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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 0-1222
DUCOMMUN INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 95-0693330
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
23301 South Wilmington Avenue, Carson, California 90745
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(Address of principal executive offices) (Zip Code)
(310) 513-7200
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of June 29, 1996, there were
outstanding 7,295,237 shares of common stock.
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DUCOMMUN INCORPORATED
FORM 10-Q
INDEX
Page
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at June 29, 1996 and December
31, 1995 3
Consolidated Statements of Income for Three Months Ended
June 29, 1996 and July 1, 1995 4
Consolidated Statements of Income for Six Months Ended
June 29, 1996 and July 1, 1995 5
Consolidated Statements of Cash Flows for Six Months Ended
June 29, 1996 and July 1, 1995 6
Notes to Consolidated Financial Statements 7 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 18
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 29, December 31,
1996 1995
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 104 $ 371
Accounts receivable (less allowance for doubtful
accounts of $246 and $366) 18,889 13,828
Inventories 21,285 13,362
Deferred income taxes (Note 6) 5,439 5,090
Other current assets 1,448 1,151
-------- --------
Total Current Assets 47,165 33,802
Property and Equipment, Net 25,334 23,011
Deferred Income Taxes (Note 6) 6,112 6,451
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $2,873 and $2,323) 17,905 16,697
Other Assets 603 1,013
-------- --------
$ 97,119 $ 80,974
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 5) $ 929 $ 3,910
Accounts payable 10,403 4,917
Accrued liabilities 13,745 13,728
-------- --------
Total Current Liabilities 25,077 22,555
Long-Term Debt (Note 5) 18,543 8,935
Convertible Subordinated Debentures (Note 5) -- 24,263
Other Long-Term Liabilities 1,288 633
-------- --------
Total Liabilities 44,908 56,386
-------- --------
Commitments and Contingencies (Notes 7)
Shareholders' Equity:
Common stock -- $.01 par value; authorized 12,500,000 shares; issued and
outstanding 7,295,237 shares in 1996 and 4,852,281 in 1995 73 49
Additional paid-in capital 59,072 34,989
Accumulated deficit (6,934) (10,450)
-------- --------
Total Shareholders' Equity 52,211 24,588
-------- --------
$ 97,119 $ 80,974
======== ========
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Three Months Ended
----------------------------
June 29, 1996 July 1, 1995
------------- ------------
Net Sales $ 28,869 $ 23,201
-------- --------
Operating Costs and Expenses:
Cost of goods sold 19,450 15,869
Selling, general and administrative expenses 5,803 4,997
-------- --------
Total Operating Costs and Expenses 25,253 20,866
Operating Income 3,616 2,335
Interest Expense (275) (988)
-------- --------
Income Before Taxes 3,341 1,347
Income Tax Expense (Note 6) (935) (377)
-------- --------
Net Income $ 2,406 $ 970
======== ========
Earnings Per Share:
Primary $ .35 $ .20
Fully Diluted .31 .18
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
for Computation of Earnings Per Share:
Primary 6,922 4,773
Fully Diluted 7,820 7,627
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Six Months Ended
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June 29, 1996 July 1, 1995
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Net Sales $ 52,661 $ 43,823
-------- --------
Operating Costs and Expenses:
Cost of goods sold 35,038 30,316
Selling, general and administrative expenses 12,043 9,436
-------- --------
Total Operating Costs and Expenses 47,081 39,752
Operating Income 5,580 4,071
Interest Expense (697) (1,869)
-------- --------
Income Before Taxes 4,883 2,202
Income Tax Expense (Note 6) (1,367) (617)
-------- --------
Net Income $ 3,516 $ 1,585
======== ========
Earnings Per Share:
Primary $ .55 $ .34
Fully Diluted .51 .31
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
for Computation of Earnings Per Share:
Primary 6,370 4,735
Fully Diluted 7,839 7,626
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
For Six Months Ended
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June 29, 1996 July 1, 1995
------------- ------------
Cash Flows from Operating Activities:
Net Income $ 3,516 $ 1,585
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 2,132 2,203
Deferred income tax provision 655 365
Changes in Assets and Liabilities, Net
of Effects from Acquisitions:
Accounts receivable (2,260) (1,816)
Inventories (2,892) (857)
Other assets (281) 85
Accounts payable 4,600 (1,371)
Accrued and other liabilities (955) 761
-------- --------
Net Cash Provided by Operating Activities 4,515 955
-------- --------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (2,783) (1,078)
Acquisition (8,000) (4,427)
-------- --------
Net Cash Used in Investing Activities (10,783) (5,505)
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Cash Flows from Financing Activities:
Net Borrowings (Repayments) of Long-Term Debt 6,627 (3,884)
Cash Premium for Conversion of Convertible Subordinated Debentures (609) --
Other (17) (8)
-------- --------
Net Cash Provided by (Used in) Financing Activities 6,001 (3,892)
-------- --------
Net Decrease in Cash and Cash Equivalents (267) (8,442)
Cash and Cash Equivalents at Beginning of Period 371 8,483
-------- --------
Cash and Cash Equivalents at End of Period $ 104 $ 41
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest Expense Paid $ 1,108 $ 1,659
Income Taxes Paid $ 1,018 $ 125
Supplementary Information for Non-Cash Financing Activities:
During the first six months of 1996, the Company issued 2,417,205 new shares of
common stock upon conversion of $24,263,000 of its outstanding 7.75% convertible
subordinated debentures.
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 1. The consolidated balance sheets, consolidated statements of income
and consolidated statements of cash flows are unaudited as of and for
the three months and six months ended June 29, 1996 and July 1, 1995.
The financial information included in the quarterly report should be
read in conjunction with the Company's consolidated financial
statements and the related notes thereto included in its annual
report to shareholders for the year ended December 31, 1995.
Note 2. Certain amounts and disclosures included in the consolidated
financial statements required management to make estimates which
could differ from actual results.
Note 3. Earnings per common share computations are based on the weighted
average number of common and common equivalent shares outstanding in
each period. Common equivalent shares represent the number of shares
which would be issued assuming the exercise of dilutive stock
options, reduced by the number of shares which would be purchased
with the proceeds from the exercise of such options. For 1996 and
1995, shares associated with convertible securities have been
included in the weighted average number of shares outstanding. The
computations of earnings per share are as follows:
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
(In thousands, except per share amounts)
For Three Months Ended
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June 29, 1996 July 1, 1995
------------- ------------
Income for Computation of Primary
Earnings Per Share $2,406 $ 970
Interest, Net of Income Taxes,
Relating to 7.75% Convertible
Subordinated Debentures 1 390
Net Income for Computation of
Primary Earnings Per Share 2,406 970
Net Income for Computation of
Fully Diluted Earnings Per Share 2,407 1,360
Applicable Shares:
Weighted Average Common Shares
Outstanding for Computation of
Primary Earnings Per Share 6,438 4,468
Weighted Average Common Equivalent
Shares Arising From:
7.75% convertible subordinated
debentures 888 2,806
Stock Options:
Primary 484 305
Fully diluted 494 353
Weighted Average Common and Common
Equivalent Shares Outstanding for
Computation of Fully Diluted
Earnings Per Share 7,820 7,627
Earnings Per Share:
Primary $ .35 $ .20
Fully diluted .31 .18
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
(In thousands, except per share amounts)
For Six Months Ended
----------------------------
June 29, 1996 July 1, 1995
------------- ------------
Income for Computation of Primary
Earnings Per Share $3,516 $1,585
Interest, Net of Income Taxes,
Relating to 7.75% Convertible
Subordinated Debentures 443 779
Net Income for Computation of
Primary Earnings Per Share 3,516 1,585
Net Income for Computation of
Fully Diluted Earnings Per Share 3,959 2,364
Applicable Shares:
Weighted Average Common Shares
Outstanding for Computation of
Primary Earnings Per Share 5,903 4,467
Weighted Average Common Equivalent
Shares Arising From:
7.75% convertible subordinated
debentures 1,439 2,806
Stock Options:
Primary 467 268
Fully diluted 497 353
Weighted Average Common and Common
Equivalent Shares Outstanding for
Computation of Fully Diluted
Earnings Per Share 7,839 7,626
Earnings Per Share:
Primary $ .55 $ .34
Fully diluted .51 .31
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Note 4. Acquisition
In January 1995, Ducommun acquired the capital stock of 3dbm, Inc.
("3dbm") for $4,780,000 in cash (of which $353,000 was withheld with
respect to certain assets and potential liabilities of 3dbm) and
$400,000 in notes. 3dbm supplies high-power expanders, microcells and
other wireless communications hardware used in cellular telephone
networks, and microwave components and subsystems to both military
and commercial customers.
On June 28, 1996, Ducommun acquired substantially all of the assets
and assumed certain liabilities of MechTronics of Arizona, Inc.
("MechTronics") for $8,000,000 in cash and a $750,000 note. Ducommun
may be required to make additional payments for the period June 28,
1996 to December 31, 1996, and each of the calendar years ending
December 31, 1997, 1998, and 1999, based on the future financial
performance of the business of MechTronics. MechTronics is one of the
United States' leading manufacturers of high quality and high
reliability mechanical and electromechanical enclosure products for
the defense electronics, commercial aviation and communications
markets.
The acquisition of MechTronics was accounted for under the purchase
method of accounting. However, the consolidated statements of income
do not include any operating results for MechTronics, since the
acquisition was not completed until June 28, 1996. The cost of the
acquisition has been preliminarily allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed. This
resulted in approximately $2,203,000 of cost in excess of net assets
acquired. Such excess (which will increase for any future contingent
payments) is being amortized on a straight line basis over fifteen
years.
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Note 5. Long-term debt and convertible subordinated debentures are summarized as
follows:
(In thousands)
--------------------------------
June 29, 1996 December 31, 1995
------------- -----------------
Bank credit agreement $14,500 $ 8,100
Term and real estate loans 3,789 3,559
Promissory notes related to acquisitions 1,183 1,186
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Total debt 19,472 12,845
Less current portion 929 3,910
------- -------
Total long-term debt $18,543 $ 8,935
======= =======
7.75% Convertible subordinated
debentures due 2011 $ -- $24,263
======= =======
During the first six months of 1996, the Company issued 2,417,205 new
shares of common stock upon conversion of $24,263,000 of its
outstanding 7.75% convertible subordinated debentures. The Company
paid cash of $609,000 for the conversions. The conversions reduced
interest expense by approximately $324,000 in the first six months of
1996.
In May 1996, the Company and its bank amended the Company's credit
agreement. The amended credit agreement provides for a $24,000,000
line of credit at May 16, 1996. The line of credit has an expiration
date of July 1, 1998. Interest is payable monthly on the outstanding
borrowings based on the bank's prime rate (8.25% at June 29, 1996). 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 (1.50% to 1.75% at June 29, 1996). At June 29, 1996, the
Company had $9,158,000 of unused lines of credit, after deducting
$14,500,000 of loans outstanding and $342,000 for an outstanding
standby letter of credit which supports the estimated post-closure
maintenance cost for a former surface impoundment.
Borrowings under the credit agreement are secured by most of the
assets of the Company and its subsidiaries. The credit agreement
includes minimum leverage and fixed charge coverage ratios, earnings
covenants, and limitations on capital expenditures, acquisitions,
future dividend payments and outside indebtedness.
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The carrying amount of long-term debt approximates fair value based
on the terms of the related debt and estimates using interest rates
currently available to the Company for debt with similar terms and
remaining maturities.
Note 6. Income Taxes
The provision for income tax expense consists of the following:
(in thousands)
--------------------------------
June 29, 1996 July 1, 1995
------------- ------------
Current tax expense:
Federal $ 127 $ 52
State 585 200
------- -------
712 252
------- -------
Deferred tax expense:
Federal 715 346
State (60) 19
------- -------
655 365
------- -------
Income Tax Expense $ 1,367 $ 617
======= =======
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Deferred tax assets (liabilities) consist of the following:
(in thousands)
--------------------------------
June 29, 1996 Dec. 31, 1995
------------- -------------
Federal and state NOLs $ 10,402 $ 11,538
Credit carryforwards 1,324 1,197
Employment-related reserves 1,348 1,691
Inventory reserves 751 748
Other 1,956 1,352
-------- --------
15,781 16,526
Depreciation (2,462) (2,552)
-------- --------
Net deferred tax assets before
valuation allowance 13,319 13,974
Deferred tax assets valuation
allowance (1,768) (2,433)
-------- --------
Net deferred tax asset $ 11,551 $ 11,541
======== ========
The decrease in the valuation allowance is due to the Company's reevaluation of
the realizability of income tax benefits from future operations related to the
acquisition of MechTronics consummated in June 1996. As a result, the carrying
value of the net deferred tax benefit was increased by $665,000 and goodwill
associated with the MechTronics acquisition was reduced by the same amount.
At June 29, 1996, the Company had federal tax NOLs totalling $27 million which
expire in the years 1999 through 2004. SFAS 109 requires that the tax benefit of
such NOLs be recorded, measured by enacted tax rates, as an asset to the extent
management assesses the utilization of such NOLs to be "more likely than not."
Management has determined that the income of the Company will, more likely than
not, be sufficient to realize the recorded deferred tax asset prior to the
ultimate expiration of the NOLs. Realization of the future tax benefits of NOLs
is dependent on the Company's ability to generate sufficient taxable income
within the carryforward period. In assessing the likelihood of utilization of
existing NOLs, management considered the historical results of operations of its
operating subsidiaries, including acquired operations, and the current economic
environment in which the Company operates. Management does not consider any
material future changes in trends or the relationship between reported pretax
income and federal and state taxable income or material asset sales or similar
non-routine transactions in assessing the likelihood of realization of the
recorded deferred tax asset.
Future levels of pretax income are dependent upon the extent of defense spending
and other government budgetary pressures, the level of new aircraft orders by
commercial airlines, production rate requirement for the Space Shuttle program,
general economic conditions,
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interest rates, competitive pressures on sales and margins, price
levels and other factors beyond the Company's control.
The ability of the Company to utilize the NOLs could be subject to
significant limitation in the event of a "change in ownership" as
defined in the Internal Revenue Code. A "change of ownership" could be
caused by purchases or sales of the Company's securities owned by
persons or groups now or in the future having ownership of 5% or more
of the Company's outstanding common stock or issuance by the Company of
common stock.
Note 7. 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. Based upon currently available
information, the Company has established a provision for the cost of
such investigation and corrective action.
Aerochem has been notified by the United States Environmental
Protection Agency that Aerochem and other generators of hazardous
waste disposed at the Casmalia Resources Hazardous Waste Facility in
California (the "Casmalia Site"), an inactive hazardous waste
treatment, storage and disposal facility, may be responsible for
certain costs associated with the cleanup and closure of the Casmalia
Site. Aerochem contributed less than 1/4 of 1% of the total waste
disposed of at the Casmalia Site and many other substantially larger
companies and governmental entities are involved at the Casmalia
Site. The Company has established a provision, based on currently
available information, for Aerochem's share of the estimated cost of
cleanup and closure of the Casmalia Site.
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.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL STATEMENT PRESENTATION
The interim financial statements reflect all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of the Company,
necessary for a fair presentation of the results for the interim periods
presented.
ACQUISITION
On June 28, 1996, Ducommun acquired substantially all of the assets and assumed
certain liabilities of MechTronics of Arizona, Inc. ("MechTronics") for
$8,000,000 in cash and $750,000 in a note. Ducommun may be required to make
additional payments for the period June 28, 1996 to December 31, 1996, and each
of the calendar years ending December 31, 1997, 1998, and 1999, based on the
future financial performance of the business of MechTronics. MechTronics is one
of the United States' leading manufacturers of high quality and high reliability
mechanical and electromechanical enclosure products for the defense electronics,
commercial aviation and communications markets.
This acquisition was funded from internally generated cash, a note payable to
the seller and borrowings under the Company's credit agreement with its bank
(see Financial Condition for additional information).
RESULTS OF OPERATIONS AND EFFECTS OF INFLATION
Second Quarter 1996 Compared to Second Quarter 1995
Net sales increased 24% to $28,869,000 in the second quarter of 1996. The
increase was primarily due to increased off-load work for aircraft structural
components from prime contractors and major subcontractors and increased build
rates for certain models of commercial jet aircraft.
The Company had substantial sales to Lockheed Martin, Northrop Grumman,
McDonnell Douglas and Boeing. During the second quarter of 1996 and 1995, sales
to Lockheed Martin were approximately $2,329,000 and $2,298,000, respectively;
sales to Northrop Grumman were approximately $2,490,000 and $2,221,000,
respectively; sales to McDonnell Douglas were approximately $2,832,000 and
$2,841,000, respectively; and sales to Boeing were approximately $4,572,000 and
$1,542,000, respectively. The sales to Lockheed Martin are primarily related to
the Space Shuttle program. The sales relating to Northrop Grumman, McDonnell
Douglas and Boeing are diversified over a number of different commercial and
military programs.
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Gross profit, as a percentage of sales, was 32.6% for the second quarter of 1996
compared to 31.6% in 1995. This increase was primarily the result of change in
sales mix, economies of scale resulting from sales increases and improvements in
production efficiencies.
Selling, general and administrative expenses, as a percentage of sales,
decreased to 20.1% in 1996, compared to 21.5% of sales for 1995. This decrease
in expenses as a percentage of sales was primarily related to higher sales
volume offset by increased period costs related to the higher sales volume,
$244,000 of debt conversion expense related to the conversion of $15,837,000 of
convertible subordinated debentures and acquisition related expenses of $130,000
during the second quarter of 1996.
Interest expense decreased 72% to $275,000 in 1996 primarily due to the
conversion of $28,000,000 of convertible subordinated debentures and lower debt
levels.
The increase in income tax expense was primarily due to the increase in income
before taxes. The Company continues to use its federal net operating loss
carryforward to offset taxable income for income tax purposes. Cash expended to
pay income taxes was $618,000 in 1996, compared to $50,000 in 1995. For further
discussion relating to the income taxes, see Note 6 to the consolidated
financial statements.
Net income for the second quarter of 1996 was $2,406,000, or $0.31 per share,
compared to $970,000, or $0.18 per share, in 1995.
Six Months of 1996 Compared to Six Months of 1995
Net sales increased 20% to $52,661,000 in the first six months of 1996. The
increase was primarily due to increased off-load work for aircraft structural
components from prime contractors and major subcontractors and increased build
rates for certain models of commercial jet aircraft.
The Company had substantial sales to Lockheed Martin, Northrop Grumman,
McDonnell Douglas and Boeing. During the first six months of 1996 and 1995,
sales to Lockheed Martin were approximately $4,792,000 and $4,546,000,
respectively; sales to Northrop Grumman were approximately $4,368,000 and
$4,613,000, respectively; sales to McDonnell Douglas were approximately
$5,532,000 and $5,147,000, respectively; and sales to Boeing were approximately
$6,028,000 and $2,767,000, respectively. The sales to Lockheed Martin are
primarily related to the Space Shuttle program. The sales relating to Northrop
Grumman, McDonnell Douglas and Boeing are diversified over a number of different
commercial and military programs.
At June 29, 1996, backlog believed to be firm was approximately $117,400,000,
including $24,257,000 for space-related business, compared to $93,100,000 at
July 1, 1995 and $92,600,000 at December 31, 1995. Approximately $47,000,000 of
the total backlog is expected to be delivered during 1996.
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Gross profit, as a percentage of sales, was 33.5% for the first six months of
1996 compared to 30.8% in 1995. This increase was primarily the result of change
in sales mix, economies of scale resulting from sales increases and improvements
in production efficiencies.
Selling, general and administrative expenses increased to $12,043,000, or 22.9%
of sales in 1996, compared to 21.5% of sales for 1995. The increase in expenses
as a percentage of sales was primarily the result of period costs related to
higher sales volume and $811,000 of debt conversion expense related to the
conversion of $24,263,000 of convertible subordinated debentures and acquisition
related costs.
Interest expense decreased 63% to $697,000 in 1996 primarily due to the
conversion of $24,263,000 of convertible subordinated debentures and lower debt
levels.
The increase in income tax expense was primarily due to the increase in income
before taxes. The Company continues to use its federal net operating loss
carryforwards to offset taxable income for income tax purposes. Cash expended to
pay income taxes was $1,018,000 in 1996, compared to $125,000 in 1995. For
further discussion relating to the income taxes, see Note 6 to the consolidated
financial statements.
Net income for 1996 was $3,516,000, or $0.51 per share, compared to $1,585,000,
or $0.31 per share, in 1995.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash flow from operating activities for the six months ended June 29, 1996 was
$4,515,000, of which $2,783,000 was used to purchase property and equipment.
During the first six months of 1996, the Company borrowed $8,000,000 to fund the
acquisition of MechTronics. The Company also issued 2,417,205 new shares of
common stock upon conversion of $24,263,000 of its outstanding 7.75% convertible
subordinated debentures.
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 1996.
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In May 1996, the Company and its bank amended the Company's credit agreement.
The amended credit agreement provides for a $24,000,000 line of credit at May
16, 1996. The line of credit has an expiration date of July 1, 1998. Interest is
payable monthly on the outstanding borrowings based on the bank's prime rate
(8.25% at June 29, 1996). 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 (1.50% to 1.75% at June 29, 1996). At June 29, 1996, the Company had
$9,158,000 of unused lines of credit, after deducting $14,500,000 of loans
outstanding and $342,000 for an outstanding standby letter of credit which
supports the estimated post-closure maintenance cost for a former surface
impoundment.
The Company spent $2,783,000 on capital expenditures during the first six months
of 1996 and expects to spend less than $6,000,000 for capital expenditures in
1996.
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. Based upon
currently available information, the Company has established a provision for the
cost of such investigation and corrective action.
Aerochem has been notified by the United States Environmental Protection Agency
that Aerochem and other generators of hazardous waste disposed at the Casmalia
Resources Hazardous Waste Facility in California (the "Casmalia Site"), an
inactive hazardous waste treatment, storage and disposal facility, may be
responsible for certain costs associated with the cleanup and closure of the
Casmalia Site. Aerochem contributed less than 1/4 of 1% of the total waste
disposed of at the Casmalia Site and many other substantially larger companies
and governmental entities are involved at the Casmalia Site. The Company has
established a provision, based on currently available information, for
Aerochem's share of the estimated cost of cleanup and closure of the Casmalia
Site.
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.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 1996 annual meeting of the Company was held on May 1, 1996. At
the meeting, Robert C. Ducommun and Thomas P. Mullaney were elected as directors
of the Company to serve for three-year terms expiring at the annual meeting in
1999. In the election of directors, the shareholder vote was as follows: Robert
C. Ducommun, For - 5,249,074, Abstain - 2,740; Thomas P. Mullaney - For -
5,249,074, Abstain - 2,740. The directors whose terms of office continued after
the annual meeting are: Norman A. Barkeley, H. Frederick Christie, Kevin S.
Moore, Richard J. Pearson and Arthur W. Schmutz.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report:
10.1 Fourth Amended and Restated Loan Agreement between
Ducommun Incorporated as Borrower and Bank of America
National Trust and Savings Association as Bank, dated
May 16, 1996
10.2 First Amendment to Fourth Amended and Restated Loan
Agreement between Ducommun Incorporated as Borrower
and Bank of America National Trust and Savings
Association as Bank, dated June 27, 1996
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUCOMMUN INCORPORATED
---------------------
(Registrant)
By: /s/ James S. Heiser
----------------------------------------------
James S. Heiser
Vice President, Chief Financial Officer
and General Counsel
(Duly Authorized Officer of the Registrant)
By: /s/ Samuel D. Williams
----------------------------------------------
Samuel D. Williams
Vice President and Controller
(Chief Accounting Officer of the Registrant)
Date: July 23, 1996
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