original Equipment Manufacturing Agreement between
Registrant and Samsung Electronics Co., LTD dated February
26, 1999 (incorporated by reference to Exhibit 10.32 to the
2000 Form 10-K/A).
46
10.20** Sublicense Agreement between SILMA Division of Registrant
and Adept Japan Co., LTD dated September 26, 2000
(incorporated by reference to Exhibit 10.33 to the 2000 Form
10-K/A).
10.21** Original Equipment Manufacturing Agreement between
Registrant and Yaskawa Electric Corp. dated August 29, 2000
(incorporated by reference to Exhibit 10.34 to the 2000 Form
10-K/A).
10.22 Industrial R&D Lease Agreement dated October 31, 2000
between Registrant and Tri-Valley Campus I, LLC for premises
located at Livermore, California (incorporated by reference
to Exhibit 10.1 to the 2001 First Quarter Form 10-Q).
10.23 Amendment No. 1 dated September 9, 1997 to Office Building
Lease between Registrant and Puente Hills Business Center II
dated May 20, 1993 (incorporated by reference to Exhibit
10.3 to the 2001 First Quarter Form 10-Q).
10.24 Amendment No. 2 dated June 17, 1998 to Office Building
Lease between Registrant and Puente Hills Business Center
II dated May 20, 1993 (incorporated by reference to Exhibit
10.4 to the 2001 First Quarter Form 10-Q). $10.25 10.25
First Amendment to Export-Import Bank of the United States
Working Capital Guarantee Program Borrower Agreement dated
April 5, 2001 between Registrant, the Export-Import Bank of
the United States and The CIT Group/Business Credit, Inc.
dated July 10, 2001. (incorporated by reference to Exhibit
10.34 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 2001 (the "2001 Form 10-K").
10.26 Export-Import Bank of the United States Working Capital
Guarantee Program Borrower Agreement dated April 5, 2001
between Registrant, the Export-Import Bank of the United
States and The CIT Group/Business Credit, Inc. (incorporated
by reference to Exhibit 10.35 to the 2001 Form 10-K).
10.27 Loan and Security Agreement (Non-Exim Facility) dated April
5, 2001 between Registrant and The CIT Group/Business
Credit, Inc. (incorporated by reference to Exhibit 10.36 to
the 2001 Form 10-K).
10.28 Loan and Security Agreement (Exim Facility) dated April 5,
2001 between Registrant and The CIT Group/Business Credit,
Inc. (incorporated by reference to Exhibit 10.37 to the 2001
Form 10-K).
10.29** Supply, Development and License Agreement dated October 22,
2002, between the Registrant and JDS Uniphase Corporation
(incorporated by reference to Exhibit 10.1 to the 2002 First
Quarter 10-Q).
10.30* 2001 Stock Option Plan (incorporated by reference to Exhibit
74.1 to the Registrant's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on October
11, 2001 (No. 333-71374).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney (See Signature Page to this Annual Report
on Form 10-K).
- ----------
* Management contract or compensatory plan or arrangement.
** Confidential treatment has been requested as to certain portions 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.
47
(b) Reports on Form 8-K.
On April 26, 2002, a Form 8-K was filed by Adept under Item 5 announcing
its financial results for its third fiscal quarter ended March 30, 2002.
On May 9, 2002, a Form 8-K was filed by Adept under Item 5announcing its
completion of the sale of its assets of the CimStation Inspection
business.
(c) Exhibits.
See Item 14(a)(3) above.
(d) Financial Statement Schedules.
See Item 14(a)(2) above.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
By: /s/ Michael W. Overby
-------------------------
Michael W. Overby
Vice President, Finance and
Chief Financial Officer
By: /s/ Brian R. Carlisle
-------------------------
Brian R. Carlisle
Chairman of the Board of Directors and
Chief Executive Officer
Date: September 16, 2002
49
CERTIFICATION
I, Brian R. Carlisle, Chairman of the Board of Directors and Chief Executive
Officer of Adept Technology, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Adept Technology,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report.
Date: September 16, 2002
By: /s/ Brian R. Carlisle
----------------------------------
Brian R. Carlisle
Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
50
I, Michael W. Overby, Vice President of Finance and Chief Financial Officer of
Adept Technology, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Adept Technology,
Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report.
Date: September 16, 2002
By: /s/ Michael W. Overby
-------------------------
Michael W. Overby
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
51
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brian R. Carlisle and Michael W. Overby and each
of them, his or her true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, or any of
them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Brian R. Carlisle Chairman of the Board of Directors and Chief September 16, 2002
- --------------------- Executive Officer (Principal Executive Officer)
(Brian R. Carlisle)
/s/ Michael W. Overby Vice President, Finance and Chief Financial September 16, 2002
- --------------------- Officer (Principal Financial and Accounting
(Michael W. Overby) Officer)
/s/ Bruce E. Shimano Vice President, Research and Development, September 16, 2002
-------------------- Secretary and Director
(Bruce E. Shimano)
/s/ Ronald E. F. Codd Director September 16, 2002
- ---------------------
(Ronald E. F. Codd)
/s/ Michael P. Kelly Director September 16, 2002
--------------------
(Michael P. Kelly)
/s/ Cary R. Mock Director September 16, 2002
----------------
(Cary R. Mock)
/s/ John E. Pomeroy Director September 16, 2002
-------------------
(John E. Pomeroy)
52
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADEPT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young, LLP, Independent Auditors......................... 54
Consolidated Balance Sheets at June 30, 2002 and June 30, 2001............. 55
Consolidated Statements of Operations for each of the three years
in the period ended June 30, 2002......................................... 56
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 2002......................................... 57
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended June 30, 2002............................. 58
Notes to Consolidated Financial Statements................................. 59
53
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Adept Technology, Inc.
We have audited the accompanying consolidated balance sheets of Adept
Technology, Inc. as of June 30, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 2002. Our audits also included the
financial statement schedule listed in the Index as Item 14(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Adept
Technology, Inc. at June 30, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2002, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements as a
whole, presents fairly in all material respects the information set forth
therein.
As described in Note 4, the Company has changed its method of accounting for
goodwill upon adoption of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets.
/s/ Ernst & Young LLP
San Jose, California
July 29, 2002
54
ADEPT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
2002 2001
--------- ---------
ASSETS (in thousands)
Current assets:
Cash and cash equivalents ............................................................... $ 17,375 $ 18,700
Short-term investments .................................................................. 4,306 2,800
Accounts receivable, less allowance for doubtful accounts of $832 in
2002 and $742 in 2001 .............................................................. 12,500 21,272
Inventories ............................................................................. 11,189 17,750
Deferred tax assets and other current assets ............................................ 854 2,069
--------- ---------
Total current assets ................................................................ 46,224 62,591
Property and equipment at cost ............................................................... 12,688 34,520
Less accumulated depreciation and amortization ............................................... 6,965 23,789
--------- ---------
Property and equipment, net .................................................................. 5,723 10,731
Goodwill ..................................................................................... 6,889 14,596
Other intangibles ............................................................................ 1,124 1,736
Other assets ................................................................................. 2,534 5,919
--------- ---------
Total assets ........................................................................ $ 62,494 $ 95,573
========= =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................................ $ 6,561 $ 10,369
Accrued payroll and related expenses .................................................... 2,463 5,267
Accrued warranty ........................................................................ 1,566 2,072
Deferred revenue ........................................................................ 637 2,061
Accrued restructuring charges ........................................................... 1,909 --
Other accrued liabilities ............................................................... 5,762 3,038
--------- ---------
Total current liabilities ........................................................... 18,898 22,807
Long term liabilities:
Restructuring charges ................................................................... 1,450 --
Deferred income tax and other long term liabilities ..................................... 1,242 1,284
Commitments and contingencies
Redeemable convertible preferred stock, no par value:
5,000 shares authorized, 100 shares issued and outstanding
at June 30, 2002; and none issued and outstanding at June 30, 2001
(liquidation preference - $25,000) ........................................................ 25,000 --
Shareholders' equity:
Preferred stock, no par value: 5,000 shares authorized, none issued and
outstanding ............................................................................. -- --
Common stock, no par value: 70,000 shares authorized, 14,051 shares issued
and outstanding in 2002, and 13,165 shares in 2001 ...................................... 107,384 103,138
Accumulated deficit ......................................................................... (91,480) (31,656)
--------- ---------
Total shareholders' equity .......................................................... 15,904 71,482
--------- ---------
Total liabilities, redeemable convertible preferred stock and shareholders'
equity ............................................................................ $ 62,494 $ 95,573
========= =========
See accompanying notes.
55
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
-----------------------------------------------
2002 2001 2000
--------- --------- ---------
(in thousands, except per share data)
Net revenues .............................................................. $ 57,039 $ 100,313 $ 99,212
Cost of revenues .......................................................... 37,868 65,303 56,173
--------- --------- ---------
Gross margin .............................................................. 19,171 35,010 43,039
Operating expenses:
Research, development and engineering ............................... 20,398 22,727 14,629
Selling, general and administrative ................................. 28,994 36,002 29,503
Restructuring charges ............................................... 17,659 -- --
Merger-related charges .............................................. -- -- 988
Amortization of goodwill and other intangibles ...................... 725 6,818 685
Impairment of goodwill .............................................. 6,608 -- --
Gain on sale of assets .............................................. (1,566) -- --
--------- --------- ---------
Total operating expenses .................................................. 72,818 65,547 45,805
--------- --------- ---------
Operating loss ............................................................ (53,647) (30,537) (2,766)
Interest income ........................................................... 441 745 1,031
Interest and other expense ................................................ 3 12 285
--------- --------- ---------
Loss before income taxes and cumulative effect of change in
accounting principle .................................................... (53,209) (29,804) (2,020)
Provision for (benefit from) income taxes ................................. (3,358) 5,396 (593)
--------- --------- ---------
Loss before cumulative effect of change in accounting principle ........... (49,851) (35,200) (1,427)
Cumulative effect of change in accounting principle ....................... (9,973) -- --
--------- --------- ---------
Net loss .................................................................. $ (59,824) $ (35,200) $ (1,427)
========= ========= =========
Basic and diluted net loss per share:
Before cumulative effect of change in accounting principle .......... $ (3.64) $ (3.02) $ (0.15)
Cumulative effect of change in accounting principle ................. (0.73) -- --
--------- --------- ---------
After cumulative effect of change in accounting principle ........... $ (4.37) $ (3.02) $ (0.15)
========= ========= =========
Number of shares used in computing per share amounts:
Basic ............................................................... 13,691 11,637 9,774
========= ========= =========
Diluted ............................................................. 13,691 11,637 9,774
========= ========= =========
See accompanying notes.
56
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
--------------------------------------
(in thousands)
2002 2001 2000
-------- -------- --------
Operating activities
Net loss ............................................................................. $(59,824) $(35,200) $ (1,427)
Adjustments to reconcile net loss to net cash used in operating activities:
Cumulative effect of change in accounting principle ............................... 9,973 -- --
Depreciation ...................................................................... 3,011 3,646 3,140
Amortization ...................................................................... 725 6,818 843
Asset impairment charges .......................................................... 9,167 -- --
Goodwill impairment ............................................................... 6,608 -- --
Provision for inventory ........................................................... -- 4,839 1,256
Deferred income taxes ............................................................. 134 4,971 (834)
(Gain) loss on disposal of property and equipment ................................. 461 37 (50)
Gain on sale of assets ............................................................ (1,566) -- --
Tax benefit from stock plans ...................................................... -- -- 591
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable ............................................................ 9,384 4,358 (5,581)
Inventories .................................................................... 3,469 (7,436) (4,846)
Other current assets ........................................................... 1,247 303 (152)
Other assets ................................................................... 1,986 (1,024) (1,279)
Accounts payable ............................................................... (4,114) (1,207) 3,695
Accrued expenses ............................................................... (3,506) (226) 2,071
Other accrued liabilities ...................................................... 1,301 803 (1,068)
Accrued restructuring charges .................................................. 3,359 -- --
-------- -------- --------
Net cash used in operating activities ............................................. (18,185) (19,318) (3,641)
-------- -------- --------
Investing activities
Business acquisitions ............................................................. (8,365) (7,050) (3,250)
Purchase of property and equipment ................................................ (1,475) (8,523) (2,406)
Proceeds from the sale of property and equipment .................................. -- -- 116
Proceeds from sale of assets ...................................................... 1,729 -- --
Purchases of short-term available-for-sale investments ............................ (35,906) (36,500) (44,117)
Sales of short-term available-for-sale investments ................................ 34,400 40,650 52,367
-------- -------- --------
Net cash (used in) provided by investing activities ............................... (9,617) (11,423) 2,710
-------- -------- --------
Financing activities
Proceeds from issuance of redeemable convertible preferred stock .................. 25,000 -- --
Proceeds from issuance of common stock, net ....................................... -- 32,424 --
Proceeds from employee stock incentive program and employee
Stock purchase plan, net of repurchases and cancellations ...................... 1,477 3,530 2,602
-------- -------- --------
Net cash provided by financing activities ......................................... 26,477 35,954 2,602
-------- -------- --------
Increase (decrease) in cash and cash equivalents ...................................... (1,325) 5,213 1,671
Cash and cash equivalents, beginning of period ........................................ 18,700 13,487 11,816
-------- -------- --------
Cash and cash equivalents, end of period .............................................. $ 17,375 $ 18,700 $ 13,487
======== ======== ========
Supplemental disclosure of noncash activities:
Inventory capitalized into property and equipment including related tax ............... $ -- $ -- $ 228
Issuance of common stock pursuant to terms of HexaVision and CHAD
acquisition agreements ............................................................... $ 2,769 $ -- $ --
Cash paid during the period for:
Interest ............................................................................. $ 5 $ 12 $ --
Taxes paid (refunded) ................................................................ $ (2,903) $ (264) $ 1,373
See accompanying notes.
57
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Common Stock Earnings/ Total
------------------------- (Accumulated Shareholders'
Shares Amount Deficit) Equity
-------- -------- -------- --------
(in thousands)
Balance at June 30, 1999 ................................. 9,459 $ 50,215 $ 4,971 $ 55,186
Common stock issued under employee stock
incentive program and employee
stock purchase plan ............................ 518 2,602 -- 2,602
Tax benefit from stock plans ...................... -- 591 -- 591
Common stock issued in connection with
acquisitions ................................... 700 13,776 -- 13,776
Net loss and comprehensive loss ................... -- -- (1,427) (1,427)
-------- -------- -------- --------
Balance at June 30, 2000 ................................. 10,677 $ 67,184 $ 3,544 $ 70,728
Common stock issued under employee stock
incentive program and employee stock
purchase plan .................................. 488 3,530 -- 3,530
Common stock issued in conjunction with
follow-on offering (less issuance
costs of $1,056) ............................... 2,000 32,424 -- 32,424
Net loss and comprehensive loss ................... -- -- (35,200) (35,200)
-------- -------- -------- --------
Balance at June 30, 2001 ................................. 13,165 $103,138 $(31,656) $ 71,482
Common stock issued under employee stock
incentive program and employee stock
purchase plan .................................. 555 1,477 -- 1,477
Common stock issued in connection with
acquisitions ................................... 331 2,769 -- 2,769
Net loss and comprehensive loss ................... -- -- (59,824) (59,824)
-------- -------- -------- --------
Balance at June 30, 2002 ................................. 14,051 $107,384 $(91,480) $ 15,904
======== ======== ======== ========
See accompanying notes.
58
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Adept Technology, Inc. ("Adept" or the "Company") was incorporated under the
laws of the state of California on June 14, 1983. The Company designs,
manufactures and sells factory automation components and systems for the food,
communications, automotive, appliance, semiconductor, photonics, and life
sciences industries throughout the world.
Basis of Presentation
The accompanying consolidated financial statements for the three-year period
ended June 30, 2002 include the accounts of Adept and its wholly owned
subsidiaries. All significant intercompany transactions and balances are
eliminated upon consolidation.
The notes to the Company's consolidated financial statements are for the three
year period ended June 30, 2002. Unless otherwise indicated, references to any
year in these Notes to Consolidated Financial Statements refer to the Company's
fiscal year ended June 30.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The Company applies Financial Accounting Standards Board Statement No. 52 ("SFAS
52"), "Foreign Currency Translation," with respect to its international
operations, which are sales and service entities. All monetary assets and
liabilities are remeasured at the current exchange rate at the end of the
period, nonmonetary assets and liabilities are remeasured at historical exchange
rates, and revenues and expenses are remeasured at average exchange rates in
effect during the period. A translation gain resulting from the process of
remeasuring foreign currency financial statements into U.S. dollars was $191,000
in 2002. Translation losses were $119,000, and $394,000 in 2001 and 2000,
respectively. Foreign currency transaction losses were $786,000, $326,000 and
$17,000 in 2002, 2001 and 2000, respectively.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Short-term investments
in marketable securities consist principally of debt instruments with maturities
between three and 12 months. Investments are classified as held-to-maturity,
trading, or available-for-sale at the time of purchase.
At June 30, 2002 and 2001, all of the Company's investments in marketable
securities were classified as available-for-sale and were carried at fair market
value, which approximated cost. Fair market value is based on quoted market
prices on the last day of the year. The cost of the securities is based upon the
specific identification method.
59
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30,
-----------------------
2002 2001
------- -------
(in thousands)
Cash and cash equivalents
Cash ...................................... $ 6,709 $ 2,747
Money market funds ........................ 10,666 15,953
------- -------
Cash and cash equivalents ...................... $17,375 $18,700
======= =======
Short-term investments
Certificates of deposit ................... $ 6 $ --
Auction rate securities ................... 4,300 2,800
------- -------
Short-term investments ......................... $ 4,306 $ 2,800
======= =======
Realized gains or losses, interest, and dividends are included in interest
income. Realized and unrealized gains or losses from available-for-sale
securities were not material in 2002, 2001, or 2000.
Comprehensive Income
For the three-year period ended June 30, 2002, there were no significant
differences between the Company's comprehensive loss and its net loss.
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 inventories are as follows:
June 30,
---------------------------
2002 2001
------- -------
(in thousands)
Raw materials .......................... $ 4,952 $ 7,397
Work-in-process ........................ 3,049 4,908
Finished goods ......................... 3,188 5,445
------- -------
$11,189 $17,750
======= =======
Loans to Employees
Loans to employees, which consist of amounts advanced to non-officer employees
of the Company in connection with employee relocation and retention, are
summarized as follows:
June 30,
-------------------
2002 2001
---- ----
(in thousands)
Short-term loans to employees .................... $ 25 $ 80
Long-term loans to employees ..................... 162 415
---- ----
$187 $495
==== ====
Short-term loans to employees are included in other current assets. Long-term
loans to employees are included in other assets.
60
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property and Equipment
Property and equipment are recorded at cost.
The components of property and equipment are summarized as follows:
June 30,
-------------------
2002 2001
------- -------
(in thousands)
Cost:
Machinery and equipment ........................... $ 3,042 $14,922
Computer equipment ................................ 5,806 14,779
Office furniture and equipment .................... 3,840 4,819
------- -------
12,688 34,520
Accumulated depreciation and amortization ......... 6,965 23,789
------- -------
Net property and equipment ........................ $ 5,723 $10,731
======= =======
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to five years.
Acquired Intangible Assets and Goodwill
Acquired intangible assets consist of purchased technology and non-compete
agreements related to the Company's acquisitions accounted for using the
purchase method. Prior to July 1, 2001, and the adoption of Statement of
Financial Accounting Standard No. 142, amortization of these acquired intangible
assets and goodwill was calculated on a straight-line basis over the following
estimated useful lives of the assets:
Purchased technology 2-4 years
Non-compete agreements 4 years
Goodwill 2-4 years
Effective July 1, 2001, goodwill is no longer amortized but rather is subject to
annual impairment tests (see Note 4 -- Effect of New Accounting Standards).
Long-Lived Assets
The Company periodically assesses the impairment of long-lived assets used in
operations, including acquired intangible assets and goodwill, in accordance
with the provisions of Statement of Financial Accounting Standards No. 121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. An impairment review is performed whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors the Company considers important which could trigger an
impairment review include, but are not limited to, significant under-performance
relative to historical or projected future operating results, significant
changes in the manner of use of the acquired assets or the strategy for the
Company's overall business, and significant industry or economic trends. When
the Company determines that the carrying value of the intangible assets and
goodwill may not be recoverable based upon the existence of one or more of the
above indicators, the Company measures any impairment based on a discounted
future cash flow method using a discount rate commensurate with the risk
inherent in its current business model. Effective July 1, 2002, impairment of
goodwill and impairment of other acquired intangible assets is being assessed
according to new accounting guidelines (see Note 4 - Effect of New Accounting
Standards).
Credit Facility
On April 9, 2001, the Company entered into agreements establishing a revolving
line of credit, consisting of two facilities, with the CIT Group/Business
Credit, Inc. to borrow up to the lesser of $25.0 million or the sum of 85% of
61
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
our 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.
Revenue Recognition
The Company recognizes product revenue in accordance with Staff Accounting
Bulletin No. 101, when persuasive evidence of a non-cancelable arrangement
exists, delivery has occurred and/or services have been rendered, the price is
fixed or determinable, collectibility is reasonably assured, legal title and
economic risk is transferred to the customer, and when an economic exchange has
taken place. If a significant portion of the price is due after the Company's
normal payment terms, which are 30 to 90 days from the invoice date, the Company
accounts for the price as not being fixed and determinable. In these cases, if
all of the other conditions referred to above are met, the Company recognizes
revenue as the invoice becomes due. For certain of the Company's products in
Japan where the Company maintains a pass-through arrangement with its reseller,
all revenue is deferred until the Company receives payment from the end user.
Revenue is otherwise deferred until these elements described above are met. The
Company provides for the estimated cost of product warranties at the time
revenue is recognized.
The Company recognizes software revenue, primarily related to its simulation
software products, in accordance with the American Institute of Certified Public
Accountants' Statement of Position 97-2 ("SOP 97-2") on Software Revenue
Recognition. License revenue is recognized on shipment of the product provided
that no significant vendor or post-contract support obligations remain and that
collection of the resulting receivable is deemed probable by management.
Insignificant vendor and post-contract support obligations are accrued upon
shipment of the licensed product. For software that is installed and integrated
by the customer, revenue is recognized upon shipment assuming functionality has
already been proven in prior sales and there are no customizations that would
cause a substantial acceptance risk. For software that is installed and
integrated by Adept, revenue is recognized upon customer signoff of a final
product acceptance form.
Service revenue includes training, consulting and customer support. Revenues
from training and consulting are recognized at the time the service is performed
and the customer has accepted the work.
For long-term, fixed contracts, the Company recognizes revenue and profit as
work progresses using the percentage-of-completion method, which relies on
estimates of total expected contract revenue and costs. The Company follows this
method as reasonably dependable estimates of the revenue and costs applicable to
various stages of a contract can be made. Recognized revenues and profit are
subject to revisions as the contract progresses to completion. Revisions in
profit estimates are charged to income in the period in which the facts that
give rise to the revision become known.
Deferred revenue primarily relates to software support contracts sold. The term
of the software support contract is generally one year, and Adept recognizes the
associated revenue on a pro rata basis over the life of the contract, or if
there are milestone payments, upon milestone achievement.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash equivalents, auction rate securities and
trade receivables. The Company places its cash equivalents and short-term
investments with high credit-quality financial institutions. The Company invests
its excess cash in commercial paper, readily marketable debt instruments and
collateralized funds of U.S., state and municipal government entities. Adept has
established guidelines relative to credit ratings, diversification and
maturities that seek to maintain safety and liquidity.
The Company manufactures and sells its products to system integrators, end users
and OEMs in diversified industries. The Company performs ongoing credit
evaluations of its customers and does not require collateral. However, the
Company may require customers to make payments in advance of shipment or to
provide a letter of credit. The Company provides reserves for potential credit
losses, and such losses have been within management's expectations.
62
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Amounts charged to bad debt expense were $319,000, $214,000 and $516,000 in
2002, 2001 and 2000, respectively.
Research, Development and Engineering Costs
Research, development and engineering costs, other than purchased computer
software and capital equipment, are charged to expense when incurred. The
Company received third party funding of $0 in 2002, $49,000 in 2001 and $309,000
in 2000. The Company has offset research, development and engineering expenses
by the third party funding as the Company retains the rights to any technology
that is developed.
Advertising Costs
Advertising costs are expensed in the period incurred. Advertising costs were
$161,000 in 2002, $307,000 in 2001, and $224,000 in 2000. The Company does not
incur any direct response advertising costs.
Income Taxes
The liability method is used to account for income taxes. Deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Stock-Based Compensation
The Company generally grants stock options to its employees for a fixed number
of shares with an exercise price equal to the fair market value of the stock on
the date of grant. As permitted under SFAS 123, Accounting for Stock-Based
Compensation, the Company has elected to follow Accounting Principles Board of
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for stock awards to employees. Accordingly, no
compensation expense is recognized in the Company's financial statements in
connection with employee stock awards where the exercise price of the award is
equal to the fair market value of the stock at the date of the award.
Net Income (Loss) Per Share
SFAS No. 128, "Earnings Per Share" ("EPS"), requires the presentation of basic
and diluted EPS. Basic EPS excludes dilution and is computed by dividing net
income (loss) available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then participates in the earnings of the Company. Dilutive
common equivalent shares consist of stock options calculated using the treasury
stock method.
New Accounting Pronouncements
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, Accounting for Asset Retirement Obligations ("SFAS 143"), effective for
fiscal years beginning after June 15, 2002, or July 1, 2002 for the Company.
SFAS 143 establishes accounting standards for the recognition and measurement of
an asset retirement obligation and its associated retirement cost. It also
provides accounting guidance for legal obligations associated with the
retirement of tangible long-lived assets. The Company does not believe the
adoption of SFAS 143 will have a material impact on the Company's financial
position or results of operations.
In August 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,
or July 1, 2002 for the Company. 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 asset held-for-sale and changes the reporting of
discontinued
63
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
operations. The Company does not believe that the adoption of SFAS 144 will have
a material impact on its financial position or results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 requires that any
gains or losses on extinguishment of debt that were classified as an
extraordinary item in prior periods that are not unusual in nature and
infrequent in occurrence be reclassified to other income (expense), beginning
fiscal 2003, with early adoption encouraged. The Company does not believe that
the adoption of SFAS 145 will have a material impact on its financial position
or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146"), which is effective for exit or disposal activities that are initiated
after December 31, 2002. SFAS 146, which nullifies EITF Issue no. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring),"
requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. The Company has not yet determined the impact that the
adoption of SFAS 146 will have on its financial position or results of
operations, if any.
Reclassifications
Certain amounts presented in the financial statements of prior years have been
reclassified to conform to the 2002 presentation.
2. Mergers and Acquisitions
During the three-year period ended June 30, 2002, Adept acquired five companies:
CHAD Industries Inc., HexaVision Technologies Inc., NanoMotion Incorporated,
Pensar-Tucson, Inc. and BYE/OASIS. These acquisitions are described below.
CHAD Industries Inc.
On October 9, 2001, Adept completed the acquisition of CHAD Industries, Inc.
(CHAD), a design and manufacturing company specializing in precision assembly
automation based in Orange, California. The acquisition of CHAD is the latest
step in Adept's ongoing photonics automation strategy. Adept leverages CHAD's
expertise in small part feeding, precision tooling design, and the handling of
odd-form components to add capacity in photonics automation. In addition, Adept
supports CHAD's line of odd-form component assembly machines. Adept acquired all
of the outstanding common shares of CHAD. The results of CHAD's operations have
been included in Adept's consolidated financial statements since October 9,
2001.
Under terms of the acquisition agreement, the purchase price of $10.1 million
includes an aggregate of $8.4 million in cash, $150,000 in transaction costs and
200,000 shares of Adept common stock valued at $1.6 million. The value of the
200,000 shares issued was determined based on the average closing price of
Adept's stock over the period of five trading days prior to June 27, 2001, the
date of entry into the definitive agreement. Of the $8.4 million in cash, $4.2
million was paid as of the closing date on October 9, 2001, and $2.6 million and
$1.6 million are to be paid on October 9, 2002, and 2003, respectively. These
future payments are not contingent upon the fulfillment of any employment or
other contingencies. In addition, Adept agreed to make cash payments of $242,000
and potential stock issuances consisting of 61,000 shares equal to approximately
$467,000 over a period of three years after the closing date to certain
specified employees of CHAD, which are contingent on the continued employment of
such employees. As such, those amounts have been appropriately excluded from the
purchase price and will be expensed as paid. This acquisition was accounted for
under the purchase method of accounting.
The purchase price of CHAD was allocated, based on an independent valuation, to
tangible assets, goodwill and other intangible assets. Goodwill represents the
excess of the purchase price of the net tangible and intangible assets acquired
over their fair value.
64
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the CHAD acquisition, below is a table of the acquisition cost and purchase
price allocation.
Acquisition Cost:
Cash paid on closing ...................................... $ 4,150
Cash paid after one year .................................. 2,592
Cash paid after two years ................................. 1,615
Stock issued at closing ................................... 1,556
Transaction costs ......................................... 150
-------
Total acquisition cost ................................. $10,063
=======
Purchase Price Allocation:
Net book value of assets acquired ......................... $ 553
Identified intangible assets .............................. 430
Goodwill .................................................. 9,080
-------
Total .................................................. $10,063
=======
The following unaudited pro forma summary results of operations data has been
prepared assuming that the CHAD acquisition had occurred at the beginning of the
period presented. The consolidated results are not necessarily indicative of the
results of future operations nor of results that would have occurred had the
acquisitions been consummated as of the beginning of the period presented.
(in thousands, except per share amounts) 2002 2001
--------- ---------
Net revenues ................................. $ 57,846 $ 106,113
Net loss ..................................... $ (60,179) $ (35,755)
Basic and diluted net loss per share ......... $ (4.39) $ (3.07)
HexaVision Technologies Inc.
On July 21, 2000, Adept acquired HexaVision Technologies Inc., now named Adept
Technology Canada Co. ("HexaVision"), a Canadian corporation. HexaVision was a
machine vision research and development company. Under the terms of the purchase
agreement, Adept initially paid $5.5 million in cash, which includes transaction
costs of $0.4 million, and issued shares of our common stock to the shareholders
of HexaVision with a value of $1.1 million. The acquisition of HexaVision has
been accounted for under the purchase method of accounting. Adept has included
the results of operations of HexaVision in Adept's results of operations
beginning July 21, 2000. On July 21, 2001, pursuant to the terms of the share
purchase agreement relating to the acquisition of HexaVision, Adept issued
116,000 shares of its common stock with a value of $1.1 million to the employees
and former shareholders of HexaVision and released $313,000 in cash from an
escrow account. On July 21, 2002, Adept made a second cash payment of $53,000
and released $1.4 million in cash from an escrow account to the employees and
former shareholders of HexaVision. The contingency payments made and shares
issued to the employees of HexaVision have been appropriately recorded as
operating expenses. The contingency payments made and shares issued to the
former shareholders of HexaVision have been allocated to goodwill and accounted
for as additional purchase price.
The purchase price of HexaVision was allocated, based on an independent
valuation, to tangible assets, goodwill and other intangible assets. Goodwill
represents the excess of the purchase price of the net tangible and intangible
assets acquired over their fair value. Other intangible assets primarily
represent developed technology and non-compete covenants. The allocation of the
purchase price is based upon an independent valuation of the assets and
liabilities of HexaVision.
For the HexaVision acquisition, below is a table of the acquisition cost and
purchase price allocation:
65
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands)
Acquisition Cost:
Cash ...................................................... $ 5,085
Transaction costs ......................................... 409
Contingency payments and share issuances:
Common stock ............................................. 794
Cash ..................................................... 1,267
-------
Total acquisition cost ................................. $ 7,555
=======
Purchase Price Allocation
Net liabilities assumed ................................... $ (629)
Developed and core technology ............................. 201
Goodwill .................................................. 7,983
-------
Total .................................................. $ 7,555
=======
The following unaudited pro forma summary results of operations data has been
prepared assuming that the HexaVision acquisition had occurred at the beginning
of the period presented. The consolidated results are not necessarily indicative
of the results of future operations nor of results that would have occurred had
the acquisitions been consummated as of the beginning of the period presented.
As the acquisition was completed on July 21, 2000, pro forma results for the
fiscal year ended June 30, 2001 would not differ materially from the actual
results.
(in thousands, except per share amounts) 2000
--------
Net revenues ............................................... $ 99,311
Net loss ................................................... $ (5,502)
Basic and diluted net loss per share ....................... $ (0.56)
NanoMotion
On May 31, 2000, the Company completed the acquisition of NanoMotion
Incorporated, a California corporation. NanoMotion was a manufacturer of
ultra-high precision positioning and alignment devices for nanometer-scale
movement, positioning and alignment for the fiber optic, semiconductor and
metrology, or precision machining, markets. In connection with the acquisition,
the Company issued 600,000 shares of its common stock valued at $21 per share to
the shareholders of NanoMotion which was the fair market value of Adept's common
stock at May 31, 2000, paid $250,000 in cash and incurred $46,000 in transaction
costs, resulting in a total purchase price of $12.9 million. The acquisition of
NanoMotion was accounted for as a purchase, and the financial results of
NanoMotion have been included in Adept's consolidated financial results since
May 31, 2000.
Pensar
On April 28, 2000, the Company completed the acquisition of Pensar-Tucson, Inc.,
an Arizona corporation. Pensar was a design and engineering company, which
integrates factory automation systems. In connection with the acquisition, the
Company issued 100,000 shares of its common stock valued at $11.75 per share to
the shareholders of Pensar, which was the fair market value of Adept's common
stock at April 28, 2000. In addition, the Company paid $3.0 million in cash and
incurred $37,000 in transaction costs, resulting in a total purchase price of
$4.2 million. The acquisition was accounted for as a purchase. The financial
results of Pensar have been included in Adept's financial results since April
28, 2000. In March 2002, the Company closed its Tucson operations and wrote off
all related assets obtained in the acquisition of Pensar-Tucson, Inc. since
these assets have no future value to the Company.
The purchase prices of NanoMotion and Pensar were allocated, based on an
independent valuation, to goodwill and other intangible assets. Goodwill
represents the excess of the purchase price of the net tangible and intangible
assets acquired over their estimated fair value. Other intangible assets
primarily represent developed technology.
66
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the NanoMotion and Pensar acquisitions, below is a table of the acquisition
cost and purchase price allocation, in thousands:
Acquisition Cost:
Common stock .............................................. $ 13,776
Cash ...................................................... 3,250
Transaction costs ......................................... 83
--------
Total acquisition cost ............................... $ 17,109
========
Purchase Price Allocation:
Net tangible assets ...................................... $ 230
Developed and core technology ........................... 1,120
Non-compete covenant .................................... 380
Goodwill ................................................ 16,138
Deferred tax liability .................................. (759)
--------
Total ................................................ $ 17,109
========
BYE/OASIS
On July 16, 1999, the Company completed the acquisition of BYE/OASIS
Engineering, Inc., a Texas corporation. BYE/OASIS was a leading manufacturer of
environmental filtering and control systems and wafer cassette handling devices
for the microelectronics industry. In connection with the acquisition, the
Company issued 720,008 shares of its common stock to the shareholders of
BYE/OASIS. In addition, the Company assumed outstanding options to acquire
BYE/OASIS shares, which were converted into options to acquire 185,361 shares of
Adept's common stock. The acquisition was accounted for using the pooling of
interests method and accordingly all prior period consolidated financial
statements have been restated to include the combined results of operations,
financial position and cash flows of BYE/OASIS. The Company incurred charges of
$988,000 relating to the acquisition of BYE/OASIS and the closure of BYE/OASIS
facilities in Texas. Included in this amount were merger-related expenses of
$558,000, expenses relating to the closure of facilities in Texas of $195,000,
and other expenses relating to the acquisition of $235,000.
Prior to the merger, BYE/OASIS's fiscal year ended on September 30. BYE/OASIS's
prior period financial statements have been restated to conform to Adept's
year-end.
The following information presents certain income statement data of the separate
companies for the periods preceding the merger:
(in thousands) 1999
--------
Net sales
Adept .................................................. $ 82,027
BYE/OASIS .............................................. 5,347
--------
Total sales ......................................... $ 87,374
========
Net (loss) income
Adept .................................................. $ 2,622
BYE/OASIS .............................................. (111)
--------
Total net income (loss) ............................. $ 2,511
========
Revenue generated for the period from July 1, 1999 through July 16, 1999 (date
of acquisition) was not significant.
3. Restructuring Charges
During the year ended June 30, 2002, Adept implemented a plan to restructure
certain of its operations across all three of its reportable business segments.
Adept adopted a restructuring plan during the three months ended September 30,
2001 and due to market conditions, was required to implement additional
restructuring measures during the third quarter of fiscal 2002. The Company has
recorded total restructuring charges of $17.7 million, related to the exiting of
certain non-strategic product lines, the consolidation of excess manufacturing
and support
67
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
facilities and reduction in workforce. Of the $17.7 million restructuring
charge, Adept recorded $5.3 million in the three months ended March 30, 2002 and
$12.4 million in the three months ended September 30, 2001.
The restructuring charges include employee severance costs, lease commitments
for idle facilities and asset impairment charges and are as follows:
Amounts Amounts Amounts Amounts
Utilized Utilized Utilized Utilized Balance
Q1 Fiscal Q2 Fiscal Q3 Fiscal Q4 Fiscal June 30,
(in thousands) Charges 2002 2002 2002 2002 2002
------- ------- ------- ------- ------- -------
Employee severance costs ........... $ 1,692 $ 555 $ 370 $ 187 $ 454 $ 126
Lease commitments .................. 6,800 186 94 2,909 472 3,139
Asset impairment charges ........... 9,167 5,601 -- 3,472 -- 94
------- ------- ------- ------- ------- -------
Total ........................... $17,659 $ 6,342 $ 464 $ 6,568 $ 926 $ 3,359
======= ======= ======= ======= ======= =======
Employee severance costs of $1.7 million represent a reduction of approximately
114 employees in most functional areas across all three of the reportable
business segments and at June 30, 2002 all of the affected employees have ceased
employment with the Company. Lease commitments of $6.8 million result from 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. The consolidation of these facilities
has resulted in operating lease commitments in excess of the Company's current
and projected needs for leased properties. Asset impairment charges of $9.2
million consist of $6.6 million in abandoned assets resulting from the exiting
of certain non-strategic product lines and goodwill and other intangible assets
write-off of $2.6 million. The goodwill and other intangible assets written off
resulted from the Company's acquisition of Pensar-Tucson in April 2000, which no
longer has value to the Company due to the closure of its Tucson, Arizona
operations in March 2002. At June 30, 2002, the long term accrued restructuring
charges relate to future rent commitments on non-cancelable lease agreements.
4. Effect of New Accounting Standards - Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"), and No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Adept has adopted SFAS 141,
and this adoption did not have a material effect on Adept'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.
Other intangible assets with finite lives will be amortized over those useful
lives. SFAS 142 requires that the first of two impairment tests be completed
within six months of adoption. Adept implemented SFAS 142 on July 1, 2001 and
completed the measurement of the impairment loss in the third quarter of fiscal
2002. An impairment loss of $10.0 million resulting from the adoption of SFAS
142 was recorded as a cumulative effect of a change in accounting principle as
of July 1, 2001. SFAS 142 requires goodwill and intangible assets to be
evaluated for impairment at least annually and we have chosen April 1, as the
annual date to conduct this evaluation. As of April 1, 2002 Adept recorded an
impairment loss of $6.6 million as a component of operating expenses as a result
of the annual impairment update. The impairment charges are determined using a
fair value approach, using the discounted cash flow method.
Prior to the adoption of SFAS 142, amortization expense was recorded for
goodwill and other intangible assets. The following sets forth a reconciliation
of net income and earnings per share information for the fiscal years 2002,
2001and 2000 adjusted for the non-amortization provisions of SFAS 142.
68
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal year ended
--------------------------------------------------------
(in thousands) June 30, 2002 June 30, 2001 June 30, 2000
------------- ------------- -------------
Net loss before cumulative effect of change
in accounting principle .......................................... $(49,851) $(35,200) $ (1,427)
Add back goodwill amortization ...................................... -- 6,097 685
-------- -------- --------
Adjusted net income ................................................. $(49,851) $(29,103) $ (742)
Cumulative effect of change in accounting principle ................. (9,973) -- --
-------- -------- --------
Net loss after cumulative effect of change
in accounting principle .......................................... $(59,824) $(29,103) $ (742)
Weighted average shares outstanding:
Basic ............................................................ 13,691 11,637 9,774
======== ======== ========
Diluted .......................................................... 13,691 11,637 9,774
======== ======== ========
Basic and diluted earnings per common share:
Reported loss before cumulative effect of
change in accounting principle .................................... $ (3.64) $ (3.02) $ (0.15)
Add back goodwill amortization ...................................... -- 0.05 0.07
-------- -------- --------
Adjusted loss before cumulative effect of
change in accounting principle .................................... $ (3.64) $ (2.97) $ (0.08)
Cumulative effect of change in accounting principle ................. (0.73) -- --
-------- -------- --------
Adjusted net loss ................................................... $ (4.37) $ (2.97) $ (0.08)
======== ======== ========
Acquired Intangible Assets
In accordance with SFAS 142, the following is a summary of the gross carrying
amount and accumulated amortization, aggregate amortization expense, and
estimated amortization expense for the next five succeeding fiscal years related
to the intangible assets subject to amortization.
(in thousands) As of June 30, 2002
-----------------------------------------------
Gross Carrying Accumulated Net Carrying
Amortized intangible assets Amount Amortization Amount
Developed technology .......... $ 1,751 $ (809) $ 942
Non-compete agreements ........ 380 (198) 182
------- ------- -------
Total ...................... $ 2,131 $(1,007) $ 1,124
======= ======= =======
The aggregate amortization expense for year ended June 30, 2002 totaled $725,000
and the estimated amortization expense for the next five years are as follows:
(in thousands) Amount
------
For fiscal year ended 2003 $ 565
For fiscal year ended 2004 487
For fiscal year ended 2005 72
------
$1,124
======
Goodwill
Consistent with the guidance of SFAS 142, Adept has chosen to apply the income
approach as its primary indicator of value. Adept has also utilized the market
approach to confirm the reasonableness of the value indicated by the income
approach. The specific methodologies employed included the discounted cash flow
method and the comparable company approach. Based on the impairment analysis as
of July 1, 2001, the fair values of the goodwill of the Nanomotion and
HexaVision reporting units were less than their respective carrying values.
Accordingly, there was evidence of goodwill impairment in both reporting units.
Adept reported the $10.0 million impairment as the cumulative effect of change
in accounting principle upon the adoption of SFAS 142.
69
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Additionally, as a result of the closure of Adept's Tucson, Arizona operations
in March 2002, management determined that the goodwill related to the
Pensar-Tucson acquisition in April 2000 was impaired and recorded a goodwill
impairment loss of $2.5 million during the three months ended March 30, 2002.
In the fourth quarter of 2002, Adept performed the annual impairment update,
which resulted in a goodwill impairment of $6.6 million. This impairment
primarily results from declines in market conditions subsequent to the
acquisition of CHAD in October 2001. This impairment was recorded as a component
of operating expenses as required by SFAS 142.
The changes in the carrying amount of goodwill for the year ended June 30, 2002
are as follows:
(in thousands) Nanomotion HexaVision Pensar CHAD Totals
---------- ---------- -------- -------- --------
Balance at June 30, 2001 ...................... $ 8,542 $ 3,599 $ 2,455 $ -- $ 14,596
Additions to goodwill ......................... 125 2,124 -- 9,080 11,329
Cumulative effect of change
in accounting principle .................... (8,667) (1,306) -- -- (9,973)
Impairment of goodwill ........................ -- (2,023) -- (4,585) (6,608)
Goodwill write-off related
to closure of manufacturing facility ....... -- -- (2,455) -- (2,455)
-------- -------- -------- -------- --------
Balance at June 30, 2002 ...................... $ -- $ 2,394 $ -- $ 4,495 $ 6,889
======== ======== ======== ======== ========
The Nanomotion, HexaVision, Pensar and CHAD reporting units all fall in the AMH
segment.
5. Derivative Financial Instruments
A foreign currency hedging program is used to hedge the Company's exposure to
foreign currency exchange risk on international operational assets and
liabilities. Realized and unrealized gains and losses on forward currency
contracts that are effective as hedges of assets and liabilities are included
under selling, general and administrative expenses in the consolidated statement
of operations. A loss of $728,000 was recognized for the year ended June 30,
2002 and a gain of $322,000 was recognized for the year ended June 30, 2001.
Realized and unrealized gains and losses on instruments that hedge firm
commitments are deferred and included in the measurement of the subsequent
transaction; however, losses are deferred only to the extent of expected gains
on the future commitment at June 30, 2002. The Company has deferred recognition
of a transaction loss of $83,500, relating to foreign exchange contracts. The
Company realized this transaction loss in the first quarter of fiscal 2003, as
an offset to the related foreign exchange gain.
6. Commitments and Contingencies
Commitments
Future minimum lease payments under non-cancelable operating leases are as
follows:
(in thousands) Leases
-------
Fiscal Year
2003 ................................................... $ 8,036
2004 ................................................... 6,727
2005 ................................................... 5,360
2006 ................................................... 4,991
2007 ................................................... 4,903
Later years ............................................ 27,569
-------
Total minimum lease payments ............................. $57,586
=======
Rent expense was $6.4 million in 2002. The Company did not record any sublease
income during fiscal 2002. Rent expense, net of sublease income of $16,000 and
$18,480, was $4.1 million in 2001 and $3.0 million in 2000, respectively.
70
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingencies
Some end users of the Company's products have notified the Company that they
have received a claim of patent infringement from the Jerome H. Lemelson
Foundation, alleging that their use of the Company's machine vision products
infringes certain patents issued to Mr. Lemelson. In addition, the Company has
been notified that other end users of the Company's 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. Certain end users have notified the
Company that they may seek indemnification from the Company for damages or
expenses resulting from this matter. The Company cannot predict the outcome of
this or any similar litigation, which may arise in the future. However, the
Company believes the ultimate resolution of these matters will not have a
material adverse effect on its financial position, results of operations or cash
flows.
The Company has from time to time received communications from third parties
asserting that the Company is infringing certain patents and other intellectual
property rights of others, or seeking indemnification against alleged
infringement. While it is not feasible to predict or determine the likelihood or
outcome of any actions brought against it, the Company believes the ultimate
resolution of these matters will not have a material adverse effect on its
financial position, results of operations or cash flows.
7. Redeemable Convertible Preferred Stock
On October 29, 2001 and in connection with the signing of a joint development
agreement, Adept completed a private placement with an accredited investor of
$25.0 million in Adept convertible preferred stock consisting of 78,000 shares
of Series A Convertible Preferred Stock (the "Series A Preferred") and 22,000
shares of Series B Convertible Preferred Stock (the "Series B Preferred"),
collectively (the "Preferred Stock"). Both the Series A Preferred and the Series
B Preferred are entitled to annual dividends at a rate of $15 per share.
Dividends are cumulative and are payable only in the event of certain liquidity
events as defined in the designation of preferences of the Preferred Stock, such
as a change of control or a liquidation or dissolution of the Company. No
dividends on its common stock may be paid until dividends for the fiscal year
and any prior years on the Preferred Stock have been paid or set apart, and the
Preferred Stock will participate in any dividends paid to the common stock on an
as-converted basis. The Preferred Stock may be converted into shares of Adept's
common stock at any time after the earlier of the first anniversary of the
original issue date, the public announcement of a liquidity event, or an event
of default, such as bankruptcy, or the reporting by the Company of a cash
balance of less than $15.0 million at the end of any fiscal quarter through
September 30, 2002, and, in the absence of a liquidity event or earlier
conversion or redemption, will be converted into common stock upon the third
anniversary of the original issue date. The Preferred Stock may be converted
into shares of Adept's Common Stock at a rate of the initial purchase price
divided by a denominator equal to the lesser of $8.18, or 75% of the 30 day
average closing price of Adept common stock immediately preceding the conversion
date ("Conversion Date Price"), provided, however, that as waived by the
preferred stockholder, in no event shall the denominator for the determination
of the conversion rate with respect to the Series B Preferred be less than $4.09
and with respect to the Series A Preferred be less than $2.05 other than in
connection with certain liquidity events that are not approved by the Board of
Directors of Adept. The Series A Preferred and the Series B Preferred shall not
be convertible, in the aggregate, into 20% or more of the outstanding voting
securities of Adept. No holder of Preferred Stock may convert shares of
Preferred Stock if, after the conversion, the holder will hold 20% or more of
the Company's outstanding voting securities. Shares not permitted to be
converted remain outstanding, unless redeemed, and become convertible when such
holder holds less than 20% of the Company's outstanding voting securities. The
Preferred Stock has voting rights equal to the number of shares into which the
Preferred Stock could be converted subject to terms of the designation of
preferences assuming a conversion rate of $250.00 divided by $8.18.
Adept has the right, but not the obligation at any time, to redeem shares of
Series A Preferred which, if converted, would result in the issuance of shares
of common stock using a denominator of $2.05 for determination of the conversion
rate less the number of shares of common stock issuable using a denominator of
$4.09 for determination of the conversion rate. The redemption price is equal to
the sum of the initial Preferred Stock price, plus all cumulated and unpaid
dividends. The redemption shall be paid in the form of a senior unsecured
promissory note bearing interest at a rate of 6% per annum, maturing in two
years. If Adept redeems shares of Preferred Stock using a promissory note, any
indebtedness incurred while the note is outstanding must be subordinated to the
note,
71
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
other than certain ordinary course financings. In addition, the holders of the
Preferred Stock are entitled to receive, upon liquidation, the amount equal to
$250.00 per share (adjusted for any stock splits or stock dividends) plus any
unpaid dividends. The liquidation preference may be triggered by several events,
including a change in control of Adept. Since such a change may be outside of
management's control and would trigger the redemption of the preferred stock,
the Preferred Stock are classified outside of shareholders' equity as redeemable
convertible preferred stock in the accompanying consolidated balance sheet.
At June 30, 2002, Adept completed two of five quarterly expenditures of $1.0
million, which are being made pursuant to the joint development agreement with
the accredited investor. At June 30, 2002, the remaining quarterly expenditures
of $1.0 million are to be made over the next three quarters for a total of $3.0
million.
8. Shareholders' Equity
Preferred Stock
The Board of Directors has the authority to issue, without further action by the
shareholders, up to 5,000,000 shares of preferred stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by the Company's shareholders. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the market price of, and the
voting and other rights of, the holders of common stock. This amount has been
reduced by 100,000 shares, which have reserved as redeemable convertible
preferred stock in connection with the Company's joint development agreement
with an accredited investor.
Common Stock
In August 2000, the Board of Directors amended the Company's Restated Articles
of Incorporation, approving an increase in the number of authorized shares of
its common stock from 25.0 million to 70.0 million shares. The shareholders
approved this amendment on November 10, 2000.
The Company has reserved shares of common stock for future issuance at June 30,
2002 as follows:
(in thousands)
Stock options outstanding ........................................ 3,338
Stock options available for grant ................................ 2,688
Conversion of redeemable convertible Preferred Stock ............. 3,056
Employee stock purchase plan shares issued ....................... 1,061
Employee stock purchase plan shares available for purchase ....... 496
------
10,639
======
Follow-on offering
On February 18, 2001, the Company completed a public offering of its common
stock. The Company sold a total of two million shares of common stock at a price
of $18.00 per share. The offering resulted in net proceeds to the Company of
approximately $32.4 million, net of an underwriting discount of $2.5 million and
offering expenses of $1.1 million.
Stock Option Plans
The Company's 1993 Stock Plan (the "1993 Plan") was adopted by the Board of
Directors in April 1993 and approved by the shareholders of the Company in June
1993. The 1993 Plan provides for grants of incentive stock options to employees
(including officers and employee directors) and nonstatutory stock options to
employees (including officers and employee directors) and consultants of the
Company. In general, options and common stock purchased pursuant to stock
purchase rights granted under the 1993 Plan vest and become exercisable starting
one year after the date of grant, with 25% of the shares subject to the option
exercisable at that time and an additional
72
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1/48th of the shares subject to the option becoming exercisable each month
thereafter. Upon the voluntary or involuntary termination of employment
(including as a result of death or disability) by a holder of unvested shares of
the Company's common stock purchased pursuant to stock purchase rights granted
under the 1993 Plan, the Company may exercise an option to repurchase such
shares at their original issue price. The terms of the options granted under the
1993 Plan generally may not exceed ten years. The Board of Directors determines
the exercise price of the options, which must be at least equal to the fair
market value of the common stock on the date of grant.
On August 12, 1999, the Board of Directors authorized an increase of one million
shares issuable under the 1993 Plan, which was approved by the shareholders in
November 1999. In August 2000, the 1993 Plan was amended by the Board of
Directors to increase the number of shares authorized for issuance under the
1993 Plan by an additional one million shares. This amendment was approved by
the Company's shareholders on November 10, 2000.
The Company's 1995 Director Option Plan (the "Director Plan") was adopted by the
Board of Directors and approved by the shareholders of the Company in October
1995. The option grants under the Director Plan are automatic and
nondiscretionary, and the exercise price of the options is at the fair market
value of the Company's common stock on the date of grant. A total of 150,000
shares of common stock has been reserved for issuance under the Director Plan.
During each of the years in the two-year period ended June 30, 2002, 12,000
options were granted and no options were exercised.
The options may be exercised at the time or times determined by the Board of
Directors.
On August 9, 2001, the Board of Directors adopted the 2001 Stock Option Plan
(the "2001 Plan") and provided that 2,600,000 shares of common stock be reserved
for issuance under the 2001 Plan. Options under the 2001 Plan may be granted to
employees either from time to time at the discretion of the Compensation
Committee of the Board of Directors or automatically upon the occurrence of
specified events, including, without limitation, reduction of at will employees'
salaries and the achievement of performance goals. The exercise price of the
options is at the fair market value of the Company's common stock on the date of
the grant. Options generally vest over a time period specified by the
Compensation Committee. However, at the Compensation Committee's discretion,
options granted for reduction of at will employees' salaries will vest in equal
monthly increments over the salary reduction period. All stock options granted
under the 2001 Plan have an expiration date of 10 years from the date of the
grant.
The following table summarizes option activities under the Company's stock
option plans:
Options
------------------------------------------------------------------
Available No. of Shares Aggregate Weighted Average
for Grant Outstanding Price Exercise Price
--------- ------------- --------- ---------------
(in thousands, except per share data)
Balance at June 30, 1999 ............................ 614 1,404 9,498 6.76
Additional shares authorized ...................... 1,000 -- -- --
Granted ........................................... (845) 845 5,765 6.83
Canceled .......................................... 197 (197) (1,268) 6.45
Exercised ......................................... -- (308) (1,518) 4.92
----- ----- -------- ------
Balance at June 30, 2000 ............................ 966 1,744 $ 12,477 $ 7.15
===== ===== ======== ======
Additional shares authorized ...................... 1,000 -- -- --
Granted ........................................... (844) 844 16,285 19.29
Canceled .......................................... 122 (122) (2,584) 21.18
Exercised ......................................... -- (252) (1,370) 5.44
----- ----- -------- ------
Balance at June 30, 2001 ............................ 1,244 2,214 $ 24,808 $11.21
===== ===== ======== ======
Additional shares authorized ...................... 2,600 -- -- --
Granted ........................................... (1,619) 1,619 5,852 3.61
Canceled .......................................... 463 (463) (4,594) 9.92
Exercised ......................................... -- (32) (120) 3.74
----- ----- -------- ------
Balance at June 30, 2002 ............................ 2,688 3,338 $ 25,946 $ 7.77
===== ===== ======== ======
The following table summarizes information concerning outstanding and
exercisable options at June 30, 2002:
73
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
- ----------------- ----------- ----------- --------- ----------- ----------
$ 0.34 - $ 2.45 46,116 7.09 $ 1.30 27,366 $ 0.51
$ 2.79 - $ 2.84 496,853 9.84 $ 2.79 9,855 $ 2.79
$ 3.26 - $ 4.64 909,352 9.07 $ 3.72 430,379 $ 3.55
$ 5.56 - $ 7.00 786,502 6.07 $ 6.39 675,214 $ 6.43
$ 7.03 - $ 8.40 354,540 8.39 $ 7.71 131,869 $ 7.58
$ 9.00 - $13.81 338,765 7.37 $ 10.31 188,627 $ 10.69
$14.75 - $24.50 381,765 8.09 $ 22.80 176,598 $ 24.12
$37.00 - $49.75 23,812 8.21 $ 47.40 10,577 $ 47.31
--------- ---------
$ 0.34 - $49.75 3,337,705 8.09 $ 7.77 1,650,485 $ 8.15
========= =========
Employee Stock Purchase Plan
The 1998 Employee Stock Purchase Plan (the "1998 ESPP") has overlapping 12-month
offering periods that begin every six months, starting on the first trading day
on or after May 1 and November 1 of each year. Each 12-month offering period is
divided into two six-month purchase periods. The plan allows eligible employees,
through payroll deductions, to purchase shares of the Company's common stock at
85% of fair market value on either the first day of the offering period or the
last day of the purchase period, whichever is lower. The plan includes a
provision for an annual automatic increase in the number of shares reserved for
issuance by the lesser of (i) 300,000, (ii) 3% of common stock outstanding on
the last day of the prior fiscal year, or (iii) a lesser amount as may be
determined by the Board of Directors.
In May 2000, the Board approved an amendment to the 1998 ESPP for 24-month
offering periods including four six-month purchase periods, effective May 1,
2001 and approved an amendment to the 1998 ESPP to provide for an annual
automatic increase in the number of shares reserved for issuance by the lesser
of (i) 600,000, (ii) 3% of common stock outstanding on the last day of the prior
fiscal year, or (iii) a lesser amount as may be determined by the Board of
Directors.
As of June 30, 2002, 1,061,000 shares of the Company's common stock were issued
under the 1998 ESPP and 496,000 shares remain unissued under the 1998 ESPP.
Stock Based Compensation
At June 30, 2002, the Company had four stock-based compensation plans as
described above. The Company applies APB 25 and related interpretations in
accounting for its compensation plans. Accordingly, no compensation cost has
been recognized for its fixed stock option plans and its ESPP. If compensation
cost for the Company's stock-based compensation plans had been determined
consistent with SFAS 123, the Company's net income (loss) and net income (loss)
per share would have been adjusted to the pro forma amounts indicated below:
(in thousands, except per share data) June 30,
-------------------------------------------
2002 2001 2000
-------- -------- -------
Net (loss) income
As reported ............................................................ ($59,824) ($35,200) ($1,427)
Pro forma ............................................................. ($67,196) ($43,165) ($5,532)
Basic and diluted net (loss) income per share
As reported ............................................................ ($ 4.37) ($ 3.02) ($ 0.15)
Pro forma ............................................................. ($ 4.91) ($ 3.71) ($ 0.57)
Because the method of accounting prescribed by SFAS 123 has not been applied to
options granted prior to July 1, 1995 and future years will include the impact
of future stock option grants, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
74
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for grants during the years ended June 30, 2002, 2001 and 2000:
risk-free interest rates of 4.10% for 2002, 3.83% for 2001 and 6.04% for 2000; a
dividend yield of 0% for all three years; a weighted-average expected life of
7.86 years for 2002, 8.6 years for 2001 and 3.1 years for 2000; and a volatility
factor of the expected market price of the Company's common stock of 1.74 for
2002, 1.54 for 2001 and 1.02 for 2000. The weighted average grant date fair
value of options was $3.53 for options granted in 2002, $18.86 in 2001 and $6.65
in 2000.
Compensation cost is estimated for the fair value of the employees' purchase
rights under the ESPP using the Black-Scholes model with the following
assumptions for rights granted in 2002, 2001 and 2000: a dividend yield of 0%
for all three years; expected life of six months for all three years; expected
volatility of 2.17 for 2002, 1.17 for 2001 and 1.02 for 2000; and a risk-free
interest rate of 4.63% for 2002, 5.6% for 2001 and 5.81% for 2000. The weighted
average fair market value of the purchase rights granted was $4.38 for rights
granted in 2002, $8.19 in 2001 and $3.35 for 2000.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
9. Employee Savings and Investment Plan
The Company maintains a 401(k) savings and investment plan in which employees
are eligible to participate. The Company suspended its 401K matching
contributions to reduce costs beginning in January 2002. The Company's matching
contributions were $255,000, $600,000 and $274,000 for fiscal years 2002, 2001
and 2000, respectively.
10. Income Taxes
The provision for (benefit from) income taxes consists of the following:
(in thousands) Year Ended June 30,
------------------------------
2002 2001 2000
------- ------- -------
Current:
Federal ................................... $ -- $ -- $ 161
State ..................................... -- -- (86)
Foreign ................................... 243 425 166
------- ------- -------
Total current ............................... 243 425 241
Deferred:
Federal ................................... (3,601) 4,033 (515)
State ..................................... -- 938 (319)
------- ------- -------
Total deferred .............................. (3,358) 4,971 (834)
------- ------- -------
Provision for (benefit from) income taxes ... $(3,358) $ 5,396 $ (593)
======= ======= =======
The difference between the provision for (benefit from) income taxes and the
amount computed by applying the federal statutory income tax rate to (loss)
income before provision for (benefit from) income taxes is explained below:
75
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands) Year Ended June 30,
----------------------------------------------
2002 2001 2000
-------- -------- --------
Tax at federal statutory rate .................................. $(21,487) $(10,133) $ (687)
State taxes, net of federal benefit ............................ (1,248) (1,387) (33)
Foreign taxes .................................................. 502 436 441
Tax credits .................................................... 129 (1,082) (791)
Merger and acquisition related expenses ........................ 5,547 1,373 255
Non-deductible meals, entertainment and exchange losses ........ 124 65 125
Change in valuation allowance ................................... 13,025 16,179 --
Other .......................................................... 50 (55) 97
-------- -------- --------
Provision for (benefit from) income taxes ...................... $ (3,358) $ 5,396 $ (593)
======== ======== ========
Significant components of the Company's deferred tax assets and liabilities are
as follows:
(in thousands) June 30,
------------------------
2002 2001
-------- --------
Deferred tax assets:
Net operating loss carryforwards ..................................... $ 16,318 $ 7,469
Tax credit carryforwards ............................................. 4,910 2,813
Inventory valuation accounts ......................................... 2,337 3,239
Warranty accruals .................................................... 603 799
Depreciation /amortization ........................................... 2,031 910
Other accruals not currently deductible for tax purposes ............. 2,575 3,275
Capitalized research and development expenses ........................ 1,944 660
Other ................................................................ 1,530 192
-------- --------
Total deferred tax assets ............................................ 32,248 19,357
Valuation allowance .................................................. (31,819) (18,794)
-------- --------
Net deferred tax assets .............................................. 429 563
-------- --------
Deferred tax liabilities:
Purchased intangibles ................................................ (429) (563)
-------- --------
Net deferred tax liabilities ......................................... (429) (563)
-------- --------
Total net deferred tax assets ............................................ $ -- $ --
======== ========
The Job Creation and Worker Assistance Act of 2002 was enacted on March 9, 2002,
allowing five-year carry back of net operating losses generated in 2001 and
2002. Consequently, the Company recorded a U.S. tax benefit of approximately
$3,600,000 to reflect the carry back of the net operating loss generated in 2001
to obtain a refund of taxes previously paid.
For financial reporting purposes, the Company's deferred tax assets have been
fully offset by a valuation allowance due to uncertainties about the Company's
ability to generate future taxable income. The change in the valuation allowance
was a net increase of approximately $13.0 million and $17.9 million in 2002 and
2001, respectively.
The accumulated tax benefits associated with employee stock options provide a
deferred benefit of approximately $929,000, which has been fully offset by the
valuation allowance. The deferred tax benefit associated the employee stock
options will be credited to additional paid-in capital when realized.
At June 30, 2002, the Company had net operating loss carryforwards for federal
income tax purposes of approximately $44.3 million, which will expire in
increments from 2003 through 2022 if unused. The Company had net operating loss
carryforwards for state income tax purposes of approximately $1.2 million, which
will expire in increments from 2010 through 2012 if unused. The Company also had
credit carryforwards of approximately $3.8 million, which will expire in
increments from 2003 through 2022 if unused. Utilization of a portion of the net
operating loss carryforwards and a portion of the tax credit carryforwards is
limited to approximately $300,000 per year.
Pretax income (losses) from foreign operations was approximately $452,000 in
2002, $(754,000) in 2001, and $267,000 in 2000.
76
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Net Loss Per Share
Net loss per share is calculated as follows:
Year Ended June 30,
------------------------------------------
2002 2001 2000
-------- -------- --------
(in thousands, except per share amounts)
Net loss before cumulative effect of change in accounting principle ............. $(49,851) $(35,200) $ (1,427)
Cumulative effect of change in accounting principle ............................. $ (9,973) $ -- $ --
-------- -------- --------
Net loss after cumulative effect of change in accounting principle .............. $(59,824) $(35,200) $ (1,427)
======== ======== ========
Weighted average shares outstanding:
Basic ...................................................................... 13,691 11,637 9,774
======== ======== ========
Diluted .................................................................... 13,691 11,637 9,774
======== ======== ========
Basic and diluted loss per common share:
Loss before cumulative effect of change in accounting principle ............ $ (3.64) $ (3.02) $ (0.15)
Cumulative effect of change in accounting principle ........................ (0.73) -- --
-------- -------- --------
Adjusted net loss .......................................................... $ (4.37) $ (3.02) $ (0.15)
======== ======== ========
If the Company had reported net income for the years ended June 30, 2002, 2001
or 2000, the calculation of diluted net income per share would have included
additional common equivalent shares of approximately 515,000, 1,963,000 and
1,658,000, respectively, relating to outstanding employee stock options not
included above (determined using the treasury stock method).
12. 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), wafer integration and front-end wafer
handling and transport 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. In the
fourth quarter of 2002, Adept completed the sale of certain assets of the
CimStation Inspection portion of the SILMA business. The assets were sold for a
purchase price of $2.0 million with $1.75 million paid in cash and the remaining
$250,000 contingent payment to be paid based on certain revenue projections for
the period July 1, 2001 through June 30, 2002 and are due to settle on or before
September 30, 2002. Given the severity of the market downturn, it is unlikely
the Company will realize the full contingency payment.
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 income (loss). Segment operating income (loss)
comprises 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 intersegment sales or transfers between segments.
77
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Segment information for total assets and capital expenditures is not presented
as such information is not used in measuring segment performance or allocating
resources among segments.
(in thousands) Year Ended June 30,
-------------------------------------------------
2002 2001 2000
--------- --------- ---------
Revenue:
Assembly and Material Handling operations ........................ $ 49,118 $ 80,474 $ 81,454
Semiconductor operations ......................................... 3,146 14,085 12,438
SILMA Software operations ........................................ 4,775 5,754 5,320
--------- --------- ---------
Total revenue ................................................ $ 57,039 $ 100,313 $ 99,212
========= ========= =========
Operating (loss) income:
Assembly and Material Handling operations ........................ $ 1,853 $ 4,281 $ 19,378
Semiconductor operations ......................................... (2,700) 1,479 1,674
SILMA Software operations ........................................ (50) (926) (548)
--------- --------- ---------
Segment profit (loss) ............................................ (897) 4,834 20,504
Unallocated research, development and engineering
and selling, general and administrative ....................... (29,324) (28,553) (21,597)
Restructuring charges ............................................ (17,659) -- --
Merger-related charges ........................................... -- -- (988)
Amortization of goodwill and other intangibles ................... (725) (6,818) (685)
Impairment of goodwill ........................................... (6,608) -- --
Gain on sale of assets ........................................... 1,566 -- --
Interest income .................................................. 441 745 1,031
Interest expense ................................................. (3) (12) (285)
--------- --------- ---------
Loss before income taxes and cumulative effect of
change in accounting principle ................................. $ (53,209) $ (29,804) $ (2,020)
========= ========= =========
Management also assesses the Company's performance, operations and assets by
geographic areas, and therefore revenue and long-lived assets are summarized in
the following table:
(in thousands) Year Ended June 30,
----------------------------------
2002 2001 2000
-------- -------- --------
Revenue:
United States ...................... $ 25,253 $ 63,896 $ 54,320
Germany ............................ 7,682 10,523 12,865
France ............................. 11,731 12,445 12,665
Other European countries ........... 8,969 10,537 13,575
All other countries ................ 3,404 2,912 5,787
-------- -------- --------
$ 57,039 $100,313 $ 99,212
======== ======== ========
Long-lived assets:
United States ...................... $ 15,812 $ 32,557 $ 24,888
All other countries ................ 458 426 469
-------- -------- --------
Total long-lived assets ....... $ 16,270 $ 32,983 $ 25,357
======== ======== ========
Total long-lived assets ................. $ 16,270 $ 32,983 $ 25,357
Other current assets .................... 46,224 62,590 68,166
-------- -------- --------
Total consolidated assets ..... $ 62,494 $ 95,573 $ 93,523
======== ======== ========
No single customer accounted for more than 10% of the Company's net revenues in
2002, 2001 or 2000.
78
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Subsequent Event (unaudited)
In August 2002, the Company acquired Meta Control Technologies, Inc. (Meta), a
Delaware corporation. Meta develops, designs, manufactures and markets products
that automate a wide range of manufacturing processes requiring precise motion,
accurate machine vision and rapid process instrumentation. Some of the
applications that make use of the Company's technology include semiconductor and
electronics assembly, micro-mechanical and fiber optic assembly, laboratory
automation and discrete process automation. Under the terms of the agreement,
the Company will issue 730,000 shares of its common stock to the shareholders of
Meta with a value of $1.1 million. Additionally, a certain shareholder of Meta
and certain of its affiliates will receive discounts and royalties based on
certain product shipments through August 2008 in consideration for its shares of
Meta stock. In connection with the acquisition, the Company entered into a
$500,000 line of credit with Meta's lender terminating in September 2003 with
Meta's lender bearing interest at a rate of 1% plus the prime rate announced by
the Wall Street Journal from time to time. The Company entered into a line of
credit for up to $800,000 with a stockholder of Meta, which, in the absence of a
material change in financial condition or impairment of ability to repay and
subject to registration of shares issued to the lender, permits quarterly
borrowings in increments of up to $200,000 after December 15, 2002, for a one
year term at a rate of 1% plus the prime rate announced by the Wall Street
Journal from time to time. In connection with the line of credit, 100,000 shares
of the Company's common stock were issued to the lender, subject to certain
cancellation rights. Any amounts borrowed under the line of credit shall be due
and payable by August 2006.
Effective as of August 26, 2002, the Company and CIT mutually terminated the
Company's revolving line of credit with CIT and the Company paid a $100,000
termination fee. Prior to termination, the Company had made no borrowings under
this revolving line of credit.
79
SCHEDULE II
ADEPT TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Additions
at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions (1) of Period
----------- --------- -------- -------------- ---------
Year ended June 30, 2000:
Allowance for doubtful accounts $ 716 $ 516 ($595) $ 637
Year ended June 30, 2001:
Allowance for doubtful accounts 637 214 ( 109) 742
Year ended June 30, 2002:
Allowance for doubtful accounts 742 319 ( 229) 832
- ----------
(1) Includes write offs net of recoveries.
80