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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-27122
ADEPT TECHNOLOGY, INC.
----------------------
(Exact name of Registrant as specified in its charter)
California 94-2900635
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 Rose Orchard Way
San Jose, California 95134
- ---------------------------------------- ------------------------------------
(Address of Principal executive offices) (Zip Code)
(408) 432-0888
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and, (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of shares of the Registrant's common stock outstanding as of March
28, 1998 was 8,624,683.
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<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
INDEX
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
March 28, 1998 and June 30, 1997.......................................................... 3
Condensed Consolidated Statements of Income
Three and nine month periods ended March 28, 1998 and March 29, 1997...................... 4
Condensed Consolidated Statements of Cash Flows
Nine month periods ended March 28, 1998 and March 29, 1997................................ 5
Notes to Condensed Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................ 15
Signatures...................................................................................... 16
Index to Exhibits............................................................................... 17
</TABLE>
2
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<TABLE>
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
March 28, June 30,
1998 1997 (1)
------- -------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $11,212 $11,101
Short term investments 10,391 7,366
Accounts receivable, less allowance for doubtful accounts of
$504 at March 28, 1998 and $449 at June 30, 1997 20,280 17,250
Inventories 16,432 13,096
Deferred tax assets and prepaid expenses 3,561 2,517
------- -------
Total current assets 61,876 51,330
Property and equipment at cost 21,300 18,412
Less accumulated depreciation and amortization 15,189 13,184
------- -------
Net property and equipment 6,111 5,228
Long term investments -- 1,000
Intangible assets related to acquisition of SILMA Incorporated, net of
accumulated amortization of $850 at March 28, 1998
and $642 at June 30, 1997 482 774
Other assets 798 1,161
------- -------
Total assets $69,267 $59,493
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 345 $ --
Accounts payable 5,669 3,927
Other accrued liabilities 10,751 8,445
Current portion of obligations under capital leases 6 27
------- -------
Total current liabilities 16,771 12,399
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; 8,625 issued and outstanding
at March 28, 1998 and 8,240 at June 30, 1997 49,040 46,897
Retained earnings 3,456 197
------- -------
Total shareholders' equity 52,496 47,094
------- -------
Total liabilities and shareholders' equity $69,267 $59,493
======= =======
<FN>
(1) Amount derived from the Company's audited financial statements for the year ended June 30, 1997
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
3
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<TABLE>
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three months ended Nine months ended
---------------------- ----------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $23,669 $21,104 $76,115 $58,428
Cost of revenues 13,445 12,299 43,361 34,597
------- ------- ------- -------
Gross margin 10,224 8,805 32,754 23,831
Operating expenses:
Research, development and engineering 2,647 2,305 7,676 6,335
Selling, general and administrative 6,284 5,474 19,362 15,954
Nonrecurring compensation charge -- -- 675 --
------- ------- ------- -------
Total operating expenses 8,931 7,779 27,713 22,289
------- ------- ------- -------
Operating income 1,293 1,026 5,041 1,542
Interest income, net 259 181 745 478
------- ------- ------- -------
Income before provision for income taxes 1,552 1,207 5,786 2,020
Provision for income taxes 621 362 2,315 655
------- ------- ------- -------
Net income $ 931 $ 845 $ 3,471 $ 1,365
======= ======= ======= =======
Net income per share $ .11 $ .10 $ .41 $ .17
======= ======= ======= =======
Net income per share - assuming dilution $ .10 $ .10 $ .39 $ .16
======= ======= ======= =======
Shares used in computing basic net income per share 8,499 8,091 8,380 8,019
======= ======= ======= =======
Shares used in computing diluted net income per share 8,949 8,464 8,913 8,409
======= ======= ======= =======
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
4
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<TABLE>
ADEPT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine months ended
----------------------------
March 28, March 29,
1998 1997
-------- --------
<S> <C> <C>
Operating activities
Net income $ 3,471 $ 1,365
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,237 2,168
Gain on disposal of property and equipment (58) (1)
Tax benefit from stock plans 53 73
Nonrecurring compensation charge 675 --
Changes in operating assets and liabilities:
Accounts receivable (2,918) 1,712
Inventories (3,455) 309
Deferred tax assets and prepaid expenses (1,044) (435)
Other assets 363 (47)
Accounts payable 1,730 (1,064)
Other accrued liabilities 1,988 1,914
-------- --------
Total adjustments (429) 4,629
-------- --------
Net cash provided by operating activities 3,042 5,994
-------- --------
Investing activities
Purchase of property and equipment, net (2,400) (1,615)
Proceeds from sale of property and equipment 227 86
Purchases of long term available for sale investments -- (1,000)
Proceeds from sale of long term available for sale investments 1,000 --
Purchases of short term available for sale investments (15,903) (14,757)
Proceeds from sale of short term available for sale investments 12,878 12,877
-------- --------
Net cash used in investing activities (4,198) (4,409)
-------- --------
Financing activities
Principal payment for capital lease obligations (34) (70)
Proceeds from employee stock incentive program
and employee stock purchase plan 1,301 813
-------- --------
Net cash provided by financing activities 1,267 743
-------- --------
Increase in cash and cash equivalents 111 2,328
Cash and cash equivalents, beginning of period 11,101 8,075
-------- --------
Cash and cash equivalents, end of period $ 11,212 $ 10,403
======== ========
Supplemental disclosure of noncash activities:
Inventory capitalized into property, equipment and related tax $ 594 $ 497
Addition to capital lease obligation $ 13 $ --
Cash paid during the period for:
Interest $ 14 $ 11
Taxes $ 3,629 $ 470
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
5
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
1. General
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles.
However, certain information or footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
information furnished in this report reflects all adjustments which, in
the opinion of management, are necessary for a fair statement of the
consolidated financial position, results of operations and cash flows
as of and for the interim periods. Such adjustments consist of items of
a normal recurring nature. The condensed consolidated financial
statements included herein should be read in conjunction with the
audited financial statements and notes thereto for the fiscal year
ended June 30, 1997 included in the Company's Form 10-K as filed with
the Securities and Exchange Commission on September 26, 1997. Results
of operations for interim periods are not necessarily indicative of the
results of operations that may be expected for the fiscal year ending
June 30, 1998 or for any other future period.
2. Financial Instruments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Short-term investments consist principally of commercial paper and tax
exempt municipal bonds with maturities between three and twelve months,
market auction rate preferred stock and auction rate notes with
maturities of twelve months or less. Long-term investments consist of
U.S. government agency securities with maturities exceeding twelve
months. Investments are classified as held-to-maturity, trading, or
available-for-sale at the time of purchase.
At March 28, 1998 and June 30, 1997, 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 fiscal period. The cost of the securities
is based upon the specific identification method. Realized gains or
losses, interest, and dividends are included in interest income. During
fiscal year 1997 and the nine months ended March 28, 1998, realized and
unrealized gains and losses on available for sale investments were not
material.
3. Inventories
Inventories are summarized as follows:
March 28, June 30,
1998 1997
------- -------
Raw materials $ 7,808 $ 6,323
Work-in-process 5,659 3,509
Finished goods 2,965 3,264
------- -------
$16,432 $13,096
======= =======
6
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ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
4. Property and Equipment
Cost of property and equipment is summarized as follows:
March 28, June 30,
1998 1997
------- -------
Machinery and equipment $11,995 $11,008
Computer equipment 6,723 5,211
Office furniture and equipment 2,582 2,193
------- -------
$21,300 $18,412
======= =======
5. Stock Compensation
The Company reported a charge of $675,000 in the second quarter of
fiscal 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 Employee Stock Purchase Plan ("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 ESPP on October 31,
1997.
6. Income Taxes
The Company provides for income taxes during interim reporting periods
based upon an estimate of its annual effective tax rate. This estimate
reflects the utilization of tax credits, offset by taxes on the
Company's foreign operations.
7. Net Income per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share". Statement 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the
previously recorded fully diluted earnings per share. All earnings per
share amounts for all periods have been restated to conform to the
Statement 128 requirement.
7
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
<TABLE>
The following table sets forth the computation of basic and diluted
earnings per share:
<CAPTION>
Three months ended Nine months ended
------------------ ------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 931 $ 845 $3,471 $1,365
------ ------ ------ ------
For basic and diluted earnings per share
- income available to common
stockholders $ 931 $ 845 $3,471 $1,365
====== ====== ====== ======
Denominator:
For basic earnings per share
- weighted average shares 8,499 8,091 8,380 8,019
Effect of dilutive securities
- employee stock options 450 373 533 390
------ ------ ------ ------
For diluted earnings per share
- adjusted weighted average shares
and assumed conversion 8,949 8,464 8,913 8,409
====== ====== ====== ======
</TABLE>
8. Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income". This statement requires that
all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This statement is effective for fiscal years beginning
after December 15, 1997, and will be adopted by the Company for the
year ended June 30, 1999.
In addition, during June 1997, the Financial Accounting Standards Board
issued Statement No. 131, "Disclosures About Segments of an Enterprise
and Related Information". This statement replaces Statement No. 14 and
changes the way public companies report segment information. This
statement is effective for fiscal years beginning after December 15,
1997 and will be adopted by the Company for the year ended June 30,
1999.
Adoption of these pronouncements is not expected to have a material
impact on the Company's financial statements.
9. Reclassification
Certain amounts presented in the financial statements for fiscal 1997
have been reclassified to conform to the presentation for fiscal 1998.
8
<PAGE>
ADEPT TECHNOLOGY, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: the potential fluctuations in the Company's
quarterly and annual results of operations; the cyclicality of capital spending
of the Company's customers; the Company's dependence on the continued growth of
the intelligent automation market; the risks associated with sole or single
sources of supply and lengthy procurement lead times; the Company's highly
competitive industry; rapid technological change within the Company's industry;
the lengthy sales cycles for the Company's products; the risks associated with
reliance on system integrators; the risks associated with international sales
and purchases; the risks associated with potential acquisitions and the need to
manage growth; the risks associated with new product development and the need to
manage product transitions, including any difficulties or delays in the
development, production, testing and marketing of the Company's new products
under development; the Company's dependence on retention and attraction of key
employees; the risks associated with product defects; the Company's dependence
on third-party relationships; the uncertainty of patent and proprietary
technology protection and third party intellectual property claims; changes in,
or failure or inability to comply with, government regulations; general economic
and business conditions; the failure of any new products to be accepted in the
marketplace; decreased investment in robotics generally, and in the Company's
intelligent automation products particularly, as a result of general or specific
economic conditions or conditions affecting any of the Company's primary
markets; decreased acceptance of the Company's current products in the
marketplace; and the other factors referenced in this Management's Discussion
and Analysis of Financial Condition and Results of Operations and the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997, in
particular the section titled "Significant Fluctuations in Operating Results".
OVERVIEW
The Company designs, manufactures and markets intelligent automation software
and hardware products for assembly, material handling and packaging
applications. The Company's 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, the Company has expanded its robot product lines and developed
advanced software and sensing technologies that have enabled robots to perform a
wider range of functions. The Company has expanded its channel of system
integrators and its international sales and marketing operations. As a result of
these developments, the nature and composition of the Company's revenues have
changed over time. Specifically, software license and service revenues, although
still relatively insignificant, have increased as a percentage of total
revenues, and international sales comprise a significant portion of the
Company's revenues.
9
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ADEPT TECHNOLOGY, INC.
The Company sells its products through system integrators, its direct sales
force and original equipment manufacturers ("OEMs"). System integrators and OEMs
add application-specific hardware and software to the Company's products,
thereby enabling the Company to provide solutions to a diversified industry
base, including the electronics, telecommunications, appliances, pharmaceutical,
food processing and automotive components industries. Net revenues have
increased in each of the Company's last three fiscal years; however, there can
be no assurance that the Company's net revenues will continue to grow or that
the Company will be profitable in future periods. Accordingly, the Company's
historical results of operations should not be relied upon as an indication of
future performance.
Results of Operations
Three Month and Nine Month Periods Ended March 28, 1998 and March 29, 1997
Net revenues. The Company's net revenues increased by 12.2% to $23.7 million for
the three months ended March 28, 1998 from $21.1 million for the three months
ended March 29, 1997. The Company's net revenues increased by 30.3% to $76.1
million for the nine months ended March 28, 1998 from $58.4 million for the nine
months ended March 29, 1997. The growth in net revenues for the three and nine
months ended March 28, 1998 was primarily due to increased product sales,
including robot and motion controller sales, and increased service and upgrade
revenues, including revenues from the Company's Rapid Deployment Automation
(RDA) Services group which provides engineering contract services. Revenue
growth slowed substantially in the three months ended March 31,1998 relative to
the prior six month period, however, primarily as a result of lower sales to the
computer disk-drive and telecommunications industries. The Company does not
believe that a revival in these key hardware markets will occur before the end
of calendar year 1998, if at all.
International sales, including sales to Canada, were $9.0 million or
approximately 38.1% of net revenues for the three months ended March 28, 1998 as
compared with $6.7 million or 31.5% of net revenues for the three months ended
March 29, 1997. International sales, including sales to Canada, were $29.4
million or approximately 38.6% of net revenues for the nine months ended March
28, 1998 as compared with $20.7 million or 35.5% of net revenues for the nine
months ended March 29, 1997. While the Company's 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
customers who have seen their Asian-Pacific revenues decline. This was a leading
cause in the Company's declining revenue growth for the period ending March 31,
1998 relative to the prior six month period.
Gross margin. Gross margin percentage was 43.2% for the three months ended March
28, 1998 compared to 41.7% for the three months ended March 29, 1997. Gross
margin percentage was 43.0% for the nine months ended March 28, 1998 compared to
40.8% for the nine months ended March 29, 1997. The increase in gross margin for
the three and nine months ended March 28, 1998 was attributable primarily to
increased sales of higher margin products, including mechanism systems, motion
controllers, and to a lesser extent, to increased service and upgrade revenues,
including the Company's new RDA engineering contract services. In addition, the
Company experienced a decrease in sales to the computer disk-drive industry,
which are generally at lower margins. The Company expects to continue to
experience quarterly fluctuations in its gross margin percentage due to changes
in its sales and product mix.
10
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ADEPT TECHNOLOGY, INC.
Research, Development and Engineering. Research, development and engineering
expenses increased by 14.8% to $2.6 million for the three months ended March 28,
1998 from $2.3 million for the three months ended March 29, 1997. Research,
development and engineering expenses increased by 21.2% to $7.7 million for the
nine months ended March 28, 1998 from $6.3 million for the nine months ended
March 29, 1997. The increase in both the three and nine month periods was
primarily due to increases in compensation related expenses, and to a lesser
extent, to increases in information system related expenses and a lower level of
third party development funding. Research, development and engineering expenses
for the three months ended March 28, 1998 were partially offset by $130,000 of
third party development funding as compared with $199,000 of third party
development funding for the three months ended March 29, 1997. Research,
development and engineering expenses for the nine months ended March 28, 1998
were partially offset by $455,000 of third party development funding as compared
with $711,000 of third party development funding for the nine months ended March
29, 1997. The Company expects that it will continue to receive third party
development funding from the federal and California state governments during
fiscal 1998. There can be no assurance, however, that any funds budgeted by
either government for the Company's development projects will not be curtailed
or eliminated at any time.
As a percentage of net revenues, research, development and engineering expenses
increased to 11.2% for the three months ended March 28, 1998 from 10.9% for the
three months ended March 29, 1997. As a percentage of net revenues, research,
development and engineering expenses decreased to 10.1% for the nine months
ended March 28, 1998 from 10.8% for the nine months ended March 29, 1997.
Research, development and engineering expenses as a percentage of net revenues
fluctuated due to the relative growth in the level of net revenues in the three
and nine months ended March 28, 1998 as compared to the same periods in the
prior year.
Selling, General and Administrative. Selling, general and administrative
expenses increased 14.8% to $6.3 million or 26.5% of net revenues for the three
months ended March 28, 1998, as compared with $5.5 million or 25.9% of net
revenues for the three months ended March 29, 1997. Selling, general and
administrative expenses increased 21.4% to $19.4 million or 25.4% of net
revenues for the nine months ended March 28, 1998, as compared with $16.0
million or 27.3% of net revenues for the nine months ended March 29, 1997. The
increased level of spending for both the three and nine months ended March 28,
1998 was primarily attributable to increased headcount and compensation related
expenses, and to a lesser extent, higher travel expenses and information system
related expenses. Selling, general and administrative expenses as a percentage
of net revenues fluctuated due to the relative growth in the level of net
revenues in the three and nine month periods ended March 28, 1998 as compared to
the same periods in the prior year. The Company expects that selling, general
and administrative expenses will continue to fluctuate as a percentage of net
revenues.
Compensation charge. The Company reported a charge of $675,000 in the second
quarter of fiscal 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 Employee Stock Purchase
Plan ("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 ESPP on October 31, 1997.
Interest Income, Net. Interest income, net for the three months ended March 28,
1998 was $259,000, compared to $181,000 for the three months ended March 29,
1997. Interest income, net for the nine months ended March 28, 1998 was
$745,000, compared to $478,000 for the nine months ended March 29, 1997. The
increase in net interest income was due to increased cash levels generated
primarily from operating activities as well as higher investment yields.
11
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ADEPT TECHNOLOGY, INC.
Provision for Income Taxes. The Company's effective tax rate for the three and
nine month periods ended March 28, 1998 was 40%, as compared with 30% and 32%
for the three and nine month periods ended March 29, 1997, respectively. The
Company's tax rate differs from the statutory income tax rate primarily due to
the benefit of federal and state tax credits.
Derivative Financial Instruments. The Company's product sales are predominantly
denominated in U.S. dollars. However, certain international operating expenses
are predominately paid in their respective local currency. The Company generally
does not hedge its exposure to foreign currency exchange risk on local
operational expenses and revenues. Although the Company believes 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 the Company will not incur foreign
exchange transaction losses which will have an adverse effect on the Company's
results of operations. The Company makes 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, the Company manages the
currency risk associated with the yen-denominated purchases using forward rate
currency contracts.
Significant Fluctuations in Operating Results
The Company's operating results have historically been, and will continue to be,
subject to significant quarterly and annual fluctuations due to a number of
factors, including fluctuations in capital spending domestically and
internationally or in one or more industries to which the Company sells its
products, new product introductions by the Company or its competitors, changes
in product mix and pricing by the Company, its suppliers or its competitors,
availability of components and raw materials, failure to manufacture a
sufficient volume of products in a timely and cost-effective manner, failure to
introduce new products on a timely basis, failure to anticipate changing
customer product requirements, lack of market acceptance or shifts in the demand
for the Company's products, changes in the mix of sales by distribution channel,
changes in the spending patterns of the Company's customers, and extraordinary
events such as litigation or acquisitions. The Company's gross margins may vary
greatly depending on the mix of sales of lower margin hardware products,
particularly mechanical subsystems sourced from third parties, and higher margin
software products. For example, the Company's results of operations during the
quarter ended March 28, 1998 were adversely affected by a continuing downturn in
hardware purchases by customers in the electronics industry, particularly by
computer disk-drive and telecommunication manufacturers. Sales to the
electronics industry constitute a significant portion of the Company's business,
and continuing weakness in the computer disk-drive and telecommunication markets
could have an adverse effect on results of operations in future periods. The
Company does not believe that a revival in these key hardware markets will occur
before the end of calendar year 1998, if at all.
The Company's operating results will also be affected by general economic and
other conditions affecting the timing of customer orders and capital spending.
The Company generally recognizes product revenue upon shipment or, for certain
international sales, upon receipt by the customer. The Company's net revenues
and results of operations for a period will therefore be affected by the timing
of orders received and orders shipped during such period. A delay in shipments
near the end of a period, due for example to delays in product development or
delays in obtaining materials, could materially adversely affect the Company's
business, financial condition and results of operations for such period.
Moreover, continued investments in research and development, capital equipment
and ongoing customer service and support capabilities will result in significant
fixed costs which the Company will not be able to reduce rapidly and, therefore,
if the Company's sales for a particular period are below expected levels, the
Company's business, financial condition and results of operations for such
period could be materially adversely
12
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ADEPT TECHNOLOGY, INC.
affected. In addition, while in some years revenue from international sales has
helped buffer the Company against slowdowns in U.S. capital spending, in other
years the higher costs associated with international sales, combined with
downturns in international markets, have adversely affected the Company's
results of operations. In particular, continuing instability in the
Asian-Pacific economies could also have an adverse effect on the results of the
Company's operations as a result of reduction in sales by the Company's domestic
customers in the Asian-Pacific markets. There can be no assurance that the
Company will be able to increase or sustain profitability on a quarterly or
annual basis in the future.
The Company has experienced and is expected to continue to experience
seasonality in product bookings. The Company has typically had higher bookings
for its products during the June quarter of each year and lower bookings during
the September quarter of each year, due primarily to the summer slowdown in
sales to European markets. The Company has generally been able to maintain
revenue levels during the September quarter by utilizing backlog from the June
quarter. In the event bookings for the Company's products in the June quarter
are lower than anticipated and the Company's backlog at the end of the June
quarter is insufficient to compensate for lower bookings in the September
quarter, the Company's results of operations for the September quarter and
future quarters could be materially adversely affected. In fact, in the
September quarter of fiscal 1997, sales to European and other international
markets decreased substantially, as several large orders were delayed by
customers. The decrease in product bookings resulted in decreased net revenues
for the September quarter of fiscal 1997.
In the event product bookings and net revenues for any quarter are insufficient
to compensate for the lower product bookings in a prior quarter, the Company's
results of operations for that quarter and future quarters could be materially
adversely affected. In fact, during fiscal 1998, the Company has been impacted
by a slowdown in the disk drive and telecommunications markets.
In addition, a significant percentage of the Company's product shipments occur
in the last month of each quarter. Historically this has been due to a lack of
component availability from sole or single source suppliers or, with respect to
components with long procurement lead times, due to inaccurate forecasting of
the level of demand for the Company's products or of the product mix for a
particular quarter. The Company has therefore from time to time been required to
utilize components and other materials for current shipments which were
scheduled to be incorporated into products to be shipped in subsequent periods.
If the Company were unable to obtain additional components or mechanical
subsystems to meet increased demand for its products, or to meet demand for a
product mix which differed from the forecasted product mix, or if for any reason
the Company failed to ship sufficient product prior to the end of the quarter,
the Company's business, financial condition and results of operations could be
materially adversely affected.
Year 2000 Impact on Information Technology Budgets
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.
The Company has recently 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 its internal business processes, to obtain appropriate
assurances of compliance from the manufacturers of these products and agreement
to modify or replace all non-compliant products. In addition, the Company is
considering converting certain of its software and systems to commercial
products that are known to be Year 2000 compliant, in particular by implementing
an enterprise resource planning system from a third-party vendor. Implementation
of software products of third parties, however, will require the dedication of
substantial administrative and management information resources, the assistance
of
13
<PAGE>
ADEPT TECHNOLOGY, INC.
consulting personnel from third party software vendors and the training of the
Company's personnel using such systems. Based on the information available to
date, the company believes it will be able to complete its Year 2000 compliance
review and make necessary modifications prior to the end of 1999. Software or
systems which are deemed critical to the Company's business are scheduled to be
Year 2000 compliant by the end of calendar year 1998. Nevertheless, particularly
to the extent the Company is relying on the products of other vendors to resolve
Year 2000 issues, there can be no assurances that the Company 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
the Company were to experience delays implementing Year 2000 compliant software
products, the Company could incur substantial costs and disruption of its
business, which would potentially have a material adverse effect on the
Company's business and results of operations.
The Company in its ordinary course of business tests and evaluates its own
software products. The Company believes that its 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 the Company's
software products with respect to four digit date dependent data or the ability
of such products to correctly create, store, process and output information
related to such date data. To the extent the Company's software products are not
fully Year 2000 compliant, there can be no assurance that the Company's software
products contain all necessary software routines and codes necessary for the
accurate calculation, display, storage and manipulation of data involving dates.
To the extent that the Company's products are sold through system integrators or
other third parties, there can be no assurances that users of the Company's
products will not experience Year 2000 problems as a result of the integration
of the Company's software with noncompliant Year 2000 products of such third
party suppliers. In addition, in certain circumstances, the Company has
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 the Company's licensees
experience Year 2000 problems, such licensees could assert claims for damages
against the Company.
To date the Company has not identified a complete and separate budget for
investigating and remedying issues related to Year 2000 compliance whether
involving the Company's own software products or the software or systems used in
its internal operations. The Company has incurred costs and expects to incur
approximately $2.5 million in connection with its implementation of a new
enterprise resource planning software system, which is Year 2000 compliant.
There can be no assurances that company resources spent on investigating and
remedying Year 2000 compliance issues will not have a material adverse effect on
the Company's business, financial condition and results of operations.
Liquidity and Capital Resources
As of March 28, 1998, the Company had working capital of approximately $45.1
million, including $11.2 million in cash and cash equivalents and $10.4 million
in short-term investments.
The Company's cash requirements during the nine months ended March 28, 1998 were
met primarily through cash provided by operations and investing activities, and
to a lesser extent, to financing activities. Cash, cash equivalents and
investments increased $2.1 million from June 30, 1997, primarily as a result of
$3.0 million of cash generated from operating activities, $1.3 million from
financing activities, offset by $2.4 million of capital expenditures.
Net cash provided by operating activities was primarily attributable to net
income adjusted by depreciation and amortization, the nonrecurring compensation
charge, increased accounts payable and accrued liabilities, offset by higher
accounts receivable arising from increased revenue, and higher inventory levels.
Financing activities consisted mainly of proceeds from employee stock incentive
purchase plans.
14
<PAGE>
ADEPT TECHNOLOGY, INC.
The Company currently anticipates capital expenditures of approximately $3.8
million during fiscal 1998, including approximately $1.2 million for test
fixtures, tooling and other factory investments, approximately $1.1 million for
MIS equipment and approximately $1.5 million for laboratory and other equipment.
Included in the MIS expenditures are costs associated with an enterprise
resource planning software system which is intended in part to address issues
concerning Year 2000 compliance with the Company's internal MIS systems. This
system, if successfully implemented, is expected to make the Company compliant
in regards to Year 2000 for its internal MIS systems.
The Company believes 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 the Company's working capital requirements for at least
the next twelve months.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPRTS ON FORM 8-K
a) The Exhibits listed on the accompanying index immediately
following the signature page are filed as part of this report.
b) Reports on Form 8-K. On February 20, 1998, the Company filed a
Current Report on Form 8-K as required by Item 9 of such form. The
Form 8-K related to the issuance of shares of the Company's Common
Stock in reliance on the exemption from registration set forth in
Regulation S of the Securities Act of 1933, as amended. The
Company issued such shares in connection with its acquisition of
RoboElektronik GmbH, a limited liability company organized under
the laws of Germany.
15
<PAGE>
ADEPT TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
Date: May 12, 1998 By: /s/ Brian R. Carlisle
-------------------------------
Brian R. Carlisle
Chairman of the Board and Chief
Executive Officer
Date: May 12, 1998 By: /s/ Betsy A. Lange
-------------------------------
Betsy A. Lange
Vice President of Finance and
Chief Financial Officer
16
<PAGE>
ADEPT TECHNOLOGY, INC.
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
EXHIBITS PAGE
- --------------------------------------------------------------------------------
21.1 Subsidiaries 18
27.1 Financial Data Schedule. 19
17
Exhibit 21.1
SUBSIDIARIES
Adept Technology, S.A.R.L., a French corporation
Adept Technology International Ltd., a California corporation
Adept Technology GmbH, a German limited liability Company
Adept Technology Italia Srl, an Italian corporation
Adept Technology 1996 Foreign Sales Corporation, a Barbados corporation
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 28, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED MARCH 28, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-28-1998
<CASH> 11,212
<SECURITIES> 10,391
<RECEIVABLES> 20,784
<ALLOWANCES> 504
<INVENTORY> 16,432
<CURRENT-ASSETS> 61,876
<PP&E> 21,300
<DEPRECIATION> 15,189
<TOTAL-ASSETS> 69,267
<CURRENT-LIABILITIES> 16,771
<BONDS> 0
49,040
0
<COMMON> 0
<OTHER-SE> 3,456
<TOTAL-LIABILITY-AND-EQUITY> 69,267
<SALES> 76,115
<TOTAL-REVENUES> 76,115
<CGS> 43,361
<TOTAL-COSTS> 71,074
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 5,786
<INCOME-TAX> 2,315
<INCOME-CONTINUING> 3,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,471
<EPS-PRIMARY> .41
<EPS-DILUTED> .39
</TABLE>
