DDi (DDICQ) 10-Q 2011 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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: 000-30241

DDi Corp.

(Exact name of registrant as specified in its charter)

Delaware	06-1576013
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1220 N. Simon Circle

Anaheim, California 92806

(Address of principal executive offices) (Zip code)

(714) 688-7200

(Registrant’s telephone number, including area code)

Not Applicable

(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  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (check one):

Large accelerated filer	¨	Accelerated filer	þ
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

As of July 29, 2011, DDi Corp. had 20,316,868 shares of common stock, par value $0.001 per share, outstanding.

DDi Corp.

Form 10-Q for the Quarterly Period Ended June 30, 2011

TABLE OF CONTENTS

			Page No.
PART I — FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Unaudited Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		1
		Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2011 and 2010		2
		Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010		3
		Notes to Unaudited Condensed Consolidated Financial Statements		4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		16
	Item 4.	Controls and Procedures		17
PART II – OTHER INFORMATION
	Item 1.	Legal Proceedings		18
	Item 1A.	Risk Factors		18
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		18
	Item 3.	Defaults Upon Senior Securities		18
	Item 4.	Removed and Reserved		18
	Item 5.	Other Information		18
	Item 6.	Exhibits		18
	Signatures			20

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

DDi CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	June 30, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	25,646		$	28,347
Accounts receivable, net		42,206			40,821
Inventories, net		24,204			20,970
Prepaid expenses and other assets		2,304			1,889
Total current assets		94,360			92,027
Property, plant and equipment, net		43,185			42,605
Intangible assets, net		234			614
Goodwill		3,664			3,664
Other assets		950			954
Total assets	$	142,393		$	139,864
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,753		$	25,137
Accrued expenses and other current liabilities		12,257			13,802
Current portion of long-term debt		1,430			1,751
Income taxes payable		267			311
Total current liabilities		36,707			41,001
Long-term debt		9,269			9,704
Other long-term liabilities		490			527
Total liabilities		46,466			51,232
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock — $0.001 par value, 190,000 shares authorized, 23,264 shares issued and 20,317 shares outstanding at June 30, 2011 and 23,129 shares issued and 20,182 shares outstanding at December 31, 2010		23			23
Additional paid-in-capital		242,177			245,181
Treasury stock, at cost — 2,947 shares held in treasury at June 30, 2011 and December 31, 2010		(16,323	)		(16,323	)
Accumulated other comprehensive income		1,406			1,063
Accumulated deficit		(131,356	)		(141,312	)
Total stockholders’ equity		95,927			88,632
Total liabilities and stockholders’ equity	$	142,393		$	139,864

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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DDi CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net sales	$	66,224		$	68,382		$	132,683		$	133,047
Cost of goods sold		51,781			53,067			104,088			103,746
Gross profit		14,443			15,315			28,595			29,301
Operating expenses:
Sales and marketing		4,284			4,294			8,922			8,801
General and administrative		3,846			3,790			7,805			8,213
Amortization of intangible assets		190			190			380			380
Restructuring and other related charges		623			290			623			290
Operating income		5,500			6,751			10,865			11,617
Interest expense		391			301			778			760
Interest income		(2	)		(7	)		(7	)		(24	)
Other expense (income), net		60			148			(26	)		364
Income before income tax expense		5,051			6,309			10,120			10,517
Income tax expense		100			312			164			721
Net income	$	4,951		$	5,997		$	9,956		$	9,796
Net income per share:
Basic	$	0.24		$	0.30		$	0.49		$	0.49
Diluted	$	0.24		$	0.29		$	0.47		$	0.48
Dividend declared per share	$	0.10		$	0.06		$	0.20		$	0.06
Weighted-average shares used in per share computations:
Basic		20,302			19,863			20,364			19,844
Diluted		21,005			20,544			21,198			20,257
	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Comprehensive income:
Net income		4,951			5,997			9,956			9,796
Foreign currency translation adjustments		(90	)		(447	)		343			197
Comprehensive income		4,861			5,550			10,299			9,993

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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DDi CORP.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,956		$	9,796
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,480			4,363
Amortization of intangible assets		380			380
Amortization of debt issuance costs		122			—
Amortization of deferred lease liability		(220	)		(225	)
Stock-based compensation		575			689
Other		(21	)		171
Changes in operating assets and liabilities:
Accounts receivable		(1,027	)		(9,860	)
Inventories		(3,089	)		(1,685	)
Prepaid expenses and other assets		(527	)		(275	)
Accounts payable		(2,538	)		6,163
Accrued expenses and other liabilities		(1,390	)		(4,209	)
Income taxes payable		(62	)		(868	)
Net cash provided by operating activities		6,639			4,440
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(4,824	)		(3,623	)
Net cash used in investing activities		(4,824	)		(3,623	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt		(944	)		(875	)
Payments of debt issuance costs		(2	)		(108	)
Repayment of revolving credit facility		—			(4,290	)
Proceeds from exercise of stock options		511			471
Cash dividend payments to common shareholders		(4,060	)		—
Net cash used in financing activities		(4,495	)		(4,802	)
Effect of exchange rate changes on cash and cash equivalents		(21	)		140
Net decrease in cash and cash equivalents		(2,701	)		(3,845	)
Cash and cash equivalents, beginning of period		28,347			19,392
Cash and cash equivalents, end of period	$	25,646		$	15,547
Supplemental disclosures of non-cash operating and financing activities:
	Six Months Ended June 30,
	2011			2010
Dividend declared and accrued	$	—		$	1,197
Adjustment of inventory balance to goodwill relating to acquisition of Coretec	$	—		$	402

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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DDi CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of DDi Corp. and its wholly-owned subsidiaries. DDi Corp. and its subsidiaries are referred to herein as the “Company”, “DDi”, “we”, “our” or “us”. All intercompany transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements and notes thereto contain all adjustments necessary for a fair presentation of the financial position of DDi as of June 30, 2011 and the results of our operations and cash flows for the three and six months ended June 30, 2011 and 2010, and such adjustments are of a normal recurring nature. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the future quarters in the year ending December 31, 2011.

We have prepared these financial statements pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. 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 we believe the disclosures provided are adequate to prevent the information presented from being misleading. The condensed consolidated balance sheet data as of December 31, 2010 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). This report on Form 10-Q for the quarter ended June 30, 2011 should be read in conjunction with the audited consolidated financial statements and notes thereto presented in DDi’s Annual Report on Form 10-K for the year ended December 31, 2010.

All financial data are presented in US Dollars. Certain data from 2010 was reclassified to conform to the current year presentation.

Use of Estimates

The preparation of our unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition, inventory valuation, the valuation of stock-based compensation, and the valuation of long-lived assets and goodwill. In addition, we have other accounting policies that involve estimates such as warranty reserves, accruals for restructuring and valuation allowance for deferred tax assets. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.

Description of Business

DDi is a leading provider of time-critical, technologically-advanced electronic interconnect design, engineering and manufacturing services. We specialize in engineering and fabricating complex multi-layer printed circuit boards (“PCBs”) on a quick-turn basis, with lead times as short as 24 hours. DDi has over 1,000 customers in various market segments including communications and computing, military and aerospace, industrial electronics, instrumentation, medical and high-durability commercial markets. Our engineering capabilities and manufacturing facilities located in the United States and Canada, together with our suppliers in Asia, enable us to respond to time-critical orders and technology challenges for our customers. DDi operates primarily in one geographical area, North America.

On December 31, 2009, DDi completed the acquisition of Coretec Inc. (“Coretec”), a Canadian-based PCB manufacturer whose shares previously were publicly traded on the Toronto Stock Exchange.

Recent Accounting Pronouncements

There were no new accounting pronouncements issued subsequent to the filing of our Annual Report on Form 10-K for the year ended December 31, 2010 that are expected to have a material impact on our unaudited condensed consolidated financial statements.

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There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited condensed financial statements.

NOTE 2. INVENTORIES

Inventories are stated at the lower of cost (determined on a first-in, first-out or average cost basis) or market and consist of the following (in thousands):

	June 30, 2011		December 31, 2010
Raw materials	$	10,754	$	9,216
Work-in process		8,258		7,093
Finished goods		5,192		4,661
Total	$	24,204	$	20,970

NOTE 3. REVOLVING CREDIT FACILITY

On September 23, 2010, we entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Lender, and JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Lender. The Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $25.0 million, with a Canadian sub-limit of $10.0 million. Pursuant to its terms and subject to the conditions set forth therein, the aggregate principal amount of the facility may be increased from $25.0 to $40.0 million. The maturity date of the facility is September 23, 2013. Availability under the Credit Agreement is based on various borrowing base tests, including our eligible accounts receivable and inventories. As of June 30, 2011, we had no borrowings outstanding under the Credit Agreement and availability under the facility was above the applicable measurement levels.

On March 14, 2011, we entered into an amendment (the “March 2011 Credit Amendment”) to the Credit Agreement dated September 23, 2010. The March 2011 Credit Amendment amends the Credit Agreement to (i) reduce the margin from 3.25% to 2.50% that is added to published interest rates to determine the applicable interest rates for borrowing and (ii) increase the amount of dividends that we can pay without obtaining the consent of the Lender from $8.0 million in a rolling twelve-month period (and $25.0 million over the term of the Credit Agreement) to $12.0 million ($40.0 million over the term of the Credit Agreement).

NOTE 4. LONG-TERM DEBT

Key Bank

We have a term loan with Key Bank secured by our building located in North Jackson, Ohio. The loan has a principal balance of approximately $0.9 million at June 30, 2011, requires monthly payments of approximately $0.02 million plus accrued interest, and bears interest at LIBOR plus 1.5% (1.69% at June 30, 2011). The note matures in April 2015.

Business Development Bank of Canada

There are four existing loans with Business Development Bank of Canada (the “BDC”) – a term loan, an infrastructure loan, an equipment loan and a building loan. The BDC loans are secured by the land and building of our Sheppard Avenue facility located in Toronto, Ontario, and the loan balance is guaranteed by us, a requirement of the BDC. The BDC loans require us to maintain an available funds coverage ratio of 1.5. As of June 30, 2011, we are in compliance with all required covenants.

The outstanding BDC term loan has a principal balance of approximately $0.3 million as of June 30, 2011. The loan requires monthly principal payments of approximately $0.05 million over the loan term and bears interest, payable monthly, at BDC’s floating base rate less 1.5% (3.50% at June 30, 2011). The loan matures in December 2011.

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The infrastructure loan was provided to finance the completion of our Sheppard Avenue facility, located in Toronto, Ontario. The infrastructure loan has a principal balance of approximately $4.7 million as of June 30, 2011, requires monthly principal payments of approximately $0.02 million, and accrues interest at BDC’s floating base rate (5.0% at June 30, 2011). The loan matures in October 2028.

The equipment loan has a principal balance of approximately $1.9 million as of June 30, 2011, requires monthly principal payments of approximately $0.04 million, and accrues interest at the 1-month floating base rate plus 0.6% (4.35% at June 30, 2011). The loan matures in October 2015.

The building loan has a principal balance of approximately $0.2 million as of June 30, 2011, requires monthly principal payments of approximately $0.02 million, and accrues interest at BDC’s floating base rate plus 0.25% (5.25% at June 30, 2011). The loan matures in March 2012.

Zions Bank Mortgage

We have a mortgage with Zions Bank with a principal balance of approximately $1.5 million as of June 30, 2011, secured by the land and building of our Cuyahoga Falls, Ohio facility. The mortgage requires monthly fixed principal and interest payments of approximately $0.01 million, accrues interest at the Federal Home Loan Bank rate plus 2% (6.92% at June 30, 2011), and matures during 2032.

GE Real Estate Mortgage

We have a mortgage with GE Real Estate, with a principal balance of $1.3 million as of June 30, 2011, secured by the land and building of our Littleton, Colorado facility. The mortgage requires monthly fixed interest and principal payments of approximately $0.01 million, accrues interest at a fixed rate of 7.55% per annum, and matures during 2032.

NOTE 5. PRODUCT WARRANTY

We accrue warranty expense, which is included in cost of goods sold, at the time revenue is recognized for estimated future warranty obligations related to defective PCBs at the time of shipment, based upon the relationship between historical sales volumes and anticipated costs. Factors that affect the warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the estimated cost of repair. We assess the adequacy of the warranty accrual each quarter. To date, actual warranty claims and costs have been in line with our estimates. The warranty accrual is included in accrued expenses and other current liabilities.

The changes in the Company’s warranty accrual were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Beginning balance	$	1,291		$	1,173		$	1,167		$	1,100
Warranties issued during the period		1,808			1,822			4,058			3,234
Warranty expenditures		(1,912	)		(1,745	)		(4,038	)		(3,084	)
Ending Balance	$	1,187		$	1,250		$	1,187		$	1,250

NOTE 6. INCOME TAXES

We apply the provisions of FASB Accounting Standards Codification (“ASC”) 740, “Income Taxes”, which established standards of financial accounting and reporting for income taxes that result from an entity’s activities during the current and preceding years. We have $0.4 million and $0.4 million of total gross unrecognized tax benefits as of June 30, 2011 and December 31, 2010. If recognized in future periods there would be a favorable effect of $0.3 million to the effective tax rate. Management anticipates a decrease of approximately $0.06 million in the tax contingency reserve during the remainder of 2011 due to statute expirations. We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions and Canada. We have substantially concluded all U.S. federal income tax matters for years through 2004. Canadian income tax matters have been examined through 2008. State jurisdictions that remain subject to examination range from 2003 to 2009.

Our effective income tax rate differs from the U.S. federal statutory tax rate of 35% primarily as a result of the mix of earnings between tax jurisdictions, research and development credits, state income taxes and our continuous evaluation of the realization of our deferred tax assets and uncertain tax positions. The reduced income tax rate in 2011 was primarily the result of reserved net operating loss carry forwards and tax credits available to offset profitable operating results.

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NOTE 7. STOCK-BASED COMPENSATION

Stock Options

In May 2011, our stockholders approved the DDi Corp. 2011 Stock Incentive Plan (the “2011 Plan”). Awards under the 2011 Plan may be made to key employees and directors of DDi whose participation in the 2011 Plan is determined to be in the best interests of DDi by the Compensation Committee of the Board of Directors (the “Compensation Committee”). The 2011 Plan permits the granting of options (both incentive and nonqualified stock options), share appreciation rights, restricted common stock, deferred share units and performance awards. The Plan reserves 1,750,000 shares for future awards to eligible persons. The number of shares available for awards, as well as the terms of outstanding awards, will be adjusted as provided in the 2011 Plan for share splits, share dividends, reclassifications, recapitalizations, and other similar events. Any shares reserved for awards will again be available for future awards if the shares for any reason will never be issued to a participant or beneficiary pursuant to an award due to the award’s forfeiture, cancellation, expiration, or net settlement without the issuance of shares. In addition, all shares that are available for future grant under the 2005 Stock Incentive Plan and awards granted under the 2005 Stock Incentive Plan that expire, terminate or are otherwise forfeited will become available for subsequent award under the 2011 Plan. Generally, options that have been granted to employees under the 2011 Plan have a ten year term and vest over three years from the date of grant in equal annual installments. Certain of the grants may vest on an accelerated basis.

In order to determine the fair value of stock options, we use the Black-Scholes option pricing model and apply the single-option valuation approach to the stock option valuation. In order to determine the fair value of restricted stock awards and restricted stock units we use the closing market price of DDi common stock on the date of grant. We recognize stock-based compensation expense on a straight-line basis over the requisite service period for time-based vesting awards of stock options, restricted stock awards and restricted stock units.

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model requires the input of highly subjective assumptions, including the expected stock price volatility, risk-free interest rates, dividend rate, and expected term.

There were 691,600 and 706,600 grants of stock option awards during the three and six months ended June 30, 2011, respectively. There were 103,800 and 565,800 grants of stock option awards during the three and six months ended June 30, 2010, respectively. As of June 30, 2011, the total compensation cost related to non-vested stock options not yet recognized was $2.1 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over the remaining weighted-average period of approximately 2.2 years.

The following table summarizes our stock option activity under all the plans for the six months ended June 30, 2011:

	Options Outstanding (in  thousands)			Weighted Average Exercise Price Per Option		Weighted Average Remaining Contractual Life in Years		Aggregate Intrinsic Value (in thousands)
Balance as of December 31, 2010		2,466		$	7.87		6.43	$	12,483
Granted		707		$	8.90
Exercised		(204	)	$	6.30			$	807
Forfeited		(18	)	$	11.45
Balance as of June 30, 2011		2,951		$	8.20		6.9	$	7,129
Options exercisable as of June 30, 2011		1,908		$	8.49		5.5	$	5,139

The aggregate intrinsic value represents the difference between the exercise price of the underlying awards and the quoted price of DDi’s common stock for those awards that have an exercise price below the quoted price at June 30, 2011.

Restricted Stock

There were no grants of restricted stock awards during the six months ended June 30, 2011 and 25,000 grants of restricted stock awards during the three and six months ended June 30, 2010. As of June 30, 2011, the total compensation cost related to non-vested restricted stock awards not yet recognized was $0.2 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over the remaining weighted-average period of approximately 0.5 years.

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A summary of the status of our non-vested restricted shares as of June 30, 2011 and changes during the six months ended June 30, 2011 is presented below:

	Non-vested Shares Outstanding (in thousands)			Weighted Average Grant- Date Fair Value
Non-vested at December 31, 2011		144		$	3.96
Granted		3	(a)	$	3.92
Vested		(9	)	$	4.48
Forfeited		—			—
Non-vested at June 30, 2011		138		$	3.92

(a) Under the terms of the DDi 2005 Stock Incentive Plan, the number of shares subject to outstanding Restricted Stock Units (“RSUs”) are adjusted upon the payment of cash dividends. As a result of the dividend declaration on February 17 and May 17, 2011, the number of shares subject to outstanding RSUs increased by 2,744 shares.

Stock-Based Compensation Expense

The following table sets forth expense related to stock-based compensation (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Stock-based compensation expense:
Cost of goods sold		101		115		179		240
Sales and marketing expenses		46		60		83		144
General and administrative expenses		159		166		313		305
Total stock-based compensation expense		306		341		575		689

NOTE 8. SEGMENT REPORTING

Based on evaluation of our financial information, management believes that DDi operates in one reportable segment related to the design, development, manufacture and test of complex PCBs. Revenues are attributed to the country in which the customer buying the product is located.

The following table summarizes net sales by geographic area (in thousands):

	Three Months Ended June 30				Six Months Ended June 30
	2011		2010		2011		2010
Net sales:
North America (1)	$	60,285	$	61,233	$	120,924	$	117,735
Asia		5,072		6,224		9,772		12,890
Other		867		925		1,987		2,422
Total	$	66,224	$	68,382	$	132,683	$	133,047

(1) The majority of sales in North America are to customers located in the United States.

NOTE 9. NET INCOME PER SHARE

Basic net income per share is computed by dividing the net income for the period by the weighted-average number of common shares outstanding during the period, net of shares of common stock held in treasury. Diluted net income per share is computed by dividing the net income for the period by the weighted-average number of common and common equivalent shares outstanding during the period, if dilutive. The dilutive effect of outstanding options and restricted stock is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of share-based compensation.

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The following table sets forth the calculation of basic and diluted net income per share of common stock (in thousands, except per share amounts):

	Three Months Ended June 3 0 ,				Six Months Ended June 30 ,
	2 0 11		2 0 10		2 0 11		2 0 10
Weighted-average shares of common stock outstanding - basic		20,302		19,863		20,364		19,844
Weighted-average common stock equivalents		703		681		834		413
Weighted-average shares of common stock outstanding - diluted		21,005		20,544		21,198		20,257
Net income	$	4,951	$	5,997	$	9,956	$	9,796
Net income per share - basic	$	0.24	$	0.30	$	0.49	$	0.49
Net income per share - diluted	$	0.24	$	0.29	$	0.47	$	0.48

For the three and six months ended June 30, 2011, common shares issuable upon exercise of outstanding stock options and vesting of restricted stock of 2,387,060 and 2,255,997 respectively, were excluded from the diluted net income per common share calculation as their impact would have been anti-dilutive. For the three and six months ended June 30, 2010, common shares issuable upon exercise of outstanding stock options and vesting of restricted stock of 2,228,891 and 2,495,839, respectively, were excluded from the diluted net income per common share calculation.

NOTE 10. RESTRUCTURING AND OTHER RELATED CHARGES

The acquisition of Coretec on December 31, 2009 prompted us to integrate the operations of DDi’s legacy facility in Toronto (McNicoll) with Coretec’s Toronto facility (Sheppard Avenue) during 2010, which reduced fixed overhead costs, rationalized capacity, and allowed for taking full advantage of the modern Sheppard Avenue manufacturing facility. During the second quarter of 2011, we incurred $0.6 million of severance costs related to the final phase of the Toronto integration plan. During the three and six months ended June 30, 2010, we incurred $0.3 million of integration costs which were composed of estimated site remediation, asset disposals, severance, and other typical integration expenses.

NOTE 11. DIVIDENDS

We have paid quarterly cash dividends since the second quarter of 2010. The following table sets forth the dividends declared during the three and six months ended June 30, 2011 and 2010 (in thousands except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2 0 11		2 0 10		2 0 11		2 0 10
Dividend per share	$	0.10	$	0.06	$	0.20	$	0.06
Total declared	$	2,032	$	1,197	$	4,060	$	1,197

DDi Corp. is a Delaware corporation. Delaware code allows a corporation to declare and pay dividends out of the corporations “surplus”, which is defined as total assets minus total liabilities minus par value of issued stock. DDi had a surplus as defined by Delaware code of $96 million and $93 million as of June 30, 2011 and March 31, 2011, respectively. When we record a dividend, the charge is recorded to additional paid-in capital as opposed to retained earnings since we have an accumulated deficit.

NOTE 12. FAIR VALUE MEASUREMENTS

Effective January 1, 2008, we began applying fair value measurements to assets and liabilities reported in its financial statements at fair value on a recurring basis as required by FASB ASC 820,“Fair Value Measurements and Disclosures”. This topic establishes a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1:	Quoted market prices in active markets for identical assets or liabilities.
Level 2:	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:	Unobservable inputs that are not corroborated by market data.

A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The estimated fair values of our financial instruments, which include cash and

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cash equivalents, accounts receivable, revolving credit facility, accounts payable, accrued liabilities and income taxes payable, approximate their carrying values due to their short maturities. These items are classified as either Level 1 or Level 2 inputs.

Cash equivalents consist of our excess cash invested in highly liquid money market accounts. These amounts are reflected within cash and cash equivalents on the unaudited condensed consolidated balance sheet at a net value of 1:1 for each dollar invested. The cost and fair value of our cash equivalents was $25.6 million as of June 30, 2011 and was based on quoted market prices in active markets for identical assets, a Level 1 input.

To calculate the estimated fair value of our variable and fixed rate notes payable and mortgage debt as of June 30, 2011, we estimated that in the current market our cost of borrowing on similar debt would, on average, be approximately 5.9% based on its current debt rating and an analysis of current market rates. Using this estimated interest rate and a discount rate of 8.0% (Level 2 and 3 inputs), we estimated the fair value of our debt to be approximately $0.1 million higher than its carrying value of $10.7 million.

NOTE 13. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time we are involved in litigation and government proceedings incidental to our business. These proceedings are in various procedural stages. We believe as of the date of this report that provisions or accruals made for any potential losses, to the extent estimable, are adequate and that any liabilities or costs arising out of these proceedings are not likely to have a materially adverse effect on our unaudited condensed consolidated financial statements. The outcome of any of these proceedings, however, is inherently uncertain, and if unfavorable outcomes were to occur, there is a possibility that they would, individually or in the aggregate, have a materially adverse effect on the our unaudited condensed consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion of the financial condition and results of operations for our three and six months ended June 30, 2011. As used herein, the “Company,” “we,” “us,” or “our” means DDi Corp. and its wholly-owned subsidiaries. This discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in DDi Corp.’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”).

Some of the statements in this section contain forward-looking statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events, which involve risks and uncertainties. All statements other than statements of historical facts included in this section relating to expectation of future financial performance, continued growth, changes in economic conditions or capital markets and changes in customer usage patterns and preferences, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as may, will, should, expect, plan, intend, forecast, anticipate, believe, estimate, predict, potential, continue or the negative of these terms or other comparable terminology. The forward-looking statements contained in this section involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements may include the matters listed under “Risk Factors” in Item 1A in our Form 10-K including, but not limited to, changes in general economic conditions in the markets in which we may compete and fluctuations in demand in the electronics industry; increased competition; increased costs; our ability to retain key members of management; our ability to address changes to environmental laws and regulations; potential impacts of natural disasters on the electronics industry and the company’s supply chain; risks associated with acquisitions; adverse state, federal or foreign legislation or regulation or adverse determinations by regulators; and other factors identified from time to time in our filings with the U. S. Securities and Exchange Commission (“SEC”).

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors.

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Our Company

We are a leading provider of time-critical, technologically-advanced printed circuit board (“PCB”) engineering and manufacturing services. We specialize in engineering and fabricating complex multi-layer PCBs on a quick-turn basis, with lead times as short as 24 hours, and in manufacturing products with high levels of complexity and reliability with low-to-moderate production volumes. We have over 1,000 PCB customers in various market segments including communications, computing, military/aerospace, industrial electronics, instrumentation, medical and high-durability commercial markets. Our customers include both original equipment manufacturers (“OEMs”) and electronic manufacturing services (“EMS”) providers. With such a broad customer base and approximately 60 new PCB designs tooled per day, we have accumulated significant process and engineering expertise. Our core strength is developing innovative, high-performance solutions for customers during the engineering, test and launch phases of new electronic product development and supporting long-term requirements for low-to-moderate production volumes, such as those required by the military/aerospace market. Our entire organization is focused on rapidly and reliably filling complex customer orders and building long-term customer relationships. Our engineering capabilities and seven manufacturing facilities located in the United States and Canada, together with our suppliers in Asia, enable us to respond to time-critical orders and technology challenges for our customers.

Industry Overview

PCBs are a fundamental component of virtually all electronic equipment. A PCB is comprised of layers of laminate and copper and contains patterns of electrical circuitry to connect electronic components. The level of PCB complexity is determined by several characteristics, including interconnect and circuit density, size, layer count, material type and functionality. High-end commercial and military/aerospace equipment manufacturers require complex PCBs fabricated with higher layer counts, greater interconnect and circuit density and advanced materials, and demand highly complex and sophisticated manufacturing capabilities. By contrast, other PCBs, such as those used in non-wireless consumer electronic products, are generally less complex and have less sophisticated manufacturing requirements.

Critical Accounting Policies and Use of Estimates

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained on pages 24 to 26 in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K. We believe that at June 30, 2011 there had been no material changes to this information.

Results of Operations - Summary

During the second quarter of 2011, we experienced a reduced level of demand as customer orders fell sequentially by 8% to $66.2 million reflecting a 1.00 book to bill ratio. This sequential decrease during the second quarter of 2011 follows an 18% sequential increase in customer orders to a record level of $72.2 million during the first quarter of 2011. During the fourth quarter of 2010 we experienced a 15% sequential decrease in customer orders. These three consecutive quarters of inconsistent trends in customer demand follows five consecutive quarters of increasing customer orders starting in the third quarter of 2009.

For the six months ended June 30, 2011, total customer orders were $138.4 which reflects a slight decrease of 2% from the same period of the prior year. This slight decrease is primarily comprised of lower demand in the communications and consumer electronics segments partially offset by increases in the government, military and aerospace segment, industrial electronics segment, and the instrumentation and medical segment. Likewise, the net sales were $132.7 million for the six months ended June 30, 2011 which are basically flat with the $133.0 million recorded in the same period of the prior year.

Looking ahead to the balance of 2011, we are cautious regarding the overall economic environment in North America and the impact on the demand for printed circuit boards. In particular, we have seen spots of softer demand being forecasted in the military/aerospace market sector with the budget pressures anticipated on the U.S. Department of Defense and our customers in this market segment. With the economic recovery uncertain, we remain intensely focused on operational and financial discipline, gaining market share in our core markets, and technological innovation to continue to improve DDi’s overall business platform.

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Results of Operations for the Three Months Ended June 30, 2011 Compared to the Three Months Ended June 30, 2010

The following tables set forth select data from our Unaudited Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended June 30,						$ Change			% Change
	2011			2010
Net sales	$	66,224		$	68,382		$	(2,158	)		(3.2	%)
Cost of goods sold		51,781			53,067			(1,286	)		(2.4	%)
Gross profit	$	14,443		$	15,315		$	(872	)		(5.7	%)
Gross profit as a percentage of net sales		21.8	%		22.4	%

Net Sales

Net sales are derived from the engineering and manufacture of complex, technologically-advanced multi-layer PCBs.

Net sales decreased $2.2 million or 3.2%, to $66.2 million for the first quarter of 2011, from $68.4 million for the same period in 2010. This slight decrease in net sales is primarily driven by decreased sales to the communications, consumer electronics, and the government, military and aerospace segments partially offset by higher sales to the computer, industrial electronics, and instrumentation and medical segments.

Gross Profit

Gross profit for the second quarter of 2011 was $14.4 million, or 21.8% of net sales as compared to $15.3 million, or 22.4% of net sales for the same period in 2010. The decrease in gross profit from the same period in the prior year was primarily due to slightly lower revenues and higher material costs driven by higher commodity prices, labor and depreciation partially off-set by lower overhead costs. Lower overhead costs during the second quarter of 2011 primarily represent the benefits realized from our Toronto facilities integration.

Sales and Marketing Expenses

	Three Months Ended June 30,
	2011			2010			$ Change			% Change
Sales and marketing expenses	$	4,284		$	4,294		$	(10	)		(0.2	%)
Percentage of net sales		6.5	%		6.3	%

Sales and marketing expenses remained flat on an absolute dollar basis for the second quarter of 2011 compared to the same period of the prior year and increased slightly as a percent of sales due to lower sales in the second quarter of 2011 compared to the same period in the prior year.

General and Administrative Expenses

	Three Months Ended June 30,
	2011			2010			$ Change		% Change
General and administrative expenses	$	3,846		$	3,790		$	56		1.5	%
Percentage of net sales		5.8	%		5.5	%

General and administrative expenses remained flat for the three months ended June 30, 2011 at $3.8 million as compared to the same period of the prior year.

Amortization of Intangibles

Amortization of intangible assets relates to customer relationships identified in connection with the purchase of Sovereign Circuits Inc. in the fourth quarter of 2006. These intangible assets are being amortized using the straight-line method over an estimated useful life of five years resulting in $0.2 million of amortization expense per quarter for the remaining acquisition-related customer relationships through October 2011.

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Interest Expense

Interest expense consists of amortization of debt issuance costs, interest expense associated with long-term deferred leases, and interest on seven asset-backed term loans. Interest expense was $0.4 million for the second quarter of 2011 compared $0.3 million in the same period of the prior year.

Net Other Expense (Income)

Net other income consists of foreign exchange transaction gains or losses related to our Canadian operations and other miscellaneous non-operating items. For the second quarter of 2011, net other income was flat at $0.1 million compared to the same period of the prior year.

Restructuring and Other Related Charges

The acquisition of Coretec on December 31, 2009 prompted us to integrate the operations of DDi’s legacy facility in Toronto (McNicoll) with Coretec’s Toronto facility (Sheppard Avenue) during 2010, which reduced fixed overhead costs, rationalized capacity, and allowed for taking full advantage of the modern Sheppard Avenue manufacturing facility. During the second quarter of 2011, we incurred $0.6 million of severance costs related to the final phase of the Toronto integration plan. During the three and six months ended June 30, 2010, we incurred $0.3 million of integration costs which were composed of estimated site remediation, asset disposals, severance, and other typical integration expenses.

Income Tax Expense

We recorded an income tax expense for the second quarter of 2011 of $0.1 million or 2.0% of pre-tax income, compared to income tax expense of $0.3 million, or 4.9% of pre-tax income, for the same period in the prior year. The decrease in income tax expense during the second quarter of 2011 was primarily due to uncertain tax positions and state income taxes. Our effective income tax rate differs from the U.S. federal statutory tax rate of 35% primarily as a result of the mix of earnings between tax jurisdictions, research and development credits, state income taxes and our continuous evaluation of the realization of our deferred tax assets and uncertain tax positions, and the impact of the recognition of the tax benefit of net operating loss carry forwards to the extent of current earnings.

Results of Operations for the Six Months Ended June 30, 2011 Compared to the Six months Ended June 30, 2010

The following tables set forth select data from our Unaudited Condensed Consolidated Statement of Operations (in thousands):

	Six Months Ended June 30,
	2011			2010			$ Change			% Change
Net sales	$	132,683		$	133,047		$	(364	)		(0.3	%)
Cost of goods sold		104,088			103,746			342			0.3	%
Gross profit	$	28,595		$	29,301		$	(706	)		(2.4	%)
Gross profit as a percentage of net sales		21.6	%		22.0	%

Net Sales

Net sales remained flat for the six months ended June 30, 2011 at $132.7 million as compared to $133.0 million in the same period of the prior year.

Gross Profit

Gross profit for the six months ending June 30, 2011 was $28.6 million, or 21.6% of net sales, compared to $29.3 million, or 22.0% of net sales, for the same period in the prior year. Gross profit for the six months ending June 30, 2010 was lower primarily due to higher material costs driven by higher commodity prices, labor and depreciation partially offset by lower overhead costs. Lower overhead costs during the six months ended June 30, 2011 primarily represent the benefits realized from our Toronto facilities integration.

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Sales and Marketing Expenses

	Six Months Ended June 30,
	2011			2010			$ Change		% Change
Sales and marketing expenses	$	8,922		$	8,801		$	121		1.4	%
Percentage of net sales		6.7	%		6.6	%

Sales and marketing expenses increased slightly on an absolute dollar basis by $0.1 million, to $8.9 million or 6.7% of net sales for the six months ended June 30, 2010, from $8.8 million, or 6.6% of net sales for the same period in the prior year.

General and Administrative Expenses

	Six Months Ended June 30,
	2011			2010			$ Change			% Change
General and administrative expenses	$	7,805		$	8,213		$	(408	)		(5.0	%)
Percentage of net sales		5.9	%		6.2	%

General and administrative expenses decreased on an absolute dollar basis by $0.4 million to $7.8 million, or 5.9% of net sales for the six months ending June 30 2011, from $8.2 million, or 6.2% of net sales for the same period in the prior year. The decrease in general and administrative expenses was primarily due to $0.4 million of professional fees from the Coretec acquisition included in the six months ended June 30, 2010.

Amortization of Intangible Assets

Amortization of intangible assets relates to customer relationships identified in connection with the purchase of Sovereign Circuits in the fourth quarter of 2006. These intangible assets are being amortized using the straight-line method over an estimated useful life of five years resulting in $0.4 million of amortization expense for the six month period ending June 30, 2011 and 2010.

Interest Expense

Interest expense consists of amortization of debt issuance costs, interest expense associated with long-term deferred leases, and interest on our long-term debt. Interest expense was $0.8 million for the six months ended June 30, 2011 as compared to $0.8 million for the same period in the prior year.

Other Expense (Income), Net

Net other expense consists of foreign exchange transaction gains or losses related to our Canadian operations and other miscellaneous non-operating items. For the six months ending June 30, 2011 the balance was less than $0.1 million as compared $0.4 million for the same period in the prior year.

Restructuring and Other Related Charges

The acquisition of Coretec on December 31, 2009 prompted us to integrate the operations of DDi’s legacy facility in Toronto (McNicoll) with Coretec’s Toronto facility (Sheppard Avenue) during 2010, which reduced fixed overhead costs, rationalized capacity, and allowed for taking full advantage of the modern Sheppard Avenue manufacturing facility. During the six months ended of 2011, we incurred $0.6 million of severance costs related to the final phase of the Toronto integration plan. During the six months ended June 30, 2010, we incurred $0.3 million of integration costs which were composed of estimated site remediation, asset disposals, severance, and other typical integration expenses.

Income Tax Expense

The Company recorded an income tax expense for the six months ended June 30, 2011 of $0.2 million or 1.6% of pre-tax income as compared to an income tax expense of $0.7 million, or 6.9% of pre-tax income for the same period in the prior year. The decrease in income tax expense was primarily due to a higher than historical Canadian income tax expense during the six months ended June 30, 2010. Our effective income tax rate differs from the U.S. federal statutory tax rate of 35% primarily as a result of the mix of earnings between tax jurisdictions, research and development credits, state income taxes and our continuous evaluation of the realization of our deferred tax assets and uncertain tax positions, and the impact of the recognition of the tax benefit of net operating loss carry forwards to the extent of current earnings.

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Liquidity and Capital Resources

	June 30, 2011		December 31, 2010
	(Dollars in thousands)
Working capital	$	57,653	$	51,026
Current ratio (current assets to current liabilities)		2.57 : 1.0		2.24 : 1.0
Cash and cash equivalents	$	25,646	$	28,347
Long-term debt	$	9,269	$	9,704

Our principal sources of liquidity to fund ongoing operations have been existing cash on hand and cash generated from operations.

As of June 30, 2011, we had total cash and cash equivalents of $25.6 million. Management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. We maintain cash and cash equivalents at certain financial institutions in excess of amounts insured by federal agencies. However, management does not believe this concentration subjects the Company to any unusual financial risk beyond the normal risk associated with commercial banking relationships. We frequently monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds.

The increase in our working capital and related improvement to our current ratio at June 30, 2011from December 31, 2010 was primarily due to an increase in our current assets and decrease to our current liabilities. This increase in current assets from December 31, 2010 was primarily due to higher accounts receivable and inventory balances offset by a decrease in cash and cash equivalents. The decrease in current liabilities from December 31, 2010 was primarily due to a decrease in accounts payable and accrued expenses.

The decrease in our cash and cash equivalents of $2.7 million from December 31, 2010 was primarily due to our net income for the six months ended June 30, 2011 of $10.0 million, non-cash operating activities of $5.3 million, offset by working capital uses of cash totaling $8.6 million. Investing activities totaled $4.8 million and primarily consisted of property and equipment purchases at our manufacturing facilities. Financing activities totaled $4.5 million and primarily consisted of our cash dividend of $4.1 million, principal payments of long term debt of $0.4 million, offset by stock option exercise proceeds of $0.5 million.

We believe that our current cash balance, in combination with net cash expected to be generated from operations and available borrowing under our revolving line of credit, will fund ongoing operations for at least the next twelve months.

Revolving Credit Facilities

JPMorgan Chase Credit Agreement. On September 23, 2010, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Lender, and JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Lender (the “Lender”).

The Credit Agreement provides for a revolving credit in an aggregate principal amount of $25.0 million, with a Canadian sub-limit of $10.0 million. The revolving credit agreement has an accordion provision that allows the Company to increase the size to $40.0 million under certain circumstances. As of June 30, 2011, we had no borrowings outstanding under the Credit Agreement.

On March 14, 2011, The Company entered into an amendment (the “March 2011 Credit Amendment”) to the Credit Agreement dated September 23, 2010. The March 2011 Credit Amendment amends the Credit Agreement to (i) reduce the margin from 3.25% to 2.50% that is added to published interest rates to determine the applicable interest rates for borrowing and (ii) increase the amount of dividends that the Company can pay without obtaining the consent of the Lender from $8 million in a rolling twelve-month period (and $25 million over the term of the Credit Agreement) to $12 million ($40.0 million over the term of the Credit Agreement).

At June 30, 2011 there had been no material changes in the Company’s significant contractual obligations and commitments as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2010.

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Consolidated Cash Flows

The following table summarizes our statements of cash flows for the six months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended June 30,
	2011			2010
Net cash used in:
Operating activities	$	6,639		$	4,440
Investing activities		(4,824	)		(3,623	)
Financing activities		(4,495	)		(4,802	)
Effect of exchange rates on cash		(21	)		140
Net decrease in cash and cash equivalents	$	(2,701	)	$	(3,845	)

Net cash used in operating activities represents net income adjusted for non-cash charges and working capital changes. The $2.2 million increase in net cash provided by operating activities for the six months ended June 30, 2011 compared to the same period in 2010 was primarily due to a lower increase in accounts receivable and a lower decrease in accrued expenses partially offset by a higher increase in inventories and a decrease in accounts payable.

Net cash used in investing activities for the six months ended June 30, 2011 increased by $1.2 million compared to the same period in 2010 due to an increased investment in capital assets.

The $0.3 million decrease in net cash used in financing activities for the six months ended June 30, 2011 compared to the same period in 2010 was primarily due to the $4.3 million payoff in the first quarter of 2010 of the borrowings from the credit facility assumed upon the acquisition of Coretec. This decrease was largely matched by the $4.1 million cash dividend payments to common shareholders in the six months ended June 30, 2011.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Variable Rate Debt

We have variable-rate debt including notes payable and mortgages previously used to finance the purchase of certain real estate holdings, infrastructure or plant and equipment, as well as our Credit Agreement (as of June 30, 2011, we have not yet drawn on our Credit Agreement). The interest rates on our variable rate debt are tied to various floating base rates as defined or to LIBOR. These debt obligations, therefore, expose us to variability in interest payments due to changes in these rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense decreases. However, we do not believe such exposure is material to our consolidated financial position or liquidity.

At June 30, 2011, we had $9.4 million outstanding under such agreements at interest rates ranging from 1.69% to 6.92% per annum.

Fixed Rate Debt

The fair market value of our one long-term fixed interest rate mortgage is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall because we could refinance for a lower rate. Conversely, the fair value of fixed interest rate debt will decrease as interest rates rise. The interest rate changes affect the fair market value but do not impact earnings or cash flows. Based on the outstanding amount of the debt, future movement of the interest rate would not have a material effect on the fair value of the fixed rate debt.

Foreign Currency Exchange Risk

A portion of the sales and expenses of our Canadian operations are transacted in Canadian dollars, which is deemed to be the functional currency for our Canadian entity. Thus, assets and liabilities are translated to U.S. dollars at period-end exchange rates in effect. Sales and expenses are translated to U.S. dollars using an average monthly exchange rate. Translation adjustments are included in accumulated other comprehensive income in stockholders’ equity, except for

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translation adjustments related to an intercompany note denominated in Canadian dollars between our U.S. entity and our Canadian entity. Settlement of the note is planned in the foreseeable future; therefore, currency adjustments are included in determining net income for the period in accordance with FASB ASC 830, “Foreign Currency Matters”, and could have a material impact on results of operations and cash flows in the event of significant currency fluctuations. Gains and losses on foreign currency transactions are included in operations. We have foreign currency translation risk equal to our net investment in those operations. We do not use forward exchange contracts to hedge exposures to foreign currency denominated transactions and do not utilize any other derivative financial instruments for trading or speculative purposes.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are effective to ensure that all information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission (the “SEC”), and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, and allow timely decisions regarding required disclosure.

Changes in Internal Controls

No change in our internal control over financial reporting occurred during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to our Annual Report on Form 10-K for the period ended December 31, 2010 (the “Form 10-K”) for a summary of our previously reported legal proceedings. Since the date of the Form 10-K, there have been no material developments in previously reported legal proceedings.

Item 1A. Risk Factors

Other than the risk factors enumerated below, as of the date of this filing, there have been no material changes to the Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on February 22, 2011.

A significant portion of our business is derived from products and services sold to customers in the defense industry. Changes in export control or other federal regulations could result in increased competition from offshore competitors which could have a material adverse effect on our business.

A significant portion of our revenues is derived from products and services ultimately sold to customers in the defense industry. Many of these products are currently subject to export controls and other regulatory requirements that limit the ability of overseas competitors to manufacture such products. The federal government is currently in the process of reviewing and revising the United States Munitions List. Such changes could reduce or eliminate restrictions that currently apply to some of the products we produce. If these regulations or others are changed in a manner that reduces restrictions on their being manufactured overseas, we would likely face increased competition from overseas manufacturers. Such increased competition could have a material adverse effect on our business.

Natural disasters in certain regions could adversely affect the global electronics supply chain which, in turn, could have a negative impact on our business, the cost of and demand for our products and our results of operations.

The occurrence of natural disasters in certain regions, such as the recent earthquake and tsunami in Japan, could have a negative impact on our supply chain, our ability to deliver products to our customers and on the cost of and demand for our products. We may also encounter reduced demand for our printed circuit boards in the event customers are unable to obtain adequate supplies of other components due to the events in Japan. We are rigorously assessing our potential exposure but uncertainties exist such that the extent and duration of these supply constraints cannot be currently determined. As a result, our business, results of operations or financial condition could be materially adversely affected by these events.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Removed and Reserved

Item 5. Other Information

Item 6. Exhibits

The exhibits listed below are hereby filed with the SEC as part of this Quarterly Report on Form 10-Q. Certain of the following exhibits have been previously filed with the SEC pursuant to the requirements of the Securities Act or the Exchange Act. Such exhibits are identified in the chart to the right of the Exhibit and are incorporated herein by reference.

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				Incorporated by Reference
Exhibit	Description	Filed Herewith		Form		Period Ending		Exhibit		Filing Date
3.1	Amended and Restated Certificate of Incorporation of DDi Corp.				8-K				3.1		12/13/2003
3.2	Amended and Restated Bylaws of DDi Corp.				8-K		3/10/2011		3.2		3/15/2011
10.1	DDi Corp. 2011 Stock Incentive Plan		X
10.2	Form of Stock Option Agreement under the DDi Corp 2011 Stock Incentive Plan		X
10.3	Form of Restricted Share Award Agreement under the DDi Corp 2011 Stock Incentive Plan		X
10.4	Offer Letter dated May 3, 2011 between DDi Corp. and Wayne T. Slomsky		X
31.1	Certification of Chief Executive Officer of DDi Corp., Pursuant to Rule 13a-14 of the Securities Exchange Act		X
31.2	Certification of Chief Financial Officer of DDi Corp., Pursuant to Rule 13a-14 of the Securities Exchange Act		X
32.1	Certification of Chief Executive Officer of DDi Corp., Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
32.2	Certification of Chief Financial Officer of DDi Corp., Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		X
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, DDi Corp. has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

	DDi CORP.
Date: July 29, 2011	/S/  MIKEL H. WILLIAMS
	Mikel H. Williams
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: July 29, 2011	/S/  J. MICHAEL DODSON
	J. Michael Dodson
	Chief Financial Officer
	(Principal Financial Officer)
Date: July 29, 2011	/S/  WAYNE T. SLOMSKY
	Wayne T. Slomsky
	Chief Accounting Officer
	(Principal Accounting Officer)

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