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
<PAGE>
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
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Jun. 29, Dec. 30,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) (unaudited) (note 1)
<S> <C> <C>
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
=========== =============
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
------------------------------------------------------------------------ ------------------------ -- -------------------------
June 29, July 1, June 29, July 1,
2000 1999 2000 1999
------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
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
========== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Jun. 29, July. 01,
For the six months ended 2000 1999
------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE>
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
<PAGE>
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
<PAGE>
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):
<TABLE>
<CAPTION>
Second Quarter First Six Months
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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.
</TABLE>
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):
<TABLE>
<CAPTION>
For the Second Quarter For the Six Months
------------------------------- ----------------------------------
2000 1999 2000 1999
------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C>
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
============= ============== ============= =================
</TABLE>
Page 8
<PAGE>
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
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Second Quarter First Six Months
----------------------------------------- ------------------------------------------
Net sales by product line 2000 % Change 1999 1999 % Change 1999
----------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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
<TABLE>
<CAPTION>
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Gross Margin $4,593 $4,463 $7,251 $8,120
Percentage of net sales 45.4% 49.9% 43.3% 48.6%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<TABLE>
<CAPTION>
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Research and development $2,111 $1,955 $4,532 $3,963
Percentage of net sales 20.8% 21.9% 27.1% 23.7%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<TABLE>
<CAPTION>
Second Quarter First Six Months
---------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Selling, general & administrative $3,057 $3,031 $5,585 $5,998
Percentage of net sales 30.2% 33.9% 33.4% 35.9%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
Interest
<TABLE>
<CAPTION>
Second Quarter First Six Months
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
Interest income $128 $135 $304 $403
Interest expense ($11) ($10) ($20) ($20)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<TABLE>
<CAPTION>
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense from continuing
operations $17 $9 $30 $23
Effective tax rate 7.9% 9.5% 1.3% 54.8%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<TABLE>
<CAPTION>
Second Quarter First Six Months
-----------------------------------------------------------------------
(in thousands, except per share data)
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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
<TABLE>
<CAPTION>
Jun. 29, Dec. 30,
(in thousands) 2000 Change 1999
------------------------------------------------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C>
Working capital $14,549 ($1,630) $16,179
Total debt $0 $0 $0
------------------------------------------------------------- --------------------- -------------------- -------------------
</TABLE>
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
<PAGE>
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.
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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
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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
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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.
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