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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

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

 

For the quarterly period ended September 30, 2004

 

OR

 

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

 

For the transition period from              to             

 

Commission File Number: 000-30241

 


 

DDi CORP.

(Exact name of registrant as specified in its charter)

 


 

Delaware   06-1576013

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1220 Simon Circle

Anaheim, California 92806

(Address of principal executive offices) (Zip code)

 

(714) 688-7200

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    x  Yes    ¨  No

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

 

Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    x  Yes    ¨  No

 

As of November 5, 2004, DDi Corp. had 25,463,119 shares of common stock, par value $0.001 per share, outstanding.

 



Table of Contents

DDi CORP.

FORM 10-Q for the Quarterly Period Ended September 30, 2004

 

TABLE OF CONTENTS

 

         Page No.

PART I

 

FINANCIAL INFORMATION

    

Item 1.

 

Financial Statements

   4
    Condensed Consolidated Balance Sheets as of September 30, 2004 (Reorganized DDi Corp.) and December 31, 2003 (Reorganized DDi Corp.) (unaudited)    4
    Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2004 (Reorganized DDi Corp.) and 2003 (Predecessor DDi Corp.) (unaudited)    5
    Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2004 (Reorganized DDi Corp.) and 2003 (Predecessor DDi Corp.) (unaudited)    6
    Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 (Reorganized DDi Corp.) and 2003 (Predecessor DDi Corp.) (unaudited)    7
   

Notes to Condensed Consolidated Financial Statements

   8

Item 2.

 

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

   18

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

   30

Item 4.

 

Controls and Procedures

   31

PART II

 

OTHER INFORMATION

    

Item 1.

 

Legal Proceedings

   32

Item 5.

 

Other Information

   32

Item 6.

 

Exhibits

   32

Signature

       33

 

2


Table of Contents

FORWARD-LOOKING STATEMENTS

 

On one or more occasions, we may make statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q relating to expectation of future financial performance, continued growth, changes in economic conditions or capital markets and changes in customer usage patterns and preferences, are forward-looking statements.

 

Words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue,” “may,” “could” or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and we believe such statements are based on reasonable assumptions, including without limitation, management’s examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that our expectations will be realized.

 

In addition to the factors and other matters discussed under the caption “Factors That May Affect Future Results” in Part 1 – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q, some important factors that could cause actual results or outcomes for DDi Corp. or our subsidiaries to differ materially from those discussed in forward-looking statements include:

 

  changes in general economic conditions in the markets in which we may compete and fluctuations in demand in the electronics industry;

 

  our ability to sustain historical margins as the industry develops;

 

  increased competition;

 

  increased costs;

 

  our ability to retain key members of management;

 

  our ability to satisfactorily address the adverse liquidity position related to DDi Europe;

 

  adverse state, federal or foreign legislation or regulation or adverse determinations by regulators; and

 

  other factors identified from time to time in our filings with the Securities and Exchange Commission.

 

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

 

3


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

DDi CORP.

 

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

     Reorganized DDi Corp.

 
     September 30,
2004


    December 31,
2003


 
Assets                 

Current assets:

                

Cash and cash equivalents

   $ 7,894     $ 11,202  

Cash, cash equivalents and marketable securities - restricted

     —         7,500  

Accounts receivable, net

     48,431       39,140  

Inventories

     29,727       26,292  

Prepaid expenses and other

     4,013       2,707  
    


 


Total current assets

     90,065       86,841  

Property, plant and equipment, net

     65,924       74,918  

Debt issuance costs, net

     1,969       —    

Goodwill

     99,356       105,452  

Other intangibles, net

     19,158       23,376  

Other

     715       816  
    


 


Total assets

   $ 277,187     $ 291,403  
    


 


Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders’ Equity                 

Current liabilities:

                

Current maturities of long-term debt and capital lease obligations

   $ 4,203     $ 1,439  

Revolving credit facilities

     13,101       11,809  

Accounts payable

     34,040       28,687  

Accrued expenses and other liabilities

     23,576       26,338  

Income taxes payable

     1,377       998  

Note payable

     —         500  
    


 


Total current liabilities

     76,297       69,771  

Long-term debt and capital lease obligations

     41,472       114,799  

Deferred income tax liability

     187       533  

Notes payable and other

     13,866       12,798  

Series A mandatorily redeemable preferred stock

     2,768       2,066  
    


 


Total liabilities

     134,590       199,967  
    


 


Series B mandatorily redeemable preferred stock

     58,441       —    
    


 


Stockholders’ equity:

                

Common stock - $0.001 par value, 75,000,000 shares authorized, 25,463,119 and 23,749,926 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively.

     26       24  

Additional paid-in-capital

     151,328       138,661  

Deferred compensation

     (14,688 )     (32,454 )

Accumulated other comprehensive income (loss)

     235       (152 )

Stockholder receivables

     (648 )     (635 )

Accumulated deficit

     (52,097 )     (14,008 )
    


 


Total stockholders’ equity

     84,156       91,436  
    


 


Total liabilities, mandatorily redeemable preferred stock and stockholders’ equity

   $ 277,187     $ 291,403  
    


 


 

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

 

4


Table of Contents

DDi CORP.

 

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

    

Reorganized

DDi Corp.


        

Predecessor

DDi Corp.


   

Reorganized

DDi Corp.


        

Predecessor

DDi Corp.


 
     Three months ended
September 30, 2004


         Three months ended
September 30, 2003


    Nine months ended
September 30, 2004


         Nine months ended
September 30, 2003


 
                

Net sales

   $ 72,247          $ 59,445     $ 220,143          $ 177,329  

Cost of goods sold:

                                          

Cost of goods sold

     63,121            52,864       181,977            162,588  

Non-cash stock based compensation and amortization of intangibles

     2,580            —         11,644            —    

Restructuring-related inventory impairment

     —              —         499            1,736  
    


      


 


      


Total cost of goods sold

     65,701            52,864       194,120            164,324  
   

Gross profit

     6,546            6,581       26,023            13,005  
   

Operating expenses:

                                          

Sales and marketing:

                                          

Non-cash stock based compensation

     638            —         2,497            —    

Sales and marketing expenses

     4,471            4,233       13,725            13,634  
    


      


 


      


Total sales and marketing

     5,109            4,233       16,222            13,634  
   

General and administration:

                                          

Non-cash stock based compensation

     760            —         3,431            —    

General and administrative expenses

     5,759            4,180       15,039            12,539  
    


      


 


      


Total general and administration

     6,519            4,180       18,470            12,539  
   

Amortization of intangibles

     1,150            —         3,450            —    

Goodwill impairment

     7,252            427       7,252            2,427  

Restructuring and other related charges

     273            (800 )     5,143            2,995  

Reorganization charges

     —              2,257       1,158            8,285  
    


      


 


      


Operating loss

     (13,757 )          (3,716 )     (25,672 )          (26,875 )

Loss on interest rate swap termination

     —              —         —              5,621  

Interest expense (net) and other expense (net)

     2,740            4,427       11,098            16,688  
    


      


 


      


Loss before reorganization proceeding expenses and income taxes

     (16,497 )          (8,143 )     (36,770 )          (49,184 )

Reorganization proceeding expenses

     —              4,299       —              4,299  
    


      


 


      


Loss before income taxes

     (16,497 )          (12,442 )     (36,770 )          (53,483 )

Income tax (expense) benefit

     (310 )          267       (1,319 )          1,343  
    


      


 


      


Net loss

     (16,807 )