-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D6S6aqCUEc3pVUGDvpsPC7kmv/nE8AaJpMSIWozyVPE+4Den8Pd9QgfFPo2YIk5A GnywoAUB9o12AXc614AjJg== /in/edgar/work/20000815/0000351998-00-000010/0000351998-00-000010.txt : 20000922 0000351998-00-000010.hdr.sgml : 20000921 ACCESSION NUMBER: 0000351998-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000629 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA I/O CORP CENTRAL INDEX KEY: 0000351998 STANDARD INDUSTRIAL CLASSIFICATION: [3825 ] IRS NUMBER: 910864123 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10394 FILM NUMBER: 701750 BUSINESS ADDRESS: STREET 1: 10525 WILLOWS RD NE STREET 2: P O BOX 97046 CITY: REDMOND STATE: WA ZIP: 98073-9746 BUSINESS PHONE: 2068816444 MAIL ADDRESS: STREET 1: P O BOX 97046 STREET 2: 10525 WILLOWS RD NE CITY: REDMOND STATE: WA ZIP: 98073-9746 10-Q 1 0001.txt SECOND QUARTER 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended JUNE 29, 2000 Commission File No. 0-10394 DATA I/O CORPORATION (Exact name of registrant as specified in its charter Washington 91-0864123 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10525 Willows Road N.E., Redmond, Washington, 98052 (address of principal executive offices, Zip Code) (425) 881-6444 (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 7,382,440 shares of no par value Common Stock outstanding as of June 29, 2000 Page 1 of 17 Exhibit Index on Page 16 DATA I/O CORPORATION FORM 10-Q For the Quarter Ended June 29, 2000 INDEX Part I - Financial Information Page Item 1. Financial Statements (unaudited) 3 Item 2. Management's Discussion and Analysis of Financial 9 Condition and Results of Operations Part II - Other Information Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Exhibit Index 16 Page 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements DATA I/O CORPORATION CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------- Jun. 29, Dec. 30, 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- (in thousands, except share data) (unaudited) (note 1) ASSETS CURRENT ASSETS: Cash and cash equivalents $2,048 $3,597 Marketable securities 6,029 9,614 Trade accounts receivable, less allowance for doubtful accounts of $446 and $464 6,995 5,548 Inventories 9,070 6,237 Recoverable income taxes 151 205 Other current assets 369 545 ----------- ------------- TOTAL CURRENT ASSETS 24,662 25,746 Property, plant and equipment - net 1,933 2,180 Other assets 1,607 2,124 ----------- ------------- TOTAL ASSETS $28,202 $30,050 =========== ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $2,085 $1,592 Accrued compensation 2,403 2,080 Deferred revenue 2,681 2,626 Other accrued liabilities 2,247 2,204 Accrued costs of business restructuring 159 493 Income taxes payable 538 572 ----------- ------------- TOTAL CURRENT LIABILITIES 10,113 9,567 Deferred gain on sale of property 2,259 2,425 ----------- ------------- TOTAL LIABILITIES 12,372 11,992 COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock - Authorized, 5,000,000 shares, including 200,000 shares of Series A Junior Participating Issued and outstanding, none - - Common stock, at stated value - Authorized, 30,000,000 shares Issued and outstanding, 7,375,314 and 7,290,165 shares 17,967 17,813 Retained earnings (2,004) 366 Accumulated other comprehensive income (loss) (133) (121) ----------- ------------- TOTAL STOCKHOLDERS' EQUITY 15,830 18,058 ----------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,202 $30,050 =========== =============
See notes to consolidated financial statements. Page 3 DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarters Ended Six Months Ended - ------------------------------------------------------------------------ ------------------------ -- ------------------------- June 29, July 1, June 29, July 1, 2000 1999 2000 1999 - ------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- ---------- (in thousands, except per share data) Net sales $10,128 $8,939 $16,730 $16,698 Cost of goods sold 5,535 4,476 9,479 8,578 ---------- ---------- ----------- ---------- Gross margin 4,593 4,463 7,251 8,120 Operating expenses: Research and development 2,111 1,955 4,532 3,963 Selling, general and administrative 3,057 3,031 5,585 5,998 Provision for business restructuring (255) (215) (255) (215) ---------- ---------- ----------- ---------- Total operating expenses 4,913 4,771 9,862 9,746 ---------- ---------- ----------- ---------- Operating loss (320) (308) (2,611) (1,626) Non-operating income (expense): Interest income 128 135 304 403 Interest expense (11) (10) (20) (20) Foreign currency exchange (11) 3 (14) 2 Net gain (loss) on dispositions - 85 - 1,199 ---------- ---------- ----------- ---------- Total non-operating income 106 213 270 1,584 ---------- ---------- ----------- ---------- Loss from continuing operations, before income taxes (214) (95) (2,341) (42) ---------- ---------- ----------- --------- Income tax expense 17 9 30 23 Loss from continuing operations (231) (104) (2,371) (65) Income from discontinued operations, net of taxes - 505 - 831 ---------- ---------- ----------- ---------- Net income (loss) ($231) $401 ($2,371) $766 ========== ========== =========== ========== Basic and diluted earnings (loss) per share: From continuing operations ($0.03) ($0.01) ($0.32) ($0.01) From discontinued operations 0.00 0.07 0.00 0.11 ---------- ---------- ----------- ---------- Total basic and diluted earnings (loss) per share ($0.03) $0.06 ($0.32) $0.10 ========== ========== =========== ========== Weighted average shares outstanding 7,374 7,238 7,361 7,230 ========== ========== =========== ========== Weighted average and potential shares outstanding 7,374 7,238 7,361 7,230 ========== ========== =========== ==========
See notes to consolidated financial statements. Page 4 DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------ Jun. 29, July. 01, For the six months ended 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) OPERATING ACTIVITIES: Loss from continuing operations ($2,371) ($65) Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization 1,060 1,089 Net loss on dispositions - (1,198) Equity earnings from investee - (17) Deferred income taxes - (12) Deferred revenue 55 (403) Amortization of deferred gain on sale (166) (166) Net change in: Trade accounts receivable (1,453) (521) Inventories (2,833) (2,778) Recoverable income taxes 54 (17) Other current assets 176 632 Business restructure (334) (1,336) Accounts payable and accrued liabilities 822 (4,448) ----------- -------------- Cash used in operating activities of continuing operations (4,990) (9,240) Cash provided by operating activities of discontinued operations - 831 ----------- -------------- Net cash used in operating activities (4,990) (8,409) INVESTING ACTIVITIES: Additions to property, plant and equipment (298) (403) Proceeds on sale of subsidiary - 72 Proceeds from sale of minority interest - 1,067 Purchases of marketable securities (2,339) (568) Proceeds from sales of marketable securities 5,924 8,500 ----------- -------------- Cash provided by investing activities 3,287 8,668 FINANCING ACTIVITIES: Additions to notes payable - 7 Sale of common stock 82 103 Proceeds from exercise of stock options 72 1 ----------- -------------- Cash provided by in financing activities 154 111 Increase (decrease) in cash and cash equivalents (1,549) 370 Effects of exchange rate changes on cash - (101) Cash and cash equivalents at beginning of year 3,597 4,008 ----------- -------------- Cash and cash equivalents at end of year $2,048 $4,277 =========== ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $22 $104 Income taxes $17 $75
See notes to consolidated financial statements. Page 5 DATA I/O CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 / FINANCIAL STATEMENT PREPARATION The financial statements as of June 29, 2000 and July 1, 1999, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). These statements are unaudited but, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the results for the periods presented. The balance sheet at December 30, 1999 has been derived from the audited financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Operating results for the six months ended June 29, 2000 are not necessarily indicative of the results that may be expected for the year ending December 28, 2000. These financial statements should be read in conjunction with the annual audited financial statements and the accompanying notes included in the Company's Form 10-K for the year ended December 30, 1999. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB 101 was amended by SAB 101A and SAB 101B which delayed the implementation date of SAB 101 for calendar year end reporting companies, including Data I/O Corporation, to the quarter ending December 28, 2000. The Company is currently evaluating SAB 101 and is uncertain as to what impact SAB 101 will have on its revenues and results of operations for the year ending December 28, 2000, and subsequent periods. The impact of SAB 101 will be reported as a change in accounting principle in accordance with FASB Statement No. 3, and will be reflected in the Company's results of operations for the year ended December 28, 2000. NOTE 2 / INVENTORIES Inventories consisted of the following components (in thousands): Jun. 29, Dec. 30, 2000 1999 ---------------- ---------------- Raw material $4,301 $2,567 Work-in-process 2,910 1,665 Finished goods 1,859 2,005 --------------- ---------------- $9,070 $6,237 =============== ================ NOTE 3 / PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following components (in thousands): Jun. 29, Dec. 30, 2000 1999 --------------- ---------------- Building and improvements $ 196 $ 179 Equipment 12,189 12,030 --------------- ---------------- 12,385 12,209 Less accumulated depreciation 10,452 10,029 --------------- ---------------- $ 1,933 $ 2,180 =============== ================ Page 6 NOTE 4 / DISCONTINUED OPERATIONS In November 1997 the Company entered into a licensing agreement and an agreement to sell certain assets of its Synario Design Automation Division to MINC Washington Incorporated. This transaction discontinued the Synario Design Automation Division operations of the Company. However, the Company received certain licensing revenues related to its Synario, ABEL and ECS products through the second quarter 1999, and recognized net earnings of $831,000 from source code sales and training and support services provided during the first six months of 1999. Operating results of this discontinued division are classified as discontinued operations in the financial statements. NOTE 5 / BUSINESS RESTRUCTURING PROGRESS During the third quarter of 1998, the Company recorded a restructuring charge of $2.0 million as the Company began the implementation of a plan to restructure its Redmond and foreign subsidiary operations to a level more in line with the lower sales it was experiencing. During the fourth quarter of 1998, the Company recorded further restructuring charges of $2.4 million related to the continuing restructure of the Company's Redmond operations and foreign subsidiaries and related to activities directly associated with the fourth quarter 1998 acquisition of SMS Holding GmbH ("SMS"). The acquisition of SMS created certain redundancies in product offerings and in the operations of the combined company. A restructuring plan was implemented after the acquisition was completed to eliminate such redundant operations and to phase out overlapping products. The total number of employees terminated due to the restructure was 133 (approximately 39% of the total workforce). Employees were terminated from almost all areas of the Company. Total involuntary termination benefits paid and charged against the restructure reserve were approximately $2.0 million. Total facility consolidation and abandonment costs incurred and charged against the restructure reserve were approximately $293,000. Other exit costs paid and charged against the restructure reserve, including legal and consulting fees, settlements with suppliers and fixed asset disposals, were approximately $1.7 million. The Company's activities under its restructuring plans are now substantially complete. The Company reversed portions of the restructure reserve at two separate times as it became apparent that certain provisions made at the time the original restructure reserve was established in 1998 required adjusting as the restructuring plan was implemented. During the second quarter of 1999 the Company reversed $215,000 of restructure reserve due to the Company's settlement of certain supplier related claims for less than had been anticipated, and during the second quarter of 2000 the Company reversed $255,000 of restructure reserve primarily due to charges related to facility consolidations being less than had been anticipated. The remaining reserve at June 29, 2000 of $159,000 relates primarily to facility abandonment which will be paid out over the next six quarters. Page 7 NOTE 6 / EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data):
Second Quarter First Six Months --------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Numerator for basic and diluted earnings per share: Loss from continuing operations ($231) ($104) ($2,371) ($65) Income from discontinued operations - 505 - 831 ----------- ----------- ----------- ----------- Net income (loss) ($231) $401 ($2,371) $766 =========== =========== =========== =========== Denominator: Denominator for basic earnings per share - weighted-average shares 7,374 7,238 7,361 7,230 Employee stock options (1) - - - - ----------- ----------- ----------- ----------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 7,374 7,238 7,361 7,230 =========== =========== =========== =========== Basic earnings (loss) per share From continuing operations ($0.03) ($0.01) ($0.32) ($0.01) From discontinued operations 0.00 $0.07 0.00 0.11 ----------- ----------- ----------- ----------- Total basic earnings (loss) per share ($0.03) $0.06 ($0.32) $0.10 =========== =========== =========== =========== Diluted earnings (loss) per share From continuing operations ($0.03) ($0.01) ($0.32) ($0.01) From discontinued operations 0.00 $0.07 0.00 0.11 ----------- ----------- ----------- ----------- Total diluted earnings (loss) per share ($0.03) $0.06 ($0.32) $0.10 =========== =========== =========== =========== (1) Excludes 253,601 and 251,498 employee stock options which were antidilutive for the second quarter and the six months ended June 29, 2000, respectively, and 43,452 and 35,361 which were antidilutive for the second quarter and the six months ended July 1, 1999, respectively.
NOTE 7 / ACCOUNTING FOR INCOME TAXES The Company's effective tax rate for the first six months of 2000 differed from the statutory 34% tax rate primarily due to operating losses for which no tax benefit was recorded. Tax valuation reserves increased by approximately $112,000 during the quarter. As of June 29, 2000 the Company has valuation reserves of $7,714,000. NOTE 8 / COMPREHENSIVE INCOME During the second quarter and the first sixth months of 2000 and 1999 total comprehensive income (loss) was comprised of the following (in thousands):
For the Second Quarter For the Six Months ------------------------------- ---------------------------------- 2000 1999 2000 1999 ------------- -------------- ------------ ----------------- Net income (loss) ($231) $401 ($2,371) $766 Foreign currency translation gain (loss) (13) (1) 12 21 ------------- -------------- ------------- ----------------- Total comprehensive income (loss) ($244) $400 ($2,359) $787 ============= ============== ============= =================
Page 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves as long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q are forward looking. In particular, statements herein regarding industry prospects; future results of operations or financial position; integration of acquired products and operations; market acceptance of the Company's newly introduced or upgraded products; development, introduction and shipment of new products; expected spending levels; and any other guidance on future periods are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. The Company's actual results may differ significantly from management's expectations. The following discussions and discussions under the caption "Business - Cautionary Factors That May Affect Future Results" in Item 1 in the Company's Annual report on Form 10-K for the year ended December 30, 1999, describe some, but not all, of the factors that could cause these differences. Results of Continuing Operations For all periods presented, results of operations reflect the classification of the Company's Synario Design Automation Division as discontinued operations (see "Discontinued Operations"). Net Sales
------------------------------------------------------------------------------------------------------------------------------- (in thousands) Second Quarter First Six Months ----------------------------------------- ------------------------------------------ Net sales by product line 2000 % Change 1999 1999 % Change 1999 ----------------------------------------------------------------------------------- ------------------------------------------ Non-automated programming systems $4,579 (10.9%) $5,142 $8,910 (16.4%) $10,659 Automated programming systems 5,549 46.1% 3,797 7,820 29.5% 6,039 ---------------------------------------- ------------- ----------------------------- Total programming systems $10,128 13.3% $8,939 $16,730 0.2% $16,698 ========================================= ========================================== Second Quarter First Six Months ----------------------------------------- ------------------------------------------ Net sales by location 2000 % Change 1999 2000 % Change 1999 ----------------------------------------------------------------------------------- ------------------------------------------ United States $4,211 9.6% $3,843 $6,804 (6.9%) $7,305 % of total 41.6% 43.0% 40.7% 43.7% International $5,917 16.1% $5,096 $9,926 5.7% $9,393 % of total 58.4% 57.0% 59.3% 56.3% -------------------------------------------------------------------------------------------------------------------------------
Bookings and sales increased in the second quarter of 2000 compared to the same period of 1999. Orders in the secondquarter of 2000 increased approximately 39% to $10.9 million, compared with $7.9 million in 1999. This increase in orders over the prior year is primarily due to higher orders for the Company's PP100 automated programming systems and the first bookings for the Company's new ProLINE-RoadRunner automated programming system, which was introduced in February 2000. The higher orders for the PP100 products are due primarily to the Company's new FlashTOP product that was introduced in February 2000. The bookings increase in automated systems was partially offset by decreased orders for the Company's non-automated programming systems. Page 9 The increase in sales for the second quarter 2000 was primarily due to the increased shipments of the PP100. The first shipments of the ProLINE-RoadRunner will be in the third quarter of 2000. Sales of the older non-automated programming systems decreased significantly from the second quarter of 1999, offset partially by an increase in sales of the Company's Sprint non-automated programming system products, resulting in a net decrease in sales of non-automated systems for the quarter. The Company has realized a negative impact from foreign currency translation during 2000 due primarily to the German Mark to U.S. Dollar exchange rate. The net impact of exchange rate changes on sales revenue during the first six months of 2000 was approximately $300,000. When the U.S. Dollar is stronger, sales of the Company's products denominated in local currency translate into less U.S. Dollars. However, partially offsetting the negative revenue translation impact is the positive translation impact of local currency costs and expenses. Gross Margin
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- Gross Margin $4,593 $4,463 $7,251 $8,120 Percentage of net sales 45.4% 49.9% 43.3% 48.6% - ----------------------------------------------------------------------------------------------------------------------
Despite higher sales, gross margin percentage for the second quarter of 2000 decreased compared to the second quarter of 1999 due primarily to a shift in mix to higher sales of lower margin products. Also, inefficiencies were realized by the manufacturing organization during the quarter as it prepared for production of the ProLINE-RoadRunner which was introduced in February 2000 and will begin shipping in the third quarter. Research and Development
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2000 1999 2000 1999 --------------------------------------------------------------------------------------------------------------------- Research and development $2,111 $1,955 $4,532 $3,963 Percentage of net sales 20.8% 21.9% 27.1% 23.7% ---------------------------------------------------------------------------------------------------------------------
The increase in research and development spending for the second quarter of 2000 as compared to the second quarter of 1999 is primarily due to headcount related to the Company's continued focus on enhanced device support. Spending in research and development is expected to continue at this level during the remainder of 2000 as the Company continues to invest in new product development, new technologies and enhanced device support. Selling, General and Administrative
Second Quarter First Six Months --------------------------------------------------------------------------- 2000 1999 2000 1999 --------------------------------------------------------------------------------------------------------------------- Selling, general & administrative $3,057 $3,031 $5,585 $5,998 Percentage of net sales 30.2% 33.9% 33.4% 35.9% ---------------------------------------------------------------------------------------------------------------------
The slight increase in selling, general and administrative expenditures in the second quarter of 2000 as compared with the second quarter of 1999 is due primarily to higher selling expenses related to the higher revenue, partially offset by lower spending levels in other areas of administration. Page 10 Interest
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2000 1999 2000 1999 --------------------------------------------------------------------------------------------------------------------- Interest income $128 $135 $304 $403 Interest expense ($11) ($10) ($20) ($20) ---------------------------------------------------------------------------------------------------------------------
The decrease in interest income for both the second quarter and first six months of 2000 as compared to the same periods of 1999 is due to the decrease in cash, cash equivalents and marketable securities, due primarily to the funding of operating losses during the past five quarters. Net Gain on Dispositions - Sale of Japan Subsidiary In connection with the Company's restructuring, during the first quarter of 1999 the Company sold its Japan sales subsidiary to Synchro-Work Corporation, one of its sub-distributors in Japan, for total consideration of approximately $100,000. The sale resulted in a gain before taxes of approximately $1,113,000 primarily due to previously unrecognized accumulated currency translation. In connection with this sale, the Company and Synchro-Work also entered into a new distribution agreement for sales into Japan. Income Taxes
Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2000 1999 2000 1999 --------------------------------------------------------------------------------------------------------------------- Income tax expense from continuing operations $17 $9 $30 $23 Effective tax rate 7.9% 9.5% 1.3% 54.8% ---------------------------------------------------------------------------------------------------------------------
Tax expense recorded for both the second quarter and first six months of 2000 was due to foreign taxes. The Company's effective tax rate for the first quarter of 2000 differed from the statutory 34% tax rate primarily due to operating losses for which no tax benefit was recorded. Tax valuation reserves increased by approximately $112,000 during the quarter. As of June 29, 2000 the Company has valuation reserves of $7,714,000. Net Income and Earnings Per Share
Second Quarter First Six Months ----------------------------------------------------------------------- (in thousands, except per share data) 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- Loss from continuing operations ($231) ($104) ($2,371) ($65) Percentage of net sales (2.3%) (1.2%) (14.2%) (0.4%) Basic and diluted loss per share from continuing operations ($0.03) ($0.01) ($0.32) ($0.01) - ----------------------------------------------------------------------------------------------------------------------
The Company recognized a larger loss from continuing operations for the second quarter of 2000 as compared to the loss from continuing operations recognized for the second quarter of 1999 due primarily to higher operating expenses as discussed above. Page 11 Business Restructuring Progress During the third quarter of 1998, the Company recorded a restructuring charge of $2.0 million as the Company began the implementation of a plan to restructure its Redmond and foreign subsidiary operations to a level more in line with the lower sales it was experiencing. During the fourth quarter of 1998, the Company recorded further restructuring charges of $2.4 million related to the continuing restructure of the Company's Redmond operations and foreign subsidiaries and related to activities directly associated with the fourth quarter 1998 acquisition of SMS Holding GmbH ("SMS"). The acquisition of SMS created certain redundancies in product offerings and in the operations of the combined company. A restructuring plan was implemented after the acquisition was completed to eliminate such redundant operations and to phase out overlapping products. The total number of employees terminated due to the restructure was 133 (approximately 39% of the total workforce). Employees were terminated from almost all areas of the Company. Total involuntary termination benefits paid and charged against the restructure reserve were approximately $2.0 million. Total facility consolidation and abandonment costs incurred and charged against the restructure reserve were approximately $293,000. Other exit costs paid and charged against the restructure reserve, including legal and consulting fees, settlements with suppliers and fixed asset disposals, were approximately $1.7 million. The Company's activities under its restructuring plans are now substantially complete. The Company reversed portions of the restructure reserve at two separate times as it became apparent that certain provisions made at the time the original restructure reserve was established in 1998 required adjusting as the restructuring plan was implemented. During the second quarter of 1999 the Company reversed $215,000 of restructure reserve due to the Company's settlement of certain supplier related claims for less than had been anticipated, and during the second quarter of 2000 the Company reversed $255,000 of restructure reserve primarily due to charges related to facility consolidations being less than had been anticipated. The remaining reserve at June 29, 2000 of $159,000 relates primarily to facility abandonment which will be paid out over the next six quarters. Discontinued Operations In November 1997 the Company entered into a licensing agreement and an agreement to sell certain assets of its Synario Design Automation Division to MIN Washington Incorporated. This transaction discontinued the Synario Design Automation Division operations of the Company. However, the Company received certain licensing revenues related to its Synario, ABEL and ECS products through the second quarter 1999, and recognized net earnings of $831,000 from source code sales and training and support services provided during the first six months of 1999. Operating results of this discontinued division are classified as discontinued operations in the financial statements. Financial Condition Liquidity and Capital Resources
Jun. 29, Dec. 30, (in thousands) 2000 Change 1999 - ------------------------------------------------------------- --------------------- -------------------- ------------------- Working capital $14,549 ($1,630) $16,179 Total debt $0 $0 $0 - ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital decreased during the first six months of 2000 primarily due to funding of the losses for the period. Cash, cash equivalents and marketable securities, which decreased approximately $5.1 million during the period, were used to fund losses and to increase inventory by approximately $2.8 million as the Company has ramped up production of its newly introduced products. Also, accounts receivable increased by approximately $1.4 million due to the higher sales. As of June 29, 2000, the Company had no debt outstanding. No borrowings were outstanding under the $400,000 German subsidiary line of credit. The Company did not renew its $4.0 million US line of credit line when it expired in May 2000 but intends to put into place a working capital credit line of a similar nature during the third or fourth quarter of 2000. Page 12 The Company estimates that capital expenditures for property, plant and equipment during the remainder of 2000 will be between $600,000 and $1.0 million. The Company believes that cash, cash equivalents and marketable securities will besufficient to meet current and anticipated future capital expenditures. Although the Company expects that such expenditures will be made, it has purchase commitments for only a small portion of this amount. At June 29, 2000, the Company's material short-term unused sources of liquidity consisted of approximately $8.1 million in cash, cash equivalents and marketable securities and available borrowings of approximately $400,000 under its German subsidiary line of credit. The Company believes these sources and cash flow from operations will be sufficient to fund its working capital needs. Share repurchase program Under a previously announced share repurchase program, the Company is authorized to repurchase up to 1,123,800 shares (approximately 15.2%) of its outstanding common stock. These purchases may be executed through open market purchases at prevailing market prices, through block purchases or in privately negotiated transactions, and may commence or be discontinued at any time. As of June 29, 2000, the Company has repurchased 1,016,200 shares under this repurchase program at a total cost of approximately $7.1 million. The Company has not repurchased shares under this plan since the second quarter of 1997 although it still has the authority to do so. General Impact of Year 2000 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $300,000 through December 30, 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. European monetary conversion On January 1, 1999, the European Economic and Monetary Union (the "EMU" introduced the Euro, which became a functional legal currency of the EMU countries. From 1999 to 2001 business in the EMU member states has been and will be conducted in both the existing national currency, such as the Franc or Deutsche Mark, and the Euro. The Company has taken certain steps to ensure that its financial and other software systems are capable of processing transactions and properly handling EMU currencies, including the Euro. The Company will continue to assess what further impact the EMU formation will have on both its internal systems and its products sold. The costs related to addressing this issue have not been determined, however, management believes that this issue and its related costs will not have a material adverse effect on the Company's business, financial condition and operating results. Page 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders held on May 19, 2000, there were present in person or by proxy the holders of 7,027,259 shares of the 7,365,063 shares of Common Stock of the Corporation. Following are the matters ratified and the voting results: (a) Election of a Board of Directors consisting of the following six (6) directors: Name Votes For Votes Withheld Keith L. Barnes 6,999,519 27,740 Glen F. Ceiley 6,977,196 50,063 Daniel A. DiLeo 5,552,044 1,475,215 Paul A. Gary 6,999,520 27,739 Frederick R. Hume 6,984,364 42,895 Edward D. Lazowska 6,998,119 29,140 (b) Approval of the Company's 2000 Stock Incentive Compensation Plan. Votes cast were 6,706,219 For, 286,985 Against, 34,055 Abstain and no Broker Non-votes. Item 5. Other Information In May 2000 the Company's Board of Directors approved an amendment to the Company's By-Laws to increase the number of directors of the Company from five (5) to six (6). Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None Page 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. DATA I/O CORPORATION (REGISTRANT) DATED: August 3, 2000 By://S//Joel S. Hatlen Joel S. Hatlen Vice President - Finance Chief Financial Officer Secretary and Treasurer Page 15 EXHIBIT INDEX Exhibit Number Title Page Number 27 Financial Data Schedule which is submitted 17 electronically to the Securities and Exchange Commission for information purposes only and not filed. Page 16 EX-27 2 0002.txt FDS
5 0000351998 Data I/O Corporation 1,000 6-MOS DEC-28-2000 DEC-31-1999 JUN-29-2000 2,048 6,029 7,441 446 9,070 24,662 12,385 10,452 28,202 10,113 0 0 0 17,967 (2,137) 28,202 16,730 16,730 9,479 9,850 (290) 12 20 (2,341) 30 (2,371) 0 0 0 (2,371) (.32) (.32)
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