-----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, PZPtX0i2u/Rwz5Y6hx63iYf0tA5js/fB4ie0q5tewtdYdXVUZ8JRttSFHVpBjlJ2 LH8Wv41bP3t31ZPrW7aRgQ== /in/edgar/work/20000814/0001017062-00-001767/0001017062-00-001767.txt : 20000921 0001017062-00-001767.hdr.sgml : 20000921 ACCESSION NUMBER: 0001017062-00-001767 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DDI CAPITAL CORP/DYNAMIC DETAILS INC CENTRAL INDEX KEY: 0001050119 STANDARD INDUSTRIAL CLASSIFICATION: [3672 ] IRS NUMBER: 330780382 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-41187 FILM NUMBER: 700378 BUSINESS ADDRESS: STREET 1: 1230 SIMON CIRCLE CITY: ANAHEIM STATE: CA ZIP: 92806 BUSINESS PHONE: 7146304077 MAIL ADDRESS: STREET 1: 1231 SIMON CIRCLE CITY: ANAHEIM STATE: CA ZIP: 92806 FORMER COMPANY: FORMER CONFORMED NAME: DETAILS CAPITAL CORP DATE OF NAME CHANGE: 19971121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DETAILS INC CENTRAL INDEX KEY: 0001050117 STANDARD INDUSTRIAL CLASSIFICATION: [3672 ] IRS NUMBER: 330779123 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-41211 FILM NUMBER: 700379 BUSINESS ADDRESS: STREET 1: 1231 SIMON CIRCLE CITY: ANAHEIM STATE: CA ZIP: 92806 BUSINESS PHONE: 7146304077 MAIL ADDRESS: STREET 1: 1231 SIMON CIRCLE CITY: ANAHEIM STATE: CA ZIP: 92806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DDI CORP CENTRAL INDEX KEY: 0001104252 STANDARD INDUSTRIAL CLASSIFICATION: [3672 ] IRS NUMBER: 953253877 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-30241 FILM NUMBER: 700380 BUSINESS ADDRESS: STREET 1: 1220 SAMON CIRCLE CITY: AHAMEIM STATE: CA ZIP: 92806 BUSINESS PHONE: 7145887200 MAIL ADDRESS: STREET 1: 1220 SIMON CIRCLE CITY: AHAHEIM STATE: CA ZIP: 92806 10-Q 1 0001.txt QUARTERLY REPORT ON FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 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 NUMBERS 333-95623 333-41187 333-41211 DDi CORP. DDi CAPITAL CORP. DYNAMIC DETAILS, INCORPORATED (EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS) DELAWARE 06-1576013 CALIFORNIA 33-0780382 CALIFORNIA 33-0779123 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1220 SIMON CIRCLE ANAHEIM, CALIFORNIA 92806 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (714) 688-7200 (REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether DDi Capital Corp. and Dynamic Details, Incorporated: (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 [_]. DDi Corp. filed Form 8-A on April 6, 2000 and has filed all reports required to be filed since such date. As of June 30, 2000, all of the voting stock of Dynamic Details, Incorporated was held by DDi Capital Corp. and all of the voting stock of DDi Capital Corp. was held by DDi Intermediate Holdings Corp., which is wholly owned by DDi Corp. As of June 30, 2000, DDi Corp. also held all of the capital stock of MCM Electronics Limited. As of June 30, 2000, DDi Corp. had 39,320,390 shares of common stock, par value $0.01 per share, outstanding. As of June 30, 2000, Dynamic Details, Incorporated had 100 shares of common stock, par value $0.01 per share, outstanding and DDi Capital Corp. had 1,000 shares of common stock, par value $0.01 per share, outstanding. DDi Corp. DDi Capital Corp. Dynamic Details, Incorporated Form 10-Q Table of Contents PART I Financial Information Page No. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2000 and 1999 4 Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2000 and 1999 7 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 8 Notes to Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3. Quantitative and Qualitative Disclosures about Market Risk 26 PART II Other Information Item 1. Legal Proceedings 27 Item 2. Changes in Securities and Use of Proceeds 27 Item 3. Defaults upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6 Exhibits and Reports on Form 8-K 27 Signatures 29 2 PART I FINANCIAL STATEMENTS ITEM 1. FINANCIAL STATEMENTS DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED Condensed Consolidated Balance Sheets (In thousands)
Dynamic Details DDi Capital DDi Corp. --------------------------------------------------------------------------------- June 30, December 31, June 30, December 31, June 30, December 31, 2000 1999 2000 1999 2000 1999 --------------------------------------------------------------------------------- (Unaudited) (Unaudited) (Unaudited) Assets Current assets: Cash and cash equivalents $ 180 $ 644 $ 180 $ 644 $ 4,081 $ 648 Accounts receivable, net 54,616 42,774 54,616 42,774 66,178 42,774 Inventories 26,220 20,209 26,220 20,209 30,306 20,209 Prepaid expenses and other 3,616 2,498 3,616 2,498 4,480 2,499 Deferred tax asset 5,215 5,215 5,215 5,215 5,215 5,215 --------------------------------------------------------------------------------- Total current assets 89,847 71,340 89,847 71,340 110,260 71,345 Property, plant and equipment, net 65,801 63,209 65,801 63,209 77,043 63,209 Debt issue costs, net 7,336 9,490 10,943 13,152 11,264 13,833 Goodwill and other intangibles, net 195,347 205,462 195,347 205,462 265,179 205,462 Other 2,255 486 2,255 486 2,905 486 --------------------------------------------------------------------------------- Total Assets $ 360,586 $ 349,987 $ 364,193 $ 353,649 $ 466,651 $ 354,335 ================================================================================= Liabilities and Stockholders' Deficit Current liabilities: Current maturities of long-term debt and capital lease obligations $ 7,724 $ 7,035 $ 7,724 $ 7,035 $ 11,203 $ 7,035 Current portion of deferred interest rate swap income 881 1,458 881 1,458 881 1,458 Current maturities of deferred notes payable 1,337 2,514 1,337 2,514 1,337 2,514 Revolving credit facility 500 - 500 - 500 - Accounts payable 23,038 18,055 23,038 18,055 31,845 18,055 Accrued expenses 24,185 22,263 24,185 22,263 28,394 22,311 Income tax payable 3,061 894 1,076 894 1,159 894 --------------------------------------------------------------------------------- Total current liabilities 60,726 52,219 58,741 52,219 75,319 52,267 Long-term debt and capital lease obligations 247,897 351,227 330,516 428,944 378,748 469,703 Deferred interest rate swap income 2,636 3,881 2,636 3,881 2,636 3,881 Notes payable and other 2,055 2,179 2,055 2,179 2,055 2,179 Deferred tax liability 20,496 20,496 13,420 13,420 13,722 13,420 --------------------------------------------------------------------------------- Total liabilities 333,810 430,002 407,368 500,643 472,480 541,450 --------------------------------------------------------------------------------- Commitments and contingencies Stockholders' equity (deficit): Common stock, additional paid-in-capital and other 355,086 251,944 288,399 199,830 345,625 162,239 Accumulated deficit (328,310) (331,959) (331,574) (346,824) (351,454) (349,354) --------------------------------------------------------------------------------- Total stockholders' equity (deficit) 26,776 (80,015) (43,175) (146,994) (5,829) (187,115) --------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity (Deficit) $ 360,586 $ 349,987 $ 364,193 $ 353,649 $ 466,651 $ 354,335 =================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 DYNAMIC DETAILS, INCORPORATED Condensed Consolidated Statements of Operations (In thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------------------------------- 2000 1999 2000 1999 ------- ------- -------- -------- Net sales $86,912 $71,740 $162,197 $130,919 Cost of goods sold 55,875 50,218 104,910 92,034 ---------------------------------------------- Gross profit 31,037 21,522 57,287 38,885 Operating expenses: Sales and marketing 7,480 5,368 14,371 10,070 General and administration 4,686 4,418 8,624 7,234 Amortization of intangibles 4,948 6,005 10,116 11,826 ---------------------------------------------- Operating income 13,923 5,731 24,176 9,755 Interest expense (net) and other expense (net) 6,984 8,258 15,248 16,429 ---------------------------------------------- Income (loss) before income taxes 6,939 (2,527) 8,928 (6,674) Income tax benefit (expense) (2,963) (312) (4,610) 682 ---------------------------------------------- Income (loss) before extraordinary item 3,976 (2,839) 4,318 (5,992) Extraordinary item, net of taxes (670) - (670) - ---------------------------------------------- Net income (loss) $ 3,306 $(2,839) $ 3,648 $ (5,992) ==============================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 DDi CAPITAL CORP. Condensed Consolidated Statements of Operations (In thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Net sales $ 86,912 $ 71,740 $ 162,197 $ 130,919 Cost of goods sold 55,875 50,218 104,910 92,034 -------------------------------------------------------- Gross profit 31,037 21,522 57,287 38,885 Operating expenses: Sales and marketing 7,480 5,368 14,371 10,070 General and administration 4,686 4,418 8,624 7,234 Amortization of intangibles 4,948 6,005 10,116 11,826 -------------------------------------------------------- Operating income 13,923 5,731 24,176 9,755 Interest expense (net) and other expense (net) 9,504 10,448 20,204 20,755 -------------------------------------------------------- Income (loss) before income taxes 4,419 (4,717) 3,972 (11,000) Income tax benefit (expense) (1,953) 574 (2,624) 2,425 -------------------------------------------------------- Income (loss) before extraordinary item 2,466 (4,143) 1,348 (8,575) Extraordinary item, net of taxes (670) - (670) - -------------------------------------------------------- Net income (loss) $ 1,796 $ (4,143) $ 678 $ (8,575) ========================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 DDi CORP. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Net sales $ 101,533 $ 71,740 $ 176,818 $ 130,919 Cost of goods sold 65,981 50,435 115,016 92,445 -------------------------------------------------------- Gross profit 35,552 21,305 61,802 38,474 Operating expenses: Sales and marketing 7,914 5,368 14,805 10,070 General and administration 6,027 4,201 9,965 7,073 Amortization of intangibles 5,757 6,005 10,925 11,826 -------------------------------------------------------- Operating income 15,854 5,731 26,107 9,505 Interest expense (net) and other expense (net) 11,006 11,720 23,161 23,301 -------------------------------------------------------- Income (loss) before income taxes 4,848 (5,989) 2,946 (13,796) Income tax benefit (expense) (2,420) 1,098 (2,495) 3,576 -------------------------------------------------------- Income (loss) before extraordinary item 2,428 (4,891) 451 (10,220) Extraordinary item, net of taxes (2,551) - (2,551) - -------------------------------------------------------- Net loss $ (123) $ (4,891) $ (2,100) $ (10,220) ======================================================== Income (loss) per share - basic: Before extraordinary item $ 0.05 $ (0.86) $ (0.18) $ (1.75) Extraordinary item $ (0.07) $ - $ (0.11) $ - Net loss $ (0.02) $ (0.86) $ (0.29) $ (1.75) Income (loss) per share - diluted: Before extraordinary item $ 0.05 $ (0.86) $ (0.18) $ (1.75) Extraordinary item $ (0.07) $ - $ (0.11) $ - Net loss $ (0.02) $ (0.86) $ (0.29) $ (1.75) Weighted average shares used to compute income (loss) per share: Basic 34,505,388 9,774,179 22,197,156 9,774,179 Diluted 36,306,101 9,774,179 22,197,156 9,774,179 - ------------------------------- Pro forma basic net loss per share $ - $ (0.20) $ (0.07) $ (0.41) (unaudited) ======================================================== Pro forma diluted net loss per share $ - $ (0.20) $ (0.07) $ (0.41) (unaudited) ======================================================== Pro forma weighted average basic shares outstanding (unaudited) 37,007,000 24,750,000 30,908,000 24,750,000 ======================================================== Pro forma weighted average diluted shares outstanding (unaudited) 38,808,000 24,750,000 31,808,000 24,750,000 ========================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 DDi CORP.* Consolidated Statements of Comprehensive Loss (In thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------ 2000 1999 2000 1999 --------- -------- --------- -------- Net loss $ (123) $(4,891) $ (2,100) $(10,220) Other comprehensive loss: Foreign currency translation adjustments (1,166) - (1,166) - ------------------------------------------------ Comprehensive loss $ (1,289) $(4,891) $ (3,266) $(10,220) ================================================
* DDi Capital and Dynamic Details do not have items which result in comprehensive income (loss). The accompanying notes are an integral part of these condensed consolidated financial statements. 7 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED Condensed Consolidated Statement of Cash Flows (In thousands) (Unaudited)
Dynamic Details DDi Capital DDi Corp --------------- ------------------ ---------------- Six Months Ended Six Months Ended Six Months Ended June 30, June 30, June 30, ------------------------------------------------------------------- 2000 1999 2000 1999 2000 1999 -------- -------- --------- ------- --------- -------- Cash flows from operating activities: Net cash provided by operating activities $ 11,768 $13,603 $ 11,768 $13,603 $ 11,849 $ 13,359 ------------------------------------------------------------------- Cash flows from investing activities: Purchases of property, plant and equipment (10,223) (8,064) (10,223) (8,064) (10,664) (8,064) Costs incurred in connection with the acquisition of DCI - (212) - (212) - (212) Costs incurred in connection with the acquisition of MCM, net of cash acquired of $7,794 - - - - (2,263) - ------------------------------------------------------------------- Net cash used in investing activities (10,223) (8,276) (10,223) (8,276) (12,927) (8,276) ------------------------------------------------------------------- Cash flows from financing activities: Principal payments on long-term debt (102,057) (1,088) (102,057) (1,088) (144,772) (1,088) Net borrowings (repayments) on the revolving credit facility 500 (7,000) 500 (7,000) 500 (7,000) Payments of deferred note payable (1,284) (1,138) (1,284) (1,138) (1,284) (1,138) Principal payments on capital lease obligations (543) (484) (543) (484) (680) (484) Payment of loan financing fees (742) - (742) - (742) - Capital contribution from (to) Parent, net 103,142 (9) 103,142 (9) - - Due to affiliate 242 - 242 - - - Shareholder repayments (borrowings) - - - - (17) 16 Escrow payable distribution (1,267) - (1,267) - (1,267) - Proceeds from interest rate swaps - 6,062 - 6,062 - 6,062 Proceeds from issuance of common stock through initial public offering - - - - 156,660 - Costs incurred in connection with the issuance of common stock through initial public offering - - - - (4,267) - Issuance of common stock through Employee Stock Purchase Plan - - - - 365 - Proceeds from exercise of stock options - - - - 602 35 ------------------------------------------------------------------- Net cash provided (used) in financing activities (2,009) (3,657) (2,009) (3,657) 5,098 (3,597) ------------------------------------------------------------------- Effect of exchange rate changes on cash - - - - (587) - ------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (464) 1,670 (464) 1,670 3,433 1,486 Cash and cash equivalents, beginning of year 644 1,905 644 1,905 648 2,109 ------------------------------------------------------------------- Cash and cash equivalents, end of period $ 180 $ 3,575 $ 180 $ 3,575 $ 4,081 $ 3,595 ===================================================================
Supplemental disclosure of cash flow information: Non-cash operating activities: During the six months ended June 30, 2000, depreciation and amortization expense was approximately $19 million for DDi Corp. and $18 million for both DDi Capital and Dynamic Details. During the six months ended June 30, 1999, DDi Corp., DDi Capital and Dynamic Details recorded approximately $20 million of depreciation and amortization expense. The accompanying notes are an integral part of these condensed consolidated financial statements. 8 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (In thousands, except share and per share amounts) NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS BASIS OF PRESENTATION The unaudited condensed financial statements for DDi Corp. include the accounts of its wholly-owned subsidiaries, DDi Intermediate Holdings Corp. ("Intermediate") and its subsidiaries and MCM Electronics Limited ("MCM"). The unaudited condensed consolidated financial statements for DDi Capital Corp. ("DDi Capital"), a wholly owned subsidiary of Intermediate, includes the accounts of its wholly owned subsidiaries Dynamic Details Incorporated and its subsidiaries ("Dynamic Details"). Collectively, DDi Corp. and its subsidiaries are referred to as the "Company". The unaudited consolidated financial statements of DDi Corp. for the three and six month periods ended June 30, 2000 include the results of MCM commencing on April 14, 2000, the date of acquisition of MCM (see Note 7). All intercompany transactions have been eliminated in consolidation. In October 1997, the predecessor of DDi Corp. incorporated Dynamic Details as a wholly-owned subsidiary and contributed substantially all of its assets, subject to certain liabilities, to Dynamic Details. In November 1997, the predecessor of DDi Corp. incorporated DDi Capital as a wholly-owned subsidiary and, in February 1998, contributed substantially all its assets (including the shares of common stock of Dynamic Details), subject to certain liabilities, including discount notes to DDi Capital. In July 1998, the predecessor of DDi Corp. incorporated Intermediate as a wholly-owned subsidiary and contributed all of the shares of common stock of DDi Capital to Intermediate. This report contains the second periodic presentation of financial data for DDi Corp., which consummated the initial public offering of its common stock on April 14, 2000. MCM, Dynamic Details and Dynamic Details Design, LLC, a wholly-owned subsidiary of Intermediate formed in 1998, represent the operating subsidiaries of DDi Corp. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting only of normal recurring adjustments) to present fairly the financial position of the Company as of June 30, 2000, and the results of operations for the three and six months ended June 30, 2000 and 1999 and cash flows for the six months ended June 30, 2000 and 1999. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full year. These financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations, although the Company believes the disclosures provided are adequate to prevent the information presented from being misleading. This report on Form 10-Q for the quarter ended June 30, 2000 should be read in conjunction with the audited financial statements presented in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and with the audited financial statements contained in DDi Corp.'s final registration statement on Form S-1, filed April 14, 2000. The Annual Report on Form 10-K was submitted on behalf of DDi Capital and Dynamic Details. Concurrent with DDi Corp.'s initial public offering on April 14, 2000 (see Note 6), each share of Class L common stock was reclassified into one share of Class A common stock plus an additional number of shares of Class A common stock (determined by dividing the preference amount of such per share by the initial public offering price of $14.00 per share). Class A and Class L common stock share ratably in the net income (loss) remaining after giving effect to the 12% yield on the Class L common stock. Each share of Class A common stock was then converted into 2.8076 shares of new common stock when DDi Corp. reincorporated in the state of Delaware. NATURE OF BUSINESS The Company is a leading provider of time-critical, technologically advanced design, development and manufacturing services to original equipment manufacturers and other electronics manufacturing service providers. The Company serves over 1,900 customers, primarily in the telecommunications, computer and networking industries. 9 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ---------------------------------------------------------------- (In thousands, except share and per share amounts) NOTE 2. INVENTORIES Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market and consistof the following:
Dynamic Details and DDi Capital DDi Corp. ----------------------------- ---------------------------- June 30, December 31, June 30, December 31, 2000 1999 2000 1999 ----------------------------- ---------------------------- Raw materials $ 12,602 $ 11,828 $ 14,491 $ 11,828 Work-in-process 9,356 5,601 11,263 5,601 Finished goods 4,262 2,780 4,552 2,780 ----------------------------- ---------------------------- Total $ 26,220 $ 20,209 $ 30,306 $ 20,209 ============================= ============================
NOTE 3. LONG-TERM DEBT AND CAPITAL LEASES Long-term debt and capital lease obligations consist of the following:
Dynamic Details DDi Capital DDi Corp. ---------------------------- ------------------------------ --------------------------- June 30, December 31, June 30, December 31, June 30, December 31, 2000 1999 2000 1999 2000 1999 ---------------------------- ------------------------------ --------------------------- Senior Term Facility (a) $149,681 $251,738 $149,681 $251,738 $149,681 $251,738 10.0% Senior Subordinated Notes 100,000 100,000 100,000 100,000 100,000 100,000 12.5% Capital Senior Discount Notes (b) - - 82,619 77,717 82,619 77,717 13.5% Intermediate Senior Discount Notes (c) - - - - 21,824 40,759 MCM Facilities Agreement (d) - - - - 29,112 - Capital lease obligations 5,940 6,524 5,940 6,524 6,715 6,524 ---------------------------- ----------------------------- --------------------------- Sub-total 255,621 358,262 338,240 435,979 389,951 476,738 Less current maturities (7,724) (7,035) (7,724) (7,035) (11,203) (7,035) ---------------------------- ----------------------------- --------------------------- Total $247,897 $351,227 $330,516 $428,944 $378,748 $469,703 ============================ ============================= ===========================
(a) The Senior Term Facility, together with the Revolving Credit Facility, which had $500 outstanding as of June 30, 2000 and no amounts outstanding as of December 31, 1999, comprise the Senior Credit Facility. Interest rates are LIBOR-based and range from 8.63% to 9.13% as of June 30, 2000. (b) Face amount of $110,000, net of unamortized discount of $27,381 and $32,283 at June 30, 2000 and December 31, 1999, respectively. (c) Face amount of $33,405 and $66,810 at June 30, 2000 and December 31, 1999, respectively, net of unamortized discount of $11,581 and $26,051 at June 30, 2000 and December 31, 1999, respectively. (d) Interest rates are LIBOR-based. 80% of the principal balance is fixed at 6.92% by an interest rate agreement. NOTE 4. INTEREST RATE SWAP AGREEMENTS In April 2000, due to the repayment of a portion of the principal of the Dynamic Details senior term loans funded from the proceeds of DDi Corp.'s initial public offering (see Note 6), the Company modified its existing interest rate exchange agreements ("Swap Agreements"). Under the terms of the modified Swap Agreements, the application of the interest rate caps of 5.65% and 7.00% has been extended until December 31, 2001 (from August 31, 2001) and the notional amount of the swap through December 31, 2001 was reduced in proportion to the reduction in senior term loan principal. The interest rate cap of 5.65%, however, is now only effective through December 31, 2000 when it becomes 5.75% and effective from January 1, 2001 through the end of the swap term on December 31, 2001. In addition, the application of the fixed annual rate of 7.35% has been deferred until January 1, 2002 (from September 1, 2001). 10 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ---------------------------------------------------------------- (In thousands, except share and per share amounts) MCM entered into an interest rate swap agreement effective January 12, 2000 and represents an effective cash flow hedge of the variable rate of interest (3- month LIBOR) paid under the MCM facilities agreement, minimizing exposure to increases in interest rates related to this debt over the scheduled term of the swap, through September 2002. Under the swap terms, MCM pays a fixed rate of interest, an annual rate of 6.92%. This rate is applied to fixed amounts of debt per the agreement, which approximate 80% of the outstanding balance at June 30, 2000. NOTE 5. EARNINGS PER SHARE Basic and diluted earnings per share - DDi Corp. has adopted the provisions of Statement of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per Share." SFAS No. 128 requires DDi Corp. to report both basic net income (loss) per share, which is based on the weighted average number of common shares outstanding, excluding contingently issuable shares such as the Class L common stock that were contingently convertible into common stock upon certain events, and diluted net income (loss) per share, which were based on the weighted average number of common shares outstanding and dilutive potential common shares outstanding.
Three Months Ended Three Months ended June 30, 2000 June 30, 1999 ----------------------------- --------------------------- Basic Diluted Basic Diluted ----------------------------- --------------------------- Numerator: Income (loss) before extraordinary item $ 2,428 $ 2,428 $ (4,891) $ (4,891) Priority distribution due shares of Class L common stock (586) (586) (3,466) (3,466) ----------------------------- --------------------------- Income (loss) allocable to common stock 1,842 1,842 (8,357) (8,357) Extraordinary item (2,551) (2,551) - - ----------------------------- --------------------------- Net loss allocable to common stock $ (709) $ (709) $ (8,357) $ (8,357) ============================= =========================== Six Months Ended Six Months ended June 30, 2000 June 30, 1999 ----------------------------- --------------------------- Basic Diluted Basic Diluted ----------------------------- --------------------------- Denominator: Weighted average shares of common stock outstanding 34,505,388 34,505,388 9,774,179 9,774,179 Dilutive potential common shares: Stock options and warrants - 1,800,713 - - ----------------------------- --------------------------- Shares used in computing income (loss) per share 34,505,388 36,306,101 9,774,179 34,505,388 ============================= =========================== Six Months Ended Six Months ended June 30, 2000 June 30, 1999 ----------------------------- --------------------------- Basic Diluted Basic Diluted ----------------------------- --------------------------- Numerator: Income (loss) before extraordinary item $ 451 $ 451 $ (10,220) $ (10,220) Priority distribution due shares of Class L common stock (4,356) (4,356) (6,886) (6,886) ---------------------------- ---------------------------- Income (loss) allocable to common stock (3,905) (3,905) (17,106) (17,106) Extraordinary item (2,551) (2,551) - - ---------------------------- ---------------------------- Net loss allocable to common stock $ (6,456) $ (6,456) $ (17,106) $ (17,106) ============================ ============================ Denominator: Weighted average shares of common stock outstanding 22,197,156 22,197,156 9,774,179 9,774,179 Dilutive potential common shares: Stock options and warrants - - - - Class L common stock - - - - ----------------------------- ---------------------------- Shares used in computing income (loss) per share 22,197,156 22,197,156 9,774,179 9,774,179 ============================= ============================
As a result of the loss before extraordinary item, after deducting priority distributions of Class L common stock, incurred by DDi Corp. during the six months ended June 30, 2000 and the three and six months ended June 30, 1999, all potential common shares were anti-dilutive and excluded from the diluted net loss per share calculation for those periods. 11 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ---------------------------------------------------------------- (In thousands, except share and per share amounts) Unaudited pro forma loss per share - Unaudited pro forma basic and diluted net loss per share for the three and six months ended June 30, 2000 and 1999 have been calculated based on the net loss applicable to common stock assuming the reclassification of DDi Corp.'s Class A and L common stock (see Note 1), which occurred immediately prior to the completion of the initial public offering, had occurred at the beginning of the period. NOTE 6. INITIAL PUBLIC OFFERING On April 14, 2000, DDi Corp. completed an initial public offering of 12,000,000 shares of its common stock at $14.00 per share with proceeds of $156,660, net of underwriting discounts and commissions. The net proceeds were used to reduce the indebtedness of the Dynamic Details senior term loans, redeem a portion of the senior discount notes issued by DDi Intermediate, pay associated redemption premiums and accrued and unpaid interest thereon, finance a portion of the acquisition of MCM (see Note 7) and pay offering expenses. In conjunction with the redemption of debt, the Company recorded net extraordinary losses (see Note 8). NOTE 7. ACQUISITION OF MCM ELECTRONICS On April 14, 2000, DDi Corp. completed the acquisition of MCM, a time-critical electronics manufacturing service provider based in the United Kingdom, for a total purchase price of approximately $84 million, excluding acquisition expenses of approximately $4 million, paid in a combination of cash of approximately $10 million, the issuance of 2,230,619 shares of DDi Corp. common stock at $14 per share totaling approximately $31 million, the repayment of outstanding indebtedness of MCM of approximately $24 million, and the assumption of approximately $23 million of MCM's remaining outstanding indebtedness (the "MCM Facilities Agreement") (net of cash acquired of approximately $8 million). The acquisition of MCM was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16 and accordingly, the results of operations of MCM since the date of acquisition are included in the accompanying consolidated financial statements of DDi Corp. The total purchase price has been allocated to the underlying assets and liabilities based upon their estimated respective fair values at the date of acquisition. As of the date of this filing, the Company is in the process of evaluating its intangible assets to finalize the allocation of the total purchase price. The Company intends to allocate a portion of the purchase price to acquired in-process research and development ("in-process R&D"), developed technologies, customer relationships/tradenames and assembled workforce. These intangibles will be amortized over their estimated useful lives. The remaining residual value will be allocated to goodwill and will be amortized over its estimated useful life of 20 years. Based upon the status of the Company's valuation efforts as of the date of this filing, a final valuation of the intangible assets has not been reflected in the accompanying consolidated financial statements. The excess of the purchase price over the fair value of MCM's tangible net assets is currently reflected as goodwill and is being amortized over its estimated useful life of 20 years. 12 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ---------------------------------------------------------------- (In thousands, except share and per share amounts) NOTE 8. UNAUDITED PRO-FORMA INFORMATION The accompanying condensed consolidated statements of operations of DDi Corp. include the accounts of MCM for the period April 14, 2000 through June 30, 2000. The following pro forma information for the six months ended June 30, 2000 and 1999 presents net sales, income (loss) before extraordinary item, and net loss for each of these periods as if this transaction was consummated at the beginning of each period. As of the filing of this report, management is assessing purchase price allocation adjustments to assets acquired (including identifiable intangibles and in-process research and development efforts) and to liabilities assumed in the MCM acquisition based on fair values. The following pro forma information does not reflect final purchase price allocation results. These results may have a material effect on the reported results of operations.
Pro Forma Pro Forma June, 30 2000 June, 30 1999 --------------------- --------------------- (in millions, except (in millions, except per share amounts) per share amounts) Net Sales $ 197.3 $ 161.4 Income (Loss) Before Extraordinary Item $ 1.8 ($16.0) Net Loss ($0.7) ($16.0) Net loss per share of common stock - basic and diluted ($0.03) ($1.64)
NOTE 9. EXTRAORDINARY ITEM During the quarter ended June 30, 2000, Dynamic Details recorded, as extraordinary items, write-offs of deferred financing fees and deferred swap income of approximately $670, net of related taxes of $428, related to the Senior Term Facility principal repayments funded from the net proceeds of DDi Corp.'s initial public offering (see Note 6). In addition, Intermediate recorded, as extraordinary items, the redemption premium and write-off of deferred financing fees of approximately $1,882, net of related taxes of $1,203 related to the Intermediate Senior Discount Notes principal repayments funded from the net proceeds of DDi Corp.'s initial public offering. NOTE 10. RELATED PARTY TRANSACTIONS Pursuant to a management agreement among Bain Capital Partners V, L.P. ("Bain"), DDi Corp. and Dynamic Details (the "Management Agreement"), Bain was entitled to a management fee when, it provided advisory services to the Company in connection with potential business acquisitions. In addition, Bain performed certain management consulting services at Bain's customary rates plus reimbursement for reasonable out-of-pocket expenditures. In this capacity, Bain received approximately $1.1 million in fees in fiscal year ended December 31, 1999. This management agreement was terminated by mutual consent of the parties in connection with the initial public offering by DDi Corp. on April 14, 2000. Bain was paid a fee of approximately $3 million in connection with the MCM transaction and related financing matters. 13 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ---------------------------------------------------------------- (In thousands, except share and per share amounts) NOTE 11. SUPPLEMENTAL GUARANTOR CONDENSED FINANCIAL DATA On November 15, 1997, Dynamic Details, issued $100 million aggregate principal amount of 10% Senior Subordinated Notes due in 2005. The senior subordinated notes are fully and unconditionally guaranteed on a senior subordinated basis, jointly and severally, by all of its wholly-owned subsidiaries (the "Subsidiary Guarantors"). The condensed financial data of Dynamic Details is presented below and should be read in conjunction with the condensed consolidated financial statements of Dynamic Details. Separate financial data of the Subsidiary Guarantors are not presented because (i) the Subsidiary Guarantors are wholly-owned and have fully and unconditionally guaranteed the Notes on a joint and several basis and (ii) the Company's management has determined such separate financial data are not material to investors and believes the condensed financial data of Dynamic Details presented is more meaningful in understanding the financial position of the Company. 14 SUPPLEMENTAL DYNAMIC DETAILS CONDENSED FINANCIAL DATA (Unaudited) CONDENSED BALANCE SHEETS
June 30, 2000 December 31, 1999 ------------------- ------------------- Current assets $ 32,721 $ 22,472 Non-current assets 306,845 329,490 ------------------- ------------------- Total assets $339,566 $351,962 ------------------- ------------------- Current liabilities $ 27,465 $ 29,089 Non-current liabilities 243,942 354,397 ------------------- ------------------- Total liabilities 271,407 383,486 ------------------- ------------------- Total stockholders' deficit 68,159 (31,524) ------------------- ------------------- Total liabilities and stockholders' deficit $339,566 $351,962 =================== ===================
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Three Months Ended June 30, 2000 June 30, 1999 ------------------- ------------------ Net sales $ 35,984 $ 23,373 Cost of sales 18,765 11,716 ------------------- ------------------ Gross profit 17,219 11,657 Operating expenses 5,250 2,884 ------------------- ------------------ Income from operations 11,969 8,773 Interest expense, net 6,928 8,648 ------------------- ------------------ Income before taxes 5,041 125 Income tax expense 525 72 ------------------- ------------------ Income before extraordinary item and equity in loss of subsidiaries 4,516 53 Extraordinary item (670) - ------------------- ------------------ Income before equity in loss of subsidiaries 3,846 53 Equity in loss of subsidiaries (540) (2,892) ------------------- ------------------ Net income (loss) $ 3,306 $(2,839) =================== ================== Six Months Ended Six Months Ended June 30, 2000 June 30, 1999 ------------------- ------------------ Net sales $ 64,131 $ 42,913 Cost of sales 33,929 23,085 ------------------- ------------------ Gross profit 30,202 19,828 Operating expenses 9,213 5,119 ------------------- ------------------ Income from operations 20,989 14,709 Interest expense, net 15,224 16,809 ------------------- ------------------ Income (loss) before taxes 5,765 (2,100) Income tax benefit (expense) (861) 757 ------------------- ------------------ Income (loss) before extraordinary item and equity in loss of subsidiaries 4,904 (1,343) Extraordinary item (670) - ------------------- ------------------ Income (loss) before equity in loss of subsidiaries 4,234 (1,343) Equity in loss of subsidiaries (586) (4,649) ------------------- ------------------ Net income (loss) $ 3,648 $(5,992) =================== ==================
15 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ---------------------------------------------------------------- (In thousands, except share and per share amounts) NOTE 12. SUBSEQUENT EVENT On August 4, 2000, Dynamic Details, through its subsidiary, Dynamic Details, Incorporated, Virginia ("DDi Virginia"), completed the acquisition of the assets of Automata International, Inc. ("Automata"), a Virginia-based manufacturer of technologically advanced printed circuit boards. DDi Virginia acquired the manufacturing facility, fixed assets and other assets of Automata for total consideration of approximately $19.5 million. This transaction will be accounted for under the purchase method of accounting and the purchase price will be allocated to the underlying assets acquired and liabilities assumed based upon their respective fair market values at the date of acquisition. No adjustments have been made to the accompanying historical consolidated financial statements for this transaction. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS. - -------------- OVERVIEW The Company is a leading provider of time-critical, technologically advanced design, development and manufacturing services to original equipment manufacturers and other electronics manufacturing service providers. The Company serves over 1,900 customers, primarily in the telecommunications, computer and networking industries. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in DDi Capital's and Dynamic Details' Annual Report on Form 10-K for the year ended December 31, 1999, and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in DDi Corp's Post- Effective Amendment No. 1 on Form S-1 filed April 14, 2000. The results of operations of MCM are included only in the financial data of DDi Corp., which directly owns all of the capital stock of MCM. RESULTS OF OPERATIONS Three Months Ended June 30, 2000 Compared to the Three Months ended June 30, 1999 Net Sales - Dynamic Details and DDi Capital net sales increased $15.2 million (21%) to $86.9 million for the three months ended June 30, 2000, from $71.7 million for the same period in 1999. Such increase is attributable to the production of more complex and larger panels, which increased the average sales price per panel. DDi Corp. net sales increased $29.8 million (42%) to $101.5 million for the three months ended June 30, 2000, from $71.7 million for the same period in 1999. Such increase reflects the higher average sales price per panel achieved by Dynamic Details and the impact of the acquisition of MCM. Gross Profit - Dynamic Details and DDi Capital gross profit increased $9.5 million (44%) to $31.0 million for the three months ended June 30, 2000, from $21.5 million for the same period in 1999. Such increase in gross profit resulted from the higher level of sales and an improvement in production yields in the Company's pre- production operations. DDi Corp. gross profit increased $14.3 million (67%) to $35.6 million for the three months ended June 30, 2000, from $21.3 million for the same period in 1999. Such increase reflects the higher level of sales and improvement in production yields achieved by Dynamic Details and the impact of the acquisition of MCM. Sales and Marketing Expense - Dynamic Details and DDi Capital sales and marketing expenses increased $2.1 million (39%) to $7.5 million for the three months ended June 30, 2000, from $5.4 million for the same period in 1999. Such increase is due to growth in our sales force to accommodate existing and anticipated near-term increases in customer demand and higher commissions and other variable expenses due to our increased sales volume. DDi Corp. sales and marketing expenses increased $2.5 million (46%) to $7.9 million for the three months ended June 30, 2000, from $5.4 million for the same period in 1999. Such increase reflects the growth in sales force, higher commissions and variable expenses incurred by Dynamic Details due to higher sales volume and the impact of the acquisition of MCM. General and Administration Expenses - Dynamic Details and DDi Capital general and administration expenses increased $0.3 million (7%) to $4.7 million for the three months ended June 30, 2000, from $4.4 million for the same period in 1999. The increase in expenses is attributable to higher staffing costs and other back-office expenditures to support growth in the Company, offset by the elimination of management fees in connection with a management agreement terminated in connection with the initial public offering by DDi Corp. DDi Corp. general and administration expenses increased $1.8 million (43%) to $6.0 million for the three months ended June 30, 2000, from $4.2 million for the same period in 1999. Such increase reflects the increase incurred by Dynamic Details and the impact of the acquisition of MCM. 17 Amortization of Intangibles - Dynamic Details and DDi Capital amortization of intangibles decreased $1.1 million (18%) to $4.9 million for the three months ended June 30, 2000, from $6.0 million for the same period in 1999. The decrease is due to the use of accelerated amortization methods with regard to certain identifiable intangibles. DDi Corp. amortization of intangibles decreased $0.2 million (3%) to $5.8 million for the three months ended June 30, 2000, from $6.0 million for the same period in 1999. Such decrease reflects the decrease incurred by Dynamic Details, partially offset by amortization attributable to the acquisition of MCM. Net Interest Expense - Dynamic Details net interest expense decreased $1.3 million (16%) to $7.0 million for the three months ended June 30, 2000, from $8.3 million for the same period in 1999. Such decrease is due to the redemption of Senior Term Facility principal resulting from the DDi Corp. equity offering in April 2000, partially offset by an increase in interest rates. DDi Capital net interest expense decreased $1.0 million (10%) to $9.5 million for the three months ended June 30, 2000, from $10.5 million for the same period in 1999. Such decrease reflects the decrease incurred by Dynamic Details, partially offset by the impact of discount accretion on the Capital Senior Discount Notes. DDi Corp. net interest expense decreased $0.7 million (6%) to $11.0 million for the three months ended June 30, 2000, from $11.7 million for the same period in 1999. Such decrease reflects the decrease incurred by DDi Capital and the redemption of Intermediate Senior Discount Notes principal resulting from the DDi Corp. equity offering in April 2000. Such decreases were partially offset by the impact of the acquisition of MCM in April 2000. Interest on debt assumed in the MCM acquisition was $0.7 million for the three months ended June 30, 2000. Income Taxes - Dynamic Details income taxes increased $2.7 million to $3.0 million for the three months ended June 30, 2000, from $0.3 million for the same period in 1999. DDi Capital income taxes increased $2.6 million to $2.0 million for the three months ended June 30, 2000, from a tax benefit of $0.6 million for the same period in 1999. The increased provisions for both Dynamic Details and DDi Capital reflect a higher level of taxable income earned in the current period. DDi Corp. income taxes increased $3.5 million to $2.4 million for the three months ended June 30, 2000, from a tax benefit of $1.1 million for the same period in 1999. Such increase reflects the increased DDi Capital provision and the impact of the acquisition of MCM, which generated $0.8 million in tax expense for the three months ended June 30, 2000. The provisions for income taxes are based upon the Company's expected effective tax rate in the respective fiscal year. Six Months Ended June 30, 2000 Compared to the Six Months ended June 30, 1999 Net Sales - Dynamic Details and DDi Capital net sales increased $31.3 million (24%) to $162.2 million for the six months ended June 30, 2000, from $130.9 million for the same period in 1999. Such increase is attributable to the production of more complex and larger panels, which increased the average sales price per panel. DDi Corp. net sales increased $45.9 million (35%) to $176.8 million for the six months ended June 30, 2000, from $130.9 million for the same period in 1999. Such increase reflects the increase achieved by Dynamic Details and the impact of the acquisition of MCM. Gross Profit - Dynamic Details and DDi Capital gross profit increased $18.4 million (47%) to $57.3 million for the six months ended June 30, 2000, from $38.9 million for the same period in 1999. Such increase in gross profit resulted from the higher level of sales and an improvement in production yields in the Company's pre- production operations. DDi Corp. gross profit increased $23.3 million (61%) to $61.8 million for the six months ended June 30, 2000, from $38.5 million for the same period in 1999. Such increase reflects the increase incurred by Dynamic Details and the impact of the acquisition of MCM. Sales and Marketing Expense - Dynamic Details and DDi Capital sales and marketing expenses increased $4.3 million (43%) to $14.4 million for the six months ended June 30, 2000, from $10.1 million for the same period in 1999. Such increase is due to growth in our sales force to accommodate existing and anticipated near-term increases in customer demand and higher commissions and other variable expenses due to our increased sales volume. DDi Corp. sales and marketing expenses increased $4.7 million (47%) to $14.8 million for the six months ended June 30, 2000, from $10.1 million for the same period in 1999. Such increase reflects the increase incurred by Dynamic Details and the impact of the acquisition of MCM. 18 General and Administration Expenses - Dynamic Details and DDi Capital general and administration expenses increased $1.4 million (19%) to $8.6 million for the six months ended June 30, 2000, from $7.2 million for the same period in 1999. The increase in expenses is attributable to higher staffing costs and other back-office expenditures to support growth in the Company, offset by the elimination of management fees in connection with a management agreement terminated in connection with the initial public offering by DDi Corp. DDi Corp. general and administration expenses increased $2.9 million (41%) to $10.0 million for the six months ended June 30, 2000, from $7.1 million for the same period in 1999. Such increase reflects the increase incurred by Dynamic Details and the impact of the acquisition of MCM. Amortization of Intangibles - Dynamic Details and DDi Capital amortization of intangibles decreased $1.7 million (14%) to $10.1 million for the six months ended June 30, 2000, from $11.8 million for the same period in 1999. The decrease is due to the use of accelerated amortization methods with regard to certain identifiable intangibles. DDi Corp. amortization of intangibles decreased $0.9 million (8%) to $10.9 million for the six months ended June 30, 2000, from $11.8 million for the same period in 1999. Such decrease reflects the decrease incurred by Dynamic Details, partially offset by amortization attributable to the acquisition of MCM. Net Interest Expense - Dynamic Details net interest expense decreased $1.2 million (7%) to $15.2 million for the six months ended June 30, 2000, from $16.4 million for the same period in 1999. Such decrease is due to the redemption of Senior Term Facility principal resulting from the DDi Corp. equity offering in April 2000, partially offset by an increase in interest rates. DDi Capital net interest expense decreased $0.6 million (3%) to $20.2 million for the six months ended June 30, 2000, from $20.8 million for the same period in 1999. Such decrease reflects the decrease incurred by Dynamic Details, partially offset by the impact of discount accretion on the Capital Senior Discount Notes. DDi Corp. net interest expense decreased $0.1 million to $23.2 million for the six months ended June 30, 2000, from $23.3 million for the same period in 1999. Such decrease reflects the decrease incurred by DDi Capital and the redemption of Intermediate Senior Discount Notes principal resulting from the DDi Corp. equity offering in April 2000. Such increases were effectively offset by the impact of the acquisition of MCM. Interest on debt assumed in this acquisition was $0.7 million for the six months ended June 30, 2000. Income Taxes - Dynamic Details income taxes increased $5.3 million to $4.6 million for the six months ended June 30, 2000, from a tax benefit of $0.7 million for the same period in 1999. DDi Capital income taxes increased $5.0 million to $2.6 million for the six months ended June 30, 2000, from a tax benefit of $2.4 million for the same period in 1999. The increased provisions for both Dynamic Details and DDi Capital reflect a higher level of taxable income earned in the current period. DDi Corp. income taxes increased $6.1 million to $2.5 million for the six months ended June 30, 2000, from a tax benefit of $3.6 million for the same period in 1999. Such increase reflects the increased DDi Capital provision and the impact of the acquisition of MCM, which generated $0.8 million in tax expense for the six months ended June 30 2000. The provisions for income taxes are based upon the Company's expected effective tax rate in the respective fiscal year. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2000, cash and cash equivalents were $4.1 million for DDi Corp., and $0.2 million for both DDi Capital and Dynamic Details, compared to $0.6 million for the Company as of December 31, 1999. The principal source of liquidity to fund ongoing operations for the six months ended June 30, 2000 was cash provided by operations. Net cash provided by operating activities for the six months ended June 30, 2000 was $11.8 million for the Company, compared to $13.3 million for DDi Corp. and $13.6 million for DDi Capital and Dynamic Details for the six months ended June 30, 1999. Capital expenditures for the six months ended June 30, 2000 were $10.7 million for DDi Corp. and $10.2 million for DDi Capital and Dynamic Details, compared to $8.1 million for the Company for the six months ended June 30, 1999. As of June 30, 2000, DDi Corp., DDi Capital and Dynamic Details had long-term borrowings of $378.7 million, $330.5 million and $247.9 million, respectively. Dynamic Details has $45 million available for borrowing under its revolving credit facility for revolving credit loans, letters of credit and swing line loans, less amounts that may be in 19 use from time-to-time. At June 30, 2000, Dynamic Details had $0.5 million outstanding under this revolving credit facility and had $0.7 million reserved against the facility for a letter of credit. On April 14, 2000, DDi Corp. consummated an initial public offering of its common stock (see Note 6 to the Condensed Consolidated Financial Statements). The net proceeds were used to reduce the indebtedness of the Dynamic Details Senior Term Facility by $100.0 million, redeem $17.5 million of the Senior Discount Notes issued by Intermediate, pay associated redemption premiums of $2.8 million and accrued and unpaid interest thereon of $3.7 million, and to finance a portion of the acquisition of MCM (see Note 6 to the Condensed Consolidated Financial Statements) and pay offering expenses. Based upon the current level of operations, management believes that cash generated from operations, available cash and amounts available under its senior credit facility will be adequate to meet its debt service requirements, capital expenditures and working capital needs for the foreseeable future, although no assurance can be given in this regard. Accordingly, there can be no assurance that the Company's business will generate sufficient cash flow from operations or that future borrowings will be available to enable the Company to service its indebtedness. The Company is highly leveraged, and its future operating performance and ability to service or refinance its indebtedness will be subject to future economic conditions and to financial, business and other factors, certain of which are beyond the Company's control. COLORADO FACILITY In December 1999, the Company's management implemented a plan to consolidate its Colorado operations into its Texas facility, resulting in the closure of the Colorado facility. In conjunction with the closure of the Colorado facility, the Company recorded charges in the fourth quarter of 1999 totaling $7.0 million, consisting of $4.5 million for severance and other exit costs and $2.5 million related to the impairment of net property, plant and equipment. The exit costs were accrued for as of December 31, 1999. The closure of the facility was effectively complete as of March 31, 2000. The accrued exit costs remaining as of June 30, 2000 are approximately $0.2 million, representing expenses principally related to net rental payments through scheduled maturities of real property operating leases. RISKS ASSOCIATED WITH INTANGIBLE ASSETS At June 30, 2000, intangible assets were $265 million for DDi Corp. and $195 million for DDi Capital and Dynamic Details. These amounts represented a substantial portion of each companies' total assets at that date. The intangible assets consist of goodwill and other identifiable intangibles relating to the Company's acquisitions. Additional intangible assets may be added in future periods, principally from the consummation of further acquisitions. Amortization of these additional intangibles will, in turn, have a negative impact on earnings. In addition, the Company continuously evaluates whether events and circumstances have occurred that indicate the remaining balance of intangible assets may not be recoverable. When factors indicate that assets should be evaluated for possible impairment, the Company may be required to reduce the carrying value of its intangible assets, which could have a material adverse effect on the results of the Company during the periods in which such a reduction is recognized. There can be no assurance that the Company will not be required to write down intangible assets in future periods. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 137, issued by the FASB in July 1999, establishes a new effective date for SFAS No. 133. This statement, as amended by SFAS No. 137 and SFAS No. 138 (as discussed below), is effective for all fiscal years beginning after June 15, 2000 and is therefore effective for the Company beginning with its fiscal quarter ending March 31, 2001. Based upon the nature of the financial instruments and hedging activities in effect as of the date of this filing, this pronouncement would require the Company to reflect the fair value of its derivative instruments on the consolidated balance sheet. Changes in fair value of these instruments will be reflected as a component of comprehensive income. 20 In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities--an amendment of FASB Statement No. 133." SFAS No. 138 addresses a limited number of issues causing implementation difficulties for SFAS No. 133. SFAS No. 138 is required to be adopted concurrently with SFAS No. 133 and is therefore effective for the Company beginning with its fiscal quarter ending March 31, 2001. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the SEC. The Company believes that adopting SAB 101 will not have a material impact on its financial position or results of operations. In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving Stock Compensation," which is an interpretation of Accounting Principal Board No. 25 This interpretation clarifies: . the definition of employee for purposes of applying Opinion 25, which deals with stock compensation issues; . the criteria for determining whether a plan qualifies as a noncompensatory plan; . the accounting consequence of various modifications to the terms of a previously fixed stock options or award; and . the accounting for an exchange of stock compensation awards in a business combination This interpretation is effective July 1, 2000, but certain conclusions in this interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this interpretation are recognized on a prospective basis from July 1, 2000. The Company believes that the adoption of FIN 44 will not have a material impact on its financial statements. 21 FACTORS THAT MAY AFFECT FUTURE RESULTS FORWARD-LOOKING STATEMENTS A number of the matters and subject areas discussed in this Form 10-Q are forward-looking in nature. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and may differ materially from the Company's actual future experience involving any one or more of such matters and subject areas. The Company wishes to caution readers that all statements other than statements of historical facts included in this quarterly report on Form 10-Q regarding the Company's financial position and business strategy may constitute forward- looking statements. All of these forward-looking statements are based upon estimates and assumptions made by management of the Company, which although believed to be reasonable, are inherently uncertain. Therefore, undue reliance should not be placed on such estimates and statements. No assurance can be given that any of such estimates or statements will be realized and it is likely that actual results will differ materially from those contemplated by such forward-looking statements. Factors that may cause such differences include: (1) increased competition; (2) increased costs; (3) the inability to consummate business acquisitions on attractive terms; (4) the loss or retirement of key members of management; (5) increases in the Company's cost of borrowings or unavailability of additional debt or equity capital on terms considered reasonable by management; (6) adverse state, federal or foreign legislation or regulation or adverse determinations by regulators; (7) changes in general economic conditions in the markets in which the Company may compete and fluctuations in demand in the electronics industry; and (8) the ability to sustain historical margins as the industry develops. The Company has attempted to identify certain of the factors that it currently believes may cause actual future experiences to differ from the Company's current expectations regarding the relevant matter or subject area. In addition to the items specifically discussed in the foregoing, the Company's business and results of operations are subject to the risks and uncertainties described under the headings "Risks Associated with Intangible Assets" and "Factors That May Affect Future Results" contained herein. However, the operations and results of the Company's business also may be subject to the effect of other risks and uncertainties. Such risks and uncertainties include, but are not limited to, items described from time-to- time in the Company's reports filed with the Securities and Exchange Commission. SUBSTANTIAL INDEBTEDNESS The Company has substantial indebtedness. As of June 30, 2000, indebtedness was approximately $390 million for DDi Corp., $338 million for DDi Capital and $256 million for Dynamic Details. As of June 30, 2000, there was $43.8 million available under the Dynamic Details senior credit facility for future borrowings for general corporate purposes and working capital needs. See additional discussion at Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources. In addition, subject to the restrictions in the Intermediate senior discount notes, DDi Capital senior discount notes, Dynamic Details senior subordinated notes and Dynamic Details senior credit facility, the Company may incur additional indebtedness in an unrestricted amount from time to time to finance acquisitions or capital expenditures or for other purposes. As a result of the Company's level of debt and the terms of its debt instruments: . the Company's vulnerability to adverse general economic conditions is heightened; . the Company will be required to dedicate a substantial portion of our cash flow from operations to repayment of debt, limiting the availability of cash for other purposes; . the Company is and will continue to be limited by financial and other restrictive covenants in its ability to borrow additional funds, consummate asset sales, enter into transactions with affiliates or conduct mergers and acquisitions; . the Company's flexibility in planning for, or reacting to, changes in its business and industry will be limited; . the Company is sensitive to fluctuations in interest rates because some of its debt obligations are subject to variable interest rates; and . The Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. 22 The Company's ability to pay principal and interest on it indebtedness and to satisfy its other debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond its control, as well as the availability of revolving credit borrowings under the Dynamic Details senior credit facility or successor facilities. The Company anticipates that its operating cash flow, together with borrowings under the Dynamic Details senior credit facility will be sufficient to meet its operating expenses and to service its debt requirements as they become due. If the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There is no assurance that any of these remedies can be effected on satisfactory terms, if at all. RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS The terms of the Company's indebtedness restrict, among other things, the Company's ability to incur additional indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, incur indebtedness, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. MCM, DDi Capital and Dynamic Details are also required to maintain specified financial ratios and satisfy certain financial condition tests. Their ability to meet those financial ratios and tests can be affected by events beyond their control, and there can be no assurance that they will meet those tests. A breach of any of these covenants could result in a default under some or all of the Company's indebtedness agreements. Upon the occurrence of an event of default, lenders under such indebtedness could elect to declare all amounts outstanding together with accrued interest, to be immediately due and payable. If the Company were unable to repay such amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. Substantially all the assets of Dynamic Details and its subsidiaries are pledged as security under the Dynamic Details senior credit facility. All the assets of MCM are pledged as security under the MCM facilities agreement. TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT The market for the Company's products and services is characterized by rapidly changing technology and continuing process development. The future success of the Company's business will depend in large part upon its ability to maintain and enhance its technological capabilities, to develop and market products and services that meet changing customer needs, and to successfully anticipate or respond to technological changes on a cost-effective and timely basis. Research and development expenses are expected to increase as manufacturers make demands for products and services requiring more advanced technology on a quicker turnaround basis. The Company is more leveraged than some of its principal competitors, and therefore may not be able to respond to technological changes as quickly as these competitors. In addition, the electronics manufacturing services industry could in the future encounter competition from new or revised technologies that render existing technology less competitive or obsolete or that reduce the demand for the Company's services. There can be no assurance that the Company will effectively respond to the technological requirements of the changing market. To the extent the Company determines that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of such technologies and equipment may require the Company to make significant capital investments. There can be no assurance that the Company will be able to obtain capital for these purposes in the future or that any investments in new technologies will result in commercially viable technological processes. DEPENDENCE ON A CORE GROUP OF SIGNIFICANT CUSTOMERS Although the Company has a large number of customers, net sales, during the six months ended June 30, 2000, to its largest customer accounted for approximately 9% of net sales for DDi Corp. and 7.5% of net sales for both DDi Capital and Dynamic Details. Net sales, during the same period, to the ten largest customers accounted for approximately 39% of net sales for the Company. The Company may depend upon a core group of customers for a material percentage of net sales in the future. Substantially all sales are made on the basis of purchase orders rather than long-term agreements. There can be no assurance that significant customers will order services from the Company in the future or that they will not reduce or delay the amount of services ordered. Any reduction or delay in orders could negatively impact revenues. In addition, the Company generates significant accounts receivable in 23 connection with providing services to customers. If one or more significant customers were to become insolvent or otherwise were unable to pay for the services provided; results of operations would be adversely affected. DEPENDENCE ON ACQUISTION STRATEGY As part of its business strategy, the Company expects that it will continue to grow by pursuing acquisitions of other companies, assets or product lines that complement or expand existing business. Competition for attractive companies in industry is substantial. The Company cannot assure that it will be able to identify suitable acquisition candidates or to finance and complete transactions that it selects. In addition, existing credit facilities restrict the Company's ability to acquire the assets or business of other companies. The attention of management may be diverted, and operations may be otherwise disrupted. Failure to effectively execute this acquisition strategy may cause the growth of revenues to suffer. ABILITY TO INTEGRATE ACQUIRED BUSINESSES AND MANAGE EXPANSION Since December 1997, the Company has consummated a merger and three acquisitions, including the acquisition of MCM in conjunction with DDi Corp.'s initial public offering and the acquisition of the assets of Automata after the reporting period on August 4, 2000. The Company has a limited history of owning and operating its businesses on a consolidated basis. There can be no assurance that it will be able to meet performance expectations or successfully integrate acquired businesses on a timely basis without disrupting the quality and reliability of service to customers or diverting management resources. This rapid growth has placed and may continue to place a significant strain on management, financial resources and information, operating and financial systems. If the Company is unable to manage this growth effectively, its rate of growth and its revenues may be adversely affected. COSTS OF INTERNATIONAL EXPANSION The Company is expanding into new foreign markets. DDi Corp. completed its acquisition of MCM in April 2000. Entry into foreign markets may require considerable management time as well as, in the case of new operations, start-up expenses for market development, hiring and establishing office facilities before any significant revenues are generated. As a result, operations in new foreign markets may achieve low margins or may be unprofitable. The Company will be unable to utilize net operating losses incurred by foreign operations to reduce U.S. income taxes. Therefore, as the Company expands internationally, it may not experience the margins it expects, and revenues may be negatively impacted. VARIABILITY OF ORDERS The Company's operating results have fluctuated in the past because it sells on a purchase-order basis rather than pursuant to long-term contracts. The Company is therefore sensitive to variability in customers' demand. Because the Company times expenditures in anticipation of future sales, its operating results may be less than estimated if the timing and volume of customer orders do not match expectations. Furthermore, the Company may not be able to capture all potential revenue in a given period if customers' demand for quick-turnaround services exceeds capacity during that period. Because of these factors, you should not rely on quarter-to-quarter comparisons of the Company's results of operations as an indication of future performance. Because a significant portion of the Company's operating expenses are fixed, even a small revenue shortfall can have a disproportionate effect on operating results. It is possible that, in future periods, results may be below the expectations of public market analysts and investors. A substantial portion of the Company's net sales are derived from quick-turn services for which it provides both the materials and the manufacturing services. As a result, the Company often bears the risk of fluctuations in the cost of materials, and the risk of generating scrap and excess inventory, which can affect gross profit margins. The Company forecasts future inventory needs based upon the anticipated demands of its customers. Inaccuracies in making these forecasts or estimates could result in a shortage or an excess of materials, either of which could negatively affect production schedules and margins. INTELLECTUAL PROPERTY The Company's success depends in part on proprietary technology and manufacturing techniques. The Company has no patents for these proprietary techniques and relies primarily on trade secret protection. Litigation may be 24 necessary to protect its technology and determine the validity and scope of the proprietary rights of competitors. Intellectual property litigation could result in substantial costs and diversion of management and other resources. If any infringement claim is asserted against the Company, it may seek to obtain a license of the other party's intellectual property rights. There is no assurance that a license would be available on reasonable terms or at all. ENVIRONMENTAL MATTERS The Company's operations are regulated under a number of federal, state and foreign environmental and safety laws and regulations that govern, among other things, the discharge of hazardous materials into the air and water, as well as the handling, storage and disposal of such materials. These laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act, as well as analogous state and foreign laws. Compliance with these environmental laws is a major consideration for the Company because it uses in its manufacturing process materials classified as hazardous such as ammoniacal etching solutions, copper and nickel. In addition, because the Company is a generator of hazardous wastes, it may be subject to potential financial liability for costs associated with an investigation and any remediation of sites at which the Company has arranged for the disposal of hazardous wastes if such sites become contaminated. Even if the Company fully complies with applicable environmental laws and is not directly at fault for the contamination, it may still be liable. The wastes the Company generates include spent ammoniacal etching solutions, solder stripping solutions and hydrochloric acid solution containing palladium; waste water which contains heavy metals, acids, cleaners and conditioners; and filter cake from equipment used for on- site waste treatment. Violations of environmental laws could subject the Company to revocation of its effluent discharge permits. Any such revocations could require the Company to cease or limit production at one or more of its facilities, thereby negatively impacting revenues. DEPENDENCE ON KEY MANAGEMENT The Company's success will continue to depend to a significant extent on its executive and other key management personnel. Although the Company has entered into employment agreements with certain of its executive officers, there can be no assurance that the Company will be able to retain its executive officers and key personnel or attract additional qualified management in the future. CONTROLLING STOCKHOLDERS After the completion of DDi Corp's initial public offering (see Note 6 to the Condensed Consolidated Financial Statements) and the acquisition of MCM (see Note 7 to the Condensed Consolidated Financial Statements), investors affiliated with Bain Capital, Inc., Celerity Partners, LLC and The Chase Manhattan Bank together hold approximately 39.7% of the outstanding voting stock of DDi Corp., the sole stockholder of Intermediate, which is the sole stockholder of DDi Capital which, in turn, is the sole stockholder of Dynamic Details. By virtue of such stock ownership, these entities have significant influence over all matters submitted to stockholders of DDi Corp. and its subsidiaries, including the election of directors of DDi Corp. and its subsidiaries, and to exercise significant control over the business, policies and affairs of the Company. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- Interest Rate Risk The MCM senior credit facility and the Dynamic Details senior credit facility bear interest at a floating rate; the Dynamic Details senior subordinated notes, DDi Capital senior discount notes and DDi Intermediate senior discount notes bear interest at fixed rates. The Company reduces exposure to interest rate risks through swap agreements. Under the terms of the current swap agreements, Dynamic Details pays a maximum annual rate of interest applied to a notional amount equal to the principal balance of the term facility portion of the Dynamic Details senior credit facility for the period June 30, 1999 through December 31, 2001. During this period, the maximum annual rate is 5.65% for a given month, unless one-month LIBOR for that month equals or exceeds 7.00%, in which case the Company pays 7.00% for that month. From January 1, 2002 through the scheduled maturity of the senior term facility in 2005, the Company pays a fixed annual rate of 7.35% applied to a notional amount equal to 50% of the principal balance of the senior term facility during that period. The term loan facility portion of the Dynamic Details senior credit facility bears interest based on one-month LIBOR. As of June 30, 2000, one-month LIBOR was 6.64%. If one-month LIBOR increased by 10% to 7.30%, interest expense related to the term loan facility portion would increase by approximately $1.0 million over the twelve months ending June 30, 2001. Since the increased rate would exceed 7.00%, that increase in interest expense would be offset by approximately $0.4 million in payments the Company would be entitled to receive under the Dynamic Details swap agreement. Under the terms of the current swap agreement, MCM pays a maximum annual rate of interest equal to 6.92% applied to fixed amounts of debt per the agreement, through September 2002. As of June 30, 2000, the swap covers approximately 80% of the outstanding debt under the facilities agreement. If MCM were to borrow the full amount available on their facilities agreement, the fixed amounts of debt per the swap agreement would still cover approximately 70% of the outstanding debt. The MCM facilities agreement bears interest based on three- month LIBOR. As of June 30, 2000, three-month LIBOR was 6.77%. If three-month LIBOR increased by 10% to 7.45%, interest expense related to the term loan facility would increase by approximately $198,000. That increase in interest expense, however, would be offset by approximately $123,000 in payments the Company would be entitled to receive under the MCM swap agreement. The revolving credit facility bears interest at (1) 2.25% per annum plus the applicable LIBOR or (2) 1.25% per annum plus the federal reserve reported overnight funds rate plus 0.5% per annum. As of June 30, 2000 the Company had an outstanding balance of $0.5 million under its revolving credit facility. Based upon the Company's anticipated utilization of its revolving credit facility through the year ending December 31, 2000, a 10% change in interest rates as of June 30, 2000 is not expected to materially affect the interest expense to be incurred on this facility during such period. A change in interest rates would not have an effect on the interest expense to be incurred on the Dynamic Details senior subordinated notes, DDi Capital senior discount notes or the DDi Intermediate senior discount notes because each of these instruments bears a fixed rate of interest. Foreign Currency Exchange Risk With DDi Corp.'s acquisition of MCM (see Note 7 to the Condensed Consolidated Financial Statements), the Company now has operations in the United Kingdom. The sales and expenses and financial results of those operations are denominated in British pounds. The Company has foreign currency translation risk equal to the Company's net investment in those operations. However, since nearly all of the Company's sales are denominated in each operation's local currency, the Company has relatively little exposure to foreign currency transaction risk with respect to sales made. Therefore, the effect of an immediate 10% change in exchange rates would not have an impact on the Company's operating results over the 12 month period ending June 30, 2001. The Company does not use forward exchange contracts to hedge exposures to foreign currency denominated transactions and does not utilize any other derivative financial instruments for trading or speculative purposes. 26 PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. The Company is currently not a party to any material legal actions or proceedings. Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. (a) None (b) None (c) DDi Corp. completed the acquisition of MCM on April 14, 2000. In connection with the acquisition, DDi Corp. issued an aggregate of 2,230,619 shares of common stock to MCM investors in exchange for all of the outstanding ordinary shares of MCM. The issuance of shares to MCM investors is exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation S thereof. (d) Pursuant to Rule 463 and Item 701 (f) of Regulation S-K promulgated under the Securities Act of 1933, as amended, the following information is provided in this report: (1) The Registration Statement on Form S-1 of DDi Corp. (File No. 333-95623) (the "Registration Statement") was declared effective by the Securities and Exchange Commission on April 11, 2000. (2) The offering contemplated by the prospectus contained in the Registration Statement (the "Offering") was consummated on April 14, 2000. (3) The managing underwriters in the Offering were Credit Suisse First Boston, Robertson Stephens, Chase H&Q and Lehman Brothers. (4) The Registration Statement related to shares of common stock, $0.01 par value ("Common Stock"), of DDi Corp. (5) The Registration Statement registered an aggregate of 13,800,000 shares of Common Stock; the aggregate gross offering price of the amount of shares registered was $193,200,000; DDi Corp. sold 12,000,000 shares pursuant to the Registration Statement for an aggregate gross offering price of $168,000,000. 1,800,000 of such shares of Common Stock registered under the Registration Statement were subject to an underwriters' over-allotment option that was not exercised by the underwriters and has expired. (6) Through the date of this report, DDi Corp. incurred estimated expenses (including underwriters' discount) of approximately $19.4 million in connection with the Offering, which included approximately $11.3 million in underwriters' discount and commissions and approximately $4.3 million of other expenses (including filing fees related to the Registration Statement and the National Association of Securities Dealers, Inc. and accounting, legal, printing and engraving and miscellaneous expenses). 27 (7) Through the date of this report, of the net proceeds of approximately $156.7 million, (i) approximately $24.0 million was used to redeem a portion of the senior discount notes issued by DDi Intermediate (50% of which are held by a fund advised by an affiliate of Bain) and to pay associated redemption premiums and accrued and unpaid interest thereon; (ii) approximately $100.0 million was used to reduce the indebtedness of the Dynamic Details senior credit facility; (iii) approximately $23.7 million was used to repay the MCM investor loans, including accrued interest assumed in connection with the acquisition of MCM; (iv) approximately $4.8 million was used to pay cash consideration, including fees and expenses, in connection with the acquisition of MCM; and (v) approximately $4.2 million was used to pay expenses incurred in connection with the offering. Item 3. DEFAULTS UPON SENIOR SECURITIES. None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. DDI Corp. --------- (a) On April 6, 2000, there was an Action by Written Consent of the Sole Stockholder in Lieu of an Annual Meeting. (b) Among the resolutions in the consent was a Ratification of Election of Initial Directors, confirming the election by the incorporator of the following individuals to the Board of Directors: Prescott Ashe, Christopher Behrens, Mark R. Benham, Edward W. Conard, Charles D. Dimick, David Dominik, Bruce D. McMaster, Stephen G. Pagliuca and Stephen M. Zide. (c) The following matters were included in the action by consent, each approved by the single vote of the sole stockholder: . Ratification of election of initial directors. As described above; . Merger with and into parent corporation. Approval of the Agreement and Plan of Merger between DDi Corp., a California corporation ("DDi-Cal"), and DDi Corp. (formerly DDi MergerCo.), a Delaware corporation and a wholly-owned subsidiary of DDi-Cal, whereby DDi- Cal was reincorporated as a Delaware corporation immediately prior to the closing of the initial public offering of its Common Stock. . Employee stock plans. Approval of the form, terms and provisions of each of the DDi Corp. 2000 Equity Incentive Plan and the Employee Stock Purchase Plan. (d) None. Item 5. OTHER INFORMATION. None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: ----------------- Certain of the following exhibits have been previously filed with the Commission pursuant to the requirements of the Securities Act. Such exhibits are identified by the parenthetical references following the listing of each such exhibit and are incorporated herein by reference. Exhibit Description - ------- ----------- 27.1 Financial Data Schedule for Dynamic Details, Incorporated 27.2 Financial Data Schedule for DDi Capital Corp. 27.3 Financial Data Schedule for DDi Corp./1999 27.4 Financial Data Schedule for DDi Corp./2000 (b) Reports on Form 8-K: -------------------- On April 12, 2000, DDi Capital and Dynamic Details filed a Report on Form 8-K dated April 11, 2000, (i) describing the April 11, 2000 filing with the SEC by their ultimate parent, DDi Corp., of Amendment No. 5 to its registration statement on Form S-1, and (ii) including a press release announcing the initial public offering of the common stock of its ultimate parent, DDi Corp. 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, DDi Corp. has duly caused this quarterly report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Anaheim, state of California, on the 14th day of August, 2000. DDi CORP. By: /s/ Bruce D. McMaster --------------------- Name: Bruce D. McMaster Title: President and CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Joseph P. Gisch Vice President and August 14, 2000 - ----------------------- Chief Financial Officer Joseph P. Gisch (principal financial and chief accounting officer) 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, DDi Capital Corp. has duly caused this quarterly report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Anaheim, state of California, on the 14th day of August, 2000. DDi CAPITAL CORP. By: /s/ Bruce D. McMaster --------------------- Name: Bruce D. McMaster Title: President and CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Joseph P. Gisch Vice President and August 14, 2000 - ----------------------- Chief Financial Officer Joseph P. Gisch (principal financial and chief accounting officer) 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Dynamic Details, Incorporated, has duly caused this quarterly report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Anaheim, state of California, on the 14th day of August, 2000. DYNAMIC DETAILS, INCORPORATED By: /s/ Bruce D. McMaster --------------------- Name: Bruce D. McMaster Title: President and CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Joseph P. Gisch Vice President and August 14, 2000 - ----------------------- Chief Financial Officer Joseph P. Gisch (principal financial and chief accounting officer) 31 EX-27.1 2 0002.txt FINANCIAL DATA SCHEDULE - DYNAMIC DETAILS
5 0001050117 DYNAMIC DETAILS, INC. 1,000 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 180 0 0 0 56,656 0 (2,040) 0 26,220 0 8,831 0 117,141 0 (51,340) 0 360,586 0 60,726 0 247,897 0 0 0 0 0 0 0 26,776 0 360,586 0 86,912 162,197 86,912 162,197 55,875 104,910 55,875 104,910 17,114 33,111 0 0 6,984 15,248 6,939 8,928 (2,963) (4,610) 3,976 4,318 0 0 (670) (670) 0 0 3,306 3,648 0 0 0 0
EX-27.2 3 0003.txt FINANCIAL DATA SCHEDULE - DDI CAPITAL CORP.
5 0001050119 DDi CAPITAL CORP. 1,000 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 180 0 0 0 56,656 0 (2,040) 0 26,220 0 8,831 0 117,141 0 (51,340) 0 364,193 0 58,741 0 330,516 0 0 0 0 0 0 0 (43,175) 0 364,193 0 86,912 162,197 86,912 162,197 55,875 104,910 55,875 104,910 17,114 33,111 0 0 9,504 20,204 4,419 3,972 (1,953) (2,624) 2,466 1,348 0 0 (670) (670) 0 0 1,796 678 0 0 0 0
EX-27.3 4 0004.txt FINANCIAL DATA SCHEDULE - DDI CORP.
5 0001104252 DDi CORP. 1,000 3-MOS 6-MOS DEC-31-1999 DEC-31-1999 APR-01-1999 JAN-01-1999 JUN-30-1999 JUN-30-1999 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 71,740 130,919 71,740 130,919 50,435 92,445 50,435 92,445 15,574 28,969 0 0 11,720 23,301 (5,989) (13,796) 1,098 3,576 (4,891) (10,220) 0 0 0 0 0 0 (4,891) (10,220) (.86) (1.75) (.86) (1.75)
EX-27.4 5 0005.txt FINANCIAL DATA SCHEDULE - DDI CORP.
5 0001104252 DDi CORP. 1,000 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 4,081 4,081 0 0 69,012 69,012 (2,834) (2,834) 30,306 30,306 9,695 9,695 141,349 141,349 (64,306) (64,306) 466,651 466,651 75,319 75,319 378,748 378,748 0 0 0 0 393 393 (6,222) (6,222) 466,651 466,651 101,533 176,818 101,533 176,818 65,981 115,016 65,981 115,016 19,698 35,695 0 0 11,006 23,161 4,848 2,946 (2,420) (2,495) 2,428 451 0 0 (2,551) (2,551) 0 0 (123) (2,100) (0.02) (0.29) (0.02) (0.29)
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