SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[x] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-8101
Exact Name of Registrant as Specified in Its Charter: DDL
Electronics,
Inc.
State or Other Jurisdiction of Incorporation or Organization:
Delaware
I.R.S. Employer Identification No.: 33-0213512
Address of Principal Executive Offices: 7320 SW Hunziker Road
Suite
#300, Tigard, Oregon 97223-2302
Registrant's Telephone Number, Including Area Code: 503/620-1789
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports),
and (2) has been subject to such filing requirements for the past
90
days.
Yes [X] No [ ]
The registrant had 15,908,504 shares of Common Stock outstanding
as of May 5, 1995.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, Except June 30, 1994)
March 31, June 30,
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,389,000 $ 2,540,000
Accounts receivable 4,149,000 5,600,000
Inventories 2,223,000 3,647,000
Prepaid expenses 264,000 231,000
Total current assets 9,025,000 12,018,000
PROPERTY, EQUIPMENT AND IMPROVEMENTS, AT COST
Land - 1,101,000
Buildings and improvements 5,306,000 8,670,000
Plant equipment 9,444,000 22,499,000
Office and other equipment 1,226,000 1,508,000
Construction in progress - 60,000
15,976,000 33,838,000
Less: accumulated depreciation
and amortization (12,669,000) (23,196,000)
Property, equipment
and improvements, net 3,307,000 10,642,000
OTHER ASSETS
Total other assets 447,000 598,000
$ 12,779,000 $ 23,258,000
<FN>
See accompanying Notes to Unaudited Consolidated Financial
Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
(Unaudited, Except June 30, 1994)
March 31, June 30,
1995 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of long-term debt $ 749,000 $13,524,000
Accounts payable 4,980,000 5,086,000
Accrued payroll
and employee benefits 728,000 994,000
Other accrued liabilities 1,344,000 1,673,000
Total current liabilities 7,801,000 21,277,000
LONG-TERM DEBT
7% Convertible Subordinated
Debentures, less current portion 729,000 775,000
8-1/2% Convertible Subordinated
Debentures 1,580,000 1,580,000
Notes payable, capitalized lease
obligations and other long-term debt,
less current portion 4,449,000 4,515,000
Total long-term debt 6,758,000 6,870,000
STOCKHOLDERS' DEFICIT
Preferred stock - -
Common stock 153,000 145,000
Additional paid-in capital 20,647,000 19,646,000
Accumulated deficit (21,782,000) (23,673,000)
Foreign currency
translation adjustment (798,000) (1,007,000)
Total stockholders' deficit (1,780,000) (4,889,000)
$ 12,779,000 $ 23,258,000
<FN>
See accompanying Notes to Unaudited Consolidated Financial
Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended
March 31,
1995 1994
<S> <C> <C>
SALES $ 22,673,000 $39,512,000
COSTS AND EXPENSES
Cost of goods sold 20,629,000 39,178,000
Administrative and selling
expenses 4,146,000 5,729,000
Restructuring charges 1,173,000 -
25,948,000 44,907,000
OPERATING LOSS (3,275,000) (5,395,000)
NONOPERATING INCOME (EXPENSE)
Investment income 85,000 128,000
Interest expense (767,000) (804,000)
Gain on sale of assets 3,374,000 2,000
Other income 33,000 34,000
2,725,000 (640,000)
LOSS BEFORE INCOME TAXES
& EXTRAORDINARY ITEM (550,000) (6,035,000)
INCOME TAXES - -
LOSS BEFORE EXTRAORDINARY ITEM (550,000) (6,035,000)
EXTRAORDINARY ITEM
Gain on debt extinguishment 2,441,000 -
NET INCOME (LOSS) $ 1,891,000 $(6,035,000)
PRIMARY EARNINGS (LOSS) PER SHARE:
Loss before extraordinary item ($0.03) ($0.40)
Extraordinary item $0.15 -
$0.12 ($0.40)
AVERAGE NUMBER OF PRIMARY
COMMON AND COMMON
SHARE EQUIVALENTS 15,790,737 15,104,839
<FN>
See accompanying Notes to Unaudited Consolidated Financial
Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
SALES $ 6,079,000 $ 11,343,000
COSTS AND EXPENSES
Cost of goods sold 4,916,000 11,266,000
Administrative and
selling expenses 913,000 1,995,000
5,829,000 13,261,000
OPERATING INCOME (LOSS) 250,000 (1,918,000)
NONOPERATING INCOME (EXPENSE)
Investment income 28,000 60,000
Interest expense (111,000) (247,000)
Gain on sale of assets - 2,000
(83,000) (224,000)
INCOME (LOSS) BEFORE
INCOME TAXES 167,000 (2,142,000)
INCOME TAXES - -
NET INCOME (LOSS) $ 167,000 $ (2,142,000)
PRIMARY EARNINGS (LOSS) PER SHARE:
Net income (loss) per share $0.01 ($0.14)
AVERAGE NUMBER OF PRIMARY
COMMON AND COMMON SHARE
EQUIVALENTS 16,012,801 15,305,736
<FN>
See accompanying Notes to Unaudited Consolidated Financial
Statements.
</FN>
<PAGE>
</TABLE>
<TABLE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended March 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,891,000 $(6,035,000)
Adjustments to reconcile net
loss to net cash used by
operating activities
Depreciation and amortization 1,220,000 2,362,000
Gain on debt extinguishment (2,441,000) (34,000)
Gain on sale of property and
other assets (3,377,000) (1,000)
Value of variable stock options granted - 8,000
Net decrease in operating
working capital 2,064,000 1,908,000
Decrease in deposits and other assets 2,000 26,000
Benefit of noncapital grants (33,000) (149,000)
Net cash used by operating activities (674,000) (1,915,000)
Cash flows from investing activities:
Capital expenditures (243,000) (532,000)
Proceeds from disposition of
capital assets 9,997,000 15,000
Net cash provided (used) by investing
activities 9,754,000 (517,000)
Cash flows from financing activities:
Proceeds from long term debt 166,000 73,000
Reductions of long-term debt (10,603,000) (1,497,000)
Net proceeds from exercise
of stock warrants - 3,455,000
Proceeds from stock option exercise 9,000 93,000
Proceeds from government grants 200,000 266,000
Proceeds from issue of Series-B
Preferred stock - 675,000
Proceeds from common shares issued
pursuant to Regulation S 980,000 -
Net cash provided (used) by financing
activities (9,248,000) 3,065,000
Effect of exchange rate changes on cash 17,000 (34,000)
Increase (decrease) in cash and cash
equivalents (151,000) 599,000
Cash and cash equivalents at
beginning of period 2,540,000 2,768,000
Cash and cash equivalents at
end of period $2,389,000 $3,367,000
<FN>
See accompanying Notes to Unaudited Consolidated Financial
Statements.
</FN>
</TABLE>
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
In the opinion of the Company's management, the accompanying
consolidated financial statements, which have not been audited by
independent accountants (except for the balance sheet as of June
30, 1994), reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company's
financial position at March 31, 1995 and June 30, 1994, and the
results of operations and the cash flows for the three month and
nine month periods ended March 31, 1995 and 1994.
The Company uses a 52-53 week fiscal year ending on the Friday
closest to June 30. In the accompanying interim consolidated
financial statements, the interim period end for both years is
shown as March 31 for clarity of presentation. The actual
periods ended on March 31, 1995 and April 1, 1994. Certain notes
and other information are condensed or omitted from the interim
financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in
conjunction with the Company's 1994 Annual Report to Stockholders
as filed with the Securities and Exchange Commission on or about
September 30, 1994.
Certain reclassifications have been made to the fiscal 1994
interim financial statements included herein to conform with
presentation for fiscal 1995.
Retirement of the Company's Senior Debt:
On December 29, 1994 DDL Electronics, Inc. ("DDL") successfully
consummated an integrated plan to pay off all of the Company's
senior debt. The retirement of over $12,000,000 in debt was
completed in conjunction with the Company's sale of certain
assets of its Aeroscientific Corp. Oregon
("Aeroscientific-Oregon") subsidiary to Yamamoto Manufacturing
(USA), Inc. ("Yamamoto"). The termination agreements with Sanwa
Bank California ("Sanwa") covering Sanwa's term loan to the
Company, and The Tokai Bank Ltd. ("Tokai") for its letter of
credit issued to First Interstate Bank of Oregon, N.A. ("IRB
Trustee"), as trustee for the state of Oregon on the Industrial
Revenue Bonds ("IRBs") issued by Aeroscientific-Oregon,
eliminated all liens that the senior lenders had against the
Company.
As described in the Company's filing with the Securities and
Exchange Commission on Form 8-K, on or about January 3, 1995,
consideration for the sale of Aeroscientific-Oregon's assets to
Yamamoto included approximately $9,200,000 in cash and assumption
of approximately $300,000 of capitalized lease obligations.
Aeroscientific-Oregon retained its trade accounts receivable and
trade accounts payable.
Disposal of the Company's A.J. Electronics, Inc.'s operation:
In August 1994, after three months of arduous review, the Small
Business Administration Disaster Assistance Division ("SBA")
denied A.J. Electronics, Inc.'s ("A.J.") request for economic
financial assistance that was made as a result of physical damage
suffered in the January 1994 Northridge earthquake. Costs
incurred as result of the earthquake exceeded $500,000 not
including the impact from lost business and costs to rebuild new
business. A.J. was unable to recover from the disastrous effects
of the Northridge, California earthquake and incurred substantial
operating losses and cash outlays since the January earthquake.
In A.J.'s financial plan it predicted that it would not fully
recover economically until sometime in fiscal 1996. Management
reviewed the situation at A.J. immediately after the decision by
the SBA and concluded that A.J. would be a substantial economic
burden on the consolidated group without financial assistance
considering the limited working capital available to the Company.
<PAGE>
As a result, management committed to a formal plan to liquidate
and sell the Company's A.J. segment. The proposed plan included
preparing revised forecasts that reflect an eventual sale of the
business, preparation of "WARN" Act notices to all employees,
preliminary discussions with landlords for termination of
property lease commitments and contracting with an investment
banking source to act as agent to find a potential buyer for A.J.
The plan for disposal was reviewed and approved by DDL's Board of
Directors in its September 1, 1994 Board meeting.
On January 17, 1995, the Company sold virtually all of A.J.'s
operating assets to Raven Industries, Inc. ("Raven"). As
described in the Company's filing with the Securities and
Exchange Commission on Form 8-K, on January 25, 1995, A.J. sold
substantially all of its assets to Raven for a purchase price of
approximately $662,000 and Raven's assumption of approximately
$300,000 in capitalized lease obligations. Raven also assumed
the sales tax obligation associated with the sale that
approximated $79,000. A.J. entered into a non-competition
agreement with Raven that prevents A.J., but not the Company or
any of its other subsidiaries, from engaging in contract
manufacturing in competition with Raven.
A.J. is a separate corporation and was DDL's only U.S. electronic
contract manufacturing (ECM) operation. Although DDL has an ECM
operation in Europe, the two ECM companies did not co-mingle
significant amounts of business due to substantial geographic
boundaries, industries served and/or services provided. A.J.'s
expected losses to be incurred up to and through the ultimate
liquidation of A.J., were recorded as a restructuring charge as
of December 31, 1994 in the amount of approximately $1,173,000.
Virtually all employees of A.J. were terminated as a result of
the sale.
NOTE 2 - INVENTORIES
<TABLE>
Inventories are comprised of the following:
March 31, June 30,
1995 1994
<S> <C> <C>
Raw materials $1,793,000 $3,167,000
Work in process 579,000 864,000
Less reserves (149,000) (384,000)
$2,223,000 $3,647,000
</TABLE>
NOTE 3 - FINANCING ARRANGEMENTS
Subordinated debt:
During fiscal 1993, the Company exchanged $5,411,000 principal
amount
of its 7% Convertible Subordinated Debentures ("CSDs") and
$3,294,000
principal amount of its 8-1/2% CSDs for 5,034,136 shares of the
Company's common stock and 2,593,657 warrants to purchase common
stock. In July 1993, holders of 91% of the outstanding warrants
exercised such warrants generating net cash proceeds of
approximately
$3,450,000. The remaining 223,509 warrants outstanding are
exercisable at $2.25 per share and originally were to expire on
October 31, 1994, which date was extended to August 31, 1995.
The
Company can accelerate the termination date of the warrants if
the
closing market price of the common stock for 10 business days
within
any 20 business day trading period is at least $3.00 per share.
The
warrants are separately tradable.
<PAGE>
Senior debt agreements:
Amended term loan and IRB agreements: As previously noted,
Sanwa's
term loan was paid off and a termination agreement was entered
into as
of December 29, 1994 that released all of Sanwa's liens against
the
Company. As part of the pay off Sanwa accepted a cash payment of
$4,500,000 in full and complete satisfaction of outstanding debt
owed
by the Company to Sanwa; such debt included approximately
$6,848,000
of principal, approximately $93,000 of accrued but unpaid
interest and
any other accrued but unpaid costs and expenses associated with
Sanwa's financing. Sanwa's payoff was accounted for in
accordance
with Financial Accounting Standard No. 15, "Accounting by
Debtors and
Creditors in Troubled Debt Restructuring" (FAS 15). Under FAS 15
the
payoff resulted in an extraordinary gain of $2,441,000,
representing
the difference between Sanwa's outstanding balance and what was
paid
by the Company as settlement.
The Company redeemed the full $5,300,000 of IRBs effective
February 1,
1995. Both Tokai and the IRB Trustee signed termination
agreements
that released liens on all assets owned by the Company.
Series B Convertible Preferred Stock:
On October 18, 1993, the Company and the Industrial Development
Board
for Northern Ireland ("IDB-NI") entered into and consummated an
agreement whereby the IDB-NI purchased 450 shares of the
Company's
Series B preferred stock for 450,000 pounds sterling
(approximately
$675,000). The preferred stock is convertible into the Company's
common stock at $2.02 per common share, based on a price for each
preferred share of $1,530, or total value of $688,500. The
preferred
stock accrues no dividend and has a preference in liquidation at
the
same value as its conversion price of $688,500. Proceeds from
the
IDB-NI's investment were used to support working capital needs of
the
Company's Northern Ireland operations.
On April 10, 1995 the IDB-NI exercised its right to convert its
preferred shares to the Company's Common stock. On April 11,
1995,
340,841 shares of the Company's common stock were issued to the
IDB-NI.
Private Placement of Common Stock Under Regulation S:
In October 1994, the Company privately placed 760,000 shares of
its
common stock with a foreign investor. The sale of stock was
exempt
from registration under Regulation S of the Securities Act of
1933 as
well as other available exemptions. Net proceeds from the
transaction
were approximately $980,000. The proceeds were used for general
operating purposes and to help facilitate payoff of the Company's
senior debt.
NOTE 4 - INFORMATION RELATING TO STATEMENT OF CASH FLOWS
"Net cash used by operating activities" includes cash payments
for
interest as follows:
<TABLE>
Nine months ended
March 31,
1995 1994
<S> <C> <C>
Interest paid $ 767,000 $ 826,000
"Net change in operating working capital" is comprised of the
following: (Changes in operating working capital accounts may not
equal differences derived by comparing balance sheet accounts due
to
fluctuations in the exchange rate between reported balance sheet
dates.)
</TABLE>
<PAGE>
<TABLE>
Nine months ended
March 31,
1995 1994
<S> <C> <C>
Decrease in accounts receivable $1,470,000
$1,824,000
Decrease in inventories 1,520,000
2,668,000
Decrease (increase) in prepaid expenses (28,000)
885,000
Decrease in accounts payable (273,000)
(3,127,000)
Decrease in accrued payroll and
employee benefits (290,000)
(144,000)
Decrease in other accrued liabilities (335,000)
(198,000)
Net decrease in operating
working capital $2,064,000
$1,908,000
</TABLE>
Supplemental schedule of noncash investing and financing
activities:
Nine months ended
March 31,
1995 1994
Capital expenditures financed by
lease obligations $ 75,000 $130,000
7% Convertible Subordinated Debentures
converted to equity 20,000 61,000
NOTE 5 - PROFORMA FINANCIAL INFORMATION:
The following is the Company's restated pro forma consolidated
operating results for the three month and nine month periods
ended
March 31, 1995 and 1994, respectively, excluding Aeroscientific-
Oregon's and A.J.'s results of operations and excluding any gain
from
these subsidiaries' sale of assets:
Numbers in thousands, except per share amounts:
<TABLE>
1995 1994
3 Months 9 Months 3 Months 9
Months
<S> <C> <C> <C>
<C>
Sales $ 6,079 $13,908 $ 5,637
$16,590
Total operating costs 5,805 14,801 6,751
18,554
Operating income (loss) 274 (893) (1,114)
(1,964)
Nonoperating Income &
expense net (85) (474) (172)
(439)
Income (loss) before
extraordinary item 189 (1,367) (1,286)
(2,403)
Extraordinary Item - Gain
on debt extinguishment - 2,441 -
- -
Net Income (loss) $ 189 $ 1,074 $(1,286)
$(2,403)
Earnings (loss) per share:
Loss before
extraordinary item $0.01 ($0.08) ($0.08)
($0.16)
Extraordinary item - 0.15 -
- -
$0.01 $0.07 ($0.08)
($0.16)
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Month and Nine Month Periods Ended March 31, 1995, and 1994
Consolidated sales for the quarter ended March 31, 1995 were
$6,079,000 compared to $11,343,000 for the same period in fiscal
1994,
a reduction of $5,264,000 or 46.4%. Consolidated gross margin
(sales
less cost of goods sold) for the quarter improved from $77,000 in
fiscal 1994 to $1,163,000 for fiscal 1995, an increase of
$1,086,000.
A consolidated net profit of $167,000 was realized in the
quarter,
compared with a net loss of $2,142,000 in the same quarter last
year.
The reduction in sales resulted from the closure of the Company's
A.J.
Electronics, Inc. ("A.J."), Electronic Contract Manufacturing
"ECM")
operation in November 1994 and the sale of the Company's
Beaverton,
Oregon Aeroscientific Corp., Printed Circuit Board ("PCB")
facility,
at the end of December 1994. Restating fiscal 1994 third quarter
sales to exclude the sold operations, sales for the current
year's
third quarter would be $442,000 higher than pro forma 1994.
Similarly
net income for fiscal 1995's third quarter would show an
improvement
of $1,475,000 over the pro forma net loss in fiscal 1994.
The Company's return to profitability in the quarter is due to a
combination of factors. First, the Company's European PCB and
ECM
operating groups realized improvements through increased
efficiencies,
focus on higher margin business and increased business volume.
The
Company also benefited by eliminating its unprofitable United
States
operations and using the proceeds from sales of these operations
to
eliminate the debt service costs associated with the Company's
former
senior secured debt. Consolidated interest expense alone
declined by
$136,000 in the quarter due to pay-off of the Company's senior
debt at
the end of the calendar year.
Consolidated sales for the nine month period declined by
$16,839,000
compared to the same period in fiscal 1994. Over $11 million of
this
sales decline was due to the reduction of business at A.J. as
part of
the shut down of that company. Sales were $3,565,000 lower at
Aeroscientific Oregon caused by competitive market conditions,
Oregon's drive for increased margins at lower sales volume and
elimination of Oregon's operating activity in the third quarter.
Sales for the first nine months were also lower at the Company's
European ECM operation due to business interruptions at two of
that
company's major customers.
A.J.'s continuing operations were severely damaged by the January
17,
1994 Northridge earthquake. After the earthquake A.J. met its
existing customer commitments, but lost new business from
existing
customers and potential customers while the plant was being
reconstructed. The Company filed for disaster relief financing
from
the Small Business Administration's ("SBA") Disaster Assistance
Division, but that was denied in August of 1994. Because of
A.J.'s
substantial decline in business, cash outflow and no opportunity
for
relief financing, Management committed to the shutdown and
liquidation
and sale of A.J. in August 1994. A.J. ceased all business
activities
in November. The ECM industry, in general, has experienced
increased
customer demand as customers move away from captive or in house
ECM
capabilities and out source production. At the same time, the
number
of ECM service providers is growing, thus increasing competition,
keeping margins low and forcing sudden changes in the ECM groups
customer base.
Consolidated gross margin for the first nine months of fiscal
1995 was
$2,044,000 or $1,710,000 higher than in the same period in fiscal
1994. The Company's consolidated operating loss for the nine
months
was $3,275,000 compared to fiscal 1994's operating loss of
$5,395,000,
an improvement of $2,120,000. Improvements in gross margin were
realized at all operating groups except A.J. The improved gross
and
operating margins are partly attributed to changes at the
Company's
PCB
<PAGE>
operations that have generated improved yields and higher margins
since the end of the Company's fiscal year. Improved margins are
also
due to a change in customer and production mix, where the
operating
groups have concentrated marketing efforts on higher
margin/higher
return business.
Consolidated net income for the nine months was $1,891,000
compared to
a net loss for the same period in fiscal 1994 of $6,035,000. Net
income for the nine months was affected by nonoperating income
and
expense items that include the gain from sale of Oregon's
facility,
and an extraordinary gain of $2,441,000 realized from the partial
forgiveness of the Company's debt obligation to Sanwa Bank as
part of
the senior debt payoff and termination. The transaction was
accounted
for in accordance with Statement of Financial Accounting No. 15,
"Accounting by Debtors and Creditors in Troubled Debt
Restructuring,"
and accordingly, the gain was treated as extraordinary.
Sales in US dollars at DDL Electronics Ltd ("DDL-E"), the
Company's
Northern Ireland ECM facility, increased 17% over the prior year
quarter to $3,216,000 from $2,748,000. Gross margin for the same
period increased from $275,000 to $553,000 or 101% due to a
change in
mix of consigned and turnkey business and due to improved
overhead
efficiencies as a result of increased volume. Additional focus
on the
control of operating expense generated a net income of $171,000
for
the quarter as compared with a loss of $200,000 in the same
period in
1994. Quarter end-backlog was at an all time high of $7,000,000
and
the general electronics ECM market in Europe continues to expand.
It
should be noted, however, that while DDL-E has significantly
expanded
its customer base during the past two quarters it nevertheless
has
significant dependence on specific key customers (four customers
each
represent over 15% of the current 3 month backlog) and reduction
in
demand at any one key customer could adversely affect the
company's
performance on a quarter to quarter basis despite the overall
upward
trend in market demand.
Sales at DDL-E for the first nine months of fiscal 1995 were
$6,401,000, a reduction of $3,433,000 or 35% from the same period
last
year. This was caused primarily by poor business conditions at
two
major customers during the first two quarters of the current
fiscal
year. Business from both of these customers increased
significantly
in the third quarter and together with new business contributed
to the
sales increase in the third quarter as noted above. A further
reason
for lower sales is due to a change in manufacturing mix at DDL-E
to
more consigned business where the customer uses more of the ECM s
services without requiring the ECM to provide the material for
production. This has the effect of reducing sales and cost of
sales
without affecting gross margin. Gross margin for the nine month
period was $976,000, a decrease of $50,000 or 4.8% from
$1,026,000 in
the same period last year. Net loss for the nine months was
$156,000
compared with $382,000 in the previous year. Increased gross
margin
and a lower net loss are the result of greater controls on
operating
costs and reduced overhead and materials carrying costs
associated
with DDL-E's change to more consigned business.
The Company's Irlandus Circuits Ltd ("Irlandus"), PCB operation
sales
for the third quarter were nearly the same as prior year's third
quarter at $2,863,000 versus $2,889,000 in fiscal 1994. Irlandus
improved its gross margins by 159.1% from $242,000 to $627,000
through
a change in sales mix to focus on a higher percentage of short
leadtime orders (delivered in less than 15 days from receipt of
orders) and through more efficient utilization of resources. As
a
result, fiscal 1994's third quarter loss of $229,000 was turned
around
in fiscal 1995 to a profit in the third quarter of $120,000.
European
PCB demand continues to be robust creating a quarter-end backlog
of
$1,700,000 that was ahead of expectation.
Sales at Irlandus for the nine months ended March 31 1995 were
$7,506,000 compared with $6,755,000 in 1994, an increase of
$752,000
or 11.1%. Gross margin for the first nine months was $864,000
versus
$140,000 in the same period last
<PAGE>
year. The increase in margin reflects Irlandus' focus on higher
margin market sectors and significant productivity improvements
effected since last year. The net loss for the period was
reduced by
$612,000, from $1,206,000 in the first nine months of 1994 to
$594,000
in the first nine months of 1995.
The Company's consolidated European operations had sales for the
third
quarter of $6,079,000, an increase of $442,000 or 7.8% over sales
of
$5,637,000 for the same period last year. Consolidated European
gross
margin for the quarter improved from $518,000 to $1,181,000, a
gain of
$663,000. Europe's net profit for the period was $291,000
compared
with a loss of $429,000 for the same quarter in 1994. Europe, in
general has realized an improved business climate during the past
year. This coupled with management's cost controls and change in
operating focus has contributed to the Company's overall improved
performance.
Liquidity and Capital Resources
For the nine months ended March 31, 1995, cash and cash
equivalents
decreased by $151,000. As illustrated in the Consolidated
Statement
of Cash Flows, this decrease in cash included the following:
1. $674,000 was used for operating activities, principally
to
fund the year to date operating loss, offset by cash provided by
a
reduction in working capital (mostly from a reduction in current
assets attributable to the sale of the Company's domestic
subsidiaries' assets).
2. Investing activities provided $9,754,000 which resulted
primarily from the sale of capital equipment at
Aeroscientific-Oregon
and A.J. Electronics, Inc.
3. Financing activities required $9,248,000 of cash which
was
used for payoff of debt obligations (primarily for all senior
debt and
capital leases associated with the sale of United States assets).
Funds were provided from financing activities through issuance of
common stock pursuant to Regulation S and from government grants
received from the Industrial Development Board for Northern
Ireland.
The Company currently has no working capital lines of credit. In
July
1993, the Company raised $3.45 million (net of expenses) from the
exercise of outstanding warrants to purchase the Company's common
stock. In October 1993, the Company and the IDB-NI reached an
agreement whereby the IDB-NI purchased 450 shares of a new Series
B
Preferred Stock for 450,000 pounds sterling (approximately
$675,000).
The funds invested by the IDB-NI were used for working capital
and
other needs of the Company's Northern Ireland subsidiaries. In
October 1994 the Company privately placed 760,000 shares of its
common
stock with a foreign investor. The sale of stock was exempt from
registration under Regulation S of the Securities Act of 1933 and
other available exemptions. Net proceeds from the transaction
were
approximately $980,000. The proceeds were used for general
operating
purposes and to assist in the payoff of the Company's senior
debt.
The Company's primary source of liquidity is its cash balances
which
amounted to $2,389,000 at March 31, 1995. Components of working
capital decreased by $2,064,000 during the nine month period
ended
March 31, 1995. The resulting increase in funds available for
use in
operations came principally from a decrease in inventories and
accounts receivable as a result of the sales of assets at both
Aeroscientific-Oregon and A.J. (Although accounts receivable were
not
sold, they did decline as a result of the disposition of the
businesses). The sale of Aeroscientific-Oregon's assets to
Yamamoto
generated $9,200,000 in cash proceeds. These funds plus the
Company's
own cash balances were used to retire approximately $9,800,000 of
the
Company's senior debt. The payoff of senior debt combined with
the
$2,441,000 extraordinary gain from debt forgiveness
<PAGE>
completely retired the $12,241,000 owed to the Company's senior
lenders.
Sanwa's term loan pay off and termination agreement entered as of
December 29, 1994 released all of Sanwa's liens against the
Company.
As part of the pay off, Sanwa accepted a cash payment of
$4,500,000
in full and complete satisfaction of outstanding debt owed by the
Company to Sanwa; such debt included approximately $6,848,000 of
principal, approximately $93,000 of accrued but unpaid interest
and
any other accrued but unpaid costs and expenses associated with
Sanwa's financing. Sanwa's payoff was accounted for in
accordance
with Financial Accounting Standard No. 15, "Accounting by
Debtors and
Creditors in Troubled Debt Restructuring" (FAS 15). Under FAS 15
the
payoff resulted in an extraordinary gain of $2,441,000,
representing
the difference between Sanwa's outstanding balance and what was
paid
by the Company as settlement.
The Company offset the full $5,300,000 of IRBs through defeasance
and
redeemed the bonds on February 1, 1995. The defeased funds, plus
approximately $68,000 for prepaid interest, was invested in
treasury
securities that provided a return slightly higher than the
interest
charged on the defeased bonds. The Company received full return
of
the prepaid interest. Both Tokai and the IRB Trustee signed
termination agreements that released all liens on assets owned by
the
Company.
On December 31, 1992, and in May and June 1993, pursuant to
privately
negotiated transactions, holders of $5,411,000 principal amount
of the
Company's 7% CSDs and $3,294,000 principal amount of its 8-1/2%
CSDs
exchanged the CSDs for units consisting of common stock and
warrants
to purchase stock in the future. The contracts also eliminated
the
interest payment due November 16, 1992, on the exchanged 7% CSDs.
The
exchanges resulted in the issuance of 5,034,136 shares of common
stock
and 2,593,657 warrants to purchase common stock. In July 1993,
holders of 91% of the outstanding warrants exercised such
warrants
generating net cash proceeds of approximately $3,450,000. The
remaining 223,509 warrants outstanding are exercisable at $2.25
per
share and were originally scheduled to expire on October 31,
1994,
which date was extended to August 31, 1995. The Company can
accelerate the termination date of the warrants if the closing
market
price of the common stock for 10 business days within any 20
business
day trading period is at least $3.00 per share. The warrants are
separately tradable. The Company may effect similar exchanges
with
holders of the remaining outstanding debentures in the future.
Additionally, the Company reached a non-binding agreement to
exchange
the debt of participants of a supplemental retirement program for
600,000 warrants to purchase common stock in 1996-1998 under
certain
defined contract rights. The initial impact of a completed
transaction would be a reduction of DDL's long term debt by
approximately $1,800,000 with the final impact of up to
$3,000,000 of
long term debt reduction. While the agreement is non-binding,
the
Company expects it will seek to consummate such a transaction in
the
next several months.
In January 1994, the Company announced that its Board of
Directors had
approved a plan to identify and pursue strategic acquisition,
merger
and consolidation candidates. The Company has proceeded to
initiate
discussions with private and public opportunities identified
after
this announcement.
The achievement of continued operating profitability remains the
most
significant challenge in generating sufficient cash to ensure the
Company's long-term viability. No assurance can be given that
the
Company will reach operating profitability for an extended
period, or
that cash generated from asset sales or other means will be
adequate
to fund future cash needs. It is important for the Company to
succeed
in an operations turnaround and/or acquire an entity that will
provide
positive cash flow if the Company is to achieve the liquidity
necessary to ensure continuance of operations for the longer
term.
Management believes that recent debt reductions and progress
towards
profitable operation will greatly improve prospects for
completion of
a merger or acquisition transaction.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently has pending a lawsuit filed by the former
landlord of one of the Company's subsidiaries. The lawsuit was
filed
to recover approximately $280,000 representing amounts owed under
a
settlement agreement for a terminated building lease. The
Company has
previously recorded on its books the full amount owing under the
settlement agreement and is negotiating payment terms to avoid
protracted litigation.
ITEM 5. OTHER INFORMATION
The Company's Aeroscientific Corp. subsidiaries have used
chemicals in
the manufacture of its products that are classified by the United
States Environmental Protection Agency ("EPA") as hazardous
substances. The Company is aware of certain chemicals that exist
in
the ground at its leased 1240-1244 South Claudina Street,
Anaheim,
California, facility. The Company has notified the appropriate
governmental agencies and is proceeding with remediation and
investigative studies regarding soil and groundwater
contamination.
The Company has implemented a remedial program for the site that
includes vapor extraction of pollutant from the soil and testing
and
analysis to determine the extent and costs to remediate potential
ground water pollution. The Company believes that the
resolution of
these matters will require a significant cash outlay and has
reserved
$308,000 in its financial statements at March 31, 1995, as an
estimate
of its portion of the clean-up costs. On July 2, 1993, the
Company
and Aero-scientific Corp. entered into an agreement to share the
costs
of environmental remediation with the landlord at the Anaheim
facility.
The Company's Aeroscientific-Anaheim subsidiary has received
notice
from the EPA, that it is regarded as a potentially responsible
party
("PRP") under federal environmental laws in connection with a
waste
disposal site known as the "Stringfellow Superfund Site" in
Riverside
County, California, which is presently being considered by
governmental authorities for remediation. Aeroscientific has
been
named as a third party defendant by other PRPs in a case brought
by
the United States Government concerning this site.
Aeroscientific has
also been named as a defendant together with a large number of
PRPs in
a civil action filed by the residents and homeowners adjacent to
the
Stringfellow site. The information developed during discovery
and
investigation thus far indicates that Aeroscientific supplied
relatively small amounts of waste to the site as compared to the
many
other defendants. The Company and other small polluters, as a
separate class, have entered into settlement negotiations with
the
EPA. As part of the currently proposed Settlement Agreement,
small
polluters would pay a fixed amount plus an amount that varies
based on
volume of material dumped at the site. Under these guidelines,
the
Company's probable liability will be $128,000. Final settlement
and
timing of payment are currently undeterminable, and no assurances
can
be given that any settlement will be achieved. The Company has
accrued a liability of $120,000 to cover the expected settlement
costs. Any further remedial costs or damage awards in these
cases may
be significant and management believes that the Company's
allocated
share of such costs or damages could have a material adverse
effect on
the Company's business or financial condition. The actions are
still
in the pre-trial and discovery stages and a prediction of outcome
is
difficult. There is, as in the case of most environmental
litigation,
the theoretical possibility of joint and several liability being
imposed upon Aeroscientific for damages which may be awarded.
Total
estimated cleanup costs for the Stringfellow site have been
estimated
at $600 million. The Company's possible range of liability is
undeterminable, and the reliability and precision of estimated
cleanup
costs are subject to a myriad of factors which are not currently
measurable. The timing of any future payments are uncertain at
this
time, except for that amount already recorded by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Sequentially
Exhibit
Numbered
Number Description
Page
11 Statement regarding computation of earnings per share
19
27 Financial data schedule submitted by electronic filer
______
b. Reports on Form 8-K:
On January 3, 1995, a Form 8-K was filed pursuant to Item 5,
Other
Events, regarding a press release that the Company had retired
its
senior debt and had sold its Beaverton, Oregon printed circuit
operations to Yamamoto Manufacturing (USA), Inc.
On January 17, 1995, a Form 8-K was filed pursuant to Item 2,
Acquisition or Disposition of Assets, for the sale of
substantially
all of the assets of the Company's subsidiary, A. J. Electronics,
Inc., to Raven Industries, Inc. The 8-K also included Item 5,
Other
Events, for the press release announcing such sale.
On March 22, 1995, a Form 8-K was filed pursuant to Item 5, Other
Events, related to the filing of the Company's amended and
restated
Bylaws.
On March 30, 1995, a Form 8-K was filed pursuant to Item 5, Other
Events, for a press release announcing May 31, 1995 as the date
for
the Company's annual shareholder meeting for shareholders of
record on
April 17, 1995.
On April 21, 1995, a Form 8-K was filed pursuant to Item 5, Other
Events, announcing that William E. Cook, the Company's Chairman
and
CEO had exercised options to purchase 310,000 of the Company's
common
stock.
On May 11, 1995, a Form 8-K was filed pursuant to Item 5, Other
Events, for a press release setting forth pro forma earnings for
the
third quarter of fiscal 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934,
the registrant has duly caused this report to be signed on its
behalf
by the undersigned thereunto duly authorized.
/s/ M. Charles Van Rossen
Date M. Charles Van Rossen
(Principal Financial Officer
and
duly Authorized Officer)
EXHIBIT 11
DDL ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
Nine Months Ended
March 31,
1995 1994
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Loss before extraordinary item $(550,000) $(6,035,000)
Extraordinary item 2,441,000 -
Net income (loss) $ 1,891,000 $(6,035,000)
Weighted average number
of common shares outstanding 14,911,656 14,163,820
Assumed exercise of stock options
net of shares assumed reacquired 879,081 941,019
Average common shares and
common share equivalents 15,790,737 15,104,839
Primary earnings (loss) per share:
Loss before extraordinary item ($0.03) ($0.40)
Extraordinary item 0.15 -
Net earnings (loss) per share $0.12 ($0.40)
FULLY DILUTED EARNINGS PER SHARE:
Loss before extraordinary item $(550,000) $ (6,035,000)
Add back net interest related to
convertible subordinated debentures 101,000 102,000
Loss before extraordinary item
for fully diluted computation (449,000) (5,933,000)
Extraordinary item 2,441,000 -
Net income (loss) for fully diluted
computation $ 1,992,000 $(5,933,000)
Weighted average number of common
shares outstanding 14,911,656 14,163,820
Assumed exercise of stock options
net of shares assumed reacquired
under treasury stock method using
period end market price, if higher
than average market price 875,734 932,035
Assumed conversion of convertible
subordinated debentures 762,324 425,755
Average fully diluted shares 16,549,714 15,521,610
Fully diluted earnings (loss) per share:
Loss before extraordinary item ($0.03) ($0.38)
Extraordinary item 0.15 -
Net earnings (loss) per share $0.12 ($0.38)
<FN>
Note: The calculated fully diluted earnings per share are
antidilutive for fiscal 1994
</FN>
<PAGE>
EXHIBIT 11
DDL ELECTRONICS, INC. AND
SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three Months Ended
March 31,
1995 1994
PRIMARY EARNINGS PER SHARE:
Net income (loss) $ 167,000 $(2,142,000)
Weighted average number of
common shares outstanding 15,257,663 14,441,065
Assumed exercise of stock
options net of shares assumed
reacquired 755,138 864,671
Average common shares and common
share equivalents 16,012,801 15,305,736
Primary earnings (loss) per share:
Net income (loss) per share $0.01 ($0.14)
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss) $ 167,000 $(2,142,000)
Add back net interest related to
convertible subordinated debentures 34,000 34,000
Net income (loss) for
fully diluted computation $201,000 $(2,108,000)
Weighted average number of common
shares outstanding 15,257,663 14,441,065
Assumed exercise of stock options
net of shares assumed reacquired
under treasury stock method using
period end market price, if higher
than average market price 795,366 824,352
Assumed conversion of convertible
subordinated debentures 761,047 419,624
Average fully diluted shares 16,814,076 15,685,041
Fully diluted earnings (loss) per share:
Net income (loss) per share $0.01 ($0.13)
<FN>
Note: The calculated fully diluted earnings per share are
antidilutive for fiscal 1994
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> Jun-30-1995
<PERIOD-START> Jul-01-1994
<PERIOD-END> Mar-31-1995
<PERIOD-TYPE> 9-mos
<CASH> 2384
<SECURITIES> 0
<RECEIVABLES> 4149
<ALLOWANCES> 0
<INVENTORY> 2223
<CURRENT-ASSETS> 9025
<PP&E> 15976
<DEPRECIATION> 12669
<TOTAL-ASSETS> 12779
<CURRENT-LIABILITIES> 7801
<BONDS> 2309
0
0
<COMMON> 153
<OTHER-SE> (993)
<TOTAL-LIABILITY-AND-EQUITY> 12779
<SALES> 22673
<TOTAL-REVENUES> 22673
<CGS> 20629
<TOTAL-COSTS> 25948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 767
<INCOME-PRETAX> (550)
<INCOME-TAX> 0
<INCOME-CONTINUING> (550)
<DISCONTINUED> 0
<EXTRAORDINARY> 2441
<CHANGES> 0
<NET-INCOME> 1891
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
