SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1997
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.
______________________________
DELAWARE 33-0213512
_____________________________ _____________
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization No. Identification
Address of Principal Executive Offices: 2151 Anchor Court
Newbury Park, CA 91320
_________________________
Registrant's Telephone Number: (805) 376-9415
_________________________
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 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 Part III of 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 October 9, 1997 was $20,580,000. The registrant had 24,591,858
shares of Common Stock outstanding as of October 8, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Specified parts of the registrant's Annual Report to Stockholders for its
fiscal year ended June 30, 1997 are incorporated by reference into Parts I
and II hereof. Specified parts of the registrant's Proxy Statement for its
1997 Annual Meeting of Stockholders are incorporated by reference into Part
III hereof.
EXHIBIT INDEX
See page 14
PART I
Item 1. Business
The Company provides customized, integrated electronic manufacturing
services ("EMS") to original equipment manufacturers ("OEMs") in the
compewer, telecommunications, instrumentation, medical, industrial and
aerospace industries. The Company also fabricates multilayer printed
circuit boards ("PCBs") for use primarily in the computer, communications
and instrumentation industries. The Company's EMS operations are located
in Southern California and Northern Ireland. Its PCB facilities are
located in Northern Ireland.
The Company entered the EMS business by acquiring its domestic EMS
operations in 1985 and by organizing its European EMS operations in 1990.
Since 1985, the Company has made substantial capital expenditures in its
Northern Ireland EMS and PCB fabrication facilities. In fiscal 1995, the
Company liquidated or sold all assets associated with its PCB and EMS
operations in the United States. In fiscal 1996, the Company acquired
SMTEK, Inc. ("SMTEK") as the first step toward rebuilding a domestic
presence in the EMS industry.
RECENT DEVELOPMENTS
On May 29, 1997, the Company signed a letter of intent (the "Letter of
Intent") to merge with Century Electronics Manufacturing, Inc. ("CEMI").
Pursuant to the Letter of Intent, CEMI was to provide a loan up to
$3.3 million to the Company by June 1, 1997 for retirement of the Company's
10% Senior Secured Notes in the aggregate principal amount of $5,300,000 (the
"Senior Notes"). However, such financing was not made available by CEMI. As
a result, on June 30, 1997 the Company obtained alternate financing which
enabled it to repay its Senior Notes. On September 22, 1997, the Company
filed a lawsuit against CEMI, alleging breach of contract and fraud and
seeking $5,000,000 in actual damages plus punitive damages. CEMI has not yet
answered the Company's complaint or made an appearance in the case.
The Company, with the authorization of its Board of Directors,
implemented a quasi-reorganization effective June 27, 1997. The quasi-
reorganization, which did not require the approval of the Company's
stockholders, resulted in an elimination of the accumulated deficit of
$23,678,000 by a transfer from additional paid-in capital of an equivalent
amount. This deficit was attributable primarily to operations which were
divested or discontinued in prior years. Following a review and evaluation
by management, no adjustment was made to the carrying values of the
Company's assets and liabilities because such amounts were deemed to be not
in excess of estimated fair values.
On June 30, 1997, in order to raise the balance of the funds necessary
to repay the Senior Notes, the Company borrowed $2 million from Thomas M.
Wheeler, a private investor, under a note payable bearing 8% interest. The
note matures on February 1, 1999, and is secured by a pledge of the common
stock of SMTEK. The Company agreed to give Mr. Wheeler
two seats on its Board of Directors, which seats were filled by Mr. Wheeler and
Charlene A. Gondek. The Company also agreed to acquire all of the issued and
outstanding shares of Jolt Technology, Inc. ("Jolt"), a privately-held
electronics manufacturing company owned by Mr. Wheeler, Ms. Gondek and a third
individual, for nine million shares of the Company's common stock. Upon
consummation of the Jolt acquisition, the maturity date of the $2,000,000 note
payable will be extended from February 1, 1999 to October 31, 1999.
The Company is currently negotiating a definitive agreement and other
legal documents relating to its acquisition of Jolt. The specific terms of
such documents are subject to negotiation, and the closing of the Jolt
acquisition will be subject to many conditions, some of which are beyond
the Company's control, including obtaining a fairness opinion and
stockholder approval. There can be no assurance that the Jolt acquisition
will be completed on the terms described herein, or at all.
FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA
The Company is engaged in two lines of business -- electronic
manufacturing services and PCB fabrication. Information with respect to
these segments' sales, operating income, identifiable assets, depreciation
and amortization, and capital expenditures for each of the last three
fiscal years is set forth in Note 13 to the consolidated financial
statements of the accompanying 1997 Annual Report to Stockholders. Such
information is incorporated herein by reference and is made a part hereof.
ELECTRONIC MANUFACTURING SERVICES AND PRINTED CIRCUIT BOARD
FABRICATION BUSINESSES
The basis for the growth of the electronic manufacturing services
industry in recent years has been the increasing reliance by OEMs on
contract manufacturing specialists such as the Company for the manufacture
of printed circuit board assemblies. As a result of outsourcing
manufacturing services, the EMS industry in the United States grew at a
compound annual rate of 20% from 1990 through 1996, according to the
Institute for Interconnecting and Packaging Electronic Circuits ("IPC").
The IPC estimated the size of the United States EMS industry for 1996 in
terms of sales to be $13.5 billion. The Company expects the trend toward
outsourcing to continue and to result in continued growth in the EMS
industry.
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--EMS
Production of electronic assemblies for a customer is only performed
when a firm order is received. Customer cancellations 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 the Company provides all materials, labor and equipment
associated with producing the customers' product) or "consigned" (the
Company provides labor and equipment only for manufacturing product).
The Company's EMS operations provide turnkey electronic manufacturing
services using both surface mount and through-hole interconnection
technologies. The Company conducts the EMS portion of its business through
its SMTEK subsidiary in Southern California, which serves customers
primarily on the West Coast of the U.S., and through its DDL Electronics
Limited ("DDL-E") subsidiary, which serves customers primarily in Western
Europe. SMTEK and DDL-E do not fabricate any of the components or PCBs
used in these processes, but from time to time they have procured PCBs from
the Company's PCB fabricator, Irlandus Circuits Limited ("Irlandus"). EMS
sales represented approximately 79%, 67% and 47% of the Company's
consolidated sales for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively.
Since turnkey electronic contract manufacturing may be a substitute for
all or some portion of a customer's captive EMS capability, continuous
communication between the Company and the customer is critical. To
facilitate such communication, the Company's EMS businesses maintain
customer service departments 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 IPC are defined and planned. Additionally,
in-circuit test fixtures are 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 board-level or system-level
assembly. Customers have increasingly required the Company and other
independent providers of electronic manufacturing services to purchase some
or all components directly from component manufacturers or distributors and
to finance the components and materials. In establishing a turnkey
relationship with an independent provider of electronic manufacturing
services, a customer typically incurs costs in qualifying that EMS provider
and, in some cases, its sources of component supply, refining product
design 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. At the same time, the Company faces the
obstacle of attracting new customers away from existing EMS providers or
from performing services in-house.
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 conducts its PCB fabrication business through
its Irlandus subsidiary located in Northern Ireland. The Company's
fabrication facilities in Anaheim, California were shut down in fiscal year
1992 and its Beaverton, Oregon facility was sold in fiscal 1995. PCB
sales represented approximately 21%, 33% and 53% of the Company's
consolidated sales for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively, with multilayer boards constituting a substantial portion of
the 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 onto the surface 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.
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,
however, 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.
Quality standards
The International Standards Organization ("ISO") has published
internationally recognized standards of workmanship and quality. Both
Irlandus and DDL-E have achieved ISO 9002 certification, which the Company
believes will be increasingly necessary to attract business. SMTEK
attained ISO 9001 certification in April 1997. In addition, SMTEK has been
certified for Mil-Q-9858A, which is the highest military quality standard,
and NHB-5300.4, which is the primary quality standard for products used in
the U.S. space program.
EMS Facilities
SMTEK conducts its operations from a 45,000 square foot facility,
which is leased from an unaffiliated party through May 31, 2000. The
monthly rent was approximately $29,700 during fiscal 1997 and is subject to
a 4% increase each year. SMTEK has the option to extend the lease term for
three renewal periods of three years each. The lease rate during the
renewal periods is subject to adjustment based on changes in the Consumer
Price Index for the local area.
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 1.6 million 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 required 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.
Markets and Customers
The Company's sales in the EMS and PCB 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 1997 1996 1995
------------ ------------ ------------ ------------
Computer $ 4,322 8.8% $ 4,049 12.2% $ 7,115 24.1%
Telecommunications 7,103 14.5 4,189 12.6 6,926 23.4
Commercial avionics 9,702 19.8 2,277 6.9 - -
Space and satellites 2,065 4.2 949 2.9 - -
Banking automation 8,089 16.5 3,155 9.5 2,607 7.0
Industrial controls
& instrumentation 7,189 14.7 7,621 23.0 6,044 20.4
Medical 1,906 3.9 4,429 13.4 4,668 15.8
Defense 4,666 9.6 3,897 11.8 1,362 4.6
Other 3,877 8.0 2,569 7.8 1,394 4.7
------ ----- ------ ----- ------ -----
Total $48,919 100.0% $33,136 100.0% $29,576 100.0%
====== ===== ====== ===== ====== =====
The Company markets its EMS 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 EMS and PCB fabrication
customers. This includes becoming involved at an early stage in the design
of PCBs for these customers' new products. The Company believes that this
strategy is necessary to keep abreast of rapidly changing technological
needs and to develop new EMS and PCB fabrication processes, thereby
enhancing the Company's EMS and PCB 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.
During fiscal 1997, the Company's EMS and PCB businesses served
approximately 60 and 150 customers, respectively. The Company's five
largest customers accounted for 47%, 37% and 21% of consolidated sales
during fiscal years 1997, 1996 and 1995, respectively. In fiscal 1997 the
Company's two largest customers accounted for approximately 18.4% and 16.5%
of consolidated sales, respectively. No other customer accounted for more
than 10% of consolidated sales.
Raw Materials and Suppliers
In its EMS 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 Pentium
microprocessor, to be used in the EMS 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 EMS business from time to time and have
caused sales and inventory fluctuations in the Company's EMS business.
The principal materials used by the Company in its PCB 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 EMS and PCB fabrication businesses operate
are intensely competitive and have experienced excess production capacity
during the past few years. Seasonality is not a significant factor in the
EMS and PCB fabrication businesses. 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 EMS and PCBs
are sensitive to economic conditions, changing technologies and other
factors. The technology used in EMS 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 units. Many of the Company's competitors have also made
substantial capital expenditures in recent years and operate
technologically advanced EMS and fabrication facilities. Furthermore, some
of the Company's customers have substantial in-house EMS 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 EMS 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 EMS, and that foreign firms, including large,
technologically advanced Japanese firms, will increase their share of the
United States or European market.
Price competition is particularly intense in the computer market,
which in fiscal year 1995 was the Company's largest market segment. 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 markets. 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, 1997, 1996 and 1995, the Company's EMS and PCB fabrication
businesses had combined backlogs of $28,587,000, $17,669,000 and
$9,247,000, respectively. Backlog at June 30, 1997 and 1996 includes
SMTEK, the EMS business acquired by the Company in January 1996. The
Company's backlog at June 30, 1995 consisted only of the backlog of the
Company's European subsidiaries.
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.
Environmental Regulation
In the early 1970s, one of the Company's former California-based PCB
operating units, Aeroscientific Corp. ("Aero Anaheim"), disposed of certain
quantities of waste at the Stringfellow hazardous waste disposal site in
Riverside County, California, which was subsequently designated as a
Superfund site by the U.S. Environmental Protections Agency ("EPA"). Aero
Anaheim's waste accounted for less than three one-hundreds of one percent
of the total waste deposited at this site. Aero Anaheim, which since 1991
has been an inactive, insolvent subsidiary of the Company, established a
reserve of $120,000 as its share of the estimated environmental remediation
costs based on its relative contribution to the total wastes disposed at
this site. The EPA contends that site owners and operators and waste
generators are jointly and severally liable under federal law.
Nonetheless, the Company believes that the final allocation of liability
will generally be made based on relative contributions of waste.
Furthermore, even if joint liability were to be imposed, the Company
believes that the risk is remote that Aero Anaheim's ultimate liability in
this matter would exceed its reserve, because the other generators of
wastes disposed at the Stringfellow site include numerous companies with
assets and equity significantly greater than Aero Anaheim. The Company
believes that Aero Anaheim's reserve is adequate to cover future costs
associated with this matter.
The Company is aware of certain chemicals that exist in the ground at
Aero Anaheim's previously leased facility in Anaheim. The Company, which
was a guarantor of Aero Anaheim's facility lease, has notified the
appropriate governmental agencies and is proceeding with remediation and
investigative studies regarding soil and groundwater contamination. The
installation of water and soil extraction wells was completed in August
1994. In May 1995, the Company retained an environmental engineering firm
to begin the vapor extraction of pollutant from the soil and to perform
quarterly groundwater monitoring. In April 1997, the Company ceased soil
vapor extraction procedures at this site because the pollutant recovery
rate had declined to and stabilized at a very low level at which vapor
extraction is no longer a cost effective recovery technique. The property
owner is currently conducting a soil gas study at the site which is
expected to provide information as to the remaining contamination in the
soil. It is not yet known whether further soil remediation work will be
necessary. Investigative work to determine the full extent of potential
groundwater pollution has not yet been completed. Consequently, a
complete and accurate estimate of the full and potential costs cannot be
determined at this time. The Company believes, however, that the
resolution of these matters could require a significant cash outlay.
Initial estimates from environmental engineering firms indicate that it
could cost from $1,000,000 to $3,000,000 to fully clean up the site and
could take as long as ten years to complete. The Company and Aero Anaheim
entered into an agreement to share the costs of environmental remediation
with the owner of the Anaheim property. 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 $580,000 share) with any costs above
$725,000 being shared equally between the Company and the property owner.
Through June 30, 1997, the Company has paid $538,000 as its share of the
remediation costs (including cash placed in an escrow account for payment
of expenses). At June 30, 1997, the Company has a reserve of $564,000,
which represents its estimated share of future remediation costs at this
site. Based on consultation with the environmental engineering firms,
management believes that the Company has made adequate provision for the
liability based on probable loss. It is possible, however, that the future
remediation costs at this site could differ significantly from the
estimates, and may exceed the amount of the reserve.
Employees
At June 30, 1997, the Company had approximately 500 employees.
Item 2. Properties
The following table lists principal plants and properties of the
Company and its subsidiaries:
Owned
Square or
Location Footage Leased
------------ ------ ------
Newbury Park, California 45,000 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 $1,300,000 at June 30, 1997.
Item 3. Legal Proceedings
On September 22, 1997, the Company commenced litigation against CEMI
in the Superior Court of the State of California for Ventura County over
CEMI's breach of a financing agreement entered into in May 1997. See
"Item 1. Business -- Recent Developments." The Company's complaint includes
claims for breach of contract and fraud and seeks $5,000,000 in actual damages
plus punitive damages. CEMI has not yet answered the complaint or made
an appearance in the case.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information set forth under the caption "Market and Dividend
Information" in the Company's 1997 Annual Report to Stockholders is
incorporated herein by reference and made a part hereof.
Item 6. Selected Financial Data
The information set forth under the caption "Five-Year Financial
Summary" in the Company's 1997 Annual Report to Stockholders 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" ("MD&A") in
the Company's 1997 Annual Report to Stockholders is incorporated herein by
reference and made a part hereof.
Certain statements made in the MD&A, in the president's letter to
stockholders which appears on page 1 of the Company's 1997 Annual Report to
Stockholders, and elsewhere in the notes to consolidated financial
statements included in such Annual Report to Stockholders, are forward-
looking in nature and reflect the Company's forecasts, current expectations
and anticipated future plans. Such statements involve various risks and
uncertainties that could cause actual results to differ materially from
those forecast in the statements. Factors that might cause such
differences would include, without limitation, the factors described as
"Risk Factors" in the Company's Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on July 16, 1997.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements later in this Report
under Item 14.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
This information is incorporated by reference to the Company's proxy
statement for its 1997 Annual Meeting of Stockholders.
Item 11. Executive Compensation
This information is incorporated by reference to the Company's proxy
statement for its 1997 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated by reference to the Company's proxy
statement for its 1997 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the Company's proxy
statement for its 1997 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1997 Annual
Report to
Stockholders
------
(a)(1) List of Financial Statements
List of data incorporated by reference:
Report of KPMG Peat Marwick LLP on consolidated
financial statements 12
Consolidated balance sheets as of June 30, 1997
and 1996 13
Consolidated statements of operations for the
years ended June 30, 1997, 1996 and 1995 15
Consolidated statements of cash flows for the
years ended June 30, 1997, 1996 and 1995 16
Consolidated statements of stockholders'
equity (deficit) for the years ended June 30,
1997, 1996 and 1995 17
Notes to consolidated financial statements 18
(a)(2) Financial Statement Schedules
The financial statement schedules are omitted
because they are either not applicable or the
information is included in the notes to
consolidated financial statements.
Form 10-K
-------
(a)(3) List of Exhibits:
Exhibit Index 14
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(b) Reports on Form 8-K:
On June 11, 1997, a Form 8-K was filed regarding a letter of intent
entered into on May 29, 1997 with Century Electronics Manufacturing,
Inc. providing for the merger of Century with and into a wholly-owned
subsidiary of DDL.
On June 12, 1997, a Form 8-K was filed regarding the sale of 2,000,000
shares of Common Stock to a group of private investors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
October 8, 1997.
DDL ELECTRONICS, INC.
/s/ Gregory L. Horton
-----------------------
Gregory L. Horton
Chief Executive Officer,
President and Chairman
of the Board of Directors
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.
Signature Title Date
/s/ Gregory L. Horton Chief Executive Officer, October 8, 1997
- - ----------------------- President and Chairman ------------------
Gregory L. Horton of the Board
/s/ Richard K. Vitelle Vice President-Finance and October 8, 1997
- - ----------------------- Administration, Chief ------------------
Richard K. Vitelle Financial Officer, Treasurer,
Secretary and Director
/s/ Karen B. Brenner Director October 8, 1997
- - ----------------------- ------------------
Karen B. Brenner
/s/ Melvin Foster Director October 8, 1997
- - ----------------------- ------------------
Melvin Foster
/s/ Charlene A. Gondek Director October 8, 1997
- - ----------------------- ------------------
Charlene A. Gondek
/s/ Thomas M. Wheeler Director October 8, 1997
- - ----------------------- ------------------
Thomas M. Wheeler
/s/ Robert G. Wilson Director October 8, 1997
- - ----------------------- ------------------
Robert G. Wilson
EXHIBIT INDEX
Exhibit
Number Description
- - ------ -----------
2.1 Jolt Technology Inc. Acquisition Term Sheet dated June 30, 1997.
2.2 Letter of intent dated as of May 29, 1997 between the Company and
Century Electronics Manufacturing, Inc. concerning a possible
merger (incorporated by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K filed on June 11, 1997).
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-8, Commission File
No. 33-7440).
3.2 Bylaws of the Company, amended and restated effective March
1995 (incorporated by reference to Exhibit 3-b of the
Company's 1995 Annual Report on Form 10-K).
4.1 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, Commission File No. 33-7440).
4.2 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock of the Company (incorporated by
reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-8, Commission File No. 33-7440).
4.3 Indenture dated July 15, 1988, applicable to the Company's
8-1/2% Convertible Subordinated Debentures due August 1, 2008
(incorporated by reference to Exhibit 4-c of the Company's 1988
Annual Report on Form 10-K).
4.3.1 Supplemental Indenture relating to the Company's 8-1/2%
Convertible Subordinated Debentures due August 1, 2008
(incorporated by reference to Exhibit 4-b of the Company's
1991 Annual Report on Form 10-K).
4.4 Indenture relating to the Company's 7% Convertible
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4-c of the Company's 1991 Annual Report on Form 10-K).
4.5 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).
4.5.1 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).
4.6 Series C Warrant Agreement dated as of July 1, 1995 between
the Company and Fechtor, Detwiler & Co., Inc. covering 250,000
shares and expiring on June 30, 2000 (incorporated by reference
to Exhibit 4-f of the Company's Registration Statement on Form
S-3, Commission File No. 333-02969).
4.7 Series C Warrant Agreement dated as of July 1, 1995 between
the Company and Fortuna Capital Management covering 100,000
shares and expiring on June 30, 2000 (incorporated by reference
to Exhibit 4-g of the Company's Registration Statement on Form
S-3, Commission File No. 333-02969).
4.8 Series C Warrant Agreement dated as of July 1, 1995 between
the Company and Karen Brenner covering 50,000 shares and expiring
on June 30, 2000 (incorporated by reference to Exhibit 4-h of
the Company's Registration Statement on Form S-3, Commission
File No. 333-02969).
4.9 Series C Warrant Agreement dated as of July 1, 1995 between
the Company and Barry Kaplan covering 15,000 shares and expiring
on June 30, 2000 (incorporated by reference to Exhibit 4-k of
the Company's Registration Statement on Form S-3, Commission
File No. 333-02969).
4.10 Series D Warrant Agreement dated as of July 1, 1995 between
the Company and Charles Linn Haslam covering 250,000 shares
and expiring on June 30, 2000 (incorporated by reference to
Exhibit 4-i of the Company's Registration Statement on Form
S-3, Commission File No. 333-02969).
4.11 Form of Series E Warrant dated February 29, 1996 covering an
aggregate 1,500,000 shares and expiring on February 28, 2001
(incorporated by reference to Exhibit 4-n of the Company's
Registration Statement on Form S-3, Commission File No.
333-02969).
4.12 Form of Warrant and Contingent Payment Agreement for Series G
Warrants dated as of March 31, 1996 between the Company and
each of several former officers, key employees and directors
of the Company under various consulting agreements and
deferred fee arrangements covering an aggregate 595,872 shares
expiring on June 1, 1998 (incorporated by reference to Exhibit
4-l of the Company's Registration Statement on Form S-3,
Commission File No. 333-02969).
4.13 Form of Warrant Agreement for Series H Warrants dated July 1,
1995 among the Company and each of several current or former
non-employee directors covering an aggregate of 300,000 shares
expiring on June 30, 2000 (incorporated by reference to
Exhibit C of the Company's Proxy Statement for the fiscal 1995
Annual Stockholders Meeting).
4.14 Securities Purchase Agreement dated February 29, 1996
relating to the Company's 10% Senior Secured Notes due July 1,
1997 issued February 29, 1996 in the aggregate amount of
$5,300,000 ("Securities Purchase Agreement") (incorporated by
reference to Exhibit 4-m of the Company's Registration
Statement on Form S-3, Commission File No. 333-02969).
4.15 Common Stock Purchase Agreement dated as of June 3, 1997 covering
the sale of 2,000,000 shares of Common Stock to a group of
private investors (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed on June 12, 1997).
4.16 Debt Term Sheet dated June 30, 1997 between the Company and Thomas
M. Wheeler.
4.16.1 Secured promissory note dated June 30, 1997 in the principal amount
of $2 million between the Company and Thomas M. Wheeler.
4.16.2 Collateral Security Stock Pledge Agreement dated June 30, 1997
between the Company and Thomas M. Wheeler.
10.1 1985 Stock Incentive Plan (incorporated by reference to
Exhibit 4a of Registration Statement No. 33-3172).
10.2 1987 Stock Incentive Plan (incorporated by reference to
Exhibit 4a of Registration Statement No. 33-18356)
10.3 1991 General Nonstatutory Stock Option Plan (incorporated by
reference to Exhibit 10-cf of the Company's 1993 Annual Report
on Form 10-K).
10.4 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).
10.5 1996 Stock Incentive Plan (incorporated by reference to
Exhibit A of the Company's Proxy Statement for the fiscal 1995
Annual Stockholders Meeting).
10.6 1996 Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit B of the Company's Proxy Statement for the
fiscal 1995 Annual Stockholders Meeting).
10.7 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).
10.8 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).
10.8.1 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).
10.9 Standard Industrial Lease - Net dated October 15, 1992,
between L.N.M. Corporation-Desert Land Managing Corp. and the
Company's A.J. Electronics, 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).
10.10 Grant Agreement dated September 16, 1987 between Irlandus
Circuits Limited and the Industrial Development Board for
Northern Ireland ("IDB") (incorporated by reference to Exhibit
10.13 of the Company's Registration Statement No. 33-22856).
10.10.1 Agreement dated March 10, 1992 between Irlandus Circuits
Limited and the IDB amending the Grant Agreement dated
September 16, 1987, between Irlandus and the IDB (incorporated
by reference to Exhibit 10-br of the Company's 1992 Annual
Report on Form 10-K).
10.11 Grant Agreement dated August 29, 1989, between DDL Electronics
Limited and the IDB (incorporated by reference to Exhibit 10.29
of the Company's Registration Statement No. 33-39115).
10.11.1 Agreement dated May 2, 1996, between DDL Electronics Limited
and the IDB amending the Grant Agreement dated August 29,
1989, between DDL Electronics and the IDB (incorporated by
reference to Exhibit 10.11.1 filed with the Company's 1996 Annual
Report on Form 10-K).
10.12 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).
10.13 Business Financing Agreement dated August 21, 1996 between SMTEK,
Inc. and Deutsche Financial Services Corporation (incorporated by
reference to Exhibit 10 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996).
10.14 Employment Agreement and Letter of Understanding and Agreement
dated October 15, 1995 between the Company and Gregory L.
Horton (incorporated by reference to Exhibit 99.2 filed with
the Company's Current Report on Form 8-K dated January 12,
1996).
10.15 Employment Agreement dated September 12, 1996 between the
Company and Richard K. Vitelle (incorporated by reference to
Exhibit 10.15 filed with the Company's 1996 Annual Report on
Form 10-K)
11 Statement re Computation of Per Share Earnings.*
13 Annual Report to security holders.*
21 Subsidiaries of the Registrant.*
23 Consent of KPMG Peat Marwick, LLP.*
27 Financial Data Schedule.*
99 Undertaking for Form S-8 Registration Statement.*
* These exhibits are incorporated by reference to the Company's
1997 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on October 10, 1997.