-----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, SHJ8E+G7qrl851u2AWGXrRXE45Rg5VEgdxehsdtFUXvoHl5F4U3zgDRb2ltQOgOp sG3LJE+CS7B8ItZ2yHSKzw== 0000351998-01-500003.txt : 20010815 0000351998-01-500003.hdr.sgml : 20010815 ACCESSION NUMBER: 0000351998-01-500003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA I/O CORP CENTRAL INDEX KEY: 0000351998 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 910864123 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10394 FILM NUMBER: 1710668 BUSINESS ADDRESS: STREET 1: 10525 WILLOWS RD NE STREET 2: P O BOX 97046 CITY: REDMOND STATE: WA ZIP: 98073-9746 BUSINESS PHONE: 4258676922 MAIL ADDRESS: STREET 1: P O BOX 97046 STREET 2: 10525 WILLOWS RD NE CITY: REDMOND STATE: WA ZIP: 98073-9746 10-Q 1 fq10_qtr22001a.txt 16 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ( X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended JUNE 30, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Or the transition period from ___________ to ______________ 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 Identification No.) incorporation or organization) 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 7,613,754 shares of no par value Common Stock issued and outstanding as of August 3, 2001 DATA I/O CORPORATION FORM 10-Q For the Quarter Ended June 30, 2001 INDEX Part I - Financial Information Page Item 1. Financial Statements (unaudited) 3 Item 2. Management's Discussion and Analysis of Financial 10 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 14 Market Risk Part II - Other Information Item 1. Legal Proceedings 14 Item 2. Changes in Securities and Use of Proceeds 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 PART I - FINANCIAL INFORMATION Item 1. Financial Statements DATA I/O CORPORATION CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------- Jun. 30, Dec. 28, 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- (in thousands, except share data) (unaudited) Restated 1 ASSETS CURRENT ASSETS: Cash and cash equivalents $2,892 $3,133 Marketable securities 1,677 1,944 Trade accounts receivable, less allowance for doubtful accounts of $340 and $350 7,941 10,627 Inventories 7,180 9,166 Recoverable income taxes 73 91 Other current assets 182 444 ----------- ------------- TOTAL CURRENT ASSETS 19,945 25,405 Property, plant and equipment - net 2,293 2,190 Other assets 626 1,151 ----------- ------------- TOTAL ASSETS $22,864 $28,746 =========== ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $754 $1,674 Accrued compensation 1,378 2,073 Deferred revenue 2,306 2,637 Other accrued liabilities 1,967 1,623 Accrued costs of business restructuring 176 117 Income taxes payable 345 489 ----------- ------------- TOTAL CURRENT LIABILITIES 6,926 8,613 Deferred gain on sale of property 1,930 2,094 ----------- ------------- TOTAL LIABILITIES 8,856 10,707 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, 7,560,167 and 7,494,592 shares 18,408 18,292 Accumulated Deficit (4,232) (163) Accumulated other comprehensive loss (168) (90) ----------- ------------- TOTAL STOCKHOLDERS' EQUITY 14,008 18,039 ----------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,864 $28,746 =========== ============= See accompanying notes 1 The restatement is due to the Company's adoption of SAB 101
DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Quarters Ended Six Months Ended - ------------------------------------------------------------------------ ------------------------ -- -------------------------- June 30, June 29, June 30, June 29, 2001 2000 2001 2000 - ------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- ----------- (in thousands, except per share data) Restated 1 Restated 1 Net sales $6,487 $14,094 $14,370 $19,724 Cost of goods sold 3,677 7,320 8,825 10,704 ---------- ---------- ----------- ----------- Gross margin 2,810 6,774 5,545 9,020 Operating expenses: Research and development 1,765 2,112 3,703 4,533 Selling, general and administrative 2,450 3,057 5,446 5,582 Net provision (reversal) for business restructuring 460 (255) 460 (255) ---------- ---------- ----------- ----------- Total operating expenses 4,675 4,914 9,609 9,860 ---------- ---------- ----------- ----------- Operating Income/(loss) (1,865) 1,860 (4,064) (840) Non-operating income (expense): Interest income 51 128 117 304 Interest expense (3) (11) (10) (20) Foreign currency exchange (83) (11) (90) (14) ---------- ---------- ----------- ----------- Total non-operating income/(loss) (35) 106 17 270 ---------- ---------- ----------- ----------- Income/(loss) from operations before income taxes and cumulative effect of accounting changes (1,900) 1,966 (4,047) (570) Income tax expense 20 17 22 30 ---------- ---------- ----------- ----------- Income/(loss) from operations and before cumulative effect of accounting changes (1,920) 1,949 (4,069) (600) Cumulative effect of change in accounting principle - - - 2,531 ---------- ---------- ----------- ----------- Net income/(loss) ($1,920) $1,949 ($4,069) ($3,131) ========== ========== =========== =========== Basic and diluted income/(loss) per share: From continuing operations ($0.25) $0.26 ($0.54) ($0.08) From cumulative effect of change in accounting principle 0.00 0.00 0.00 (0.35) ---------- ---------- ----------- ----------- Total basic and diluted income/(loss) per share ($0.25) $0.26 ($0.54) ($0.43) ========== ========== =========== =========== Weighted average shares outstanding 7,560 7,374 7,560 7,361 ========== ========== =========== =========== Weighted average and potential shares outstanding 7,560 7,628 7,560 7,361 See accompanying notes 1 The restatement is due to the Company's adoption of SAB 101
DATA I/O CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------- Jun. 30, Jun. 29, For the six months ended 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Restated 1 OPERATING ACTIVITIES: Loss from operations ($4,069) ($3,131) Adjustments to reconcile loss from operations to net cash provided by (used in) operating activities: Depreciation and amortization 1,192 1,060 Net loss on dispositions 73 - Amortization of deferred gain on sale (164) (166) Net change in: Deferred revenue (331) 1,698 Trade accounts receivable 2,736 (1,453) Inventories 1,986 (3,716) Recoverable income taxes 18 54 Other current assets 178 176 Accrued cost of business restructuring 63 (334) Accounts payable and accrued liabilities (1,428) 822 ----------- -------------- Net cash provided by (used in) operating activities 254 (4,990) INVESTING ACTIVITIES: Purchases of property, plant and equipment (825) (298) Purchases of marketable securities (2,106) (2,339) Proceeds from sales of marketable securities 2,369 5,924 ----------- -------------- Cash provided by (used in) investing activities (562) 3,287 FINANCING ACTIVITIES: Sale of common stock 117 82 Proceeds from exercise of stock options - 72 ----------- -------------- Cash provided by financing activities 117 154 Decrease in cash and cash equivalents (191) (1,549) Effects of exchange rate changes on cash (50) - Cash and cash equivalents at beginning of year 3,133 3,597 ----------- -------------- Cash and cash equivalents at end of quarter $2,892 $2,048 =========== ============== See accompanying notes 1 The restatement is due to the Company's adoption of SAB 101.
DATA I/O CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - FINANCIAL STATEMENT PREPARATION The financial statements as of June 30, 2001 and June 29, 2000, 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 28, 2000 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 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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 28, 2000. NOTE 2 - INVENTORIES Inventories consisted of the following components (in thousands): June 30, Dec. 28, 2001 2000 --------------- ---------------- Raw material $4,431 $4,526 Work-in-process 1,706 2,756 Finished goods 1,043 1,884 --------------- ---------------- $7,180 $9,166 =============== ================ NOTE 3 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following components (in thousands): June 30, Dec. 28, 2001 2000 ---------------- ---------------- Building improvements $226 $205 Equipment 12,615 12,703 ---------------- ---------------- 12,841 12,908 Less accumulated depreciation 10,548 10,718 ---------------- ---------------- $ 2,293 $ 2,190 ================ ================ NOTE 4- BUSINESS RESTRUCTURING PROGRESS In the second quarter of 2001, the Company recorded a restructuring charge of $460,000 associated with actions taken to reduce the Company's breakeven point and realign the company with growth activities. This operational repositioning was mandated by the impact which the current economic slowdown and decline in capital spending across a high number of customer groups has had on general demand for programming equipment. The Company's repositioning included the following four components: a reduction in the Company's global workforce of approximately 40 persons or 20% of the workforce; discontinuance or reallocation of numerous projects and activities not essential to the Company's long-term goals; streamlining of activities to decrease discretionary marketing, distribution and promotional expenses; and consolidation of numerous functions across the organization to create a team which is more productive and able to respond faster to global customer needs. At June 30, 2001 all second quarter restructuring expenses associated with these activities had been paid except approximately $97,000. On July 12, 2001 the Company announced that it would take further strategic actions to reduce its breakeven point, which included the following actions: closure of a facility in Germany and its operations moved to other locations within the Company; the Company's four product families will be combined into two business groups; service groups across the organization will be consolidated to create a team more responsive to global customer needs; and certain other expense reductions will be targeted for the third quarter, including a closure of the company's Redmond facility for one week. Restructuring charges related to these actions are expected to total approximately $0.5 million. The Company expects these charges will be recorded in the third quarter. During the third quarter and fourth quarters of 1998, the Company recorded total restructuring charges of $4.4 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 and related to activities directly associated with the fourth quarter 1998 acquisition of SMS Holding GmbH ("SMS"). The remaining reserve at June 30, 2001 is $79,000. NOTE 5 - 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 ----------------------------- --------------------------- 2001 2000 2001 2000 ----------- ------------- ----------- ----------- Restated 1 Restated 1 Numerator for basic and diluted earnings per share: Income (loss) from operations before cumulative effect of change in accounting principle ($1,920) $1,949 ($4,069) ($600) Cumulative effect of change in accounting principle - - - ($2,531) ----------- ------------- ----------- ----------- Net income (loss) ($1,920) $1,949 ($4,069) ($3,131) =========== ============= =========== =========== Denominator: Denominator for basic earnings per share - weighted-average shares 7,560 7,374 7,560 7,361 Employee stock options (1) - 254 - - ----------- ------------- ----------- ----------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions of stock options 7,560 7,628 7,560 7,361 =========== ============= =========== =========== Basic and diluted earnings (loss) per share From operations, after taxes before cumulative effect of change in accounting principle ($0.25) $0.26 ($0.54) ($0.08) From change in accounting principle ($0.00) $0.00 ($0.00) ($0.35) ----------- ------------- ----------- ----------- Total basic and diluted earnings (loss) per share ($0.25) $0.26 ($0.54) ($0.43) =========== ============= =========== =========== (1) Excludes 15,464 and 44,361 employee stock options which were antidilutive for the second quarter and the six months ended June 30, 2001, respectively, and 251,498 which were antidilutive for the six months ended June 29, 2000.
NOTE 6 - ACCOUNTING FOR INCOME TAXES The Company's effective tax rate for the first six months of 2001 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 $617,000 during the second quarter. As of June 30, 2001 the Company has valuation reserves of $8,524,000. NOTE 7 - COMPREHENSIVE INCOME During the second quarter and the first sixth months of 2001 and 2000 total comprehensive income (loss) was comprised of the following (in thousands):
For the Second Quarter For the Six Months ------------------------------- ---------------------------------- 2001 2000 2001 2000 ------------- -------------- ------------- ----------------- Restated 1 Restated 1 Net income (loss) ($1,920) $1,949 ($4,069) ($3,131) Foreign currency translation gain (loss) (76) (13) (78) 12 ------------- -------------- ------------- ----------------- Total comprehensive income (loss) ($1,996) $1,936 ($4,147) ($3,119) ============= ============== ============= =================
1 The restatement is due to the Company's adoption of SAB 101. NOTE 8 - CHANGE IN FISCAL YEAR Previously, the Company reported on a fifty-two, fifty-three week basis. The last reporting period using this fiscal period was the year ended December 28, 2000. The Company's Board of Directors approved a resolution on March 12, 2001 to change the Company's reporting period to a calendar year and calendar quarter basis effective for the current fiscal year. The first quarter of 2001 covers the period December 29, 2000 to March 31, 2001. The second quarter covers the period April 1, 2001 to June 30, 2001. NOTE 9 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES Assets and liabilities of foreign subsidiaries are translated at the exchange rate on the balance sheet date. Revenues, costs and expenses of foreign subsidiaries are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to stockholders' equity, net of taxes. Realized and unrealized gains and losses resulting from the effects of changes in exchange rates on assets and liabilities denominated in foreign currencies are included in non-operating expense as foreign currency transaction gains and losses. The Company utilizes forward foreign exchange contracts to reduce the impact of foreign currency exchange rate risks where natural hedging strategies cannot be effectively employed. All hedging instruments held by the Company are designated as fair value hedges and as of June 30, 2001 are considered to be highly effective. Generally, these contracts have maturities less than one year and require the Company to exchange foreign currencies for U.S. dollars at maturity. The change in fair value of open hedge contracts as of June 30, 2001 resulted in a realized gain of $110,000 and is included in accounts payable on the balance sheet. NOTE 10 - REVENUE RECOGNITION Sales of the Company's semiconductor programming equipment products requiring installation by the Company that is other than perfunctory are recorded when installation is complete, or at the later of customer acceptance or installation, if an acceptance clause is specified in the sales terms. Revenue from other product sales is recognized at the time of shipment. Revenue from the sale of service and update contracts is recorded as deferred revenue and recognized on a straight-line basis over the contractual period. The Company previously recognized revenue from product sales at the time of shipment, or at customer acceptance, if an acceptance clause was specified in the sales terms. Effective December 31, 1999, the Company changed its method of accounting for product sales requiring Company installation, when installation is other than perfunctory, to recognize such revenues when installation is complete, or at the later of customer acceptance or installation, if an acceptance clause is specified in the sales terms. The Company believes the change in accounting principle is preferable based on guidance provided in SEC Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The cumulative effect on prior years resulted in a charge to year 2000's income of $2,531,000 (or $0.34 per share, basic and diluted). The net quarterly effect on previously reported revenues for year 2000 was: Quarter 1 ($972,000), Quarter 2 $3,966,000, and Quarter 3 $1,643,000. 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; changes in gross margin percentages; 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 28, 2000, describe some, but not all, of the factors that could cause these differences.
Results of Operations Net Sales ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Second Quarter First Six Months ----------------------------------------- ------------------------------------------ Net sales by product line 2001 % Change 2000 2001 % Change 2000 ----------------------------------------------------------------------------------- ------------------------------------------ Restated 1 Restated 1 Non-automated programming systems $3,630 (20.7%) $4,579 $8,320 (6.6%) $8,910 Automated programming systems 2,857 (70.0%) 9,515 6,050 (44.1%) 10,814 ----------------------------------------- ------------- ----------------------------- Total programming systems $6,487 (53.9%) $14,094 $14,370 (27.1%) $19,724 ========================================= ========================================== Second Quarter First Six Months ----------------------------------------- ------------------------------------------ Net sales by location 2001 % Change 2000 2001 % Change 2000 ----------------------------------------------------------------------------------- ------------------------------------------ Restated 1 Restated 1 United States $2,358 (44.0%) $4,211 $5,278 (23.1%) $6,859 % of total 36.3% 29.9% 36.7% 34.8% International $4,129 (58.2%) $9,883 $9,092 (29.3%) $12,865 % of total 63.7% 70.1% 63.3% 65.2% -------------------------------------------------------------------------------------------------------------------------------
The restatement is due to the Company's adoption of SAB 101. Revenues for the second quarter of 2001 decreased $7.6 million or 54% compared to the restated second quarter of 2000. The Company adopted SAB 101 in the first quarter of 2000, resulting in recognition of an additional $4.0 million in revenue during the second quarter of 2000. Without the SAB 101 adjustment, revenues were down by $3.6 million or 36% for the quarter and $2.4 million for the first six months. The Company has experienced a decline in sales during the first and second quarters of 2001 from the second, third and fourth quarters of 2000. The decline is attributed to the Company experiencing a reduction in the orders for both automated and non-automated programming equipment. The Company believes this to be primarily due to a general economic slowing in the wireless communications industry, among contract manufacturers and in other sectors of the electronics industry.
Gross Margin Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- Restated Restated Gross Margin $2,810 $6,774 $5,545 $9,020 Percentage of net sales 43.3% 48.1% 38.6% 45.7% - ----------------------------------------------------------------------------------------------------------------------
Gross margin dollars decreased 59% on a 54% revenue decrease during the second quarter 2001 versus the same quarter in 2000. The gross margin percentage decreased from 48.1% to 43.3%. The adoption of SAB 101 increased the margin dollars in the second quarter of 2000 by $2.2 million and increased the gross margin percentage from 45.4% to 48.1%. The gross margin percentage tends to suffer as sales decrease because of the fixed costs in the manufacturing process. Because of the steps that the Company has taken to reduce costs and implement lean manufacturing techniques, the Company expects the gross margin percentage to improve as sales volumes increase.
Research and Development Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------- Research and development $1,765 $2,112 $3,703 $4,533 Percentage of net sales 27.2% 15.0% 25.8% 23.0% ---------------------------------------------------------------------------------------------------------------------
The decrease in research and development (R&D) spending for the first half of 2001 as compared to the first half of 2000 reflects lower headcount and lower development spending. R&D spending was very high in the first half of 2000 due to PP100 and ProLINE RoadRunner development activities. During 2001 the Company plans to continue spending at its current rate to develop new products and technology. The R&D spending as a percentage of Net Sales is higher for the second quarter and for the first six months due to the decrease in revenues from year to year.
Selling, General and Administrative Second Quarter First Six Months --------------------------------------------------------------------------- 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------- Restated Restated Selling, general & administrative $2,450 $3,057 $5,446 $5,582 Percentage of net sales 37.8% 21.7% 37.9% 28.3% ---------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative (SG&A) expenses decreased $0.6 million in the second quarter of 2001 versus 2000 and $0.1 million for the first 6 months of 2001 versus last year. Tight internal spending controls, coupled with the benefits of the restructuring activities undertaken during the first part of the second quarter, has led to a significant reduction in SG&A spending. Spending was lowered in the second quarter to bring expenses in line with the income levels the Company was achieving.
Interest Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------- Interest income $51 $128 $117 $304 Interest expense ($3) ($11) ($10) ($20) ---------------------------------------------------------------------------------------------------------------------
The decrease in interest income for the second quarter of 2001 as compared to the second quarter of 2000, and for the first 6 months, is due to the decrease in cash, cash equivalents and marketable securities, due primarily to the funding of operating losses during the past year.
Income Taxes Second Quarter First Six Months --------------------------------------------------------------------------- (in thousands) 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------- Income tax expense from operations $20 $17 $22 $30 ---------------------------------------------------------------------------------------------------------------------
Tax expense recorded for both the second quarter and first six months of 2001 was due to foreign taxes. Tax valuation reserves increased by approximately $617,000 during the quarter. The Company has valuation reserves of $8,524,000 and $7,714,000 as of June 30, 2001 and June 29, 2000 respectively. Financial Condition
Liquidity and Capital Resources Jun. 30, Dec. 28, (in thousands) 2001 Change 2000 - ------------------------------------------------------------- --------------------- -------------------- ------------------- Working capital $13,019 ($3,773) $16,792 - ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital decreased during the first six months of 2001 primarily due to funding of the losses for the period. Cash, cash equivalents and marketable securities decreased approximately $0.5 million during the period, inventory decreased $2.0 million, and accounts receivable decreased $2.7 million. Accounts payable has decreased $0.9 million during the first 6 months, primarily due to the low level of inventory purchases. The Company estimates that capital expenditures for property, plant and equipment during the remainder of 2001 will be between $500,000 and $1.0 million. The Company believes that cash, cash equivalents and marketable securities will be sufficient 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 30, 2001, the Company had no debt and the Company's material short-term unused sources of liquidity consisted of approximately $4.6 million in cash, cash equivalents and marketable securities. 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 30, 2001, 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. Restructuring In the second quarter of 2001, the Company recorded a restructuring charge of $460,000 to reduce the Company's breakeven point and realign the Company with growth activities. This operational repositioning was mandated by the impact which the current economic slowdown and decline in capital spending across a high number of customer groups has had on general demand for programming equipment. The Company's repositioning included the following four components: a reduction in the Company's global workforce of approximately 40 persons or 20% of the workforce; discontinuance or reallocation of numerous projects and activities not essential to the company's long-term goals; streamlining of activities to decrease discretionary marketing, distribution and promotional expenses; and consolidation of numerous functions across the organization to create a team which is more productive and able to respond faster to global customer needs. At June 30, 2001 all restructuring expenses had been incurred except approximately $97,000. On July 12, 2001 the Company announced that it would take further strategic actions to reduce its breakeven point, which included the following actions: closure of a facility in Germany and its operations moved to other locations within the Company; the company's four product families will be combined into two business groups; service groups across the organization will be consolidated to create a team more responsive to global customer needs; and certain other expense reductions will be targeted for the third quarter, including a closure of the company's Redmond facility for one week. Restructuring charges for these actions are expected to total approximately $0.5 million. The Company expects these charges will be recorded in the third quarter. General 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has experienced no material changes in market risk. The Company currently uses only foreign currency hedge derivative instruments, which are not material as of June 30, 2001. However, the Company is exposed to interest rate risks. The Company generally invests in high-grade commercial paper with original maturity dates of twelve months or less and conservative money market funds to minimize its exposure to interest rate risk on its marketable securities, which are classified as available-for-sale as of June 30, 2001 and December 28, 2000. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds 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 16, 2001, there were present in person or by proxy the holders of 7,255,421 (95.97%) shares of Common Stock of the Corporation thereby constituting a quorum. Following are the matters ratified and the voting results: (a) Election of a Board of Directors consisting of the following seven (7) directors: Name Votes For Votes Withheld Keith L. Barnes 6,721,497 533,924 Glen F. Ceiley 6,720,113 535,308 Daniel A. DiLeo 6,719,155 536,266 Paul A. Gary 6,722,240 533,181 Frederick R. Hume 6,721,597 533,824 Edward D. Lazowska 6,721,240 534,181 Steven M. Quist 6,693,955 561,466 (b) Approval to amend the Company's 1982 Employee Stock Purchase Plan, to increase the number of shares reserved under the Plan by an additional 300,000 shares. The amendment passed by the following vote counts: 6,553,940 votes for; 682,704 against; 18,777 abstained. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None 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 9, 2001 By://S//Joel S. Hatlen Joel S. Hatlen Vice President - Finance Chief Financial Officer Secretary and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----