-----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, VvGCnJgqq1Owy52ueXIOaf95esyzCoHOAKKGmdpH4NPUtCWY5o9Nf+wVHRhJL2bl XBYhkTNyTY0qub5DROfZcA== 0001017062-98-002271.txt : 19981116 0001017062-98-002271.hdr.sgml : 19981116 ACCESSION NUMBER: 0001017062-98-002271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DETAILS CAPITAL CORP CENTRAL INDEX KEY: 0001050119 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [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: 98747731 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: DETAILS INC CENTRAL INDEX KEY: 0001050117 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [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: 98747732 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 10-Q 1 FOR THE PERIOD ENDED SEPTEMBER 30, 1998 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, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________ TO_________ COMMISSION FILE NUMBER 333-41187 333-41211 DETAILS CAPITAL CORP. DETAILS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 33-0780382 (STATE OR OTHER JURISDICTION 33-0779123 OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 1220 SIMON CIRCLE ANAHEIM, CALIFORNIA 92806 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (714) 688-7200 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 1231 Simon Circle, Anaheim, California 92806 -------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [_]. On November 11, 1998, all of the voting stock of Details, Inc. was held by Details Capital Corp. and all of the voting stock of Details Capital Corp. was held by Details Intermediate Holdings Corp. and all of the voting stock of Details Intermediate Holdings Corp. was held be Details Holdings Corp. As of November 11, 1998, Details, Inc. had 100 shares of common stock, par value $.01 per share, outstanding and Details Capital Corp. had 1,000 shares of common stock, par value $.01 per share, outstanding. Details Capital Corp. Details, Inc. Form 10-Q Table of Contents
PART I Financial Information Page No. -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Operations for the periods ended September 30, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II Other Information Item 1. Legal Proceedings 20 Item 2. Changes in Securities 20 Item 3. Defaults upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21
2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - --------------------------------- Details Capital Corp. and Details, Inc. Condensed Consolidated Balance Sheets (In Thousands)
Details, Inc. Details Capital Corp. ------------- --------------------- September 30, December 31, September 30, December 31, -------------------------------------------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- (Unaudited) (Unaudited) Assets Current assets: Cash and cash equivalents $ 2,241 $ 5,377 $ 2,243 $ 5,377 Trade receivables, net 45,865 15,643 45,865 15,643 Inventories, net 16,758 4,330 16,758 4,330 Prepaid expenses and other 1,708 525 1,746 525 Income tax receivable 1,888 8,537 1,888 9,363 Deferred tax assets 5,747 6,239 11,681 8,240 ------------------------------------------------------------------- Total current assets 74,207 40,651 80,181 43,478 Property and equipment, net 63,574 26,132 63,574 26,132 Debt issue costs, net 12,096 9,619 15,847 13,083 Goodwill and other intangibles, net 278,942 26,071 278,942 26,071 Other 2,467 98 2,467 98 ------------------------------------------------------------------- Total Assets $ 431,286 $ 102,571 $ 441,011 $ 108,862 =================================================================== Liabilities and Stockholders' Deficit Current liabilities: Current maturities of long-term debt $ 3,269 $ 2,450 $ 3,269 $ 2,450 Accounts payable 17,170 7,609 17,170 7,609 Accrued expenses and other 16,324 9,830 16,324 9,830 Escrow payable to redeemed stockholders 4,500 8,600 4,500 8,600 ------------------------------------------------------------------- Total current liabilities 41,263 28,489 41,263 28,489 Long-term debt 365,510 210,100 432,262 271,068 Notes payable and other 7,394 - 7,394 - Deferred tax liability 47,592 530 47,592 530 ------------------------------------------------------------------- Total liabilities 461,759 239,119 528,511 300,087 ------------------------------------------------------------------- Stockholders' Deficit: Common stock and additional paid-in-capital 243,499 138,745 194,380 88,584 Accumulated deficit (273,972) (275,293) (281,880) (279,809) ------------------------------------------------------------------- Total stockholders' deficit (30,473) (136,548) (87,500) (191,225) ------------------------------------------------------------------- Total Liabilities and Stockholders' Deficit $ 431,286 $ 102,571 $ 441,011 $ 108,862 ===================================================================
3 Details, Inc. Condensed Consolidated Statements of Operations (In Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net sales $ 61,228 $ 20,632 $ 115,727 $55,421 Cost of goods sold 41,465 10,013 73,912 27,013 -------------------------------------------------------- Gross profit 19,763 10,619 41,815 28,408 Operating Expenses: Compensation to former CEO - 288 - 802 General and administration 2,876 624 4,544 1,633 Sales and marketing 4,280 1,839 8,361 5,341 Stock compensation and related bonuses - 1,761 - 5,283 Amortization of intangibles 3,777 - 4,282 - -------------------------------------------------------- Operating Income 8,830 6,107 24,628 15,349 Interest expense, net (including interest paid to former stockholder of $589 and $601 for the nine months ended September 30, 1998 and 1997, respectively) (7,782) (2,422) (18,496) (7,375) -------------------------------------------------------- Income before income taxes 1,048 3,685 6,132 7,974 Income tax expense 219 1,550 2,515 3,400 -------------------------------------------------------- Net income before extraordinary item 829 2,135 3,617 4,574 Extraordinary loss on retirement of debt, net of tax (see Note 4) (2,297) - (2,297) - -------------------------------------------------------- Net income / (loss) $ (1,468) $ 2,135 $ 1,320 $ 4,574 ========================================================
4 Details Capital Corp. Condensed Consolidated Statements of Operations (In Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net sales $61,228 $20,632 $115,727 $55,421 Cost of goods sold 41,465 10,013 73,912 27,013 ------------------------------------------------------ Gross profit 19,763 10,619 41,815 28,408 Operating Expenses: Compensation to former CEO - 288 - 802 General and administration 2,879 624 4,554 1,633 Sales and marketing 4,280 1,839 8,361 5,341 Stock compensation and related bonuses - 1,761 - 5,283 Amortization of intangibles 3,777 - 4,282 - ------------------------------------------------------ Operating Income 8,827 6,107 24,618 15,349 Interest expense, net (including interest paid to former stockholder of $589 and $601 for the nine months ended September 30, 1998 and 1997, respectively) (9,716) (2,422) (24,235) (7,375) ------------------------------------------------------ Income / (loss) before income taxes (889) 3,685 383 7,974 Income tax expense / (benefit) (576) 1,550 157 3,400 ------------------------------------------------------ Net income / (loss) before extraordinary item (313) 2,135 226 4,574 Extraordinary loss on retirement of debt, net of tax (see Note 4) (2,297) - (2,297) - ------------------------------------------------------ Net income / (loss) $(2,610) $ 2,135 $ (2,071) $ 4,574 ======================================================
5 Details Capital Corp. and Details, Inc. Condensed Consolidated Statements of Cash Flows (In Thousands) (Unaudited)
Details, Inc. Details Capital Corp. ------------------------------------------------------------------- Nine Months Ended September 30, ------------------------------------------------------------------- 1998 1997 1998 1997 ------------------------------------------------------------------- Cash flows from operating activities: Net cash provided by operating activities $ 7,863 $ 11,506 $ 7,111 $ 11,506 ------------------------------------------------------------------- Cash flows from investing activities: Purchase of property & equipment (9,695) (2,847) (9,695) (2,847) Deposits for leasehold improvements and construction in progress (581) (420) (581) (420) Additional costs incurred with the acquisition of NTI (196) - (196) - Cash used in acquisition of DCI, net of cash acquired (174,081) (174,081) ------------------------------------------------------------------- Net cash used in investing activities (184,553) (3,267) (184,553) (3,267) ------------------------------------------------------------------- Cash flows from financing activities: Principal payments on debt - (7,125) - (7,125) Retirement of senior credit facilities (see Note 4) (106,089) - (106,089) - Issuance of new senior credit facilities (see Note 4) 255,000 - 255,000 - Principal payments on capital lease obligations (662) (341) (662) (341) Payment of loan acquisition fees (7,171) - (7,457) - Net capital contributed by parent 30,576 - 31,616 - Short-term borrowing, on revolver 6,000 - 6,000 - Payment of escrow payable (4,100) - (4,100) - ------------------------------------------------------------------- Net cash provided by / (used in) financing activities 173,554 (7,466) 174,308 (7,466) ------------------------------------------------------------------- Net increase / (decrease) in cash (3,136) 773 (3,134) 773 Cash and cash equivalents, beginning of year 5,377 169 5,377 169 ------------------------------------------------------------------- Cash and cash equivalents, end of period $ 2,241 $ 942 $ 2,243 $ 942 ===================================================================
Supplemental disclosure of cash flow information: Noncash operating activities: During the nine months ended September 30, 1998 and 1997, the Company recorded $10,965 and $2,473 of depreciation and amortization expense, respectively. Additionally, the Company recorded a non-cash loss (net of related taxes) of $2,297 as an extraordinary item, relating to the early extinguishment of debt (see note 4). Noncash investing activities: During the nine months ended September 30, 1997, the Company entered into capital lease obligations for the acquisition of property and equipment in the amount of $646. Noncash financing activities: During the nine months ended September 30, 1997, the Company recorded stock compensation expense of $2,922 relating to the issuance of stock options issued by Holdings below market value included in stock compensation and related bonuses expense aggregating $5,283. 6 Details Capital Corp. and Details, Inc. Notes to Condensed Consolidated Financial Statements ---------------------------------------------------- NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS BASIS OF PRESENTATION The unaudited condensed consolidated financial statements for the period ended September 30, 1998 include the accounts of Details Capital Corp. ("Details Capital") and its wholly-owned subsidiary Details, Inc. and subsidiaries ("Details"), (collectively, the "Company"). For the period ended September 30, 1998, Details Capital was wholly owned by Details Holdings Corp. ("Holdings"), formerly Details, Inc., by virtue of a series of transactions related to the financing of the recapitalization (the "Recapitalization") of the Company in October 1997. In connection with the Transaction as defined in Note 4, Details Capital became a wholly owned subsidiary of Details Intermediate Holdings Corp. ("Intermediate"), a wholly owned subsidiary of Holdings ( see Note 4). The financial information for the nine months ended September 30, 1997 represents the financial information of Holdings (the "Pre- Recapitalization Company"). In connection with the Recapitalization, Details, Inc. changed its name to Details Holdings Corp., incorporated Details as a wholly owned subsidiary and contributed substantially all of its assets, subject to certain liabilities, to Details. On November 19, 1997, Holdings organized Details Capital as a wholly-owned subsidiary, and on February 10, 1998, contributed substantially all its assets (including all of the shares of common stock of Details), subject to certain liabilities, including its senior discount notes (the "Discount Notes"), to Details Capital. Other than the Discount Notes and related financing fees and deferred tax assets, all the assets and liabilities of Details Capital are those of Details. The transactions above were between entities under common control, and accordingly, the historical basis of the assets and liabilities of Holdings, Details Capital and Details were not affected. In addition, the Details Capital condensed consolidated financial statements have been prepared as if the contribution of Holdings' assets and liabilities to Details Capital in exchange for its common stock occurred in connection with the Recapitalization. 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, 1998, and the results of operations and cash flows for the nine months ended September 30, 1998 and 1997. 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, 1998, 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, 1997. NATURE OF BUSINESS The Company manufactures and sells printed circuit boards ("PCBs") primarily to the domestic electronics industry. A significant portion of the Company's sales are for the time critical or "quick-turn" segment of the PCB industry. Quick-turn PCBs are manufactured within 10 days. The Company also manufactures and markets long-lead PCBs, backplanes, and interconnects. 7 Details Capital Corp. and Details, Inc. Notes to Condensed Consolidated Financial Statements ---------------------------------------------------- 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):
September 30, 1998 December 31, 1997 --------------------------------------------- Raw materials $ 7,222 $ 1,440 Work-in-process 7,974 2,674 Finished goods 1,562 216 --------------------------------------------- Total $ 16,758 $ 4,330 =============================================
NOTE 3. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
Details, Inc. Details Capital Corp. ----------------------------------------------------------------------------------- September 30, 1998 December 31, 1997 September 30, 1998 December 31, 1997 ----------------------------------------------------------------------------------- Senior Term Facility (a) $ - $ 81,089 $ - $ 81,089 Senior Acquisition Facility (a) - 25,000 - 25,000 Senior Term Facility (b) 255,000 - 255,000 - Senior Revolving Facility (c) 6,000 - 6,000 - 10.0% Senior Sub. Notes 100,000 - 100,000 - 12.5% Discount Notes - - 66,752 60,968 Capital lease obligations to former stockholder 6,060 6,438 6,060 6,438 Other capital lease obligations 1,719 - 1,719 - Other - 23 - 23 ----------------------------------------------------------------------------------- Sub-total 368,779 212,550 435,531 273,518 Less current maturities (3,269) (2,450) (3,269) (2,450) ---------------------------------------------------------------------------------- Total $ 365,510 $ 210,100 $ 432,262 $ 271,068 ==================================================================================
(a) This facility was retired in connection with the acquisition of DCI (See Note 4). (b) Interest rates are LIBOR based and range from 7.79% to 8.04% as of September 30, 1998. (c) Interest rates are Prime-based and were 9.50% as of September 30, 1998. 8 Details Capital Corp. and Details, Inc. Notes to Condensed Consolidated Financial Statements ---------------------------------------------------- NOTE 4. ACQUISITION OF DCI On July 23, 1998, pursuant to a Stock Contribution and Merger Agreement (the "Agreement"), the Company consummated the acquisition (the "Transaction") of Dynamic Circuits, Inc. ("DCI"), a Northern California based manufacturer of printed circuit boards, back-plane assemblies and electromechanical interconnect devices. In connection with the consummation of the Transaction, DCI became a subsidiary of Details and is accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16. As of the filing of this report, management is assessing, with the assistance of an independent appraisal firm, fair value adjustments to assets acquired (including identifiable intangibles and in-process research and development efforts) and to liabilities assumed. A final purchase price allocation will be made based upon completion of this assessment. Such allocation may have a material effect on the reported results of operations. The Transaction was completed for aggregate consideration of approximately $250 million which consisted of a partial redemption, by way of a merger, of DCI's outstanding capital stock for cash with the remaining capital stock being contributed to Holdings in exchange for shares and options to purchase shares of the voting common stock of Holdings (estimated value of approximately $73 million). The capital stock of DCI received by Holdings was concurrently contributed through Intermediate and through Details Capital to Details. The Transaction was financed with a new $300 million senior bank facility and by $33 million of newly issued Senior Discount Notes by Intermediate. In connection with the new financing, Details used $106 million of the proceeds to retire all of its existing senior term debt, which resulted in an extraordinary loss of $2.3 million, net of related taxes of $1.6 million. NOTE 5. UNAUDITED PRO-FORMA INFORMATION The accompanying condensed consolidated statements of operations include: (a) the accounts of NTI (Colorado Springs Circuits, Inc., a Colorado corporation and a subsidiary or NTI d/b/a NTI), which was acquired in December 1997, and the effects of the Recapitalization for the nine months ended September 30, 1997 and (b) the accounts of DCI for the period July 24, 1998 through September 30, 1998. The following pro forma information for the nine months ended September 30, 1998 and 1997 presents net sales and net income before extraordinary loss for each of these periods as if these transactions was consummated at the beginning of each period. As of the filing of this report, management is assessing, with the assistance of an independent appraisal firm, fair value adjustments to assets acquired (including identifiable intangibles and in-process research and development efforts) and to liabilities assumed in the DCI acquisition. The following pro forma information does not reflect final valuation results. These results may have a material effect on the reported results of operations.
Pro Forma Pro Forma September 30, 1998 September 30, 1997 ------------------- ------------------- (in millions) (in millions) Net Sales: -Details $201.5 $185.0 -Details Capital $201.5 $185.0 Net Loss Before Extraordinary Item: -Details $ (3.6) $ (3.6) -Details Capital $ (6.8) $ (7.2)
9 NOTE 6. SUBSEQUENT EVENT Pursuant to its interest rate risk management strategy and to certain requirements imposed by the new senior bank facility (see note 4), the Company has entered into two interest rate exchange agreements ("swap agreements"), effective October 1, 1998. Together these agreements represent an effective cash flow hedge of the variable rate of interest (1-month LIBOR) paid under the new term loan borrowing, minimizing exposure to increases in interest rates related to this debt over its scheduled term. Under the swap agreements, the Company receives a variable rate of interest (1-month LIBOR) and pays a fixed rate of interest (blended annual rate of 5.27%). These rates are applied to a notional amount ($255 million as of October 1, 1998) which decreases at such times, and in such amounts, as to conform with the principle outstanding under the new term loan through its scheduled maturity in 2005. The Company anticipates that the swap agreements will continue to represent an effective cash flow hedge over the life of the term loan. Counterparty risk is limited to amounts to be reflected in the Company's consolidated balance sheet. This risk is expected to be immaterial to the Company's consolidated results of operations as the swap agreements provide for monthly settlement of the net interest owing. Further, each counterparty to the swap agreements carries at least a "single-A" credit rating. NOTE 7. RELATED PARTY TRANSACTIONS Certain investment funds associated with Bain Capital, Inc. (the "Bain Capital funds"), the controlling shareholders of Holdings, were shareholders of DCI prior to the Company's July 1998 acquisition of DCI (see note 4). In conjunction with the acquisition, the Bain Capital Funds received $22.9 million for the redemption of the DCI common stock it held prior to consummation of the acquisition and Bain Capital, Inc. received $2.7 million in transaction fees. CMC, a shareholder of Holdings, is an affiliate of Chase Manhatten Bank ("Chase"). In conjunction with the acquisition of DCI, Chase acted as collateral, co-syndication, and administrative agent with regard to the establishment of the new credit agreement. In this capacity, Chase received $2.4 million in fees. Chase also participates as a lender in the syndication, under terms similar to those of the other participants. In 1997, the Company entered into agreements to lease real property at its Anaheim facility from an affiliate of its former stockholder. See the Condensed Consolidated Statements of Operations and Note 3 to the Condensed Consolidated Financial statements for additional information regarding the interest expense and lease liability recorded in connection with these lease obligations. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS. - -------------- OVERVIEW The Company believes, based on industry data, that it is a leading manufacturer and marketer of PCBs for the time-critical or "quick-turn" segment of the domestic PCB industry, as well as for long-lead PCBs, backplanes, and interconnects. The Company produces PCBs for over 800 customers across a wide range of end-use markets including the telecommunications, computer, contract manufacturing, industrial instrumentation and consumer electronics 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 the Company's Annual Report on Form 10-K for the year ended December 31, 1997. RESULTS OF OPERATIONS Three-Months Ended September 30, 1998 compared to the Three Months ended September 30, 1997 Net sales for the three months ended September 30, 1998 increased $40.6 million (197%) to $61.2 million, from $20.6 million for the three months ended September 30, 1997. The increase resulted from two factors: (i) the acquisitions of DCI and NTI, which added $31.2 million and $6.9 million, respectively, to net sales; and (ii) a 17% increase in the average panel (unit) selling price realized at the Company's Anaheim facility. The increase in the average panel price realized by the Anaheim facility was driven by a demand for high layer count and more technologically advanced printed circuit boards. Gross profit for the three months ended September 30, 1998 increased $9.2 million (87%) to $19.8 million, from $10.6 million for the three months ended September 30, 1997. The increase resulted from the increase in net sales at the Anaheim facility and from the acquisitions of DCI and NTI, which added over $8 million to gross profit. The decline in gross profit as a percent of net sales to 32% from 51% resulted from the acquisitions of DCI and NTI, which have historically operated at lower gross profit margins, reflective of the market niche each entity serves. General and administration expenses for the three months ended September 30, 1998 increased $2.3 million (361%) to $2.9 million, from $.6 million for the three months ended September 30, 1997. The increase resulted primarily from the DCI and NTI acquisitions. Sales and marketing expenses for the three months ended September 30, 1998 increased $2.4 million (133%) to $4.3 million, from $1.8 million for the three months ended September 30, 1997, also due primarily to the acquisitions of DCI and NTI. The higher level of expense is reflective of the increased revenue base, partially offset by lower per-sale costs applicable to the niche each of these entities serves. For the three months ended September 30, 1998, no stock compensation or related bonus expense was recognized as compared to $1.8 million for the three months ended September 30, 1997. The stock compensation and related bonuses recognized for the three months ended September 30, 1997 was attributable to a 1996 variable stock option plan which was fully vested in 1997 and therefore has no impact on earnings for fiscal years beginning after December 31, 1997. Amortization of intangibles for the three months ended September 30, 1998 of $3.8 million resulted from the acquisition of NTI in December 1997 and the acquisition of DCI in July 1998. Net interest expense for the three months ended September 30, 1998 increased $7.3 million (304%) to $9.7 million for Details Capital and increased $5.4 million (225%) to $7.8 million for Details, compared to $2.4 million for the three months ended September 30, 1997. The increase in net interest expense is attributable to the increased level of borrowings in connection with the Recapitalization and the acquisitions of DCI and NTI. 11 Interest expense for Details Capital included approximately $2.0 million related to the Discount Notes, not included in Details. Income taxes for the three months ended September 30, 1998 decreased $2.1 million to ($.6) million for Details Capital and decreased $1.3 million to $.2 million for Details, compared to $3.4 million for the three months ended September 30, 1997. The Company anticipates a consolidated effective income tax rate of approximately 41% for the year ending December 31, 1998 and accordingly, the Company recorded income taxes during the three months ended September 30, 1998 based on such expected effective income tax rate. For the three months ended September 30, 1998, the company recognized an extraordinary loss on the early extinguishment of debt. This charge is related to the refinancing of the Company's senior credit agreement in conjunction with the acquisition of DCI in July 1998 (see Note 4). Net income for the three months ended September 30, 1998 decreased $4.7 million to a loss of ($2.6) million for Details Capital and decreased $3.6 million to a loss of ($1.5) million for Details, compared to income of $2.1 million for the three months ended September 30, 1997 largely due to factors discussed above. Nine Months Ended September 30, 1998 compared to the Nine Months ended September 30, 1997 Net sales for the nine months ended June 30, 1998 increased $60.3 million (109%) to $115.7 million, from $55.4 million for the nine months ended September 30, 1997. The increase resulted from two factors: (i) the acquisitions of DCI and NTI, which added $31.2 million and $21.6 million, respectively, to net sales; and (ii) a 16% increase in the average panel (unit) selling price realized at the Company's Anaheim facility. The increase in the average panel price realized by the Anaheim facility was driven by a demand for high layer count and more technologically advanced printed circuit boards. Gross profit for the nine months ended September 30, 1998 increased $13.4 million (47%) to $41.8 million, from $28.4 million for the nine months ended September 30, 1997. The increase resulted from the increase in net sales at the Anaheim facility and from the acquisitions of DCI and NTI, which added $8.0 million and $2.5 million, respectively, to gross profit. The decline in gross profit as a percent of net sales to 36% from 51% resulted from the acquisitions of DCI and NTI, which have historically operated at lower gross profit margins, reflective of the market niche each entity serves. General and administration expenses for the three months ended September 30, 1998 increased $2.9 million (178%) to $4.5 million, from $1.6 million for the nine months ended September 30, 1997. The increase resulted primarily from the DCI and NTI acquisitions. General and administration expenses remained relatively flat, however, in relation to net sales. Sales and marketing expenses for the nine months ended September 30, 1998 increased $3.1 million (58%) to $8.4 million, from $5.3 million for the nine months ended September 30, 1997, also due primarily to acquisitions of DCI and NTI. The higher level of expense is reflective of the increased revenue base, partially offset by lower per-sale costs applicable to the niche each of these entities serves. For the nine months ended September 30, 1998, no stock compensation or related bonus expense was recognized as compared to $5.3 million for the nine months ended September 30, 1997. The stock compensation and related bonuses recognized for the nine months ended September 30, 1997 was attributable to a 1996 variable stock option plan which was fully vested in 1997 and therefore has no impact on earnings for fiscal years beginning after December 31, 1997. Amortization of intangibles for the nine months ended September 30, 1998 of $4.3 million resulted from the acquisition of NTI in December 1997 and the acquisition of DCI in July 1998. Net interest expense for the nine months ended September 30, 1998 increased $16.9 million (232%) to $24.2 million for Details Capital and increased $11.1 million (150%) to $18.5 million for Details, compared to $7.4 12 million for the nine months ended September 30, 1997. The increase in net interest expense is attributable to the increased level of borrowings in connection with the Recapitalization and the acquisitions of DCI and NTI. Interest expense for Details Capital included approximately $5.8 million related to the Discount Notes, not included in Details. Income taxes for the nine months ended September 30, 1998 decreased $3.2 million to $.2 million for Details Capital and decreased $.9 million to $2.5 million for Details, compared to $3.4 million for the nine months ended September 30, 1997. The Company anticipates a consolidated effective income tax rate of approximately 41% for the year ending December 31, 1998 and accordingly, the Company recorded income taxes during the nine months ended September 30, 1998 based on such expected effective income tax rate. For the three months ended September 30, 1998, the company recognized an extraordinary loss on the early extinguishment of debt. This charge is related to the refinancing of the Company's senior credit agreement in conjunction with the acquisition of DCI in July 1998 (see Note 4). Net income for the nine months ended September 30, 1998 decreased $6.6 million to a loss of $2.1 million for Details Capital and decreased $3.3 million for Details to $1.3 million, compared to $4.6 million for the nine months ended September 30, 1997, largely due to factors discussed above. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, Details Capital and Details had cash and cash equivalents of $2.2 million compared to $5.4 million as of December 31, 1997. Excluding the acquisition of DCI and the related debt financing activities, the principal source of liquidity for the 3rd quarter of 1998 was cash provided by operations. Net cash provided by operating activities for the nine months ended September 30, 1998 was $7.1 million for Details Capital and $7.9 million for Details, compared to $11.5 million for the nine months ended September 30, 1997. Capital expenditures and deposits on capital assets for the nine months ended September 30, 1998 were $10.3 million, compared to $3.3 million for the nine months ended September 30, 1997. As of September 30, 1998, Details Capital and Details had long-term borrowings of $432.3 million and $365.5 million respectively. The Company has $45 million available for borrowing under its revolving credit facility, less amounts which may be in use from time-to-time. At September 30, 1998, the Company had $6 million in borrowings outstanding under its revolving credit facility. The Company has no minimum principal payment obligations under any of its borrowings for the remainder of fiscal 1998. Based upon the current level of operations, management believes that cash generated from operations, available cash and amounts available under its Senior Credit Facility will be adequate to meet its debt service requirements, capital expenditures and working capital needs for the foreseeable future, although no assurance can be given in this regard. Accordingly, there can be no assurance that the Company's business will generate sufficient cash flow from operations or that future borrowings will be available to enable the Company to service its indebtedness. The Company is highly leveraged, and its future operating performance and ability to service or refinance its indebtedness will be subject to future economic conditions and to financial, business and other factors, certain of which are beyond the Company's control. COMPUTER SYSTEMS AND YEAR 2000 The Year 2000 issue exists because certain computer programs use only the last two digits, rather than four, to refer to a year. As a result, computer programs and systems with time-sensitive technology do not properly recognize a date using "00" as the year 2000, but as the year 1900. The extent of the potential impact of the Year 2000 problem is not yet known, but it could result in computer application and system failure or miscalculations 13 causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has developed and is currently executing a plan to ensure that its information technology (IT) systems, which include computer equipment and software as well as its non-IT systems, such as fax machines and alarm systems, will be able to function properly with respect to the Year 2000 and thereafter. The implementation of all phases of the plan, on a company-wide basis, is currently in process. The Company has existing personnel who will facilitate the identification, assessment, testing, renovation and monitoring of Year 2000 compliance issues and initiatives. The Company currently anticipates that its Year 2000 identification, assessment, testing and renovation efforts, which began in October 1997, will be completed by March 31, 1999. The Company anticipates completion of a contingency plan for dealing with the most reasonably likely worst case scenario by January 31, 1999. The Company recently completed the identification of its IT and non-IT systems, and is now in the renovation or validation phases of its IT and non-IT systems and currently intends to implement these systems by March 31, 1999. Based upon its identification and assessment efforts to date, most of the Company's computer equipment and software it currently uses does not require replacement or modification. This is due to the relatively small size of the Company's systems and its predominately new hardware, software and operating systems. The Company estimates that as of September 30, 1998, approximately 40% of the initiatives scheduled to fully address potential Year 2000 have been completed. Following is a status of the Company's progress, identified by phase, including the estimated timetable for completion of each remaining phase:
PERCENT YEAR 2000 COMPLIANCE SCHEDULE TIMING COMPLETE - ----------------------------- ------ -------- Phase I: Review system compliance issues. 10/97 1/98 100% Phase II: Identify and assess system compliance issues. 5/98 11/98 90% Phase III: Testing of systems. 8/98 1/99 25% Phase IV: Resolution of system issues detected in Phase III. 10/98 3/99 10% Phase V: Monitor system compliance on an ongoing basis Continuous N/A
In addition to reviewing its internal systems, the Company has polled or is in the process of polling its outside software and other vendors, customers and freight carriers to determine whether they are Year 2000 compliant and to attempt to identify any potential issues. If the Company's customers and vendors do not achieve Year 2000 compliance before the end of 1999, the Company may experience a variety of problems which may have a material adverse effect on the Company. To the extent vendors are not Year 2000 compliant by the end of 1999, such vendors may fail to deliver ordered materials and products to the Company and may fail to bill the Company properly and promptly. Consequently, the Company may experience a shortage or surplus of inventory, affecting its ability to ship product to its customers as expected. Although the Company does not currently have a plan for addressing these potential problems, with respect to its vendors, the Company has alternative sources of supply. The Company's management does not believe that third party Year 2000 changes will have a material impact on the operating results or financial condition of the Company, however, there can be no assurance that the Year 2000 issues of other entities will not have a material adverse impact on the Company's systems or results of operations. The Company believes that the cost of the implementation of its Year 2000 compliance schedule, as well as currently anticipated costs to be incurred by the Company with respect to Year 2000 issues of third parties, will not be material to the results of operations. The costs of the systems implementation and Year 2000 modifications are based upon management's best estimates, which are derived utilizing numerous assumptions of future events, including the continued availability of certain resources, and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those 14 anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. As of September 30, 1998, the cost of bringing the Company's IT and non-IT systems into Year 2000 compliance is not expected to have a material effect on the Company's financial condition or results of operations. RISKS ASSOCIATED WITH INTANGIBLE ASSETS At September 30, 1998, the Company's balance sheet reflected $278.9 million of intangible assets, a substantial portion of the Company's $431.3 million of total assets at such date. The intangible assets consist of goodwill and other identifiable intangibles relating to the Company's recent acquisitions. The balances of these intangible assets may increase in future periods, principally from the consummation of further acquisitions. Amortization of these additional intangibles would, 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. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes requirements for disclosure of comprehensive income and becomes effective for the Company's fiscal year ending December 31, 1998. Reclassification of prior year financial statements for comparative purposes is required. At September 30, 1998, the Company has no elements which give rise to reporting comprehensive income. In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 modifies the disclosure requirements for reportable segments and is effective for the Company's year ending December 31, 1998. This pronouncement currently has had no significant impact on the reporting practices of the Company since its adoption; and until such time that the Company diversifies its operations, management believes such pronouncement will not be applicable. 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. This statement is effective for fiscal years beginning after June 15, 1999. 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 (see Note 6) on the consolidated balance sheet. Changes in fair value of these instruments will be reflected as a component of comprehensive income. FACTORS THAT MAY AFFECT FUTURE RESULTS SUBSTANTIAL LEVERAGE The Company's high degree of leverage could have significant consequences, including: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional debt financing in the future for working capital, capital expenditures, research and development or acquisitions may be limited; (iii) the Company's leveraged position and the covenants that are contained in the terms of its indebtedness could limit the Company's ability to compete, as well as its ability to expand, including through acquisitions, and to make capital improvements; and 15 (iv) the Company may be more leveraged than certain of its competitors, which may place the Company at a competitive disadvantage. The Company's ability to pay principal and interest on its indebtedness 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. The Company anticipates that its operating cash flow, together with borrowings 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, Details Capital's and Details' 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. Details is also required to maintain specified financial ratios and satisfy certain financial condition tests. Details' ability to meet those financial ratios and tests can be affected by events beyond its control, and there can be no assurance that Details 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 the Company and its subsidiaries are pledged as security under the senior credit facilities. 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, develop and market products and services that meet changing customer needs, and 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 higher technology and smaller PCBs. In addition, the PCB industry could in the future encounter competition from new or revised technologies that render existing electronic interconnect technology less competitive or obsolete or technologies that may reduce the number of PCBs required in electronic components. 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 significant capital investment by the Company. There can be no assurance that capital will be available for these purposes in the future or that investments in new technologies will result in commercially viable technological processes. The loss of revenue and earnings to the Company from such a technological change or process development could have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS During the nine months ended September 30, 1998, sales (on a pro forma basis, inclusive of the impact of the DCI and NTI acquisitions - See Note 5) to the Company's largest customer accounted for approximately 7% of the Company's net revenues. Also measured on a pro forma basis, sales to the Company's two largest customers accounted for approximately 14% of the Company's net revenues and sales to the Company's ten largest customers accounted for 36% of the Company's net revenues during the same period. There can be no assurance 16 that the Company will not depend upon a relatively small number of customers for a significant percentage of its net revenues in the future. There can be no assurance that present or future customers will not terminate their manufacturing arrangements with the Company or significantly change, reduce or delay the amount of manufacturing services ordered from the Company. Any such termination of a manufacturing relationship or change, reduction or delay in orders could have an adverse effect on the Company's results of operations. DEPENDENCE ON ELECTRONICS INDUSTRY The electronics industry, which encompasses the Company's principal customers, is characterized by intense competition, relatively short product life-cycles and significant fluctuations in product demand. In addition, the electronics industry is generally subject to rapid technological change and product obsolescence. Furthermore, the electronics industry is subject to economic cycles and has in the past experienced, and is likely in the future to experience, recessionary periods. A recession or any other event leading to excess capacity or a downturn in the electronics industry would likely have a material adverse effect on the Company's business, financial condition and results of operations. ABILITY TO IMPLEMENT THE COMPANY'S OPERATING AND ACQUISITION STRATEGY The Company may from time to time pursue acquisitions of other companies, assets or product lines that complement or expand its existing business. Acquisitions involve a number of risks that could adversely affect the Company's operating results, including the diversion of management's attention, the costs of assimilating the operations and personnel of the acquired companies, and the potential loss of employees of the acquired companies. No assurance can be given that any acquisition by the Company will not materially and adversely affect the Company or that any such acquisition will enhance the Company's business. The ability of the Company to implement its operating strategy and to consummate future acquisitions may require significant additional debt and/or equity capital, and no assurance can be given as to whether, and on what terms, such additional debt and/or equity capital will be available. No assurances can be given that the Company or its management team will be able to implement successfully its operating strategy, including the ability to identify, negotiate and consummate future acquisitions on terms management considers favorable. The Company's efforts to increase international sales may be adversely affected by, among other things, changes in foreign import restrictions and regulations, taxes, currency exchange rates, currency and monetary transfer restrictions and regulations and economic and political changes in the foreign nations to which the Company's products are exported. There can be no assurance that one or more of these factors will not have a material adverse effect on the Company's financial position or results of operations. VARIABILITY OF ORDERS The level and timing of orders placed by the Company's customers vary due to a number of factors, including customer attempts to manage inventory, changes in the customer's manufacturing strategies and variation in demand for customer products due to, among other things, technological change, new product introductions, product life-cycles, competitive conditions or general economic conditions. Because the Company generally does not obtain long-term production orders or advance commitments from its customers, it must attempt to anticipate the future volume of orders based on discussions with its customers. A substantial portion of sales in a given quarter may depend on obtaining orders for products to be manufactured and shipped in the same quarter in which those orders are received. The Company relies on its estimate of anticipated future volumes when making commitments regarding the level of business that it will seek and accept, the mix of products that it intends to manufacture, the timing of production schedules and the levels and utilization of personnel and other resources. A variety of conditions, both specific to the individual customer and generally affecting the customer's industry, may cause customers to cancel, reduce or delay orders that were previously made or anticipated. The Company cannot assure the timely replacement of cancelled, delayed or reduced orders. Significant or numerous 17 cancellations, reductions or delays in orders by a group of customers could materially adversely affect the Company's business, financial condition and results of operations. 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 chooses to rely primarily on trade secret protection. Litigation may be necessary to protect the Company's technology, to determine the validity and scope of the proprietary rights of others. The Company is not aware of any pending or threatened claims that affect any of the Company's intellectual property rights. If any infringement claim is asserted against the Company, the Company 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. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of management and other resources and could have a material adverse effect on the Company. ENVIRONMENTAL MATTERS The Company's operations are regulated under a number of federal, state, local and foreign environmental laws and regulations, which 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. Compliance with these environmental laws are major considerations for all PCB manufacturers because metals and other hazardous materials are used in the manufacturing process. In addition, because the Company is a generator of hazardous wastes, the Company, along with any other person who arranges for the disposal of such wastes, may be subject to potential financial exposure for costs associated with an investigation and remediation of sites at which it has arranged for the disposal of hazardous wastes, if such sites become contaminated. This is true even if the Company fully complies with applicable environmental laws. Although the Company believes that its facilities are currently in material compliance with applicable environmental laws, and it monitors its operations to avoid violations arising from human error or equipment failures, there can be no assurances that violations will not occur. In the event of a violation of environmental laws, the Company could be held liable for damages and for the costs of remedial actions and could also be subject 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 having a material adverse effect on the Company's operations. Environmental laws could also become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with any violation, which could have a material adverse effect on the Company, its results of operations, prospects or debt service ability. COMPETITION The PCB industry is highly fragmented and characterized by intense competition. The Company principally competes with independent and captive manufacturers of complex and quick-turn PCBs. The Company's principal competitors include other independent small private companies and integrated subsidiaries of more broadly based volume producers that also manufacture multilayer PCBs and other electronic assemblies. Some of the Company's principal competitors are less highly-leveraged than the Company and may have greater financial and operating flexibility. Moreover, the Company may face additional competitive pressures as a result of changes in technology. Competition in the complex and quick-turn PCB industry has increased due to the consolidation trend in the industry, which results in potentially better capitalized and more effective competitors. The Company's basic technology is generally not subject to significant proprietary protection, and companies with significant resources or international operations may enter the market. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. 18 DEPENDENCE ON KEY MANAGEMENT The Company's success will continue to depend to a significant extent on its executive and other key management personnel. Although the Company has entered into employment agreements with certain of its executive officers, there can be no assurance that the Company will be able to retain its executive officers and key personnel or attract additional qualified management in the future. CONTROLLING STOCKHOLDERS Certain investment funds associated with Bain Capital, Inc. (the "Bain Capital Funds") hold approximately 38% (on a fully-diluted basis) of the outstanding voting stock of Holdings, the sole stockholder of Intermediate, which is the sole stockholder of Details Capital which, in turn, is the sole stockholder of Details. In addition, the Bain Capital Funds and all of Holdings' other stockholders have entered into a stockholders agreement regarding, among other things, the voting of such stock. By virtue of such stock ownership and these agreements, the Bain Capital Funds have the power to control all matters submitted to stockholders of the Holdings and its subsidiaries, to elect a majority of the directors of Holdings and its subsidiaries, and to exercise control over the business, policies and affairs of the Company. 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 also may differ materially from the Company's actual future experience involving any one or more of such matters and subject areas. The Company has attempted to identify, in context, certain of the factors that it currently believes may cause actual future experience and results 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 "Computer Systems and Year 2000" and "Factors That May Affect Future Results" sections, 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. 19 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. 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: ----------------- 27.1 Financial Data Schedule for Details, Inc. 27.2 Financial Data Schedule for Details Capital Corp. (b) Reports on Form 8-K: -------------------- On August 5, 1998, Details Capital Corp. and Details, Inc. filed a Report on Form 8-K, describing the transactions which consummated the acquisition of DCI. Included in this filing were: (i) the DCI audited historical consolidated financial statements at, and for the three years ended, December 31, 1997 and (ii) the Details Capital Corp. and Details, Inc. unaudited consolidated pro forma financial statements at, and for the six month period ended, June 30, 1998. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Details Capital Corp. has duly caused this quarterly report to be signed on its behalf by the undersigned, thereto duly authorized, in city of Anaheim, state of California, on the 11th day of November, 1998. DETAILS 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 Chief November 11, 1998 ------------------- Financial Officer Joseph P. Gisch (principal financial and chief accounting officer) 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Details, Inc. has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Anaheim, state of California, on the 11th day of November, 1998. DETAILS, INC. 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 Chief November 11, 1998 ------------------- Financial Officer Joseph P. Gisch (principal financial and chief accounting officer) 22 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 0001050117 DETAILS INC. 9-MOS DEC-31-1998 SEP-30-1998 2,241,000 0 45,865,000 0 16,758,000 74,207,000 63,574,000 0 431,286,000 41,263,000 365,510,000 0 0 0 (30,473,000) 431,286,000 115,727,000 115,727,000 73,912,000 73,912,000 0 0 18,496,000 6,132,000 2,515,000 3,617,000 0 2,297,000 0 1,320,000 0 0
EX-27.2 3 FINANCIAL DATA SCHEDULE
5 0001050119 DETAILS CAPITAL CORP. 9-MOS DEC-31-1998 SEP-30-1998 2,243,000 0 45,865,000 0 16,758,000 80,181,000 63,574,000 0 441,011,000 41,263,000 432,262,000 0 0 0 (87,500,000) 441,011,000 115,727,000 115,727,000 73,912,000 73,912,000 0 0 24,235,000 383,000 157,000 226,000 0 2,297,000 0 (2,071,000) 0 0
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