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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 April 1, 2000
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 1-8174
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.
111 West Ocean Boulevard, Suite 900, Long Beach, California 90802
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(Address of principal executive offices) (Zip Code)
(562) 624-0800
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(Registrant's telephone number, including area code)
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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 Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of April 1, 2000, there were
outstanding 9,636,448 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 April 1, 2000 and
December 31, 1999 3
Consolidated Statements of Income for Three Months
Ended April 1, 2000 and April 3, 1999 4
Consolidated Statements of Cash Flows for Three
Months Ended April 1, 2000 and April 3, 1999 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 1, December 31,
2000 1999
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ASSETS
Current Assets:
Cash and cash equivalents $ 70 $ 138
Accounts receivable (less allowance for doubtful
accounts of $482 and $153) 19,742 20,022
Inventories 28,726 26,347
Deferred income taxes 2,355 2,698
Prepaid income taxes 1,030 1,864
Other current assets 3,297 3,335
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Total Current Assets 55,220 54,404
Property and Equipment, Net 44,330 44,689
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $8,223 and $7,504) 41,176 41,895
Other Assets 814 814
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$141,540 $141,802
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 4) $ 1,505 $ 1,496
Accounts payable 8,605 8,135
Accrued liabilities 14,430 14,911
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Total Current Liabilities 24,540 24,542
Long-Term Debt, Less Current Portion (Note 4) 23,454 26,344
Deferred Income Taxes 2,174 2,174
Other Long-Term Liabilities 900 900
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Total Liabilities 51,068 53,960
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Commitments and Contingencies (Note 6)
Shareholders' Equity (Note 5):
Common stock -- $.01 par value; authorized 35,000,000
shares; issued 9,655,848 shares in 2000 and
10,423,810 shares in 1999 96 104
Additional paid-in capital 36,351 45,597
Retained earnings 54,199 51,269
Less common stock held in treasury -- 19,400 shares
in 2000 and 855,300 shares in 1999 (174) (9,128)
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Total Shareholders' Equity 90,472 87,842
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$141,540 $141,802
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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
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April 1, April 3,
2000 1999
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Net Sales $39,854 $34,537
Operating Costs and Expenses:
Cost of goods sold 27,683 23,774
Selling, general and administrative expenses 6,226 5,027
Goodwill amortization expense 719 368
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Total Operating Costs and Expenses 34,628 29,169
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Operating Income 5,226 5,368
Interest Expense (500) (25)
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Income Before Taxes 4,726 5,343
Income Tax Expense (1,796) (2,138)
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Net Income $ 2,930 $ 3,205
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Earnings Per Share:
Basic earnings per share $ .30 $ .31
Diluted earnings per share .30 .30
Weighted Average Number of Common Shares
Outstanding:
Basic earnings per share 9,609 10,409
Diluted earnings per share 9,719 10,758
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For Three Months Ended
----------------------
April 1, April 3,
2000 1999
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Cash Flows from Operating Activities:
Net Income $ 2,930 $ 3,205
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 2,208 1,534
Deferred income tax provision 343 (279)
Other -- 54
Changes in Assets and Liabilities, Net:
Accounts receivable 280 1,568
Inventories (2,379) (2,474)
Prepaid income taxes 834 24
Other assets 38 (16)
Accounts payable 470 1,494
Accrued and other liabilities (481) (1,368)
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Net Cash Provided by Operating Activities 4,243 3,742
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Cash Flows from Investing Activities:
Purchase of Property and Equipment (1,130) (2,619)
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Net Cash Used in Investing Activities (1,130) (2,619)
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Cash Flows from Financing Activities:
Net Repayment of Long-Term Debt (2,881) (86)
Purchase of Common Stock for Treasury (174) (478)
Net (Payments) Proceeds Related to Stock Options Exercised (126) 43
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Net Cash Used in Financing Activities (3,181) (521)
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Net (Decrease) Increase in Cash and Cash Equivalents (68) 602
Cash and Cash Equivalents - Beginning of Period 138 9,066
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Cash and Cash Equivalents - End of Period $ 70 $ 9,668
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Supplemental Disclosures of Cash Flow Information:
Interest Expense Paid $ 403 $ 93
Income Taxes Paid $ 38 $ 139
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 ended April 1, 2000 and April 3, 1999. 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, 1999.
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 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 period. Diluted earnings per share is computed by
dividing income available to common shareholders plus income associated
with dilutive stock options by the weighted average number of common
shares outstanding plus any potential dilution that could occur if
stock options were exercised or converted into common stock in each
period. For the three months ended April 1, 2000 and April 3, 1999,
income available to common stockholders was $2,930,000 and $3,205,000,
respectively. The weighted average number of common shares outstanding
for the three months ended April 1, 2000 and April 3, 1999 were
9,609,000 and 10,409,000 and the dilutive shares associated with stock
options were 110,000 and 349,000, respectively.
Note 4. Long-term debt is summarized as follows:
(In thousands)
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April 1, December 31,
2000 1999
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Bank credit agreement $18,230 $20,990
Term and real estate loans 4,054 4,175
Notes and other liabilities for acquisitions 2,675 2,675
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Total debt 24,959 27,840
Less current portion 1,505 1,496
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Total long-term debt $23,454 $26,344
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The Company's bank credit agreement provides for a $40,000,000
unsecured revolving credit line with an expiration date of July 1,
2002. Interest is payable monthly on the outstanding borrowings based
on the bank's prime rate (9.00% at April 1, 2000) minus 0.25%. A
Eurodollar pricing option is also available to the Company for terms of
up to six months at the Eurodollar rate plus a spread based on the
leverage ratio of the Company calculated at the end of each
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fiscal quarter (1.00% at April 1, 2000). At April 1, 2000, the Company
had $21,770,000 of unused lines of credit, after deducting $18,230,000
of loans outstanding. The credit agreement includes fixed charge
coverage and maximum leverage ratios, an unused commitment fee of
.125%, and limitations on future dividend payments and outside
indebtedness.
Note 5. Shareholders' Equity
Since 1998, the Company's Board of Directors has authorized the
repurchase of up to $30,000,000 of its common stock. During 1998 and
1999, the Company repurchased in the open market 1,809,062 shares of
its common stock for a total of $24,066,000, and cancelled 953,762
shares of treasury stock. During the first three months of 2000, the
Company repurchased in the open market 19,400 shares of its common
stock for a total of $174,000 and cancelled 855,300 shares of treasury
stock.
Note 6. Commitments and 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.
In October 1999, Com Dev Consulting Ltd. ("Com Dev") filed a complaint
in the United States District Court against the Company and certain of
its officers relating to the sale of the capital stock of 3dbm, Inc.
("3dbm") by the Company to Com Dev in August 1998. On February 3, 2000,
the United States District Court dismissed the complaint without
prejudice. On April 7, 2000, Com Dev filed another complaint in
California Superior Court against the Company and certain of its
officers relating to the sale of the capital stock of 3dbm by the
Company to Com Dev. 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.
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
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that any sum it may be required to pay in connection with these matters
would have a material adverse effect on its consolidated financial
position or results of operations.
Note 7. 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.
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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.
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.
RESULTS OF OPERATIONS
First Quarter of 2000 Compared to First Quarter of 1999
Net sales increased 15% to $39,854,000 in the first quarter of 2000. The
increase was due primarily to sales in the first quarter of 2000 of $5,177,000
from the SMS and Parsons acquisitions. Excluding acquisitions, sales were
essentially flat with higher sales for military programs in the first quarter of
2000, largely offset by lower sales for commercial aircraft.
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During the first quarters of 2000 and 1999, sales to Boeing were approximately
$14,546,000 and $10,509,000, respectively; sales to Lockheed Martin were
approximately $3,469,000 and $3,385,000, respectively; and sales to Raytheon
were approximately $2,997,000 and $2,366,000, respectively. The sales relating
to Boeing, Lockheed Martin and Raytheon are diversified over a number of
different commercial, space and military programs.
At April 1, 2000, backlog believed to be firm was approximately $205,400,000
compared to $213,100,000 at December 31, 1999. Approximately $69,000,000 of
backlog is expected to be delivered during 2000. In April 2000 the Company
announced that its AHF-Ducommun subsidiary signed the largest contract in the
Company's history with Boeing-Long Beach valued at $49,000,000 to produce
fuselage skin panels for the C-17 aircraft. Performance under the contract began
in the first quarter of 2000 and is expected to continue through 2003. In
addition, AHF-Ducommun has signed an option contract with Boeing-Long Beach 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 $62,000,000.
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Gross profit, as a percentage of sales, was 30.5% for the first quarter of 2000
compared to 31.2% 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
15.6% for the first quarter of 2000 compared to 14.6% in 1999. The increase in
these expenses as a percentage of sales was primarily the result of higher
personnel related costs, partially offset by the benefit of higher sales volume.
Interest expense increased to $500,000 in the first quarter of 2000 compared to
$25,000 for 1999. The increase in interest expense was primarily due to higher
debt levels.
Income tax expense decreased to $1,796,000 in the first quarter of 2000 compared
to $2,138,000 for 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% for
2000 compared to 40% for 1999. The decrease in the tax rate was primarily due to
certain tax credits that became available to the Company. Cash paid for income
taxes was $38,000 in the first quarter of 2000, compared to $139,000 in 1999.
Net income for the first quarter of 2000 was $2,930,000, or $0.30 per diluted
share, compared to $3,205,000, or $0.30 per diluted share, in 1999. Diluted
earnings per share were flat on a year to year basis, despite a decline in net
income, due to a reduction of approximately 1,000,000 in average diluted shares
outstanding as a result of the stock repurchase program.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash flows from operating activities for the three months ended April 1, 2000
was $4,243,000, compared to $3,742,000 for the three months ended April 3, 1999.
During the first three months of 2000, the Company spent $2,881,000 to repay
principal on its outstanding bank borrowings, promissory notes, and term and
commercial real estate loans, $1,130,000 on capital expenditures and $174,000 to
repurchase shares of the Company's common stock. The Company continues to depend
on operating cash flow and the availability of its bank line of credit to
provide short-term liquidity. Cash from operations and bank borrowing capacity
are expected to provide sufficient liquidity to meet the Company's obligations
during 2000. The Company's bank credit agreement provides for a $40,000,000
unsecured revolving credit line with an expiration date of July 1, 2002. At
April 1, 2000, the Company had $21,770,000 of unused lines of credit, after
deducting $18,230,000 of loans outstanding. See Note 4 to the Notes to
Consolidated Financial Statements.
The Company spent $1,130,000 on capital expenditures during the first three
months of 2000 and expects to spend less than $14,000,000 in the aggregate for
capital expenditures in 2000. These expenditures are expected to place the
Company in a favorable competitive position among aerospace subcontractors, and
to allow the Company to take advantage of the off-load requirements from its
customers. In connection
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with the C-17 contract signed by the Company's AHF-Ducommun subsidiary,
AHF-Ducommun is acquiring a 1,500-ton stretch press and a 5-axis CNC Torres
router with a flexible pogo positioning system. AHF-Ducommun also is in the
process of completing a 185,000 square foot building addition to support the
C-17 contract as well as other off-load opportunities from its customers.
Since 1998, the Company's Board of Directors has authorized the repurchase of up
to $30,000,000 of its common stock. During 1998 and 1999, the Company
repurchased in the open market 1,809,062 shares of its common stock for a total
of $24,066,000, and cancelled 953,762 shares of treasury stock. During the first
three months of 2000, the Company repurchased in the open market 19,400 shares
of its common stock for a total of $174,000 and cancelled 855,300 shares of
treasury stock. Repurchases will be made from time to time on the open market at
prevailing prices.
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.
In October 1999, Com Dev Consulting Ltd. ("Com Dev") filed a complaint in the
United States District Court against the Company and certain of its officers
relating to the sale of the capital stock of 3dbm, Inc. ("3dbm") by the Company
to Com Dev in August 1998. On February 3, 2000, the United States District Court
dismissed the complaint without prejudice. On April 7, 2000, Com Dev filed
another complaint in California Superior Court against the Company and certain
of its officers relating to the sale of the capital stock of 3dbm by the Company
to Com Dev. 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.
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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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 STATEMENTS AND RISK FACTORS
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 and other space programs, the level of defense
spending, competitive pricing pressures, technology and product development
risks and uncertainties, product performance, risks associated with acquisitions
and dispositions of businesses by the Company, increasing consolidation of
customers and suppliers in the aerospace industry, availability of raw materials
and components from suppliers, and other factors beyond the Company's control.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On October 25, 1999, Com Dev Consulting Ltd. ("Com Dev") filed a
complaint, which was subsequently amended on December 22, 1999, against
the Company and certain officers of the Company in the United States
Court for the Central District of California. The complaint alleged
violation of the federal securities laws, intentional misrepresentation,
negligent misrepresentation, unfair business practices and breach of
contract in connection with the sale of the capital stock of 3dbm by
the Company to Com Dev in August 1998 (the "3dbm Sale"), and sought
unspecified general and punitive damages from the defendants. On
February 3, 2000, the United States District Court dismissed the
complaint without prejudice.
On April 7, 2000, Com Dev filed a complaint against the Company and
certain officers of the Company in the Superior Court of the State of
California. The complaint alleges breach of contract, intentional
misrepresentation, negligent misrepresentation and unfair business
practices in connection with the 3dbm Sale, and seeks general and
punitive damages in accordance with proof at trial.
The Company intends to vigorously defend the matter. While it is not
feasible to predict the outcome of the 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.
Item 6. Exhibits and Reports on Form 8-K.
The following exhibits are filed with this report.
(a) 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
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(Registrant)
By: /s/ James S. Heiser
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James S. Heiser
Vice President, Chief Financial Officer
and General Counsel
(Duly Authorized Officer of the Registrant)
By: /s/ Samuel D. Williams
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Samuel D. Williams
Vice President and Controller
(Chief Accounting Officer of the Registrant)
Date: April 25, 2000
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EXHIBIT INDEX
Exhibit 27 Financial Data Schedule