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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION


Washington, D.C. 20549





---




FORM 10-Q





(Mark One)


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





For the quarterly period ended June 30, 2002





OR





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





For the transition period from
 to





Commission File Numbers:


DDi
Corp.                000-30241


DDi Capital Corp.  333-41187





DDi CORP.


DDi
CAPITAL CORP.


(Exact name of registrants as specified in their charters)





Delaware

06-1576013California

33-0780382(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)





1220 Simon Circle


Anaheim, California 92806


(Address of principal executive offices) (Zip code)





(714) 688-7200


(Registrants
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 DDi Corp. and DDi Capital Corp.: (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:  x Yes  ̈ No.





As of
August 7, 2002, all of the voting stock of DDi Capital Corp. was held by DDi Intermediate Holdings Corp., and all of the voting stock of DDi Intermediate Holdings Corp. was held by DDi Corp.





As of August 7, 2002, DDi Corp. had 48,373,719 shares of common stock, par value $0.01 per share, outstanding and DDi
Capital Corp. had 1,000 shares of common stock, par value $0.01 per share, outstanding.





This Quarterly Report on
Form 10-Q is a combined quarterly report being filed separately by two registrants: DDi Corp. (DDi Corp. f/k/a DDi Holdings Corp.) and DDi Capital Corp. (DDi Capital). Except where the context clearly indicates otherwise, any
references in this report to DDi Corp. includes all subsidiaries of DDi Corp. including DDi Capital. DDi Capital makes no representation as to the information contained in this report in relation to DDi Corp. and its subsidiaries other
than DDi Capital.





DDi Capital meets the conditions set forth in General Instructions H(1)(a) and (b) of Form
10-Q, and is filing this form with the reduced disclosure format pursuant to General Instruction H(2).





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##### Table of Contents




DDi CORP.


DDi CAPITAL CORP.


FORM 10-Q





TABLE OF CONTENTS





Page No.PART I

FINANCIAL INFORMATIONItem 1

Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001

3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001

4Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2002 and 2001

6Condensed Consolidated Statements of Cash Flows for the six months ended ended June 30, 2002 and 2001

8Notes to Condensed Consolidated Financial Statements

9Item 2

Managements Discussion and Analysis of Financial Condition and Results of Operations

18Item 3

Quantitative and Qualitative Disclosures about Market Risk

28PART II

OTHER INFORMATIONItem 2

Changes in Securities and Use of Proceeds

29Item 4

Submission of Matters to a Vote of Security Holders

29Item 6

Exhibits and Reports on Form 8-K

29Signatures



31




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##### Table of Contents




Item 1.    Financial Statements





DDi CAPITAL CORP. AND DDi CORP.


Condensed Consolidated Balance Sheets


(In thousands)





DDi Capital


DDi Corp.June 30, 2002


December 31, 2001


June 30, 2002


December 31, 2001Assets

(Unaudited)


(Unaudited)Current assets:Cash and cash equivalents

$
2,352


$
17,569


$
20,737


$
23,629Marketable securitiesavailable for sale


10,027



21,886



28,826



21,886Cash, cash equivalents and marketable securitiesrestricted


6,250







6,250



Accounts receivable, net


29,098



30,385



39,621



42,548Inventories


15,848



15,196



26,298



24,030Prepaid expenses and other


4,993



1,766



7,013



3,178Income tax receivable


9,214



5,291



9,214



5,290Deferred income taxes


6,649



12,241



8,517



12,241Total current assets


84,431



104,334



146,476



132,802Property, plant and equipment, net


69,492



79,134



98,424



106,869Debt issuance costs, net


3,298



6,280



10,549



9,778Goodwill and other intangibles, net


83,471



144,577



145,923



218,984Deferred income taxes


5,429







5,023



Cash, cash equivalents and marketable securitiesrestricted


6,250







6,250



Other


1,491



1,824



2,158



2,384Total assets

$
253,862


$
336,149


$
414,803


$
470,817Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt and capital lease obligations

$
11,638


$
17,184


$
14,458


$
17,845Revolving credit facility














Revolving credit facilities














2,975Accounts payable


16,985



14,470



28,224



26,767Accrued expenses and other


19,848



18,234



32,439



28,119Income taxes payable


83



188



1,597



2,369Total current liabilities


48,554



50,076



76,718



78,075Long-term debt and capital lease obligations


82,003



138,982



303,146



260,977Notes payable and other


4,273



7,665



4,273



7,665Deferred income taxes






784







1,628Total liabilities


134,830



197,507



384,137



348,345Commitments and contingenciesStockholders equity:Common stock, additional paid-in-capital and other


603,292



546,711



541,513



540,983Accumulated other comprehensive income (loss)


(4,164
)


565



(5,086
)


(4,311
)Accumulated deficit


(480,096
)


(408,634
)


(505,761
)


(414,200
)Total stockholders equity


119,032



138,642



30,666



122,472Total liabilities and stockholders equity

$
253,862


$
336,149


$
414,803


$
470,817





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




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DDi CAPITAL CORP.


Condensed Consolidated Statements of Operations


(In thousands)


(Unaudited)





Three Months Ended June 30,


Six Months Ended June
30,2002


2001


2002


2001Net sales

$
47,373


$
65,165


$
94,354


$
183,847Cost of sales


42,316



44,849



84,497



119,657Restructuring-related inventory impairment


3,397







3,397



Gross profit


1,660



20,316



6,460



64,190Operating expenses:Sales and marketing


5,608



5,176



11,368



13,989General and administrative


2,981



3,037



5,962



8,291Amortization of intangibles






4,512







8,994Goodwill impairment


45,000







45,000



Restructuring and other related charges


13,809







13,809



Operating income (loss)


(65,738
)


7,591



(69,679
)


32,916Interest expense (net) and other expense (net)


644



11,508



4,116



29,132Income (loss) before income taxes


(66,382
)


(3,917
)


(73,795
)


3,784Income tax benefit (expense)


(522
)


1,331



2,333



(3,010
)Net income (loss)

$
(66,904
)

$
(2,586
)

$
(71,462
)

$
774











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 amounts)


(Unaudited)





Three Months Ended June
30,


Six Months Ended June
30,2002


2001


2002


2001Net sales

$
62,112


$
85,839


$
124,600


$
226,548Cost of sales


55,923



59,317



112,082



147,467Restructuring-related inventory impairment


3,465







3,465



Gross profit


2,724



26,522



9,053



79,081Operating expenses:Sales and marketing


6,185



5,851



12,409



15,295General and administrative


4,611



4,654



8,951



11,791Goodwill impairment


60,000







60,000



Restructuring and other related charges


14,434







14,434



Amortization of intangibles






5,809







11,517Operating income (loss)


(82,506
)


10,208



(86,741
)


40,478Interest expense (net) and other expense (net)


4,351



13,625



9,750



32,394Income (loss) before income taxes


(86,857
)


(3,417
)


(96,491
)


8,084Income tax benefit (expense)


1,222



955



4,930



(4,863
)Net income (loss)

$
(85,635
)

$
(2,462
)

$
(91,561
)

$
3,221Net income (loss) per sharebasic

$
(1.78
)

$
(0.05
)

$
(1.91
)

$
0.07Net income (loss) per sharediluted

$
(1.78
)

$
(0.05
)

$
(1.91
)

$
0.07Weighted average shares used to compute income (loss) per share:Basic


48,000,178



47,736,731



48,013,294



46,872,304Diluted


48,000,178



47,736,731



48,013,294



48,461,204








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




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DDi CAPITAL CORP.


Consolidated Statements of Comprehensive Loss


(In thousands)


(Unaudited)





Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001Net income (loss)

$
(66,904
)

$
(2,586
)

$
(71,462
)

$
774Other comprehensive income (loss):Foreign currency translation adjustments


335



201



313



201Cumulative effect of adoption of SFAS No. 133














(627
)Unrealized gain (loss) on interest rate swaps, net of income tax effect


(3,872
)


1,357



(5,013
)


(1,273
)Unrealized benefit of loss on interest rate swap agreements














Unrealized holding gain (loss) on marketable securitiesavailable for sale


3



9



(29
)


43Comprehensive loss

$
(70,438
)

$
(1,019
)

$
(76,191
)

$
(882
)











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




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DDi CORP.


Consolidated Statements of Comprehensive Loss


(In thousands)


(Unaudited)





Three Months Ended June
30,


Six Months Ended June
30,2002


2001


2002


2001Net income (loss)

$
(85,635
)

$
(2,462
)

$
(91,561
)

$
3,221Other comprehensive income (loss):Foreign currency translation adjustments


5,609



230



4,057



(3,386
)Cumulative effect of adoption of SFAS No. 133














(1,150
)Unrealized net gain (loss) on interest rate swaps, net of income tax effect


(3,693
)


1,694



(4,830
)


(979
)Unrealized net tax benefit on loss on interest rate swap agreements














Unrealized holding gain (loss) on marketable securitiesavailable for sale


31



9



(2
)


43Comprehensive loss

$
(83,688
)

$
(529
)

$
(92,336
)

$
(2,251
)











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




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DDi CAPITAL CORP. AND DDi CORP.


Condensed Consolidated Statements of Cash Flows


(In thousands)


(Unaudited)





DDi Capital


DDi Corp.Six Months Ended June
30,


Six Months Ended June
30,2002


2001


2002


2001Cash flows from operating activities:Net cash provided by (used in) operating activities

$
391


$
52,161


$
(2,452
)

$
61,421Cash flows from investing activities:Purchases of property, plant and equipment


(5,257
)


(14,197
)


(6,471
)


(20,952
)Purchases of marketable securities






(32,126
)


(18,731
)


(32,126
)Proceeds from sales of marketable securities


11,830



9,701



11,788



9,701Investment in restricted assets


(12,500
)






(12,500
)


Acquisition of Thomas Walter














(24,500
)Acquisition of Nelco






(2,960
)






(2,960
)Acquisition of Olympic






(12,937
)






(12,937
)Acquisition of Altatron






(4,736
)






(4,736
)Acquisition of Stellar Technology














Acquisition related cash receipts (expenditures), net


236



(530
)


21



(596
)Net cash used in investing activities


(5,691
)


(57,785
)


(25,893
)


(89,106
)Cash flows from financing activities:Net principal payments on long-term debt


(62,572
)


(143,573
)


(62,572
)


(144,997
)Net borrowings (payments) on revolving credit facilities






439



(3,030
)


1,842Proceeds from issuance of convertible subordinated notes










100,000



100,000Payments on other notes payable


(88
)


(47
)


(88
)


(47
)Principal payments on capital lease obligations


(856
)


(988
)


(1,320
)


(1,406
)Payment of debt issuance costs






(2,820
)


(4,250
)


(6,800
)Capital contribution from Parent, net


57,483



160,512







Repayment of stockholders receivable










110



Escrow payable distribution






(1,602
)






(1,602
)Proceeds from interest rate swaps






Net proceeds from issuance of common stockthrough follow-on public offering














66,975Payment of pro-rata portion of deferred swap liability


(3,761
)






(3,761
)


Costs incurred in connection with the issuance ofcommon stock through follow-on public offering














(844
)Issuance of common stock through Employee StockPurchase Plan










5



733Proceeds from exercise of stock options










336



2,928Net cash provided by (used in) financing activities


(9,794
)


11,921



25,430



16,782Effect of exchange rate changes on cash


(123
)


(10
)


23



(561
)Net increase (decrease) in cash and cash equivalents


(15,217
)


6,287



(2,892
)


(11,464
)Cash and cash equivalents, beginning of year


17,569



39,629



23,629



66,874Cash and cash equivalents, end of period

$
2,352


$
45,916


$
20,737


$
55,410





Supplemental disclosure of cash flow information:





Non-cash operating activities:


During the six months ended June 30, 2002 depreciation expense was approximately $8.4 million for DDi Capital and approximately $10.7 million for DDi Corp, goodwill impairment was $45.0 million for DDi
Capital and $60.0 million for DDi Corp., and non-cash restructuring charges were $11.6 million for DDi Capital and $11.8 million for DDi Corp.





During the six months ended June 30, 2001 depreciation and amortization expense was approximately $18 million for DDi Capital and approximately $22 million for DDi Corp.





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







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##### Table of Contents




DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1.    BASIS OF PRESENTATION AND
DESCRIPTION OF BUSINESS





BASIS OF PRESENTATION





The unaudited condensed consolidated financial statements for DDi Corp. (DDi Corp.) include the accounts of its wholly-owned subsidiaries, DDi Intermediate Holdings Corp.
(Intermediate) and its subsidiaries and DDi Europe Limited (DDi Europe f/k/a MCM Electronics Limited (MCM)). The unaudited condensed consolidated financial statements for DDi Capital Corp. (DDi
Capital), a wholly-owned subsidiary of Intermediate, include the accounts of its wholly-owned subsidiary Dynamic Details, Incorporated and its subsidiaries (Dynamic Details). Collectively, DDi Corp. and its subsidiaries are
referred to as the Company.





The unaudited condensed consolidated financial statements of DDi Corp. include the results of
Thomas Walter Limited (Thomas Walter) commencing on March 5, 2001, the date of acquisition of Thomas Walter (see Note 8), Nelco Technology, Inc. (Nelco) commencing on April 27, 2001, the date of acquisition of Nelcos
assets (see Note 9), Olympic Circuits Canada (Olympic) commencing on May 9, 2001, the date of acquisition of Olympic (see Note 10) and Altatron Technology Inc. (Altatron) commencing on June 4, 2001, the date of acquisition of
Altatrons assets (see Note 11). All intercompany transactions have been eliminated in consolidation.





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 Capital and DDi Corp. as of June 30, 2002, and
the results of operations and cash flows for the three and six months ended June 30, 2002 and 2001. 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, 2002 should be read in conjunction with the audited financial statements presented in the DDi Capital Corp.s and DDi Corp.s Annual Report on Form 10-K for the year ended December 31, 2001.





Certain prior year amounts have been reclassified to conform with the 2002 presentation.





Description of Business





The Company provides technologically advanced,
time-critical electronics design, development and manufacturing services to original equipment manufacturers and other providers of electronics manufacturing services. The Company serves over 2,000 customers in the communications, networking,
computer, medical, automotive industrial and aerospace industries.




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DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
2.    INVENTORIES





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





DDi Capital

DDi Corp.June 30, 2002

December 31, 2001

June 30, 2002

December 31, 2001Raw materials

$
8,514

$
9,868

$
14,294

$
14,325Work-in-process


5,700


3,493


9,916


6,840Finished goods


1,634


1,835


2,088


2,865Total

$
15,848

$
15,196

$
26,298

$
24,030








NOTE 3.    LONG-TERM DEBT
AND CAPITAL LEASES





Long-term debt and capital lease obligations consist of the following (in thousands):





DDi Capital


DDi Corp.June 30, 2002


December 31, 2001


June 30, 2002


December 31, 2001Senior Term Facility (a)

$
73,248


$
135,819


$
73,248


$
135,8195.25% Convertible Subordinated Notes










100,000



100,0006.25% Convertible Subordinated Notes










100,000



12.5% Capital Senior Discount Notes (b)


15,382



14,478



15,382



14,478DDi Europe Facilities Agreement (c)










22,981



21,840Capital lease obligations


5,011



5,869



5,993



6,685Sub-total


93,641



156,166



317,604



278,822Less current maturities


(11,638
)


(17,184
)


(14,458
)


(17,845
)Total

$
82,003


$
138,982


$
303,146


$
260,977





|(a) |  | The Senior Term Facility, together with the Revolving Credit Facility, comprise the Senior Credit Facility. Interest rates are LIBOR-based. The effective
interest rate, after giving effect to the interest rate swap agreement,as of June 30, 2002, was 9.91%.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(b) |  | Face amount of $16,090 at June 30, 2002 and December 31, 2001, net of unamortized discount of $708 and $1,612 at June 30, 2002 and December 31, 2001,
respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(c) |  | Interest rates are LIBOR-based. The effective interest rate, after giving effect to the interest rate swap agreement, as of June 30, 2002, was 8.67%.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------




During the second quarter of 2002, Dynamic Details reached an agreement to amend its Senior Credit Facility,
effective June 28, 2002. The amendment, which covers $73.3 million in outstanding term loans and a $50.0 million Revolving Credit Facility, either waives or resets the financial covenants through December 31, 2003 and established two new covenants,
one related to liquidity and the other related to minimum revenues. The amendment did not change the interest rate spread nor the repayment schedule for the outstanding term loans, which mature between July 24, 2004 and April 2005, but did reduce
the Revolving Credit Facility to $50 million from $75 million. Access to the full amount of the Revolving Credit Facility is subject to conditions set forth in the credit facility agreement. Under the amendment, the maximum Dynamic Details can
borrow under the revolving credit facility is limited to $25 million until December 31, 2003.




10




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##### Table of Contents




DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
4.    DERIVATIVES





On January 1, 2001, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 133 Accounting for Derivative Instruments and Hedging Activities. In accordance with the transition provisions of SFAS No. 133, DDi Capital and DDi Corp. recorded a cumulative-effect-type adjustment to accumulated
other comprehensive income (loss) for the initial difference between the book value and fair value of interest rate swap agreements as of January 1, 2001. The initial difference amounted to approximately $0.6 million for DDi Capital and
approximately $1.2 million for DDi Corp. The fair value of interest rate swaps at June 30, 2002 is included in current and long-term liabilities in the condensed consolidated balance sheets.





In April 2002, in connection with the $47.9 million repayment of the Senior Term Facility, Dynamic Details elected to amend its swap agreement by reducing the notional balance of the swap to
reflect the impact of the debt repayment on the outstanding principal. In connection with the amendment of the swap agreement, Dynamic Details paid approximately $3.1 million to the counterparty, representing the pro-rata portion of the deferred
swap liability.





NOTE 5.    EARNINGS PER SHARE





Basic and diluted earnings per share  DDi Corp. has adopted the provisions of SFAS No. 128 Earnings Per Share. SFAS No. 128 requires DDi Corp. to report both basic
net income (loss) per share, which is based on the weighted average number of common shares outstanding 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.





DDi Corp.(in thousands, except share amounts)

Three Months Ended June 30,
2002


Three Months ended June 30,
2001Numerator:

Basic


Diluted


Basic


DilutedNet loss allocable to common stock

$
(85,635
)

$
(85,635
)

$
(2,462
)

$
(2,462
)Denominator:Weighted average shares of common stock outstanding (basic)


48,000,178



48,000,178



47,736,731



47,736,731Dilutive potential common shares:Stock options and warrants














Shares used in computing diluted income (loss) per share


48,000,178



48,000,178



47,736,731



47,736,731DDi Corp.(in thousands, except share amounts)

Six Months Ended June 30,
2002


Six Months Ended June 30,
2001Numerator:

Basic


Diluted


Basic


DilutedNet income (loss) allocable to common stock

$
(91,561
)

$
(91,561
)

$
3,221


$
3,221Denominator:Weighted average shares of common stock outstanding (basic)


48,013,294



48,013,294



46,872,304



46,872,304Dilutive potential common shares:Stock options and warrants














1,588,900Shares used in computing diluted income (loss) per share


48,013,294



48,013,294



46,872,304



48,461,204




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##### Table of Contents




DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 6.    PUBLIC OFFERING





On February 14, 2001, DDi Corp. and some of its shareholders
completed a follow-on public offering of 6,000,000 shares of its common stock, with 3,000,000 shares issued by DDi Corp. and the remainder sold by selling shareholders. The shares were sold at $23.50 per share, generating proceeds of $67.0 million,
net of underwriting discounts, commissions and expenses. Concurrently, DDi Corp. issued 5.25% Convertible Subordinated Notes due March 1, 2008 with an aggregate principal of $100.0 million. These notes are convertible at any time prior to maturity
into shares of common stock at a conversion price of $30.00 per share, subject to certain adjustments. These notes generated proceeds of $97.0 million, net of underwriting discounts, commissions and expenses. The net proceeds of both transactions
were used to repurchase a portion of the Capital Senior Discount Notes and all of the Senior Subordinated Notes (see Note 16).





NOTE
7.    PRIVATE OFFERING





On April 2, 2002, DDi Corp. completed its private offering of $100.0 million aggregate
principal amount of 6.25% Convertible Subordinated Notes due April 1, 2007. These notes are convertible at any time prior to maturity into shares of common stock at a conversion price of $11.04 per share, subject to certain adjustments. These notes
generated proceeds of $95.8 million, net of underwriting discounts. Approximately $47.9 million of the net proceeds from the sale were used to repay a portion of the Dynamic Details Senior Term Facility, $12.5 million was placed in an interest
reserve account to cover two years of interest payments on the notes and the remainder will be used for working capital and general corporate purposes. In connection with the $47.9 million repayment of the Senior Term Facility, Dynamic Details
elected to amend its swap agreement by reducing the notional balance of the swap to reflect the impact of the debt repayment on the outstanding principal. In connection with the amendment of the swap agreement, Dynamic Details paid approximately
$3.1 million to the counterparty, representing the pro-rata portion of the deferred swap liability. In addition, the Company recorded a write-off of debt issuance costs of approximately $2.0 million, offset by a net credit of $3.4 million as a
result of the swap amendment, which collectively are included in net interest expense.





NOTE 8.    ACQUISITION OF
THOMAS WALTER





On March 5, 2001, DDi Europe completed the acquisition of Thomas Walter, a leading circuit board manufacturer based in
Marlow, England for approximately $24.5 million, plus expenses of $0.3 million. Thomas Walter is a well-established provider of complex, quick-turn rigid and rigid-flex printed circuit boards for the European electronics industry.





The purchase price has been allocated to the underlying assets and liabilities based upon their estimated respective fair values at the date of
acquisition. The excess of the purchase price was allocated to goodwill and identifiable intangible assets.





Goodwill generated in the
acquisition of Thomas Walter has an assigned value of approximately $17.0 million. The identifiable intangibles consist of developed technologies and assembled workforce. The fair value of the developed technology assets at the date of acquisition
was approximately $0.5 million and represents the aggregate fair value of individually identified technologies that were fully developed at the time of acquisition. The assembled workforce asset was assigned a fair value of approximately $0.8
million at the date of acquisition.





NOTE 9.    ACQUISITION OF NELCO TECHNOLOGY





On April 27, 2001, Dynamic Details completed the acquisition of certain of the assets of Nelco, a wholly owned subsidiary of Park Electrochemical Corp., for
total cash consideration of approximately $3.0 million. Nelco is an Arizona-based manufacturer of semi-finished printed wiring boards, commonly known as mass lamination.





The total purchase price has been allocated to the underlying assets and liabilities based upon their estimated respective fair values at the date of the transaction.




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##### Table of Contents




DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
10.    ACQUISITION OF OLYMPIC CIRCUITS CANADA





On May 9, 2001, Dynamic Details completed the acquisition of
Olympic, a Canada-based, time-critical electronics manufacturing service provider specializing in quick-turn prototype printed circuit boards for a total cash consideration of approximately $12.8 million plus contingent consideration, of up to $4.5
million based on earnings in each of the three years following the date of acquisition, plus expenses of $0.1 million. No contingent consideration has been earned or recorded as of June 30, 2002. If contingent consideration is earned and paid, it
will be capitalized as additional purchase price.





The purchase price has been allocated to the underlying assets and liabilities based
upon their estimated respective fair values at the date of acquisition. The excess of the purchase price was allocated to goodwill.





NOTE 11.    ACQUISITION OF ALTATRON TECHNOLOGY





On June 4, 2001, Dynamic Details completed the
acquisition of the assets of Altatron, a Southern California-based provider of value-add assembly services to electronics original equipment manufacturers for a total cash consideration of approximately $4.8 million, plus contingent consideration
based on earnings in each of the two years following the date of acquisition. No contingent consideration has been earned or recorded as of June 30, 2002. If contingent consideration is earned and paid, it will be capitalized as additional purchase
price.





The purchase price has been allocated to the underlying assets and liabilities based upon their estimated respective fair values
at the date of the transaction. The excess of the purchase price was allocated to goodwill.





NOTE 12.    UNAUDITED
PRO FORMA INFORMATION





The accompanying condensed consolidated statements of operations include the accounts of Thomas Walter, Nelco,
Olympic and Altatron for the period January 1, 2002 through June 30, 2002 and includes the accounts of Thomas Walter for the period March 5, 2001 through June 30, 2001, the accounts of Nelco for the period April 27, 2001 through June 30, 2001, the
accounts of Olympic for the period May 9, 2001 through June 30, 2001 and the accounts of Altatron for the period June 4, 2001 through June 30, 2001. The following pro forma information for the six months ended June 30, 2001 presents net sales and
net income for each of these periods as if the Thomas Walter, Nelco, Olympic and Altatron transactions were consummated on January 1, 2001.








Pro Forma Six months ended June 30, 2001(in millions, except per share
data)Net Sales:DDi Capital

$192.6DDi Corp.

$238.8Net Income:DDi Capital

$    0.1DDi Corp.

$    2.7DDi Corp. net income per share of common stockbasic

$  0.06DDi Corp. net income per share of common stockdiluted

$  0.06




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##### Table of Contents




DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
13.    SEGMENT REPORTING





The Company has adopted the provisions of SFAS No. 131 Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 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 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. During the
three and six months ended June 30, 2002 there were no material assets in or revenues realized from any individual foreign country.





The
following summarizes financial information for DDi Corp. by geographic area:





Three months ended June 30,

Six months ended June
30,(in thousands)

2002

2001

2002

2001Net sales:Domestic

$
44,229

$
61,026

$
88,968

$
167,005Europe


14,820


21,998


30,800


47,848Other


3,063


2,815


4,832


11,695Total

$
62,112

$
85,839

$
124,600

$
226,548





Net sales by geographic area for DDi Capital for the three and six months ended June 30,
2002 and 2001 were the same as DDi Corp. except the sales to Europe were $0.1 million and $1.3 million for the three months ended June 30, 2002 and 2001, respectively, and $0.6 million and $5.1 million for the six months ended June 30, 2002 and
2001, respectively.





June 30,

December 31,(in thousands)

2002

2001Long-lived assets:Domestic

$
172,834

$
222,101International


95,493


115,914Total

$
268,327

$
338,015





Long-lived assets for DDi Capital as of June 30, 2002 and December 31, 2001 consist of
$169.4 million and $218.6 million, respectively, in domestic long-lived assets and $3.4 million and $13.2 million, respectively, in international long-lived assets.




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##### Table of Contents




DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
14.    GOODWILL AND INTANGIBLES





On January 1, 2002, the Company adopted SFAS Nos. 141 and 142. SFAS No. 141
Business Combinations requires that the purchase method of accounting be used for all business combinations, establishes specific criteria for recognizing intangible assets separately from goodwill and requires certain disclosures
regarding reasons for a business combination and the allocation of the purchase price paid. SFAS No. 142 Goodwill and Other Intangible Assets establishes that goodwill and certain intangible assets will not be amortized and the
amortization period of certain intangible assets will no longer be limited to forty years. In addition, SFAS No. 142 requires that goodwill and intangible assets that are not amortized be tested for impairment at least annually.





In adopting these pronouncements, the Company evaluated its identifiable intangible assets for recognition apart from goodwill. At the date of
adoption, identifiable intangible assets consisted of developed technologies, assembled workforce and customer relationships. Such assets were not deemed to be separable from goodwill. Accordingly, the balances of these intangible assets at January
1, 2002, with an aggregate net carrying amount of $45.6 million (consisting of a gross cost of $90.8 million and associated accumulated amortization of $45.2 million), were reclassified to goodwill. In addition, the Company also reclassified
approximately $16.6 million of deferred tax liabilities associated with these intangible assets to goodwill. In accordance with SFAS No. 142, as of the date of adoption, the Company prospectively ceased amortization of goodwill and instead conducts
periodic tests of impairment.





The Company operates in one reportable segment (see Note 13). 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 and the Thomas Walter purchase transaction in 2001. The amount of goodwill
attributable to the European operations was the amount generated in the purchase transactions, net of related amortization through December 31, 2001 and the associated reclassifications of deferred tax liabilities to goodwill. All other goodwill is
related to the Companys North American operations.





Based on the Companys initial transition impairment testing during the
first quarter of 2002, no impairment was recognized. However, due to continued stock price decline during the second quarter of 2002, a test of impairment was again performed. The analysis indicated that the book value of goodwill was in excess of
its fair value, determined by the Companys market capitalization. After assessing the goodwill impairment at a reporting unit level, the Company calculated and recorded a goodwill impairment charge of $45 million for DDi Capital and $60
million for DDi Corp. in the quarter ended June 30, 2002.





Goodwill, net of accumulated amortization, for each reporting unit is as
follows (in thousands):





June 30, 2002North America

$
83.5Europe


62.4Total

$
145.9





Goodwill for DDi Capital as of June 30, 2002 consists entirely of the North American
goodwill.




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##### Table of Contents







DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





The following table shows, on a pro-forma basis, what net income (loss) and earnings per share would have been for the three and six months ended June 30, 2001 if the new accounting standards had been applied beginning January 1,
2001 (in thousands):








DDi CapitalThree Months EndedJune 30,2001


Six Months Ended June 30,2001Net income (loss), as reported

$
(2,586
)

$
774Add back: goodwill and intangibles amortization, net of tax effect


3,527



7,025Pro forma net income

$
941


$
7,799DDi Capital


Three Months Ended June 30,2001


Six Months Ended June 30,2001Net income (loss), as reported

$
(2,462
)

$
3,221Add back: goodwill and intangibles amortization, net of tax effect


4,763



9,356Pro forma net income

$
2,301


$
12,577Basic earnings (loss) per share, as reported

$
(0.05
)

$
0.07Add back: goodwill and intangibles amortization, net of tax effect


0.10



0.20Pro forma basic earnings per share

$
0.05


$
0.27Diluted earnings (loss) per share, as reported

$
(0.05
)

$
0.07Add back: goodwill and intangible amortization, net of tax effect


0.10



0.19Proforma diluted earnings per share

$
0.05


$
0.26





NOTE 15.    RESTRUCTURING AND OTHER RELATED CHARGES





In October 2001, management and the Companys Board of Directors approved a plan to close its Garland, Texas and Marlborough,
Massachusetts facilities. In conjunction with the closure of the Garland and Marlborough facilities, DDi Corp. and DDi Capital recorded charges in the fourth quarter of 2001 totaling $79.8 million and $79.4 million, respectively. Of these amounts,
$3.7 million represent restructuring related inventory impairments and were therefore reflected as a component of gross profit. The remaining $76.1 million of charges were classified as Restructuring and other related charges and consist
of $51.4 million relating to impairments of intangibles assets, $15.5 million relating to impairments of net property, plant and equipment, and $9.2 million for DDi Corp. and $8.8 million for DDi Capital in accrued restructuring expenses. Such
accrued restructuring expenses represented $4.4 million in estimated facilities closure costs, $3.5 million for DDi Corp. and $3.1 million for DDi Capital in severance and related expenses associated with the involuntary termination of the 208 staff
and management employees from the plant closures and changes in senior management undertaken in the fourth quarter of 2001, and $1.3 million in other exit costs. Total accrued restructuring expenses at December 31, 2001 were $6.4 million for DDi
Corp. and $6.1 million for DDi Capital. During the six months ended June 30, 2002, approximately $3.0 million for DDi Corp. and $2.8 for DDi Capital was expended in cash, leaving accrued restructuring costs at June 30, 2002 of $3.4 million and $3.3
million for DDi Corp. and DDi Capital, respectively. The closure of the facilities is estimated to be effectively complete by September 30, 2002.





In April 2002, management and the Companys Board of Directors approved a plan to close its Texas and Moorpark facilities, selected design centers and the restructuring of various UK operations. In conjunction with this plan,
DDi Corp. and DDi Capital recorded charges in the second quarter of 2002 totaling $17.9 million and $17.2 million, respectively. Of these amounts, $3.5 million for DDi Corp. and $3.4 million for DDi Capital represent restructuring related inventory
impairments and were therefore reflected as a component of gross profit. The remaining $14.4 million of charges for DDi Corp. and $13.8 million for DDi Capital were classified as Restructuring and other related charges. Such charges
consist




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##### Table of Contents




DDi CAPITAL CORP. AND DDi CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





of $8.3 million for DDi Corp. and
$8.2 million for DDi Capital relating to impairments of net property, plant and equipment, and $6.1 million for DDi Corp. and $5.6 million for DDi Capital in accrued restructuring expenses. The accrued restructuring expenses represented $2.5 million
for DDi Corp. and $2.4 for DDi Capital in estimated facilities closure costs, $3.0 million for DDi Corp. and $2.6 million for DDi Capital in severance and related expenses associated with the involuntary termination of the 135 staff and management
employees from the plant closures undertaken in the second quarter of 2002, and $0.6 million in other exit costs. Total accrued restructuring expenses at June 30, 2002 were $3.9 million for DDi Corp. and $3.8 million for DDi Capital. The closure of
the facilities is estimated to be effectively complete by December 31, 2002.





NOTE 16.    COMPREHENSIVE INCOME
(LOSS)





SFAS No. 130 Reporting Comprehensive Income establishes requirements for reporting and disclosure of
comprehensive income (loss) and its components. Comprehensive income (loss) includes unrealized holding gains and losses and other items that have previously been excluded from net income and reflected instead in stockholders equity.
Comprehensive income (loss) for DDi Capital and DDi Corp. consists of net income (loss) plus the effect of foreign currency translation adjustments, unrealized holding gains (losses) on marketable securities classified as available-for-sale and
unrealized net gains (losses) on interest rate swaps and related unrealized net tax impact.





The Company adopted SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities on January 1, 2001 (see Note 4). In accordance with the transition provisions of SFAS No. 133, DDi Capital and DDi Corp. recorded a cumulative-effect-type adjustment to
accumulated other comprehensive loss for the initial difference between the book value and fair value of interest rate swap agreements as of January 1, 2001.





NOTE 17.    RECENT ACCOUNTING PRONOUNCEMENTS





In April 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 145 Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections. Among other matters, SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt thereby eliminating the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the
criteria in APB Opinion No. 30, Reporting Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions will be used to classify
those gains and losses.





The Company adopted SFAS No. 145 in the second quarter of 2002. As a result of the adoption of this
pronouncement, the Company accounts for the impact of the early extinguishment of debt as a component of net interest expense in the accompanying condensed consolidated statements of operations. In accordance with SFAS No. 145, the Company has
reclassified certain costs incurred in prior periods that were previously classified as extraordinary items, net of related income taxes. Such reclassifications had no effect upon net income (loss), but resulted in increases of $8.0 million and
$19.6 million to reported interest expense for the second quarter and six months ended June 30, 2001, respectively.





In June 2002, the
FASB issued SFAS No. 146  Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002. The provisions of EITF 94-3 shall continue to apply for exit activities initiated under an exit plan that met criteria of EITF 94-3 prior to the initial application of SFAS No. 146.





NOTE 18.    SUBSEQUENT EVENT





In July 2002, DDi Corp. made a capital contribution of $30.0 million to Dynamic Details, Inc., pursuant to the terms of the amended senior credit facility (see Note 3).




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##### Table of Contents




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





Overview





DDi Corp., formerly known as DDi Holdings Corp. (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, DDi Europe Limited (DDi Europe)
and Dynamic Details, Incorporated (Dynamic Details), we target customers that are characterized by 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), DDi Europe and Dynamic Details.





This discussion and analysis should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of Operations set forth in DDi Capital Corp.s and DDi Corp.s Annual Report on Form 10-K for the year ended December 31, 2001.





Results of Operations





Three Months
Ended June 30, 2002 Compared to the Three Months Ended June 30, 2001





Net Sales





DDi Capital net sales decreased $17.8 million (27%) to $47.4 million for the three months ended June 30, 2002, from $65.2 million for the same period in 2001.
DDi Corp. net sales decreased $23.7 million (28%) to $62.1 million for the three months ended June 30, 2002, from $85.8 million for the same period in 2001. Such decreases in net sales are attributable to reductions in panels produced and the
average price per panel, reflecting softened economic conditions in both North America and Europe.





Gross Profit





DDi Capital gross profit decreased $18.6 million (92%) to $1.7 million for the three months ended June 30, 2002, from $20.3 million for the same
period in 2001. DDi Corp. gross profit decreased $23.8 million (90%) to $2.7 million for the three months ended June 30, 2002, from $26.5 million for the same period in 2001. The gross profit for DDi Capital and DDi Corp. includes incremental
charges ($3.4 million for DDi Capital and $3.5 million for DDi Corp.) for inventory write-downs in connection with our second quarter 2002 restructuring initiatives (see the discussion of Restructuring and Other Related Charges for further
information). Excluding the incremental charge, DDi Capital gross profit was $5.1 million, or 11% of net sales for the three months ended June 30, 2002, down from 31% of net sales for the same period in 2001. On the same basis, DDi Corp. gross
profit was $6.2 million, or 10% of net sales for the three months ended June 30, 2002, down from 31% for the same period in 2001. The decreases in the Companys gross profit resulted from lower average pricing in 2002 and reduced absorption of
fixed manufacturing overhead. The impact of the decreases in sales was mitigated by various cost control initiatives relating to materials, production personnel and overhead expenses.





Sales and Marketing Expenses





DDi Capital sales and marketing expenses increased
$0.4 million (8%) to $5.6 million for the three months ended June 30, 2002, from $5.2 million for the same period in 2001. DDi Corp. sales and marketing expenses increased $0.3 million (5%) to $6.2 million for the three months ended June 30, 2002,
from $5.9 million for the same period in 2001. Such increases in sales and marketing expenses reflect additional costs associated with the Companys Tokyo-based sales office and a shift in the overall production mix resulting in increased
commissions and other variable expenses.





General and Administration Expenses





DDi Capital general and administration expenses remained at approximately $3.0 million for the three months ended June 30, 2002, from the same period in 2001.
DDi Corp. general and administration expenses decreased $0.1 million (2%) to $4.6 million for the three months ended June 30, 2002, from $4.7 million for the same period in 2001. General and administrative expenses increased as a percentage of sales
for the Company, however, reflecting the relatively fixed nature of many of these costs.





Restructuring and Other Related Charges





Restructuring and related charges were $13.8 million for DDi Capital and $14.4 million for DDi Corp. for the three months ended June 30,
2002. Such charges represent incremental costs incurred in connection with managements decision to close




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##### Table of Contents

various facilities, eliminate additional overhead, and remove underutilized assets from productive service. See Note 15 to the Condensed
Consolidated Financial Statements.





Amortization of Intangibles





Amortization of intangibles for the three months ended June 30, 2001 was $4.5 million for DDi Capital and $5.8 million for DDi Corp. Effective January 1, 2002, the Company adopted of Statement of
Financial Accounting Standards No. 142 (see Note 14 to the Condensed Consolidated Financial Statements). As a result of the adoption of this standard, the Company recorded no amortization of intangibles for the three months ended June 30, 2002.





Goodwill Impairment





DDi Capital and DDi Corp. recorded a goodwill impairment of $45 million and $60 million, respectively, during the three months ended June 30, 2002. See Note 14 to the Condensed Consolidated Financial Statements.





Net Interest Expense





DDi
Capital net interest expense decreased $10.9 million (95%) to $0.6 million for the three months ended June 30, 2002, from $11.5 million for the same period in 2001. Such decrease in net interest expense is due primarily to the retirement of debt in
each period. For the three months ended June 30, 2002, the Company recorded approximately $1.4 million in net non-cash credits resulting from a write-off of debt issuance costs in connection with the prepayment of a portion of the Dynamic Details
Senior Term Facility and the modification of the related interest rate swap agreement. For the three months ended June 30, 2001, the Company recorded net interest charges of approximately $8.0 million in connection with the redemption of a portion
of the DDi Capital Senior Discount Notes. See Note 17 to the Condensed Consolidated Financial Statements. The decrease in net interest expense also reflects the reduced indebtedness resulting from the aforementioned transactions, the redemption of
the Dynamic Details Senior Subordinated Notes in February 2001, and the scheduled principal repayments of the Dynamic Details Senior Credit Facility. DDi Corp. net interest expense decreased $9.2 million (68%) to $4.4 million for the three months
ended June 30, 2002, from $13.6 million for the same period in 2001. Such decrease in net interest expense reflects the decrease in net interest expense incurred by DDi Capital, partially offset by interest expense incurred on the DDi Corp. 6.25%
Convertible Subordinated Notes issued in April 2002.





Income Taxes





The DDi Capital effective tax rate decreased to an expense rate of approximately 1% for the three months ended June 30, 2002, from a benefit rate of 34% for the same period in 2001. The DDi
Corp. effective income tax rate decreased to a benefit rate of approximately 1% for the three months ended June 30, 2002, as compared to a benefit rate of 28% for the same period in 2001. For the three months ended June 30, 2002, the Companys
effective tax rates reflect the impact of substantial non-deductible items, primarily the goodwill impairment (see Goodwill Impairment above), and valuation allowances relating to certain state deferred tax assets, including certain state tax
credits.





Six Months Ended June 30, 2002 Compared to the Six Months Ended June 30, 2001





Net Sales





DDi Capital net sales decreased
$89.4 million (49%) to $94.4 million for the six months ended June 30, 2002, from $183.8 million for the same period in 2001. DDi Corp. net sales decreased $101.9 million (45%) to $124.6 million for the six months ended June 30, 2002, from $226.5
million for the same period in 2001. Such decreases in net sales are attributable to a reduction in panels produced and the average price per panel, reflecting softened economic conditions in both North America and Europe.





Gross Profit





DDi Capital gross profit
decreased $57.7 million (90%) to $6.5 million for the six months ended June 30, 2002, from $64.2 million for the same period in 2001. DDi Corp. gross profit decreased $70 million (88%) to $9.1 million for the three months ended June 30, 2002, from
$79.1 million for the same period in 2001. The gross profit for DDi Capital and DDi Corp. includes incremental charges ($3.4 million for DDi Capital and $3.5 million for DDi Corp.) for inventory write-downs in connection with our second quarter 2002
restructuring initiatives (see the discussion of Restructuring and Other Related Charges for further information). Excluding the incremental charge, DDi Capital gross profit was $9.9 million, or 10% of net sales for the six months ended June 30,
2002, down from 35% of net sales for the same period in 2001. On the same basis, DDi Corp. gross profit was $12.5 million, or 10% of net sales for the six months ended June 30, 2002, down from 35% for the same period in 2001. The decreases in the
Companys gross profit resulted from the lower level of net sales generated in 2002. The impact of the decreases in sales was mitigated by various cost control initiatives relating to materials, production personnel and overhead expenses.





Sales and Marketing Expenses





DDi Capital sales and marketing expenses decreased $2.6 million (19%) to $11.4 million for the six months ended June 30, 2002, from $14 million for the same period in 2001. DDi Corp. sales and marketing expenses decreased $2.9
million (19%) to $12.4 million for the six months ended June 30, 2002, from $15.3 million for the same period in 2001. Such decreases




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in sales and marketing expenses reflect the lower level of net sales, partially offset by additional costs associated with the Companys
Tokyo-based sales office and a shift in the overall production mix resulting in increased commissions and other variable expenses.





General and Administration Expenses





DDi Capital general and administration expenses decreased $2.3 million (28%)
to $6 million for the six months ended June 30, 2002, from $8.3 million for the same period in 2001. DDi Corp. general and administration expenses decreased $2.8 million (24%) to $9 million for the six months ended June 30, 2002, from $11.8 million
for the same period in 2001. The decreases in general and administrative expenses reflect the impact of various cost control initiatives. Such expenses increased as a percentage of net sales, however, reflecting the relatively fixed nature of many
of these costs.





Restructuring and Other Related Charges





Restructuring and related charges were $13.8 million for DDi Capital and $14.4 million for DDi Corp. for the six months ended June 30, 2002. Such charges represent incremental costs incurred in
connection with managements decision to close various facilities, eliminate additional overhead, and remove underutilized assets from productive service. See Note 15 to the Condensed Consolidated Financial Statements.





Amortization of Intangibles





Amortization
of intangibles for the six months ended June 30, 2001 was $9 million for DDi Capital and $11.5 million for DDi Corp. Effective January 1, 2002, the Company adopted of Statement of Financial Accounting Standards No. 142 (see Note 14 to the Condensed
Consolidated Financial Statements). As a result of the adoption of this standard, the Company recorded no amortization of intangibles for the six months ended June 30, 2002.





Goodwill Impairment





DDi Capital and DDi Corp. recorded a goodwill impairment of
$45 million and $60 million, respectively, during the six months ended June 30, 2002. See Note 14 to the Condensed Consolidated Financial Statements.





Net Interest Expense





DDi Capital net interest expense decreased $25 million (86%) to $4.1 million for the six
months ended June 30, 2002, from $29.1 million for the same period in 2001. Such decrease in net interest expense is due primarily to the retirement of debt in each period. For the six months ended June 30, 2002, the Company recorded approximately
$1.4 million in net non-cash credits resulting from a write-off of debt issuance costs in connection with the prepayment of a portion of the Dynamic Details Senior Term Facility and the modification of the related interest rate swap agreement. For
the six months ended June 30, 2001, the Company recorded net interest charges of approximately $19.6 million in connection with the redemption of the Dynamic Details Senior Subordinated Notes in February 2001 and a portion of the DDi Capital Senior
Discount Notes in the second quarter of 2001. See Note 17 to the Condensed Consolidated Financial Statements. The decrease in net interest expense also reflects the reduced indebtedness resulting from the aforementioned transactions and the
scheduled principal repayments of the Dynamic details Senior Credit Facility. DDi Corp. net interest expense decreased $22.6 million (70%) to $9.8 million for the six months ended June 30, 2002, from $32.4 million for the same period in 2001. Such
decrease in net interest expense reflects the decrease in net interest expense incurred by DDi Capital, partially offset by interest expense incurred on the DDi Corp. 5.25% Convertible Subordinated Notes issued in February 2001 and the DDi Corp.
6.25% Convertible Subordinated Notes issued in April 2002.





Income Taxes





The DDi Capital effective tax rate decreased to a benefit rate of approximately 3% for the six months ended June 30, 2002, from an expense rate of 80% for the same period in 2001. The DDi
Corp. effective income tax rate decreased to a benefit rate of approximately 5% for the six months ended June 30, 2002, as compared to a benefit rate of 60% for the same period in 2001. For the six months ended June 30, 2002, the Companys
effective tax rates reflect the impact of substantial non-deductible items, primarily the goodwill impairment (see Goodwill Impairment above), and valuation allowances relating to certain state deferred tax assets, including certain state tax
credits.





Liquidity and Capital Resources





As of June 30, 2002, cash, cash equivalents and marketable securities were $12.4 million for DDi Capital and $49.6 million for DDi Corp., compared to $39.5 million for DDi Capital and $45.5 million for DDi Corp. as of
December 31, 2001. Additionally, the Company had $12.5 million in restricted cash and investments at June 30, 2002 (see Note 7 to the condensed consolidated financial statements). Our principal sources of liquidity to fund ongoing operations are
cash provided by operations, existing cash, cash equivalents and marketable securities available for sale.




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Net cash provided by (used in) operating activities for the six months ended June 30, 2002 was $0.4
million for DDi Capital and $(2.5) million for DDi Corp., compared to $52.2 million for DDi Capital and $61.4 million for DDi Corp. for the six months ended June 30, 2001. The decline in operating cash flow is due primarily to lower levels of
earnings in the current period.





Capital expenditures for the six months ended June 30, 2002 were $5.3 million for DDi Capital and $6.5
million for DDi Corp., compared to $14.2 million for DDi Capital and $21.0 million for DDi Corp. for the six months ended June 30, 2001.





As of June 30, 2002, DDi Capital and DDi Corp. had long-term borrowings of $82.0 million and $303.1 million, respectively. Dynamic Details has a $50.0 million revolving credit facility for revolving credit loans, letters of credit
and swing line loans. Access to the full amount of the revolving credit facility is subject to conditions set forth in the credit facility agreement. Under an amendment to the Dynamic Details senior credit facility in June 2002, the maximum we can
borrow under the revolving credit facility is limited to $25 million until December 31, 2003. At June 30, 2002, Dynamic Details had no amounts outstanding under this revolving credit facility and had $1.2 million reserved against the facility for
letters of credit and had $23.8 million available for borrowing under the facility. Our European operating subsidiary, DDi Europe, has $15.3 million available for borrowing under its revolving credit facility. At June 30, 2002, no amounts were drawn
on this revolving credit facility.





The following table shows our contractual cash obligations and commercial commitments as of June 30,
2002:








Payments Due by Period


(in millions)





DDi CapitalFor the Six Months Ending December 31,

Year Ending December 31,Commitments

2002

2003

2004

2005

2006

Thereafter

TotalLong-Term Debt

$
4.7

$
11.0

$
24.7

$
32.8

$


$
16.1

$
89.3Capital Lease Obligations


0.8


1.5


1.4


1.3








5.0Operating Leases


3.2


5.8


5.0


5.0


3.7


12.3


35.0Total Commitments

$
8.7

$
18.3

$
31.1

$
39.1

$
3.7

$
28.4

$
129.3





DDi Corp.For the Six Months Ending December 31,

Year Ending December 31,Commitments

2002

2003

2004

2005

2006

Thereafter

TotalLong-Term Debt

$
4.7

$
15.6

$
29.3

$
37.4

$
4.6

$
220.6

$
312.2Capital Lease Obligations


1.3


1.8


1.6


1.4








6.1Operating Leases


4.3


7.8


6.9


6.8


5.6


30.5


61.9Total Commitments

$
10.3

$
25.2

$
37.8

$
45.6

$
10.2

$
251.1

$
380.2








On February 14, 2001, DDi
Corp. and some of its shareholders completed a follow-on public offering of 6,000,000 shares of its common stock, with 3,000,000 shares issued by DDi Corp. and the remainder sold by selling shareholders. The shares were sold at $23.50 per share,
generating proceeds of $67.0 million, net of underwriting discounts, commissions and expenses. Concurrently, DDi Corp. issued 5.25% Convertible Subordinated Notes due March 1, 2008 with an aggregate principal of $100.0 million. These notes are
convertible at any time prior to maturity into shares of common stock at a conversion price of $30.00 per share, subject to certain adjustments. These notes generated proceeds of $97.0 million, net of underwriting discounts, commissions and
expenses. The net proceeds of both transactions were used to repurchase a portion of the DDi Capital senior discount notes and all of the Dynamic Details senior subordinated notes (see Note 6 to the condensed consolidated financial statements).





On April 2, 2002, DDi Corp. completed its private offering of $100.0 million aggregate principal amount of 6.25%
Convertible Subordinated Notes due April 1, 2007. These notes are convertible at any time prior to maturity into shares of




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common stock at a conversion price of $11.04 per share, subject to certain adjustments. These notes generated proceeds of $95.8 million, net of
underwriting discounts. Approximately $47.9 million of the net proceeds from the sale were used to repay a portion of the Dynamic Details Senior Term Facility, $12.5 million was placed in an interest reserve account to cover two years of interest
payments on the notes and the remainder will be used for working capital and general corporate purposes. In connection with the $47.9 million repayment of the Senior Term Facility, Dynamic Details elected to amend its swap agreement by reducing the
notional balance of the swap to reflect the impact of the debt repayment on the outstanding principal. In connection with the amendment of the swap agreement, Dynamic Details paid approximately $3.1 million to the counterparty, representing the
pro-rata portion of the deferred swap liability (see Note 7 to the condensed consolidated financial statements).





Based upon the current level of operations, we believe that cash generated from operations, available cash and amounts available under our senior credit facility will be adequate to meet our debt service requirements, capital
expenditures and working capital needs for the foreseeable future, although no assurance can be given in this regard. Accordingly, there can be no assurance that our business will generate sufficient cash flow from operations or that future
borrowings will be available to enable us to service our indebtedness. We remain leveraged and our future operating performance and ability to service or refinance our indebtedness will be subject to future economic conditions and to financial,
business and other factors, certain of which are beyond our control.





FORWARD-LOOKING STATEMENTS





A number of the matters and subject areas discussed in this Form 10-Q are forward-looking in nature. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may differ materially from our actual future experience involving any one or more of such matters and subject areas. We wish to caution readers
that all statements other than statements of historical facts included in this quarterly report on Form 10-Q regarding our financial position and business strategy may constitute forward-looking statements. All of these forward-looking statements
are based upon estimates and assumptions made by our management, which although believed to be reasonable, are inherently uncertain. Therefore, undue reliance should not be placed on such estimates and statements. No assurance can be given that any
of such estimates or statements will be realized and it is likely that actual results will differ materially from those contemplated by such forward-looking statements. Factors that may cause such differences include: (1) changes in general economic
conditions in the markets in which we may compete and fluctuations in demand in the electronics industry; (2) success of our restructuring efforts; (3) the ability to sustain historical margins as the industry develops; (4) increased competition;
(5) increased costs; (6) loss or retirement of key members of management; (7) increases in our cost of borrowings or unavailability of additional debt or equity capital on terms considered reasonable by management; (8) adverse state, federal or
foreign legislation or regulation or adverse determinations by regulators; and (9) inability to consummate acquisitions on attractive terms. We have attempted to identify, in context, certain of the factors that we currently believe may cause actual
future experiences to differ from our current expectations regarding the relevant matter or subject area. In addition to the items specifically discussed in the foregoing, our business and results of operations are subject to the risks and
uncertainties described herein under the heading Factors That May Affect Future Results contained herein, however, the operations and results of our business also may be subject to the effect of other risks and uncertainties. Such risks
and uncertainties include, but are not limited to, items described from time-to-time in our registration statements and periodic reports filed with the Securities and Exchange Commission.




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FACTORS THAT MAY AFFECT FUTURE RESULTS





Substantial Indebtedness





We have a substantial amount of indebtedness.
As of June 30, 2002, our total debt was approximately $93.6 million for DDi Capital and $317.6 million for DDi Corp. As of June 30, 2002, we had $23.8 million available under the Dynamic Details senior credit facility and $14.6 million available
under the DDi Europe credit facility for future borrowings for general corporate purposes and working capital needs. In addition, subject to the restrictions in the DDi Corp. convertible subordinated notes, DDi Capital senior discount notes and
Dynamic Details senior credit facility, we may incur additional indebtedness in an unrestricted amount from time to time to finance acquisitions or capital expenditures or for other purposes.





As a result of our level of debt and the terms of our debt instruments:





| |  |  | our vulnerability to adverse general economic conditions is heightened;
| | - |  | -----------------------------------------------------------------------




| |  |  | we will be required to dedicate a substantial portion of our cash flow from operations to repayment of debt, limiting the availability of cash for other
purposes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | we are and will continue to be limited by financial and other restrictive covenants in our ability to borrow additional funds, consummate asset sales, enter
into transactions with affiliates or conduct mergers and acquisitions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | our flexibility in planning for, or reacting to, changes in our business and industry will be limited;
| | - |  | ------------------------------------------------------------------------------------------------------




| |  |  | we are sensitive to fluctuations in interest rates because some of our debt obligations are subject to variable interest rates; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------




| |  |  | our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Our ability to pay principal and interest on our indebtedness and to satisfy our other debt
obligations will depend upon our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond our control, as well as the availability of revolving credit
borrowings under the Dynamic Details senior credit facility and the DDi Europe facilities agreement or successor facilities. We anticipate that our existing cash and marketable securities, operating cash flow, amounts available under our existing
credit facilities will be sufficient to meet our operating expenses and to service our debt requirements as they become due. If we are unable to service our indebtedness, we will be forced to take actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing our indebtedness, or seeking additional equity capital. There is no assurance that we can effect any of these remedies on satisfactory terms, or at all.





Business Cycles of the End Markets We Serve





The end markets into which we sell printed circuit boards and electronic manufacturing services (including communications and networking equipment; computers and peripherals; medical, automotive, industrial and test equipment; and
aerospace equipment) have their own business cycles. Some of these cycles show predictability from year to year. However, other cycles are unpredictable in commencement, depth and duration. The communications industry entered into a significant
downturn in late 2000, which continues as of this date. This has had a negative impact on our revenues and operating performance for the six months ended June 30, 2002 and has continued to have a negative impact on our revenues and operating
performance during the third quarter of 2002. The failure of such industries to recover, a worsening of the downturn, or any other event leading to additional excess capacity will negatively impact our revenues, gross margins and operating margins.





Potential Adverse Effects Relating to Our Indebtedness





Dynamic Details and DDi Europe are required to maintain specified financial ratios and satisfy certain financial condition tests contained in their respective credit facilities. If Dynamic Details and
DDi Europe are not able to meet the financial ratios and satisfy the financial condition tests contained in their respective credit facilities, we may be required to commence discussions with our lenders regarding forbearance agreements, additional
amendments or waivers under, or a potential restructuring of, our indebtedness. There can be no assurance that any such agreement could be obtained.




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Any increase in our debt service requirements or any reduction in amounts available for borrowing under
the Dynamic Details senior credit facility or our other indebtedness could significantly affect our ability to meet debt service requirements, to fund capital expenditures, acquisitions, and working capital. There can be no assurance that the
Dynamic Details senior credit facility or our other indebtedness would be renegotiated on terms acceptable to us.





If we are not able to
comply with the current financial covenant levels, we will not be able to borrow under the Dynamic Details senior credit facility, and the lenders under this facility will have the right to declare the outstanding borrowings under the facility to be
immediately due and payable and the exercise of all or any of their other rights and remedies, including foreclosing on the collateral pledged to secure the facility, which consists of substantially all of the assets of Dynamic Details and its
subsidiaries.





Restrictions Imposed by Terms of Indebtedness





The terms of our indebtedness 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. Depending on the specific circumstance, breach of any of these covenants could result in a default under some or all of our indebtedness agreements. Upon the occurrence of an event of default, lenders
under such indebtedness could elect to declare all amounts outstanding together with accrued interest, to be immediately due and payable. If we were unable to repay such amounts, the lenders could proceed against the collateral granted to them to
secure that indebtedness. Substantially all the assets of Dynamic Details and its subsidiaries are pledged as security under the Dynamic Details senior credit facility. Substantially all the assets of DDi Europe are pledged as security under the DDi
Europe facilities agreement.





Restrictions on DDi Corp.s Ability to Use Funds from Its Operating Subsidiaries





DDi Corp. is a holding company, and a significant portion of its operations are conducted by its subsidiaries. DDi Corp.s cash flow and its
ability to service indebtedness are dependent to a large extent upon cash dividends and distributions or other transfers from its subsidiaries. In addition, any payment of dividends, distributions, loans or advances by DDi Corp.s subsidiaries
to DDi Corp. could be subject to restrictions on dividends imposed by the current and future debt instruments of its subsidiaries and applicable laws. Such payments to DDi Corp. by its subsidiaries are contingent upon the subsidiaries
earnings. Any right that DDi Corp. has to receive any assets of any of its subsidiaries upon the liquidation or reorganization of any such subsidiary will be effectively subordinated to the claims of subsidiary creditors, including trade creditors
and holders of debt issued by the subsidiary.





The Dynamic Details senior credit facility and the DDi Europe facilities agreement
restrict the ability of Dynamic Details and DDi Europe to pay dividends or make loans to DDi Corp. If DDi Corp. does not have funds available from other sources to repay its indebtedness when due, DDi Corp. could attempt to refinance all or a
portion of its indebtedness or seek the consent of its lenders to make the payments due, but there can be no assurance that DDi Corp. can obtain such consent. If DDi Corp. does not have funds available from other sources and is not able to obtain a
consent of its lenders, DDi Corp. could not make the payments due under its indebtedness. DDi Corp.s failure to make any payments due under its indebtedness would constitute an event of default under such indebtedness, which may constitute a
default under the terms of our other indebtedness.





Technological Change and Process Development





The market for our products and 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 products and services that meet changing customer needs, and to successfully anticipate or respond to technological changes on a
cost-effective and timely basis. Research and development expenses are expected to increase as manufacturers make demands for products and services requiring more advanced technology on a quicker turnaround basis. We are more leveraged than some of
our principal competitors, and therefore may not be able to respond to technological changes as quickly as these competitors.





In
addition, the electronics manufacturing services industry could in the future encounter competition from new or revised technologies that render existing technology less competitive or obsolete or that reduce the demand for 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. There can be




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no assurance 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.





Dependence on a Core Group of Significant Customers





Although we have a large number of customers, no one customer accounted for more than 10% of net sales for the second quarter ended June 30, 2002. Net sales to
our ten largest customers accounted for approximately 22.3% for DDi Capital and 25.4% for DDi Corp of net sales during the same period. We may depend upon a core group of customers for a material percentage of their respective 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 revenues. In addition, we generate significant accounts receivable in connection with providing services to customers. If one or more significant customers were to
become insolvent or otherwise were unable to pay us for the services provided, results of operations would be adversely affected.





Variability of Orders





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 expectations. Furthermore, we may not be able to capture all potential revenue in a given period if our customers demand for quick-turnaround 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 future performance. Because a significant portion of our operating expenses are
fixed, even a small revenue shortfall can have a disproportionate effect on operating results. It is possible that, in future periods, results may be below the expectations of public market analysts and investors. This could cause the market price
of DDi Corp.s common stock to decline.





Competition





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 independent small private companies and integrated subsidiaries of more broadly based volume producers that also manufacture multilayer 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.





Competition in the complex quick-turn and longer-lead printed circuit board industry has increased due to the consolidation trend in the industry, which results in potentially better capitalized and more effective competitors. Our
basic technology is generally not subject to significant proprietary protection, and companies with significant resources or international operations may enter the market. Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect our business, financial condition and results of operations.





Dependence on Acquisition Strategy





As part of our business strategy, we expect that we will continue to grow by
pursuing acquisitions of other companies, assets or product lines that complement or expand our existing business. Competition for attractive companies in our industry is substantial. We cannot assure you that we will be able to identify suitable
acquisition candidates or to finance and complete transactions that we select. In addition, existing credit facilities restrict our ability to acquire the assets or business of other companies. The attention of our management may be diverted, and
operations may be otherwise disrupted. If we fail to effectively execute this acquisition strategy, the growth of our revenues may suffer and the price of DDi Corp.s common stock may decline.





Risks Relating to the Closure or Restructuring of Our Manufacturing Facilities





During the fourth quarter of 2001, we closed two of our manufacturing facilities which required us to transfer associated orders to other facilities. This transfer had a negative impact on our expected
margins for these orders in the first quarter of 2002 and has negatively impacted our financial performance. In addition, we have recently decided to close two more manufacturing facilities, which we expect to complete during the fourth quarter of
2002. These closures could have a




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similar negative impact on our margins and our financial performance. We can provide no assurance that the contemplated closures or any
additional restructuring we may pursue in the future will not have a negative impact on our margins or financial performance.





Costs
of International Expansion





We have expanded into new foreign markets and intend to continue our international expansion. We
completed our acquisition of MCM Electronics and Thomas Walter Limited, both United Kingdom companies, on April 14, 2000 and March 5, 2001, respectively. We also acquired Olympic Circuits Canada, a Canadian company, on May 9, 2001. In addition, in
April 2001, we established Dynamic Details Japan as a sales office in Tokyo, Japan. Entry into foreign markets may require considerable management time as well as, in the case of new operations, start-up expenses for market development, hiring and
establishing office facilities before any significant revenues are generated. As a result, operations in new foreign markets may achieve low margins or may be unprofitable. We may not be able to utilize net operating losses incurred by foreign
operations to reduce our U.S. income taxes. Therefore, as we continue to expand internationally, we may not generate operating results consistent with historical performance, and the market price of DDi Corp.s common stock may decline.





Inaccuracies in Forecasting Our Supply Needs Could Negatively Impact Our Results of Operations





A substantial portion of our net sales are derived from quick-turn services for which we provide both the materials and the manufacturing services. As a result,
we often bear the risk of fluctuations in the cost of materials, and the risk of generating scrap and excess inventory, which can affect gross profit margins. We forecast future inventory needs based upon the anticipated demands of our customers.
Inaccuracies in making these forecasts or estimates could result in a shortage or an excess of materials, either of which could negatively affect production schedules and margins.





Intellectual Property





Our success depends in part on proprietary technology and
manufacturing techniques. Currently, we do not rely on patent protection to safeguard these proprietary techniques but rely primarily on trade secret protection. Litigation may be necessary to protect our technology and determine the validity and
scope of the proprietary rights of competitors. Intellectual property litigation could result in substantial costs and diversion of our management and other resources. If any infringement claim is asserted against us, we may seek to obtain a license
of the other partys intellectual property rights. We cannot assure you that a license would be available on reasonable terms or at all.





Environmental Matters





Our operations are regulated under a number of federal, state and foreign environmental and
safety laws and regulations that govern, among other things, the discharge of hazardous materials into the air and water, as well as the handling, storage and disposal of such materials. These laws and regulations include the Clean Air Act, the
Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act, as well as analogous state and foreign laws. Compliance with these environmental laws is a major consideration
for us because we use in our manufacturing process materials classified as hazardous such as ammoniacal etching solutions, copper and nickel. In addition, because we are a generator of hazardous wastes, we may be subject to potential financial
liability for costs associated with an investigation and any remediation of sites at which we have arranged for the disposal of hazardous wastes if such sites become contaminated. 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 our effluent discharge permits. 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 DDi Corp.s common stock to decline.





Dependence on Key Management





We depend on the services of our senior executives,
including Bruce D. McMaster, President and Chief Executive Officer. We cannot assure that we will be able to retain him and other executive officers and key personnel or attract additional qualified management in the future. Mr. McMaster is not a
party to an employment agreement with us. Our business also depends on our ability to continue to recruit, train and retain skilled employees, particularly engineering and sales




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personnel, due to our focus on the technologically advanced and time-critical segment of the electronics manufacturing services industry. In
addition, our ability to successfully integrate acquired companies depends in part on our ability to retain key management and existing employees at the time of the acquisition.





Possible Effects of Changes in Our Debt Ratings





Certain of our outstanding debt
instruments are publicly rated by independent rating agencies, which ratings are now below investment grade. These public debt ratings affect our ability to raise debt, our access to the commercial paper market (which is currently closed to us), and
our ability to engage in asset-based financing. These public debt ratings also may negatively affect the cost to us and terms and conditions of debt and asset-based financings. Additionally, any negative developments regarding our cash flow, public
debt ratings and/or our incurring significant levels of debt, or our failure to meet certain covenants under our credit agreements, could cause us to lose access to, and/or cause a default under certain of our credit facilities and adversely affect
further the cost and terms and conditions of our debt and asset-based financings.





Charter Documents and State Law Provisions





Provisions in our charter and bylaws may have the effect of delaying or preventing a change of control or changes in our management
that stockholders consider favorable or beneficial. If a change of control or change in management is delayed or prevented, the market price of our common stock could suffer.





Controlling Stockholders





Investment funds affiliated with Bain Capital, Inc.
beneficially own approximately 6% of the outstanding common stock of DDi Corp. In addition, of the nine directors who serve on our board, three are current representatives of Bain Capital, Inc. and two are former representatives of Bain Capital,
Inc. By virtue of such stock ownership and board representation, these entities will continue to have a significant influence over all matters submitted to our stockholders, including the election of our directors, and to exercise significant
control over our business, policies and affairs. Such concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders.





A further decline in our stock price could result in a charge for impairment of goodwill





On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142). SFAS
142 requires that goodwill and certain other intangible assets be tested for impairment at least annually or whenever evidence of potential impairment exists. Under SFAS 142, we are required to recognize an impairment charge for the write-down of
our goodwill if the fair values of our net assets are less than their current recorded book values. As a result of the recent significant decline in the market price of DDi Corp.s common stock, we were required to test our goodwill and certain
other intangible assets for impairment. As a result of this impairment analysis, DDi Corp. recorded a $60 million goodwill impairment charge during the second quarter of 2002. A further decline in the market price of DDi Corp.s common stock
could require us to further test our goodwill and certain other intangible assets for impairment and require us to recognize an additional impairment charge for the write-down of our goodwill if the fair values of our net assets are less than their
current recorded book values.





DDi Corp.s Common Stock May Be Delisted From The Nasdaq National Market.





DDi Corp. has received a notice from Nasdaq that its common stock has failed to maintain the required minimum bid price of $1.00 over a period of 30
consecutive trading days. As a result, Nasdaq has provided DDi Corp. with 90 calendar days, or until November 4, 2002, to regain compliance with this requirement or be delisted from trading on the Nasdaq National Market. While our Board of Directors
intends to review the options available to us for regaining compliance with the listing requirements of the Nasdaq National Market, we may also consider transferring our securities to The Nasdaq SmallCap Market (SmallCap Market), which
would increase the initial grace period from 90 days to 180 days. In addition, if we transfer to the SmallCap Market, we could be eligible for an additional 180-calendar day grace period provided that we meet the initial listing criteria for the
SmallCap Market under Marketplace Rule 4301(c)(2)(A). Furthermore, we may be eligible to transfer back to The Nasdaq National Market, without paying the initial listing fees the end of all applicable grace periods, DDi Corp.s bid price
maintains the $1.00 per share requirement for 30 consecutive trading days and we have maintained compliance with all other continued listing requirements on that market. Our failure to comply or promptly to cure a noncompliance could result in our
stock being delisted. If our stock is delisted, trading, if any, in the stock would thereafter be conducted in the over-the-counter market in the pink sheets or the National Association of Securities Dealers Electronic
Bulletin Board and the liquidity of our stock could be materially impaired.




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Item 3.    
Quantitative and Qualitative Disclosures About Market Risk.





Interest Rate Risk





The DDi Europe facilities agreement and the Dynamic Details senior credit facility bear interest at a floating rate; the DDi Capital senior discount notes and
DDi Corp. convertible subordinated notes bear interest at fixed rates. We reduce our exposure to interest rate risks through swap agreements.





The Dynamic Details revolving credit facility bears interest at (a) 3.75% per annum plus the applicable LIBOR or (b) 2.00% per annum plus the federal reserve reported overnight funds rate plus 0.5% per annum. As of June 30, 2002, we
had no amount outstanding under our revolving credit facility. Based upon our anticipated utilization of the Dynamic Details revolving credit facility through the year ending December 31, 2002, a 10% change in interest rates is not expected to
materially affect the interest expense to be incurred on this facility during such period.





Under the terms of the current swap
agreement, we pay a maximum annual rate of interest applied to a notional amount equal to the principal balance of the term facility portion of the Dynamic Details senior credit facility. From January 1, 2002 through December 31, 2002 we pay a fixed
annual rate of 5.99%, from January 1, 2003 through December 31, 2003, we pay a fixed annual rate of 6.49% and from January 1, 2004 through the scheduled maturity of the Tranche B term facility under the Dynamic Details senior credit facility in 2005
we pay a fixed annual rate of 6.99%. The term loan facility portion of the Dynamic Details senior credit facility bears interest based on one-month LIBOR. As of June 30, 2002, one-month LIBOR was 1.84%. If one-month LIBOR increased by 10% to 2.02%,
interest expense related to the term loan facility portion would not increase over the twelve months ending June 30, 2003 due to the fixed rates under the swap agreements. The overall effective interest rate for the term loans, after giving effect
to the interest rate swap agreement, as of June 30, 2002, was 9.91%.





Under the terms of the current swap agreement, DDi Europe pays a
fixed annual rate of interest equal to 6.92% applied to fixed amounts of debt per the agreement, through September 2002. As of June 30, 2002, the swap covers approximately 100% of the outstanding debt under the facilities agreement. Based upon our
anticipated utilization of the DDi Europe revolving credit facility through the year ending December 31, 2002, a 10% change in interest rates is not expected to materially affect the interest expense to be incurred on this facility during such
period. The DDi Europe facilities agreement bears interest based on three-month LIBOR. As of June 30, 2002, three-month LIBOR was 1.86%. If three-month LIBOR increased by 10% to 2.05%, interest expense related to the term loan facility would not
increase due to the fixed rate of 6.92% under the swap agreement. The overall effective interest rate for the term loans, after giving effect to the interest rate swap agreement, as of June 30, 2002, was 8.67%.





A change in interest rates would not have an effect on our interest expense on the DDi Capital senior discount notes or DDi Corp. convertible subordinated notes
because these instruments bear a fixed rate of interest.





Foreign Currency Exchange Risk





The 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 on our forecasts, the effect of an immediate 10% change in exchange rates would not have an impact on our operating results over the 12 month period ending June 30, 2003. 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.







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PART II OTHER INFORMATION





Item 2.    
Changes in Securities and Use of Proceeds.





On April 2, 2002, DDi Corp. sold $100.0 million aggregate principal
amount of 6.25%Convertible Subordinated Notes due April 1, 2007 in a private offering to J.P. Morgan Securities Inc. and Robertson Stephens, Inc., the initial purchasers of the notes. This transaction was exempt from registration under Section 4(2)
of the Securities Act of 1933 (the Act). The notes were subsequently sold to qualified institutional buyers pursuant to the exemption provided by Rule 144A of the Act. These notes are convertible at any time prior to maturity into shares
of common stock at a conversion price of $11.04 per share, subject to certain adjustments. We issued the notes to the initial purchasers at a 3% discount. These notes generated proceeds of $95.8 million, net of underwriting discounts. Approximately
$47.9 million of the net proceeds from the sale were used to repay a portion of the Dynamic Details Senior Term Facility, $12.5 million was placed in an interest reserve account to cover two years of interest payments on the notes and the remainder
will be used for working capital and general corporate purposes. In connection with the $47.9 million repayment of the Senior Term Facility, Dynamic Details elected to amend its swap agreement by reducing the notional balance of the swap to reflect
the impact of the debt repayment on the outstanding principal. In connection with the amendment of the swap agreement, Dynamic Details paid approximately $3.1 million to the counterparty, representing the pro-rata portion of the deferred swap
liability. The notes are redeemable by DDi Corp. any time on or after December 21, 2004 at specified prices. In connection with the sale of the notes, DDi Corp. entered into a registration rights agreement, pursuant to which DDi Corp. has filed a
registration statement for the resale of the notes and the shares of common stock issuable upon conversion of the notes.





Item
4.    
Submission of Matters to a Vote of Security Holders.





The Annual Meeting of Stockholders
of DDi Corp. was held on May 14, 2002 for the purpose of (a) electing four Class II Directors to the Board of Directors and (b) voting on a proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Companys independent auditors.
Robert Guezuraga, Murray Kenney, Bruce D. McMaster and Stephen Zide were elected to serve as Class II Directors of the Company for three-year terms expiring at the 2005 Annual Meeting of Stockholders. Prescott Ashe and David Dominik continued in
office as Class I Directors and Edward W. Conard, Stephen G. Pagliuca and Mark R. Benham continued in office as Class III Directors.





The tabulation of the votes cast for the election of Messrs. Guezuraga, Kenney, McMaster and Zide was as follows:





Votes For

Votes WithheldRobert Guezuraga

36,204,545

334,002Murray Kenney

36,042,545

496,002Bruce D. McMaster

25,019,988

11,518,559Stephen Zide

35,934,546

604,001





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-Votes35,483,499

1,049,455

5,593

0





Item 6.    
Exhibits and Reports on Form 8-K.





(a)Exhibits.





The exhibits listed below are hereby filed with the U.S. Securities and Exchange Commission as part of this
Quarterly Report on Form 10-Q.





Exhibit

Description10.1

Purchase Agreement dated as of March 26, 2002 among DDi Corp., as issuer, and J.P. Morgan Securities Inc. and Robertson Stephens, Inc, as the Initial
Purchasers of DDi Corp.s 6.25% Convertible Subordinated Notes due 2007. (Previously filed with the Commission on May 15, 2002 as Exhibit 10.1 to DDi Corp.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, which is
incorporated herein by reference.)







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10.2

Registration Rights Agreement dated as of April 2, 2002 among DDi Corp. and J.P. Morgan Securities Inc. and Robertson Stephens, Inc. (Previously filed with
the Commission on May 15, 2002 as Exhibit 10.2 to DDi Corp.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, which is incorporated herein by reference.)10.3

Indenture dated April 2, 2002 between DDi Corp., as Issuer, and State Street Bank and Trust Company, as Trustee, relating to DDi Corp.s 6.25%
Convertible Subordinated Notes due 2007. (Previously filed with the Commission on May 15, 2002 as Exhibit 10.3 to DDi Corp.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, which is incorporated herein by
reference.)10.4

Sixth Amendment, dated as of June 28, 2002, to the Credit Agreement, dated as of July 23, 1998, among (i) DDi Capital Corp., formerly known as Details,
Capital Corp.; (ii) Dynamic Details, Incorporated, formerly known as Details, Inc.; (iii) Dynamic Details Incorporated, Silicon Valley, formerly known as Dynamic Circuits, Inc.; (iv) the several banks and other financial institutions from time
to time parties thereto; (v) Bankers Trust Company; and (vi) The Chase Manhattan Bank. (Previously filed with the Commission on July 1, 2002 as Exhibit 99.1 to DDi Capital and DDi Corp.s Current Report on Form 8-K.)99.1

Certification of Chief Executive Officer of DDi Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.99.2

Certification of Chief Executive Officer of DDi Capital Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.99.3

Certification of Chief Financial Officer of DDi Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.99.4

Certification of Chief Financial Officer of DDi Capital Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.





(b)Reports on Form 8-K.





The following Current Reports on Form 8-K were filed in the quarterly period ended June 30, 2002:





| | (i) |  | On April 2, 2002, DDi Corp. filed a Current Report on Form 8-K reporting the closing of its private offering of convertible subordinated notes due 2007.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------






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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, DDi Corp. has duly caused
this report to be signed on its behalf by the undersigned, thereto duly authorized, in the city of Anaheim, state of California, on the 14th day of August 2002 .








DDi CORP.By:

/S/    JOSEPH P. GISCHJoseph P. Gisch Chief
Financial Officer, Secretary and Treasurer (Principal
Financial Officer)







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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, DDi Capital Corp. has duly caused this report to be signed on its behalf by the undersigned, thereto
duly authorized, in the city of Anaheim, state of California, on the 14th day of August 2002 .











DDi CAPITAL CORP.By:

/S/    JOSEPH P. GISCHJoseph P. Gisch Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer)




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