16
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM
10-Q (Mark One) ( X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarter ended JUNE 30, 2001 OR ( )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 Or the transition period from ___________ to ______________
Commission File No. 0-10394
DATA I/O CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0864123
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10525 Willows Road N.E.,
Redmond, Washington, 98052
(Address of principal executive offices, Zip Code)
(425) 881-6444
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
7,613,754 shares of no par value Common Stock issued and outstanding as of
August 3, 2001
DATA I/O CORPORATION
FORM 10-Q For the Quarter Ended June 30, 2001
INDEX
Part I - Financial Information Page
Item 1. Financial Statements (unaudited) 3
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 14
Market Risk
Part II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
Jun. 30, Dec. 28,
2001 2000
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) (unaudited) Restated 1
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,892 $3,133
Marketable securities 1,677 1,944
Trade accounts receivable, less allowance for
doubtful accounts of $340 and $350 7,941 10,627
Inventories 7,180 9,166
Recoverable income taxes 73 91
Other current assets 182 444
----------- -------------
TOTAL CURRENT ASSETS 19,945 25,405
Property, plant and equipment - net 2,293 2,190
Other assets 626 1,151
----------- -------------
TOTAL ASSETS $22,864 $28,746
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $754 $1,674
Accrued compensation 1,378 2,073
Deferred revenue 2,306 2,637
Other accrued liabilities 1,967 1,623
Accrued costs of business restructuring 176 117
Income taxes payable 345 489
----------- -------------
TOTAL CURRENT LIABILITIES 6,926 8,613
Deferred gain on sale of property 1,930 2,094
----------- -------------
TOTAL LIABILITIES 8,856 10,707
COMMITMENTS - -
STOCKHOLDERS' EQUITY:
Preferred stock -
Authorized, 5,000,000 shares, including
200,000 shares of Series A Junior Participating
Issued and outstanding, none - -
Common stock, at stated value -
Authorized, 30,000,000 shares
Issued and outstanding, 7,560,167
and 7,494,592 shares 18,408 18,292
Accumulated Deficit (4,232) (163)
Accumulated other comprehensive loss (168) (90)
----------- -------------
TOTAL STOCKHOLDERS' EQUITY 14,008 18,039
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,864 $28,746
=========== =============
See accompanying notes
1 The restatement is due to the Company's adoption of SAB 101
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarters Ended Six Months Ended
- ------------------------------------------------------------------------ ------------------------ -- --------------------------
June 30, June 29, June 30, June 29,
2001 2000 2001 2000
- ------------------------------------------------------------------------ ---------- -- ---------- -- ----------- -- -----------
(in thousands, except per share data) Restated 1 Restated 1
Net sales $6,487 $14,094 $14,370 $19,724
Cost of goods sold 3,677 7,320 8,825 10,704
---------- ---------- ----------- -----------
Gross margin 2,810 6,774 5,545 9,020
Operating expenses:
Research and development 1,765 2,112 3,703 4,533
Selling, general and administrative 2,450 3,057 5,446 5,582
Net provision (reversal) for business restructuring 460 (255) 460 (255)
---------- ---------- ----------- -----------
Total operating expenses 4,675 4,914 9,609 9,860
---------- ---------- ----------- -----------
Operating Income/(loss) (1,865) 1,860 (4,064) (840)
Non-operating income (expense):
Interest income 51 128 117 304
Interest expense (3) (11) (10) (20)
Foreign currency exchange (83) (11) (90) (14)
---------- ---------- ----------- -----------
Total non-operating income/(loss) (35) 106 17 270
---------- ---------- ----------- -----------
Income/(loss) from operations before income taxes
and cumulative effect of accounting changes (1,900) 1,966 (4,047) (570)
Income tax expense 20 17 22 30
---------- ---------- ----------- -----------
Income/(loss) from operations and before cumulative
effect of accounting changes (1,920) 1,949 (4,069) (600)
Cumulative effect of change in accounting principle - - - 2,531
---------- ---------- ----------- -----------
Net income/(loss) ($1,920) $1,949 ($4,069) ($3,131)
========== ========== =========== ===========
Basic and diluted income/(loss) per share:
From continuing operations ($0.25) $0.26 ($0.54) ($0.08)
From cumulative effect of change in accounting principle 0.00 0.00 0.00 (0.35)
---------- ---------- ----------- -----------
Total basic and diluted income/(loss) per share ($0.25) $0.26 ($0.54) ($0.43)
========== ========== =========== ===========
Weighted average shares outstanding 7,560 7,374 7,560 7,361
========== ========== =========== ===========
Weighted average and potential shares outstanding 7,560 7,628 7,560 7,361
See accompanying notes
1 The restatement is due to the Company's adoption of SAB 101
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
Jun. 30, Jun. 29,
For the six months ended 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands) Restated 1
OPERATING ACTIVITIES:
Loss from operations ($4,069) ($3,131)
Adjustments to reconcile loss from operations to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,192 1,060
Net loss on dispositions 73 -
Amortization of deferred gain on sale (164) (166)
Net change in:
Deferred revenue (331) 1,698
Trade accounts receivable 2,736 (1,453)
Inventories 1,986 (3,716)
Recoverable income taxes 18 54
Other current assets 178 176
Accrued cost of business restructuring 63 (334)
Accounts payable and accrued liabilities (1,428) 822
----------- --------------
Net cash provided by (used in) operating activities 254 (4,990)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (825) (298)
Purchases of marketable securities (2,106) (2,339)
Proceeds from sales of marketable securities 2,369 5,924
----------- --------------
Cash provided by (used in) investing activities (562) 3,287
FINANCING ACTIVITIES:
Sale of common stock 117 82
Proceeds from exercise of stock options - 72
----------- --------------
Cash provided by financing activities 117 154
Decrease in cash and cash equivalents (191) (1,549)
Effects of exchange rate changes on cash (50) -
Cash and cash equivalents at beginning of year 3,133 3,597
----------- --------------
Cash and cash equivalents at end of quarter $2,892 $2,048
=========== ==============
See accompanying notes
1 The restatement is due to the Company's adoption of SAB 101.
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENT PREPARATION
The financial statements as of June 30, 2001 and June 29, 2000, have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). These statements are unaudited but, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments and accruals) necessary to present fairly the results for the
periods presented. The balance sheet at December 28, 2000 has been derived from
the audited financial statements at that date. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such SEC rules and regulations. Operating
results for the six months ended June 30, 2001 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2001. These
financial statements should be read in conjunction with the annual audited
financial statements and the accompanying notes included in the Company's Form
10-K for the year ended December 28, 2000.
NOTE 2 - INVENTORIES
Inventories consisted of the following components (in thousands):
June 30, Dec. 28,
2001 2000
--------------- ----------------
Raw material $4,431 $4,526
Work-in-process 1,706 2,756
Finished goods 1,043 1,884
--------------- ----------------
$7,180 $9,166
=============== ================
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components (in
thousands):
June 30, Dec. 28,
2001 2000
---------------- ----------------
Building improvements $226 $205
Equipment 12,615 12,703
---------------- ----------------
12,841 12,908
Less accumulated depreciation 10,548 10,718
---------------- ----------------
$ 2,293 $ 2,190
================ ================
NOTE 4- BUSINESS RESTRUCTURING PROGRESS
In the second quarter of 2001, the Company recorded a restructuring charge of
$460,000 associated with actions taken to reduce the Company's breakeven point
and realign the company with growth activities. This operational repositioning
was mandated by the impact which the current economic slowdown and decline in
capital spending across a high number of customer groups has had on general
demand for programming equipment.
The Company's repositioning included the following four components: a reduction
in the Company's global workforce of approximately 40 persons or 20% of the
workforce; discontinuance or reallocation of numerous projects and activities
not essential to the Company's long-term goals; streamlining of activities to
decrease discretionary marketing, distribution and promotional expenses; and
consolidation of numerous functions across the organization to create a team
which is more productive and able to respond faster to global customer needs. At
June 30, 2001 all second quarter restructuring expenses associated with these
activities had been paid except approximately $97,000.
On July 12, 2001 the Company announced that it would take further strategic
actions to reduce its breakeven point, which included the following actions:
closure of a facility in Germany and its operations moved to other locations
within the Company; the Company's four product families will be combined into
two business groups; service groups across the organization will be consolidated
to create a team more responsive to global customer needs; and certain other
expense reductions will be targeted for the third quarter, including a closure
of the company's Redmond facility for one week. Restructuring charges related to
these actions are expected to total approximately $0.5 million. The Company
expects these charges will be recorded in the third quarter.
During the third quarter and fourth quarters of 1998, the Company recorded total
restructuring charges of $4.4 million as the Company began the implementation of
a plan to restructure its Redmond and foreign subsidiary operations to a level
more in line with the lower sales it was experiencing and related to activities
directly associated with the fourth quarter 1998 acquisition of SMS Holding GmbH
("SMS"). The remaining reserve at June 30, 2001 is $79,000.
NOTE 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
Second Quarter First Six Months
----------------------------- ---------------------------
2001 2000 2001 2000
----------- ------------- ----------- -----------
Restated 1 Restated 1
Numerator for basic and diluted earnings per share:
Income (loss) from operations before cumulative
effect of change in accounting principle ($1,920) $1,949 ($4,069) ($600)
Cumulative effect of change in accounting principle - - - ($2,531)
----------- ------------- ----------- -----------
Net income (loss) ($1,920) $1,949 ($4,069) ($3,131)
=========== ============= =========== ===========
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,560 7,374 7,560 7,361
Employee stock options (1) - 254 - -
----------- ------------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions of stock options 7,560 7,628 7,560 7,361
=========== ============= =========== ===========
Basic and diluted earnings (loss) per share
From operations, after taxes before cumulative
effect of change in accounting principle ($0.25) $0.26 ($0.54) ($0.08)
From change in accounting principle ($0.00) $0.00 ($0.00) ($0.35)
----------- ------------- ----------- -----------
Total basic and diluted earnings (loss) per share ($0.25) $0.26 ($0.54) ($0.43)
=========== ============= =========== ===========
(1) Excludes 15,464 and 44,361 employee stock options which were antidilutive
for the second quarter and the six months ended June 30, 2001, respectively, and
251,498 which were antidilutive for the six months ended June 29, 2000.
NOTE 6 - ACCOUNTING FOR INCOME TAXES
The Company's effective tax rate for the first six months of 2001 differed from
the statutory 34% tax rate primarily due to operating losses for which no tax
benefit was recorded. Tax valuation reserves increased by approximately $617,000
during the second quarter. As of June 30, 2001 the Company has valuation
reserves of $8,524,000.
NOTE 7 - COMPREHENSIVE INCOME
During the second quarter and the first sixth months of 2001 and 2000 total
comprehensive income (loss) was comprised of the following (in thousands):
For the Second Quarter For the Six Months
------------------------------- ----------------------------------
2001 2000 2001 2000
------------- -------------- ------------- -----------------
Restated 1 Restated 1
Net income (loss) ($1,920) $1,949 ($4,069) ($3,131)
Foreign currency translation gain (loss) (76) (13) (78) 12
------------- -------------- ------------- -----------------
Total comprehensive income (loss) ($1,996) $1,936 ($4,147) ($3,119)
============= ============== ============= =================
1 The restatement is due to the Company's adoption of SAB 101.
NOTE 8 - CHANGE IN FISCAL YEAR
Previously, the Company reported on a fifty-two, fifty-three week basis. The
last reporting period using this fiscal period was the year ended December 28,
2000. The Company's Board of Directors approved a resolution on March 12, 2001
to change the Company's reporting period to a calendar year and calendar quarter
basis effective for the current fiscal year. The first quarter of 2001 covers
the period December 29, 2000 to March 31, 2001. The second quarter covers the
period April 1, 2001 to June 30, 2001.
NOTE 9 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES
Assets and liabilities of foreign subsidiaries are translated at the exchange
rate on the balance sheet date. Revenues, costs and expenses of foreign
subsidiaries are translated at average rates of exchange prevailing during the
year. Translation adjustments resulting from this process are charged or
credited to stockholders' equity, net of taxes. Realized and unrealized gains
and losses resulting from the effects of changes in exchange rates on assets and
liabilities denominated in foreign currencies are included in non-operating
expense as foreign currency transaction gains and losses.
The Company utilizes forward foreign exchange contracts to reduce the impact of
foreign currency exchange rate risks where natural hedging strategies cannot be
effectively employed. All hedging instruments held by the Company are designated
as fair value hedges and as of June 30, 2001 are considered to be highly
effective. Generally, these contracts have maturities less than one year and
require the Company to exchange foreign currencies for U.S. dollars at maturity.
The change in fair value of open hedge contracts as of June 30, 2001 resulted in
a realized gain of $110,000 and is included in accounts payable on the balance
sheet.
NOTE 10 - REVENUE RECOGNITION
Sales of the Company's semiconductor programming equipment products requiring
installation by the Company that is other than perfunctory are recorded when
installation is complete, or at the later of customer acceptance or
installation, if an acceptance clause is specified in the sales terms. Revenue
from other product sales is recognized at the time of shipment. Revenue from the
sale of service and update contracts is recorded as deferred revenue and
recognized on a straight-line basis over the contractual period.
The Company previously recognized revenue from product sales at the time of
shipment, or at customer acceptance, if an acceptance clause was specified in
the sales terms. Effective December 31, 1999, the Company changed its method of
accounting for product sales requiring Company installation, when installation
is other than perfunctory, to recognize such revenues when installation is
complete, or at the later of customer acceptance or installation, if an
acceptance clause is specified in the sales terms. The Company believes the
change in accounting principle is preferable based on guidance provided in SEC
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. The cumulative effect on prior years resulted in a charge to year
2000's income of $2,531,000 (or $0.34 per share, basic and diluted).
The net quarterly effect on previously reported revenues for year 2000 was:
Quarter 1 ($972,000), Quarter 2 $3,966,000, and Quarter 3 $1,643,000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves as long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact made
in this Quarterly Report on Form 10-Q are forward-looking. In particular,
statements herein regarding industry prospects; future results of operations or
financial position; changes in gross margin percentages; integration of acquired
products and operations; market acceptance of the Company's newly introduced or
upgraded products; development, introduction and shipment of new products;
expected spending levels; and any other guidance on future periods are
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. The Company's actual results
may differ significantly from management's expectations. The following
discussions and discussions under the caption "Business - Cautionary Factors
That May Affect Future Results" in Item 1 in the Company's Annual report on Form
10-K for the year ended December 28, 2000, describe some, but not all, of the
factors that could cause these differences.
Results of Operations
Net Sales
-------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Second Quarter First Six Months
----------------------------------------- ------------------------------------------
Net sales by product line 2001 % Change 2000 2001 % Change 2000
----------------------------------------------------------------------------------- ------------------------------------------
Restated 1 Restated 1
Non-automated programming systems $3,630 (20.7%) $4,579 $8,320 (6.6%) $8,910
Automated programming systems 2,857 (70.0%) 9,515 6,050 (44.1%) 10,814
----------------------------------------- ------------- -----------------------------
Total programming systems $6,487 (53.9%) $14,094 $14,370 (27.1%) $19,724
========================================= ==========================================
Second Quarter First Six Months
----------------------------------------- ------------------------------------------
Net sales by location 2001 % Change 2000 2001 % Change 2000
----------------------------------------------------------------------------------- ------------------------------------------
Restated 1 Restated 1
United States $2,358 (44.0%) $4,211 $5,278 (23.1%) $6,859
% of total 36.3% 29.9% 36.7% 34.8%
International $4,129 (58.2%) $9,883 $9,092 (29.3%) $12,865
% of total 63.7% 70.1% 63.3% 65.2%
-------------------------------------------------------------------------------------------------------------------------------
The restatement is due to the Company's adoption of SAB 101.
Revenues for the second quarter of 2001 decreased $7.6 million or 54% compared
to the restated second quarter of 2000. The Company adopted SAB 101 in the first
quarter of 2000, resulting in recognition of an additional $4.0 million in
revenue during the second quarter of 2000. Without the SAB 101 adjustment,
revenues were down by $3.6 million or 36% for the quarter and $2.4 million for
the first six months.
The Company has experienced a decline in sales during the first and second
quarters of 2001 from the second, third and fourth quarters of 2000. The decline
is attributed to the Company experiencing a reduction in the orders for both
automated and non-automated programming equipment. The Company believes this to
be primarily due to a general economic slowing in the wireless communications
industry, among contract manufacturers and in other sectors of the electronics
industry.
Gross Margin
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Restated Restated
Gross Margin $2,810 $6,774 $5,545 $9,020
Percentage of net sales 43.3% 48.1% 38.6% 45.7%
- ----------------------------------------------------------------------------------------------------------------------
Gross margin dollars decreased 59% on a 54% revenue decrease during the second
quarter 2001 versus the same quarter in 2000. The gross margin percentage
decreased from 48.1% to 43.3%. The adoption of SAB 101 increased the margin
dollars in the second quarter of 2000 by $2.2 million and increased the gross
margin percentage from 45.4% to 48.1%.
The gross margin percentage tends to suffer as sales decrease because of the
fixed costs in the manufacturing process. Because of the steps that the Company
has taken to reduce costs and implement lean manufacturing techniques, the
Company expects the gross margin percentage to improve as sales volumes
increase.
Research and Development
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2001 2000 2001 2000
---------------------------------------------------------------------------------------------------------------------
Research and development $1,765 $2,112 $3,703 $4,533
Percentage of net sales 27.2% 15.0% 25.8% 23.0%
---------------------------------------------------------------------------------------------------------------------
The decrease in research and development (R&D) spending for the first half of
2001 as compared to the first half of 2000 reflects lower headcount and lower
development spending. R&D spending was very high in the first half of 2000 due
to PP100 and ProLINE RoadRunner development activities. During 2001 the Company
plans to continue spending at its current rate to develop new products and
technology.
The R&D spending as a percentage of Net Sales is higher for the second quarter
and for the first six months due to the decrease in revenues from year to year.
Selling, General and Administrative
Second Quarter First Six Months
---------------------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------------------------------------------
Restated Restated
Selling, general & administrative $2,450 $3,057 $5,446 $5,582
Percentage of net sales 37.8% 21.7% 37.9% 28.3%
---------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative (SG&A) expenses decreased $0.6 million in
the second quarter of 2001 versus 2000 and $0.1 million for the first 6 months
of 2001 versus last year. Tight internal spending controls, coupled with the
benefits of the restructuring activities undertaken during the first part of the
second quarter, has led to a significant reduction in SG&A spending. Spending
was lowered in the second quarter to bring expenses in line with the income
levels the Company was achieving.
Interest
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2001 2000 2001 2000
---------------------------------------------------------------------------------------------------------------------
Interest income $51 $128 $117 $304
Interest expense ($3) ($11) ($10) ($20)
---------------------------------------------------------------------------------------------------------------------
The decrease in interest income for the second quarter of 2001 as compared to
the second quarter of 2000, and for the first 6 months, is due to the decrease
in cash, cash equivalents and marketable securities, due primarily to the
funding of operating losses during the past year.
Income Taxes
Second Quarter First Six Months
---------------------------------------------------------------------------
(in thousands) 2001 2000 2001 2000
---------------------------------------------------------------------------------------------------------------------
Income tax expense from operations $20 $17 $22 $30
---------------------------------------------------------------------------------------------------------------------
Tax expense recorded for both the second quarter and first six months of 2001
was due to foreign taxes. Tax valuation reserves increased by approximately
$617,000 during the quarter. The Company has valuation reserves of $8,524,000
and $7,714,000 as of June 30, 2001 and June 29, 2000 respectively.
Financial Condition
Liquidity and Capital Resources
Jun. 30, Dec. 28,
(in thousands) 2001 Change 2000
- ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital $13,019 ($3,773) $16,792
- ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital decreased during the first six months of 2001 primarily due to
funding of the losses for the period. Cash, cash equivalents and marketable
securities decreased approximately $0.5 million during the period, inventory
decreased $2.0 million, and accounts receivable decreased $2.7 million. Accounts
payable has decreased $0.9 million during the first 6 months, primarily due to
the low level of inventory purchases.
The Company estimates that capital expenditures for property, plant and
equipment during the remainder of 2001 will be between $500,000 and $1.0
million. The Company believes that cash, cash equivalents and marketable
securities will be sufficient to meet current and anticipated future capital
expenditures. Although the Company expects that such expenditures will be made,
it has purchase commitments for only a small portion of this amount.
At June 30, 2001, the Company had no debt and the Company's material short-term
unused sources of liquidity consisted of approximately $4.6 million in cash,
cash equivalents and marketable securities.
Share Repurchase Program
Under a previously announced share repurchase program, the Company is authorized
to repurchase up to 1,123,800 shares (approximately 15.2%) of its outstanding
Common Stock. These purchases may be executed through open market purchases at
prevailing market prices, through block purchases or in privately negotiated
transactions, and may commence or be discontinued at any time. As of June 30,
2001, the Company has repurchased 1,016,200 shares under this repurchase program
at a total cost of approximately $7.1 million. The Company has not repurchased
shares under this plan since the second quarter of 1997 although it still has
the authority to do so.
Restructuring
In the second quarter of 2001, the Company recorded a restructuring charge of
$460,000 to reduce the Company's breakeven point and realign the Company with
growth activities. This operational repositioning was mandated by the impact
which the current economic slowdown and decline in capital spending across a
high number of customer groups has had on general demand for programming
equipment.
The Company's repositioning included the following four components: a reduction
in the Company's global workforce of approximately 40 persons or 20% of the
workforce; discontinuance or reallocation of numerous projects and activities
not essential to the company's long-term goals; streamlining of activities to
decrease discretionary marketing, distribution and promotional expenses; and
consolidation of numerous functions across the organization to create a team
which is more productive and able to respond faster to global customer needs. At
June 30, 2001 all restructuring expenses had been incurred except approximately
$97,000.
On July 12, 2001 the Company announced that it would take further strategic
actions to reduce its breakeven point, which included the following actions:
closure of a facility in Germany and its operations moved to other locations
within the Company; the company's four product families will be combined into
two business groups; service groups across the organization will be consolidated
to create a team more responsive to global customer needs; and certain other
expense reductions will be targeted for the third quarter, including a closure
of the company's Redmond facility for one week. Restructuring charges for these
actions are expected to total approximately $0.5 million. The Company expects
these charges will be recorded in the third quarter.
General
European Monetary Conversion
On January 1, 1999, the European Economic and Monetary Union (the "EMU")
introduced the Euro, which became a functional legal currency of the EMU
countries. From 1999 to 2001 business in the EMU member states has been and will
be conducted in both the existing national currency, such as the Franc or
Deutsche Mark, and the Euro.
The Company has taken certain steps to ensure that its financial and other
software systems are capable of processing transactions and properly handling
EMU currencies, including the Euro. The Company will continue to assess what
further impact the EMU formation will have on both its internal systems and its
products sold. The costs related to addressing this issue have not been
determined, however, management believes that this issue and its related costs
will not have a material adverse effect on the Company's business, financial
condition and operating results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has experienced no material changes in market risk. The Company
currently uses only foreign currency hedge derivative instruments, which are not
material as of June 30, 2001. However, the Company is exposed to interest rate
risks. The Company generally invests in high-grade commercial paper with
original maturity dates of twelve months or less and conservative money market
funds to minimize its exposure to interest rate risk on its marketable
securities, which are classified as available-for-sale as of June 30, 2001 and
December 28, 2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 16, 2001,
there were present in person or by proxy the holders of
7,255,421 (95.97%) shares of Common Stock of the Corporation
thereby constituting a quorum. Following are the matters
ratified and the voting results:
(a) Election of a Board of Directors consisting of the
following seven (7) directors:
Name Votes For Votes Withheld
Keith L. Barnes 6,721,497 533,924
Glen F. Ceiley 6,720,113 535,308
Daniel A. DiLeo 6,719,155 536,266
Paul A. Gary 6,722,240 533,181
Frederick R. Hume 6,721,597 533,824
Edward D. Lazowska 6,721,240 534,181
Steven M. Quist 6,693,955 561,466
(b) Approval to amend the Company's 1982 Employee Stock
Purchase Plan, to increase the number of shares reserved
under the Plan by an additional 300,000 shares. The amendment
passed by the following vote counts: 6,553,940 votes for;
682,704 against; 18,777 abstained.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DATA I/O CORPORATION
(REGISTRANT)
DATED: August 9, 2001
By://S//Joel S. Hatlen
Joel S. Hatlen
Vice President - Finance
Chief Financial Officer
Secretary and Treasurer