<PAGE>
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.
<PAGE>
Details Capital Corp.
Details, Inc.
Form 10-Q
Table of Contents
<TABLE>
<CAPTION>
PART I Financial Information Page No.
--------
<S> <C>
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
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ---------------------------------
Details Capital Corp. and Details, Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
Details, Inc. Details Capital Corp.
------------- ---------------------
September 30, December 31, September 30, December 31,
--------------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
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
===================================================================
</TABLE>
3
<PAGE>
Details, Inc.
Condensed Consolidated Statements of Operations
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
========================================================
</TABLE>
4
<PAGE>
Details Capital Corp.
Condensed Consolidated Statements of Operations
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
======================================================
</TABLE>
5
<PAGE>
Details Capital Corp. and Details, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Details, Inc. Details Capital Corp.
-------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
===================================================================
</TABLE>
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
<PAGE>
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
<PAGE>
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):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
---------------------------------------------
<S> <C> <C>
Raw materials $ 7,222 $ 1,440
Work-in-process 7,974 2,674
Finished goods 1,562 216
---------------------------------------------
Total $ 16,758 $ 4,330
=============================================
</TABLE>
NOTE 3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
Details, Inc. Details Capital Corp.
-----------------------------------------------------------------------------------
September 30, 1998 December 31, 1997 September 30, 1998 December 31, 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
==================================================================================
</TABLE>
(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
<PAGE>
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.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
September 30, 1998 September 30, 1997
------------------- -------------------
(in millions) (in millions)
<S> <C> <C>
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)
</TABLE>
9
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
PERCENT
YEAR 2000 COMPLIANCE SCHEDULE TIMING COMPLETE
- ----------------------------- ------ --------
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001050117
<NAME> DETAILS INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,241,000
<SECURITIES> 0
<RECEIVABLES> 45,865,000
<ALLOWANCES> 0
<INVENTORY> 16,758,000
<CURRENT-ASSETS> 74,207,000
<PP&E> 63,574,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 431,286,000
<CURRENT-LIABILITIES> 41,263,000
<BONDS> 365,510,000
0
0
<COMMON> 0
<OTHER-SE> (30,473,000)
<TOTAL-LIABILITY-AND-EQUITY> 431,286,000
<SALES> 115,727,000
<TOTAL-REVENUES> 115,727,000
<CGS> 73,912,000
<TOTAL-COSTS> 73,912,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,496,000
<INCOME-PRETAX> 6,132,000
<INCOME-TAX> 2,515,000
<INCOME-CONTINUING> 3,617,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,297,000
<CHANGES> 0
<NET-INCOME> 1,320,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001050119
<NAME> DETAILS CAPITAL CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,243,000
<SECURITIES> 0
<RECEIVABLES> 45,865,000
<ALLOWANCES> 0
<INVENTORY> 16,758,000
<CURRENT-ASSETS> 80,181,000
<PP&E> 63,574,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 441,011,000
<CURRENT-LIABILITIES> 41,263,000
<BONDS> 432,262,000
0
0
<COMMON> 0
<OTHER-SE> (87,500,000)
<TOTAL-LIABILITY-AND-EQUITY> 441,011,000
<SALES> 115,727,000
<TOTAL-REVENUES> 115,727,000
<CGS> 73,912,000
<TOTAL-COSTS> 73,912,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,235,000
<INCOME-PRETAX> 383,000
<INCOME-TAX> 157,000
<INCOME-CONTINUING> 226,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,297,000
<CHANGES> 0
<NET-INCOME> (2,071,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
