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 June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM________ TO_________
COMMISSION FILE NUMBERS 333-95623
333-41187
333-41211
DDi CORP.
DDi CAPITAL CORP.
DYNAMIC DETAILS, INCORPORATED
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
DELAWARE 06-1576013
CALIFORNIA 33-0780382
CALIFORNIA 33-0779123
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1220 SIMON CIRCLE
ANAHEIM, CALIFORNIA 92806
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 688-7200
(REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether DDi Capital Corp. and Dynamic Details,
Incorporated: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
[X] No [_]. DDi Corp. filed Form 8-A on April 6, 2000 and has filed all
reports required to be filed since such date.
As of June 30, 2000, all of the voting stock of Dynamic Details, Incorporated
was held by DDi Capital Corp. and all of the voting stock of DDi Capital Corp.
was held by DDi Intermediate Holdings Corp., which is wholly owned by DDi Corp.
As of June 30, 2000, DDi Corp. also held all of the capital stock of MCM
Electronics Limited.
As of June 30, 2000, DDi Corp. had 39,320,390 shares of common stock, par value
$0.01 per share, outstanding.
As of June 30, 2000, Dynamic Details, Incorporated had 100 shares of common
stock, par value $0.01 per share, outstanding and DDi Capital Corp. had 1,000
shares of common stock, par value $0.01 per share, outstanding.
DDi Corp.
DDi Capital Corp.
Dynamic Details, Incorporated
Form 10-Q
Table of Contents
PART I Financial Information Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Loss for the
three and six months ended June 30, 2000 and 1999 7
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 8
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 26
PART II Other Information
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 27
Item 3. Defaults upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6 Exhibits and Reports on Form 8-K 27
Signatures 29
2
PART I FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
Condensed Consolidated Balance Sheets
(In thousands)
Dynamic Details DDi Capital DDi Corp.
---------------------------------------------------------------------------------
June 30, December 31, June 30, December 31, June 30, December 31,
2000 1999 2000 1999 2000 1999
---------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 180 $ 644 $ 180 $ 644 $ 4,081 $ 648
Accounts receivable, net 54,616 42,774 54,616 42,774 66,178 42,774
Inventories 26,220 20,209 26,220 20,209 30,306 20,209
Prepaid expenses and other 3,616 2,498 3,616 2,498 4,480 2,499
Deferred tax asset 5,215 5,215 5,215 5,215 5,215 5,215
---------------------------------------------------------------------------------
Total current assets 89,847 71,340 89,847 71,340 110,260 71,345
Property, plant and equipment, net 65,801 63,209 65,801 63,209 77,043 63,209
Debt issue costs, net 7,336 9,490 10,943 13,152 11,264 13,833
Goodwill and other intangibles, net 195,347 205,462 195,347 205,462 265,179 205,462
Other 2,255 486 2,255 486 2,905 486
---------------------------------------------------------------------------------
Total Assets $ 360,586 $ 349,987 $ 364,193 $ 353,649 $ 466,651 $ 354,335
=================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 7,724 $ 7,035 $ 7,724 $ 7,035 $ 11,203 $ 7,035
Current portion of deferred interest
rate swap income 881 1,458 881 1,458 881 1,458
Current maturities of deferred notes payable 1,337 2,514 1,337 2,514 1,337 2,514
Revolving credit facility 500 - 500 - 500 -
Accounts payable 23,038 18,055 23,038 18,055 31,845 18,055
Accrued expenses 24,185 22,263 24,185 22,263 28,394 22,311
Income tax payable 3,061 894 1,076 894 1,159 894
---------------------------------------------------------------------------------
Total current liabilities 60,726 52,219 58,741 52,219 75,319 52,267
Long-term debt and capital lease obligations 247,897 351,227 330,516 428,944 378,748 469,703
Deferred interest rate swap income 2,636 3,881 2,636 3,881 2,636 3,881
Notes payable and other 2,055 2,179 2,055 2,179 2,055 2,179
Deferred tax liability 20,496 20,496 13,420 13,420 13,722 13,420
---------------------------------------------------------------------------------
Total liabilities 333,810 430,002 407,368 500,643 472,480 541,450
---------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, additional paid-in-capital
and other 355,086 251,944 288,399 199,830 345,625 162,239
Accumulated deficit (328,310) (331,959) (331,574) (346,824) (351,454) (349,354)
---------------------------------------------------------------------------------
Total stockholders' equity
(deficit) 26,776 (80,015) (43,175) (146,994) (5,829) (187,115)
---------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 360,586 $ 349,987 $ 364,193 $ 353,649 $ 466,651 $ 354,335
=================================================================================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
DYNAMIC DETAILS, INCORPORATED
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
2000 1999 2000 1999
------- ------- -------- --------
Net sales $86,912 $71,740 $162,197 $130,919
Cost of goods sold 55,875 50,218 104,910 92,034
----------------------------------------------
Gross profit 31,037 21,522 57,287 38,885
Operating expenses:
Sales and marketing 7,480 5,368 14,371 10,070
General and administration 4,686 4,418 8,624 7,234
Amortization of intangibles 4,948 6,005 10,116 11,826
----------------------------------------------
Operating income 13,923 5,731 24,176 9,755
Interest expense (net) and other expense (net) 6,984 8,258 15,248 16,429
----------------------------------------------
Income (loss) before income taxes 6,939 (2,527) 8,928 (6,674)
Income tax benefit (expense) (2,963) (312) (4,610) 682
----------------------------------------------
Income (loss) before extraordinary item 3,976 (2,839) 4,318 (5,992)
Extraordinary item, net of taxes (670) - (670) -
----------------------------------------------
Net income (loss) $ 3,306 $(2,839) $ 3,648 $ (5,992)
==============================================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
DDi CAPITAL CORP.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 86,912 $ 71,740 $ 162,197 $ 130,919
Cost of goods sold 55,875 50,218 104,910 92,034
--------------------------------------------------------
Gross profit 31,037 21,522 57,287 38,885
Operating expenses:
Sales and marketing 7,480 5,368 14,371 10,070
General and administration 4,686 4,418 8,624 7,234
Amortization of intangibles 4,948 6,005 10,116 11,826
--------------------------------------------------------
Operating income 13,923 5,731 24,176 9,755
Interest expense (net) and other expense (net) 9,504 10,448 20,204 20,755
--------------------------------------------------------
Income (loss) before income taxes 4,419 (4,717) 3,972 (11,000)
Income tax benefit (expense) (1,953) 574 (2,624) 2,425
--------------------------------------------------------
Income (loss) before extraordinary item 2,466 (4,143) 1,348 (8,575)
Extraordinary item, net of taxes (670) - (670) -
--------------------------------------------------------
Net income (loss) $ 1,796 $ (4,143) $ 678 $ (8,575)
========================================================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
DDi CORP.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 101,533 $ 71,740 $ 176,818 $ 130,919
Cost of goods sold 65,981 50,435 115,016 92,445
--------------------------------------------------------
Gross profit 35,552 21,305 61,802 38,474
Operating expenses:
Sales and marketing 7,914 5,368 14,805 10,070
General and administration 6,027 4,201 9,965 7,073
Amortization of intangibles 5,757 6,005 10,925 11,826
--------------------------------------------------------
Operating income 15,854 5,731 26,107 9,505
Interest expense (net) and other expense (net) 11,006 11,720 23,161 23,301
--------------------------------------------------------
Income (loss) before income taxes 4,848 (5,989) 2,946 (13,796)
Income tax benefit (expense) (2,420) 1,098 (2,495) 3,576
--------------------------------------------------------
Income (loss) before extraordinary item 2,428 (4,891) 451 (10,220)
Extraordinary item, net of taxes (2,551) - (2,551) -
--------------------------------------------------------
Net loss $ (123) $ (4,891) $ (2,100) $ (10,220)
========================================================
Income (loss) per share - basic:
Before extraordinary item $ 0.05 $ (0.86) $ (0.18) $ (1.75)
Extraordinary item $ (0.07) $ - $ (0.11) $ -
Net loss $ (0.02) $ (0.86) $ (0.29) $ (1.75)
Income (loss) per share - diluted:
Before extraordinary item $ 0.05 $ (0.86) $ (0.18) $ (1.75)
Extraordinary item $ (0.07) $ - $ (0.11) $ -
Net loss $ (0.02) $ (0.86) $ (0.29) $ (1.75)
Weighted average shares used to compute income
(loss) per share:
Basic 34,505,388 9,774,179 22,197,156 9,774,179
Diluted 36,306,101 9,774,179 22,197,156 9,774,179
- -------------------------------
Pro forma basic net loss per share $ - $ (0.20) $ (0.07) $ (0.41)
(unaudited) ========================================================
Pro forma diluted net loss per share $ - $ (0.20) $ (0.07) $ (0.41)
(unaudited) ========================================================
Pro forma weighted average basic shares
outstanding (unaudited) 37,007,000 24,750,000 30,908,000 24,750,000
========================================================
Pro forma weighted average diluted shares
outstanding (unaudited) 38,808,000 24,750,000 31,808,000 24,750,000
========================================================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
DDi CORP.*
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------
2000 1999 2000 1999
--------- -------- --------- --------
Net loss $ (123) $(4,891) $ (2,100) $(10,220)
Other comprehensive loss:
Foreign currency translation adjustments (1,166) - (1,166) -
------------------------------------------------
Comprehensive loss $ (1,289) $(4,891) $ (3,266) $(10,220)
================================================
* DDi Capital and Dynamic Details do not have items which result in
comprehensive income (loss).
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Dynamic Details DDi Capital DDi Corp
--------------- ------------------ ----------------
Six Months Ended Six Months Ended Six Months Ended
June 30, June 30, June 30,
-------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
-------- -------- --------- ------- --------- --------
Cash flows from operating activities:
Net cash provided by operating activities $ 11,768 $13,603 $ 11,768 $13,603 $ 11,849 $ 13,359
-------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (10,223) (8,064) (10,223) (8,064) (10,664) (8,064)
Costs incurred in connection with the acquisition of DCI - (212) - (212) - (212)
Costs incurred in connection with the acquisition of MCM,
net of cash acquired of $7,794 - - - - (2,263) -
-------------------------------------------------------------------
Net cash used in investing activities (10,223) (8,276) (10,223) (8,276) (12,927) (8,276)
-------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (102,057) (1,088) (102,057) (1,088) (144,772) (1,088)
Net borrowings (repayments) on the revolving credit facility 500 (7,000) 500 (7,000) 500 (7,000)
Payments of deferred note payable (1,284) (1,138) (1,284) (1,138) (1,284) (1,138)
Principal payments on capital lease obligations (543) (484) (543) (484) (680) (484)
Payment of loan financing fees (742) - (742) - (742) -
Capital contribution from (to) Parent, net 103,142 (9) 103,142 (9) - -
Due to affiliate 242 - 242 - - -
Shareholder repayments (borrowings) - - - - (17) 16
Escrow payable distribution (1,267) - (1,267) - (1,267) -
Proceeds from interest rate swaps - 6,062 - 6,062 - 6,062
Proceeds from issuance of common stock
through initial public offering - - - - 156,660 -
Costs incurred in connection with the issuance of common
stock through initial public offering - - - - (4,267) -
Issuance of common stock through Employee Stock
Purchase Plan - - - - 365 -
Proceeds from exercise of stock options - - - - 602 35
-------------------------------------------------------------------
Net cash provided (used) in financing activities (2,009) (3,657) (2,009) (3,657) 5,098 (3,597)
-------------------------------------------------------------------
Effect of exchange rate changes on cash - - - - (587) -
-------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (464) 1,670 (464) 1,670 3,433 1,486
Cash and cash equivalents, beginning of year 644 1,905 644 1,905 648 2,109
-------------------------------------------------------------------
Cash and cash equivalents, end of period $ 180 $ 3,575 $ 180 $ 3,575 $ 4,081 $ 3,595
===================================================================
Supplemental disclosure of cash flow information:
Non-cash operating activities:
During the six months ended June 30, 2000, depreciation and amortization
expense was approximately $19 million for DDi Corp. and $18 million for both
DDi Capital and Dynamic Details.
During the six months ended June 30, 1999, DDi Corp., DDi Capital and Dynamic
Details recorded approximately $20 million of depreciation and amortization
expense.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
8
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(In thousands, except share and per share amounts)
NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
The unaudited condensed financial statements for DDi Corp. include the accounts
of its wholly-owned subsidiaries, DDi Intermediate Holdings Corp.
("Intermediate") and its subsidiaries and MCM Electronics Limited ("MCM"). The
unaudited condensed consolidated financial statements for DDi Capital Corp.
("DDi Capital"), a wholly owned subsidiary of Intermediate, includes the
accounts of its wholly owned subsidiaries Dynamic Details Incorporated and its
subsidiaries ("Dynamic Details"). Collectively, DDi Corp. and its subsidiaries
are referred to as the "Company". The unaudited consolidated financial
statements of DDi Corp. for the three and six month periods ended June 30, 2000
include the results of MCM commencing on April 14, 2000, the date of acquisition
of MCM (see Note 7). All intercompany transactions have been eliminated in
consolidation.
In October 1997, the predecessor of DDi Corp. incorporated Dynamic Details as a
wholly-owned subsidiary and contributed substantially all of its assets, subject
to certain liabilities, to Dynamic Details. In November 1997, the predecessor
of DDi Corp. incorporated DDi Capital as a wholly-owned subsidiary and, in
February 1998, contributed substantially all its assets (including the shares of
common stock of Dynamic Details), subject to certain liabilities, including
discount notes to DDi Capital. In July 1998, the predecessor of DDi Corp.
incorporated Intermediate as a wholly-owned subsidiary and contributed all of
the shares of common stock of DDi Capital to Intermediate. This report contains
the second periodic presentation of financial data for DDi Corp., which
consummated the initial public offering of its common stock on April 14, 2000.
MCM, Dynamic Details and Dynamic Details Design, LLC, a wholly-owned subsidiary
of Intermediate formed in 1998, represent the operating subsidiaries of DDi
Corp.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary (consisting only of
normal recurring adjustments) to present fairly the financial position of the
Company as of June 30, 2000, and the results of operations for the three and six
months ended June 30, 2000 and 1999 and cash flows for the six months ended June
30, 2000 and 1999. The results of operations for such interim periods are not
necessarily indicative of results of operations to be expected for the full
year.
These financial statements have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such regulations, although the Company believes the
disclosures provided are adequate to prevent the information presented from
being misleading.
This report on Form 10-Q for the quarter ended June 30, 2000 should be read in
conjunction with the audited financial statements presented in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 and with the
audited financial statements contained in DDi Corp.'s final registration
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.
Concurrent with DDi Corp.'s initial public offering on April 14, 2000 (see Note
6), each share of Class L common stock was reclassified into one share of Class
A common stock plus an additional number of shares of Class A common stock
(determined by dividing the preference amount of such per share by the initial
public offering price of $14.00 per share). Class A and Class L common stock
share ratably in the net income (loss) remaining after giving effect to the 12%
yield on the Class L common stock. Each share of Class A common stock was then
converted into 2.8076 shares of new common stock when DDi Corp. reincorporated
in the state of Delaware.
NATURE OF BUSINESS
The Company 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 1,900 customers, primarily in the telecommunications,
computer and networking industries.
9
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - 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 consistof the following:
Dynamic Details and
DDi Capital DDi Corp.
----------------------------- ----------------------------
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
----------------------------- ----------------------------
Raw materials $ 12,602 $ 11,828 $ 14,491 $ 11,828
Work-in-process 9,356 5,601 11,263 5,601
Finished goods 4,262 2,780 4,552 2,780
----------------------------- ----------------------------
Total $ 26,220 $ 20,209 $ 30,306 $ 20,209
============================= ============================
NOTE 3. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital lease obligations consist of the following:
Dynamic Details DDi Capital DDi Corp.
---------------------------- ------------------------------ ---------------------------
June 30, December 31, June 30, December 31, June 30, December 31,
2000 1999 2000 1999 2000 1999
---------------------------- ------------------------------ ---------------------------
Senior Term Facility (a) $149,681 $251,738 $149,681 $251,738 $149,681 $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) - - 82,619 77,717 82,619 77,717
13.5% Intermediate Senior Discount
Notes (c) - - - - 21,824 40,759
MCM Facilities Agreement (d) - - - - 29,112 -
Capital lease obligations 5,940 6,524 5,940 6,524 6,715 6,524
---------------------------- ----------------------------- ---------------------------
Sub-total 255,621 358,262 338,240 435,979 389,951 476,738
Less current maturities (7,724) (7,035) (7,724) (7,035) (11,203) (7,035)
---------------------------- ----------------------------- ---------------------------
Total $247,897 $351,227 $330,516 $428,944 $378,748 $469,703
============================ ============================= ===========================
(a) The Senior Term Facility, together with the Revolving Credit Facility, which
had $500 outstanding as of June 30, 2000 and no amounts outstanding as of
December 31, 1999, comprise the Senior Credit Facility. Interest rates are
LIBOR-based and range from 8.63% to 9.13% as of June 30, 2000.
(b) Face amount of $110,000, net of unamortized discount of $27,381 and $32,283
at June 30, 2000 and December 31, 1999, respectively.
(c) Face amount of $33,405 and $66,810 at June 30, 2000 and December 31, 1999,
respectively, net of unamortized discount of $11,581 and $26,051 at June 30,
2000 and December 31, 1999, respectively.
(d) Interest rates are LIBOR-based. 80% of the principal balance is fixed at
6.92% by an interest rate agreement.
NOTE 4. INTEREST RATE SWAP AGREEMENTS
In April 2000, due to the repayment of a portion of the principal of the Dynamic
Details senior term loans funded from the proceeds of DDi Corp.'s initial public
offering (see Note 6), the Company modified its existing interest rate exchange
agreements ("Swap Agreements"). Under the terms of the modified Swap
Agreements, the application of the interest rate caps of 5.65% and 7.00% has
been extended until December 31, 2001 (from August 31, 2001) and the notional
amount of the swap through December 31, 2001 was reduced in proportion to the
reduction in senior term loan principal. The interest rate cap of 5.65%,
however, is now only effective through December 31, 2000 when it becomes 5.75%
and effective from January 1, 2001 through the end of the swap term on December
31, 2001. In addition, the application of the fixed annual rate of 7.35% has
been deferred until January 1, 2002 (from September 1, 2001).
10
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------
(In thousands, except share and per share amounts)
MCM entered into an interest rate swap agreement effective January 12, 2000 and
represents an effective cash flow hedge of the variable rate of interest (3-
month LIBOR) paid under the MCM facilities agreement, minimizing exposure to
increases in interest rates related to this debt over the scheduled term of the
swap, through September 2002. Under the swap terms, MCM pays a fixed rate of
interest, an annual rate of 6.92%. This rate is applied to fixed amounts of
debt per the agreement, which approximate 80% of the outstanding balance at June
30, 2000.
NOTE 5. EARNINGS PER SHARE
Basic and diluted earnings per share - DDi Corp. has adopted the provisions of
Statement of Financial Accounting Standard ("SFAS") No. 128 "Earnings Per
Share." SFAS No. 128 requires DDi Corp. to report both basic net income (loss)
per share, which is based on the weighted average number of common shares
outstanding, excluding contingently issuable shares such as the Class L common
stock that were contingently convertible into common stock upon certain events,
and diluted net income (loss) per share, which were based on the weighted
average number of common shares outstanding and dilutive potential common shares
outstanding.
Three Months Ended Three Months ended
June 30, 2000 June 30, 1999
----------------------------- ---------------------------
Basic Diluted Basic Diluted
----------------------------- ---------------------------
Numerator:
Income (loss) before extraordinary item $ 2,428 $ 2,428 $ (4,891) $ (4,891)
Priority distribution due shares of Class
L common stock (586) (586) (3,466) (3,466)
----------------------------- ---------------------------
Income (loss) allocable to common stock 1,842 1,842 (8,357) (8,357)
Extraordinary item (2,551) (2,551) - -
----------------------------- ---------------------------
Net loss allocable to common stock $ (709) $ (709) $ (8,357) $ (8,357)
============================= ===========================
Six Months Ended Six Months ended
June 30, 2000 June 30, 1999
----------------------------- ---------------------------
Basic Diluted Basic Diluted
----------------------------- ---------------------------
Denominator:
Weighted average shares of common
stock outstanding 34,505,388 34,505,388 9,774,179 9,774,179
Dilutive potential common shares:
Stock options and warrants - 1,800,713 - -
----------------------------- ---------------------------
Shares used in computing income (loss) per share 34,505,388 36,306,101 9,774,179 34,505,388
============================= ===========================
Six Months Ended Six Months ended
June 30, 2000 June 30, 1999
----------------------------- ---------------------------
Basic Diluted Basic Diluted
----------------------------- ---------------------------
Numerator:
Income (loss) before extraordinary item $ 451 $ 451 $ (10,220) $ (10,220)
Priority distribution due shares of Class L
common stock (4,356) (4,356) (6,886) (6,886)
---------------------------- ----------------------------
Income (loss) allocable to common stock (3,905) (3,905) (17,106) (17,106)
Extraordinary item (2,551) (2,551) - -
---------------------------- ----------------------------
Net loss allocable to common stock $ (6,456) $ (6,456) $ (17,106) $ (17,106)
============================ ============================
Denominator:
Weighted average shares of common
stock outstanding 22,197,156 22,197,156 9,774,179 9,774,179
Dilutive potential common shares:
Stock options and warrants - - - -
Class L common stock - - - -
----------------------------- ----------------------------
Shares used in computing income
(loss) per share 22,197,156 22,197,156 9,774,179 9,774,179
============================= ============================
As a result of the loss before extraordinary item, after deducting priority
distributions of Class L common stock, incurred by DDi Corp. during the six
months ended June 30, 2000 and the three and six months ended June 30, 1999, all
potential common shares were anti-dilutive and excluded from the diluted net
loss per share calculation for those periods.
11
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------
(In thousands, except share and per share amounts)
Unaudited pro forma loss per share - Unaudited pro forma basic and diluted net
loss per share for the three and six months ended June 30, 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 (see Note 1), which
occurred immediately prior to the completion of the initial public offering, had
occurred at the beginning of the period.
NOTE 6. INITIAL PUBLIC OFFERING
On April 14, 2000, DDi Corp. completed an initial public offering of 12,000,000
shares of its common stock at $14.00 per share with proceeds of $156,660, net of
underwriting discounts and commissions. The net proceeds were used to reduce
the indebtedness of the Dynamic Details senior term loans, redeem a portion of
the senior discount notes issued by DDi Intermediate, pay associated redemption
premiums and accrued and unpaid interest thereon, finance a portion of the
acquisition of MCM (see Note 7) and pay offering expenses. In conjunction with
the redemption of debt, the Company recorded net extraordinary losses (see Note
8).
NOTE 7. ACQUISITION OF MCM ELECTRONICS
On April 14, 2000, DDi Corp. completed the acquisition of MCM, a time-critical
electronics manufacturing service provider based in the United Kingdom, for a
total purchase price of approximately $84 million, excluding acquisition
expenses of approximately $4 million, paid in a combination of cash of
approximately $10 million, the issuance of 2,230,619 shares of DDi Corp. common
stock at $14 per share totaling approximately $31 million, the repayment of
outstanding indebtedness of MCM of approximately $24 million, and the assumption
of approximately $23 million of MCM's remaining outstanding indebtedness (the
"MCM Facilities Agreement") (net of cash acquired of approximately $8 million).
The acquisition of MCM was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16 and accordingly, the results of
operations of MCM since the date of acquisition are included in the accompanying
consolidated financial statements of DDi Corp. The total purchase price has
been allocated to the underlying assets and liabilities based upon their
estimated respective fair values at the date of acquisition. As of the date of
this filing, the Company is in the process of evaluating its intangible assets
to finalize the allocation of the total purchase price. The Company intends to
allocate a portion of the purchase price to acquired in-process research and
development ("in-process R&D"), developed technologies, customer
relationships/tradenames and assembled workforce. These intangibles will be
amortized over their estimated useful lives. The remaining residual value will
be allocated to goodwill and will be amortized over its estimated useful life
of 20 years.
Based upon the status of the Company's valuation efforts as of the date of this
filing, a final valuation of the intangible assets has not been reflected in the
accompanying consolidated financial statements. The excess of the purchase
price over the fair value of MCM's tangible net assets is currently reflected as
goodwill and is being amortized over its estimated useful life of 20 years.
12
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------
(In thousands, except share and per share amounts)
NOTE 8. UNAUDITED PRO-FORMA INFORMATION
The accompanying condensed consolidated statements of operations of DDi Corp.
include the accounts of MCM for the period April 14, 2000 through June 30, 2000.
The following pro forma information for the six months ended June 30, 2000 and
1999 presents net sales, income (loss) before extraordinary item, and net loss
for each of these periods as if this transaction was consummated at the
beginning of each period. As of the filing of this report, management is
assessing purchase price allocation adjustments to assets acquired (including
identifiable intangibles and in-process research and development efforts) and to
liabilities assumed in the MCM acquisition based on fair values. The following
pro forma information does not reflect final purchase price allocation results.
These results may have a material effect on the reported results of operations.
Pro Forma Pro Forma
June, 30 2000 June, 30 1999
--------------------- ---------------------
(in millions, except (in millions, except
per share amounts) per share amounts)
Net Sales $ 197.3 $ 161.4
Income (Loss) Before Extraordinary Item $ 1.8 ($16.0)
Net Loss ($0.7) ($16.0)
Net loss per share of common stock
- basic and diluted ($0.03) ($1.64)
NOTE 9. EXTRAORDINARY ITEM
During the quarter ended June 30, 2000, Dynamic Details recorded, as
extraordinary items, write-offs of deferred financing fees and deferred swap
income of approximately $670, net of related taxes of $428, related to the
Senior Term Facility principal repayments funded from the net proceeds of DDi
Corp.'s initial public offering (see Note 6). In addition, Intermediate
recorded, as extraordinary items, the redemption premium and write-off of
deferred financing fees of approximately $1,882, net of related taxes of $1,203
related to the Intermediate Senior Discount Notes principal repayments funded
from the net proceeds of DDi Corp.'s initial public offering.
NOTE 10. RELATED PARTY TRANSACTIONS
Pursuant to a management agreement among Bain Capital Partners V, L.P. ("Bain"),
DDi Corp. and Dynamic Details (the "Management Agreement"), Bain was entitled to
a management fee when, it provided advisory services to the Company in
connection with potential business acquisitions. In addition, Bain performed
certain management consulting services at Bain's customary rates plus
reimbursement for reasonable out-of-pocket expenditures. In this capacity, Bain
received approximately $1.1 million in fees in fiscal year ended December 31,
1999. This management agreement was terminated by mutual consent of the parties
in connection with the initial public offering by DDi Corp. on April 14, 2000.
Bain was paid a fee of approximately $3 million in connection with the MCM
transaction and related financing matters.
13
DDi CORP., DDi CAPITAL CORP. AND DYNAMIC DETAILS, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
----------------------------------------------------------------
(In thousands, except share and per share amounts)
NOTE 11. SUPPLEMENTAL GUARANTOR CONDENSED 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.
14
SUPPLEMENTAL DYNAMIC DETAILS CONDENSED FINANCIAL DATA
(Unaudited)
CONDENSED BALANCE SHEETS
June 30, 2000 December 31, 1999
------------------- -------------------
Current assets $ 32,721 $ 22,472
Non-current assets 306,845 329,490
------------------- -------------------
Total assets $339,566 $351,962
------------------- -------------------
Current liabilities $ 27,465 $ 29,089
Non-current liabilities 243,942 354,397
------------------- -------------------
Total liabilities 271,407 383,486
------------------- -------------------
Total stockholders' deficit 68,159 (31,524)
------------------- -------------------
Total liabilities and stockholders' deficit $339,566 $351,962
=================== ===================
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------------- ------------------
Net sales $ 35,984 $ 23,373
Cost of sales 18,765 11,716
------------------- ------------------
Gross profit 17,219 11,657
Operating expenses 5,250 2,884
------------------- ------------------
Income from operations 11,969 8,773
Interest expense, net 6,928 8,648
------------------- ------------------
Income before taxes 5,041 125
Income tax expense 525 72
------------------- ------------------
Income before extraordinary item and equity
in loss of subsidiaries 4,516 53
Extraordinary item (670) -
------------------- ------------------
Income before equity in loss of subsidiaries 3,846 53
Equity in loss of subsidiaries (540) (2,892)
------------------- ------------------
Net income (loss) $ 3,306 $(2,839)
=================== ==================
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------------- ------------------
Net sales $ 64,131 $ 42,913
Cost of sales 33,929 23,085
------------------- ------------------
Gross profit 30,202 19,828
Operating expenses 9,213 5,119
------------------- ------------------
Income from operations 20,989 14,709
Interest expense, net 15,224 16,809
------------------- ------------------
Income (loss) before taxes 5,765 (2,100)
Income tax benefit (expense) (861) 757
------------------- ------------------
Income (loss) before extraordinary item and equity
in loss of subsidiaries 4,904 (1,343)
Extraordinary item (670) -
------------------- ------------------
Income (loss) before equity in loss of subsidiaries 4,234 (1,343)
Equity in loss of subsidiaries (586) (4,649)
------------------- ------------------
Net income (loss) $ 3,648 $(5,992)
=================== ==================
15
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 12. SUBSEQUENT EVENT
On August 4, 2000, Dynamic Details, through its subsidiary, Dynamic Details,
Incorporated, Virginia ("DDi Virginia"), completed the acquisition of the assets
of Automata International, Inc. ("Automata"), a Virginia-based manufacturer of
technologically advanced printed circuit boards. DDi Virginia acquired the
manufacturing facility, fixed assets and other assets of Automata for total
consideration of approximately $19.5 million. This transaction will be
accounted for under the purchase method of accounting and the purchase price
will be allocated to the underlying assets acquired and liabilities assumed
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.
16
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 1,900 customers, primarily in the telecommunications,
computer and networking industries.
This discussion and analysis should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations set
forth in DDi Capital's and Dynamic Details' Annual Report on Form 10-K for the
year ended December 31, 1999, and Management's Discussion and Analysis of
Financial Condition and Results of Operations set forth in DDi Corp's Post-
Effective Amendment No. 1 on Form S-1 filed April 14, 2000.
The results of operations of MCM are included only in the financial data of DDi
Corp., which directly owns all of the capital stock of MCM.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to the Three Months ended June 30,
1999
Net Sales -
Dynamic Details and DDi Capital net sales increased $15.2 million (21%) to $86.9
million for the three months ended June 30, 2000, from $71.7 million for the
same period in 1999. Such increase is attributable to the production of more
complex and larger panels, which increased the average sales price per panel.
DDi Corp. net sales increased $29.8 million (42%) to $101.5 million for the
three months ended June 30, 2000, from $71.7 million for the same period in
1999. Such increase reflects the higher average sales price per panel achieved
by Dynamic Details and the impact of the acquisition of MCM.
Gross Profit -
Dynamic Details and DDi Capital gross profit increased $9.5 million (44%) to
$31.0 million for the three months ended June 30, 2000, from $21.5 million for
the same period in 1999. Such increase in gross profit resulted from the higher
level of sales and an improvement in production yields in the Company's pre-
production operations. DDi Corp. gross profit increased $14.3 million (67%) to
$35.6 million for the three months ended June 30, 2000, from $21.3 million for
the same period in 1999. Such increase reflects the higher level of sales and
improvement in production yields achieved by Dynamic Details and the impact of
the acquisition of MCM.
Sales and Marketing Expense -
Dynamic Details and DDi Capital sales and marketing expenses increased $2.1
million (39%) to $7.5 million for the three months ended June 30, 2000, from
$5.4 million for the same period in 1999. Such increase is due to growth in our
sales force to accommodate existing and anticipated near-term increases in
customer demand and higher commissions and other variable expenses due to our
increased sales volume. DDi Corp. sales and marketing expenses increased $2.5
million (46%) to $7.9 million for the three months ended June 30, 2000, from
$5.4 million for the same period in 1999. Such increase reflects the growth in
sales force, higher commissions and variable expenses incurred by Dynamic
Details due to higher sales volume and the impact of the acquisition of MCM.
General and Administration Expenses -
Dynamic Details and DDi Capital general and administration expenses increased
$0.3 million (7%) to $4.7 million for the three months ended June 30, 2000, from
$4.4 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 the Company, offset by the elimination of management fees in
connection with a management agreement terminated in connection with the initial
public offering by DDi Corp. DDi Corp. general and administration expenses
increased $1.8 million (43%) to $6.0 million for the three months ended June 30,
2000, from $4.2 million for the same period in 1999. Such increase reflects the
increase incurred by Dynamic Details and the impact of the acquisition of MCM.
17
Amortization of Intangibles -
Dynamic Details and DDi Capital amortization of intangibles decreased $1.1
million (18%) to $4.9 million for the three months ended June 30, 2000, from
$6.0 million for the same period in 1999. The decrease is due to the use of
accelerated amortization methods with regard to certain identifiable
intangibles. DDi Corp. amortization of intangibles decreased $0.2 million (3%)
to $5.8 million for the three months ended June 30, 2000, from $6.0 million for
the same period in 1999. Such decrease reflects the decrease incurred by
Dynamic Details, partially offset by amortization attributable to the
acquisition of MCM.
Net Interest Expense -
Dynamic Details net interest expense decreased $1.3 million (16%) to $7.0
million for the three months ended June 30, 2000, from $8.3 million for the same
period in 1999. Such decrease is due to the redemption of Senior Term Facility
principal resulting from the DDi Corp. equity offering in April 2000, partially
offset by an increase in interest rates. DDi Capital net interest expense
decreased $1.0 million (10%) to $9.5 million for the three months ended June 30,
2000, from $10.5 million for the same period in 1999. Such decrease reflects
the decrease incurred by Dynamic Details, partially offset by the impact of
discount accretion on the Capital Senior Discount Notes. DDi Corp. net interest
expense decreased $0.7 million (6%) to $11.0 million for the three months ended
June 30, 2000, from $11.7 million for the same period in 1999. Such decrease
reflects the decrease incurred by DDi Capital and the redemption of Intermediate
Senior Discount Notes principal resulting from the DDi Corp. equity offering in
April 2000. Such decreases were partially offset by the impact of the
acquisition of MCM in April 2000. Interest on debt assumed in the MCM
acquisition was $0.7 million for the three months ended June 30, 2000.
Income Taxes -
Dynamic Details income taxes increased $2.7 million to $3.0 million for the
three months ended June 30, 2000, from $0.3 million for the same period in 1999.
DDi Capital income taxes increased $2.6 million to $2.0 million for the three
months ended June 30, 2000, from a tax benefit of $0.6 million for the same
period in 1999. The increased provisions for both Dynamic Details and DDi
Capital reflect a higher level of taxable income earned in the current period.
DDi Corp. income taxes increased $3.5 million to $2.4 million for the three
months ended June 30, 2000, from a tax benefit of $1.1 million for the same
period in 1999. Such increase reflects the increased DDi Capital provision and
the impact of the acquisition of MCM, which generated $0.8 million in tax
expense for the three months ended June 30, 2000. The provisions for income
taxes are based upon the Company's expected effective tax rate in the respective
fiscal year.
Six Months Ended June 30, 2000 Compared to the Six Months ended June 30, 1999
Net Sales -
Dynamic Details and DDi Capital net sales increased $31.3 million (24%) to
$162.2 million for the six months ended June 30, 2000, from $130.9 million for
the same period in 1999. Such increase is attributable to the production of
more complex and larger panels, which increased the average sales price per
panel. DDi Corp. net sales increased $45.9 million (35%) to $176.8 million for
the six months ended June 30, 2000, from $130.9 million for the same period in
1999. Such increase reflects the increase achieved by Dynamic Details and the
impact of the acquisition of MCM.
Gross Profit -
Dynamic Details and DDi Capital gross profit increased $18.4 million (47%) to
$57.3 million for the six months ended June 30, 2000, from $38.9 million for the
same period in 1999. Such increase in gross profit resulted from the higher
level of sales and an improvement in production yields in the Company's pre-
production operations. DDi Corp. gross profit increased $23.3 million (61%) to
$61.8 million for the six months ended June 30, 2000, from $38.5 million for the
same period in 1999. Such increase reflects the increase incurred by Dynamic
Details and the impact of the acquisition of MCM.
Sales and Marketing Expense -
Dynamic Details and DDi Capital sales and marketing expenses increased $4.3
million (43%) to $14.4 million for the six months ended June 30, 2000, from
$10.1 million for the same period in 1999. Such increase is due to growth in
our sales force to accommodate existing and anticipated near-term increases in
customer demand and higher commissions and other variable expenses due to our
increased sales volume. DDi Corp. sales and marketing expenses increased $4.7
million (47%) to $14.8 million for the six months ended June 30, 2000, from
$10.1 million for the same period in 1999. Such increase reflects the increase
incurred by Dynamic Details and the impact of the acquisition of MCM.
18
General and Administration Expenses -
Dynamic Details and DDi Capital general and administration expenses increased
$1.4 million (19%) to $8.6 million for the six months ended June 30, 2000, from
$7.2 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 the Company, offset by the elimination of management fees in
connection with a management agreement terminated in connection with the initial
public offering by DDi Corp. DDi Corp. general and administration expenses
increased $2.9 million (41%) to $10.0 million for the six months ended June 30,
2000, from $7.1 million for the same period in 1999. Such increase reflects the
increase incurred by Dynamic Details and the impact of the acquisition of MCM.
Amortization of Intangibles -
Dynamic Details and DDi Capital amortization of intangibles decreased $1.7
million (14%) to $10.1 million for the six months ended June 30, 2000, from
$11.8 million for the same period in 1999. The decrease is due to the use of
accelerated amortization methods with regard to certain identifiable
intangibles. DDi Corp. amortization of intangibles decreased $0.9 million (8%)
to $10.9 million for the six months ended June 30, 2000, from $11.8 million for
the same period in 1999. Such decrease reflects the decrease incurred by
Dynamic Details, partially offset by amortization attributable to the
acquisition of MCM.
Net Interest Expense -
Dynamic Details net interest expense decreased $1.2 million (7%) to $15.2
million for the six months ended June 30, 2000, from $16.4 million for the same
period in 1999. Such decrease is due to the redemption of Senior Term Facility
principal resulting from the DDi Corp. equity offering in April 2000, partially
offset by an increase in interest rates. DDi Capital net interest expense
decreased $0.6 million (3%) to $20.2 million for the six months ended June 30,
2000, from $20.8 million for the same period in 1999. Such decrease reflects
the decrease incurred by Dynamic Details, partially offset by the impact of
discount accretion on the Capital Senior Discount Notes. DDi Corp. net interest
expense decreased $0.1 million to $23.2 million for the six months ended June
30, 2000, from $23.3 million for the same period in 1999. Such decrease
reflects the decrease incurred by DDi Capital and the redemption of Intermediate
Senior Discount Notes principal resulting from the DDi Corp. equity offering in
April 2000. Such increases were effectively offset by the impact of the
acquisition of MCM. Interest on debt assumed in this acquisition was $0.7
million for the six months ended June 30, 2000.
Income Taxes -
Dynamic Details income taxes increased $5.3 million to $4.6 million for the six
months ended June 30, 2000, from a tax benefit of $0.7 million for the same
period in 1999. DDi Capital income taxes increased $5.0 million to $2.6
million for the six months ended June 30, 2000, from a tax benefit of $2.4
million for the same period in 1999. The increased provisions for both Dynamic
Details and DDi Capital reflect a higher level of taxable income earned in the
current period. DDi Corp. income taxes increased $6.1 million to $2.5 million
for the six months ended June 30, 2000, from a tax benefit of $3.6 million for
the same period in 1999. Such increase reflects the increased DDi Capital
provision and the impact of the acquisition of MCM, which generated $0.8 million
in tax expense for the six months ended June 30 2000. The provisions for income
taxes are based upon the Company's expected effective tax rate in the respective
fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, cash and cash equivalents were $4.1 million for DDi Corp.,
and $0.2 million for both DDi Capital and Dynamic Details, compared to $0.6
million for the Company as of December 31, 1999. The principal source of
liquidity to fund ongoing operations for the six months ended June 30, 2000 was
cash provided by operations.
Net cash provided by operating activities for the six months ended June 30, 2000
was $11.8 million for the Company, compared to $13.3 million for DDi Corp. and
$13.6 million for DDi Capital and Dynamic Details for the six months ended June
30, 1999.
Capital expenditures for the six months ended June 30, 2000 were $10.7 million
for DDi Corp. and $10.2 million for DDi Capital and Dynamic Details, compared to
$8.1 million for the Company for the six months ended June 30, 1999.
As of June 30, 2000, DDi Corp., DDi Capital and Dynamic Details had long-term
borrowings of $378.7 million, $330.5 million and $247.9 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
19
use from time-to-time. At June 30, 2000, Dynamic Details had $0.5 million
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 (see Note 6 to the Condensed Consolidated Financial Statements).
The net proceeds were used to reduce the indebtedness of the Dynamic Details
Senior Term Facility by $100.0 million, redeem $17.5 million of the Senior
Discount Notes issued by Intermediate, pay associated redemption premiums of
$2.8 million and accrued and unpaid interest thereon of $3.7 million, and to
finance a portion of the acquisition of MCM (see Note 6 to the Condensed
Consolidated Financial Statements) and pay offering expenses.
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. The accrued exit costs
remaining as of June 30, 2000 are approximately $0.2 million, representing
expenses principally related to net rental payments through scheduled maturities
of real property operating leases.
RISKS ASSOCIATED WITH INTANGIBLE ASSETS
At June 30, 2000, intangible assets were $265 million for DDi Corp. and $195
million for DDi Capital and Dynamic Details. These amounts represented a
substantial portion of each companies' total assets at that date. The
intangible assets consist of goodwill and other identifiable intangibles
relating to the Company's acquisitions. Additional intangible assets may be
added in future periods, principally from the consummation of further
acquisitions. Amortization of these additional intangibles will, in turn, have
a negative impact on earnings. In addition, the Company continuously evaluates
whether events and circumstances have occurred that indicate the remaining
balance of intangible assets may not be recoverable. When factors indicate that
assets should be evaluated for possible impairment, the Company may be required
to reduce the carrying value of its intangible assets, which could have a
material adverse effect on the results of the Company during the periods in
which such a reduction is recognized. There can be no assurance that the
Company will not be required to write down intangible assets in future periods.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 137, issued by the FASB in July 1999, establishes a new
effective date for SFAS No. 133. This statement, as amended by SFAS No. 137 and
SFAS No. 138 (as discussed below), is effective for all fiscal years beginning
after June 15, 2000 and is therefore effective for the Company beginning with
its fiscal quarter ending March 31, 2001. Based upon the nature of the
financial instruments and hedging activities in effect as of the date of this
filing, this pronouncement would require the Company to reflect the fair value
of its derivative instruments on the consolidated balance sheet. Changes in
fair value of these instruments will be reflected as a component of
comprehensive income.
20
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Hedging Activities--an amendment of FASB Statement No. 133."
SFAS No. 138 addresses a limited number of issues causing implementation
difficulties for SFAS No. 133. SFAS No. 138 is required to be adopted
concurrently with SFAS No. 133 and is therefore effective for the Company
beginning with its fiscal quarter ending March 31, 2001.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition, which outlines the
basic criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the SEC. The Company believes that
adopting SAB 101 will not have a material impact on its financial position or
results of operations.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting for
Certain Transactions Involving Stock Compensation," which is an interpretation
of Accounting Principal Board No. 25 This interpretation clarifies:
. the definition of employee for purposes of applying Opinion 25, which deals
with stock compensation issues;
. the criteria for determining whether a plan qualifies as a noncompensatory
plan;
. the accounting consequence of various modifications to the terms of a
previously fixed stock options or award; and
. the accounting for an exchange of stock compensation awards in a business
combination
This interpretation is effective July 1, 2000, but certain conclusions in this
interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
interpretation are recognized on a prospective basis from July 1, 2000. The
Company believes that the adoption of FIN 44 will not have a material impact on
its financial statements.
21
FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD-LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Form 10-Q are
forward-looking in nature. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and may differ materially from the Company's actual
future experience involving any one or more of such matters and subject areas.
The Company wishes to caution readers that all statements other than statements
of historical facts included in this quarterly report on Form 10-Q regarding the
Company's financial position and business strategy may constitute forward-
looking statements. All of these forward-looking statements are based upon
estimates and assumptions made by management of the Company, which although
believed to be reasonable, are inherently uncertain. Therefore, undue reliance
should not be placed on such estimates and statements. No assurance can be
given that any of such estimates or statements will be realized and it is likely
that actual results will differ materially from those contemplated by such
forward-looking statements. Factors that may cause such differences include:
(1) increased competition; (2) increased costs; (3) the inability to consummate
business acquisitions on attractive terms; (4) the loss or retirement of key
members of management; (5) increases in the Company's cost of borrowings or
unavailability of additional debt or equity capital on terms considered
reasonable by management; (6) adverse state, federal or foreign legislation or
regulation or adverse determinations by regulators; (7) changes in general
economic conditions in the markets in which the Company may compete and
fluctuations in demand in the electronics industry; and (8) the ability to
sustain historical margins as the industry develops. The Company has attempted
to identify certain of the factors that it currently believes may cause actual
future experiences to differ from the Company's current expectations regarding
the relevant matter or subject area. In addition to the items specifically
discussed in the foregoing, the Company's business and results of operations are
subject to the risks and uncertainties described under the headings "Risks
Associated with Intangible Assets" and "Factors That May Affect Future Results"
contained herein. However, the operations and results of the Company's business
also may be subject to the effect of other risks and uncertainties. Such risks
and uncertainties include, but are not limited to, items described from time-to-
time in the Company's reports filed with the Securities and Exchange Commission.
SUBSTANTIAL INDEBTEDNESS
The Company has substantial indebtedness. As of June 30, 2000, indebtedness was
approximately $390 million for DDi Corp., $338 million for DDi Capital and $256
million for Dynamic Details. As of June 30, 2000, there was $43.8 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;
. 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.
22
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
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, or seeking additional equity
capital. There is no assurance that any of these remedies can be effected on
satisfactory terms, if at all.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The terms of the Company's indebtedness restrict, among other things, the
Company's ability to incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur indebtedness, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. MCM, DDi
Capital and Dynamic Details are also required to maintain specified financial
ratios and satisfy certain financial condition tests. Their ability to meet
those financial ratios and tests can be affected by events beyond their control,
and there can be no assurance that they will meet those tests. A breach of any
of these covenants could result in a default under some or all of the Company's
indebtedness agreements. Upon the occurrence of an event of default, lenders
under such indebtedness could elect to declare all amounts outstanding together
with accrued interest, to be immediately due and payable. If the Company were
unable to repay such amounts, the lenders could proceed against the collateral
granted to them to secure that indebtedness. Substantially all the assets of
Dynamic Details and its subsidiaries are pledged as security under the Dynamic
Details senior credit facility. All the assets of MCM are pledged as security
under the MCM facilities agreement.
TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT
The market for the Company's products and services is characterized by rapidly
changing technology and continuing process development. The future success of
the Company's business will depend in large part upon its ability to maintain
and enhance its technological capabilities, to develop and market products and
services that meet changing customer needs, and to successfully anticipate or
respond to technological changes on a cost-effective and timely basis. Research
and development expenses are expected to increase as manufacturers make demands
for products and services requiring more advanced technology on a quicker
turnaround basis. The Company is more leveraged than some of its principal
competitors, and therefore may not be able to respond to technological changes
as quickly as these competitors.
In addition, the electronics manufacturing services industry could in the future
encounter competition from new or revised technologies that render existing
technology less competitive or obsolete or that reduce the demand for the
Company's services. There can be no assurance that the Company will effectively
respond to the technological requirements of the changing market. To the extent
the Company determines that new technologies and equipment are required to
remain competitive, the development, acquisition and implementation of such
technologies and equipment may require the Company to make significant capital
investments. There can be no assurance that the Company will be able to obtain
capital for these purposes in the future or that any investments in new
technologies will result in commercially viable technological processes.
DEPENDENCE ON A CORE GROUP OF SIGNIFICANT CUSTOMERS
Although the Company has a large number of customers, net sales, during the six
months ended June 30, 2000, to its largest customer accounted for approximately
9% of net sales for DDi Corp. and 7.5% of net sales for both DDi Capital and
Dynamic Details. Net sales, during the same period, to the ten largest customers
accounted for approximately 39% of net sales for the Company. The Company may
depend upon a core group of customers for a material percentage of net sales in
the future. Substantially all sales are made on the basis of purchase orders
rather than long-term agreements. There can be no assurance that significant
customers will order services from the Company in the future or that they will
not reduce or delay the amount of services ordered. Any reduction or delay in
orders could negatively impact revenues. In addition, the Company generates
significant accounts receivable in
23
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 three
acquisitions, including the acquisition of MCM in conjunction with DDi Corp.'s
initial public offering and the acquisition of the assets of Automata after the
reporting period on August 4, 2000. 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 in April 2000. Entry into foreign markets may require
considerable management time as well as, in the case of new operations, start-up
expenses for market development, hiring and establishing office facilities
before any significant revenues are generated. As a result, operations in new
foreign markets may achieve low margins or may be unprofitable. The Company will
be unable to utilize net operating losses incurred by foreign operations to
reduce U.S. income taxes. Therefore, as the Company expands internationally, it
may not experience the margins it expects, and revenues may be negatively
impacted.
VARIABILITY OF ORDERS
The Company's operating results have fluctuated in the past because it sells on
a purchase-order basis rather than pursuant to long-term contracts. The Company
is therefore sensitive to variability in customers' demand. Because the Company
times expenditures in anticipation of future sales, its operating results may be
less than estimated if the timing and volume of customer orders do not match
expectations. Furthermore, the Company may not be able to capture all potential
revenue in a given period if customers' demand for quick-turnaround services
exceeds capacity during that period. Because of these factors, you should not
rely on quarter-to-quarter comparisons of the Company's results of operations as
an indication of future performance. Because a significant portion of the
Company's operating expenses are fixed, even a small revenue shortfall can have
a disproportionate effect on operating results. It is possible that, in future
periods, results may be below the expectations of public market analysts and
investors.
A substantial portion of the Company's net sales are derived from quick-turn
services for which it provides both the materials and the manufacturing
services. As a result, the Company often bears the risk of fluctuations in the
cost of materials, and the risk of generating scrap and excess inventory, which
can affect gross profit margins. The Company forecasts future inventory needs
based upon the anticipated demands of its customers. Inaccuracies in making
these forecasts or estimates could result in a shortage or an excess of
materials, either of which could negatively affect production schedules and
margins.
INTELLECTUAL PROPERTY
The Company's success depends in part on proprietary technology and
manufacturing techniques. The Company has no patents for these proprietary
techniques and relies primarily on trade secret protection. Litigation may be
24
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 (see Note 6 to the
Condensed Consolidated Financial Statements) and the acquisition of MCM (see
Note 7 to the Condensed Consolidated Financial Statements), investors affiliated
with Bain Capital, Inc., Celerity Partners, LLC and The Chase Manhattan Bank
together hold approximately 39.7% 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.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Interest Rate Risk
The MCM senior credit facility and the Dynamic Details senior credit facility
bear interest at a floating rate; the Dynamic Details senior subordinated notes,
DDi Capital senior discount notes and DDi Intermediate senior discount notes
bear interest at fixed rates. The Company reduces exposure to interest rate
risks through swap agreements.
Under the terms of the current swap agreements, Dynamic Details pays a maximum
annual rate of interest applied to a notional amount equal to the principal
balance of the term facility portion of the Dynamic Details senior credit
facility for the period June 30, 1999 through December 31, 2001. During this
period, the maximum annual rate is 5.65% for a given month, unless one-month
LIBOR for that month equals or exceeds 7.00%, in which case the Company pays
7.00% for that month. From January 1, 2002 through the scheduled maturity of
the senior term facility in 2005, the Company pays a fixed annual rate of 7.35%
applied to a notional amount equal to 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
June 30, 2000, one-month LIBOR was 6.64%. If one-month LIBOR increased by 10%
to 7.30%, interest expense related to the term loan facility portion would
increase by approximately $1.0 million over the twelve months ending June 30,
2001. Since the increased rate would exceed 7.00%, that increase in interest
expense would be offset by approximately $0.4 million in payments the Company
would be entitled to receive under the Dynamic Details swap agreement.
Under the terms of the current swap agreement, MCM pays a maximum annual rate of
interest equal to 6.92% applied to fixed amounts of debt per the agreement,
through September 2002. As of June 30, 2000, the swap covers approximately 80%
of the outstanding debt under the facilities agreement. If MCM were to borrow
the full amount available on their facilities agreement, the fixed amounts of
debt per the swap agreement would still cover approximately 70% of the
outstanding debt. The MCM facilities agreement bears interest based on three-
month LIBOR. As of June 30, 2000, three-month LIBOR was 6.77%. If three-month
LIBOR increased by 10% to 7.45%, interest expense related to the term loan
facility would increase by approximately $198,000. That increase in interest
expense, however, would be offset by approximately $123,000 in payments the
Company would be entitled to receive under the MCM swap agreement.
The revolving credit facility bears interest at (1) 2.25% per annum plus the
applicable LIBOR or (2) 1.25% per annum plus the federal reserve reported
overnight funds rate plus 0.5% per annum. As of June 30, 2000 the Company had
an outstanding balance of $0.5 million under its revolving credit facility.
Based upon the Company's anticipated utilization of its revolving credit
facility through the year ending December 31, 2000, a 10% change in interest
rates as of June 30, 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
With DDi Corp.'s acquisition of MCM (see Note 7 to the Condensed Consolidated
Financial Statements), the Company now has operations in the United Kingdom.
The sales and expenses and financial results of those operations are denominated
in British pounds. The Company has foreign currency translation risk equal to
the Company's net investment in those operations. However, since nearly all of
the Company's sales are denominated in each operation's local currency, the
Company has relatively little exposure to foreign currency transaction risk with
respect to sales made. Therefore, the effect of an immediate 10% change in
exchange rates would not have an impact on the Company's operating results over
the 12 month period ending June 30, 2001. The Company does not use forward
exchange contracts to hedge exposures to foreign currency denominated
transactions and does not utilize any other derivative financial instruments for
trading or speculative purposes.
26
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.
(a) None
(b) None
(c) DDi Corp. completed the acquisition of MCM on April 14, 2000. In
connection with the acquisition, DDi Corp. issued an aggregate of
2,230,619 shares of common stock to MCM investors in exchange for
all of the outstanding ordinary shares of MCM. The issuance of
shares to MCM investors is exempt from registration under the
Securities Act of 1933, as amended, pursuant to Regulation S
thereof.
(d) Pursuant to Rule 463 and Item 701 (f) of Regulation S-K
promulgated under the Securities Act of 1933, as amended, the
following information is provided in this report:
(1) The Registration Statement on Form S-1 of DDi Corp. (File No.
333-95623) (the "Registration Statement") was declared
effective by the Securities and Exchange Commission on April
11, 2000.
(2) The offering contemplated by the prospectus contained in the
Registration Statement (the "Offering") was consummated on
April 14, 2000.
(3) The managing underwriters in the Offering were Credit Suisse
First Boston, Robertson Stephens, Chase H&Q and Lehman
Brothers.
(4) The Registration Statement related to shares of common stock,
$0.01 par value ("Common Stock"), of DDi Corp.
(5) The Registration Statement registered an aggregate of
13,800,000 shares of Common Stock; the aggregate gross
offering price of the amount of shares registered was
$193,200,000; DDi Corp. sold 12,000,000 shares pursuant to
the Registration Statement for an aggregate gross offering
price of $168,000,000. 1,800,000 of such shares of Common
Stock registered under the Registration Statement were
subject to an underwriters' over-allotment option that was
not exercised by the underwriters and has expired.
(6) Through the date of this report, DDi Corp. incurred estimated
expenses (including underwriters' discount) of approximately
$19.4 million in connection with the Offering, which included
approximately $11.3 million in underwriters' discount and
commissions and approximately $4.3 million of other expenses
(including filing fees related to the Registration Statement
and the National Association of Securities Dealers, Inc. and
accounting, legal, printing and engraving and miscellaneous
expenses).
27
(7) Through the date of this report, of the net proceeds of
approximately $156.7 million, (i) approximately $24.0 million
was used to redeem a portion of the senior discount notes
issued by DDi Intermediate (50% of which are held by a fund
advised by an affiliate of Bain) and to pay associated
redemption premiums and accrued and unpaid interest thereon;
(ii) approximately $100.0 million was used to reduce the
indebtedness of the Dynamic Details senior credit facility;
(iii) approximately $23.7 million was used to repay the MCM
investor loans, including accrued interest assumed in
connection with the acquisition of MCM; (iv) approximately
$4.8 million was used to pay cash consideration, including
fees and expenses, in connection with the acquisition of MCM;
and (v) approximately $4.2 million was used to pay expenses
incurred in connection with the offering.
Item 3. DEFAULTS UPON SENIOR SECURITIES. None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
DDI Corp.
---------
(a) On April 6, 2000, there was an Action by Written Consent of the Sole
Stockholder in Lieu of an Annual Meeting.
(b) Among the resolutions in the consent was a Ratification of Election of
Initial Directors, confirming the election by the incorporator of the following
individuals to the Board of Directors: Prescott Ashe, Christopher Behrens, Mark
R. Benham, Edward W. Conard, Charles D. Dimick, David Dominik, Bruce D.
McMaster, Stephen G. Pagliuca and Stephen M. Zide.
(c) The following matters were included in the action by consent, each
approved by the single vote of the sole stockholder:
. Ratification of election of initial directors. As described above;
. Merger with and into parent corporation. Approval of the Agreement
and Plan of Merger between DDi Corp., a California corporation
("DDi-Cal"), and DDi Corp. (formerly DDi MergerCo.), a Delaware
corporation and a wholly-owned subsidiary of DDi-Cal, whereby DDi-
Cal was reincorporated as a Delaware corporation immediately prior
to the closing of the initial public offering of its Common Stock.
. Employee stock plans. Approval of the form, terms and provisions of
each of the DDi Corp. 2000 Equity Incentive Plan and the Employee
Stock Purchase Plan.
(d) None.
Item 5. OTHER INFORMATION. None
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
- ------- -----------
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./1999
27.4 Financial Data Schedule for DDi Corp./2000
(b) Reports on Form 8-K:
--------------------
On April 12, 2000, DDi Capital and Dynamic Details filed a Report on
Form 8-K dated April 11, 2000, (i) describing the April 11, 2000 filing with the
SEC by their ultimate parent, DDi Corp., of Amendment No. 5 to its registration
statement on Form S-1, and (ii) including a press release announcing the initial
public offering of the common stock of its ultimate parent, DDi Corp.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, DDi Corp. has duly caused this quarterly report to be signed on its
behalf by the undersigned, thereto duly authorized, in the city of Anaheim,
state of California, on the 14th day of August, 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 August 14, 2000
- ----------------------- Chief Financial Officer
Joseph P. Gisch (principal financial and
chief accounting officer)
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, DDi Capital Corp. has duly caused this quarterly report to be
signed on its behalf by the undersigned, thereto duly authorized, in the city of
Anaheim, state of California, on the 14th day of August, 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 August 14, 2000
- ----------------------- Chief Financial Officer
Joseph P. Gisch (principal financial and
chief accounting officer)
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Dynamic Details, Incorporated, has duly caused this quarterly
report to be signed on its behalf by the undersigned, thereto duly authorized,
in the city of Anaheim, state of California, on the 14th day of August, 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 August 14, 2000
- ----------------------- Chief Financial Officer
Joseph P. Gisch (principal financial and
chief accounting officer)
31