of time-critical, technologically advanced interconnect services for the electronics
industry, today announced financial results for the first quarter ended March 31,
2003.
The Company reported net sales for the first quarter of 2003 of $61.7 million,
nearly flat compared to net sales of $62.5 million for the first quarter of 2002.
The decrease in net sales from the first quarter of 2002 reflects the disposition of
certain, non-core facilities during the latter part of 2002 and a reduction in the
average price per panel reflecting softened economic conditions in North
America and Europe, partially offset, by growth in the Fasttrack assembly
operations (both in San Jose, CA and the U.K.) and the acquisition of Kamtronics
Limited in October 2002, now known as DDi International, the Company�s U.K.-
based business that procures offshore, volume production services for PCB
customers throughout Europe. Net sales for the first quarter of 2003 decreased
3% from $63.9 million recorded in the fourth quarter of 2002. The decrease in
revenues from the fourth quarter of 2002 reflects the year-end completion of
several programs at DDi�s Fasttrack assembly plant in San Jose, CA. The
impact on revenues in the U.S. assembly operation was partially offset by growth
in North American PCB revenues, which resulted primarily from an increase in
demand, as well as higher revenue from DDi International.
�The first quarter proved challenging due to a global economic downturn and
continued pricing pressure. We did, however, see increased demand in our
higher margin PCB businesses, which reflects the continued support of our
customers and our ability to provide the same level of technologically advanced,
quick turn service that we are known for,� commented Bruce McMaster, Chief
Executive Officer of DDi.
Gross profit for the first quarter of 2003 was $4.5 million, or 7% of net sales,
compared to gross profit of $6.3 million, or 10% of net sales, for the similar period
of 2002. The declines in gross profit (expressed in dollars and as a percentage
of net sales) from the first quarter of 2002 are due to continued softness in PCB
pricing in both North America and Europe. Gross profit for the first quarter of
2003 increased $4.3 million from $0.2 million recorded in the fourth quarter of
2002, reflecting an increase in PCB volume in addition to the impact of the
Company�s previously announced operational restructuring activities. Sales and
marketing expenses and general and administration expenses each declined in
the first quarter of 2003, as compared to the comparable period in 2002,
reflecting the Company�s ongoing efforts toward cost control.
In the first quarter of 2003, DDi incurred restructuring and reorganization charges
of $3.8 million, which are largely comprised of costs incurred in connection with
the Company�s efforts to deleverage its balance sheet through a comprehensive
financial restructuring.
In the first quarter of 2003, the Company recorded an income tax benefit of $0.5
million, which included a $3.6 million valuation allowance applied to the U.S.
deferred tax asset recorded for the quarter. Such tax allowance was based upon
management�s expectation that U.S. federal and state deferred tax assets would
not likely be realized.
On the basis of generally accepted accounting principles (GAAP), the Company
reported a net loss of $13.8 million, or $(0.28) per diluted share, for the first
quarter of 2003 compared to a net loss of $5.9 million, or $(0.12) per diluted
share, for the first quarter of 2002. Such net loss of $13.8 million includes
depreciation of $4.7 million and net interest expense of $6.3 million (each on a
pre-tax basis).
DDi reported an adjusted net loss of $6.6 million, or $(0.13) per diluted share, for
the first quarter of 2003 as compared to an adjusted net loss of $5.9 million, or
$(0.12) per diluted share, for the comparable period of 2002. The increase in
adjusted net loss is due to the decline in gross profit noted above and a higher
level of recorded net interest expense. For a complete reconciliation of the
differences between the adjusted net loss and the net loss based upon GAAP,
see the disclosure in the attached Condensed Consolidated Statements of
Operations under the caption �Supplemental Financial Information.�
Liquidity
As of March 31, 2003, cash, cash equivalents and investments totaled $25.9
million (including $9.4 million in restricted funds). Dynamic Details is currently in
default under its senior credit facility. DDi Corp. is currently in default under its
5.25% and 6.25% convertible subordinated notes and DDi Capital does not
expect to pay the interest obligations due on May 15, 2003 under its senior
discount notes. Failure to make such interest payments within 30 days of the due
date will constitute a default under the senior discount notes. As a result of the
default of the Dynamic Details senior credit facility, the DDi Corp. convertible
subordinated notes, and the expectation that the DDi Capital senior discount
notes will not be repaid in accordance with their stated terms, the Company has
classified the full $65.9 million principal balance of the Dynamic Details senior
credit facility, the DDi Corp. $200 million aggregate principal balance of the
convertible subordinated notes and the DDi Capital $16.1 million aggregate
principal balance of the senior discount notes as current obligations in the
accompanying Condensed Consolidated Balance Sheet. On the basis of GAAP,
total current liabilities were $354.2 million and working capital was $(255.0)
million as of March 31, 2003. Excluding the classification of the principal balance
of the U.S. senior credit facility and the aggregate principal balance of both the
convertible subordinated notes and senior discount notes as current obligations,
total current liabilities would have been $72.2 million and working capital would
have been $27.0 million as of March 31, 2003.
The Company is currently negotiating with the lenders under the Dynamic Details
senior credit facility, through a steering committee of the senior lender group, the
members of which hold less than a majority of the outstanding senior debt, a
steering committee of the ad hoc committee of DDi Corp. convertible
subordinated noteholders, the members of which hold less than a majority of the
outstanding convertible subordinated notes, and representatives of the DDi
Capital senior discount notes regarding a consensual restructuring of our
obligations.
The Company and the steering committee of the senior lender group of the
Dynamic Details senior credit facility have reached an agreement in principle on
a proposal to restructure the Dynamic Details senior credit facility. This
agreement in principle is subject to a number of terms and conditions, including
approval by other senior lenders, satisfactory arrangements for the restructuring
of DDi Corp.�s convertible subordinated notes and DDi Capital�s senior discount
notes and the execution of definitive documentation. The Company believes that
the restructured credit facility, which will have a final maturity date of 2008, will
provide DDi with a flexible long-term credit facility that will allow the Company to
implement its business plan.
Consistent with the Company�s objective to achieve a consensual arrangement
relating to restructuring of its U.S. indebtedness, the steering committee of the ad
hoc committee of certain holders of the Company�s 5.25% and 6.25% convertible
subordinated notes participated in the discussions with the Company and the
steering committee of the senior lender group of the Dynamic Details senior
credit facility. In the context of these discussions, such steering committee of the
noteholders and a steering committee of the senior lender group reached an
agreement in principle with the Company and Dynamic Details on an overall
restructuring proposal which encompasses the restructuring of the Dynamic
Details senior credit facility, as discussed above, as well as restructuring of
agreements with the Company�s convertible subordinated noteholders. The
agreement in principle regarding an overall restructuring proposal anticipates that
the claims of the holders of the DDi Capital senior discount notes would also be
restructured.
The Dynamic Details senior credit facility, which is jointly and severally
guaranteed by DDi Capital and its subsidiaries and secured by the assets of all of
the DDi Corp.�s domestic subsidiaries, effectively ranks senior to the convertible
subordinated notes and the DDi Capital senior discount notes.
This overall restructuring is subject to a number of terms and conditions,
including the approval thereof by the above-referenced debt holder groups and
the execution of definitive documentation.
�We believe that our current cash on-hand and expected cash flow from
operations will be sufficient to meet day-to-day business operations as we
complete the restructuring process. In addition, through our debt restructuring
initiatives, we intend to have a fully-funded business plan moving forward,�
concluded McMaster.
About DDi Corp.
DDi is a leading provider of time-critical, technologically advanced, electronics
manufacturing services. Headquartered in Anaheim, California, DDi and its
subsidiaries, with fabrication and assembly facilities located across North
America and in England, service approximately 2,000 customers worldwide.
DDi Corp.