<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 March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________ TO_________
COMMISSION FILE NUMBER 333-95623
333-41187
333-41211
DDi CORP.
DDi CAPITAL CORP.
DYNAMIC DETAILS, INCORPORATED
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
DELAWARE 95-3253877
CALIFORNIA 33-0780382
CALIFORNIA 33-0779123
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1220 SIMON CIRCLE
ANAHEIM, CALIFORNIA 92806
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 688-7200
(REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether DDi Capital Corp. and Dynamic Details,
Incorporated: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
[X] No [_]. DDi Corp. filed Form 8-A on April 6, 2000 and has filed all
reports required to be filed since such date.
As of March 31, 2000, all of the voting stock of Dynamic Details, Incorporated
was held by DDi Capital Corp. and all of the voting stock of DDi Capital Corp.
was held by DDi Intermediate Holdings Corp. which is wholly owned by DDi Corp.
As of April 14, 2000, immediately after the consummation of its initial public
offering and its acquisition of MCM Electronics Limited, DDi Corp. had
39,025,541 shares of common stock, par value $0.01 per share, outstanding.
DDi Corp., previously a California corporation, was reincorporated in Delaware
immediately prior to the initial public offering of its common stock on April
14, 2000.
As of March 31, 2000, Dynamic Details, Incorporated had 100 shares of common
stock, par value $0.01 per share, outstanding and DDi Capital Corp. had 1,000
shares of common stock, par value $0.01 per share, outstanding.
<PAGE>
DDi Corp.
DDi Capital Corp.
Dynamic Details, Incorporated
Form 10-Q
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
PART I Financial Information
Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 23
</TABLE>
2
<PAGE>
PART I FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
Dynamic Details DDi Capital DDi Corp.
--------------- ----------- ---------
March 31, December 31, March 31, December 31, March 31, December 31,
2000 1999 2000 1999 2000 1999
----------- ------------- ---------- ------------ ---------- ------------
Assets (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 841 $ 644 $ 841 $ 644 $ 845 $ 648
Accounts receivable, net 44,768 42,774 44,768 42,774 44,768 42,774
Inventories 21,391 20,209 21,391 20,209 21,391 20,209
Prepaid expenses and other 3,097 2,498 3,097 2,498 3,097 2,499
Deferred tax asset 5,215 5,215 5,215 5,215 5,215 5,215
--------------------------------------------------------------------------------------
Total current assets 75,312 71,340 75,312 71,340 75,316 71,345
Property, plant and equipment, net 63,572 63,209 63,572 63,209 63,572 63,209
Debt issue costs, net 9,001 9,490 12,637 13,152 13,299 13,833
Goodwill and other intangibles, net 200,295 205,462 200,295 205,462 200,295 205,462
Other 1,257 486 1,257 486 1,257 486
--------------------------------------------------------------------------------------
Total Assets $ 349,437 $ 349,987 $ 353,073 $ 353,649 $ 353,739 $ 354,335
=====================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 7,585 $ 7,035 $ 7,585 $ 7,035 $ 7,585 $ 7,035
Current portion of deferred interest
rate swap income 1,462 1,458 1,462 1,458 1,462 1,458
Current maturities of deferred
notes payable 2,038 2,514 2,038 2,514 2,038 2,514
Accounts payable 17,156 18,055 17,156 18,055 17,156 18,055
Accrued expenses 23,176 22,263 23,176 22,263 23,176 22,311
Income tax payable 2,326 894 1,349 894 754 894
--------------------------------------------------------------------------------------
Total current liabilities 53,743 52,219 52,766 52,219 52,171 52,267
Long-term debt and capital lease
obligations 349,278 351,227 429,406 428,944 471,609 469,703
Deferred interest rate swap income 3,514 3,881 3,514 3,881 3,514 3,881
Notes payable and other 2,120 2,179 2,120 2,179 2,120 2,179
Deferred tax liability 20,496 20,496 13,420 13,420 13,420 13,420
--------------------------------------------------------------------------------------
Total liabilities 429,151 430,002 501,226 500,643 542,834 541,450
--------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' deficit:
Common stock and additional
paid-in-capital 251,903 251,944 199,789 199,830 162,236 162,239
Accumulated deficit (331,617) (331,959) (347,942) (346,824) (351,331) (349,354)
--------------------------------------------------------------------------------------
Total stockholders' deficit (79,714) (80,015) (148,153) (146,994) (189,095) (187,115)
--------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Deficit $ 349,437 $ 349,987 $ 353,073 $ 353,649 $ 353,739 $ 354,335
======================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Dynamic Details DDi Capital DDi Corp
------------------- ------------------- -------------------------
Three Months Ended Three Months Ended Three Months Ended
March 31, March 31, March 31,
------------------- ------------------- -------------------------
2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $75,285 $59,179 $75,285 $59,179 $ 75,285 $ 59,179
Cost of goods sold 49,035 41,816 49,035 41,816 49,035 42,010
------- ------- ------- ------- ----------- -----------
Gross profit 26,250 17,363 26,250 17,363 26,250 17,169
Operating expenses:
Sales and marketing 6,891 4,702 6,891 4,702 6,891 4,702
General and administration 3,938 2,816 3,938 2,816 3,938 2,872
Amortization of intangibles 5,168 5,821 5,168 5,821 5,168 5,821
------- ------- ------- ------- ----------- -----------
Operating income 10,253 4,024 10,253 4,024 10,253 3,774
Interest expense (net) and other
expense (net) 8,264 8,171 10,700 10,307 12,155 11,581
------- ------- ------- ------- ----------- -----------
Income (loss) before income taxes 1,989 (4,147) (447) (6,283) (1,902) (7,807)
Income tax benefit (expense) (1,647) 994 (671) 1,851 (75) 2,478
------- ------- ------- ------- ----------- -----------
Net income (loss) $ 342 $(3,153) $(1,118) $(4,432) (1,977) (5,329)
======= ======= ======= =======
Priority distribution due shares of
Class L common stock (3,770) (3,420)
----------- -----------
Net loss allocable to shares of
Class A common stock $ (5,747) $ (8,749)
=========== ===========
Net loss per share of Class A common
stock (basic and diluted) $ (0.58) $ (0.90)
=========== ===========
Weighted average shares of Class A
common stock outstanding 9,888,923 9,744,179
=========== ===========
Pro forma basic and diluted net loss
per share (unaudited) $ (0.08) $ (0.22)
=========== ===========
Pro forma weighted average shares
outstanding (unaudited) 24,750,000 24,750,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Dynamic Details DDi Capital DDi Corp
------------------- ------------------- -------------------
Three Months Ended Three Months Ended Three Months Ended
March 31, March 31, March 31,
------------------- ------------------- -------------------
2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 5,953 $ 6,481 $ 5,953 $ 6,481 $ 5,906 $ 6,179
------- ------- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,839) (3,131) (3,839) (3,131) (3,839) (3,131)
Costs incurred in connection with the acquisition of DCI - (212) - (212) - (212)
------- ------- ------- ------- ------- -------
Net cash used in investing activities (3,839) (3,343) (3,839) (3,343) (3,839) (3,343)
------- ------- ------- ------- ------- -------
Cash flows from financing activities:
Payments on long-term debt (1,358) (239) (1,358) (239) (1,358) (239)
Net repayments on the revolving credit facility - (2,000) - (2,000) - (2,000)
Payments of deferred note payable (518) (525) (518) (525) (518) (525)
Capital contribution to Parent, net (41) (101) (41) (101) - -
Proceeds from exercise of stock options - - - - 6 -
------- ------- ------- ------- ------- -------
Net cash used in financing activities (1,917) (2,865) (1,917) (2,865) (1,870) (2,764)
------- ------- ------- ------- ------- -------
Net increase in cash and cash equivalents 197 273 197 273 197 72
Cash and cash equivalents, beginning of year 644 1,905 644 1,905 648 2,109
------- ------- ------- ------- ------- -------
Cash and cash equivalents, end of period $ 841 $ 2,178 $ 841 $ 2,178 $ 845 $ 2,181
======= ======= ======= ======= ======= =======
</TABLE>
Supplemental disclosure of cash flow information:
Non-cash operating activities:
During the three months ended March 31, 2000 and 1999, the Company recorded
approximately $9 million and $10 million, respectively, of depreciation and
amortization expense.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(In thousands, except share and per share amounts)
NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements for the period ended
March 31, 2000 include the accounts of DDi Corp. (f/k/a DDi Holdings Corp.) and
subsidiaries and DDi Capital Corp. ("DDi Capital") and its wholly-owned
subsidiary Dynamic Details, Incorporated and subsidiaries ("Dynamic Details"),
(collectively, the "Company").
In October 1997, the predecessor of DDi Corp. incorporated Dynamic Details as a
wholly-owned subsidiary and contributed substantially all of its assets, subject
to certain liabilities, to Dynamic Details. In November 1997, the predecessor
of DDi Corp. incorporated DDi Capital as a wholly-owned subsidiary and, in
February 1998, contributed substantially all its assets (including the shares of
common stock of Dynamic Details), subject to certain liabilities, including
discount notes to DDi Capital. In July 1998, the predecessor of DDi Corp.
incorporated DDi Intermediate Holding Corp. ("Intermediate") as a wholly-owned
subsidiary and contributed all of the shares of common stock of DDi Capital to
Intermediate. Other than the Intermediate Senior Discount Notes and the Capital
Senior Discount Notes (both as defined in Note 3), related debt issue costs and
tax balances, all significant assets and liabilities of DDi Corp. on a
consolidated basis are those of Dynamic Details. This report contains the first
periodic presentation of financial data for DDi Corp., which consummated the
initial public offering of its common stock on April 14, 2000. Dynamic Details,
in conjunction with Dynamic Details Design, LLC, a wholly-owned subsidiary of
Intermediate formed in 1998, represent the operating divisions of DDi Corp.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary (consisting only of
normal recurring adjustments) to present fairly the financial position of the
Company as of March 31, 2000, and the results of operations and cash flows for
the three months ended March 31, 2000 and 1999. The results of operations for
such interim periods are not necessarily indicative of results of operations to
be expected for the full year.
These financial statements have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such regulations, although the Company believes the
disclosures provided are adequate to prevent the information presented from
being misleading.
This report on Form 10-Q for the quarter ended March 31, 2000 should be read in
conjunction with the audited financial statements presented in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 and with the
audited financial statements contained in DDi Corp.'s final registration
statement on Form S-1, filed April 14, 2000. The Annual Report on Form 10-K was
submitted on behalf of DDi Capital and Dynamic Details.
NATURE OF BUSINESS
The Company is a leading provider of time-critical, technologically advanced
design, development and manufacturing services to original equipment
manufacturers and other electronics manufacturing service providers. The
Company serves over 1,400 customers, primarily in the United States, and
primarily in the telecommunications, computer and networking industries.
6
<PAGE>
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------
(In thousands, except share and per share amounts)
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market and consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials $11,424 $11,828
Work-in-process 7,584 5,601
Finished goods 2,383 2,780
------- -------
Total $21,391 $20,209
======= =======
</TABLE>
NOTE 3. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
Dynamic Details DDi Capital DDi Corp.
------------------------- ------------------------- ------------------------
March 31, December 31, March 31, December 31, March 31, December 31,
2000 1999 2000 1999 2000 1999
--------- ------------ --------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Senior Term Facility (a) (d) $250,650 $251,738 $250,650 $251,738 $250,650 $251,738
10.0% Senior Subordinated Notes 100,000 100,000 100,000 100,000 100,000 100,000
12.5% Capital Senior Discount
Notes (b) - - 80,128 77,717 80,128 77,717
13.5% Intermediate Senior Discount
Notes (c) - - - - 42,203 40,759
Capital lease obligations 6,213 6,524 6,213 6,524 6,213 6,524
-------- -------- -------- -------- -------- --------
Sub-total 356,863 358,262 436,991 435,979 479,194 476,738
Less current maturities (7,585) (7,035) (7,585) (7,035) (7,585) (7,035)
-------- -------- -------- -------- -------- --------
Total $349,278 $351,227 $429,406 $428,944 $471,609 $469,703
======== ======== ======== ======== ======== ========
</TABLE>
(a) Interest rates are LIBOR-based and range from 8.13% to 8.38% as of March 31,
2000.
(b) Face amount of $110,000, net of unamortized discount of $29,871 and $32,283
at March 31, 2000 and December 31, 1999, respectively.
(c) Face amount of $66,810, net of unamortized discount of $24,607 and $26,051
at March 31, 2000 and December 31, 1999, respectively.
(d) The Senior Term Facility, together with the Revolving Credit Facility which
had no amounts outstanding as of March 31, 2000 and December 31, 1999,
comprise the Senior Credit Facility.
7
<PAGE>
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------
(In thousands, except share and per share amounts)
NOTE 4. EARNINGS PER SHARE
Basic and diluted earnings per share - DDi Corp. has adopted the provisions of
Statement of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per
Share." SFAS No. 128 requires the DDi Corp. to report both basic net income
(loss) per share, which is based on the weighted average number of common shares
outstanding, excluding contingently issuable shares such as the Class L common
shares that contingently convert into common stock upon certain events, and
diluted net income (loss) per share, which is based on the weighted average
number of common shares outstanding and dilutive potential common shares
outstanding. Class A and Class L common stock share ratably in the net income
(loss) remaining after giving effect to the 12% yield on the Class L common
stock. As a result of the losses incurred by DDi Corp. during the three months
ended March 31, 1999 and 2000, all potential common shares were anti-dilutive
and excluded from the diluted net income (loss) per share calculation. As of
March 31, 2000, DDi Corp. had not yet completed its initial public offering.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
Numerator: 2000 1999
---------- ----------
<S> <C> <C>
Net loss per share of Class A common stock $ (1,977) $ (5,329)
Priority distribution due shares of Class L common stock (3,770) (3,420)
----------------------------
Net loss allocable to shares of Class A common stock $ (5,747) $ (8,749)
============================
Denominator:
Weighted average shares of Class A common stock outstanding 9,888,923 9,774,179
============================
</TABLE>
Unaudited pro forma loss per share - Unaudited pro forma basic and diluted net
loss per share for the three months ended March 31, 2000 and 1999 have been
calculated based on the net loss applicable to common stock assuming the
reclassification of DDi Corp.'s Class A and L common stock which occurred
immediately prior to the completion of the initial public offering, as if such
reclassifications had occurred at the beginning of the period. On April 14,
2000, each share of Class L common stock was reclassified into one share of
Class A common stock plus an additional number of shares of Class A common stock
(determined by dividing the preference amount of such per share by the initial
public offering price of $14.00 per share.) Each share of Class A common stock
was then converted into 2.8076 shares of new common stock when DDi Corp.
reincorporated in the state of Delaware. The reclassification has been
reflected in the accompanying financial statements, and all applicable
references as to number of common shares and per share information have been
restated.
NOTE 5. RELATED PARTY TRANSACTIONS
Pursuant to a management agreement among Bain Capital Partners V, L.P. ("Bain"),
DDi Corp. and Dynamic Details (the "Management Agreement"), Bain was entitled to
a management fee when, it provided advisory services to the Company in
connection with potential business acquisitions. In addition, Bain performed
certain management consulting services at Bain's customary rates plus
reimbursement for reasonable out-of-pocket expenditures. In this capacity, Bain
received approximately $1.1 million in fees in fiscal year ended December 31,
1999. This management agreement was terminated by mutual consent of the parties
in connection with the initial public offering by DDi Corp. on April 14, 2000.
Bain was paid a termination fee of approximately $3 million.
8
<PAGE>
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------
(In thousands, except share and per share amounts)
NOTE 6. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL DATA
On November 15, 1997, Dynamic Details, issued $100 million aggregate principal
amount of 10% Senior Subordinated Notes due in 2005. The senior subordinated
notes are fully and unconditionally guaranteed on a senior subordinated basis,
jointly and severally, by all of its wholly-owned subsidiaries (the "Subsidiary
Guarantors").
The condensed financial data of Dynamic Details is presented below and should be
read in conjunction with the condensed consolidated financial statements of
Dynamic Details. Separate financial data of the Subsidiary Guarantors are not
presented because (i) the Subsidiary Guarantors are wholly-owned and have fully
and unconditionally guaranteed the Notes on a joint and several basis and (ii)
the Company's management has determined such separate financial data are not
material to investors and believes the condensed financial data of Dynamic
Details presented is more meaningful in understanding the financial position of
the Company.
SUPPLEMENTAL DYNAMIC DETAILS, CONDENSED FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
March 31, 2000 December 31, 1999
------------------ ------------------
<S> <C> <C>
Current assets $ 23,308 $ 22,472
Non-current assets 308,330 329,490
------------------ ------------------
Total assets $331,638 $351,962
================== ==================
Current liabilities $ 21,673 $ 29,089
Non-current liabilities 346,200 354,397
------------------ ------------------
Total liabilities 367,873 383,486
------------------ ------------------
Total stockholders' deficit (36,235) (31,524)
------------------ ------------------
Total liabilities and stockholders' deficit $331,638 $351,962
================== ==================
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------ ------------------
<S> <C> <C>
Net sales $28,147 $ 19,540
Cost of sales 15,164 11,369
------------------ ------------------
Gross profit 12,983 8,171
Operating expenses 3,963 2,235
------------------ ------------------
Income from operations 9,020 5,936
Interest expense, net 8,296 8,161
------------------ ------------------
Income before income taxes 724 (2,225)
Income tax (benefit) expense (336) 829
------------------ ------------------
Income (loss) before equity in loss of subsidiaries 388 (1,396)
Equity in loss of subsidiaries (46) (1,757)
------------------ ------------------
Net income (loss) $ 342 $ (3,153)
================== ==================
</TABLE>
9
<PAGE>
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------
(In thousands, except share and per share amounts)
NOTE 7. SUBSEQUENT EVENTS
On April 14, 2000, DDi Corp. consummated an initial public offering of its
common stock. The net proceeds were used to reduce the indebtedness of the
Dynamic Details senior term loans by $100.0 million, redeem $17.5 million of the
senior discount notes issued by DDi Intermediate, pay associated redemption
premiums of $2.8 million and accrued and unpaid interest thereon of $3.7
million, and complete the acquisition of MCM Electronics Limited ("MCM").
On April 14, 2000, DDi Corp. completed the acquisition of MCM, a time-critical
electronics manufacturing service provider based in the United Kingdom for total
consideration of approximately $86 million paid in a combination of cash, common
stock and assumption of outstanding indebtedness of MCM. This transaction will
be accounted for as a purchase by DDi Corp. and the purchase price will be
allocated to the underlying assets and liabilities based upon their respective
fair market values at the date of acquisition. No adjustments have been made to
the accompanying historical consolidated financial statements for this
transaction. MCM focuses on the technology advanced, time-critical segment of
the electronics manufacturing industry and will be managed by the existing MCM
management and the DDi management team.
In addition, on April 14, 2000, in conjunction with the reduction of
indebtedness of the Dynamic Details senior term loans, the Company
proportionately reduced the notional amount hedged and modified certain other
terms of its interest rate exchange agreement then in effect. It is anticipated
that these modifications will not impact the Company's earnings for 2000.
On March 21, 2000, Dynamic Details and DDi Capital entered into an amendment of
the Dynamic Details senior credit facility with the Bankers Trust Company and
Chase Manhattan Bank, as agents. The amendment, which became effective on April
14, 2000, permitted DDi Corp. to use the proceeds of its initial public offering
as described in its registration statement of Form S-1. Dynamic Details paid
its lenders a fee of 25 basis points on the outstanding balance under the credit
agreement. Future prepayments of the Tranche B term facility will require a
premium of up to 2%, declining to par within two years.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS.
- --------------
OVERVIEW
The Company is a leading provider of time-critical, technologically advanced
design, development and manufacturing services to original equipment
manufacturers and other electronics manufacturing service providers. The
Company serves over 1,400 customers, primarily in the United States, and
primarily in the telecommunications, computer and networking industries.
This discussion and analysis should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations set
forth in the Company's Annual Report on Form 10-K for the year ended December
31, 1999, and Management's Discussion and Analysis of Financial Condition and
Results of Operations set forth in DDi Corp's Post-Effective Amendment No. 1 on
Form S-1 filed April 14, 2000.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to the Three Months ended March 31,
1999
Net sales increased $16.1 million (27%) to $75.3 million for the three months
ended March 31, 2000, from $59.2 million for the same period in 1999. The
increase was primarily attributable to the production of higher margin printed
circuit board panels, which increased the average sales price per panel.
Gross profit for the three months ended March 31, 2000 was $26.3 million. Such
results reflect an increase of $9.1 million (53%) for DDi Corp, from $17.2
million for the same period in 1999 and an increase of $8.9 million (51%) for
both DDi Capital and Dynamic Details, from $17.4 million for the same period in
1999. The increases in gross profit resulted from the higher level of sales.
The most significant improvements were achieved in the Company's pre-production
operations and in its assembly facilities, which increased operating margins by
approximately 200% and 33%, respectively.
Sales and marketing expenses increased $2.2 million (47%) to $6.9 million for
the three months ended March 31, 2000, from $4.7 million for the same period in
1999. Of the aggregate increase, approximately $1.3 million is attributable to
growth in our sales force to accommodate existing and anticipated near-term
increases in customer demand. The remaining increase of approximately $0.9
million relates to higher commissions and other variable expenses due to our
increased sales volume.
General and administration expenses were $3.9 million for the three months ended
March 31, 2000, as compared to approximately $2.9 million for the same period in
1999. The increase in expenses is attributable to higher staffing costs and
other back-office expenditures to support growth in our design operations and
the company as a whole.
Amortization of intangibles decreased $0.6 million for the three months ended
March 31, 2000, due to the use of accelerated amortization methods with regard
to certain identifiable intangibles.
Net interest expense for Dynamic Details increased approximately $0.1 million
for the three months ended March 31, 2000, as compared to the same period in
1999. Net interest expense for DDi Capital increased $0.4 million, due to the
increase in expense for Dynamic Details and to the impact of discount accretion
on the DDi Capital senior discount notes. Net interest expense for DDi Corp
increased $0.6 million, due to the increases in expense for Dynamic Details and
DDi Capital, and to the impact of discount accretion on the DDi Intermediate
senior discount notes.
Income taxes for DDi Corp. increased $2.6 million to an expense of $0.1 million
for the three months ended March 31, 2000, from a benefit of $(2.5) million for
the same period in 1999. Income taxes for DDi Capital increased to an expense
of $0.7 million for the three months ended March 31, 2000, as compared to a
benefit of $(1.9) million for the same period in 1999. Income taxes for Dynamic
Details increased to an expense of $1.6 million for the three months
11
<PAGE>
ended March 31, 2000, from a benefit of $(1.0) million for the same period in
1999. The provisions for income taxes are based upon the Company's expected
effective tax rate in the respective fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and cash equivalents of $0.8 million,
compared to $0.6 million as of December 31, 1999. The principal source of
liquidity for the three months ended March 31, 2000 was cash provided by
operations.
Net cash provided by operating activities for the three months ended March 31,
2000 was $5.9 million, compared to $6.2 million for DDi Corp. and $6.5 million
for DDi Capital and Dynamic Details for the three months ended March 31, 1999.
Capital expenditures for the Company for the three months ended March 31, 2000
were $3.8 million, compared to $3.1 million for the three months ended March 31,
1999.
As of March 31, 2000, DDi Corp., DDi Capital and Dynamic Details had long-term
borrowings of $471.6 million, $429.4 million and $349.3 million, respectively.
Dynamic Details has $45 million available for borrowing under its revolving
credit facility for revolving credit loans, letters of credit and swing line
loans, less amounts that may be in use from time-to-time. At March 31, 2000,
Dynamic Details had no borrowings outstanding under this revolving credit
facility and had $0.7 million reserved against the facility for a letter of
credit.
On April 14, 2000, DDi Corp. consummated an initial public offering of its
common stock. The net proceeds were used to reduce the indebtedness of the
Dynamic Details senior term loans by $100.0 million, redeem $17.5 million of the
senior discount notes issued by DDi Intermediate, and to pay associated
redemption premiums of $2.8 million and accrued and unpaid interest thereon of
$3.7 million and to complete the acquisition of MCM.
Based upon the current level of operations, management believes that cash
generated from operations, available cash and amounts available under its senior
credit facility will be adequate to meet its debt service requirements, capital
expenditures and working capital needs for the foreseeable future, although no
assurance can be given in this regard. Accordingly, there can be no assurance
that the Company's business will generate sufficient cash flow from operations
or that future borrowings will be available to enable the Company to service its
indebtedness. The Company is highly leveraged, and its future operating
performance and ability to service or refinance its indebtedness will be subject
to future economic conditions and to financial, business and other factors,
certain of which are beyond the Company's control.
COLORADO FACILITY
In December 1999, the Company's management implemented a plan to consolidate its
Colorado operations into its Texas facility, resulting in the closure of the
Colorado facility. In conjunction with the closure of the Colorado facility,
the Company recorded charges in the fourth quarter of 1999 totaling $7.0
million, consisting of $4.5 million for severance and other exit costs and $2.5
million related to the impairment of net property, plant and equipment. The
exit costs were accrued for as of December 31, 1999. The closure of the
facility was effectively complete as of March 31, 2000. Management is in the
process of evaluating its lease exit strategy and the accrued exit costs
remaining as of March 31, 2000 are approximately $0.4 million.
RISKS ASSOCIATED WITH INTANGIBLE ASSETS
At March 31, 2000, the Company's balance sheet reflected $200 million of
intangible assets, a substantial portion of the Company's total assets at such
date. The intangible assets consist of goodwill and other identifiable
intangibles relating to the Company's acquisitions. The balances of these
intangible assets may increase in future periods, principally from the
consummation of further acquisitions, including the acquisition of MCM, which
was completed on April 14, 2000. Amortization of these additional intangibles
will, in turn, have a negative impact on earnings. In
12
<PAGE>
addition, the Company continuously evaluates whether events and circumstances
have occurred that indicate the remaining balance of intangible assets may not
be recoverable. When factors indicate that assets should be evaluated for
possible impairment, the Company may be required to reduce the carrying value of
its intangible assets, which could have a material adverse effect on the results
of the Company during the periods in which such a reduction is recognized. There
can be no assurance that the Company will not be required to write down
intangible assets in future periods.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 137, issued by the FASB in July 1999, establishes a new
effective date for SFAS No. 133. This statement, as amended by SFAS No. 137, is
effective for all fiscal years beginning after June 15, 2000 and is therefore
effective for the Company beginning with its fiscal quarter ending March 31,
2001. Based upon the nature of the financial instruments and hedging activities
in effect as of the date of this filing, this pronouncement would require the
Company to reflect the fair value of its derivative instruments on the
consolidated balance sheet. Changes in fair value of these instruments will be
reflected as a component of comprehensive income.
FACTORS THAT MAY AFFECT FUTURE RESULTS
SUBSTANTIAL INDEBTEDNESS
The Company is highly leveraged. As of March 31, 2000, indebtedness was
approximately $479 million for DDi Corp., $437 million for DDi Capital and $357
million for Dynamic Details. As of March 31, 2000, there was $44.3 million
available under the Dynamic Details senior credit facility for future borrowings
for general corporate purposes and working capital needs. See additional
discussion at Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources. In addition, subject
to the restrictions in the Intermediate senior discount notes, DDi Capital
senior discount notes, Dynamic Details senior subordinated notes and Dynamic
Details senior credit facility, the Company may incur additional indebtedness in
an unrestricted amount from time to time to finance acquisitions or capital
expenditures or for other purposes.
As a result of the Company's level of debt and the terms of its debt
instruments:
. the Company's vulnerability to adverse general economic conditions is
heightened;
. the Company will be required to dedicate a substantial portion of our cash
flow from operations to repayment of debt, limiting the availability of cash
for other purposes;
. the Company is and will continue to be limited by financial and other
restrictive covenants in its ability to borrow additional funds, consummate
asset sales, enter into transactions with affiliates or conduct mergers and
acquisitions;
. the Company's flexibility in planning for, or reacting to, changes in its
business and industry will be limited;
. we the Company is sensitive to fluctuations in interest rates because some
of its debt obligations are subject to variable interest rates; and
. the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired.
The Company's ability to pay principal and interest on it indebtedness and to
satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
13
<PAGE>
financial, business and other factors, certain of which are beyond its control,
as well as the availability of revolving credit borrowings under the Dynamic
Details senior credit facility or successor facilities.
The Company anticipates that its operating cash flow, together with borrowings
under the Dynamic Details senior credit facility will be sufficient to meet its
operating expenses and to service its debt requirements as they become due. If
the Company is unable to service its indebtedness, it will be forced to take
actions such as reducing or delaying capital expenditures, selling assets,
restructuring or refinancing its indebtedness (which could include the
Intermediate senior discount notes, DDi Capital senior discount notes and the
Dynamic Details senior subordinated notes), or seeking additional equity
capital. There is no assurance that any of these remedies can be effected on
satisfactory terms, if at all.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The terms of the Company's indebtedness restrict, among other things, the
Company's ability to incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur indebtedness, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. DDi Capital
and Dynamic Details are also required to maintain specified financial ratios and
satisfy certain financial condition tests. Their ability to meet those financial
ratios and tests can be affected by events beyond their control, and there can
be no assurance that they will meet those tests. A breach of any of these
covenants could result in a default under some or all of the Company's
indebtedness agreements. Upon the occurrence of an event of default, lenders
under such indebtedness could elect to declare all amounts outstanding together
with accrued interest, to be immediately due and payable. If the Company were
unable to repay such amounts, the lenders could proceed against the collateral
granted to them to secure that indebtedness. Substantially all the assets of
Dynamic Details and its subsidiaries are pledged as security under the Dynamic
Details senior credit facility.
TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT
The market for the Company's products and services is characterized by rapidly
changing technology and continuing process development. The future success of
the Company's business will depend in large part upon its ability to maintain
and enhance its technological capabilities, to develop and market products and
services that meet changing customer needs, and to successfully anticipate or
respond to technological changes on a cost-effective and timely basis. Research
and development expenses are expected to increase as manufacturers make demands
for products and services requiring more advanced technology on a quicker
turnaround basis. The Company is more leveraged than some of its principal
competitors, and therefore may not be able to respond to technological changes
as quickly as these competitors.
In addition, the electronics manufacturing services industry could in the future
encounter competition from new or revised technologies that render existing
technology less competitive or obsolete or that reduce the demand for the
Company's services. There can be no assurance that the Company will effectively
respond to the technological requirements of the changing market. To the extent
the Company determines that new technologies and equipment are required to
remain competitive, the development, acquisition and implementation of such
technologies and equipment may require the Company to make significant capital
investments. There can be no assurance that the Company will be able to obtain
capital for these purposes in the future or that any investments in new
technologies will result in commercially viable technological processes.
DEPENDENCE ON A CORE GROUP OF SIGNIFICANT CUSTOMERS
Although the Company has a large number of customers, net sales to its largest
customer accounted for approximately 8% of net sales during the three months
ended March 31, 2000. Net sales to the ten largest customers accounted for
approximately 41% of net sales during the same period. The Company may depend
upon a core group of customers for a material percentage of net sales in the
future. Substantially all sales are made on the basis of purchase orders rather
than long-term agreements. There can be no assurance that significant customers
will order
14
<PAGE>
services from the Company in the future or that they will not reduce or delay
the amount of services ordered. Any reduction or delay in orders could
negatively impact revenues. In addition, the Company generates significant
accounts receivable in connection with providing services to customers. If one
or more significant customers were to become insolvent or otherwise were unable
to pay for the services provided, results of operations would be adversely
affected.
DEPENDENCE ON ACQUISTION STRATEGY
As part of its business strategy, the Company expects that it will continue to
grow by pursuing acquisitions of other companies, assets or product lines that
complement or expand existing business. Competition for attractive companies in
industry is substantial. The Company cannot assure that it will be able to
identify suitable acquisition candidates or to finance and complete transactions
that it selects. In addition, existing credit facilities restrict the Company's
ability to acquire the assets or business of other companies. The attention of
management may be diverted, and operations may be otherwise disrupted. Failure
to effectively execute this acquisition strategy may cause the growth of
revenues to suffer.
ABILITY TO INTEGRATE ACQUIRED BUSINESSES AND MANAGE EXPANSION
Since December 1997, the Company has consummated a merger and two acquisitions,
including the acquisition of MCM in conjunction with DDi Corp.'s initial public
offering. The Company has a limited history of owning and operating its
businesses on a consolidated basis. There can be no assurance that it will be
able to meet performance expectations or successfully integrate acquired
businesses on a timely basis without disrupting the quality and reliability of
service to customers or diverting management resources. This rapid growth has
placed and may continue to place a significant strain on management, financial
resources and information, operating and financial systems. If the Company is
unable to manage this growth effectively, its rate of growth and its revenues
may be adversely affected.
COSTS OF INTERNATIONAL EXPANSION
The Company is expanding into new foreign markets. DDi Corp. completed its
acquisition of MCM on the completion of its initial public offering. Entry into
foreign markets may require considerable management time as well as, in the case
of new operations, start-up expenses for market development, hiring and
establishing office facilities before any significant revenues are generated. As
a result, operations in new foreign markets may achieve low margins or may be
unprofitable. The Company will be unable to utilize net operating losses
incurred by foreign operations to reduce U.S. income taxes. Therefore, as the
Company expands internationally, it may not experience the operating margins it
expects, and revenues may be negatively impacted.
VARIABILITY OF ORDERS
The Company's operating results have fluctuated in the past because it sells on
a purchase-order basis rather than pursuant to long-term contracts. The Company
is therefore sensitive to variability in customers' demand. Because the Company
times expenditures in anticipation of future sales, its operating results may be
less than estimated if the timing and volume of customer orders do not match
expectations. Furthermore, the Company may not be able to capture all potential
revenue in a given period if customers' demand for quick-turnaround services
exceeds capacity during that period. Because of these factors, you should not
rely on quarter-to-quarter comparisons of the Company's results of operations as
an indication of future performance. Because a significant portion of the
Company's operating expenses are fixed, even a small revenue shortfall can have
a disproportionate effect on operating results. It is possible that, in future
periods, results may be below the expectations of public market analysts and
investors. A substantial portion of the Company's net sales are derived from
quick-turn services for which it provides both the materials and the
manufacturing services. As a result, the Company often bears the risk of
fluctuations in the cost of materials, and the risk of generating scrap and
excess inventory, which can affect gross profit margins. The Company forecasts
future inventory needs based upon the anticipated demands of its customers.
Inaccuracies in making these
15
<PAGE>
forecasts or estimates could result in a shortage or an excess of materials,
either of which could negatively affect production schedules and margins.
INTELLECTUAL PROPERTY
The Company's success depends in part on proprietary technology and
manufacturing techniques. The Company has no patents for these proprietary
techniques and relies primarily on trade secret protection. Litigation may be
necessary to protect its technology and determine the validity and scope of the
proprietary rights of competitors. Intellectual property litigation could result
in substantial costs and diversion of management and other resources. If any
infringement claim is asserted against the Company, it may seek to obtain a
license of the other party's intellectual property rights. There is no assurance
that a license would be available on reasonable terms or at all.
ENVIRONMENTAL MATTERS
The Company's operations are regulated under a number of federal, state and
foreign environmental and safety laws and regulations that govern, among other
things, the discharge of hazardous materials into the air and water, as well as
the handling, storage and disposal of such materials. These laws and regulations
include the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act, and the Comprehensive Environmental Response, Compensation and
Liability Act, as well as analogous state and foreign laws. Compliance with
these environmental laws is a major consideration for the Company because it
uses in its manufacturing process materials classified as hazardous such as
ammoniacal etching solutions, copper and nickel. In addition, because the
Company is a generator of hazardous wastes, it may be subject to potential
financial liability for costs associated with an investigation and any
remediation of sites at which the Company has arranged for the disposal of
hazardous wastes if such sites become contaminated. Even if the Company fully
complies with applicable environmental laws and is not directly at fault for the
contamination, it may still be liable. The wastes the Company generates include
spent ammoniacal etching solutions, solder stripping solutions and hydrochloric
acid solution containing palladium; waste water which contains heavy metals,
acids, cleaners and conditioners; and filter cake from equipment used for on-
site waste treatment. Violations of environmental laws could subject the Company
to revocation of its effluent discharge permits. Any such revocations could
require the Company to cease or limit production at one or more of its
facilities, thereby negatively impacting revenues.
DEPENDENCE ON KEY MANAGEMENT
The Company's success will continue to depend to a significant extent on its
executive and other key management personnel. Although the Company has entered
into employment agreements with certain of its executive officers, there can be
no assurance that the Company will be able to retain its executive officers and
key personnel or attract additional qualified management in the future.
CONTROLLING STOCKHOLDERS
After the completion of DDi Corp's initial public offering and the acquisition
of MCM, investors affiliated with Bain Capital, Inc., Celerity Partners, LLC and
The Chase Manhattan Bank together hold approximately 40.5% of the outstanding
voting stock of DDi Corp., the sole stockholder of Intermediate, which is the
sole stockholder of DDi Capital which, in turn, is the sole stockholder of
Dynamic Details. By virtue of such stock ownership, these entities have
significant influence over all matters submitted to stockholders of DDi Corp.
and its subsidiaries, including the election of directors of DDi Corp. and its
subsidiaries, and to exercise significant control over the business, policies
and affairs of the Company.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Form 10-Q are
forward-looking in nature. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and may differ materially from the Company's actual
future experience involving any one or more of such matters and subject areas.
The Company wishes to caution readers that all statements other than statements
of historical facts included in this quarterly report on Form 10-Q regarding the
Company's financial position and business strategy may constitute forward-
looking statements. All of these forward-looking statements are based upon
estimates and assumptions made by management of the Company, which although
believed to be reasonable, are inherently uncertain. Therefore, undue reliance
should not be placed on such estimates and statements. No assurance can be
given that any of such estimates or statements will be realized and it is likely
that actual results will differ materially from those contemplated by such
forward-looking statements. Factors that may cause such differences include:
(1) increased competition; (2) increased costs; (3) the inability to consummate
business acquisitions on attractive terms; (4) the loss or retirement of key
members of management; (5) increases in the Company's cost of borrowings or
unavailability of additional debt or equity capital on terms considered
reasonable by management; (6) adverse state, federal or foreign legislation or
regulation or adverse determinations by regulators; (7) changes in general
economic conditions in the markets in which the Company may compete and
fluctuations in demand in the electronics industry; and (8) the ability to
sustain historical margins as the industry develops. The Company has attempted
to identify certain of the factors that it currently believes may cause actual
future experiences to differ from the Company's current expectations regarding
the relevant matter or subject area. In addition to the items specifically
discussed in the foregoing, the Company's business and results of operations is
subject to the risks and uncertainties described under the headings "Risks
Associated with Intangible Assets" and "Factors That May Affect Future Results"
contained herein. However, the operations and results of the Company's business
also may be subject to the effect of other risks and uncertainties. Such risks
and uncertainties include, but are not limited to, items described from time-to-
time in the Company's reports filed with the Securities and Exchange Commission.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Interest Rate Risk
The Dynamic Details senior credit facility bears interest at a floating rate;
the Dynamic Details senior subordinated notes, DDi Capital senior discount notes
and DDi Intermediate senior discount notes bear interest at fixed rates. The
Company reduces exposure to interest rate risks through swap agreements.
Under the terms of the current swap agreements, the Company pays a maximum
annual rate of interest applied to a notional amount equal to the principal
balance of the term facility portion of the Dynamic Details senior credit
facility for the period June 30, 1999 through August 31, 2001. During this
period, the maximum annual rate is 5.65% for a given month, unless one-month
LIBOR for that month equals or exceeds 7.00%, in which case the Company pays
7.00% for that month. From September 1, 2001 through the scheduled maturity of
the senior term facility in 2005, the Company pays a fixed annual rate of 7.35%
applied to a notional amount equal to 50% of the principal balance of the senior
term facility during that period. The term loan facility portion of the Dynamic
Details senior credit facility bears interest based on one-month LIBOR. As of
March 31, 2000, one-month LIBOR was 5.88%. If one-month LIBOR increased by 10%
to 6.47%, interest expense related to the term loan facility portion would
increase by approximately $1.5 million over the twelve months ending March 31,
2001. Moreover, because the increased rate would exceed 5.65%, but remain below
7.00%, that increase in interest expense would be offset by approximately $1.5
million in payments the Company would be entitled to receive under the swap
agreement.
The revolving credit facility bears interest at (1) 2.25% per annum plus the
applicable LIBOR or (2) 1.25% per annum plus the federal reserve reported
overnight funds rate plus 0.5% per annum. As of March 31, 2000 the Company had
no outstanding balance under its revolving credit facility. The Company does
not anticipate having a material outstanding balance on this facility during the
year ending December 31, 2000. Therefore, a 10% change in interest rates as of
March 31, 2000 is not expected to materially affect the interest expense to be
incurred on this facility during such period.
A change in interest rates would not have an effect on the interest expense to
be incurred on the Dynamic Details senior subordinated notes, DDi Capital senior
discount notes or the DDi Intermediate senior discount notes because each of
these instruments bears a fixed rate of interest.
Foreign Currency Exchange Risk
All of the Company's sales are denominated in U.S. dollars and as a result, the
Company has relatively little exposure to foreign currency exchange risk with
respect to sales made. The Company does not use forward exchange contracts to
hedge exposures to foreign currency denominated transactions and does not
utilize any other derivative financial instruments for trading or speculative
purposes. Therefore, the effect of an immediate 10% change in exchange rates
would not have an impact on the Company's operating results over the 12 month
period ending March 31, 2001.
18
<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 AND USE OF PROCEEDS. None
Item 3. DEFAULTS UPON SENIOR SECURITIES. None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None
Item 5. OTHER INFORMATION
On March 27, 2000, Dynamic Details and DDi Capital entered into an amendment of
the Dynamic Details senior credit facility with the Bankers Trust Company and
Chase Manhattan Bank, as agents. The amendment, which became effective on April
14, 2000, permitted DDi to use the proceeds of its initial public offering as
described in its registration statement of Form S-1. Dynamic Details paid its
lenders a fee of 25 basis points on the outstanding balance under the credit
agreement. Future prepayments of the Tranche B term facility will require a
premium of up to 2%, declining to par within two years.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
-----------------
Certain of the following exhibits have been previously filed with the
Commission pursuant to the requirements of the Securities Act. Such exhibits are
identified by the parenthetical references following the listing of each such
exhibit and are incorporated herein by reference.
Exhibit Description
- ------- -----------
3.1 DDi Corp. Delaware Certificate of Incorporation. (Previously filed as
Exhibit 3.1 to Amendment No. 5 to Form S-1 Registration Statement File
No. 333-95623).
3.2 DDi Corp. Delaware By-laws. (Previously filed as Exhibit 3.2 to
Amendment No. 5 to Form S-1 Registration Statement File No. 333-95623).
4.6 Stockholders Agreement dated as of March 31, 2000. (Previously filed as
Exhibit 4.1 to Amendment No. 5 to Form S-1 Registration Statement File
No. 333-95623).
10.1 Amendment dated as of March 31, 2000, to the Stock Contribution and
Merger Agreement dated July 23, 1998 by and among Details Holdings
Corp. and Dynamic Circuits Inc. and the Stockholders of Dynamic
Circuits Inc. (Previously filed as Exhibit 10.2.1 to Amendment No. 5 to
Form S-1 Registration Statement File No. 333-95623).
10.2 Form of Merger Agreement between DDi Corp., a California corporation,
and DDi Merger Co., a Delaware corporation. (Previously filed as
Exhibit 10.36 to Amendment No. 5 to Form S-1 Registration Statement
File No. 333-95623).
10.3 Form of DDi Corp. Employee Stock Purchase Plan. (Previously filed as
Exhibit 10.37 to Amendment No. 5 to Form S-1 Registration Statement
File No. 333-95623).
10.4 Form of 2000 DDi Corp. Equity Incentive Plan. (Previously filed as
Exhibit 10.8 to Amendment No. 5 to Form S-1 Registration Statement File
No. 333-95623).
10.5 Share Purchase Agreement between the shareholders of MCM Electronics
Limited and DDi Corp. dated as of March 22, 2000. (Previously filed as
Exhibit 10.38 to Amendment No. 5 to Form S-1 Registration Statement
File No. 333-95623).
27.1 Financial Data Schedule for Dynamic Details, Incorporated
27.2 Financial Data Schedule for DDi Capital Corp.
27.3 Financial Data Schedule for DDi Corp.
19
<PAGE>
(b) Reports on Form 8-K:
--------------------
On February 2, 2000, DDi Capital and Dynamic Details filed a Report on Form
8-K, describing the January 28, 2000 filing with the SEC by their ultimate
parent, DDi Corp., of a registration statement on Form S-1.
On March 9, 2000 DDi Capital and Dynamic Details filed a Report on Form 8-K,
(i) describing the March 2, 2000 filing with the SEC by their ultimate parent,
DDi Corp., of Amendment No. 1 to its registration statement on Form S-1, and
(ii) including a press release announcing first quarter operating results for
DDi Capital Corp. and Dynamic Details, Incorporated.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, DDi Corp. has duly caused this quarterly report to be signed on its
behalf by the undersigned, thereto duly authorized, in the city of Anaheim,
state of California, on the 12th day of May, 2000.
DDi CORP.
By: /s/ Bruce D. McMaster
---------------------
Name: Bruce D. McMaster
Title: President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph P. Gisch Vice President and May 12, 2000
------------------- Chief 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, DDi Capital Corp. has duly caused this quarterly report to be
signed on its behalf by the undersigned, thereto duly authorized, in the city of
Anaheim, state of California, on the 12th day of May, 2000.
DDi CAPITAL CORP.
By: /s/ Bruce D. McMaster
---------------------
Name: Bruce D. McMaster
Title: President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph P. Gisch Vice President and May 12, 2000
------------------- Chief Financial Officer
Joseph P. Gisch (principal financial and
chief accounting officer)
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Dynamic Details, Incorporated. has duly caused this quarterly
report to be signed on its behalf by the undersigned, thereto duly authorized,
in the city of Anaheim, state of California, on the 12th day of May, 2000.
DYNAMIC DETAILS, INCORPORATED
By: /s/ Bruce D. McMaster
---------------------
Name: Bruce D. McMaster
Title: President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph P. Gisch Vice President and May 12, 2000
------------------- Chief Financial Officer
Joseph P. Gisch (principal financial and
chief accounting officer)
23
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<FISCAL-YEAR-END> DEC-31-2000
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