1
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 September 28, 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
(Exact name of registrant as specified in its charter)
DELAWARE 95-0693330
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
23301 South Wilmington Avenue, Carson, California 90745
(Address of principal executive offices) (Zip Code)
(310) 513-7200
(Registrant's telephone number, including area code)
N/A
(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 September 28, 1996, there
were outstanding 7,296,276 shares of common stock.
2
DUCOMMUN INCORPORATED
FORM 10-Q
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at September 28, 1996 and
December 31, 1995 3
Consolidated Statements of Income for Three Months Ended
September 28, 1996 and September 30, 1995 4
Consolidated Statements of Income for Nine Months Ended
September 28, 1996 and September 30, 1995 5
Consolidated Statements of Cash Flows for Nine Months
Ended September 28, 1996 and September 30, 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 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)
September 28, December 31,
1996 1995
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 39 $ 371
Accounts receivable (less allowance for doubtful
accounts of $238 and $366) 15,463 13,828
Inventories 21,428 13,362
Deferred income taxes (Note 6) 6,166 5,090
Other current assets 1,515 1,151
-------- --------
Total Current Assets 44,611 33,802
Property and Equipment, Net 26,043 23,011
Deferred Income Taxes (Note 6) 4,611 6,451
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $3,179 and $2,323) 17,803 16,697
Other Assets 492 1,013
-------- --------
$ 93,560 $ 80,974
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 5) $ 931 $ 3,910
Accounts payable 7,950 4,917
Accrued liabilities 16,707 13,728
-------- --------
Total Current Liabilities 25,588 22,555
Long-Term Debt (Note 5) 12,646 8,935
Convertible Subordinated Debentures (Note 5) -- 24,263
Other Long-Term Liabilities 368 633
-------- --------
Total Liabilities 38,602 56,386
-------- --------
Commitments and Contingencies (Notes 7)
Shareholders' Equity:
Common stock -- $.01 par value; authorized 12,500,000
shares; issued and outstanding 7,296,276 shares in
1996 and 4,852,281 in 1995 73 49
Additional paid-in capital 59,072 34,989
Accumulated deficit (4,187) (10,450)
-------- --------
Total Shareholders' Equity 54,958 24,588
-------- --------
$ 93,560 $ 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
-------------------------------
September 28, September 30,
1996 1995
------------ ------------
Net Sales $ 29,778 $ 24,080
-------- --------
Operating Costs and Expenses:
Cost of goods sold 20,245 15,939
Selling, general and administrative expenses 5,483 4,920
-------- --------
Total Operating Costs and Expenses 25,728 20,859
-------- --------
Operating Income 4,050 3,221
Interest Expense (235) (984)
-------- --------
Income Before Taxes 3,815 2,237
Income Tax Expense (Note 6) (1,068) (584)
-------- --------
Net Income $ 2,747 $ 1,653
======== ========
Earnings Per Share:
Primary $ .35 $ .34
Fully Diluted .35 .27
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
for Computation of Earnings Per Share:
Primary 7,823 4,880
Fully Diluted 7,845 7,707
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 Nine Months Ended
----------------------------
September 28, September 30,
1996 1995
------------ ------------
Net Sales $ 82,439 $ 67,903
-------- --------
Operating Costs and Expenses:
Cost of goods sold 55,283 46,255
Selling, general and administrative expenses 17,526 14,356
-------- --------
Total Operating Costs and Expenses 72,809 60,611
-------- --------
Operating Income 9,630 7,292
Interest Expense (932) (2,853)
-------- --------
Income Before Taxes 8,698 4,439
Income Tax Expense (Note 6) (2,435) (1,201)
-------- --------
Net Income $ 6,263 $ 3,238
======== ========
Earnings Per Share:
Primary $ .92 $ .68
Fully Diluted .83 .57
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
for Computation of Earnings Per Share:
Primary 6,837 4,783
Fully Diluted 7,858 7,704
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For Nine Months Ended
-----------------------------
September 28, September 30,
1996 1995
------------ ------------
Cash Flows from Operating Activities:
Net Income $ 6,263 $ 3,238
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 3,318 3,304
Deferred income tax provision 1,429 901
Changes in Assets and Liabilities, Net
of Effects from Acquisitions:
Accounts receivable 1,085 (3,712)
Inventories (2,938) 39
Other assets (274) 55
Accounts payable 1,917 (355)
Accrued and other liabilities 1,148 2,030
-------- --------
Net Cash Provided by Operating Activities 11,948 5,500
-------- --------
Cash Flows from Investing Activities:
Purchases of Property and Equipment (4,390) (1,792)
Acquisitions (8,000) (4,427)
------- --------
Net Cash Used in Investing Activities (12,390) (6,219)
------- --------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) of Long-Term Debt 736 (4,768)
Cash Premium for Conversion of Convertible Subordinated Debentures (609) --
Other (17) 2
-------- --------
Net Cash Provided by (Used in) Financing Activities 110 (4,766)
-------- --------
Net Decrease in Cash and Cash Equivalents (332) (5,485)
Cash and Cash Equivalents at Beginning of Period 371 8,483
-------- --------
Cash and Cash Equivalents at End of Period $ 39 $ 2,998
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest Expense Paid $ 1,272 $ 2,132
Income Taxes Paid $ 1,327 $ 150
Supplementary Information for Non-Cash Financing Activities:
During the first nine 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 nine months ended September 28, 1996 and
September 30, 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.
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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
------------------------------
September 28, September 30,
1996 1995
------------ ------------
Income for Computation of Primary
Earnings Per Share $2,747 $1,653
Interest, Net of Income Taxes,
Relating to 7.75% Convertible
Subordinated Debentures -- 390
Net Income for Computation of
Primary Earnings Per Share 2,747 1,653
Net Income for Computation of
Fully Diluted Earnings Per Share 2,747 2,043
Applicable Shares:
Weighted Average Common Shares
Outstanding for Computation of
Primary Earnings Per Share 7,295 4,471
Weighted Average Common Equivalent
Shares Arising From:
7.75% convertible subordinated
debentures -- 2,806
Stock Options:
Primary 528 409
Fully diluted 550 430
Weighted Average Common and Common
Equivalent Shares Outstanding for
Computation of Fully Diluted
Earnings Per Share 7,845 7,707
Earnings Per Share:
Primary $ .35 $ .34
Fully diluted .35 .27
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
(In thousands, except per share amounts)
For Nine Months Ended
----------------------------
September 28, September 30,
1996 1995
------------- -------------
Income for Computation of Primary
Earnings Per Share $6,263 $3,238
Interest, Net of Income Taxes,
Relating to 7.75% Convertible
Subordinated Debentures 222 1,169
Net Income for Computation of
Primary Earnings Per Share 6,263 3,238
Net Income for Computation of
Fully Diluted Earnings Per Share 6,485 4,407
Applicable Shares:
Weighted Average Common Shares
Outstanding for Computation of
Primary Earnings Per Share 6,350 4,468
Weighted Average Common Equivalent
Shares Arising From:
7.75% convertible subordinated
debentures 958 2,806
Stock Options:
Primary 487 315
Fully diluted 550 430
Weighted Average Common and Common
Equivalent Shares Outstanding for
Computation of Fully Diluted
Earnings Per Share 7,858 7,704
Earnings Per Share:
Primary $ .92 $ .68
Fully diluted .83 .57
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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 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. The consolidated statements of income include
the operating results for MechTronics since the acquisition. 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 $2,403,000 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)
------------------------------
September 28, December 31,
1996 1995
------------- ------------
Bank credit agreement $ 8,775 $ 8,100
Term and real estate loans 3,650 3,559
Promissory notes related to acquisitions 1,152 1,186
------- -------
Total debt 13,577 12,845
Less current portion 931 3,910
------- -------
Total long-term debt $12,646 $ 8,935
------- -------
7.75% Convertible subordinated
debentures due 2011 $ -- $24,263
------- -------
During the first nine months of 1996, the Company converted
$24,263,000 principal amount of its 7.75% convertible subordinated
debentures. The Company paid cash of $609,000 for the conversions.
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 September 28,
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% at September 28, 1996). At September 28,
1996, the Company had $14,883,000 of unused lines of credit, after
deducting $8,775,000 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)
For Nine Months Ended
-------------------------------
September 28, September 30,
1996 1995
------------- -------------
Current tax expense:
Federal $ 219 $ 75
State 787 225
------ ------
1,006 300
====== ======
Deferred tax expense:
Federal 1,415 846
State 14 55
------ ------
1,429 901
------ ------
Income Tax Expense $2,435 $1,201
------ ------
Deferred tax assets (liabilities) consist of the following:
(In thousands)
For Nine Months Ended
---------------------------------
September 28, December 31,
1996 1995
------------- -------------
Federal and state NOLs $ 9,795 $ 11,538
Credit carryforwards 1,338 1,197
Employment-related reserves 1,678 1,691
Inventory reserves 706 748
Other 262 1,352
-------- --------
13,779 16,526
Depreciation (2,383) (2,552)
-------- --------
Net deferred tax assets before
valuation allowance 11,396 13,974
Deferred tax assets valuation
allowance (619) (2,433)
-------- --------
Net deferred tax asset $ 10,777 $ 11,541
-------- --------
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The decrease in the valuation allowance is due to the Company's
reevaluation of the realizability of income tax benefits from future
operations, including the acquisition of MechTronics consummated in
June 1996. As a result, the carrying value of the net deferred tax
benefit was increased by $1,814,000, of which $665,000 was allocated to
goodwill arising from the acquisition of MechTronics and $1,149,000 was
recognized as a current period tax benefit. In 1995, the carrying value
of the net deferred tax asset was increased by $2,717,000, of which
$1,155,000 was allocated to goodwill arising from the acquisition of
3dbm and $1,562,000 was recognized as a current period tax benefit.
At September 28, 1996, the Company had federal tax NOLs totaling $23
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 requirements
for the Space Shuttle program, general economic conditions, 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.
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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 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, have entered into a consent decree with the United
States Environmental Protection Agency providing for certain cleanup
and closure activities at 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 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
Third Quarter 1996 Compared to Third Quarter 1995
Net sales increased 24% to $29,778,000 in the third quarter of 1996. The
increase was primarily due to sales from MechTronics, acquired in June 1996,
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 third quarter of 1996 and 1995, sales
to Lockheed Martin were approximately $3,172,000 and $2,215,000, respectively;
sales to Northrop Grumman were approximately $1,873,000 and $2,969,000,
respectively; sales to McDonnell Douglas were approximately $2,851,000 and
$2,374,000, respectively; and sales to Boeing were approximately $2,681,000 and
$1,399,000, 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 32.0% for the third quarter of 1996
compared to 33.8% in 1995. This decrease was primarily the result of a change in
sales mix.
Selling, general and administrative expenses, as a percentage of sales,
decreased to 18.4% for the third quarter of 1996, compared to 20.4% in 1995. The
decrease in expenses as a percentage of sales was primarily the result of higher
sales volume partially offset by an increase in related period costs.
Interest expense decreased 76% to $235,000 in the third quarter of 1996
primarily due to the conversion of $28,000,000 of convertible subordinated
debentures that were outstanding at September 30, 1995.
The increase in income tax expense was due primarily to the increase in income
before taxes. The Company continues to use its federal net operating loss
carryforward to offset taxable income. Cash expended to pay income taxes was
$360,000 in 1996, compared to $25,000 in 1995. For further discussion relating
to income taxes, see Note 6 to the consolidated financial statements.
Net income for the third quarter of 1996 was $2,747,000, or $0.35 per share,
compared to $1,653,000, or $0.27 per share, in 1995.
Nine Months of 1996 Compared to Nine Months of 1995
Net sales increased 21% to $82,439,000 for the nine months ended September 28,
1996. The increase was due primarily to sales from MechTronics acquired in June
1996, 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 1996 and 1995, sales to Lockheed Martin
were approximately $7,964,000 and $6,761,000, respectively; sales to Northrop
Grumman were approximately $6,241,000 and $7,582,000, respectively; sales to
McDonnell Douglas were approximately $8,383,000 and $7,521,000, respectively;
and sales to Boeing were approximately $8,709,000 and $4,166,000, 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 September 28, 1996, backlog believed to be firm was approximately
$129,800,000, including $22,618,000 for space-related business, compared to
$88,600,000 at September 30, 1995 and $92,600,000 at December 31, 1995.
Approximately $29,000,000 of the total backlog is expected to be delivered
during the remainder of 1996.
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Gross profit, as a percentage of sales, was 32.9% for the first nine months of
1996 compared to 31.9% in 1995. This increase was primarily the result of a
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,
increased to 21.3% in 1996, compared to 21.1% of sales for 1995. This 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 67% to $932,000 in 1996 primarily due to the
conversion of $28,000,000 of convertible subordinated debentures that were
outstanding at September 30, 1995.
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 . Cash expended to pay income taxes was
$1,272,000 in 1996, compared to $150,000 in 1995. For further discussion
relating to income taxes, see Note 6 to the consolidated financial statements.
Net income for 1996 was $6,263,000, or $0.83 per share, compared to $3,238,000,
or $0.57 per share, in 1995.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash flow from operating activities for the nine months ended September 28, 1996
was $11,948,000, of which $4,390,000 was used to purchase property and
equipment. During 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.
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
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expiration date of July 1, 1998. Interest is payable monthly on the outstanding
borrowings based on the bank's prime rate (8.25% at September 28, 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% at September 28,
1996). At September 28, 1996, the Company had $14,883,000 of unused lines of
credit, after deducting $8,775,000 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 $4,390,000 on capital expenditures during the first nine
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 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, have entered
into a consent decree with the United States Environmental Protection Agency
providing for certain cleanup and closure activities at 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.
Any forward looking statements made in this Form 10-Q involve risks and
uncertainties. The Company's future financial results could differ materially
from those anticipated due to the Company's dependence on conditions in the
airline industry, the level of new commercial aircraft orders, the production
rate for the Space Shuttle program, the level of defense spending, competitive
pricing pressures, technology and product development risks and uncertainties,
and other factors beyond the Company's control.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report:
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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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: October 22, 1996
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