-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WSNLfL6j+ssn7HpjmuJQCJ0SsMtbfa35L5/vjHp/dK4EQzurrGZxG8pwLk1FtQ2O il0Gpmy1I+4hKx3S5QOaQA== 0000026987-95-000032.txt : 19951101 0000026987-95-000032.hdr.sgml : 19951101 ACCESSION NUMBER: 0000026987-95-000032 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19951031 SROS: NYSE 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08101 FILM NUMBER: 95585735 BUSINESS ADDRESS: STREET 1: 7320 SW HUNZIKER ROAD #300 CITY: TIGARD STATE: OR ZIP: 97223-2302 BUSINESS PHONE: 5036201789 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-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 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 DDL ELECTRONICS, INC. (Exact name of Registrant as specified in its Charter) Delaware 33-0213512 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7320 SW Hunziker Rd., Suite 300, Tigard, Oregon 97223-2302 (Address of Principal Executive Offices) Registrant's telephone number, including area code (503) 620-1789 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, .01 Par Value New York Stock Exchange Pacific Stock Exchange 7% Convertible Subordinated Debentures due May 15, 2001 New York Stock Exchange 8-1/2% Convertible Subordinated Debentures due August 1, 2008 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price as reported by the New York Stock Exchange on September 15, 1995: $34,637,179 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 15, 1995: 16,299,849 DOCUMENTS INCORPORATED BY REFERENCE The Annual Report to Stockholders for the fiscal year ended June 30, 1995, is incorporated by reference in Part I and II hereof. EXHIBIT INDEX See page 18 PART I Item 1. Business DDL Electronics, Inc. ("DDL" or the "Company") is an independent provider of electronic contract manufacturing ("ECM") services and a fabricator of printed circuit boards ("PCB") for use primarily in the computer, communications, and instrumentation industries. The Company provides ECM services for manufacturers of electronic equipment and fabricates multilayer PCBs at its operations in Northern Ireland primarily for customers in Europe. The Company entered the ECM business by acquiring its domestic ECM operations in 1985 and by organizing its European ECM operations in 1990. In its PCB fabrication business, the Company manufactures PCBs ranging from simple single and double-sided boards to multilayer boards with more than 20 layers. Since the mid-1980s, the Company has increasingly focused on the fabrication of advanced multilayer PCBs. Management believes the market for these boards offers the opportunity for more attractive margins than the market for less complex, single and double-sided boards. Since 1985, the Company has made substantial capital expenditures in its Northern Ireland ECM and PCB fabrication facilities. In fiscal 1995, the Company liquidated or sold many assets associated with its United States PCB fabrication facility and its ECM operations. The Company maintains its corporate headquarters in Tigard, Oregon. The Company also has divested its non-ECM and non-PCB businesses in recent years, including its communications business, its pressure gauge and hose manufacturing operations, its emergency lighting equipment manufacturing operations and its engineering services operations. RECENT DEVELOPMENTS The Company incurred substantial operating losses in recent years that have impaired operations and positive cash flows. These losses totaled $4,970,000, $6,948,000, and $5,067,000, in the fiscal years ended June 30, 1995, 1994, and 1993, respectively. The Company realized net profits of $75,000 and $1,073,000 in 1995 and 1993, respectively, and incurred a net loss of $8,354,000 in the 1994 fiscal year. The fiscal 1995 net profit, however, included an extraordinary gain of $2,441,000 recognized as a result of the extinguishment of the Company's senior debt in fiscal year 1995, and a gain of $3,317 on a sale of assets in fiscal year 1995. The fiscal 1993 net profit included an extraordinary gains from exchanges of the Company's 7% and 8-1/2% convertible subordinated debentures ("CSDs") for equity, and a $603,000 gain from the sale of a discontinued business. The losses in the Company's ECM and PCB fabrication businesses have resulted from certain Company-specific factors, including yield and quality problems, facility underutilization, delays in meeting delivery schedules, collection problems and management turnover, as well as from excess production capacity in the industry putting extreme downward pressure on the Company's prices and production volume. As a result, the Company sold or liquidated its unprofitable United States operations and concentrated efforts on its profitable European operations. In addition to improving its operations, the Company must also increase sales volume and improve margins in order to maintain its continuing operations in a profitable position. Notwithstanding the steps that have been taken to address the Company's operating problems during the past several years, the Company has only recently realized operating profits from its continuing operations and there can be no assurance that such profits will continue. Maintaining profitability while managing the Company's working capital is required in order to ensure the Company's liquidity and the Company's cash balances are at levels required to operate its business. For management's response to these operating issues, together with other significant events and conditions occurring during the last three years, see the 1995 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 3 to 12 thereto. In December 1994, the Company successfully consummated an integrated plan retiring over $12,000,000 of its senior debt upon the sale of certain assets of the Company's Aeroscientifc Corp. subsidiary, located in Beaverton, Oregon, to Yamamoto Manufacturing (USA), Inc. In addition, the liens of the Company's two major senior lenders were contemporaneously eliminated. The release of liens was achieved by the Company concluding termination agreements with Sanwa Bank California ("Sanwa") which covered Sanwa's term loan to the Company, and with The Tokai Bank Ltd. ("Tokai") regarding its letter of credit issued to First Interstate Bank of Oregon, N.A. in connection with Industrial Revenue Bonds ("IRBs") issued by the State of Oregon. The January 17, 1994 Los Angeles earthquake caused major structural damage to two leased buildings in Chatsworth, California housing the Company's subsidiary, A.J. Electronics, Inc. (A.J.). In August 1994, after three months of review, the Small Business Administration Disaster Assistance Division ("SBA") denied A.J.'s request for economic financial assistance regarding damage suffered in the Los Angeles earthquake. A.J. was unable to recover from the effects of the earthquake and incurred substantial operating losses and cash outlays since the January earthquake. In its financial plan, A.J. predicted that it would not recover economically until sometime in fiscal year 1996. Management concluded, after the SBA's decision to deny A.J. assistance, that A.J. would be a substantial economic burden on the consolidated group considering the limited working capital available to the Company. On January 17, 1995, the Company sold virtually all of A.J.'s operating assets to Raven Industries, Inc., an entity unaffiliated with the Company. A program of acquisitions and mergers is being pursued in an effort to accelerate the turnaround of the Company's operating position and to improve shareholder value. Given current and anticipated market conditions, management believes that the Company must develop faster ways of rebuilding and expanding its customer base to withstand the impact of continued downsizing at major customers. No assurance can be given that the revised strategic plan will be successful. Financial Information by Business Segment and Geographical Area The Company is principally engaged in two lines of business, e.g., the provision of ECM services and the fabrication of PCBs. Information for each of the Company's last three fiscal years, with respect to the amounts of revenues from sales to unaffiliated customers, operating profit or loss and identifiable assets of these segments is set forth under the caption "Selected Financial Data" appearing on pages 2 and 33 of the Company's 1995 Annual Report to Shareholders. Such information is incorporated herein by this reference and is made a part hereof. Electronic Contract Manufacturing and Printed Circuit Board Fabrication Businesses The ECM and PCB fabrication industries and the markets in which the Company's customers compete are characterized by rapid technological change and product obsolescence. As a result, the end services provided and products made by the Company's ECM and PCB fabrication customers have relatively short product lives. The Company believes that its future success in these industries is dependent on its ability to continue to incorporate new technology into its ECM and fabrication processes, to satisfy increasing customer demands for quality and timely delivery, and to be responsive to future changes in this dynamic market. The PCB fabrication market is highly fragmented. Numerous factors, however, have caused a shift toward consolidation in the PCB fabrication industry, including extreme competition, substantial excess production capacity experienced by the industry prior to the current fiscal year, the greatly increased capital and technical requirements to service the advanced multilayer PCB fabrication market, and the inability of many PCB fabricators to keep up with the changing demands and expectations of customers on matters such as technical board characteristics, quality, and timely delivery of product. Description of Products and Services--ECM. The Company's ECM operation provides turnkey ECM services using both surface mount and through-hole interconnection technologies. Under the turnkey process, the Company procures customer-specified components from suppliers, assembles the components onto PCBs, and performs post-assembly testing. The Company conducts the ECM portion of its business through its DDL Electronics Limited ("DDL-E") subsidiary servicing customers in Western Europe. DDL-E does not fabricate any of the components or PCBs used in these processes. However, it has, in the past, procured PCBs from the Company's PCB fabricator. The ECM business represented approximately 47%, 59% and 55% of the Company's consolidated sales for the fiscal years ended June 30, 1995, 1994, and 1993, respectively. Since turnkey electronic contract manufacturing may be a substitute for all or some portion of a customer's captive ECM capability, continuous communication between the Company and the customer is critical. To facilitate such communication, the Company maintains a customer service department whose personnel work closely with the customer throughout the assembly process. The Company's engineering and service personnel coordinate with the customer on the implementation of new and re-engineered products, thereby providing the customer with feedback on such issues as ease of assembly and anticipated production lead times. Component procurement is commenced after component specifications are verified and approved sources are confirmed with the customer. Concurrently, assembly routing and procedures for conformance with the workmanship standards of the Institute for Interconnecting and Packaging Electronic Circuits ("IPC") are defined and planned. Additionally, "in-circuit" test fixturing is designed and developed. "In-circuit" tests are normally performed on all assembled circuit boards for turnkey projects. Such tests verify that components have been properly inserted and meet certain functional standards and that electrical circuits are properly completed. In addition, under protocols specified by the customer, the Company performs customized functional tests designed to ensure that the board or assembly will perform its intended function. The Company's personnel monitor all stages of the assembly process in an effort to provide flexible and rapid responses to the customer's requirements, including changes in design, order size, and delivery schedule. The materials procurement element of the Company's turnkey services consists of the planning, purchasing, expediting, and financing of the components and materials required to assemble a PCB or system-level assembly. Customers have increasingly required the Company and other independent providers of ECM services to purchase all or some components directly from component manufacturers or distributors and to finance the components and materials. In establishing a turnkey relationship with an independent provider of ECM services, a customer must incur expenses in qualifying that provider of ECM services and, in some cases, its sources of component supply, refining product design and ECM processes, and developing mutually compatible information and reporting systems. With this relationship established, the Company believes that customers experience significant difficulty in expeditiously and effectively reassigning a turnkey project to a new assembler or in taking on the project themselves. Alternatively, the Company faces the obstacle of attracting new customers away from existing ECM providers or from performing services in-house. Production of product for a customer is only performed when a firm order is received. Revenue is recognized when product is shipped. Customer cancellation of orders are infrequent and are subject to cancellation charges. More often a customer will delay shipment of orders based on its actual or anticipated needs. Customer orders are produced based on one of two production methods, either "Turnkey" (where DDL-E provides all materials, labor and equipment associated with producing the customers' product) or "Consigned" (DDL-E provides labor and equipment only for manufacturing product). Material costs customarily represents 70% of the turnkey method's sales price. In other words, a change from turnkey to consigned orders at DDL-E can result in a decline in sales volume without a reduction in profit margin. Description of Products and Services--PCB Fabrication. The Company fabricates and sells advanced, multilayer PCBs based on designs and specifications provided by the Company's customers. These specifications are developed either solely through the design efforts of the customer or through the design efforts of the customer working together with the Company's design and engineering staff. Customers submit requests for quotations on each job and the Company prepares bids based on its own cost estimates. The Company currently conducts the fabrication portion of its PCB business through its Northern Ireland, Irlandus Circuits Limited ("Irlandus") subsidiary. The Company's fabrication facilities in Anaheim, California were shut down in fiscal year 1992 and its Beaverton, Oregon facility was sold in the current fiscal year. The PCB fabrication business represented approximately 53%, 41% and 45% of DDL's consolidated sales for the fiscal years ended June 30, 1995, 1994, and 1993, respectively, with four or more layer boards constituting a substantial portion of those sales. PCBs range from simple single and double-sided boards to multilayer boards with more than 20 layers. When PCBs are joined with electronic components in the assembly process, they comprise the basic building blocks for electronic equipment. Single-sided PCBs are used in electronic games and automobile ignition systems, whereas multilayer PCBs are used in more advanced applications such as computers, office equipment, communications, instrumentation, and defense systems. PCBs consist of fine lines of a conductive material, such as copper, which are bonded to a non-conductive panel, typically rigid laminated epoxy glass. The conductive pathways in the PCBs form electrical circuits and replace wire as a means of connecting electronic components. On technologically advanced multilayer boards, conductive pathways between layers are connected with traditional plated through-holes and may incorporate surface mount technology. "Through-holes" are holes drilled entirely through the board that are plated with a conductive material and constitute the primary connection between the circuitry on the different layers of the board and the electronic components attached to the boards later. "Surface mount" boards are boards on which electrical components are soldered instead of being inserted into through-holes. Although substantially more complex and difficult to produce, surface mount boards can substantially reduce wasted space associated with through-hole technology and permit greatly increased surface and inner layer densities. Complex boards may also have "via" or "blind-via" holes that connect inner layers of multi-layer board or connect an inner layer to the outside of the board. The development of increasingly sophisticated electronic equipment, which combines higher performance and reliability with reduced size and cost, has created a demand for increased complexity, miniaturization, and density in electronic circuitry. In response to this demand, multilayer technology is advancing rapidly on many fronts, including the widespread use of surface mount technology. More sophisticated boards are being created by decreasing the width of the tracks on the board and increasing the amount of circuitry that can be placed on each layer. Fabricating advanced multilayer PCBs requires high levels of capital investment and complex, rapidly changing production processes. As the sophistication and complexity of PCBs increase, manufacturing yields typically fall. Historically, the Company relied on tactical quality procedures, in which defects are assumed to exist and quality inspectors examine product lot by lot and board by board to identify deficiencies, using automated optical inspection and electrical test equipment. This traditional approach to quality control is not adequate to produce acceptably high yields in an advanced multilayer PCB fabrication environment, as it focuses on identifying, rather than preventing, defects. In recognition of this limitation, Irlandus is striving to create a positive environment encompassing management's awareness, process understanding, and operator involvement in identifying and correcting production problems before defects occur. The International Standards Organization ("ISO") has published internationally recognized standards of workmanship and quality. Both Irlandus and DDL-E, the Company's ECM and PCB operations in Northern Ireland, have achieved ISO 9002 certification which will be increasingly necessary to attract business. ECM Facilities. DDL-E conducts its operations from a 67,000 square foot facility in Northern Ireland that was purchased in 1989. Prior to DDL-E commencing operations in the Spring of 1990, approximately 1,600,000 pounds Sterling (approximately $2,700,000) was expended on auto-insertion equipment, surface mount device placement equipment, wave solder equipment, visual inspection equipment, and automated test equipment. The Company believes that this facility possesses the technology to compete effectively and that the facility is capable of supporting projected growth for up to the next two years. Fabrication Facilities. Irlandus occupies a 63,000 square foot production facility and an adjacent 9,000 square foot office and storage facility. Irlandus' existing capacity is expected to be adequate to meet anticipated order levels for the next three years. Aeroscientific stopped recognizing revenue at its 44,000 square foot Beaverton, Oregon facility when it was sold to Yamamoto in December 1994. Marketing and Customers. The Company's sales in the ECM and fabrication businesses and the percentage of its consolidated sales to the principal end- user markets it serves for the last three fiscal years were as follows (dollars in thousands): Year Ended June 30, Markets 1995 1994 1993 Computer $ 7,115 24.1% $23,905 49.3% $25,479 44.0% Communications 6,926 23.4 8,396 17.3 14,881 25.7 Financial 2,067 7.0 - - - - Industrial & Instrumentation 6,044 20.4 6,196 12.8 6,555 11.3 Medical 4,668 15.8 6,533 13.4 6,582 11.4 Automotive 175 .6 889 1.8 1,035 1.8 Government/ Military 1,362 4.6 1,411 2.9 1,509 2.6 Other 1,219 4.1 1,199 2.5 1,842 3.2 Total $29,576 100.0% $48,529 100.0% $57,883 100.0%
The Company markets its ECM and PCB fabrication services through both a direct sales force and independent manufacturers' representatives. The Company's marketing strategy is to develop close relationships with, and to increase sales to, certain existing and new major ECM and fabrication customers. This includes becoming involved at an early stage in the design of PCBs for these customers' new products. DDL believes that this strategy is necessary to keep abreast of rapidly changing technological needs and to develop new ECM and fabrication processes, thereby enhancing the Company's ECM and fabrication capabilities and its position in the industry. As a result of this strategy, however, fluctuations experienced by one or more of these customers in demand for their products may have and have had adverse effects on the Company's sales and profitability. At the end of the fiscal year ended June 30, 1995, the Company's ECM business had approximately 16 customers, all of which were located in Western Europe, compared to 60 in fiscal 1994 and 37 in fiscal year 1993. At the end of fiscal year 1995, the Company fabricated PCBs for approximately 98 customers, substantially all of which are located in Western Europe, compared to 211 in fiscal year 1994 and 169 in fiscal year 1993. The Company's five largest customers accounted for 21%, 45% and 39% of consolidated sales during fiscal years 1995, 1994, and 1993, respectively. For all three fiscal years, no single PCB fabrication customer accounted for more than 4% of the Company's consolidated sales. The Company's largest European ECM customer accounted for approximately 8% of consolidated sales in fiscal year 1994. Dataproducts Corporation, the largest customer of the Company's former domestic ECM operation, accounted for 13% of consolidated sales in both fiscal years 1993 and 1994. No single customer of the Company's domestic PCB or ECM discontinued businesses accounted for more than 2% of consolidated sales in fiscal year 1995. Two customers of the Company's European ECM operation made combined purchases equal to or in excess of 12% and 10% of consolidated sales during fiscal years 1995 and 1994, respectively. These two customers, GE Medical Systems, a General Electric Company ("GE Medical") and DeLaRue Fortronic, LTD, ("Fortronic") comprised almost 90% of the Company's European ECM sales in fiscal year 1994. This amount dropped in fiscal year 1995 to 36%. Sales to both of these customers diminished in the latter part of fiscal year 1994. Fortronic's purchases declined due to reduced orders of its magnetic card reader products in the European market, while orders from GE Medical have been reduced as that company relocated its headquarters to the United States. Weakness in orders from these two customers continued into the first half of fiscal year 1995, but orders increased in the last half of fiscal year 1995. The decreased number of customers in both the ECM and PCB businesses reflects the impact of the Company's discontinuance of business at several of its subsidiaries. The number of European customers, however, has increased reflecting the Company's change in marketing activities to increase its customer base in smaller, higher margin entities and reduce the Company's dependency on large run volume, low margin customers. Raw Materials and Suppliers. In its ECM business, the Company uses numerous suppliers of electronic components and other materials. The Company's customers may specify the particular manufacturers and components, such as the Intel 80486 microprocessor, to be used in the ECM process. To the extent these components are not available on a timely basis or are in short supply because of allocations imposed by the component manufacturer, and the customer is unwilling to accept a substitute component, delays may occur. Such delays are experienced in the ECM business from time to time and have caused sales and inventory fluctuations at the Company's ECM business. The principal materials used by the Company in its fabrication processes are copper laminate, epoxy glass, copper alloys, gold and various chemicals, all of which are readily available to the Company from various sources. The Company believes that its sources of materials for its fabrication business are adequate for its needs and that it is not substantially dependent upon any one supplier. Industry Conditions and Competition. The markets in which the ECM and PCB fabrication businesses operate are intensely competitive and have experienced excess production capacity during the past few years. Seasonality is not a factor in the ECM and PCB fabrication businesses. There has been significant downward pressure on the prices that the Company is able to charge for its ECM and fabrication services. More recently, market conditions have improved which has resulted in an increase in product demand. While the Company believes that market conditions will continue to improve, it does not believe that prices will increase as quickly. ECM and fabrication customers are increasing their orders, but are reluctant to pay more for such services primarily due to the industry's excess capacity and price competition. Additionally, competition is principally based on price, product quality, technical capability, and the ability to deliver products on schedule. Both the price of and the demand for ECM services and PCBs are sensitive to economic conditions, changing technologies, and other factors. The technology used in the ECM services and fabrication of PCBs is widely available, and there are a large number of domestic and foreign competitors. Many of these firms are larger than the Company and have significantly greater financial, marketing, and other resources. In addition, the Company faces a competitive disadvantage against better financed competitors because the Company's current financial situation causes certain customers to be reluctant to do business with the Company's operating subsidiaries. Many of the Company's competitors have also made substantial capital expenditures in recent years and operate technologically advanced ECM and fabrication facilities. In addition, some of the Company's customers have substantial in-house ECM capability, and to a lesser extent, PCB fabrication capacity. There is a risk that when these customers are operating at less than full capacity they will use their own facilities rather than purchase from the Company. Despite this risk, management believes that the Company has not experienced a significant loss of business to in-house fabricators or assemblers. There also are risks that other customers, particularly in the ECM market, will develop their own in-house capabilities, that additional competitors will acquire the ability to produce advanced, multilayer boards in commercial quantities, or the ability to provide ECM services, and that foreign firms, including large, technologically advanced Japanese firms, will increase their share of the United States or European market. Price competition in the computer marketplace which comprises the Company's largest market is intense. This has caused price erosion and lower margins, particularly in the Company's PCB fabrication business. Significant improvement in the Company's PCB gross margins may not be achieved in the near future due to excess PCB production capacity worldwide and substantial competitive pressures in the Company's principal market. Generally, the Company's customers are reducing inventory levels and seeking lower prices from their vendors, such as the Company, to compete effectively. General Backlog. At June 30, 1995, 1994, and 1993, the Company's ECM and PCB fabrication businesses had combined backlogs of $9,247,000, $6,902,000 and $19,612,000, respectively. Backlog is comprised of orders believed to be firm for products that have scheduled shipment dates during the next 12 months. Some orders in the backlog may be canceled under certain conditions. Historically, a substantial portion of the Company's orders have been for shipment within 90 days of the placement of the order and, therefore, backlog information as of the end of a particular period is not necessarily indicative of trends in the Company's business. In addition, the timing of orders from major customers may result in significant fluctuations in the Company's backlog and operating results from period to period. Backlog at June 30, 1995 included only the Company's European subsidiaries. The increase from fiscal year 1994 reflects higher order demand from existing ECM customers and new outstanding orders from new ECM customers. The Company's European PCB backlog increased slightly from the last fiscal year. The fabrication group has and is expected to further increase sales volume, but will not increase backlog as the sales increase is expected to come from quick turn orders that are completed within a one month accounting cycle and would, therefore, not be included in the period end backlog. Backlog at June 30, 1994 had declined from previous years primarily due to the following reasons: 1. Loss of large customers and their projected orders in the Company's ECM business. Total backlog for the Company's ECM operations was $4,214,000 at fiscal year end 1994 versus $17,612,000 at fiscal year end 1993. 2. Change in customer base in both the Company's ECM and PCB units to a larger customer base with smaller, higher margin purchase orders. Many of these customers have short notice, quick turn requirements, and few orders in the Company's backlog therefore extend beyond a one to two month period. Many of last year's backlogged orders covered an eight to 12 month period. On July 1, 1993, the largest customer at the Company's domestic ECM operation in fiscal year 1993, Dataproducts Corporation, ("Dataproducts") issued a temporary stop work order on the bulk of its existing purchase orders. Dataproducts' total purchases for the year ended June 30, 1993, were approximately $7,703,000, or approximately 13% of the Company's consolidated revenues for the year and $6,322,000 or 13% of fiscal year 1994 consolidated sales. Dataproducts' order backlog as of June 30, 1993 was approximately $5,747,000 or approximately 29% of the Company's consolidated backlog at such date. Approximately $700,000 of the Dataproducts backlog was canceled as a result of the stop work order and the remaining orders were rescheduled for delivery during the first six months of fiscal year 1994. There were no Dataproducts orders in the fiscal year end 1994 backlog. Because of the Dataproducts cancellation and reschedules, the level of A.J.'s revenues were adversely affected in that year. Events of this nature can materially delay or undermine the Company's ability to complete a successful turnaround and achieve operating profitability which is critical to the Company's viability. Environmental Regulation. Federal, state, and local provisions relating to the protection of the environment affect the Company's ECM and PCB fabrication businesses. Aeroscientific has used or uses chemicals in the manufacture of their products that are classified by the Environmental Protection Agency ("EPA") as hazardous substances. In the past, some of these chemicals were either treated on site or removed from the Company's facilities and disposed of elsewhere by arrangement with the owners or operators of disposal sites. The Company's current operation treats all hazardous substances on site and reclaims, as reusable material, virtually 100% of the byproducts produced. In late 1982, Aeroscientific-Anaheim received notice from the EPA that it was 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-Anaheim has been named as a third party defendant by other PRPs in a case brought in U.S. District Court for the Southern District of California in 1984, by the United States Government. The information developed during discovery and investigation thus far indicates that Aeroscientific-Anaheim supplied relatively small amounts of waste to the site as compared to the many other defendants. As part of the currently proposed Settlement Agreement, de minimis 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 $120,000. Final settlement and timing of payment are currently undeterminable, and no assurances can be given that any settlement will be achieved. The Company, however, has accrued sufficient liability reserves to cover the proposed settlement as of fiscal year end 1995. 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 Company is aware of certain chemicals that exist in the ground at its previously leased facility at 1240-1244 South Claudina Street, Anaheim, California. The Company has notified the appropriate governmental agencies and is proceeding with remediation and investigative studies regarding soil and groundwater contamination. The Company believes that it will be required to implement a continuing remedial program for the site, the cost of which is currently unknown. The installation of water and soil extraction wells was completed in August 1994. A plan for soil remediation was completed about the same time and was submitted to regulatory authorities. The full extent of potential ground water pollution could not be determined given preliminary estimates. The Company retained the services of Harding Lawson and Associates in May 1995 to begin the vapor extraction of pollutant from the soil and to perform exploratory hydro-punch testing to determine the full extent and cost of the potential ground water contamination. These processes are in their preliminary stages and a complete and accurate estimate of the full and potential costs cannot be determined at this time. The Company believes that the resolution of these matters will require a significant cash outlay. Initial estimates from Harding Lawson indicate that it could cost as much as $3,000,000 for full remediation of the site and take over ten years to complete. The Company and Aeroscientific entered into an agreement to share the costs of environmental remediation with the landlord at the Anaheim facility. Under this agreement, the Company is obligated to pay 80% of the site's total remediation costs up to $725,000 (i.e., up to the Company's share of $580,000) with any costs above $725,000 being shared equally between the Company and the landlord. To date, the Company has paid $239,000 as its share of the remediation costs. The Company anticipates that its share of the final remediation cost should approximate the amount it has presently reserved. Under the current remediation agreement, the Company is making monthly payments of approximately $18,000 through the end of the current fiscal year. Management believes that the Company has the ability to make these payments when due. From time to time the Company is also involved in other waste disposal remediation efforts and proceedings associated with its other facilities. Based on information currently available to the Company, management does not believe that the costs of such efforts and proceedings will have a material adverse effect on the Company's business or financial condition. Headquarters Operations The Company maintains its corporate headquarters in a 3,000 square foot leased building located in Tigard, Oregon. In addition to executive officers, 5 employees work in the Company's headquarters. The Company's headquarters operations include the management of the Company's operating subsidiaries on a consolidated basis, the arranging of financing for those operations and capital expenditures and the management of the remaining assets of the Company's discontinued United States operations. Employees. The Company currently employs approximately 340 persons. Item 2. Properties The following table lists principal plants and properties of the Company and its subsidiaries: Owned Square or Location Footage Leased ECM and PCB fabrication businesses: Tigard, Oregon 3,000 Leased Chatsworth, California (sublet during fiscal 1995) 48,000 Leased Craigavon, Northern Ireland 63,000 Owned Craigavon, Northern Ireland 67,000 Owned Craigavon, Northern Ireland 9,000 Owned
The Northern Ireland properties are pledged as security for installment loans payable to the Industrial Development Board for Northern Ireland from which the properties were purchased. These loans had an aggregate outstanding balance of approximately $1,350,000 at June 30, 1995. The Company's Tigard, Oregon headquarters facility is leased for a two year term expiring on January 6, 1997 from an unaffiliated third party. Rent on the headquarters is paid monthly in advance. Management believes that the Tigard facilities are adequate to meet the Company's needs for the foreseeable future. Item 3. Legal Proceedings As to other litigation matters that are not specifically described under the caption "General - Environmental Regulation', Item 1 above, no material legal proceedings are presently pending to which the Company or any of its property is subject, other than ordinary routine litigation incidental to the Company's business Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders on May 31, 1995, Bernee D.L. Strom and Erven Tallman were elected as Class II directors by the shareholders, replacing former Class II directors Rockell N. Hankin and John F. Coyne. Election of Directors was the only matter proposed at the Annual Meeting of Shareholders. The results of the election are as follows: FOR WITHHELD John F. Coyne 2,743,980 42,782 Rockell N. Hankin 2,744,980 41,782 Bernee D. L. Strom 9,988,812 28,458 Erven Tallman 9,988,812 28,458
In recognition of the shareholder vote, and prior to the certification of the results by the independent inspectors of election, John F. Coyne and Rockell N. Hankin resigned from the Board of Directors immediately following the Annual Meeting of Shareholders. At a meeting of the Board, the remaining Directors accepted these resignations and elected Bernee D. L. Strom and Erven Tallman to fill the vacancies and to serve as directors pending certification of the election results. Solicitation for election of Ms. Strom and Mr. Tallman as Class II Directors was made by an opposition shareholder committee known as "Shareholders Committee to Remove a Moribund Management" ("SCRMM"). A Settlement Agreement was entered into between the departing Board members of management and SCRMM that, among other things, provided for the election without dispute, of Ms. Strom and Mr. Tallman as Directors, required the resignation without dispute, of William E. Cook, the acceptance and recognition by SCRMM of prior company employment and severance agreements with management, and provision for payment of proxy solicitation expenses of DDL up to $150,000 paid by the Company and a similar amount paid for SCRMM's proxy solicitation expenses. PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters The information set forth under the caption "Market Information" on page 35 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference and made a part hereof. Item 6. Selected Financial Data The information set forth under the caption "Selected Financial Data" on page 2 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference and made a part hereof. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 3 through 12 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference and made a part hereof. Item 8. Financial Statements and Supplementary Data The consolidated financial statements set forth on page 14 through 34 of the Company's 1995 Annual Report to Shareholders, and the report of independent public accountants set forth on page 13 of said Annual Report, with respect to the consolidated financial statements, are incorporated herein by reference and made a part hereof. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Effective June 13, 1994, Price Waterhouse was dismissed as DDL Electronic's Inc.'s independent accountants for fiscal year-end 1994. Price Waterhouse's report on the financial statements for the fiscal years 1993 and 1992 contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to audit scopes or accounting principles, except that as follows: The report of Price Waterhouse dated August 20, 1993, for the fiscal year ended June 30, 1993, included the following explanatory paragraph: "The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has failed to generate positive cash flows from operations. In addition, the Company's bank term loan matures on May 1, 1995 and the letter of credit, which secures payment of interest and principal on the Company's industrial development bonds, also expires on May 1, 1995. At this time, there is no indication that the Company will be able to either fulfill their obligations when due or secure financing to replace these obligations. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty." Price Waterhouse's report dated September 4, 1992 for the fiscal year ended June 30, 1992 included the following explanatory paragraph: "The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has few alternative financing sources, and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty." The Company's management was given approval by its Board of Directors and the Board's Audit Committee to retain another certified accountant after Price Waterhouse required an 80% increase in its annual service fees. There has never been any and continues to be no disagreements between the Company and Price Waterhouse on any matter of accounting principles or practices, financial statement disclosure or audit scope or procedure, including up until the time of Price Waterhouse's dismissal. The Company has given Price Waterhouse unlimited authority to discuss its audit practices of the Company with the Company's successor auditor. The Company retained KPMG Peat Marwick LLP as its new independent auditors effective June 13, 1994. The Company did not consult with KPMG Peat Marwick LLP on any accounting or tax matter prior to Peat Marwick's appointment. Attached to the Company's Form 8-K, filed June 13, 1994, was Price Waterhouse's letter addressed to the Commission regarding its response to Regulation S-K, Item 304. Furthermore, Price Waterhouse was informed that statements in the Company's 8-K/A, Item 4(a)(1)(iv) included the period up until the time of Price Waterhouse's dismissal. PART III Item 10. Directors and Executive Officers of the Registrant Principal Occupation and Year First Business Experience Including Elected/Appointed Service on Other Boards Age a Director Class I Director to Continue for Term Expiring in 1996: Philip H. Alspach President, Intercon, Inc., a 71 1986 management consulting and mergers and acquisitions firm Class II Director to Continue in Office Until 1997: Bernee D. L. Strom President, USA Digital Radio 48 1995 a limited partnership, Chicago, Illinois Erven Tallman Chief Executive Officer of DDL 68 1995 Electronics, Inc. and Chairman of the Board Class III Director to Continue in Office Until 1995: Melvin Foster Principal and attorney, Melvin 69 1995 Foster & Associates, Boston, Massachusetts Don A. Raig President and Chief Operating 54 1995 Officer of DDL Electronics, Inc. Robert Gordon Wilson Vice President of DDL 51 1995 Inc. Electronics, Inc.
Executive Officers and Directors Set forth below is a list showing the names, ages, and positions of each of the Company's executive officers and directors. Name Age Position William E. Cook 46 Former Chief Executive Officer and Class III Director* John F. Coyne 45 Former President, Chief Operating Officer & Class II Director* Rock Hankin 47 Former Class II Director M. Charles Van Rossen 39 Chief Financial Officer and Secretary Erven Tallman 68 Acting Chief Executive Officer and Class II Director* Don A. Raig 54 Interim President, Chief Operating Officer & Class III Director* Rob Wilson 51 Interim Vice President and Class III Director* Philip H. Alspach 71 Class I Director* Melvin Foster 69 Class III Director* Bernee D. L. Strom 48 Class II Director*
*The Company's Certificate of Incorporation provides that the Board of Directors shall be divided into three classes, designated as Class I, Class II, and Class III. The Board currently consists of six directors, one in Class I, two in Class II, and three in Class III, whose current terms of office expire on the date of the 1996, 1997, and 1995 annual meeting of stockholders, respectively. Mr. Cook was elected President and Chief Executive Officer and a director of the Company in December 1991, and served as Chairman and Chief Executive Officer. Prior to 1991, he was a special partner with TBM Associates, a venture capital firm. From 1981 to 1990, he was President, Chief Executive Officer and a founder of Signal Technology Corporation, a publicly traded manufacturer of electronic engineered products. Mr. Cook resigned from the Company and the Board of Directors subsequent to the May 31, 1995 Annual Meeting. Mr. Coyne joined the Company in November 1990 as Managing Director of the Company's European operations and became Executive Vice President in June 1994. Mr. Coyne subsequently became President and Chief Operating Officer in August 1994. Prior to his employment by the Company, Mr. Coyne was Regional Vice President in Europe for SCI Inc., a publicly traded electronic contract manufacturer. Prior to that time, Mr. Coyne worked in various capacities with Western Digital Corporation, a publicly traded entity primarily engaged in the manufacture and sale of disk drives. Mr. Coyne was not elected a Director at the May 31, 1995 Annual Shareholder Meeting and was not reappointed as an officer of the Company subsequent to the meeting. Mr. Coyne continues as Managing Director of the Company's European Operation. Mr. Van Rossen joined the Company as Controller in May 1992 and became Chief Financial Officer and Secretary in March 1994. Prior to his employment by the Company, Mr. Van Rossen worked in various financial positions with Pacificorp, a publicly traded holding company for a diversified group of utilities. Mr. Van Rossen resigned from the Company on July 21, 1995 and currently acts as a consultant until November 1, 1995. Mr. Alspach has been a director of the Company since 1986. He has also been President of Intercon, Inc., a management consulting and mergers and acquisitions firm, since December 1985. Mr. Hankin has been a director of the Company since 1986. He has also been Senior Partner at Hankin & Co., a business advisory and management firm, since July 1986. Prior to that date, he was a partner of Price Waterhouse. Mr. Hankin is also a director of Alpha Microsystem (a publicly traded microcomputer and peripheral equipment manufacturer), Sparta, Inc. (a private engineering services company), LaVictoria Foods, Inc. (a private food preparation and distribution company), Kavlico (a private electronic contract equipment manufacturer), and Semtech (a publicly traded electronic contract equipment manufacturing company). Mr. Hankin was Chairman of the Audit Committee and is a member of the Compensation Committee. Mr. Hankin was not re-elected as a Director at the May 31, 1995 Annual Shareholder Meeting. Mr. Tallman was elected to the Company's Board of Directors at the May 31, 1995 Annual Shareholders' Meeting. He was made acting Chairman of the Board and Chief Executive Officer replacing Mr. Cook, at the Board Meeting following the Shareholders' meeting. Mr. Tallman is a member of the Compensation Committee of the Board of Directors. Besides Mr. Tallman's involvement with DDL, his positions with other companies include General Manager and Partner of Inland Empire Properties Ltd., General Manager and President of Phone Alert Corp., President and General Manager of Pactall Corp., and President and CEO of E.B. Tall, Inc. Mr. Tallman is also a Board member and is an active member of the Compensation Committees of each of the aforementioned enterprises. Mr. Raig was appointed to the Board of Directors and made Interim President and Interim Chief Operating Officer, replacing Mr. Coyne, subsequent to the May 31, 1995 Annual Shareholders' Meeting. Prior to his employment with the Company, Mr. Raig worked and continues to work as an independent attorney and trustee for various groups in Southern California. Mr. Wilson was appointed to the Board of Directors and made an Interim Vice President subsequent to the May 31, 1995 Annual Shareholders' Meeting. Mr. Wilson is a member of the Compensation Committee of the Board of Directors. Mr. Wilson is an independent business consultant operating within a family-held private corporation unaffiliated with the Company as its chief financial officer, director and member of the compensation committee of Brandevor Enterprises, Ltd., a Toronto Stock Exchange listed company, a director of Crystallex Mines a Vancouver Stock Exchange listed company, director of Amusements International Ltd. listed on the Alberta Stock Exchange, director, Job Industries Ltd, listed on the Vancouver Stock Exchange, and director, chief executive officer and member of the Compensation Committee of Bonkers Indoor Playgrounds, Inc., a privately held company. Melvin Foster was appointed a Director of the Company subsequent to the May 31, 1995 Annual Shareholders' Meeting. Mr. Foster is a member of the Audit Committee of the Board of Directors. Mr. Foster is an attorney and principal in Melvin Foster & Associates in Boston, Massachusetts. Ms. Strom was elected a Class II Director at the May 31, 1995 Annual Shareholders' Meeting and serves as Chairperson of the Audit Committee of the Board of Directors. Ms. Strom is President of USA Digital Radio, a limited partnership. She also serves on the Board of Directors of Software Publishing Corporation, a NASDAQ listed company, and is Chairman of the Board of Quantum Development Corporation, a privately held Company. None of the Company's executive officers or directors are related by blood or marriage. There are no arrangements or understandings between the listed individuals and any other person pursuant to which those individuals were selected as an officer or director. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Under the securities laws of the United States, the directors and executive officers of the Company and persons who own more than 10% of the Company's Common Stock are required to report their ownership of the Company's Common Stock and any subsequent changes in that ownership to the Securities and Exchange Commission. The Company is required to disclose in its proxy statement any late filings during the 1995 fiscal year. To the Company's knowledge, based solely upon its review of the copies of such reports required to be furnished to the Company during the fiscal year ended June 30, 1995, during the two years ended June 30, 1995, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% owners were complied with. Item 11. EXECUTIVE COMPENSATION Executive Compensation Table The following table sets forth the cash compensation paid or accrued by the Company to the Chief Executive Officer and other executive officers of the Company attributable to their services for each of the fiscal years in the three-year period ended June 30, 1995: Long Term Compensation Annual Compensation Awards Name and Principal Other Annual Positions Year Salary(1) Bonus Compensation(2) Options(#) Erven Tallman 1995 $ -- $ -- $ -- -- Acting Chairman 1994 -- -- -- -- and Chief 1993 -- -- -- -- Executive Officer William E. Cook 1995 $171,000 -- $268,000(3) -- Chairman and 1994 166,000 -- 18,000 4,183(4) Chief Executive 1993 165,000 -- 20,000 512,586(4) Officer John F. Coyne 1995 $ 119,000(5) $27,000 $50,000 100,000 President and 1994 78,000 -- 67,000 -- Chief Operating 1993 91,000 -- 74,000 50,000 Officer M. Charles Van Rossen 1995 $90,000(6) -- -- -- Controller & 1994 73,000 -- 8,000 15,000 Chief Financial 1993 70,000 -- 9,000 20,000 Officer
[FN] (1) Amounts shown include compensation earned and received by executive officers as well as amounts earned but deferred at the election of those officers. Amounts paid in British Pound Sterling translated into the Company's functional currency using the average annual translation rate . (2) Amounts in the "Other Annual Compensation" column include amounts credited to individual 401(k) accounts from a suspense account within the 401(k) Plan, statutory pension amounts as required in Northern Ireland and other non-cash benefits. (3) Other Annual Compensation received by Mr. Cook in fiscal 1995 includes severance and earnings realized from exercise of non-statutory stock options. An agreement was entered into by the Company and Mr. Cook at the Annual Shareholders Meeting held May 31, 1995, in which Mr. Cook resigned from the Company and was granted severance equal to one year's salary or $165,000 of which $35,000 was paid in the current fiscal year. (4) Such options were granted pursuant to an anti-dilution provision contained in Mr. Cook's 1991 stock option agreement. The anti-dilution provision was triggered as a result of the conversion and exchanges of convertible subordinated debentures and the exercise of stock options by others. (5) Mr. Coyne was promoted to President and Chief Operating Officer and made a Director of the Company in August 1994, At the May 31, 1995 Annual Shareholders Meeting Mr. Coyne was not elected a director or appointed an officer of the Company, but continued as Managing Director of the Company's Northern Ireland subsidiaries. (6) Mr. Van Rossen resigned as an officer of the Company effective July 21, 1995 and currently acts as a consultant until November 1, 1995. OPTION GRANTS IN FISCAL 1995 The following table sets forth information concerning options granted to each of the named executive officers during fiscal 1995: Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term 5% 10% Name Options Granted % of Total Options Granted to Employees in Fiscal Year Exercise or Base price ($/Sh) Expiration Date 5% 10% John F. Coyne 50,000 41.7% $1.25 07/06/2004 $35,000 $63,000 John F. Coyne 50,000 41.6% 1.37 08/09/2004 26,000 $49,000 AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995 AND FISCAL YEAR END OPTION/SAR VALUES The following table sets forth information concerning options held by each of the named executive officers as of June 30, 1995. Number of Unexercised Options Value of Unexercised In the Shares Acquired at FY-End Money Options at FY-End Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable John F. Coyne - - 170,833/29,167 $57,986/10,764 M. Charles Van Rossen - - 25,833/17,167 $10,417/$7,709 Directors who are not also officers receive $750 per month, $1,000 for each meeting of the Board of Directors attended, and $1,000 for attendance at each committee meeting not scheduled in conjunction with meetings of the Board of Directors. Indemnity Agreements. On August 3, 1987, as contemplated by the Company's Bylaws, the Board authorized the Company to enter into separate indemnity agreements with directors and former directors of the Company as well as executive officers of the Company and its subsidiaries. Such separate indemnity agreements were deemed necessary since, in the past, the Company had furnished at its expense directors and officers liability insurance protecting the foregoing individuals from personal liability in connection with their service to the Company. Such insurance is not always available to the Company at a reasonable cost or at desired policy limits. There was some concern that, in the absence of insurance, the indemnities available under the Company's Certificate of Incorporation and Bylaws may not be adequate to protect such individuals against the risk of personal liability associated with their service to the Company. The indemnity agreements provide that the Company will pay any amount which an indemnitee (i.e., a director or former director of the Company or an executive officer of the Company and/or its subsidiaries) is legally obligated to pay because of any claim or claims made against such indemnitee as a result of any act or omission, neglect, or breach of duty, including any actual or alleged error or misstatement or misleading statement, such indemnitee commits while acting in his capacity as a director of the Company or as an officer of the Company and/or its subsidiaries, or while serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. No indemnification is provided in situations involving dishonesty or improper personal profit, among other situations. The payments to be made under the indemnity agreements include damages, judgments, fines, ERISA excise taxes and penalties, settlements and costs, including defense costs, and costs of attachment or similar bonds. Employment Agreement. On December 3, 1991, William E. Cook was elected President, Chief Executive Officer and a director of the Company. In connection therewith, Mr. Cook entered into a one year employment agreement which provided for an annual salary of $165,000. The employment agreement also provided that Mr. Cook receive an option vesting over 19 months to purchase a number of shares equal to 9% (596,992 shares) of the Company's then outstanding Common Stock at $.50 per share, which represented the lowest closing price of the Common Stock during the 30 days preceding December 3, 1991. The number of shares subject to option have been increased pursuant to dilution and anti-dilution provisions of the option agreement. On January 1, 1995, Mr. Cook entered into a new employment agreement with the Company under the same terms as Mr. Cook's prior agreement with the exception of Mr. Cook's severance benefits that were extended to one year. Executive Severance Arrangements. In December 1994 and January 1995, the Company entered into severance agreements with Dave Anderson, then President of A.J. Electronics., Inc. (A.J.), John Coyne, the President and Chief Operating Officer of the Company, and M. Charles Van Rossen, Chief Financial Officer for the Company. Under these Agreements, if a participant's employment were terminated other than for cause or voluntary resignation ("Involuntary Termination"), then he would be entitled to severance pay in the form of monthly payments equal to his then current monthly salary, less applicable withholdings and welfare benefits from his termination date until the earlier of (i) the date on which the participant accepts other full time employment or (ii) 180 days following the date of Involuntary Termination. Notwithstanding the foregoing, if the participant accepts part time employment or consulting engagements during the severance period, the severance obligations of the Company will be reduced by the amount the participant receives for such part-time work or consulting. The agreement also provides that for up to one year after the occurrence of a "change in control" of the Company, each participant is entitled to the severance provisions of the agreement upon voluntary resignation. Such a change in control was triggered by events at the Company's May 31, 1995 Annual Shareholders Meeting. Additionally, the severance provisions of Mr. Cook's employment agreement were also triggered by events at the Annual Shareholders Meeting and accordingly, Mr. Cook is entitled to one year of severance pay and full benefits as existing at the time of the meeting. Mr. Anderson's severance agreement was trig- gered on March 10, 1995 upon the liquidation of A.J.'s operations in Southern California. The Board of Directors believes that these executive severance arrangements will help assure continued dedica- tion, availability of objective advice, and counsel from key management. REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors (the "Committee") administers the Company's executive compensation programs and reviews and approves salaries of all elected officers, including those of the executive officers named in the Executive Compensation Table. The Committee is also responsible for administering the Company's stock option plans (except for the non--discretionary 1993 Non-Employee Directors Stock Option Plan) and making incentive awards. The Company's executive compensation programs are designed to: - provide competitive levels of base compensation in order to attract, retain and motivate high quality employees; - tie individual total compensation to individual performance and the success of the Company; and - align the interests of the Company's executive officers with those of its stockholders. Base Salary Base salary is targeted to be moderate yet competitive in relation to salaries commanded by those in similar posi- tions in comparable companies. Additional consideration is to be made in the form of bonuses or stock options, the latter through potential increases in the price of the Company's stock. The Committee reviews management recom- mendations for executives' salaries and examines survey data for executives with similar responsibilities in comparable companies to the extent such data is available. Individual salary determinations are based on experience, sustained performance and comparison to peers inside and outside the Company. With the exception of Mr. Coyne none of the other executive officers named in the Executive Compensation Table received salary increases during fiscal 1995. Incentive Compensation Program The Company maintains an incentive compensation program for substantially all officers and executives designed to reward such individuals for their contributions to corporate and individual objectives. In the past, the programs have provided additional compensation based on performance and profits of those operations for which the various execu- tives have responsibility. During the last fiscal year, no amounts were paid to the Company's officers or executives under the plans due to cash constraints. Stock Options The Committee administers the Company's 1993 Stock Incentive Plan, which is designed to align the interests of management with those of the Company's stockholders. The number of stock options granted is related to the recipient's base compensation and level of responsibility. All options have been granted with an option exercise price equal to the fair market value of the Company's common stock on the date of grant. The tables above set forth information concerning options granted to named executives during fiscal 1995. Because of the Company's financial condition and the importance of conserving cash, the Company has tended to limit the level of cash remuneration paid to executive officers and increase the level of stock option grants. Particu- larly during a period focused on operational and financial turnaround, the Committee believes that stock options closely align the objectives of management and the stockholders and provide a balance given the limits placed on cash remuneration. In the future, the Committee will continue to evaluate cash and stock incentive compensation alterna- tives to best achieve the objectives of the Company's executive compensation program. Compensation of Chief Executive Officer On December 3, 1991, William E. Cook was elected President, Chief Executive Officer and a director of the Company. Mr. Cook's compensation package was designed to provide Mr. Cook with a significant incentive to increase stockholder value through a successful turnaround effort. His employment agreement provides for an annual salary of $165,000. In addition, Mr. Cook received an option vesting over 19 months to purchase a number of shares equal to 9% of the Company's then outstanding Common Stock (596,992 shares) at $.50 per share, which represented the lowest closing price of the Common Stock during the 30 days preceding December 3, 1991. The number of shares subject to this option are automatically increased or decreased pursuant to certain dilution and anti-dilution provisions of the option agreement. The Committee believes that the increase in the market value of the Company's Common Stock is in very large part due to Mr. Cook's success in achieving certain financial and operational turnaround goals, including (i) restructuring the Company's senior debt, (ii) facilitating several exchanges of subordinated debt for equity securities, (iii) selling the Company's communications subsidiary to a third party, (iv) addressing serious operating problems (including completion of the shut down of the Company's Anaheim, California facility), (v) raising needed cash through the exercise of outstanding warrants and the private placement of preferred stock, and (vi) reducing the Company's operating losses and negative cash flow. Compensation of Current Corporate Officers None of the Company's current corporate officer are receiving any cash compensation other than to pay for out of pocket expenses incurred to administer their executive duties. The Board anticipates remunerating these individual at a later date in the form of options or warrants to buy the Company's common stock. Compensation Committee Erven Tallman Robert G. Wilson Compensation Committee Interlocks and Insider Participation Philip H. Alspach and Rockell N. Hankin served on the Compensation Committee in fiscal 1995. Messrs Alspach and Hankin resigned from the Compensation Committee on May 31, 1995. Erven Tallman and Robert G. Wilson were appointed to the Compensation Committee in June 1995. There are no interlocks between the Company and other entities involving the Company's executive officer and board members who serve as executive officer of board members of other entities. Stockholder Return Performance Table The following performance table compares the cumulative total return assuming the reinvestment of dividends for the period from June 30, 1990 through June 30, 1995, from an investment of $100 in (i) the Company's Common Stock, (ii) the Dow Jones Industrials as a group, and (iii) the Dow Jones Computer Index group of companies. DDL Stock Dow Jones Dow Jones Value with Computers Index Industrial Average Reinvestment 06/29/90 $100.00 06/29/90 100.00 06/29/90 $100.00 06/28/91 86.25 06/28/91 107.70 06/28/91 27.58 07/02/92 90.47 07/02/92 124.21 07/02/92 37.93 06/30/93 71.34 06/30/93 141.25 0702/93 61.41 06/30/94 81.06 06/30/94 147.84 07/01/94 31.28 06/30/95 $87.46 06/30/95 181.81 07/01/95 $43.52 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGE- MENT PRINCIPAL STOCKHOLDERS Except as otherwise indicated, the following table sets forth as of April 3, 1995 the number of shares and percen- tage of outstanding Common Stock of the Company beneficially owned by (i) each person who is known by the Company to own beneficially more than 5% of the Company's outstanding Common Stock, (ii) each of the Company's directors, (iii) each officer listed in the Executive Compensation Table, and (iv) all executive officers and directors of the Company as a group: Beneficially Owned(1) Shares of Common Stock Name and Address of Beneficial Owner* Number Percent of Class Karen Beth Brenner 16,400(2)(3) ** P.O. Box 9109 Newport Beach, CA 92658 Karen Beth Brenner 1,441,444(2)(4) 8.9% (Sole Proprietorship) 1300 Bristol Street North #230 Newport Beach, CA 92660 Richard Fechtor 443,050(2)(5) 2.7% 17 Emily Road Framington, MA 01701 Fortuna Investment Partners, L.P. 956,660(2)(6) 5.9% 100 Wilshire Blvd., 15th Floor Santa Monica, CA 90401 Ronald J. Vannuki 573,427(2)(7) 3.5% 100 Wilshire Blvd., 15th Floor Santa Monica, CA 90401 William E. Cook 880,262(8) 5.4% 14337 SW Peachtree Drive Tigard, Oregon 97224 Don A. Raig 790,415(9) 4.6% Philip H. Alspach 101,635(10) ** Erven Tallman 155,664 1.0% Melvin Foster 174,500 1.1% Robert G. Wilson 800,000(11) 4.9% John F. Coyne 170,833(12) 1.1% M. Charles Van Rossen 25,833(13) ** Directors and Executive Officers as a Group (6 persons) 2,218,888(14) 13.7% * Unless otherwise noted, all directors and officers listed above can be contacted at DDL Electronics, Inc., 7320 SW Hunziker Road #300, Tigard, Oregon 97223-2302. ** Represents less than 1% of the outstanding shares. (1) Unless otherwise noted, shares are held with sole voting and investment power. Stockholdings include, where applicable, shares held by the spouses and minor children, including shares held in trust. (2) This information is based upon a Schedule 13D dated February 23, 1995, as amended by a Schedule 13D dated April 1, 1995, filed with the Securities and Exchange Commission. Such schedules state that the beneficial owner is a member of a "group," as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, comprised of Karen Beth Brenner, Karen Beth Brenner (Sole Proprietorship), Richard Fechtor, Fortuna Investment Partners, Ltd., Don A. Raig, and Ronald I. Vannuki. The members of this group are beneficial owners of 3,950,956 shares of the Company (24.4%) in the aggregate. (3) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has sole voting and dispositive power as to all 16,400 shares. (4) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has no voting power but sole dispositive power as to all 1,441,444 shares. (5) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has sole voting and dispositive power as to all 443,050 shares. (6) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has sole voting and dispositive power as to all 890,660 shares. Mr. Vannuki is the managing director of the general partner of this limited partnership. (7) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has sole voting and dispositive power as to all 469,975 shares. (8) Shares beneficially owned by Mr. Cook represent options for 689,462 shares that are exercisable or will be exercis- able within 60 days of June 30, 1995 and share owned of 190,800, based on Form 4 filed September, 1995. (9) According to a form 4 filed June 30, 1995, Mr. Raig is beneficial owner of 790,415 shares of common stock includ- ing beneficial ownership of 63,115 shares issuable under conversion rights of the Company's 8 1/2% bonds, held as a limited partner with Fortuna Investment Partners, L.P. (10) Shares beneficially owned by Mr. Alspach include options for 90,000 shares that are exercisable or will be exercis- able within 60 days of June 30, 1995. (11) Mr. Wilson's ownership includes beneficial ownership of 240,000 shares of common stock as a partner of Fortuna Investment Partners. (12) Shares beneficially owned by Mr. Coyne represent options for 170,833 shares that are exercisable or will be exercisable within 60 days of June 30, 1995. (13) Shares beneficially owned by Mr. Van Rossen represent options for 25,833 shares that are or will be exercisable within 60 days of June 30, 1995. (14) Includes options for 286,666 shares that are or will be exercisable within 60 days of June 30, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On June 28, 1995, Erven Tallman, Chairman and Chief Executive Officer, committed the Company to consulting agreements with Fechtor, Detwiler & Co. and Fortuna Capital Management, Inc. Richard Fechtor, principal with Fechtor, Detwiler & Co., Ron Vannuki, President of Fortuna Capital Management, Inc., and as general partner of Fortuna Investment Partners, Ltd., are also identified under Part III, Item 12 as principal stockholders, and were members of a "group," as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, that filed a Schedule 13D dated February 23, 1995, as amended by a Schedule 13D dated April 1, 1995, with the Securities and Exchange Commission. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Reference (Page) 1995 Annual Form 10K Report to Stockholders (a)(1) List of Financial statements: List of data incorporated by reference: Consolidated balance sheet at June 30, 1995, and 1994*. . 14 Consolidated statement of operations for the years ended June 30, 1995, 1994, and 1993 . . . . . 15 Consolidated statement of stockholders' equity for the years ended June 30, 1995, 1994, and 1993 . . . . 17 Consolidated statement of cash flows for the years ended June 30, 1995, 1994, and 1993 . . . . 16 Notes to consolidated financial statements. . . . . .18 Report of KPMG Peat Marwick LLP on consolidated financial statements. . . . . . . . . . . . 13 * The Company utilizes a 52-53 week fiscal year ending on the Friday closest to June 30, which, for fiscal years 1995 and 1994, fell on June 30 and July 1, respectively. For 10K filing purposes, June 30, 1995, is utilized for the Company's fiscal year end. (a)(2) List of Financial statement schedules for the years ended June 30, 1995, 1994, and 1993:** Reports of KPMG Peat Marwick LLP and Price Waterhouse on financial statement schedules. . . . . . . . . . . 15 VIII - Valuation and Qualifying Accounts and Reserves . 16 IX - Short-Term Bank Borrowings . . . . . . . . . . .None ** Schedules other than those listed are omitted since they are not applicable, not required, or the information required to be set forth therein is included in the consolidated financial statements or in the notes thereto. (a)(3) List of Exhibits: Exhibit Index . . . . . . . . . . . . . . .18 (b) Reports on Form 8-K: During the fourth fiscal quarter, the following reports on Form 8-K were filed: On April 11, 1995, a Form 8-K/A was filed pursuant to item 2, Acquisition or Disposition of Assets, for filing of pro forma financial information pursuant to Regulation S-X. On April 20, 1995, a Form 8-K was filed pursuant to item 5, Other Events, for a press release announcing that William E. Cook, the Company's Chairman and CEO, had exercised stock options to purchase 300,000 shares 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 that announced the Company's fiscal third quarter ended March 31, 1995 operating results. On June 7, 1995, a Form 8-K was filed pursuant to item 5, Other Events, for a press release issued June 1, 1995 announcing the resignation of William E. Cook, the Company's Chairman and CEO and the results of the Company's annual meeting of shareholders on May 31, 1995 in which five new directors were added to the board replacing Mr. Cook and two existing directors. On June 21, 1995, a Form 8-K was filed pursuant to item 1, Changes in Control of Registrant, that announced the results of the Company's May 31, 1995 annual meeting of shareholders and the change in the Company's Board of Directors and management. Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 pertaining to the 1975 Nonqualified Stock Option Plan, the 1980 Employee Stock Option Plan, the 1981 Incentive Stock Plan, and the 1985 and 1987 Stock Incentive Plans (No. 33-18356) and the 1991 Nonstatutory Stock Option Plan (No. 33-45102) of DDL Electronics, Inc. of our Report dated August 20, 1993, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears in this Form 10-K Price Waterhouse LLP September 28, 1995 REPORT OF INDEPENDENT AUDITORS' ON FINANCIAL STATEMENT SCHEDULES The Board of Directors DDL Electronics, Inc. Under date of August 18, 1995, we reported on the consolidated balance sheets of DDL Electronics, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended, as contained in the 1995 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10K for the year 1995. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in Item 14(a)(2) of this Form 10K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express and opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Portland, Oregon August 18, 1995 DDL ELECTRONICS, INC. AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Balance atCharged to Balance Beginning Costs and at End of Period ExpensesDeductions of Period Allowance for doubtful accounts - Year ended: June 30, 1993 $ 748,000 $ 570,000$ (373,000 ) $ 945,000 June 30, 1994 945,000 293,000 (705,000) 533,000 June 30, 1995 533,000 95,000 (446,000) 182,000 Inventory reserves - Year ended: June 30, 1993 $ 275,000$ 780,000$ (881,000) $ 174,000 June 30, 1994 174,000 266,000 (56,000) 384,000 June 30, 1995 384,000 62,000 (290,000) 156,000 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, DDL Electronics, Inc. has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. DDL Electronics, Inc. By /s/ Don A. Raig Don A.Raig Date Interim President and Chief Operating Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Don A. Raig Don A.Raig Date Interim President and Chief Operating Officer and Director (Principal Financial and Accounting Officer) /s/ Erven Tallman Erven Tallman Date Acting Chairman, Chief Executive Officer and Director /s/ Rob Wilson Rob Wilson Date Interim Vice President and Director /s/ Philip H. Alspach Philip H. Alspach Date Director /s/ Bernee D. L. Strom Bernee D.L. Strom Date Director /s/ Melvin Foster Melvin Foster Date Director EXHIBIT INDEX 3-a Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-8, Commission File No. 33-7440) 3-b Bylaws of the Company, amended and restated, effective March 1995 3-c Certificate of Amendment of Certificate of Incorporation of the Company to increase authorized number of common shares (incorporated by reference to Exhibit 3-c of the Company's 1990 Annual Report on Form 10-K) 3-d Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of the Company (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-8, Com- mission File No. 33-7440) 3-e Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-8, Commission File No. 33-7440) 4-a Indenture dated July 15, 1988, applicable to the Company's 8-1/2% Converti- ble Subordinated Debentures due August 1, 2008 (incorporated by reference to Exhibit 4-c of the Company's 1988 Annual Report on Form 10-K) 4-b Supplemental Indenture relating to the Company's 8-1/2% Convertible Sub- ordinated Debentures due August 1, 2008 (incorporated by reference to Exhibit 4-b of the Company's 1991 Annual Report on Form 10-K) 4-c Indenture relating to the Company's 7% Convertible Subordinated Deben- tures due 2001 (incorporated by reference to Exhibit 4-c of the Company's 1991 Annual Report on Form 10-K) 4-d Rights Agreement dated as of June 10, 1989, between the Company and Bank of America, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's Report on Form 8-K dated June 15, 1989) 4-e Amendment to Rights Agreement dated as of February 21, 1991, amending the Rights Agreement dated as of June 10, 1989, between the Company and Bank of America, as Rights Agent (incorporated by reference to Exhibit 4.7 of Registration Statement No. 33-39115) 10-a Intentionally not used 10-b 1980 Employee Stock Option Plan (incorporated by reference to Exhibit 1 of Registration Statement No. 2-69580) 10-c 1981 Incentive Stock Option Plan (incorporated by reference to Exhibit 4 of Registration Statement No. 2-79576) 10-d 1985 Stock Incentive Plan (incorporated by reference to Exhibit 4a of Regis- tration Statement No. 33-3172) 10-e 1987 Stock Incentive Plan (incorporated by reference to Exhibit 4a of Regis- tration Statement No. 33-18356) 10-f Form of Indemnity Agreement with officers and directors (incorporated by reference to Exhibit 10-o of the Company's 1987 Annual Report on Form 10-K) 10-g Consulting Agreement dated March 26, 1990, between the Company and Thomas C. Beiseker (incorporated by reference to Exhibit 10-s of the Company's 1990 Annual Report on Form 10-K) 10-h Standard Industrial Lease-Net dated August 1, 1984, among the Company, Aeroscientific Corp., and Bradmore Realty Investment Company, Ltd. (incorporated by reference to Exhibit 10-w of the Company's 1990 Annual Report on Form 10-K) 10-i Net Lease Agreement dated December 2, 1985, among the Company, Catel Telecommunications, Inc. and Phoenix Mutual life Insurance Company (incorporated by reference to Exhibit 10-x of the Company's 1990 Annual Report on Form 10-K) 10-j Agreement dated March 10, 1992, between Irlandus Circuits Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated September 16, 1987, between Irlandus and the Industrial Development Board (incorporated by reference to Exhibit 10-br of the Company's 1992 Annual Report on Form 10-K) 10-k Agreement dated September 10, 1991, between DDL Electronics Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the Industrial Development Board (incorporated by reference to Exhibit 10-bt of the Company's 1992 Annual Report on Form 10-K) 10-l Agreement dated November 22, 1991, between DDL Electronics Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the Industrial Development Board (incorporated by reference to Exhibit 10-bu of the Company's 1992 Annual Report on Form 10-K) 10-m Agreement dated March 9, 1992, between DDL Electronics Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the Industrial Development Board (incorporated by reference to Exhibit 10-bv of the Company's 1992 Annual Report on Form 10-K) 10-n Agreement dated June 22, 1992, between DDL Electronics Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the Industrial Development Board (incorporated by reference to Exhibit 10-bw of the Company's 1992 Annual Report on Form 10-K) 10-o Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate dated July 15, 1992, between Mark Lainer and/or Nominee and the Company's A.J. Electronics, Inc. subsidiary (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1992) 10-p Standard Industrial Lease - Net dated October 15, 1992, between L.N.M. Corporation-Desert Land Managing Corp. and the Company's A.J. Electron- ics, Inc. subsidiary (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993) 10-q Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate dated October 19, 1992, between Business Ventures Corporation and the Company (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended January 1, 1993) 10-r Form of Exchange Agreement between certain holders of the Company's 7% and 8-1/2% Convertible Subordinated Debentures and the Company dated as of November 11, 1992 (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended January 1, 1993) 10-s Warrant Agreement by and between the Company and American Stock Transfer & Trust Company dated as of November 11, 1992 (incorporated by reference to Exhibit 28.2 of the Company's Current Report on Form 8-K dated January 7, 1993) 10-t Lease Modification and Termination Agreement and Promissory Note, dated April 28, 1993, between the Company and Phoenix Home Life Mutual Insurance Company (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1993) 10-u Form of Exchange Agreement between certain holders of the Company's 7% and 8-1/2% Convertible Subordinated Debentures and the Company dated May 14, 1993 (incorporated by reference to Exhibit 28.2 of the Company's Current Report on Form 8-K dated May 19, 1993) 10-v Amendment to Lease Modification and Termination Agreement, dated June 11, 1993, between the Company and Phoenix Home Life Mutual Insurance Company (incorporated by reference to Exhibit 10-bz of Registration Statement No 33-63618) 10-w Form of Exchange Agreement between certain holders of the Company's 7% and 8-1/2% Convertible Subordinated Debentures and the Company dated June 24, 1993 (incorporated by reference to Exhibit 10-ca of Registration Statement No. 33-63618) 10-x Stock Purchase Agreement, dated July 7, 1993, between Meret Optical Communications, Inc. and the Company (incorporated by reference to Exhibit 10-cb of Registration Statement No. 33-63618) 10-y Second Amendment to Lease among Bradmore Realty Investment Company, Ltd., the Company and the Company's Aeroscientific Corp. subsidiary, dated July 2, 1993 (incorporated by reference to Exhibit 10-cd of Registration Statement No. 33-63618) 10-z 1991 General Nonstatutory Stock Option Plan adopted on December 31, 1991 (incorporated by reference to Exhibit 10-cf of the Company's 1993 Annual Report on Form 10-K) 10-aa Form of Series B preferred Stock Purchase Agreement between the Compa- ny and the Industrial Development Board for Northern Ireland (incorpo- rated by reference to Exhibit 10.2 to the Company's Report on Form 8-K dated October 22, 1993) 10-ab Data-Design Laboratories, Inc. 1993 Stock Incentive Plan (incorporated by reference to Exhibit 4.7 of the Company's Registration Statement on Form S-8, Commission file No. 33-74400) 10-ac Data-Design Laboratories, Inc. Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit 4.8 of the Company's Registration Statement on Form S-8, Commission File No. 33-74400) 10-ad Form of Land Registry for the Company's Northern Ireland subsidiaries dated November 4, 1993 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report of Form 10-Q for the quarter ended September 30, 1993) 10-ae Form of Guaranty by the Company's Northern Ireland subsidiaries dated November 4, 1993 in favor of The Tokai Bank, Ltd. and First Interest Bank of Oregon (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report of Form 10-Q for the quarter ended September 30, 1993) 10-af Form of Guaranty by the Company's Northern Ireland subsidiaries dated November 4, 1993 in favor of Sanwa Bank California (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report of Form 10-Q for the quarter ended September 30, 1993) 10-ag Form of Severance Agreement for Key Employees of the Company (incorpo- rated by reference to the Company's 1994 Annual Report on Form 10-K) 10-ah Subscription Agreement for 760,000 shares of DDL Electronics, Inc.'s Common Stock (incorporated by reference to Exhibit 10a of the Company's Quarterly Report of Form 10Q for the quarter ended September 30, 1994) 10-ai Asset Purchase Agreement by and between Yamamoto Manufacturing USA Inc. ("Buyer") and Aeroscientific Corp. ("Seller") (incorporated by reference to Exhibit 10a of the Company's Report on Form 8K dated November 2, 1994) 10-aj Asset Purchase Agreement by and between Raven Industries, Inc., A.J. Electronics, Inc. and DDL Electronics, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Report on Form 8K dated January 17, 1995) 10-ak Closing Settlement Statement executed by A.J. Electronics Inc., DDL Electronics, Inc. and Raven Industries, Inc. (incorporated by reference to Exhibit 2.2 of the Company's Report on Form 8K dated January 17, 1995) 10-al Non-Competition and Non-Disclosure Agreement between A.J. Electronics and Raven Industries, Inc. (incorporated by reference to Exhibit 2.3 of the Company's Report of Form 8K dated January 17, 1995) 10-am Payoff Agreement between Sanwa Bank California and the Company dated December 29, 1994 10-an Termination Agreement between First Interstate Bank of Oregon, N.A., the Tokai Bank Ltd. and the Company dated December 29, 1994 10-ao Employment Agreement between DDL Electronics, Inc. and William E. Cook 10-ap Settlement Agreement between DDL Electronics, Inc. and opposition share- holders committee (SCRMM) 11 Statement re: Computation of Per Share Earnings. 13 Annual Report to security holders 16 Letter from Price Waterhouse regarding dismissal as independent account- ants (incorporated by reference to Exhibit 16 of the Company's 1994 Annual Report on Form 10K) 21 Subsidiaries of the Registrant 23a Consent of KPMG Peat Marwick, LLP 23b Consent of Price Waterhouse, LLP 27 Financial Schedule for electronic filers 99 Undertaking for Form S-8 Registration Statement EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Year Ended June 30 1995 1994 1993 PRIMARY EARNINGS PER SHARE: Loss from continuing operations $(2,366,000) $(8,354,000) $(5,630,000) Income (loss) from discontinued operations- - - 603,000 Extraordinary items 2,441,000 - 6,100,000 Net income (loss) $ 75,000 $(8,354,000) $ 1,073,000 Weighted average number of common shares outstanding15,149,968 14,239,292 9,332,774 Assumed exercise of stock options net of shares assumed reacquired under treasury stock method using average market price 820,549 857,883 795,906 Average common shares and common share equivalents 15,970,517 15,097,175 10,128,680 Primary earnings (loss) per share: Continuing operations $(0.15) $(0.55) $(0.56) Discontinued operations - - 0.06 Extraordinary items 0.15 - - 0.60 $(0.00) $(0.55) $ 0.10 NOTE: Calculation of primary earnings per share for fiscal 1994 includes 857,883 of exercisable stock options. Including these exercisable stock options makes primary earnings per share antidilutive. EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Continued) Year Ended June 30 1995 1994 1993 FULLY DILUTED EARNINGS PER SHARE: Loss from continuing operations $(2,366,000) $(8,354,000) $(5,630,000) Add back net interest related to convertible subordinated debentures 134,000 135,000 274,000 Loss from continuing operations for fully diluted computation (2,232,000) (8,219,000) (5,356,000) Income (loss) from discontinued operations - - 603,000 Extraordinary items 2,441,000 - 6,100,000 Net income (loss) for fully diluted computation$ 209,000 $(8,219,000 $(1,347,000) Weighted average number of common shares outstanding15,149,968 14,239,292 9,332,774 Assumed exercise of stock options and warrants net of shares assumed reacquired under treasury stock method using period end market price, if higher than average market price 1,008,566 852,650 1,975,203 Assumed conversion of convertible sub- ordinated debentures 748,632 764,964 3,100,996 Average fully diluted shares 16,907,166 15,856,906 14,408,973 Fully diluted earnings (loss) per share: Continuing operations $(0.13) $(0.52) $(0.37) Discontinued operations - - 0.04 Extraordinary items 0.14 - 0.42 $ 0.01 $(0.52) $ 0.09 Note: The calculated fully diluted earnings per share are antidilutive for fiscal years 1995 and 1994. EXHIBIT 21 DDL ELECTRONICS, INC. SUBSIDIARIES OF THE REGISTRANT All subsidiaries are 100% owned by DDL Electronics, Inc., except as otherwise indicated, and are included in the consolidated financial statements. Subsidiaries Incorporation Aeroscientific Corp. (California) (99.9% owned by DDL Electronics, Inc.)California Aeroscientific Corp. (Oregon) (100% owned by Aeroscientific Corp. (California))Oregon A.J. Electronics, Inc. California DDL Europe Limited Northern Ireland DDL Electronics Limited (100% owned by DDL Europe Limited)Northern Ireland Irlandus Circuits Limited (100% owned by DDL Europe Limited)Northern Ireland EXHIBIT 23a CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors DDL Electronics, Inc. We consent to the incorporation by reference in the Registration Statements (Nos. 33-18356, 33-45102 and 33-74400) on Form S-8 of DDL Electronics, Inc. of our reports dated August 18, 1995 and August 19, 1994, relating to the consolidated balances sheet of DDL Electronics, Inc. and subsidiaries as of June 30, 1995 and 1994, respectively, and the related consolidated statements of operations, shareholders equity, and cash flows and related schedules for the years then ended, which reports appears in the June 30, 1995 and 1994 annual report of DDL Electronics, Inc. As discussed in note 1 to the consolidated financial statements, in 1994 the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". KPMG PEAT MARWICK Portland, Oregon September 28, 1995 EXHIBIT 23B Report of Independent Accountants on Financial Statement Schedules To the Board of Directors of DDL Electronics, Inc.: Our audits of the consolidated financial statements referred to in our report dated August 20, 1993, appearing on Page 33 of the 1995 Annual Report to Stockholders of DDL Electronics, Inc. also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K as relating to the year ending June 30, 1993. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Price Waterhouse LLP Portland, Oregon August 20, 1993 EXHIBIT 99 UNDERTAKING FOR FORM S-8 REGISTRATION STATEMENT With respect to the Registration Statement previously filed by the Company on Form S-8, the Company hereby undertakes as follows: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding), is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. -----END PRIVACY-ENHANCED MESSAGE-----