Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002                 

OR

For the transition period from                              to                             

Commission file numbers:  

DDi CORP.

DDi CAPITAL CORP.

(Exact names of registrants as specified in their charters)

(714) 688-7200

(Registrants’ telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

DDi Corp.-Common Stock, par value $.01 per share

(Title of class)

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 registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:  Yes  x  No  ¨ .

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  ¨.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of DDi Corp. as of June 28, 2002, the last business day of DDi Corp.’s most recently completed second fiscal quarter, was approximately $48.0 million. As of June 28, 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 March 21, 2003, DDi Corp. had 49,212,480 shares of common stock, par value $0.01 per share, outstanding. As of March 21, 2003, DDi Capital Corp. had 1,000 shares of common stock, par value $.01 per share, outstanding.

This Annual Report on Form 10-K is a combined annual 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.

Table of Contents

DDi CORP.

DDi CAPITAL CORP.

FORM 10-K INDEX

2

Table of Contents

You should carefully consider the risk factors described below, as well as the other information included or incorporated by reference in this Annual Report on Form 10-K prior to making a decision to invest in our securities. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known or that we currently believe to be less significant may also adversely affect us. Unless the context requires otherwise, references to “the Company,” “we,” “us,” “our” and “DDi Corp.” refer specifically to DDi Corp. and its subsidiaries and references to “DDi Capital” refer to DDi Capital Corp., our wholly-owned subsidiary.

SPECIAL NOTE REGARDING 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 or incorporated by reference in this Annual Report on Form 10-K or incorporated by reference therein or herein 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 within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

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 projections will be achieved.

In addition to other factors and matters discussed elsewhere in our quarterly, annual and current reports that we file with the Securities Exchange Commission, or the SEC, and which are incorporated by reference into this Annual Report on Form 10-K, some important factors that could cause actual results or outcomes for DDi or our subsidiaries to differ materially from those discussed in forward-looking statements include:

3

Table of Contents

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.

PART I

ITEM 1.     BUSINESS

Overview

DDi Corp., formerly known as DDi Holdings Corp. (“DDi Corp.”), provides technologically advanced, time-critical electronics engineering, development and manufacturing services to original equipment manufacturers and other providers of electronics manufacturing services. Operating through our primary operating subsidiaries, Dynamic Details, Incorporated (“Dynamic Details”) and DDi Europe Limited (“DDi Europe”), we target customers that are characterized by new product development programs demanding the rapid application of advanced technology. The technologically advanced, time-critical segment of the electronics manufacturing services industry in which we operate has historically been characterized by high margins and significant customer diversity.

Our customers use our services to develop and produce a wide variety of end products, including communications switching and transmission equipment, wireless base stations, wireless telephone handsets, computer work stations, high-end computing equipment, data networking equipment, medical devices, automotive components, industrial and test equipment, and various aerospace products.

DDi Corp.’s predecessor corporation was incorporated in California in 1978. In 1991, new management, led by our President and Chief Executive Officer, Bruce D. McMaster, began to focus primarily on the time-critical segment of the electronics manufacturing services industry. In January 1996, we were recapitalized by Chase Manhattan Capital, LLC and its affiliates. In October 1997, we were recapitalized again by investors led by Bain Capital, Inc., Celerity Partners, L.L.C. and Chase Capital Partners. In April 2000, in conjunction with the closing of DDi Corp.’s initial public offering, DDi Corp. was reincorporated in Delaware.

In October 1997, in connection with a second recapitalization, DDi Corp. incorporated Dynamic Details as a new, wholly-owned subsidiary, and contributed substantially all of its assets, subject to certain liabilities, to Dynamic Details. In November 1997, DDi Corp. organized DDi Capital Corp., a California corporation (“DDi Capital”), as a wholly-owned subsidiary, and in February 1998, DDi Corp. contributed substantially all of its assets (consisting primarily of all of the shares of capital stock of Dynamic Details), subject to certain liabilities, including senior discount notes, to DDi Capital. In July 1998, DDi Corp. organized DDi Intermediate Holdings Corp. (“Intermediate”) as a wholly-owned subsidiary and contributed its ownership of DDi Capital to Intermediate.

Acquisitions have been important to our growth. Set forth below is a summary of our acquisitions:

4

Table of Contents

Many of 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) entered into a significant downturn in late 2000, which continues as of this date. As a result, demand for our services has generally decreased over the past two years, which has had a negative impact on our revenues and operating performance.

As a result of our series of acquisitions in 2000 and 2001 and the decrease in demand for our services, we had excess manufacturing capacity. In 2001, we implemented a restructuring plan designed to reduce our expenses, increase operating efficiencies and focus our business on higher margin services.

In October 2001, our management and Board of Directors approved a plan to close our Garland, Texas and Marlborough, Massachusetts facilities. Prior to its closure, the Garland plant had manufactured our lowest technology pre-production volume printed circuit boards. The Marlborough plant provided electronic interconnect products to selected customers in the New England area. Our decision to close these facilities was based on their contribution to our financial objectives in 2001 as well as their expected contribution going forward.

Dynamic Details entered into a Fifth Amendment dated December 31, 2001 with the other parties to the Dynamic Details senior credit facility, which amendment, among other things, restricted the use of our revolving loan, reset certain of the financial covenants and further restricted the ability to upstream money to DDi Corp.

5

Table of Contents

On June 28, 2002 the Dynamic Details senior credit facility was further amended to, among other things, place tighter restrictions on our ability to borrow under the revolver, required a $30,000,000 capital contribution from DDi Corp. to Dynamic Details into a restricted account, restricted the ability to upstream money to DDi Corp. and again reset certain of the financial covenants.

In June 2002, our management and Board of Directors approved a plan to close our Dallas, Texas and Moorpark, California facilities and selected design centers and to restructure various European operations.

In September 2002, our management and Board of Directors approved a plan to write-down unutilized assets, streamline certain manufacturing facilities, and eliminate certain sales offices, including our sales office based in Tokyo.

In December 2002, DDi implemented further restructuring initiatives to scale down its Anaheim, California facility, close remaining design center operations and reallocate production to facilities with lower cost structures in order to improve operating cash flow.

Our financial performance in the fourth quarter of 2002 has resulted in covenant defaults under the Dynamic Details senior credit facility, specifically related to minimum EBITDA requirements for that quarter and continuing liquidity requirements since December 31, 2002. Accordingly, we have entered into a forbearance agreement with the lenders under the Dynamic Details senior credit facility that is intended to facilitate the restructuring of the Dynamic Details senior credit facility, the DDi Corp. 5.25% convertible subordinated notes and the DDi Corp. 6.25% convertible subordinated notes. The term of the forbearance agreement expires March 31, 2003, but may be extended until May 9, 2003 if certain conditions are met, including that forbearance agreements, which are satisfactory to the lenders under the Dynamic Details senior credit facility, are entered into with the holders of our 5.25% and 6.25% convertible subordinated notes.

If we are unable to enter into forbearance agreements, satisfactory to the lenders under the Dynamic Details senior credit facility, with the holders of DDi Corp’s 5.25% and 6.25% convertible subordinated notes prior to March 31, 2003, enter into satisfactory arrangements with the Dynamic Details senior credit facility lenders to extend its forbearance beyond May 9, 2003, or otherwise reach an agreement to restructure our senior indebtedness, the lenders under the Dynamic Details senior credit facility will have the right to declare our outstanding debt to be immediately due and payable and exercise all or any of their rights and remedies, including the right to foreclose on the collateral pledged to secure the facility, which consists of substantially all of the assets of Dynamic Details and its subsidiaries.

As a result of the defaults on the Dynamic Details senior credit facility, we were not permitted to pay our interest obligations under the DDi Corp. 5.25% convertible subordinated notes on March 1, 2003 and will not be permitted to pay our interest obligations under the DDi Corp. 6.25% convertible subordinated notes on April 1, 2003. If the interest payment on the 5.25% convertible subordinated notes is not made within 30 days of the due date thereof, the holders of the 5.25% convertible subordinated notes will be able to exercise all of their rights and remedies in connection therewith. Similarly, if the interest payment on the 6.25% convertible subordinated notes is not made within 30 days of the due date thereof, the holders of the 6.25% convertible subordinated notes will be able to exercise all of their rights and remedies in connection therewith.

As a result of the foregoing, we have commenced discussions with the lenders under the Dynamic Details senior credit facility, convertible subordinated noteholders and other stakeholders regarding a consensual restructuring of our obligations through negotiations. A significant portion of DDi Corp.’s convertible subordinated noteholders have formed an ad hoc committee and, in conjunction with their financial advisor, are in discussions with the Company regarding a restructuring of the convertible subordinated notes. In connection with our restructuring efforts, one of the alternatives for a consensual restructuring with our creditors is an in-court restructuring, or “prepackaged plan,” under which the Company would attempt to accomplish the

6

Table of Contents

restructuring by filing a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court. There can be no assurance that the Dynamic Details senior credit facility or our other indebtedness will be renegotiated on terms acceptable to us.

If we cannot restructure our existing liabilities and/or obtain additional financing, our creditors could take legal action to enforce their claims, including forcing us into bankruptcy. Alternatively, we could seek protection under the bankruptcy laws.

As a result of the foregoing, our independent accountants have expressed substantial doubt about the Company’s ability to continue as a going concern. In order to fund operations and execute on our current business plan, we will ultimately require a deleveraging of our capital structure. There can be no assurance that we will be able to restructure our debt or that we will have sufficient working capital to fund future operations.

This report is a combined annual report filed separately by two registrants, DDi Corp. and DDi Capital. DDi Capital is a wholly-owned subsidiary of Intermediate, and Intermediate is a wholly-owned subsidiary of DDi Corp. Each registrant has its principal executive offices at 1220 Simon Circle, Anaheim, California and their telephone number is (714) 688-7200.

Industry Background

Electronics manufacturing services, or EMS, companies provide a range of services to electronics original equipment manufacturers, or OEMs. EMS industry revenues have increased from approximately $22 billion in 1993 to approximately $120 billion in 2002. In 2002, approximately 48% of the cost of goods sold by electronics OEMs was attributable to components and products outsourced to EMS providers.

Electronics manufacturing services were historically labor-intensive functions outsourced by OEMs to obtain additional capacity during periods of high demand and initially consisted mainly of printed circuit board assembly. Early EMS providers acted essentially as subcontractors, providing production capacity on a transactional basis. With advances in process technology, EMS providers developed additional capabilities and were able both to improve quality and to reduce OEMs’ costs. Over time, OEMs came to rely on EMS providers to perform a broader array of manufacturing services, including engineering and development activities. In recent years, EMS providers have expanded their range of services to encompass engineering, product development, packaging and distribution and overall supply chain management.

By using EMS providers, OEMs are able to focus on their core competencies, including product development, sales, marketing and customer service. Outsourcing allows OEMs to take advantage of the manufacturing expertise, advanced technology and capital investment of EMS providers, to achieve overall cost benefits and to enhance their competitive position by:

The DDi Customer Solution

We engineer technologically advanced materials for customers within extremely short turnaround times, which distinguishes us from traditional electronics manufacturing service providers, and provides our customers

7

Table of Contents

with a competitive advantage in delivering their new products to market quickly. Our customers benefit from the following components of the DDi customer solution:

We believe that these attributes allow us to consistently meet and exceed our customers’ expectations and that, as a result, we will continue to attract leading original equipment manufacturers and other providers of electronics manufacturing services as customers.

Our Strategy

Our goal is to be the leading provider of technologically advanced, time-critical electronics manufacturing services. To achieve this goal, we must:

Restructure Debt to Strengthen Our Financial Position.    Our financial performance in the fourth quarter of 2002 has resulted in certain covenant defaults under the Dynamic Details senior credit facility. We have entered into a forbearance agreement with the lenders under the Dynamic Details senior credit facility which provides that they will refrain from exercising any rights or remedies in respect of our failure to comply with the financial covenants. The term of the forbearance agreement expires March 31, 2003, but may be extended until May 9, 2003 if certain conditions are met including that forbearance agreements, which are satisfactory to the lenders under the Dynamic Details senior credit facility, are entered into with the holders of DDi Corp’s 5.25% and 6.25% convertible subordinated notes. We are also negotiating with the lenders under the Dynamic Details senior credit facility, convertible subordinated noteholders and other stakeholders with regard to a restructuring of our debt. While there can be no assurance that these efforts will be successful, these efforts are intended to create financial stability for us and to provide the financial resources necessary for us to pursue our business strategy.

Strengthen Technology and Process Management Leadership in the Time-Critical Segment of the Electronics Manufacturing Services Industry and Continue to Improve Quality and Delivery Times by Incorporating Emerging Technologies and Consistently Refining Manufacturing Processes.    We have consistently been among the earliest users of new developments in printed circuit board engineering, development and manufacturing and are continuously incorporating new technology into our manufacturing processes in order to further improve quality and reduce delivery times. Because we concentrate on cutting-edge methods, we have the ability to service emerging providers of next-generation technology. This ability allows us

8

Table of Contents

to build customer relationships with companies with the potential for significant growth and enables us to provide these cutting-edge methods to customers accustomed to more traditional methods. We have developed process management expertise over time and are continuously enhancing our ability to quickly adapt engineering changes and production facilities on demand to serve time-critical customer needs. We believe this expertise and ability position us as an industry leader in providing flexible and responsive technologically advanced, time-critical services.

Proactively Manage Business Climate, Optimize Cost Structures, and Maximize Product Margins.    The technologically advanced, time-critical segment of the electronics manufacturing services business has historically been characterized by high profit margins. Weakness in demand since 2000 has resulted in significant pricing pressure that, in turn, has reduced our operating profits. We have been proactive in addressing the impact of these operating conditions by eliminating our underperforming facilities, streamlining remaining facilities, reducing overhead, and eliminating business having inadequate contribution margins (see Note 15 to the Consolidated Financial Statements).

Given the ongoing limited visibility as to future pricing strength and product demand, we continue to evaluate the current and expected financial contribution of our various service offerings, and also to reduce our costs of production.    Commencing in late-2002, we began analyzing in detail the expected profitability of pending printed circuit board orders, using internally-developed, customized software applications. Through the use of such tools, we have been successful in communicating the value of our extensive product engineering and testing services to our customers. These tools have also improved our ability to identify potential orders that do not meet our internal margin criteria, taking into account the estimated job-specific materials and other production-related costs. Accordingly, we have achieved recent improvements in our average product pricing. Our software applications have also enabled improved distribution of production among our facilities. As a result, we are better able to optimize capacity planning, to right-size certain facilities, and to minimize the costs of production by shifting selected production toward our facilities having lower cost structures. Together, these operational improvements are expected to continue to benefit product pricing and reduce operating expense ratios.

Pursue Customers with Significant New Product Development Activity.    Our marketing efforts focus on customers having new product development programs that require the rapid application of advanced technology and engineering. These customers include original equipment manufacturers, emerging providers of next-generation technology, and providers of electronics manufacturing services that serve similar customers.

Capitalize on Strong Customer Relationships and Engineering Expertise to Participate in Future Product Introductions and Further Outsourcing Programs.    We have served established original equipment manufacturers for many years, through multiple product generations. We have positioned ourselves as a strategic partner in our customers’ new product initiatives by focusing on direct relationships with our customers’ research and development personnel. As a result, we have developed expertise and gained knowledge of our customers’ new product engineering programs, all of which position us as a preferred service provider for future product generations.

Offer Our Customers Access to Offshore Volume Printed Circuit Board Production.     DDi Europe’s acquisition of Kamtronics Limited in 2002 has enabled us to obtain for our European customers access to Asia-based printed circuit board volume manufacturers. Through a single purchase order, our European customers can now place prototype work with our UK-based operations and have volume production done by an Asia-based printed circuit board manufacturer. We have begun to make this service available to North American-based customers and intend to grow that business in the coming year.

9

Table of Contents

Our Services

We provide a suite of value-added, integrated services, used by our customers predominantly in the development of their new products, including:

Time-critical Development and Fabrication of Prototype Complex Printed Circuit Boards.    Our time-critical, or quick-turn, services are used in the engineering, test and launch phases of new electronics product development and are generally delivered within 10 to 20 days or in as little as 24 hours. Larger volumes of printed circuit boards are needed as a product progresses past the testing, engineering and pre-production phases. The advanced development and manufacturing technologies we employ facilitate quick-turn production of complex, multi-layered printed circuit boards utilizing technologically-advanced methods. See “Technology, Development and Processes.” Our ability to provide these services on a quick-turn and longer lead-time delivery basis involves working closely with customers from the initial engineering of new products through development and launch.

Assembly of Printed Circuit Boards, Backpanels and Other Components of Electronics Products.    We assemble printed circuit boards, backpanels, card cages and wire harnesses on a low volume, quick-turn basis. Backpanels are large printed circuit boards, and card cages and wire harnesses integrate wires with connectors and terminals to transmit electricity between two or more points. As the electronics industry has worked to increase component speed and performance, the engineering of these components has become more integrated. We have responded to this trend and provide these additional assembly services to complement engineering and development capabilities.

Assembly and Integration of Customers’ Complete Systems and Products.    We provide full system assembly services, predominantly for products in development by original equipment manufacturers. These services require logistical capabilities and supply chain management to rapidly acquire components, assemble prototype products, perform complex testing and deliver products to the customer.

Our Customers and Markets

We believe that we have one of the broadest customer bases in the electronics manufacturing services industry. As of December 31, 2002, we had approximately 2,000 customers (of which approximately 1,900 were DDi Capital customers), comprised of original equipment manufacturers and electronics manufacturing services providers representing a wide range of end-user markets. Our customers principally consist of leading communications and networking equipment and computer manufacturers, as well as medical, automotive, industrial and aerospace equipment manufacturers. During 2002, sales to our largest customer accounted for approximately 5% of net sales for both DDi Capital and DDi Corp. During both 2001 and 2002, sales to the ten largest customers for DDi Capital accounted for approximately 34% of their net sales. During both 2001 and 2002, sales to the ten largest customers for DDi Corp. accounted for approximately 25% of their net sales. We have been successful at retaining customers and have worked with our three largest customers since 1991.

Approximately 75% and 80% of DDi Capital and DDi Corp., respectively, net sales are made to original equipment manufacturers, and the remainder are to electronics manufacturing service providers. The following table shows, for the periods indicated, the percentage of our sales in each of the principal end-user markets we served for the years ended December 31, 2000, 2001 and 2002.

10

Table of Contents

The following table indicates, for the year ended December 31, 2002, our largest original equipment manufacturers, or OEMs, and electronics manufacturing services, or EMS, customers in terms of net sales, in alphabetical order, and the primary end products for which we provided our services.

Technology, Development and Processes

We maintain a strong commitment to research and development and focus our efforts on enhancing existing capabilities as well as developing new technologies. Our close involvement with our customers in the early stages of their product development positions us at the leading edge of technical innovation in the engineering of quick-turn and complex printed circuit boards. Our staff of approximately 140 experienced engineers, chemists and laboratory technicians (of which 90 were part of DDi Capital) works in conjunction with our sales staff to identify specific needs and develop innovative, high performance solutions to customer issues. This method of product development allows customers to augment their own internal development teams while providing us with the opportunity to gain an in-depth understanding of our customers’ businesses and enabling us to better anticipate and serve our customers’ future needs.

The market for our products and services is characterized by rapidly changing technology and continuing process development. In recent years, the trend in the electronics equipment industry has been to increase speed and performance of components while at the same time reducing their size. This trend requires increasingly complex printed circuit boards with higher densities. The future success of our business will depend in large part upon our ability to maintain and enhance our technological capabilities, develop and market products and services that meet changing customer needs, and successfully anticipate or respond to technological changes on a cost-effective and timely basis. In the last three years, we have made substantial investments in equipment and technology to meet these needs and maintain our competitive advantage.

We believe the highly specialized equipment we use is among the most advanced in the industry. We provide a number of advanced technologies, including:

11

Table of Contents

We are qualified under various industry standards, including Bellcore compliance for communications products and UL (Underwriters Laboratories) approval for electronics products. All of our production facilities are ISO-9002 certified. These certifications require that we meet standards related to management, production and quality control, among others. In addition, some of our production facilities are MILPRF-5510 and MILPREF-31032 certified. These certifications require that we meet certain military standards related to production and quality control.

Printed Circuit Board Manufacturing

We produce highly complex, technologically advanced multi-layer and low-layer printed circuit boards, backpanel assemblies, printed circuit board assemblies, card cage and wire harness assemblies and full system assembly and integration that meet increasingly tight tolerances and specifications demanded by original equipment manufacturers. The manufacture of printed circuit boards involves several steps: etching the circuit image on copper-clad epoxy laminate, pressing the laminates together to form a panel, drilling holes and depositing copper or other conducive material to form the inter-layer electrical connections and, lastly, cutting the panels to shape. Our advanced interconnect products require additional critical steps, including dry film imaging, photoimageable soldermask processing, computer-controlled laser drilling and routing, automated plating and process controls and achievement of controlled impedance.

Multi-layering, which involves placing multiple layers of electrical circuitry on a single printed circuit board or backpanel, expands the number of circuits and components that can be contained on the interconnect product and increases the operating speed of the system by reducing the distance that electrical signals must travel. Increasing the density of the circuitry in each layer is accomplished by reducing the width of the circuit tracks and placing them closer together on the printed circuit board or backpanel.

Interconnect products having narrow, closely spaced circuit tracks are known as fine line products. The manufacture of complex multi-layer interconnect products often requires the use of sophisticated circuit interconnections, called blind or buried vias, between printed circuit board layers and adherence to strict electrical characteristics to maintain consistent circuit transmission speeds, referred to as controlled impedance. These technologies require very tight lamination and etching tolerances and are especially critical for printed circuit boards with ten or more layers.

Manufacture of printed circuit boards used in backpanel assemblies requires specialized expertise and equipment because of the larger size of the backpanel relative to other printed circuit boards and the increased number of holes for component mounting. We have no patents for these proprietary techniques and rely primarily on trade secret protection.

12

Table of Contents

Accomplishing these operations in time-critical situations, as we do, requires the attention of highly-qualified personnel. Furthermore, our manufacturing systems are managed to maximize flexibility to accommodate widely varying projects for different customers with minimal or no turnover time. We seek to maximize the use of our production and manufacturing capacity through the efficient management of time-critical production schedules.

Printed Circuit Board Assembly and Test

In addition to the time critical printed circuit board operations, we provide additional time critical assembly and test services. These services allow a customer to continue using a vertical integrated solution in getting their product assembled and tested. Currently we have a mix of consigned and turnkey business, with a focus on 10-day assembly turn or less. The consignment model allows for time critical flexibility, providing the customers with fully assembled and tested products to their specifications. We manufacture to IPC Class 3 and provide high reliability and ultra high-density assembly.

Sales and Marketing

Our marketing strategy focuses on developing close working relationships with customers early in the engineering phase and throughout the lifecycle of the product. Accordingly, our senior management personnel and engineering staff advise our customers with respect to applicable technology, manufacturing feasibility of designs and cost implications through on-line computer technical support and direct customer communication. We have focused our marketing efforts on developing long-term relationships with research and development personnel at key customers in high-growth segments of the electronics equipment industry.

In order to establish individual salesperson accountability for each client, each customer is assigned one member of the sales staff for all services across all facilities. We have developed a comprehensive database and allocation process to control calling and cross-selling efforts.

We market our development and manufacturing services through an internal sales force of approximately 110 individuals (of which 90 individuals are part of DDi Capital) and an expansive sales network consisting of 8 organizations comprised of approximately 35 manufacturers’ representatives across the United States. Approximately 25% and 20% of our net sales for DDi Capital and DDi Corp., respectively, in 2002 were generated through manufacturers’ representatives. For many of these manufacturers’ representatives, we are the largest revenue source and the exclusive supplier of quick-turn and pre-production printed circuit boards. In 2001, we acquired a facility in Canada increasing our capability to serve customers in that geographic area. The financial information for geographic areas is included in Note 2 to the Consolidated Financial Statements under the caption “Segment Reporting.”

Our Suppliers

Our raw materials inventory is small relative to sales and must be regularly and rapidly replenished. We use just-in-time procurement practices to maintain raw materials inventory at low levels, and work closely with our suppliers to incorporate technological advances in the raw materials we purchase. Because we provide primarily lower-volume quick-turn services, this inventory policy does not hamper our ability to complete customer orders. Although we have preferred suppliers for some raw materials, multiple sources exist for all materials. Adequate amounts of all raw materials have been available in the past and we believe this will continue in the foreseeable future.

The primary raw materials that we use in production are core materials (copperclad layers of fiberglass of varying thickness impregnated with bonding materials) and chemical solutions (copper, gold, etc.) for plating operations, photographic film and carbide drill bits.

Competition

The electronics manufacturing services industry is highly fragmented and characterized by intense competition. We principally compete in the time-critical segment of the industry against independent, small

13

Table of Contents

private companies and integrated subsidiaries of large, broadly based volume producers, as well as the internal capacity of original equipment manufacturers. We believe that competition in the market segment we serve, is less driven by price than the commodity sector of the electronics manufacturing services industry because customers are willing to pay a premium for a responsive, broad-reaching capability to produce customized complex products in a very short time, we compete primarily on the basis of quick turnaround, product quality and customer service.

The barriers to entry in our niche are considerable. In order to survive in the quick-turn sector, a competitor must have a very large customer base, a large staff of sales and marketing personnel, considerable engineering resources, and proper tooling and equipment to permit fast turnaround of small lots on a daily basis.

Backlog

Although we obtain firm purchase orders from our customers, our customers typically do not make firm orders for delivery of products more than 30 to 90 days in advance. We do not believe the backlog of expected product sales covered by firm purchase orders is a meaningful measure of future sales since orders may be rescheduled or canceled.

Governmental Regulation

Our operations are subject to certain federal, state and local laws and regulatory requirements relating to environmental compliance and site cleanups, waste management and health and safety matters. Among others, we are subject to regulations promulgated by:

To date the costs of compliance and environmental remediation have not been material to us. Nevertheless, additional or modified requirements may be imposed in the future. If such additional or modified requirements are imposed on us, or if conditions requiring remediation were found to exist, we may be required to incur substantial additional expenditures.

Employees

As of December 31, 2002, we had approximately 1,900 employees (of which 1,300 were DDi Capital employees), none of whom are represented by unions. Of these employees, approximately 80% were involved in manufacturing and engineering and approximately 20% worked in sales, marketing and administrative capacities for both DDi Capital and DDi Corp. We have not experienced any labor problems resulting in a work stoppage and believe we have good relations with our employees.

ITEM 1A.     EXECUTIVE OFFICERS OF DDi CORP.

The following table sets forth the executive officers of DDi Corp., their ages as of March 21, 2003, and the positions currently held by each person:

14

Table of Contents

The President, Chief Executive Officer, Chief Financial Officer and Treasurer are elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other executive officers may be appointed by the Board of Directors at such meeting or at any other meeting. All executive officers serve at the pleasure of the Board of Directors.

Bruce D. McMaster has served as our President since 1991 and as a Director and our Chief Executive Officer since 1997. Before becoming our President, Mr. McMaster worked in various management capacities in our engineering and manufacturing departments. Mr. McMaster also serves as President and Chief Executive Officer of DDi Capital and Dynamic Details and serves as an executive officer of our other subsidiaries.

Joseph P. Gisch has served as our Chief Financial Officer from 1995 to March 2003 and Vice President of Strategic Planning and Business Development effective March 2003. Mr. Gisch also serves as Vice President, Chief Financial Officer and Treasurer of Dynamic Details. From 1986 to 1995, Mr. Gisch was a partner at the accounting firm of McGladrey & Pullen, LLP where he was responsible for the audit, accounting and information systems for a variety of manufacturing clients. Mr. Gisch was responsible for our general accounting and income tax matters. Mr. Gisch has not been responsible for any of our audit services since 1991.

John K. Stumpf has served as our Corporate Controller and Vice President of Finance from 1998 to March 2003 and Chief Financial Officer and Treasurer effective March 2003. Prior to joining Dynamic Details, Mr. Stumpf was an Assistant Vice President of Finance Accounting at Avco Financial Services where he was responsible for operational accounting and financial reporting. Previously, Mr. Stumpf performed audits of mid-market enterprises in a number of industries at KPMG.

Thomas Ingham has served as our Vice President of Sales and Marketing since September 2001. Mr. Ingham has served Dynamic Details in various positions in sales and marketing over the last five years, starting as Regional Manager. Prior to joining Dynamic Details, Mr. Ingham worked for 12 years at Insulectro, a supplier of PCB materials and laminates, in various positions, most recently as Vice President, Sales and Marketing.

Terry L. Wright joined us in 1991 and has served as our Vice President, Engineering from 1995 through 2000 and Chief Technology Officer since 2000. During 2001, Mr. Wright assumed the role of Vice President, Operations – Anaheim. Prior to joining us, Mr. Wright was a general manager at Applied Circuit Solutions and a quality assurance manager at Sigma Circuits.

Michael Moisan has served as our Vice President, Operations – East Coast from October 2001 to 2002 and Chief Operations Officer since 2002. Mr. Moisan has over two decades of experience in the EMS/PCB industry. Mr. Moisan oversaw our Anaheim operation from 1996 to October 2001. Prior to joining DDi, he was Director of Engineering at Circuitwise, an automotive printed circuit board supplier, from 1995 to 1996. He served as Director of Operations at AMP AKZO, a printed circuit board company, from 1990 to 1996 and as Director of Research at PCK Technology, an electronics research and development company, from 1982 to 1990.

There are no arrangements or understandings pursuant to which any of the persons listed in the table above was selected as executive officers.

15

Table of Contents

ITEM 2.     PROPERTIES

DDi Corp. and DDi Capital conduct operations within approximately 790,000 square feet of building space. Our significant facilities are as follows:

We lease our executive office space, which comprises approximately 20,000 square feet (including corporate administration, sales, finance and accounting, and engineering.) Our executive office space is located at 1220 Simon Circle in Anaheim, California and is included in the 114,000 square foot Anaheim, California location. We believe our facilities are currently adequate for our operating needs.

ITEM 3.     LEGAL PROCEEDINGS

We are a party to various legal actions arising in the ordinary course of our business. We believe that the resolution of these legal actions will not have a material adverse effect on our financial position or results of operations.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The only matter submitted to a vote of DDi Corp.’s stockholders during the fourth quarter of the fiscal year ended December 31, 2002 was a proposal submitted at a Special Meeting of Stockholders held on October 18, 2002 to approve an amendment to DDi Corp.’s Certificate of Incorporation which would effect a reverse stock split of DDi Corp.’s outstanding common stock by a ratio of not less than one-for-ten and not more than one-for-twenty-five, with the exact ratio to be set at a whole number within this range determined by DDi Corp.’s Board of Directors in its discretion and authorizing DDi Corp.’s Board of Directors to file such amendment. The shares voted for this proposal totaled 29,064,910 or 60.08% of the 48,380,411 shares entitled to vote. The shares voted against this proposal totaled 1,024,946 or 2.12% of the shares entitled to vote. The shares abstained were 219,625. Therefore, this proposal passed.

As approved, the proposed reverse stock split would become effective only upon affirmative action by DDi Corp.’s Board of Directors on or before April 30, 2003. DDi Corp.’s Board of Directors has not taken any affirmative action to implement the reverse stock split.

No matters were submitted to a vote of DDi Capital’s stockholder during the fourth quarter of the fiscal year ended December 31, 2002.

16

Table of Contents

PART II

Market for Common Stock

DDi Corp.’s common stock, $0.01 par value per share, is traded on the NASDAQ SmallCap Market under the symbol DDIC. During the two most recent fiscal years, DDi Corp.’s common stock has been publicly traded on the NASDAQ National Market until December 11, 2002. It began trading on the NASDAQ SmallCap Market thereafter.

The table below reflects the high and low closing prices of the common stock as reported by the Nasdaq National Market and the Nasdaq Smallcap Market for the periods indicated.

Holders

There were approximately 163 record holders of our common stock as of March 21, 2003.        

To maintain our listing on The Nasdaq SmallCap Market, Nasdaq requires, among other things, that DDi Corp.’s stock maintain a minimum closing bid of at least $1 per share and that we maintain either stockholders’ equity of $2,500,000, or market capitalization of $35,000,000, or net income in the last complete fiscal year of $500,000 in the most recently completed fiscal year or two of the last three most recently completed fiscal years. On February 26, 2003, the Company received notice from the Nasdaq Stock Market that the Company would have until July 31, 2003 to demonstrate compliance with the SmallCap Market’s $1.00 per share minimum bid price requirement. On February 18, 2003, the Company received a letter from Nasdaq informing us that, as a result of the resignation of Mark R. Benham as a director of the Company, the Company does not meet the audit committee requirements for continued listing on the Nasdaq SmallCap Market and that Nasdaq is reviewing the Company’s eligibility for listing on The Nasdaq SmallCap Market. Nasdaq requested the Company’s specific plan to achieve compliance with the Nasdaq SmallCap Market listing requirement that the Audit Committee be comprised of at least three members. On March 4, 2003, the Company submitted a letter to Nasdaq describing the Company’s plans for complying with the audit committee listing criteria. On March 26, 2003, the Company received a letter from Nasdaq extending until May 27, 2003 the time for the Company to comply with the audit committee listing criteria. On March 7, 2003, the Company received a letter from Nasdaq informing us that the Nasdaq staff had determined that the Company did not meet the stockholders’ equity, market capitalization and net income requirements for continued listing on the Nasdaq SmallCap Market. Consequently, Nasdaq is reviewing the Company’s eligibility for listing on The Nasdaq SmallCap Market and has requested the Company’s specific plan to achieve and sustain compliance with all of The Nasdaq SmallCap Market listing requirements on or before March 21, 2003. On March 21, 2003, we submitted a plan to Nasdaq, which is currently under review.

17

Table of Contents

If we are unable to achieve compliance with these or other listing requirements, our common stock may be delisted from the Nasdaq SmallCap Market. If DDi Corp.’s common stock is delisted from the Nasdaq SmallCap Market, we may list the common stock for trading over-the-counter. Delisting from the Nasdaq SmallCap Market could adversely affect the liquidity and the price of DDi Corp.’s common stock and could have a long-term adverse impact on our ability to raise future capital through a sale of our common stock. In addition, delisting could make it more difficult for investors to obtain quotations as to the market value of or trade DDi Corp.’s common stock.

There is no established trading market for the common stock of DDi Capital. As of December 31, 2002, DDi Capital had 1,000 shares of common stock, par value $0.01 per share outstanding, all of which were held by Intermediate, which is a wholly-owned subsidiary of DDi Corp.

Dividend Policy

We have not declared or paid a cash dividend on common stock since January 1996, and we do not anticipate paying any cash dividends for the foreseeable future. Our existing debt instruments restrict our ability to pay dividends and restrict our subsidiaries’ ability to pay dividends to us. Dynamic Details’ ability to pay dividends is limited under its senior credit facility. DDi Capital’s ability to pay dividends is limited under an indenture dated November 18, 1997, as supplemented by a supplemental indenture dated February 10, 1998 among DDi Corp., DDi Capital and State Street Bank & Trust Co. as trustee. DDi Corp.’s 5.25% convertible subordinated notes due March 1, 2008 and DDi Corp.’s 6.25% convertible subordinated notes due April 1, 2007 do not restrict DDi Corp.’s ability to pay dividends; however, the conversion price on these notes may be adjusted if dividends exceed certain amounts. See “Description of Indebtedness” within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Equity Compensation Plan Information

Information concerning securities authorized for issuance under our equity compensation plans is set forth in Part III, Item 12 of this Report, under the caption “Equity Compensation Plan Information,” and that information is incorporated herein by reference.

18

Table of Contents

ITEM 6.     SELECTED FINANCIAL DATA

The following selected financial data as of and for the dates and periods indicated have been derived from the consolidated financial statements of DDi Capital and DDi Corp. The selected financial data with respect to the consolidated statement of operations data for the years ended December 31, 1998 and 1999 and the consolidated balance sheet data as of December 31, 1998, 1999 and 2000 were derived from our audited consolidated financial statements that are not included herein. The selected historical consolidated statement of operations data for the years ended December 31, 2000, 2001 and 2002 and the historical consolidated balance sheet data as of December 31, 2001 and 2002 were derived from the audited historical consolidated financial statements of DDi Capital and DDi Corp. included elsewhere herein. You should read the data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto appearing elsewhere herein.

19

Table of Contents