-----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, Q8qCyDS+/s72BahuKjv55IE2VNbbid4FfYsmWP6IndFuO9tIS7s0e3QBW53HBGPD DDGeweCG7AmZ3xkEBF25xg== /in/edgar/work/0001017062-00-002276/0001017062-00-002276.txt : 20001114 0001017062-00-002276.hdr.sgml : 20001114 ACCESSION NUMBER: 0001017062-00-002276 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 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: 762048 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: 762049 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: 762050 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 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 September 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 [_]. As of September 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 September 30, 2000, DDi Corp. also held all of the capital stock of MCM Electronics Limited. As of September 30, 2000, DDi Corp. had 39,320,390 shares of common stock, par value $0.01 per share, outstanding. As of September 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 September 30, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2000 and 1999 4 Consolidated Statements of Comprehensive Loss for the three and nine months 7 ended September 30, 2000 and 1999 Condensed Consolidated Statements of Cash Flows for the nine months ended September 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 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk 27 PART II Other Information Item 1. Legal Proceedings 28 Item 2. Changes in Securities and Use of Proceeds 28 Item 3. Defaults upon Senior Securities 28 Item 4. Submission of Matters to a Vote of Security Holders 28 Item 5. Other Information 28 Item 6 Exhibits and Reports on Form 8-K 28 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. --------------- ----------- -------- September 30,December 31, September 30, December 31, September 30, December 31, ------------------------- -------------------------- -------------------------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Assets (Unaudited) (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 102 $ 644 $ 102 $ 644 $ 2,498 $ 648 Accounts receivable, net 90,065 42,774 90,065 42,774 101,340 42,774 Inventories 23,635 20,209 23,635 20,209 28,101 20,209 Prepaid expenses and other 4,017 2,498 4,017 2,498 4,920 2,499 Deferred tax asset 5,215 5,215 5,215 5,215 5,215 5,215 ---------------------- ---------------------- ---------------------- Total current assets 123,034 71,340 123,034 71,340 142,074 71,345 Property, plant and equipment, net 79,130 63,209 79,130 63,209 90,987 63,209 Debt issue costs, net 6,898 9,490 10,469 13,152 10,781 13,833 Goodwill and other intangibles, net 204,340 205,462 204,340 205,462 267,666 205,462 Other 1,228 486 1,228 486 1,961 486 ---------------------- ---------------------- ---------------------- Total Assets $ 414,630 $ 349,987 $ 418,201 $ 353,649 $ 513,469 $ 354,335 ====================== ====================== ====================== Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current maturities of long-term debt and capital lease obligations $ 11,079 $ 7,035 $ 11,079 $ 7,035 $ 14,423 $ 7,035 Current portion of deferred interest rate swap income 979 1,458 979 1,458 979 1,458 Current maturities of deferred notes payable 935 2,514 935 2,514 935 2,514 Revolving credit facility 9,500 -- 9,500 -- 9,500 -- Accounts payable 32,954 18,055 32,954 18,055 43,754 18,055 Accrued expenses 36,311 22,263 36,311 22,263 40,129 22,311 Income tax payable 12,420 894 9,388 894 8,961 894 ---------------------- ---------------------- ---------------------- Total current liabilities 104,178 52,219 101,146 52,219 118,681 52,267 Long-term debt and capital lease obligations 245,767 351,227 330,957 428,944 378,509 469,703 Deferred interest rate swap income 2,369 3,881 2,369 3,881 2,369 3,881 Notes payable and other 1,461 2,179 1,461 2,179 1,461 2,179 Deferred tax liability 20,496 20,496 13,420 13,420 14,075 13,420 ---------------------- ---------------------- ---------------------- Total liabilities 374,271 430,002 449,353 500,643 515,095 541,450 ---------------------- ---------------------- ---------------------- Commitments and contingencies Stockholders' equity (deficit): Common stock, additional paid-in-capital and other 358,590 251,944 306,475 199,830 340,408 162,239 Accumulated deficit (318,231) (331,959) (337,627) (346,824) (342,034) (349,354) ---------------------- ---------------------- ---------------------- Total stockholders' equity (deficit) 40,359 (80,015) (31,152) (146,994) (1,626) (187,115) Total Liabilities and Stockholders' ---------------------- ---------------------- ---------------------- Equity (Deficit) $ 414,630 $ 349,987 $ 418,201 $ 353,649 $ 513,469 $ 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 Nine Months Ended September 30, September 30, ------------------------ ---------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 132,227 $ 82,919 $ 294,424 $ 213,838 Cost of goods sold 83,886 57,163 189,269 149,197 ------------------------ ----------------------- Gross profit 48,341 25,756 105,155 64,641 Operating expenses: Sales and marketing 11,189 6,578 25,560 16,648 General and administration 6,523 4,339 15,147 11,573 Amortization of intangibles 4,719 5,937 14,835 17,763 ------------------------ ----------------------- Operating income 25,910 8,902 49,613 18,657 Interest expense (net) and other expense (net) 6,402 8,078 21,175 24,507 ------------------------ ----------------------- Income (loss) before income taxes 19,508 824 28,438 (5,850) Income tax (expense) benefit (9,430) (583) (14,040) 99 ------------------------ ----------------------- Income (loss) before extraordinary item 10,078 241 14,398 (5,751) Extraordinary loss on retirement of debt, net of tax -- -- (670) -- ------------------------ ----------------------- Net income (loss) $ 10,078 $ 241 $ 13,728 $ (5,751) ======================== =======================
The accompanying notes are an integral part of these condensed consolidated finanicial statements. 4 DDi CAPITAL CORP. Condensed Consolidated Statements of Operations (In Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ---------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 132,227 $ 82,919 $ 294,424 $ 213,838 Cost of goods sold 83,886 57,163 189,269 149,197 ---------------------- ---------------------- Gross profit 48,341 25,756 105,155 64,641 Operating expenses: Sales and marketing 11,189 6,578 25,559 16,648 General and administration 6,523 4,339 15,147 11,573 Amortization of intangibles 4,719 5,937 14,835 17,763 ---------------------- ---------------------- Operating income 25,910 8,902 49,614 18,657 Interest expense (net) and other expense (net) 9,007 10,357 28,739 31,113 ---------------------- ---------------------- Income (loss) before income taxes 16,903 (1,455) 20,875 (12,456) Income tax benefit (expense) (8,384) 326 (11,008) 2,751 ---------------------- ---------------------- Income (loss) before extraordinary item 8,519 (1,129) 9,867 (9,705) Extraordinary loss on retirement of debt, net of tax -- -- (670) -- ---------------------- ---------------------- Net income (loss) $ 8,519 $ (1,129) $ 9,197 $ (9,705) ====================== ======================
The accompanying notes are an integral part of these condensed consolidated finanicial statements. 5 DDi CORP. Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 149,582 $ 82,919 $ 326,400 $ 213,838 Cost of goods sold 95,132 57,404 210,620 149,849 ---------------------------- ---------------------------- Gross profit 54,450 25,515 115,780 63,989 Operating expenses: Sales and marketing 11,615 6,578 26,420 16,648 General and administration 8,486 4,098 18,451 11,171 Amortization of intangibles 5,519 5,937 16,445 17,763 ---------------------------- ---------------------------- Operating income 28,830 8,902 54,464 18,407 Interest expense (net) and other expense (net) 10,427 11,720 33,115 35,021 ---------------------------- ---------------------------- Income (loss) before income taxes 18,403 (2,818) 21,349 (16,614) Income tax benefit (expense) (8,983) 881 (11,478) 4,457 ---------------------------- ---------------------------- Income (loss) before extraordinary item 9,420 (1,937) 9,871 (12,157) Extraordinary loss on retirement of debt, net of tax -- -- (2,551) -- ---------------------------- ---------------------------- Net income (loss) $ 9,420 $ (1,937) $ 7,320 $ (12,157) ============================ ============================ Income (loss) per share - basic: Before extraordinary item $ 0.24 $ (0.58) $ 0.20 $ (2.33) Extraordinary item $ -- $ -- $ (0.09) $ -- Net income (loss) $ 0.24 $ (0.58) $ 0.11 $ (2.33) Income (loss) per share - diluted: Before extraordinary item $ 0.22 $ (0.58) $ 0.19 $ (2.33) Extraordinary item $ -- $ -- $ (0.09) $ -- Net income (loss ) $ 0.22 $ (0.58) $ 0.10 $ (2.33) Weighted average shares used to compute income (loss) per share: Basic 39,320,390 9,843,985 27,904,918 9,797,448 Diluted 42,031,446 9,843,985 29,408,841 9,797,448 _____________________________ Pro forma basic net income (loss) per share (unaudited) $ 0.24 $ (0.08) $ 0.22 $ (0.49) ============================ ============================ Pro forma diluted net income (loss) per share (unaudited) $ 0.22 $ (0.08) $ 0.21 $ (0.49) ============================ ============================ Pro forma weighted average basic shares outstanding (unaudited) 39,320,390 24,750,000 33,836,658 24,750,000 ============================ ============================ Pro forma weighted average diluted shares outstanding (unaudited) 42,031,446 24,750,000 35,340,581 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 Nine Months Ended September 30, September 30, -------------------------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net income (loss) $ 9,420 $ (1,937) $ 7,320 $(12,157) Other comprehensive loss: Foreign currency translation adjustments (3,042) -- (4,208) -- -------------------------------------------------------- Comprehensive income (loss) $ 6,378 $ (1,937) $ 3,112 $(12,157)
* 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. --------------- ----------- --------- Nine Months Ended Nine Months Ended Nine Months Ended September 30, September 30, September 30, -------------------- ------------------- ------------------ 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Cash flows from operating activities: Net cash provided by operating activities $ 40,332 $ 15,690 $ 40,332 $ 15,690 $ 44,089 $ 15,192 -------------------- -------------------- ------------------ Cash flows from investing activities: Purchases of property, plant and equipment (17,395) (14,159) (17,395) (14,159) (19,357) (14,159) Costs incurred in connection with the acquisition of DCI -- (337) -- (337) -- (323) Acquisition of MCM, net of cash acquired of $7,794 -- -- -- -- (2,375) -- Acquisition of Automata (19,805) -- (19,805) -- (19,805) -- Acquisition of Golden Manufacturing, net of cash acquired of $722 (11,867) -- (11,867) -- (11,867) -- -------------------- -------------------- ------------------ Net cash used in investing activities (49,067) (14,496) (49,067) (14,496) (53,404) (14,482) -------------------- -------------------- ------------------ Cash flows from financing activities: Net principal payments on long-term debt (103,026) (2,175) (103,026) (2,175) (146,504) (2,175) Net borrowings (repayments) on the revolving credit facility 9,500 (3,500) 9,500 (3,500) 9,500 (3,500) Payments of deferred note payable (2,365) (1,910) (2,365) (1,910) (2,365) (1,896) Principal payments on capital lease obligations (891) (736) (891) (736) (1,126) (752) Payment of loan financing fees (742) -- (742) -- (742) -- Capital contribution from (to) Parent, net 106,645 (231) 106,645 (231) -- -- Due to affiliate 339 -- 339 -- -- -- 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 39 -------------------- -------------------- ------------------ Net cash provided by (used in) financing activities 8,193 (2,490) 8,193 (2,490) 10,839 (2,206) -------------------- -------------------- ------------------ Effect of exchange rate changes on cash -- -- -- -- 326 -- -------------------- -------------------- ------------------ Net increase (decrease) in cash and cash equivalents (542) (1,296) (542) (1,296) 1,850 (1,496) Cash and cash equivalents, beginning of year 644 1,905 644 1,905 648 2,109 -------------------- -------------------- ------------------ Cash and cash equivalents, end of period $ 102 $ 609 $ 102 $ 609 $ 2,498 $ 613 ==================== ==================== ==================
Supplemental disclosure of cash flow information: Non-cash operating activities: During the nine months ended September 30, 2000 depreciation and amortization expense was approximately $30 million for DDi Corp. and approximately $27 million for both DDi Capital and Dynamic Details. During the nine months ended September 30, 1999, DDi Corp., DDi Capital and Dynamic Details recorded approximately $30 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 DDi Europe Limited (f/k/a 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 nine month periods ended September 30, 2000 include the results of MCM commencing on April 14, 2000, the date of acquisition of MCM (see Note 7), Automata International, Inc. ("Automata") commencing on August 4, 2000, the date of the acquisition of Automata's assets (see Note 8) and Golden Manufacturing, Inc. ("Golden") commencing on September 15, 2000, the date of the acquisition of Golden's assets (see Note 9). 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 third 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 September 30, 2000, and the results of operations for the three and nine months ended September 30, 2000 and 1999 and cash flows for the nine months ended September 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 September 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 statements on Form S-1, filed April 14, 2000 and October 10, 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 provides technologically advanced, time-critical electronics design, development and manufacturing services to original equipment manufacturers and other electronics manufacturing service providers. The Company serves approximately 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 ---------------------------------------------------- (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 consist of the following (in thousands): Dynamic Details and DDi Capital DDi Corp. ----------------------------- ---------------------------- September 30, December 31, September 30, December 31, 2000 1999 2000 1999 ----------------------------- ---------------------------- Raw materials $ 7,849 $11,828 $ 9,880 $11,828 Work-in-process 12,535 5,601 14,564 5,601 Finished goods 3,251 2,780 3,657 2,780 ----------------------------- ---------------------------- Total $23,635 $20,209 $28,101 $20,209 ============================= ============================ NOTE 3. LONG-TERM DEBT AND CAPITAL LEASES Long-term debt and capital lease obligations consist of the following (in thousands):
Dynamic Details DDi Capital DDi Corp. ----------------------------- ----------------------------- --------------------------- September 30, December 31, September 30, December 31, September 30, December 31, 2000 1999 2000 1999 2000 1999 ----------------------------- ----------------------------- --------------------------- Senior Term Facility (a) $ 148,712 $ 251,738 $ 148,712 $ 251,738 $ 148,712 $ 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) -- -- 85,190 77,717 85,190 77,717 13.5% Intermediate Senior Discount Notes (c) -- -- -- -- 22,597 40,759 MCM Facilities Agreement (d) -- -- -- -- 27,653 -- Capital lease obligations 8,134 6,524 8,134 6,524 8,780 6,524 ------------------------ ------------------------ ---------------------- Sub-total 256,846 358,262 342,036 435,979 392,932 476,738 Less current maturities (11,079) (7,035) (11,079) (7,035) (14,423) (7,035) ------------------------ ------------------------ ---------------------- Total $ 245,767 $ 351,227 $ 330,957 $ 428,944 $ 378,509 $ 469,703 ======================== ======================== ======================
(a) The Senior Term Facility, together with the Revolving Credit Facility, which had $9,500 outstanding as of September 30, 2000 and no amounts outstanding as of December 31, 1999, comprise the Senior Credit Facility. Interest rates are LIBOR-based and range from 8.37% to 9.12% as of September 30, 2000. 100% of the principal balance is fixed at 5.65% by an interest exchange agreement. (b) Face amount of $110,000, net of unamortized discount of $24,810 and $32,283 at September 30, 2000 and December 31, 1999, respectively. (c) Face amount of $33,405 and $66,810 at September 30, 2000 and December 31, 1999, respectively, net of unamortized discount of $10,808 and $26,051 at September 30, 2000 and December 31, 1999, respectively. (d) Interest rates are LIBOR-based. 93% of the principal balance is fixed at 6.92% by an interest rate agreement. 10 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (In thousands, except share and per share amounts) 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). In October 2000, in connection with DDi Corp.'s secondary public offering, the Company elected to terminate and concurrently replace an existing interest rate exchange agreement (see Note 14). MCM entered into an interest rate swap agreement effective January 12, 2000 that 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 approximates 93% of the outstanding balance at September 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 September 30, 2000 September 30, 1999 -------------------------- --------------------------- Numerator: Basic Diluted Basic Diluted ----- ------- ----- ------- Income (loss) before extraordinary item $ 9,420 $ 9,420 $ (1,937) $ (1,937) Priority distribution due shares of Class L common stock -- -- (3,771) (3,771) ------------------------- ------------------------- Income (loss) allocable to common stock 9,420 9,420 (5,708) (5,708) Extraordinary item -- -- -- -- ------------------------- ------------------------- Net income (loss) allocable to common stock $ 9,420 $ 9,420 $ (5,708) $ (5,708) ========================= ========================= Denominator: Weighted average shares of common stock outstanding 39,320,390 39,320,390 9,843,985 9,843,985 Dilutive potential common shares: Stock options and warrants -- 2,711,056 -- -- ------------------------- ------------------------- Shares used in computing income (loss) per share 39,320,390 42,031,446 9,843,985 9,843,985 ========================= =========================
11 DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (In thousands, except share and per share amounts)
Nine Months Ended Nine Months Ended September 30, 2000 September 30, 1999 ------------------------------ --------------------------- Numerator: Basic Diluted Basic Diluted ----- ------- ----- ------- Income (loss) before extraordinary item $ 9,871 $ 9,871 $ (12,157) $ (12,157) Priority distribution due shares of Class L common stock (4,356) (4,356) (10,669) (10,669) --------------------------- -------------------------- Income (loss) allocable to common stock 5,515 5,515 (22,826) (22,826) Extraordinary item (2,551) (2,551) -- -- --------------------------- -------------------------- Net income (loss) allocable to common stock $ 2,964 $ 2,964 $ (22,826) $ (22,826) =========================== ========================== Denominator: Weighted average shares of common stock outstanding 27,904,918 27,904,918 9,797,448 9,797,448 Dilutive potential common shares: -- -- -- -- Stock options and warrants -- 1,503,923 -- -- --------------------------- -------------------------- Shares used in computing income (loss) per share 27,904,918 29,408,841 9,797,448 9,797,448 =========================== ==========================
As a result of the loss before extraordinary item, after deducting priority distributions of Class L common stock, incurred by DDi Corp. during the three and nine months ended September 30, 1999, all potential common shares were anti- dilutive and excluded from the diluted net loss per share calculation for those periods. Unaudited pro forma income (loss) per share - Unaudited pro forma basic and diluted net loss per share for the nine months ended September 30, 2000 and for the three and nine months ended September 30, 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 $156.7 million, 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 11). 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 $82 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 totaling approximately $29 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). 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) 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 filing of this report, management is assessing, with the assistance of an independent appraisal firm, fair value adjustments to the intangible assets acquired (including identifiable intangibles such as developed technologies, customer relationships/tradenames and assembled workforce) and in-process research and development. These intangibles will be amortized over their estimated useful lives. The 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 Company anticipates making a final purchase price allocation in the fourth quarter of 2000 based upon completion of the independent appraisal and management's assessment. 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. NOTE 8. ACQUISITION OF AUTOMATA INTERNATIONAL On August 4, 2000, Dynamic Details completed the acquisition of substantially all the U.S. assets of Automata, a Virgina-based manufacturer of technologically advanced printed circuit boards. Dynamic Details acquired substantially all the U.S. assets of Automata for total cash consideration of approximately $19.5 million, plus fees and expenses of $0.3 million. This transaction was accounted for under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16 and accordingly, the results of operations of Automata since the date of the transaction are included in the accompanying consolidated financial statements of Dynamic Details. The total purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their respective fair market values at the date of acquisition. The excess of the purchase price was allocated to goodwill and is being amortized over its estimated useful life of 20 years. NOTE 9. ACQUISITION OF GOLDEN MANUFACTURING On September 15, 2000, Dynamic Details completed the acquisition of the assets of Golden, a Texas-based manufacturer of engineered metal enclosures and provider of value-added assembly services to communications and electronics original equipment manufacturers, for approximately $14.4 million paid in combination of cash of approximately $12.6 million and the assumption of approximately $1.8 million of Golden's outstanding capital lease liabilities (net of cash acquired of approximately $0.7 million). This transaction was accounted for under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16 and accordingly, the results of operations of Golden since the date of the transaction are included in the accompanying consolidated financial statements of Dynamic Details. The total purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their respective fair market values at the date of acquisition. The excess of the purchase price was allocated to goodwill and is being amortized over its estimated useful life of 20 years. 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 10. 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 September 30, 2000, Automata for the period August 4, 2000 through September 30, 2000 and Golden for the period September 16, 2000 through September 30, 2000. The following pro forma information for the nine months ended September 30, 2000 and 1999 presents net sales, income (loss) before extraordinary item, and net income (loss) for each of these periods as if the MCM and Automata transactions were consummated at the beginning of each period. The unaudited pro forma financial information does not reflect Golden's pre-acquisition results. As of the filing of this report, management is assessing, with the assistance of an independent appraisal firm, purchase price allocation adjustments to the intangible 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 September, 30 2000 September, 30 1999 ------------------ ------------------ (in millions, except (in millions, except per share amounts) per share amounts) Net sales $377.5 $ 301.5 Income (loss) before extraordinary item $ 6.9 ($30.4) Net income (loss) $ 4.3 ($30.4) Net income (loss) per share of common stock - basic $ 0.15 ($3.10) Net income (loss) per share of common stock - diluted $ 0.15 ($3.10)
NOTE 11. 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 12. 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 matters. 14 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 13. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL DATA On November 15, 1997, Dynamic Details, Incorporated (the "Issuer"), 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 the Issuer 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 the Issuer presented is more meaningful in understanding the financial position of the Company. SUPPLEMENTAL DYNAMIC DETAILS CONDENSED FINANCIAL DATA (Unaudited) CONDENSED BALANCE SHEETS
September 30, 2000 December 31, 1999 ------------------ ----------------- Current assets $ 39,231 $ 22,472 Non-current assets 308,135 329,490 --------- --------- Total assets $ 347,366 $ 351,962 ========= ========= Current liabilities $ 40,265 $ 29,089 Non-current liabilities 239,690 354,397 --------- --------- Total liabilities 279,955 383,486 --------- --------- Total stockholders' equity (deficit) 67,411 (31,524) --------- --------- Total liabilities and stockholders' equity (deficit) $ 347,366 $ 351,962 ========= =========
15 SUPPLEMENTAL DYNAMIC DETAILS CONDENSED FINANCIAL DATA (Unaudited) CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Three Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Net sales $ 40,244 $ 27,912 Cost of sales 21,534 14,256 ---------- ---------- Gross profit 18,710 13,656 Operating expenses 6,573 4,527 ---------- ---------- Income from operations 12,137 9,129 Interest expense, net 6,231 7,558 ---------- ---------- Income before taxes 5,906 1,571 Income tax expense (4,417) (608) ---------- ---------- Income before equity in income (loss) of subsidiaries 1,489 963 Equity in income (loss) of subsidiaries 8,589 (722) ---------- ---------- Net income $ 10,078 $ 241 ========== ==========
Nine Months Ended Nine Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Net sales $ 104,375 $ 70,825 Cost of sales 55,935 37,341 ----------- ---------- Gross profit 48,440 33,484 Operating expenses 15,786 9,646 ----------- ---------- Income from operations 32,654 23,838 Interest expense, net 20,983 24,367 ----------- ---------- Income (loss) before taxes 11,671 (529) Income tax benefit (expense) (5,278) 149 ----------- ---------- Income (loss) before extraordinary item and equity in income (loss) of subsidiaries 6,393 (380) Extraordinary item (670) -- ----------- ---------- Income (loss) before equity in income (loss) of subsidiaries 5,723 (380) Equity in income (loss) of subsidiaries 8,005 (5,371) ----------- ---------- Net income (loss) $ 13,728 $ (5,751) =========== ==========
16 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 14. SUBSEQUENT EVENTS On October 16, 2000, DDi Corp. completed a secondary public offering of 6,000,000 shares of its common stock, with 4,608,121 shares issued by DDi Corp. and the remainder offered by selling shareholders. The shares were offered at $27.875 per share, generating proceeds to DDi Corp. of $120.0 million, net of underwriting discounts, commissions and expenses. The net proceeds were used to redeem the remaining $17.5 million of the Intermediate Senior Discount Notes, pay associated redemption premiums of $3.8 million and accrued and unpaid interest thereon of $5.2 million, and repurchase a portion of the Capital Senior Discount Notes, with an accreted balance of $35.6 million, for $37.6 million. The remaining net proceeds of approximately $56 million will be used for general corporate purposes, including potential future acquisitions. DDi Corp. contributed approximately $35 million of the $56 million to Dynamic Details. In October 2000, concurrent with the closing of the secondary public offering, Dynamic Details entered into an amendment to the Dynamic Details senior credit facility with the Bankers Trust Company and Chase Manhattan Bank, as agents. The amendment permitted DDi Corp. to use the proceeds of its secondary public offering as described above and in its registration statement on Form S-1. The amendment also modified certain debt covenants, increased the interest rate margin by 50 basis points and made available a $30 million uncommitted incremental borrowing facility. In October 2000, in connection with DDi Corp.'s secondary public offering, the Company elected to terminate and concurrently replace an existing interest rate exchange agreement. The replacement of the swap agreement reduces the notional amount hedged and the fixed rate of interest to be paid over the effective period of January 1, 2002 through the scheduled maturity of the senior term loans in April 2005. The Company paid $2.0 million to terminate the existing swap agreement. Such payment will be amortized into interest expense as a yield adjustment. There will be no material impact from these transactions on the Company's earnings for 2000. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS. - --------------- OVERVIEW The Company provides technologically advanced, time-critical electronics design, development and manufacturing services to original equipment manufacturers and other electronics manufacturing service providers. The Company serves approximately 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 to Form S-1 filed April 14, 2000 and in DDi Corp.'s Amendment No. 2 to Form S-1 filed October 10, 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. The Company's results of operations presented herein do not reflect the use of the net proceeds of DDi Corp.'s secondary equity offering, which was consummated on October 16, 2000. RESULTS OF OPERATIONS Three Months Ended September 30, 2000 Compared to the Three Months ended September 30, 1999 Net Sales - Dynamic Details and DDi Capital net sales increased $49.3 million (59%) to $132.2 million for the three months ended September 30, 2000, from $82.9 million for the same period in 1999. Such increase is primarily attributable to: (i) the production of more complex and larger panels, which increased the average sales price per panel and (ii) the impact of the Automata and Golden acquisitions. DDi Corp. net sales increased $66.7 million (80%) to $149.6 million for the three months ended September 30, 2000, from $82.9 million for the same period in 1999. Such increase reflects the higher level of sales achieved by Dynamic Details and the impact of the acquisition of MCM. In aggregate, the Automata, Golden and MCM acquisitions contributed $36.7 million to DDi Corp. net sales for the three months ended September 30, 2000. Gross Profit - Dynamic Details and DDi Capital gross profit increased $22.5 million (87%) to $48.3 million for the three months ended September 30, 2000, from $25.8 million for the same period in 1999. Such increase in gross profit resulted from the higher level of sales, an improvement in production yields in the Company's pre- production operations, and the impact of the Automata and Golden acquisitions. DDi Corp. gross profit increased $29.0 million (114%) to $54.5 million for the three months ended September 30, 2000, from $25.5 million for the same period in 1999. Such increase reflects the improvements in gross profit achieved by Dynamic Details and the impact of the acquisition of MCM. Sales and Marketing Expenses - Dynamic Details and DDi Capital sales and marketing expenses increased $4.6 million (70%) to $11.2 million for the three months ended September 30, 2000, from $6.6 million for the same period in 1999. Such increase is due to: (i) growth in our sales force to accommodate existing and anticipated near-term increases in customer demand and higher commissions and related variable expenses due to our increased sales volume and (ii) the impact of the Automata and Golden acquisitions. DDi Corp. sales and marketing expenses increased $5.0 million (76%) to $11.6 million for the three months ended September 30, 2000, from $6.6 million for the same period in 1999. Such increase reflects the increase in sales and marketing expenses incurred by Dynamic Details and the impact of the acquisition of MCM. General and Administration Expenses - Dynamic Details and DDi Capital general and administration expenses increased $2.2 million (51%) to $6.5 million for the three months ended September 30, 2000, from $4.3 million for the same period in 1999. The increase in expenses is attributable to higher staffing costs and other back-office expenditures to support our growth, and the impact of the Automata and Golden acquisitions. Such increases were partially 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 $4.4 million (107%) to $8.5 million for the three months ended 18 September 30, 2000, from $4.1 million for the same period in 1999. Such increase reflects the increase in general and administration expenses incurred by Dynamic Details and the impact of the acquisition of MCM. Amortization of Intangibles - Dynamic Details and DDi Capital amortization of intangibles decreased $1.2 million (20%) to $4.7 million for the three months ended September 30, 2000, from $5.9 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 $0.4 million (7%) to $5.5 million for the three months ended September 30, 2000, from $5.9 million for the same period in 1999. Such decrease reflects the decrease in amortization of intangibles incurred by Dynamic Details, partially offset by amortization attributable to the acquisition of MCM. Net Interest Expense - Dynamic Details net interest expense decreased $1.7 million (21%) to $6.4 million for the three months ended September 30, 2000, from $8.1 million for the same period in 1999. Such decrease is due to the redemption of Senior Term Facility principal resulting from the DDi Corp. initial public offering in April 2000, partially offset by an increase in interest rates. DDi Capital net interest expense decreased $1.4 million (13%) to $9.0 million for the three months ended September 30, 2000, from $10.4 million for the same period in 1999. Such decrease reflects the decrease in net interest expense incurred by Dynamic Details, partially offset by the impact of discount accretion on the Capital Senior Discount Notes. DDi Corp. net interest expense decreased $1.3 (11%) to $10.4 million for the three months ended September 30, 2000, from $11.7 million for the same period in 1999. Such decrease reflects the decrease in net interest expense incurred by DDi Capital and the redemption of Intermediate Senior Discount Notes principal resulting from the DDi Corp. initial public offering in April 2000. These decreases were partially offset by the impact of the acquisition of MCM. Interest on debt assumed in the acquisition of MCM was $0.6 million for the three months ended September 30, 2000. Income Taxes - Dynamic Details income taxes increased $8.8 million to $9.4 million for the three months ended September 30, 2000, from $0.6 million for the same period in 1999. DDi Capital income taxes increased $8.7 million to $8.4 million for the three months ended September 30, 2000, from a tax benefit of $0.3 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 $9.9 million to $9.0 million for the three months ended September 30, 2000, from a tax benefit of $0.9 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 $0.9 million in tax expense for the three months ended September 30 2000. The provisions for income taxes are based upon the Company's expected effective tax rate in the respective fiscal year. Nine Months Ended September 30, 2000 Compared to the Nine Months ended September 30, 1999 Net Sales - Dynamic Details and DDi Capital net sales increased $80.6 million (38%) to $294.4 million for the nine months ended September 30, 2000, from $213.8 million for the same period in 1999. Such increase is attributable to: (i) the production of more complex and larger panels, which increased the average sales price per panel and (ii) the impact of the Automata and Golden acquisitions. DDi Corp. net sales increased $112.6 million (53%) to $326.4 million for the nine months ended September 30, 2000, from $213.8 million for the same period in 1999. Such increase reflects the higher level of sales achieved by Dynamic Details and the impact of the acquisition of MCM. In aggregate, the Automata, Golden and MCM acquisitions contributed $51.3 million to DDi Corp. net sales for the nine months ended September 30, 2000. Gross Profit - Dynamic Details and DDi Capital gross profit increased $40.6 million (63%) to $105.2 million for the nine months ended September 30, 2000, from $64.6 million for the same period in 1999. Such increase in gross profit resulted from the higher level of sales, an improvement in production yields in the Company's pre- production operations, and the impact of the Automata and Golden acquisitions. DDi Corp. gross profit increased $51.8 million (81%) to $115.8 million for the nine months ended September 30, 2000, from $64.0 million for the same period in 1999. Such increase reflects the improvements in gross profit achieved by Dynamic Details and the impact of the acquisition of MCM. Sales and Marketing Expenses - Dynamic Details and DDi Capital sales and marketing expenses increased $9.0 million (54%) to $25.6 million for the nine months ended September 30, 2000, from $16.6 million for the same period in 1999. Such increase is due to: (i) growth in our sales force to accommodate existing and anticipated near-term increases in customer demand and higher 19 commissions and related variable expenses due to our increased sales volume and (ii) the impact of the Automata and Golden acquisitions. DDi Corp. sales and marketing expenses increased $9.8 million (59%) to $26.4 million for the nine months ended September 30, 2000, from $16.6 million for the same period in 1999. Such increase reflects the increase in sales and marketing expenses incurred by Dynamic Details and the impact of the acquisition of MCM. General and Administration Expenses - Dynamic Details and DDi Capital general and administration expenses increased $3.5 million (30%) to $15.1 million for the nine months ended September 30, 2000, from $11.6 million for the same period in 1999. The increase in expenses is attributable to higher staffing costs and other back-office expenditures to support our growth, and the impact of the Automata and Golden acquisitions. Such increases were partially offset by the elimination of management fees in connection with a management agreement terminated in connection with the MCM transaction and related matters. DDi Corp. general and administration expenses increased $7.3 million (65%) to $18.5 million for the nine months ended September 30, 2000, from $11.2 million for the same period in 1999. Such increase reflects the increase in general and administration expenses incurred by Dynamic Details and the impact of the acquisition of MCM. Amortization of Intangibles - Dynamic Details and DDi Capital amortization of intangibles decreased $3.0 million (17%) to $14.8 million for the nine months ended September 30, 2000, from $17.8 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 $1.4 million (8%) to $16.4 million for the nine months ended September 30, 2000, from $17.8 million for the same period in 1999. Such decrease reflects the decrease in amortization of intangibles incurred by Dynamic Details, partially offset by amortization attributable to the acquisition of MCM. Net Interest Expense - Dynamic Details net interest expense decreased $3.3 million (13%) to $21.2 million for the nine months ended September 30, 2000, from $24.5 million for the same period in 1999. Such decrease is due to the redemption of Senior Term Facility principal resulting from the DDi Corp. initial public offering in April 2000, partially offset by an increase in interest rates. DDi Capital net interest expense decreased $2.4 million (8%) to $28.7 million for the nine months ended September 30, 2000, from $31.1 million for the same period in 1999. Such decrease reflects the decrease in net interest expense incurred by Dynamic Details, partially offset by the impact of discount accretion on the Capital Senior Discount Notes. DDi Corp. net interest expense decreased $1.9 million (5%) to $33.1 million for the nine months ended September 30, 2000, from $35.0 million for the same period in 1999. Such decrease reflects the decrease in net interest expense incurred by DDi Capital. and the redemption of Intermediate Senior Discount Notes principal resulting from the DDi Corp. initial public offering in April 2000. Such increases were largely offset by the impact of the acquisition of MCM. Interest on debt assumed in this acquisition was $1.3 million for the nine months ended September 30, 2000. Income Taxes - Dynamic Details income taxes increased $14.1 million to $14.0 million for the nine months ended September 30, 2000, from a tax benefit of $0.1 million for the same period in 1999. DDi Capital income taxes increased $13.8 million to $11.0 million for the nine months ended September 30, 2000, from a tax benefit of $2.8 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 $16.0 million to $11.5 million for the nine months ended September 30, 2000, from a tax benefit of $4.5 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 $1.7 million in tax expense for the nine months ended September 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 September 30, 2000, cash and cash equivalents were $2.5 million for DDi Corp., and $0.1 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 nine months ended September 30, 2000 was cash provided by operations. Net cash provided by operating activities for the nine months ended September 30, 2000 was $44.1 million for DDi Corp., and $40.3 million for DDi Capital and Dynamic Details, compared to $15.2 million for DDi Corp. and $15.7 million for DDi Capital and Dynamic Details for the nine months ended September 30, 1999. 20 Capital expenditures for the nine months ended September 30, 2000 were $19.4 million for DDi Corp., and $17.4 million for DDi Capital and Dynamic Details, compared to $14.2 million for the Company for the nine months ended September 30, 1999. As of September 30, 2000, DDi Corp., DDi Capital and Dynamic Details had long- term borrowings of $378.5 million, $331.0 million and $245.8 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 use from time-to-time. At September 30, 2000, Dynamic Details had $9.5 million outstanding under this revolving credit facility and had $0.7 million reserved against the facility for a letter of credit. In October 2000, Dynamic Details entered into an amendment to the Dynamic Details senior credit facility which made available a $30 million uncommitted incremental borrowing facility (see Note 14 to the Condensed Consolidated Financial Statements). On April 14, 2000, DDi Corp. consummated an initial public offering of its common stock (see Note 7 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 7 to the Condensed Consolidated Financial Statements) and pay offering expenses. On October 16, 2000, DDi Corp. completed a secondary public offering of its common stock (see Note 14 to the Condensed Consolidated Financial Statements). The net proceeds were used to redeem the remaining $17.5 million of the Intermediate Senior Discount Notes, pay associated redemption premiums of $3.8 million and accrued and unpaid interest thereon of $5.2 million, and repurchase a portion of the Capital Senior Discount Notes, with an accreted balance of $35.6 million, for $37.6 million. The remaining net proceeds of approximately $56 million will be used for general corporate purposes, including potential future acquisitions. DDi Corp. contributed approximately $35 million of the $56 million to Dynamic Details. The financial statements included elsewhere in this report do not reflect the net proceeds of this offering. 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 remains 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 September 30, 2000 are approximately $0.5 million, representing expenses principally related to net rental payments through scheduled maturities of real property operating leases. RISKS ASSOCIATED WITH INTANGIBLE ASSETS At September 30, 2000, intangible assets were $268 million for DDi Corp. and $204 million for DDi Capital and Dynamic Details. These amounts represented a substantial portion of each company's total assets at that date. The intangible assets consist of goodwill and other identifiable intangibles relating to 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. 21 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. 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 does not have a material impact on its financial position or results of operations. 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 September 30, 2000, indebtedness was approximately $393 million for DDi Corp., $342 million for DDi Capital and $257 million for Dynamic Details. As of September 30, 2000, there was $34.8 million available under the Dynamic Details senior credit facility for future borrowings for general corporate 22 purposes and working capital needs. See "Liquidity and Capital Resources." On October 16, 2000, DDi Corp. consummated a secondary equity offering, and the Company used a portion of the net proceeds of the offering to reduce indebtedness through the paydown of debt with an accreted balance of approximately $58.3 million. In addition, subject to the restrictions in the 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. The Company's ability to pay principal and interest on its 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 the net proceeds from DDi Corp.'s secondary equity offering and 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. 23 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 nine months ended September 30, 2000, to its largest customer accounted for approximately 9.6% of net sales for DDi Corp. and 8.2% of net sales for both DDi Capital and Dynamic Details. Net sales, during the same period, to the ten largest customers accounted for approximately 39.3% 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 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 four acquisitions, including the acquisition of MCM and the acquisition of the assets of Automata and Golden. 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. 24 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 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. 25 DEPENDENCE ON KEY MANAGEMENT The Company's success will continue to depend to a significant extent on its executive and other key management personnel. Most of our executive officers are no longer party to employment agreements with the Company. Although the Company does not expect any of these officers to leave in the near future, 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 secondary equity offering (see Note 14 to the Condensed Consolidated Financial Statements), investors affiliated with Bain Capital, Inc., Celerity Partners, LLC and The Chase Manhattan Bank together hold approximately 32% 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. 26 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 83% 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 September 30, 2000, one-month LIBOR was 6.62%. If one-month LIBOR increased by 10% to 7.28%, interest expense related to the term loan facility portion would increase by approximately $1 million over the twelve months ending September 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 September 30, 2000, the swap covers approximately 93% 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 September 30, 2000, three-month LIBOR was 6.81%. If three-month LIBOR increased by 10% to 7.49%, interest expense related to the term loan facility would increase by approximately $188,000. That increase in interest expense, however, would be offset by approximately $158,000 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 September 30, 2000 the Company had an outstanding balance of $9.5 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 September 30, 2000 is not expected to materially affect the interest expense to be incurred on this facility during such period. In October 2000, in connection with DDi Corp.'s secondary public offering, the Company elected to terminate and concurrently replace an existing interest rate agreement. The replacement of the swap agreement does not affect interest rate risk (see Note 14 to the Condensed Consolidated Financial Statements). 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 a material impact on the Company's operating results over the 12 month period ending September 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. 27 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. None Item 3. DEFAULTS UPON SENIOR SECURITIES. None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None Item 5. OTHER INFORMATION. None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: ----------------- 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. (b) Reports on Form 8-K: -------------------- On August 9, 2000, DDi Capital and Dynamic Details filed a Report on Form 8-K dated August 9, 2000, (i) describing the Dynamic Details' acquisition of the assets of Automata International, Inc. and (ii) including a press release announcing the acquisition. 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 13th day of November, 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 November 13, 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 13th day of November, 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 November 13, 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 13th day of November, 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 November 13, 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, INC
5 0001050117 DYNAMIC DETAILS, INC. 1,000 9-MOS 3-MOS DEC-31-2000 DEC-31-2000 JAN-01-2000 JUL-01-2000 SEP-30-2000 SEP-30-2000 102 0 0 0 94,863 0 (4,798) 0 23,635 0 9,232 0 134,507 0 (55,377) 0 414,630 0 104,178 0 245,767 0 0 0 0 0 0 0 40,359 0 414,630 0 294,424 132,227 294,424 132,227 189,269 83,886 189,269 83,886 55,542 22,431 0 0 21,175 6,402 28,438 19,508 14,040 9,430 14,398 10,078 0 0 (670) 0 0 0 13,728 10,078 0 0 0 0
EX-27.2 3 0003.txt FINANCIAL DATA SCHEDULE- DDI CAPITAL CORP.
5 0001050119 DDI CAPITAL CORP. 1,000 9-MOS 3-MOS DEC-31-2000 DEC-31-2000 JAN-01-2000 JUL-01-2000 SEP-30-2000 SEP-30-2000 102 0 0 0 94,863 0 (4,798) 0 23,635 0 9,232 0 134,507 0 (55,377) 0 418,201 0 101,146 0 330,957 0 0 0 0 0 0 0 (31,152) 0 418,201 0 294,424 132,227 294,424 132,227 189,269 83,886 189,269 83,886 55,541 22,431 0 0 28,739 9,007 20,875 16,903 11,008 8,384 9,867 8,519 0 0 (670) 0 0 0 9,197 8,519 0 0 0 0
EX-27.3 4 0004.txt FINANCIAL DATA SCHEDULE- DDI CORP.
5 0001104252 DDI CORP. 1,000 9-MOS 3-MOS DEC-31-2000 DEC-31-2000 JAN-01-2000 JUL-01-2000 SEP-30-2000 SEP-30-2000 2,498 0 0 0 107,282 0 (5,942) 0 28,101 0 10,135 0 159,645 0 (68,658) 0 513,469 0 118,412 0 378,509 0 0 0 0 0 393 0 (2,019) 0 513,469 0 326,400 149,582 326,400 149,582 210,620 95,132 210,620 95,132 61,316 25,620 0 0 33,115 10,427 21,349 18,403 11,478 8,983 9,871 9,420 0 0 (2,551) 0 0 0 7,320 9,420 0.11 0.24 0.10 0.22
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