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 SEPTEMBER 28, 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
7,430,807 shares of no par value Common Stock outstanding as of
September 28, 2000
Page 1 of 17
Exhibit Index on Page 16
<PAGE>
DATA I/O CORPORATION
FORM 10-Q
For the Quarter Ended September 28, 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
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 13
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>
-----------------------------------------------------------------------------------------------------------------------
Sept. 28, Dec. 30,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) (unaudited) (note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,232 $3,597
Marketable securities 2,940 9,614
Trade accounts receivable, less allowance for
doubtful accounts of $441 and $464 9,006 5,548
Inventories 9,932 6,237
Recoverable income taxes 73 205
Other current assets 256 545
----------- -------------
TOTAL CURRENT ASSETS 24,439 25,746
Property, plant and equipment - net 2,110 2,180
Other assets 1,416 2,124
----------- -------------
TOTAL ASSETS $27,965 $30,050
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,788 $1,592
Accrued compensation 2,336 2,080
Deferred revenue 2,354 2,626
Other accrued liabilities 2,037 2,204
Accrued costs of business restructuring 131 493
Income taxes payable 433 572
----------- -------------
TOTAL CURRENT LIABILITIES 9,079 9,567
Deferred gain on sale of property 2,177 2,425
----------- -------------
TOTAL LIABILITIES 11,256 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, 7,430,807
and 7,290,165 shares 18,107 17,813
Retained earnings (1,273) 366
Accumulated other comprehensive income (loss) (125) (121)
----------- -------------
TOTAL STOCKHOLDERS' EQUITY 16,709 18,058
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,965 $30,050
See notes to consolidated financial statements. =========== =============
</TABLE>
Page 3
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
------------------------------------------------------------------------ ------------------------ -- -------------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
2000 1999 2000 1999
------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $11,338 $9,439 $28,068 $26,137
Cost of goods sold 5,963 5,404 15,441 13,982
---------- ---------- ----------- ----------
Gross margin 5,375 4,035 12,627 12,155
Operating expenses:
Research and development 2,360 2,265 6,893 6,228
Selling, general and administrative 2,360 2,494 7,945 8,492
Provision for business restructuring (255) (215)
---------- ---------- ----------- ----------
Total operating expenses 4,720 4,759 14,583 14,505
---------- ---------- ----------- ----------
Operating income (loss) 655 (724) (1,956) (2,350)
Non-operating income (expense):
Interest income 94 174 399 577
Interest expense (3) (8) (25) (28)
Foreign currency exchange (11) 10 (25) 12
Net gain on dispositions - 1,199
---------- ---------- ----------- ----------
Total non-operating income 80 176 349 1,760
Income (loss) from continuing operations
---------- ---------- ----------- ----------
before income taxes 735 (548) (1,607) (590)
Income tax expense (benefit) 4 (8) 33 15
---------- ---------- ----------- ----------
Income (loss) from continuing operations 731 (540) (1,640) (605)
Income from discontinued operations, net of taxes - - 831
---------- ---------- ----------- ----------
Net income (loss) $731 ($540) ($1,640) $226
========== ========== =========== ==========
Basic and diluted earnings (loss) per share:
From continuing operations $0.10 ($0.07) ($0.22) ($0.08)
From discontinued operations 0.00 0.00 0.00 0.11
---------- ---------- ----------- ----------
Total basic and diluted earnings (loss) per share $0.10 ($0.07) ($0.22) $0.03
========== ========== =========== ==========
Weighted average shares outstanding 7,431 7,270 7,378 7,243
========== ========== =========== ==========
Weighted average and potential shares outstanding 7,642 7,270 7,378 7,243
========== ========== =========== ==========
See notes to consolidated financial statements.
</TABLE>
Page 4
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Sept. 28, Sept. 30,
For the nine months ended 2000 1999
------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Loss from continuing operations ($1,640) ($605)
Adjustments to reconcile loss from continuing
operations to net cash provided by (used in) operating activities:
Depreciation and amortization 1,603 1,597
Net gain on dispositions - (1,199)
Equity earnings from investee - (17)
Deferred income taxes - 404
Deferred revenue (272) (521)
Amortization of deferred gain on sale (248) (247)
Net change in:
Trade accounts receivable (3,442) (773)
Inventories (3,695) (2,199)
Recoverable income taxes 132 2,498
Other current assets 289 658
Business restructure (362) (1,715)
Accounts payable and accrued liabilities 152 (3,821)
----------- --------------
Cash used in operating activities of continuing operations (7,483) (5,940)
Cash provided by operating activities of discontinued operations - 831
----------- --------------
Net cash used in operating activities (7,483) (5,109)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (850) (977)
Proceeds on sale of subsidiary - 72
Proceeds from sale of minority interest - 1,067
Purchases of marketable securities (2,345) (7,398)
Proceeds from sales of marketable securities 9,019 10,600
----------- --------------
Cash provided by investing activities 5,824 3,364
FINANCING ACTIVITIES:
Additions to (repayment of) notes payable - 6
Sale of common stock 171 165
Proceeds from exercise of stock options 123 1
----------- --------------
Cash provided by in financing activities 294 172
Increase (decrease) in cash and cash equivalents (1,365) (1,573)
Effects of exchange rate changes on cash - (92)
Cash and cash equivalents at beginning of year 3,597 4,008
----------- --------------
Cash and cash equivalents at end of period $2,232 $2,343
=========== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $25 $112
Income taxes $41 $104
See notes to consolidated financial statements.
</TABLE>
Page 5
<PAGE>
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 / FINANCIAL STATEMENT PREPARATION
The financial statements as of September 28, 2000 and September 30, 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 nine months ended September 28, 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 APB 20, 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):
Sept. 28 Dec. 30,
2000 1999
---------------- ----------------
Raw material $5,450 $2,567
Work-in-process 2,595 1,665
Finished goods 1,887 2,005
---------------- ----------------
$9,932 $6,237
================ ================
NOTE 3 / PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components
(in thousands):
Sept. 28, Dec. 30,
2000 1999
---------------- ----------------
Building and improvements $ 204 $ 179
Equipment 12,443 12,030
--------------- ----------------
12,647 12,209
Less accumulated depreciation 10,537 10,029
---------------- ----------------
$ 2,110 $ 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 nine
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 $307,000. 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 September 28, 2000 of
$131,000 relates primarily to facility abandonment that will be paid out over
the next eight 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>
Third Quarter First Nine Months
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Loss from continuing operations $731 ($540) ($1,640) ($605)
Income from discontinued operations - - 831
----------- ----------- ----------- -----------
Net income (loss) $731 ($540) ($1,640) $226
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,431 7,270 7,378 7,243
Employee stock options (1) 211 - - -
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 7,642 7,270 7,378 7,243
=========== =========== =========== ===========
Basic earnings (loss) per share
From continuing operations $0.10 ($0.07) ($0.22) ($0.08)
From discontinued operations 0.00 $0.00 0.00 0.11
----------- ----------- ----------- -----------
Total basic earnings (loss) per share $0.10 ($0.07) ($0.22) $0.03
=========== =========== =========== ===========
Diluted earnings (loss) per share
From continuing operations $0.10 ($0.07) ($0.22) ($0.08)
From discontinued operations 0.00 $0.00 0.00 0.11
----------- ----------- ----------- -----------
Total diluted earnings (loss) per share $0.10 ($0.07) ($0.22) $0.03
=========== =========== =========== ===========
(1) Excludes 251,498 employee stock options which were antidilutive for the
nine months ended September 28, 2000, and 13,346 and 14,873 which were
antidilutive for the third quarter and the nine months ended
September 30, 1999, respectively.
</TABLE>
NOTE 7 / ACCOUNTING FOR INCOME TAXES
The Company's effective tax rate for the first nine months of 2000 differed from
the statutory 34% tax rate primarily due to the ability to reverse tax valuation
allowances as operating income was recorded. Tax valuation reserves decreased by
approximately $284,000 during the quarter. As of September 28, 2000 the Company
has valuation reserves of $7,430,000.
NOTE 8 / COMPREHENSIVE INCOME
During the third quarter and the first nine months of 2000 and 1999 total
comprehensive income (loss) was comprised of the following (in thousands):
<TABLE>
<CAPTION>
For the Third Quarter For the Nine Months
------------------------------- ----------------------------------
2000 1999 2000 1999
------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $731 ($540) ($1,640) $226
Foreign currency translation gain (loss) 8 (4) 21
------------- -------------- ------------- ---------------
Total comprehensive income (loss) $739 ($540) ($1,636) $247
============= ============== ============= ===============
</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; 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)
Third Quarter First Nine Months
----------------------------------------- ------------------------------------------
Net sales by product line 2000 % Change 1999 2000 % Change 1999
----------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-automated programming systems $4,143 (22.2%) $5,325 $13,053 (18.3%) $15,984
Automated programming systems 7,195 74.9% 4,114 15,015 47.9% 10,153
----------------------------------------- ------------ ----------------------------
Total programming systems $11,338 20.1% $9,439 $28,068 7.4% $26,137
========================================= ==========================================
Third Quarter First Nine Months
----------------------------------------- ------------------------------------------
Net sales by location 2000 % Change 1999 2000 % Change 1999
----------------------------------------------------------------------------------- ------------------------------------------
United States $4,473 12.5% $3,976 $11,276 (0.0%) $11,281
% of total 39.5% 42.1% 40.2% 43.1%
International $6,865 25.7% $5,463 $16,792 13.0% $14,856
% of total 60.5% 57.9% 59.8% 56.9%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in sales for the third quarter 2000 was primarily due to the
increased shipments of the PP100 and the first shipments of the ProLINE-
RoadRunner. The higher orders for the PP100 products are due primarily to the
Company's new FlashTOP product that was introduced in February 2000. Sales of
the Company's legacy non-automated programming systems decreased in the third
quarter of 2000 compared with the third quarter of 1999 largely due to
Page 9
<PAGE>
discontinued products and aftermarket for older products. Partially offsetting
this were increased sales of the Company's Sprint non-automated programming
system products. The Company expects the trend of increasing sales of
manufacturing products to continue, both in dollars and as a percentage of the
sales mix, particularly related to its newer automated programming systems
products.
The Company has realized a negative impact from foreign currency translation
during 2000 due primarily to the Euro or German Mark to U.S. Dollar exchange
rate. The net impact of exchange rate changes on sales revenue during the first
nine months of 2000 was approximately $700,000. 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>
Third Quarter First Nine Months
---------------------------------------------------------------------------
(in thousands) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Margin $5,375 $4,035 $12,627 $12,155
Percentage of net sales 47.4% 42.8% 45.0% 46.5%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross margin improved both in dollars and as a percentage of sales for the third
quarter of 2000 compared to the third quarter of 1999 due primarily to the
increase in sales volume and to a shift in mix to higher sales of newer, higher
margin products. For the same reasons, if the increase in sales volume and shift
in mix continues, the company expects that it will achieve a 2 to 3 percentage
point higher gross margin percentage during the next quarter.
Research and Development
<TABLE>
<CAPTION>
Third Quarter First Nine Months
---------------------------------------------------------------------------
(in thousands) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Research and development $2,360 $2,265 $6,893 $6,228
Percentage of net sales 20.8% 24.0% 24.6% 23.8%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in research and development spending for the third quarter of 2000
as compared to the third quarter of 1999 is primarily due to increased personnel
costs and materials used in new projects. Spending in research and development
is expected to continue at approximately the third quarter 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>
Third Quarter First Nine Months
---------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Selling, general & administrative $2,360 $2,494 $7,945 $8,492
Percentage of net sales 20.8% 26.4% 28.3% 32.5%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The lower amount of selling, general and administrative expenditures in the
third quarter and first nine months of 2000 as compared with the same periods of
1999 is due primarily to lower spending due to reduction in incentives cost,
temporarily lower headcount and sublease offset to rent expense, some items of
which are permanent savings and some of which are a result of delays in
expenditures. During the third quarter the company began implementing plans to
sell mostly direct in the United States, Mexico and China where previously the
Company had sold mostly through representatives and distributors.
Page 10
<PAGE>
<TABLE>
<CAPTION>
Third Quarter First Nine Months
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
Interest income $94 $174 $399 $577
Interest expense ($3) ($8) ($25) ($28)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in interest income for both the third quarter and first nine months
of 2000 as compared to the same periods of 1999 is due to the decrease in cash,
cash equivalents and marketable securities, which were primarily to the funding
of operating losses inventories and receivables 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>
Third Quarter First Nine Months
---------------------------------------------------------------------------
(in thousands) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense (benefit) from
continuing operations $4 ($8) $33 $15
Effective tax rate 0.5% 1.5% (2.1%) (2.5%)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Tax expense recorded for both the third quarter and first nine months of 2000
was due to foreign taxes. The Company's effective tax rate for the third quarter
of 2000 differed from the statutory 34% tax rate primarily due the ability to
reverse tax valuation allowances as operating income was recorded and for the
first nine months due to operating losses for which no tax benefit was recorded.
Tax valuation reserves decreased by approximately $284,000 during the quarter.
As of September 28, 2000 the Company has valuation reserves of $7,430,000.
Net Income and Earnings Per Share
<TABLE>
<CAPTION>
Third Quarter First Nine Months
-----------------------------------------------------------------------
(in thousands, except per share data)
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $731 ($540) ($1,640) ($605)
Percentage of net sales 6.4% (5.7%) (5.8%) (2.3%)
Basic and diluted earnings (loss) per share
from continuing operations $0.10 ($0.07) ($0.22) ($0.03)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company recognized net income from continuing operations for the third
quarter of 2000 as compared to the loss from continuing operations recognized
for the third quarter of 1999 due primarily to higher sales volume and gross
margin improvement.
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 $307,000. 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 September 28, 2000 of
$131,000 relates primarily to facility abandonment that will be paid out over
the next eight 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 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 third quarter 1999, and recognized net earnings of $326,000 from source code
sales and training and support services provided during the first quarter 1999.
Operating results of this discontinued division are classified as discontinued
operations in the financial statements.
Financial Condition
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Sept. 28, Dec. 30,
(in thousands) 2000 Change 1999
------------------------------------------------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C>
Working capital $15,360 ($819) $16,179
Total debt $0 $0 $0
------------------------------------------------------------- --------------------- -------------------- -------------------
</TABLE>
Working capital decreased during the first nine months of 2000 primarily due to
funding of the losses for the period. Cash, cash equivalents and marketable
securities, which decreased approximately $8.0 million during the period, were
used to increase inventory by approximately $3.7 million as the Company has
ramped up production of its newly introduced products, increase accounts
receivable by approximately $3.5 million due to the higher sales, and fund
losses from operations.
As of September 28, 2000, the Company had no debt outstanding. No borrowings
were outstanding under the approximately $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.
Page 12
<PAGE>
The Company estimates that capital expenditures for property, plant and
equipment during the remainder of 2000 will be less than $500,000. Although the
Company expects to make the planned capital expenditures, it has purchase
commitments for only a small portion of this amount.
At September 28, 2000, the Company's material short-term unused sources of
liquidity consisted of approximately $5.2 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 during 2000 to fund 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 September
28, 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 third 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.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company currently uses only foreign currency hedge derivative instruments
which, at a given date, are not material. 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
conservative money market funds to minimize its exposure to interest rate risk
on its marketable securities, which are classified as available-for-sale. The
Company believes that the market risk arising from holdings of its financial
instruments is not material. The Company's had approximately $2.9 million
in marketable securities at September 28, 2000 and $9.6 million at December 30,
1999.
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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
None
Item 5. Other Information
The Company has made changes in its management organization creating an Office
of the President. This consists of Frederick Hume, President and Chief
Executive, Joel Hatlen, Vice President and Chief Financial Officer, and Jim
Rounds, Vice President and Chief Technical Officer (formerly Vice President and
General Manager of Programming Systems). The Company has organized teams around
four product lines (ProLine-RoadRunner, Off-line automated programming systems,
UniSite programming systems, and Sprint programming systems) and four sales
groups (Americas, Europe, Asia and Programmers On-line). Subsequent to the end
of the quarter the Company is changing the role of Mark Edelsward and Helmut
Adamski such that they will no longer be classified as executive officers. Mark
Edelsward, formerly Vice President of Worldwide Sales, has the role of directing
strategic alliances and Helmut Adamski, formerly Vice President and General
Manager of Device Support, has the role of semiconductor relations.
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: November 10, 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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