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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, 2004 OR o
    
    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
(State or other jurisdiction
of incorporation or organization)
    
    06-1576013
(I.R.S. Employer
Identification No.)
 1220 Simon Circle
Anaheim, California 92806  (Address of principal executive offices) (Zip code)
 (714) 688-7200  (Registrants telephone number, including area code)
 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:þ Yes       o No Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). o Yes       þ No Indicate by check mark whether the registrant has filed all documents and
reports to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by
a court. þ Yes       o No As of August 6, 2004, DDi Corp. had 25,463,119 shares of common stock, par
value $0.001 per share, outstanding.




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##### Table of Contents



DDi CORP. FORM 10-Q for the Quarterly Period Ended June 30, 2004 TABLE OF CONTENTS Page No.PART I
    
    FINANCIAL
INFORMATIONItem 1.
    
    Financial Statements.
    
    
    4Condensed Consolidated Balance Sheets as of June 30,
2004 (Reorganized DDi Corp.) and December 31, 2003
(Reorganized DDi Corp.)
(unaudited).
    
    
    4Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2004 (Reorganized
DDi Corp.) and 2003 (Predecessor DDi
Corp.)(unaudited).
    
    
    5Consolidated Statements of Comprehensive Loss for the
three and six months ended June 30, 2004 (Reorganized
DDi Corp.) and 2003 (Predecessor DDi Corp.)
(unaudited).
    
    
    6Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2004 (Reorganized DDi Corp.)
and 2003 (Predecessor DDi
Corp.)(unaudited).
    
    
    7Notes to Condensed Consolidated Financial
Statements.
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations.
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures About Market
Risk.
    
    
    28Item 4.
    
    Controls and Procedures.
    
    
    29PART II
    
    OTHER INFORMATIONItem 5.
    
    Legal Proceedings.
    
    
    30Item 6.
    
    Submission of Matters to a Vote of Security Holders.
    
    
    30Item 7.
    
    Exhibits and Reports on Form 8-K.
    
    
    30Signature
    
    
    
    
    31EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 10.4EXHIBIT 10.5EXHIBIT 10.6EXHIBIT 10.7EXHIBIT 10.8EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




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DDi CORP.
FORWARD-LOOKING STATEMENTS On one or more occasions, we may make statements regarding our assumptions,
projections, expectations, targets, intentions or beliefs about future events.
All statements other than statements of historical facts included in this
Quarterly Report on Form 10-Q 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. Words or phrases such as anticipates, believes, estimates, expects,
intends, plans, predicts, projects, targets, will likely result,
will continue, may, could or similar expressions identify forward-looking
statements. Forward-looking statements involve risks and uncertainties which
could cause actual results or outcomes to differ materially from those
expressed. We caution that while we make such statements in good faith and we
believe such statements are based on reasonable assumptions, including without
limitation, managements examination of historical operating trends, data
contained in records and other data available from third parties, we cannot
assure you that our expectations will be realized. In addition to the factors and other matters discussed under the caption
Factors That May Affect Future Results in Part 1  Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations in
this Quarterly Report on Form 10-Q, some important factors that could cause
actual results or outcomes for DDi Corp. or our subsidiaries to differ
materially from those discussed in forward-looking statements include:  
    
    changes in general economic conditions in the markets in which we may
compete and fluctuations in demand in the electronics industry;  
    
    our ability to sustain historical margins as the industry develops;  
    
    increased competition;  
    
    increased costs;  
    
    our ability to retain key members of management;  
    
    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 Securities and Exchange Commission. 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. 3




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DDi CORP. 
 PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements. 
 DDi CORP.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited) Reorganized DDi Corp.June 30,
    
    December 31,2004
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    22,081
    
    
    $
    11,202Cash, cash equivalents and marketable securities  restricted
    
    
    
    
    
    
    7,500Accounts receivable, net
    
    
    50,613
    
    
    
    39,140Inventories
    
    
    29,625
    
    
    
    26,292Prepaid expenses and other
    
    
    3,669
    
    
    
    2,707Total current assets
    
    
    105,988
    
    
    
    86,841Property, plant and equipment, net
    
    
    68,019
    
    
    
    74,918Debt issuance costs, net
    
    
    2,001
    
    
    
    Goodwill
    
    
    107,140
    
    
    
    105,452Other intangibles, net
    
    
    20,308
    
    
    
    23,376Other
    
    
    819
    
    
    
    816Total assets
    
    $
    304,275
    
    
    $
    291,403Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders EquityCurrent liabilities:Current maturities of long-term debt and capital lease obligations
    
    $
    1,524
    
    
    $
    1,439Revolving credit facilities
    
    
    25,792
    
    
    
    11,809Accounts payable
    
    
    35,610
    
    
    
    28,687Accrued expenses and other liabilities
    
    
    22,296
    
    
    
    26,338Income taxes payable
    
    
    1,438
    
    
    
    998Note payable
    
    
    
    
    
    
    500Total current liabilities
    
    
    86,660
    
    
    
    69,771Long-term debt and capital lease obligations
    
    
    44,556
    
    
    
    114,799Deferred income tax liability
    
    
    229
    
    
    
    533Notes payable and other
    
    
    15,148
    
    
    
    12,798Series A mandatorily redeemable preferred stock
    
    
    2,511
    
    
    
    2,066Total liabilities
    
    
    149,104
    
    
    
    199,967Series B mandatorily redeemable preferred stock
    
    
    57,949
    
    
    
    Stockholders equity:Common stock  $0.001 par value, 75,000,000 shares authorized,
25,463,119 shares issued and outstanding at June 30, 2004
    
    
    26
    
    
    
    24Additional paid-in-capital
    
    
    151,764
    
    
    
    138,661Deferred compensation
    
    
    (18,699
    )
    
    
    (32,454
    )Accumulated other comprehensive income (loss)
    
    
    64
    
    
    
    (152
    )Stockholder receivables
    
    
    (643
    )
    
    
    (635
    )Accumulated deficit
    
    
    (35,290
    )
    
    
    (14,008
    )Total stockholders equity
    
    
    97,222
    
    
    
    91,436Total liabilities, mandatorily redeemable preferred stock and stockholders
equity
    
    $
    304,275
    
    
    $
    291,403
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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DDi CORP. 
 Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited) Reorganized
    
    Predecessor
    
    Reorganized
    
    PredecessorDDi Corp.
    
    DDi Corp.
    
    DDi Corp.
    
    DDi Corp.Three months ended
    
    Three months ended
    
    Six months ended
    
    Six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    75,546
    
    
    $
    56,223
    
    
    $
    147,896
    
    
    $
    117,884Cost of goods sold:Cost of goods sold
    
    
    60,118
    
    
    
    52,526
    
    
    
    118,856
    
    
    
    109,724Non-cash stock based compensation and amortization of intangibles
    
    
    2,611
    
    
    
    
    
    
    
    9,064
    
    
    
    Restructuring-related inventory impairment
    
    
    
    
    
    
    1,736
    
    
    
    499
    
    
    
    1,736Total cost of goods sold
    
    
    62,729
    
    
    
    54,262
    
    
    
    128,419
    
    
    
    111,460Gross profit
    
    
    12,817
    
    
    
    1,961
    
    
    
    19,477
    
    
    
    6,424Operating expenses:Sales and marketing:Non-cash stock based compensation
    
    
    427
    
    
    
    
    
    
    
    1,859
    
    
    
    Sales and marketing expenses
    
    
    4,736
    
    
    
    4,846
    
    
    
    9,254
    
    
    
    9,401Total sales and marketing
    
    
    5,163
    
    
    
    4,846
    
    
    
    11,113
    
    
    
    9,401General and administration:Non-cash stock based compensation
    
    
    1,245
    
    
    
    
    
    
    
    2,671
    
    
    
    General and administrative expenses
    
    
    4,899
    
    
    
    4,250
    
    
    
    9,280
    
    
    
    8,359Total general and administration
    
    
    6,144
    
    
    
    4,250
    
    
    
    11,951
    
    
    
    8,359Amortization of intangibles
    
    
    1,150
    
    
    
    
    
    
    
    2,300
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    2,000Restructuring and other related charges
    
    
    937
    
    
    
    3,298
    
    
    
    4,870
    
    
    
    3,795Reorganization charges
    
    
    218
    
    
    
    2,698
    
    
    
    1,158
    
    
    
    6,028Operating loss
    
    
    (795
    )
    
    
    (15,131
    )
    
    
    (11,915
    )
    
    
    (23,159
    )Interest expense (net) and other expense (net)
    
    
    2,372
    
    
    
    11,615
    
    
    
    8,358
    
    
    
    17,882Loss before income taxes
    
    
    (3,167
    )
    
    
    (26,746
    )
    
    
    (20,273
    )
    
    
    (41,041
    )Income tax (expense) benefit
    
    
    (687
    )
    
    
    609
    
    
    
    (1,009
    )
    
    
    1,076Net loss
    
    
    (3,854
    )
    
    
    (26,137
    )
    
    
    (21,282
    )
    
    
    (39,965
    )Less: Series B preferred stock dividends and accretion
    
    
    (1,370
    )
    
    
    
    
    
    
    (1,370
    )
    
    
    Net loss allocable to common stock
    
    $
    (5,224
    )
    
    $
    (26,137
    )
    
    $
    (22,652
    )
    
    $
    (39,965
    )Net loss per share  basic and diluted
    
    $
    (0.21
    )
    
    $
    (0.53
    )
    
    $
    (0.90
    )
    
    $
    (0.81
    )Weighted average shares used to compute loss per share:Basic and diluted
    
    
    25,452,392
    
    
    
    49,215,889
    
    
    
    25,098,750
    
    
    
    49,214,213
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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DDi CORP.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited) Reorganized
    
    Predecessor
    
    Reorganized
    
    PredecessorDDi. Corp.
    
    DDi Corp.
    
    DDi. Corp.
    
    DDi Corp.Three months ended
    
    Three months ended
    
    Six months ended
    
    Six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net loss
    
    $
    (3,854
    )
    
    $
    (26,137
    )
    
    $
    (21,282
    )
    
    $
    (39,965
    )Other comprehensive loss:Foreign currency translation adjustments
    
    
    (164
    )
    
    
    1,124
    
    
    
    216
    
    
    
    412Unrealized net loss for the period on interest rate swaps, net of income tax
effect
    
    
    
    
    
    
    (456
    )
    
    
    
    
    
    
    (165
    )Reclassification adjustment for loss on interest rate swap included in net loss
    
    
    
    
    
    
    5,621
    
    
    
    
    
    
    
    5,621Unrealized holding gain on marketable
securities  available for sale
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    4Comprehensive loss
    
    $
    (4,018
    )
    
    $
    (19,839
    )
    
    $
    (21,066
    )
    
    $
    (34,093
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements. 6




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DDi CORP.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited) Reorganized
    
    PredecessorDDi Corp.
    
    DDi Corp.Six months
    
    Six monthsended
    
    endedJune 30,
    
    June 30,2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (21,282
    )
    
    $
    (39,965
    )Adjustments to reconcile net loss to cash used in operating activities:Depreciation
    
    
    7,581
    
    
    
    9,422Amortization of debt issuance costs and discount
    
    
    1,088
    
    
    
    1,576Amortization of intangible assets
    
    
    3,068
    
    
    
    Non-cash stock based compensation
    
    
    12,817
    
    
    
    5,118Non-cash and accrued restructuring and other related charges
    
    
    4,403
    
    
    
    6,325Loss on sale of fixed assets
    
    
    163
    
    
    
    5Goodwill impairment
    
    
    
    
    
    
    2,000Series A preferred stock accrued dividends
    
    
    1,250
    
    
    
    Series A preferred stock accretion
    
    
    445
    
    
    
    Interest income on stockholder receivables
    
    
    (9
    )
    
    
    (9
    )Deferred income taxes
    
    
    (331
    )
    
    
    (706
    )Restructuring related inventory impairment
    
    
    499
    
    
    
    Change in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (11,449
    )
    
    
    6,521Increase in prepaid expenses and other
    
    
    (936
    )
    
    
    (333
    )(Increase) decrease in inventory
    
    
    (3,759
    )
    
    
    2,062Increase (decrease) in accounts payable
    
    
    7,220
    
    
    
    (3,918
    )Increase (decrease) in accrued expenses and other
    
    
    (5,450
    )
    
    
    1,623Increase (decrease) in income tax payable
    
    
    992
    
    
    
    (777
    )Net cash used in operating activities
    
    
    (3,690
    )
    
    
    (11,056
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (4,455
    )
    
    
    (3,330
    )Proceeds from sale of fixed assets
    
    
    1,509
    
    
    
    79Purchases of marketable securities  available for sale
    
    
    
    
    
    
    (56
    )Proceeds from the release of restricted cash
    
    
    7,500
    
    
    
    Cash outflows related to acquisition earnout
    
    
    (1,002
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    3,552
    
    
    
    (3,308
    )Cash flows from financing activities:Principal payments on capital leases
    
    
    (1,018
    )
    
    
    (1,642
    )Principal payments on debt
    
    
    (75,211
    )
    
    
    (3,808
    )Net borrowings on Europe Facilities Agreement
    
    
    3,132
    
    
    
    5,577Borrowings on revolving credit facility
    
    
    14,201
    
    
    
    Payment of debt issuance costs
    
    
    (2,150
    )
    
    
    Payments on other notes payable
    
    
    (500
    )
    
    
    Proceeds from issuance of preferred stock
    
    
    61,000
    
    
    
    Proceeds from issuance of common stock
    
    
    15,980
    
    
    
    Costs incurred in connection with the issuance of common stock
    
    
    (1,356
    )
    
    
    Costs incurred in connection with series B preferred stock
    
    
    (3,424
    )
    
    
    Issuance of common stock through Employee Stock Purchase Plan
    
    
    
    
    
    
    23Proceeds from exercise of stock options
    
    
    382
    
    
    
    Net cash provided by financing activities
    
    
    11,036
    
    
    
    150Effect of exchange rate changes on cash
    
    
    (19
    )
    
    
    (197
    )Net increase (decrease) in cash and cash equivalents
    
    
    10,879
    
    
    
    (14,411
    )Cash and cash equivalents, beginning of year
    
    
    11,202
    
    
    
    28,934Cash and cash equivalents, end of period
    
    $
    22,081
    
    
    $
    14,523
 The accompanying notes are an integral part of these condensed consolidated financial statements. 7




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DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS Basis of Presentation The unaudited condensed consolidated financial statements for DDi Corp. (DDi
Corp.) include the accounts of its wholly owned subsidiaries, DDi Intermediate
Holdings Corp. (Intermediate) and DDi Europe Limited (DDi Europe f/k/a MCM
Electronics Limited (MCM)) and the direct and indirect subsidiaries of
Intermediate (including DDi Capital Corp. or DDi Capital and Dynamic Details
Incorporated or Dynamic Details). Collectively, DDi Corp. and its
subsidiaries are referred to as the Company. 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 DDi
Corp. as of June 30, 2004, the results of operations for the three and six
months ended June 30, 2004 and 2003 and cash flows for the six months ended
June 30, 2004 and 2003. 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, 2004
should be read in conjunction with the audited financial statements presented
in DDi Corp.s Annual Report on Form 10-K for the year ended December 31, 2003. Description of Business The Company is a leading provider of time-critical, technologically advanced,
electronics manufacturing services. Headquartered in Anaheim, California, the
Company offers fabrication and assembly services to customers on a global
basis, from its facilities located across North America and in England. Fresh Start Accounting In connection with DDi Corp.s emergence from bankruptcy, the Company adopted
fresh-start accounting principles prescribed by the American Institute of
Certified Public Accountants Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code effective November 30,
2003. Under fresh start accounting, a new reporting entity, known as
Reorganized DDi Corp. or the Successor Company, is deemed to be created,
and the recorded amounts of assets and liabilities are adjusted to reflect
their fair value. Accordingly, the operating results and cash flows of the
Successor Company and the Predecessor Company have been separately disclosed.
For the purposes of these financial statements, references to Predecessor DDi
Corp. or the Predecessor Company are references to the Company for periods
prior to December 1, 2003 and references to the Successor Company are
references to the Company for periods subsequent to November 30, 2003. The
Successor Companys financial statements are not comparable to the Predecessor
Companys financial statements. Although December 2, 2003, was the date the
bankruptcy court approved the Companys plan of reorganization and December 12,
2003, was the effective date of the plan of reorganization (and the date of the
Companys emergence from bankruptcy), for financial reporting convenience
purposes, the Company accounted for the consummation of the plan of
reorganization as of November 30, 2003. The impact of this was not material to
these financial statements. There were no material unsatisfied conditions to
the plan of reorganization as of December 2, 2003. Recently Issued Accounting Standards In December 2003, the Financial Accounting Standards Board (FASB)
replaced FIN 46 with FIN 46R to clarify the application of Accounting Research
Bulletin Number 51, Consolidated Financial Statements, to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities 8




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DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) without additional subordinated financial support. FIN 46R was effective for
all public entities that have interest in variable interest entities or
potential variable interest entities commonly referred to as special-purpose
entities for periods ending after December 15, 2003. Application by public
entities for all other types of entities is required in financial statements
for periods ending after March 15, 2004. Adoption of this
statement had no effect on the Companys financial position or results of
operations. In April 2004, the Emerging Issues Task Force (EITF) issued EITF 03-6,
Participating Securities and the Two-Class Method Under FASB Statement No. 128,
Earnings Per Share.EITF 03-6 addresses a number of questions regarding the
computation of earnings per share by companies that have issued securities other
than common stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares dividends on its
common stock. The issue also provides further guidance in applying the
two-class method of calculating earning per share, clarifying what constitutes
a participating security and how to apply the two-class method of computing
earnings per share once it is determined that a security is participating,
including how to allocate undistributed earnings to such a security. EITF 03-6
is effective for fiscal periods beginning after March 31, 2004, which is the
Companys second quarter, and is required to be retroactively applied. There
was no impact from the adoption of EITF 03-6 on the Companys earnings per
share for the periods presented as the Company has incurred net operating
losses during the three and six months ended June 30, 2004 and June 30, 2003,
respectively, therefore the effect would be anti-dilutive. NOTE 2. INVENTORIES Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market and consist of the following (in thousands): Reorganized DDi Corp.June 30,
    
    December 31,2004
    
    2003Raw materials
    
    $
    15,049
    
    
    $
    12,254Work-in-process
    
    
    8,745
    
    
    
    8,931Finished goods
    
    
    5,831
    
    
    
    5,107Total
    
    $
    29,625
    
    
    $
    26,292
 NOTE 3. REVOLVING CREDIT FACILITIES, LONG TERM DEBT, AND CAPITAL LEASES Long-term debt and capital lease obligations consist of the following (in
thousands): Reorganized DDi Corp.June 30,
    
    December 31,2004
    
    2003Senior Credit Facility, net of unamortized
discount of $895 at December 31, 2003
    
    $
    
    
    
    $
    70,799Dynamic Details Revolving Credit Facility (a)
    
    
    13,500
    
    
    
    16% Capital Senior Accreting Notes, face
amount of $18,394, net of unamortized discount
of $217 and $229 at June 30, 2004 and December
31, 2003, respectively
    
    
    18,177
    
    
    
    17,427DDi Europe Facilities Agreement (b)
    
    
    25,756
    
    
    
    25,344DDi Europe Working Capital Facility (b)
    
    
    12,292
    
    
    
    11,809Capital lease obligations
    
    
    2,147
    
    
    
    2,668Sub-total
    
    
    71,872
    
    
    
    128,047Less: Current maturities
    
    
    (1,524
    )
    
    
    (1,439
    )Less: Dynamic Details Revolving Credit Facility
    
    
    (13,500
    )
    
    
    Less: DDi Europe Working Capital Facility
    
    
    (12,292
    )
    
    
    (11,809
    )Total
    
    $
    44,556
    
    
    $
    114,799
  (a)
    
    Interest rates are based on prime rate. The effective interest rate as of
June 30, 2004, was 7.25%.  (b)
    
    Interest rates are LIBOR-based. The effective interest rate as of June
30, 2004, was 6.54%. 9




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##### Table of Contents



DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) Senior Credit Facility In January 2004, the Company was required to use a portion of the proceeds
($4.5 million) from its private placement of common stock (see Note 15) to pay
down a portion of the outstanding principal under the Dynamic Details Senior
Credit Facility. On March 30, 2004, the Company repaid in full the outstanding
balance of the Dynamic Details Senior Credit Facility and the related accrued
interest and fees using proceeds from the private placement of its Series B-1
and Series B-2 preferred stock (see Note 6) and cash on hand of $14.9 million,
including cash previously classified as restricted as of December 31, 2003. In
connection with the full repayment and termination of the Dynamic Details
Senior Credit Facility, the warrants previously issued to the lenders under the
Dynamic Details Senior Credit Facility were terminated resulting in interest
expense of $0.9 million during the quarter ended March 31, 2004. Revolving Credit Facility On March 30, 2004, immediately after the Dynamic Details Senior Credit
Facility was paid off, Dynamic Details and the Companys other North American
subsidiaries entered into an asset based revolving credit facility with a
commitment up to $40 million through March 30, 2007, depending upon the value
of the asset base. During the second quarter of 2004, the asset base on the
revolving credit facility was expanded to include the Companys Canadian
operations. As of June 30, 2004, the Company was able to borrow up to $20.3
million against the revolving credit facility of which $13.5 million was drawn.
The facility bears interest at LIBOR plus 4% on LIBOR loans and prime plus 3%
for index rate loans. Pricing will be determined by Dynamic Details adjusted
EBITDA numbers, and will range from LIBOR plus 3 to 4% on LIBOR loans or prime
plus 2 to 3% for index rate loans. The effective interest rate at June 30, 2004
was 7.25%. The revolving credit facility has covenants that place a limit on
the level of capital expenditures and a minimum fixed charge ratio which went
into effect during the current quarter. The Company was in compliance with
these covenants as of June 30, 2004. The Company incurred debt issuance costs
of $2.2 million in connection with obtaining this revolving credit facility and
will amortize such costs into interest expense using the straight-line method
(which approximates the effective interest method) over the facility period. As
of June 30, 2004, a total of $0.2 million of debt issuance costs had been
amortized. On July 2, 2004, Dynamic Details repaid the amount drawn and,
accordingly as of that date, had the full $20.3 million available. Capital Senior Accreting Notes On December 12, 2003, DDi Capital issued $17.7 million in senior accreting
notes pursuant to its plan of reorganization. Pursuant to the terms of its
indenture, interest is payable on the senior accreting notes by issuance of
additional senior accreting notes at an annual rate of 16% or, at DDi Capitals
election, in cash at an annual rate of 14% to be paid on a quarterly
basisstarting June 15, 2004. Because of the decrease in DDi Capitals leverage
ratio, on June 1, 2004, DDi Capital was required to elect to pay interest due
on all subsequent interest payments in cash. Interest is calculated on the
accreted principal balance as of March 14, 2004, the most recent scheduled
interest payment date per the note indenture, of $18.4 million. On June 15,
2004, DDi Capital paid $0.7 million in interest in cash to the holders of the
senior accreting notes. The notes mature on January 1, 2009 and are redeemable
by DDi Capital upon a change of control or upon sale of stock or property or
other assets except through ordinary course of business; or, at the option of
DDi Capital, in whole at any time, in each case, at a redemption price that is
greater than the accreted value of the notes, plus accrued and unpaid interest,
if any, to the redemption date. The notes have covenants customary for
securities of this type. The covenants restrict the Company from incurring
additional indebtedness and from making certain payments, including dividend
payments to its stockholders. As of June 30, 2004, the Company was in
compliance with these covenants. Each holder of the senior accreting notes also
received a warrant to purchase pro rata shares of 762,876 shares of the
Companys common stock. In connection with the completion of a private
placement of common stock in January 2004 (see Note 15), the amount of warrants
issued was adjusted, pursuant to the anti-dilution provisions of the warrants,
to purchase an aggregate of 807,090 shares. The Company recorded the warrants
at an aggregate fair value of $0.2 million at November 30, 2003 and is using
the effective interest rate method to accrete the debt value to face value at
maturity through interest expense. For the three and six months ended June 30,
2004, total accretion was $4,000 and $12,000, respectively. These warrants
are held in an escrow account until December 12, 2005 and are exercisable at an
initial exercise price of $0.001 per share from December 13, 2005 through July
31, 2008. The warrants will be terminated if, on or before December 12, 2005,
DDi Capital pays all of its indebtedness to the holders of the senior accreting
notes. DDi Europe Facilities Agreement DDi Europe has a separate debt facility made up of £14.3 million ($25.8
million) in term loans and a working capital facility having a maximum
borrowing limit of £10.0 million ($18.1 million) for its European operations as
of June 30, 2004. Any amounts drawn 10




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##### Table of Contents



DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) under the working capital facility are payable upon demand by the lender. The
term loan has a maturity date of December 30, 2007. Based upon current and
expected market conditions for the DDi Europe operations, the European lender
had stated its desire that DDi Europe not draw down more than £7.4 million
($13.4 million) of the working capital facility. In January 2004, the Company
completed a private placement of its common stock (see Note 15), of which $4.0
million (approximately £2.4 million) was used to reduce the drawn balance of
this working capital facility. As of June 30, 2004, an aggregate of £6.8
million ($12.3 million) was outstanding under this working capital facility.
The Company continues to work with the Bank of Scotland to address the near and
long-term liquidity needs of its European business. Note Payable DDi Corp. issued a note payable of $0.5 million to its independent financial
advisor in consideration of their fees related to the consummation of the plan
of reorganization. The note was repaid in January 2004 in connection with
proceeds received from a private placement of common stock (see Note 15). NOTE 4. EARNINGS PER SHARE Basic and diluted earnings per shareStatement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share, requires DDi Corp. to report
both basic net income (loss) per share, which is based on the weighted average
number of common shares outstanding and diluted net income (loss) per share,
which is based on the weighted average number of common shares outstanding and
dilutive potential common shares outstanding. For the three and six months ended June 30, 2004, potentially dilutive shares
from the exercise of stock options, warrants and Series B-1 and B-2 Convertible
Preferred Stock were not included in diluted earnings per share because to do
so would be anti-dilutive. For the three and six months ended June 30, 2003,
potentially dilutive shares from the exercise of stock options, warrants and
the conversion of the convertible subordinated debt were not included in
diluted earnings per share because to do so would be anti-dilutive. The number
of potentially dilutive shares of common stock for the three months ended June
30, 2004 and 2003 were 3,103,523 (Reorganized DDi Corp.) and 12,626,486
(Predecessor DDi Corp.), respectively, and for the six months ended June 30,
2004 and 2003, were 5,133,080 (Reorganized DDi Corp.) and 12,628,162
(Predecessor DDi Corp.), respectively. NOTE 5. SERIES A MANDATORILY REDEEMABLE PREFERRED STOCK In connection with the plan of reorganization, the Companys certificate of
incorporation and bylaws were amended and restated. The Company has authorized
5,000,000 shares of Preferred Stock at $0.001 par value per share. On December
12, 2003, the Company filed a Certificate of Designation designating 1,000,000
shares of Preferred Stock as Series A Preferred Stock (the Series A
Preferred) and issued such shares to the Companys former Convertible
Subordinated Noteholders. The Series A Preferred has an annual dividend of 15%
and an aggregate liquidation preference of $15 million with a mandatory cash
redemption date of January 31, 2009. The Series A Preferred will only be paid
to the extent there is value, as defined in the Certificate of Determination ,
in DDi Europe beyond what is owed on the DDi Europe Facility Agreement. As of
November 30, 2003, the Company recorded a liability in accordance with SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity, related to the Series A Preferred at its estimated
fair value of $2 million. This estimated fair value was based on the valuation
of an independent third party. The Company is accreting the Series A Preferred
to the amount expected to be paid at maturity using the effective interest
method. Total accretion for the six months ended June 30, 2004 was $0.4
million, with such amount being reflected as interest expense. Total accrued
dividends (also recorded as interest expense) were $0.6 million and $1.1
million for the three and six months ended June 30, 2004; respectively, and are
included in Notes payable and other in the accompanying balance sheet. The
Series A Preferred must be redeemed by the Company on the later of January 31,
2009 or the date on which all obligations unde rthe DDi Europe facility
Agreement have been paid in full. The Series A Preferred is subject to
redemption at the option of the holders upon certain changes in control. The
holders of the Series A Preferred will vote as a class and have the right to
direct Reorganized DDi to elect four directors to the board of directors of DDi
Europe. The holders of the Series A Preferred are also entitled to 1/100 of
one vote for each share of Series A Preferred held. 11




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##### Table of Contents



DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) NOTE 6. SERIES B MANDATORILY REDEEMABLE PREFERRED STOCK On March 30, 2004, the Company completed a private placement of 147,679 shares
of Series B-1 Preferred Stock and 1,139,238 shares of Series B-2 Convertible
Preferred Stock (collectively, the Series B Preferred) to certain
institutional investors at a price of $47.40 per share for an aggregate sales
price of $61.0 million before placement fees and offering expenses. Each share
of the Series B Preferred is initially convertible into four shares of common
stock at any time at a conversion price of $11.85 per share, subject to certain
anti-dilution adjustments. In general, the Series B Preferred vote together
with the common shares based on the number of shares into which the Series B
Preferred could convert on the day that the Series B Preferred was issued. In
addition, the Series B Preferred is entitled to elect a member of the Companys
Board of Directors in the event the Company fails to redeem the Series B
Preferred when required. The Series B Preferred bears dividends at the rate of
6% per annum, payable quarterly commencing March 31, 2005 and is subject to
mandatory redemption in five years. In addition, the holders of the Series B
Preferred have the option to require the Company to redeem the shares in three
equal installments in 18 months, 24 months and 30 months from issuance or
earlier upon a change of control, certain events of default or other specified
occurrences. The Company also has the right to redeem the Series B Preferred if
Reorganized DDi Corp.s common stock trades above $20.75 for 30 consecutive
trading days. The redemption price equals cost plus accrued dividends, except
in the case of certain defaults where there are premiums to the redemption
cost. On May 26, 2004, the Companys shareholders approved a proposal to allow
the Company to have the option to make dividend and redemption payments using
Reorganized DDi Corp.s common stock. The Company recorded the redemption value
of the Series B Preferred, $61.0 million net of issuance costs of $3.3 million,
in the mezzanine section of the balance sheet as of March 31, 2004 in
accordance with SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. The Company will amortize the
$3.3 million of related debt issuance costs using the effective interest method
based on the Series B Preferred holders redemption option to require the
Company to redeem the shares in three equal installments in 18 months, 24
months and 30 months from issuance. For the three months ended June 30, 2004,
$0.4 million of debt issuance costs have been amortized. On March 30, 2004, the Company repaid in full the outstanding balance of the
Dynamic Details Senior Credit Facility and related accrued interest and fees
using proceeds of $54.8 million from the private placement of the Series B
Preferred (see Note 3). NOTE 7. STOCK OPTIONS In connection with the Companys emergence from Chapter 11 bankruptcy, on
December 19, 2003, Reorganized DDi Corp. adopted the DDi Corp. 2003 Directors
Equity Incentive plan (the 2003 Directors Plan) for non-employee directors of
the Company. DDi has reserved an aggregate of 600,000 shares of common stock
of Reorganized DDi Corp. for issuance under the 2003 Directors Plan. The
directors of the Company approved the grant of options to purchase 500,000
shares of common stock of the Company to the Companys five non-employee
directors (each receiving a grant of 100,000 options) at $5 per share on
December 19, 2003 subject to the approval of the Directors Plan by the
shareholders of the Company. On May 26, 2004, the shareholders approved the
Directors Plan and, accordingly, the grant of these shares. The vesting on
these shares is 40% immediately upon approval of grant by shareholders and 20%
each year thereafter on December 19th of each year from 2004 through 2006. The
Company is recording compensation expense related to these options. The Company uses the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, to account
for employee stock options and other stock-based compensation. Under this
method, compensation expense is recognized when the exercise price of the
Companys employee stock options is less than the market price of the
underlying stock on the date of the grant. During the three and six months
ended June 30, 2004, the Company recorded compensation expense related to stock
options granted of $ 4.3 million and $12.8 million, respectively. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosurean Amendment to SFAS No. 123. SFAS No.
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.
The Company has adopted the disclosure only provisions of SFAS No. 123 and,
accordingly, the implementation of SFAS No. 148 has not had a material effect
on the Companys consolidated financial position or results of operations. The Company determined its pro forma results below using the alternate fair
value method as prescribed by SFAS No. 123. Under the fair value based method
of accounting for stock-based employee compensation, the fair value of each
option grant is estimated at the date of grant using the Black-Scholes option
pricing model and recognized over the vesting period, generally four years.
Pricing model assumptions included an expected term of four years, a risk-free
interest rate, dividend yield, and volatility assumptions consistent with the
expected term and particular grant date. Had compensation cost for all
stock-based compensation plans been 12




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##### Table of Contents



DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) determined consistent with SFAS No. 123, DDi Corp.s net loss and net loss per
share would have been as follows (amounts in millions, except per share data): Reorganized
    
    Predecessor
    
    Reorganized
    
    PredecessorDDi Corp.
    
    DDi Corp.
    
    DDi Corp.
    
    DDi Corp.Three months
    
    Three months
    
    Six months
    
    Six monthsended
    
    ended
    
    ended
    
    endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net loss:As Reported  basic and diluted
    
    $
    (5.2
    )
    
    $
    (26.1
    )
    
    $
    (22.7
    )
    
    $
    (40.0
    )Less: non-cash compensation expenses under FAS 123
    
    
    (5.8
    )
    
    
    (4.1
    )
    
    
    (16.5
    )
    
    
    (4.1
    )Add: non-cash compensation expenses under APB 25, net of tax
    
    
    4.3
    
    
    
    
    
    
    
    12.8
    
    
    
    Pro Forma
    
    
    (6.7
    )
    
    $
    (30.2
    )
    
    
    (26.4
    )
    
    $
    (44.1
    )Net loss per share  basic and diluted:As Reported
    
    $
    (0.21
    )
    
    $
    (0.53
    )
    
    $
    (0.90
    )
    
    $
    (0.81
    )Pro Forma
    
    $
    (0.26
    )
    
    $
    (0.61
    )
    
    $
    (1.05
    )
    
    $
    (0.90
    )
 NOTE 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Companys certificate of incorporation provides that it will indemnify its
directors and officers to the fullest extent permitted by Delaware General
Corporation Law. The Company has obtained liability insurance for its directors
and officers with respect to liability arising out of their capacity or status
as directors and officers against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding. Currently, several
of the Companys current and former officers and directors are named defendants
in a securities class action lawsuit. At this time, management believes that
the Company will not incur significant costs associated with these matters. NOTE 9. ACQUISITION OF KAMTRONICS LIMITED On October 24, 2002, DDi Europe completed the acquisition of Kamtronics Limited
(Kamtronics), a market leader in sourcing printed circuit boards for European
customers, based in Calne, England, for approximately $4.2 million plus
contingent consideration based on earnings in each of the two years following
the date of acquisition. The total purchase price has been allocated to
underlying assets acquired and liabilities assumed based upon their respective
fair market value at the date of acquisition. In the first quarter of 2004, DDi
Europe amended the original sales agreement and replaced it with a settlement
in an amount of £1.5 million ($2.7 million) plus related interest to be paid by
June 30, 2006 in place of the contingent consideration. As of March 31, 2004,
additional consideration of $1.4 million was accrued and capitalized as
additional purchase price to goodwill. In the three and six months ended June
30, 2004 approximately $0.3 million and $0.5 million, respectively, of
additional consideration was paid. NOTE 10. SEGMENT REPORTING SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
components of an enterprise that engage in business activities from which it
may earn revenues and incur expenses whose separate financial information is
available and is evaluated regularly by the Companys chief operating decision
makers, or decision making group, to perform resource allocations and
performance assessments. The Companys chief operating decision maker is the Chief Executive Officer.
Based on the evaluation of the Companys financial information, management
believes that the Company operates in one reportable segment which designs,
develops, manufactures, assembles and tests complex printed circuit boards,
back panels and related electronic products. The Company operates in two 13




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##### Table of Contents



DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) geographical areas, domestic (U.S.A.) and international. Revenues are
attributed to the country to which the product is sold. Revenues by product and
service are not reported as it is impracticable to do so. The following table summarizes net sales by geographic area (in thousands): Reorganized
    
    Predecessor
    
    Reorganized
    
    PredecessorDDi Corp.
    
    DDi Corp.
    
    DDi Corp.
    
    DDi Corp.Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net sales:Domestic
    
    $
    45,666
    
    
    $
    33,349
    
    
    $
    90,286
    
    
    $
    71,090Europe (a)
    
    
    25,913
    
    
    
    20,760
    
    
    
    50,777
    
    
    
    41,453Other
    
    
    3,967
    
    
    
    2,114
    
    
    
    6,833
    
    
    
    5,341Total
    
    $
    75,546
    
    
    $
    56,223
    
    
    $
    147,896
    
    
    $
    117,884
  (a)
    
    Sales to the United Kingdom represent the majority of the sales to
Europe. The following table summarizes long-lived assets by geographic area (in
thousands): Reorganized DDi Corp.June 30,
    
    December 31,2004
    
    2003Long-lived assets:Domestic
    
    $
    159,743
    
    
    $
    167,419International
    
    
    38,544
    
    
    
    37,143Total
    
    $
    198,287
    
    
    $
    204,562
 NOTE 11. GOODWILL AND INTANGIBLES The Company operates in one reportable segment (see Note 10). The Company
separately monitors the financial performance of its North American and
European operations. Further, each of these operations generally serves a
distinct customer base. Based upon these facts, the Company considers the North
American and European operations its reporting units for the assignment of
goodwill. The Companys European operations consist of entities acquired in
conjunction with the MCM purchase transaction in 2000, the Thomas Walter
purchase transaction in 2001 and the Kamtronics purchase transaction in 2002. As part of fresh start accounting, an allocation of the reorganization value
resulted in goodwill of $105.4 million and identified intangible assets
totaling $24.9 million. This balance of identified intangible assets consists
of $23.0 million relating to the customer relationships in North America and
the remaining $1.9 million relates to the backlog in North America.
Amortization related to customer relationships in North America for the three
months and six months ended June 30, 2004, was $1.1 million and $2.3 million,
respectively. Amortization related to backlog in North America for the three
and six months ended June 30, 2004, was $0 million and $0.8 million,
respectively, and is reported as a component of cost of goods sold. In March 2004, the Company amended the contingent consideration relating to the
acquisition of Kamtronics (see Note 9) and replaced it with a settlement of
£1.5 million ($2.7 million) plus related interest to be paid by June 30, 2006.
As of March 31, 2004, additional consideration of $1.4 million was accrued and
capitalized as additional purchase price to goodwill. 14




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##### Table of Contents



DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) The changes in the carrying amount of goodwill for the six months ended June
30, 2004, are as follows: ReorganizedDDi CorpSix months endedJune 30,2004Beginning balance
    
    $
    105,452Goodwill increases, primarily due to
Kamtronics
    
    
    1,688Ending balance
    
    $
    107,140
 NOTE 12. RESTRUCTURING AND OTHER RELATED CHARGES In the first quarter of 2003, Predecessor DDi Corp. recorded charges totaling
$0.5 million, which were classified as Restructuring and other related
charges. Such charges primarily represent revision of estimates from
previously recorded restructuring charges and consist of $0.2 million in
accrued restructuring expenses and $0.3 million in severance and other exit
costs. The accrued restructuring expenses of $0.2 million were related to
other exit costs. In the second quarter of 2003, Predecessor DDi Corp. recorded charges totaling
$5.0 million relating to the sale of the Companys Dallas-based electronics
enclosure operations and managements plan to down-size its Anaheim, California
and Virginia facilities. Such charges consisted of $1.7 million relating to
impairment of inventory which were reflected as a component of cost of goods
sold, $1.0 million relating to impairment of net property, plant and equipment
primarily related to the Dallas-based electronics enclosure operations the
Company sold, $0.3 million in estimated facilities closure costs, $0.1 million
in other exit costs, $0.6 million in severance charges and $1.3 million in
accrued restructuring expenses. In the first quarter of 2004, the Company closed its operations in Tolworth,
England. In connection therewith, DDi Corp. recorded charges totaling $4.4
million which were classified as Restructuring and other related charges and
Restructuring-related inventory impairment. The charges represented an
inventory impairment of $0.5 million recorded as cost of goods sold, $2.1
million relating to impairment of net property, plant and equipment primarily
related to Tolworths operations, $0.4 million credit relating to the reduction
of capital lease obligations, $0.6 million in severance and other exit costs,
$0.2 million in estimated facilities closure costs, and $1.4 million in accrued
expenses for the quarter. The accrued restructuring expenses of $1.4 million
consist of $0.2 million related to severance and other exit costs as well as
$1.2 million related to costs associated with readying facilities for
disposition, primarily an estimate of the cost to exit a facility lease. Restructuring and other related charges recorded in the second quarter of
2004 totaled $0.9 million. Such charges consist of $0.6 million relating to
impairment of net property, plant and equipment primarily related to the
closure of the Tolworth operations in Europe, $0.1 million in severance costs,
$0.1 million in estimated facilities closure costs and $0.1 million in other
exit costs. Total accrued restructuring expenses at June 30, 2004 were $2.1 million. These
accrued restructuring expenses represent $0.1 million in severance and related
expenses, $1.9 million in estimated facilities closure costs, and $0.1 million
in other exit costs. The Company expects to pay these accrued amounts through
2005. NOTE 13. REORGANIZATION EXPENSES During the fourth quarter of 2002, Predecessor DDi Corp. initiated plans to
restructure debt and retain employees. These efforts resulted in reorganization
charges of $3.3 million for the quarter ended March 31, 2003. Of these
amounts, $2.0 million is related to professional fees and $1.3 million is
related to personnel retention costs under the Dynamic Details Key Employee
Retention Program (KERP). In the second quarter of 2003, the Company recorded reorganization charges of
$2.7 million. Of these amounts, $1.9 million was related to professional fees
and $0.8 million is related to personnel retention costs under the KERP. Reorganization charges in the first quarter of 2004 were $0.9 million relating
to professional fees and other costs associated with the reorganization of
Reorganized DDi Corp.s debt structure. 15




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##### Table of Contents



DDi CORP.
Notes to the Condensed Consolidated Financial Statements
June 30, 2004
(Unaudited) In the second quarter of 2004, the Company recorded reorganization charges of
$0.2 million. These amounts were primarily related professional fees and costs
associated with the KERP. Total accrued reorganization expenses at June 30, 2004 were $0.2 million.
These accrued reorganization expenses primarily represent the personnel
retention costs under the KERP. The Company expects to pay these amounts in
the third quarter of 2004. NOTE 14. COMPREHENSIVE LOSS SFAS No. 130, Reporting Comprehensive Income, establishes requirements for
reporting and disclosure of comprehensive income (loss) and its components.
Comprehensive loss includes unrealized holding gains and losses and other items
that have previously been excluded from net loss and reflected instead in
stockholders equity. Comprehensive loss consists of net loss plus the effect
of foreign currency translation adjustments, unrealized holding gains on
marketable securities classified as available-for-sale and unrealized net gains
on interest rate swaps and related unrealized net tax impact. NOTE 15. PRIVATE PLACEMENT On January 21, 2004, the Company completed a private placement of 1,000,000
shares of common stock to institutional investors for gross proceeds of
$15,980,000, before placement fees and offering expenses of $1.5 million. The
shares of common stock were priced at $15.98 per share, which represented a 6%
discount against the trading price of DDi Corp.s common stock as of January 9,
2004. The Company was required to use a portion of the proceeds, $4.5 million,
to pay down the then outstanding Dynamic Details Senior Credit Facility. In
addition, the Company used certain of the proceeds to pay in full the note
payable to the Companys independent financial adviser plus accrued interest,
$0.5 million, and to pay down $4.0 million of the DDi Europe working capital
facility. Each of these payments was made in January 2004. In connection with
the completion of this private placement, the amount of warrants issued to the
holders of the Senior Accreting Notes was adjusted, pursuant to the
anti-dilution provisions of the warrants. (see Note 3). NOTE 16. TEXAS LAND SALE During March 2004, the Company sold land and building related to its Garland,
Texas location for $2.0 million cash. Of that amount, $0.5 million is required
to be deposited into an escrow account for 5 years for environmental
remediation. The Company incurred closing costs of $0.1 million resulting in
net proceeds of $1.4 million. The Company was required to use $0.9 million of
the net proceeds to pay down the Dynamic Details Senior Credit Facility. 16




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. Overview DDi Corp. provides technologically advanced, time-critical electronics design,
development and manufacturing services to original equipment manufacturers and
other electronics manufacturing service providers. Operating through our
primary operating subsidiaries, Dynamic Details, Incorporated (Dynamic
Details) and DDi Europe Limited (DDi Europe), we target customers that have
new product development programs demanding the rapid application of advanced
technology and design. As used herein, the Company, we, us, or our means DDi Corp. and its
wholly owned subsidiaries, including DDi Capital Corp. (DDi Capital), Dynamic
Details and DDi Europe. 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,
2003. Fresh-Start Accounting In connection with the Companys emergence from bankruptcy, we have adopted
fresh-start accounting principles prescribed by the American Institute of
Certified Public Accountants Statement of Position 90-7 (SOP 90-7),
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code
effective November 30, 2003. Under fresh-start accounting, a new reporting
entity, known as the Reorganized Company, is deemed to be created, and the
recorded amounts of assets and liabilities are adjusted to reflect their fair
value. Accordingly, the consolidated financial statements for the Reorganized
Company for the period subsequent to November 30, 2003 will reflect the
Companys emergence from Chapter 11 and have been prepared utilizing the
principles of fresh start reporting contained in SOP 90-7. As a result, the
reported historical financial statements of the Company for periods prior to
December 1, 2003, are not comparable to those of the Reorganized Company. Recent Accounting Pronouncements In December 2003, the Financial Accounting Standards Board (FASB)
replaced FIN 46 with FIN 46R to clarify the application of Accounting Research
Bulletin Number 51, Consolidated Financial Statements, to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support. FIN
46R was effective for all public entities that have interest in variable
interest entities or potential variable interest entities commonly referred to
as special-purpose entities for periods ending after December 15, 2003.
Application by public entities for all other types of entities is required in
financial statements for periods ending after March 15, 2004. Adoption of this
statement had no effect on the Companys financial position or
results of operations. In April 2004, the Emerging Issues Task Force (EITF) issued EITF 03-6,
Participating Securities and the Two-Class Method Under FASB Statement No. 128,
Earnings Per Share.EITF 03-6 addresses a number of questions regarding the
computation of earnings per share by companies that have issued securities other
than common stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares dividends on its
common stock. The issue also provides further guidance in applying the
two-class method of calculating earning per share, clarifying what constitutes
a participating security and how to apply the two-class method of computing
earnings per share once it is determined that a security is participating,
including how to allocate undistributed earnings to such a security. EITF 03-6
is effective for fiscal periods beginning after March 31, 2004, which is the
Companys second quarter, and is required to be retroactively applied. There
was no impact from the adoption of EITF 03-6 on the Companys earnings per
share for the periods presented as the Company has incurred net operating
losses during the three and six months ended June 30, 2004 and June 30, 2003,
respectively, therefore the effect would be anti-dilutive. Results of Operations Three Months Ended June 30, 2004 Compared to the Three Months Ended June 30,
2003 Net Sales Net sales increased $19.3 million (34%) to $75.5 million for the three
months ended June 30, 2004, from $56.2 million for the same period in 2003.
The increase in net sales was due to strengthening in demand experienced in our
North American operations and European operations, a focus on higher technology
products and increases in pricing. Higher pricing is the result of shorter
delivery requirements, higher layer counts and other high-technology features. 17




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Overall, revenue mix remained consistent with proportional growth in both PCB
operations and assembly services. Geographically, the mix was also fairly
constant with Europe contributing approximately one-third of net sales for the
second consecutive quarter. In terms of the percentage of
our net sales attributable to each of the principal end markets that
we served, communication and networking was 45% of net sales in the second quarter of 2004
compared with 37% in the second quarter of 2003. The increase in net sales in
the communication and networking markets was due primarily to increased
activity in wireless applications, both infrastructure and handsets. Medical,
test and industrial was 22% of net sales in the second quarter of 2004,
compared with 24% for the same period of 2003. High end computing was 16% of
net sales, compared with 17% for the first quarter of 2003. Military and
aerospace was 1% of net sales for the first quarter of 2004, as compared to 15%
for the same period last year. Gross Profit Gross profit for the three months ended June 30, 2004 was $12.8 million (17% of
net sales) as compared to $2.0 million (4% of net sales) for the second quarter
2003. Gross profit for the second quarter of 2004 increased due to increases
in net sales resulting principally from increased demand, our shift of focus to higher
technology products and our ability to better leverage our operating resources.
Gross profit included non-cash stock based compensation charges and
amortization of intangibles totaling $2.6 million and restructuring related
imventory impairment of $1.7 million for the three months ended June 30, 2004
and 2003, respectively. Sales and Marketing Expenses Sales and marketing expenses increased $0.4 million (8%) to $5.2 million for
the three months ended June 30, 2004, from $4.8 million for the same period in
2003. The increase resulted from the $0.4 million non-cash compensation sales
and marketing charges and the increase in net sales recorded in the three
months ended June 30, 2004 offset by decreases in sales and marketing expenses
in our European operations resulting from cost control efforts. General and Administration Expenses General and administration expenses increased $1.8 million (42%) to $6.1
million for the three months ended June 30, 2004, from $4.3 million for the
same period in 2003. The increase was due to the $1.2 million non-cash
compensation general and administration charges recorded during the three
months ended June 30, 2004 and the $0.6 million increase in professional fees
and costs attributable to the Sarbanes-Oaxley Section 404 certification
project. Restructuring and Other Related Charges Restructuring and related charges were $0.9 million for the three months ended
June 30, 2004, compared to $5.0 million for the same period in 2003. Such
charges in the current quarter primarily relate to the Companys European
operations. During the second quarter of 2004, the Company closed its Tolworth
facility incurring the following charges: (a) $0.6 million relating to
impairment of net property, plant and equipment; (b) $0.1 million in severance
and other exit costs; and (c) $0.2 million related to readying facilities for
closure. In the second quarter of 2003, Predecessor DDi Corp. recorded charges
totaling $5.0 million. Such charges related to the sale of the Companys
Dallas-based electronics enclosure operations and the down-sizing of its
Virginia and Anaheim, California workforces and consisted of (a) $1.7 million
relating to impairment of inventory which were reflected as a component of cost
of goods sold; (b) $1.0 million relating to impairment of net property, plant
and equipment; (c) $0.3 million in estimated facilities closure costs; (d) $0.1
million in other exit costs; (e) $0.6 million in severance charges; and (f)
$1.3 million in accrued restructuring expenses Reorganization Expenses Reorganization charges for the second quarter of 2004 were $0.2 million
relating to professional fees and other costs associated with the
reorganization of our debt structure and costs relating to our Key Employee
Retention Program. Reorganization charges for the second quarter of 2003 were
$2.7 million. Such charges represent $1.9 million of costs relating to
professional fees incurred in connection with our efforts to effect a plan of
reorganization to deleverage our capital structure and $0.8 million of costs
relating to our Key Employee Retention Program. Net Interest Expense Net interest expense for the second quarter 2004 decreased to $2.4 million,
from $11.6 million for the corresponding period in 2003. The decrease in net
interest expense is due principally to the termination of the Companys 5.25%
and 6.25% Convertible Subordinated Notes in December 2003, the repayment of the
Dynamic Details Senior Credit Facility in March 2004 and the termination of the
swap agreement related to the Dynamic Details Senior Credit Facility in June
2003. 18




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Income Taxes Net tax expense for the second quarter 2004 was $0.7 million as compared to
income tax benefit of $0.6 million for the same period in 2003. Income tax
expense in the second quarter of 2004 was net of changes in valuation
allowances applied to both U.S. and European deferred tax assets that would
otherwise have been recorded for the quarter. Such allowances were based upon
managements expectation that the deferred tax assets would not likely be
realized. Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003 Net Sales Net sales increased $30.0 million (25%) to $147.9 million for the six months
ended June 30, 2004, from $117.9 million for the same period in 2003. The
increase in net sales was due to strengthening in demand experienced in our
North American operations and European operations, a focus on higher technology
products and increases in pricing. Higher pricing is the result of shorter
delivery requirements, higher layer counts and other high-technology features. Gross Profit Gross profit for the six months ended June 30, 2004 was $19.5 million (13% of
net sales) as compared to $6.4 million (5% of net sales) for the same period in
2003. Gross profit for the six months ended June 30, 2004 increased due to the
increases in pricing resulting principally from increased demand, our shift of
focus to higher technology products and our ability to better leverage our
operating resources. Gross profit included non-cash stock based compensation
charges and amortization of intangibles totaling $9.6 million and restructuring
related inventory impairment $1.7 million for the six months ended June 30,
2004 and 2003, respectively. Sales and Marketing Expenses Sales and marketing expenses increased $1.7 million (18%) to $11.1 million for
the six months ended June 30, 2004, from $9.4 million for the same period in
2003. The increase resulted from the $1.9 million non-cash sales and marketing
charges recorded in the first quarter of 2004, partially offset by improved
operational efficiencies. General and Administration Expenses General and administration expenses increased $3.6 million (43%) to $12.0
million for the six months ended June 30, 2004, from $8.4 million for the same
period in 2003. The increase was due to the $2.7 million non-cash compensation
charges recorded during the six months ended June 30, 2004 and the $0.6 million
increase in professional fees and costs attributable to the Sarbanes-Oxley
Section 404 certification project. Restructuring and Other Related Charges Restructuring and related charges were $4.9 million for the six months ended
June 30, 2004, compared to $3.8 million for the same period in 2003.
Restructuring charges for the six months ended June 30, 2004 relate primarily
to the closure of the Tolworth operations in Europe and consisted of (a) $2.7
million of impairment of net property, plant and equipment; (b) $0.7 million of
severance costs; (c) $0.4 million of facilities closure costs; (d) $0.5 million
of impaired inventory charges; and (e) $1.4 million in accrued charges, all
offset by a $0.4 million credit resulting from a reduction in capital lease
obligations in the first quarter of 2004. Restructuring charges for the six
months ended June 30, 2003 represent the costs associated with the sale of
certain assets of the Companys Dallas-based electronic enclosure operations
and the down-sizing of its Virginia and Anaheim, California workforces. Reorganization Expenses Reorganization charges for the six months ended June 30, 2004 were $1.2
million. Such charges represent $1.1 million of costs relating to professional
fees incurred in connection with our efforts to effect a plan of reorganization
to deleverage our capital structure and $0.1 million of costs relating to our
Key Employee Retention Plan. Reorganization charges for the six months ended
June 30, 2003 were $6.0 million. These charges represented $3.9 million of
costs relating to professional fees incurred in connection with efforts to
effect a plan of reorganization to deleverage the Companys capital structure
and $2.1 million of costs relating to our Key Employee Retention Program. Net Interest Expense Net interest expense for the six months ended June 30, 2004 decreased to $8.4
million, from $17.9 million for the corresponding period in 2003. The decrease
in net interest expense is due principally to the termination of the Companys
5.25% and 6.25% Convertible Subordinated Notes in December 2003, the repayment
of the Dynamic Details Senior Credit Facility and the termination of the swap
interest agreement related to the Dynamic Details Senior Credit Facility in
June 2003. 19




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Income Taxes Net tax expense for the six months ended June 30, 2004 was $1.0 million as
compared to income tax benefit of $1.1 million for the same period in 2003.
Income tax expense in the six months ended June 30, 2004 was net of changes in
valuation allowances applied to both U.S. and European deferred tax assets that
would otherwise have been recorded for the quarter. Such allowances were based
upon managements expectation that the deferred tax assets would not likely be
realized. Liquidity and Capital Resources General Our principal sources of liquidity to fund ongoing operations have been
existing cash and cash equivalents. We believe that our cash on hand, cash
generated by operations, cash proceeds from our private placements in January
and March 2004 and the new Dynamic Details asset based revolving credit
facility (expanded in second quarter of 2004 to include Canadian operations)
will be sufficient to meet our anticipated needs to maintain operations,
working capital, capital expenditures and debt service requirements and other
commitments as they mature for at least the next twelve months for our North
American operations. With the increase in net sales attributable to DDi Europe during the three
months ended June 30, 2004, the business of DDi Europe has experienced an
increased demand for working capital. As of July 31, 2004, DDi Europe had
substantially drawn on the total amount of funds practically available under
the DDi Europe Revolving Credit Facility which is described below under the
caption Current Indebtedness of the Company  DDi Europe Facilities
Agreement. Due to restrictions set forth in the Dynamic Details Revolving
Credit Facility and the Indenture with the Senior Accreting Noteholders, we may
not be able to make additional cash contributions to help the working capital
needs of DDi Europe. For the six months period ended June 30, 2004, we
contributed $4.3 million in working capital funds to DDi Europe. To the extent
that DDi Europe is unable to generate cash sufficient to fund its operations
and we are unable to make additional cash contributions, DDi Europe must seek
alternative funding sources or take steps to restructure its operations. See
also Factors That May Affect Future Results for further discussion of the
risks associated with this matter. Consolidated Cash Flows Net cash used in operating activities for the six months ended June 30, 2004
was $3.6 million, compared to $11.1 million for the six months ended June 30,
2003. The decrease in net cash used in operating activities is due to growth in
sales and gross profit. Net cash provided by investing activities for six months ended June 30, 2004
was $3.6 million compared to $3.3 million cash used for the six months ended
June 30, 2003. The increase in cash provided by investing activities is due to
the lifting of the restriction of cash and cash equivalents resulting from the
repayment of the Senior Credit Facility and an increase in proceeds from sales
of fixed assets due to the sale of land and building in Garland, Texas during
the quarter ended March 31, 2004. Net cash provided by financing activities for the six months ended June 30,
2004 was $10.9 million compared to $0.2 million for the six months ended June
30, 2003. The increase in cash provided by financing activities is due
primarily to the proceeds received from borrowings on the new asset-based
revolving credit facility. 20




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##### Table of Contents



Capital Expenditures Capital expenditures for the six months ended June 30, 2004 were $4.6 million
compared to $3.3 million for the six months ended June 30, 2003. Capital
expenditures increased because the Company required more investment in
property, plant and equipment in 2004 primarily associated with
technology-related improvements. Capital Raising Transactions in the six months ended June 30, 2004 On January 21, 2004, we issued 1,000,000 shares of our common stock to two
institutional investors in a private placement for a total gross proceeds of
$15,980,000. Immediately after the closing of that transaction, we used $0.9
million of the proceeds to pay down the Dynamic Details Senior Credit Facility,
$4.0 million of the proceeds to pay down the DDi Europe revolving credit
facility and $0.8 million of the proceeds to pay our placement agent and
advisor. The remaining proceeds have been, and will continue to be, used for
general corporate purposes. On March 30, 2004, we issued 147,679 shares of Series B-1 Preferred Stock and
1,139,238 shares of Series B-2 Preferred Stock to certain institutional
investors in a private placement at a price of $47.40 per share for an
aggregate sales price of $61 million before placement fees and offering
expenses (collectively, the Series B Preferred). Each share of the Series B
Preferred is initially convertible into four shares of our common stock at any
time at a conversion price of $11.85 per share, subject to certain
anti-dilution and other customary adjustments. Immediately after the closing
of this transaction, on March 30, 2004, we repaid in full the outstanding
balance of the Dynamic Details Senior Credit Facility and related accrued
interest and fees thereon using proceeds of $54.8 million from the private
placement of the Series B Preferred and $14.0 million cash on hand, including
$7.5 million in restricted cash which was in an account deposited with the
lender of such senior credit facility. The Series B Preferred bear dividends at the rate of 6% per annum, payable
quarterly commencing March 31, 2005 and is subject to mandatory redemption in
five years. All accrued dividends on the Series B-1 and Series B-2 Preferred
Stock must be paid before any dividends are declared or paid on shares of
common stock. In addition, the holders of the Series B Preferred have the
option to require us to redeem the shares in three equal installments in 18
months, 24 months and 30 months from issuance or earlier upon a change of
control, certain events of default or other specified occurrences. We also
have the right to redeem the Series B Preferred if our common stock trades
above $20.75 for 30 consecutive trading days. The redemption price is at cost
plus accrued dividends, except in the case of certain defaults where there are
premiums to the redemption cost. On May 26, 2004, the Companys shareholders
approved the motion to allow us to have the option to make dividend and
redemption payments using our common stock. Current Indebtedness of the Company $40 million Revolving Credit Facility On March 30, 2004, Dynamic Details and our North American subsidiaries entered
into a three-year, $40,000,000 asset-based revolving credit facility with
General Electric Capital Corporation, as agent and lender. During the second
quarter of 2004, the asset base on the revolving credit facility was expanded
to include the Companys Canadian operations. The interest rate at closing is
LIBOR plus 4% on LIBOR loans and prime plus 3% for index rate loans. On a
go-forward basis, pricing will be determined by Dynamic Details adjusted
EBITDA numbers, and will range from LIBOR plus 3 to 4% on LIBOR loans or prime
plus 2 to 3% for index rate loans. The effective interest rate at June 30,
2004 was 7.25%. Availability under the credit facility is based on Dynamic
Details reaching various liquidity and borrowing base tests. Dynamic Details
was required to have initial liquidity (after giving effect to the initial
revolving credit advances) of at least $15.0 million. The credit facility
contains customary representations and warranties, covenants and events of
default for a facility of this size including covenants which have a limit on
the level of capital expenditures and a minimum fixed charge ratio which went
into effect in the current quarter. Dynamic Details ability to pay dividends
to us is limited under the asset-based revolving credit facility. The credit
facility is guaranteed by DDi Corp. and its subsidiaries, DDi Intermediate
Holdings Corp., or DDi Intermediate, and DDi Capital Corp. The asset-based
credit facility is secured by the assets of our domestic operating subsidiary,
Dynamic Details. In addition, the common stock of DDi Intermediate, DDi
Capital and Dynamic Details is pledged as collateral to secure the credit
facility. At June 30, 2004, Dynamic Details was able to borrow up to $20.3
million on this facility, of which $13.5 million was drawn. On July 2, 2004, we
repaid the amount drawn and, accordingly as of that date, had the full $20.3
million available. DDi Europe Facilities Agreement DDi Europe has a separate European debt facility made up of £14.3 million
($25.8 million) in term loans and a working capital facility having a maximum
borrowing limit of £10.0 million ($18.1 million) for its European operations.
Any amounts drawn under the working capital facility are repayable upon demand
by the lender. Based upon current and expected market conditions for
the DDi Europe operations, the European lender had stated its desire that DDi Europe
not draw down more than £7.4 million ($13.4 million) of the working capital
facility. As of June 30, 2004, an aggregate of £6.8 million ($12.3 million) was
outstanding under the DDi Europe working capital facility. As of July 31,
2004, DDi Europe had substantially drawn the full £7.4 million practically
available under that facility. 21




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##### Table of Contents



DDi Capital Accreting Notes The DDi Capital 16% senior accreting notes due 2009 were issued in an original
principal amount of $17.7 million and will mature on January 1, 2009. The
senior accreting notes were issued under an indenture dated as of December 12,
2003 between DDi Capital Corp., as issuer, and Wilmington Trust Co., as
trustee. The senior accreting notes are senior unsecured obligations of DDi
Capital. Interest is payable on the notes by issuance of additional senior
accreting notes at an annual rate of 16% or, at DDi Capitals election, in cash
at an annual rate of 14% to be paid on a quarterly basisstarting June 15, 2004.
On June 1, 2004, DDi Capital was required to elect to pay interest due on all
subsequent interest payments in cash pursuant to the note indenture due to the
decrease in DDi Capitals leverage ratio. Interest is calculated on the
accreted principal balance as of March 14, 2004, the most recent scheduled
interest payment date per the note indenture, of $18.4 million. On June 15,
2004, DDi Capital paid $0.7 million in interest. The notes
mature on January 1, 2009 and are redeemable by DDi Capital. The DDi Capital senior accreting
notes may be redeemed at the option of DDi Capital, in whole at any time, at a
redemption price that is greater than the accreted value of the notes, plus
accrued and unpaid interest, if any, to the redemption date. We have not
redeemed any notes as of June 30, 2004. Each holder of the senior accreting
notes also received a warrant to purchase a pro rata portion of 762,876 shares
of the Companys common stock. These warrants are held in an escrow account
until December 12, 2005 and are exercisable at an initial exercise price of
$0.001 per share from December 13, 2005 through July 31, 2008. In connection
with the completion of a private placement of common stock in January 2004 (see
Note 15), the amount of warrants issued was adjusted, pursuant to the
anti-dilution provisions of the warrants, to purchase an aggregate of 807,090
shares. The warrants will be terminated if, on or before December 12, 2005,
DDi Capital pays all of its indebtedness to the holders of the senior accreting
notes. DDi Capitals ability to pay dividends to us and the
ability of DDi Capital and its subsidiaries (including Dynamic
Details) to enter into other transactions with us and our
subsidiaries is limited under an
indenture relating to the senior accreting notes. Series A Mandatorily Redeemable Preferred Stock In connection with the plan of reorganization, the DDi Corp. issued 1,000,000
shares of its Series A Preferred Stock to its former convertible subordinated
noteholders. The Series A Preferred has an annual dividend of 15% and an
aggregate liquidation preference of $15 million with a mandatory redemption
date of the later of January 31, 2009 or the date that all obligations under
the DDi Europe Facility Agreement are paid in full. All accrued dividends on
the Series A Preferred Stock must be paid before any DDi Europe assets may be
used to pay dividends on shares of our common stock. The Series A Preferred
will only be paid to the extent there is value, as defined in the related
certificate of determination, in DDi Europe beyond what is owed on the DDi
Europe Facility Agreement. 22




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##### Table of Contents



Contractual Cash Obligations and Commercial Commitments The following table shows our contractual cash obligations and commercial
commitments as of June 30, 2004: Payments Due by Period
(in millions) For the Six MonthsEnding December 31,
    
    Year Ending December 31,Commitments
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    TotalLong-Term Debt (a)
    
    $
    
    
    
    $
    3.6
    
    
    $
    10.8
    
    
    $
    11.3
    
    
    $
    
    
    
    $
    18.2
    
    
    $
    43.9Series A mandatorily
redeemable preferred
stock (b)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.0
    
    
    
    15.0Series B mandatorily
redeemable preferred
stock (b)
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.0
    
    
    
    61.0Capital Lease Obligations
    
    $
    1.1
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.1Operating Leases
    
    
    4.5
    
    
    
    8.7
    
    
    
    7.4
    
    
    
    6.2
    
    
    
    5.3
    
    
    
    8.5
    
    
    
    40.6Total Commitments
    
    $
    5.6
    
    
    $
    13.3
    
    
    $
    18.2
    
    
    $
    17.5
    
    
    $
    5.3
    
    
    $
    102.7
    
    
    $
    162.6
  (a)
    
    Amounts include DDi Europe Facilities Agreement and DDi Capital
Accreting Notes.  (b)
    
    Amounts payable are due to mandatory redemption feature of the
respective preferred stock instrument. Factors That May Affect Future Results We have had a history of losses and our return to profitability is not
assured. We incurred net losses of approximately $288.1 million and $85.1 million during
the fiscal years ended December 31, 2002 and December 31, 2001, respectively.
We sought protection under Chapter 11 of the U.S. Bankruptcy Code in August
2003. On December 12, 2003, we emerged from Chapter 11 protection pursuant to
our plan of reorganization, under which our equity ownership and capital
structure was significantly altered and for new independent directors were
elected to our seven-member board. Our return to profitability is not assured
and we cannot assure you that we will grow or achieve profitability in the near
future, or at all. The terms of our lending arrangements may restrict our financial and
operational flexibility. The terms of our indebtedness under our Dynamic Details asset based revolver
restrict, among other things, our ability to incur additional indebtedness, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our assets. DDi Europe, DDi Capital and
Dynamic Details are also required to maintain specified financial ratios and
satisfy certain financial condition tests. Our subsidiaries ability to meet
those financial ratios and tests can be affected by events beyond our
subsidiaries control, and there can be no assurance that they will meet those
tests. Substantially all of the assets of DDi Europe are pledged as security
under the DDi Europe facilities agreement. DDi Europe may not be able to generate cash or otherwise arrange for additional
funds sufficient to fund its operations, in which case it may be compelled to
restructure its operations. With the increase in net sales attributable to DDi Europe during the three
months ended June 30, 2004, the business of DDi Europe has experienced an
increase demand for working capital. As of July 31, 2004, DDi Europe had
substantially drawn on the total amount of funds practically available under
the DDi Europe Revolving Credit Facility.  Due to restrictions set forth in the Dynamic Details Revolving
Credit Facility and the Indenture with the Senior Accreting Noteholders, we may
not be able to make additional cash contributions to help the working capital
needs of DDi Europe. For the six months period ended June 30, 2004, we
contributed $4.3 million in working capital funds to DDi Europe. To the extent
that DDi Europe is unable to generate cash sufficient to fund its operations
and we are unable to make additional cash contributions, DDi Europe must seek
alternative funding sources or take steps to restructure its operations. There
is no guarantee that DDi Europe will be able to generate cash sufficient to
fund its operations or to acquire other funds. Further, in the
event that DDi Europe is compelled to seek funds from the Bank of Scotland in
excess of the £7.4 million credit guideline prescribed by the Bank of Scotland, the Bank of Scotland could refuse such
attempt to borrow up to the maximum borrowing limit of
£10.0 million and could take measures to protect its collateral, including
appointment of a receiver or initiation of insolvency proceedings. Such actions could have a
material adverse effect upon the value of our common stock. We continue to
work with the Bank of Scotland to address the short and long-term liquidity
needs of DDi Europe. We may need additional capital in the future and it may not be available
on acceptable terms, or at all. Looking ahead at long-term needs, we may need to raise additional funds for the
following purposes:  
    
    to fund our operations beyond June 30, 2005;  
    
    to fund working capital requirements for future growth that we may
experience;  
    
    to enhance or expand the range of services we offer;  
    
    to increase our sales and marketing activities; or  
    
    to respond to competitive pressures or perceived opportunities, such as
investment, acquisition and international expansion activities. If such funds are not available when required or on acceptable terms, our
business and financial results could suffer. If the demand for our customers products decline, demand for our products will
be similarly affected and
our revenues, gross margins and operating performance will be adversely
affected. Our customers that purchase printed circuit board engineering and manufacturing
services from us are subject to their own business cycles. Some of these cycles
show predictability from year to year. However, other cycles, are unpredictable
in commencement, depth and duration. A downturn, or any other event leading to
additional excess capacity will negatively impact our revenues, gross margins
and operating performance. We cannot accurately predict the continued demand
for our customers products and the demands of our
customers for our products and services. As a result of this uncertainty, our
past operating results, earnings and cash flows may not be indicative of our
future operating results, earnings and cash flows. 23




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Unless we are able to respond to technological change at least as quickly as
our competitors, our services
could be rendered obsolete, which would reduce our revenue and operating
margins. The market for our services is characterized by rapidly changing technology and
continuing process development. The future success of our business will depend
in large part upon our ability to maintain and enhance our technological
capabilities, to develop and market services that meet evolving customer needs
and to successfully anticipate or respond to technological changes on a
cost-effective and timely basis. We are more leveraged than some of our
principal competitors, and therefore may not have the financial flexibility to
respond to technological changes as quickly as these competitors. In addition, the printed circuit board engineering and 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 our services. We cannot assure you that we will
effectively respond to the technological requirements of the changing market.
To the extent we determine that new technologies and equipment are required to
remain competitive, the development, acquisition and implementation of such
technologies and equipment may require us to make significant capital
investments. We cannot assure you that we 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. We may experience significant fluctuation in our revenue because we sell
primarily on a purchase order
basis, rather than pursuant to long-term contracts. Our operating results fluctuate because we sell on a purchase-order basis
rather than pursuant to long-term contracts, and we expect these fluctuations
to continue in the future. We are therefore sensitive to variability in demand
by our customers. Because we time our expenditures in anticipation of future
sales, our operating results may be less than we estimate if the timing and
volume of customer orders do not match our expectations. Furthermore, we may
not be able to capture all potential revenue in a given period if our
customers demand for quick-turn services exceeds our capacity during that
period. Because of these factors, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. Because a significant portion of our operating expenses
are fixed, even a small revenue shortfall can have a disproportionate effect on
our operating results. It is possible that, in future periods, our results may
be below the expectations of public market analysts and investors. This could
cause the market price of our common stock to decline. We rely on a core group of significant customers for a substantial portion of
our net sales, and a reduction
in demand, or an inability to pay, from this core group could adversely affect
our total revenue. Although we have a large number of customers, net sales to our largest customer
accounted for approximately 7% of our net sales for the six months ended June
30, 2004. Net sales to our ten largest customers accounted for approximately
29% of our net sales during the same period. We may depend upon a core group of
customers for a material percentage of our net sales in the future.
Substantially all of our sales are made on the basis of purchase orders rather
than long-term agreements. We cannot assure you that significant customers will
order services from us 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 our revenues. In addition, we generate significant accounts receivable
in connection with providing services to our customers. If one or more of our
significant customers were to become insolvent or otherwise were unable to pay
us for the services provided, our results of operations would be adversely
affected. If we experience excess capacity due to variability in customer demand, our
gross margins may decline. We maintain our production facilities at less than full capacity to retain our
ability to respond to additional quick-turn orders. However, if these orders
are not received, we could experience losses due to excess capacity. Whenever
we experience excess capacity, our sales revenue may be insufficient to fully
cover our fixed overhead expenses and our gross margins will decline.
Conversely, we may not be able to capture all potential revenue in a given
period if our customers demands for quick-turn services exceed our capacity
during that period. We are subject to intense competition, and our business may be adversely
affected by these competitive pressures. The printed circuit board industry is highly fragmented and characterized by
intense competition. We principally compete with independent and captive
manufacturers of complex quick-turn and longer-lead printed circuit boards. Our
principal competitors include other established public companies, smaller
private companies and integrated subsidiaries of more broadly based volume 24




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producers that also manufacture multi-layer printed circuit boards and other
electronic assemblies. Some of our principal competitors are less
highly-leveraged than us and may have greater financial and operating
flexibility. For us to be competitive in the quick-turn sector, we must
maintain a large customer base, a large staff of sales and marketing personnel,
considerable engineering resources and proper tooling and equipment to permit
fast turnaround of small lots on a daily basis. If Asian based production capabilities increase in sophistication, we may lose
market share and our gross margins may be adversely affected by increased
pricing pressure. Price competition from printed circuit board manufacturers based in Asia and
other locations with lower production costs may play an increasing role in the
printed circuit board markets in which we compete. While printed circuit board
manufacturers in these locations have historically competed primarily in
markets for less technologically advanced products, they are expanding their
manufacturing capabilities to produce higher layer count, higher technology
printed circuit boards. In the future, competitors in Asia may be able to
effectively compete in our higher technology markets, which may force us to
lower our prices, reducing our gross margins or decreasing our net sales. We rely on suppliers for the timely delivery of raw materials used in
manufacturing our printed circuit boards, and an increase in industry demand or
the presence of a shortage for these raw materials may increase the price of
these raw materials and reduce our gross margins. To manufacture our printed circuit boards, we use raw materials such as
laminated layers of fiberglass, copper foil and chemical solutions, which we
generally order from our suppliers on a purchase order basis. We use
just-in-time procurement practices to maintain raw materials inventory at low
levels and do not have guaranteed supply contracts with our suppliers. Although
we have preferred suppliers for most of our raw materials, the materials we use
are generally readily available in the open market, and numerous other
potential suppliers exist. However, from time to time manufacturers of products
that also use these raw materials increase their demand for these materials
and, as a result, the prices of these materials increase. During these periods
of increased demand, our gross margins may decrease as we have to pay more for
our raw materials. If a raw material supplier fails to satisfy our product
quality standards, it could harm our customer relationships. Suppliers may
from time to time extend lead times, limit supplies or increase prices due to
capacity constraints or other factors, which could harm our ability to deliver
our products on a timely basis. In addition, uncertainty during our recapitalization process and losses
experienced by certain of our unsecured creditors may have adversely affected
our relationships with our suppliers. If suppliers become increasingly
concerned about our financial condition, they may demand faster payments or
refuse to extend normal trade credit, both of which could further adversely
affect our cash flow and our results of operations. We may not be successful in
obtaining alternative suppliers if the need arises, and this would adversely
affect our results of operations. Defects in our products could result in financial or other damages to our
customers, which could result in reduced demand for our services and liability
claims against us. Defects in the products we manufacture, whether caused by a design,
manufacturing or materials failure or error, may result in delayed shipments,
customer dissatisfaction, or a reduction in or cancellation of purchase orders.
If these defects occur either in large quantities or too frequently, our
business reputation may be impaired. Defects in our products could result in
financial or other damages to our customers. Our sales arrangements generally
contain provisions designed to limit our exposure to product liability and
related claims, but existing or future laws or unfavorable judicial decisions
could negate these limitation of liability provisions. Product liability claims
made against us, even if unsuccessful, would be time consuming and costly to
defend. Although we maintain a warranty reserve, this reserve may not be
sufficient to cover our warranty or other expenses that could arise as a result
of defects in our products. If we are unable to protect our intellectual property or infringe or are
alleged to infringe others intellectual property, our operating results may be
adversely affected. We primarily rely on trade secret laws and restrictions on disclosure to
protect our intellectual property rights. We cannot be certain that the steps
we have taken to protect our intellectual property rights will prevent
unauthorized use of our technology. Our inability to protect our intellectual
property rights could diminish or eliminate the competitive advantages that we
derive from our proprietary technology. We may become involved in litigation in the future to protect our intellectual
property or because others may allege that we infringe on their intellectual
property. These claims and any resulting litigation could subject us to
significant liability for damages and invalidate our proprietary rights. In
addition, these lawsuits, regardless of their merits, would likely be time
consuming and expensive 25




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to resolve and would divert managements time and attention. Any potential
intellectual property litigation alleging our infringement of a third-partys
intellectual property also could force us or our customers to:  
    
    stop producing products that use the intellectual property in question;  
    
    obtain an intellectual property license to sell the relevant technology at an
additional cost, which license may not be available on reasonable terms, or at
all; and  
    
    redesign those products or services that use the technology in question. The costs to us resulting from having to take any of these actions could be
substantial and our operating results could be adversely affected. Complying with applicable environmental laws requires significant resources and
if we fail to comply, we could be subject to substantial liability. Our operations are regulated under a number of federal, state, local 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 us
because we use in our manufacturing process materials classified as hazardous
such as ammoniacal etching solutions, copper and nickel. Our efforts to comply
with applicable environmental laws require an ongoing and significant
commitment of our resources. Over the years, environmental laws have become,
and may in the future become, more stringent, imposing greater compliance costs
on us. In addition, because we are a generator of hazardous wastes and our
sites may become contaminated, we may be subject to potential financial
liability for costs associated with an investigation and any remediation of
such sites. Even if we fully comply with applicable environmental laws and are
not directly at fault for the contamination, we may still be liable. The wastes
we generate 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 us to revocation of the
environmental permits we require to operate our business. Any such revocations
could require us to cease or limit production at one or more of our facilities,
thereby negatively impacting revenues and potentially causing the market price
of our common stock to decline. Additionally, if we are liable for any
violation of environmental laws, we could be required to undertake expensive
remedial actions and be subject to additional penalties. Two of our officers and directors are named defendants in a securities class
action lawsuit, which could divert management attention and result in
substantial indemnification costs. Certain of our current and former officers and directors have been named as
defendants in a securities class action lawsuit. Under Delaware law, our
charter documents, and certain indemnification agreements we entered into with
our executive officers and directors, we must indemnify our current and former
officers and directors to the fullest extent permitted by law. The
indemnification covers any expenses and/or liabilities reasonably incurred in
connection with the investigation, defense, settlement or appeal of legal
proceedings. The obligation to provide indemnification does not apply if the
officer or director is found to be liable for fraudulent or criminal conduct.
For the period in which the claims were asserted, we had in place director and
officers liability insurance policies. We are unable to estimate what our
indemnification liability in these matters may be. If our directors and
officers liability insurance policies do not adequately cover our expenses
related to this class action lawsuit, we may be required to pay judgments or
settlements and incur expenses in aggregate amounts that could have a material
adverse effect on our financial condition, cash flows or results of operations.
In addition, this lawsuit could divert management attention from our day-to-day
operations, which could have a material adverse effect on our business. We are subject to risks arising from our international sales and supply chain
which could adversely affect our revenue and operating results. We generate a significant portion of our revenue from non-U.S. sales, and a
significant portion of the raw materials and components we use to produce our
products are provided by international suppliers. As a result of our
international operations and supply chain, we are affected by economic and
political conditions in foreign countries, including:  
    
    the imposition of government controls;  
    
    export license requirements;  
    
    political and economic instability; 26




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
    
    trade restrictions;  
    
    changes in tariffs and duties;  
    
    labor unrest and difficulties in staffing;  
    
    coordinating communications among and managing international operations;  
    
    fluctuations in currency exchange rates;  
    
    earnings expatriation restrictions;  
    
    misappropriation of intellectual property; and  
    
    constraints on our ability to maintain or increase prices. Any of these factors could adversely impact our ability to secure our raw
materials or our ability to sell our products internationally. This could
reduce our revenue and adversely impact our operating results. We depend on our key personnel and may have difficulty attracting and retaining
skilled employees. Our future success will depend to a significant degree upon the continued
contributions of our key management, marketing, technical, financial,
accounting and operational personnel, including Bruce D. McMaster, our
President and Chief Executive Officer. None of our key employees has entered
into an employment agreement or other similar arrangement, with the exception
of a non-solicitation agreement between Bruce D. McMaster and us. The loss of
the services of one or more key employees could have a material adverse
effect on our results of operations. We also believe that our future success
will depend in large part upon our ability to attract and retain additional
highly skilled managerial and technical resources. Competition for such
personnel is intense. There can be no assurance that we will be successful in
attracting and retaining such personnel. In addition, recent and potential
future facility shutdowns and workforce reductions may have a negative impact
on employee recruiting and retention. Our manufacturing processes depend on the collective industry experience of our
employees. If these employees were to leave and take this knowledge with them,
our manufacturing processes may suffer, and we may not be able to compete
effectively. Other than our trade secret protection, we rely on the collective experience of
our employees to ensure that we continuously evaluate and adopt new
technologies in our industry. If a significant number of employees involved in
our manufacturing processes were to leave our employment and we are not able to
replace these people with new employees with comparable experience, our
manufacturing processes may suffer as we may be unable to keep up with
innovations in the industry. As a result, we may not be able to continue to
compete effectively. 27




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The trading price of our common stock may be subject to wide fluctuations and
volatility. The market price of our common stock could be subject to wide fluctuations in
response to numerous factors, many of which are beyond our control. These
factors include, among other things, actual or anticipated variations in our
operating results and cash flow, the nature and content of our earnings
releases and our competitors earnings releases, announcements of technological
innovations that impact our services, customers, competitors or markets,
changes in financial estimates by securities analysts, business conditions in
our markets and the general state of the securities markets and the market for
similar stocks, changes in capital markets that affect the perceived
availability of capital to companies in our industries, governmental
legislation or regulation, currency and exchange rate fluctuations, as well as
general economic and market conditions, such as recessions. In addition, limited trading volume of our common stock could affect the
trading price by magnifying the effect of larger purchase or sale orders and
could increase the trading price volatility in general. No prediction can be
made as to future trading volumes of our common stock. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk The Dynamic Details revolving credit facility and DDi Europe Facilities
Agreement bear interest at floating rates and the Senior Accreting Notes bear
interest at fixed rates. The Dynamic Details revolving credit facility bears interest at LIBOR plus 4%
on LIBOR loans and prime plus 3% for index rate loans. Pricing will be
determined by Dynamic Details adjusted EBITDA numbers, and will range from
LIBOR plus 3 to 4% on LIBOR loans or prime plus 2 to 3% for index rate loans.
The effective interest rate at June 30, 2004 was 7.25%. The DDi Europe
Facilities Agreement bears interest based on three-month U.K. LIBOR plus a
margin of 1.50%. Based upon our anticipated utilization of the DDi Europe
revolving credit facility through the period ending March 31, 2005, a 10%
change in interest rates is not expected to materially affect the interest
expense to be incurred on this facility during such period. As of June 30,
2004, six-month U.K. LIBOR was 5.04%. If six-month U.K. LIBOR increased by 10%
to 5.54%, interest expense related to the term loan facility would increase
approximately $0.1 million. The overall effective interest rate for the term
loan facilities, as of June 30, 2004, was 6.54%. All other financial instruments of the Company bear fixed rates of interest. 28




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Foreign Currency Exchange Risk Sales and expenses and financial results of DDi Europe and of our Canadian
operations are denominated in British pounds and Canadian dollars,
respectively. We have foreign currency translation risk equal to our net
investment in those operations; however, since nearly all of our sales are
denominated in local currency or in U.S. dollars, we have relatively little
exposure to foreign currency transaction risk with respect to sales made.
Based upon annualizing the most recent quarters results, the effect of an
immediate 10% change in exchange rates would have an annual net impact on our
operating results of approximately ($0.6) million. 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 13(a)-15(e) under the Securities Act of 1934,
as amended) are effective to ensure that all information required to be
disclosed by the Company in the reports filed or submitted by it under the
Securities and Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and include
controls and procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and communicated to the
Companys management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate and allow timely decisions regarding required
disclosure. Changes in Internal Controls.In connection with the above-referenced
evaluation, no change in the Companys internal control over financial
reporting occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting. 29




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PART II  OTHER INFORMATION 
 Item 5. Legal Proceedings In October and November 2003, several class action complaints were filed
against certain of our current and former officers and directors in the United
States District Court for the Central District of California on behalf of
purchasers of our common stock, alleging violations of the Securities Exchange
Act of 1934 (Exchange Act). In December 2003, a related class action
complaint was filed in the Central District of California alleging similar
claims against similar parties, but also adding causes of action under the
Securities Act of 1933 (Securities Act) in connection with the Companys
February 2001 public offering of common stock. The latter complaint also named as
defendants a private investment firm and the underwriters of the secondary
offering. On December 16, 2003, a federal district court judge consolidated the Central
District of California actions into a single action, In re DDi Corp. Securities
Litigation, Case No. CV 03-7063 MMM (SHx). On May 21, 2004, the Court
appointed as Lead Plaintiffs Paul Poppe, LeRoy Schneider, and Rand Skolmick.
On July 26, 2004, the Lead Plaintiffs filed a consolidated amended complaint on
behalf of all persons or entities who purchased Company common stock between
December 19, 2000 and April 29, 2002, including those who acquired Company
common stock pursuant to, or traceable to, its February 14, 2001
public
offering of common stock. The consolidated amended complaint seeks unspecified damages and
alleges that defendants violated Sections 11, 12(a)(2), and 15 of the
Securities Act and Sections 10(b) and 20(a) of the Exchange Act by, among other
things, misrepresenting and/or failing to disclose material facts about the
Companys reported and projected financial results during the class period,
including reported and projected financial results in connection with the
registration statement and prospectus for the public offering. Neither the
Company nor any of it subsidiaries were named as a defendant in this
consolidated amended complaint. Pursuant to a
November 12, 2003 scheduling order, the Defendants will respond to
this complaint on or before September 9, 2004. The Company believes the claims
are without merit and that the action will be defended vigorously. However,
there can be no assurance that the defendants will succeed in defending or
settling this action. The Company cannot ensure that the action will not have a
material adverse effect on its business, financial condition, cash flows and
results of operations. 
 Item 6. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Stockholders of DDi Corp. was held on May 26, 2004
for the purpose of (a) electing seven directors to the Board of Directors (b)
voting on a proposal to approve the potential issuance of more than 19.9% of
the shares of the Companys common stock (i) upon conversion of the Series B-1
and Series B-2 Preferred Stock of the Company; (ii) as payment for dividends on
the Series B-1 and Series B-2 Preferred Stock of the Company; and (iii) upon
redemption of the Series B-1 and Series B-2 Preferred Stock of the Company, all
in accordance with the Companys Certificate of Designation of Series B
Preferred Stock; (c) voting on a proposal to approve the Companys 2003
Directors Equity Incentive Plan; and (d) voting on a proposal to ratify the
appointment of PricewaterhouseCoopers LLP as the Companys independent
registered public accounting firm. Robert J. Amman, David Blair, Robert Guezuraga, Jay B. Hunt, Andrew E.
Lietz, Bruce D. McMaster and Carl R. Vertuca, Jr. were elected to serve as
directors of the Company for one-year terms expiring at the 2005 Annual Meeting
of Stockholders. The tabulation of the votes cast for the election of Messrs. Amman, Blair,
Guezuraga, Hunt, Lietz, McMaster and Vertuca was as follows: Votes For
    
    Votes WithheldRobert J. Amman
    
    
    24,296,351
    
    
    
    15,670David Blair
    
    
    24,401,108
    
    
    
    10,913Robert Guezuraga
    
    
    24,356,241
    
    
    
    55,780Jay B. Hunt
    
    
    24,361,006
    
    
    
    51,015Andrew E. Lietz
    
    
    24,360,996
    
    
    
    51,025Bruce D. McMaster
    
    
    22,411,133
    
    
    
    2,000,888Carl R. Vertuca, Jr.
    
    
    24,396,343
    
    
    
    15,678
 The proposal to approve the potential issuance of more than 19.9% of the
shares of the Companys common stock (i) upon conversion of the Series B-1 and
Series B-2 Preferred Stock of the Company; (ii) as payment for dividends on the
Series B-1 and Series B-2 Preferred Stock of the Company; and (iii) upon
redemption of the Series B-1 and Series B-2 Preferred Stock of the Company, all
in accordance with the Companys Certificate of Designation of Series B
Preferred Stock, was approved. The tabulation of votes was as follows: 30




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Votes For
    
    Votes Against
    
    Abstensions
    
    Broker Non-Votes10,351,021
    
    
    2,082,151
    
    
    
    78,109
    
    
    
    10,417,432
 The proposal to approve the Companys 2003 Directors Equity Incentive Plan
was approved. The tabulation of votes was as follows: Votes For
    
    Votes Against
    
    Abstensions
    
    Broker Non-Votes11,916,905
    
    
    2,571,910
    
    
    
    210
    
    
    
    8,439,688
 The proposal to ratify the appointment of PricewaterhouseCoopers LLP as
the Companys independent auditors was approved. The tabulation of votes was as
follows: Votes For
    
    Votes Against
    
    Abstensions
    
    Broker Non-Votes24,405,208
    
    
    6,078
    
    
    
    135
    
    
    
    0
 
 Item 7. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit No.
    
    Description10.1
    
    Credit Agreement dated as of June 30, 2004 among Dynamic Details Canada, Corp.,
and DDi Canada Acquisition Corp., as Borrowers, the Other Credit Parties Signatory
Thereto, as Credit Parties, the Lenders Signatory Thereto from Time to Time, as
Lenders, and GE Canada Finance Holding Company, as Agent and Lender.10.2
    
    Guaranty, dated as of June 30, 2004, made by DDi Corp., a Delaware corporation,
DDi Intermediate Holdings Corp., a California corporation, DDi Capital Corp., a
California corporation, Dynamic Details, Incorporated, a California corporation,
Dynamic Details Incorporated, Virginia, a Delaware corporation, Dynamic Details
Incorporated, Silicon Valley, a Delaware corporation, Laminate Technology Corp., a
Delaware corporation, Dynamic Details Incorporated, Colorado Springs, a Colorado
corporation, DDi Sales Corp., a Delaware corporation, Dynamic Details Texas, LLC,
a Delaware limited liability company, DDi-Texas Intermediate Partners II, L.L.C.,
a Delaware limited liability company, DDi-Texas Intermediate Holdings II, L.L.C.,
a Delaware limited liability company, and Dynamic Details, L.P., a Delaware
limited partnership, in favor of GE Canada Finance Holding Company, a Nova Scotia
unlimited liability company.10.3
    
    Intercreditor Agreement dated as of June 30, 2004, between GE Capital Finance
Holding Company, a Nova Scotia unlimited liability company, and General Electric
Capital Corporation, a New York corporation.10.4
    
    Master Agreement for Documentary Letters of Credit, dated as of June 30, 2004.10.5
    
    Master Agreement for Standby Letters of Credit, dated as of June 30, 2004.10.6
    
    Security Agreement dated as of June 30, 2004, made by Dynamic Details Canada,
Corp., and DDi Canada Acquisition Corp. in favor of GE Canada Finance Holding
Company.10.7
    
    Pledge Agreement dated as of June 30, 2004, made by Dynamic Details, Incorporated,
DDi Canada Acquisition Corp. in favor of GE Canada Finance Holding Company.10.8
    
    Amendment No. 1 to Credit Agreement dated as of June 30, 2004, by and among
Dynamic Details, Incorporated, Dynamic Details, Incorporated, Virginia, Dynamic
Details Incorporated, Silicon Valley and Laminate Technology Corp., the other
Credit Parties signatory thereto; and General Electric Capital Corporation.31.1
    
    Certification of Chief Executive Officer of DDi Corp., pursuant to Rule 13a-14 of
the Securities Exchange Act.31.2
    
    Certification of Chief Financial Officer of DDi Corp., pursuant to Rule 13a-14 of
the Securities Exchange Act.32.1
    
    Certification of Chief Executive Officer of DDi Corp., pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer of DDi Corp., pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 31




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(b) Reports on Form 8-K. The following Current Reports on Form 8-K were filed in the quarterly period
ended June 30, 2004: (i) On April 7, 2004, DDi Corp. filed a report on Form 8-K dated March
31, 2004 announcing the completion of a private placement of 147,679 shares
of Series B-1 Preferred Stock and 1,139,238 shares of Series B-2 Preferred
Stock to certain institutional investors for gross proceeds of $61,000,000
before placement fees and offering expenses. (ii) On April 27, 2004, DDi Corp. filed a report on Form 8-K dated
April 27, 2004 announcing the issuance of a press release for the quarterly
period ending March 31, 2004. 32




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SIGNATURE 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. Date: August 13, 2004
    DDi CORP.By:
    /s/ Joseph GischJoseph GischSenior Vice President and Chief Financial Officer
(Authorized Signatory and Principal Financial Officer) 33




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EXHIBIT INDEX  Exhibit No.
    
    Description10.1
    
    Credit Agreement dated as of June 30, 2004 among Dynamic Details Canada, Corp.,
and DDi Canada Acquisition Corp., as Borrowers, the Other Credit Parties Signatory
Thereto, as Credit Parties, the Lenders Signatory Thereto from Time to Time, as
Lenders, and GE Canada Finance Holding Company, as Agent and Lender.10.2
    
    Guaranty, dated as of June 30, 2004, made by DDi Corp., a Delaware corporation,
DDi Intermediate Holdings Corp., a California corporation, DDi Capital Corp., a
California corporation, Dynamic Details, Incorporated, a California corporation,
Dynamic Details Incorporated, Virginia, a Delaware corporation, Dynamic Details
Incorporated, Silicon Valley, a Delaware corporation, Laminate Technology Corp., a
Delaware corporation, Dynamic Details Incorporated, Colorado Springs, a Colorado
corporation, DDi Sales Corp., a Delaware corporation, Dynamic Details Texas, LLC,
a Delaware limited liability company, DDi-Texas Intermediate Partners II, L.L.C.,
a Delaware limited liability company, DDi-Texas Intermediate Holdings II, L.L.C.,
a Delaware limited liability company, and Dynamic Details, L.P., a Delaware
limited partnership, in favor of GE Canada Finance Holding Company, a Nova Scotia
unlimited liability company.10.3
    
    Intercreditor Agreement dated as of June 30, 2004, between GE Capital Finance
Holding Company, a Nova Scotia unlimited liability company, and General Electric
Capital Corporation, a New York corporation.10.4
    
    Master Agreement for Documentary Letters of Credit, dated as of June 30, 2004.10.5
    
    Master Agreement for Standby Letters of Credit, dated as of June 30, 2004.10.6
    
    Security Agreement dated as of June 30, 2004, made by Dynamic Details Canada,
Corp., and DDi Canada Acquisition Corp. in favor of GE Canada Finance Holding
Company.10.7
    
    Pledge Agreement dated as of June 30, 2004, made by Dynamic Details, Incorporated,
DDi Canada Acquisition Corp. in favor of GE Canada Finance Holding Company.10.8
    
    Amendment No. 1 to Credit Agreement dated as of June 30, 2004, by and among
Dynamic Details, Incorporated, Dynamic Details, Incorporated, Virginia, Dynamic
Details Incorporated, Silicon Valley and Laminate Technology Corp., the other
Credit Parties signatory thereto; and General Electric Capital Corporation.31.1
    
    Certification of Chief Executive Officer of DDi Corp., pursuant to Rule 13a-14 of
the Securities Exchange Act.31.2
    
    Certification of Chief Financial Officer of DDi Corp., pursuant to Rule 13a-14 of
the Securities Exchange Act.32.1
    
    Certification of Chief Executive Officer of DDi Corp., pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer of DDi Corp., pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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