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ADEP > SEC Filings for ADEP > Form 10-K on 20-Sep-2013All Recent SEC Filings

Show all filings for ADEPT TECHNOLOGY INC

Form 10-K for ADEPT TECHNOLOGY INC


20-Sep-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We provide intelligent robotics systems, the cores of which are our motion controls systems, integrated vision-guidance technology and application software. They are sold in combination with our own proprietary robot mechanisms. Our vision-guidance technology is tightly integrated with our motion controls technology, and this is a key differentiator for Adept. Our two acquisitions described below have provided autonomous robot and fleet management capabilities that enhance our offerings for target markets, as well as unique gripping technology that expands our reach into the global food processing market.
In addition, we provide a full complement of robotics services and support for our customers. Through sales to systems integrators, OEM partners and end-user companies, we sell our robotics systems and services into a few broad industries where we believe we can provide the best solutions for particular applications. We operate in two segments: Robotics and Services and Support. Acquisitions
On January 10, 2011, we acquired InMoTx, Inc., a Danish privately-held provider of robotic platform solutions and gripping technology for the global food processing market. Pursuant to a merger agreement dated January 4, 2011, we paid $1.5 million in cash, and issued 199,979 shares of our common stock to InMoTx shareholders. All of these shares were made subject to a holdback arrangement to secure the InMoTx shareholder indemnity obligations for an eighteen month period. We also issued 100,000 shares of our common stock to the InMoTx chief technology officer, to vest on the third anniversary of the merger, contingent upon his continued employment by Adept or a subsidiary, subject to certain exceptions for disability, termination without cause or termination for good reason or a change of control. On September 20, 2011, the InMoTx chief technology officer entered into a separation agreement with the Company to terminate employment on January 31, 2012. Of the 100,000 share grant issued upon the merger, 80,500 shares were forfeited as of September 20, 2011, and the remaining 19,500 shares vested on June 30, 2012. In the third quarter of fiscal 2012, we agreed upon indemnification amounts of $508,000 due from the former shareholders of InMoTx relating to customer claims for matters arising prior to the acquisition by Adept. Of the 199,979 shares issued on the merger date for the acquisition of InMoTx, 119,145 shares were forfeited by the holders and returned to Adept in the fourth quarter of fiscal 2012.
We also agreed to make certain contingent annual payments in cash to the former InMoTx shareholders and to the chief technology officer in an amount equal to ten percent (10%) and two percent (2%), respectively, of the revenues InMoTx achieves in excess of specified thresholds during the three annual periods following the merger date, the fair value of which at June 30, 2013 was $0. The results of InMoTx's operations have been included in our consolidated financial statements since January 11, 2011.
In October 2011, we announced the decision to consolidate the InMoTx operations in Denmark into our Pleasanton, California operations. Consolidation activities began during the second quarter of fiscal 2012, and were completed by June 30, 2012. See Note 4 to the Consolidated Financial Statements for further information regarding the acquisition of InMoTx.
On June 25, 2010, we acquired MobileRobots Inc., a privately-held provider of autonomous robot and automated guided vehicle technologies based in New Hampshire, pursuant to a merger agreement dated June 13, 2010, under which we paid approximately $1.0 million in cash and issued 763,359 shares of our common stock. We also agreed to pay bonus amounts in cash up to an aggregate $320,000 to employees of MobileRobots if certain MobileRobots product revenue targets were met for fiscal 2011. MobileRobots fiscal 2011 revenues met the minimum revenue threshold defined in the merger agreement, and a bonus of $100,000 was paid in the first quarter of fiscal 2012.
The results of MobileRobots' operations have been included in our consolidated financial statements since June 25, 2010. See Note 4 to the Consolidated Financial Statements for further information regarding the acquisition of MobileRobots.
Strategy
We strive to develop innovative and proprietary products and solutions that meet the needs of our customers and that are based on our core expertise in industrial robots, vision guidance and autonomous vehicle technologies. In pursuit of our strategy, we intend to:

Accelerate the launch of our mobile robot products into the global market
- Our global markets for mobile products include Small Flexible Manufacturing, Semiconductor, Logistics and Warehousing.


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Revitalize our core business and expand our packaging channels with our SoftPIC technology - Our global markets for our industrial products include small flexible manufacturing, food and packaging within our capacity range of 7.5 lbs and below.

Grow our services business - Offer our customers a broader selection of support mechanisms.

Our Actions in Support of our Strategy

We intend to integrate strategic relationships from core markets that will drive volume and visibility. A few of our recent wins include a $2.6 million order in the small electronics market and equally large wins in the food market within North America. These are two examples of this practice now beginning to take shape.

We intend to have collaborative new product market development for innovative products driving a change in our product mix.

We intend to continue to accelerate our service and support revenues with existing product offerings and new product offerings moving forward.

We have set country specific sales objectives to reduce our cost of selling our products as we grow our company.

We intend to introduce scalability in engineering, our supply chain, and our assembly and test process worldwide.

We continue to foster our culture by providing our employees with clear direction, a focus on accountability and execution, and bottom line cash.

Trends in Our Business
During fiscal 2013, our revenues declined 29% compared with the previous year. This was driven primarily by weakened demand in some of our traditional markets such as solar and disk drives and by weak economic climates in North America and Europe, most notably France.

We saw bright spots in the small parts manufacturing areas, in particular the consumer electronics business in Europe and Asia. We received a large order for both Cobras and Vipers for installation in a world-leading electric razor manufacturer in the Netherlands as they added capacity for new products. We also received a large order from a new customer in Taiwan for Cobras which will be used for precision assembly of smart phone components.

As a result of our continued focus in the food processing sector, Adept won business with two Tier I food companies, both headquartered in the United States. One company will utilize Adept products related to chicken processing and the other company will integrate our products into a complex packaging process. Both customers selected Adept as a result of our ability to reduce their labor costs while improving their product quality. We believe both customers will have significant long-term relationships with Adept.

We have been pleased with the reception of our new generation of mobile robots announced in January at the Automate show in Chicago. Over the latter half of the fiscal year an existing semiconductor customer ordered 10 additional handlers, increasing their Adept robot installed base to 25 units. A well-known luxury watch manufacturer, ordered two Lynx products. We believe this is the start of a long-term relationship with this customer. We also received an order for two Lynx products from a leading lift-truck manufacturer. We believe that this has the potential to become a strategic relationship.
On a geographic basis, our U.S. sales declined 34% in fiscal 2013 compared with the prior year and accounted for 26% of total revenue in fiscal 2013 compared to 28% in the previous year. The decrease in U.S. sales was primarily due to lower sales of mobile solutions for universities and labs and lower sales in the packaging markets.
In Asia, sales declined 19% in fiscal 2013 compared with the prior year and accounted for 22% of total revenues in fiscal 2013 compared to 19% in the previous year. The decrease is Asia sales was primarily due to lower sale to disk drive equipment manufacturers as this market entered a cyclical downturn. European sales declined 29% in fiscal 2013 compared with the previous year and accounted for 49% of total revenues for both fiscal 2013 and fiscal 2012. The decrease in European sales was primarily due to a weaker economic environment across most of the Company's European markets, particularly in France.

Restructuring and Cost Reduction Actions


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Operationally, from time to time we have undertaken restructuring and other cost reduction actions to support our business model. We continue to emphasize cost efficiency balanced with investments in our products and revenue generating activities. We remain committed to managing our business to generate cash. During fiscal 2013, we incurred $0.8 million in restructuring charges, primarily due to severance costs related to a reduction in work force and from terminating our lease in Wissous, France. In October 2011, we announced the decision to consolidate the InMoTx operations in Denmark into the Company's Pleasanton, California operations. Consolidation activities began during the second quarter of fiscal 2012, and were completed by June 30, 2012. Summary of the Fiscal 2013 Fourth Quarter Revenues for the fourth quarter of fiscal 2013 were $13.7 million, down 19% from $17.0 million for the fourth quarter of fiscal 2012 as a result of weakened demand in our European and U.S. markets, partially offset by strong fourth quarter sales in our Asian markets.
Gross margin was 46.0% of revenue in the fourth quarter of fiscal 2013, compared with 41.5% of revenue in the fourth quarter of fiscal 2012. Gross margin in the fiscal 2013 fourth quarter was favorably impacted by a higher margin product mix and lower manufacturing direct cost.
Operating expenses were $6.8 million in the fourth quarter of fiscal 2013, a decrease of 11% compared with $7.6 million in the fourth quarter of fiscal 2012. The decrease primarily resulted from lower payroll expenses due to a reduction in the total number of employees.
Operating loss for the fourth quarter of fiscal 2013 was $477,000, compared to an operating loss of $531,000 for the fourth quarter of fiscal 2012. Net income for the fiscal 2013 fourth quarter was $4,000 and net loss attributable to common stockholders was $100,000, or $0.01 loss per share, compared to a net loss of $358,000, or $0.04 net loss per share, for the fourth quarter of fiscal 2012.
Results of Operations
This discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flow during the two-year period ended June 30, 2013, each year therein referred to as fiscal 2013 and 2012, reflecting requirements applicable to Adept as a smaller reporting company. Unless otherwise indicated, references to any year in this Management's Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal year ended June 30. This discussion should be read with the consolidated financial statements and financial statement footnotes included in this Annual Report on Form 10-K.

Revenues
The following table sets forth our annual revenues and year-to-year change in
revenues by business segment for the fiscal years ended June 30, 2013 and 2012
(in thousands, except for percentages):

                              Fiscal        % Change      Fiscal
                               2013       2012 to 2013     2012
Revenue by Segment
Robotics:
Revenues                     $ 36,353        (34)%       $ 54,815
Percentage of total revenues       78 %                        83 %
Services and Support:
Revenues                     $ 10,463         (8)%         11,404
Percentage of total revenues       22 %                        17 %
Total revenues               $ 46,816        (29)%       $ 66,219

Revenues were $46.8 million in fiscal 2013, down 29% from $66.2 million in fiscal 2012. The decrease in total revenues resulted from a 34% sales decrease in our Robotics segment and an 8% decrease in our Services and Support segment. Robotics segment revenues were $36.4 million in fiscal 2013, down 34% from $54.8 million in fiscal 2012. Lower Robotics revenues in fiscal 2013 were primarily due to a cyclical downturn across our markets, a continuing weak economy in Europe, decreased levels of capital investment in the solar and disk drive markets and delays of orders for our packaging automation solutions. Revenues in our Services and Support segment were $10.5 million in fiscal 2013, down 8% from $11.4 million in fiscal 2012.


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The decrease during fiscal 2013 was primarily due to a cyclical downturn across our markets.

The following table sets forth our annual revenues and year-to-year change in revenues by geographic region for the fiscal years ended June 30, 2013 and 2012 (in thousands, except for percentages):

                              Fiscal        % Change          Fiscal
                               2013       2012 to  2013        2012
Revenue by Geography:
United States:
Revenues                     $ 12,083               (34 )%   $ 18,259
Percentage of total revenues       26 %                            28 %
Europe:
Revenues                       22,977               (29 )%     32,212
Percentage of total revenues       49 %                            49 %
Asia:
Revenues                       10,324               (19 )%     12,815
Percentage of total revenues       22 %                            19 %
Other Countries:
Revenues                        1,432               (51 )%      2,933
Percentage of total revenues        3 %                             4 %
Total International revenues $ 34,733               (28 )%   $ 47,960
Percentage of total revenues       74 %                            72 %
Total revenues               $ 46,816               (29 )%   $ 66,219

Our domestic revenues were $12.1 million in fiscal 2013, down 34% from $18.3 million in fiscal 2012. This decrease reflects lower sales to the packaging and medical and pharmaceutical markets, partially offset by higher sales to the automotive market.
Our international revenues were $34.7 million in fiscal 2013, down 28% from $48.0 million in fiscal 2012. This decrease resulted from a 29% decrease in sales in our European markets, a 19% decrease in our Asian markets, and a 51% decrease in sales to all other international countries.
European sales in fiscal 2013 decreased 29% to $23.0 million, compared with $32.2 million in fiscal 2012. The decrease in European sales was primarily due to a weaker economic environment across most of the Company's European markets impacting sales in both our robotics segment and our services and support segment.
Revenues from Asia in fiscal 2013 decreased 19% to $10.3 million compared with $12.8 million in fiscal 2012 as a result of lower disk drive equipment sales as this market entered a cyclical downturn, partially offset by sales increases in the appliance and consumer electronics sectors.
Revenues from other countries in fiscal 2013 decreased 51% to $1.4 million, compared with $2.9 million in fiscal 2012. The decrease was primarily the result of lower sales to the packaging market.
Backlog. Our product backlog at June 30, 2013 was approximately $6.1 million compared to approximately $7.9 million at June 30, 2012. The decrease in backlog at the end of fiscal 2013 compared to the end of fiscal 2012 was due to a slowdown in customers' ordering patterns at the end of fiscal 2013, especially in Europe. Orders with delivery dates beyond twelve months from the end of the fiscal quarter are not included in backlog, and thus we expect substantially all backlog at June 30, 2013 to ship during fiscal 2014. Because orders constituting our current backlog are subject to changes in delivery schedules and in certain instances may be subject to cancellation without significant penalty to the customer, our backlog at any date may not be indicative of demand for our products or actual revenues for any period in the future.

Gross Margin
The following table sets forth our gross margin and year-to-year change in gross
margin for the fiscal years ended June 30, 2013 and 2012 (in thousands, except
for percentages):


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                Fiscal        % Change         Fiscal
                 2013       2012 to 2013        2012
Revenues       $ 46,816                       $ 66,219
Gross margin   $ 19,120              (32 )%   $ 28,000
Gross margin %     40.8 %                         42.3 %

Gross margin as a percentage of revenues was 40.8% in fiscal 2013, compared to 42.3% in fiscal 2012.
Gross margin in fiscal 2013 was unfavorably affected by an $875,000 charge for an increase in excess and obsolete inventory reserves related to our packaging products in the second fiscal quarter due to lower demand and product obsolescence.
We may experience significant fluctuations in our gross margin percentage from period to period due to changes in volume, changes in availability of components, changes in product configuration, increased price-based competition, changes in our sales mix and/or changes in operating costs. In particular, we expect that sales into the disk drive market will continue to have a negative impact on gross margin, while packaging and mobile sales will have a positive effect. In addition, we expect that changes in currency valuations will continue to impact gross margin, as a significant portion of our revenues are in Euro and a portion of our components are paid for in Japanese yen. Operating Expenses
Research, Development and Engineering
The following table sets forth our research, development and engineering expenses and the year-to-year change in these expenses for the fiscal years ended June 30, 2013 and 2012 (in thousands, except for percentages):

                      Fiscal        % Change        Fiscal
                       2013       2012 to 2013       2012
Expenses              $ 7,634              (12 )%   $ 8,714
Percentage of revenue      16 %                          13 %

Research, development and engineering ("R&D") costs are expensed as incurred, with the exception of software development costs incurred subsequent to establishing technological feasibility and up to the general release of the software products that are capitalized. Technological feasibility is demonstrated by the completion of a working model or a detailed program design. Capitalized costs are amortized on a straight-line basis over either two or three years, based on the estimated life of the product.
R&D expenses in fiscal 2013 were $7.6 million, or 16% of revenues, a decrease of 12% from $8.7 million, or 13% of revenues, in fiscal 2012. Lower R&D expenses in fiscal 2013 compared with the prior year primarily resulted from the consolidation of the InMoTx operations in Denmark into the Company's Pleasanton, California operations and cost-cutting measures undertaken during the second quarter of fiscal 2013.
We do not expect R&D expenses in fiscal 2014 to increase significantly from fiscal 2013 levels.
Adept did not capitalize any software costs in fiscal 2013, compared to $647,000 capitalized in fiscal 2012. We do not expect to capitalize any software costs in fiscal 2014.

Selling, General and Administrative Expenses.
The following table sets forth our selling, general and administrative expenses and the year-to-year change in these expenses for the fiscal years ended June 30, 2013 and 2012 (in thousands, except for percentages):

                       Fiscal        % Change         Fiscal
                        2013       2012 to 2013        2012
Expenses              $ 18,958               (8 )%   $ 20,701
Percentage of revenue       40 %                           31 %

Selling, general and administrative ("SG&A") expenses consist primarily of employee compensation, professional fees arising from legal, auditing and other consulting services, as well as tradeshow participation and other marketing costs.
SG&A expenses were $19.0 million, or 40% of revenues, in fiscal 2013, down 8% from $20.7 million, or 31% of revenues, in fiscal 2012.


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While total SG&A expenses in fiscal 2013 were lower compared with the prior year, due to lower headcount, travel and consulting expenses, SG&A expenses in fiscal 2013 as a percentage of revenue was higher than fiscal 2012 due to lower revenues during fiscal 2013.
We do not expect that fixed SG&A expenses will increase significantly in fiscal 2014 from ending 2013 levels due to the streamlining actions taken in fiscal 2013. Variable selling expenses, such as commissions are expected to increase or decrease commensurate with the change in revenue.
Amortization of Other Intangible Assets. Amortization expense totaled $411,000 during fiscal 2013 and $466,000 during fiscal 2012. These expenses are related to amortization of intangible assets acquired as part of the MobileRobots acquisition in the fourth quarter of 2010 and the InMoTx acquisition in the beginning of the third quarter of fiscal 2011.
Stock-Based Compensation Expense. We recorded stock-based compensation expense of $0.8 million in fiscal 2013 and $1.3 million in fiscal 2012 related to our stock option plans, employee stock purchase plan and restricted stock grants. Stock-based compensation expense in fiscal 2013 and 2012 includes $0 and $95,000, respectively, of accelerated stock-based compensation expense related to employee terminations that were part of our restructuring activities, and then were recorded as restructuring expense.
In fiscal 2014, we expect stock-based compensation expense may increase from fiscal 2013 levels due to grants and vesting of restricted stock granted under our fiscal 2014 performance option program awards and options granted and to be granted to our CEO and other senior management in fiscal 2014. See Note 2 of the Notes to the Consolidated Financial Statements for more information about our recognition of stock-based compensation expense. Restructuring Charges. During fiscal 2013, we recorded restructuring charges of $0.8 million, primarily due to severance costs associated with a reduction in work force. During fiscal 2012, we recorded restructuring charges of $1.3 million related to the consolidation of the InMoTx operations in Denmark into the Company's Pleasanton, California operations.
Operating Loss. We recorded an operating loss of $10.4 million in fiscal 2013, compared with an operating loss of $3.1 million in fiscal 2012. Higher operating losses recorded in fiscal 2013 were primarily the result of lower revenues and margin compared to fiscal 2012, an intangible and goodwill impairment charge of $1.7 million during the second fiscal quarter of 2013 related to the InMoTx acquisition and an $875,000 excess and obsolete inventory charge related to our packaging products in the second quarter of fiscal 2013.
Interest Income (Expense), Net. Interest expense, net of interest income, was $37,000 in fiscal 2013, compared with $250,000 in fiscal 2012. The decrease in interest expense during fiscal 2013 primarily resulted from the payoff of our line of credit balances during fiscal 2013 that was enabled by the proceeds received from the private placement of redeemable convertible preferred stock in the second quarter of fiscal 2013.
Foreign Currency Exchange Gain (Loss). Our foreign subsidiaries' balance sheet accounts are translated at current period ending exchange rates and statements of operations accounts are translated at the average rate for the period. Translation gains and losses are recorded as a separate component of accumulated other comprehensive income (loss) in stockholders' equity. Foreign currency transaction losses were $3,000 in fiscal 2013 and $732,000 in fiscal 2012. The foreign currency transaction losses recorded in fiscal 2013 were not significant. The foreign currency transaction losses recorded in fiscal year 2012 were primarily generated from realized losses related to the payments of intercompany payables in U.S. dollars by the European entities. As the Euro decreased against the U.S. dollar, more Euros were needed to purchase the U.S. dollar to settle the payable.
As we conduct business on a global basis we are continually exposed to adverse or beneficial movements in foreign currency exchange rates, which can vary considerably from period to period. The dollar/Euro and the dollar/yen markets currently present the largest exchange rate risk for Adept.
Provision For (Benefit From) Income Taxes. Adept typically provides for income taxes during interim reporting periods based upon an estimate of our annual effective tax rate. We also maintain a liability to cover the cost of additional tax exposure items on the filing of federal and state income tax returns as well as filings in foreign jurisdictions. Each of these filing jurisdictions may audit the tax returns filed and propose adjustments. Adjustments arise from a variety of factors, including different interpretations of statutes and regulations.
We recorded a tax benefit of $320,000 for fiscal 2013, compared to $396,000 for fiscal 2012. For fiscal 2013, the tax benefit represents a release of $536,000 in reserves related to our ASC 740 analysis, offset by a provision of $216,000 represen


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ting state minimum tax requirements as well as foreign tax expense. This release was due to expired statutes of limitations in Singapore and France, audit settlements in Germany, and adjustment for tax return filing in Singapore. For fiscal 2012, the tax benefit represents a release of $760,000 in reserves related to our ASC 740 analysis, offset by a provision of $364,000 representing state minimum tax requirements as well as foreign tax expense. This release was due to expired statutes of limitations in France and Germany and net operating loss true ups in Germany. We have net operating losses that are sufficient to offset a significant portion of our domestic and foreign tax obligations, except when annual net operating loss limitations exist for domestic and foreign jurisdictions that result in some tax expense. Liquidity and Capital Resources
Changes in the Company's liquidity during and since the year ended June 30, 2013 primarily reflect the net effect of cash used by operations, cash provided from the private placement of preferred stock and full repayment of borrowing from the Company's line of credit.

Cash and cash equivalents were $6.3 million at June 30, 2013. In fiscal year 2013, cash decreased by $2.4 million. Changes in liquidity include full repayment of borrowings from our line of credit of $5.5 million, cash used in operating activities of $4.7 million, partially offset by proceeds of $7.6 . . .

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