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EXHIBIT 13
DUCOMMUN INCORPORATED
ANNUAL REPORT
The following portions of Ducommun Incorporated and Subsidiaries 1999 Annual
Report are incorporated by reference in Items 5, 6, 7, and 8 of this report.
Page
----
Selected Financial Data 12
Quarterly Common Stock Price Information 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-16
Consolidated Statements of Income 17
Consolidated Balance Sheets 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of Changes in
Shareholders' Equity 20
Notes to Consolidated Financial Statements 21-26
Report of Independent Accountants 27
2
SELECTED FINANCIAL DATA Ducommun Incorporated
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net Sales $ 146,054 $ 170,772 $ 157,287 $ 118,357 $91,217
------------------------------------------------------------------
Gross Profit as a Percentage of Sales 31.7% 33.3% 32.0% 32.6% 33.0%
------------------------------------------------------------------
Operating Income 22,502 29,795 25,288 15,478 10,511
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Operating Income as a Percentage of Sales 15.4% 17.4% 16.1% 13.1% 11.5%
------------------------------------------------------------------
Gain on Sale of Subsidiary -- 9,249 -- -- --
------------------------------------------------------------------
Income Before Taxes 21,892 38,919 24,653 14,325 6,941
Income Tax Expense (8,448) (15,226) (10,356) (4,040) (1,895)
------------------------------------------------------------------
Net Income $ 13,444 $ 23,693 $ 14,297 $ 10,285 $ 5,046
------------------------------------------------------------------
Earnings Per Share:
Income Before Gain on Sale of Subsidiary $ 1.28 $ 1.51 $ 1.20 $ .90 $ .59
Gain on Sale of Subsidiary -- .53 -- -- --
------------------------------------------------------------------
Diluted Earnings Per Share $ 1.28 $ 2.04 $ 1.20 $ .90 $ .59
------------------------------------------------------------------
Working Capital $ 29,862 $ 30,793 $ 30,182 $ 17,286 $11,247
Total Assets 141,802 117,204 104,241 95,814 80,974
Convertible Subordinated Debentures -- -- -- -- 24,263
Long-Term Debt Including Current Portion 27,840 6,784 5,803 10,290 12,845
Total Shareholders' Equity 87,842 83,705 73,703 59,188 24,588
QUARTERLY COMMON STOCK PRICE INFORMATION
1999 1998 1997
---------------------------------------------------------
High Low High Low High Low
- -----------------------------------------------------------------------------------
First Quarter $ 14.94 $ 9.38 $ 23.33 $ 19.42 $ 16.83 $ 13.67
Second Quarter 12.75 8.75 23.50 18.94 19.59 15.75
Third Quarter 14.94 10.75 20.75 17.19 26.46 18.58
Fourth Quarter 10.88 8.75 18.75 13.13 25.79 19.17
The common stock of the Company (DCO) is listed on the New York Stock Exchange.
On December 31, 1999, the Company had approximately 629 holders of record of
common stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACQUISITIONS
In November 1999, the Company, through a wholly-owned subsidiary, acquired the
assets and assumed certain liabilities of Parsons Precision Products, Inc.
("Parsons") for $22,073,000 in cash. Parsons is a leading manufacturer of
complex titanium hot-formed subassemblies and components for commercial and
military aerospace applications. In April 1999, the Company acquired the capital
stock of Sheet Metal Specialties Company ("SMS") for $10,096,000 in cash, net of
cash acquired and payments of other liabilities of SMS, and a $1,500,000 note.
SMS is a manufacturer of subassemblies for commercial and military aerospace
applications. In June 1998, the Company acquired the capital stock of American
Electronics, Inc. ("AEI") for $8,165,000 in cash and $1,900,000 in other
liabilities. AEI is a leading manufacturer of high precision actuators, stepper
motors, fractional horsepower motors and resolvers principally for commercial
and military space applications. The acquisitions of Parsons, SMS and AEI were
accounted for under the purchase method of accounting. These acquisitions
accounted for approximately $30,086,000 and $5,628,000 of the excess of cost
over net assets acquired at December 31, 1999, and December 31, 1998,
respectively, and is being amortized on a straight-line basis over 15 to 20
years. The consolidated statements of income include the operating results for
Parsons, SMS and AEI since the dates of the acquisitions.
The acquisitions were funded from internally generated cash, notes and other
accounts payable to sellers, and borrowings under the Company's credit agreement
with its bank (see Financial Condition for additional information). These
acquisitions strengthened the Company's position in the aerospace industry and
added complementary lines of business.
DISPOSITIONS
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc. ("3dbm"). The subsidiary was sold for
$17,250,000 in cash, resulting in a pretax gain of $9,249,000 on the sale and an
after-tax gain of $6,206,000, or $.53 per diluted share, which was recorded in
the third quarter of 1998. The Company sold 3dbm because the level of investment
required to ensure the long-term viability of 3dbm in the wireless systems
infrastructure business was more than the Company was willing to commit.
RESULTS OF OPERATIONS
1999 Compared to 1998 -- Net sales decreased 14% to $146,054,000 in 1999. The
decrease resulted primarily from a reduction in the Company's sales of
commercial and military aftermarket products in its aircraft seating and
electromechanical switch businesses, lower sales for Boeing commercial aircraft,
lower sales for space programs, and lower sales for certain commercial and
military programs due to a lack of titanium availability. The acquisitions of
SMS and Parsons increased sales by approximately $7,624,000 in 1999. The
Company's mix of business was approximately 58% commercial, 31% military and 11%
space in 1999. Foreign sales increased to 19% of sales from 17% in 1998. The
Company did not have sales to any foreign country greater than 4.2% of total
sales in 1999 or 1998.
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During 1999 and 1998, sales to Boeing were $40,310,000 and $48,334,000,
respectively; sales to Lockheed Martin were $15,470,000 and $18,465,000,
respectively; and sales to Raytheon were $10,138,000 and $12,596,000,
respectively. At December 31, 1999, trade receivables from Boeing, Lockheed
Martin and Raytheon were $3,940,000, $1,906,000 and $1,819,000, respectively.
The sales and receivables relating to Boeing, Lockheed Martin and Raytheon are
diversified over a number of different commercial, space and military programs.
The Company's commercial business is represented on virtually all of
today's major commercial aircraft. During 1999, sales for Boeing aircraft were
lower, principally because of lower commercial aircraft production rates and
what the Company believes are ongoing inventory reductions by Boeing and its
major suppliers. Sales related to commercial business were approximately
$84,943,000, or 58% of total sales in 1999.
Military components manufactured by the Company are employed in many of the
country's front-line fighters, bombers, helicopters and support aircraft, as
well as many land and sea-based vehicles. The Company's defense business is
widely diversified among military manufacturers and programs. Sales related to
military programs were approximately $44,919,000, or 31% of total sales in 1999.
The C-17 program accounted for approximately $8,270,000 in sales in 1999.
In the space sector, the Company produces components for the expendable
fuel tanks which help boost the Space Shuttle vehicle into orbit. Components are
also produced for a variety of unmanned launch vehicles and satellite programs.
Sales related to space programs were approximately $16,192,000, or 11% of total
sales in 1999.
At December 31, 1999, backlog believed to be firm was approximately
$213,100,000, compared to $138,200,000 at December 31, 1998. The backlog
increase from December 31, 1998 was due primarily to the award of follow-on
contracts by Lockheed Martin for the Space Shuttle program. These contracts,
valued in excess of $93,000,000 extend
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Ducommun Incorporated
the Company's scope of work through 2006. The Company also experienced backlog
growth at December 31, 1999 of approximately $29,000,000 from the acquisitions
of SMS and Parsons in 1999. Approximately $95,000,000 of the total backlog is
expected to be delivered during 2000.
Gross profit, as a percentage of sales, decreased to 31.7% in 1999 from
33.3% in 1998. This decrease was primarily the result of changes in sales mix,
pricing pressures from customers and nonvariable production costs spread over
lower sales.
Selling, general and administrative expenses, as a percentage of sales,
were 14.9% in 1999, compared to 15.0% in 1998.
Goodwill amortization expense, as a percentage of sales, was 1.4% in 1999,
compared to 0.8% in 1998. This increase was primarily the result of higher
goodwill amortization expense related to the SMS and Parsons acquisitions in
1999.
Interest expense increased 388% to $610,000 in 1999 primarily due to higher
debt levels in 1999 compared to 1998.
Income tax expense decreased to $8,448,000 in 1999, compared to $15,226,000
in 1998. The decrease in income tax expense was primarily due to the decrease in
income before taxes and a decrease of $3,043,000 of income taxes related to the
gain on the sale of 3dbm in 1998. Cash expended to pay income taxes decreased to
$8,170,000 in 1999, compared to $9,464,000 in 1998, primarily as a result of
taxes paid in 1998 on the gain on the sale of 3dbm.
Net income for 1999 was $13,444,000, or $1.28 diluted earnings per share,
compared to $23,693,000, or $2.04 diluted earnings per share, in 1998. Net
income for 1998 included an after-tax gain of $6,206,000, or $0.53 per diluted
share, on the sale of the capital stock of 3dbm.
1998 COMPARED TO 1997 -- Net sales increased 9% to $170,772,000 in 1998. The
increase resulted primarily from a broad-based increase in sales in most of the
Company's product lines due to outsourcing from prime contractors and first tier
subcontractors as well as new contract awards, partially offset by lower
commercial and military aftermarket sales. The net effect on sales of the
acquisition of AEI and the divestiture of 3dbm in 1998 compared to 1997 was a
decrease in sales of approximately $111,000 in 1998. The Company's mix of
business was approximately 60% commercial, 29% military and 11% space in 1998.
Foreign sales decreased to 17% of sales from 19% in 1997. Canada was the only
foreign country in which the Company had sales of 3.5% or more of total sales,
with sales of $6,173,000 in 1998 and $7,950,000 in 1997.
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During 1998 and 1997, sales to Boeing were $48,334,000 and $36,375,000,
respectively; sales to Lockheed Martin were $18,465,000 and $17,455,000,
respectively; and sales to Raytheon were $12,596,000 and $9,101,000,
respectively. At December 31, 1998, trade receivables from Boeing, Lockheed
Martin and Raytheon were $4,352,000, $1,891,000 and $1,752,000, respectively.
The sales and receivables relating to Boeing, Lockheed Martin and Raytheon are
diversified over a number of different commercial, space and military programs.
During 1998, commercial sales increased primarily as a result of increased
commercial aircraft build rates and new contract awards. Sales related to
commercial business were approximately $102,432,000, or 60% of total sales in
1998. Sales related to military programs were approximately $50,231,000, or 29%
of total sales in 1998. The C-17 program accounted for approximately $9,846,000
in sales in 1998. Sales related to space programs were approximately
$18,109,000, or 11% of total sales in 1998.
At December 31, 1998, backlog believed to be firm was approximately
$138,200,000, compared to $155,700,000 at December 31, 1997. The backlog
decrease from December 31, 1997 was due to product shipments in 1998 at a faster
rate than new business was awarded to replace it. However, the Company
experienced backlog growth principally in the Boeing 737, 777 and C-17 aircraft.
Gross profit, as a percentage of sales, increased to 33.3% in 1998 from
32.0% in 1997. This increase was primarily the result of changes in sales mix
and lower production costs.
Selling, general and administrative expenses, as a percentage of sales,
were 15.8% in 1998, compared to 15.9% in 1997.
Interest expense decreased 80% to $125,000 in 1998 primarily due to higher
interest income from invested cash in 1998 compared to 1997, which was offset
against interest expense.
Income tax expense increased to $15,226,000 in 1998, compared to
$10,356,000 in 1997. The increase in income tax expense was primarily due to
$3,043,000 of income taxes related to the gain on the sale of 3dbm and the
increase in income before taxes. Cash expended to pay income taxes increased to
$9,464,000 in 1998, compared to $4,932,000 in 1997, primarily as a result of
taxes paid on the gain on the sale of 3dbm.
Net income for 1998 was $23,693,000, or $2.04 diluted earnings per share,
compared to $14,297,000, or $1.20 diluted earnings per share, in 1997. Net
income for 1998 included an after-tax gain of $6,206,000, or $0.53 per diluted
share, on the sale of the capital stock of 3dbm.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Liquidity and Capital Resources -- Cash flow from operating activities for 1999
was $18,462,000, compared to $25,172,000 in 1998. The decrease in cash flow from
operating activities resulted principally from a decrease in net income, an
increase in inventories and a decrease in accrued liabilities partially offset
by a reduction in trade receivables. During 1999, the Company spent $32,169,000
to purchase SMS and Parsons, $9,414,000 to repurchase shares of the Company's
common stock, $5,778,000 on capital expenditures and had net borrowings of
$19,556,000.
In November 1999, the Company, through a wholly-owned subsidiary, acquired
the assets and assumed certain liabilities of Parsons for $22,073,000 in cash.
Parsons is a leading manufacturer of complex titanium hot-formed subassemblies
and components for commercial and military aerospace applications. In April
1999, the Company acquired the capital stock of SMS for $10,096,000 in cash, net
of cash acquired and payments of other liabilities of SMS, and a $1,500,000
note. SMS is a manufacturer of subassemblies for commercial and military
aerospace applications. In June 1998, the Company acquired the capital stock of
AEI for $8,165,000 in cash and $1,900,000 in other liabilities. AEI is a leading
manufacturer of high precision actuators, stepper motors, fractional horsepower
motors and resolvers principally for commercial and military space applications.
The acquisitions were funded from internally generated cash, notes and other
accounts payable to sellers and borrowings under the Company's credit agreement
with its bank. These acquisitions strengthened the Company's position in the
aerospace industry and added complementary lines of business.
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc. The subsidiary was sold for $17,250,000 in
cash, resulting in a pretax gain of $9,249,000 on the sale and an after-tax gain
of $6,206,000, or $.53 per diluted share, which was recorded in the third
quarter of 1998. The Company sold 3dbm, Inc. because the level of investment
required to ensure the long-term viability of 3dbm, Inc. in the wireless systems
infrastructure business was more than the Company was willing to commit.
The Company's bank credit agreement provides for a $40,000,000 unsecured
revolving credit line with an expiration date of July 1, 2002. At December 31,
1999, the Company had $19,010,000 of unused lines of credit, after deducting
$20,990,000 of loans outstanding.
The Company continues to depend on operating cash flow and the availability
of its bank line of credit to provide short-term liquidity. Cash from operations
and bank borrowing capacity are expected to provide sufficient liquidity to meet
the Company's obligations during 2000.
Aggregate maturities of long-term debt during the next five years are as
follows: 2000, $1,496,000; 2001, $1,409,000; 2002, $22,365,000; 2003, $560,000;
2004, $2,010,000.
The Company expects to spend less than $16,000,000 for capital expenditures
in 2000. The Company believes that the ongoing subcontractor consolidation makes
acquisition an increasingly important component of the Company's future growth,
accordingly, the Company plans to continue to seek attractive acquisition
opportunities and to make substantial capital expenditures for manufacturing
equipment and facilities to support long-term aerospace structure contracts for
both commercial and military aircraft and space programs. These expenditures are
expected to place the Company in a favorable competitive position among
aerospace subcontractors and to allow the Company to take advantage of the
off-load requirements from its customers.
Since 1998, the Company's Board of Directors has authorized the repurchase
of up to $30,000,000 of its common stock. The Company repurchased in the open
market 931,762 shares of its common stock in 1998 for a total of $14,652,000 and
877,300 shares of its common stock in 1999 for a total of $9,414,000. In April
1999, the Company cancelled 953,762 shares of treasury stock.
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier of
chemical milling services for the aerospace industry. Aerochem has been directed
by California environmental agencies to investigate and take corrective action
for groundwater contamination at its El Mirage, California facility (the
"Site"). Aerochem expects to spend approximately $1 million for future
investigation and corrective action at the Site, and the Company has established
a provision for such costs. However, the Company's ultimate liability in
connection with the Site will depend upon a number of factors, including changes
in existing laws and regulations, and the design and cost of the construction,
operation and maintenance of the corrective action.
Com Dev Consulting Ltd. ("Com Dev") has filed a complaint against the
Company and certain of its officers relating to the sale of the capital stock of
3dbm by the Company to Com Dev in August 1998. On February 3, 2000, the United
States District Court dismissed the complaint without prejudice. The Company
intends to vigorously defend the matter if
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Ducommun Incorporated
Com Dev attempts to reassert its claims. While it is not feasible to predict the
outcome of this matter, the Company presently believes that the final resolution
of the matter will not have a material adverse effect on its consolidated
financial position or results of operations.
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, the Company makes various
commitments and incurs contingent liabilities. While it is not feasible to
predict the outcome of these matters, the Company 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 consolidated financial position or results of
operations.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 will become effective for the
Company in 2001. The adoption of SFAS 133 is not expected to have a material
effect on the Company's financial position, results of operations or cash flow.
YEAR 2000
The Company has substantially completed its systems Year 2000 date conversion
project to address necessary code changes, testing, and implementation. Critical
systems were inventoried, assessed and tested for Year 2000 compliance, and the
Company has developed contingency plans to the extent feasible. The cost of this
project was approximately $224,000. The Company continues to evaluate both its
products and its machinery and equipment against Year 2000 concerns. As a result
of these ongoing evaluations, the Company is not currently aware of any
significant exposure to contingencies related to the Year 2000 issue as a result
of its information systems software, products, or machinery and equipment. All
planned evaluation and testing of material internal software applications,
operating systems, products and machinery and equipment has been completed with
no material effect on the Company's operations and without any material
expenditures or other material diversions of resources. The Company continues to
work with third parties with which it has a material relationship to attempt to
determine their preparedness with respect to Year 2000 issues and to analyze the
risk to the Company in the event any such third parties experience significant
business interruptions as a result of Year 2000 noncompliance. However, there
can be no assurance that the systems of other companies on which the Company's
business or systems rely are Year 2000 compliant or that any failure to be Year
2000 compliant by another company would not have an adverse effect on the
Company's business or systems. To date the Company has not experienced any
significant Year 2000 problems.
FORWARD LOOKING STATEMENT AND RISK FACTORS
Any forward-looking statements made in this Annual Report involve risks and
uncertainties. The Company's future financial results could differ materially
from those anticipated due to the Company's dependence on conditions in the
airline industry, the level of new commercial aircraft orders, the production
rate for the Space Shuttle and other space programs, the level of defense
spending, competitive pricing pressures, technology and product development
risks and uncertainties, product performance, risks associated with acquisitions
and dispositions of businesses by the Company, increasing consolidation of
customers and suppliers in the aerospace industry, availability of raw materials
and components from suppliers, and other factors beyond the Company's control.
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CONSOLIDATED STATEMENTS OF INCOME Ducommun Incorporated
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net Sales $ 146,054 $ 170,772 $ 157,287
---------------------------------
Operating Costs and Expenses:
Cost of goods sold 99,725 113,929 106,967
Selling, general and administrative
expenses 21,791 25,603 23,748
Goodwill amortization expense 2,036 1,445 1,284
---------------------------------
Total Operating Costs and Expenses 123,552 140,977 131,999
---------------------------------
Operating Income 22,502 29,795 25,288
Interest Expense (610 (125) (635)
Gain on Sale of Subsidiary -- 9,249 --
---------------------------------
Income Before Taxes 21,892 38,919 24,653
Income Tax Expense (8,448 (15,226) (10,356)
---------------------------------
Net Income $ 13,444 $ 23,693 $ 14,297
=================================
Earnings Per Share:
Basic earnings per share $ 1.32 $ 2.13 $ 1.30
Diluted earnings per share 1.28 2.04 1.20
See accompanying notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS Ducommun Incorporated
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands, except share data)
ASSETS
Current Assets:
Cash and cash equivalents $ 138 $ 9,066
Accounts receivable
(less allowance for doubtful accounts of
$153 and $125) 20,022 19,680
Inventories (Note 3) 26,347 19,495
Deferred income taxes (Note 11) 2,698 4,449
Prepaid income taxes 1,864 1,283
Other current assets 3,335 2,437
-----------------------
Total Current Assets 54,404 56,410
Property and Equipment, Net (Note 4) 44,689 41,145
Excess of Cost Over Net Assets Acquired
(Net of Accumulated Amortization
of $7,504 and $5,468) 41,895 18,974
Other Assets 814 675
-----------------------
$ 141,802 $ 117,204
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 6) $ 1,496 $ 1,434
Accounts payable 8,135 7,445
Accrued liabilities (Note 5) 14,911 16,738
-----------------------
Total Current Liabilities 24,542 25,617
Long-Term Debt, Less Current Portion (Note 6) 26,344 5,350
Deferred Income Taxes (Note 11) 2,174 1,714
Other Long-Term Liabilities 900 818
-----------------------
Total Liabilities 53,960 33,499
-----------------------
Commitments and Contingencies (Notes 10 and 12)
Shareholders' Equity (Note 7):
Common stock -- $.01 par value; authorized
35,000,000 shares; issued
10,423,810 shares in 1999 and
11,345,255 shares in 1998 104 113
Additional paid-in capital 45,597 60,419
Retained earnings 51,269 37,825
Less common stock held in treasury --
855,300 shares in 1999 and 931,762 shares in 1998 (9,128) (14,652)
-----------------------
Total Shareholders' Equity 87,842 83,705
-----------------------
$ 141,802 $ 117,204
=======================
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS Ducommun Incorporated
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 13,444 $ 23,693 $ 14,297
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Depreciation and amortization 6,846 5,868 5,340
Deferred income tax provision 2,211 1,783 5,200
Gain on sale of subsidiary and other assets (163) (9,249) --
Changes in Assets and Liabilities,
Net of Effects
From Acquisitions and Disposition:
Accounts receivable 2,471 (1,798) (4,467)
Inventories (2,237) 4,313 (2,009)
Prepaid income taxes (545) 1,594 (2,877)
Other assets (891) (613) (429)
Accounts payable 60 (1,064) 681
Accrued and other liabilities (2,734) 645 (2,253)
--------------------------------
Net Cash Provided by Operating
Activities 18,462 25,172 13,483
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (5,778) (11,827) (7,629)
Acquisition of Businesses (32,169) (8,165) --
Proceeds from Sale of Subsidiary -- 17,250 --
Cash Payments Related to Sale of Subsidiary -- (1,143) --
Proceeds from Sale of Assets 310 233 --
--------------------------------
Net Cash Used in Investing Activities (37,637) (3,652) (7,629)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayment) of Long-Term Debt 19,556 (919) (4,487)
Purchase of Common Stock for Treasury (9,414) (14,652) --
Other 105 961 218
--------------------------------
Net Cash Provided by (Used in)
Financing Activities 10,247 (14,610) (4,269)
--------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents (8,928) 6,910 1,585
Cash and Cash Equivalents -- Beginning
of Year 9,066 2,156 571
--------------------------------
Cash and Cash Equivalents -- End of Year $ 138 $ 9,066 $ 2,156
================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest Expense Paid $ 745 $ 401 $ 720
Income Taxes Paid $ 8,170 $ 9,464 $ 4,932
Supplemental Information for Non-Cash Investing and Financing Activities:
See Note 2 for non-cash investing activities related to the acquisition of
businesses.
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN Ducommun Incorporated
SHAREHOLDERS' EQUITY
Additional Retained Total
Shares Common Paid-In Earnings Treasury Shareholders'
Outstanding Stock Capital (Deficit) Stock Equity
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
Balance at January 1, 1997 7,301,428 $ 73 $ 59,280 $ (165) $ -- $ 59,188
Stock options exercised 269,117 3 1,030 -- -- 1,033
Stock repurchased related to the
exercise of stock options (116,347) (2) (4,134) -- -- (4,136)
Income tax benefit related to the
exercise of nonqualified stock options -- -- 3,321 -- -- 3,321
Net Income -- -- -- 14,297 -- 14,297
----------------------------------------------------------------------
Balance at December 31, 1997 7,454,198 74 59,497 14,132 -- 73,703
Stock options exercised 198,550 2 981 -- -- 983
Stock repurchased related to the
exercise of stock options (55,562) -- (1,397) -- -- (1,397)
Income tax benefit related to the
exercise of nonqualified stock options -- -- 1,375 -- -- 1,375
Adjustment for stock split 3,748,069 37 (37) -- -- --
Common stock held in treasury (931,762) -- -- -- (14,652) (14,652)
Net Income -- -- -- 23,693 -- 23,693
----------------------------------------------------------------------
Balance at December 31, 1998 10,413,493 113 60,419 37,825 (14,652) 83,705
Stock options exercised 52,475 1 190 -- -- 191
Stock repurchased related to the
exercise of stock options (20,158) -- (277) -- -- (277)
Income tax benefit related to the
exercise of nonqualified stock options -- -- 193 -- -- 193
Common stock repurchased for treasury (877,300) -- -- -- (9,414) (9,414)
Treasury stock retired -- (10) (14,928) -- 14,938 --
Net Income -- -- -- 13,444 -- 13,444
----------------------------------------------------------------------
Balance at December 31, 1999 9,568,510 $ 104 $ 45,597 $ 51,269 $ (9,128) $ 87,842
======================================================================
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of the
Company and its subsidiaries, after eliminating significant intercompany
balances and transactions.
Cash Equivalents: Cash equivalents consist of highly liquid instruments
purchased with original maturities of three months or less.
Revenue Recognition: Revenue, including sales under fixed price contracts, is
recognized upon shipment of products or when title passes based on the terms of
sale. The effects of revisions in contract value or estimated costs of
completion are recognized over the remaining terms of the agreement. Provisions
for estimated losses on contracts are recorded in the period identified.
Inventory Valuation: Inventories are stated at the lower of cost or market. Cost
is determined based upon the first-in, first-out method. Costs on fixed price
contracts in progress included in inventory represent accumulated recoverable
costs less the portion of such costs allocated to delivered units and
applicable progress payments received.
Property and Depreciation: Property and equipment, including assets recorded
under capital leases, are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives ranging
from 2 to 40 years and, in the case of leasehold improvements, over the shorter
of the lives of the improvements or the lease term.
Income Taxes: Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns.
Excess of Costs Over Net Assets Acquired: The cost of acquired businesses in
excess of the fair market value of their underlying net assets is amortized on
the straight-line basis over periods ranging from 15 to 40 years. The Company
assesses the recoverability of cost in excess of net assets of acquired
businesses by determining whether the amortization of this intangible asset over
its remaining life can be recovered through future operating cash flows.
Environmental Liabilities: Environmental liabilities are recorded when
environmental assessments and/or remedial efforts are probable and costs can be
reasonably estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study or the Company's commitment to a formal plan
of action.
Earnings Per Share: Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding in each year. Diluted earnings per share is computed by dividing
income available to common shareholders plus income associated with dilutive
securities by the weighted average number of common shares outstanding plus any
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock in each year. In
1999, 1998 and 1997, income available to common shareholders was $13,444,000,
$23,693,000 and $14,297,000, respectively. In 1999, 1998 and 1997, the weighted
average number of common shares outstanding was 10,209,000, 11,149,000 and
11,037,000, respectively, and the dilutive shares associated with stock options
were 309,000, 469,000 and 829,000, respectively.
Stock-Based Compensation: Compensation cost attributable to stock option and
similar plans is recognized based on the difference, if any, between the
closing market price of the stock on the date of grant over the exercise price
of the option. The Company has not issued any stock options with an exercise
price less than the closing market price of the stock on the date of grant.
Comprehensive Income: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 was effective for the Company
during 1998. This statement divides comprehensive income into net income and
other comprehensive income. The Company has no items of other comprehensive
income in any period presented and is consequently not required to report
comprehensive income.
Use of Estimates: Certain amounts and disclosures included in the consolidated
financial statements required management to make estimates that could differ
from actual results.
NOTE 2. ACQUISITIONS AND DISPOSITION
In November 1999, the Company, through a wholly-owned subsidiary, acquired the
assets and assumed certain liabilities of Parsons Precision Products, Inc.
("Parsons") for $22,073,000 in cash. Parsons is a leading manufacturer of
complex titanium hot-formed subassemblies and components for commercial and
military aerospace applications. In April 1999, the Company acquired the capital
stock of Sheet Metal Specialties Company ("SMS") for $10,096,000 in cash, net of
cash acquired and payments of other liabilities of SMS, and a $1,500,000 note.
SMS is a manufacturer of subassemblies for commercial and military aerospace
applications. In June 1998, the Company acquired the capital stock of American
Electronics, Inc. ("AEI") for $8,165,000 in cash and $1,900,000 in other
liabilities. AEI is a leading manufacturer of high-precision actuators, stepper
motors, fractional horsepower motors and resolvers principally for commercial
and military space applications.
The acquisitions of Parsons, SMS and AEI were accounted for under the
purchase method of accounting and, accordingly, the operating results for
Parsons, SMS and AEI have been included in the consolidated statements of income
since the dates of the respective acquisitions. The cost of the acquisitions was
allocated on the basis of the estimated fair value of assets acquired and
liabilities assumed. These acquisitions accounted for approximately $30,086,000
and $5,628,000 of the excess of cost over net assets acquired at December 31,
1999, and December 31, 1998, respectively, and is being amortized on a
straight-line basis over 15 to 20 years.
The following table presents unaudited pro forma consolidated operating
results for the Company for the years ended December 31, 1999 and December 31,
1998, as if the SMS and Parsons acquisitions had occurred as of the beginning of
the periods presented.
21
12
1999 1998
- --------------------------------------------------------------------------------
(In thousands, except per share amounts) (Unaudited)
Net sales $ 159,838 $ 191,249
Net earnings 13,931 23,465
Basic earnings per share 1.36 2.10
Diluted earnings per share 1.32 2.02
The unaudited pro forma consolidated operating results of the Company are
not necessarily indicative of the operating results that would have been
achieved had the SMS and Parsons acquisitions been consummated at the beginning
of the periods presented, and should not be construed as representative of
future operating results.
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc. The subsidiary was sold for $17,250,000 in
cash, resulting in a pretax gain of $9,249,000 on the sale and an after-tax gain
of $6,206,000, or $.53 per diluted share, which was recorded in the third
quarter of 1998.
NOTE 3. INVENTORIES
Inventories consist of the following:
December 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
Raw materials and supplies $ 9,122 $ 7,081
Work in process 16,614 12,630
Finished goods 2,192 820
--------------------------
27,928 20,531
Less progress payments 1,581 1,036
--------------------------
Total $26,347 $19,495
==========================
Work in process inventories include amounts under long-term fixed price
contracts aggregating $10,975,000 and $7,171,000 at December 31, 1999 and 1998,
respectively.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Range of
Estimated
DECEMBER 31, 1999 1998 Useful Lives
- ---------------------------------------------------------------------------------
(In thousands)
Land $ 9,690 $ 9,560
Buildings and improvements 16,207 14,733 5-40 Years
Machinery and equipment 50,690 43,130 2-20 Years
Furniture and equipment 7,252 6,256 2-10 Years
Construction in progress 1,046 2,931
-----------------
84,885 76,610
Less accumulated depreciation and amortization 40,196 35,465
-----------------
Total $44,689 $41,145
=================
Depreciation expense was $5,071,000, $4,423,000 and $4,056,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
Accrued compensation $ 7,147 $ 8,357
Provision for environmental costs 2,111 2,135
Customer deposits 702 534
Accrued state franchise and sales tax 141 462
Other 4,810 5,250
-------------------------
Total $14,911 $ 16,738
=========================
22
13
NOTE 6. LONG-TERM DEBT
Long-term debt is summarized as follows:
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
Bank credit agreement $20,990 $ --
Term and real estate loans 4,175 4,635
Notes and other liabilities for acquisitions 2,675 2,149
-------------------------
Total debt 27,840 6,784
Less current portion 1,496 1,434
-------------------------
Total long-term debt $26,344 $ 5,350
=========================
The Company's bank credit agreement provides for a $40,000,000 unsecured
revolving credit line with an expiration date of July 1, 2002. Interest is
payable monthly on the outstanding borrowings based on the bank's prime rate
(8.50% at December 31, 1999) minus 0.25%. A Eurodollar pricing option is also
available to the Company for terms of up to six months at the Eurodollar rate
plus a spread based on the leverage ratio of the Company calculated at the end
of each fiscal quarter (1.00% at December 31, 1999). At December 31, 1999, the
Company had $19,010,000 of unused lines of credit, after deducting $20,990,000
of loans outstanding. The credit agreement includes fixed charge coverage and
maximum leverage ratios, an unused commitment fee of .125%, and limitations on
future dividend payments and outside indebtedness.
The weighted average interest rate on borrowings outstanding was 7.09% and
6.73% at December 31, 1999 and 1998, respectively.
The carrying amount of long-term debt approximates fair value based on the
terms of the related debt, recent transactions and estimates using interest
rates currently available to the Company for debt with similar terms and
remaining maturities.
Aggregate maturities of long-term debt during the next five years are as
follows: 2000, $1,496,000; 2001, $1,409,000; 2002, $22,365,000; 2003, $560,000;
2004, $2,010,000.
NOTE 7. SHAREHOLDERS' EQUITY
At December 31, 1999 and 1998, no preferred shares were issued or outstanding.
Since 1998, the Company's Board of Directors has authorized the repurchase
of up to $30,000,000 of its common stock. The Company repurchased in the open
market 931,762 shares of its common stock in 1998 for a total of $14,652,000 and
877,300 shares of its common stock in 1999 for a total of $9,414,000. In April
1999, the Company cancelled 953,762 shares of treasury stock.
NOTE 8. STOCK OPTIONS
The Company has three stock option or incentive plans. Stock awards may be made
to directors, officers and key employees under the stock plans on terms
determined by the Compensation Committee of the Board of Directors or, with
respect to directors, on terms determined by the Board of Directors. Stock
options have been and may be granted to directors, officers and key employees
under the stock plans at prices not less than 100% of the market value on the
date of grant and expire not more than ten years from the date of grant. The
option price and number of shares are subject to adjustment under certain
dilutive circumstances. At December 31, 1999, options for 612,866 shares of
common stock were exercisable.
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with
the provisions of SFAS 123, the Company applies APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans and does not recognize compensation expense for its stock-based
compensation plans based on the fair value method prescribed by SFAS 123. If the
Company had elected to recognize compensation expense based upon the fair value
at the grant date for awards under these plans consistent with the methodology
prescribed by SFAS 123, the Company's net income and earnings per share would be
reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net Income:
As reported $ 13,444 $ 23,693 $ 14,297
Pro forma 12,851 23,150 14,032
Earnings per common share:
As reported:
Basic $ 1.32 $ 2.13 $ 1.30
Diluted 1.28 2.04 1.20
Pro forma:
Basic $ 1.26 $ 2.08 $ 1.27
Diluted 1.22 1.99 1.18
23
14
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: dividend yields of zero
percent; expected monthly volatility of 36.15, 29.17 and 30.62 percent;
risk-free interest rates of 4.88, 5.53 and 6.38 percent; and expected option
life of four years for 1999, 1998 and 1997. The weighted average fair value of
options granted during 1999, 1998 and 1997, for which the exercise price equals
the market price on the grant date, was $4.45, $10.02 and $4.99, respectively.
At December 31, 1999, 547,364 common shares were available for future
grants and 1,003,912 common shares were reserved for the exercise of outstanding
options. Option activity during the three years ended December 31, 1999 was as
follows:
Weighted Average
Number Exercise Price of
Of Shares Options Outstanding
- -------------------------------------------------------------------------------------
Outstanding at January 1, 1997 1,278,488 4.093
Granted 97,500 14.600
Exercised (403,676) 2.559
Forfeited (51,525) 8.823
---------
Outstanding at December 31, 1997 920,787 5.614
Granted 206,450 21.283
Exercised (232,088) 4.237
Forfeited (14,624) 17.177
---------
Outstanding at December 31, 1998 880,525 9.479
Granted 200,000 12.593
Exercised (52,475) 3.626
Forfeited (24,138) 14.775
---------
Outstanding at December 31, 1999 1,003,912 6.841
=========
The following table summarizes information concerning currently outstanding and
exercisable stock options:
Weighted
Average Weighted Weighted
Number of Remaining Average Average
Range of Outstanding Contractual Exercise Number Exercise
Exercise Prices Options Life Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------
$ 2.333-$ 2.999 244,625 1.37 $ 2.506 244,625 $ 2.506
$ 3.000-$ 4.999 112,000 2.00 3.083 112,000 3.083
$ 5.000-$ 7.999 15,000 0.92 6.750 15,000 6.750
$ 8.000-$11.999 171,187 1.70 9.311 133,641 9.375
$12.000-$17.999 270,700 3.36 13.342 60,000 14.444
$18,000-$23,210 190,400 3.12 21.286 47,600 21.286
--------- -------
Total 1,003,912 2.36 $ 10.278 612,866 $ 6.841
========= =======
NOTE 9. EMPLOYEE BENEFIT PLANS
The Company has an unfunded supplemental retirement plan that was suspended in
1986, but which continues to cover certain former executives. The accumulated
benefit obligations under the plan at December 31, 1999 and December 31, 1998
were $567,000 and $638,000, respectively, which are included in accrued
liabilities.
The Company provides certain health care benefits for retired employees.
Employees become eligible for these benefits if they meet minimum age and
service requirements, are eligible for retirement benefits and agree to
contribute a portion of the cost. As of December 31, 1999, there were 132
current and retired employees and dependents eligible for such benefits.
Eligibility for additional employees to become covered by retiree health
benefits was terminated in 1988. The Company accrues postretirement health care
benefits over the period in which active employees become eligible for such
benefits. The accrued postretirement benefit cost under these plans is included
in accrued liabilities.
The components of net periodic postretirement benefits cost for these plans
are as follows:
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------
(In thousands)
Service cost $ -- $ 1 $ 1
Interest cost 87 92 103
Amortization of net transition obligation 84 84 84
Amortization of actuarial gain (18) (22) (22)
-------------------------
Net periodic postretirement benefit cost $ 153 $ 155 $ 166
=========================
24
15
The actuarial liabilities for these postretirement benefits are as follows:
December 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
Beginning obligation (January 1) $1,398 $1,481
Service cost - 1
Interest cost 87 92
Actuarial gain (106) (103)
Benefits paid (69) (73)
------ ------
Benefit obligation (December 31) 1,310 1,398
Unrecognized net transition obligation (487) (571)
Unrecognized prior service cost -- --
Unrecognized net gain 490 402
------ ------
Accrued benefit cost $1,313 $1,229
====== ======
The accumulated postretirement benefit obligations at December 31, 1999 and
1998 were determined using an assumed discount rate of 7.75% and 6.75%,
respectively. For measurement purposes, an 8.0% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2000; the rate
was assumed to decrease gradually to 4.75% in the year 2009 and remain at that
level thereafter over the projected payout period of the benefits.
A 1% increase in the assumed annual health care cost trend rate would
increase the present value of the accumulated postretirement benefit obligation
at December 31, 1999, by $300, and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year then
ended by $0.
NOTE 10. LEASES
The Company leases certain facilities and equipment for periods ranging from 1
to 6 years. The leases generally are renewable and provide for the payment of
property taxes, insurance and other costs relative to the property. Rental
expense in 1999, 1998 and 1997 was $3,487,000, $3,483,000 and $4,156,000,
respectively. Future minimum rental payments under operating leases having
initial or remaining noncancelable terms in excess of 1 year at December 31,
1999 are as follows:
Lease Commitments
- --------------------------------------------------------------------------------
(In thousands)
2000 $ 2,833
2001 2,117
2002 1,414
2003 809
2004 574
Thereafter 720
--------
Total $ 8,467
========
NOTE 11. INCOME TAXES
The provision for income tax expense consists of the following:
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
Current tax expense:
Federal $ 5,390 $11,355 $ 3,390
State 847 2,088 1,766
-------------------------------------
6,237 13,443 5,156
-------------------------------------
Deferred tax expense:
Federal 1,947 1,747 5,171
State 264 36 29
-------------------------------------
2,211 1,783 5,200
-------------------------------------
Income Tax Expense $ 8,448 $15,226 $10,356
=====================================
Deferred tax assets (liabilities) are comprised of the following:
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
Employment-related reserves $ 1,527 $ 2,077
Environmental reserves 741 751
Inventory reserves 787 1,289
Other 634 1,351
-------------------------
3,689 5,468
Depreciation (3,165) (2,733)
-------------------------
Net deferred tax assets $ 524 $ 2,735
=========================
25
16
The principal reasons for the variation from the customary relationship
between income taxes and income from continuing operations before income taxes
are as follows:
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes (net of federal benefit) 3.3 4.1 5.3
Goodwill amortization 2.2 0.5 1.2
Other (1.9) (0.5) 0.5
---------------------------
Effective Income Tax Rate 38.6% 39.1% 42.0%
===========================
NOTE 12. CONTINGENCIES
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier of
chemical milling services for the aerospace industry. Aerochem has been directed
by California environmental agencies to investigate and take corrective action
for groundwater contamination at its El Mirage, California facility (the
"Site"). Aerochem expects to spend approximately $1 million for future
investigation and corrective action at the Site, and the Company has established
a provision for such costs. However, the Company's ultimate liability in
connection with the Site will depend upon a number of factors, including changes
in existing laws and regulations, and the design and cost of the construction,
operation and maintenance of the correction action.
Com Dev Consulting Ltd. ("Com Dev") has filed a complaint against the
Company and certain of its officers relating to the sale of the capital stock of
3dbm by the Company to Com Dev in August 1998. On February 3, 2000, the United
States District Court dismissed the complaint without prejudice. The Company
intends to vigorously defend the matter if Com Dev attempts to reassert its
claims. While it is not feasible to predict the outcome of this matter, the
Company presently believes that the final resolution of the matter will not have
a material adverse effect on its consolidated financial position or results of
operations.
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, the Company makes various
commitments and incurs contingent liabilities. While it is not feasible to
predict the outcome of these matters, the Company 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 consolidated financial position or results of
operations.
NOTE 13. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company provides proprietary products and services to most of the prime
aerospace and aircraft manufacturers. As a result, the Company's sales and trade
receivables are concentrated principally in the aerospace industry.
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During 1999, 1998 and 1997, sales to Boeing were $40,310,000, $48,334,000 and
$36,375,000, respectively; sales to Lockheed Martin were $15,470,000,
$18,465,000 and $17,455,000, respectively; and sales to Raytheon were
$10,138,000, $12,596,000 and $9,101,000, respectively. At December 31, 1999,
trade receivables from Boeing, Lockheed Martin and Raytheon were $3,940,000,
$1,906,000 and $1,819,000, respectively. The sales and receivables relating to
Boeing, Lockheed Martin and Raytheon are diversified over a number of different
commercial, space and military programs.
In 1999, 1998 and 1997, foreign sales to manufacturers worldwide were
$28,313,000, $29,007,000 and $29,978,000, respectively. The Company had no sales
to a foreign country greater than 4.2% of total sales in 1999, 1998 and 1997,
respectively. The amounts of revenue, profitability and identifiable assets
attributable to foreign operations are not material when compared with revenue,
profitability and identifiable assets attributed to United States domestic
operations during 1999, 1998 and 1997.
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
1999 1998
--------------------------------------------- ------------------------------------------------
Three months ended Dec 31 Oct 2 Jul 3 Apr 3 Dec 31 Oct 3 Jul 4 Apr 4
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Sales and Earnings
Net Sales $ 37,829 $ 37,218 $ 36,470 $ 34,537 $ 40,484 $ 41,273 $ 45,754 $ 43,261
---------------------------------------------------------------------------------------------------
Gross Profit 11,860 12,114 11,592 10,763 13,591 13,488 15,980 13,784
---------------------------------------------------------------------------------------------------
Gain on Sale of Subsidiary -- -- -- -- -- 9,249 -- --
---------------------------------------------------------------------------------------------------
Income Before Taxes 4,994 5,908 5,647 5,343 7,783 16,561 8,572 6,003
Income Tax Expense (1,814) (2,238) (2,258) (2,138) (3,209) (6,041) (3,515) (2,461)
---------------------------------------------------------------------------------------------------
Net Income $ 3,180 $ 3,670 $ 3,389 $ 3,205 $ 4,574 $ 10,520 $ 5,057 $ 3,542
===================================================================================================
Earnings Per Share:
Basic $ .32 $ .36 $ .33 $ .31 $ .42 $ .94 $ .45 $ .32
Diluted $ .32 $ .35 $ .32 $ .30 $ .40 $ .90 $ .43 $ .30
26
17
Report of Independent Accountants
To the Board of Directors and Shareholders of Ducommun Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Ducommun Incorporated and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Los Angeles, California
February 17, 2000
27
18
BOARD OF DIRECTORS
JOSEPH C. BERENATO
Chairman of the Board,
President and Chief Executive Officer,
Ducommun Incorporated
NORMAN A. BARKELEY
Chairman Emeritus
H. FREDERICK CHRISTIE
Consultant; Retired President
and Chief Executive Officer,
The Mission Group
(subsidiary of SCEcorp)
EUGENE P. CONESE, JR.
President and Chief Executive Officer,
Aero Capital LLC
RALPH D. CROSBY, JR.
President,
The Integrated Systems and
Aerostructures Sector of Northrop Grumman Corporation
ROBERT C. DUCOMMUN
Management Consultant
KEVIN S. MOORE
President,
The Clark Estates, Inc.
THOMAS P. MULLANEY
General Partner,
Matthews, Mullaney & Company
RICHARD J. PEARSON
Retired President and
Chief Operating Officer,
Avery Dennison Corporation
ARTHUR W. SCHMUTZ
Advisory Counsel,
Gibson, Dunn & Crutcher
OFFICERS
JOSEPH C. BERENATO
Chairman of the Board,
President and Chief Executive Officer
ROBERT A. BORLET
Vice President,
Manufacturing Operations
JAMES S. HEISER
Vice President, Chief Financial Officer,
General Counsel, Secretary and Treasurer
KENNETH R. PEARSON
Vice President, Human Resources
MICHAEL W. WILLIAMS
Vice President, Corporate Development
SAMUEL D. WILLIAMS
Vice President and Controller
MAJOR SUBSIDIARIES
JEFFREY P. ABBOTT
President,
Aerochem, Inc.
PAUL L. GRAHAM
President,
Ducommun Technologies, Inc.
BRUCE J. GREENBAUM
President,
Brice Manufacturing Company, Inc.
ROBERT B. HAHN
President,
MechTronics of Arizona Corp.
ROBERT L. HANSEN
President,
AHF-Ducommun Incorporated
COMMON STOCK
Ducommun Incorporated common stock is listed on the New York Stock Exchange
(Symbol DCO)
FORM 10-K
A copy of the Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, may be obtained by shareholders without charge by writing
to the Secretary of the Company
REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 522-6645
www.chasemellon.com
WORLD WIDE WEBSITE
www.ducommun.com