$18.3 million. In the fourth quarter of 2016, we finalized the sale with a final sales price of $38.6 million in cash. The final net assets sold were $24.0 million, net liabilities sold were $4.0 million, and direct transaction costs incurred were $0.3 million, resulting in a gain on divestiture of $18.3 million.

In February 2016, we entered into an agreement to sell our Huntsville, Alabama and Iuka, Mississippi (collectively, “Miltec”) operations for a preliminary sales price of $14.6 million, in cash, subject to post-closing adjustments. We divested this facility as part of our overall strategy to streamline operations, which included consolidating our footprint. However, the sale of the Miltec operation did not represent a strategic shift in our business and thus, was included in the ongoing operating results in the condensed consolidated income statements for all periods presented. We completed the sale on March 25, 2016. Preliminary net assets sold were $15.4 million, net liabilities sold were $2.6 million, and direct transaction costs incurred during the current period were $1.3 million, resulting in a preliminary gain on divestiture of $0.5 million. In the fourth quarter of 2016, we finalized the sale with a final sales price of $13.3 million in cash. The final net assets sold were $15.4 million, net liabilities sold were $2.7 million, and direct transaction costs incurred were $1.3 million, resulting in a loss on divestiture of $0.7 million.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid instruments purchased with original maturities of three months or less. These assets are valued at cost, which approximates fair value, which we classify as Level 1. See Fair Value above.

Derivative Instruments

We recognize derivative instruments on our condensed consolidated balance sheets at their fair value. On the date that we enter into a derivative contract, we designate the derivative instrument as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a derivative instrument that will not be accounted for using hedge accounting methods. As of ~~September 30, 2017,~~March 28, 2020, all of our derivative instruments were designated as cash flow hedges.

We record changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a cash flow hedge in other comprehensive income (loss), net of tax until our earnings are affected by the variability of cash flows of the underlying hedge. We record any hedge ineffectiveness and amounts excluded from effectiveness testing in current period earnings within interest expense. We report changes in the fair values of derivative instruments that are not designated or do not qualify for hedge accounting in current period earnings. We classify cash flows from derivative instruments in the condensed consolidated statements of cash flows in the same category as the item being hedged or on a basis consistent with the nature of the instrument. For the three months ended March 28, 2020, the impact of cash flow hedges in the respective periods were insignificant.

When we determine that a derivative instrument is not highly effective as a hedge, we discontinue hedge accounting prospectively. In all situations in which we discontinue hedge accounting and the derivative instrument remains outstanding, we will carry the derivative instrument at its fair value on our condensed consolidated balance sheets and recognize subsequent changes in its fair value in our current period earnings.

Inventories

Inventories are stated at the lower of cost or net realizable value with cost being determined using a moving average cost basis for raw materials and actual cost for work-in-process and finished ~~goods, with units being relieved and~~goods. The majority of our inventory is charged to cost of sales ~~on a first-in, first-out basis.~~as raw materials are placed into production and the related revenue is recognized. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) incurred. ~~Costs under long-term contracts are accumulated into, and removed from, inventory on the same basis as other contracts.~~ We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The majority of our revenues are recognized over time, however, for revenue contracts where revenue is recognized using the point in time method, inventory is not reduced until it is shipped or transfer of control to the customer has occurred. Our ending inventory consists of raw materials, work-in-process, and finished goods.

Production Cost of Contracts

Production cost of contracts includes non-recurring production costs, such as design and engineering costs, and tooling and other special-purpose machinery necessary to build parts as specified in a contract. Production costs of contracts are recorded to cost of ~~goods sold~~sales using the ~~units of delivery method.~~over time revenue recognition model. We review the value of the production cost of contracts on a quarterly basis to ensure when added to the estimated cost to complete, the value is not greater than the estimated realizable value of the related contracts.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, as reflected on the condensed consolidated balance sheets under the equity section, was comprised of cumulative pension and retirement liability adjustments, net of tax, and change in net unrealized gains and losses on cash flow hedges, net of tax.

Provision for Estimated Losses on Contracts

We record provisions for the total anticipated losses on contracts, considering total estimated costs to complete the contract compared to total anticipated revenues, in the period in which such losses are identified. The provisions for estimated losses on contracts require us to make certain estimates and assumptions, including those with respect to the future revenue under a contract and the future cost to complete the contract. Our estimate of the future cost to complete a contract may include assumptions as to ~~improvements~~changes in manufacturing efficiency, ~~reductions in~~ operating and material costs, and our ability to resolve claims and assertions with our customers. If any of these or other assumptions and estimates do not materialize in the future, we may be required to ~~record additional~~adjust the provisions for estimated losses on contracts. The provision for estimated losses on contracts is included as part of contract liabilities on the condensed consolidated balance sheets.

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Revenue Recognition

Our customers typically engage us to manufacture products based on designs and specifications provided by the end-use customer. This requires the building of tooling and manufacturing first article inspection products (prototypes) before volume manufacturing. Contracts with our customers generally include a termination for convenience clause.

We have a significant number of contracts that are started and completed within the same year, as well as contracts derived from long-term agreements and programs that can span several years. We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services. We apply a five-step approach as defined in the new standard in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.

Orders for our products generally correspond to the production schedules of our customers and are supported with purchase orders with firm fixed price and firm delivery dates. Our customers have continuous control of the work in progress and finished goods throughout the manufacturing process, as these are built to customer specifications with no alternative use, and there is an enforceable right to payment for work performed to date. As a result, we recognize revenue over time based on the extent of progress towards completion of the performance obligation. Revenue recognized is based on the cost-to-cost method as it best depicts the transfer of control to our customer which takes place as we incur costs. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.

From time to time, we recognize revenue at a point in time upon transfer of control of the products to the customer. Point in time recognition was determined as the customer does not simultaneously receive or consume the benefits provided by our performance and the asset being manufactured has alternative uses to us.

Each distinct promise to transfer products is considered an identified performance obligation for which revenue is recognized upon transfer of control of the products to our customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual good or service is not separately identifiable from other promises in the contract and is, therefore, not distinct.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates on a regular basis. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified. The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. Net cumulative catch up adjustments on profit recorded were not material during the three months ended for both March 28, 2020 and March 30, 2019.

Contract Assets and Contract Liabilities

Payments under long-term contracts may be received before or after revenue is recognized. When revenue is recognized before we bill our customer, a contract asset is created for the work performed but not yet billed. Similarly, when we receive payment before we ship our products to our customer, a contract liability is created for the advance or progress payment.

Contract assets consist of our right to payment for work performed but not yet billed. Contract assets are transferred to accounts receivable when we bill our customers. We bill our customers when we ship the products and meet the shipping terms within the revenue contract. Contract liabilities consist of advance or progress payments received from our customers prior to the time transfer of control occurs plus the estimated losses on contracts.

Contract assets and contract liabilities from revenue contracts with customers are as follows:


	(In thousands)
	March 28, 2020		December 31, 2019
Contract assets	$	117,213	$	106,670
Contract liabilities	$	27,878	$	14,517

Remaining performance obligations are defined as customer placed purchase orders (“POs”) with firm fixed price and firm delivery dates. Our remaining performance obligations as of March 28, 2020 totaled $726.8 million. We anticipate recognizing

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an estimated 70% of our remaining performance obligations as revenue during the next 12 months with the remaining performance obligations being recognized in the remainder of 2021 and beyond.

Revenue by Category

In addition to the revenue categories disclosed above, the following table reflects our revenue disaggregated by major end-use market:


	(In thousands)
	Three Months Ended
	March 28 2020		March 30, 2019
Consolidated Ducommun
Military and space	$	100,820	$	76,661
Commercial aerospace	62,525		85,496
Industrial	10,130		10,409
Total	$	173,475	$	172,566

Electronic Systems
Military and space	$	73,238	$	60,387
Commercial aerospace	14,752		13,401
Industrial	10,130		10,409
Total	$	98,120	$	84,197

Structural Systems
Military and space	$	27,582	$	16,274
Commercial aerospace	47,773		72,095
Total	$	75,355	$	88,369

Recent Accounting Pronouncements

New Accounting Guidance Adopted in ~~2017~~2020

In ~~December 2016,~~March 2020, the FASB issued ASU ~~2016-19, “Technical Corrections and Improvements”~~2020-03, “Codification Improvements to Financial Instruments” (“~~2016-19”~~ASU 2020-03”), which ~~cover a variety~~provides clarity to, or address various specific issues, including modifications of Topics in the Codification. The amendments in ASU 2016-19 represent changes to make corrections or improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.debt instruments. The new guidance was effective ~~for us beginning January 1, 2017.~~upon issuance of this final accounting standards update. The adoption of this standard did not have a ~~significant~~material impact on our condensed consolidated financial statements.

In February 2020, the FASB issued ASU 2020-02, “Financial Statements - Credit losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Relating to Accounting Standards Update No. 2016-02, Leases (Topic 842)” (“ASU 2020-02”), which provides guidance on the measurement and requirements related to credit losses. The new guidance was effective upon issuance of this final accounting standards update. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Statements” (“ASU 2019-04”), which clarify, correct, and improve various aspects of the guidance in ASU 2016-01, ASU 2016-13, and ASU 2017-12. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which was our interim period beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In March ~~2016,~~2019, the FASB issued ASU ~~2016-09, “Compensation - Stock Compensation~~2019-01, “Leases (Topic ~~718)~~842): ~~Improvements to Employee Share-Based Payment Accounting”~~Codification Improvements” (“ASU ~~2016-09”~~2019-01”), which ~~is intended to improve~~addresses various lessor implementation issues and clarifies that lessees and lessors are exempt from certain interim disclosure requirements associated with the ~~accounting for employee share-based payments.~~adoption of ASC 842. The new guidance ~~was~~is effective for usfiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which was our interim period beginning January 1, ~~2017.~~2020. The adoption of this standard did not have a ~~significant dollar~~material impact on our condensed consolidated financial statements.

In ~~March 2016,~~August 2018, the FASB issued ASU ~~2016-05, “Derivatives and Hedging~~2018-13, “Fair Value Measurement (Topic ~~815)~~820): ~~Effect~~Disclosure Framework - Changes to

Table of ~~Derivative Contract Novations on Existing Hedge Accounting Relationships”~~Contents

the Disclosure Requirements for Fair Value Measurement” (“ASU ~~2016-05”~~2018-13”), which ~~clarifies that a change in~~should improve the ~~counter party to a derivative instrument designated as a hedging instrument does not require dedesignation~~effectiveness of ~~that hedging relationship, provided that all other hedge accounting criteria are met.~~fair value measurement disclosures by removing certain requirements, modifying certain requirements, and adding certain new requirements. The new guidance was effective for usfiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which was our interim period beginning January 1, ~~2017.~~2020. Early adoption was permitted. The adoption of this standard did not have a ~~significant~~material impact on our condensed consolidated financial statements.

In ~~July 2015,~~June 2016, the FASB issued ASU ~~2015-11, “Inventory~~2016-13, “Financial Instruments - Credit Losses (Topic ~~330)”~~326): Measurement of Credit Losses on Financial Instruments” (“ASU ~~2015-11”~~2016-13”), which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 requires ~~inventory within~~ the ~~scope~~measurement of ~~ASU 2015-11 to be measured~~all expected credit losses for financial assets held at the ~~lower~~reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of ~~cost or net realizable value. Subsequent measurement~~the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is ~~unchanged~~appropriate for ~~inventory measured using last-in, first-out (“LIFO”) or~~their circumstances. ASU 2016-13 requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the ~~retail inventory value.~~credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. The new guidance was effective for usfiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which was our interim period beginning January 1, ~~2017.~~2020. The adoption of this standard did not have a ~~significant~~material impact on our condensed consolidated financial statements.

Recently Issued Accounting Standards

In ~~August 2017,~~March 2020, the FASB issued ASU ~~2017-12, “Derivatives and Hedging~~2020-04, “Reference Rate Reform (Topic ~~815): Targeted Improvements to Accounting for Hedging”~~848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU ~~2017-12”~~2020-04”), which ~~intends~~provides optional guidance for a limited time for contracts that reference London Interbank Offered Rate (“LIBOR”), to ~~improve and simplify accounting rules around hedge accounting. ASU 2017-12 refines and expands hedge~~ease the potential burden in accounting for, ~~both~~or recognizing the effects, of reference rate reform on financial ~~(i.e., interest rate) and commodity risks. In addition, it creates more transparency around how economic results are presented, both on the face~~reporting as a result of the ~~financial statements and in the footnotes.~~cessation of LIBOR. The new guidance is effective ~~for annual periods beginning~~at any time after March 12, 2020 but no later than December 15, 2018, including interim periods within those annual periods, which will be our interim period beginning January 1, 2019. Early adoption is permitted, including adoption in any interim period after the issuance of ASU 2017-12. We are evaluating the impact of this standard.

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which provides clarity on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. Early adoption is permitted, including adoption in any interim period. The amendments should be applied prospectively to an award modified on or after the adoption date. We are evaluating the impact of this standard.

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs” (“ASU 2017-07”), which require an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments also allow only the service cost component to be eligible for capitalization when applicable. The new guidance is effective for annual periods beginning after

~~December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. We are evaluating the impact of this standard.~~

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which simplifies the subsequent measurement of goodwill, the amendments eliminate Step Two from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step Two of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are evaluating the impact of this standard.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), which clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018.31, 2022. We are evaluating the impact of this standard.

In December ~~2016,~~2019, the FASB issued ASU ~~2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”~~2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes” (“ASU ~~2016-20”~~2019-12”), which ~~cover a variety~~removes certain exceptions and provides guidance on various areas of Topics in the Codification related to the new revenue recognition standard (ASU 2014-09). The amendments in ASU 2016-20 represent changes to make minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. We are evaluating the impact of this standard.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (“COLIs”) (including bank-owned life insurance policies [“BOLIs”]); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. We are evaluating the impact of this standard.

In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax and transition. The amendments are intended to address implementation issues and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods with that reporting period. We are evaluating the impact of this standard.

In May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-06 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” (“ASU 2016-11”), which clarifies revenue and expense recognition for freight costs, accounting for shipping and handling fees and costs, and accounting for consideration given by a vendor to a customer. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods with that reporting period. We are evaluating the impact of this standard.

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which clarifies the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of

the guidance in Topic 606. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods with that reporting period. We are evaluating the impact of this standard.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to present right-of-use assets and lease liabilities on the balance sheet. Lessees are required to apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.accounting. The new guidance is effective for fiscal years beginning after December 15, ~~2018,~~2020, including interim periods within those fiscal years, which will be our interim period beginning January 1, ~~2019.~~2021. Early adoption is permitted. We are evaluating the impact of this ~~standard and currently anticipate it will impact our condensed consolidated financial statements.~~standard.

In ~~May 2014,~~August 2018, the FASB issued ASU ~~2014-09, “Revenue from Contracts with Customers~~2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic ~~606)”~~715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU ~~2014-09”~~2018-14”), which ~~outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers~~will remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. It requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. Thus, it depicts the transfer of promised goods or services to customers in an amount that reflects the consideration an entity expects to receive in exchange for those goods or services. Companies have the option of applying the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. In August 2015, the FASB issued ASU 2015-14, “Revenue From Contracts With Customers (Topic 606)” (“ASU 2015-14”), which deferred the effective date of ASU 2014-09 by one year to annual periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted onlyadd disclosure requirements identified as ~~of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.~~relevant. The new guidance is effective for usfiscal years beginning after December 15, 2020, including interim periods within those fiscal years, which will be our interim period beginning January 1, ~~2018 and provides us additional time to evaluate~~2021. Early adoption is permitted. We are evaluating the impact ~~that ASU 2014-09 will have on our condensed consolidated financial statements. We are in the process~~ of completing the implementation phase of the project. We have noted that under ASU 2014-09, the percentage of completion, unit of delivery method of recognizing revenue is no longer a viable method for us and production costs will generally not be deferred. Instead, revenue will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). Given the nature of our products and terms and conditions in the majority of our contracts, our customer obtains control as we perform work under the contract. As such, most of our revenues will be recognized sooner as a result of changing to an over time method (i.e., cost-to-cost plus a reasonable profit) from a point-in-time method, which is our current method for recognizing revenue. This will result in eliminating the majority of our work-in-process and finished goods inventory and a significant increase in unbilled accounts receivables (i.e., contract assets). This change will also impact our information technology systems, systems of internal controls over financial reporting, and certain accounting policies, requiring the usage of more judgement in determining our revenue recognition. Further, we have selected a software solution and are in the process of implementing the software solution to comply with this ~~new accounting~~ standard. Finally, we will adopt the new accounting standard using the modified retrospective method, under which the cumulative effect of initially applying the new guidance is recognized as an adjustment to certain captions on the balance sheet, including the opening balance of retained earnings in the first quarter of 2018.

Note 2. Business ~~Combination~~Combinations

~~On September 11, 2017,~~In October 2019, we acquired 100.0% of the outstanding equity interests of ~~Lightning Diversion Systems, LLC~~Nobles Parent Inc., the parent company of Nobles Worldwide, Inc. (“~~LDS”~~Nobles”), a privately-held ~~worldwide~~global leader in ~~lightning protection~~the design and manufacturing of high performance ammunition handling systems ~~serving the aerospace~~for a wide range of military platforms including fixed-wing aircraft, rotary-wing aircraft, ground vehicles, and ~~defense industries,~~shipboard systems. Nobles is located in ~~Huntington Beach, California.~~St. Croix Falls, Wisconsin. The acquisition of ~~LDS is part of~~Nobles advances our strategy to ~~enhance revenue growth by focusing on advanced proprietary technology on various aerospace~~diversify and ~~defense platforms.~~offer more customized, value-driven engineered products with aftermarket opportunities.

The original purchase price for ~~LDS~~Nobles was ~~$60.0~~$77.0 million, net of cash acquired, all payable in cash. ~~Upon~~We paid a gross total aggregate of $77.3 million in cash upon the closing of the transaction. Subsequent to the closing of the transaction, during the three months ended March 28, 2020, we ~~paid $61.4~~received $0.2 million ~~with~~back from the ~~remaining $0.6~~seller which lowered the purchase price to $76.8 million, ~~paid in October 2017, subsequent to our quarter ended September 30, 2017.~~net of cash acquired. We preliminarily allocated the gross purchase price of ~~$62.0~~$77.1 million to the assets acquired and liabilities assumed at estimated fair values. The excess of the purchase price over the aggregate fair values isof the net assets was recorded as goodwill. The allocation is subject to revision as the estimates of fair value of ~~current~~the assets ~~non-current assets, identifiable intangible assets,~~acquired and ~~current~~ liabilities assumed are based on preliminary information and are subject to refinement. We are in the process of reviewing third party ~~valuations~~valuation of ~~certain assets.~~the assets and liabilities. In addition, the purchase price is subject to finalization of the working capital amount.

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The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Estimated
Fair Value
Cash $ 2,223
Accounts receivable 918
Inventories 1,732
Other current assets 54
Property and equipment 138
Intangible assets 22,400
Goodwill 34,881
Total assets acquired 62,346
Current liabilities (325 )
Total liabilities assumed (325 )
Total preliminary purchase price allocation $ 62,021


	Estimated Fair Value
Cash	$	658
Accounts receivable	1,880
Inventories	2,866
Other current assets	288
Property and equipment	2,319
Intangible assets	37,200
Goodwill	34,833
Other non-current assets	675
Total assets acquired	80,719
Current liabilities	(2,187)
Net non-current deferred tax liability	(742)
Other non-current liabilities	(675)
Total liabilities assumed	(3,604)
Total purchase price allocation	$	77,115


	Useful Life (In years)	Estimated Fair Value (In thousands)			Useful Life (In years)	Estimated Fair Value (In thousands)
Intangible assets:				Intangible assets:
Customer relationships	15	$	21,100	Customer relationships	15-16	$	34,200
Trade name	15	1,300
Trade names and trademarks				Trade names and trademarks	15	3,000
		$	22,400			$	37,200

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(In thousands)
September 30,
2017 December 31,
2016
Total Assets
Structural Systems $ 207,413
$ 175,580
Electronic Systems 376,569
325,780
Corporate Administration ⁽¹⁾
9,867
14,069
Total Assets $ 593,849
$ 515,429
Goodwill and Intangibles
Structural Systems $ 3,063
$ 3,745
Electronic Systems 231,657
180,382
Total Goodwill and Intangibles $ 234,720
$ 184,127


~~(1)~~	~~Includes assets not specifically identified to or allocated to either the Structural Systems or Electronic Systems operating segments, including cash and cash equivalents.~~

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

Overview

Ducommun Incorporated (“Ducommun,” “the Company,” “we,” “us” or “our”) is a leading global provider of engineering and manufacturing services for high-performance products and high-cost-of failure applications used primarily in the aerospace and defense (“A&D”), industrial, medical and other industries (collectively, “Industrial”). We differentiate ourselves as a full-service solution-based provider, offering a wide range of value-added products and services in our primary businesses of electronics, structures and integrated solutions. We operate through two primary business segments: Electronic Systems and Structural Systems, each of which is a reportable segment.

~~Third~~COVID-19 Coronavirus Pandemic Impact on Our Business

The outbreak of the COVID-19 coronavirus has been declared a pandemic by the World Health Organization during our first quarter ~~2017~~of 2020 but did not have a significant impact to our overall business during the three months ended March 28, 2020. However, during the latter part of our first quarter and subsequent to our quarter end, the COVID-19 pandemic has grown, causing non-essential businesses to shut down and many people to observe the shelter-in-place directive from our government. The COVID-19 pandemic is beginning to contribute to a general slowdown in the global economy and if it continues for an extended period of time, it could adversely impact the businesses of our customers and suppliers, as well as our results of operations and financial condition for some portion, if not the remainder, of 2020. See Risk Factors included in Part II, Item 1A of this Form 10-Q.

First quarter 2020 highlights:

•Revenues of ~~$138.7~~$173.5 million

•Net income of ~~$4.7~~$7.9 million, or ~~$0.41~~$0.67 per diluted share

•Adjusted EBITDA of ~~$14.5~~$23.2 million

~~Backlog of $655.3 million~~

~~Completed the acquisition of Lightning Diversion Systems, LLC~~

Non-GAAP Financial Measures

Adjusted earnings before interest, taxes, depreciation, amortization, and ~~restructuring charges~~stock-based compensation expense (“Adjusted EBITDA”) was ~~$14.5~~$23.2 million and ~~$14.9~~$21.1 million for the three months ended ~~September~~March 28, 2020 and March 30, ~~2017 and October 1, 2016,~~2019, respectively.

When viewed with our financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information to clarify and enhance the understanding of the factors and trends affecting our past performance and future prospects. We define these measures, explain how they are calculated and provide reconciliations of these measures to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Quarterly Report on Form 10-Q (“Form 10-Q”), are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.

We use Adjusted EBITDA non-GAAP operating performance measures internally as complementary financial measures to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as ~~substitutes~~a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

•They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;

•They do not reflect changes in, or cash requirements for, our working capital needs;

•They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

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•They are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

•They do not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and

•Other companies in our industry may calculate Adjusted EBITDA differently from us, limiting their usefulness as comparative measures.

Because of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our Condensed Consolidated Financial Statements contained in this Form 10-Q.

However, in spite of the above limitations, we believe that Adjusted EBITDA is useful to an investor in evaluating our results of operations because these measures:

•Are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;

•Help investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and

•Are used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.

The following financial items have been added back to or subtracted from our net income when calculating Adjusted EBITDA:

•Interest expense may be useful to investors for determining current cash flow;

•Income tax expense may be useful to investors because it represents the taxes which may be payable for the period and the change in deferred taxes during the period, and may reduce cash flow available for use in our business;

•Depreciation may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations;

•Amortization expense may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights; and

•Stock-based compensation may be useful to our investors for determining current cash ~~flow;~~

~~Gain on divestitures may be useful to our investors in evaluating our on-going operating performance; and~~

~~Restructuring charges may be useful to our investors in evaluating our core operating performance.~~flow.

Reconciliations of net income to Adjusted EBITDA and the presentation of Adjusted EBITDA as a percentage of net revenues were as follows:


	(In thousands) Three Months Ended						(In thousands) Nine Months Ended							(Dollars in thousands) Three Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016				March 28, 2020			March 30, 2019
Net income	$	4,655		$	5,014		$	10,593		$	22,425		Net income	$	7,930		$	7,472
Interest expense	2,088			1,945			5,588			6,279			Interest expense	4,246			4,351
Income tax expense	940			1,234			2,073			9,863			Income tax expense	1,450			1,025
Depreciation	3,243			3,249			9,910			10,002			Depreciation	3,436			3,484
Amortization	2,376			2,840			7,239			7,418			Amortization	3,900			3,271
Stock-based compensation expense	1,100			594			4,264			2,579			Stock-based compensation expense	2,279			1,464
Gain on divestitures	—			—			—			(18,815		)
Restructuring charges	64			—			64			—

Adjusted EBITDA	$	14,466		$	14,876		$	39,731		$	39,751		Adjusted EBITDA	$	23,241		$	21,067
% of net revenues	10.4		%	11.2		%	9.6		%	9.7		%	% of net revenues	13.4		%	12.2		%

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Results of Operations

~~Third~~First Quarter of ~~2017~~2020 Compared to ~~Third~~First Quarter of ~~2016~~2019

The following table sets forth net revenues, selected financial data, the effective tax rate and diluted earnings per share:


	(in thousands, except per share data) Three Months Ended										(in thousands, except per share data) Nine Months Ended											(Dollars in thousands, except per share data) Three Months Ended
	September 30, 2017			% of Net Revenues		October 1, 2016			% of Net Revenues		September 30, 2017			% of Net Revenues		October 1, 2016			% of Net Revenues			March 28, 2020			% of Net Revenues		March 30, 2019			% of Net Revenues
Net Revenues	$	138,690		100.0	%	$	132,571		100.0	%	$	415,925		100.0	%	$	408,156		100.0	%	Net Revenues	$	173,475		100.0	%	$	172,566		100.0	%
Cost of Sales	112,681			81.2	%	107,348			81.0	%	338,798			81.5	%	329,749			80.8	%	Cost of Sales	136,671			78.8	%	136,872			79.3	%

Gross Profit	26,009			18.8	%	25,223			19.0	%	77,127			18.5	%	78,407			19.2	%	Gross Profit	36,804			21.2	%	35,694			20.7	%
Selling, General and Administrative Expenses	18,814			13.6	%	17,171			12.9	%	59,361			14.3	%	58,796			14.4	%	Selling, General and Administrative Expenses	23,178			13.4	%	22,846			13.2	%

Operating Income	7,195			5.2	%	8,052			6.1	%	17,766			4.2	%	19,611			4.8	%	Operating Income	13,626			7.8	%	12,848			7.5	%
Interest Expense	(2,088		)	(1.5	)%	(1,945		)	(1.5	)%	(5,588		)	(1.3	)%	(6,279		)	(1.5	)%	Interest Expense	(4,246)			(2.4)	%	(4,351)			(2.5)	%
Other Income	488			0.4	%	141			0.1	%	488			0.1	%	141			—	%
Gain on Divestitures	—			—	%	—			—	%	—			—	%	18,815			4.6	%

Income Before Taxes	5,595			4.1	%	6,248			4.7	%	12,666			3.0	%	32,288			7.9	%	Income Before Taxes	9,380			5.4	%	8,497			5.0	%
Income Tax Expense	940			nm		1,234			nm		2,073			nm		9,863			nm		Income Tax Expense	1,450			nm		1,025			nm
Net Income	$	4,655		3.4	%	$	5,014		3.8	%	$	10,593		2.5	%	$	22,425		5.5	%	Net Income	$	7,930		4.6	%	$	7,472		4.3	%

Effective Tax Rate	16.8		%	nm		19.8		%	nm		16.4		%	nm		30.5		%	nm		Effective Tax Rate	15.5		%	nm		12.1		%	nm
Diluted Earnings Per Share	$	0.41		nm		$	0.44		nm		$	0.92		nm		$	1.99		nm		Diluted Earnings Per Share	$	0.67		nm		$	0.64		nm

~~The prior year included a preliminary pre-tax gain on divestitures~~

Table of ~~our Pittsburgh and Miltec operations of $18.8 million; partially offset by~~Contents

~~$7.8 million lower income tax expense.~~

Business Segment Performance

We report our financial performance based upon the two reportable operating segments: ~~Structural~~Electronic Systems and ~~Electronic~~Structural Systems. The results of operations differ between our reportable operating segments due to differences in competitors, customers, extent of proprietary deliverables and performance. The following table summarizes our business segment performance for the three ~~and nine~~ months ended ~~September~~March 28, 2020 and March 30, ~~2017 and October 1, 2016:~~2019:


	Three Months Ended
	%		(Dollars in thousands)						% of Net Revenues
	Change		March 28, 2020		March 30, 2019		March 28, 2020		March 30, 2019
Net Revenues
Electronic Systems	16.5	%	$	98,120	$	84,197	56.6	%	48.8	%
Structural Systems	(14.7)	%	75,355		88,369		43.4	%	51.2	%
Total Net Revenues	0.5	%	$	173,475	$	172,566	100.0	%	100.0	%
Segment Operating Income
Electronic Systems			$	15,122	$	9,181	15.4	%	10.9	%
Structural Systems			5,390		10,549		7.2	%	11.9	%
			20,512		19,730
Corporate General and Administrative Expenses ⁽¹⁾			(6,886)		(6,882)		(4.0)	%	(4.0)	%
Total Operating Income			$	13,626	$	12,848	7.8	%	7.5	%
Adjusted EBITDA
Electronic Systems
Operating Income			$	15,122	$	9,181

Depreciation and Amortization			3,575		3,502

			18,697		12,683		19.1	%	15.1	%
Structural Systems
Operating Income			5,390		10,549

Depreciation and Amortization			3,689		3,000


			9,079		13,549		12.0	%	15.3	%
Corporate General and Administrative Expenses ⁽¹⁾
Operating Loss			(6,886)		(6,882)

Depreciation and Amortization			72		253
Stock-Based Compensation Expense			2,279		1,464

			(4,535)		(5,165)
Adjusted EBITDA			$	23,241	$	21,067	13.4	%	12.2	%



Capital Expenditures
Electronic Systems			$	815	$	836
Structural Systems			2,137		3,689
Corporate Administration			—		—
Total Capital Expenditures			$	2,952	$	4,525

Three Months Ended Nine Months Ended
% (In thousands) % of Net Revenues % (In thousands) % of Net Revenues
Change September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016 Change September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net Revenues
Structural Systems (2.0 )% $ 59,685
$ 60,931
43.0 % 46.0 % (5.0 )% $ 176,372
$ 185,642
42.4 % 45.5 %
Electronic Systems 10.3 % 79,005
71,640
57.0 % 54.0 % 7.7 % 239,553
222,514
57.6 % 54.5 %
Total Net Revenues 4.6 % $ 138,690
$ 132,571
100.0 % 100.0 % 1.9 % $ 415,925
$ 408,156
100.0 % 100.0 %
Segment Operating Income
Structural Systems $ 3,466
$ 5,893
5.8 % 9.7 % $ 8,147
$ 13,347
4.6 % 7.2 %
Electronic Systems 8,234
6,600
10.4 % 9.2 % 24,158
19,769
10.1 % 8.9 %
11,700
12,493
32,305
33,116

Corporate General and Administrative Expenses ⁽¹⁾
(4,505 ) (4,441 ) (3.2 )% (3.3 )% (14,539 ) (13,505 ) (3.5 )% (3.3 )%
Total Operating Income $ 7,195
$ 8,052
5.2 % 6.1 % $ 17,766
$ 19,611
4.3 % 4.8 %
Adjusted EBITDA
Structural Systems
Operating Income $ 3,466
$ 5,893
$ 8,147
$ 13,347

Other Income 200
141
200
141

Depreciation and Amortization 2,220
2,851
6,879
6,683

Restructuring Charges 64
—
64
—

5,950
8,885
10.0 % 14.6 % 15,290
20,171
8.7 % 10.9 %
Electronic Systems
Operating Income 8,234
6,600
24,158
19,769

Other Income 288
—
288
—

Depreciation and Amortization 3,345
3,232
10,207
10,661

11,867
9,832
15.0 % 13.7 % 34,653
30,430
14.5 % 13.7 %
Corporate General and Administrative Expenses ⁽¹⁾

Operating Loss (4,505 ) (4,441 ) (14,539 ) (13,505 )
Depreciation and Amortization 54
6
63
76

Stock-Based Compensation Expense 1,100
594
4,264
2,579

(3,351 ) (3,841 ) (10,212 ) (10,850 )
Adjusted EBITDA $ 14,466
$ 14,876
10.4 % 11.2 % $ 39,731
$ 39,751
9.6 % 9.7 %
Capital Expenditures
Structural Systems $ 4,449
$ 3,555
$ 17,217
$ 10,149

Electronic Systems 1,793
947
4,256
1,701

Corporate Administration 127
—
775
—

Total Capital Expenditures $ 6,369
$ 4,502
$ 22,248
$ 11,850


~~(1)~~	~~Includes costs not allocated to either the Structural~~(1)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments. Electronic Systems Electronic Systems ~~operating segments.~~

~~Structural Systems~~

~~Structural Systems’~~ net revenues in the three months ended ~~September 30, 2017~~March 28, 2020 compared to the three months ended ~~October 1, 2016 decreased $1.2~~March 30, 2019 increased $13.9 million primarily due to the following:

•$1.6 million lower revenues in our commercial aerospace end-use markets mainly due to the winding down of a regional jet program and continued softness in demand within the business jet market; partially offset by

~~$0.3~~12.9 million higher revenues in our military and space end-use markets ~~mainly~~ due to higher build rates on military fixed-wing aircraft platforms and various missile platforms, partially offset by lower build rates on other military and space platforms; and

•$1.4 million higher revenues in our commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms.

Electronic Systems segment operating income in the three months ended March 28, 2020 compared to the three months ended March 30, 2019 increased ~~demand, which favorably impacted our helicopter platforms.~~$5.9 million due to favorable manufacturing volume and favorable product mix.

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Structural ~~Systems’~~Systems

Structural Systems net revenues in the ~~nine~~three months ended ~~September 30, 2017~~March 28, 2020 compared to the ~~nine~~three months ended ~~October 1, 2016~~March 30, 2019 decreased ~~$9.3~~$13.0 million ~~primarily~~ due to the following:

•$~~13.7~~24.3 million lower revenues in our commercial aerospace end-use markets ~~mainly~~ due to ~~the winding down of a regional jet program and continued softness in demand within the business jet market;~~lower build rates on large aircraft platforms; partially offset by

•$~~4.4~~11.3 million higher revenues in our military and space end-use markets ~~mainly~~ due to ~~increased demand, which favorably impacted our helicopter~~higher build rates on other military and space platforms and military fixed-wing aircraft platforms.

The Structural Systems segment operating income in the three ~~and nine~~ months ended September 30, 2017 compared to the three and nine months ended October 1, 2016 decreased $2.4 million and $5.2 million, respectively, primarily due to the impact of new program development on large airframe platforms and lower manufacturing volume.

~~Electronic Systems~~

~~Electronic Systems’ net revenues in the three months ended September 30, 2017~~March 28, 2020 compared to the three months ended ~~October 1, 2016 increased $7.4~~March 30, 2019 decreased $5.2 million ~~primarily~~ due to ~~the following:~~

~~$7.7 million higher revenues in our military~~unfavorable manufacturing volume and ~~space end-use markets mainly due to increased demand, which favorably impacted our fixed-wing, missile, and helicopter platforms; and~~

~~$0.9 million higher revenues in our Industrial end-use markets; partially offset by~~

~~$1.3 million lower revenues in our commercial aerospace end-use markets mainly due to continued softness in demand in the business jet market.~~

~~Electronic Systems’ net revenues in the nine months ended September 30, 2017 compared to the nine months ended October 1, 2016 increased $17.0 million primarily due to the following:~~

~~$27.5 million higher revenues in our military and space end-use markets mainly due to increased demand, which favorably impacted our fixed-wing, helicopter, and missile platforms,~~unfavorable product mix, partially offset by ~~the divestiture of our Miltec operation in March 2016. The net increase was partially offset by~~

~~$7.4 million~~ lower ~~revenues in our Industrial end-use markets mainly due to exiting certain Industrial customers~~compensation and ~~the divestiture of our Pittsburgh operation in January 2016; and~~

~~$3.1 million lower revenues in our commercial aerospace end-use markets mainly due to continued softness in demand in the business jet market.~~

Electronic Systems’ segment operating income in the three and nine months ended September 30, 2017 compared to the three and nine months ended October 1, 2016 increased $1.6 million and $4.4 million, respectively, primarily due to higher manufacturing volume and lower manufacturing costs as a result of ongoing cost reduction initiatives, partially offset by unfavorable product mix.benefit costs.

Corporate General and Administrative (“CG&A”) Expenses

CG&A expenses ~~increased $0.1 million~~was essentially flat in the three months ended ~~September 30, 2017~~March 28, 2020 compared to the three months ended ~~October 1, 2016.~~

~~CG&A expenses increased $1.0 million in the nine months ended September~~March 30, ~~2017 compared to the nine months ended October 1, 2016 primarily due to higher compensation and benefit costs of $2.5 million, partially offset by lower professional services fees of $1.3 million.~~2019.

Backlog

We define backlog as customer placed purchase orders (“POs”) and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount disclosed below is greater than the remaining performance obligations amount disclosed in Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues. Backlog in industrial markets tends to be of a shorter duration and is generally fulfilled within a ~~3-month~~three month period. As a result of these factors, trends in our overall level of backlog may not be indicative of trends in our future net revenues. ~~$427.0~~

The decrease in backlog was primarily in the commercial aerospace end-use markets, mainly due to the COVID-19 pandemic, partially offset by an increase in the military and space end-use markets. $587.0 million of total backlog is expected to be delivered over the next 12 months. The following table summarizes our backlog as of ~~September 30, 2017~~March 28, 2020 and December 31, ~~2016:~~2019:


	(Dollars in thousands)
	Change		March 28, 2020		December 31, 2019
Consolidated Ducommun
Military and space	$	23,158	$	474,451	$	451,293
Commercial aerospace	(54,335)		376,307		430,642
Industrial	(2,618)		25,668		28,286
Total	$	(33,795)	$	876,426	$	910,221
Electronic Systems
Military and space	$	15,972	$	326,999	$	311,027
Commercial aerospace	1,213		76,932		75,719
Industrial	(2,618)		25,668		28,286
Total	$	14,567	$	429,599	$	415,032
Structural Systems
Military and space	$	7,186	$	147,452	$	140,266
Commercial aerospace	(55,548)		299,375		354,923
Total	$	(48,362)	$	446,827	$	495,189

(In thousands)
Change September 30,
2017 December 31,
2016
Consolidated Ducommun
Military and space
Defense electronics $ (7,745 ) $ 189,831
$ 197,576
Defense structures 7,727
66,605
58,878
Commercial aerospace 44,019
367,408
323,389
Industrial 4,355
31,485
27,130
Total $ 48,356
$ 655,329
$ 606,973
Structural Systems
Military and space (defense structures) $ 7,727
$ 66,605
$ 58,878
Commercial aerospace 31,253
316,492
285,239
Total $ 38,980
$ 383,097
$ 344,117
Electronic Systems
Military and space (defense electronics) $ (7,745 ) $ 189,831
$ 197,576
Commercial aerospace 12,766
50,916
38,150
Industrial 4,355
31,485
27,130
Total $ 9,376
$ 272,232
$ 262,856

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Liquidity and Capital Resources

Available Liquidity

Total debt, the weighted-average interest rate, cash and cash equivalents and available credit facilities were as follows:


	(Dollars in millions)
	March 28,			December 31,
	2020			2019
Total debt, including long-term portion	$	352.6		$	310.0
Weighted-average interest rate on debt	4.49		%	6.87		%
Term Loans interest rate	4.69		%	6.28		%

Cash and cash equivalents	$	65.6		$	39.6
Unused Revolving Credit Facility	$	49.8		$	99.8

(In millions)
September 30, December 31,
2017 2016
Total debt, including long-term portion $ 224.7
$ 170.0
Weighted-average interest rate on debt 3.43 % 3.25 %
Term Loan interest rate 3.44 % 3.31 %
Cash and cash equivalents $ 3.7
$ 7.4
Unused Revolving Credit Facility $ 134.5
$ 199.0

~~Our~~On December 20, 2019, we completed the refinancing of a portion of our existing debt by entering into a new revolving credit facility ~~consists of~~(“New Revolving Credit Facility”) to replace the existing revolving credit facility that was entered into in November 2018 (“2018 Revolving Credit Facility”) and entering into a ~~$275.0 million senior secured~~new term loan ~~which matures on June 26, 2020~~ (“New Term Loan”)~~, and~~. The New Revolving Credit Facility is a ~~$200.0~~$100.0 million senior secured revolving credit facility (“that matures on December 20, 2024 replacing the $100.0 million 2018 Revolving Credit ~~Facility”), which~~Facility that would have matured on November 21, 2023. The New Term Loan is a $140.0 million senior secured term loan that matures on ~~June 26, 2020~~December 20, 2024. We also have an existing $240.0 million senior secured term loan that was entered into in November 2018 that matures on November 21, 2025 (“2018 Term Loan”). The original amounts available under the New Revolving Credit Facility, New Term Loan, and 2018 Term Loan (collectively, the “Credit Facilities”). in aggregate, totaled $480.0 million. We are required to make ~~mandatory prepayments~~installment payments of ~~amounts~~1.25% of the original outstanding ~~under~~principal balance of the New Term ~~Loan.~~Loan amount on a quarterly basis. In addition, if we meet the annual excess cash flow threshold, we will be required to make excess flow payments on an annual basis. Further, the undrawn portion of the commitment of the New Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio. As of ~~September 30, 2017,~~As of March 28, 2020, we were in compliance with all covenants required under the Credit Facilities. See Note 97 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. ~~On July 14, 2017,~~

In November 2018, we ~~entered into~~completed credit facilities to replace the then existing credit facilities. The November 2018 credit facilities consisted of the 2018 Term Loan and the 2018 Revolving Credit Facility (collectively, the “2018 Credit Facilities”). We are required to make installment payments of 0.25% of the outstanding principal balance of the 2018 Term Loan amount on a ~~technical amendment~~quarterly basis. In addition, if we meet the annual excess cash flow threshold, we will be required to ~~the Credit Facilities (“First Amendment”) which provides more flexibility~~make excess flow payments on an annual basis. See Note 7 to ~~close certain qualified acquisitions permitted~~our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. We made an aggregate total of $7.4 million of voluntary and mandatory principal prepayments under the ~~Credit Facilities.~~Term Loans during the three months ended March 28, 2020.

In October 2015, we entered into interest rate cap hedges designated as cash flow hedges with maturity dates of June 2020, and in aggregate, totaling $135.0 million of our debt. We paid a total of $1.0 million in connection with entering into the interest rate cap hedges.

~~On September 11, 2017,~~In October 2019, we acquired ~~LDS~~Nobles Parent Inc., the parent company of Nobles Worldwide, Inc. (“Nobles”) for aan original purchase price of ~~$60.0~~$77.0 million, net of cash acquired, all payable in cash. ~~Upon~~We paid a gross total aggregate of $77.3 million in cash upon the closing of the transaction ~~we paid $61.4 million in cash~~ by drawing down on the ~~Revolving Credit Facility. The remaining $0.6 million was paid in October 2017 in cash, also by drawing down on the~~2018 Revolving Credit Facility. See Note 2 ~~for further information.~~to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

We expect to spend a total of ~~$26.0~~$12.0 million to ~~$30.0~~$14.0 million for capital expenditures in ~~2017~~2020 financed by cash generated from operations, principally to support ~~the expansion of our Parsons, Kansas facility and~~ new contract awards atin Electronic Systems and Structural ~~Systems~~

~~and Electronic~~ Systems. As part of our strategic plan to become a ~~Tier 2~~ supplier of higher-level assemblies and win new contract awards, additional up-front investment in tooling will be required for newer programs which have higher engineering content and higher levels of complexity in assemblies. However, some portion of the expected capital expenditures in 2020 could be delayed as a result of the COVID-19 pandemic.

We believe the ongoing aerospace and defense subcontractor consolidation makes acquisitions an increasingly important component of our future growth. We will continue to make prudent acquisitions and capital expenditures for manufacturing equipment and facilities to support long-term contracts for commercial and military aircraft and defense programs.

We continue to depend on operating cash flow and the availability of our Credit Facilities to provide short-term liquidity. Cash generated from operations and bank borrowing capacity isare expected to provide sufficient liquidity to meet our obligations during the next twelve months.

Table of Contents

Cash Flow Summary

Net cash ~~provided by~~used in operating activities for the ~~nine~~three months ended ~~September 30, 2017 decreased to $27.4~~March 28, 2020 was $12.0 million, compared to ~~$27.6~~$1.7 million for the ~~nine~~three months ended ~~October 1, 2016.~~March 30, 2019. The ~~lower~~higher net cash ~~generated~~used during the first ~~nine~~three months of ~~2017~~2020 was ~~primarily~~ due to ~~lower net income,~~higher accounts receivable and higher inventories, partially offset by higher ~~accounts payable mainly due to the timing of payments.~~net income.

Net cash used in investing activities ~~of $83.5~~was $3.7 million for the ~~nine~~three months ended ~~September 30, 2017~~March 28, 2020 compared to ~~net cash provided by of $42.6~~$3.2 million in the ~~nine~~three months ended ~~October 1, 2016 primarily due to~~March 30, 2019. The higher net cash used during the ~~payments for the purchase~~first three months of ~~LDS, net of cash acquired of $59.2 million in the current year nine month period~~2020 compared to the prior year ~~nine month~~ period ~~which included proceeds from the divestiture of our Pittsburgh and Miltec operations of approximately $55.3 million and~~was due to higher purchases of property and ~~equipment mainly to support the expansion of our Parsons, Kansas facility.~~equipment.

Net cash provided by financing activities was $41.7 million for the ~~nine~~three months ended ~~September~~March 28, 2020 compared to net cash used of $1.6 million for the three months ended March 30, ~~2017~~2019. The higher net cash provided by during the first three months of ~~$52.4 million~~2020 was ~~primarily~~mainly due to higher net ~~borrowings from~~draw down on the New Revolving Credit Facility, ~~that was used for the purchase of LDS,~~ partially offset by higher repayments ~~on the Credit Facilities.~~

of term loans.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements consist of operating and finance leases not recorded as a result of the practical expedients utilized, right of offset of industrial revenue bonds and associated failed sale-leasebacks on property and equipment, and indemnities.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires estimation and judgment that affect the reported amounts of net revenues, expenses, assets and liabilities. For a description of our critical accounting policies, please refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our ~~2016~~2019 Annual Report on Form 10-K. There have been no material changes in any of our critical accounting policies during the three ~~and nine~~ months ended ~~September 30, 2017.~~March 28, 2020.

Recent Accounting Pronouncements

See “Part I, Item 1. Ducommun Incorporated and Subsidiaries—Notes to Condensed Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Recent Accounting Pronouncements” for further information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our main market risk exposure relates to changes in U.S. and U.K. interest rates on our outstanding long-term debt. At ~~September 30, 2017,~~March 28, 2020, we had total borrowings of ~~$224.7~~$352.6 million under our Credit Facilities.

The New Term Loan ~~and Revolving Credit Facility that bear~~bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as ~~LIBOR)~~the London Interbank Offered Rate [“LIBOR”]) plus an applicable margin ranging from 1.50% to ~~2.75%~~2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to ~~1.75%~~1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio.

The New Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR) plus an applicable margin ranging from 1.50% to 2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to 1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio.

A hypothetical 10% increase or decrease in the interest rate would have an immaterial impact on our financial condition and results of operations.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”) have conducted an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) ~~as of September 30, 2017. The Company had previously reported a material weakness in internal control over~~

~~financial reporting related to not maintaining effective controls related to the quarterly~~, and annual accounting and disclosures for income taxes. This material weakness was described in Item 9A in the Management’s Report on Internal Control Over Financial Reporting in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. As a result of the material weakness in the Company’s internal control over financial reporting, which was not remediated as of September 30, 2017, the CEO and CFO concluded ~~the Company’s~~that such disclosure controls ~~and procedures~~ were ~~not~~ effective as of ~~September 30, 2017.~~the end of the period covered by this report.

~~Management’s Remediation Activities~~

We are committed to remediating the control deficiencies that constitute the material weakness described above. Our Chief Financial Officer is responsible for remediating the control deficiency that gave rise to the material weakness.

~~Actions to be taken or in process consist~~Table of ~~ensuring we maintain a sustained period of operating effectiveness of our internal control over financial reporting related to the quarterly and annual accounting and disclosures for income taxes.~~Contents

While significant progress has been made to enhance our internal control over financial reporting relating to the material weakness, additional time will be required to assess and ensure the sustainability of these processes and procedures. We expect the remedial actions described above will have had sufficient time to function during 2017 to allow management to conclude that the material weakness has been satisfactorily remediated and that the existing controls are operating effectively. However, we cannot make any assurances that such actions will be completed during 2017. Until the controls described above have had sufficient time for management to conclude that they are operating effectively, the material weakness described above will continue to exist.

Changes in Internal Control over Financial Reporting

There were no changes in our internal ~~controls~~control over financial reporting during the three months ended ~~September 30, 2017~~March 28, 2020 that have materially affected, or are reasonably likely to materially affect, our internal ~~controls~~control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 1411 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for a description of our legal proceedings.

Item 1A. Risk Factors

See Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 for a discussion of our risk factors. ~~There~~Other than the risk factor below, there have been no material changes in the ~~nine~~three months ended ~~September 30, 2017~~March 28, 2020 to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

The outbreak of the COVID-19 coronavirus could have a material adverse effect on our business, results of operations and financial condition.

In recent weeks, the COVID-19 coronavirus pandemic has caused significant volatility in financial markets, including the market price of our stock, and the commercial aerospace industry, which has raised the prospect of an extended global recession. Public health problems resulting from COVID-19 and precautionary measures instituted by governments and businesses to mitigate its spread, including travel restrictions and quarantines, is beginning to contribute to a general slowdown in the global economy and if it continues for an extended period of time, it could adversely impact the businesses of our customers, suppliers and distribution partners, and disrupt our operations. Changes in our operations in response to the COVID-19 pandemic or employee illnesses resulting from the pandemic, may result in inefficiencies or delays, including in sales and product development efforts and additional costs related to business continuity initiatives, that cannot be fully mitigated through succession planning, employees working remotely, or teleconferencing technologies. In addition, a prolonged economic downturn could result in reduced or delayed demand for our products. While the full extent and impact of the COVID-19 pandemic cannot be reasonably estimated with certainty at this time, it could have a material adverse impact on our business, results of operations and financial condition for some portion, if not the remainder, of 2020.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 6. Exhibits

2.1 Agreement and Plan of Merger, dated as of April 3, 2011, among Ducommun Incorporated, DLBMS, Inc. and LaBarge, Inc. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on April 5, 2011.

2.2 Agreement and Plan of Merger, dated as of September 11, 2017, among Ducommun LaBarge Technologies, Inc., LS Holdings Company LLC, and DLS Company LLC. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on September 11, 2017.

2.3 Agreement and Plan of Merger, dated as of October 8, 2019, among Ducommun LaBarge Technologies, Inc., DLT Acquisition, Inc., Nobles Parent Inc., and the Stockholder Representative. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on October 9, 2019.

2.4 Stock Purchase Agreement dated January 22, 2016, by and among Ducommun Incorporated, Ducommun LaBarge Technologies, Inc., as Seller, LaBarge Electronics, Inc., and Intervala, LLC, as Buyer. Incorporated by reference to Exhibit 2.1 to Form 8-K dated January 25, 2016.

~~2.4~~2.5 Stock Purchase Agreement dated February 24, 2016, by and between Ducommun LaBarge Technologies, Inc., as Seller, and General Atomics, as Buyer. Incorporated by reference to Exhibit 2.1 to Form 8-K dated February 24, 2016.


~~3.1~~	~~Restated Certificate of Incorporation filed with the Delaware Secretary of State on May 29, 1990. Incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended December 31, 1990.~~

3.1 Restated Certificate of Incorporation filed with the Delaware Secretary of State on May 29, 1990. Incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended December 31, 1990.

3.2 Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on May 27, 1998. Incorporated by reference to Exhibit 3.2 to Form 10-K for the year ended December 31, 1998.

3.3 Bylaws as amended and restated on March 19, 2013. Incorporated by reference to Exhibit 99.1 to Form 8-K dated March 22, 2013.

3.4 Amendment to Bylaws dated January 5, 2017. Incorporated by reference to Exhibit 99.2 to Form 8-K dated January 9, 2017.

3.5 Amendment to Bylaws dated February 21, 2018. Incorporated by reference to Exhibit 3.1 to Form 8-K dated February 26, 2018.

4.1 Description of Ducommun Incorporated Securities Registered under Section 12 of the Exchange Act. Incorporated by reference to Exhibit 4.1 to Form 10-K for the year ended December 31, 2019.

10.1 Incremental Term Loan Lender Joinder Agreement and Additional Credit Extension Amendment, dated as of December 20, 2019, by and among Ducommun Incorporated, as Borrower, the subsidiaries of the Borrower party thereto, as Guarantors, Bank of America, N.A., as Administrative Agent, Swingline Lender and an L.C. Issuer, and the lender party thereto. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 20, 2019.

10.2 Credit Agreement, dated as of ~~June 26, 2015,~~November 21, 2018, among Ducommun Incorporated, certain of its subsidiaries, Bank of America, N.A., as administrative agent, swingline lender and issuing bank, and other lenders party thereto. Incorporated by reference to Exhibit 10.1 to Form 8-K ~~dated June~~filed on November 26, ~~2015.~~2018.

10.2 First Amendment to Credit Agreement, dated as of July 14, 2017, among Ducommun Incorporated, certain of its subsidiaries, Bank of America, N.A., as administrative agent, swingline lender and issuing bank, and other lenders party thereto. Incorporated by reference to Exhibit 10.2 to Form 10-Q for the period ended July 1, 2017.

*~~10.3~~10.3 2007 Stock Incentive Plan. Incorporated by reference to Appendix B of Definitive Proxy Statement on Schedule 14a, filed on March 29, 2010.

*~~10.4~~10.4 2013 Stock Incentive Plan (Amended and Restated March 18, 2015). Incorporated by reference to Appendix B of Definitive Proxy Statement on Schedule 14a, filed on April 22, 2015.

*~~10.5~~10.5 2013 Stock Incentive Plan (Amended and Restated May 2, 2018). Incorporated by reference to Appendix A of Definitive Proxy Statement on Schedule 14a, filed on March 23, 2018.

*10.6 2018 Employee Stock Purchase Plan. Incorporated by reference to Appendix B of Definitive Proxy Statement on Schedule 14a, filed on March 23, 2018.

*10.7 Form of Stock Option Agreement for 2016 and earlier. Incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended December 31, 2003.

*~~10.6~~10.8 Form of Stock Option Agreement for ~~2017 and after.~~2017. Incorporated by reference to Exhibit 10.5 to Form 10-K for the year ended December 31, 2016.

*~~10.7~~10.9 Form of Stock Option Agreement for 2018 and after. Incorporated by reference to Exhibit 4.7 to Form S-8, filed on May 10, 2018.

*10.10 Form of Performance Stock Unit Agreement for 2014 and 2015. Incorporated by reference to Exhibit 10.19 to Form 10-Q ~~dated April 28,~~for the period ended March 29, 2014.

Table of Contents

*~~10.8~~10.1 1 Form of Performance Stock Unit Agreement for 2016. Incorporated by reference to Exhibit 10.6 to Form 10-Q for the period ended April 2, 2016.

*~~10.9~~10.1 2 Form of Performance Stock Unit Agreement for 2017. Incorporated by reference to Exhibit 10.21 to Form 10-Q for the period ended April 1, 2017.

*10.1 3 Form of Restricted Stock Unit Agreement for 2016 and earlier. Incorporated by reference to Exhibit ~~10.9~~99.1 to Form ~~10-K for the year ended December 31, 2016. *10.10~~8-K dated May 8, 2007.

*10.1 4 Form of Restricted Stock Unit Agreement for 2017 and after. Incorporated by reference to Exhibit 10.9 to Form 10-K for the year ended December 31, 2016.

*~~10.11~~10.1 5 Form of Directors’ Restricted Stock Unit Agreement. Incorporated by reference to Exhibit 99.1 to Form 8-K dated May 10, 2010.

*~~10.12~~10.1 6 Performance Restricted Stock Unit Agreement dated January 23, 2017 between Ducommun Incorporated and Stephen G. Oswald. Incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended December 31, 2016.

*10.17 Form of Indemnity Agreement entered with all directors and officers of Ducommun. Incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended December 31, 1990. All of the Indemnity Agreements are identical except for the name of the director or officer and the date of the Agreement:


*10.13	Form of Indemnity Agreement entered with all directors and officers of Ducommun. Incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended December 31, 1990. All of the Indemnity Agreements are identical except for the name of the director or officer and the date of the Agreement:

Director/Officer

Date of Agreement

Richard A. Baldridge

March 19, 2013

Gregory S. Churchill

March 19, 2013

Shirley G. Drazba

October 18, 2018

Robert C. Ducommun

December 31, 1985

Dean M. Flatt

November 5, 2009

~~Douglas L. Groves~~

~~February 12, 2013~~

Jay L. Haberland

February 2, 2009

Stephen G. Oswald

January 23, 2017

~~Amy M. Paul~~

~~January 23, 2017~~

Robert D. Paulson

March 25, 2003

~~Anthony J. Reardon~~

~~January 8, 2008~~

Jerry L. Redondo

October 1, 2015

Rosalie F. Rogers

July 24, 2008

Rajiv A. Tata

January 24, 2020

Christopher D. Wampler

January 1, 2016

*~~10.14~~10.1 8 Ducommun Incorporated 2016 Bonus Plan. Incorporated by reference to Exhibit 99.3 to Form 8-K dated March 1, 2016.

*~~10.15~~10.1 9 Ducommun Incorporated 2017 Bonus Plan. Incorporated by reference to Exhibit 99.1 to Form 8-K dated February 27, 2017.

*~~10.16~~10.20 Directors’ Deferred Compensation and Retirement Plan, as amended and restated February 2, 2010. Incorporated by reference to Exhibit 10.15 to Form 10-K for the year ended December 31, 2009.

*~~10.17~~10.2 1 Non Qualif ied Deferred Compensation . Incorporated by reference to Exhibit 4 .6 to Form S-8 dated November 2 6 , 201 9 .

*10.2 2 Key Executive Severance Agreement between Ducommun Incorporated and Stephen G. Oswald dated January 23, 2017. Incorporated by reference to Exhibit 99.1 to Form 8-K dated January 27, 2017.

*~~10.18~~10.2 3 Form of Key Executive Severance Agreement between Ducommun Incorporated and each of the individuals listed below. Incorporated by reference to Exhibit 99.2 to Form 8-K dated January 27, 2017. All of the Key Executive Severance Agreements are identical except for the name of the person ~~and~~, the address for ~~notice:~~notice

, and the date of the Agreement :

Person

Date of Agreement

~~Douglas~~Jerry L. ~~Groves~~Redondo

January 23, 2017

~~Amy M. Paul~~Rosalie F. Rogers

January 23, 2017

~~Anthony J. Reardon~~Rajiv A. Tata

January 24, 2020

Christopher D. Wampler

January 23, 2017

~~Jerry L. Redondo~~

~~January 23, 2017~~

~~Rosalie F. Rogers~~

~~January 23, 2017~~

~~Christopher D. Wampler~~

~~January 23, 2017~~

*~~10.19~~10.2 4 Employment Letter Agreement dated January 3, 2017 between Ducommun Incorporated and Stephen G. Oswald. Incorporated by reference to Exhibit 99.1 to Form 8-K dated January 9, 2017.

*~~10.20~~10.2 5 Employment Letter Agreement dated December 19, 2016 between Ducommun Incorporated and Amy M. Paul. Incorporated by reference to Exhibit 10.19 to Form 10-K for the year ended December 31, 2016.

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*~~10.21~~10.2 6 Transition Services Letter Agreement dated January 10, 2017 between Ducommun Incorporated and James S. Heiser. Incorporated by reference to Exhibit 99.1 to Form 8-K filed on January 17, 2017.

*10.2 7 Separation and Release Agreement dated ~~January 16, 2017.~~

*10.22 Form of Performance Stock Unit Agreement for 2017.May 14, 2018 between Ducommun Incorporated and Amy M. Paul. Incorporated by reference to Exhibit ~~10.21~~10.1 to Form ~~10-Q for the period ended April 1, 2017.~~8-K filed on May 23, 2018.

*10.2 8 Separation and Release Agreement dated June 26, 2019 between Ducommun Incorporated and Douglas L. Groves. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 28, 2019.

31.1 Certification of Principal Executive Officer.

31.2 Certification of Principal Financial Officer.

32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema

101.CAL XBRL Taxonomy Extension Calculation Linkbase

101.DEF XBRL Taxonomy Extension Definition Linkbase

101.LAB XBRL Taxonomy Extension Label Linkbase

101.PRE XBRL Taxonomy Extension Presentation Linkbase

___________________

* Indicates an executive compensation plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 30, 2020

By:

/s/ Stephen G. Oswald

Stephen G. Oswald

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Date: April 30, 2020

By:

/s/ Christopher D. Wampler

Christopher D. Wampler

Vice President, Interim Chief Financial Officer and Treasurer, and Controller and Chief Accounting Officer

(Principal Financial and Principal Accounting Officer)

~~Date: November 1, 2017~~

~~By:~~

~~/s/ Stephen G. Oswald~~

~~Stephen G. Oswald~~

~~President and Chief Executive Officer~~

~~(Principal Executive Officer)~~

~~Date: November 1, 2017~~

~~By:~~

~~/s/ Douglas L. Groves~~

~~Douglas L. Groves~~

~~Vice President, Chief Financial Officer and Treasurer~~

~~(Principal Financial Officer)~~

~~Date: November 1, 2017~~

~~By:~~

~~/s/ Christopher D. Wampler~~

~~Christopher D. Wampler~~

~~Vice President, Controller and Chief Accounting Officer~~

~~(Principal Accounting Officer)~~



Delaware						95-0693330
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

200 Sandpointe Avenue, Suite 700, Santa Ana, California						92707-5759
(Address of principal executive offices)						(Zip code)


	September 30, 2017			December 31, 2016				March 28, 2020		December 31, 2019
Assets							Assets
Current Assets							Current Assets
Cash and cash equivalents	$	3,689		$	7,432		Cash and cash equivalents	$	65,599	$	39,584
Accounts receivable, net of allowance for doubtful accounts of $620 and $495 at September 30, 2017 and December 31, 2016, respectively	78,459			76,239

Accounts receivable, net (allowance for credit losses of $1,418 and $1,321 at March 28, 2020 and December 31, 2019, respectively)							Accounts receivable, net (allowance for credit losses of $1,418 and $1,321 at March 28, 2020 and December 31, 2019, respectively)	81,627		67,133
Contract assets							Contract assets	117,213		106,670
Inventories	137,157			119,896			Inventories	119,751		112,482
Production cost of contracts	11,389			11,340			Production cost of contracts	7,859		9,402

Other current assets	11,090			11,034			Other current assets	4,733		5,497

Total Current Assets	241,784			225,941			Total Current Assets	396,782		340,768
Property and equipment, net of accumulated depreciation of $143,662 and $135,484 at September 30, 2017 and December 31, 2016, respectively	114,034			101,590
Property and Equipment, Net of Accumulated Depreciation of $158,711 and $162,920 at March 28, 2020 and December 31, 2019, respectively							Property and Equipment, Net of Accumulated Depreciation of $158,711 and $162,920 at March 28, 2020 and December 31, 2019, respectively	114,732		115,216
Operating Lease Right-of-Use Assets							Operating Lease Right-of-Use Assets	18,519		19,105

Goodwill	117,435			82,554			Goodwill	170,890		170,917
Intangibles, net	117,285			101,573
Non-current deferred income taxes	286			286
Other assets	3,025			3,485
Intangibles, Net							Intangibles, Net	134,532		138,362
Non-Current Deferred Income Taxes							Non-Current Deferred Income Taxes	60		55
Other Assets							Other Assets	6,322		6,006
Total Assets	$	593,849		$	515,429		Total Assets	$	841,837	$	790,429
Liabilities and Shareholders’ Equity							Liabilities and Shareholders’ Equity
Current Liabilities							Current Liabilities

Accounts payable							Accounts payable	$	76,970	$	82,597
Contract liabilities							Contract liabilities	27,878		14,517
Accrued and other liabilities							Accrued and other liabilities	28,048		37,620
Operating lease liabilities							Operating lease liabilities	3,049		2,956

Current portion of long-term debt	$	—		$	3		Current portion of long-term debt	7,000		7,000
Accounts payable	68,509			57,024
Accrued liabilities	29,799			29,279

Total Current Liabilities	98,308			86,306			Total Current Liabilities	142,945		144,690
Long-term debt, less current portion	222,394			166,896
Non-current deferred income taxes	31,253			31,417
Other long-term liabilities	17,245			18,707
Long-Term Debt, Less Current Portion							Long-Term Debt, Less Current Portion	343,625		300,887
Non-Current Operating Lease Liabilities							Non-Current Operating Lease Liabilities	16,937		17,565

Non-Current Deferred Income Taxes							Non-Current Deferred Income Taxes	18,147		16,766
Other Long-Term Liabilities							Other Long-Term Liabilities	17,756		17,721
Total Liabilities	369,200			303,326			Total Liabilities	539,410		497,629
Commitments and contingencies (Notes 12, 14)
Commitments and Contingencies (Notes 9, 11)							Commitments and Contingencies (Notes 9, 11)
Shareholders’ Equity							Shareholders’ Equity
Common stock - $0.01 par value; 35,000,000 shares authorized; 11,324,917 and 11,193,813 issued at September 30, 2017 and December 31, 2016, respectively	113			112
Common stock - $0.01 par value; 35,000,000 shares authorized; 11,648,617 and 11,572,668 shares issued and outstanding at March 28, 2020 and December 31, 2019, respectively							Common stock - $0.01 par value; 35,000,000 shares authorized; 11,648,617 and 11,572,668 shares issued and outstanding at March 28, 2020 and December 31, 2019, respectively	116		116
Additional paid-in capital	78,624			76,783			Additional paid-in capital	89,820		88,399
Retained earnings	151,880			141,287			Retained earnings	220,483		212,553
Accumulated other comprehensive loss	(5,968		)	(6,079		)	Accumulated other comprehensive loss	(7,992)		(8,268)
Total Shareholders’ Equity	224,649			212,103			Total Shareholders’ Equity	302,427		292,800
Total Liabilities and Shareholders’ Equity	$	593,849		$	515,429		Total Liabilities and Shareholders’ Equity	$	841,837	$	790,429


	Three Months Ended
	March 28, 2020		March 30, 2019
Net Income	$	7,930	$	7,472
Other Comprehensive Income, Net of Tax:
Amortization of actuarial loss and prior service costs, net of tax of $59 and $51 for the three months ended March 28, 2020 and March 30, 2019, respectively	190		170

Change in unrealized gains and losses on cash flow hedges, net of tax of $26 and $54 for the three months ended March 28, 2020 and March 30, 2019, respectively	86		(84)
Other Comprehensive Income, Net of Tax	276		86
Comprehensive Income	$	8,206	$	7,558


	Three Months Ended
	March 28, 2020		March 30, 2019
Common Stock and Paid-in-Capital
Balance, Beginning of Period	$	88,515	$	83,826
Employee Stock Purchase Plan	1,112		—
Stock Options Exercised	39		97
Stock Awards Vested	(1)		(1)
Stock Repurchased Related to the Exercise of Stock Options	(2,008)		(1,901)
Stock-Based Compensation	2,279		1,464
Balance, End of Period	89,936		83,485
Retained Earnings
Balance, Beginning of Period	212,553		180,356
Net Income	7,930		7,472
Adoption of ASC 842 Adjustment	—		(264)
Balance, End of Period	220,483		187,564
Accumulated Other Comprehensive Loss
Balance, Beginning of Period	(8,268)		(7,357)
Other Comprehensive Income, Net of Tax	276		86
Balance, End of Period	(7,992)		(7,271)
Total Stockholders’ Equity	$	302,427	$	263,778


	Nine Months Ended							Three Months Ended
	September 30, 2017			October 1, 2016				March 28, 2020		March 30, 2019
Cash Flows from Operating Activities							Cash Flows from Operating Activities
Net Income	$	10,593		$	22,425		Net Income	$	7,930	$	7,472
Adjustments to Reconcile Net Income to							Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:							Net Cash Provided by Operating Activities:
Depreciation and amortization	17,149			17,420			Depreciation and amortization	7,336		6,755
Gain on divestitures	—			(18,815		)
Non-cash operating lease cost							Non-cash operating lease cost	811		633

Stock-based compensation expense	4,264			2,579			Stock-based compensation expense	2,279		1,464
Deferred income taxes	(164		)	(1,602		)	Deferred income taxes	1,495		217
Provision for (recovery of) doubtful accounts	125			(26		)

Allowance for credit losses							Allowance for credit losses	97		104

Inventory reserves							Inventory reserves	398		154

Other	(2,217		)	(4,923		)	Other	194		(19)
Changes in Assets and Liabilities:							Changes in Assets and Liabilities:
Accounts receivable	(1,427		)	5,777			Accounts receivable	(14,591)		4,581
Contract assets							Contract assets	(10,543)		(6,641)
Inventories	(15,529		)	(15,055		)	Inventories	(7,667)		(3,023)
Production cost of contracts	(599		)	(1,437		)	Production cost of contracts	973		105
Other assets	458			7,095			Other assets	871		(468)
Accounts payable	13,801			19,586			Accounts payable	(4,711)		(1,789)
Contract liabilities							Contract liabilities	13,361		(2,115)
Operating lease liabilities							Operating lease liabilities	(700)		(627)
Accrued and other liabilities	903			(5,453		)	Accrued and other liabilities	(9,567)		(8,492)
Net Cash Provided by Operating Activities	27,357			27,571
Net Cash Used in Operating Activities							Net Cash Used in Operating Activities	(12,034)		(1,689)
Cash Flows from Investing Activities							Cash Flows from Investing Activities
Purchases of property and equipment	(24,599		)	(12,712		)	Purchases of property and equipment	(3,867)		(3,225)
Proceeds from sale of assets	3			—
Insurance recoveries related to property and equipment	288			—
Proceeds from divestitures	—			55,272
Payments for purchase of Lightning Diversion Systems, LLC, net of cash acquired	(59,178		)	—
Net Cash (Used in) Provided by Investing Activities	(83,486		)	42,560

Post closing cash received from the acquisition of Nobles Worldwide, Inc., net							Post closing cash received from the acquisition of Nobles Worldwide, Inc., net	190		—
Net Cash Used in Investing Activities							Net Cash Used in Investing Activities	(3,677)		(3,225)
Cash Flows from Financing Activities							Cash Flows from Financing Activities

Borrowings from senior secured revolving credit facility	320,500			29,700			Borrowings from senior secured revolving credit facility	65,900		61,900
Repayments of senior secured revolving credit facility	(255,800		)	(29,700		)	Repayments of senior secured revolving credit facility	(15,900)		(58,700)
Repayments of senior unsecured notes and term loans	(10,000		)	(65,000		)

Repayments of term loans							Repayments of term loans	(7,362)		(3,000)
Repayments of other debt	(3		)	(22		)	Repayments of other debt	(54)		(17)

Net cash paid upon issuance of common stock under stock plans	(2,311		)	(1,097		)	Net cash paid upon issuance of common stock under stock plans	(858)		(1,805)
Net Cash Provided by (Used in) Financing Activities	52,386			(66,119		)	Net Cash Provided by (Used in) Financing Activities	41,726		(1,622)
Net (Decrease) Increase in Cash and Cash Equivalents	(3,743		)	4,012
Net Increase (Decrease) in Cash and Cash Equivalents							Net Increase (Decrease) in Cash and Cash Equivalents	26,015		(6,536)
Cash and Cash Equivalents at Beginning of Period	7,432			5,454			Cash and Cash Equivalents at Beginning of Period	39,584		10,263
Cash and Cash Equivalents at End of Period	$	3,689		$	9,466		Cash and Cash Equivalents at End of Period	$	65,599	$	3,727



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



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


										(In thousands, except per share data)
	(In thousands, except per share data) Three Months Ended				(In thousands, except per share data) Nine Months Ended					Three Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016			March 28, 2020		March 30, 2019
Net income	$	4,655	$	5,014	$	10,593	$	22,425	Net income	$	7,930	$	7,472
Weighted-average number of common shares outstanding									Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding	11,241		11,169		11,276		11,141		Basic weighted-average common shares outstanding	11,610		11,434
Dilutive potential common shares	245		141		280		120		Dilutive potential common shares	245		321
Diluted weighted-average common shares outstanding	11,486		11,310		11,556		11,261		Diluted weighted-average common shares outstanding	11,855		11,755
Earnings per share									Earnings per share
Basic	$	0.41	$	0.45	$	0.94	$	2.01	Basic	$	0.68	$	0.65
Diluted	$	0.41	$	0.44	$	0.92	$	1.99	Diluted	$	0.67	$	0.64



	Estimated Fair Value
Cash	$	2,223
Accounts receivable	918
Inventories	1,732
Other current assets	54
Property and equipment	138
Intangible assets	22,400
Goodwill	34,881
Total assets acquired	62,346
Current liabilities	(325		)
Total liabilities assumed	(325		)
Total preliminary purchase price allocation	$	62,021



	December 31, 2016		Nine Months Ended September 30, 2017							September 30, 2017
	Balance		Charges		Cash Payments			Change in Estimates		Balance
Lease termination	$	654	$	—	$	(235	)	$	64	$	483
Ending balance	$	654	$	—	$	(235	)	$	64	$	483



	As of September 30, 2017								As of December 31, 2016
	Fair Value Measurements Using								Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total Balance		Level 1		Level 2		Level 3		Total Balance
Assets
Money market funds⁽¹⁾	$	96	$	—	$	—	$	96	$	3,751	$	—	$	—	$	3,751
Interest rate cap hedges⁽²⁾	—		122		—		122		—		553		—		553
Total Assets	$	96	$	122	$	—	$	218	$	3,751	$	553	$	—	$	4,304



	(In thousands) September 30, 2017				(In thousands) December 31, 2016
	Other Current Assets		Other Long Term Assets		Other Current Assets		Other Long Term Assets
Derivatives Designated as Hedging Instruments
Cash Flow Hedges:
Interest rate cap premiums	$	—	$	122	$	—	$	553
Total Derivatives	$	—	$	122	$	—	$	553


	(In thousands)
	Three Months Ended
	March 28, 2020		March 30, 2019
Operating leases expense	$	1,008	963

Finance leases expense:
Amortization of right-of-use assets	$	60	$	45
Interest on lease liabilities	10		9
Total finance lease expense	$	70	$	54


	(In years)
	Three Months Ended
	March 28, 2020	March 30, 2019
Operating leases	5	7
Finance leases	7	4



	Electronic Systems		Structural Systems		Consolidated Ducommun
Gross goodwill	$	199,157	$	53,482	$	252,639
Accumulated goodwill impairment	(81,722)		—		(81,722)
Balance at December 31, 2019	117,435		53,482		170,917
Purchase price allocation refinements	—		(27)		(27)
Balance at March 28, 2020	$	117,435	$	53,455	$	170,890


	(In thousands)
	Operating Leases		Finance Leases
2020 (Excluding the three months ended March 28, 2020)	$	3,173	$	223
2021	4,177		284
2022	3,786		147
2023	3,454		108
2024	3,032		82
Thereafter	7,071		207
Total lease payments	24,693		1,051
Less imputed interest	4,707		81
Total	$	19,986	$	970



	(In thousands)
Gross goodwill	$	164,276
Accumulated goodwill impairment	(81,722		)
Balance at December 31, 2016	82,554
Goodwill from acquisition during the period	34,881
Balance at September 30, 2017	$	117,435


~~(1)~~	Includes the Boeing Company (“Boeing”), Lockheed Martin Corporation (“Lockheed Martin”), Raytheon Company (“Raytheon”), Spirit Aerosystems Holdings, Inc. (“Spirit”), and United Technologies Corporation (“United Technologies”).



	(In millions)
	September 30,			December 31,
	2017			2016
Total debt, including long-term portion	$	224.7		$	170.0
Weighted-average interest rate on debt	3.43		%	3.25		%
Term Loan interest rate	3.44		%	3.31		%
Cash and cash equivalents	$	3.7		$	7.4
Unused Revolving Credit Facility	$	134.5		$	199.0