Table of Contents

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 June 29, 2019March 28, 2020
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-08174

_________________________________________________________
DUCOMMUN INCORPORATED
(Exact name of registrant as specified in its charter)

_________________________________________________________
Delaware95-0693330
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
200 Sandpointe Avenue, Suite 700, Santa Ana, California92707-5759
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per shareDCONew 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).    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 filerx
Large accelerated filer¨Accelerated filerx
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 July 24, 2019,April 21, 2020, the registrant had 11,531,95911,648,725 shares of common stock outstanding.


Table of Contents
DUCOMMUN INCORPORATED AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
Page
PART I. FINANCIAL INFORMATION
Item 1.
3
3
4
5
6
7
8
Item 2.
2322
Item 3.
3230
Item 4.
3330
PART II. OTHER INFORMATION
Item 1.
31
Item 1.1A.
3331
Item 1A.4.
33
Item 4.
Mine Safety Disclosures
3331
Item 6.
3432
3735



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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ducommun Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except share and per share data)
 June 29,
2019		 December 31,
2018		 March 28,
2020		December 31,
2019
Assets    Assets
Current Assets    Current Assets
Cash and cash equivalents $3,287
 $10,263
Cash and cash equivalents$65,599  $39,584  
Restricted cash 757
 —
Accounts receivable, net of allowance for doubtful accounts of $744 and $1,135 at June 29, 2019 and December 31, 2018, respectively 69,355
 67,819
Accounts receivable, net (allowance for credit losses of $1,418 and $1,321 at March 28, 2020 and December 31, 2019, respectively)Accounts receivable, net (allowance for credit losses of $1,418 and $1,321 at March 28, 2020 and December 31, 2019, respectively)81,627  67,133  
Contract assets 100,527
 86,665
Contract assets117,213  106,670  
Inventories 109,327
 101,125
Inventories119,751  112,482  
Production cost of contracts 11,298
 11,679
Production cost of contracts7,859  9,402  
Other current assets 5,929
 6,531
Other current assets4,733  5,497  
Total Current Assets 300,480
 284,082
Total Current Assets396,782  340,768  
Property and equipment, net of accumulated depreciation of $161,655 and $154,840 at June 29, 2019 and December 31, 2018, respectively 111,373
 107,045
Operating lease right-of-use assets 19,148
 —
Property and Equipment, Net of Accumulated Depreciation of $158,711 and $162,920 at March 28, 2020 and December 31, 2019, respectivelyProperty and Equipment, Net of Accumulated Depreciation of $158,711 and $162,920 at March 28, 2020 and December 31, 2019, respectively114,732  115,216  
Operating Lease Right-of-Use AssetsOperating Lease Right-of-Use Assets18,519  19,105  
Goodwill 136,057
 136,057
Goodwill170,890  170,917  
Intangibles, net 106,710
 112,092
Non-current deferred income taxes 313
 308
Other assets 5,514
 5,155
Intangibles, NetIntangibles, Net134,532  138,362  
Non-Current Deferred Income TaxesNon-Current Deferred Income Taxes60  55  
Other AssetsOther Assets6,322  6,006  
Total Assets $679,595
 $644,739
Total Assets$841,837  $790,429  
Liabilities and Shareholders’ Equity    Liabilities and Shareholders’ Equity
Current Liabilities    Current Liabilities
Accounts payable $79,279
 $69,274
Accounts payable$76,970  $82,597  
Contract liabilities 13,183
 17,145
Contract liabilities27,878  14,517  
Accrued and other liabilities 33,349
 37,786
Accrued and other liabilities28,048  37,620  
Operating lease liabilities 2,858
 —
Operating lease liabilities3,049  2,956  
Current portion of long-term debt 2,281
 2,330
Current portion of long-term debt7,000  7,000  
Total Current Liabilities 130,950
 126,535
Total Current Liabilities142,945  144,690  
Long-term debt 225,605
 228,868
Non-current operating lease liabilities 17,911
 —
Non-current deferred income taxes 18,175
 18,070
Other long-term liabilities 14,724
 14,441
Long-Term Debt, Less Current PortionLong-Term Debt, Less Current Portion343,625  300,887  
Non-Current Operating Lease LiabilitiesNon-Current Operating Lease Liabilities16,937  17,565  
Non-Current Deferred Income TaxesNon-Current Deferred Income Taxes18,147  16,766  
Other Long-Term LiabilitiesOther Long-Term Liabilities17,756  17,721  
Total Liabilities 407,365
 387,914
Total Liabilities539,410  497,629  
Commitments and contingencies (Notes 10, 12) 
 
Commitments and Contingencies (Notes 9, 11)Commitments and Contingencies (Notes 9, 11)
Shareholders’ Equity    Shareholders’ Equity
Common stock - $0.01 par value; 35,000,000 shares authorized; 11,526,138 and 11,417,863 shares issued and outstanding at June 29, 2019 and December 31, 2018, respectively 115
 114
Common stock - $0.01 par value; 35,000,000 shares authorized; 11,648,617 and 11,572,668 shares issued and outstanding at March 28, 2020 and December 31, 2019, respectivelyCommon stock - $0.01 par value; 35,000,000 shares authorized; 11,648,617 and 11,572,668 shares issued and outstanding at March 28, 2020 and December 31, 2019, respectively116  116  
Additional paid-in capital 83,844
 83,712
Additional paid-in capital89,820  88,399  
Retained earnings 195,379
 180,356
Retained earnings220,483  212,553  
Accumulated other comprehensive loss (7,108) (7,357)Accumulated other comprehensive loss(7,992) (8,268) 
Total Shareholders’ Equity 272,230
 256,825
Total Shareholders’ Equity302,427  292,800  
Total Liabilities and Shareholders’ Equity $679,595
 $644,739
Total Liabilities and Shareholders’ Equity$841,837  $790,429  
See accompanying notes to Condensed Consolidated Financial Statements.

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Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share amounts)


 Three Months Ended Six Months Ended Three Months Ended
 June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018		 March 28,
2020		March 30,
2019
Net Revenues $180,495
 $154,827
 $353,061
 $305,282
Net Revenues$173,475  $172,566  
Cost of Sales 142,430
 122,799
 279,302
 246,499
Cost of Sales136,671  136,872  
Gross Profit 38,065
 32,028
 73,759
 58,783
Gross Profit36,804  35,694  
Selling, General and Administrative Expenses 24,461
 21,194
 47,307
 40,521
Selling, General and Administrative Expenses23,178  22,846  
Restructuring Charges —
 5,238
 —
 7,411
Operating Income 13,604
 5,596
 26,452
 10,851
Operating Income13,626  12,848  
Interest Expense (4,426) (3,763) (8,777) (6,661)Interest Expense(4,246) (4,351) 
Income Before Taxes 9,178
 1,833
 17,675
 4,190
Income Before Taxes9,380  8,497  
Income Tax Expense (Benefit) 1,363
 242
 2,388
 (1)
Income Tax ExpenseIncome Tax Expense1,450  1,025  
Net Income $7,815
 $1,591
 $15,287
 $4,191
Net Income$7,930  $7,472  
Earnings Per Share        Earnings Per Share
Basic earnings per share $0.68
 $0.14
 $1.33
 $0.37
Basic earnings per share$0.68  $0.65  
Diluted earnings per share $0.66
 $0.14
 $1.30
 $0.36
Diluted earnings per share$0.67  $0.64  
Weighted-Average Number of Common Shares Outstanding        Weighted-Average Number of Common Shares Outstanding
Basic 11,513
 11,394
 11,475
 11,370
Basic11,610  11,434  
Diluted 11,758
 11,624
 11,754
 11,609
Diluted11,855  11,755  
See accompanying notes to Condensed Consolidated Financial Statements.

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Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
  Three Months Ended Six Months Ended
  June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018
Net Income $7,815
 $1,591
 $15,287
 $4,191
Other Comprehensive Income (Loss), Net of Tax:        
Amortization of actuarial loss and prior service costs, net of tax of $51 and $44 for the three months ended June 29, 2019 and June 30, 2018, respectively, and $103 and $89 for the six months ended June 29, 2019 and June 30, 2018, respectively 170
 142
 340
 283
Change in unrealized gains and losses on cash flow hedges, net of tax of $5 and $28 for the three months ended June 29, 2019 and June 30, 2018, respectively, and $27 and $89 for the six months ended June 29, 2019 and June 30, 2018, respectively (7) 153
 (91) 465
Other Comprehensive Income (Loss), Net of Tax 163
 295
 249
 748
Comprehensive Income $7,978
 $1,886
 $15,536
 $4,939
Three Months Ended
March 28,
2020		March 30,
2019
Net Income$7,930  $7,472  
Other Comprehensive Income, Net of Tax:
Amortization of actuarial loss and prior service costs, net of tax of $59 and $51 for the three months ended March 28, 2020 and March 30, 2019, respectively190  170  
Change in unrealized gains and losses on cash flow hedges, net of tax of $26 and $54 for the three months ended March 28, 2020 and March 30, 2019, respectively86  (84) 
Other Comprehensive Income, Net of Tax276  86  
Comprehensive Income$8,206  $7,558  
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)


 Three Months Ended Six Months Ended Three Months Ended
 June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018		 March 28,
2020		March 30,
2019
Common Stock and Paid-in-Capital        Common Stock and Paid-in-Capital
Balance, Beginning of Period $83,485
 $80,635
 $83,826
 $80,336
Balance, Beginning of Period$88,515  $83,826  
Employee Stock Purchase PlanEmployee Stock Purchase Plan1,112  —  
Stock Options Exercised 742
 737
 839
 858
Stock Options Exercised39  97  
Stock Awards Vested 2,339
 410
 6,635
 2,717
Stock Awards Vested(1) (1) 
Stock Repurchased Related to Stock Options Exercised and Stock Awards Vested (4,414) (1,363) (10,612) (4,739)
Stock Repurchased Related to the Exercise of Stock OptionsStock Repurchased Related to the Exercise of Stock Options(2,008) (1,901) 
Stock-Based Compensation 1,807
 1,026
 3,271
 2,273
Stock-Based Compensation2,279  1,464  
Balance, End of Period 83,959
 81,445
 83,959
 81,445
Balance, End of Period89,936  83,485  
Retained Earnings        Retained Earnings
Balance, Beginning of Period 187,564
 173,921
 180,356
 161,364
Balance, Beginning of Period212,553  180,356  
Net Income 7,815
 1,591
 15,287
 4,191
Net Income7,930  7,472  
Adoption of ASC 842 Adjustment —
 —
 (264) —
Adoption of ASC 842 Adjustment—  (264) 
Adoption of ASC 606 Adjustment —
 —
 —
 8,665
Adoption of ASU 2018-02 Adjustment —
 —
 —
 1,292
Balance, End of Period 195,379
 175,512
 195,379
 175,512
Balance, End of Period220,483  187,564  
Accumulated Other Comprehensive Loss        Accumulated Other Comprehensive Loss
Balance, Beginning of Period (7,271) (6,982) (7,357) (6,117)Balance, Beginning of Period(8,268) (7,357) 
Other Comprehensive Income, Net of Tax 163
 295
 249
 748
Other Comprehensive Income, Net of Tax276  86  
Adoption of ASU 2018-02 Adjustment —
 —
 —
 (1,318)
Balance, End of Period (7,108) (6,687) (7,108) (6,687)Balance, End of Period(7,992) (7,271) 
Total Stockholders’ Equity $272,230
 $250,270
 $272,230
 $250,270
Total Stockholders’ Equity$302,427  $263,778  
See accompanying notes to Condensed Consolidated Financial Statements.



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Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
 Six Months EndedThree Months Ended
 June 29,
2019		 June 30,
2018		March 28,
2020		March 30,
2019
Cash Flows from Operating Activities    Cash Flows from Operating Activities
Net Income $15,287
 $4,191
Net Income$7,930  $7,472  
Adjustments to Reconcile Net Income to    Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:    Net Cash Provided by Operating Activities:
Depreciation and amortization 13,759
 12,315
Depreciation and amortization7,336  6,755  
Non-cash operating lease cost 1,373
 —
Non-cash operating lease cost811  633  
Property and equipment impairment due to restructuring —
 4,375
Stock-based compensation expense 3,271
 2,115
Stock-based compensation expense2,279  1,464  
Deferred income taxes 181
 3,966
Deferred income taxes1,495  217  
Recovery of doubtful accounts (391) (30)
Allowance for credit lossesAllowance for credit losses97  104  
Inventory reservesInventory reserves398  154  
Other (297) 9,050
Other194  (19) 
Changes in Assets and Liabilities:    Changes in Assets and Liabilities:
Accounts receivable (1,145) 11,172
Accounts receivable(14,591) 4,581  
Contract assets (13,862) (81,663)Contract assets(10,543) (6,641) 
Inventories (8,202) 29,417
Inventories(7,667) (3,023) 
Production cost of contracts (1,161) 160
Production cost of contracts973  105  
Other assets 473
 1,475
Other assets871  (468) 
Accounts payable 7,158
 20,117
Accounts payable(4,711) (1,789) 
Contract liabilities (3,962) 15,164
Contract liabilities13,361  (2,115) 
Operating lease liabilitiesOperating lease liabilities(700) (627) 
Accrued and other liabilities (4,432) (5,597)Accrued and other liabilities(9,567) (8,492) 
Net Cash Provided by Operating Activities 8,050
 26,227
Net Cash Used in Operating ActivitiesNet Cash Used in Operating Activities(12,034) (1,689) 
Cash Flows from Investing Activities    Cash Flows from Investing Activities
Purchases of property and equipment (7,566) (7,513)Purchases of property and equipment(3,867) (3,225) 
Proceeds from sale of assets —
 67
Payments for acquisition of Certified Thermoplastics Co., LLC, net of cash acquired —
 (30,993)
Post closing cash received from the acquisition of Nobles Worldwide, Inc., netPost closing cash received from the acquisition of Nobles Worldwide, Inc., net190  —  
Net Cash Used in Investing Activities (7,566) (38,439)Net Cash Used in Investing Activities(3,677) (3,225) 
Cash Flows from Financing Activities    Cash Flows from Financing Activities
Borrowings from senior secured revolving credit facility 106,800
 189,600
Borrowings from senior secured revolving credit facility65,900  61,900  
Repayments of senior secured revolving credit facility (104,300) (175,000)Repayments of senior secured revolving credit facility(15,900) (58,700) 
Repayments of term loan (6,000) —
Repayments of other debt and finance lease obligations (65) —
Repayments of term loansRepayments of term loans(7,362) (3,000) 
Repayments of other debtRepayments of other debt(54) (17) 
Net cash paid upon issuance of common stock under stock plans (3,138) (1,006)Net cash paid upon issuance of common stock under stock plans(858) (1,805) 
Net Cash (Used in) Provided by Financing Activities (6,703) 13,594
Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash (6,219) 1,382
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 10,263
 2,150
Cash, Cash Equivalents, and Restricted Cash at End of Period $4,044
 $3,532
Net Cash Provided by (Used in) Financing ActivitiesNet Cash Provided by (Used in) Financing Activities41,726  (1,622) 
Net Increase (Decrease) in Cash and Cash EquivalentsNet Increase (Decrease) in Cash and Cash Equivalents26,015  (6,536) 
Cash and Cash Equivalents at Beginning of PeriodCash and Cash Equivalents at Beginning of Period39,584  10,263  
Cash and Cash Equivalents at End of PeriodCash and Cash Equivalents at End of Period$65,599  $3,727  
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 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”). Our operations are organized into two2 primary businesses: Electronic Systems segment and Structural Systems segment, 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 A&D and 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 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. All 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, 20182019 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, 2018. We followed the same accounting policies for interim reporting except for the change in our lease accounting practices described below.2019. The financial information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state our condensed consolidated financial position, statements of income, comprehensive income 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 six months ended June 29, 2019March 28, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.2020.
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.
Changes in Accounting Policies
We adopted Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”), on January 1, 2019. As a result, we changed our accounting policy for lease accounting as discussed in Note 2.
We applied ASC 842 using the additional transition method and therefore, recognized the cumulative effect of initially applying ASC 842 as an adjustment to the opening condensed consolidated balance sheet at January 1, 2019. Therefore, the comparative information has not been adjusted and continues to be reported under the previous lease accounting standard, ASC 840, “Leases” (“ASC 840”). The details of the significant changes and quantitative impact of the changes are described in Note 2.
Use of Estimates
Certain amounts and disclosures included in the unaudited condensed consolidated financial statements require management to make estimates and judgments that affect the amounts of assets, liabilities (including forward loss reserves), 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.estimates.Certain reclassifications have been made to prior period amounts to conform to the current year’s presentation.

Impact of the COVID-19 Pandemic
The commercial aerospace industry continues to be adversely affected by the impact from the continued grounding of the Boeing 737 MAX program combined with the outbreak of the COVID-19 pandemic which resulted in the announcements towards the end of our first quarter by two of our largest customers, The Boeing Company (“Boeing”) and Spirit Aerosystems Holdings, Inc. (“Spirit”), to temporarily shut down production at some of their facilities. While Boeing has resumed production at two of their manufacturing facilities subsequent to our quarter ended March 28, 2020, we expect there will be an impact to our condensed consolidated financial results for the second quarter of 2020. Given the uncertainties surrounding the duration and impact of these matters, we cannot reasonably estimate with certainty the related financial impact to our full year 2020 financial results; however, there could be a material adverse impact on our business, results of operations and financial condition for some portion, if not the remainder, of 2020.
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Supplemental Cash Flow Information
 (In thousands)(In thousands)
 Six Months EndedThree Months Ended
 June 29,
2019		 June 30,
2018		March 28,
2020		March 30,
2019
Interest paid $7,985
 $5,202
Interest paid$3,523  $3,984  
Taxes paid $3,389
 $91
Taxes paid$33  $5  
Non-cash activities:    Non-cash activities:
Purchases of property and equipment not paid $3,671
 $1,589
 Purchases of property and equipment not paid$464  $2,124  
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 is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding, plus any potentially dilutive shares that could be issued if exercised or converted into common stock in each period.
The net income and weighted-average common shares outstanding used to compute earnings per share were as follows:
 (In thousands, except per share data) (In thousands, except per share data)(In thousands, except per share data)
 Three Months Ended Six Months EndedThree Months Ended
 June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018		 March 28,
2020		March 30,
2019
Net income $7,815
 $1,591
 $15,287
 $4,191
Net income$7,930  $7,472  
Weighted-average number of common shares outstanding        Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding 11,513
 11,394
 11,475
 11,370
Basic weighted-average common shares outstanding11,610  11,434  
Dilutive potential common shares 245
 230
 279
 239
Dilutive potential common shares245  321  
Diluted weighted-average common shares outstanding 11,758
 11,624
 11,754
 11,609
Diluted weighted-average common shares outstanding11,855  11,755  
Earnings per share        Earnings per share
Basic $0.68
 $0.14
 $1.33
 $0.37
Basic$0.68  $0.65  
Diluted $0.66
 $0.14
 $1.30
 $0.36
Diluted$0.67  $0.64  
Potentially dilutive stock options and stock awards to purchase common stock, as shown below, were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. However, these shares may be potentially dilutive common shares in the future.
  (In thousands) (In thousands)
  Three Months Ended Six Months Ended
  June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018
Stock options and stock units 66
 224
 55
 186
(In thousands)
Three Months Ended
 March 28,
2020		March 30,
2019
Stock options and stock units253  178  
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.
We have money market funds and they are included as cash and cash equivalents. We also have interest rate cap hedge agreements andfor which the fair value of the interest rate cap hedge agreements werewas determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2 measurement. The interest rate cap hedge premium is 0 as of June 29, 2019 is less than $0.1 million and is included as other current assets.March 28, 2020.
There were no transfers between Level 1, Level 2, or Level 3 financial instruments in the three months ended June 29, 2019.March 28, 2020.

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Cash and Cash Equivalents
Cash equivalents consist of highly liquid instruments purchased with original maturities of three months or less. These assets are valued at cost, which approximates fair value, which we classify as Level 1. See Fair Value above.
Restricted Cash
Restricted cash consists of cash withheld from our employees’ salary who have enrolled in our employee stock purchase plan (“ESPP”). An offering period is six months and each employee determines the percentage of their salary that will be withheld during that six month offering period. At the end of the six month offering period, the amounts withheld will be used to purchase our Company’s stock at a discounted price. Employees have the option to withdraw from the ESPP during the six month offering period and the cash withheld to date will be returned to the employee. Thus, the entire balance of restricted cash is short term.
Derivative Instruments
We recognize derivative instruments on our condensed consolidated balance sheets at their fair value. On the date that we enter into a derivative contract, we designate the derivative instrument as a fair value hedge, a cash flow hedge, a hedge of a net investment in a foreign operation, or a derivative instrument that will not be accounted for using hedge accounting methods. As of June 29, 2019,March 28, 2020, all of our derivative instruments were designated as cash flow hedges.
We record changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a cash flow hedge in other comprehensive income (loss), net of tax until our earnings are affected by the variability of cash flows of the underlying hedge. We record any hedge ineffectiveness and amounts excluded from effectiveness testing in current period earnings within interest expense. We report changes in the fair values of derivative instruments that are not designated or do not qualify for hedge accounting in current period earnings. We classify cash flows from derivative instruments in the condensed consolidated statements of cash flows in the same category as the item being hedged or on a basis consistent with the nature of the instrument. For the three and six months ended June 29, 2019,March 28, 2020, the impact of cash flow hedges in the respective periods were insignificant.
When we determine that a derivative instrument is not highly effective as a hedge, we discontinue hedge accounting prospectively. In all situations in which we discontinue hedge accounting and the derivative instrument remains outstanding, we will carry the derivative instrument at its fair value on our condensed consolidated balance sheets and recognize subsequent changes in its fair value in our current period earnings.
Inventories
Inventories are stated at the lower of cost or net realizable value with cost being determined using a moving average cost basis for raw materials and actual cost for work-in-process and finished goods. The majority of our inventory is charged to cost of sales as raw materials are placed into production and the related revenue is recognized. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) incurred. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The majority of our revenuerevenues are recognized over time, however, for revenue contracts where revenue is recognized using the point in time method, inventory is not reduced until it is shipped or transfer of control to the customer has occurred. Our ending inventory consists of raw materials, work-in-process, and finished goods.
Production Cost of Contracts
Production cost of contracts includes non-recurring production costs, such as design and engineering costs, and tooling and other special-purpose machinery necessary to build parts as specified in a contract. Production costs of contracts are recorded to cost of 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.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, as reflected on the condensed consolidated balance sheets under the equity section, was comprised of cumulative pension and retirement liability adjustments, net of tax, and change in net unrealized gains and losses on cash flow hedges, net of tax.

Provision for Estimated Losses on Contracts
We record provisions for the total anticipated losses on contracts, considering total estimated costs to complete the contract compared to total anticipated revenues, in the period in which such losses are identified. The provisions for estimated losses on contracts require us to make certain estimates and assumptions, including those with respect to the future revenue under a contract and the future cost to complete the contract. Our estimate of the future cost to complete a contract may include assumptions as to changes in manufacturing efficiency, 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 adjust the provisions for estimated losses on contracts. The provision for estimated losses on contracts is included as part of contract liabilities on the condensed consolidated balance sheets.
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Revenue Recognition
Our customers typically engage us to manufacture products based on designs and specifications provided by the end-use customer. This requires the building of tooling and manufacturing first article inspection products (prototypes) before volume manufacturing. Contracts with our customers generally include a termination for convenience clause.
We have a significant number of contracts that are started and completed within the same year, as well as contracts derived from long-term agreements and programs that can span several years. We recognize revenue under ASC 606,when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which utilizeswe expect to be entitled to in exchange for those goods or services. We apply a five-step model.approach as defined in the new standard in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the corresponding performance obligation is satisfied.
The definitionOrders for our products generally correspond to the production schedules of a contract for usour customers and are supported with purchase orders with firm fixed price and firm delivery dates. Our customers have continuous control of the work in progress and finished goods throughout the manufacturing process, as these are built to customer specifications with no alternative use, and there is 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 withinpayment for work performed to date. As a customer purchase order are analyzed to determine the number of performance obligations. In addition, at times, in order to achieve economies of scale andresult, we recognize revenue over time based on the extent of progress towards completion of the performance obligation. Revenue recognized is based on the cost-to-cost method as it best depicts the transfer of control to our customer’s forecasted demand,customer which takes place as we may buildincur costs. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.
From time to time, we recognize revenue at a point in advancetime upon transfer of receiving a purchase order fromcontrol of the products to the customer. Point in time recognition was determined as the customer does not simultaneously receive or consume the benefits provided by our performance and the asset being manufactured has alternative uses to us.
Each distinct promise to transfer products is considered an identified performance obligation for which revenue is recognized upon transfer of control of the products to our customer. 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 is not separately identifiable from other promises 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.
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 in the event the customer invokes the termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. The majority of our revenues are recognized over time. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs.
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.therefore, not distinct.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates on a regular basis. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified.
The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue.
Net cumulative catch up adjustments on profit recorded were not material during the three and six months ended June 29,for both March 28, 2020 and March 30, 2019.

Contract Assets and Contract Liabilities
Payments under long-term contracts may be received before or after revenue is recognized. When revenue is recognized before we bill our customer, a contract asset is created for the work performed but not yet billed. Similarly, when we receive payment before we ship our products to our customer, a contract liability is created for the advance or progress payment.
Contract Assets 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 to our customers and meet the shipping terms within the revenue contract. Contract liabilities consist of advance or progress payments received from our customers prior to the time transfer of control occurs plus the estimated losses on contracts.
Contract assets and contract liabilities from revenue contracts with customers are as follows:
 (In thousands)(In thousands)
 June 29,
2019		 December 31,
2018		March 28,
2020		December 31,
2019
Contract assets $100,527
 $86,665
Contract assets$117,213  $106,670  
Contract liabilities $13,183
 $17,145
Contract liabilities$27,878  $14,517  
Remaining performance obligations are defined as customer placed purchase orders (“POs”) with firm fixed price and firm delivery dates. Our remaining performance obligations as of June 29, 2019March 28, 2020 totaled $666.5$726.8 million. We anticipate recognizing
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an estimated 70% of our remaining performance obligations as revenue during the next 12 months with the remaining performance obligations being recognized in the remainder of 20202021 and beyond.
Revenue by Category
In addition to the revenue categories disclosed above, the following table reflects our revenue disaggregated by major end-use market:
 (In thousands) (In thousands)(In thousands)
 Three Months Ended Six Months EndedThree Months Ended
 June 29
2019		 June 30,
2018		 June 29
2019		 June 30,
2018		March 28
2020		March 30,
2019
Consolidated Ducommun        Consolidated Ducommun
Military and space $77,189
 $70,326
 $150,886
 $136,681
Military and space$100,820  $76,661  
Commercial aerospace 91,988
 71,844
 180,456
 142,676
Commercial aerospace62,525  85,496  
Industrial 11,318
 12,657
 21,719
 25,925
Industrial10,130  10,409  
Total $180,495
 $154,827
 $353,061
 $305,282
Total$173,475  $172,566  
        
Electronic Systems        Electronic Systems
Military and space $60,272
 $54,368
 $117,704
 $106,901
Military and space$73,238  $60,387  
Commercial aerospace 17,670
 17,477
 34,034
 34,084
Commercial aerospace14,752  13,401  
Industrial 11,318
 12,657
 21,719
 25,925
Industrial10,130  10,409  
Total $89,260
 $84,502
 $173,457
 $166,910
Total$98,120  $84,197  
        
Structural Systems        Structural Systems
Military and space $16,917
 $15,958
 $33,182
 $29,780
Military and space$27,582  $16,274  
Commercial aerospace 74,318
 54,367
 146,422
 108,592
Commercial aerospace47,773  72,095  
Total $91,235
 $70,325
 $179,604
 $138,372
Total$75,355  $88,369  
Recent Accounting Pronouncements
New Accounting Guidance Adopted in 20192020
In August 2017,March 2020, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted2020-03, “Codification Improvements to Accounting for Hedging”Financial Instruments” (“ASU 2017-12”2020-03”), which intendsprovides clarity to, improve and simplify accounting rules around hedge accounting. ASU 2017-12 refines and expands hedge accounting for both financial (i.e., interest rate) and commodity risks. In addition, it creates more transparency around how economic results are presented, both on the faceor address various specific issues, including modifications of the financial statements and in the footnotes.debt instruments. The new guidance iswas effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, which is our interim period beginning January 1, 2019. Early adoption is permitted, including adoption in any

interim period after theupon issuance of ASU 2017-12. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
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.final accounting standards update. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In February 2016,2020, the FASB issued ASU 2020-02, “Financial Statements - Credit losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Relating to Accounting Standards Update No. 2016-02, “LeasesLeases (Topic 842)” (“ASU 2016-02”2020-02”), which requires lessees to present right-of-use assets and lease liabilitiesprovides guidance on the balance sheet. Lessees are requiredmeasurement and requirements related 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 or the additional transition method. Under the additional transition method, the cumulative effect of applying thecredit losses. The new guidance is recognized as an adjustment to certain captionswas effective upon issuance of this final accounting standards update. The adoption of this standard did not have a material impact on the balance sheet, including the opening balance of retained earnings in the first quarter of 2019, and the prior years’our condensed consolidated financial information will be presented under the prior accounting standard, ASC 840, “Leases,” (“ASC 840”). Additional guidance was issued subsequently as follows:
July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”); and
July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”)
All the new guidance is effective for us beginning January 1, 2019. The cumulative impact to our retained earnings at January 1, 2019 was a net decrease of $0.3 million. See Note 2.
Recently Issued Accounting Standardsstatements.
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Statements” (“ASU 2019-04”), which clarify, correct, and improve various aspects of the guidance in ASU 2016-01, ASU 2016-13, and ASU 2017-12. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which will bewas our interim period beginning January 1, 2020. We are evaluating the impactThe adoption of this standard.standard did not have a material impact on our condensed consolidated financial statements.
In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements” (“ASU 2019-01”), which addresses various lessor implementation issues and clarifies that lessees and lessors are exempt from certain interim disclosure requirements associated with the adoption of ASC 842. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which will bewas our interim period beginning January 1, 2020. EarlyThe adoption is permitted. We are evaluating the impact of this standard.
In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), which will remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, which will bestandard did not have a material impact on our interim period beginning January 1, 2021. Early adoption is permitted. We are evaluating the impact of this standard.condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to
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the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which should improve the effectiveness of fair value measurement disclosures by removing certain requirements, modifying certain requirements, and adding certain new requirements. The new guidance iswas effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which will bewas our interim period beginning January 1, 2020. Early adoption iswas permitted. We are evaluating the impactThe adoption of this standard.standard did not have a material impact on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical

experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ASU 2016-13 requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. The new guidance iswas effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which will bewas our interim period beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional guidance for a limited time for contracts that reference London Interbank Offered Rate (“LIBOR”), to ease the potential burden in accounting for, or recognizing the effects, of reference rate reform on financial reporting as a result of the cessation of LIBOR. The new guidance is effective at any time after March 12, 2020 but no later than December 31, 2022. We are evaluating the impact of this standard.

Note 2. AdoptionIn December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which removes certain exceptions and provides guidance on various areas of Accounting Standards Codification 842
We adopted ASC 842 with an initial application as of January 1, 2019. We utilized the additional transition method, under which the cumulative effect of initially applying thetax accounting. The new guidance is recognized as an adjustment to certain captions oneffective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, which will be our interim period beginning January 1, 2021. Early adoption is permitted. We are evaluating the condensed consolidated balance sheet, includingimpact of this standard.
In August 2018, the opening balance of retained earnings in the six months ended June 29, 2019. As part of the adoption of ASC 842, we have elected to utilize the following practical expedients that are permitted under ASC 842:
Need not reassess whether any expired or existing contracts are or contain leases;
Need not reassess the lease classification for any expired or existing leases;
Need not reassess initial direct costs for any existing leases;
As an accounting policy election by class of underlying asset, choose not to separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component; and
As an accounting policy election not to apply the recognition requirements in ASC 842 to short term leases (a lease at commencement date has a lease term of 12 months or less and does not contain a purchase option that the lessee is reasonably certain to exercise).
The net impactFASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the various captions onDisclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), which will remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, which will be our interim period beginning January 1, 2019 opening unaudited condensed consolidated balance sheets was as follows:2021. Early adoption is permitted. We are evaluating the impact of this standard.


  (In thousands)
  December 31, 2018   January 1, 2019
Unaudited Condensed Consolidated Balance Sheets Balances Without Adoption of ASC 842 Effect of Adoption Balances With Adoption of ASC 842
Assets      
Other current assets $6,531
 $(208) $6,323
Operating lease right-of-use assets $—
 $18,985
 $18,985
Non-current deferred income taxes $308
 $5
 $313
Other assets $5,155
 $254
 $5,409
Liabilities   

  
Operating lease liabilities $—
 $2,544
 $2,544
Accrued and other liabilities $37,786
 $(329) $37,457
Non-current operating lease liabilities $—
 $18,117
 $18,117
Non-current deferred income taxes $18,070
 $(76) $17,994
Other long-term liabilities $14,441
 $(956) $13,485
Shareholders’ Equity   

  
Retained earnings $180,356
 $264
 $180,620
The net impact to retained earnings as a result of adopting ASC 842 on the January 1, 2019 opening balance sheet was shown as a change in “other” on the condensed consolidated statements of cash flows.

We have operating and finance leases for manufacturing facilities, corporate offices, and various equipment. Our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year.
The components of lease expense for the three and six months ended June 29, 2019 were as follows:
 (In thousands)
 Three Months Ended Six Months Ended
 June 29, 2019 June 29, 2019
Operating leases expense$956
 $1,919
    
Finance leases expense:   
Amortization of right-of-use assets$55
 $100
Interest on lease liabilities11
 20
Total finance lease expense$66
 $120
Short term lease expense for the three and six months ended June 29, 2019 were not material.
Supplemental cash flow information related to leases for the six months ended June 29, 2019 was as follows:
 (In thousands)
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash flows from operating leases$1,980
Operating cash flows from finance leases$20
Financing cash flows from finance leases$68
  
Right-of-use assets obtained in exchange for lease obligations: 
Operating leases$1,437
Finance leases$457
The weighted average remaining lease terms as of June 29, 2019 were as follows:
(In years)
Operating leases8
Finance leases5
When a lease is identified, we recognize a right-of-use asset and a corresponding lease liability based on the present value of the lease payments over the lease term discounted using our incremental borrowing rate, unless an implicit rate is readily determinable. As the discount rate in our leases is usually not readily available, we use our own incremental borrowing rate as the discount rate. Our incremental borrowing rate is based on the interest rate on our term loan, which is a secured rate.
The weighted average discount rate as of June 29, 2019 was as follows:
Operating leases6.5%
Finance leases6.5%

Maturity of operating and finance lease liabilities are as follows:
  (In thousands)
  Operating Leases Finance Leases
2019 (Excluding the six months ended June 29, 2019) $2,051
 $118
2020 4,096
 229
2021 3,815
 168
2022 3,479
 53
2023 3,101
 37
Thereafter 7,303
 56
Total lease payments 23,845
 661
Less imputed interest 5,137
 91
Total $18,708
 $570
Operating lease payments include $11.4 million related to options to extend lease terms that are reasonably certain of being exercised. As of June 29, 2019, there are no legally binding minimum lease payments for leases signed but not yet commenced.
Finance lease payments related to options to extend lease terms that are reasonably certain of being exercised are not significant. As of June 29, 2019, it excludes $1.5 million of legally binding minimum lease payments for leases signed but not yet commenced. These finance leases will commence during 2019 with lease terms of 5 years to 10 years.
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous accounting maturities of lease liabilities were as follows as of December 31, 2018:
 (In thousands)
2019$3,680
20203,405
20212,789
20221,404
2023980
Thereafter580
Total$12,838

Note 3.2. Business CombinationCombinations
In April 2018,October 2019, we acquired 100.0% of the outstanding equity interests of Certified Thermoplastics Co.Nobles Parent Inc., LLCthe parent company of Nobles Worldwide, Inc. (“CTP”Nobles”), a privately-held global leader in precision profile extrusionsthe design and extruded assembliesmanufacturing of engineered thermoplastic resins, compounds, and alloyshigh performance ammunition handling systems for a wide range of commercial aerospace, defense, medical,military platforms including fixed-wing aircraft, rotary-wing aircraft, ground vehicles, and industrial applications. CTPshipboard systems. Nobles is located in Santa Clarita, California.St. Croix Falls, Wisconsin. The acquisition of CTP was part ofNobles advances our strategy to diversify towardsand offer more customized, higher value,value-driven engineered products with greater aftermarket potential.opportunities.
The original purchase price for CTPNobles was $30.7$77.0 million, net of cash acquired, all payable in cash. We paid ana gross total aggregate of $30.8$77.3 million in cash relatedupon the closing of the transaction. Subsequent to this transaction.the closing of the transaction, during the three months ended March 28, 2020, we received $0.2 million back from the seller which lowered the purchase price to $76.8 million, net of cash acquired. We preliminarily allocated the gross purchase price of $30.8$77.1 million to the assets acquired and liabilities assumed at estimated fair values. The estimated fair value of the assets acquired included $8.1 million of intangible assets, $2.2 million of inventories, $1.5 million of accounts receivable, $0.6 million of property and equipment, $0.1 million of cash, less than $0.1 million of other current assets, and $0.4 million of liabilities assumed. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill. The allocation is subject to revision as the estimates of fair value of the assets acquired and liabilities assumed are based on preliminary information and are subject to refinement. We are in the process of $18.6 million was recorded as goodwill. reviewing third party valuation of the assets and liabilities. In addition, the purchase price is subject to finalization of the working capital amount.
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The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Estimated
Fair Value
Cash$658 
Accounts receivable1,880 
Inventories2,866 
Other current assets288 
Property and equipment2,319 
Intangible assets37,200 
Goodwill34,833 
Other non-current assets675 
Total assets acquired80,719 
Current liabilities(2,187)
Net non-current deferred tax liability(742)
Other non-current liabilities(675)
Total liabilities assumed(3,604)
Total purchase price allocation$77,115 

Useful Life
(In years)		Estimated
Fair Value
(In thousands)
Intangible assets:
Customer relationships15-16$34,200  
Trade names and trademarks153,000  
$37,200  
The intangible assets acquired of $37.2 million were comprisedpreliminarily determined based on the estimated fair values using valuation techniques consistent with the income approach to measure fair value. 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 of $6.9 millionthe identifiable intangible assets were estimated using several valuation methodologies, which represented Level 3 fair value measurements. The value for customer relationships and $1.2 millionwas estimated based on a multi-period excess earnings approach, while the value for trade names and trademarks allwas assessed using the relief from royalty methodology.
The goodwill of which were assigned$34.8 million arising from the acquisition is 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 estimated useful life of 10 years.acquired assembled workforce. All the goodwill was assigned to the Structural Systems segment. Since the CTPThe Nobles acquisition, for tax purposes, wasis also deemed an asseta stock acquisition and thus, the goodwill recognized is not deductible for income tax purposes.purposes except for $6.7 million of pre-acquisition goodwill that is tax deductible.
CTP’sAcquisition related transaction costs were not included as components of consideration transferred but have been expensed as incurred. Total acquisition-related transaction costs incurred by us were $0.8 million during 2019 and charged to selling, general and administrative expenses.
Nobles’ 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 Nobles acquisition have not been presented as the effect of the Nobles acquisition was not material to our financial results.



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Note 4. Restructuring Activities
In November 2017, management approved and commenced a restructuring plan that was intended to increase operating efficiencies (“2017 Restructuring Plan”). We completed the 2017 Restructuring Plan as of December 31, 2018 and have recorded cumulative expenses of $23.6 million, with $14.8 million recorded during 2018, and $8.8 million recorded during 2017.
In the Electronic Systems segment, we recorded cumulative expenses of $3.8 million for severance and benefits which were classified as restructuring charges. We recorded cumulative $0.9 million for loss on early exit from lease termination which were classified as restructuring charges. We also recorded cumulative expenses of $0.9 million of other expenses which were classified as restructuring charges. In addition, we have recorded cumulative expenses of $0.2 million for professional service fees which were classified as restructuring charges. Further, we also recorded cumulative non-cash expenses of $0.1 million for inventory write down which were classified as cost of sales. Finally, we recorded cumulative non-cash expenses of $0.1 million for property and equipment impairment which were classified as restructuring charges.
In the Structural Systems segment, we recorded cumulative expenses of $3.0 million for severance and benefits which were classified as restructuring charges. We have recorded cumulative non-cash expenses of $9.8 million for property and equipment impairment which were classified as restructuring charges. We also recorded cumulative non-cash expenses of $0.5 million for inventory write down which were classified as cost of sales. Further, we recorded cumulative other expenses of $0.4 million which were classified as restructuring charges.
In Corporate, we recorded cumulative expenses of $1.4 million for severance and benefits and cumulative non-cash expenses of $1.4 million for stock-based compensation awards which were modified, all of which were classified as restructuring charges. We also recorded cumulative expenses of $1.0 million for professional service fees which were classified as restructuring charges.
As of June 29, 2019, we have accrued $0.1 million, $0.1 million, and $0.1 million for severance and benefits and professional service fees in the Electronic Systems segment, Structural Systems segment, and Corporate, respectively.
Our restructuring activities in the six months ended June 29, 2019 were as follows (in thousands):
  December 31, 2018 Six Months Ended June 29, 2019 June 29, 2019
  Balance Cash Payments Adoption of ASU 842 Adjustment Change in Estimates Balance
Severance and benefits $2,631
 $(2,319) $—
 $—
 $312
Lease termination 861
 (126) (735) —
 —
Professional service fees 43
 (43) —
 —
 —
Other 416
 (416) —
 —
 —
Total charged to restructuring charges 3,951
 (2,904) (735) —
 312
Inventory reserve 50
 —
 —
 (50) —
Total charged to cost of sales 50
 —
 —
 (50) —
Ending balance $4,001
 $(2,904) $(735) $(50) $312

Note 5.3. Inventories
Inventories consisted of the following:
(In thousands)
March 28,
2020		December 31,
2019
Raw materials and supplies$106,347  $98,151  
Work in process10,026  10,887  
Finished goods3,378  3,444  
Total$119,751  $112,482  
  (In thousands)
  June 29,
2019		 December 31,
2018
Raw materials and supplies $97,735
 $89,767
Work in process 8,927
 9,199
Finished goods 2,665
 2,159
Total $109,327
 $101,125


Note 6.4. Leases
We elected to utilize the following practical expedients that are permitted under ASC 842:
•As an accounting policy election by class of underlying asset, chose not to separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component; and
•As an accounting policy election chose not to apply the recognition requirements in ASC 842 to short term leases (a lease at commencement date has a lease term of 12 months or less and does not contain a purchase option that the lessee is reasonably certain to exercise).
We have operating and finance leases for manufacturing facilities, corporate offices, and various equipment. Our leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.
The components of lease expense were as follows:
(In thousands)
Three Months Ended
March 28, 2020March 30, 2019
Operating leases expense$1,008  963  
Finance leases expense:
Amortization of right-of-use assets$60  $45  
Interest on lease liabilities10  9  
Total finance lease expense$70  $54  
Short term lease expense for the three months ended March 28, 2020 was not material.
Supplemental cash flow information related to leases were as follows:
(In thousands)
Three Months Ended
March 28, 2020March 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,029  $923  
Operating cash flows from finance leases$10  $9  
Financing cash flows from finance leases$54  $17  
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$165  $—  
Finance leases$372  $457  
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The weighted average remaining lease terms were as follows:
(In years)
Three Months Ended
March 28, 2020March 30, 2019
Operating leases57
Finance leases74
When a lease is identified, we recognize a right-of-use asset and a corresponding lease liability based on the present value of the lease payments over the lease term discounted using our incremental borrowing rate, unless an implicit rate is readily determinable. As the discount rate in our leases is usually not readily available, we use our own incremental borrowing rate as the discount rate. Our incremental borrowing rate is based on the interest rate on our term loan, which is a secured rate. The interest rate on our term loan is based on London Interbank Offered Rate (“LIBOR”) plus an applicable margin.
The weighted average discount rates were as follows:
Three Months Ended
March 28, 2020March 30, 2019
Operating leases6.5 %6.5 %
Finance leases5.3 %6.5 %
Maturity of operating and finance lease liabilities are as follows:
(In thousands)
Operating LeasesFinance Leases
2020 (Excluding the three months ended March 28, 2020)$3,173  $223  
20214,177  284  
20223,786  147  
20233,454  108  
20243,032  82  
Thereafter7,071  207  
Total lease payments24,693  1,051  
Less imputed interest4,707  81  
Total$19,986  $970  
Operating lease payments include $11.6 million related to options to extend lease terms that are reasonably certain of being exercised. As of March 28, 2020, there are 0 legally binding minimum lease payments for leases signed but not yet commenced.
Finance lease payments related to options to extend lease terms that are reasonably certain of being exercised are not significant. As of March 28, 2020, it excludes $1.0 million of legally binding minimum lease payments for leases signed but not yet commenced. These finance leases will commence during 2020 with a lease term of 10 years.

Note 5. Goodwill
We perform our annual goodwill impairment test as of the first day of the fourth quarter. If certain factors occur, including significant under performance 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, we may perform an impairment test prior to the fourth quarter. In addition,
As a result of the outbreak of the COVID-19 pandemic during the three months ended March 28, 2020, which impacts our business in the United States and the rest of the world, we early adopted ASU 2017-04 on January 1, 2019 which simplifiedassessed our goodwill for potential impairment testing by eliminating Step Twoindicators. The most recent goodwill impairment test for our Electronic Systems reporting unit was the annual goodwill impairment test as of the first day of the fourth quarter of 2019 where the fair value of our Electronic Systems reporting unit exceeded its carrying value by 44% and thus, goodwill was not deemed impaired at that time. For the first quarter of 2020, we performed a qualitative assessment including consideration of 1) margin of passing most recent Step 1 analysis, 2) earnings before interest, taxes, depreciation, and amortization, 3) long-term growth rate, 4) analyzing material adverse factors/changes between valuation
16

dates, 5) general macroeconomic factors, and 6) industry and market conditions. We determined it was not more likely than not that the fair value of a reporting unit is less than its carrying amount and thus, goodwill was not deemed impaired.
The most recent Step 1 goodwill impairment test. See Note 1.test for our Structural Systems reporting unit was April 2019, where the fair value of our Structural Systems reporting unit exceeded its carrying value by 85%. As such, for our annual goodwill impairment test as of the first day of the fourth quarter of 2019, we used a qualitative assessment and determined it was not more likely than not that the fair value of a reporting unit is less than its carrying amount and thus, goodwill was not deemed impaired at that time. For the first quarter of 2020, we performed a qualitative assessment including consideration of 1) margin of passing most recent step 1 analysis, 2) earnings before interest, taxes, depreciation, and amortization, 3) long-term growth rate, 4) analyzing material adverse factors/changes between valuation dates, 5) general macroeconomic factors, and 6) industry and market conditions. We determined it was not more likely than not that the fair value of a reporting unit is less than its carrying amount and thus, goodwill was not deemed impaired.

We acquired Certified Thermoplastics Co., LLCNobles Worldwide, Inc. (“CTP”Nobles”) in April 2018October 2019 and recorded goodwill of $18.6$34.8 million in our Structural Systems segment. Since a goodwill impairment analysis is required to be performed within one year of the acquisition date or sooner upon a triggering event, we performed a Step One goodwill impairment analysis as of April 2019 for our Structural Systems segment. The fair value of our Structural Systems segment exceeded its carrying value by 85% and thus, was not deemed impaired.See Note 2.
The carrying amounts of our goodwill were as follows:
Electronic
Systems		Structural
Systems		Consolidated
Ducommun
Gross goodwill$199,157  $53,482  $252,639  
Accumulated goodwill impairment(81,722) —  (81,722) 
Balance at December 31, 2019117,435  53,482  170,917  
Purchase price allocation refinements—  (27) (27) 
Balance at March 28, 2020$117,435  $53,455  $170,890  

   
  
Electronic
Systems
 
Structural
Systems
 
Consolidated
Ducommun
Gross goodwill $199,157
 $18,622
 $217,779
Accumulated goodwill impairment (81,722) —
 (81,722)
Balance at December 31, 2018 $117,435
 $18,622
 $136,057
Balance at June 29, 2019 $117,435
 $18,622
 $136,057

Note 7.6. Accrued and Other Liabilities
The components of accrued and other liabilities were as follows:
(In thousands)
March 28,
2020		December 31,
2019
Accrued compensation$20,201  $31,342  
Accrued income tax and sales tax585  163  
Other7,262  6,115  
Total$28,048  $37,620  
  (In thousands)
  June 29,
2019		 December 31,
2018
Accrued compensation $26,160
 $29,616
Accrued income tax and sales tax 33
 82
Other 7,156
 8,088
Total $33,349
 $37,786


Note 8.7. Long-Term Debt
Long-term debt and the current period interest rates were as follows:
(In thousands)
 (In thousands)March 28,
2020		December 31,
2019
Term loansTerm loans$302,638  $310,000  
Revolving credit facilityRevolving credit facility50,000  —  
 June 29,
2019		 December 31,
2018
Term loan $227,000
 $233,000
Revolving credit facility 2,500
 —
Total debt 229,500
 233,000
Total debt352,638  310,000  
Less current portion 2,281
 2,330
Less current portion7,000  7,000  
Total long-term debt, less current portion 227,219
 230,670
Total long-term debt, less current portion345,638  303,000  
Less debt issuance costs - term loan 1,614
 1,802
Total long-term debt, net of debt issuance costs - term loan 225,605
 228,868
Less debt issuance costs - revolving credit facility (1)
 1,769
 1,907
Total long-term debt, net of debt issuance costs $223,836
 $226,961
Less debt issuance costs - term loansLess debt issuance costs - term loans2,013  2,113  
Total long-term debt, net of debt issuance costs - term loansTotal long-term debt, net of debt issuance costs - term loans$343,625  $300,887  
Debt issuance costs - revolving credit facility (1)
Debt issuance costs - revolving credit facility (1)
$1,799  $1,894  
Weighted-average interest rate 6.91% 4.71%Weighted-average interest rate4.49 %6.87 %
(1) Included as part of other assetsassets.

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In November 2018,On December 20, 2019, we completed the refinancing of a portion of our existing debt by entering into a new revolving credit facilitiesfacility (“New Revolving Credit Facility”) to replace the existing revolving credit facilities existing atfacility that timewas entered into in November 2018 (“Existing2018 Revolving Credit Facilities”Facility”). The new credit facilities consist of and entering into a $240.0 million senior securednew term loan which matures on November 21,

2025 (“New Term Loan”), and. The New Revolving Credit Facility is a $100.0 million senior secured revolving credit facility (“Newthat matures on December 20, 2024 replacing the $100.0 million 2018 Revolving Credit Facility”), whichFacility that would have matured on November 21, 2023. The New Term Loan is a $140.0 million senior secured term loan that matures on December 20, 2024. We also have an existing $240.0 million senior secured term loan that was entered into in November 2018 that matures on November 21, 20232025 (“2018 Term Loan”). The original amounts available under the New Revolving Credit Facility, New Term Loan, and 2018 Term Loan (collectively, the “New Credit“Credit Facilities”). in aggregate, totaled $480.0 million.
The New Term Loan bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as the London Interbank Offered Rate [“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. In addition, the New Term Loan requires installment payments of 1.25% of the original outstanding principal balance of the New Term Loan amount on a quarterly basis.
The New Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR) plus an applicable margin ranging from 1.50% to 2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to 1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. The undrawn portion of the commitment of the New Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio.
The 2018 Term Loan bears 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 yearyear) 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 New2018 Term Loan requires installment payments of 0.25% of the outstanding principal balance of the New2018 Term Loan amount on a quarterly basis. We made an aggregate total of $3.0 million and $6.0 million of voluntary and mandatory principal prepayments
Further, under the New Term Loan during the three and six months ended June 29, 2019, respectively.
The New Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR) plus an applicable margin ranging from 1.75% to 2.75% 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 0.75% to 1.75% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. The undrawn portion of the commitment of the New Revolving Credit Facility is subject to a commitment fee ranging from 0.20% to 0.30%, based upon the consolidated total net adjusted leverage ratio.
Further,Facilities, if we meet the annual excess cash flow threshold, we will be required to make excess cash flow payments. The annual mandatory excess cash flow payments will be based on (i) 50% of the excess cash flow amount if the adjusted leverage ratio is greater than 3.25 to 1.0, (ii) 25% of the excess cash flow amount if the adjusted leverage ratio is less than or equal to 3.25 to 1.0 but greater than 2.50 to 1.0, and (iii) zero percent of the excess cash flow amount if the adjusted leverage ratio is less than or equal to 2.50 to 1.0. During the three months ended March 28, 2020, we made the required 2019 annual excess cash flow payment of $7.4 million. As of June 29, 2019,March 28, 2020, we were in compliance with all covenants required under the New Credit Facilities.
We hadhave been making periodic voluntary principal prepayments on our Existing Credit Facilities and in conjunction withcredit facilities, however, during the closingthree months ended March 28, 2020, as a result of the New Credit Facilities on November 21, 2018, we drewdrawing down $240.0 million on the New Term Loan, $7.9$50.0 million on the New Revolving Credit Facility and used those proceeds alongto hold as cash, we made no net aggregate voluntary prepayments.
In conjunction with current cash on hand to pay offentering into the ExistingNew Revolving Credit Facilities of $247.9 million. The New Term Loan replacing the term loan that was a part of the Existing Credit Facilities (“Existing Term Loan”) was considered an extinguishment of debt except for the portion related to a creditor that was part of the Existing Term LoanFacility and the New Term Loan, we drew down the entire $140.0 million on the New Term Loan and in which case,used those proceeds to pay off and close the 2018 Revolving Credit Facility of $58.5 million, pay down a portion of the 2018 Term Loan of $56.0 million, pay the accrued interest associated with the amounts being paid down on the 2018 Revolving Credit Facility and 2018 Term Loan, pay the fees related to this transaction, and the remainder will be used for general corporate expenses. The New Revolving Credit Facility does not require any principal installment payments, however, the undrawn portion is subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio. The New Term Loan requires installment payments of 1.25% of the initial principal balance outstanding on a quarterly basis. The $56.0 million pay down paid all the required quarterly principal installment payments on the 2018 Term Loan until it wasmatures.
The New Term Loan and 2018 Term Loan were considered a modification of debt. As a result, we expenseddebt and thus, no gain or loss was recorded. Instead, the portionnew fees paid to the lenders of $0.6 million were capitalized and are being amortized over the life of the unamortizedNew Term Loan. The remaining debt issuance costs related to the Existing2018 Term Loan that was considered an extinguishment of debt of $0.4 million. In addition, the$1.5 million will continue to be amortized over its remaining life.
The New Revolving Credit Facility replacingthat replaced the existing revolving credit facility that was part of the Existing Credit Facilities (“Existing2018 Revolving Credit Facility”)Facility was considered an extinguishment of debt except for the portion related to the creditors that were part of both the ExistingNew Revolving Credit Facility and the New2018 Revolving Credit Facility and in which case, it was considered a modification of debt. As a result, we expensed the portion of the unamortized debt issuance costs related to the Existing2018 Revolving Credit Facility that was considered an extinguishment of debt of $0.5 million. As such, an aggregate total loss on extinguishment of debt of $0.9 million was recorded in 2018.
Further, we incurred $3.5 million ofIn addition, the new debt issuance costs that can be capitalized relatedfees paid to the New Credit Facilities,lenders of which $1.7$0.5 million were allocated to the New Term Loan and the $1.8 million was allocated toas part of the New Revolving Credit facility. The New Term Loan new debt issuance costsFacility were
18
Table of $1.7 millionContents
capitalized and are being amortized over its remaining unamortized Existing Term Loan debt issuance costs of $0.1 million, for an aggregate total of $1.8 million oflife. Further, the remaining debt issuance costs related to the New Term Loan were capitalized and are being amortized over the seven years life of the New Term Loan. The New2018 Revolving Credit Facility new debt issuance costs of $1.8$1.1 million andwill also be amortized its remaining unamortized Existing Revolving Credit Facility debt issuance costslife.
In October 2019, we acquired 100.0% of $0.2 million,the outstanding equity interests of Nobles for an aggregate total of $2.0 million of debt issuance costs related to the New Revolving Credit Facility were capitalized and are being amortized over the five years life of the New Revolving Credit Facility.
In April 2018, we acquired CTP for aoriginal purchase price of $30.7$77.0 million, net of cash acquired, all payable in cash. WeUpon the closing of the transaction, we paid ana gross total aggregate of $30.8$77.3 million in cash related to thisupon the closing of the transaction by drawing down on the Existing2018 Revolving Credit Facility. See Note 3.2.
As of June 29, 2019,March 28, 2020, we had $97.3$49.8 million of unused borrowing capacity under the Revolving Credit Facility, after deducting $2.5 million for draw down on the New Revolving Credit Facility and $0.2 million for standby letters of credit.
The New Credit Facilities were entered into by us (“Parent Company”) and guaranteed by all of our domestic subsidiaries, other than two2 subsidiaries that were considered minor (“Subsidiary Guarantors”). The Subsidiary Guarantors jointly and severally guarantee the New Credit Facilities. The Parent Company has no independent assets or operations and therefore, no consolidating financial information for the Parent Company and its subsidiaries are presented.
In October 2015, we entered into interest rate cap hedges designated as cash flow hedges with a portion of these interest rate cap hedges maturing on a quarterly basis, and a final quarterly maturity date of June 2020, and in aggregate, totaling $135.0

million of our debt. We paid a total of $1.0 million in connection with entering into the interest rate cap hedges. See Note 1 for further information.
In December 2018, 2017, and 2016, we entered into agreements to purchase $2.2 million, $14.2 million, and $9.9 million of industrial revenue bonds (“IRBs”) issued by the city of Parsons, Kansas (“Parsons”) and concurrently, sold $2.2 million, $14.2 million, and $9.9 million of property and equipment (“Property”) to Parsons as well as entered into lease agreements to lease the Property from Parsons (“Leases”) with lease payments totaling $2.2 million, $14.2 million, and $9.9 million over the lease terms, respectively. The sale of the Property and concurrent lease back of the Property in December 2018, 2017, and 2016 did not meet the sale-leaseback accounting requirements as a result of control not deemed to have transferred to the buyer-lessor under ASC 842 and our continuous involvement with the Property under ASC 840 and thus, the $2.2 million, $14.2 million, and $9.9 million in cash received from Parsons was not recorded as a sale but as a financing obligation, respectively. Further, the Leases included a right of offset so long as we continue to own the IRBs and thus, the financing obligations of $2.2 million, $14.2 million, and $9.9 million were offset against the $2.2 million, $14.2 million, and $9.9 million, respectively, of IRBs assets and are presented net on the condensed consolidated balance sheets with no impact to the condensed consolidated statements of income or condensed consolidated cash flow statements.

Note 9.8. Employee Benefit Plans
The components of net periodic pension expense were as follows:
 (In thousands) (In thousands)(In thousands)
 Three Months Ended Six Months EndedThree Months Ended
 June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018		March 28,
2020		March 30,
2019
Service cost $126
 $150
 $251
 $300
Service cost$155  $126  
Interest cost 347
 317
 694
 634
Interest cost302  347  
Expected return on plan assets (411) (446) (822) (892)Expected return on plan assets(440) (411) 
Amortization of actuarial losses 221
 186
 443
 372
Amortization of actuarial losses249  221  
Net periodic pension cost $283
 $207
 $566
 $414
Net periodic pension cost$266  $283  
The components of the reclassifications of net actuarial losses from accumulated other comprehensive loss to net income for the three and six months ended June 29, 2019March 28, 2020 were as follows:
  (In thousands)
  Three Months Ended Six Months Ended
  June 29,
2019		 June 29,
2019
Amortization of actuarial losses - total before tax (1)
 $221
 $443
Tax benefit (51) (103)
Net of tax $170
 $340
(1)The amortization expense is included in the computation(In thousands)
Three Months Ended
March 28,
2020
Amortization of periodic pension cost and is a decrease to net income upon reclassification from accumulated other comprehensive loss.actuarial losses - total before tax (1)
$249 
Tax benefit(59)
Net of tax$190 

(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 10.9. 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, we have indemnified our lessors for certain claims arising from our use of the facility under our lease. We indemnify our directors and officers to the maximum extent permitted under the laws of the State of Delaware.
However, we 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. The duration of the guarantees and indemnities vary and, in many cases, are subject to statutes of limitations. The majority of guarantees and indemnities do not provide any limitations of 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 amount of our indemnification obligations as insignificant based on this history and insurance coverage and therefore, have not recorded any liability for these guarantees and indemnities

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on the accompanying condensed consolidated balance sheets. Further, when considered with our insurance coverage, although recorded through different captions on our condensed consolidated balance sheets, the potential impact is further mitigated.
 
Note 11.10. 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 statutory rate, primarily due to research and development (“R&D”) tax 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 deficiencies related to our equity compensation recognized in the income statement could result in fluctuations in our effective tax rate period-over-period depending on the volatility of our stock price and how many awards vest in 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 $1.4$1.5 million for the three months ended June 29, 2019March 28, 2020 compared to $0.2$1.0 million for the three months ended JuneMarch 30, 2018. The increase in income tax expense for the second quarter of 2019 compared to the second quarter of 2018 was primarily due to higher pre-tax income for the second quarter of 2019 compared to the second quarter of 2018. The increase in income tax expense was partially offset by higher discrete tax benefits recognized in the second quarter of 2019 for net tax windfalls related to stock-based compensation and changes in deferred tax assets and liabilities due to state tax laws enacted in the period.
We recorded income tax expense of $2.4 million for the six months ended June 29, 2019 compared to an income tax benefit of less than $0.1 million for the six months ended June 30, 2018.2019. The increase in income tax expense for the first six monthsquarter of 20192020 compared to the first six monthsquarter of 20182019 was primarily due to higher pre-tax income for the first six monthsquarter of 20192020 compared to the first six monthsquarter of 2018. The increase in2019. On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that provides tax relief to individuals and businesses affected by the coronavirus pandemic. We considered the provisions of the CARES Act and determined they do not have a material impact to our income tax expense was partially offset by higher discrete tax benefits recognized in the first six months of 2019 for net tax windfalls related to stock-based compensation and changes in deferred tax assets and liabilities due to state tax laws enacted in the period.taxes.
Our total amount of unrecognized tax benefits was $5.4$5.8 million and $5.3$5.7 million as of June 29, 2019March 28, 2020 and December 31, 2018,2019, respectively. If recognized, $3.5$4.1 million would affect the effective tax rate. We do not reasonablyAs a result of statute of limitations set to expire in the fourth quarter of 2020, we expect significant increases or decreases to our unrecognized tax benefits of approximately $2.0 million in the next twelve months.


Note 12.11. Contingencies
Structural Systems has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at its facilities located in El Mirage and Monrovia, California. Based on currently available information, Ducommun has established an accrual for its estimated liability for such investigation and corrective action of $1.5 million at both June 29, 2019March 28, 2020 and December 31, 2018,2019, which is reflected in other long-term liabilities on its 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 preliminarily estimates that the range of its future liabilities in connection with the landfill located in West Covina, California is between $0.4 million and $3.1 million. Ducommun has established an accrual for its estimated liability in connection with the West Covina landfill of $0.4 million at June 29, 2019,March 28, 2020, which is reflected in other long-term liabilities on its condensed consolidated balance sheet. Ducommun’s 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 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 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 13.12. Business Segment Information
We supply products and services primarily to the aerospace and defense industries. Our subsidiaries are organized into two2 strategic businesses, Electronic Systems and Structural Systems, each of which is a reportable operating segment.


Financial information by reportable operating segment was as follows:
(In thousands)
Three Months Ended
 March 28,
2020		March 30,
2019
Net Revenues
Electronic Systems$98,120  $84,197  
Structural Systems75,355  88,369  
Total Net Revenues$173,475  $172,566  
Segment Operating Income
Electronic Systems$15,122  $9,181  
Structural Systems5,390  10,549  
20,512  19,730  
Corporate General and Administrative Expenses (1)
(6,886) (6,882) 
Operating Income$13,626  $12,848  
Depreciation and Amortization Expenses
Electronic Systems$3,575  $3,502  
Structural Systems3,689  3,000  
Corporate Administration72  253  
Total Depreciation and Amortization Expenses$7,336  $6,755  
Capital Expenditures
Electronic Systems$815  $836  
Structural Systems2,137  3,689  
Corporate Administration—  —  
Total Capital Expenditures$2,952  $4,525  
  
(In thousands)
Three Months Ended
 
(In thousands)
Six Months Ended
  June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018
Net Revenues        
Electronic Systems $89,260
 $84,502
 $173,457
 $166,910
Structural Systems 91,235
 70,325
 179,604
 138,372
Total Net Revenues $180,495
 $154,827
 $353,061
 $305,282
Segment Operating Income        
Electronic Systems $9,912
 $8,668
 $19,093
 $14,412
Structural Systems 11,773
 5,026
 22,322
 9,417
  21,685
 13,694
 41,415
 23,829
Corporate General and Administrative Expenses (1)
 (8,081) (8,098) (14,963) (12,978)
Operating Income $13,604
 $5,596
 $26,452
 $10,851
Depreciation and Amortization Expenses        
Electronic Systems $3,531
 $3,683
 $7,033
 $7,315
Structural Systems 3,400
 2,618
 6,400
 4,934
Corporate Administration 32
 33
 326
 66
Total Depreciation and Amortization Expenses $6,963
 $6,334
 $13,759
 $12,315
Capital Expenditures        
Electronic Systems $2,216
 $1,478
 $3,052
 $4,212
Structural Systems 3,672
 1,101
 7,361
 2,630
Corporate Administration —
 190
 —
 190
Total Capital Expenditures $5,888
 $2,769
 $10,413
 $7,032
(1)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
(1)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
Segment assets include assets directly identifiable to or allocated to each segment. Our segment assets are as follows:
(In thousands)
 March 28,
2020		December 31,
2019
Total Assets
Electronic Systems$431,562  $411,981  
Structural Systems335,942  328,718  
Corporate Administration (1)
74,333  49,730  
Total Assets$841,837  $790,429  
Goodwill and Intangibles
Electronic Systems$208,097  $210,453  
Structural Systems97,325  98,826  
Total Goodwill and Intangibles$305,422  $309,279  
(1)Includes assets not specifically identified to or allocated to either the Electronic Systems or Structural Systems operating segments, including cash and cash equivalents.
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  (In thousands)
  June 29,
2019		 December 31,
2018
Total Assets    
Electronic Systems $419,331
 $405,743
Structural Systems 245,724
 220,993
Corporate Administration (1)
 14,540
 18,003
Total Assets $679,595
 $644,739
Goodwill and Intangibles    
Electronic Systems $215,191
 $219,872
Structural Systems 27,576
 28,277
Total Goodwill and Intangibles $242,767
 $248,149
(1)Includes assets not specifically identified to or allocated to either the Electronic Systems or Structural Systems operating segments, including cash and cash equivalents.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Ducommun Incorporated (“Ducommun,” “the Company,” “we,” “us” or “our”) is a leading global provider of engineering and manufacturing services for high-performance products and high-cost-of failure applications used primarily in the aerospace and defense (“A&D”), industrial, medical and other industries (collectively, “Industrial”). We differentiate ourselves as a full-service solution-based provider, offering a wide range of value-added products and services in our primary businesses of electronics, structures and integrated solutions. We operate through two primary business segments: Electronic Systems and Structural Systems, each of which is a reportable segment.
We adopted ASC 842, “Leases” (“ASC 842”),COVID-19 Coronavirus Pandemic Impact on Our Business
The outbreak of the COVID-19 coronavirus has been declared a pandemic by the World Health Organization during our first quarter of 2020 but did not have a significant impact to our overall business during the three months ended March 28, 2020. However, during the latter part of our first quarter and subsequent to our quarter end, the COVID-19 pandemic has grown, causing non-essential businesses to shut down and many people to observe the shelter-in-place directive from our government. The COVID-19 pandemic is beginning to contribute to a general slowdown in the global economy and if it continues for an extended period of time, it could adversely impact the businesses of our customers and suppliers, as of January 1, 2019, using the additional transition method of adoption. As such,well as our results of operations and financial condition for some portion, if not the three and six months ended June 29, 2019 are reported under ASC 842 while our results for the three and six months ended June 30, 2018 are reported under the prior lease accounting standard, ASC 840, “Leases” (“ASC 840”).remainder, of 2020. See Note 2 to condensed consolidated financial statementsRisk Factors included in Part I,II, Item I1A of this Form 10-Q.
SecondFirst quarter 20192020 highlights:
•Revenues of $180.5$173.5 million
•Net income of $7.8$7.9 million, or $0.66$0.67 per diluted share
•Adjusted EBITDA of $22.4$23.2 million
Non-GAAP Financial Measures
Adjusted earnings before interest, taxes, depreciation, amortization, and stock-based compensation expense and restructuring charges (“Adjusted EBITDA”) was $22.4$23.2 million and $18.7$21.1 million for the three months ended June 29,March 28, 2020 and March 30, 2019, and June 30, 2018, respectively.
When viewed with our financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information to clarify and enhance the understanding of the factors and trends affecting our past performance and future prospects. We define these measures, explain how they are calculated and provide reconciliations of these measures to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Quarterly Report on Form 10-Q (“Form 10-Q”), are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.
We use Adjusted EBITDA non-GAAP operating performance measures internally as complementary financial measures to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:
•They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
•They do not reflect changes in, or cash requirements for, our working capital needs;
•They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
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•They are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
•They do not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and

•Other companies in our industry may calculate Adjusted EBITDA differently from us, limiting their usefulness as comparative measures.
Because of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our Condensed Consolidated Financial Statements contained in this Form 10-Q.
However, in spite of the above limitations, we believe that Adjusted EBITDA is useful to an investor in evaluating our results of operations because these measures:
•Are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
•Help investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and
•Are used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.
The following financial items have been added back to or subtracted from our net income when calculating Adjusted EBITDA:
•Interest expense may be useful to investors for determining current cash flow;
•Income tax expense may be useful to investors because it represents the taxes which may be payable for the period and the change in deferred taxes during the period, and may reduce cash flow available for use in our business;
•Depreciation may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations;
•Amortization expense may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights; and
•Stock-based compensation may be useful to our investors for determining current cash flow;
Restructuring charges may be useful to our investors in evaluating our core operating performance; and
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.flow.
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)
Three Months Ended
 
(Dollars in thousands)
Six Months Ended
(Dollars in thousands)
Three Months Ended
June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018		March 28,
2020		March 30,
2019
Net income$7,815
 $1,591
 $15,287
 $4,191
Net income$7,930  $7,472  
Interest expense4,426
 3,763
 8,777
 6,661
Interest expense4,246  4,351  
Income tax expense (benefit)1,363
 242
 2,388
 (1)
Income tax expenseIncome tax expense1,450  1,025  
Depreciation3,310
 3,418
 6,835
 6,782
Depreciation3,436  3,484  
Amortization3,653
 2,916
 6,924
 5,533
Amortization3,900  3,271  
Stock-based compensation expense1,807
 1,025
 3,271
 2,115
Stock-based compensation expense2,279  1,464  
Restructuring charges—
 5,406
 —
 7,579
Inventory purchase accounting adjustments—
 329
 —
 329
Adjusted EBITDA$22,374
 $18,690
 $43,482
 $33,189
Adjusted EBITDA$23,241  $21,067  
% of net revenues12.4% 12.1% 12.3% 10.9%% of net revenues13.4 %12.2 %



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Results of Operations
SecondFirst Quarter of 20192020 Compared to SecondFirst Quarter of 20182019
The following table sets forth net revenues, selected financial data, the effective tax rate and diluted earnings per share:


 
(Dollars in thousands, except per share data)
Three Months Ended
 
(Dollars in thousands, except per share data)
Six Months Ended
(Dollars in thousands, except per share data)
Three Months Ended
 June 29,
2019		 
%
of Net  Revenues
 June 30,
2018		 
%
of Net  Revenues
 June 29,
2019		 
%
of Net  Revenues
 June 30,
2018		 
%
of Net  Revenues
March 28,
2020		%
of Net  Revenues		March 30,
2019		%
of Net  Revenues
Net Revenues $180,495
 100.0 % $154,827
 100.0 % $353,061
 100.0 % $305,282
 100.0 %Net Revenues$173,475  100.0 %$172,566  100.0 %
Cost of Sales 142,430
 78.9 % 122,799
 79.3 % 279,302
 79.1 % 246,499
 80.7 %Cost of Sales136,671  78.8 %136,872  79.3 %
Gross Profit 38,065
 21.1 % 32,028
 20.7 % 73,759
 20.9 % 58,783
 19.3 %Gross Profit36,804  21.2 %35,694  20.7 %
Selling, General and Administrative Expenses 24,461
 13.6 % 21,194
 13.7 % 47,307
 13.4 % 40,521
 13.3 %Selling, General and Administrative Expenses23,178  13.4 %22,846  13.2 %
Restructuring Charges —
 — % 5,238
 3.4 % —
 — % 7,411
 2.4 %
Operating Income 13,604
 7.5 % 5,596
 3.6 % 26,452
 7.5 % 10,851
 3.6 %Operating Income13,626  7.8 %12,848  7.5 %
Interest Expense (4,426) (2.4)% (3,763) (2.4)% (8,777) (2.5)% (6,661) (2.2)%Interest Expense(4,246) (2.4)%(4,351) (2.5)%
Income Before Taxes 9,178
 5.1 % 1,833
 1.2 % 17,675
 5.0 % 4,190
 1.4 %Income Before Taxes9,380  5.4 %8,497  5.0 %
Income Tax Expense (Benefit) 1,363
 nm
 242
 nm
 2,388
 nm
 (1) nm
Income Tax ExpenseIncome Tax Expense1,450  nm  1,025  nm  
Net Income $7,815
 4.3 % $1,591
 1.0 % $15,287
 4.3 % $4,191
 1.4 %Net Income$7,930  4.6 %$7,472  4.3 %
                
Effective Tax (Benefit) Rate 14.9% nm
 13.2% nm
 13.5% nm
 — % nm
Effective Tax RateEffective Tax Rate15.5 %nm  12.1 %nm  
Diluted Earnings Per Share $0.66
 nm
 $0.14
 nm
 $1.30
 nm
 $0.36
 nm
Diluted Earnings Per Share$0.67  nm$0.64  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 fiscal three and six months ended June 29,March 28, 2020 and March 30, 2019, and June 30, 2018, respectively, were as follows:
 Three Months Ended Six Months EndedThree Months Ended
   (Dollars in thousands) % of Net Revenues   (Dollars in thousands) % of Net Revenues(Dollars in thousands)% of Net Revenues
 Change June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018		 Change June 29
2019		 June 30,
2018		 June 29
2019		 June 30,
2018		ChangeMarch 28,
2020		March 30,
2019		March 28,
2020		March 30,
2019
Consolidated Ducommun                    Consolidated Ducommun
Military and space $6,863
 $77,189
 $70,326
 42.8% 45.4% $14,205
 $150,886
 $136,681
 42.7% 44.8%Military and space$24,159  $100,820  $76,661  58.1 %44.4 %
Commercial aerospace 20,144
 91,988
 71,844
 51.0% 46.4% 37,780
 180,456
 142,676
 51.1% 46.7%Commercial aerospace(22,971) 62,525  85,496  36.0 %49.6 %
Industrial (1,339) 11,318
 12,657
 6.2% 8.2% (4,206) 21,719
 25,925
 6.2% 8.5%Industrial(279) 10,130  10,409  5.9 %6.0 %
Total $25,668
 $180,495
 $154,827
 100.0% 100.0% $47,779
 $353,061
 $305,282
 100.0% 100.0%Total$909  $173,475  $172,566  100.0 %100.0 %
                    
Electronic Systems                    Electronic Systems
Military and space $5,904
 $60,272
 $54,368
 67.5% 64.3% $10,803
 $117,704
 $106,901
 67.9% 64.0%Military and space$12,851  $73,238  $60,387  74.7 %71.7 %
Commercial aerospace 193
 17,670
 17,477
 19.8% 20.7% (50) 34,034
 34,084
 19.6% 20.4%Commercial aerospace1,351  14,752  13,401  15.0 %15.9 %
Industrial (1,339) 11,318
 12,657
 12.7% 15.0% (4,206) 21,719
 25,925
 12.5% 15.6%Industrial(279) 10,130  10,409  10.3 %12.4 %
Total $4,758
 $89,260
 $84,502
 100.0% 100.0% $6,547
 $173,457
 $166,910
 100.0% 100.0%Total$13,923  $98,120  $84,197  100.0 %100.0 %
                    
Structural Systems                    Structural Systems
Military and space $959
 $16,917
 $15,958
 18.5% 22.7% $3,402
 $33,182
 $29,780
 18.5% 21.5%Military and space$11,308  $27,582  $16,274  36.6 %18.4 %
Commercial aerospace 19,951
 74,318
 54,367
 81.5% 77.3% 37,830
 146,422
 108,592
 81.5% 78.5%Commercial aerospace(24,322) 47,773  72,095  63.4 %81.6 %
Total $20,910
 $91,235
 $70,325
 100.0% 100.0% $41,232
 $179,604
 $138,372
 100.0% 100.0%Total$(13,014) $75,355  $88,369  100.0 %100.0 %
Net revenues for the three months ended June 29, 2019March 28, 2020 were $180.5$173.5 million, compared to $154.8$172.6 million for the three months ended JuneMarch 30, 2018.2019. The year-over-year increase was primarily due to the following:
•$20.1 million higher revenues in our commercial aerospace end-use markets due to additional content and higher build rates on large aircraft platforms; and
$6.924.2 million higher revenues in our military and space end-use markets due to higher build rates on military fixed-wing aircraft platforms, various missile platforms, and other military and space platforms; partially offset by
•$1.323.0 million lower revenues in our industrial end-use markets.
Net revenues for the six months ended June 29, 2019 were $353.1 million, compared to $305.3 million for the six months ended June 30, 2018. The year-over-year increase was due to the following:
$37.8 million higher revenues in our commercial aerospace end-use markets due to additional content and higherlower build rates on large aircraft platforms; and
$14.2 million higher revenues in our military and space end-use markets due to higher build rates on other military and space platforms and various missile platforms; partially offset by
$4.2 million lower revenues in our industrial end-use markets.


platforms.
Net Revenues by Major Customers
A significant portion of our net revenues are from our top ten customers as follows:
Three Months Ended
March 28,
2020		March 30,
2019
Boeing Company8.4 %19.9 %
Northrop Grumman Corporation5.6 %4.3 %
Raytheon Company (1)
11.2 %10.5 %
Spirit Aerosystems Holdings, Inc.5.6 %11.9 %
United Technologies Corporation (1)
7.2 %4.7 %
Total top ten customers (2)
54.3 %67.1 %
(1)Subsequent to our quarter ended March 28, 2020, United Technologies Corporation completed its acquisition of Raytheon Company on April 3, 2020, and renamed the combined company, Raytheon Technologies Corporation.
(2)Includes The Boeing Company (“Boeing”), Northrop Grumman Corporation (“Northrop”), Raytheon Company (“Raytheon”), Spirit Aerosystems Holdings, Inc. (“Spirit”), and United Technologies Corporation (“United Technologies”). The significant decrease in total aggregate revenues generated from our top ten customers was primarily due to the decrease by Boeing and Spirit, mainly due to the impact from the continued grounding of the Boeing 737 MAX program combined with the outbreak of the COVID-19 pandemic during our first quarter of 2020, which resulted in the March 23, 2020 and March 24, 2020 announcements by Boeing and Spirit, respectively, to temporarily shut down production at some of their facilities. However, subsequent to our quarter end, Boeing resumed production at two of their manufacturing facilities.
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  Three Months Ended Six Months Ended
  June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018
Boeing Company 16.5% 16.4% 18.2% 17.1%
Raytheon Company 11.8% 12.9% 11.2% 12.0%
Spirit Aerosystems Holdings, Inc. 14.9% 8.8% 13.5% 8.9%
United Technologies Corporation 5.2% 6.6% 5.0% 5.8%
Total top ten customers (1)
 66.1% 64.8% 66.6% 64.2%
(1)Includes The Boeing Company (“Boeing”), Raytheon Company (“Raytheon”), Spirit Aerosystems Holdings, Inc. (“Spirit”), and United Technologies Corporation (“United Technologies”).
Boeing, Northrop, Raytheon, Spirit, and United Technologies represented the following percentages of total accounts receivable:
 June 29,
2019		 December 31,
2018		 March 28,
2020		December 31,
2019
Boeing 9.4% 8.0%Boeing4.7 %5.9 %
NorthropNorthrop5.7 %6.0 %
Raytheon 5.0% 2.8%Raytheon5.2 %3.3 %
Spirit 2.6% 0.1%Spirit1.6 %2.0 %
United Technologies 3.2% 3.3%United Technologies5.7 %3.4 %
The net revenues and accounts receivable from Boeing, Northrop, Raytheon, Spirit, and United Technologies 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 increased year-over-year in the three months ended June 29, 2019March 28, 2020 to 21.1%21.2%, compared to the three months ended JuneMarch 30, 20182019 of 20.7% due to favorable manufacturing volume, favorable product mix,lower compensation and manufacturing efficiencies, partially offset by higher other manufacturing costs.
Gross profit margin as a percentage of net revenues increased year-over-year in the six months ended June 29, 2019 to 20.9%, compared to the six months ended June 30, 2018 of 19.3% primarily due to favorable product mix, favorable manufacturing volume, and manufacturing efficiencies, partially offset by higher other manufacturingbenefit costs.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased $3.3$0.3 million year-over-year in the three months ended June 29, 2019March 28, 2020 compared to the three months ended JuneMarch 30, 2018 due to one-time severance charges of $1.7 million and higher compensation and benefit costs of $1.6 million.
SG&A expenses increased $6.8 million year-over-year in the six months ended June 29, 2019 compared to the six months ended June 30, 2018 primarily due to higher compensation and benefit costsother corporate expenses of $4.7$0.6 million, and one-time severance chargespartially offset by lower professional services fees of $1.7$0.4 million.
Restructuring Charges
Restructuring charges decreased $5.4 million (including $0.2 million in cost of sales) and $7.6 million (including $0.2 million in cost of sales) year-over-year in the three and six months ended June 29, 2019 compared to the three and six months ended June 30, 2018, respectively, due to the restructuring plan implemented in November 2017 that was expected to increase operating efficiencies and was completed by December 31, 2018. See Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Interest Expense
Interest expense increased year-over-yeardecreased in the three months ended June 29, 2019March 28, 2020 compared to the three months ended JuneMarch 30, 20182019 due to lower interest rates, partially offset by a higher outstanding balance on the Revolving Credit Facility, reflectingFacilities driven by the acquisition of Certified Thermoplastics Co., LLCNobles Worldwide, Inc. (“CTP”Nobles”) in April 2018October 2019, and higher interest rates.

Interest expense increased year-over-year in the six months ended June 29, 2019 compared to the six months ended June 30, 2018
primarily due to a higher outstanding balancenet draw down on the Revolving Credit Facility, mainly due to the acquisition of CTP and
higher interest rates.including $50.0 million as cash on hand.
Income Tax Expense
We recorded income tax expense of $1.4$1.5 million for the three months ended June 29, 2019March 28, 2020 compared to $0.2$1.0 million for the three months ended JuneMarch 30, 2018.2019. The increase in income tax expense for the secondfirst quarter of 20192020 compared to the secondfirst quarter of 20182019 was primarily due to higher pre-tax income for the secondfirst quarter of 2019 compared to the second quarter of 2018. The increase in income tax expense was partially offset by higher discrete tax benefits recognized in the second quarter of 2019 for net tax windfalls related to stock-based compensation and changes in deferred tax assets and liabilities due to state tax laws enacted in the period.
We recorded income tax expense of $2.4 million for the six months ended June 29, 2019 compared to an income tax benefit of less than $0.1 million for the six months ended June 30, 2018. The increase in income tax expense for the first six months of 20192020 compared to the first six monthsquarter of 2018 was primarily due2019. On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that provides tax relief to higher pre-tax income. The increase inindividuals and businesses affected by the coronavirus pandemic. We considered the provisions of the CARES Act and determined they do not have a material impact to our income tax expense was partially offset by higher discrete tax benefits recognized in the first six months of 2019 for net tax windfalls related to share-based compensation and changes in deferred tax assets and liabilities due to state tax laws enacted in the period.taxes.
Our total amount of unrecognized tax benefits was $5.4$5.8 million and $5.3$5.7 million as of June 29, 2019March 28, 2020 and December 31, 2018,2019, respectively. If recognized, $3.5$4.1 million would affect the effective tax rate. We do not reasonablyAs a result of statute of limitations set to expire in the fourth quarter of 2020, we expect significant increases or decreases to our unrecognized tax benefits of $2.0 million in the next twelve months.
Net Income and Earnings per Share
Net income and earnings per share for the three months ended June 29, 2019March 28, 2020 were $7.8$7.9 million, or $0.66$0.67 per diluted share, compared to $1.6$7.5 million, or $0.14$0.64 per diluted share, for the three months ended JuneMarch 30, 2018.2019. The increase in net income for the three months ended June 29, 2019March 28, 2020 compared to the three months ended JuneMarch 30, 20182019 was due to $6.0$1.1 million of higher gross profit as a result of higher revenues and improved operating performance. Restructuring charges were lower by $5.4 million that was partially offset by $3.3 millioncompensation and benefit costs.
26
Table of higher selling, general and administrative expenses, and higher income taxes of $1.1 million.Contents
Net income and earnings per share for the six months ended June 29, 2019 were $15.3 million, or $1.30 per diluted share, compared to $4.2 million, or $0.36 per diluted share, for the six months ended June 30, 2018. The increase in net income for the six months ended June 29, 2019 compared to the six months ended June 30, 2018 was due to $15.0 million of higher gross profit as a result of higher revenues and improved operating performance. Restructuring charges were lower by $7.6 million that was offset by $6.8 million of higher selling, general and administrative expenses, $2.4 million of higher income taxes, and $2.1 million of higher interest expense.


Business Segment Performance
We report our financial performance based upon the two reportable operating segments: Electronic Systems and 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 six months ended June 29, 2019March 28, 2020 and JuneMarch 30, 2018:2019:
Three Months Ended
%(Dollars in thousands)% of Net Revenues
ChangeMarch 28,
2020		March 30,
2019		March 28,
2020		March 30,
2019
Net Revenues
Electronic Systems16.5 %$98,120  $84,197  56.6 %48.8 %
Structural Systems(14.7)%75,355  88,369  43.4 %51.2 %
Total Net Revenues0.5 %$173,475  $172,566  100.0 %100.0 %
Segment Operating Income
Electronic Systems$15,122  $9,181  15.4 %10.9 %
Structural Systems5,390  10,549  7.2 %11.9 %
20,512  19,730  
Corporate General and Administrative Expenses (1)
(6,886) (6,882) (4.0)%(4.0)%
Total Operating Income$13,626  $12,848  7.8 %7.5 %
Adjusted EBITDA
Electronic Systems
Operating Income$15,122  $9,181  
Depreciation and Amortization3,575  3,502  
18,697  12,683  19.1 %15.1 %
Structural Systems
Operating Income5,390  10,549  
Depreciation and Amortization3,689  3,000  
9,079  13,549  12.0 %15.3 %
Corporate General and Administrative Expenses (1)
Operating Loss(6,886) (6,882) 
Depreciation and Amortization72  253  
Stock-Based Compensation Expense2,279  1,464  
(4,535) (5,165) 
Adjusted EBITDA$23,241  $21,067  13.4 %12.2 %
Capital Expenditures
Electronic Systems$815  $836  
Structural Systems2,137  3,689  
Corporate Administration—  —  
Total Capital Expenditures$2,952  $4,525  
  Three Months Ended Six Months Ended
  % (Dollars in thousands) % of Net Revenues % (Dollars in thousands) % of Net Revenues
  Change June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018		 Change June 29,
2019		 June 30,
2018		 June 29,
2019		 June 30,
2018
Net Revenues                    
Electronic Systems 5.6% $89,260
 $84,502
 49.5 % 54.6 % 3.9% $173,457
 $166,910
 49.1 % 54.7 %
Structural Systems 29.7% 91,235
 70,325
 50.5 % 45.4 % 29.8% 179,604
 138,372
 50.9 % 45.3 %
Total Net Revenues 16.6% $180,495
 $154,827
 100.0 % 100.0 % 15.7% $353,061
 $305,282
 100.0 % 100.0 %
Segment Operating Income                    
Electronic Systems   $9,912
 $8,668
 11.1 % 10.3 %   $19,093
 $14,412
 11.0 % 8.6 %
Structural Systems   11,773
 5,026
 12.9 % 7.1 %   22,322
 9,417
 12.4 % 6.8 %
    21,685
 13,694
       41,415
 23,829
    
Corporate General and Administrative Expenses (1)
   (8,081) (8,098) (4.5)% (5.2)%   (14,963) (12,978) (4.2)% (4.3)%
Total Operating Income   $13,604
 $5,596
 7.5 % 3.6 %   $26,452
 $10,851
 7.5 % 3.6 %
Adjusted EBITDA                    
Electronic Systems                    
Operating Income   $9,912
 $8,668
       $19,093
 $14,412
    
Depreciation and Amortization   3,531
 3,683
       7,033
 7,315
    
Restructuring Charges   —
 735
       —
 1,255
    
    13,443
 13,086
 15.1 % 15.5 %   26,126
 22,982
 15.1 % 13.8 %
Structural Systems                    
Operating Income   11,773
 5,026
       22,322
 9,417
    
Depreciation and Amortization   3,400
 2,618
       6,400
 4,934
    
Restructuring Charges   —
 3,610
       —
 5,137
    
Inventory Purchase Accounting Adjustments   —
 329
       —
 329
    
    15,173
 11,583
 16.6 % 16.5 %   28,722
 19,817
 16.0 % 14.3 %
Corporate General and Administrative Expenses (1)
                    
Operating Loss   (8,081) (8,098)       (14,963) (12,978)    
Depreciation and Amortization   32
 33
       326
 66
    
Stock-Based Compensation Expense   1,807
 1,025
       3,271
 2,115
    
Restructuring Charges   —
 1,061
       —
 1,187
    
    (6,242) (5,979)       (11,366) (9,610)    
Adjusted EBITDA   $22,374
 $18,690
 12.4 % 12.1 %   $43,482
 $33,189
 12.3 % 10.9 %
Capital Expenditures                    
Electronic Systems   $2,216
 $1,478
       $3,052
 $4,212
    
Structural Systems   3,672
 1,101
       7,361
 2,630
    
Corporate Administration   —
 190
       —
 190
    
Total Capital Expenditures   $5,888
 $2,769
       $10,413
 $7,032
    
(1)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.

(1)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
Electronic Systems
Electronic Systems net revenues in the three months ended June 29, 2019March 28, 2020 compared to the three months ended JuneMarch 30, 20182019 increased $4.8$13.9 million primarily due to the following:
•$5.912.9 million higher revenues in our military and space end-use markets due to higher build rates on military fixed-wing aircraft platforms and various missile platforms, partially offset by lower build rates on other military and space platforms; and
•$0.21.4 million higher revenues in our commercial aerospace end-use markets; partially offset bymarkets due to higher build rates on other commercial aerospace platforms.
Electronic Systems segment operating income in the three months ended March 28, 2020 compared to the three months ended March 30, 2019 increased $5.9 million due to favorable manufacturing volume and favorable product mix.

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Table of Contents
Structural Systems
Structural Systems net revenues in the three months ended March 28, 2020 compared to the three months ended March 30, 2019 decreased $13.0 million due to the following:
•$1.324.3 million lower revenues in our industrialcommercial aerospace end-use markets.
Electronic Systems net revenues in the six months ended June 29, 2019 compared to the six months ended June 30, 2018 increased $6.5 millionmarkets due to the following:lower build rates on large aircraft platforms; partially offset by
•$10.811.3 million higher revenues in our military and space end-use markets due to higher build rates on other military and space platforms and various missile platforms; partially offset by
$4.2 million lower revenues in our industrial end-use markets; and
$0.1 million lower revenues in our commercial aerospace end-use markets.
Electronic Systems segment operating income in the three and six months ended June 29, 2019 compared to the three and six months ended June 30, 2018 increased $1.2 million and $4.7 million, respectively, due to favorable product mix, improved manufacturing efficiencies, and lower restructuring charges in the current year, partially offset by unfavorable manufacturing volume.
Structural Systems
Structural Systems net revenues in the three months ended June 29, 2019 compared to the three months ended June 30, 2018 increased $20.9 million due to the following:
$20.0 million higher revenues in our commercial aerospace end-use markets due to additional content and higher build rates on largemilitary fixed-wing aircraft platforms; and
$1.0 million higher revenues in our military and space end-use markets due to higher build rates on military rotary-wing aircraft platforms.
Structural Systems net revenues in the six months ended June 29, 2019 compared to the six months ended June 30, 2018 increased $41.2 million due to the following:
$37.8 million higher revenues in our commercial aerospace end-use markets due to additional content and higher build rates on large aircraft platforms; and
$3.4 million higher revenues in our military and space end-use markets due to higher build rates on military rotary-wing aircraft platforms.
The Structural Systems segment operating income in the three and six months ended June 29, 2019March 28, 2020 compared to the three and six months ended JuneMarch 30, 2018 increased $6.72019 decreased $5.2 million and $12.9 million, respectively, due to favorableunfavorable manufacturing volume favorableand unfavorable product mix, improved manufacturing efficiencies,partially offset by lower compensation and lower restructuring charges in the current year.benefit costs.
Corporate General and Administrative (“CG&A”) Expenses
CG&A expenses decreased by less than $0.1 millionwas essentially flat in the three months ended June 29, 2019March 28, 2020 compared to the three months ended JuneMarch 30, 2018 due to lower restructuring charges in the current year of $1.1 million and lower professional services fees of $1.0 million, partially offset by one-time severance charges of $1.7 million.
CG&A expenses increased $2.0 million in the six months ended June 29, 2019 compared to the six months ended June 30, 2018 due to higher compensation and benefit costs of $1.9 million and one-time severance charges of $1.7 million, partially offset by lower restructuring charges in the current year of $1.2 million.2019.
Backlog
We define backlog as customer placed purchase orders (“POs”) and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount disclosed below is greater than the remaining performance obligations amount disclosed in Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues. Backlog in industrial markets tends to be of a shorter

duration and is generally fulfilled within a 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.
The decrease in backlog was primarily in the commercial aerospace end-use markets, mainly due to the COVID-19 pandemic, partially offset by an increase in the military and industrialspace end-use markets. $601.0$587.0 million of total backlog is expected to be delivered over the next 12 months. The following table summarizes our backlog as of June 29, 2019March 28, 2020 and December 31, 2018:2019:
(Dollars in thousands)
ChangeMarch 28,
2020		December 31,
2019
Consolidated Ducommun
Military and space$23,158  $474,451  $451,293  
Commercial aerospace(54,335) 376,307  430,642  
Industrial(2,618) 25,668  28,286  
Total$(33,795) $876,426  $910,221  
Electronic Systems
Military and space$15,972  $326,999  $311,027  
Commercial aerospace1,213  76,932  75,719  
Industrial(2,618) 25,668  28,286  
Total$14,567  $429,599  $415,032  
Structural Systems
Military and space$7,186  $147,452  $140,266  
Commercial aerospace(55,548) 299,375  354,923  
Total$(48,362) $446,827  $495,189  

28
  (Dollars in thousands)
  Change June 29,
2019		 December 31,
2018
Consolidated Ducommun      
Military and space $26,335
 $365,778
 $339,443
Commercial aerospace (34,029) 453,203
 487,232
Industrial (4,052) 33,722
 37,774
Total $(11,746) $852,703
 $864,449
Electronic Systems      
Military and space $29,243
 $270,439
 $241,196
Commercial aerospace 18,849
 66,881
 48,032
Industrial (4,052) 33,722
 37,774
Total $44,040
 $371,042
 $327,002
Structural Systems      
Military and space $(2,908) $95,339
 $98,247
Commercial aerospace (52,878) 386,322
 439,200
Total $(55,786) $481,661
 $537,447

Table of Contents
Liquidity and Capital Resources
Available Liquidity
Total debt, the weighted-average interest rate, cash and cash equivalents and available credit facilities were as follows:
(Dollars in millions)
March 28,December 31,
20202019
Total debt, including long-term portion$352.6  $310.0  
Weighted-average interest rate on debt4.49 %6.87 %
Term Loans interest rate4.69 %6.28 %
Cash and cash equivalents$65.6  $39.6  
Unused Revolving Credit Facility$49.8  $99.8  
  (Dollars in millions)
  June 29, December 31,
  2019 2018
Total debt, including long-term portion $229.5
 $233.0
Weighted-average interest rate on debt 6.91% 4.71%
Term Loan interest rate 6.59% 4.15%
Cash and cash equivalents $3.3
 $10.3
Unused Revolving Credit Facility $97.3
 $99.7
In November 2018,On December 20, 2019, we completed the refinancing of a portion of our existing debt by entering into a new revolving credit facilitiesfacility (“New Revolving Credit Facility”) to replace the Existingexisting revolving credit facility that was entered into in November 2018 (“2018 Revolving Credit Facilities. TheFacility”) and entering into a new credit facilities consist of a $240.0 million senior secured term loan which matures on November 21, 2025 (“New Term Loan”), and. The New Revolving Credit Facility is a $100.0 million senior secured revolving credit facility (“Newthat matures on December 20, 2024 replacing the $100.0 million 2018 Revolving Credit Facility”), whichFacility that would have matured on November 21, 2023. The New Term Loan is a $140.0 million senior secured term loan that matures on December 20, 2024. We also have an existing $240.0 million senior secured term loan that was entered into in November 2018 that matures on November 21, 20232025 (“2018 Term Loan”). The original amounts available under the New Revolving Credit Facility, New Term Loan, and 2018 Term Loan (collectively, the “New Credit“Credit Facilities”). in aggregate, totaled $480.0 million. We are required to make installment payments of 0.25%1.25% of the original outstanding principal balance of the New Term Loan amount on a quarterly basis. In addition, if we meet the annual excess cash flow threshold, we will be required to make excess flow payments on an annual basis. Further, the undrawn portion of the commitment of the New Revolving Credit Facility is subject to a commitment fee ranging from 0.20%0.175% to 0.30%0.275%, based upon the consolidated total net adjusted leverage ratio. As of June 29, 2019,As of March 28, 2020, we were in compliance with all covenants required under the Credit Facilities. See Note 87 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
In November 2018, we completed credit facilities to replace the then existing credit facilities. The November 2018 credit facilities consisted of the 2018 Term Loan and the 2018 Revolving Credit Facility (collectively, the “2018 Credit Facilities”). We are required to make installment payments of 0.25% of the outstanding principal balance of the 2018 Term Loan amount on a quarterly basis. In addition, if we meet the annual excess cash flow threshold, we will be required to make excess flow payments on an annual basis. See Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information. We made an aggregate total of $3.0 million and $6.0$7.4 million of voluntary and mandatory principal prepayments under the Term LoanLoans during the three and six months ended June 29, 2019, respectively.March 28, 2020.
In October 2015, we entered into interest rate cap hedges designated as cash flow hedges with maturity dates of June 2020, and in aggregate, totaling $135.0 million of our debt. We paid a total of $1.0 million in connection with entering into the interest rate cap hedges.

In April 2018,October 2019, we acquired Certified Thermoplastics Co.Nobles Parent Inc., LLCthe parent company of Nobles Worldwide, Inc. (“CTP”Nobles”) for aan original purchase price of $30.7$77.0 million, net of cash acquired, all payable in cash. We paid ana gross total aggregate of $30.8$77.3 million in cash upon the closing of the transaction by drawing down on the 2018 Revolving Credit Facility. See Note 32 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
We expect to spend a total of $16.0$12.0 million to $18.0$14.0 million for capital expenditures in 20192020 financed by cash generated from operations, principally to support new contract awards in Electronic Systems and Structural Systems. As part of our strategic plan to become a supplier of higher-level assemblies and win new contract awards, additional up-front investment in tooling will be required for newer programs which have higher engineering content and higher levels of complexity in assemblies. However, some portion of the expected capital expenditures in 2020 could be delayed as a result of the COVID-19 pandemic.
We believe the ongoing aerospace and defense subcontractor consolidation makes acquisitions an increasingly important component of our future growth. We will continue to make prudent acquisitions and capital expenditures for manufacturing equipment and facilities to support long-term contracts for commercial and military aircraft and defense programs.
We continue to depend on operating cash flow and the availability of our New Credit Facilities to provide short-term liquidity. Cash generated from operations and bank borrowing capacity are expected to provide sufficient liquidity to meet our obligations during the next twelve months.
29
Table of Contents
Cash Flow Summary
Net cash provided byused in operating activities for the sixthree months ended June 29, 2019March 28, 2020 was $8.1$12.0 million, compared to $26.2$1.7 million for the sixthree months ended JuneMarch 30, 2018.2019. The lowerhigher net cash generatedused during the first sixthree months of 20192020 was due to higher contract assets,accounts receivable and higher inventories, partially offset by higher net income.
Net cash used in investing activities was $7.6$3.7 million for the sixthree months ended June 29, 2019March 28, 2020 compared to $38.4$3.2 million in the sixthree months ended JuneMarch 30, 2018.2019. The lowerhigher net cash used induring the first sixthree months of 20192020 compared to the prior year period was due to a lackhigher purchases of acquisitions in the current year.property and equipment.
Net cash used inprovided by financing activities was $6.7$41.7 million for the sixthree months ended June 29, 2019March 28, 2020 compared to net cash providedused of $13.6$1.6 million for the first sixthree months of Juneended March 30, 2018.2019. The higher net cash used inprovided by during the first sixthree months of 20192020 was mainly due to higher net repaymentsdraw down on the New Revolving Credit Facility, andpartially offset by higher repayments on the Term Loan.of term loans.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of operating and finance leases not recorded as a result of the practical expedients utilized, as a partright of the adoptionoffset of ASC 842 as of January 1, 2019industrial revenue bonds and associated failed sale-leasebacks on property and equipment, and indemnities.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires estimation and judgment that affect the reported amounts of net revenues, expenses, assets and liabilities. For a description of our critical accounting policies, please refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20182019 Annual Report on Form 10-K. As a result of adopting ASC 842 as of January 1, 2019, thereThere have been no material changes toin any of our leasecritical accounting policies during the sixthree months ended June 29, 2019, and are described in Note 2 to our condensed consolidated financial statements included in Part I, Item I of this Form 10-Q.March 28, 2020.
Recent Accounting Pronouncements
See “Part I, Item 1. Ducommun Incorporated and Subsidiaries—Notes to Condensed Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Recent Accounting Pronouncements” for further information.


Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our main market risk exposure relates to changes in U.S. and U.K. interest rates on our outstanding long-term debt. At June 29, 2019,March 28, 2020, we had total borrowings of $229.5$352.6 million under our New Credit Facilities.
The New Term Loan bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as the London Interbank Offered Rate [“LIBOR”]) plus an applicable margin ranging from 3.75%1.50% to 4.00%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 3.75%0.50% to 4.00%1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio.
The New Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR) plus an applicable margin ranging from 1.75%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 0.75%0.50% to 1.75%1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio.
A hypothetical 10% increase or decrease in the interest rate would have an immaterial impact on our financial condition and results of operations.

Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”) have conducted an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)), and concluded that such disclosure controls were effective as of the end of the period covered by this report.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal controlscontrol over financial reporting during the three months ended June 29, 2019March 28, 2020 that would have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.
 
PART II. OTHER INFORMATION


Item 1. Legal Proceedings
See Note 1211 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for a description of our legal proceedings.


Item 1A. Risk Factors
See Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20182019 for a discussion of our risk factors. ThereOther than the risk factor below, there have been no material changes in the sixthree months ended June 29, 2019March 28, 2020 to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.

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

Item 4. Mine Safety Disclosures
Not applicable.

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Item 6. Exhibits
2.1 Agreement and Plan of Merger, dated as of April 3, 2011, among Ducommun Incorporated, DLBMS, Inc. and LaBarge, Inc. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on April 5, 2011.
2.2 Agreement and Plan of Merger, dated as of September 11, 2017, among Ducommun LaBarge Technologies, Inc., LS Holdings Company LLC, and DLS Company LLC. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on September 11, 2017.
2.3 Agreement and Plan of Merger, dated as of October 8, 2019, among Ducommun LaBarge Technologies, Inc., DLT Acquisition, Inc., Nobles Parent Inc., and the Stockholder Representative. Incorporated by reference to Exhibit 2.1 to Form 8-K filed on October 9, 2019.
2.4 Stock Purchase Agreement dated January 22, 2016, by and among Ducommun Incorporated, Ducommun LaBarge Technologies, Inc., as Seller, LaBarge Electronics, Inc., and Intervala, LLC, as Buyer. Incorporated by reference to Exhibit 2.1 to Form 8-K dated January 25, 2016.
2.42.5 Stock Purchase Agreement dated February 24, 2016, by and between Ducommun LaBarge Technologies, Inc., as Seller, and General Atomics, as Buyer. Incorporated by reference to Exhibit 2.1 to Form 8-K dated February 24, 2016.
3.1Restated Certificate of Incorporation filed with the Delaware Secretary of State on May 29, 1990. Incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended December 31, 1990.
3.1  Restated Certificate of Incorporation filed with the Delaware Secretary of State on May 29, 1990. Incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended December 31, 1990.
3.2 Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on May 27, 1998. Incorporated by reference to Exhibit 3.2 to Form 10-K for the year ended December 31, 1998.
3.3 Bylaws as amended and restated on March 19, 2013. Incorporated by reference to Exhibit 99.1 to Form 8-K dated March 22, 2013.
3.4 Amendment to Bylaws dated January 5, 2017. Incorporated by reference to Exhibit 99.2 to Form 8-K dated January 9, 2017.
3.5 Amendment to Bylaws dated February 21, 2018. Incorporated by reference to Exhibit 3.1 to Form 8-K dated February 26, 2018.
4.1 Description of Ducommun Incorporated Securities Registered under Section 12 of the Exchange Act. Incorporated by reference to Exhibit 4.1 to Form 10-K for the year ended December 31, 2019.
10.1 Incremental Term Loan Lender Joinder Agreement and Additional Credit Extension Amendment, dated as of December 20, 2019, by and among Ducommun Incorporated, as Borrower, the subsidiaries of the Borrower party thereto, as Guarantors, Bank of America, N.A., as Administrative Agent, Swingline Lender and an L.C. Issuer, and the lender party thereto. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 20, 2019.
10.2 Credit Agreement, dated as of November 21, 2018, among Ducommun Incorporated, certain of its subsidiaries, Bank of America, N.A., as administrative agent, swingline lender and issuing bank, and other lenders party thereto. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 26, 2018.
*10.210.3 2007 Stock Incentive Plan. Incorporated by reference to Appendix B of Definitive Proxy Statement on Schedule 14a, filed on March 29, 2010.
*10.310.4 2013 Stock Incentive Plan (Amended and Restated March 18, 2015). Incorporated by reference to Appendix B of Definitive Proxy Statement on Schedule 14a, filed on April 22, 2015.
*10.410.5 2013 Stock Incentive Plan (Amended and Restated May 2, 2018). Incorporated by reference to Appendix A of Definitive Proxy Statement on Schedule 14a, filed on March 23, 2018.
*10.510.6 2018 Employee Stock Purchase Plan. Incorporated by reference to Appendix B of Definitive Proxy Statement on Schedule 14a, filed on March 23, 2018.
*10.610.7 Form of Stock Option Agreement for 2016 and earlier. Incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended December 31, 2003.
*10.710.8 Form of Stock Option Agreement for 2017. Incorporated by reference to Exhibit 10.5 to Form 10-K for the year ended December 31, 2016.
*10.810.9 Form of Stock Option Agreement for 2018 and after. Incorporated by reference to Exhibit 4.7 to Form S-8, filed on May 10, 2018.
*10.910.10 Form of Performance Stock Unit Agreement for 2014 and 2015. Incorporated by reference to Exhibit 10.19 to Form 10-Q for the period ended March 29, 2014.
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*10.1010.11 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.
*10.1110.12 Form of Performance Stock Unit Agreement for 2017. Incorporated by reference to Exhibit 10.21 to Form 10-Q for the period ended April 1, 2017.
*10.1210.13 Form of Restricted Stock Unit Agreement for 2016 and earlier. Incorporated by reference to Exhibit 99.1 to Form 8-K dated May 8, 2007.
*10.1310.14 Form of Restricted Stock Unit Agreement for 2017 and after. Incorporated by reference to Exhibit 10.9 to Form 10-K for the year ended December 31, 2016.

*10.1410.15 Form of Directors’ Restricted Stock Unit Agreement. Incorporated by reference to Exhibit 99.1 to Form 8-K dated May 10, 2010.
*10.1510.16 Performance Restricted Stock Unit Agreement dated January 23, 2017 between Ducommun Incorporated and Stephen G. Oswald. Incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended December 31, 2016.
*10.17 Form of Indemnity Agreement entered with all directors and officers of Ducommun. Incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended December 31, 1990. All of the Indemnity Agreements are identical except for the name of the director or officer and the date of the Agreement:
*10.16Form 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/OfficerDate of Agreement
Richard A. BaldridgeMarch 19, 2013
Gregory S. ChurchillMarch 19, 2013
Shirley G. DrazbaOctober 18, 2018
Robert C. DucommunDecember 31, 1985
Dean M. FlattNovember 5, 2009
Jay L. HaberlandFebruary 2, 2009
Stephen G. OswaldJanuary 23, 2017
Robert D. PaulsonMarch 25, 2003
Jerry L. RedondoOctober 1, 2015
Rosalie F. RogersJuly 24, 2008
Rajiv A. TataJanuary 24, 2020
Christopher D. WamplerJanuary 1, 2016
*10.1710.18 Ducommun Incorporated 2016 Bonus Plan. Incorporated by reference to Exhibit 99.3 to Form 8-K dated March 1, 2016.
*10.1810.19 Ducommun Incorporated 2017 Bonus Plan. Incorporated by reference to Exhibit 99.1 to Form 8-K dated February 27, 2017.
*10.1910.20 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.
*10.2010.21Non 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.
*10.2110.23 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:
PersonDate of Agreement
Jerry L. RedondoJanuary 23, 2017
Rosalie F. RogersJanuary 23, 2017
Rajiv A. TataJanuary 24, 2020
Christopher D. WamplerJanuary 23, 2017
*10.2210.24 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.
*10.2310.25 Employment Letter Agreement dated December 19, 2016 between Ducommun Incorporated and Amy M. Paul. Incorporated by reference to Exhibit 10.19 to Form 10-K for the year ended December 31, 2016.
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*10.2410.26 Transition Services Letter Agreement dated January 10, 2017 between Ducommun Incorporated and James S. Heiser. Incorporated by reference to Exhibit 99.1 to Form 8-K filed on January 17, 2017.
*10.2510.27 Separation and Release Agreement dated May 14, 2018 between Ducommun Incorporated and Amy M. Paul. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on May 23, 2018.
*10.2610.28 Separation and Release Agreement dated June 26, 2019 between Ducommun Incorporated and Douglas L. Groves. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 28, 2019.
31.1 Certification of Principal Executive Officer.
31.2 Certification of Principal Financial Officer.
32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS  XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
___________________
* Indicates an executive compensation plan or arrangement.



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

Date: April 30, 2020By:/s/ Stephen G. Oswald
Stephen G. Oswald
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: August 5, 2019April 30, 2020By:/s/ Stephen G. Oswald
Stephen G. Oswald
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: August 5, 2019By:/s/ Christopher D. Wampler
Christopher D. Wampler
Vice President, Interim Chief Financial Officer and Treasurer, and Controller and Chief Accounting Officer
(Principal Financial and Principal Accounting Officer)





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