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, 1999 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 Identification Number)
incorporation or organization)
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(g) 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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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 20, 1999 as reported on the Nasdaq National Market, was approximately
$48,762,318. Shares of common stock held by each officer and director and by
each person who owns 5% or more of the outstanding common stock 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 20, 1999, registrant had outstanding 8,793,197 shares of
common stock.
Documents Incorporated by Reference
The registrant has incorporated by reference into Part III of this Annual
Report on Form 10-K portions of its proxy statement for the 1999 Annual Meeting
of Shareholders.
PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements or industry results to be materially different from any future
results, performance or achievements expressed or implied by these
forward-looking statements. The following discussion of our business should be
read in conjunction with our Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations. In
particular, readers should review carefully the section entitled "Factors
Affecting Future Operating Results," which begins on page 24 of this Annual
Report on Form 10-K.
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 tradenames of Adept and other
companies.
ITEM 1. BUSINESS
Our Company
We design, manufacture and market software and hardware products that
automate assembly, material handling, and packaging processes for
manufacturers. Our "intelligent automation" products include machine
controllers for robot mechanisms and other flexible automation equipment,
machine vision systems, simulation software and a family of mechanisms
including robots, a vision-based flexible part feeder and linear modules.
We offer our customers a complete, easily deployed automation solution
that we call Rapid Deployment Automation ("RDA"). Our goal with RDA is to
increase deployment of automation solutions by reducing the total time required
to conceptualize, justify, quote, sell, implement and change over an
intelligent automation system.
We sell, market and support our products on a worldwide basis through more
than 300 system integrators, our direct sales force and original equipment
manufacturers ("OEMs"). Our system integrators, OEMs or end users combine
various components of our standard product line with material handling devices,
peripheral equipment, application software and tooling into flexible automation
workcells or production lines.
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
In July 1999, we acquired BYE/Oasis Engineering, Inc. ("BYE/Oasis"), a
manufacturer of micro-environment systems and Standard Mechanical Interface
("SMIF") for the microelectronics industry. In consideration for the
acquisition, we issued a total of 720,008 shares of our Common Stock to the
former shareholders of BYE/Oasis and assumed outstanding options under
BYE/Oasis's stock option plan to acquire 185,361 shares of our Common Stock. We
believe that the acquisition of BYE/Oasis will enhance our ability to offer
intelligent automation solutions to the semiconductor manufacturing industry.
Our Industry
Development of the Intelligent Automation Industry
Industrial robots provided the foundation for the development of the
intelligent automation industry. In the 1970s, robots with simple controllers
became widely used in the automotive industry for simple, low precision
applications such as spot welding. These robots were fairly rudimentary,
however, and lacked
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sensing or "machine vision" capabilities. By the late 1970s, industrial robots
with more advanced capabilities became commercially available. These new
capabilities included computer-based motion controllers, which enabled
flexible, programmable motion, and machine vision systems, which enabled
computer analysis of camera images. With these technical advances, robots
gained increased acceptance. Nevertheless, their use remained limited because
their software and sensing capabilities were insufficient to support more
demanding tasks such as those required on flexible assembly lines.
During the early 1980s, technical advances enabled robots to perform a
wide range of functions
in new applications such as assembly, material handling and packaging. These
advances included the following:
* sophisticated sensing for robot guidance that allowed robots to locate,
correctly orient and pick up parts;
* conveyor tracking that made it possible to handle parts from moving
conveyors; and
* direct-drive robots that were faster and more accurate than gear-driven
robots.
In addition, the deployment of advanced software and sensory products,
coupled with the availability of high-level programming languages and
computer-based controller architectures, contributed to the establishment of
the intelligent automation industry. In particular, "multi-tasking" software
enabled the coordination, in real time, of the many asynchronous tasks required
in assembly, material handling and packaging. This greater functionality made
robots viable in a broad range of production environments.
Benefits of Deploying Intelligent Automation Solutions
We believe that intelligent automation solutions offer manufacturers a
number of benefits, including the following:
* intelligent automation can assist in maintaining and improving product
quality standards;
* intelligent automation can improve the time required for a manufacturer
to reach full volume production;
* as products are made increasingly smaller, intelligent automation can
improve accuracy when compared to manual assembly, handling, or
packaging; and
* in industries such as semiconductor manufacture, where a clean
manufacturing environment is critical, intelligent automation solutions
can reduce contamination risks.
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Our Rapid Deployment Automation Solution to Intelligent Automation
Our RDA approach to implementing intelligent automation systems is
designed to reduce the total time required to conceptualize, justify, quote,
sell and implement an intelligent automation system. RDA is implemented through
a line of hardware and software products, including machine controllers for
robot mechanisms and other flexible automation equipment, machine vision
systems, vision-based flexible part feeders, simulation software, and a family
of mechanisms including robots and linear modules. The following diagram
illustrates our RDA approach:
[Depicition of our Rapid Deployment Automation approach which includes the
RDA System Design Layer, the RDA Process Knowledge Layer,
the RDA Real-Time Control Layer and the RDA Mechanical Component Layer.]
We seek to provide the following key benefits to manufacturers through our
RDA approach:
* Increased Flexibility
In order to achieve widespread deployment, we believe intelligent
automation must become as flexible as traditional manual production lines. They
should allow for quick and efficient changeover of production lines for
multiple products and over multiple product life cycles. We believe that
software and sensory products, coupled with effective hardware solutions, are
the key competitive elements of flexible automation. Software and sensory
products provide the flexibility to quickly reconfigure production lines for
product changeovers and to respond to product or process variations.
* Reduced Custom Engineering
A significant amount of time-consuming and expensive custom content is
engineered into most automated manufacturing lines. We provide a broad range of
modular components that are designed to reduce the custom engineering required
to implement intelligent automation. We offer these components directly and
through automation vendors who offer components that complement our RDA product
line.
* Reduced Dependence on Manufacturing Engineers
The implementation of most automation lines requires both mechanical
engineering and advanced computer programming skills. Personnel with these
skills are difficult to find and expensive to employ. In order to reduce the
need for manufacturing engineers, we have developed smart application software
products which utilize icon-based programming and are based on our Assembly and
Information Management ("AIM") software technology. In addition, we work
closely with over 300 system integrators worldwide that provide end users with
outside engineering resources.
* Shortened Implementation Cycle
We believe that extended implementation cycles increase the perceived risk
of automation and fail to address time-to-volume production requirements in
industries with short product life cycles. Our simulation software products
employ standard networking and communication interfaces and are designed to be
quickly integrated into standard workcells or production lines.
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Products Comprising Rapid Deployment Automation
Our core product families include robot mechanisms and other mechanical
products, guidance and inspection vision products, vision based flexible part
feeders, machine controllers, machine control software, simulation software and
semiconductor microenvironments. The following diagram depicts our products by
RDA layer:
[Chart illustrating our technology with respect to the
four levels of RDA approach.]
Robot Mechanisms and Other Mechanical Products
We design and manufacture two floor standing Selective Compliance Assembly
Robot Arm ("SCARA") style robot mechanisms called the AdeptOne-XL and the
AdeptThree-XL, as well as a table top robot mechanism called the Adept Cobra
800, all of which are designed for assembly, material handling and packaging
tasks. The links and joints of a SCARA robot are somewhat analogous to the
shoulder, elbow and wrist of a human. This configuration is well suited to a
large number of assembly and material handling tasks. Of the floor standing
models, the AdeptOne-XL is the faster model, while the Adept Three-XL offers a
larger work envelope and handles a larger payload. Each of these robots
utilizes direct-drive motor technology. The Adept Cobra 800 robot is a
light-duty SCARA robot that can be table mounted and offers a small work
envelope when space is at a premium.
We also source and market two families of robot mechanisms, which are
built to our specifications by Hirata Corporation ("Hirata"). The Adept Cobra
600 robot is a light-duty SCARA robot that can be table mounted and also offers
a small work envelope. The second family of sourced robot mechanisms includes
the Adept 1850 robot, a palletizing robot. The Adept 1850 robot is used to
palletize completed product assemblies or packaged products at the end of an
assembly line.
We also offer a line of linear modules, called AdeptModules, which we
purchase from NSK Ltd. ("NSK"). These single axis devices can be coupled
together by the user to form a custom robot mechanism for applications
requiring a robot with fewer than four axes. In addition, we offer these linear
modules in combination with our own Z-Theta module to provide customers with a
line of configurable Cartesian robots.
Semiconductor Robots
We have introduced a line of flat panel and semiconductor wafer handling
robots. The mechanisms are sourced from Samsung Corporation ("Samsung"). The
AdeptAtlas series is designed for flat panel display transfer applications, and
consists of two models: the Adept Atlas 720S (single arm) and 720D (dual arm)
are designed to handle large-scale substrates up to 600 by 720 mm. The
AdeptVicron series is designed for semiconductor wafer handling applications,
and consists of four models: the AdeptVicron 200S (single arm) and 200D (dual
arm) are designed to handle up to 200mm wafers; the AdeptVicron 300S (single
arm) and 300D (dual arm) models handle up to 300mm wafers.
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Semiconductor Contamination Control Products
With our recent acquisition of BYE/Oasis, we have entered into the
semiconductor contamination control market. We offer both standard and
customized products for contamination control (mini and micro environments),
Standard Mechanical Interfaces ("SMIF") integration and front end wafer
handling solutions for both semiconductor OEMs and end users.
Guidance and Inspection Vision Products
AdeptVision VME is a line of machine vision products that are used for
robot guidance and inspection applications. For the guidance applications,
AdeptVision VME is added into the controller by inserting a printed circuit
board and enabling the vision system software. For inspection applications such
as gauging and dimensioning, the AdeptVision VME product is sold as an
integrated inspection vision system comprised of a controller with the vision
board and software.
Machine Controllers
Our controller products are based on the VME bus architecture standard. A
large array of controller configurations are possible depending on the features
selected by the customer. Our controllers are configured in four, five, or ten
slot chassis. All controllers include a system processor and a system
input/output module(s). 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, graphical user interface capability 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 the Company's
machine controllers is the AdeptWindows Controller board ("AWC"), a single slot
central processing unit ("CPU") board based on Motorola 68040/060 processors.
All AWC boards include solid state mass storage, direct ethernet connectivity,
DeviceNet fieldbus connectivity and international safety circuitry.
Machine Control Software
Our V+ programming language and operating system software includes
specific instructions for motion control, machine vision, force sensing,
workcell control and general communications. These capabilities are integrated
to perform real-time machine control. The basic V+ software is included in the
price of the system.
Our 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 lacking advanced programming expertise to use this embedded
knowledge to accomplish a specific task. We sell several application specific
versions of AIM, including MotionWare, which addresses motion applications such
as those requiring sophisticated conveyor tracking, VisionWare, which
simplifies the use of vision in both guidance and inspection applications, and
PalletWare, which includes special knowledge of box palletizing strategies.
Simulation Software
Our simulation software products simulate the layout and throughput of
workcells and other equipment and generate the programs to run the workcells.
Our CimStation Robotics product simulates robot workcells for our robot
products as well as a number of other robot vendors' products. This product is
used to test layouts and cycle times and to generate robot application
programs. The CimStation Inspection product simulates the operation of
Coordinate Measurement Machines ("CMM") and generates programs that would be
tedious to program manually given the complex inspection tasks CMMs perform.
The SoftMachines product tests programs for machine tool operations. This is a
productivity tool for machine tool users who would otherwise have to perform
the time consuming task of testing programs on the machine tool itself.
Additionally, a product called SoftAssembly is used to simulate and test
product assembly and to develop assembly sequences and procedures. Finally,
Adept Digital Workcell is the only 3D robotic assembly simulation tool
available which allows engineers to program a workcell without the physical
robot or cell hardware. Adept Digital Workcell increases productivity by
allowing the user to
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anticipate cycle times, program logic errors, location errors, collision errors
and motor saturation errors far earlier in the development process. In
addition, Adept Digital Workcell quickly generates alternative conceptual
layouts and cycletime estimates for project proposals
Vision-Based Flexible Feeder
Part feeding has historically been accomplished by designing custom
devices that could only accommodate a single part or class of parts. We have
developed a new flexible feeder, the Adept FlexFeeder 250 that 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. The Adept FlexFeeder 250
recirculates the parts and separates them, relying on vision to identify
individual parts.
Technology
Our technology integrates the following key elements of RDA: mechanical
design, machine controller design, advanced servo systems, motion control
software, machine vision software, real-time database management software,
simulation software and contamination control. The following table lists our
technology by RDA layer:
[Depiction of our products with respect to the four layers of our RDA approach.]
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Hardware
Direct-drive robot technology. We offer a robot incorporating direct-drive
motor technology. Direct-drive technology eliminates gears and linkages from
the drive train of the mechanism, thereby significantly increasing robot speed
and improving the robot's product life, reliability and accuracy.
Controller technology. We offer an open architecture, VME bus-based
scalable machine controller. Additionally, we have enhanced our controller
technology with the introduction of our new AdeptWindows Controller. Our
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 95, 98 and NT 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.
Finally, all of our controller products support the same Windows NT-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, including:
special ASICs for controlling direct-drive motors, reading encoders and
controlling power up sequencing of complex high power systems; safety circuits
that meet domestic and international specifications; technology to protect the
controller from voltage spikes, electrical noise and power brownouts; high
wattage (6000 watt) switching power amplifiers; and networking circuitry for
LAN and field buses.
Software
Servo software. The most basic level in our software architecture is the
servo software which directs individual motors to follow motion commands
generated from the higher V+ software level. This software has been designed to
provide closed-loop control for our robots as well as other vendors' robots.
The servo software layer includes algorithms for adaptive feed-forward control,
direct-drive motor control, force control, position control and a number of
safety and diagnostic features.
Real-time programming language and operating system software. The next
level in the software architecture is the V+ programming language and operating
system layer. V+ allows software developers to create automation software
systems and is the key enabling technology for our intelligent automation
approach. This automation 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 a multitasking,
multiprocessor, time-sliced, deterministic, real-time operating system. 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 development environment for V+ is Windows 95, 98 and
NT-based and allows the customer to utilize industry standard personal
computers.
Machine vision. The real-time control layer of the software also includes
machine vision software technology, which quickly recognizes parts that are
randomly positioned and have an unknown orientation ranging up to 360 degrees,
as compared with other solutions which simply locate translated images with
very limited rotation. The ability to quickly recognize parts which have large
variations in orientation is crucial for high speed part feeding where the part
orientation is not known, such as in flexible part
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feeders. Our machine vision software can also measure part dimensions for
inspection purposes. Vision can be used to acquire parts from stationary
locations or from conveyors. Cameras can be stationary, fixed in the workcell
or attached to a robot.
Data driven module software. The next level in our software hierarchy is
the AIM layer. 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 part irregularities." This
command is automatically coupled to 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 capture 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 code.
We provide application-specific versions of AIM that have built in process
knowledge to address general motion, vision, part palletizing and flexible part
feeding applications. In addition, process knowledge can be added by end users
and system integrators, many of whom have developed their own AIM
application-specific packages. AIM can be accessed via the Windows 95, 98 and
NT environment.
Simulation software. The highest level in our software architecture is the
simulation software layer, developed by our SILMA division, a leader in the
field of simulation software. SILMA's core product, CimStation, allows 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 (kinematic models) are generated automatically.
CimStation also allows the dynamics of mechanisms to be modeled, which enables
machine cycle times to be accurately predicted. Recently SILMA has added
additional computer-aided design interfaces to this core technology for certain
markets. CimStation is available on several workstation platforms.
New Technology
During fiscal 1999, we introduced and announced several products,
including Adept Digital Workcell, Production PILOT, and our semiconductor
robots, the AdeptVicron and AdeptAtlas. Adept Digital Workcell is a 3-D robotic
assembly simulation tool that allows integration engineers to program a
workcell without the physical robot or cell hardware. Adept Digital Workcell
increases robot engineering productivity by allowing the user to anticipate
and/or identify cycle times, program logic errors, unreachable location errors,
collision errors and motor saturation errors much earlier in the development
process. We first shipped Adept Digital Workcell in the fourth quarter of
fiscal 1999. Production PILOT was announced and previewed in the third quarter
of fiscal 1999. Production PILOT is a new 3D computer-aided design-based
assembly process planning and design software suite. It gives engineers and
designers the ability to analyze and verify assembly processes while
simultaneously finding and correcting problems before investing in capital
equipment or fabricating any parts. We expect commercial production of
Production PILOT in mid fiscal 2000. We also announced the addition of the
AdeptVicron and AdeptAtlas in the fourth quarter of fiscal 1999. Designed for
semiconductor manufacturing, the new robots consist of several models to
accommodate multiple applications for wafer handling and flat panel display
transfer automation. We expect commercial production of the AdeptVicron and
AdeptAtlas in the first quarter of fiscal 2000.
Customers and Applications
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
electronics, telecommunications, semiconductor, appliances, pharmaceutical,
food processing and automotive components industries. These companies
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use our products to perform a wide variety of functions in assembly, material
handling and packaging applications, including mechanical assembly, printed
circuit board assembly, dispensing, palletizing and inspection. No customer
accounted for more than 10% of our net revenues in fiscal 1999, 1998 or 1997.
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 300
system integrators worldwide that provide expertise and process knowledge for a
wide range of specific applications. These relationships are generally not
regional and are mutually nonexclusive. The greater the investment in equipment
and training and the higher the purchase volume, the greater the discount the
system integrator receives. In certain international markets, the system
integrators perform marketing and support functions directly.
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 but do not require collateral. In lieu of collateral, we may require
customers to make payments in advance of shipment or to provide a letter of
credit. We provide reserves for potential credit losses, and to date such losses
have been within our expectations. To the extent we are unable to mitigate this
risk of collections from system integrators, our expenses would increase, and
our operating results would be adversely affected. Furthermore, our
relationships with system integrators are generally not exclusive, and some of
these system integrators may expend a significant amount of effort or give
higher priority to selling products of our competitors. These system integrators
may not continue their relationships with us or may form additional competing
arrangements with our competitors. We believe that our ability to sell products
to system integrators will continue to be important to our success. Although to
date none of our system integrators has accounted for a material percentage of
our net revenues, the loss of, or a significant reduction in revenues from,
system integrators to which we sell a significant amount of our product could
result in a decrease in our revenues and could have an adverse effect on our
operating results. In addition, as we enter new geographic and applications
markets, we must locate system integrators to assist us in building sales in
those markets. We may not be successful in obtaining effective new system
integrators or in maintaining our sales relationships with them. In the event a
number of our system integrators 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 channel
in any new markets, our revenues could decrease substantially or our expenses
could increase substantially, either of which would have a material adverse
effect on our operating results.
Direct Sales Force. We employ a direct sales force which calls on end users
to communicate the capabilities of our products and support services and obtain
up-to-date information on market requirements. Our sales force possesses
specific expertise in automation solutions and advises end users on alternative
production line designs, special application techniques, equipment sources and
system integrator selection. This sales force works closely with system
integrators and OEMs to integrate our product line into their systems, provides
sales leads to certain system integrators and obtains intelligent automation
system quotes from system integrators for end users. As of June 30, 1999, our
North American sales organization included 18 individuals. We have four sales
and customer support offices in North America located in San Jose, California;
Southbury, Connecticut; Southfield, Michigan; and Cincinnati, Ohio. As of June
30, 1999, our international sales organization included 9 persons covering
Europe, Singapore, and South Korea. We have eight international sales and
customer support offices located in Dortmund and Munich, Germany; Massy, France;
Arezzo, Italy; Kobe, Japan (through our joint venture); Kenilworth, the United
Kingdom; Seoul, South Korea; and Singapore.
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Some of our larger manufacturing end user customers have in-house
engineering departments that are comparable to a captive system integrator.
These captive engineering groups can establish a corporate integrator
relationship with us that offers benefits similar to those provided to our
system integrators.
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.
The sale of our products generally involves delays frequently associated
with purchases of large capital expenditures. Our net revenues depend in
significant part upon the decision of a prospective customer to upgrade or
expand existing manufacturing facilities or to construct new manufacturing
facilities, all of which typically involve a significant capital commitment. In
the event one or more large orders fails to close as forecasted for a quarter,
our net revenues would decrease and operating results for that quarter could be
materially adversely affected.
Marketing
Our marketing organization, which consisted of 49 persons as of June 30,
1999, supports our various channels in a number of ways. Product management
works with end users, system integrators, corporate integrators and our sales
engineers to continuously gather input on product performance and end user
needs. This information is used to enhance existing products and to develop new
products. A marketing programs group generates and qualifies new business
through industrial trade shows, various direct marketing programs such as
direct mail and telemarketing, public relations efforts, internet marketing and
advertising in industry periodicals. This marketing group is responsible for
tracking customers and prospects through our marketing database. The marketing
group also publishes a document called the MV Partner catalog, which lists
software and hardware components that have been certified by us to be
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.
Backlog
Our product backlog at June 30, 1999 was approximately $19.9 million, as
compared with approximately $17.6 million at June 30, 1998. We include in our
backlog customer orders for products for which we have accepted signed purchase
orders with assigned delivery dates within nine months in the case of sales to
end users and system integrators, and one year in the case of sales to OEMs.
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, and because we utilize our backlog to balance
seasonal fluctuations in our bookings, and the sales cycle has continued to
shorten, our backlog at any date may not be indicative of demand for our
products or actual net revenues for any period in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
which begins on page 20 of this Annual Report on Form 10-K, including the
section titled "Factors Affecting Future Operating Results," which begins on
page 24.
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 past, we have
attempted to maintain revenue levels during the September fiscal quarter by
filling backlog from the June fiscal quarter. If our backlog at the end of the
June fiscal quarter is reduced as a result of lower bookings in the June quarter
or is otherwise insufficient to compensate for lower bookings in the September
fiscal quarter, our revenues and operating results for the September fiscal
quarter and future quarters would be reduced. For example, our net revenues
decreased as a result of reduced product bookings in each of the three fiscal
quarters ending March 27, 1999. In addition, during fiscal 1999 as a whole, our
revenues were adversely affected by a decline in orders from customers in the
disk-drive and telecommunications markets. Although our revenues and backlog
increased in the last quarter of fiscal 1999, this increase may not be
indicative of increased future revenues or a sustainable recovery in our product
markets.
10
In addition, you should not rely on our backlog as a useful measure of
anticipated activity or future revenues. The orders constituting our backlog are
subject to changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty by the customer. We have in the past
experienced changes in delivery schedules and customer cancellations that
resulted in our revenues in a given quarter being materially less than would
have been anticipated based on backlog at the beginning of the quarter. We
expect that these delivery changes and order cancellations may adversely affect
our revenues in future quarters. Our revenues are subject to the numerous risks
described under the caption "Factors That May Affect Future Results," beginning
on page 24. You should review these risks carefully.
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, our revenues would be decreased and we would have increased our
operating expenses in anticipation of unrealized increases in sales of our
products.
Services and Support
Our service and support organization, which consisted of 93 persons as of
June 30, 1999, is designed to support the customer from the design of the
automation line through ongoing support of the installed system. This
organization included 52 RDA and application engineers/programmers as of June
30, 1999 based in a number of our sales 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 10 instructors as of
June 30, 1999, 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.
Our field service organization, which consisted of 48 persons as of June
30, 1999, is based in eight service centers located in San Jose, California;
Cincinnati, Ohio; Massy, France; Dortmund, Germany; Arezzo, Italy; Kobe, Japan
(through our joint venture); Seoul, South Korea and Singapore. The field-based
service engineers maintain and repair our products at the end user's facilities.
Personnel based at these service centers also provide advice to customers on
spare parts, product upgrades, and preventative maintenance.
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 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 intend to devote in the future, a significant portion
of our resources to research and development programs. As of June 30, 1999, we
had 80 persons, including two temporary or contract personnel, engaged in
research, development and engineering. Our research, development and
engineering expenses for fiscal 1999, 1998 and 1997 were approximately $11.1
million, $10.7 million and $9.0 million, respectively, and represented 13.5%,
10.9% and 10.9%, respectively, of net revenues.
The intelligent automation industry is characterized by rapid
technological change and new product introductions and enhancements. Our
ability to remain competitive and our future success depend greatly upon the
technological quality of our products and processes relative to those of our
competitors. In addition, we must continue to develop new and enhanced products
and to introduce these new 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. If we cannot successfully develop and manufacture new products,
timely enhance our existing technologies, or meet customers' technical
specifications, our products could lose market share, our revenues and profits
could decline, or we could
11
experience operating losses. New technology or product introductions by our
competitors could also cause a decline in sales or loss of market share for our
existing products or force us to significantly reduce the prices of our
existing products.
From time to time, we have experienced and will likely continue to
experience delays in the introduction of new products. We have experienced and
may continue to experience technical and manufacturing difficulties and delays
in future introductions of new products and enhancements. Any failure of us to
develop, manufacture and sell new products in quantities sufficient to offset a
decline in revenues from existing products or to manage product and related
inventory transitions successfully 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, timely and efficient
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 the following:
* the identification of new product opportunities;
* the retention and hiring of appropriate research and development
personnel;
* the definition of the product's technical specifications;
* the successful completion of the development process;
* the successful marketing of the product, the risk of having customers
embrace new technological advances;
* additional customer service costs associated with supporting new product
introductions; and
* additional customer service costs required for field upgrades.
For example, we are currently in the process of releasing our new Digital
Workcell, semiconductor robots and Production PILOT. These products include
significant new networking, communications, and hardware and software
technology. The development of these products may not be completed in a timely
manner and these products may not achieve acceptance in the market. The
development of these products has required, and will require, that we expend
significant financial and management resources. If we are unable to continue to
successfully develop these or other new products that respond to customer
requirements or technological changes, our business and operating results may
be harmed.
Manufacturing
Our manufacturing activities include the assembly, test 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 unit
volume, low value-added manufacturing operations, including standard and
build-to-print HERE IT ISvolume, low value-added manufacturing operations,
including standard and build-to-print fabricated parts such as machinery, sheet
metal fabrication and assembled printed circuit boards. We also source some
robot mechanisms. The purchased robot mechanisms are tested to meet defined
quality standards and then configured into complete products which are tested
again prior to 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,
electronic and software assembly and test. In addition, 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 assurance plans and organization are a key part of our business
strategy. Our quality assurance organization develops detailed instructions for
all manufacturing and test operations. These instructions are established in
writing, implemented through training of the manufacturing work force and
monitored to assure compliance. In addition, our quality assurance organization
works closely with vendors
12
to develop instructions and to remedy quality problems if they arise. We have
initiated an ISO 9002 certification program which we intend to successfully
register by the third quarter of fiscal 2000.
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 several significant risks, including the following:
* loss of control over the manufacturing process;
* potential absence of adequate supplier capacity;
* potential inability to obtain an adequate supply of required components,
materials or mechanical subsystems; and
* reduced control over manufacturing yields, costs, timely delivery,
reliability and quality of components, materials and mechanical
subsystems.
If any significant sole or single source supplier were unable or unwilling
to manufacture our components, materials or mechanical subsystems in the
volumes and timeframes we require, we would have to identify and qualify
acceptable replacements. The process of qualifying suppliers may be lengthy,
and additional sources may not be available to us on a timely basis, on
acceptable terms, or at all. If supplies of these items were not available from
our existing suppliers and a relationship with an alternative vendor could not
be developed in a timely manner, shipments of our products could be interrupted
and we could be required to reengineer our products. In the past, we have
experienced quality control or specification problems with key components
provided by sole source suppliers and have had to design around the particular
flawed item. We have also experienced delays in filling customer orders due to
the failure of our suppliers to meet our volume and schedule requirements. Some
of our suppliers in the past 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 our product line. Problems of this type with
our suppliers may occur in the future.
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 these events could
result in an increase in our expenses, reductions in our revenues and profits
and could result in net losses. 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 and operating results would 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 would also impair our business, financial condition
and results of operations.
Competition
The market for intelligent automation products is highly competitive. We
believe that the principal competitive factors affecting the market for our
products are:
* product functionality and reliability;
* customer service;
* price; and
* 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, marketing and
other 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
13
customers. Some of these large manufacturing companies have greater flexibility
in pricing than we have because they generate substantial unit volumes of
robots for internal demand. They may have access through their parent companies
to large sources 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.
They may also 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, or 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.
Our principal competitors in the U.S. robot market include U.S.
subsidiaries of the Japanese companies Fanuc Ltd., Seiko Instruments, Yamaha
Corporation, Sony Corporation, Sankyo Company Limited, and other Japanese robot
companies. In the European robot market, we principally compete with Robert
Bosch GmbH, which to date has sold most of its products in Germany, and with
Fanuc, Seiko, Yamaha, Sony, Sankyo, and other Japanese companies. In the
Japanese robot market, over a dozen robot companies compete with us, including
Fanuc, Nippon Denso, Panasonic Company, Sankyo, Seiko, Sony and Yamaha. Some of
these large manufacturing companies have greater flexibility in pricing than we
have because they generate substantial unit volumes of robots for internal
demand and may have access through their parent companies to large sources of
capital. In addressing the Japanese market, we are at a competitive
disadvantage as compared to Japanese suppliers, many of whom have long-standing
collaborative relationships with Japanese manufacturers. Because of this
competitive disadvantage, we closed our Japanese subsidiary in the fall of 1998
and now operate through a joint venture in Japan. Although we expect to
continue to invest significant resources in the Japanese market in the future,
we may not be able to achieve significant sales growth in the Japanese
intelligent automation market.
Our principal competition in the semiconductor atmospheric wafer handling
and contamination control market comes from Asyst Technologies, Inc. The
majority of Asyst's revenue comes from adaptive Standard Mechanical Interface,
or SMIF, devices sold to end users. They have been the leader in SMIF and
isolation technology in the semiconductor industry. Additional competitors in
the semiconductor robot market are Brooks Automation, Inc. and Equipe, a
division of PRI Automation, Inc.
Our principal competitors in the market for motion control systems 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 two major suppliers of motion control boards, Galil Motion
Control, Inc. and Delta Tau Data Systems, Inc. These motion control boards are
purchased by end users which engineer their own custom motion control systems.
In the simulation software market our competitors include Tecnomatix
Technologies, Inc., an Israel-based company which sells mostly to major
automotive manufacturers, and Deneb Robotics Inc., a subsidiary of Dassault
Systemes. In the machine vision market, we face competition from Cognex
Corporation, and Robotic Vision Systems Inc.
There can be no assurance that our current or potential competitors will
not 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. In addition, no
assurance can be given that we will not 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, or 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 materially adversely
affect our business, financial condition and results of operations.
14
ITEM 2. PROPERTIES
Our headquarters and principal research and development and manufacturing
facilities are located in a 92,448 square foot building we lease in San Jose,
California. The lease expires in December 2003 and provides for annual lease
payments of approximately $1,165,000 in calendar year 1999 and $1,220,000 in
calendar year 2000. We lease an additional 30,804 square feet in an adjacent
building in San Jose for our SILMA division, which commenced in October 1998.
The lease expires in December 2003 and provides for annual lease payments of
approximately $610,000 in calendar year 1999 and $636,000 in calendar year
2000. We have entered into an agreement to sublease to a third party 20,387
square feet of the above lease. The sublease commenced in October 1998 and has
a one year term with a six month renewal option. The sublease provides for
receipts of approximately $420,000 in calendar year 1999, including the option
of extending the lease through December 1999. We lease a 4,844 square foot
facility in City of Industry, California at which our software development
group is based. This lease expires in September 2001. We also lease a facility
in Livermore, California consisting of 12,862 square feet that houses certain
research and development activities starting from October 1998. This lease
expires in October 2003 and provides for annual lease payments of approximately
$166,000 and $167,000 in calendar years 1999 and 2000, respectively. Under the
lease agreement, we have a right of first refusal to lease an additional 12,862
square feet adjacent to the current facility. We also lease facilities for
sales and customer training in Southbury, Connecticut; Southfield, Michigan;
Cincinnati, Ohio; Massy, France; Dortmund and Munich, Germany; Arezzo, Italy;
Kobe, Japan (through our joint venture); Kenilworth, the United Kingdom; Seoul,
South Korea; and Singapore.
Subsequent to June 30, 1999, our sublessee defaulted on its sublease. The
monthly base rent under the sublease agreement was $34,658 to September 30,
1999 and $36,085 until December 31, 1999. We are evaluating our rights and
remedies relating to this matter.
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. Management has reviewed pending legal matters and, except to the
extent set forth below, believes that the resolution of such matters will not
have a material adverse effect on our business, financial condition, or results
of operations.
Some end users of our products have notified us that they have received a
claim of patent infringement from the Jerome H. Lemelson Foundation, alleging
that their use of our machine vision products infringes certain patents issued
to Mr. Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from Mr. Lemelson which refer to Mr. Lemelson's
patent portfolio and offer the end user a license to the particular patents.
Certain end users have notified us that they may seek indemnification from us
for damages or expenses resulting from this matter. We cannot predict the
outcome of this or any similar litigation which may arise in the future. There
can be no assurance that such litigation will not have a material adverse
effect on our business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
15
ITEM 4A. EXECUTIVE OFFICERS
Our executive officers of the Company are as follows:
Name Age Position
- ---------------------------- ----- -----------------------------------------------------
Brian R. Carlisle ......... 48 Chairman of the Board of Directors and Chief
Executive Officer
Bruce E. Shimano ......... 50 Vice President, Research and Development, Secretary
and Director
Marcy R. Alstott ......... 42 Vice President, Operations
Richard J. Casler, Jr. ... 47 Vice President, Engineering
Charles S. Duncheon ...... 48 Senior Vice President, Marketing and Sales
Kathleen M. Fisher ...... 44 Vice President, Finance and Chief Financial Officer
Brian R. Carlisle has served as our Chief Executive Officer and Chairman
of the Board of Directors since he co-founded the Company in June 1983. From
June 1980 to June 1983, he served as General Manager and from June 1977 to June
1980, he served as project manager of the West Coast Division of Unimation,
Inc. ("Unimation"), 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 a B.S. and an M.S. in
mechanical engineering from Stanford University.
Bruce E. Shimano has served as our Vice President, Research and
Development and a director since he co-founded the Company in June 1983. Prior
to that time, he was Director of Software Development at Unimation. Mr. Shimano
received a B.S., an M.S. and a Ph.D. in mechanical engineering from Stanford
University.
Marcy R. Alstott joined Adept Technology in March of 1998 as Vice
President of Operations. From August 1995 to March 1998, Ms. Alstott served as
Program Director responsible for switching product development at 3Com
Corporation, a networking company. Ms. Alstott served as the Director of
Manufacturing Engineering responsible for technical operations at Chipcom
Corporation, a networking company, from May 1994 to August 1995. Prior to that
time, from May 1979 to May 1994, Ms. Alstott served in various capacities at
Hewlett-Packard Company, most recently as Materials Manager. Ms. Alstott has a
B.S. in mechanical engineering from Purdue University, an M.S. in mechanical
engineering from Stanford University and an M.B.A. from the University of Santa
Clara.
Richard J. Casler, Jr. has served as our Vice President of Engineering
since April 1993 and from October 1992 to March 1993 served as our Director of
Robot Interface Development. In October 1986, Mr. Casler co-founded Genesis
Automation, Inc., a developer of robots and automation for the service
industry, and served as its president until October 1992. From October 1981 to
October 1986, Mr. Casler was manager of product development at Unimation and at
Unimation's parent company, Westinghouse Electric Corporation. Mr. Casler
received a B.S. and an M.S. in mechanical engineering from the Massachusetts
Institute of Technology.
Charles S. Duncheon has served as our Senior Vice President of Marketing
and Sales since September 1988. From May 1984 to May 1987, he served as our
General Sales Manager and from May 1987 to September 1988 as Vice President of
North American Sales. Prior to that time, Mr. Duncheon served in various
marketing positions with Fared Robot Systems, Inc., a robot company, and in
various engineering and manufacturing positions at Monsanto Corporation, an
international chemicals company. Mr. Duncheon received a B.S. in industrial
engineering from Purdue University and an M.B.A. from Southern Illinois
University. Mr. Duncheon is a registered professional engineer.
Kathleen M. Fisher has served as our Vice President, Finance and Chief
Financial Officer since August 1999. From April 1997 to April 1999, Ms. Fisher
served as Chief Financial Officer, Treasurer, and Vice President of Operations
of Inprise Corp. (formerly Borland International Inc.). Prior to that time, Ms.
Fisher held positions of Chief Financial Officer, Vice President of Finance, and
Treasurer for Softbank Content Services, a privately held, software
publishing/management and replication company. Ms. Fisher received an M.B.A.
from the University of Southern California and a B.S. in Business Administration
from the University of Redlands.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Our common stock has been traded on the Nasdaq National Market under the
symbol ADTK since our initial public offering on December 15, 1995. The
following table reflects the range of high and low sale prices as reported on
the Nasdaq National Market for the quarters ended:
Three Months Ended
-----------------------------------------------------------------------------------------------------
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
1999 1999 1998 1998 1998 1998 1997 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
High ...... $ 10.50 $ 8.50 $ 8.50 $ 8.00 $ 12.00 $ 15.75 $ 16.13 $ 14.50
Low ...... $ 6.00 $ 6.00 $ 4.25 $ 4.75 $ 7.00 $ 9.25 $ 7.69 $ 8.63
At June 30, 1999, there were approximately 348 shareholders of record. To
date, we have neither declared nor paid cash dividends on shares of our common
stock. We currently intend to retain all future earnings, if any, for our
business and do not anticipate paying cash dividends on our common stock in the
foreseeable future.
Recent Sales of Unregistered Securities
In July 1999, we issued 720,008 shares of our common stock in connection
with our acquisition of BYE/Oasis Engineering, Inc., a Texas corporation. We
issued these shares in reliance on an exemption from the registration
requirements of the Securities Act of 1933 contained in Regulation D under the
Securities Act. We also granted the former shareholders of BYE/Oasis the right
to require us to register for resale up to 350,000 of the shares issued in the
aquisition.
17
ITEM 6. SELECTED FINANCIAL DATA
Year Ended June 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- --------- ------------
(in thousands, except per share data)
Results of Operations:
Net revenues ................................. $ 82,027 $ 98,394 $ 82,767 $81,572 $59,069
--------- --------- --------- -------- -------
Cost of revenues ........................... 44,255 56,503 48,761 46,812 34,788
--------- --------- --------- -------- -------
Gross margin .............................. 37,772 41,891 34,006 34,760 24,281
--------- --------- --------- -------- -------
Operating expenses:
Research, development and
engineering .............................. 11,063 10,731 9,016 8,098 6,598
Selling, general and administrative ...... 23,296 25,150 21,628 20,201 14,722
Restructuring and other nonrecurring
charges (3) .............................. -- 2,756 -- -- --
Acquired in-process research and
development (1) ........................ -- -- -- -- 2,972
--------- --------- --------- -------- -------
Total operating expenses ..................... 34,359 38,637 30,644 28,299 24,292
--------- --------- --------- -------- -------
Operating income (loss) ..................... 3,413 3,254 3,362 6,461 (11)
Interest income, net ........................ 958 998 704 496 440
--------- --------- --------- -------- -------
Income before provision for income taxes 4,371 4,252 4,066 6,957 429
Provision for (benefit from) income taxes 1,749 1,701 1,309 1,180 (496)
--------- --------- --------- -------- -------
Net income ................................. $ 2,622 $ 2,551 $ 2,757 $ 5,777 $ 925
========= ========= ========= ======== =======
Net income per share (2):
Basic .................................... $ .31 $ .30 $ .34 $ .83 $ .16
========= ========= ========= ======== =======
Diluted ................................. $ .30 $ .29 $ .33 $ .75 $ .15
========= ========= ========= ======== =======
Number of shares used in computing per
share amounts (2):
Basic .................................... 8,590 8,455 8,062 7,003 5,635
========= ========= ========= ======== =======
Diluted ................................. 8,688 8,923 8,442 7,736 6,379
========= ========= ========= ======== =======
June 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- --------- ------------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term
investments ................................. 26,920 20,903 $ 18,467 $10,975 $ 8,812
Working capital .............................. 47,561 45,474 38,931 35,030 19,757
Total assets ................................. 69,695 67,958 59,493 56,352 38,371
Long-term liabilities ........................ -- -- -- 26 117
Total shareholders' equity .................. 54,567 52,669 47,094 42,823 25,678
<FN>
- ------------
(1) In June 1995 we acquired SILMA Incorporated and incurred a charge of $3.0
million for acquired in-process research and development in connection
with this purchase.
(2) See Notes 1 and 8 of Notes to Consolidated Financial Statements for a
discussion of the computation of net income per share.
(3) During 1998, we recorded restructuring and other nonrecurring charges of
approximately $2.8 million. See Note 1 of Notes to Consolidated Financial
Statements.
</FN>
18
Quarterly Results of Operations (Unaudited)
We operate and report financial results ending on the last Saturday of a
thirteen 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.
Three Months Ended,
-------------------------------------------
Jun. 30, Mar. 31, Dec. 31, Sep. 30,
1999 1999 1998 1998
---------- ---------- ---------- ----------
(in thousands, except per share data)
Net revenues ........................... $ 22,061 $ 20,371 $ 19,398 $ 20,197
Cost of revenues ..................... 11,658 10,832 10,469 11,296
-------- -------- -------- --------
Gross margin ........................... 10,403 9,539 8,929 8,901
-------- -------- -------- --------
Operating expenses:
Research, development and
engineering ........................ 3,094 2,807 2,691 2,471
Selling, general and administrative . 6,322 5,861 5,454 5,659
Restructuring and other
nonrecurring charges(1) ............ -- -- -- --
-------- -------- -------- --------
Total operating expenses ............... 9,416 8,668 8,145 8,130
-------- -------- -------- --------
Operating income (loss) ............... 987 871 784 771
Interest income, net .................. 280 230 233 215
-------- -------- -------- --------
Income (loss) before provision for
income taxes ........................... 1,267 1,101 1,017 986
Provision for (benefit from) income
taxes ................................. 507 441 407 394
-------- -------- -------- --------
Net income (loss) ..................... $ 760 $ 660 $ 610 $ 592
======== ======== ======== ========
Net income (loss) per share:
Basic .............................. $ .09 $ .08 $ .07 $ .07
======== ======== ======== ========
Diluted .............................. $ .09 $ .08 $ .07 $ .07
======== ======== ======== ========
Number of shares used in computing
per share amounts:
Basic .............................. 8,633 8,511 8,559 8,655
======== ======== ======== ========
Diluted .............................. 8,782 8,630 8,633 8,706
======== ======== ======== ========
As a Percentage of Net Revenues: ......
Net revenues ........................... 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues ..................... 52.8 53.2 54.0 55.9
-------- -------- -------- --------
Gross margin ........................... 47.2 46.8 46.0 44.1
-------- -------- -------- --------
Operating expenses:
Research, development and
engineering ........................ 14.0 13.8 13.9 12.2
Selling, general and administrative . 28.7 28.7 28.1 28.0
Restructuring and other
nonrecurring charges ............... -- -- -- --
-------- -------- -------- --------
Total operating expenses ............... 42.7 42.5 42.0 40.2
-------- -------- -------- --------
Operating income (loss) ............... 4.5 4.3 4.0 3.9
Interest income, net .................. 1.3 1.1 1.2 1.0
-------- -------- -------- --------
Income (loss) before provision for
income taxes ........................... 5.8 5.4 5.2 4.9
Provision for (benefit from) income
taxes ................................. 2.3 2.2 2.1 2.0
-------- -------- -------- --------
Net income (loss) ..................... 3.5 % 3.2 % 3.1 % 2.9 %
======== ======== ======== ========
Jun. 30, Mar. 31, Dec. 31, Sep. 30,
1998 1998 1997 1997
----------- ---------- ---------- ------------
Net revenues ........................... $ 22,279 $ 23,669 $ 26,464 $ 25,982
Cost of revenues ..................... 13,142 13,445 14,945 14,971
----------- -------- -------- --------
Gross margin ........................... 9,137 10,224 11,519 11,011
----------- -------- -------- --------
Operating expenses:
Research, development and
engineering ........................ 3,055 2,647 2,647 2,382
Selling, general and administrative . 5,788 6,284 6,499 6,579
Restructuring and other
nonrecurring charges(1) ............ 2,081 -- 675 --
----------- -------- -------- --------
Total operating expenses ............... 10,924 8,931 9,821 8,961
----------- -------- -------- --------
Operating income (loss) ............... (1,787) 1,293 1,698 2,050
Interest income, net .................. 253 259 230 256
----------- -------- -------- --------
Income (loss) before provision for
income taxes ........................... (1,534) 1,552 1,928 2,306
Provision for (benefit from) income
taxes ................................. (614) 621 771 923
----------- -------- -------- --------
Net income (loss) ..................... $ (920) $ 931 $ 1,157 $ 1,383
=========== ======== ======== ========
Net income (loss) per share:
Basic .............................. $ (.11) $ .11 $ .14 $ .17
=========== ======== ======== ========
Diluted .............................. $ (.11) $ .10 $ .13 $ .16
=========== ======== ======== ========
Number of shares used in computing
per share amounts:
Basic .............................. 8,679 8,499 8,375 8,265
=========== ======== ======== ========
Diluted .............................. 8,679 8,949 8,961 8,829
=========== ======== ======== ========
As a Percentage of Net Revenues: ......
Net revenues ........................... 100.0% 100.0 % 100.0 % 100.0 %
Cost of revenues ..................... 59.0 56.8 56.5 57.6
----------- -------- -------- --------
Gross margin ........................... 41.0 43.2 43.5 42.4
----------- -------- -------- --------
Operating expenses:
Research, development and
engineering ........................ 13.7 11.2 10.0 9.2
Selling, general and administrative . 26.0 26.5 24.6 25.3
Restructuring and other
nonrecurring charges ............... 9.3 -- 2.5 --
----------- -------- -------- --------
Total operating expenses ............... 49.0 37.7 37.1 34.5
----------- -------- -------- --------
Operating income (loss) ............... (8.0) 5.5 6.4 7.9
Interest income, net .................. 1.1 1.1 0.9 1.0
----------- -------- -------- --------
Income (loss) before provision for
income taxes ........................... (6.9) 6.6 7.3 8.9
Provision for (benefit from) income
taxes ................................. (2.8) 2.6 2.9 3.6
----------- -------- -------- --------
Net income (loss) ..................... (4.1)% 4.0 % 4.4 % 5.3 %
=========== ======== ======== ========
<FN>
- ------------
(1) During the fourth quarter of fiscal year 1998, we recorded restructuring
and other nonrecurring charges of approximately $2.8 million. See Note 1
of Notes to Consolidated Financial Statements.
</FN>
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results, including those set forth under
"Factors Affecting Future Results" beginning on page 24 and elsewhere in, or
incorporated by reference into, this report.
OVERVIEW
We design, manufacture and market intelligent automation software and
hardware products for assembly, material handling and packaging applications.
Our products currently include machine controllers for robot mechanisms and
other flexible automation equipment, machine vision systems, simulation
software and a family of mechanisms including robots, linear modules,
vision-based flexible part feeders, as well as a line of Cartesian scalable
robots targeted for the electronics and assembly applications markets. 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. Most recently, we announced a new line of robots expressly
designed for use in the semiconductor fabrication industry. We have also
expanded our channel of system integrators and our international sales and
marketing operations. As a result of these developments, the nature and
composition of our revenues have changed over time. Specifically, software
license and service revenues, although still relatively insignificant, have
increased as a percentage of total revenues in recent periods, and
international sales comprise a significant portion of our revenues.
We sell our products through system integrators, our direct sales force and
original equipment manufacturers ("OEMs"). System integrators and OEMs add
application-specific hardware and software to our products, thereby enabling us
to provide solutions to a diversified industry base, including the electronics,
telecommunications, semiconductor, appliances, pharmaceutical, food processing
and automotive components industries. Due to a worldwide slowdown in our served
markets, our net revenues have declined in four of the last six fiscal quarters.
Although our net revenues increased in the third and fourth quarters of fiscal
1999 compared to the respective preceding quarters, our net revenues in the
third and fourth quarters of fiscal 1999 remained below the same respective
periods a year ago. Accordingly, our historical results of operations should not
be relied upon as an indication of future performance. We do not know when, or
if, a sustainable recovery in our product markets will occur.
In July 1999, we acquired BYE/Oasis Engineering, Inc. ("BYE/Oasis"), a
leading manufacturer of mini and micro environment systems and Standard
Mechanical Interface ("SMIF") for the microelectronics industry. We acquired
BYE/Oasis through the issuance of 720,008 shares of our common stock which were
exchanged for all of the common stock of BYE/Oasis. In addition, we assumed
options to purchase an aggregate of 185,361 shares of our common stock in the
acquisition. We intend to account for the acquisition as a pooling of
interests.
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, 1999 (i.e., fiscal 1999, 1998 and
1997). 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 in conjunction
with the consolidated financial statements and financial statement footnotes
included in this Annual Report on Form 10-K.
Results of Operations
Comparison of 1999 to 1998
Net Revenues. Our net revenues decreased by 16.6% to $82.0 million in 1999
from $98.4 million in 1998. The decrease in net revenues for 1999 over the
prior year was primarily due to decreased product sales, including robot and
motion controller sales, decreased service and upgrade revenues, offset in part
20
by increased software revenue, primarily from our SILMA products. Revenue growth
slowed substantially beginning in the second half of 1998 as a result of lower
sales to the computer disk-drive, telecommunications, semiconductor and
electronics industries. Additionally, while our direct sales into the
Asian-Pacific HERE IT ISelectronics industries. Additionally, while our direct
sales into the Asian-Pacific region have been relatively insignificant to date,
the widely reported economic instability in that region during fiscal 1998
adversely affected certain domestic and OEM customers who saw their
Asian-Pacific revenues decline. These revenue declines continued into fiscal
1999 and were seen throughout the markets and industries we serve. Although we
experienced some improvement in our markets in the second half of fiscal 1999,
we cannot estimate when or if a sustained revival in our key hardware markets
will occur.
International sales, including sales to Canada and export sales, were
$41.2 million or 50.2% of net revenues in 1999, as compared with $39.8 million
or 40.5% of net revenues in 1998. International sales as a percentage of total
net revenues have increased due to the greater relative decline in our domestic
sales in fiscal 1999 as compared to the prior year. Because international
revenues constitute a significant portion of our net revenues, adverse economic
conditions or instability in foreign markets where we operate directly can be
expected to have an adverse effect on our revenues and results of operations.
In addition, and as noted above, fluctuations in economic conditions
internationally can also affect our revenues, including domestic revenues, and
operating results indirectly to the extent significant customers (or industry
segments on which we are significantly dependent) are affected by such
international fluctuations.
Gross Margin. Gross margin was 46.0% in 1999 compared to 42.6% in 1998.
The increase in gross margin percentage was primarily attributable to reduced
sales of lower margin hardware products, and to a lesser extent, to relatively
higher margin software revenue and cost reductions on our products. We expect
that we will continue to experience fluctuations in gross margin percentage due
to changes in our sales and product mix.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 3.1% to $11.1 million or 13.5% of net revenues
in 1999 from $10.7 million or 10.9% of net revenues in 1998. The absolute dollar
increase in expenses in 1999 was primarily due to increases in facilities and
information system related expenses ($272,000), offset by decreased project
material spending ($159,000), and travel expenses ($85,000). Research,
development and engineering expenses in 1999 were partially offset by $681,000
of third party development funding as compared with $629,000 of third party
development funding in 1998. We expect to continue to receive third party
development funding from the federal government as well as other third parties
during 2000 but that such funding will be less than funding received in 1999.
However, any funds budgeted by the government or other third parties for our
development projects may be curtailed or eliminated at any time.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 7.4% to $23.3 million or 28.4% of net
revenues in 1999 from $25.2 million or 25.6% of net revenues in 1998. The
decreased level of spending was primarily attributable to the closure of our
Japanese office ($805,000), lower compensation related expenses, including
commissions ($256,000), and to a lesser extent, to lower travel expenses
($108,000), reduced foreign currency losses on balance sheet remeasurement
($230,000), and partially offset by an increase in outside consulting services
($410,000). The increase in selling, general and administrative expenses as a
percentage of total net revenues was due to the relative decline in the level
of net revenues. We expect that selling, general and administrative expenses
will continue to fluctuate as a percentage of net revenues in future periods.
Restructuring and Other Nonrecurring Charges. We did not incur any
restructuring or other nonrecurring charges in 1999. During 1998, we recorded
restructuring charges of approximately $1.0 million and other nonrecurring
charges of approximately $1.7 million. The restructuring charges of $1.0
million included $651,000 for relinquishing control of our branch in Japan
which resulted in the write-off of certain assets and excess facilities. We now
operate in Japan through a joint venture in which we have a minority interest.
The remaining $362,000 relates to severance for the termination of certain
employees.
The nonrecurring charges of approximately $1.7 million included $675,000
for non-cash compensation expenses related to our employee stock purchase plan
(see Note 1 of Notes to Consolidated Financial Statements) and $383,000 related
to the write off of certain information system hardware and software
21
which had become obsolete. Additionally, $413,000 related to the write off of
the remaining balance of capitalized purchased software associated with the
acquisition of SILMA. Due to technological changes in 1998 related to the SILMA
operating platform, we determined the net realizable value of the purchased
software was impaired.
We reported the charge of $675,000 in the second quarter of fiscal 1998
for compensation expense related to the Emerging Issues Task Force ("EITF")
Issue No. 97-12, "Accounting for Increased Share Authorizations in an IRS
Section 423 Employee Stock Purchase Plan under APB Opinion No. 25, Accounting
for Stock Issued to Employees" which was approved by the EITF in September
1997. This nonrecurring, non-cash charge represented the difference between 85%
of the fair market value of common stock on the date of the beginning of the
offering period and the fair market value of common stock on the date the
shareholders approved the increase in shares authorized for issuance,
multiplied by the number of shares in the 1995 Employee Stock Purchase Plan
("1995 ESPP") that had been subscribed for purchase by employees, but not
authorized by the shareholders, prior to the Company's Annual Meeting of
Shareholders. Shareholder approval was granted to make available for issuance
an additional 500,000 shares under the 1995 ESPP on October 31, 1997.
We completed our restructuring plan and other nonrecurring activity in
fiscal 1999 and do not have any amounts accrued for these items as of June 30,
1999.
Interest Income, Net. Interest income, net in 1999 was $958,000 compared
to $998,000 in 1998. The decrease was primarily as a result of a higher
concentration of tax advantaged investments yielding lower gross interest
income.
Provision for Income Taxes. Our effective tax rate for both 1999 and 1998
was 40%. Our tax rates for 1999 and 1998 differ from the federal statutory
income tax of 34% primarily due to unbenefited foreign losses and foreign
taxes, partially offset by the benefits of federal and state tax credits.
Derivative Financial Instruments. Our product sales are predominantly
denominated in U.S. dollars. However, certain international operating expenses
are predominately paid in their respective local currency. We generally do not
hedge our exposure to foreign currency exchange risk on local operational
expenses and revenues. Although we believe that unhedged risk associated with
foreign currency fluctuations for those transactions have not been material to
date, there can be no assurance that such risk will not become material in the
future or that we will not incur foreign exchange transaction losses which will
have an adverse effect on our results of operations. We make yen-denominated
purchases of certain components and mechanical subsystems from Japanese
suppliers. Based on the amount of such purchases, current exchange rate
fluctuations would not typically be expected to result in material unfavorable
foreign exchange transactions included in cost of revenues. From time to time,
we manage the currency risk associated with the yen-denominated purchases using
forward rate currency contracts. We had no outstanding foreign exchange
contracts at June 30, 1999.
Comparison of 1998 to 1997
Net Revenues. Our net revenues increased by 18.9% to $98.4 million in 1998
from $82.8 million in 1997. The growth in net revenues for 1998 over the prior
year was primarily due to increased product sales, including robot and motion
controller sales, and increased service and upgrade revenues, including
revenues from our Rapid Deployment Automation ("RDA") Services group, which
provides engineering contract services. Revenue growth slowed substantially in
the second half of 1998 relative to the prior six month period, primarily as a
result of lower sales to the computer disk-drive, telecommunications,
semiconductor and electronics industries. Additionally, while our direct sales
into the Asian-Pacific region have been relatively insignificant to date, the
widely reported economic instability in that region has affected certain
domestic and OEM customers who have seen their Asian-Pacific revenues decline.
This was a leading cause in our declining revenue for the second half of 1998
relative to the prior six month period. International sales, including sales to
Canada, were $39.8 million or 40.5% of net revenues in 1998, as compared with
$29.6 million or 35.8% of net revenues in 1997.
Gross Margin. Gross margin was 42.6% in 1998 compared to 41.1% in 1997.
The increase in gross margin percentage was primarily attributable to improved
margins on mechanism systems sales as a result
22
of increased sales of higher margin products and, to a lesser extent, to
increased service and upgrade revenues, including our new RDA engineering
contract services. We expect to continue to experience fluctuations in gross
margin percentage due to changes in our sales and product mix.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 19.0% to $10.7 million in 1998 from $9.0
million in 1997. As a percentage of net revenues, research, development and
engineering expenses remained at 10.9% in both 1998 and 1997. The absolute
dollar increase in expenses in 1998 was primarily due to increases in
compensation related expenses ($765,000), including consulting expenses and, to
a lesser extent, to increases in facilities information system related expenses
($483,000), increased project material spending ($171,000) and to lower third
party development funding. Research, development and engineering expenses in
1998 were partially offset by $629,000 of third party development funding as
compared with $767,000 of third party development funding in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 16.3% to $25.2 million or 25.6% of net
revenues in 1998 from $21.6 million or 26.1% of net revenues in 1997. The
increased level of spending was primarily attributable to increased headcount
and compensation related expenses ($2.9 million) and, to a lesser extent, to
higher travel expenses ($467,000) and information system related expenses
($314,000).
Interest Income, Net. Interest income, net in 1998 was $998,000 compared
to $704,000 in 1997. The increase was due to higher levels of available
invested funds generated primarily from operating and financing activities as
well as higher investment yields in 1998.
Provision for Income Taxes. Our effective tax rate for 1998 was 40%
compared to 32% for 1997. Our tax rates for 1998 and 1997 differ from the
federal statutory income tax rate of 34% primarily due to the unbenefited
foreign losses and foreign taxes, partially offset by the benefits of federal
and state tax credits.
Impact of Inflation
The effect of inflation on our business and financial position has not
been significant to date.
Liquidity and Capital Resources
As of June 30, 1999, we had working capital of approximately $47.3
million, including $11.7 million in cash and cash equivalents and $15.2 million
in short-term investments.
Our cash requirements during the year ended June 30, 1999 were met
primarily through cash provided by operations. Cash, cash equivalents and
investments increased $6.0 million from June 30, 1998 primarily as a result of
$9.2 million of cash generated from operating activities, offset by $2.2
million of net expenditures for property and equipment, and approximately
$900,000 in financing activities.
Net cash provided by operating activities was primarily attributable to
net income adjusted by depreciation and amortization, decreased inventory and
accounts receivable. Financing activities consisted of the repurchase of common
stock offset by proceeds from employee stock option incentive and purchase
plans.
In August 1998, the Board of Directors authorized us to repurchase up to
450,000 shares of our common stock on the open market or in privately
negotiated transactions at prices not to exceed $8.50 per share and a total
purchase price not to exceed $3,825,000. We completed the repurchase of 450,000
shares at an average price of $7.10 per share in the first and second quarters
of fiscal 1999.
We currently anticipate capital expenditures of approximately $3.0 million
in 2000.
We believe that the existing cash and cash equivalent balances as well as
short-term investments and anticipated cash flow from operations will be
sufficient to support our working capital requirements for at least the next
twelve months. Thereafter, we may require additional funds to support our
working capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financing or from other
sources. There can be no assurance that additional financing will be available
at all or that if available, such financing will be obtainable on terms
favorable to us.
23
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities: ("SFAS 133"). SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 was to be effective for fiscal years beginning
after June 15, 1999. However, in July 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 defers for one year the
effective date of SFAS 133 which will now apply to all fiscal quarters of all
fiscal years beginning after June 15, 2000. We have not concluded whether the
adoption of SFAS 133 will have a material impact on our consolidated financial
position, results of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. The SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. We have concluded adoption of this SOP
will not have a material impact on our consolidated financial position, results
of operations or cash flows.
FACTORS AFFECTING FUTURE OPERATING RESULTS
You should not rely on our past results to predict our future performance
because our operating results may fluctuate.
Our historical operating results may not be accurate indicators of our
future performance. Our revenues and operating results have been subject to
significant quarterly and annual fluctuations in the past, and we expect this to
continue in the future. The factors that may contribute to these quarterly
fluctuations in the future include:
* fluctuations in capital spending domestically and internationally in one
or more industries in which we sell our products;
* new product introductions by us or by our competitors;
* changes in product and pricing by us, our suppliers or our competitors;
* availability of components and raw materials for our products;
* our failure to manufacture a sufficient volume of products in a timely
and cost-effective manner;
* our failure to anticipate the changing product requirements of our
customers;
* a lack of market acceptance of our products or a shift in demand for our
products;
* changes in the mix of sales by distribution channels;
* changes in the spending patters of our customers; and
* unusual or infrequent events such as litigation or acquisitions.
Our gross margins may vary greatly depending on the mix of sales of lower
margin hardware products, particularly mechanical subsystems purchased from
third party vendors, and higher margin software products.
Our operating results may also be affected by general economic and other
conditions affecting the timing of customer orders and capital spending. For
example, our operations during the third and fourth quarters of fiscal 1998 and
the first three quarters of fiscal 1999 were adversely affected by a continuing
downturn in hardware purchases by customers in the electronics industry,
particularly disk-drive and telecommunication manufacturers. In connection with
this downturn, we were forced to affect a restructuring program in the fourth
quarter of fiscal 1998. Although we experienced some improvements in the
markets in the third and fourth quarter of fiscal 1999, we cannot estimate when
or if a sustained revival in these key hardware markets will occur.
24
We generally recognize product revenue upon shipment or, for certain
international sales, upon receipt of the product 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. In
particular, we tend to recognize a substantial portion of our revenues during
the last month or weeks of a quarter. Any delay in shipments of our products,
therefore, would have an adverse effect on our revenues and profitability. We
may experience such delays as a result of product development delays, problems
obtaining raw materials, inability to complete transactions in our sales
pipeline, or any of the other risks described in this section.
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 or quarterly period are below expected levels,
our revenues and profits for that period would be reduced, and we could
experience a loss.
In the event that in some future fiscal quarter our net revenues or
operating results fall below the expectations of public market analysts and
investors, the price of our common stock may fall. We cannot assure you and we
will be able to increase or sustain our profitability on a quarterly or an
annual basis in the future.
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 past, we have
attempted to maintain revenue levels during the September fiscal quarter by
filling backlog from the June fiscal quarter. If our backlog at the end of the
June fiscal quarter is reduced as a result of lower bookings in the June
quarter or is otherwise insufficient to compensate for lower bookings in the
September fiscal quarter, our revenues and operating results for the September
fiscal quarter and future quarters would be reduced. For example, our net
revenues decreased as a result of reduced product bookings in each of the three
fiscal quarters ending March 27, 1999. In addition, during fiscal 1999 as a
whole, our net revenues were adversely affected by a decline in orders from
customers in the disk-drive and telecommunications markets.
In addition, you should not rely on our backlog as a useful measure of
anticipated activity or future revenues. The orders constituting our backlog are
subject to changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty by the customer. We have in the past
experienced changes in delivery schedules and customer cancellations that
resulted in our revenues in a given quarter being materially less than would
have been anticipated based on backlog at the beginning of the quarter. We
expect that these delivery changes and order cancellations may adversely affect
our revenues in future quarters.
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, our revenues would be decreased and we would have increased our
operating expenses in anticipation of unrealized increases in sales of our
products.
Sales of our products depend on the capital spending habits of our customers,
which tend to be cyclical.
Intelligent automation systems using our products can range in price from
$75,000 to several million dollars. Accordingly, our success depends directly
on the capital expenditure budgets of our customers. Our future operations may
be subject to substantial fluctuations because 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
Asian-Pacific region, we believe that recent instability in the Asian-Pacific
economies had a material adverse effect on our operations as a result of a
reduction in sales by our customers to those markets. Domestic or international
recessions or a downturn in one or more of our major markets, such as the
electronics, telecommunications, semiconductor, appliances, pharmaceutical,
food processing or automotive components industries, and resulting cutbacks in
capital spending would have a direct, material adverse impact on our business.
25
Many of the key components and materials of our products come from single
source suppliers, and their procurement requires lengthy lead times.
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 several significant risks, including the following:
* loss of control over the manufacturing process;
* potential absence of adequate supplier capacity;
* potential inability to obtain an adequate supply of required components,
materials or mechanical subsystems; and
* reduced control over manufacturing yields, costs, timely delivery,
reliability and quality of components, materials and mechanical
subsystems.
If any significant sole or single source supplier were unable or unwilling
to manufacture our components, materials or mechanical subsystems in the
volumes and timeframes we require, we would have to identify and qualify
acceptable replacements. The process of qualifying suppliers may be lengthy,
and additional sources may not be available to us on a timely basis, on
acceptable terms, or at all. If supplies of these items were not available from
our existing suppliers and a relationship with an alternative vendor could not
be developed in a timely manner, shipments of our products could be interrupted
and we could be required to reengineer our products. In the past, we have
experienced quality control or specification problems with key components
provided by sole source suppliers and have had to design around the particular
flawed item. We have also experienced delays in filling customer orders due to
the failure of our suppliers to meet our volume and schedule requirements. Some
of our suppliers in the past 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 our product line. Problems of this type with
our suppliers may occur in the future.
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 these events could
result in an increase in our expenses, reductions in our revenues and profits
and could result in net losses. 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 and operating results would 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 would also impair our business and results of
operations.
Any problems we encounter integrating BYE/Oasis Engineering Inc. into our
business could increase our expenses and adversely affect our operating
results.
We recently completed the acquisition of BYE/Oasis Engineering Inc.
BYE/Oasis is a manufacturer of contamination control systems and standard
mechanical interfaces for semiconductor fabrication facilities, a business in
which we have no operational experience. This acquisition will require us to
integrate two geographically separated companies that previously operated
independently, and we have limited experience with integration of acquired
companies. We may encounter difficulties integrating our product offerings and
operations with those of BYE/Oasis. In addition, we may not be able to
successfully market BYE/Oasis's products or develop any new products as a
result of the acquisition. The public announcement of our acquisition of
BYE/Oasis could result in suppliers, distributors, or customers of BYE/Oasis
canceling or otherwise terminating their arrangements with BYE/Oasis. If we
fail to achieve the product, marketing, distribution, and other operational
benefits and efficiencies we originally anticipated in the merger, we will have
overpaid for the acquisition, and our shareholders will have experienced
substantial dilution without off-setting benefits.
26
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:
* product functionality and reliability;
* customer service;
* price; and
* 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, marketing and
other 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 than we have
because they generate substantial unit volumes of robots for internal demand.
They may have access through their parent companies to large sources 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.
They may also 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, or 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.
Our principal competitors in the U.S. robot market include U.S.
subsidiaries of the Japanese companies Fanuc Ltd., Seiko Instruments, Yamaha
Corporation, Sony Corporation, Sankyo Company Limited, and other Japanese robot
companies. In the European robot market, we principally compete with Robert
Bosch GmbH, which to date has sold most of its products in Germany, and with
Fanuc, Seiko, Yamaha, Sony, Sankyo, and other Japanese companies. In the
Japanese robot market, over a dozen robot companies compete with us, including
Fanuc, Nippon Denso, Panasonic Company, Sankyo, Seiko, Sony and Yamaha. Some of
these large manufacturing companies have greater flexibility in pricing than we
have because they generate substantial unit volumes of robots for internal
demand and may have access through their parent companies to large sources of
capital. In addressing the Japanese market, we are at a competitive
disadvantage as compared to Japanese suppliers, many of whom have long-standing
collaborative relationships with Japanese manufacturers. Because of this
competitive disadvantage, we closed our Japanese subsidiary in the fall of 1998
and now operate through a joint venture in Japan. Although we expect to
continue to invest significant resources in the Japanese market in the future,
we may not be able to achieve significant sales growth in the Japanese
intelligent automation market.
Our principal competition in the semiconductor atmospheric wafer handling
and contamination control market comes from Asyst Technologies, Inc. The
majority of Asyst's revenue comes from adaptive Standard Mechanical Interface,
or SMIF, devices sold to end users. They have been the leader in SMIF and
isolation technology in the semiconductor industry. Additional competitors in
the semiconductor robot market are Brooks Automation, Inc. and Equipe, a
division of PRI Automation, Inc.
Our principal competitors in the market for motion control systems 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 two major suppliers of motion control boards, Galil Motion
Control, Inc. and Delta Tau Data Systems, Inc. These motion control boards are
purchased by end
27
users which engineer their own custom motion control systems. In the simulation
software market our competitors include Tecnomatix Technologies, Inc., an
Israel-based company which sells mostly to major automotive manufacturers, and
Deneb Robotics Inc., a subsidiary of Dassault Systemes. In the machine vision
market, we face competition from Cognex Corporation, and Robotic Vision Systems
Inc.
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 and our future success depend greatly upon the
technological quality of our products and processes relative to those of our
competitors. In addition, we must continue to develop new and enhanced products
and to introduce these new 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. If we cannot successfully develop and manufacture new products,
timely enhance our existing technologies, or meet customers' technical
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 share for our existing products or force us to significantly
reduce the prices of our existing products.
From time to time, we have experienced and will likely continue to
experience delays in the introduction of new products. We have experienced and
may continue to experience technical and manufacturing difficulties and delays
in future introductions of new products and enhancements. Any failure by us to
develop, manufacture and sell new products in quantities sufficient to offset a
decline in revenues from existing products or to manage product and related
inventory transitions successfully 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, timely and efficient
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 the following:
* the identification of new product opportunities;
* the retention and hiring of appropriate research and development
personnel;
* the definition of the product's technical specifications;
* the successful completion of the development process;
* the successful marketing of the product, the risk of having customers
embrace new technological advances;
* additional customer service costs associated with supporting new product
introductions; and
* additional customer service costs required for field upgrades.
For example, we are currently in the process of releasing our new Digital
Workcell, semiconductor robots and Production PILOT. These products include
significant new networking, communications, and hardware and software
technology. The development of these products may not be completed in a timely
manner and these products may not achieve acceptance in the market. The
development of these products has required, and will require, that we expend
significant financial and management resources. If we are unable to continue to
successfully develop these or other new products that respond to customer
requirements or technological changes, our business and operating results may
be harmed.
Our software products may contain defects that could harm our reputation and
future business prospects. New or existing software products or
enhancements may contain errors or performance problems when first introduced,
when new versions or enhancements are released, or even after products or
28
enhancements have been used in the marketplace for a period of time. Despite
our testing, product defects may be discovered only after a product has been
installed and used by customers. Errors and performance problems may be
discovered in future shipments of our products. These errors could result in
expensive and time consuming design modifications or large warranty charges,
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 would reduce our operating profits and could
result in losses.
We rely on systems integrators to sell our products.
We believe that our ability to sell products to system integrators will
continue to be important to our success. A substantial portion of our sales are
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. From time to time,
because we do not require collateral, we may require customers to make payments
in advance of shipment or to provide a letter of credit. We provide reserves
for potential credit losses, and to date losses of this type have been within
our expectations. To the extent we are unable to mitigate this risk of
collections from system integrators, our results of operations may be
materially adversely affected.
Our relationships with system integrators are generally not exclusive, and
some of our system integrators may expend a significant amount of effort or
give higher priority to selling products of our competitors. In the future, any
of these system integrators may discontinue their relationships with us or form
additional competing arrangements with our competitors. Although to date none
of our system integrators has accounted for a material percentage of our net
revenues, the loss of, or a significant reduction in revenues from, system
integrators to which we sell a significant amount of our product could result
in a material reduction in our revenues and a reduction in our operating
results.
As we enter new geographic and applications markets, we must locate system
integrators to assist us in generating sales in those markets. We may not be
successful in obtaining effective new system integrators or in maintaining
sales relationships with them. If a number of our system integrators experience
financial problems, terminate their relationships with us or substantially
reduce the amount of our products they sell, or if we fail to build an
effective systems integrator channel in any new markets, our revenues and
operating results would be adversely affected.
Our presence in international markets exposes us to risk.
We anticipate that international sales will continue to account for a
significant portion of our net revenues; however, we cannot assure you that
international sales will increase or that the current level of international
sales will be sustained. Net revenues from international sales, including sales
to Canada, have accounted for a significant portion of our net revenues.
International sales were $41.2 million, $39.8 million and $29.6 million for the
fiscal years ended June 30, 1999, 1998 and 1997. This represented 50.2%, 40.5%,
and 35.8% 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:
* Different regulatory requirements;
* political and economic changes and disruptions;
* transportation delays, foreign currency fluctuations;
* export/import controls;
* tariff regulations;
* higher freight rates;
* difficulties in staffing and managing foreign sales operations;
* greater difficulty in accounts receivable collection; and
29
* potentially adverse tax consequences.
In addition, duty, tariff and freight costs can materially increase the
cost of crucial components for our products. Foreign exchange fluctuations may
render our products less competitive relative to locally manufactured product
offerings, or could result in foreign exchange losses. Moreover, because
substantially all of our foreign sales are denominated in United States
dollars, increases in the value of the dollar relative to the local currency
would increase the price of our products in foreign markets and make our
products relatively more expensive and less price competitive than competitors'
products that are priced in local currencies. Any of these factors may result
in a reduction in our revenues and a decrease in our earnings
We anticipate that past turmoil in Asian financial markets and the
deterioration of the underlying economic conditions in certain Asian countries
may continue to have an impact on our sales to customers located in or whose
projects are based in those countries. Specific factors that may affect us
include the impact of currency fluctuations on the relative price of the our
products and 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 capital expenditures due to higher interest rates,
reduced bank lending due to contractions in the money supply or the
deterioration in the customer's or bank's financial condition, or the inability
to access local equity financing.
We make yen-denominated purchases of certain components and mechanical
subsystems from Japanese suppliers. Depending on the amount of yen-denominated
purchases, we may engage in hedging transactions in the future. However,
notwithstanding these precautions, we remain subject to the transaction
exposures that arise from foreign exchange movements between the date a foreign
currency export sale or purchase transaction is recorded and the date cash is
received or payments are made in foreign currencies. We cannot assure you that
our current or any future currency exchange strategy will be successful in
avoiding exchange related losses or that any of the factors listed above will
not impair our business or operating results.
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 can change and are subject 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 assure you that future products can be designed, within market window
and financial constraints, to meet the future requirements. In the event 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. As a result, our business, financial condition
and results of operations could be impaired.
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:
* the imposition of substantial fines;
* suspension of production; and
30
* 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, or storage of, 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
liabilities under certain statutes. The imposition of liabilities of this kind
could harm our financial condition.
We could lose revenues and incur significant costs if our systems, the systems
of our customers or third-party systems that we use are not Year 2000
compliant.
We may experience significant problems and costs associated with Year 2000
compliance that could adversely affect our business, results of operations and
financial condition. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance.
In fiscal 1998, we commenced a program, to be substantially completed by
the Fall of 1999, to review the Year 2000 compliance status of the software and
systems used in our internal business processes, to obtain appropriate
assurances of compliance from the manufacturers of these products, and to
obtain an agreement to modify or replace all non-compliant products. We have
contacted our critical suppliers and major customers to determine whether the
products obtained from such vendors or sold by the customer to third parties
are Year 2000 compliant. Our suppliers and customers are under no contractual
obligation to provide such information to the Company. In addition, we have
implemented at our San Jose headquarters the initial phase of a Year 2000
compliant enterprise resource planning system from a third-party vendor and are
also considering converting certain of our other software and systems to
commercial products that are known to be Year 2000 compliant. Additionally, in
Europe, we are in the process of upgrading our management information systems.
We have been advised by the third party suppliers of these systems and upgrades
that the upgrades will render our European management information systems Year
2000 compliant. Implementation of software products of third parties, however,
will require the dedication of substantial administrative and management
information resources, the assistance of consulting personnel from third party
software vendors and the training of our personnel using such systems.
Based on the information available to date, we believe we will be able to
complete our Year 2000 compliance review and make necessary modifications prior
to the end of calendar year 1999. Software or systems which are deemed critical
to our business are scheduled to be Year 2000 compliant by the end of calendar
year 1999. Nevertheless, particularly to the extent we rely on the products of
other vendors to resolve Year 2000 issues, there can be no assurances that we
will not experience delays in implementing such products. If key systems, or a
significant number of systems were to fail as a result of Year 2000 problems,
or we were to experience delays implementing Year 2000 compliant software
products, we could incur substantial costs and disruption of our business,
which would potentially have a material adverse effect on our business and
results of operations.
In the ordinary course of our business, we test and evaluate our own
software products. We believe that our software products are generally Year
2000 compliant, meaning that the use or occurrence of dates on or after January
1, 2000 will not materially affect the performance of our software products
with respect to four digit date dependent data or the ability of these products
to correctly create, store, process and output information related to such date
data. To the extent our software products are not fully Year 2000 compliant,
our software products may not contain all necessary software routines and codes
necessary for the accurate calculation, display, storage and manipulation of
data involving dates. To the extent that our products are sold through system
integrators or other third parties, our products may experience Year 2000
problems as a result of the integration of our software with noncompliant Year
2000 products of such third party suppliers. In addition, in certain
circumstances, we have warranted that the use or occurrence of dates on or
after January 1, 2000 will not adversely affect the performance of the
Company's products with respect to four digit date dependent data or the
ability to create, store, process and output information related to such data.
If any of our licensees experience Year 2000 problems, these licensees could
assert claims for damages against us.
To date, we have not identified a complete and separate budget for
investigating and remedying issues related to Year 2000 compliance whether
involving our own software products or the software of
31
systems used in our internal operations. We have incurred costs of
approximately $3.3 million and expect to incur in total, approximately $3.5
million in connection with our implementation of a new enterprise resource
planning software system and upgrades for other systems at our San Jose
headquarters and in our European offices, which is Year 2000 compliant.
Additionally, we are currently in the process of developing a contingency plan
related to Year 2000. Our resources spent on investigating and remedying Year
2000 compliance issues will not have a material adverse effect on our business,
financial condition and results of operations.
We may not be able to handle the introduction of the Single European Currency.
We are in the process of addressing the issues raised by the introduction
of the Single European Currency, or the Euro, as of January 1, 1999 and
transition to full adoption as of January 1, 2002. Our internal systems that
are affected by the initial introduction of the Euro were Euro-capable as of
January 1, 1999. We do not presently expect that the introduction and use of
the Euro will materially affect our foreign exchange and hedging activities, or
our use of derivative instruments, or will result in any material increase in
costs to us. While we will continue to evaluate the impact of the Euro
introduction over time, based on currently available information, management
does not believe that the introduction of the Euro currency will have a
material adverse impact on our financial condition or overall trends in results
of operations.
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 materially 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 the Company since our inception, or
Bruce Shimano, Vice President, Research and Development and a Director, who has
guided our research and development programs since our inception. In addition,
the loss of the services of any of our senior managerial, technical or sales
personnel could materially adversely affect 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 also heavily 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.
We are subject to the risks associated with acquisitions.
From time to time, we may consider the acquisition of companies or
technologies that management believes may complement or extend our current
products, businesses, or technologies. In the last three years, we have made
some acquisitions of various sizes, including the recent acquisition of
BYE/Oasis. 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.
Any future acquisitions or investments we might make would present risks
commonly associated with these types of transactions, including:
* difficulty in combining the technology, operations, or work force of the
acquired business; o disruptions of our on-going businesses;
* difficulties in realizing our potential financial and strategic position
through the successful integration of the acquired business;
* difficulty in maintaining uniform standards, controls, procedures, and
policies; difficulty in obtaining preferred acquisition accounting
treatment;
* potential negative impact in results of operations due to amortization
of goodwill or other intangible assets acquired; and
32
* the diversion of management attention.
The risks described above, either individually or in the aggregate, could
materially adversely affect our business, operating results, and financial
condition. 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.
Our failure to protect our intellectual property and proprietary technology may
significantly impair our competitive advantage.
Third parties may infringe or misappropriate our copyrights, trademarks
and similar proprietary rights. We cannot be certain that the steps we have
taken to prevent the misappropriation of our intellectual property are
adequate, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. We rely on a combination
of patent, copyright and trade secret protection and nondisclosure agreements
to protect our proprietary rights. However, we cannot be certain that patent
and copyright law and trade secret protection may not be adequate to deter
misappropriation of our technology, that any patents issued to Adept will not
be challenged, invalidated or circumvented, that the rights granted thereunder
will provide competitive advantages to us, or that the claims under any patent
application will 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 there can be no assurance
that patents will issue from currently pending or future applications or that
our existing patents or any new patents that may be issued will 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. As claims arise, we evaluate their merits. Any claims of
infringement brought by third parties could result in protracted and costly
litigation, damages for infringement, and the need to obtain a license relating
to one or more of our products or current or future technologies. Such license
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.
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. Some of our end users have notified
us that they may seek indemnification from us for damages or expenses resulting
from this matter. 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.
33
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
ensures 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.
Fair
1999 2000 2001 Total Value
------------- ------ ------ ------------- ----------
(in thousands)
Cash equivalents
Fixed rate ........................ $ 11,720 -- -- $ 11,720 $ 11,720
Average rate ........................ 3.93% -- -- 3.93%
Auction rate securities
Fixed rate ........................ $ 9,400 -- -- $ 9,400 $ 9,400
Average rate ........................ 3.62% -- -- 3.62%
Auction rate preferred
Variable rate ..................... $ 5,800 -- -- $ 5,800 $ 5,800
Average rate ........................ 3.05% -- -- 3.05%
--------- --------- ---------
Total Investment Securities ...... $ 26,920 -- -- $ 26,920 $ 26,920
--------- --------- ---------
Average rate ........................ 3.63% -- -- 3.63%
We mitigate default risk by attempting to invest in high credit quality
securities and by constantly positioning our portfolio to respond appropriately
to a significant reduction in a credit rating of any investment issuer or
guarantor. our portfolio includes only marketable securities with active
secondary or resale markets to ensure portfolio liquidity and maintains a
prudent amount of diversification.
We conduct business on a global basis. As such, we are exposed to adverse
or beneficial movements in foreign currency exchange rates. We may enter into
foreign currency forward contracts to minimize the impact of exchange rate
fluctuations on certain foreign currency commitments and balance sheet
positions. The realized gains and losses on these contracts are deferred and
offset against realized and unrealized gains and losses when the transaction
occurs. At June 30, 1999 there were no outstanding foreign currency exchange
contracts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth in the Company's
Financial Statements and Notes thereto beginning at page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
34
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 November 5, 1999 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 (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.
35
PART IV
ITEM 14. 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
3.1(1) Restated Articles of Incorporation of the Registrant.
3.2(1) Bylaws of the Registrant, as amended to date.
10.1(1) 1983 Stock Incentive Program, and form of Agreement thereto.
10.2(2) 1993 Stock Plan as amended, and form of agreement thereto.
10.3 1998 Employee Stock Purchase Plan as amended, and form of agreements
thereto.
10.4(2) 1995 Director Option Plan as amended, and form of agreement thereto.
10.5(1) Form of Indemnification Agreement between the Registrant and its officers and
directors.
10.6.1(1) Lease Agreement between the Registrant and Technology Associates I dated
July 18, 1986, as amended.
10.6.2(1) Office Building Lease between Registrant and Puente Hills Business Center II
dated May 20, 1993, as amended.
10.6.3(1) Standard Office Lease--Gross between SILMA Incorporated and South
Bay/Copley Joint Venture dated November 11, 1992.
10.6.4(2) Fifth Amendment to Lease between Registrant and Metropolitan Life Insurance
Company dated as of December 5, 1996.
10.7(1) Loan Payoff Plan dated August 3, 1993 between Registrant and Charles
Duncheon.
10.7.1 Promissory Note between Registrant and Charles Duncheon dated August 20,
1998
10.7.2 Promissory Note between Registrant and Richard Casler dated April 16, 1999.
10.7.3 Promissory Note between Registrant and Brian Carlisle dated May 7, 1999.
10.7.4 Promissory Note between Registrant and Bruce Shimano dated May 7, 1999.
10.8(3) Offer Letter between the Registrant and Marcy Alstott dated February 19, 1998,
as amended.
10.8.1(3) Promissory Note between Registrant and Marcy Alstott dated April 27, 1998.
10.8.2 Offer Letter between the Registrant and Kathleen Fisher dated July 16, 1999.
10.8.3 Promissory Note between Registrant and Kathleen Fisher dated August 2, 1999.
10.9(3) Lease Agreement dated as of April 30, 1998 between the Registrant and the
Joseph and Eda Pell Revocable Trust dated August 18, 1989.
10.10(3) 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.
36
10.10.1(3) First Amendment to Lease Agreement dated June 1, 1998 between the
Registrant and Technology Centre Associates LLC dated July 31, 1998.
10.10.2(3) Sublease between the Registrant and Ascent Logic Corporation dated as of July
31, 1998.
21.1(3) Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (See Page 39).
27.1 Financial Data Schedule.
<FN>
- ------------
(1) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S- 1 (Reg. No. 33-98816) as declared effective by the
Commission on December 15, 1995.
(2) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997 as filed with
the Commission on September 26, 1997.
(3) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998 as filed with
the Commission on September 28, 1998.
(b) Reports on Form 8-K.
We did not file any reports on Form 8-K during the quarter ended June 30,
1999. However, on July 28, 1999 we filed a Form 8-K to announce the
acquisition of BYE/Oasis Engineering, Inc.
(c) Exhibits.
See Item 14(a)(3) above.
(d) Financial Statement Schedules.
See Item 14(a)(2) above.
</FN>
37
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/ Kathleen M. Fisher
-----------------------------------
Kathleen M. Fisher
Vice President, Finance
and Chief Financial Officer
Date: September 24, 1999
38
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brian R. Carlisle and Kathleen M. Fisher
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 September 24, 1999
- --------------------------- Chief Executive Officer (Principal
(Brian R. Carlisle) Executive Officer)
/s/ Kathleen M. Fisher Vice President, Finance and Chief September 24, 1999
- --------------------------- Financial Officer (Principal Financial
(Kathleen M. Fisher) and Accounting Officer)
/s/ Bruce E. Shimano Vice President, Research and September 24, 1999
- --------------------------- Development, Secretary and Director
(Bruce E. Shimano)
/s/ Ronald E. F. Codd Director September 24, 1999
- ---------------------------
(Ronald E. F. Codd)
/s/ Michael P. Kelly Director September 24, 1999
- ---------------------------
(Michael P. Kelly)
/s/ Cary R. Mock Director September 24, 1999
- ---------------------------
(Cary R. Mock)
/s/ John E. Pomeroy Director September 24, 1999
- ---------------------------
(John E. Pomeroy)
39
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADEPT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young, LLP, Independent Auditors .................................... F-1
Consolidated Balance Sheets at June 30, 1999 and June 30, 1998 ........................ F-2
Consolidated Statements of Income for each of the three years in the period ended
June 30, 1999 ........................................................................ F-3
Consolidated Statements of Cash Flows for each of the three years in the period ended
June 30, 1999 ........................................................................ F-4
Consolidated Statements of Shareholders' Equity for each of the three years in the period
ended June 30, 1999 .................................................................. F-5
Notes to Consolidated Financial Statements ............................................. F-6
40
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, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1999. Our audits also included the
financial statement schedule listed in the Index as Item 14(a). 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 generally accepted auditing
standards. 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1999, in conformity with generally accepted accounting
principles. 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.
Ernst & Young LLP
San Jose, California
August 2, 1999
F-1
ADEPT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
1999 1998
---------- ----------
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 11,720 $ 9,603
Short-term investments ............................................. 15,200 11,300
Accounts receivable, less allowance for doubtful accounts of $637 in
1999 and $452 in 1998 ................................................ 19,084 19,904
Inventories ......................................................... 11,284 15,190
Deferred tax and other current assets .............................. 5,401 4,766
--------- ---------
Total current assets ............................................. 62,689 60,763
Property and equipment, net ............................................. 5,672 5,853
Other assets ............................................................ 1,334 1,342
--------- ---------
Total assets ...................................................... $ 69,695 $ 67,958
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 5,943 $ 5,226
Accrued payroll and related expenses ................................. 3,129 3,584
Accrued warranty ................................................... 1,358 1,830
Deferred revenue ................................................... 1,274 999
Accrued restructuring and nonrecurring charges ..................... -- 1,019
Taxes payable and other accrued liabilities ........................ 3,424 2,631
--------- ---------
Total current liabilities ....................................... 15,128 15,289
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value: 5,000 shares authorized, none issued and
outstanding ......................................................... -- --
Common stock, no par value: 25,000 shares authorized, 8,739 issued
and outstanding in 1999, and 8,723 in 1998 ........................ 50,161 50,225
Retained earnings ................................................... 4,406 2,444
--------- ---------
Total shareholders' equity ....................................... 54,567 52,669
--------- ---------
Total liabilities and shareholders' equity ........................ $ 69,695 $ 67,958
========= =========
<FN>
See accompanying notes.
</FN>
F-2
ADEPT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
Year Ended June 30,
-----------------------------------
1999 1998 1997
--------- ---------- ----------
(in thousands, except per share
data)
Net revenues .......................................... $82,027 $ 98,394 $ 82,767
Cost of revenues .................................... 44,255 56,503 48,761
-------- --------- ---------
Gross margin .......................................... 37,772 41,891 34,006
Operating expenses:
Research, development and engineering ............ 11,063 10,731 9,016
Selling, general and administrative ............... 23,296 25,150 21,628
Restructuring and other nonrecurring charges ...... -- 2,756 --
-------- --------- ---------
Total operating expenses .............................. 34,359 38,637 30,644
-------- --------- ---------
Operating income .................................... 3,413 3,254 3,362
Interest income ....................................... 966 1,025 717
Interest expense .................................... 8 27 13
-------- --------- ---------
Income before provision for income taxes ............ 4,371 4,252 4,066
Provision for income taxes ........................... 1,749 1,701 1,309
-------- --------- ---------
Net income .......................................... $ 2,622 $ 2,551 $ 2,757
======== ========= =========
Net income per share:
Basic ............................................. $ .31 $ .30 $ .34
======== ========= =========
Diluted .......................................... $ .30 $ .29 $ .33
======== ========= =========
Number of shares used in computing per share
amounts:
Basic ............................................. 8,590 8,455 8,062
======== ========= =========
Diluted .......................................... 8,688 8,923 8,442
======== ========= =========
<FN>
See accompanying notes.
</FN>
F-3
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(in thousands)
Operating activities
Net income ...................................................... $ 2,622 $ 2,551 $ 2,757
Adjustments to reconcile net income to net cash provided by
operating activities: ..........................................
Depreciation and amortization ................................. 3,106 3,049 2,981
(Gain) loss on disposal of property and equipment ............... (37) (278) 316
Compensation expense related to employee stock purchase
plan ......................................................... -- 675 --
Write-off of certain assets relating to restructuring and
nonrecurring charges .......................................... -- 1,062 --
Tax benefit from stock plans .................................... 164 544 73
Changes in operating assets and liabilities:
Accounts receivable .......................................... 820 (2,541) 3,245
Inventories ................................................... 3,384 (2,678) 1,044
Deferred tax and other current assets ........................ (635) (2,249) (262)
Other assets ................................................... (71) (181) (411)
Accounts payable ............................................. 717 1,289 (2,967)
Accrued payroll and related expenses ........................... (455) 1,273 (324)
Accrued warranty ............................................. (645) (16) 459
Deferred revenue ............................................. 275 (139) 577
Accrued restructuring and nonrecurring charges ............... (1,019) 1,019 --
Taxes payable and other accrued liabilities .................. 927 (1,325) 1,131
--------- --------- ---------
Total adjustments ............................................. 6,531 (496) 5,862
--------- --------- ---------
Net cash provided by operating activities ........................ 9,153 2,055 8,619
--------- --------- ---------
Investing activities
Purchase of property and equipment .............................. (2,435) (3,084) (1,631)
Proceeds from the sale of property and equipment .................. 187 470 63
Purchases of long-term available-for-sale investments ............ -- -- (1,000)
Sales of long-term available-for-sale investments ............... -- 1,000 --
Purchases of short-term available-for-sale investments ............ (31,206) (21,003) (20,123)
Sales of short-term available-for-sale investments ............... 27,306 17,069 15,657
--------- --------- ---------
Net cash used in investing activities ........................... (6,148) (5,548) (7,034)
--------- --------- ---------
Financing activities
Proceeds from employee stock incentive program, employee
stock purchase plan, net of repurchases and cancellations ...... 2,306 1,995 1,441
Repurchase of common stock ....................................... (3,194) -- --
--------- --------- ---------
Net cash provided by (used in) financing activities ............... (888) 1,995 1,441
--------- --------- ---------
Increase (decrease) in cash and cash equivalents .................. 2,117 (1,498) 3,026
Cash and cash equivalents, beginning of period ..................... 9,603 11,101 8,075
--------- --------- ---------
Cash and cash equivalents, end of period ........................... $ 11,720 $ 9,603 $ 11,101
========= ========= =========
Supplemental disclosure of noncash activities:
Inventory capitalized into property, equipment and related tax . $ 561 $ 863 $ 718
Addition to capital lease obligation .............................. $ -- $ 13 $ --
Cash paid during the period for:
Interest ......................................................... $ 8 $ 27 $ 13
Taxes paid (refunded) ............................................. $ (189) $ 3,894 $ 638
<FN>
See accompanying notes.
</FN>
F-4
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Retained Total
--------------------- Earnings Shareholders'
Shares Amount (Deficit) Equity
-------- ---------- ----------- ---------------
(in thousands)
Balance at June 30, 1996 .................. 7,869 $ 45,383 $ (2,560) $ 42,823
Common stock issued under employee stock
incentive program and employee stock
purchase plan ........................ 371 1,441 -- 1,441
Tax benefit from stock plans ......... -- 73 -- 73
Net income ........................... -- -- 2,757 2,757
----- -------- --------- --------
Balance at June 30, 1997 .................. 8,240 46,897 197 47,094
Common stock issued under employee stock
incentive program and employee stock
purchase plan ........................ 458 1,995 -- 1,995
Tax benefit from stock plans ......... -- 544 -- 544
Compensation charge .................. -- 675 -- 675
Acquisition of RoboElektronik ......... 25 114 (304) (190)
Net income ........................... -- -- 2,551 2,551
----- -------- --------- --------
Balance at June 30, 1998 .................. 8,723 50,225 2,444 52,669
Common stock issued under employee stock
incentive program and employee stock
purchase plan ........................ 466 2,306 -- 2,306
Repurchase of shares .................. (450) (2,534) (660) (3,194)
Tax benefit from stock plans ......... -- 164 -- 164
Net income ........................... -- -- 2,622 2,622
----- -------- --------- --------
Balance at June 30, 1999 .................. 8,739 $ 50,161 $ 4,406 $ 54,567
===== ======== ========= ========
<FN>
See accompanying notes.
</FN>
F-5
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 markets intelligent automation software and hardware products
for automating assembly, material handling and packaging applications.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Adept Technology GmbH (formerly
known as RoboElektronik GmbH, "RoboElectronik"), acquired by the Company on
February 13, 1998 (see Note 2), and SILMA Incorporated ("SILMA"), acquired by
the Company on June 28, 1995. All material intercompany accounts and
transactions have been eliminated.
The notes to the Company's consolidated financial statements are for the
three year period ended June 30, 1999 (i.e., 1999, 1998 and 1997). 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 generally
accepted accounting principles 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. Losses which result from the process of
remeasuring foreign currency financial statements in U.S. dollars were $87,000,
$376,000 and $141,000 in 1999, 1998 and 1997, respectively. Transaction losses
were $52,000 in 1999, transaction gains were $6,000, and $8,000 in 1998 and
1997, 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 twelve months. Investments are classified as
held-to-maturity, trading, or available-for-sale at the time of purchase.
At June 30, 1999 and 1998, 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. Material unrealized gains and losses, if
any, would have been recorded in shareholders' equity. 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.
F-6
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
June 30,
-----------------------
1999 1998
---------- ----------
(in thousands)
Cash and cash equivalents:
Cash .................................... $ 2,113 $ 1,626
Money market funds ..................... 1,653 1,065
Commercial paper ........................ 2,554 2,388
Municipal notes and bonds ............... 5,400 4,524
--------- ---------
Cash and cash equivalents .................... $ 11,720 $ 9,603
========= =========
Short-term investments:
Auction rate securities .................. $ 9,400 $ --
Market auction preferred stock ......... 5,800 11,300
--------- ---------
Short-term investments ......................... $ 15,200 $ 11,300
========= =========
Realized gains or losses, interest, and dividends are included in interest
income. In 1999, 1998 and 1997, realized and unrealized gains or losses from
available-for-sale securities were not material.
Loans to Employees
Loans to employees are summarized as follows:
June 30,
-------------------
1999 1998
--------- -------
(in thousands)
Short-term loans to employees ...... $ 904 $ --
Long-term loans to employees ...... 342 687
-------- ------
$ 1,246 $ 687
======== ======
Short-term loans to employees are included in other current assets, of
which $865,000 were repaid in August 1999.
Long-term loans to employees are included in other assets.
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,
-----------------------
1999 1998
---------- ----------
(in thousands)
Raw materials ......... $ 5,296 $ 7,407
Work-in-process ...... 1,953 4,916
Finished goods ...... 4,035 2,867
--------- ---------
$ 11,284 $ 15,190
========= =========
F-7
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,
-------------------
1999 1998
------- -------
(in thousands)
Cost:
Machinery and equipment ............................ $13,558 $12,395
Computer equipment ................................. 7,860 7,040
Office furniture and equipment ..................... 2,929 2,703
------- -------
24,347 22,138
Accumulated depreciation and amortization ............... 18,675 16,285
------- -------
Net property and equipment .............................. $ 5,672 $ 5,853
======= =======
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the assets, which range from three to five
years. Assets under capital leases are depreciated over the shorter of the
asset life or the remaining lease term.
Revenue Recognition
The Company generally recognizes revenue on products at the time of
shipment. For certain international sales where title and risk of loss are
transferred at the customer's site, revenue is recognized upon receipt of
product by the customer. A provision for the estimated cost to repair or
replace products under warranty at the time of sale are recorded in the same
period as the related revenues.
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. Service revenue includes training,
consulting and customer support. Revenues from training and consulting are
recognized at the time the service is performed.
Deferred revenue primarily relates to software support contracts sold. The
term of the software support contract is generally one year, and the Company
recognizes the associated revenue on a pro rata basis over the life of the
contract.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, money
market auction rate preferred stocks, 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. The
Company 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
the 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.
F-8
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
Research, Development and Engineering Costs
Research, development and engineering costs, other than purchased computer
software, are charged to expense when incurred. The Company has received third
party funding of $681,000, $629,000 and $767,000 in 1999, 1998 and 1997,
respectively. The Company has offset research, development and engineering
expenses by the third party funding, as the third party funding is based upon
research and development expenditures and the Company retains the rights to any
technology that is developed.
Software Development Costs
The Company capitalizes software development costs incurred subsequent to
the time the product reaches technical feasibility. All capitalized
internally-developed software costs and purchased software costs are amortized
to the cost of revenues on a straight-line basis based on the estimated useful
lives of the products or the ratio of current revenue to the total of current
and anticipated future revenue, whichever is greater. Capitalized
internally-developed software and purchased software are stated at the lower of
amortized cost or net realizable value.
There is no unamortized software development and purchased software costs
at June 30, 1999 or 1998. In 1998, $359,000 of purchased software costs were
written off as part of the nonrecurring charges. Software amortization for 1999
was $0, and $180,000 in 1998 and 1997.
Advertising Costs
Advertising costs are expensed in the period incurred. Advertising costs
were $143,000, $212,000 and $217,000 in 1999, 1998 and 1997, respectively. The
Company does not incur any direct response advertising costs.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No.109 ("SFAS 109"), "Accounting for Income Taxes." Under
SFAS 109, 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
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation", which provides an alternative to APB Opinion No. 25
(Opinion 25), "Accounting for Stock Issued to Employees", in accounting for
stock issued to employees. The Company has elected to account for stock-based
compensation to employees in accordance with Opinion 25, providing only
proforma disclosure required by SFAS 123.
Net Income Per Share
SFAS No. 128, "Earnings Per Share", requires the presentation of basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing net income
available to common stockholders 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. Diluted EPS is
computed similarly to fully diluted EPS under the previous rules. Dilutive
common equivalent shares consist of stock options, calculated using the
treasury stock method.
Restructuring and Other Nonrecurring Charges
During 1998, the Company recorded restructuring charges of approximately
$1.0 million and other nonrecurring charges of approximately $1.7 million. The
restructuring charges of $1.0 million included
F-9
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
$651,000 for relinquishing control of the Company's Japan branch which resulted
in the write-off of certain assets and excess facilities. The remaining
$362,000 relates to severance for the termination of certain employees.
The nonrecurring charges of approximately $1.7 million included $675,000
for compensation expenses related to the Company's employee stock purchase plan
(see Note 5) and $383,000 related to the write-off of certain information
system hardware and software which had become obsolete as a result of decisions
made in the fourth quarter of 1998 related to the information system
implementation and upgrade. Additionally $413,000 related to the write off of
the remaining balance of capitalized purchased software associated with the
acquisition of SILMA. Due to technological changes in 1998 related to the SILMA
operating platform, the Company determined that the net realizable value of the
purchased software was impaired.
The following table summarizes the Company's restructuring and other
nonrecurring charges and accrual activity for the year ended June 30, 1999 and
1998:
Intangible and
Severance Fixed Assets
and Japan Compensation and Other
Benefits Operations Expense Charges Total
----------- ------------ -------------- ---------------- ------------
(in thousands)
Restructuring charges ............... $ 362 $ 651 $ -- $ -- $ 1,013
Nonrecurring charges ............... -- -- 675 1,068 1,743
------ ------ ------ ------ --------
Total charges in 1998 ............ 362 651 675 1,068 2,756
Non-cash charges ..................... -- (266) (675) (796) (1,737)
------ ------ ------ ------ --------
Accrued liabilities as of June 30, 1998 362 385 -- 272 1,019
Cash paid during 1999 ............... (362) (385) -- (272) (1,019)
------ ------ ------ ------ --------
Accrued liabilities as of June 30, 1999 $ -- $ -- $ -- $ -- $ --
====== ====== ====== ====== ========
New Accounting Pronouncements
In October 1997 and March 1998, the American Institute of Certified public
Accountants issued Statements of Position 97-2, ("SOP 97-2"), "Software Revenue
Recognition" and 98-4 ("SOP 98-4"), "Deferral of The Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition". The Company adopted SOP
97-2 and SOP 98-4 for transactions entered into after June 30, 1998. Adoption
of the statements did not have a material adverse impact on revenues or
operating results for 1999.
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income" in 1999. SFAS 130 establishes
new rules for the reporting and display of comprehensive income and its
components. SFAS 130 requires unrealized gains or losses on available-for-sale
securities and foreign currency translation adjustments to be included in
comprehensive income (loss). The Company has no significant items of other
comprehensive income, and the adoption of SFAS 130 did not have a significant
impact.
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information," in 1999. SFAS 131 establishes standards for reporting information
about operating segments and related disclosures about products, geographic
information and major customers. The Company conducts its business
predominantly within one business segment, namely, providing intelligent
automation software and hardware products for assembly, material handling and
packaging applications. Management assesses the Company's performance, measures
the Company's operations and assets on a single segment basis (see Note 9).
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133").
F-10
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
SFAS 133 provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. SFAS 133 was to be
effective for fiscal years beginning after June 15, 1999. However, in July
1999, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 137 defers for one year the effective date of SFAS 133 which
will now apply to all fiscal quarters of all fiscal years beginning after June
15, 2000. We have not concluded whether the adoption of SFAS 133 will have a
material impact on our consolidated financial position, results of operations
or cash flows.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. The SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. We have concluded adoption of this SOP
will not have a material impact on our consolidated financial position, results
of operations or cash flows.
Reclassification
Certain amounts presented in the financial statements of prior years have
been reclassified to conform to the current presentation for 1999.
2. Merger and Acquisition
RoboElektronik
In February 1998, the Company acquired RoboElektronik GmbH
("RoboElektronik") through the issuance of 24,562 shares of the Company's
common stock which were exchanged for all of the outstanding capital stock of
RoboElektronik. The acquisition was accounted for as a pooling of interests.
RoboElektronik GmbH was renamed Adept Technology, GmbH on June 26, 1998. The
results of operations of RoboElektronik have been consolidated since the
acquisition.
3. Derivative Financial Instruments
The Company from time to time may enter into forward foreign exchange
contracts primarily to hedge against the short term impact of foreign currency
fluctuations of purchase commitments denominated in yen. The maturities of the
forward exchange contracts are short term in nature, generally 90 days. Because
the impact of movements in currency exchange rates on forward foreign exchange
contracts offsets the related impact on the underlying items being hedged,
these financial instruments do not subject the Company to speculative risk that
would otherwise result from changes in currency exchange rates. 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, 1999, there were no hedging gains or losses deferred.
F-11
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
4. Commitments and Contingencies
Commitments
The Company's lease on its major facility will expire in December 2003.
Future minimum lease payments under non-cancelable operating leases are as
follows:
Operating
Leases
----------------
(in thousands)
Fiscal Year:
2000 ....................................... $ 2,605
2001 ....................................... 3,039
2002 ....................................... 3,156
2003 ....................................... 3,080
2004 ....................................... 1,573
Later years ................................. 98
---------
Total minimum lease payments ..................... $ 13,551
=========
Rent expense net of sublease income of $312,000, $0 and $0 was
approximately $2,507,000, $2,024,000 and $1,665,000 in 1999, 1998 and 1997,
respectively.
Contingencies
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 such
alleged infringement. While it is not feasible to predict or determine the
outcome of the 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.
5. 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.
Stock Option Plans
The Company's 1983 Employee Stock Incentive Program (the "1983 Plan") was
adopted by the Board of Directors in August 1983. The 1983 Plan provided for
the grant 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 1983 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 1|M/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 1983 Plan, the Company may exercise an
option to
F-12
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
repurchase such shares at their original issue price. The Board of Directors
determines the exercise price which must be at least equal to the fair market
value of shares on the date of grant. The 1983 Plan expired according to its
terms in August 1993. Currently outstanding options under the 1983 Plan and
common stock purchased pursuant to stock purchase rights granted under the 1983
Plan continue to be governed by the terms of the 1983 Plan and by the terms of
the respective option and stock purchase and stock restriction agreements
between the Company and the holders thereof.
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. The terms of the 1993 Plan are similar to the 1983
Plan, and the terms of the options granted under the 1993 Plan generally may
not exceed ten years. The Board of Directors determines the exercise price
which must be at least equal to the fair market value of shares on the date of
grant.
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 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. At June
30, 1999 and 1998, respectively, 87,000 and 75,000 shares were granted and no
shares were exercised.
The options may be exercised at the time or times determined by the Board
of Directors.
In August 1998, the Company offered all employees holding outstanding
options the opportunity to exchange such options with exercise prices equal to
the then fair market value. Under the August 1998 offer, options to purchase
367,827 shares with exercise prices exceeding $7.00 per share were exchanged
for similar options exercisable at $7.00 per share. The vesting schedule of all
exchanged options was delayed by 12 months and the expiration date of the
exchanged options will be August 2008. The effect of the exchange has been
included in the table in 1999 activity for options granted and canceled.
F-13
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
The following table summarizes activities of the 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, 1996 ............ 873 824 $ 3,824 $ 4.64
Granted ........................... (465) 465 3,091 6.65
Canceled ........................... 35 (35) (269) 7.70
Exercised ........................... -- (158) (268) 1.70
------ ----- --------
Balance at June 30, 1997 ............ 443 1,096 6,378 5.82
Additional shares authorized ...... 1,000 -- -- --
Granted ........................... (413) 413 4,908 11.87
Canceled ........................... 47 (47) (484) 10.27
Shares Expired ..................... (1) -- -- --
Exercised ........................ -- (270) (706) 2.61
------ ----- --------
Balance at June 30, 1998 ............... 1,076 1,192 10,096 8.47
Granted ........................... (913) 913 5,757 6.31
Canceled ........................... 451 (451) (5,156) 11.43
Shares Expired ..................... -- -- -- --
Exercised ........................ -- (250) (1,199) 4.80
------ ----- --------
Balance at June 30, 1999 ............... 614 1,404 $ 9,498 $ 6.76
====== ===== ========
The following table summarizes information concerning outstanding and
exercisable options at June 30, 1999 (at June 30, 1998, 537,000 stock options
were exercisable):
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
- ------------------- ------------- ------------- ---------- ------------- ----------
(shares in thousands)
$4.63 - $ 5.56 327 8.58 $ 5.17 70 $ 5.31
$5.88 - $ 6.44 71 3.73 $ 6.06 49 $ 6.00
$6.50 - $ 6.50 291 7.14 $ 6.50 186 $ 6.50
$6.63 - $ 6.63 113 9.12 $ 6.63 21 $ 6.63
$7.00 - $14.75 602 8.09 $ 7.87 214 $ 8.17
------ ----
$4.63 - $14.75 1,404 7.87 $ 6.76 540 $ 6.97
====== ====
Employee Stock Purchase Plan
In 1995, the Company adopted an Employee Stock Purchase Plan (the "1995
ESPP") and, as amended, reserved an aggregate total of 800,000 shares. In
November 1998, the Company's shareholders approved the adoption of the 1998
Employee Stock Purchase Plan (the "1998 ESPP"), which replaced the 1995 ESPP.
Under the 1998 ESPP, 600,000 shares were initially reserved for issuance. Both
1995 and 1998 ESPP have overlapping twelve-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 twelve-month offering period is divided into two
six-month purchase periods. Both stock purchase plans allow 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 1998 ESPP
F-14
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
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) such amount as
may be determined by the Board of Directors.
As of June 30, 1999, 594,000 shares of the Company's common stock were
issued under the 1995 ESPP and the 206,000 shares unissued under this plan were
cancelled. In addition, as of June 30, 1999, 600,000 shares were reserved for
issuance under the 1998 ESPP, of which 94,000 shares have been issued.
The Company reported a charge of $675,000 in the second quarter of 1998
for compensation expense related to the Emerging Issues Task Force Issue No.
97-12, "Accounting for Increased Share Authorizations in an IRS Section 423
Employee Stock Purchase Plan under APB Opinion No. 25, Accounting for Stock
Issued to Employees" which was approved by the EITF in September 1997. This
nonrecurring, non-cash charge represented the difference between 85% of the
fair market value of common stock on the date of the beginning of the offering
period and the fair market value of common stock on the date the shareholders
approved the increase in shares authorized for issuance, multiplied by the
number of shares in the 1995 ESPP that had been subscribed for purchase by
employees, but not authorized by the shareholders, prior to the Company's
Annual Meeting of Shareholders.
In August 1998, the Board of Directors authorized the Company to
repurchase up to 450,000 shares of the Company's common stock on the open
market or in privately negotiated transactions at prices not to exceed $8.50
per share and a total purchase price not to exceed $3,825,000. During 1999, the
Company repurchased 450,000 shares at an average purchase price of $7.10 per
share.
Stock Based Compensation
At June 30, 1999, the Company had three stock-based compensation plans as
described above. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its 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 Statement of Financial Accounting Standards No. 123
("SFAS 123"), the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
June 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands, except per share
data)
Net income As reported ...... $ 2,622 $ 2,551 $ 2,757
Pro forma ......... $ 301 $ 580 $ 1,464
Basic net income per share As reported ...... $ .31 $ .30 $ .34
Pro forma ......... $ .04 $ .07 $ .18
Diluted net income per share As reported ...... $ .30 $ .29 $ .33
Pro forma ......... $ .03 $ .07 $ .17
Because the method of accounting prescribed by SFAS 123 has not been
applied to options granted prior to July 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
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, 1999,
1998 and 1997, risk-free interest rates of 4.84%, 5.77% and 6.63% for 1999,
1998 and 1997, respectively; a dividend yield of 0% for all three years; a
weighted-average expected life of 3.5, 3.4 and 3.0 years for 1999, 1998 and
1997, respectively; and a volatility factor of the expected market price of the
Company's
F-15
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
common stock of .99, .65 and .69 for 1999, 1998 and 1997, respectively. The
weighted average grant date fair value of options granted during 1999, 1998 and
1997 was $3.83, $5.86 and $3.26, respectively.
Compensation cost is estimated for the fair value of the employees'
purchase rights using the Black-Sholes model with the following assumptions for
these rights granted in 1999, 1998 and 1997: a dividend yield of 0% for all
three years; expected life of 6 months for all three years; expected volatility
of .99, .65 and .69 for 1999, 1998 and 1997, respectively; and a risk-free
interest rate of 4.78%, 5.59% and 5.27% for 1999, 1998 and 1997, respectively.
The weighted average fair market value of the purchase rights granted in 1999,
1998 and 1997 was $3.11, $2.90 and $3.45, respectively.
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.
6. Employee Savings and Investment Plan
In May 1988, the Company adopted a 401(k) savings and investment plan in
which employees are eligible to participate. In 1998 and 1997, the Company
matched the employee's contribution at a rate of $.50 per dollar, to a maximum
of $19.23 per person, per week. During 1999, the matching was suspended for
part of the year to reduce costs. The Company's matching contributions were
$125,000, $252,000, and $235,000 in 1999, 1998 and 1997, respectively.
7. Income Taxes
The provision for income taxes consists of the following:
Year Ended June 30,
-------------------------------------
1999 1998 1997
--------- ---------- ------------
(in thousands)
Current:
Federal ........................ $ 414 $ 2,852 $ 1,029
State ........................... 184 363 187
Foreign ........................... 851 330 187
------- -------- -------
Total current ............... 1,449 3,545 1,403
Deferred:
Federal ............................ 389 (1,580) (78)
State ............................ (89) (264) (16)
------- -------- -------
Total deferred .......................... 300 (1,844) (94)
------- -------- -------
Provision for income taxes .............. $ 1,749 $ 1,701 $ 1,309
======= ======== =======
F-16
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to income before
provision for income taxes is explained below:
Year Ended June 30,
--------------------------------
1999 1998 1997
--------- -------- ----------
(in thousands)
Tax at federal statutory rate ........ $ 1,486 $ 1,446 $ 1,382
State taxes, net of federal benefit .. 63 33 113
Foreign taxes ....................... 562 218 132
Tax credits .......................... (350) (180) (373)
Other ................................ (12) 184 55
------- ------- -------
Provision for income taxes ........... $ 1,749 $ 1,701 $ 1,309
======= ======= =======
Significant components of the Company's deferred tax assets and
liabilities are as follows:
June 30,
--------------------
1999 1998
------- -------
(in thousands)
Deferred tax assets:
Net operating loss carryforwards $ 459 $ 550
Tax credit carryforwards ..................... 553 377
Inventory valuation accounts 1,146 1,218
Warranty reserves 785 628
Other accruals and reserves not currently
deductible for tax purposes ................ 2,239 2,648
Other 202 229
------- -------
Total deferred tax assets 5,384 5,650
Valuation allowance (836) (927)
------- -------
Net deferred tax assets 4,548 4,723
------- -------
Deferred tax liabilities:
Foreign earnings (410) (285)
------- -------
Net deferred tax liabilities (410) (285)
------- -------
Total net deferred tax assets $ 4,138 $ 4,438
======= =======
The change in the valuation allowance was a net increase of approximately
$143,000 for 1998.
At June 30, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $1.3 million, which if unused,
will expire beginning in 2001. The Company also had credit carryforwards of
approximately $350,000, which if unused, will expire beginning in 1999.
Utilization of the net operating loss carryforwards and the tax credit
carryforwards is limited to approximately $300,000 per year.
For financial reporting purposes, a valuation allowance of $836,000 has
been established to offset the deferred tax assets related to certain tax
credits and net operating loss carryforwards.
Pretax income (losses) from foreign operations was approximately $1.5
million, ($605,000), and ($271,000) in 1999, 1998 and 1997, respectively.
F-17
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
8. Net Income Per Share
Net income per share is calculated as follows:
Year Ended June 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands, except per share amounts)
Net income ................................. $ 2,622 $ 2,551 $ 2,757
======== ======== ========
Basic:
Weighted-average shares outstanding ...... 8,590 8,455 8,062
======== ======== ========
Net income per share ..................... $ .31 $ .30 $ .34
======== ======== ========
Diluted:
Weighted-average shares outstanding ...... 8,590 8,455 8,062
Effect of dilutive securities:
Stock options ........................... 98 468 380
-------- -------- --------
Weighted-average shares outstanding ...... 8,688 8,923 8,442
======== ======== ========
Net income per share ..................... $ .30 $ .29 $ .33
======== ======== ========
Stock options to purchase 160,480; 463,054 and 120,007 shares of common
stock were outstanding during the years ended June 30, 1999, 1998 and 1997,
respectively, but were not included in the calculations of diluted EPS because
the option's exercise price was greater than the average market price of the
Company's common shares during those years. The options that were antidilutive
in 1999 may be dilutive in future years' calculations as they were still
outstanding at June 30, 1999.
9. Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information," in 1999. SFAS 131 establishes standards for reporting information
about operating segments and related disclosures about products, geographic
information and major customers. The Company conducts its business
predominantly within one business segment, namely, providing intelligent
automation software and hardware products for assembly, material handling and
packaging applications. Management assesses the Company's performance, measures
the Company's operations and assets on a single segment basis.
F-18
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(Continued)
Although the Company operates in a single segment, revenues and long-lived
assets are tracked by geographic areas, and are summarized in the following
table:
Year Ended June 30,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(in thousands)
Revenue:
United States .................. $ 40,819 $ 58,584 $ 53,138
Germany ........................ 12,702 10,088 7,764
France ........................ 10,990 11,834 8,497
Other European countries ...... 12,908 12,815 8,646
All other countries ............ 4,608 5,073 4,722
--------- --------- ---------
$ 82,027 $ 98,394 $ 82,767
========= ========= =========
Long-lived assets:
United States .................. $ 5,594 $ 5,520 $ 5,406
All other countries ............ 473 508 596
--------- --------- ---------
$ 6,067 $ 6,028 $ 6,002
========= ========= =========
No single customer accounted for more than 10% of the Company's net
revenue in 1999, 1998 and 1997.
10. Subsequent event
On July 14, 1999, the Company acquired BYE/Oasis Engineering, Inc.
("BYE/Oasis") through the issuance of 720,008 shares of the Company's common
stock, which were exchanged for all of the outstanding capital stock of
BYE/Oasis. In addition, options to purchase an aggregate of 185,361 shares of
the Company's common stock were assumed in the acquisition. The acquisition was
intended to constitute a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986. The Company intends to account for the
acquisition as a pooling of interests.
F-19
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, 1997:
Allowance for doubtful accounts $ 465 $ 129 $ 145 $ 449
Year ended June 30, 1998:
Allowance for doubtful accounts 449 346 343 452
Year ended June 30, 1999:
Allowance for doubtful accounts 452 320 135 637
<FN>
- ------------
(1) Includes write offs net of recoveries.
</FN>
S-1