<PAGE>
- --------------------------------------------------------------------------------
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 27, 1996 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, 98073-9746
(address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (206) 881-6444
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
---- ----
6,792,970 shares of no par value Common Stock outstanding as of August 5, 1996
Page 1 of 17
Exhibit Index on Page 16
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DATA I/O CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 27, 1996
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (unaudited) 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
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
Exhibit 11 17
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
June 27, Dec. 28,
1996 1995
- ----------------------------------------------------------------------------------------------------
(in thousands, except share data) (Unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,926 $ 4,496
Trade accounts receivable,
less allowance for doubtful
accounts of $390 and $311 11,769 13,115
Inventories 9,797 8,539
Deferred income taxes 727 976
Other current assets 646 893
---------- ----------
TOTAL CURRENT ASSETS 24,865 28,019
Land held for sale 2,128 2,095
Property, plant and equipment - net 10,165 10,240
Other assets 3,767 4,422
---------- ----------
TOTAL ASSETS $40,925 $44,776
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,257 $ 2,071
Accrued compensation 3,069 3,612
Deferred revenue 5,735 5,436
Other accrued liabilities 2,817 2,672
Accrued costs of business restructuring 515 965
Income taxes payable 128 1,141
Notes payable 293 117
---------- ----------
TOTAL CURRENT LIABILITIES 14,814 16,014
LONG TERM DEBT 1,500 1,500
LONG TERM OTHER PAYABLES 1,143 1,117
DEFERRED INCOME TAXES 572 216
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, 6,752,166
and 7,083,825 shares, respectively 15,148 17,528
Retained earnings 7,302 7,946
Currency translation adjustments 446 455
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 22,896 25,929
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,925 $44,776
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
Page 3
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DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
- -------------------------------------------------------------------------------------------------------------------
June 27, June 29, June 27, June 29,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Net sales $15,308 $16,126 $30,964 $32,334
Cost of goods sold 7,725 7,323 15,830 14,694
-------- -------- -------- --------
Gross margin 7,583 8,803 15,134 17,640
Operating expenses:
Research and development 2,660 2,397 5,126 4,730
Selling, general and administrative 5,379 4,967 10,392 10,072
-------- -------- -------- --------
Total operating expenses 8,039 7,364 15,518 14,802
-------- -------- -------- --------
Operating income (loss) (456) 1,439 (384) 2,838
Non-operating (income) expense:
Interest income (38) (111) (101) (211)
Interest expense 80 80 134 143
Foreign currency exchange 5 (1) 3 1
-------- -------- -------- --------
Total non-operating (income) expense 47 (32) 36 (67)
-------- -------- -------- --------
Income (loss) before taxes (503) 1,471 (420) 2,905
Income tax expense 203 282 224 575
-------- -------- -------- --------
Net income (loss) ($706) $1,189 ($644) $2,330
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share:
Net income (loss) ($0.10) $0.15 ($0.09) $0.30
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding 6,827 7,930 6,940 7,875
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to consolidated financial statements.
Page 4
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DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
For the six months ended: June 27, June 29,
1996 1995
- -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($644) $2,330
Adjustments to reconcile income
to net cash provided by operating activities:
Depreciation and amortization 2,046 2,184
Deferred income taxes and tax refunds (408) (276)
Deferred revenue 290 387
Changes in current items other
than cash and cash equivalents:
Trade accounts receivable 1,315 (2,290)
Inventories (1,258) (956)
Other current assets 244 686
Accounts payable and accrued liabilities (126) (211)
Business restructure accrual (514) (159)
-------- --------
Cash provided by operating activities 945 1,695
INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,296) (1,276)
Additions to other assets (232)
-------- --------
Cash used for investing activities (1,296) (1,508)
FINANCING ACTIVITIES:
Additions to/(repayment of) notes payable 172 693
Sale of common stock 154 166
Repurchase of common stock (2,930)
Proceeds from exercise of stock options 397 225
-------- --------
Cash provided by/(used for) financing activities (2,207) 1,084
-------- --------
Increase (decrease) in cash and cash equivalents (2,558) 1,271
Effects of exchange rate changes on cash (12) (4)
Cash and cash equivalents - Beginning of period 4,496 7,279
-------- --------
Cash and cash equivalents - End of period $1,926 $8,546
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 34 $ 73
Income taxes $477 $451
</TABLE>
See notes to consolidated financial statements.
Page 5
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DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENT PREPARATION
The financial statements as of June 27, 1996 and June 29, 1995, 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, 1995 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 generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations. Operating results for the quarter
and six months ended June 27, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 26, 1996. 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, 1995.
NOTE 2 - CLASSIFICATIONS
Certain prior period's balances have been reclassified to conform to the
presentation used in the current period.
NOTE 3 - INVENTORIES
Inventories consisted of the following components (in thousands):
June 27, Dec. 28,
1996 1995
-------- --------
Raw material $5,134 $4,839
Work-in-process 2,694 2,125
Finished goods 1,969 1,575
-------- --------
$9,797 $8,539
-------- --------
-------- --------
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components (in
thousands):
June 27, Dec. 28,
1996 1995
-------- ---------
Land $ 910 $ 910
Building and improvements 7,554 7,539
Equipment 22,386 22,329
-------- ---------
30,850 30,778
Less accumulated depreciation 20,685 20,538
-------- ---------
$10,165 $10,240
-------- ---------
-------- ---------
Page 6
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NOTE 5 - ACCOUNTING FOR INCOME TAXES
Statement of Financial Accounting Standards ("SFAS") 109 requires the
establishment of deferred tax assets and liabilities for expected future tax
consequences of events that have been recognized in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement carrying
amounts and the tax basis of assets and liabilities using currently enacted tax
rates which are expected to be in effect during the years in which the
differences are anticipated to reverse.
The Company was unable to record a benefit for its pre-tax losses, or offset its
foreign taxes for the quarter ended June 27, 1996. The Company recorded
deferred tax asset valuation allowances due to the Company's loss generated in
the current period and the inability to utilize foreign tax credits. The
valuation allowance for deferred tax assets increased by approximately $300,000
during the second quarter and $400,000 for the first six months of 1996 to $3.0
million as of June 27, 1996.
Page 7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
AGREEMENT TO PURCHASE MINORITY INTEREST IN BUSINESS
On April 25, 1996 the Company announced it had reached an agreement in principle
to purchase a minority interest in Needham's Electronics and to enter into a
worldwide distribution agreement for Needham's Electronics' programmer products.
Completion of the minority investment and creation of the distribution rights
are subject to negotiation of definitive agreements and satisfaction of certain
conditions. The Company continues to negotiate the definitive agreement and
presently expects it can complete this by the end of the year. However, due to
the complexity of the transaction and certain conditions which must be
satisfied, there is no assurance that this transaction will be completed.
SHARE REPURCHASE PROGRAM
The Company announced on October 27, 1995 a share repurchase program which
authorized the Company to repurchase up to 7.5% (approximately 570,000 shares)
of its outstanding shares of common stock. On February 21, 1996 the Company
announced an extension of the share repurchase program which authorized the
Company to repurchase up to an additional 8% (approximately 570,000 shares) 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. Purchases may commence or be discontinued at
any time. At June 27, 1996 the Company had repurchased an aggregate of 995,700
shares at a total cost of approximately $7.1 million since inception of the
share repurchase program.
SALE OF HEADQUARTERS PROPERTY
The Company announced on July 18, 1996 that it had reached an agreement to sell
the land and building comprising its Redmond, Washington headquarters campus for
approximately $14.0 million to a major real estate company. The transaction
would include a lease back of the building by Data I/O for ten years with
options for an additional ten years. Data I/O's corporate headquarters campus
includes the Company's 96,000 square foot building and approximately 79 acres of
land. The Company had been marketing a portion of the land on its headquarters
campus for the past five years and in 1995 decided to market the building to
enhance the value of the entire property.
Closing of the sale is subject to the buyer's due diligence and a number of
conditions and contingencies, including a zoning variance, authorization to make
changes in a wetland on the property and other governmental approvals, which are
not expected to be resolved until late this year. As closing of the sale is
subject to a number of conditions, there can be no assurance that the sale will
be consummated. If consummated, this sale is expected to result in a pre-tax
gain of approximately $5.8 million. Approximately $2.0 million of this gain
would be recognized upon the closing of the sale, with the balance amortized
over the initial ten-year lease term. The company expects to realize
approximately $12.0 million in cash after payment of transaction fees and income
taxes.
RESTRUCTURE PROGRESS
During the fourth quarter of 1993, the Company recorded a pretax charge of $6.1
million related to the restructure of its sales and distribution channels,
downsizing its operations to a level consistent with anticipated lower sales and
product margins, and to consolidate and outsource certain manufacturing
processes. The purpose of the restructure was primarily to reduce expenses and
significantly lower the Company's break-even point in reaction to reduced sales
and gross margins in 1993. Additionally, the Company made several strategic
changes to its sales and distribution channels to better align distribution of
the Company's current and anticipated future products to their markets and
customers. The general downsizing of operations and restructure of the sales
and distribution system were substantially completed in 1994. The Company began
implementation of the planned changes to its manufacturing processes in 1994 for
completion in 1997. The manufacturing consolidation and relocation project was
completed in the first quarter of 1996, and the outsourcing of certain
manufacturing processes is scheduled to be completed in 1997.
Of the total $6.1 million restructuring charge, approximately $965,000 remained
as an accrued liability at December 28, 1995. At June 27, 1996, the remaining
accrued liability was approximately $515,000. The reduction during the first
six months of 1996 related primarily to implementation of changes in
manufacturing processes, facility consolidation and office space lease payments.
Page 8
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As of June 27, 1996, the Company's restructuring has proceeded as planned. No
significant changes were made to the Company's restructuring plans during the
second quarter of 1996.
FORWARD-LOOKING STATEMENTS
Although most of the information contained in this report is historical, certain
of the statements contain forward-looking information. To the extent these
statements express or imply, without limitation, product development and
introduction plans, the Company's expectations for growth, estimates of future
revenue, expenses, profit, cash flow, balance sheet items, sell-through or
backlog, forecasts of demand or market trends for the Company's various product
categories and for the industries in which the Company operates or any other
guidance on future periods, these statements are forward-looking and involve
matters which are subject to a number of known and unknown risks and
uncertainties that could cause actual results to differ materially from those
expressed in such forward-looking statements. Readers of this report should
consider, along with other relevant information, the risk factors identified by
the Company under the caption "Risk Factors" in Item 1 and elsewhere in the
Company's Annual Report on Form 10-K for the year ended December 28, 1995, and
other risks identified from time to time in the Company's filings with the
Securities and Exchange Commission, press releases and other communications.
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Second Quarter First Six Months
------------------------------- ---------------------------------
Net sales by division (in thousands) 1996 1995 % Change 1996 1995 % Change
- --------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Programming Systems Division:
Non-automated programming systems 8,915 10,851 (17.8%) 17,654 21,765 (18.9%)
Automated programming systems $4,152 $4,190 (0.9%) $8,757 $8,359 4.8%
--------- --------- --------- --------- --------- ---------
Total Programming Systems Division 13,067 15,041 (13.1%) 26,411 30,124 (12.3%)
Synario Design Automation Division 1,186 1,085 9.3% 2,468 2,210 11.7%
Semiconductor Equip. Div. (Reel-Tech) 1,055 2,085
--------- --------- --------- --------- --------- ---------
Net sales $15,308 $16,126 (5.1%) $30,964 $32,334 (4.2%)
--------- --------- --------- --------- --------- ---------
<CAPTION>
Second Quarter First Six Months
--------------------------------- ----------------------------------
Net sales by location (in thousands) 1996 1995 % Change 1996 1995 % Change
- --------------------------------------- --------- --------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States $6,723 $8,392 (19.9%) $14,798 $17,465 (15.3%)
% of total 43.9% 52.0% 47.8% 54.0%
International $8,585 $7,734 11.0% $16,166 $14,869 8.7%
% of total 56.1% 48.0% 52.2% 46.0%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company experienced an overall decline in sales and orders for the Company's
products during the second quarter of 1996. Orders declined approximately 9% to
$14.7 million in the second quarter of 1996, compared with $16.2 million in the
second quarter of 1995. Based on normal seasonality, current order rates and
current plans for introduction of enhanced or new products, the Company
currently expects third quarter sales to be lower than the second quarter while
fourth quarter sales are expected to be somewhat higher than the third quarter.
The Company believes the declines in overall Programming Systems Division sales
and orders were primarily due to the slowdown in capital spending by electronics
manufacturing companies in the United States and Germany which reduced the
demand for the Division's products. The Company believes that based on
published reports the economic slowdown in
Page 9
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capital spending for electronics manufacturing equipment will continue for at
least one quarter and possibly longer. The Company believes that increased
competition, in areas where new Data I/O product introductions will not occur
until the first half of 1997, is also affecting sales. In addition, the Company
believes the declines in non-automated programming systems also reflect the
continuing market shift away from the Company's traditional line of higher-
priced IC programmers for the engineering market toward lower-priced
programmers.
The Company believes the market shift toward lower-priced IC programmers has
been caused in part by advances in semiconductor processing technology that have
lowered the barriers to entry in the programmer business over the last several
years. This has caused new market entrants to appear regularly, each trying to
carve out a niche. New entrants cause downward price pressure, and each cycle
of new competitors lowers the acceptable price of a conventional IC programmer
in the customer's view. In addition, the Company believes that technological
improvements in personal computers and design software tools have caused a shift
in the demand for IC design tools by engineering design teams away from hardware
tools in favor of increased software design tools. These industry changes had,
and are continuing to have, an adverse effect on the Company's IC programmer
sales and gross margins, especially since the Company's products historically
have been oriented toward hardware tools and, within hardware tools, toward
higher-priced IC programmers.
However, the Company believes that recent changes in programmable IC technology,
such as increasingly complex logic ICs and higher pin counts, and the increasing
need by users of programmable ICs for higher quality programming means that
there is a significant market need for more sophisticated programmers. The
Company currently has development projects underway for new programmer
technology to attempt to better meet the needs created by theses technology
changes
A market shift in the ProMaster product mix toward higher-priced models
contributed to the automated handling systems sales increase in the first half
of 1996. The Company believes the increase in sales of the Company's ProMaster
products reflects the expanded use of programmable integrated circuits in the
mid- to high-volume manufacturing environment. The Company believes that in the
electronic manufacturing market, the proliferation of hard-to-handle surface-
mount packages in a variety of types is causing a worldwide trend toward
automation and integration of manufacturing processes. Although, during the
first six months of 1996, growth of the automated programming systems product
line has slowed due to what the Company believes is the soft capital spending
market, the Company continues to believe that this product line is well
positioned to capitalize on the trend toward automation and integration of
manufacturing processes.
No new orders were booked during the second quarter of 1996 for Reel-Tech's
semiconductor equipment products. Reel-Tech had a backlog of approximately $1.0
million at the end of the second quarter. The Company believes there is a
slowdown in capital spending due to overcapacity and price competition by DRAM
semiconductor manufacturers, among Reel-Tech's primary customers, and that this
may slow the growth of Reel-Tech in the short term.
The Company experienced increased international sales primarily in Asia.
Partially offsetting the increase in international sales was the negative impact
of foreign currency exchange rate changes. These changes reduced sales by
approximately $600,000 during the second quarter and $1.0 million during the
first six months of 1996 compared to the same periods in 1995. These declines
were due primarily to rate changes for the German Mark and the Japanese Yen.
GROSS MARGIN
Second Quarter First Six Months
-------------- ----------------
(in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Gross margin $7,583 $8,803 $15,134 $17,640
Percentage of net sales 49.5% 54.6% 48.9% 54.6%
- --------------------------------------------------------------------------------
Gross margins for the second quarter and the first six months of 1996 declined
both in amount and as a percentage of sales compared to the same periods in the
prior year due primarily to lower volumes, lower product margins and increases
in inventory reserves. The relatively high fixed component of cost of goods sold
causes any swing in total volume to have a significant impact on gross margin.
The shift in mix of product revenues from software to hardware and from higher-
priced and higher-margin non-automated programming systems to the lower-priced
alternatives has lowered the overall product gross margins. In addition, the
gross margin on the ProMaster 9500 was below that of the Company's traditional
handlers due to higher material and labor costs. The Company expects these
costs to decline in future periods due to anticipated improvements in the
proficiency of manufacturing and service personnel in building and servicing the
ProMaster 9500. Also
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contributing to the decline of gross margin was the strengthening of the U.S.
Dollar in relation to the Japanese Yen and the German Mark, in which
approximately 16% of the Company's sales are denominated.
RESEARCH AND DEVELOPMENT
Second Quarter First Six Months
-------------- ----------------
(in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Research and development $2,660 $2,397 $5,126 $4,730
Percentage of net sales 17.4% 14.9% 16.6% 14.6%
- --------------------------------------------------------------------------------
The increase in research and development spending compared to the second quarter
and the first six months of 1996 is primarily due to the inclusion of expenses
for the Company's Reel-Tech subsidiary acquired in August of 1995, additional
new product development projects, including those related to products slated for
introduction in 1997, and increased compensation costs. The Company expects to
continue its significant investment in research and development.
The Company believes it is essential to invest in research and development to
support its existing products and to create new products as markets develop and
technologies change. The Company is focusing its research and development
efforts in its strategic growth markets, namely automated handling systems for
the manufacturing environment, Windows-based EDA software design tools, semi-
conductor handling equipment and lower-priced IC programmers.
SELLING, GENERAL AND ADMINISTRATIVE
Second Quarter First Six Months
-------------- ----------------
(in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Selling, general and administrative $5,379 $4,967 $10,392 $10,072
Percentage of net sales 35.1% 30.8% 33.6% 31.1%
- --------------------------------------------------------------------------------
The increase in selling, general and administrative expenditures during the
second quarter and the first six months of 1996 relative to 1995 is due
primarily to the inclusion of expenses for the Company's Reel-Tech subsidiary
acquired in August of 1995. Partially offsetting these expense increases were
decreased expenses in the Company's foreign offices, due to currency rate
changes and decreased incentive compensation.
INTEREST
Second Quarter First Six Months
-------------- ----------------
(in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Interest income $38 $111 $101 $211
Interest expense $80 $80 $134 $143
- --------------------------------------------------------------------------------
Interest income decreased during the second quarter and first six months of 1996
compared with 1995, primarily due to a decrease in the average level of funds
available for investment and a decrease in the average investment interest
rates.
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INCOME TAXES
Second Quarter First Six Months
-------------- ----------------
(in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Income taxes $203 $282 $224 $575
Effective tax rate N/A 19.2% N/A 19.8%
- --------------------------------------------------------------------------------
The Company's effective tax rate for the second quarter and the first six months
of 1996 differed from the statutory 34% tax rate primarily due to recording
additional deferred tax valuation reserves. The valuation reserves increased
primarily due to the Company's inability to record a benefit for its net
operating loss and foreign tax credits. The Company has valuation reserves of
$3.0 million that may increase should the Company continue to experience losses
or reverse as the Company records income.
NET INCOME AND EARNINGS PER SHARE
Second Quarter First Six Months
-------------- ----------------
(in thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Net income (loss) ($706) $1,189 ($644) $2,330
Earnings per share ($0.10) $0.15 ($0.09) $0.30
- --------------------------------------------------------------------------------
The decrease in net income and earnings per share compared with the second
quarter and first six months of 1995 is primarily due to a combination of
decreased sales volume, a lower gross margin percentage, increased costs and
operating expenses resulting from the company's acquisition of reel-tech and
recording of deferred tax valuation reserves.
INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
Historically, the Company has been able to offset the impact of inflation
through efficiency increases and price adjustments. Increasing price
competition, especially in IC programmers, is currently diminishing and may
continue to diminish the Company's ability to offset the impacts of inflation in
the future.
Sales and expenses incurred by foreign subsidiaries are denominated in the
subsidiary's local currency and translated into U.S. Dollar amounts at average
rates of exchange during the year. Exchange rates impact absolute U.S. Dollar
amounts but do not have a significant impact on the percentage of net sales
ratios. Because only approximately one-third of the Company's sales are made by
foreign subsidiaries and independent currency fluctuations tend to minimize the
effect of any individual currency exchange, fluctuations to date in foreign
currency rates have not significantly impacted the Company's overall financial
results.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
June 27, Dec. 28,
(in thousands) 1996 Change 1995
- --------------------------------------------------------------------------------
Working capital $10,051 ($1,954) $12,005
Total debt $1,793 $176 $1,617
- --------------------------------------------------------------------------------
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Working capital decreased during the second quarter and first six months of 1996
primarily due to funds used to repurchase common stock as discussed above. This
decrease was partially offset by funds provided by operations.
The Company's trade accounts receivable increased by approximately $700,000
during the second quarter of 1996, however during the first six months of 1996
decreased by approximately $1.3 million. This net decrease was primarily due to
decreased sales volume during the first six months of 1996. The Company
increased its inventory level by approximately $500,000 during the second
quarter and $1.2 million for the first six months of 1996. This increase was
primarily due to having purchased inventory to meet a higher sales volume than
occurred, to support anticipated growth in the Semiconductor Equipment products
as well as to provide a level of safety stock during the Anaheim factory
relocation which was completed in March 1996.
As of June 27, 1996, the Company had total debt of $1.8 million or approximately
8% of its $23 million in equity. Of this debt, $1.5 million is a note payable
due in 1998 for the balance of the purchase price of the CAD/CAM Group. The
remaining $293,000 is current debt, consisting entirely of borrowings on the
Company's $1.4 million foreign line of credit. No borrowings were outstanding
under the Company's $8.0 million U.S. line of credit.
The U.S. line of credit was renewed in May of 1996 and matures in May of 1997.
The foreign line of credit matures in August 1996. Historically, these credit
lines have been structured as short-term and have been renewed on their maturity
dates. The Company currently expects to be able to renew these lines of credit
on maturity under substantially the same terms as those presently in place. No
assurances can be made however, in regard to the renewal of these agreements if
the Company continues to experience losses.
The Company estimates that capital expenditures for property, plant and
equipment during the remainder of 1996 will be approximately $1.0 million. Such
expenditures are currently expected to be funded from internally generated funds
and, if necessary, borrowings under the Company's existing credit lines.
Although the Company fully expects that such expenditures will be made, it has
purchase commitments for only a small portion of this amount.
At June 27, 1996, the Company's material short-term unused sources of liquidity
consisted of approximately $1.9 million in cash and cash equivalents, available
borrowings of $8.0 million under its U.S. line of credit and available
borrowings of approximately $1.1 million under its foreign line of credit. The
Company believes that cash, cash flow from operations and borrowings available
under its U.S. and foreign lines of credit will be sufficient to fund working
capital needs, service existing debt, finance planned capital expenditures, fund
the Company's share repurchase program, fund its remaining restructure accrued
liabilities, fund the minority investment in Needham's Electronics and fund the
Reel-Tech contingent payment obligations. In addition, if the Company is
successful in completing the sale of its property held for sale, additional
capital will be available.
Page 13
<PAGE>
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 14, 1996, there were present
in person or by proxy the holders of 6,107,465 shares of the 7,105,616 shares of
Common Stock of the Corporation. The following presents matters ratified and
the voting results:
(a) Election of a Board of Directors consisting of the following five (5)
directors:
Name Votes For Votes Withheld
---- --------- --------------
Frances M. Conley 6,047,607 59,858
William C. Erxleben 6,049,008 58,457
W. Hunter Simpson 6,050,008 57,457
Donald R. Stenquist 6,048,982 58,483
Milton F. Zeutschel 6,048,517 58,948
(b) Approval of an amendment to the Company's 1982 Employee Stock Purchase
Plan whereby the number of shares of the Company's Common Stock reserved
for issuance under the Plan was increased by 400,000 shares. Votes cast
were 3,473,796 For, 167,894 Against, 77,853 Abstain and 2,387,922 Broker
Non-Votes.
(c) Approval of the adoption of the 1996 Director Fee Plan which provides
for the payment of certain fees to directors of the Company who are not
employees of the Company by delivery of shares of the Company's Common
Stock. Votes cast were 3,680,411 For, 248,452 Against, 85,809 Abstain and
2,092,793 Broker Non-Votes.
ITEM 5. OTHER INFORMATION
The Company announced on July 18, 1996 that it has reached an agreement to sell
the land and building comprising its Redmond, Washington headquarters for
approximately $14.0 million to a major real estate company. See Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the caption: Sale of Headquarters Property.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE
(a) Exhibits
11. Statement Regarding Computation of
Earnings Per Share 16
(b) Reports on Form 8-K
None
Page 14
<PAGE>
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, 1996
By: /s/ Steven M. Gordon
-----------------------
Steven M. Gordon
Vice President
Finance and Administration
Chief Financial Officer
Chief Accounting Officer
Secretary and Treasurer
Page 15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Title Page Number
- -------------- ----------------------------------------------------- -----------
<S> <C> <C>
11 Statement Regarding Computation of Earnings per Share 17
</TABLE>
Page 16
<PAGE>
EXHIBIT 11
DATA I/O CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Earnings per share reported in Form 10-Q for the quarters ended June 27, 1996,
and June 29, 1995 are based on the following (in thousands):
Quarter Ended Six Months Ended
------------- ----------------
June 27, June 27, June 27, June 29,
Primary and Fully Diluted: 1996 1995 1996 1995
- -------------------------- --------- -------- -------- --------
Weighted Average Shares Outstanding 6,827 7,530 6,940 7,502
Dilutive Effect of Stock Options 400 373
--------- -------- -------- --------
Weighted Average Common and
Equivalent Shares Outstanding 6,827 7,930 6,940 7,875
--------- -------- -------- --------
--------- -------- -------- --------
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1996
<PERIOD-START> DEC-29-1995
<PERIOD-END> JUN-27-1996
<CASH> 1,926
<SECURITIES> 0
<RECEIVABLES> 12,159
<ALLOWANCES> 390
<INVENTORY> 9,797
<CURRENT-ASSETS> 24,865
<PP&E> 30,850
<DEPRECIATION> 20,685
<TOTAL-ASSETS> 40,925
<CURRENT-LIABILITIES> 14,814
<BONDS> 1,500
0
0
<COMMON> 15,148
<OTHER-SE> 7,748
<TOTAL-LIABILITY-AND-EQUITY> 40,925
<SALES> 30,964
<TOTAL-REVENUES> 30,964
<CGS> 15,830
<TOTAL-COSTS> 15,444
<OTHER-EXPENSES> (98)
<LOSS-PROVISION> 74
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> (420)
<INCOME-TAX> 224
<INCOME-CONTINUING> (644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (644)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
