1
EXHIBIT 13
DUCOMMUN INCORPORATED
ANNUAL REPORT
The following portions of Ducommun Incorporated and Subsidiaries 2000 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 21-27
Report of Independent Accountants 28
2
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH TWELVE
- --------------------------------------------------------------------------------
SELECTED
FINANCIAL
DATA
- --------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998 1997 1996
- ----------------------------------------- --------- --------- --------- --------- ---------
(In thousands, except per share amounts)
Net Sales $ 165,711 $ 146,054 $ 170,772 $ 157,287 $ 118,357
--------- --------- --------- --------- ---------
Gross Profit as a Percentage of Sales 28.9% 31.7% 33.3% 32.0% 32.6%
--------- --------- --------- --------- ---------
Operating Income 22,305 22,502 29,795 25,288 15,478
--------- --------- --------- --------- ---------
Operating Income as a Percentage of Sales 13.5% 15.4% 17.4% 16.1% 13.1%
--------- --------- --------- --------- ---------
Gain on Sale of Subsidiary -- -- 9,249 -- --
--------- --------- --------- --------- ---------
Income Before Taxes 20,517 21,892 38,919 24,653 14,325
Income Tax Expense (7,797) (8,448) (15,226) (10,356) (4,040)
--------- --------- --------- --------- ---------
Net Income $ 12,720 $ 13,444 $ 23,693 $ 14,297 $ 10,285
========= ========= ========= ========= =========
Earnings Per Share:
Income Before Gain on Sale of Subsidiary $ 1.30 $ 1.28 $ 1.51 $ 1.20 $ .90
Gain on Sale of Subsidiary -- -- .53 -- --
--------- --------- --------- --------- ---------
Diluted Earnings Per Share $ 1.30 $ 1.28 $ 2.04 $ 1.20 $ .90
========= ========= ========= ========= =========
Working Capital $ 31,403 $ 29,862 $ 30,793 $ 30,182 $ 17,286
Total Assets 148,474 141,802 117,204 104,241 95,814
Long-Term Debt Including Current Portion 19,654 27,840 6,784 5,803 10,290
Total Shareholders' Equity 99,529 87,842 83,705 73,703 59,188
Share-related data have been adjusted for the 3-for-2 stock split in June 1998.
QUARTERLY COMMON STOCK PRICE INFORMATION
2000 1999 1998
------------------ ------------------ ------------------
High Low High Low High Low
------ ------ ------ ------ ------ ------
First Quarter $11.00 $ 8.75 $14.94 $ 9.38 $23.33 $19.42
Second Quarter 12.44 8.88 12.75 8.75 23.50 18.94
Third Quarter 15.38 12.13 14.94 10.75 20.75 17.19
Fourth Quarter 14.13 10.56 10.88 8.75 18.75 13.13
The common stock of the Company (DCO) is listed on the New York Stock Exchange.
On December 31, 2000, the Company had approximately 592 holders of record of
common stock.
3
2000 ANNUAL REPORT THIRTEEN
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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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 space
applications. The acquisitions of Parsons, SMS and AEI were accounted for under
the purchase method of accounting. These acquisitions accounted for
approximately $30,099,000 and $30,086,000 of the excess of cost over net assets
acquired at December 31, 2000, and December 31, 1999, respectively, which 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 (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 $0.53 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
2000 Compared to 1999 - Net sales increased 13% to $165,711,000 in 2000. The
increase resulted primarily from an increase in the Company's sales from the SMS
and Parsons acquisitions, as well as sales from a new contract at AHF-Ducommun
for C-17 fuselage panels. Sales to the C-17 program increased approximately
$11,300,000 in 2000. The acquisitions of SMS and Parsons increased sales by
approximately $13,000,000 in 2000. Excluding the SMS and Parsons acquisitions,
sales increased 5% in 2000 compared to 1999. The Company's mix of business was
approximately 53% commercial, 38% military and 9% space in 2000. Foreign sales
decreased to 16% of sales from 19% in 1999. The Company did not have sales to
any foreign country greater than 5% of total sales in 2000 or 1999.
The Company had substantial sales to Boeing, Lockheed Martin and
Raytheon. During 2000 and 1999, sales to Boeing were $61,109,000 and
$40,310,000, respectively; sales to Lockheed Martin were $12,685,000 and
$15,470,000, respectively; and sales to Raytheon were $14,242,000 and
$10,138,000, respectively. At December 31, 2000, trade receivables from Boeing,
Lockheed Martin and Raytheon were $6,318,000, $1,390,000 and $1,826,000,
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 2000, commercial sales for Boeing
aircraft were slightly higher, principally because of the acquisitions of
Parsons and SMS. Sales related to commercial business were approximately
$88,515,000, or 53% of total sales in 2000.
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 $62,569,000, or 38% of total sales in 2000.
The C-17 program accounted for approximately $19,594,000 in sales in 2000.
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.
During 2000, sales related to space programs were lower due to timing
differences in production scheduling for the Space Shuttle program. Sales
related to space programs were approximately $14,627,000, or 9% of total sales
in 2000.
4
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH FOURTEEN
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
At December 31, 2000, backlog believed to be firm was approximately
$238,600,000, compared to $213,100,000 at December 31, 1999. The backlog
increase from December 31, 1999 was due primarily to a contract with Boeing for
production of fuselage skin panels for the C-17 aircraft. The contract was
valued at $49,000,000 at the time of the award. There is also an option contract
with Boeing for the production of C-17 fuselage skin panels for the period
2003-2007. The option contract, if fully exercised by Boeing, is valued at $62
million. Taken together, the $111 million contract is the largest contract award
in the Company's history. The Company also experienced backlog growth at
December 31, 2000 of approximately $10,800,000 for the F-18 program.
Approximately $103,100,000 of the total backlog is expected to be delivered
during 2001.
Gross profit, as a percentage of sales, decreased to 28.9% in 2000 from
31.7% in 1999. This decrease was primarily the result of changes in sales mix,
pricing pressures from customers and production costs for new programs.
Selling, general and administrative expenses, as a percentage of sales,
were 13.8% in 2000, compared to 14.9% in 1999. Selling, general and
administrative expenses in 2000 included an approximately $715,000 increase in
the allowance for doubtful accounts resulting from the bankruptcy of two of the
Company's airline customers during the fourth quarter of 2000. In early January
2001, the Company embarked on steps to integrate the marketing, engineering and
manufacturing capabilities of its AHF-Ducommun, Aerochem and Parsons
subsidiaries to offer a full range of structural components and subassemblies to
the Company's customers.
Goodwill amortization expense, as a percentage of sales, was 1.7% in
2000, compared to 1.4% in 1999. This increase was primarily the result of a full
year of goodwill amortization expense in 2000 related to the SMS and Parsons
acquisitions made in 1999.
Interest expense increased 193% to $1,788,000 in 2000 primarily due to
higher debt levels and interest rates in 2000 compared to 1999.
Income tax expense decreased to $7,797,000 in 2000, compared to
$8,448,000 in 1999. The decrease in income tax expense was primarily due to the
decrease in income before taxes and an effective income tax rate of 38.0% for
2000 compared to 38.6% for 1999. The decrease in the tax rate was primarily due
to certain tax credits that became available to the Company. Cash expended to
pay income taxes decreased to $5,084,000 in 2000, compared to $8,170,000 in
1999.
Net income for 2000 was $12,720,000, or $1.30 diluted earnings per
share, compared to $13,444,000, or $1.28 diluted earnings per share, in 1999.
Diluted earnings per share rose $0.02 per diluted share on a year-to-year basis,
despite a decline in net income, due to a reduction of approximately 757,000 in
average diluted shares outstanding in 2000, compared to 1999.
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 after-market 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 5% 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.
5
2000 ANNUAL REPORT FIFTEEN
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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 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.
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.
FINANCIAL CONDITION
Liquidity and Capital Resources - Cash flow from operating activities for 2000
was $20,687,000, compared to $18,655,000 in 1999. The increase in cash flow from
operating activities resulted principally from a reduction in prepaid income
taxes and increases in accounts payable and accrued and other liabilities,
partially offset by lower net income and increases in accounts receivables and
inventories. During 2000, the Company spent $10,803,000 on capital expenditures
and $1,230,000 to repurchase shares of the Company's common stock, and repaid
$8,186,000 of principal on outstanding borrowings.
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. 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. In June 1998, the Company acquired the capital stock
of AEI for $8,165,000 in cash and $1,900,000 in other liabilities. The
acquisitions were funded from internally generated cash, notes and other
accounts payable to sellers, and borrowings under the Company's credit
agreement. 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.
The Company's bank credit agreement provides for a $100,000,000
unsecured revolving credit line declining to $60,000,000 at maturity on
September 30, 2005. At December 31, 2000, the Company had $85,667,000 of unused
lines of credit, after deducting $14,300,000 of loans outstanding and $33,000
for an outstanding standby letter of credit.
The Company continues to depend on operating cash flow and the
availability of its bank credit agreement 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 2001.
Aggregate maturities of long-term debt during the next five years are as
follows: 2001, $1,409,000; 2002, $1,375,000; 2003, $560,000; 2004, $2,010,000;
2005, $14,300,000.
The Company expects to spend less than $10,000,000 for capital
expenditures in 2001. The Company believes that the ongoing subcontractor
consolidation makes acquisitions 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
contracts for both commercial and military aircraft and space programs.
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; 877,300 shares of its common stock in 1999 for a total of
$9,414,000 and 109,900 shares of its common stock in 2000 for a total of
$1,230,000. In April 1999, the Company cancelled 953,762 shares of treasury
stock and in January 2000 cancelled 855,300 shares of treasury stock.
6
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH SIXTEEN
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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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. The complaint seeks recovery of
damages in excess of $10,000,000, restitution of the $17,250,000 purchase price
paid for 3dbm and recovery of punitive damages, costs and attorneys' fees. A
jury trial is currently scheduled for April 23, 2001. The Company intends to
vigorously defend the matter. 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. However, because of the nature and inherent
uncertainties of litigation, should the outcome of this matter be unfavorable,
the Company may be required to pay damages and other expenses, which could have
a material adverse effect on its consolidated financial position and 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.
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, production rates
for Boeing commercial aircraft, the C-17 and the Space Shuttle 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, the outcome of the lawsuit
brought by Com Dev, and other factors beyond the Company's control.
7
2000 ANNUAL REPORT SEVENTEEN
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CONSOLIDATED
STATEMENTS
OF INCOME
- --------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
--------- --------- ---------
(In thousands, except per share amounts)
Net Sales $ 165,711 $ 146,054 $ 170,772
--------- --------- ---------
Operating Costs and Expenses:
Cost of goods sold 117,750 99,725 113,929
Selling, general and administrative expenses 22,804 21,791 25,603
Goodwill amortization expense 2,852 2,036 1,445
--------- --------- ---------
Total Operating Costs and Expenses 143,406 123,552 140,977
--------- --------- ---------
Operating Income 22,305 22,502 29,795
Interest Expense (1,788) (610) (125)
Gain on Sale of Subsidiary -- -- 9,249
--------- --------- ---------
Income Before Taxes 20,517 21,892 38,919
Income Tax Expense (7,797) (8,448) (15,226)
--------- --------- ---------
Net Income $ 12,720 $ 13,444 $ 23,693
========= ========= =========
Earnings Per Share:
Basic earnings per share $ 1.32 $ 1.32 $ 2.13
Diluted earnings per share 1.30 1.28 2.04
See accompanying notes to consolidated financial statements.
8
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH EIGHTEEN
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CONSOLIDATED
BALANCE
SHEETS
- --------------------------------------------------------------------------------
December 31, 2000 1999
--------- ---------
(In thousands, except share data)
Assets
Current Assets:
Cash and cash equivalents $ 100 $ 138
Accounts receivable (less allowance for doubtful
accounts of $1,161 and $153) 20,844 20,022
Inventories 32,240 26,347
Deferred income taxes 3,624 2,698
Prepaid income taxes 134 1,864
Other current assets 3,326 3,335
--------- ---------
Total Current Assets 60,268 54,404
Property and Equipment, Net 49,579 44,689
Deferred Income Taxes 165 --
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $10,355 and $7,504) 39,056 41,895
Other Assets 1,296 814
--------- ---------
$ 150,364 $ 141,802
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 1,409 $ 1,496
Accounts payable 11,552 8,135
Accrued liabilities 15,904 14,911
--------- ---------
Total Current Liabilities 28,865 24,542
Long-Term Debt, Less Current Portion 18,245 26,344
Deferred Income Taxes 2,409 2,174
Other Long-Term Liabilities 1,316 900
--------- ---------
Total Liabilities 50,835 53,960
--------- ---------
Commitments and Contingencies
Shareholders' Equity:
Common stock -- $.01 par value; authorized
35,000,000 shares; issued 9,714,357
shares in 2000 and
10,423,810 shares in 1999 97 104
Additional paid-in capital 36,673 45,597
Retained earnings 63,989 51,269
Less common stock held in treasury -- 109,900 shares in
2000 and 855,300 shares in 1999 (1,230) (9,128)
--------- ---------
Total Shareholders' Equity 99,529 87,842
--------- ---------
$ 150,364 $ 141,802
========= =========
See accompanying notes to consolidated financial statements.
9
2000 ANNUAL REPORT NINETEEN
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CONSOLIDATED
STATEMENT
OF CASH FLOWS
- --------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
-------- -------- --------
(In thousands)
Cash Flows from Operating Activities:
Net Income $ 12,720 $ 13,444 $ 23,693
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Depreciation and amortization 8,750 6,846 5,868
Deferred income tax (benefit) provision (856) 2,211 1,783
Income tax benefit related to the exercise of
nonqualified stock options 703 193 1,375
Allowance for doubtful accounts 876 28 (234)
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 (1,698) 2,443 (1,564)
Inventories (5,893) (2,237) 4,313
Prepaid income taxes 1,730 (545) 1,594
Other assets (473) (891) (613)
Accounts payable 3,417 60 (1,064)
Accrued and other liabilities 1,411 (2,734) 645
-------- -------- --------
Net Cash Provided by Operating Activities 20,687 18,655 26,547
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (10,803) (5,778) (11,827)
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 (10,803) (37,637) (3,652)
-------- -------- --------
Cash Flows from Financing Activities:
Net (Repayment) Borrowings of Long-Term Debt (8,186) 19,556 (919)
Purchase of Common Stock for Treasury (1,230) (9,414) (14,652)
Net Repurchases Related to Exercise of Stock Options (506) (88) (414)
-------- -------- --------
Net Cash (Used in) Provided by Financing Activities (9,922) 10,054 (15,985)
-------- -------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (38) (8,928) 6,910
Cash and Cash Equivalents - Beginning of Year 138 9,066 2,156
-------- -------- --------
Cash and Cash Equivalents - End of Year $ 100 $ 138 $ 9,066
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Interest Expense Paid $ 1,769 $ 745 $ 401
Income Taxes Paid $ 5,084 $ 8,170 $ 9,464
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.
10
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH TWENTY
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CONSOLIDATED STATEMENT
OF CHANGES IN
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Total
Shares Common Paid-In Retained Treasury Shareholders'
Outstanding Stock Capital Earnings Stock Equity
----------- ------ ---------- -------- -------- -------------
(In thousands, except share data)
Balance at January 1, 1998 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
Stock options exercised 313,025 3 1,171 -- -- 1,174
Stock repurchased related to the
exercise of stock options (167,178) (2) (1,678) -- -- (1,680)
Income tax benefit related to the
exercise of nonqualified stock options -- -- 703 -- -- 703
Common stock repurchased for treasury (109,900) -- -- -- (1,230) (1,230)
Treasury stock retired -- (8) (9,120) -- 9,128 --
Net Income -- -- -- 12,720 -- 12,720
----------- ----- -------- ------- -------- --------
Balance at December 31, 2000 9,604,457 $ 97 $ 36,673 $63,989 $ (1,230) $ 99,529
=========== ===== ======== ======= ======== ========
See accompanying notes to consolidated financial statements.
11
2000 ANNUAL REPORT TWENTY ONE
- --------------------------------------------------------------------------------
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 when persuasive evidence of an arrangement exists, the price is fixed
or determinable, collection is reasonably assured and delivery of products has
occurred or services have been rendered. 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
2000, 1999 and 1998, income available to common shareholders was $12,720,000,
$13,444,000 and $23,693,000, respectively. In 2000, 1999 and 1998, the weighted
average number of common shares outstanding was 9,650,000, 10,209,000 and
11,149,000, respectively, and the dilutive shares associated with stock options
were 111,000, 309,000 and 469,000, respectively.
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.
Use of Estimates: Certain amounts and disclosures included in the consolidated
financial statements required management to make estimates which 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 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 $30,099,000
and $30,086,000 of the excess of cost over net assets acquired at December 31,
2000 and December 31, 1999, respectively, which 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.
12
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH TWENTY TWO
- --------------------------------------------------------------------------------
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1999 1998
-------- --------
(In thousands,except per share amounts)
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.
NOTE 3. INVENTORIES
Inventories consist of the following:
December 31, 2000 1999
- ------------ ------- -------
(In thousands)
Raw materials and supplies $ 9,827 $ 9,122
Work in process 21,912 16,614
Finished goods 1,630 2,192
------- -------
33,369 27,928
Less progress payments 1,129 1,581
------- -------
Total $32,240 $26,347
======= =======
Work in process inventories include amounts under long-term fixed price
contracts aggregating $13,979,000 and $10,975,000 at December 31, 2000 and 1999,
respectively.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Range of
Estimated
December 31, 2000 1999 Useful Lives
- ------------ ---- ---- ------------
(In thousands)
Land $ 9,690 $ 9,690
Buildings and improvements 22,859 16,207 5 - 40 Years
Machinery and equipment 53,852 50,690 2 - 20 Years
Furniture and equipment 7,989 7,252 2 - 10 Years
Construction in progress 1,272 1,046
------- -------
95,662 84,885
Less accumulated depreciation and amortization 46,083 40,196
------- -------
Total $49,579 $44,689
======= =======
Depreciation expense was $5,911,000, $5,071,000 and $4,423,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31, 2000 1999
- ------------- ------- -------
(In thousands)
Accrued compensation $ 7,812 $ 7,147
Provision for environmental costs 2,175 2,111
Customer deposits 760 702
Accrued state franchise and sales tax 1,337 141
Other 3,820 4,810
------- -------
Total $15,904 $14,911
======= =======
13
2000 ANNUAL REPORT TWENTY THREE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 6. LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31, 2000 1999
- -------------- ------- -------
(In thousands)
Bank credit agreement $14,300 $20,990
Term and real estate loans 3,679 4,175
Notes and other liabilities for acquisitions 1,675 2,675
------- -------
Total debt 19,654 27,840
Less current portion 1,409 1,496
------- -------
Total long-term debt $18,245 $26,344
======= =======
In September 2000, the Company signed a new $100,000,000 revolving
credit facility with a group of banks. The agreement provides for a $100,000,000
unsecured revolving credit line declining to $60,000,000 at maturity on
September 30, 2005. Interest is payable monthly on the outstanding borrowings
based on the bank's prime rate (9.50% at December 31, 2000) plus a spread based
on the leverage ratio of the Company calculated at the end of each fiscal
quarter (0.00% at December 31, 2000). 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 (1.25% at December 31, 2000). At December 31, 2000, the
Company had $85,667,000 of unused lines of credit, after deducting $14,300,000
of loans outstanding and $33,000 for an outstanding standby letter of credit.
The credit agreement includes minimum interest coverage, maximum leverage,
minimum EBITDA and minimum net worth covenants, an unused commitment fee based
on the leverage ratio (0.25% per annum at December 31, 2000), and limitations on
future dispositions of property, repurchases of common stock, outside
indebtedness, capital expenditures and acquisitions.
The weighted average interest rate on borrowings outstanding was 7.89%
and 7.09% at December 31, 2000 and 1999, 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: 2001, $1,409,000; 2002, $1,375,000; 2003, $560,000; 2004, $2,010,000;
2005, $14,300,000.
NOTE 7. SHAREHOLDERS' EQUITY
At December 31, 2000 and 1999, 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; 877,300 shares of its common stock in 1999 for a total of
$9,414,000, and 109,900 shares of its common stock in 2000 for a total of
$1,230,000. In April 1999 and January 2000, the Company cancelled 953,762 and
855,300 shares of treasury stock, respectively.
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, 2000 and 1999, options for 438,000 and
612,866 shares of common stock were exercisable, respectively.
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. 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, 2000 1999 1998
- ---------------------------------------- ---------- ---------- ----------
(In thousands, except per share amounts)
Net Income:
As reported $ 12,720 $ 13,444 $ 23,693
Pro forma 12,229 12,851 23,150
Earnings per common share:
As reported:
Basic $ 1.32 $ 1.32 $ 2.13
Diluted 1.30 1.28 2.04
Pro forma:
Basic $ 1.27 $ 1.26 $ 2.08
Diluted 1.25 1.22 1.99
14
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH TWENTY FOUR
- --------------------------------------------------------------------------------
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998, respectively: dividend yields of zero
percent; expected monthly volatility of 39.23, 36.15 and 29.17 percent;
risk-free interest rates of 6.53, 4.88 and 5.53 percent; and expected option
life of four years for 2000, 1999 and 1998. The weighted average fair value of
options granted during 2000, 1999 and 1998, for which the exercise price equals
the market price on the grant date, was $4.24, $4.45 and $10.02.
At December 31, 2000, 110,876 common shares were available for future
grants and 776,850 common shares were reserved for the exercise of outstanding
options. Option activity during the three years ended December 31, 2000 was as
follows:
Weighted Average
Number Exercise Price of
Of Shares Options Outstanding
--------- -------------------
Outstanding at January 1, 1998 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 10.278
Granted 118,500 10.628
Exercised (313,025) 3.751
Forfeited (32,537) 15.187
---------
Outstanding at December 31, 2000 776,850 $12.755
=========
The following table summarizes information concerning currently
outstanding and exercisable stock options:
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 71,375 2.83 $ 2.333 71,375 $ 2.333
$3.000 - $4.999 27,500 1.00 3.083 27,500 3.083
$5.000 - $11.999 235,125 3.06 9.893 128,625 9.386
$12.000 - $17.999 265,200 3.61 13.358 121,675 13.817
$18.000 - $23.210 177,650 2.11 21.328 88,825 21.328
------- -------
Total 776,850 2.94 $12.755 438,000 $11.494
======= =======
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, 2000 and December 31, 1999
were $549,000 and $567,000, 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, 2000, there were 124
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, 2000 1999 1998
- ---------------------- ----- ----- -----
(In thousands)
Service cost $ -- $ -- $ 1
Interest cost 98 87 92
Amortization of net transition obligation 84 84 84
Amortization of actuarial gain (19) (18) (22)
----- ----- -----
Net periodic postretirement benefit cost $ 163 $ 153 $ 155
===== ===== =====
15
2000 ANNUAL REPORT TWENTY FIVE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The actuarial liabilities for these postretirement benefits are as
follows:
December 31, 2000 1999
- -------------- ------- -------
(In thousands)
Beginning obligation (January 1) $ 1,310 $ 1,398
Service cost -- --
Interest cost 98 87
Actuarial gain 91 (106)
Benefits paid (172) (69)
------- -------
Benefit obligation (December 31) 1,327 1,310
Unrecognized net transition obligation (403) (487)
Unrecognized prior service cost -- --
Unrecognized net gain 380 490
------- -------
Accrued benefit cost $ 1,304 $ 1,313
======= =======
The accumulated postretirement benefit obligations at December 31, 2000
and 1999 were determined using an assumed discount rate of 7.75% and 7.75%,
respectively. For measurement purposes, an 11.0% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2001; the rate
was assumed to decrease gradually to 6.00% 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, 2000 by $300, and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year then ended
by $24.
NOTE 10. LEASES
The Company leases certain facilities and equipment for periods ranging from 1
to 9 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 2000, 1999 and 1998, was $3,561,000, $3,487,000 and $3,483,000,
respectively. Future minimum rental payments under operating leases having
initial or remaining noncancelable terms in excess of one year at December 31,
2000 are as follows:
Lease
Commitments
-----------
(In thousands)
2001 $2,996
2002 2,324
2003 1,336
2004 664
2005 556
Thereafter 315
------
Total $8,191
======
NOTE 11. INCOME TAXES
The provision for income tax expense/(benefit) consists of the following:
Year ended December 31, 2000 1999 1998
- ----------------------- ------- ------- -------
(In thousands)
Current tax expense:
Federal $ 7,686 $ 5,390 $11,355
State 967 847 2,088
------- ------- -------
8,653 6,237 13,443
------- ------- -------
Deferred tax expense/(benefit):
Federal (589) 1,947 1,747
State (267) 264 36
------- ------- -------
(856) 2,211 1,783
------- ------- -------
Income Tax Expense $ 7,797 $ 8,448 $15,226
======= ======= =======
16
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH TWENTY SIX
- --------------------------------------------------------------------------------
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are comprised of the following:
December 31, 2000 1999
- -------------- ------- -------
(In thousands)
Allowance for doubtful accounts $ 477 $ 48
Employment-related reserves 1,416 1,527
Environmental reserves 769 741
Inventory reserves 1,197 787
State tax credit carryforwards 165 --
Warranty reserves 123 79
Other 615 507
------- -------
4,762 3,689
Depreciation (3,383) (3,165)
------- -------
Net deferred tax assets $ 1,379 $ 524
======= =======
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, 2000 1999 1998
- ----------------------- ---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes (net of federal benefit) 3.3 3.3 4.1
Goodwill amortization 2.5 2.2 0.5
Benefit of foreign sales corporation (0.5) (0.8) (0.4)
Benefit of state tax credit carryforwards (0.8) -- --
Other (1.4) (1.1) (0.1)
---- ---- ----
Effective Income Tax Rate 38.0% 38.6% 39.1%
==== ==== ====
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. The complaint seeks recovery of
damages in excess of $10,000,000, restitution of the $17,250,000 purchase price
paid for 3dbm and recovery of punitive damages, costs and attorneys' fees. A
jury trial is currently scheduled for April 23, 2001. The Company intends to
vigorously defend the matter. 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. However, because of the nature and inherent
uncertainties of litigation, should the outcome of this matter be unfavorable,
the Company may be required to pay damages and other expenses, which could have
a material adverse effect on its consolidated financial position and 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.
17
2000 ANNUAL REPORT TWENTY SEVEN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 2000, 1999 and 1998, sales to Boeing were $61,109,000,
$40,310,000 and $48,334,000, respectively; sales to Lockheed Martin were
$12,685,000, $15,470,000 and $18,465,000, respectively; and sales to Raytheon
were $14,242,000, $10,138,000 and $12,596,000, respectively. At December 31,
2000, trade receivables from Boeing, Lockheed Martin and Raytheon were
$6,318,000, $1,390,000 and $1,826,000, 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 2000, 1999 and 1998, foreign sales to manufacturers worldwide were
$26,267,000, $28,313,000 and $29,007,000, respectively. The Company had no sales
to a foreign country greater than 5% of total sales in 2000, 1999 and 1998,
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 2000, 1999 and 1998.
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
2000 1999
-------------------------------------------------- --------------------------------------------------
Three months ended Dec 31 Sep 30 Jul 1 Apr 1 Dec 31 Oct 2 Jul 3 Apr 3
- -------------------- -------- -------- -------- -------- -------- -------- -------- --------
(in thousands,except
per share amounts)
Sales and Earnings
Net Sales $ 42,537 $ 40,881 $ 42,439 $ 39,854 $ 37,829 $ 37,218 $ 36,470 $ 34,537
-------- -------- -------- -------- -------- -------- -------- --------
Gross Profit 11,788 11,762 12,240 12,171 11,860 12,114 11,592 10,763
-------- -------- -------- -------- -------- -------- -------- --------
Income Before Taxes 5,242 5,290 5,259 4,726 4,994 5,908 5,647 5,343
Income Tax Expense (1,992) (2,010) (1,999) (1,796) (1,814) (2,238) (2,258) (2,138)
-------- -------- -------- -------- -------- -------- -------- --------
Net Income $ 3,250 $ 3,280 $ 3,260 $ 2,930 $ 3,180 $ 3,670 $ 3,389 $ 3,205
======== ======== ======== ======== ======== ======== ======== ========
Earnings Per Share:
Basic $ .34 $ .34 $ .34 $ .30 $ .32 $ .36 $ .33 $ .31
Diluted $ .33 $ .33 $ .33 $ .30 $ .32 $ .35 $ .32 $ .30
18
DUCOMMUN INCORPORATED POSITIONED FOR GROWTH TWENTY EIGHT
- --------------------------------------------------------------------------------
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 changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Ducommun Incorporated and its subsidiaries at December 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. 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 of America, 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 our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
February 20, 2001
19
CORPORATE INFORMATION
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,
Integrated Systems Sector
Northrop Grumman Corporation
Robert C. Ducommun
Management Consultant
Kevin S. Moore
President,
The Clark Estates, Inc.
Thomas P. Mullaney
General Partner,
Matthews, Mullaney & Company
20
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.
Robert B. Hahn
President
MechTronics of Arizona Corp.
Robert L. Hansen
President
AHF-Ducommun Incorporated
Richard A. Klisz
President
Brice Manufacturing Company, Inc.
21
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
Mellon Investor Services L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 522-6645
www.mellon-investor.com
WORLD WIDE WEBSITE
www.ducommun.com