-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lS316ethmgLc6XnLQYEUrd9QwZ/bFv+uXTpT8jAw0abJ/2G21s3EFH7ZKhVwLTtB omUmOtv2EvKwwMGqPFttLg== 0000026987-95-000023.txt : 19950516 0000026987-95-000023.hdr.sgml : 19950516 ACCESSION NUMBER: 0000026987-95-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DDL ELECTRONICS INC CENTRAL INDEX KEY: 0000026987 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 330213512 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08101 FILM NUMBER: 95539767 BUSINESS ADDRESS: STREET 1: 7320 SW HUNZIKER ROAD #300 CITY: TIGARD STATE: OR ZIP: 97223-2302 BUSINESS PHONE: 503-620-1789 MAIL ADDRESS: STREET 1: 7320 SW HUNZIKER ROAD #300 CITY: TIGARD STATE: OR ZIP: 97223-2302 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES DATE OF NAME CHANGE: 19880817 10-Q 1 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 quarterly period ended March 31, 1995, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 1-8101 Exact Name of Registrant as Specified in Its Charter: DDL Electronics, Inc. State or Other Jurisdiction of Incorporation or Organization: Delaware I.R.S. Employer Identification No.: 33-0213512 Address of Principal Executive Offices: 7320 SW Hunziker Road Suite #300, Tigard, Oregon 97223-2302 Registrant's Telephone Number, Including Area Code: 503/620-1789 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 [ ] The registrant had 15,908,504 shares of Common Stock outstanding as of May 5, 1995. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited, Except June 30, 1994) March 31, June 30, 1995 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,389,000 $ 2,540,000 Accounts receivable 4,149,000 5,600,000 Inventories 2,223,000 3,647,000 Prepaid expenses 264,000 231,000 Total current assets 9,025,000 12,018,000 PROPERTY, EQUIPMENT AND IMPROVEMENTS, AT COST Land - 1,101,000 Buildings and improvements 5,306,000 8,670,000 Plant equipment 9,444,000 22,499,000 Office and other equipment 1,226,000 1,508,000 Construction in progress - 60,000 15,976,000 33,838,000 Less: accumulated depreciation and amortization (12,669,000) (23,196,000) Property, equipment and improvements, net 3,307,000 10,642,000 OTHER ASSETS Total other assets 447,000 598,000 $ 12,779,000 $ 23,258,000 See accompanying Notes to Unaudited Consolidated Financial Statements.
DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued) (Unaudited, Except June 30, 1994) March 31, June 30, 1995 1994 LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Current portion of long-term debt $ 749,000 $13,524,000 Accounts payable 4,980,000 5,086,000 Accrued payroll and employee benefits 728,000 994,000 Other accrued liabilities 1,344,000 1,673,000 Total current liabilities 7,801,000 21,277,000 LONG-TERM DEBT 7% Convertible Subordinated Debentures, less current portion 729,000 775,000 8-1/2% Convertible Subordinated Debentures 1,580,000 1,580,000 Notes payable, capitalized lease obligations and other long-term debt, less current portion 4,449,000 4,515,000 Total long-term debt 6,758,000 6,870,000 STOCKHOLDERS' DEFICIT Preferred stock - - Common stock 153,000 145,000 Additional paid-in capital 20,647,000 19,646,000 Accumulated deficit (21,782,000) (23,673,000) Foreign currency translation adjustment (798,000) (1,007,000) Total stockholders' deficit (1,780,000) (4,889,000) $ 12,779,000 $ 23,258,000 See accompanying Notes to Unaudited Consolidated Financial Statements.
DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Nine Months Ended March 31, 1995 1994 SALES $ 22,673,000 $39,512,000 COSTS AND EXPENSES Cost of goods sold 20,629,000 39,178,000 Administrative and selling expenses 4,146,000 5,729,000 Restructuring charges 1,173,000 - 25,948,000 44,907,000 OPERATING LOSS (3,275,000) (5,395,000) NONOPERATING INCOME (EXPENSE) Investment income 85,000 128,000 Interest expense (767,000) (804,000) Gain on sale of assets 3,374,000 2,000 Other income 33,000 34,000 2,725,000 (640,000) LOSS BEFORE INCOME TAXES & EXTRAORDINARY ITEM (550,000) (6,035,000) INCOME TAXES - - LOSS BEFORE EXTRAORDINARY ITEM (550,000) (6,035,000) EXTRAORDINARY ITEM Gain on debt extinguishment 2,441,000 - NET INCOME (LOSS) $ 1,891,000 $(6,035,000) PRIMARY EARNINGS (LOSS) PER SHARE: Loss before extraordinary item ($0.03) ($0.40) Extraordinary item $0.15 - $0.12 ($0.40) AVERAGE NUMBER OF PRIMARY COMMON AND COMMON SHARE EQUIVALENTS 15,790,737 15,104,839 See accompanying Notes to Unaudited Consolidated Financial Statements.
DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended March 31, 1995 1994 SALES $ 6,079,000 $ 11,343,000 COSTS AND EXPENSES Cost of goods sold 4,916,000 11,266,000 Administrative and selling expenses 913,000 1,995,000 5,829,000 13,261,000 OPERATING INCOME (LOSS) 250,000 (1,918,000) NONOPERATING INCOME (EXPENSE) Investment income 28,000 60,000 Interest expense (111,000) (247,000) Gain on sale of assets - 2,000 (83,000) (224,000) INCOME (LOSS) BEFORE INCOME TAXES 167,000 (2,142,000) INCOME TAXES - - NET INCOME (LOSS) $ 167,000 $ (2,142,000) PRIMARY EARNINGS (LOSS) PER SHARE: Net income (loss) per share $0.01 ($0.14) AVERAGE NUMBER OF PRIMARY COMMON AND COMMON SHARE EQUIVALENTS 16,012,801 15,305,736 See accompanying Notes to Unaudited Consolidated Financial Statements.
DDL ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended March 31, 1995 1994 Cash flows from operating activities: Net income (loss) $ 1,891,000 $(6,035,000) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 1,220,000 2,362,000 Gain on debt extinguishment (2,441,000) (34,000) Gain on sale of property and other assets (3,377,000) (1,000) Value of variable stock options granted - 8,000 Net decrease in operating working capital 2,064,000 1,908,000 Decrease in deposits and other assets 2,000 26,000 Benefit of noncapital grants (33,000) (149,000) Net cash used by operating activities (674,000) (1,915,000) Cash flows from investing activities: Capital expenditures (243,000) (532,000) Proceeds from disposition of capital assets 9,997,000 15,000 Net cash provided (used) by investing activities 9,754,000 (517,000) Cash flows from financing activities: Proceeds from long term debt 166,000 73,000 Reductions of long-term debt (10,603,000) (1,497,000) Net proceeds from exercise of stock warrants - 3,455,000 Proceeds from stock option exercise 9,000 93,000 Proceeds from government grants 200,000 266,000 Proceeds from issue of Series-B Preferred stock - 675,000 Proceeds from common shares issued pursuant to Regulation S 980,000 - Net cash provided (used) by financing activities (9,248,000) 3,065,000 Effect of exchange rate changes on cash 17,000 (34,000) Increase (decrease) in cash and cash equivalents (151,000) 599,000 Cash and cash equivalents at beginning of period 2,540,000 2,768,000 Cash and cash equivalents at end of period $2,389,000 $3,367,000 See accompanying Notes to Unaudited Consolidated Financial Statements.
DDL ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION In the opinion of the Company's management, the accompanying consolidated financial statements, which have not been audited by independent accountants (except for the balance sheet as of June 30, 1994), reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position at March 31, 1995 and June 30, 1994, and the results of operations and the cash flows for the three month and nine month periods ended March 31, 1995 and 1994. The Company uses a 52-53 week fiscal year ending on the Friday closest to June 30. In the accompanying interim consolidated financial statements, the interim period end for both years is shown as March 31 for clarity of presentation. The actual periods ended on March 31, 1995 and April 1, 1994. Certain notes and other information are condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company's 1994 Annual Report to Stockholders as filed with the Securities and Exchange Commission on or about September 30, 1994. Certain reclassifications have been made to the fiscal 1994 interim financial statements included herein to conform with presentation for fiscal 1995. Retirement of the Company's Senior Debt: On December 29, 1994 DDL Electronics, Inc. ("DDL") successfully consummated an integrated plan to pay off all of the Company's senior debt. The retirement of over $12,000,000 in debt was completed in conjunction with the Company's sale of certain assets of its Aeroscientific Corp. Oregon ("Aeroscientific-Oregon") subsidiary to Yamamoto Manufacturing (USA), Inc. ("Yamamoto"). The termination agreements with Sanwa Bank California ("Sanwa") covering Sanwa's term loan to the Company, and The Tokai Bank Ltd. ("Tokai") for its letter of credit issued to First Interstate Bank of Oregon, N.A. ("IRB Trustee"), as trustee for the state of Oregon on the Industrial Revenue Bonds ("IRBs") issued by Aeroscientific-Oregon, eliminated all liens that the senior lenders had against the Company. As described in the Company's filing with the Securities and Exchange Commission on Form 8-K, on or about January 3, 1995, consideration for the sale of Aeroscientific-Oregon's assets to Yamamoto included approximately $9,200,000 in cash and assumption of approximately $300,000 of capitalized lease obligations. Aeroscientific-Oregon retained its trade accounts receivable and trade accounts payable. Disposal of the Company's A.J. Electronics, Inc.'s operation: In August 1994, after three months of arduous review, the Small Business Administration Disaster Assistance Division ("SBA") denied A.J. Electronics, Inc.'s ("A.J.") request for economic financial assistance that was made as a result of physical damage suffered in the January 1994 Northridge earthquake. Costs incurred as result of the earthquake exceeded $500,000 not including the impact from lost business and costs to rebuild new business. A.J. was unable to recover from the disastrous effects of the Northridge, California earthquake and incurred substantial operating losses and cash outlays since the January earthquake. In A.J.'s financial plan it predicted that it would not fully recover economically until sometime in fiscal 1996. Management reviewed the situation at A.J. immediately after the decision by the SBA and concluded that A.J. would be a substantial economic burden on the consolidated group without financial assistance considering the limited working capital available to the Company. As a result, management committed to a formal plan to liquidate and sell the Company's A.J. segment. The proposed plan included preparing revised forecasts that reflect an eventual sale of the business, preparation of "WARN" Act notices to all employees, preliminary discussions with landlords for termination of property lease commitments and contracting with an investment banking source to act as agent to find a potential buyer for A.J. The plan for disposal was reviewed and approved by DDL's Board of Directors in its September 1, 1994 Board meeting. On January 17, 1995, the Company sold virtually all of A.J.'s operating assets to Raven Industries, Inc. ("Raven"). As described in the Company's filing with the Securities and Exchange Commission on Form 8-K, on January 25, 1995, A.J. sold substantially all of its assets to Raven for a purchase price of approximately $662,000 and Raven's assumption of approximately $300,000 in capitalized lease obligations. Raven also assumed the sales tax obligation associated with the sale that approximated $79,000. A.J. entered into a non-competition agreement with Raven that prevents A.J., but not the Company or any of its other subsidiaries, from engaging in contract manufacturing in competition with Raven. A.J. is a separate corporation and was DDL's only U.S. electronic contract manufacturing (ECM) operation. Although DDL has an ECM operation in Europe, the two ECM companies did not co-mingle significant amounts of business due to substantial geographic boundaries, industries served and/or services provided. A.J.'s expected losses to be incurred up to and through the ultimate liquidation of A.J., were recorded as a restructuring charge as of December 31, 1994 in the amount of approximately $1,173,000. Virtually all employees of A.J. were terminated as a result of the sale. NOTE 2 - INVENTORIES Inventories are comprised of the following: March 31, June 30, 1995 1994 Raw materials $1,793,000 $3,167,000 Work in process 579,000 864,000 Less reserves (149,000) (384,000) $2,223,000 $3,647,000
NOTE 3 - FINANCING ARRANGEMENTS Subordinated debt: During fiscal 1993, the Company exchanged $5,411,000 principal amount of its 7% Convertible Subordinated Debentures ("CSDs") and $3,294,000 principal amount of its 8-1/2% CSDs for 5,034,136 shares of the Company's common stock and 2,593,657 warrants to purchase common stock. In July 1993, holders of 91% of the outstanding warrants exercised such warrants generating net cash proceeds of approximately $3,450,000. The remaining 223,509 warrants outstanding are exercisable at $2.25 per share and originally were to expire on October 31, 1994, which date was extended to August 31, 1995. The Company can accelerate the termination date of the warrants if the closing market price of the common stock for 10 business days within any 20 business day trading period is at least $3.00 per share. The warrants are separately tradable. Senior debt agreements: Amended term loan and IRB agreements: As previously noted, Sanwa's term loan was paid off and a termination agreement was entered into as of December 29, 1994 that released all of Sanwa's liens against the Company. As part of the pay off Sanwa accepted a cash payment of $4,500,000 in full and complete satisfaction of outstanding debt owed by the Company to Sanwa; such debt included approximately $6,848,000 of principal, approximately $93,000 of accrued but unpaid interest and any other accrued but unpaid costs and expenses associated with Sanwa's financing. Sanwa's payoff was accounted for in accordance with Financial Accounting Standard No. 15, "Accounting by Debtors and Creditors in Troubled Debt Restructuring" (FAS 15). Under FAS 15 the payoff resulted in an extraordinary gain of $2,441,000, representing the difference between Sanwa's outstanding balance and what was paid by the Company as settlement. The Company redeemed the full $5,300,000 of IRBs effective February 1, 1995. Both Tokai and the IRB Trustee signed termination agreements that released liens on all assets owned by the Company. Series B Convertible Preferred Stock: On October 18, 1993, the Company and the Industrial Development Board for Northern Ireland ("IDB-NI") entered into and consummated an agreement whereby the IDB-NI purchased 450 shares of the Company's Series B preferred stock for 450,000 pounds sterling (approximately $675,000). The preferred stock is convertible into the Company's common stock at $2.02 per common share, based on a price for each preferred share of $1,530, or total value of $688,500. The preferred stock accrues no dividend and has a preference in liquidation at the same value as its conversion price of $688,500. Proceeds from the IDB-NI's investment were used to support working capital needs of the Company's Northern Ireland operations. On April 10, 1995 the IDB-NI exercised its right to convert its preferred shares to the Company's Common stock. On April 11, 1995, 340,841 shares of the Company's common stock were issued to the IDB-NI. Private Placement of Common Stock Under Regulation S: In October 1994, the Company privately placed 760,000 shares of its common stock with a foreign investor. The sale of stock was exempt from registration under Regulation S of the Securities Act of 1933 as well as other available exemptions. Net proceeds from the transaction were approximately $980,000. The proceeds were used for general operating purposes and to help facilitate payoff of the Company's senior debt. NOTE 4 - INFORMATION RELATING TO STATEMENT OF CASH FLOWS "Net cash used by operating activities" includes cash payments for interest as follows: Nine months ended March 31, 1995 1994 Interest paid $ 767,000 $ 826,000 "Net change in operating working capital" is comprised of the following: (Changes in operating working capital accounts may not equal differences derived by comparing balance sheet accounts due to fluctuations in the exchange rate between reported balance sheet dates.)
Nine months ended March 31, 1995 1994 Decrease in accounts receivable $1,470,000 $1,824,000 Decrease in inventories 1,520,000 2,668,000 Decrease (increase) in prepaid expenses (28,000) 885,000 Decrease in accounts payable (273,000) (3,127,000) Decrease in accrued payroll and employee benefits (290,000) (144,000) Decrease in other accrued liabilities (335,000) (198,000) Net decrease in operating working capital $2,064,000 $1,908,000
Supplemental schedule of noncash investing and financing activities: Nine months ended March 31, 1995 1994 Capital expenditures financed by lease obligations $ 75,000 $130,000 7% Convertible Subordinated Debentures converted to equity 20,000 61,000 NOTE 5 - PROFORMA FINANCIAL INFORMATION: The following is the Company's restated pro forma consolidated operating results for the three month and nine month periods ended March 31, 1995 and 1994, respectively, excluding Aeroscientific- Oregon's and A.J.'s results of operations and excluding any gain from these subsidiaries' sale of assets: Numbers in thousands, except per share amounts: 1995 1994 3 Months 9 Months 3 Months 9 Months Sales $ 6,079 $13,908 $ 5,637 $16,590 Total operating costs 5,805 14,801 6,751 18,554 Operating income (loss) 274 (893) (1,114) (1,964) Nonoperating Income & expense net (85) (474) (172) (439) Income (loss) before extraordinary item 189 (1,367) (1,286) (2,403) Extraordinary Item - Gain on debt extinguishment - 2,441 - - - Net Income (loss) $ 189 $ 1,074 $(1,286) $(2,403) Earnings (loss) per share: Loss before extraordinary item $0.01 ($0.08) ($0.08) ($0.16) Extraordinary item - 0.15 - - - $0.01 $0.07 ($0.08) ($0.16)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Month and Nine Month Periods Ended March 31, 1995, and 1994 Consolidated sales for the quarter ended March 31, 1995 were $6,079,000 compared to $11,343,000 for the same period in fiscal 1994, a reduction of $5,264,000 or 46.4%. Consolidated gross margin (sales less cost of goods sold) for the quarter improved from $77,000 in fiscal 1994 to $1,163,000 for fiscal 1995, an increase of $1,086,000. A consolidated net profit of $167,000 was realized in the quarter, compared with a net loss of $2,142,000 in the same quarter last year. The reduction in sales resulted from the closure of the Company's A.J. Electronics, Inc. ("A.J."), Electronic Contract Manufacturing "ECM") operation in November 1994 and the sale of the Company's Beaverton, Oregon Aeroscientific Corp., Printed Circuit Board ("PCB") facility, at the end of December 1994. Restating fiscal 1994 third quarter sales to exclude the sold operations, sales for the current year's third quarter would be $442,000 higher than pro forma 1994. Similarly net income for fiscal 1995's third quarter would show an improvement of $1,475,000 over the pro forma net loss in fiscal 1994. The Company's return to profitability in the quarter is due to a combination of factors. First, the Company's European PCB and ECM operating groups realized improvements through increased efficiencies, focus on higher margin business and increased business volume. The Company also benefited by eliminating its unprofitable United States operations and using the proceeds from sales of these operations to eliminate the debt service costs associated with the Company's former senior secured debt. Consolidated interest expense alone declined by $136,000 in the quarter due to pay-off of the Company's senior debt at the end of the calendar year. Consolidated sales for the nine month period declined by $16,839,000 compared to the same period in fiscal 1994. Over $11 million of this sales decline was due to the reduction of business at A.J. as part of the shut down of that company. Sales were $3,565,000 lower at Aeroscientific Oregon caused by competitive market conditions, Oregon's drive for increased margins at lower sales volume and elimination of Oregon's operating activity in the third quarter. Sales for the first nine months were also lower at the Company's European ECM operation due to business interruptions at two of that company's major customers. A.J.'s continuing operations were severely damaged by the January 17, 1994 Northridge earthquake. After the earthquake A.J. met its existing customer commitments, but lost new business from existing customers and potential customers while the plant was being reconstructed. The Company filed for disaster relief financing from the Small Business Administration's ("SBA") Disaster Assistance Division, but that was denied in August of 1994. Because of A.J.'s substantial decline in business, cash outflow and no opportunity for relief financing, Management committed to the shutdown and liquidation and sale of A.J. in August 1994. A.J. ceased all business activities in November. The ECM industry, in general, has experienced increased customer demand as customers move away from captive or in house ECM capabilities and out source production. At the same time, the number of ECM service providers is growing, thus increasing competition, keeping margins low and forcing sudden changes in the ECM groups customer base. Consolidated gross margin for the first nine months of fiscal 1995 was $2,044,000 or $1,710,000 higher than in the same period in fiscal 1994. The Company's consolidated operating loss for the nine months was $3,275,000 compared to fiscal 1994's operating loss of $5,395,000, an improvement of $2,120,000. Improvements in gross margin were realized at all operating groups except A.J. The improved gross and operating margins are partly attributed to changes at the Company's PCB operations that have generated improved yields and higher margins since the end of the Company's fiscal year. Improved margins are also due to a change in customer and production mix, where the operating groups have concentrated marketing efforts on higher margin/higher return business. Consolidated net income for the nine months was $1,891,000 compared to a net loss for the same period in fiscal 1994 of $6,035,000. Net income for the nine months was affected by nonoperating income and expense items that include the gain from sale of Oregon's facility, and an extraordinary gain of $2,441,000 realized from the partial forgiveness of the Company's debt obligation to Sanwa Bank as part of the senior debt payoff and termination. The transaction was accounted for in accordance with Statement of Financial Accounting No. 15, "Accounting by Debtors and Creditors in Troubled Debt Restructuring," and accordingly, the gain was treated as extraordinary. Sales in US dollars at DDL Electronics Ltd ("DDL-E"), the Company's Northern Ireland ECM facility, increased 17% over the prior year quarter to $3,216,000 from $2,748,000. Gross margin for the same period increased from $275,000 to $553,000 or 101% due to a change in mix of consigned and turnkey business and due to improved overhead efficiencies as a result of increased volume. Additional focus on the control of operating expense generated a net income of $171,000 for the quarter as compared with a loss of $200,000 in the same period in 1994. Quarter end-backlog was at an all time high of $7,000,000 and the general electronics ECM market in Europe continues to expand. It should be noted, however, that while DDL-E has significantly expanded its customer base during the past two quarters it nevertheless has significant dependence on specific key customers (four customers each represent over 15% of the current 3 month backlog) and reduction in demand at any one key customer could adversely affect the company's performance on a quarter to quarter basis despite the overall upward trend in market demand. Sales at DDL-E for the first nine months of fiscal 1995 were $6,401,000, a reduction of $3,433,000 or 35% from the same period last year. This was caused primarily by poor business conditions at two major customers during the first two quarters of the current fiscal year. Business from both of these customers increased significantly in the third quarter and together with new business contributed to the sales increase in the third quarter as noted above. A further reason for lower sales is due to a change in manufacturing mix at DDL-E to more consigned business where the customer uses more of the ECM s services without requiring the ECM to provide the material for production. This has the effect of reducing sales and cost of sales without affecting gross margin. Gross margin for the nine month period was $976,000, a decrease of $50,000 or 4.8% from $1,026,000 in the same period last year. Net loss for the nine months was $156,000 compared with $382,000 in the previous year. Increased gross margin and a lower net loss are the result of greater controls on operating costs and reduced overhead and materials carrying costs associated with DDL-E's change to more consigned business. The Company's Irlandus Circuits Ltd ("Irlandus"), PCB operation sales for the third quarter were nearly the same as prior year's third quarter at $2,863,000 versus $2,889,000 in fiscal 1994. Irlandus improved its gross margins by 159.1% from $242,000 to $627,000 through a change in sales mix to focus on a higher percentage of short leadtime orders (delivered in less than 15 days from receipt of orders) and through more efficient utilization of resources. As a result, fiscal 1994's third quarter loss of $229,000 was turned around in fiscal 1995 to a profit in the third quarter of $120,000. European PCB demand continues to be robust creating a quarter-end backlog of $1,700,000 that was ahead of expectation. Sales at Irlandus for the nine months ended March 31 1995 were $7,506,000 compared with $6,755,000 in 1994, an increase of $752,000 or 11.1%. Gross margin for the first nine months was $864,000 versus $140,000 in the same period last year. The increase in margin reflects Irlandus' focus on higher margin market sectors and significant productivity improvements effected since last year. The net loss for the period was reduced by $612,000, from $1,206,000 in the first nine months of 1994 to $594,000 in the first nine months of 1995. The Company's consolidated European operations had sales for the third quarter of $6,079,000, an increase of $442,000 or 7.8% over sales of $5,637,000 for the same period last year. Consolidated European gross margin for the quarter improved from $518,000 to $1,181,000, a gain of $663,000. Europe's net profit for the period was $291,000 compared with a loss of $429,000 for the same quarter in 1994. Europe, in general has realized an improved business climate during the past year. This coupled with management's cost controls and change in operating focus has contributed to the Company's overall improved performance. Liquidity and Capital Resources For the nine months ended March 31, 1995, cash and cash equivalents decreased by $151,000. As illustrated in the Consolidated Statement of Cash Flows, this decrease in cash included the following: 1. $674,000 was used for operating activities, principally to fund the year to date operating loss, offset by cash provided by a reduction in working capital (mostly from a reduction in current assets attributable to the sale of the Company's domestic subsidiaries' assets). 2. Investing activities provided $9,754,000 which resulted primarily from the sale of capital equipment at Aeroscientific-Oregon and A.J. Electronics, Inc. 3. Financing activities required $9,248,000 of cash which was used for payoff of debt obligations (primarily for all senior debt and capital leases associated with the sale of United States assets). Funds were provided from financing activities through issuance of common stock pursuant to Regulation S and from government grants received from the Industrial Development Board for Northern Ireland. The Company currently has no working capital lines of credit. In July 1993, the Company raised $3.45 million (net of expenses) from the exercise of outstanding warrants to purchase the Company's common stock. In October 1993, the Company and the IDB-NI reached an agreement whereby the IDB-NI purchased 450 shares of a new Series B Preferred Stock for 450,000 pounds sterling (approximately $675,000). The funds invested by the IDB-NI were used for working capital and other needs of the Company's Northern Ireland subsidiaries. In October 1994 the Company privately placed 760,000 shares of its common stock with a foreign investor. The sale of stock was exempt from registration under Regulation S of the Securities Act of 1933 and other available exemptions. Net proceeds from the transaction were approximately $980,000. The proceeds were used for general operating purposes and to assist in the payoff of the Company's senior debt. The Company's primary source of liquidity is its cash balances which amounted to $2,389,000 at March 31, 1995. Components of working capital decreased by $2,064,000 during the nine month period ended March 31, 1995. The resulting increase in funds available for use in operations came principally from a decrease in inventories and accounts receivable as a result of the sales of assets at both Aeroscientific-Oregon and A.J. (Although accounts receivable were not sold, they did decline as a result of the disposition of the businesses). The sale of Aeroscientific-Oregon's assets to Yamamoto generated $9,200,000 in cash proceeds. These funds plus the Company's own cash balances were used to retire approximately $9,800,000 of the Company's senior debt. The payoff of senior debt combined with the $2,441,000 extraordinary gain from debt forgiveness completely retired the $12,241,000 owed to the Company's senior lenders. Sanwa's term loan pay off and termination agreement entered as of December 29, 1994 released all of Sanwa's liens against the Company. As part of the pay off, Sanwa accepted a cash payment of $4,500,000 in full and complete satisfaction of outstanding debt owed by the Company to Sanwa; such debt included approximately $6,848,000 of principal, approximately $93,000 of accrued but unpaid interest and any other accrued but unpaid costs and expenses associated with Sanwa's financing. Sanwa's payoff was accounted for in accordance with Financial Accounting Standard No. 15, "Accounting by Debtors and Creditors in Troubled Debt Restructuring" (FAS 15). Under FAS 15 the payoff resulted in an extraordinary gain of $2,441,000, representing the difference between Sanwa's outstanding balance and what was paid by the Company as settlement. The Company offset the full $5,300,000 of IRBs through defeasance and redeemed the bonds on February 1, 1995. The defeased funds, plus approximately $68,000 for prepaid interest, was invested in treasury securities that provided a return slightly higher than the interest charged on the defeased bonds. The Company received full return of the prepaid interest. Both Tokai and the IRB Trustee signed termination agreements that released all liens on assets owned by the Company. On December 31, 1992, and in May and June 1993, pursuant to privately negotiated transactions, holders of $5,411,000 principal amount of the Company's 7% CSDs and $3,294,000 principal amount of its 8-1/2% CSDs exchanged the CSDs for units consisting of common stock and warrants to purchase stock in the future. The contracts also eliminated the interest payment due November 16, 1992, on the exchanged 7% CSDs. The exchanges resulted in the issuance of 5,034,136 shares of common stock and 2,593,657 warrants to purchase common stock. In July 1993, holders of 91% of the outstanding warrants exercised such warrants generating net cash proceeds of approximately $3,450,000. The remaining 223,509 warrants outstanding are exercisable at $2.25 per share and were originally scheduled to expire on October 31, 1994, which date was extended to August 31, 1995. The Company can accelerate the termination date of the warrants if the closing market price of the common stock for 10 business days within any 20 business day trading period is at least $3.00 per share. The warrants are separately tradable. The Company may effect similar exchanges with holders of the remaining outstanding debentures in the future. Additionally, the Company reached a non-binding agreement to exchange the debt of participants of a supplemental retirement program for 600,000 warrants to purchase common stock in 1996-1998 under certain defined contract rights. The initial impact of a completed transaction would be a reduction of DDL's long term debt by approximately $1,800,000 with the final impact of up to $3,000,000 of long term debt reduction. While the agreement is non-binding, the Company expects it will seek to consummate such a transaction in the next several months. In January 1994, the Company announced that its Board of Directors had approved a plan to identify and pursue strategic acquisition, merger and consolidation candidates. The Company has proceeded to initiate discussions with private and public opportunities identified after this announcement. The achievement of continued operating profitability remains the most significant challenge in generating sufficient cash to ensure the Company's long-term viability. No assurance can be given that the Company will reach operating profitability for an extended period, or that cash generated from asset sales or other means will be adequate to fund future cash needs. It is important for the Company to succeed in an operations turnaround and/or acquire an entity that will provide positive cash flow if the Company is to achieve the liquidity necessary to ensure continuance of operations for the longer term. Management believes that recent debt reductions and progress towards profitable operation will greatly improve prospects for completion of a merger or acquisition transaction. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company currently has pending a lawsuit filed by the former landlord of one of the Company's subsidiaries. The lawsuit was filed to recover approximately $280,000 representing amounts owed under a settlement agreement for a terminated building lease. The Company has previously recorded on its books the full amount owing under the settlement agreement and is negotiating payment terms to avoid protracted litigation. ITEM 5. OTHER INFORMATION The Company's Aeroscientific Corp. subsidiaries have used chemicals in the manufacture of its products that are classified by the United States Environmental Protection Agency ("EPA") as hazardous substances. The Company is aware of certain chemicals that exist in the ground at its leased 1240-1244 South Claudina Street, Anaheim, California, facility. The Company has notified the appropriate governmental agencies and is proceeding with remediation and investigative studies regarding soil and groundwater contamination. The Company has implemented a remedial program for the site that includes vapor extraction of pollutant from the soil and testing and analysis to determine the extent and costs to remediate potential ground water pollution. The Company believes that the resolution of these matters will require a significant cash outlay and has reserved $308,000 in its financial statements at March 31, 1995, as an estimate of its portion of the clean-up costs. On July 2, 1993, the Company and Aero-scientific Corp. entered into an agreement to share the costs of environmental remediation with the landlord at the Anaheim facility. The Company's Aeroscientific-Anaheim subsidiary has received notice from the EPA, that it is regarded as a potentially responsible party ("PRP") under federal environmental laws in connection with a waste disposal site known as the "Stringfellow Superfund Site" in Riverside County, California, which is presently being considered by governmental authorities for remediation. Aeroscientific has been named as a third party defendant by other PRPs in a case brought by the United States Government concerning this site. Aeroscientific has also been named as a defendant together with a large number of PRPs in a civil action filed by the residents and homeowners adjacent to the Stringfellow site. The information developed during discovery and investigation thus far indicates that Aeroscientific supplied relatively small amounts of waste to the site as compared to the many other defendants. The Company and other small polluters, as a separate class, have entered into settlement negotiations with the EPA. As part of the currently proposed Settlement Agreement, small polluters would pay a fixed amount plus an amount that varies based on volume of material dumped at the site. Under these guidelines, the Company's probable liability will be $128,000. Final settlement and timing of payment are currently undeterminable, and no assurances can be given that any settlement will be achieved. The Company has accrued a liability of $120,000 to cover the expected settlement costs. Any further remedial costs or damage awards in these cases may be significant and management believes that the Company's allocated share of such costs or damages could have a material adverse effect on the Company's business or financial condition. The actions are still in the pre-trial and discovery stages and a prediction of outcome is difficult. There is, as in the case of most environmental litigation, the theoretical possibility of joint and several liability being imposed upon Aeroscientific for damages which may be awarded. Total estimated cleanup costs for the Stringfellow site have been estimated at $600 million. The Company's possible range of liability is undeterminable, and the reliability and precision of estimated cleanup costs are subject to a myriad of factors which are not currently measurable. The timing of any future payments are uncertain at this time, except for that amount already recorded by the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: Sequentially Exhibit Numbered Number Description Page 11 Statement regarding computation of earnings per share 19 27 Financial data schedule submitted by electronic filer ______ b. Reports on Form 8-K: On January 3, 1995, a Form 8-K was filed pursuant to Item 5, Other Events, regarding a press release that the Company had retired its senior debt and had sold its Beaverton, Oregon printed circuit operations to Yamamoto Manufacturing (USA), Inc. On January 17, 1995, a Form 8-K was filed pursuant to Item 2, Acquisition or Disposition of Assets, for the sale of substantially all of the assets of the Company's subsidiary, A. J. Electronics, Inc., to Raven Industries, Inc. The 8-K also included Item 5, Other Events, for the press release announcing such sale. On March 22, 1995, a Form 8-K was filed pursuant to Item 5, Other Events, related to the filing of the Company's amended and restated Bylaws. On March 30, 1995, a Form 8-K was filed pursuant to Item 5, Other Events, for a press release announcing May 31, 1995 as the date for the Company's annual shareholder meeting for shareholders of record on April 17, 1995. On April 21, 1995, a Form 8-K was filed pursuant to Item 5, Other Events, announcing that William E. Cook, the Company's Chairman and CEO had exercised options to purchase 310,000 of the Company's common stock. On May 11, 1995, a Form 8-K was filed pursuant to Item 5, Other Events, for a press release setting forth pro forma earnings for the third quarter of fiscal 1995. SIGNATURE Pursuant to the requirements 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. /s/ M. Charles Van Rossen Date M. Charles Van Rossen (Principal Financial Officer and duly Authorized Officer) EX-11 2 EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited) Nine Months Ended March 31, 1995 1994 PRIMARY EARNINGS PER SHARE: Loss before extraordinary item $(550,000) $(6,035,000) Extraordinary item 2,441,000 - Net income (loss) $ 1,891,000 $(6,035,000) Weighted average number of common shares outstanding 14,911,656 14,163,820 Assumed exercise of stock options net of shares assumed reacquired 879,081 941,019 Average common shares and common share equivalents 15,790,737 15,104,839 Primary earnings (loss) per share: Loss before extraordinary item ($0.03) ($0.40) Extraordinary item 0.15 - Net earnings (loss) per share $0.12 ($0.40) FULLY DILUTED EARNINGS PER SHARE: Loss before extraordinary item $(550,000) $ (6,035,000) Add back net interest related to convertible subordinated debentures 101,000 102,000 Loss before extraordinary item for fully diluted computation (449,000) (5,933,000) Extraordinary item 2,441,000 - Net income (loss) for fully diluted computation $ 1,992,000 $(5,933,000) Weighted average number of common shares outstanding 14,911,656 14,163,820 Assumed exercise of stock options net of shares assumed reacquired under treasury stock method using period end market price, if higher than average market price 875,734 932,035 Assumed conversion of convertible subordinated debentures 762,324 425,755 Average fully diluted shares 16,549,714 15,521,610 Fully diluted earnings (loss) per share: Loss before extraordinary item ($0.03) ($0.38) Extraordinary item 0.15 - Net earnings (loss) per share $0.12 ($0.38) Note: The calculated fully diluted earnings per share are antidilutive for fiscal 1994 EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Unaudited) Three Months Ended March 31, 1995 1994 PRIMARY EARNINGS PER SHARE: Net income (loss) $ 167,000 $(2,142,000) Weighted average number of common shares outstanding 15,257,663 14,441,065 Assumed exercise of stock options net of shares assumed reacquired 755,138 864,671 Average common shares and common share equivalents 16,012,801 15,305,736 Primary earnings (loss) per share: Net income (loss) per share $0.01 ($0.14) FULLY DILUTED EARNINGS PER SHARE: Net income (loss) $ 167,000 $(2,142,000) Add back net interest related to convertible subordinated debentures 34,000 34,000 Net income (loss) for fully diluted computation $201,000 $(2,108,000) Weighted average number of common shares outstanding 15,257,663 14,441,065 Assumed exercise of stock options net of shares assumed reacquired under treasury stock method using period end market price, if higher than average market price 795,366 824,352 Assumed conversion of convertible subordinated debentures 761,047 419,624 Average fully diluted shares 16,814,076 15,685,041 Fully diluted earnings (loss) per share: Net income (loss) per share $0.01 ($0.13) Note: The calculated fully diluted earnings per share are antidilutive for fiscal 1994
EX-27 3 ARTICLE 5 FIN. DATA SCHEDULE FOR 2ND QTR 10-Q
5 1000 Jun-30-1995 Jul-01-1994 Mar-31-1995 9-mos 2384 0 4149 0 2223 9025 15976 12669 12779 7801 2309 0 0 153 (993) 12779 22673 22673 20629 25948 0 0 767 (550) 0 (550) 0 2441 0 1891 .12 .12
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