UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________________________

FORM 10-Q

_________________________________________________________



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

For the quarterly period ended September 30, ~~2017~~2023



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

For the transition period from to

Commission File Number ~~1-8174~~001-08174

_________________________________________________________

DUCOMMUN INCORPORATED

(Exact name of registrant as specified in its charter)

_________________________________________________________



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)

Registrant’s telephone number, including area code: (657) 335-3665

N/A

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value per share

DCO

New York Stock Exchange

_________________________________________________________

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to ~~submit and post such files)~~submit). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

~~Smaller reporting company~~

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x

As of October ~~24, 2017,~~25, 2023, the registrant had ~~11,328,185~~14,596,379 shares of common stock outstanding.

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DUCOMMUN INCORPORATED AND SUBSIDIARIES


			Page
PART I. FINANCIAL INFORMATION


			~~Page~~
		Forward Looking Statements	~~PART I~~3~~. FINANCIAL INFORMATION~~

	Item 1.	Financial Statements (unaudited)	35

		Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2023 and December 31, ~~2016~~2022	35

		Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2017~~2023 and October 1, ~~2016~~2022	46

		Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2023 and October 1, ~~2016~~2022	57

		Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and October 1, 2022	8

		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2023 and October 1, ~~2016~~2022	69

		Notes to Condensed Consolidated Financial Statements	710

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2127

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3039

	Item 4.	Controls and Procedures	3040

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	3140

	Item 1A.	Risk Factors	3140

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

	Item 3.	Defaults Upon Senior Securities	41

	Item 4.	Mine Safety Disclosures	3141

	Item 6.5.	~~Exhibits~~Other Information	3241

	Item 6.	Exhibits	42

Signatures			3545

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FORWARD-LOOKING STATEMENTS AND RISK FACTORS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be preceded by, followed by or include words such as “could,” “may,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “expect,” “would,” or similar expressions. These statements are based on the beliefs and assumptions of our management at the time such statements are made. Generally, forward-looking statements include information concerning our possible or assumed future actions, events or results of operations. Forward-looking statements specifically include, without limitation, the information in this Form 10-Q regarding: future sales, earnings, cash flow, revenue recognition, uses of cash and other measures of financial performance, projections or expectations for future operations, including costs to complete contracts, goodwill impairment evaluations, useful life of intangible assets, unrecognized tax benefits and effective tax rate, environmental remediation costs, insurance recoveries, industry trends and expectations, including ramp up times for build rates, our plans with respect to restructuring activities, capital expenditures, completed acquisitions, future acquisitions and dispositions and expected business opportunities that may be available to us.

Although we believe that the expectations reflected in the forward-looking statements are based on reasonable assumptions, these forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. We cannot guarantee future results, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All written and oral forward-looking statements made in connection with this Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the “Risk Factors” contained within Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”).

There can be no assurance that other factors will not affect the accuracy of these forward-looking statements or that our actual results will not differ materially from the results anticipated in such forward-looking statements. While it is impossible to identify all such factors, some factors that could cause actual results to differ materially from those estimated by us include, but are not limited to, those factors or conditions described under Risk Factors contained within Part I, Item 1A of our Form 10-K and the following:

•our ability to manage and otherwise comply with our covenants with respect to our outstanding indebtedness;

•our ability to service our indebtedness;

•our acquisitions, business combinations, joint ventures, divestitures, or restructuring activities may entail certain operational and financial risks;

•the cyclicality of our end-use markets and the level of new commercial and military aircraft orders;

•industry and customer concentration;

•production rates for various commercial and military aircraft programs;

•the level of U.S. Government defense spending;

•compliance with applicable regulatory requirements and changes in regulatory requirements, including regulatory requirements such as Cybersecurity Maturity Model Certification (“CMMC”), applicable to government contracts and sub-contracts;

•further consolidation of customers and suppliers in our markets;

•product performance and delivery;

•start-up costs, manufacturing inefficiencies and possible overruns on contracts;

•increased design, product development, manufacturing, supply chain and other risks and uncertainties associated with our growth strategy to become a supplier of higher-level assemblies;

•our ability to manage the risks associated with international operations and sales;

•economic and geopolitical developments and conditions, including supply chain issues and rising interest rates;

•environmental, social, and governance (“ESG”) developments and related impact;

•pandemics, such as the COVID-19 pandemic, significantly impacting the global economy and most significantly, the commercial aerospace end-use market;

•disasters, natural or otherwise, damaging or disrupting our operations;

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•unfavorable developments in the global credit markets;

•our ability to operate within highly competitive markets;

•technology changes and evolving industry and regulatory standards;

•possible goodwill and other asset impairments;

•the risk of environmental liabilities;

•the risk of cyber security attacks or not being able to detect such attacks; and

•litigation with respect to us.

We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this Form 10-Q. We do not undertake any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, except as required by law.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Ducommun Incorporated and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(InDollars in thousands, except share and per share data)

September 30,
2017 December 31,
2016
Assets
Current Assets
Cash and cash equivalents $ 3,689
$ 7,432
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
Inventories 137,157
119,896
Production cost of contracts 11,389
11,340
Other current assets 11,090
11,034
Total Current Assets 241,784
225,941
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
Goodwill 117,435
82,554
Intangibles, net 117,285
101,573
Non-current deferred income taxes 286
286
Other assets 3,025
3,485
Total Assets $ 593,849
$ 515,429
Liabilities and Shareholders’ Equity
Current Liabilities
Current portion of long-term debt $ —
$ 3
Accounts payable 68,509
57,024
Accrued liabilities 29,799
29,279
Total Current Liabilities 98,308
86,306
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
Total Liabilities 369,200
303,326
Commitments and contingencies (Notes 12, 14)

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
Additional paid-in capital 78,624
76,783
Retained earnings 151,880
141,287
Accumulated other comprehensive loss (5,968 ) (6,079 )
Total Shareholders’ Equity 224,649
212,103
Total Liabilities and Shareholders’ Equity $ 593,849
$ 515,429


	September 30, 2023		December 31, 2022
Assets
Current Assets
Cash and cash equivalents	$	27,195	$	46,246
Accounts receivable, net of allowance for credit losses of $1,312 and $589 at September 30, 2023 and December 31, 2022, respectively	104,551		103,958
Contract assets	191,151		191,290
Inventories	215,189		171,211
Production cost of contracts	5,861		5,693

Other current assets	12,770		8,938

Total Current Assets	556,717		527,336
Property and Equipment, Net of Accumulated Depreciation of $179,723 and $171,507 at September 30, 2023 and December 31, 2022, respectively	111,894		106,225
Operating Lease Right-of-Use Assets	31,827		34,632
Goodwill	244,600		203,407
Intangibles, Net	170,665		127,201

Other Assets	26,648		22,705
Total Assets	$	1,142,351	$	1,021,506
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	78,455	$	90,143
Contract liabilities	51,477		47,068
Accrued and other liabilities	45,920		48,820
Operating lease liabilities	8,001		7,155
Current portion of long-term debt	6,250		6,250

Total Current Liabilities	190,103		199,436
Long-Term Debt, Less Current Portion	264,992		240,595
Non-Current Operating Lease Liabilities	24,836		28,841
Deferred Income Taxes	10,624		13,953
Other Long-Term Liabilities	16,394		12,721
Total Liabilities	506,949		495,546
Commitments and Contingencies (Notes 9, 11)
Shareholders’ Equity
Common Stock - $0.01 par value; 35,000,000 shares authorized; 14,596,379 and 12,106,285 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	146		121

Additional Paid-In Capital	204,993		112,042
Retained Earnings	416,870		406,052
Accumulated Other Comprehensive Income	13,393		7,745
Total Shareholders’ Equity	635,402		525,960
Total Liabilities and Shareholders’ Equity	$	1,142,351	$	1,021,506

See accompanying notes to Condensed Consolidated Financial Statements.

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Ducommun Incorporated and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(InDollars in thousands, except per share amounts)


	Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016				September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net Revenues	$	138,690		$	132,571		$	415,925		$	408,156		Net Revenues	$	196,250	$	186,590	$	564,761	$	524,269
Cost of Sales	112,681			107,348			338,798			329,749			Cost of Sales	151,648		148,003		443,270		418,565
Gross Profit	26,009			25,223			77,127			78,407			Gross Profit	44,602		38,587		121,491		105,704
Selling, General and Administrative Expenses	18,814			17,171			59,361			58,796			Selling, General and Administrative Expenses	32,182		24,803		88,755		72,340
Restructuring Charges													Restructuring Charges	3,811		567		12,750		3,270
Operating Income	7,195			8,052			17,766			19,611			Operating Income	8,609		13,217		19,986		30,094
Interest Expense	(2,088		)	(1,945		)	(5,588		)	(6,279		)	Interest Expense	(5,370)		(2,998)		(15,324)		(8,056)
Gain on Divestitures	—			—			—			18,815
Loss on Extinguishment of Debt													Loss on Extinguishment of Debt	—		(295)		—		(295)

Other Income	488			141			488			141			Other Income	—		—		7,945		3,000
Income Before Taxes	5,595			6,248			12,666			32,288			Income Before Taxes	3,239		9,924		12,607		24,743
Income Tax Expense	940			1,234			2,073			9,863			Income Tax Expense	26		1,462		1,789		4,035
Net Income	$	4,655		$	5,014		$	10,593		$	22,425		Net Income	$	3,213	$	8,462	$	10,818	$	20,708
Earnings Per Share													Earnings Per Share
Basic earnings per share	$	0.41		$	0.45		$	0.94		$	2.01		Basic earnings per share	$	0.22	$	0.70	$	0.81	$	1.72
Diluted earnings per share	$	0.41		$	0.44		$	0.92		$	1.99		Diluted earnings per share	$	0.22	$	0.69	$	0.79	$	1.68
Weighted-Average Number of Common Shares Outstanding													Weighted-Average Number of Common Shares Outstanding
Basic	11,241			11,169			11,276			11,141			Basic	14,625		12,112		13,408		12,057
Diluted	11,486			11,310			11,556			11,261			Diluted	14,814		12,350		13,661		12,346

See accompanying notes to Condensed Consolidated Financial Statements.

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Ducommun Incorporated and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(InDollars in thousands)

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net Income $ 4,655
$ 5,014
$ 10,593
$ 22,425
Other Comprehensive Income (Loss)
Amortization of actuarial losses and prior service costs, net of tax benefit of $74 and $71 for the three months ended September 30, 2017 and October 1, 2016, respectively, and $225 and $212 for the nine months ended September 30, 2017 and October 1, 2016, respectively 128
120
382
360
Change in unrealized gains and losses on cash flow hedges, net of tax of $17 and zero for the three months ended September 30, 2017 and October 1, 2016, respectively, and $161 and $326 for the nine months ended September 30, 2017 and October 1, 2016, respectively (28 ) —
(271 ) (556 )
Other Comprehensive Income (Loss) 100
120
111
(196 )
Comprehensive Income $ 4,755
$ 5,134
$ 10,704
$ 22,229


	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net Income	$	3,213	$	8,462	$	10,818	$	20,708
Other Comprehensive Income, Net of Tax:
Amortization of actuarial losses and prior service costs, net of tax of $13 and $36 for the three months ended September 30, 2023 and October 1, 2022, respectively and $40 and $107 for the nine months ended September 30, 2023 and October 1, 2022, respectively	42		111		125		332

Change in net unrealized gains and losses on cash flow hedges, net of tax of $1,413 and $17 for the three months ended September 30, 2023 and October 1, 2022, respectively and $1,719 and $2,269 for the nine months ended September 30, 2023 and October 1, 2022, respectively	4,537		(55)		5,523		7,371
Other Comprehensive Income, Net of Tax	4,579		56		5,648		7,703
Comprehensive Income	$	7,792	$	8,518	$	16,466	$	28,411

See accompanying notes to Condensed Consolidated Financial Statements.

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Ducommun Incorporated and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(Dollars in thousands)


	Shares Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2021	11,925,087	$	119	$	104,253	$	377,263	$	(7,033)	$	474,602
Net income	—	—		—		12,246		—		12,246
Other comprehensive income, net of tax	—	—		—		—		7,647		7,647
Employee stock purchase plan	31,686	—		1,386		—		—		1,386
Stock options exercised	81,212	1		2,473		—		—		2,474
Stock awards vested	160,349	2		(2)		—		—		—
Stock repurchased related to the exercise of stock options and stock awards vested	(130,466)	(1)		(6,453)		—		—		(6,454)
Stock-based compensation	—	—		4,644		—		—		4,644
Balance at July 2, 2022	12,067,868	121		106,301		389,509		614		496,545
Net income	—	—		—		8,462		—		8,462
Other comprehensive income, net of tax	—	—		—		—		56		56
Employee stock purchase plan	28,007	—		1,119		—		—		1,119
Stock options exercised	16,551	—		613		—		—		613
Stock awards vested	775	—		—		—		—		—
Stock repurchased related to the exercise of stock options and stock awards vested	(10,893)	—		(518)		—		—		(518)
Stock-based compensation	—	—		2,510		—		—		2,510
Balance at October 1, 2022	12,102,308	$	121	$	110,025	$	397,971	$	670	$	508,787

Balance at December 31, 2022	12,106,285	$	121	$	112,042	$	406,052	$	7,745	$	525,960
Net income	—	—		—		7,605		—		7,605
Other comprehensive income, net of tax	—	—		—		—		1,069		1,069
Issuance of common stock in public offering, net of issuance costs	2,300,000	23		85,084		—		—		85,107
Employee stock purchase plan	26,833	—		1,307		—		—		1,307
Stock options exercised	27,332	—		807		—		—		807
Stock awards vested	228,063	3		(3)		—		—		—
Stock repurchased related to the exercise of stock options and stock awards vested	(118,924)	(1)		(6,621)		—		—		(6,622)
Stock-based compensation	—	—		6,910		—		—		6,910
Balance at July 1, 2023	14,569,589	146		199,526		413,657		8,814		622,143
Net income	—	—		—		3,213		—		3,213
Other comprehensive income, net of tax	—	—		—		—		4,579		4,579

Employee stock purchase plan	25,378	—		1,314		—		—		1,314

Stock awards vested	2,360	—		—		—		—		—
Stock repurchased related to the exercise of stock options and stock awards vested	(948)	—		(53)		—		—		(53)
Stock-based compensation	—	—		4,206		—		—		4,206
Balance at September 30, 2023	14,596,379	$	146	$	204,993	$	416,870	$	13,393	$	635,402

See accompanying notes to Condensed Consolidated Financial Statements.

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Ducommun Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(InDollars in thousands)

Nine Months Ended
September 30,
2017 October 1,
2016
Cash Flows from Operating Activities
Net Income $ 10,593
$ 22,425
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 17,149
17,420
Gain on divestitures —
(18,815 )
Stock-based compensation expense 4,264
2,579
Deferred income taxes (164 ) (1,602 )
Provision for (recovery of) doubtful accounts 125
(26 )
Other (2,217 ) (4,923 )
Changes in Assets and Liabilities:
Accounts receivable (1,427 ) 5,777
Inventories (15,529 ) (15,055 )
Production cost of contracts (599 ) (1,437 )
Other assets 458
7,095
Accounts payable 13,801
19,586
Accrued and other liabilities 903
(5,453 )
Net Cash Provided by Operating Activities 27,357
27,571
Cash Flows from Investing Activities
Purchases of property and equipment (24,599 ) (12,712 )
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
Cash Flows from Financing Activities
Borrowings from senior secured revolving credit facility 320,500
29,700
Repayments of senior secured revolving credit facility (255,800 ) (29,700 )
Repayments of senior unsecured notes and term loans (10,000 ) (65,000 )
Repayments of other debt (3 ) (22 )
Net cash paid upon issuance of common stock under stock plans (2,311 ) (1,097 )
Net Cash Provided by (Used in) Financing Activities 52,386
(66,119 )
Net (Decrease) Increase in Cash and Cash Equivalents (3,743 ) 4,012
Cash and Cash Equivalents at Beginning of Period 7,432
5,454
Cash and Cash Equivalents at End of Period $ 3,689
$ 9,466


	Nine Months Ended
	September 30, 2023		October 1, 2022
Cash Flows from Operating Activities
Net Income	$	10,818	$	20,708
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization	24,421		23,335
Non-cash operating lease cost	5,982		5,184


Inventory write down and property and equipment impairment due to restructuring	819		1,018
Stock-based compensation expense	13,769		7,904
Deferred income taxes	(5,088)		(6,981)

Provision for (recovery of) credit losses	723		(483)
Noncash loss on extinguishment of debt	—		295
Recognition of insurance recoveries	(3,886)		—

Other	180		603
Changes in Assets and Liabilities:
Accounts receivable	2,833		(21,584)
Contract assets	139		(18,091)
Inventories	(31,967)		(21,690)
Production cost of contracts	(861)		276
Other assets	(289)		(139)
Accounts payable	(12,381)		23,166
Contract liabilities	4,409		(8,020)
Operating lease liabilities	(5,740)		(4,700)
Accrued and other liabilities	690		(171)
Net Cash Provided by Operating Activities	4,571		630
Cash Flows from Investing Activities
Purchases of property and equipment	(16,032)		(14,365)
Proceeds from sale of assets	404		51


Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired	(114,378)		—
Post closing cash received from the acquisition of Magnetic Seal LLC, net	—		365
Net Cash Used in Investing Activities	(130,006)		(13,949)
Cash Flows from Financing Activities


Borrowings from senior secured revolving credit facility	152,500		4,000
Repayments of senior secured revolving credit facility	(123,700)		(4,000)
Borrowings from term loans	—		250,000
Repayments of term loans	(4,688)		(287,712)
Repayments of other debt	(250)		(246)


Debt issuance costs	—		(2,511)

Proceeds from issuance of common stock in public offering, net of issuance costs	85,107		—

Net cash paid upon issuance of common stock under stock plans	(2,585)		(1,281)
Net Cash Provided by (Used in) Financing Activities	106,384		(41,750)
Net Decrease in Cash and Cash Equivalents	(19,051)		(55,069)
Cash and Cash Equivalents at Beginning of Period	46,246		76,316
Cash and Cash Equivalents at End of Period	$	27,195	$	21,247

See accompanying notes to Condensed Consolidated Financial Statements.

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Ducommun Incorporated and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Summary of Significant Accounting Policies

Description of Business

We are a leading global provider of ~~engineering~~innovative, value-added proprietary products and manufacturing ~~services~~solutions 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”). Our ~~subsidiaries~~operations are organized into two ~~strategic~~primary businesses: the Electronic Systems segment (“Electronic Systems”) and the Structural Systems segment (“Structural Systems”), each of which is a reportable operating segment. Electronic Systems designs, engineers and manufactures high-reliability electronic and electromechanical products used in worldwide technology-driven markets including ~~aerospace, defense, industrial~~A&D and ~~medical and other~~Industrial end-use markets. Electronic Systems’ product offerings primarily range from prototype development to complex assemblies. Structural Systems designs, engineers and manufactures large, complex contoured ~~aerospace structural~~aerostructure components and assemblies and supplies composite and metal bonded structures and assemblies. Structural Systems’ products are primarily used on commercial aircraft, military fixed-wing aircraft, and military and commercial rotary-wing aircraft. Both reportable operating segments follow the same accounting principles.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Ducommun Incorporated and its subsidiaries (“Ducommun,” the “Company,” “we,” “us” or “our”), after eliminating intercompany balances and transactions. The December 31, ~~2016~~2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

Our significant accounting policies were described in Part IV, Item 15(a)(1), “Note 1. Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, ~~2016. We followed the same accounting policies for interim reporting.~~2022 (“2022 Form 10-K”). The financial information included in this Quarterly Report on Form 10-Q (“Form 10-Q”) should be read in conjunction with ~~our Annual Report on~~the 2022 Form ~~10-K for the year ended December 31, 2016.~~10-K.

In the opinion of management, all adjustments, ~~consisting of~~including recurring accruals, have been made that are necessary to fairly state our condensed consolidated financial position, statements of income, comprehensive income, changes in shareholders’ equity, and cash flows in accordance with GAAP for the periods covered by this ~~Quarterly Report on~~ Form 10-Q. The results of operations for the three and nine months ended September 30, ~~2017~~2023 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2017.~~2023.

Our fiscal quarters typically end on the Saturday closest to the end of March, June and September for the first three fiscal quarters of each year, and ~~ends~~ on December 31 for our fourth fiscal quarter. As a result of using fiscal quarters for the first three quarters combined with leap years, our first and fourth fiscal quarters can range between 12 1/2 weeks to 13 1/2 weeks while the second and third fiscal quarters remain at a constant 13 weeks per fiscal quarter.

Certain reclassifications have been made to prior period amounts to conform to the current year’s presentation.

Use of Estimates

Certain amounts and disclosures included in the unaudited condensed consolidated financial statements ~~requires~~require management to make estimates and judgments that affect the amounts of assets, liabilities (including ~~forward loss reserves)~~contract liabilities), revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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Supplemental Cash Flow Information

(In thousands)
Nine Months Ended
September 30,
2017 October 1,
2016
Interest paid $ 4,867
$ 5,283
Taxes paid $ 1,969
$ 5,539
Non-cash activities:
Purchases of property and equipment not paid $ 890
$ 687


	(Dollars in thousands)
	Nine Months Ended
	September 30, 2023		October 1, 2022
Interest paid	$	14,528	$	7,417
Taxes paid, net	$	10,322	$	2,286
Non-cash activities:
Purchases of property and equipment not paid	$	958	$	1,828

Earnings Per Share

Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding in each period. Diluted earnings per share ~~are~~is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding, plus any ~~potential~~potentially dilutive shares that could be issued if exercised or converted into common stock in each period.

The net income and weighted-average ~~number of~~ common shares outstanding used to compute earnings per share were as follows:


	(Dollars in thousands, except per share data)				(Dollars in thousands, except per share data)
	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net income	$	3,213	$	8,462	$	10,818	$	20,708
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding	14,625		12,112		13,408		12,057
Dilutive potential common shares	189		238		253		289
Diluted weighted-average common shares outstanding	14,814		12,350		13,661		12,346
Earnings per share
Basic	$	0.22	$	0.70	$	0.81	$	1.72
Diluted	$	0.22	$	0.69	$	0.79	$	1.68

(In thousands, except per share data)
Three Months Ended

(In thousands, except per share data)
Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net income $ 4,655
$ 5,014
$ 10,593
$ 22,425
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding 11,241
11,169
11,276
11,141
Dilutive potential common shares 245
141
280
120
Diluted weighted-average common shares outstanding 11,486
11,310
11,556
11,261
Earnings per share
Basic $ 0.41
$ 0.45
$ 0.94
$ 2.01
Diluted $ 0.41
$ 0.44
$ 0.92
$ 1.99

Potentially dilutive stock ~~options and stock units to purchase common stock,~~awards, as shown below, were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. However, these ~~shares~~awards may be potentially dilutive common shares in the future.

(In thousands)
Three Months Ended

(In thousands)
Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Stock options and stock units 166
515
142
617

(In thousands)

Three Months Ended

Nine Months Ended

September 30,
2023

October 1,
2022

September 30,
2023

October 1,
2022

Stock options and stock units

Fair Value

Assets and liabilities that are measured, recorded or disclosed at fair value on a recurring basis are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value. Level 1, the highest level, refers to the values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant observable inputs. Level 3, the lowest level, includes fair values estimated using significant unobservable inputs.

~~Divestitures~~

~~On January 22, 2016, we entered into an agreement,~~We have money market funds which are included as cash and ~~completed~~cash equivalents. We also have forward interest rate swap agreements and the sale on the same date, to sell our operation located in Pittsburgh, Pennsylvania for a preliminary sales price of $38.5 million in cash. We divested this facility as part of our overall strategy to streamline operations, which included consolidating our footprint. However, the salefair value of the ~~Pittsburgh operation did not represent~~forward interest rate swap agreements was determined using pricing models that use observable market inputs as of the balance sheet date, a ~~strategic shift in our business and thus, was included~~Level 2 measurement.

There were no transfers between Level 1, Level 2, or Level 3 financial instruments in the ongoing operating results in the condensed consolidated income statements for all periods presented. Preliminary net assets sold were $24.0 million, net liabilities sold were $4.0 million, and direct transaction costs incurred were $0.2 million, resulting in a preliminary gain on divestiturethree months ended September 30, 2023.

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$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~~and 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. In November 2021, we entered into forward interest rate swap agreements with an aggregate notional amount of $150.0 million, all with an effective date of January 1, 2024 (“Forward Interest Rate Swaps”) to manage our exposure to interest rate movements on a portion of our debt. As such, at the time we entered into the Forward Interest Rate Swaps, there was a high probability of forecasted interest payments on our debts occurring and the swaps were highly effective in offsetting those interest payments and therefore, we elected to apply cash flow hedge accounting. In July 2022, as a result of refinancing all our existing debt, which allowed borrowing based on a Secured Overnight Financing Rate (“SOFR”), we were required to complete an amendment of the Forward Interest Rate Swaps from One Month London Interbank Offered Rate (“LIBOR”) to One Month Term SOFR (“Amended Forward Interest Rate Swaps”), which occurred on the same day. After the transition of the Forward Interest Rate Swaps and debt to SOFR was completed, we determined the hedging relationship was still highly effective as of the amendment date. See Note 7. As of September 30, ~~2017,~~2023, 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.~~hedged item. 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. Since the Amended Forward Interest Rate Swaps are not effective until January 1, 2024, we only record the changes in fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges. As such, during the three months ended September 30, 2023 and October 1, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $4.5 million and $(0.1) million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. During the nine months ended September 30, 2023 and October 1, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $5.5 million and $7.4 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes.

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. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle ~~facility~~performance center 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.

~~Production Cost~~ The majority of ~~Contracts~~

~~Production cost of~~our revenues are recognized over time, however, for revenue 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 soldwhere revenue is recognized using the ~~units~~point in time method, inventory is not reduced until it is shipped or transfer of ~~delivery method. We review the value of the production cost of contracts on a quarterly basis to ensure when added~~control to the ~~estimated cost to complete, the value is not greater than the estimated realizable value~~customer has occurred. Our ending inventory consists of ~~the related contracts.~~raw materials, work-in-process, and finished goods.

Accumulated Other Comprehensive ~~Loss~~Income

Accumulated other comprehensive ~~loss,~~income, 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.

Revenue Recognition

~~Provision~~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 ~~Estimated Losses~~convenience clause.

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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 under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), which utilizes a five-step model.

The definition of a contract for us is typically defined as a customer purchase order as this is when we achieve an enforceable right to payment. The majority of our contracts are firm fixed-price contracts. The deliverables within a customer purchase order are analyzed to determine the number of performance obligations. In addition, at times, in order to achieve economies of scale and based on ~~Contracts~~our customer’s forecasted demand, we may build in advance of receiving a purchase order from our customer. When that occurs, we would not recognize revenue until we have received the customer purchase order.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control is transferred and the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services are highly interrelated or met the series guidance. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

We manufacture most products to customer specifications and the product cannot be easily modified for another customer. As such, these products are deemed to have no alternative use once the manufacturing process begins. In the event the customer invokes a termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs. For most of our products, we are building assets with no alternative use and have enforceable right to payment, and thus, we recognize revenue using the over time method.

The majority of our performance obligations are satisfied over time as work progresses. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion, also known as cost-to-cost plus reasonable profit) to measure progress. Our typical revenue contract is a firm fixed price contract, and the cost of raw materials could make up a significant amount of the total costs incurred. As such, we believe using the total costs incurred input method would be the most appropriate method. While the cost of raw materials could make up a significant amount of the total costs incurred, there is a direct relationship between our inputs and the transfer of control of goods or services to the customer.

Contract estimates are based on various assumptions to project the outcome of future events that can span multiple months or years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; and the performance of subcontractors.

As a significant change in one or more of these estimates could affect the progress completed (and related profitability) on our contracts, we review and update our contract-related estimates on a regular basis. We recognize such adjustments under the cumulative catch-up method. Under this method, the impact of the adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate.

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 gross profit recorded were not material for both the three and nine months ended September 30, 2023 and October 1, 2022.

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 and have met the shipping terms, a contract liability is created for the advance or progress payment. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.

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. As of September 30, 2023 and December 31, 2022, provision for estimated losses on contracts were $5.8 million and $3.9 million, respectively.

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

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cost of sales using the 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. As of September 30, 2023 and December 31, 2022, production cost of contracts were $5.9 million and $5.7 million, respectively.

Contract Assets and Contract Liabilities

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. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.

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


	(Dollars in thousands)
	September 30, 2023		December 31, 2022
Contract assets	$	191,151	$	191,290
Contract liabilities	$	51,477	$	47,068

The decrease in our contract assets as of September 30, 2023 compared to December 31, 2022 was primarily due to a net decrease of products in work in process in the current period.

The increase in our contract liabilities as of September 30, 2023 compared to December 31, 2022 was primarily due to a net increase of advance or progress payments received from our customers in the current period. We recognized $33.6 million of the contract liabilities as of December 31, 2022 as revenues during the nine months ended September 30, 2023.

Performance obligations are defined as customer placed purchase orders (“POs”) with firm fixed price and firm delivery dates. Our remaining performance obligations as of September 30, 2023 totaled $947.9 million. We anticipate recognizing 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 2024 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:


	(Dollars in thousands)				(Dollars in thousands)
	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Consolidated Ducommun
Military and space	$	108,693	$	106,303	$	301,020	$	312,317
Commercial aerospace	77,904		68,348		229,201		179,490
Industrial	9,653		11,939		34,540		32,462
Total	$	196,250	$	186,590	$	564,761	$	524,269

Electronic Systems
Military and space	$	75,579	$	78,811	$	220,678	$	230,818
Commercial aerospace	25,475		22,654		68,239		57,322
Industrial	9,653		11,939		34,540		32,462
Total	$	110,707	$	113,404	$	323,457	$	320,602

Structural Systems
Military and space	$	33,114	$	27,492	$	80,342	$	81,499
Commercial aerospace	52,429		45,694		160,962		122,168
Total	$	85,543	$	73,186	$	241,304	$	203,667

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Government Grant

In November 2021, we were awarded an Aviation Manufacturing Jobs Protection Program grant from the U.S. Department of Transportation (“AMJPP Grant”) of $4.0 million. As part of the award, we had to meet, and did complete, certain requirements over a six month performance period from November 2021 to May 2022. As of December 31, 2022, we had received the entire $4.0 million grant balance, $2.0 million of which was received during 2021 and the remainder during 2022. We recorded no reduction to cost of sales or selling, general and administrative expenses during the three and nine months ended September 30, 2023. We recorded zero and $2.7 million as a reduction of cost of sales during the three and nine months ended October 1, 2022, respectively, and zero and $0.3 million as a reduction of selling, general, and administrative expenses during the three and nine months ended October 1, 2022, respectively. As of December 31, 2022, the requirements under the AMJPP Grant were completed and the entire $4.0 million awarded were received and thus, we also recorded the entire aggregate total of $3.6 million and $0.4 million as a reduction of cost of sales and selling, general and administrative expenses, respectively.

Recent Accounting Pronouncements

New Accounting Guidance Adopted in ~~2017~~2023

In ~~December 2016,~~July 2023, the FASB issued ASU ~~2016-19, “Technical Corrections~~2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Improvements” (“2016-19”), which cover a variety 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. The new guidance was effective for us beginning January 1, 2017. The adoption of this standard did not have a significant impact on our condensed consolidated financial statements.

~~In March 2016, the FASB issued ASU 2016-09, “Compensation~~Compensation - Stock Compensation (Topic 718): ~~Improvements~~Amendments to ~~Employee Share-Based Payment Accounting”~~SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock” (“ASU ~~2016-09”~~2023-03”), which ~~is intended~~amends or supersedes various SEC paragraphs within the Accounting Standards Codification to ~~improve~~conform to past SEC announcements and guidance issued by the ~~accounting for employee share-based payments. The~~SEC. ASU 2023-03 does not provide any new guidance so there was no transition or effective ~~for us beginning January 1, 2017. The adoption of this standard~~date. ASU 2023-03 did not have a ~~significant dollar impact on our condensed consolidated financial statements.~~

In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships” (“ASU 2016-05”), which clarifies that a change in the counter party to a derivative instrument designated as a hedging instrument does not require dedesignation of that hedging relationship, provided that all other hedge accounting criteria are met. The new guidance was effective for us beginning January 1, 2017. The adoption of this standard did not have a significant impact on our condensed consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330)” (“ASU 2015-11”), which requires inventory within the scope of ASU 2015-11 to be measured at the lower of cost or net realizable value. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory value. The new guidance was effective for us beginning January 1, 2017. The adoption of this standard did not have a significantmaterial impact on our condensed consolidated financial statements.

Recently Issued Accounting Standards

In ~~August 2017,~~December 2022, the FASB issued ASU ~~2017-12, “Derivatives and Hedging~~2022-06, “Reference Rate Reform (Topic ~~815): Targeted Improvements to Accounting for Hedging”~~848), Deferral of the Sunset Date of Topic 848” (“ASU ~~2017-12”~~2022-06”), which ~~intends~~defers the sunset date of Topic 848 from December 31, 2022, to ~~improve~~December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. Since we adopted ASU 2020-04 during 2022, ASU 2022-06 will not have a material impact on our condensed consolidated financial statements. See Note 7.

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and ~~simplify accounting rules around hedge accounting.~~ Simplification Initiative” (“ASU ~~2017-12 refines and expands hedge accounting~~2023-06”), which incorporates updates to the Accounting Standards Codification to align certain SEC disclosure requirements. The amendments impact a variety of topics but are relatively narrow in nature. For entities required to comply with the SEC’s existing disclosure requirements, the effective date for ~~both financial (i.e., interest rate) and commodity risks. In addition, it creates more transparency around how economic results are presented, both on~~each amendment will be the ~~face~~effective date of the ~~financial statements and in~~removal of the ~~footnotes.~~disclosure requirement from SEC Regulation S-X or SEC Regulation S-K, with early adoption prohibited. The ~~new guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, which will~~amendments should 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.~~applied prospectively. 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. We are evaluating the impact of this standard.

In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which cover a variety 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. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which will be our interim period beginning January 1, 2019. We are evaluating the impact of this standard and currently anticipate it will impact our condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers 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 only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance is effective for us beginning January 1, 2018 and provides us additional time to evaluate 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,~~BLR Aerospace, L.L.C. Acquisition

In April 2023, we acquired 100.0% of the outstanding equity interests of ~~Lightning Diversion Systems, LLC~~BLR Aerospace, L.L.C. (“~~LDS”~~BLR”), a privately-held ~~worldwide leader in lightning protection~~leading provider of aerodynamic systems ~~serving~~that enhance the ~~aerospace~~productivity, performance, and ~~defense industries,~~safety of rotary and fixed-wing aircraft on commercial and military platforms. BLR is located in ~~Huntington Beach, California.~~Everett, Washington. The acquisition of ~~LDS is part of~~BLR adds to 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 initial purchase price for ~~LDS~~BLR was ~~$60.0~~$115.0 million, net of cash acquired, all payable in ~~cash. Upon~~cash, subject to adjustments for working capital. We paid a gross aggregate of $117.0 million in cash upon the closing of the transaction. Subsequent to the closing of the transaction, ~~we paid $61.4 million with~~during the ~~remaining $0.6 million paid in October 2017, subsequent to our quarter~~three months ended September 30, ~~2017.~~2023, the working capital was finalized and the impact was immaterial. We ~~preliminarily~~ allocated the gross purchase price of ~~$62.0~~$117.0 million to the assets acquired and liabilities assumed at their 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 assets, non-current assets, identifiable intangible assets, and current liabilities are based on preliminary information and are subject to refinement. We are in the process of reviewing third party valuations of certain assets.

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

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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	$	2,656
Accounts receivable	4,149
Inventories	12,011
Other current assets	891
Property and equipment	2,632
Operating lease right-of-use assets	874
Intangible assets	55,500
Goodwill	41,193

Total assets acquired	119,906
Current liabilities	(2,145)

Other non-current liabilities	(727)
Total liabilities assumed	(2,872)
Total purchase price allocation	$	117,034


	Useful Life (In years)	Estimated Fair Value (In thousands)			Useful Life (In years)	Estimated Fair Value (In thousands)
Intangible assets:				Intangible assets:
Technology				Technology	23	$	35,600
Customer relationships	15	$	21,100	Customer relationships	10-22	15,000
Trade name	15	1,300		Trade name	18	4,900
		$	22,400			$	55,500

The intangible assets acquired of ~~$22.4~~$55.5 million were ~~preliminarily~~ determined based on the estimated fair values using valuation techniques consistent with the income approach to measure fair ~~value.~~value, which represented Level 3 fair value measurements. The useful lives were estimated based on the underlying agreements or the future economic benefit expected to be received from the assets. The ~~fair~~ values offor technology and trade name were assessed using the ~~identifiable intangible assets were estimated using several valuation methodologies, which represented Level 3 fair value measurements. The~~relief from royalty methodology, while the value for customer relationships was estimated based on a multi-period excess earnings approach. Inputs to the income approach ~~while~~models and other aspects of the ~~value for~~allocation of the ~~trade name was assessed using the relief from royalty methodology. Further, we analyzed~~purchase price require judgment. The more significant inputs used in the technology ~~acquired~~intangible asset valuation include (i) projected revenue, (ii) technology decay rate, and ~~concluded no fair value should be assigned to it.~~(iii) the discount rate. The more significant inputs used in the customer relationships intangible asset valuation include (i) future revenue growth rates, (ii) projected earnings before interest, taxes, and amortization (“EBITA”), (iii) the customer attrition rates, and (iv) the discount rate.

The goodwill of ~~$34.9~~$41.2 million arising from the acquisition is ~~preliminarily~~ attributable to the benefits we expect to derive from expected synergies from the transaction, including complementary products that will enhance our overall product portfolio, opportunities within new markets, and an acquired assembled workforce. All the goodwill was assigned to the ~~Electronic~~Structural Systems segment. ~~Since the LDS~~The BLR acquisition, for tax purposes, ~~was~~is deemed an asset acquisition and thus, the goodwill recognized is deductible for income tax purposes.

Acquisition related transaction costs ~~are~~were not included as components of consideration transferred but have been expensed as incurred. Total acquisition-related transaction costs incurred by us were ~~$0.3~~zero and $1.3 million ~~in both~~during the three ~~months~~ and nine months ended September 30, ~~2017~~2023, respectively, and charged to selling, general and administrative expenses.

~~LDS’~~BLR’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition as part of the ~~Electronic~~Structural Systems segment and its revenues were less than two percent of total company revenues since the date of acquisition. Pro forma results of operations of the BLR acquisition have not been presented as the effect of the BLR acquisition was not material to our financial results.

Magnetic Seal LLC Acquisition

In December 2021, we acquired 100.0% of the outstanding equity interests of Magnetic Seal LLC (f/k/a Magnetic Seal Corporation, “MagSeal”), a privately-held leading provider of high-impact, military-proven magnetic seals for critical systems in aerospace and defense applications, offering sealing solutions that are engineered to perform in high-speed, high-vibration, and other challenging environments. MagSeal is located in Warren, Rhode Island. The acquisition of MagSeal continued the advancement of our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities.

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The original purchase price for MagSeal was $69.5 million, net of cash acquired, all payable in cash. We paid a gross aggregate of $71.3 million in cash upon the closing of the transaction. Subsequent to the closing of the transaction, during the three months ended July 2, 2022, as part of finalizing the working capital adjustment, we received $0.4 million back from the seller which lowered the purchase price to $69.1 million, net of cash acquired. We allocated the gross purchase price of $70.9 million to the assets acquired and liabilities assumed at their estimated fair values. The estimated fair value of the assets acquired included $30.1 million of intangible assets, $4.5 million of inventories, $2.1 million of accounts receivable, $1.5 million of operating lease right-of-use assets, $0.5 million of property and equipment, $0.1 million of other current assets, and $2.3 million of liabilities assumed. The excess of the purchase price over the aggregate fair values of the net assets acquired and liabilities assumed of $32.6 million was recorded as goodwill. The intangible assets acquired were comprised of $24.8 million for customer relationships, $0.6 million for backlog, and $4.7 million for trade name, and were assigned an estimated useful life of 19 years, two years, and indefinite, respectively. All the goodwill was assigned to the Structural Systems segment. The MagSeal acquisition, for tax purposes, was deemed an asset acquisition and thus, the goodwill recognized was deductible for income tax purposes.

MagSeal’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment. Pro forma results of operations of the ~~LDS~~MagSeal acquisition ~~during the three and nine months ended September 30, 2017~~ have not been presented as the effect of the ~~LDS~~MagSeal acquisition was not material to our financial results.

Note 3. Restructuring Activities

Summary of ~~2015 Restructuring Plans~~

In September 2015, management approved and commenced implementation of several restructuring actions, including organizational re-alignment, consolidation and relocation of the New York facilities that was completed in December 2015, closure of the Houston facility that was completed in December 2015, and closure of the St. Louis facility that was completed in April 2016, all of which are part of our overall strategy to streamline operations. We have recorded cumulative expenses of $2.2 million for severance and benefits and loss on early exit from leases, which were charged to selling, general and administrative expenses. We do not expect to record additional expenses related to these restructuring plans.

~~As of September 30, 2017, we have accrued $0.4 million for loss on early exit from a lease in the Structural Systems segment.~~

~~Summary of 2016~~2022 Restructuring Plan

In May 2016, management approved and commenced implementation of the closure of one of our Tulsa facilities that was completed in June 2016, and was part of our overall strategy to streamline operations. We have recorded cumulative expenses of $0.2 million for severance and benefits and loss on early exit from a lease, which were charged to selling, general and administrative expenses. We do not expect to record additional expenses related to this restructuring plan.

~~As of September 30, 2017, we have accrued $0.1 million for loss on early exit from a lease in the Electronic Systems segment.~~

~~Our restructuring activities in the nine months ended September 30, 2017 were as follows (in thousands):~~

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

~~Summary of 2017 Restructuring Plan~~

~~Subsequent to our quarter ended September 30, 2017, in November 2017,~~April 2022, management approved and commenced a restructuring plan that ~~is expected~~will better position us for stronger performance. The restructuring plan will mainly reduce headcount and consolidate facilities. As a result of this restructuring plan, we analyzed the need to ~~increase~~write-down inventory and impair long-lived assets, including operating ~~efficiencies. We currently~~lease right-of-use assets. During the three and nine months ended September 30, 2023, we recorded total charges of $4.0 million and $12.9 million, respectively. Cumulative through the nine months ended September 30, 2023, we recorded aggregate total charges of $19.7 million ($0.7 million of which was recorded as cost of sales). As of September 30, 2023, we estimate the remaining amount of charges related to this initiative will ~~result in $22.0~~be $7.0 million to ~~$25.0~~$9.0 million in total pre-tax restructuring charges through ~~2018, with an estimate of $10.5 million to be recorded during the fourth quarter of 2017.~~2024. Of these charges, we estimate ~~$9.0~~$6.0 million to ~~$10.0~~$8.0 million ~~are expected~~ to be cash payments for employee separation and other facility consolidation related expenses, ~~with the remaining $13.0~~and $1.0 million ~~to $15.0 million expected~~ to be non-cash charges for ~~write-down of inventory and~~ impairment of long-lived assets. ~~On an annualized basis, beginning in 2019,~~

In the Electronics Systems segment, we ~~estimate these~~recorded (reversals) charges of $1.5 million, $0.1 million, and $(0.1) million during the three months ended September 30, 2023, for severance and benefits that were classified as restructuring ~~actions will result in~~charges, charges for inventory write down that was classified as cost of sales, and other restructuring (reversals), respectively. We recorded charges (reversals) of $5.6 million, $0.1 million, $0.1 million, and $(0.2) million during the nine months ended September 30, 2023, for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, charges for inventory write down that was classified as cost of sales, and other restructuring (reversals), respectively. Cumulative through the nine months ended September 30, 2023, we recorded total ~~savings~~charges for severance and benefits that were classified as restructuring charges, accelerated depreciation of ~~$14.0 million.~~property and equipment that was classified as restructuring charges, charges for inventory write down that was classified as cost of sales, and other restructuring (reversals) of $9.1 million, $0.4 million, $0.1 million, and $(0.2) million, respectively.

~~Note 4. Fair Value Measurements~~

~~Fair value is defined~~In the Structural Systems segment, we recorded $0.8 million, $0.4 million, less than $0.1 million, and $1.1 million during the three months ended September 30, 2023 for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, charges for inventory write down that was classified as cost of sales, and other restructuring charges, respectively. We recorded $4.1 million, $1.1 million, less than $0.1 million, and $1.9 million during the ~~price~~nine months ended September 30, 2023, for severance and benefits that ~~would be received~~were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, charges for ~~an asset or~~inventory write down that was classified as cost of sales, and other restructuring charges, respectively. Cumulative through the ~~price~~nine months ended September 30, 2023, we recorded total charges for severance and benefits that would be paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The accounting standard provides a frameworkwere classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, charges for ~~measuring fair value using a fair value hierarchy~~inventory write down that ~~prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires us to maximize the use~~was classified as cost of ~~observable inputs~~sales, and ~~minimize the use~~other restructuring of ~~unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are as follows:~~

~~Level 1~~ ~~- Quoted prices (unadjusted) in active markets for identical assets or liabilities;~~

~~Level 2~~ - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;$5.7 million, $1.6 million, $0.6 million, and

~~Level 3~~ ~~- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.~~ $1.9 million, respectively.

Our financial instruments consist primarily of cash and cash equivalents and interest rate cap derivatives designated as cash flow hedging instruments. Assets and liabilities measured at fair value on a recurring basisrestructuring activities during the nine months ended September 30, 2023 were as follows (in thousands):

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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


	December 31, 2022		Nine Months Ended September 30, 2023								September 30, 2023
	Balance		Charges		Cash Payments		Non-Cash Payments		Change in Estimates		Balance
Severance and benefits	$	2,799	$	9,782	$	(6,161)	$	—	$	—	$	6,420

Property and equipment accelerated depreciation due to restructuring	—		1,137		—		(1,137)		—		—

Inventory write down	—		188		—		(188)				—
Other	—		1,831		(1,831)		—		—		—
Ending balance	$	2,799	$	12,938	$	(7,992)	$	(1,325)	$	—	$	6,420

~~(1) Included~~The restructuring activities accrual for severance and benefits of $6.4 million as ~~cash and cash equivalents.~~

~~(2) Interest rate cap hedge premium~~of September 30, 2023 was included as ~~other current assets~~part of accrued and other ~~assets.~~liabilities and are expected to be paid out through 2024.

~~The fair value of the interest rate cap hedge agreements was determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2 measurement.~~

~~There were no transfers between Level 1, Level 2, or Level 3 financial instruments in the three months ended September 30, 2017.~~

Note ~~5. Financial Instruments~~

~~Derivative Instruments and Hedging Activities~~

We periodically enter into cash flow derivative transactions, such as interest rate cap agreements, to hedge exposure to various risks related to interest rates. We assess the effectiveness of the interest rate cap hedges at inception of the hedge. We recognize all derivatives at their fair value. For cash flow designated hedges, the effective portion of the changes in fair value of the derivative contract are recorded in accumulated other comprehensive income (loss), net of taxes, and are recognized in net earnings at the time earnings are affected by the hedged transaction. Adjustments to record changes in fair values of the derivative contracts that are attributable to the ineffective portion of the hedges, if any, are recognized in earnings. We present derivative instruments in our condensed consolidated statements of cash flows’ operating, investing, or financing activities consistent with the cash flows of the hedged item.

Our interest rate cap hedges were designated as cash flow hedges and deemed highly effective at the inception of the hedges. These interest rate cap hedges mature concurrently with the term loan in June 2020. During the three months ended September 30, 2017, the interest rate cap hedges continued to be highly effective and zero, net of tax, was recognized in other comprehensive income. No amount was recorded in the condensed consolidated income statements during the three months ended September 30, 2017. See Note 9.

~~The recorded fair value of the derivative financial instruments on the condensed consolidated balance sheets were as follows:~~

(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

~~Note 6.~~4. Inventories

Inventories consisted of the following:


	(Dollars in thousands)
	September 30, 2023		December 31, 2022
Raw materials and supplies	$	187,637	$	143,495
Work in process	24,456		23,799
Finished goods	3,096		3,917


Total	$	215,189	$	171,211

(In thousands)
September 30,
2017 December 31,
2016
Raw materials and supplies $ 70,787
$ 64,650
Work in process 66,689
56,806
Finished goods 12,275
9,180
149,751
130,636
Less progress payments 12,594
10,740
Total $ 137,157
$ 119,896

~~We net progress payments from customers related to inventory purchases against inventories on the condensed consolidated balance sheets.~~

Note 7.5. Goodwill

We perform our annual goodwill impairment test ~~during~~as of the first day of the fourth quarter. If certain factors occur, ~~we may have to perform an impairment test prior to the fourth quarter~~ including significant ~~under performance~~underperformance of our business relative to expected operating results, significant adverse economic and industry trends, significant decline in our market capitalization for an

extended period of time relative to net book value, a decision to divest individual businesses within a reporting unit, or a decision to group individual businesses ~~differently.~~differently, we may be required to perform an interim impairment test prior to the fourth quarter.

We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. The qualitative approach for potential impairment analysis to determine whether it is more likely than not that the fair value of a reporting unit was less than its carrying amount.

The quantitative approach for potential impairment analysis is performed by comparing the fair value of a reporting unit to its carrying value, including goodwill. Fair value is estimated by management using a combination of the income approach (which is based on a discounted cash flow model) and market approach. Management’s cash flow projections include significant judgments and assumptions, including the amount and timing of expected cash flows, long-term growth rates, and discount rates. The cash flows used in the discounted cash flow model are based on our best estimate of future revenues, gross margins, and adjusted after-tax earnings. If any of these assumptions are incorrect, it will impact the estimated fair value of a reporting unit. The market approach also requires significant management judgment in selecting comparable business acquisitions and the transaction values observed and its related control premiums.

No material adverse factors/changes have occurred since the fourth quarter of 2022 that would require us to perform another qualitative or quantitative assessment. As such, for the third quarter of 2023, it was also not more likely than not that the fair values of the reporting units were less than their carrying amounts and thus, the respective goodwill amounts were not deemed to be impaired.

In April 2023, we completed the acquisition of BLR. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill. See Note 2 for further information.

The carrying amounts of our goodwill ~~all in our Electronic Systems segment,~~ were as follows:


	(Dollars in thousands)
	Electronic Systems		Structural Systems		Consolidated Ducommun
Gross goodwill	$	199,157	$	85,972	$	285,129
Accumulated goodwill impairment	(81,722)		—		(81,722)
Balance at December 31, 2022	$	117,435	$	85,972	$	203,407
Goodwill from acquisition during the period	—		41,193		41,193
Balance at September 30, 2023	$	117,435	$	127,165	$	244,600

(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

Note 8.6. Accrued and Other Liabilities

The components of accrued and other liabilities were as follows:


	(Dollars in thousands)
	September 30, 2023		December 31, 2022
Accrued compensation	$	29,533	$	28,785
Accrued income tax and sales tax	8,094		10,478



Other	8,293		9,557
Total	$	45,920	$	48,820

(In thousands)
September 30,
2017 December 31,
2016
Accrued compensation $ 17,259
$ 15,455
Accrued income tax and sales tax 1,161
332
Customer deposits 3,798
3,204
Provision for forward loss reserves 2,025
4,780
Other 5,556
5,508
Total $ 29,799
$ 29,279

Note 9.7. Long-Term Debt

Long-term debt and the current period interest rates were as follows:


	(Dollars in thousands)
	September 30, 2023			December 31, 2022
Term loans	$	243,750		$	248,438
Revolving credit facility	28,800			—



Total debt	272,550			248,438
Less current portion	(6,250)			(6,250)
Total long-term debt, less current portion	266,300			242,188
Less debt issuance costs - term loans	(1,308)			(1,593)
Total long-term debt, net of debt issuance costs - term loans	$	264,992		$	240,595
Debt issuance costs - revolving credit facility (1)	$	1,887		$	2,265
Weighted-average interest rate	7.43		%	4.36		%

(1) Included as part of other assets.

(In thousands)
September 30,
2017 December 31,
2016
Term loan $ 160,000
$ 170,000
Revolving credit facility 64,700
—
Other debt (fixed 5.41%) —
3
Total debt 224,700
170,003
Less current portion —
3
Total long-term debt 224,700
170,000
Less debt issuance costs 2,306
3,104
Total long-term debt, net of debt issuance costs $ 222,394
$ 166,896
Weighted-average interest rate 3.43 % 3.25 %

The 2022 Term Loan bears interest, at our option, at a rate equal to either (i) Term Secured Overnight Financing Rate (“Term SOFR”) plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio. Interest payments are typically paid either on a monthly or quarterly basis, depending on the interest rate selected, on the last business day each month or quarter. In addition, the 2022 Term Loan requires quarterly amortization payments of 0.625% during year one and year two, 1.250% during year three and year four, and 1.875% during year five of the original outstanding principal balance of the 2022 Term Loan amount, on the last business day each quarter. The required quarterly amortization payments began in the fourth quarter of 2022.

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[b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio. Interest payments are typically paid on a quarterly basis, on the last business day each quarter. The undrawn portion of the commitment of the 2022 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, typically paid on a quarterly basis, on the last business day each quarter. However, the 2022 Revolving Credit Facility does not require any principal installment payments.

In conjunction with the closing of the 2022 Credit Facilities, we utilized the entire $250.0 million of proceeds from the 2022 Term Loan plus our existing cash on hand to pay off our entire debt balance outstanding of $254.2 million under our prior credit facilities (described below).

In December 2019, we completed the refinancing of a portion of then our existing debt by entering into a new revolving credit facility (“2019 Revolving Credit Facility”)~~, which matures~~ to replace the then existing revolving credit facility that was entered into in November 2018 (“2018 Revolving Credit Facility”) and entered into a new term loan (“2019 Term Loan”). The 2019 Revolving Credit Facility was a $100.0 million senior secured revolving credit facility that would have matured on ~~June 26, 2020~~December 20, 2024 and replaced the $100.0 million 2018 Revolving Credit Facility that would have matured on November 21, 2023. The 2019 Term Loan was a $140.0 million senior secured term loan that would have matured on December 20, 2024. We also had a then existing $240.0 million senior secured term loan that was entered into in November 2018 that would have matured on November 21, 2025 (“2018 Term Loan”). The original amounts available under the 2019 Revolving Credit Facility, 2019 Term Loan, and 2018 Term Loan (collectively, the ~~“Credit~~“Existing Credit Facilities”). in aggregate, totaled $480.0 million at that time.

The ~~Credit Facilities bear~~2019 Term Loan bore 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.~~ratio, typically payable quarterly. In addition, the 2019 Term Loan required amortization payments of 1.25% of the original outstanding principal balance of the 2019 Term Loan amount on a quarterly basis, on the last day of the calendar quarter.

For the three months ended September 30, 2023 and October 1, 2022, we made the required quarterly amortization payments on the 2022 Term Loan and 2019 Term Loan of $1.6 million and $1.8 million, respectively. For the nine months ended September 30, 2023 and October 1, 2022, we made the required quarterly amortization payments on the 2022 Term Loan and 2019 Term Loan of $4.7 million and $3.5 million, respectively. No mandatory quarterly amortization payment was required to be paid on the 2022 Term Loan during the three months ended October 1, 2022.

The 2019 Revolving Credit Facility bore 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, typically payable quarterly. The undrawn ~~portions~~portion of the ~~commitments~~commitment of the 2019 Revolving Credit ~~Facilities are~~Facility was subject to a commitment fee ranging from 0.175% to ~~0.300%~~0.275%, based upon the consolidated total net adjusted leverage ratio. However, the 2019 Revolving Credit Facility did not require any principal installment payments.

The 2018 Term Loan bore interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR plus an applicable margin ranging from 3.75% to 4.00% 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 3.75% to 4.00% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. In addition, the 2018 Term Loan required amortization payments of 0.25% of the outstanding principal balance of the 2018 Term Loan amount on a quarterly basis.

Further, under the then Existing Credit Facilities, if we ~~are~~exceeded the annual excess cash flow threshold, we were required to make an annual additional principal payment based on the consolidated adjusted leverage ratio. The annual mandatory ~~prepayments~~excess cash flow payment was based on (i) 50% of ~~amounts outstanding under~~ the ~~Term Loan. The mandatory prepayments will be made quarterly,~~excess cash flow amount if the adjusted leverage ratio was greater than 3.25 to 1.0, (ii) 25% of the excess cash flow amount if the adjusted leverage ratio was less than or equal to ~~5.0% per year~~3.25 to 1.0 but greater than 2.50 to 1.0, and (iii) zero percent of the ~~original aggregate principal~~excess cash flow amount if the consolidated adjusted leverage ratio was less than or equal to 2.50 to 1.0. We did not exceed the annual excess cash flow threshold for 2021 and thus, no annual excess cash flow payment was required to be paid during the first ~~two~~quarter of 2022.

~~years and increase to 7.5% per year during~~In conjunction with entering into the ~~third year, and increase to 10.0% per year during the fourth year and fifth years, with the remaining balance payable on June 26, 2020. The loans under the~~2019 Revolving Credit Facility ~~are due~~and the 2019 Term Loan, we used the $140.0 million of proceeds from the 2019 Term Loan to pay off and close the 2018 Revolving Credit Facility of $58.5 million, paid down a portion of the 2018 Term Loan of $56.0 million, paid the accrued interest associated with the amounts being paid down on ~~June 26, 2020.~~ the 2018 Revolving Credit Facility and 2018 Term Loan, paid the fees related to this transaction, and used the remainder for

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general corporate purposes. The $56.0 million pay down on the 2018 Term Loan paid all the required quarterly amortization payments on the 2018 Term Loan until maturity.

However, since we were paying down on the term loans during the three months ended April 2, 2022, we were required to pay down on the 2019 Term Loan and 2018 Term Loan on a pro-rata basis and thus, we paid down $13.0 million and $17.0 million on the 2019 Term Loan and 2018 Term Loan, respectively, for an aggregate total pay down of $30.0 million. During the three months ended September 30, 2023 and October 1, 2022, we made no other voluntary prepayments on our term loans.

As of September 30, ~~2017,~~2023, we had $171.0 million of unused borrowing capacity under the 2022 Revolving Credit Facility, after deducting $0.2 million for standby letters of credit.

As of September 30, 2023, we were in compliance with all covenants required under the 2022 Credit Facilities.

The 2022 Term Loan was considered a modification of debt for some lenders and an extinguishment of debt for other lenders, and thus, a loss of $0.2 million was recorded related to the extinguishment. In addition, wethe new fees incurred ~~$4.8~~of $0.8 million were capitalized and will be amortized over the life of the 2022 Term Loan. Further, the remaining debt issuance costs related to the ~~Credit Facilities~~2019 Term Loan and ~~those costs were capitalized and are being~~2018 Term Loan of $1.0 million as of the modification date will be amortized over the ~~five year~~ life of the ~~Credit Facilities.~~

On July 14, 2017, we entered into a technical amendment to the Credit Facilities (“First Amendment”) which provides more flexibility to close certain qualified acquisitions permitted under the Credit Facilities.

~~We made voluntary principal prepayments of zero and $10.0 million under the~~2022 Term Loan, ~~during~~using the ~~three and nine months ended September 30, 2017, respectively.~~effective interest method.

On September 11, 2017, we acquired LDS for a purchase price of $60.0 million, net of cash acquired, all payable 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 Revolving Credit Facility. See Note 2 for further information.~~

~~As of September 30, 2017, we had $134.5 million of unused borrowing capacity under the~~2022 Revolving Credit Facility ~~after deducting $64.7 million~~that replaced the 2019 Revolving Credit Facility was considered a modification of debt except for ~~draw down on~~ the portion related to the creditor that is no longer a part of the 2022 Revolving Credit Facility and in which case, it was considered an extinguishment of debt. As a result, we expensed the portion of the unamortized debt issuance costs related to the 2019 Revolving Credit Facility that was considered an extinguishment of debt of $0.1 million. In addition, the new fees incurred of $1.7 million as part of the 2022 Revolving Credit Facility were capitalized and will be amortized over the life of the 2022 Revolving Credit Facility. Further, the remaining debt issuance costs related to the 2019 Revolving Credit Facility of $0.8 million ~~for standby letters~~as of ~~credit.~~the modification date will also be amortized over the life of the 2022 Revolving Credit Facility.

The 2022 Credit Facilities were entered into by us (“Parent Company”) and guaranteed by all of our domestic subsidiaries, other than ~~one subsidiary~~two subsidiaries that were considered minor (“Subsidiary Guarantors”) ~~that was considered minor.~~. The Subsidiary Guarantors jointly and severally guarantee the 2022 Credit Facilities. The Parent Company has no independent assets or operations and ~~the Subsidiary Guarantors jointly and severally guarantee, on a senior unsecured basis, the Credit Facilities. Therefore,~~therefore, no ~~condensed~~ consolidating financial information for the Parent Company and its subsidiaries ~~are~~is presented.

In ~~October 2015,~~April 2023, we completed the acquisition of BLR. The initial purchase price for BLR was $115.0 million, net of cash acquired, all payable in cash. We paid a gross aggregate of $117.0 million in cash upon the closing of the transaction. We utilized the 2022 Revolving Credit Facility to complete the acquisition. See Note 2 for further information.

In May 2023, we completed a public offering of our common stock resulting in net proceeds of $85.1 million. We utilized the net proceeds plus cash on hand to pay down $85.2 million on the 2022 Revolving Credit Facility. See Note 8 for further information.

In November 2021, we entered into derivative contracts, U.S. dollar-one month LIBOR forward interest rate ~~cap hedges~~swaps designated as cash flow hedges, all with ~~maturity~~an effective date of January 1, 2024, for an aggregate total notional amount of $150.0 million, weighted average fixed rate of 1.8%, and all terminating on January 1, 2031 (“Forward Interest Rate Swaps”). The Forward Interest Rate Swaps mature on a monthly basis, with fixed amount payer payment dates on the first day of ~~June 2020, and in aggregate, totaling $135.0 million of our debt. We paid a total of $1.0 million in connection with~~each calendar month, commencing on February 1, 2024 through January 1, 2031. The Forward Interest Rate Swaps were deemed to be highly effective upon entering into the ~~interest rate cap~~derivative contracts and thus, hedge accounting treatment was utilized. Since the Amended Forward Interest Rate Swaps (as defined below) are not effective until January 1, 2024, we only record the changes in fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges. As such, during the three months ended September 30, 2023 and October 1, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $4.5 million and $(0.1) million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. During the nine months ended September 30, 2023 and October 1, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $5.5 million and $7.4 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. See Note 51 for further ~~discussion.~~information.

In December 2016, we entered into an agreement to purchase $9.9 million of industrial revenue bonds (“IRBs”) issued by the city of Parsons, Kansas (“Parsons”) and concurrently, sold $9.9 million of property and equipment (“Property”) to Parsons as well as entered into a lease agreement to lease the Property from Parsons (“Lease”) with lease payments totaling $9.9 million over the lease term. The sale of the Property and concurrent lease back of the Property did not meet the sale-leaseback accounting requirementsJuly 2022, as a result of completing a refinancing of our ~~continuous involvement with~~existing debt, we were required to complete an amendment of the ~~Property~~Forward Interest Rate Swaps (“Amended Forward Interest Rate Swaps”). The Forward Interest Rate Swaps were based on U.S. dollar-one month LIBOR and ~~thus,~~were amended to be based on one month Term SOFR as borrowings using LIBOR are no longer available under the ~~$9.9 million in cash received from Parsons~~2022 Credit Facilities. Since this was ~~not recorded~~an amendment of just the reference rate as a ~~sale but~~result of the cessation of LIBOR, utilizing the guidance under ASU 2020-04, we determined the Amended Forward Interest Rate Swaps as of the amendment date to continue to be highly effective. The Amended Forward Interest Rate Swaps weighted average fixed rate is 1.7%, as a ~~financing obligation. Further,~~result of the ~~Lease included a right~~difference between U.S. dollar-one month LIBOR and one month Term SOFR.

Table of offset and thus, the financing obligation of $9.9 million was offset against the $9.9 million of IRBs assets and presented net on the condensed consolidated balance sheets with no impact to the condensed consolidated income statements or condensed consolidated cash flow statements.Contents

Note ~~10.~~8. Shareholders’ Equity

~~We are authorized to issue five~~In May 2023, we completed a public offering of 2.3 million shares of ~~preferred stock. At September 30, 2017~~our common stock at $40.00 per share, for gross proceeds of $92.0 million. The common stock offering was made under our effective shelf registration statement. We incurred aggregate total out of pocket stock offering related fees of $6.9 million, resulting in net proceeds of $85.1 million. As such, we recorded an increase to common stock at par value of less than $0.1 million with the remaining amount as an increase to additional paid-in capital of $85.1 million. The public stock offering net proceeds along with cash on hand were used to pay down $85.2 million on the 2022 Revolving Credit Facility that was drawn on and ~~December 31, 2016, no preferred shares were issued or outstanding.~~utilized to complete the acquisition of BLR. See Note 2 and Note 7 for further information.

~~Note 11. Employee Benefit Plans~~

~~The components of net periodic pension expense were as follows:~~

(In thousands) (In thousands)
Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Service cost $ 133
$ 133
$ 398
$ 399
Interest cost 332
341
997
1,025
Expected return on plan assets (382 ) (370 ) (1,147 ) (1,111 )
Amortization of actuarial losses 202
191
607
572
Net periodic pension cost $ 285
$ 295
$ 855
$ 885

~~The components of the reclassifications of net actuarial losses from accumulated other comprehensive loss to net income for the three and nine months ended September 30, 2017 were as follows:~~

(In thousands)
Three Months Ended Nine Months Ended
September 30,
2017 September 30,
2017
Amortization of actuarial losses - total before tax ⁽¹⁾
$ (202 ) $ (607 )
Tax benefit 74
225
Net of tax $ (128 ) $ (382 )


~~(1)~~	~~The amortization expense is included in the computation of periodic pension cost and is a decrease to net income upon reclassification from accumulated other comprehensive loss.~~

Note ~~12.~~9. Indemnifications

We have made guarantees and indemnities under which we may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. ~~In connection with certain facility leases,~~Additionally, we ~~have indemnified our lessors for certain claims arising from the facility or the lease. We~~ indemnify our directors and officers to the maximum extent permitted under the laws of the State of ~~Delaware.~~

~~However, we~~Delaware and have a directors and officers insurance policy that may reduce our exposure in certain circumstances and may enable us to recover a portion of future amounts that may be payable, if any. Moreover, in connection with certain performance center leases, we have indemnified our lessors for certain claims arising from the performance center or the lease.

The duration of the guarantees and indemnities ~~vary~~varies and, in many cases ~~are~~is indefinite but subject to applicable statutes of limitations. The majority of guarantees and indemnities do not provide any limitations ofon the maximum potential future payments we could be obligated to make. Historically, payments related to these guarantees and indemnities have been immaterial. We estimate the fair value of our indemnification obligations as insignificant based on this history and insurance coverage and have, therefore, not recorded any liability for these guarantees and indemnities onin the accompanying condensed consolidated balance sheets.

Note ~~13.~~10. Income Taxes

The provision for income taxes is determined using an estimated annual effective tax rate, which is generally less than the U.S. ~~federal~~Federal statutory rate, primarily due to research and development (“R&D”) tax ~~credits and deductions available for domestic production activities.~~credits. Our effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as expected utilization of R&D tax credits, valuation allowances against deferred tax assets, ~~the~~ recognition or derecognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. Also, excess tax benefits and tax detriments related to our equity compensation recognized in the condensed consolidated income statement could result in fluctuations in our effective tax rate period-over-period depending on the volatility of our stock price, number of restricted or performance stock units that vests, and stock options exercised during the period. We recognize deferred tax assets and liabilities, using enacted tax rates, for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating loss and tax credit carryovers.

We record a valuation allowance against our deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized. When we establish or reduce our valuation allowances against our deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period when that determination is made.

We recorded income tax expense of ~~$0.9~~less than $0.1 million ~~(effective tax rate of 16.8%)~~ for the three months ended September 30, ~~2017~~2023 compared to ~~$1.2~~$1.5 million ~~(effective tax rate of 19.8%)~~ for the three months ended October 1, ~~2016.~~2022. The decrease in ~~the effective~~income tax ~~rate~~expense for the ~~three months ended September 30, 2017~~third quarter of 2023 compared to the ~~three months ended October 1, 2016~~third quarter of 2022 was primarily due to tax benefits recognized from additional U.S. Federal research and development tax credits. FASB ASU 2016-09 became effective beginning January 1, 2017 and required all the tax effects related to share-based payments be recorded through thelower pre-tax income ~~statement. This could result in fluctuations in our effective tax rate from period to period, depending on the number of awards exercised and/or vested~~ in the third quarter ~~as well as~~of 2023 compared to the ~~volatility~~third quarter of our stock price. During the current year three month period, we recognized tax benefits from deductions of share-based payments in excess of compensation cost recognized for financial reporting purposes of $0.1 million, which decreased our effective tax rate by 0.6%.2022.

~~recognized~~income tax benefits ~~from deductions of share-based payments in excess of compensation cost~~ recognized ~~for financial reporting purposes of $0.6 million, which decreased~~related to the ~~effective tax rate by 4.8%, and we recognized additional tax benefits from~~ U.S. Federal research and development tax ~~credits.~~credit in the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022. The decrease in income tax expense was partially offset by higher income tax expense related to non-deductible book compensation expenses and higher discrete income tax expense related to changes in deferred tax assets recognized in the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022.

Our total amount of unrecognized tax benefits was ~~$3.7~~$4.8 million and ~~$3.0~~$4.9 million as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively. If recognized, ~~$2.4~~$2.9 million would affect the effective tax rate. We dorecord interest and penalty charges, if any, related to uncertain tax positions as a component of tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charges as of September 30, 2023 and December 31, 2022 were not ~~reasonably~~significant. As a result of statute of

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limitations set to expire in the fourth quarter of 2023, we expect ~~significant increases or~~ decreases to our unrecognized tax benefits of approximately $0.7 million in the next twelve months.

~~In 2016,~~We file U.S. Federal and state income tax returns. We are subject to examination by the Internal Revenue Service (“IRS”) ~~commenced an audit of our 2014~~for tax years after 2018 and ~~2015~~by state taxing authorities for tax ~~years. Although~~years after 2017. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the ~~outcome of tax examinations cannot~~IRS or state taxing authorities if they either have been or will be ~~predicted with certainty, we~~used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.

Note ~~14.~~11. Commitments and Contingencies

In December 2020, a representative action under California’s Private Attorneys General Act was filed against us in the Superior Court for the State of California, County of San Bernardino. We received service of process of this complaint in January 2021. The complaint alleged violations of California’s wage and hour laws relating to our current and former employees and sought attorney’s fees and penalties. We vigorously refuted and defended against these claims and reached a tentative settlement of $0.8 million during the fourth quarter 2021, which was subject to court approval. Thus, we recorded accrued liabilities of $0.8 million as of December 31, 2021. During the second quarter of 2022, additional factual information was identified resulting in an increase in the amount of the tentative settlement to $0.9 million. Therefore, we recorded an additional accrued liabilities of $0.1 million for a total accrued liabilities amount of $0.9 million as of the end of the second quarter of 2022 which remained unchanged as of December 31, 2022 as we were awaiting final court approval of this settlement. Subsequent to final court approval and paying of the $0.9 million in January 2023, during the third quarter of 2023 and upon plaintiff's motion, the court re-opened the settlement agreement to determine whether the class list captured all affected employees. We are appealing this decision as being without merit. Any amount of additional liability is still undetermined pending the appeal and as such, there is no amount of loss that is probable and reasonably estimable at this time. Thus, no additional accrual was recorded during the three months ended September 30, 2023.

Structural Systems has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at ~~its~~our facilities located in El Mirage and Monrovia, California. Based on currently available information, ~~Ducommun has~~we have established an accrual for its estimated liability for such investigation and corrective action of $1.5 million at both September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, which is reflected in other long-term liabilities on ~~its~~our condensed consolidated balance sheets.

Structural Systems also faces liability as a potentially responsible party for hazardous waste disposed at landfills located in Casmalia and West Covina, California. Structural Systems and other companies and government entities have entered into consent decrees with respect to these landfills with the United States Environmental Protection Agency and/or California environmental agencies under which certain investigation, remediation and maintenance activities are being performed. Based on currently available information, ~~Ducommun~~we preliminarily ~~estimates~~estimate that the range of ~~its~~our future liabilities in connection with the landfill located in West Covina, California is between $0.4 million and $3.1 million. ~~Ducommun has~~We have established an accrual for ~~its~~the estimated liability in connection with the West Covina landfill of $0.4 million atas of both September 30, ~~2017,~~2023 and December 31, 2022, which is reflected in other long-term liabilities on ~~its~~our condensed consolidated balance ~~sheet. Ducommun’s~~sheets. Our ultimate liability in connection with these matters will depend upon a number of factors, including changes in existing laws and regulations, the design and cost of construction, operation and maintenance activities, and the allocation of liability among potentially responsible parties.

In June 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment. There were no injuries, however, property and equipment, inventories, and tooling in this leased facility were damaged. Our Guaymas performance center was severely damaged and was comprised of two buildings with an aggregate total of 62,000 square feet. The loss of production from the Guaymas performance center was absorbed by our other existing performance centers, however, we have reestablished and are in the process of ramping up our manufacturing capabilities in a different leased facility with 117,000 square feet in Guaymas. A neighboring, non-related manufacturing facility, also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center. The cause of the fire is still undetermined and as such, there is no amount of loss that is probable and reasonably estimable at this time.

Our insurance covers damage, up to a capped amount, to the facility, equipment, unfinished inventory, and other assets at replacement cost, finished goods inventory at selling price, as well as business interruption, third party property damage, and recovery related expenses caused by the fire, less our per claim deductible. The anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. The anticipated insurance recoveries in excess of net book value of the damaged operating assets and business interruption will not be recorded until all contingencies related to our claim have been resolved. During the year ended December 31, 2020, $0.8 million of revenue and $0.5 million of related cost of sales were reversed for revenue previously recognized using the over time method as the revenue recognition process for these items were deemed to be interrupted as a result of these inventory items being damaged. Also during the year ended December 31, 2020, we wrote off property and equipment and tooling with an aggregate total net book value of $7.1 million

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and inventory on hand of $3.4 million that were damaged by the fire. The related anticipated insurance recoveries were also presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact, with the anticipated insurance recoveries receivable included as part of other current assets on the condensed consolidated balance sheets.

The insurance claim for damages to our operating assets and business interruption was deemed final and closed by our insurance company during the three months ended July 1, 2023. During both the three months ended September 30, 2023 and October 1, 2022, we received no insurance recoveries. During the nine months ended September 30, 2023 and October 1, 2022, we received insurance recoveries of $3.8 million and $3.0 million, respectively. The $3.8 million of insurance recoveries received during the nine months ended September 30, 2023 was for business interruption and property and equipment damage of $2.1 million and $1.7 million, respectively, and recognized as other income. The $3.0 million received during the nine months ended October 1, 2022 was for business interruption, and was recognized as other income. Cumulatively, as of September 30, 2023, we have received insurance recoveries in aggregate total of $23.7 million, with $7.5 million for business interruption and $16.2 million for damages to property and equipment, inventories, and tooling. Further, all insurance recovery amounts received related to this claim have been recognized up to the amount of net book value loss and presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact, with the remaining amounts recognized as other income in our condensed consolidated statements of income when the contingencies were deemed resolved.

In April 2023, a fire damaged a relatively small portion of one of our performance centers in our Structural Systems reporting segment. There were no injuries, however, subsequent to the fire, we determined that some property and equipment in this company owned facility were damaged. Our insurance covers damage, up to a capped amount, to the property and equipment at replacement cost, as well as business interruption and recovery related expenses caused by the fire, less our per claim deductible. There was a loss of production in this damaged portion of the performance center for a short period of time but did not result in significant disruption to customer delivery schedules. Production in this damaged portion has since resumed. The anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. The anticipated insurance recoveries in excess of net book value of the damaged operating assets and business interruption will not be recorded until all contingencies related to our claim have been resolved. As such, during the three months ended July 1, 2023, we wrote off property and equipment with an aggregate total net book value of $0.2 million. Also during the three months ended July 1, 2023, we received insurance recoveries of $0.3 million (which was net of our deductible of $0.1 million) and thus, such insurance recoveries were also presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact. The amount of the insurance recoveries received in excess of the loss on operating assets was deemed a contingent gain and since the gain contingencies were deemed resolved, the $0.1 million was also recorded as other income during the three months ended July 1, 2023. No insurance recoveries were received during the three months ended September 30, 2023.

In the normal course of business, Ducommun and its subsidiaries are defendants in certain other litigation, claims and inquiries, including matters relating to environmental laws. In addition, Ducommun makes various commitments and incurs contingent ~~liabilities.~~liabilities in the ordinary course of business. While it is not feasible to predict the outcome of these matters, Ducommun does not presently expect that any sum it may be required to pay in connection with these matters would have a material adverse effect on its condensed consolidated financial position, results of operations or cash flows.

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Note ~~15.~~12. Business Segment Information

We supply products and services primarily to the aerospace and defense industries. Our subsidiaries are organized into two strategic businesses, ~~Structural~~Electronic Systems and ~~Electronic~~Structural Systems, each of which is a reportable operating segment.

Financial information by reportable operating segment was as follows:


	(Dollars in thousands) Three Months Ended				(Dollars in thousands) Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net Revenues
Electronic Systems	$	110,707	$	113,404	$	323,457	$	320,602
Structural Systems	85,543		73,186		241,304		203,667
Total Net Revenues	$	196,250	$	186,590	$	564,761	$	524,269
Segment Operating Income (1)
Electronic Systems	$	12,710	$	13,881	$	32,249	$	36,902
Structural Systems	6,743		6,687		16,873		12,839
	19,453		20,568		49,122		49,741
Corporate General and Administrative Expenses (2)	(10,844)		(7,351)		(29,136)		(19,647)
Total Operating Income	$	8,609	$	13,217	$	19,986	$	30,094
Depreciation and Amortization Expenses
Electronic Systems	$	3,567	$	3,510	$	10,626	$	10,500
Structural Systems	4,852		4,100		13,619		12,659
Corporate Administration	59		59		176		176
Total Depreciation and Amortization Expenses	$	8,478	$	7,669	$	24,421	$	23,335
Capital Expenditures
Electronic Systems	$	978	$	3,192	$	4,752	$	7,831
Structural Systems	3,802		1,175		11,043		7,033
Corporate Administration	—		—		—		—
Total Capital Expenditures	$	4,780	$	4,367	$	15,795	$	14,864

(1)The results for the three and nine months ended September 30, 2023 include BLR’s results of operations which have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment. See Note 2.

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

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(In thousands)
Three Months Ended

(In thousands)
Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net Revenues
Structural Systems $ 59,685
$ 60,931
$ 176,372
$ 185,642
Electronic Systems 79,005
71,640
239,553
222,514
Total Net Revenues $ 138,690
$ 132,571
$ 415,925
$ 408,156
Segment Operating Income
Structural Systems $ 3,466
$ 5,893
$ 8,147
$ 13,347
Electronic Systems 8,234
6,600
24,158
19,769
11,700
12,493
32,305
33,116
Corporate General and Administrative Expenses ⁽¹⁾
(4,505 ) (4,441 ) (14,539 ) (13,505 )
Operating Income $ 7,195
$ 8,052
$ 17,766
$ 19,611
Depreciation and Amortization Expenses
Structural Systems $ 2,220
$ 2,851
$ 6,879
$ 6,683
Electronic Systems 3,345
3,232
10,207
10,661
Corporate Administration 54
6
63
76
Total Depreciation and Amortization Expenses $ 5,619
$ 6,089
$ 17,149
$ 17,420
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 Systems or Electronic Systems operating segments.~~

Segment assets include assets directly identifiable to or allocated to each segment. Our segment assets are as follows:


	(Dollars in thousands)
	September 30, 2023		December 31, 2022
Total Assets
Electronic Systems	$	540,497	$	543,298
Structural Systems (1)	550,201		410,565
Corporate Administration (2)	51,653		67,643
Total Assets	$	1,142,351	$	1,021,506
Goodwill and Intangibles
Electronic Systems	$	175,536	$	182,501
Structural Systems (1)	239,729		148,107
Total Goodwill and Intangibles	$	415,265	$	330,608

(1)In April 2023, we acquired 100.0% of the outstanding equity interests of BLR for an initial purchase price of $115.0 million, net of cash acquired. We allocated the gross purchase price of $117.0 million to the assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill. See Note 2.

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

(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.~~

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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.

COVID-19 Pandemic Impact on Our Business

The COVID-19 pandemic had a significant impact on our overall business during the prior year three and nine months ended October 1, 2022. As a result of the COVID-19 pandemic, precautionary measures were instituted by governments and businesses to mitigate its spread, including the imposition of travel restrictions, quarantines, shelter in place directives, and shutting down of non-essential businesses.

The COVID-19 pandemic and the resulting inflation, rising interest rates, supply chain issues, geopolitical developments, and other events have contributed and/or continues to contribute to a general slowdown in the global economy and most significantly, the commercial aerospace end-use market. While both major large aircraft manufacturers, The Boeing Company (“Boeing”) and Airbus SE, have announced increases in build rates for 2023, the ramp up is slower than expected and below pre-pandemic levels. In its 2022 Annual Report on Form 10-K, Boeing indicated that domestic travel continues to recover from the lingering effects of the COVID-19 pandemic and will recover before international travel. While the full extent and impact of the COVID-19 pandemic cannot be reasonably estimated with certainty, in the prior year, COVID-19 had a significant impact on our business, the businesses of our customers and suppliers, as well as our results of operations and financial condition, and such lingering effects could have a material adverse impact on our business, results of operations and financial condition for 2023 and beyond.

Third quarter ~~2017 highlights:~~2023 recap:

~~Revenues~~•Net revenues of ~~$138.7~~$196.3 million

•Net income of ~~$4.7~~$3.2 million, or ~~$0.41~~$0.22 per diluted share

•Adjusted EBITDA of ~~$14.5~~$29.3 million,

~~Backlog~~ or 14.9% of ~~$655.3 million~~

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

Non-GAAP Financial Measures

Adjusted earnings before interest, taxes, depreciation, amortization, ~~and~~stock-based compensation expense, restructuring charges, Guaymas fire related expenses, other fire related expenses, insurance recoveries related to loss on operating assets, insurance recoveries related to business interruption, inventory purchase accounting adjustments, loss on extinguishment of debt, and other debt refinancing costs (“Adjusted EBITDA”) ~~was $14.5~~were $29.3 million and ~~$14.9~~$26.0 million for the three months ended September 30, ~~2017~~2023 and October 1, ~~2016,~~2022, 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~~that clarifies and ~~enhance~~enhances the understanding of the factors and trends affecting our past performance and future prospects. We define ~~these measures,~~this measure, explain how ~~they are~~it is calculated and provide ~~reconciliations~~a reconciliation of ~~these measures~~this measure 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 as a non-GAAP operating performance ~~measures~~measure internally as a complementary financial ~~measures~~measure 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~~

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•It does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;

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

~~They do~~•It does 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;

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

~~They do~~•It does 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~~its usefulness as a comparative ~~measures.~~measure.

~~Because~~As a result 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~~condensed consolidated financial statements contained in this Form 10-Q.

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

~~Are~~•Is 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~~•Helps 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~~•Is 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;

•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.~~performance;

•Guaymas fire related expenses may be useful to our investors in evaluating our core operating performance;

•Other fire related expenses may be useful to our investors in evaluating our core operating performance;

•Insurance recoveries related to loss on operating assets (property and equipment, inventories, and other assets) may be useful to our investors in evaluating our core operating performance;

•Insurance recoveries related to business interruption may be useful to our investors in evaluating our core operating performance;

•Purchase accounting inventory step-ups may be useful to our investors as they do not necessarily reflect the current or on-going cash charges related to our core operating performance;

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•Loss on extinguishment of debt may be useful to our investors for determining current cash flow; and

•Other debt refinancing costs may be useful to our investors in evaluating our core operating performance.

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


	(Dollars in thousands)						(Dollars in thousands)
	Three Months Ended						Nine Months Ended
	September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022
Net income	$	3,213		$	8,462		$	10,818		$	20,708
Interest expense	5,370			2,998			15,324			8,056

Income tax expense	26			1,462			1,789			4,035
Depreciation	4,020			3,652			11,692			10,849
Amortization	4,458			4,017			12,729			12,486
Stock-based compensation expense (1)	5,652			2,714			13,769			7,904

Restructuring charges (2)	3,999			567			12,938			3,798
Guaymas fire related expenses	548			1,496			3,896			3,451
Other fire related expenses	—			—			477			—
Insurance recoveries related to loss on operating assets	—			—			(5,563)			—
Insurance recoveries related to business interruption	—			—			(2,160)			(3,000)
Inventory purchase accounting adjustments	2,041			107			2,807			1,381
Loss on extinguishment of debt	—			295			—			295
Other debt refinancing costs	—			224			—			224

Adjusted EBITDA	$	29,327		$	25,994		$	78,516		$	70,187
% of net revenues	14.9		%	13.9		%	13.9		%	13.4		%

(1) The three and nine months ended September 30, 2023 included $1.4 million and $2.7 million, respectively, and the three and nine months ended October 1, 2022 included $0.3 million and $0.8 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash. The three and nine months ended September 30, 2023 included $0.1 million and $0.3 million, respectively, of stock-based compensation expense recorded as cost of sales. The three and nine months ended October 1, 2022 both included zero stock-based compensation expense recorded as cost of sales.

(2) The three and nine months ended September 30, 2023 both included $0.2 million, and the three and nine months ended October 1, 2022 included zero and $0.5 million, respectively, of restructuring charges that were recorded as cost of sales.

(In thousands)
Three Months Ended

(In thousands)
Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net income $ 4,655
$ 5,014
$ 10,593
$ 22,425
Interest expense 2,088
1,945
5,588
6,279
Income tax expense 940
1,234
2,073
9,863
Depreciation 3,243
3,249
9,910
10,002
Amortization 2,376
2,840
7,239
7,418
Stock-based compensation expense 1,100
594
4,264
2,579
Gain on divestitures —
—
—
(18,815 )
Restructuring charges 64
—
64
—
Adjusted EBITDA $ 14,466
$ 14,876
$ 39,731
$ 39,751
% of net revenues 10.4 % 11.2 % 9.6 % 9.7 %

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Results of Operations

Third Quarter of ~~2017~~2023 Compared to Third Quarter of ~~2016~~2022

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										(Dollars in thousands, except per share data) Nine 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			September 30, 2023			% of Net Revenues		October 1, 2022			% of Net Revenues		September 30, 2023			% of Net Revenues		October 1, 2022			% of Net Revenues
Net Revenues	$	138,690		100.0	%	$	132,571		100.0	%	$	415,925		100.0	%	$	408,156		100.0	%	Net Revenues	$	196,250		100.0	%	$	186,590		100.0	%	$	564,761		100.0	%	$	524,269		100.0	%
Cost of Sales	112,681			81.2	%	107,348			81.0	%	338,798			81.5	%	329,749			80.8	%	Cost of Sales	151,648			77.3	%	148,003			79.3	%	443,270			78.5	%	418,565			79.8	%
Gross Profit	26,009			18.8	%	25,223			19.0	%	77,127			18.5	%	78,407			19.2	%	Gross Profit	44,602			22.7	%	38,587			20.7	%	121,491			21.5	%	105,704			20.2	%
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	32,182			16.4	%	24,803			13.3	%	88,755			15.7	%	72,340			13.8	%
Restructuring Charges																					Restructuring Charges	3,811			1.9	%	567			0.3	%	12,750			2.3	%	3,270			0.7	%
Operating Income	7,195			5.2	%	8,052			6.1	%	17,766			4.2	%	19,611			4.8	%	Operating Income	8,609			4.4	%	13,217			7.1	%	19,986			3.5	%	30,094			5.7	%
Interest Expense	(2,088		)	(1.5	)%	(1,945		)	(1.5	)%	(5,588		)	(1.3	)%	(6,279		)	(1.5	)%	Interest Expense	(5,370)			(2.7)	%	(2,998)			(1.6)	%	(15,324)			(2.7)	%	(8,056)			(1.5)	%
Loss on Extinguishment of Debt																					Loss on Extinguishment of Debt	—			—	%	(295)			(0.2)	%	—			—	%	(295)			(0.1)	%
Other Income	488			0.4	%	141			0.1	%	488			0.1	%	141			—	%	Other Income	—			—	%	—			—	%	7,945			1.4	%	3,000			0.6	%
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	3,239			1.7	%	9,924			5.3	%	12,607			2.2	%	24,743			4.7	%
Income Tax Expense	940			nm		1,234			nm		2,073			nm		9,863			nm		Income Tax Expense	26			nm		1,462			nm		1,789			nm		4,035			nm
Net Income	$	4,655		3.4	%	$	5,014		3.8	%	$	10,593		2.5	%	$	22,425		5.5	%	Net Income	$	3,213		1.6	%	$	8,462		4.5	%	$	10,818		1.9	%	$	20,708		3.9	%

Effective Tax Rate	16.8		%	nm		19.8		%	nm		16.4		%	nm		30.5		%	nm		Effective Tax Rate	0.8		%	nm		14.7		%	nm		14.2		%	nm		16.3		%	nm
Diluted Earnings Per Share	$	0.41		nm		$	0.44		nm		$	0.92		nm		$	1.99		nm		Diluted Earnings Per Share	$	0.22		nm		$	0.69		nm		$	0.79		nm		$	1.68		nm

nm = not meaningful

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Net Revenues by End-Use Market and Operating Segment

Net revenues by end-use market and operating segment during the ~~first~~ fiscal three and nine months ~~of 2017~~ended September 30, 2023 and ~~2016,~~October 1, 2022, respectively, were as follows:

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
Consolidated Ducommun
Military and space
Defense electronics $ 7,740
$ 50,259
$ 42,519
36.3 % 32.1 % $ 27,514
$ 153,728
$ 126,214
37.0% 30.9%
Defense structures 318
12,534
12,216
9.0 % 9.2 % 4,434
42,041
37,607
10.1% 9.2%
Commercial aerospace (2,842 ) 60,923
63,765
43.9 % 48.1 % (16,820 ) 176,643
193,463
42.5% 47.4%
Industrial 903
14,974
14,071
10.8 % 10.6 % (7,359 ) 43,513
50,872
10.4% 12.5%
Total $ 6,119
$ 138,690
$ 132,571
100.0 % 100.0 % $ 7,769
$ 415,925
$ 408,156
100.0% 100.0%

Structural Systems
Military and space (defense structures) $ 318
$ 12,534
$ 12,216
21.0 % 20.0 % $ 4,434
$ 42,041
$ 37,607
23.8% 20.3%
Commercial aerospace (1,564 ) 47,151
48,715
79.0 % 80.0 % (13,704 ) 134,331
148,035
76.2% 79.7%
Total $ (1,246 ) $ 59,685
$ 60,931
100.0 % 100.0 % $ (9,270 ) $ 176,372
$ 185,642
100.0% 100.0%

Electronic Systems
Military and space (defense electronics) $ 7,740
$ 50,259
$ 42,519
63.6 % 59.4 % $ 27,514
$ 153,728
$ 126,214
64.1% 56.7%
Commercial aerospace (1,278 ) 13,772
15,050
17.4 % 21.0 % (3,116 ) 42,312
45,428
17.7% 20.4%
Industrial 903
14,974
14,071
19.0 % 19.6 % (7,359 ) 43,513
50,872
18.2% 22.9%
Total $ 7,365
$ 79,005
$ 71,640
100.0 % 100.0 % $ 17,039
$ 239,553
$ 222,514
100.0% 100.0%


	Three Months Ended										Nine Months Ended
			(Dollars in thousands)				% of Net Revenues						(Dollars in thousands)				% of Net Revenues
	Change		September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022		Change		September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Consolidated Ducommun
Military and space	$	2,390	$	108,693	$	106,303	55.4	%	57.0	%	$	(11,297)	$	301,020	$	312,317	53.3	%	59.6	%
Commercial aerospace	9,556		77,904		68,348		39.7	%	36.6	%	49,711		229,201		179,490		40.6	%	34.2	%
Industrial	(2,286)		9,653		11,939		4.9	%	6.4	%	2,078		34,540		32,462		6.1	%	6.2	%
Total	$	9,660	$	196,250	$	186,590	100.0	%	100.0	%	$	40,492	$	564,761	$	524,269	100.0	%	100.0	%

Electronic Systems
Military and space	$	(3,232)	$	75,579	$	78,811	68.3	%	69.5	%	$	(10,140)	$	220,678	$	230,818	68.2	%	72.0	%
Commercial aerospace	2,821		25,475		22,654		23.0	%	20.0	%	10,917		68,239		57,322		21.1	%	17.9	%
Industrial	(2,286)		9,653		11,939		8.7	%	10.5	%	2,078		34,540		32,462		10.7	%	10.1	%
Total	$	(2,697)	$	110,707	$	113,404	100.0	%	100.0	%	$	2,855	$	323,457	$	320,602	100.0	%	100.0	%

Structural Systems
Military and space	$	5,622	$	33,114	$	27,492	38.7	%	37.6	%	$	(1,157)	$	80,342	$	81,499	33.3	%	40.0	%
Commercial aerospace	6,735		52,429		45,694		61.3	%	62.4	%	38,794		160,962		122,168		66.7	%	60.0	%
Total	$	12,357	$	85,543	$	73,186	100.0	%	100.0	%	$	37,637	$	241,304	$	203,667	100.0	%	100.0	%

Net revenues for the three months ended September 30, ~~2017~~2023 were ~~$138.7~~$196.3 million, compared to ~~$132.6~~$186.6 million for the three months ended October 1, ~~2016.~~2022. The year-over-year increase was primarily due to the following:

•$~~8.1~~9.6 million higher revenues in our commercial aerospace end-use markets due to higher build rates on large aircraft platforms, commercial rotary-wing aircraft platforms, and other commercial aerospace platforms; and

•$2.4 million higher revenues in our military and space end-use markets ~~mainly~~ due to ~~increased demand, which favorably impacted our fixed-wing, missile,~~higher build rates on military rotary-wing aircraft platforms and ~~helicopter platforms;~~other military and

~~$0.9 million higher revenues in our industrial end-use markets;~~ space platforms, partially offset by

~~$2.8 million~~ lower ~~revenues in our commercial aerospace end-use markets mainly due to the winding down of a regional jet program~~build rates on military fixed-wing aircraft platforms and ~~continued softness in demand within the business jet market.~~various missile platforms.

Net revenues for the nine months ended September 30, ~~2017~~2023 were ~~$415.9~~$564.8 million, compared to ~~$408.2~~$524.3 million for the nine months ended October 1, ~~2016.~~2022. The year-over-year increase was primarily due to the following:

•$~~31.9~~49.7 million higher revenues in our commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms and large aircraft platforms; partially offset by

•$11.3 million lower revenues in our military and space end-use markets ~~mainly~~ due to ~~increased demand, which favorably impacted our helicopter~~lower build rates on military fixed-wing aircraft platforms and ~~fixed-wing~~various missile platforms, partially offset by ~~the divestiture of our Miltec operation in March 2016. The net increase was partially offset by~~

~~$16.8 million lower revenues in our commercial aerospace end-use markets mainly due to the winding down of a regional jet program~~higher build rates on other military and ~~continued softness in demand within the business jet market;~~space platforms and

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

military rotary-wing aircraft platforms.

Net Revenues by Major Customers

A significant portion of our net revenues are from our top ten customers as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Boeing Company	8.8	%	7.2	%	8.2	%	7.0	%
General Dynamics Corporation	3.3	%	6.0	%	4.0	%	5.7	%

Northrop Grumman Corporation	4.3	%	5.1	%	5.3	%	5.8	%
RTX Corporation	16.4	%	20.6	%	15.7	%	21.0	%
Spirit AeroSystems Holdings, Inc.	5.9	%	6.8	%	6.2	%	5.7	%
Viasat, Inc.	5.8	%	5.7	%	5.4	%	4.7	%
Total top ten customers (1)	58.0	%	63.9	%	57.5	%	61.1	%

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Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Boeing Company 17.1 % 18.1 % 16.6 % 17.8 %
Lockheed Martin Corporation 5.7 % 6.6 % 5.7 % 5.7 %
Raytheon Company 14.3 % 8.6 % 14.1 % 7.3 %
Spirit Aerosystems Holdings, Inc. 8.0 % 8.3 % 7.6 % 8.2 %
United Technologies Corporation 4.5 % 5.3 % 5.0 % 4.9 %
Total top ten customers ⁽¹⁾
64.3 % 61.0 % 62.8 % 57.3 %


~~(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”).

(1)Includes The Boeing ~~Lockheed Martin,~~Company (“Boeing”), General Dynamics Corporation (“GD”), Northrop Grumman Corporation (“Northrop”), RTX Corporation (“RTX”), Spirit AeroSystems Holdings, Inc. (“Spirit”), and Viasat, Inc. (“Viasat”) for the three and nine months ended September 30, 2023 and October 1, 2022. Raytheon Technologies Corporation changed its name to RTX Corporation effective July 17, 2023.

Boeing, GD, Northrop, RTX, Spirit, and ~~United Technologies~~Viasat represented the following percentages of total accounts receivable:

September 30,
2017 December 31,
2016
Boeing 15.4 % 7.8 %
Lockheed Martin 4.8 % 2.9 %
Raytheon 6.2 % 10.9 %
Spirit 10.9 % 9.0 %
United Technologies 3.0 % 7.8 %


	September 30, 2023		December 31, 2022
Boeing	7.1	%	3.8	%
GD	2.8	%	3.4	%

Northrop	3.8	%	13.0	%
RTX	12.4	%	16.2	%
Spirit	3.0	%	1.6	%
Viasat	6.2	%	10.3	%

The net revenues and accounts receivable from Boeing, ~~Lockheed Martin, Raytheon,~~GD, Northrop, RTX, Spirit, and ~~United Technologies~~Viasat are diversified over a number of commercial, military and space programs and were generated by both operating segments.

Gross Profit

Gross profit consists of net revenues less cost of sales. Cost of sales includes the cost of production of finished products and other expenses related to inventory management, manufacturing quality, and order fulfillment. Gross profit ~~margin~~ as a percentage of net revenues ~~decreased~~increased year-over-year inwith the three months ended September 30, ~~2017 to 18.8%~~2023 of 22.7%, compared to the three months ended October 1, ~~2016~~2022 of ~~19.0%~~20.7% primarily due to ~~unfavorable~~favorable product mix and favorable manufacturing volume, partially offset by ~~lower~~unfavorable other manufacturing ~~costs as a result of ongoing cost reduction initiatives.~~costs.

Gross profit ~~margin~~ as a percentage of net revenues ~~decreased~~increased year-over-year inwith the nine months ended September 30, ~~2017 to 18.5%~~2023 of 21.5%, compared to the nine months ended October 1, ~~2016~~2022 of ~~19.2%~~20.2% primarily due to ~~unfavorable product mix,~~favorable manufacturing volume, partially offset by ~~lower~~unfavorable other manufacturing costs ~~as a result of ongoing cost reduction initiatives~~ and ~~higher manufacturing volume.~~unfavorable product mix.

Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses increased ~~$1.6~~$7.4 million year-over-year in the three months ended September 30, ~~2017~~2023 compared to the three months ended October 1, ~~2016~~2022 primarily due to BLR SG&A expenses of $3.6 million which did not exist in the prior year period, and higher stock-based compensation ~~and benefit costs~~expense of ~~$1.5~~$2.9 million.

SG&A expenses increased ~~$0.6~~$16.4 million year-over-year in the nine months ended September 30, ~~2017~~2023 compared to the nine months ended October 1, ~~2016~~2022 primarily due to BLR SG&A expenses of $5.9 million which did not exist in the prior year period, higher stock-based compensation expense of $5.6 million, and ~~benefit costs~~higher professional services fees of ~~$2.0~~$1.9 million, ~~partially offset by a decrease~~mainly due to the ~~divestitures of our Pittsburgh~~BLR acquisition.

Restructuring Charges

Restructuring charges increased $3.2 million and ~~Miltec operations and closure of certain facilities of $1.3 million.~~

~~Interest Expense~~

~~Interest expense increased~~$9.5 million year-over-year in the three months ended September 30, 2017 compared to the three months ended October 1, 2016 primarily due to a higher utilization of the Revolving Credit Facility balance in the current three month period, including the acquisition of Lightning Diversion Systems, LLC (“LDS”), partially offset by a lower Term Loan balance as a result of voluntary principal prepayments on our credit facilities.

Interest expense decreased year-over-year in the nine months ended September 30, 2017 compared to the nine months ended October 1, 2016 primarily due to a lower outstanding Term Loan balance as a result of voluntary principal prepayments on our credit facilities, partially offset by higher utilization of the Revolving Credit Facility in the current nine month period, including the acquisition of LDS.

~~Gain on Divestitures~~

~~There was no gain on divestitures during~~ the three and nine months ended September 30, ~~2017. The gain on divestitures for~~2023, compared to the three and nine months ended October 1, ~~2016 consisted of~~2022, respectively, primarily due to the ~~divestitures during the first quarter of 2016 of our Pittsburgh operation with a pretax gain of $18.3~~restructuring plan that was approved and commenced in April 2022 that is expected to better position us for stronger performance. See Note 3 for further information.

Interest Expense

Interest expense increased $2.4 million and ~~our Miltec operation with a preliminary pretax gain of $0.5 million. (see Note~~$7.3 million year-over-year in the three and nine months ended September 30, 2023 compared to the three and nine months ended October 1, 2022, respectively, primarily due to ~~our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q).~~higher interest rates.

Income Tax Expense

We recorded income tax expense of ~~$0.9~~less than $0.1 million ~~(effective tax rate of 16.8%)~~ for the three months ended September 30, ~~2017~~2023 compared to ~~$1.2~~$1.5 million ~~(effective tax rate of 19.8%)~~ for the three months ended October 1, ~~2016.~~2022. The decrease in ~~the effective~~income tax ~~rate~~expense for the ~~three months ended September 30, 2017~~third quarter of 2023 compared to the ~~three months ended October 1, 2016~~third quarter of 2022 was primarily due to tax benefits recognized from additional U.S. Federal research and development tax credits. FASB ASU 2016-09 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” became effective beginning January 1, 2017 and required all of the tax effects related to share-based payments to be recorded through thelower pre-tax income ~~statement. This could result in fluctuations in our effective tax rate from period to period, depending on the number of awards exercised and/or vested~~ in the third quarter ~~as well as~~of 2023 compared to the ~~volatility~~third quarter of our stock price. During the current year three month period, we recognized tax benefits from deductions of share-based payments in excess of compensation cost recognized for financial reporting purposes of $0.1 million, which decreased the effective tax rate by 0.6%.2022.

We recorded income tax expense of ~~$2.1~~$1.8 million ~~(effective tax rate of 16.4%)~~ for the nine months ended September 30, ~~2017~~2023 compared to ~~$9.9~~$4.0 million ~~(effective tax rate of 30.5%)~~ for the nine months ended October 1, ~~2016.~~2022. The decrease in ~~the effective~~income tax ~~rate~~expense for the nine months ended September 30, ~~2017~~2023 compared to the nine months ended October 1, ~~2016~~2022 was primarily due to ~~the preliminary gain on divestitures of our Pittsburgh~~lower pre-tax income and ~~Miltec operations of $18.8 million, which resulted in a~~ higher ~~state tax liability, compared to the current nine month period. In addition, during the current nine month period, we recognized~~income tax benefits ~~from deductions of share-based payments in excess of compensation cost~~ recognized ~~for financial reporting purposes of $0.6 million, which decreased~~related to the ~~effective tax rate by 4.8%, and we recognized additional tax benefits from~~ U.S. Federal research and development tax ~~credits.~~credit in the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022. The decrease in income tax expense was partially offset by higher income tax expense related to non-deductible book

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compensation expenses and higher discrete income tax expense related to changes in deferred tax assets recognized in the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022.

Net Income and Earnings per Share

Net income and earnings per share for the three months ended September 30, ~~2017~~2023 were ~~$4.7~~$3.2 million, or ~~$0.41~~$0.22 per diluted share, compared to ~~$5.0~~$8.5 million, or ~~$0.44~~$0.69 per diluted share, for the three months ended October 1, ~~2016.~~2022. The decrease in net income for the three months ended September 30, ~~2017~~2023 compared to the three months ended October 1, ~~2016~~2022 was primarily due to ~~the following:~~

~~$1.6~~higher SG&A expenses of $7.4 million, higher ~~SG&A expense;~~restructuring charges of $3.2 million, and higher interest expense of $2.4 million, partially offset by

~~$0.3~~ higher gross profit of $6.0 million. The higher SG&A expenses were primarily due to BLR SG&A expenses of $3.6 million which did not exist in the prior year period as the acquisition of ~~lower income tax expense.~~BLR was completed during the three months ended July 1, 2023, and higher stock-based compensation expense of $2.9 million.

Net income and earnings per share for the nine months ended September 30, ~~2017~~2023 were ~~$10.6~~$10.8 million, or ~~$0.92~~$0.79 per diluted share, compared to ~~$22.4~~$20.7 million, or ~~$1.99~~$1.68 per diluted share, for the nine months ended October 1, ~~2016.~~2022. The decrease in net income for the nine months ended September 30, ~~2017~~2023 compared to the nine months ended October 1, ~~2016~~2022 was primarily due to higher SG&A expenses of $16.4 million, higher restructuring charges of $9.5 million, and higher interest expense of $7.3 million, partially offset by higher gross profit of $15.8 million and higher other income of $4.9 million. The higher SG&A expenses were primarily due to BLR SG&A expenses of $5.9 million which did not exist in the ~~following:~~

~~The~~ prior year ~~included a preliminary pre-tax gain on divestitures~~period as the acquisition of ~~our Pittsburgh~~BLR was completed during the three months ended July 1, 2023, and ~~Miltec operations~~higher stock-based compensation expense of ~~$18.8 million; partially offset by~~$5.6 million.

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

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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 30, ~~2017~~2023 and October 1, ~~2016:~~2022:


	Three Months Ended										Nine Months Ended
	%		(Dollars in thousands)				% of Net Revenues				%		(Dollars in thousands)				% of Net Revenues
	Change		September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022		Change		September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net Revenues
Electronic Systems	(2.4)	%	$	110,707	$	113,404	56.4	%	60.8	%	0.9	%	$	323,457	$	320,602	57.3	%	61.2	%
Structural Systems	16.9	%	85,543		73,186		43.6	%	39.2	%	18.5	%	241,304		203,667		42.7	%	38.8	%
Total Net Revenues	5.2	%	$	196,250	$	186,590	100.0	%	100.0	%	7.7	%	$	564,761	$	524,269	100.0	%	100.0	%
Segment Operating Income
Electronic Systems			$	12,710	$	13,881	11.5	%	12.2	%			$	32,249	$	36,902	10.0	%	11.5	%
Structural Systems			6,743		6,687		7.9	%	9.1	%			16,873		12,839		7.0	%	6.3	%
			19,453		20,568								49,122		49,741
Corporate General and Administrative Expenses (1)			(10,844)		(7,351)		(5.5)	%	(3.9)	%			(29,136)		(19,647)		(5.2)	%	(3.7)	%
Total Operating Income			$	8,609	$	13,217	4.4	%	7.1	%			$	19,986	$	30,094	3.5	%	5.7	%
Adjusted EBITDA
Electronic Systems
Operating Income			$	12,710	$	13,881							$	32,249	$	36,902
Other Income			—		—								222		—
Depreciation and Amortization			3,567		3,510								10,626		10,500
Stock-Based Compensation Expense (2)			97		—								321		—
Restructuring Charges			1,794		340								5,739		1,624
			18,168		17,731		16.4	%	15.6	%			49,157		49,026		15.2	%	15.3	%
Structural Systems
Operating Income			6,743		6,687								16,873		12,839

Depreciation and Amortization			4,852		4,100								13,619		12,659
Stock-Based Compensation Expense (3)			76		—								259		—
Restructuring Charges			2,205		227								7,113		2,174
Guaymas fire related expenses			548		1,496								3,896		3,451
Other fire related expenses			—		—								477		—
Inventory Purchase Accounting Adjustments			2,041		107								2,807		1,381
			16,465		12,617		19.2	%	17.2	%			45,044		32,504		18.7	%	16.0	%
Corporate General and Administrative Expenses (1)
Operating Loss			(10,844)		(7,351)								(29,136)		(19,647)

Depreciation and Amortization			59		59								176		176
Stock-Based Compensation Expense (4)			5,479		2,714								13,189		7,904
Restructuring Charges			—		—								86		—
Other Debt Refinancing Costs			—		224								—		224
			(5,306)		(4,354)								(15,685)		(11,343)
Adjusted EBITDA			$	29,327	$	25,994	14.9	%	13.9	%			$	78,516	$	70,187	13.9	%	13.4	%



Capital Expenditures
Electronic Systems			$	978	$	3,192							$	4,752	$	7,831
Structural Systems			3,802		1,175								11,043		7,033
Corporate Administration			—		—								—		—
Total Capital Expenditures			$	4,780	$	4,367							$	15,795	$	14,864

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

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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

(2)The three and nine months ended September 30, 2023 included less than $0.1 million and $0.1 million, respectively, of stock-based compensation expense recorded as cost of sales. The three and nine months ended October 1, 2022 both included zero stock-based compensation expense recorded as cost of sales.

~~(1)~~

~~Includes costs not allocated to either the Structural Systems or~~

(3)The three and nine months ended September 30, 2023 included $0.1 million and $0.2 million, respectively, of stock-based compensation expense recorded as cost of sales. The three and nine months ended October 1, 2022 both included zero stock-based compensation expense recorded as cost of sales.

(4)The three and nine months ended September 30, 2023 included $1.4 million and $2.7 million, respectively, and the three and nine months ended October 1, 2022 included $0.3 million and $0.8 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.

Electronic Systems

Electronic Systems ~~operating segments.~~

~~Structural Systems~~

~~Structural Systems’~~ net revenues in the three months ended September 30, ~~2017~~2023 compared to the three months ended October 1, ~~2016~~2022 decreased ~~$1.2~~$2.7 million primarily due to the following:

•$~~1.6~~3.2 million lower revenues in our military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms, partially offset by higher build rates on other military and space platforms; partially offset by

•$2.8 million higher revenues in our commercial aerospace end-use markets ~~mainly~~due to higher build rates on other commercial aerospace platforms.

Electronic Systems net revenues in the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022 increased $2.9 million primarily due to the ~~winding down of a regional jet program and continued softness~~following:

•$10.9 million higher revenues in ~~demand within the business jet market;~~our commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms; partially offset by

•$~~0.3~~10.1 million lower revenues in our military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms, partially offset by higher build rates on other military and space platforms.

Electronic Systems segment operating income in the three months ended September 30, 2023 compared to the three months ended October 1, 2022 decreased $1.2 million primarily due to higher restructuring charges and unfavorable other manufacturing costs, partially offset by favorable product mix and favorable manufacturing volume.

Electronic Systems segment operating income in the nine months ended September 30, 2023 compared to the nine months ended October 1, 2022 decreased $4.7 million primarily due to higher restructuring charges, unfavorable product mix, and unfavorable other manufacturing costs, partially offset by favorable manufacturing volume.

Structural Systems

Structural Systems net revenues in the three months ended September 30, 2023 compared to the three months ended October 1, 2022 increased $12.4 million primarily due to the following:

•$6.7 million higher revenues in our commercial aerospace end-use markets due to higher build rates on large aircraft platforms; and

•$5.6 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 military rotary-wing platforms and other military and space platforms, partially offset by lower build rates on various missile platforms.

Structural ~~Systems’~~Systems net revenues in the nine months ended September 30, ~~2017~~2023 compared to the nine months ended October 1, ~~2016 decreased $9.3~~2022 increased $37.6 million primarily due to the following:

•$~~13.7~~38.8 million ~~lower~~higher revenues in our commercial aerospace end-use markets ~~mainly~~ due to ~~the winding down of a regional jet program~~higher build rates on large aircraft platforms and ~~continued softness in demand within the business jet market;~~other commercial aerospace platforms; partially offset by

•$~~4.4~~1.2 million ~~higher~~lower revenues in our military and space end-use markets ~~mainly~~ due to ~~increased demand, which favorably impacted our helicopter~~lower build rates on various missile platforms and military fixed-wing aircraft platforms, partially offset by higher build rates on other military and space platforms and military rotary-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~~2023 compared to the three months ended October 1, ~~2016~~2022 increased ~~$7.4~~$0.1 million primarily due to ~~the following:~~

~~$7.7 million higher revenues in our military~~favorable product mix 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;~~favorable manufacturing volume, partially offset by higher restructuring charges, higher inventory purchase accounting adjustments, and unfavorable other manufacturing costs.

~~$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~~The Structural Systems segment operating income in the nine months ended September 30, ~~2017~~2023 compared to the nine months ended October 1, ~~2016~~2022 increased ~~$17.0~~$4.0 million primarily due to ~~the following:~~

~~$27.5 million higher revenues in our military~~favorable manufacturing volume and ~~space end-use markets mainly due to increased demand, which favorably impacted our fixed-wing, helicopter, and missile platforms,~~favorable product mix, partially offset by higher restructuring charges, unfavorable other manufacturing costs, and higher inventory purchase accounting adjustments.

In April 2023, we acquired 100.0% of BLR Aerospace L.L.C. (“BLR”). The initial purchase price for BLR was $115.0 million, net of

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cash acquired, all payable in cash. We paid a gross aggregate of $117.0 million in cash upon the ~~divestiture~~closing of the transaction. BLR’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition and is a part of the Structural Systems segment. See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

In June 2020, a fire severely damaged our performance center in Guaymas, Mexico. We have insurance coverage and up to a capped amount, expect these items will be covered, less our deductible. The full financial impact cannot be estimated at this time as we are currently working with our insurance carriers to determine the cause of the fire. The loss of production from the Guaymas performance center was being absorbed by our other existing performance centers, however, we have reestablished and are in the process of ramping up our manufacturing capabilities in a different leased facility in Guaymas. A neighboring, non-related manufacturing facility, also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center. The cause of the fire is still undetermined and as such, there is no amount of loss that is probable and reasonably estimable at this time. If we are ultimately deemed to be responsible or partly responsible, it is possible we could incur a loss in excess of our ~~Miltec operation~~insurance coverage limits, which could be material to our cash flow, liquidity, or financial results. See Note 9 and Note 11 to our condensed consolidated financial statements included in ~~March 2016. The net increase was partially offset by~~Part I, Item 1 of this Form 10-Q.

~~$7.4 million lower revenues~~In April 2023, a fire damaged a relatively small portion of one of our performance centers in our ~~Industrial end-use markets mainly due~~Structural Systems reporting segment. Our insurance covers damage, up to ~~exiting certain Industrial customers 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~~a capped amount, to the ~~three~~property and ~~nine months ended October~~equipment at replacement cost, as well as business interruption and recovery related expenses caused by the fire, less our per claim deductible. There was a loss of production in this damaged portion of the performance center for a short period of time but did not result in significant disruption to customer delivery schedules. Production in this damaged portion has since resumed. See Note 11 to our condensed consolidated financial statements included in Part I, Item 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.~~this Form 10-Q.

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

CG&A expenses increased ~~$0.1~~$3.5 million infor the three months ended September 30, ~~2017~~2023 compared to the three months ended October 1, ~~2016.~~2022 primarily due to higher stock-based compensation expense of $2.8 million.

CG&A expenses increased ~~$1.0~~$9.5 million infor the nine months ended September 30, ~~2017~~2023 compared to the nine months ended October 1, ~~2016~~2022 primarily due to higher stock-based compensation expense of $5.3 million and ~~benefit costs of $2.5 million, partially offset by lower~~higher professional services fees of ~~$1.3 million.~~$1.1 million, mainly due to the BLR acquisition.

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~~

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The decrease in backlog was primarily in the commercial aerospace end-use markets, partially offset by an increase in the military and space end-use markets. $638.0 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~~2023 and December 31, ~~2016:~~2022:


	(Dollars in thousands)
	Change		September 30, 2023		December 31, 2022
Consolidated Ducommun
Military and space	$	37,093	$	494,447	$	457,354
Commercial aerospace	(27,364)		422,728		450,092
Industrial	(12,003)		41,371		53,374
Total	$	(2,274)	$	958,546	$	960,820
Electronic Systems
Military and space	$	6,454	$	368,036	$	361,582
Commercial aerospace	(33,789)		91,801		125,590
Industrial	(12,003)		41,371		53,374
Total	$	(39,338)	$	501,208	$	540,546
Structural Systems
Military and space	$	30,639	$	126,411	$	95,772
Commercial aerospace	6,425		330,927		324,502
Total	$	37,064	$	457,338	$	420,274

(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)
	September 30,			December 31,
	2023			2022
Total debt, including long-term portion	$	272.6		$	248.4
Weighted-average interest rate on debt	7.43		%	4.36		%
Term Loans interest rate	6.82		%	4.24		%

Cash and cash equivalents	$	27.2		$	46.2
Unused Revolving Credit Facility	$	171.0		$	199.8

(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~~In July 2022, we completed a refinancing of all our existing debt by entering into a new term loan (“2022 Term Loan”) and a new revolving credit facility ~~consists of~~(“2022 Revolving Credit Facility”). The 2022 Term Loan is a ~~$275.0~~$250.0 million senior secured ~~term~~ loan ~~which~~that matures on ~~June 26, 2020 (“Term Loan”), and~~July 14, 2027. The 2022 Revolving Credit Facility is a $200.0 million senior secured revolving credit facility (“that matures on July 14, 2027. The 2022 Term Loan and 2022 Revolving Credit ~~Facility”), which matures on June 26, 2020 (collectively,~~Facility, collectively are the ~~“Credit~~new credit facilities (“2022 Credit Facilities”). WeIn conjunction with the closing of the 2022 Credit Facilities, we utilized the entire $250.0 million of proceeds from the 2022 Term Loan plus our existing cash on hand to pay off our entire debt balance outstanding of $254.2 million under our prior credit facilities. At the same leverage ratio, the interest rate spread in the 2022 Credit Facilities is lower than the interest rate spread under our prior credit facilities. Interest payments are ~~required~~typically paid either on a monthly or quarterly basis, depending on the interest rate selected, on the last business day each month or quarter. In addition, the 2022 Term Loan requires quarterly amortization payments of 0.625% during year one and year two, 1.250% during year three and year four, and 1.875% during year five of the original outstanding principal balance of the 2022 Term Loan amount, on the last business day each quarter. Further, the undrawn portion of the commitment of the 2022 Revolving Credit Facility is subject to ~~make mandatory prepayments of amounts outstanding under~~a commitment fee ranging from 0.175% to 0.275%, based upon the ~~Term Loan.~~consolidated total net adjusted leverage ratio, typically paid on a quarterly basis, on the last business day each quarter. However, the 2022 Revolving Credit Facility does not require any principal installment payments. As of September 30, ~~2017,~~2023, we were in compliance with all covenants required under the 2022 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.

We made the mandatory quarterly amortization payments under our existing term loans during the three and nine months ended September 30, 2023 of $1.6 million and $4.7 million, respectively, and during the three and nine months ended October 1, 2022 of zero and $3.5 million, respectively. No mandatory quarterly amortization payment was required to be paid on the 2022 Term Loan during the three months ended October 1, 2022. We made no voluntary prepayments on our term loans during both three months ended September 30, 2023 and October 1, 2022.

In April 2022, management approved and commenced a restructuring plan that will position us for stronger performance. The restructuring plan will mainly reduce headcount and consolidate facilities. As a result of this restructuring plan, we analyzed the need to write-down inventory and impair long-lived assets, including operating lease right-of-use assets. As of September 30, 2023, we estimate the remaining amount of charges related to this initiative will be $7.0 million to $9.0 million in total pre-tax restructuring charges through 2024. Of these charges, we estimate $6.0 million to $8.0 million to be cash payments for employee separation and other facility consolidation related expenses, and $1.0 million to be non-cash charges for impairment of long-lived assets. The restructuring accrual for severance and benefits of $6.4 million as of September 30, 2023 are expected to be paid out through 2024. On ~~July 14, 2017,~~an annualized basis, we anticipate these restructuring actions will result in total cost savings of $11.0 million to $13.0 million. See Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

In November 2021, we entered into ~~a technical amendment to the Credit Facilities (“First Amendment”) which provides more flexibility to close certain qualified acquisitions permitted under the Credit Facilities.~~

~~In October 2015, we entered into~~derivative contracts, U.S. dollar-one month LIBOR forward interest rate ~~cap hedges~~swaps designated as cash flow hedges, all with ~~maturity~~an effective date of January 1, 2024, for an aggregate total notional amount of $150.0 million, weighted average fixed rate of 1.8%, and all terminating on January 1, 2031 (“Forward Interest Rate Swaps”). The Forward Interest Rate Swaps mature on a monthly basis, with fixed amount payer payment dates on the first day of ~~June 2020,~~each calendar month, commencing on February 1, 2024 through January 1, 2031. See Note 1 and Note 7 to our condensed consolidated financial statements included in ~~aggregate, totaling $135.0 million~~Part I, Item 1 of this Form 10-Q for further information.

In July 2022, as a result of completing a refinancing of our ~~debt. We paid~~existing debt, we were required to complete an amendment of the Forward Interest Rate Swaps (“Amended Forward Interest Rate Swaps”). The Forward Interest Rate Swaps were based on U.S. dollar-one month LIBOR and were amended to be based on one month Term SOFR as borrowings using LIBOR are no longer available under the 2022 Credit Facilities. The Amended Forward Interest Rate Swaps weighted average fixed rate is 1.7%, as a ~~total~~

Table of ~~$1.0 million~~Contents

result of the difference between U.S. dollar-one month LIBOR and one month Term SOFR. See Note 1 and Note 7 to our condensed consolidated financial statements included in ~~connection with entering into~~Part I, Item 1 of this Form 10-Q for further information.

In April 2023, we completed the ~~interest rate cap hedges.~~

~~On September 11, 2017, we acquired LDS for a~~acquisition of BLR. The initial purchase price ~~of $60.0~~for BLR was $115.0 million, net of cash acquired, all payable in cash. ~~Upon~~We paid a gross aggregate of $117.0 million in cash upon the closing of the ~~transaction,~~transaction. We utilized the 2022 Revolving Credit Facility to complete the acquisition. See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

In May 2023, we ~~paid $61.4~~completed a public offering of our common stock resulting in net proceeds of $85.1 million. The public stock offering net proceeds along with cash on hand were used to pay down $85.2 million ~~in cash by drawing down~~ on the 2022 Revolving Credit ~~Facility. The remaining $0.6 million~~Facility that was ~~paid in October 2017 in cash, also by drawing down~~drawn on and utilized to complete the ~~Revolving Credit Facility.~~acquisition of BLR. See Note 2, Note 7, and Note 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

We expect to spend a total of ~~$26.0~~$18.0 million to ~~$30.0~~$20.0 million for capital expenditures in ~~2017~~2023 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.

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 monitor our asset base, including the market dynamics of the properties we own, and we may sell such properties and/or enter into sale-leaseback transactions. Such transactions would provide cash for various capital deployment options.

We continue to depend on operating cash flow and the availability of our 2022 Credit Facilities to provide short-term liquidity. Cash generated from operations and bank borrowing capacity is expected to provide sufficient liquidity to meet our obligations during the next twelve ~~months.~~

months from the date of issuance of these financial statements.

Cash Flow Summary

Net cash provided by operating activities for the nine months ended September 30, ~~2017 decreased to $27.4~~2023 was $4.6 million, compared to ~~$27.6~~$0.6 million for the nine months ended October 1, ~~2016.~~2022. The ~~lower~~higher net cash ~~generated~~provided by operating activities during the first nine months of ~~2017~~2023 was ~~primarily~~mainly due to lower ~~net income,~~accounts receivable and higher contract liabilities, partially offset by higher inventories, lower accounts payable, ~~mainly due to the timing of payments.~~and lower net income.

Net cash used in investing activities ~~of $83.5~~was $130.0 million for the nine months ended September 30, ~~2017~~2023, compared to ~~net cash provided by of $42.6~~$13.9 million in the nine months ended October 1, ~~2016 primarily due to~~2022. The higher net cash used in investing activities during the ~~payments for the purchase~~first nine months of ~~LDS, net of cash acquired of $59.2 million in the current year nine month period~~2023 compared to the prior year ~~nine month~~ period ~~which included proceeds from~~was mainly due to payments for the ~~divestiture~~acquisition of ~~our Pittsburgh and Miltec operations of approximately $55.3 million and purchases of property and equipment mainly to support the expansion of our Parsons, Kansas facility.~~BLR.

Net cash provided by financing activities was $106.4 million for the nine months ended September 30, ~~2017~~2023, compared to a net cash used in financing activities of ~~$52.4~~$41.8 million for the nine months ended October 1, 2022. The higher net cash provided by financing activities during the first nine months of 2023 was ~~primarily~~mainly due to $85.1 million net proceeds from the issuance of common stock in a public offering and $28.8 million net borrowings ~~from~~under the ~~Revolving Credit Facility that was used for the purchase of LDS,~~revolving credit facility, partially offset by ~~repayments~~the voluntary $30.0 million pay down on term loans in the ~~Credit Facilities.~~

prior year nine months ended October 1, 2022.

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 ~~indemnities.~~associated failed sales-leasebacks on property and equipment, and indemnities, none of which we believe may have a material current or future effect on our financial condition, liquidity, capital resources, or results of operations.

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~~2022 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.~~2023.

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.

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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,~~2023, we had total borrowings of ~~$224.7~~$272.6 million under our 2022 Credit Facilities.

The 2022 Term Loan ~~and Revolving Credit Facility that bear~~bears interest, at our option, at a rate equal to either (i) ~~the Eurodollar~~Term Secured Overnight Financing Rate ~~(defined as LIBOR)~~(“Term SOFR”) plus an applicable margin ranging from ~~1.50%~~1.375% to ~~2.75%~~2.375% 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~~Term SOFR plus 1.00%), and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from ~~0.50%~~0.375% to ~~1.75%~~1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio.

The 2022 Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) Term SOFR plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% 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 Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of ~~1934 Rules 13a-15(e)~~1934), 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.~~

~~Management’s Remediation Activities~~

~~We are committed to remediating~~ the ~~control deficiencies that constitute~~end of 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 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.~~

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.covered by this report.

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~~2023 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 14 11to 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 (“Form 10-K”) for the year ended December 31, ~~2016~~2022 for a discussion of our risk factors. ~~There~~Other than the risk factor below, there have been no material changes induring the ~~nine~~three months ended September 30, ~~2017~~2023 to the risk factors disclosed in our ~~Annual Report on~~ Form 10-K for the year ended December 31, ~~2016.~~2022.

We expect to face increased costs and resources to comply with the new SEC cybersecurity rule.

The SEC recently adopted a rule, “Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure,” that enhances and standardizes disclosures regarding cybersecurity risk management and governance, as well as material cybersecurity incidents. Under this new rule, public companies will now be required to make annual disclosures describing its processes for identifying and managing material cybersecurity risks, management’s role in assessing and managing such risks, and the Board of Directors’ oversight of cybersecurity risks. Companies also must disclose in a Form 8-K, the nature, scope, and timing of any material cybersecurity incidents identified and the material impact or reasonably likely material impact on the company. We expect to face increased costs to comply with this new SEC cybersecurity rule, including increased costs for cybersecurity training, staffing, and management. In addition, the requirement to report cybersecurity incidents within such a short timeframe could mean there will not be sufficient time to halt a breach before having to report it, potentially giving the hackers an advantage.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

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Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit

No. Description

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 Stock Purchase~~2.2 Agreement and Plan of Merger, dated ~~January 22, 2016, by and~~as of October 8, 2019, among ~~Ducommun Incorporated,~~ Ducommun LaBarge Technologies, Inc., ~~as Seller, LaBarge Electronics,~~DLT Acquisition, Inc., Nobles Parent Inc., and ~~Intervala, LLC, as Buyer.~~the Stockholder Representative. Incorporated by reference to Exhibit 2.1 to Form 8-K ~~dated January 25, 2016.~~filed on October 9, 2019.

~~2.4 Stock~~2.3 Equity Purchase Agreement dated ~~February 24, 2016,~~December 15, 2021, by and between Ducommun LaBarge Technologies, Inc., ~~as Seller,~~Mag Parent, Inc. and ~~General Atomics, as Buyer.~~Thomas B. Colby and Lyman J. Colby. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on December 16, 2021.

2.4 Securities Purchase Agreement dated ~~February 24, 2016.~~March 20, 2023, by and among BLR Aerospace, L.L.C., the Undersigned Equityholders of the Company, Crescent Capital Aerospace, L.L.C., as the Seller Representative, Ducommun LaBarge Technologies, Inc., and Ducommun Incorporated. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on March 21, 2023.


~~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.~~

2.5 Agreement of Purchase and Sale and Agreement to Enter into Lease dated as of December 16, 2021, by and among Ducommun Aerostructures, Inc. and Centerpoint 268 Gardena LLC. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on December 20, 2021.

2.6 Securities Purchase Agreement dated March 20, 2023, by and between Ducommun LaBarge Technologies, Inc., Ducommun Incorporated, solely for the purposes of Section 7.07, BLR, L.L.C., Crescent Capital Aerospace, L.L.C. and Michael Carpenter. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on March 21, 2023.

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 Amended and Restated Bylaws of Ducommun Incorporated, dated as ~~amended and restated on March 19, 2013.~~of November 4, 2022. Incorporated by reference to Exhibit ~~99.1~~3.3 to to Form ~~8-K dated March 22, 2013.~~10-K for the year ended December 31, 2022.

~~3.4 Amendment to Bylaws dated January 5, 2017.~~4.1 Description of Ducommun Incorporated Securities Registered under Section 12 of the Exchange Act. Incorporated by reference to Exhibit ~~99.2~~4.1 to Form ~~8-K dated January 9, 2017.~~10-K for the year ended December 31, 2019.

10.1 Credit Agreement, dated as of ~~June 26, 2015,~~July 14, 2022, by and among Ducommun Incorporated, ~~certain~~as Borrower, the subsidiaries of ~~its subsidiaries,~~the Borrower party thereto as Guarantors, Bank of America, N.A., as ~~administrative agent, swingline~~Administrative Agent, Swingline Lender and an L/C Issuer, and the lender ~~and issuing bank, and other lenders~~ party thereto. Incorporated by reference to Exhibit 10.1 to Form 8-K ~~dated June 26, 2015.~~filed on July 18, 2022.

*10.2 ~~First Amendment~~2013 Stock Incentive Plan (Amended and Restated May 2, 2018). Incorporated by reference to ~~Credit Agreement, dated as~~Appendix A of ~~July 14, 2017, among Ducommun Incorporated, certain of its subsidiaries, Bank of America, N.A., as administrative agent, swingline lender~~Definitive Proxy Statement on Schedule 14a, filed on March 23, 2018.

*10.3 Amended and ~~issuing bank, and other lenders party thereto.~~Restated 2020 Stock Incentive Plan. Incorporated by reference to Exhibit ~~10.2~~10.1 to Form ~~10-Q for the period ended July 1, 2017.~~8-K filed on April 20, 2022.

*~~10.3 2007~~10.4 2018 Employee Stock ~~Incentive~~Purchase Plan. Incorporated by reference to Appendix B of Definitive Proxy Statement on Schedule 14a, filed on March ~~29, 2010.~~23, 2018.

*~~10.4 2013~~10.5 2020 Employee Stock Incentive ~~Plan (Amended and Restated March 18, 2015).~~Plan. Incorporated by reference to Appendix BA of Definitive Proxy Statement on Schedule 14a, filed on ~~April 22, 2015.~~March 20, 2020.

*~~10.5~~10.6 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~~10.7 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~~10.8 Form of ~~Performance~~ Stock ~~Unit~~Option Agreement for ~~2014~~2018 and ~~2015.~~after. Incorporated by reference to Exhibit ~~10.19~~4.7 to Form ~~10-Q dated April 28, 2014.~~S-8, filed on May 10, 2018.

*10.8 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 Form of Restricted Stock Unit Agreement for ~~2016 and earlier.~~2017 through 2019. Incorporated by reference to Exhibit 10.9 to Form 10-K for the year ended December 31, 2016. *10.10 Form

Table 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.~~Contents

Exhibit

No. Description

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

*10.1210.10 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.


*10.13	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~~
	~~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~~
	~~Christopher D. Wampler~~		~~January 1, 2016~~

*~~10.14 Ducommun Incorporated 2016 Bonus Plan.~~10.11 Form of Performance Stock Unit Agreement for 2020 and after. Incorporated by reference to Exhibit ~~99.3~~10.18 to Form ~~8-K dated March 1, 2016.~~10-Q for the period ended June 27, 2020.

*~~10.15 Ducommun Incorporated 2017 Bonus Plan.~~10.12 Form of Restricted Stock Unit Agreement for Non-Qualified Deferred Compensation Plan Participants for 2020 and after. Incorporated by reference to Exhibit ~~99.1~~10.19 to Form ~~8-K dated February~~10-Q for the period ended June 27, ~~2017.~~2020.

*10.13 Form of Restricted Stock Unit Agreement for 2020 and after. Incorporated by reference to Exhibit 10.20 to Form 10-Q for the period ended June 27, 2020.

*10.14 Form of Stock Option Agreement for 2020 and after. Incorporated by reference to Exhibit 10.21 to Form 10-Q for the period ended June 27, 2020.

*10.15 Form of Performance Restricted Stock Unit Agreement for 2020. Incorporated by reference to Exhibit 10.22 to Form 10-Q for the period ended June 27, 2020.

*10.16 Form of Performance Stock Unit Cash-Based Long-Term Incentive Award Agreement for 2022 and after. Incorporated by reference to Exhibit 10.20 to Form 10-Q for the period ended July 2, 2022.

*10.17 Form of Performance Restricted Stock Unit Cash-Based Long-Term Incentive Award Agreement for 2022 and after. Incorporated by reference to Exhibit 10.21 to Form 10-Q for the period ended July 2, 2022.

*10.18 Form of Performance Stock Unit Award Agreement for 2023 and after. Incorporated by reference to Exhibit 10.18 to Form 10-Q for the period ended April 1, 2023.

*10.19 Form of Performance Stock Unit Cash-Based Long-Term Incentive Award Agreement for 2023 and after. Incorporated by reference to Exhibit 10.19 to Form 10-Q for the period ended April 1, 2023.

*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~~10.21 Non Qualified Deferred Compensation. Incorporated by reference to Exhibit 4.6 to Form S-8 dated November 26, 2019.

*10.22 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~~10.23 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~~Executive Officer

Date of Agreement

~~Douglas~~Laureen S. Gonzalez

September 20, 2022

Suman B. Mookerji

May 2, 2018

Jerry L. ~~Groves~~Redondo

January 23, 2017

~~Amy M. Paul~~Rajiv A. Tata

January 24, 2020

Christopher D. Wampler

January 23, 2017

~~Anthony J. Reardon~~

~~January 23, 2017~~

~~Jerry L. Redondo~~

~~January 23, 2017~~

~~Rosalie F. Rogers~~

~~January 23, 2017~~

~~Christopher D. Wampler~~

~~January 23, 2017~~

*~~10.19~~10.24 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 Employment Letter~~10.25 Retirement and Release Agreement dated ~~December 19, 2016~~November 29, 2021 between Ducommun Incorporated and ~~Amy M. Paul.~~Rosalie F. Rogers. Incorporated by reference to Exhibit ~~10.19~~10.24 to Form 10-K for the year ended December 31, ~~2016.~~2021.

*~~10.21~~10.26 Transition Services ~~Letter~~and Separation Agreement dated ~~January 10, 2017~~May 31, 2023 between Ducommun Incorporated and ~~James S. Heiser.~~Christopher D. Wampler. Incorporated by reference to Exhibit ~~99.1~~10.01 to Form 8-K dated ~~January 16, 2017.~~June 2, 2023.

*10.22Table of Contents

Exhibit

No. Description

10.27 Form of ~~Performance Stock Unit~~Indemnity Agreement ~~for 2017.~~entered with all directors and officers of Ducommun. Incorporated by reference to Exhibit ~~10.21~~10.8 to Form ~~10-Q~~10-K for the ~~period~~year ended ~~April 1, 2017.~~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

Shirley G. Drazba

October 18, 2018

Robert C. Ducommun

December 31, 1985

Dean M. Flatt

November 5, 2009

Laureen S. Gonzalez

September 20, 2022

Jay L. Haberland

February 2, 2009

Sheila G. Kramer

June 1, 2021

Suman B. Mookerji

April 27, 2023

Stephen G. Oswald

January 23, 2017

Jerry L. Redondo

October 1, 2015

Samara A. Strycker

December 30, 2021

Rajiv A. Tata

January 24, 2020

Christopher D. Wampler

January 1, 2016

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 Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL

101.SCH Inline XBRL Taxonomy Extension Schema

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB Inline XBRL Taxonomy Extension Label Linkbase

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

___________________

* Indicates an executive compensation plan or arrangement.

Table of Contents

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.


			DUCOMMUN INCORPORATED
			(Registrant)

Date: November 8, 2023		By:	/s/ Stephen G. Oswald
			Stephen G. Oswald
			Chairman, President and Chief Executive Officer
			(Principal Executive Officer)

Date: November 8, 2023		By:	/s/ Suman B. Mookerji
			Suman B. Mookerji
			Senior Vice President, Chief Financial 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)~~



	September 30, 2017			December 31, 2016
Assets
Current Assets
Cash and cash equivalents	$	3,689		$	7,432
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
Inventories	137,157			119,896
Production cost of contracts	11,389			11,340
Other current assets	11,090			11,034
Total Current Assets	241,784			225,941
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
Goodwill	117,435			82,554
Intangibles, net	117,285			101,573
Non-current deferred income taxes	286			286
Other assets	3,025			3,485
Total Assets	$	593,849		$	515,429
Liabilities and Shareholders’ Equity
Current Liabilities
Current portion of long-term debt	$	—		$	3
Accounts payable	68,509			57,024
Accrued liabilities	29,799			29,279
Total Current Liabilities	98,308			86,306
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
Total Liabilities	369,200			303,326
Commitments and contingencies (Notes 12, 14)
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
Additional paid-in capital	78,624			76,783
Retained earnings	151,880			141,287
Accumulated other comprehensive loss	(5,968		)	(6,079		)
Total Shareholders’ Equity	224,649			212,103
Total Liabilities and Shareholders’ Equity	$	593,849		$	515,429



	(In thousands) Nine Months Ended
	September 30, 2017		October 1, 2016
Interest paid	$	4,867	$	5,283
Taxes paid	$	1,969	$	5,539
Non-cash activities:
Purchases of property and equipment not paid	$	890	$	687



	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)
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



	(In thousands) Three Months Ended						(In thousands) Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017				October 1, 2016
Net Revenues
Structural Systems	$	59,685		$	60,931		$	176,372			$	185,642
Electronic Systems	79,005			71,640			239,553				222,514
Total Net Revenues	$	138,690		$	132,571		$	415,925			$	408,156
Segment Operating Income
Structural Systems	$	3,466		$	5,893		$	8,147			$	13,347
Electronic Systems	8,234			6,600			24,158				19,769
	11,700			12,493			32,305				33,116
Corporate General and Administrative Expenses ⁽¹⁾	(4,505		)	(4,441		)	(14,539		)		(13,505		)
Operating Income	$	7,195		$	8,052		$	17,766			$	19,611
Depreciation and Amortization Expenses
Structural Systems	$	2,220		$	2,851		$	6,879			$	6,683
Electronic Systems	3,345			3,232			10,207				10,661
Corporate Administration	54			6			63				76
Total Depreciation and Amortization Expenses	$	5,619		$	6,089		$	17,149			$	17,420
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



	(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