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 March 29,June 28, 1997
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 0-12221-8174
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
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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 March 29,June 28, 1997, there were
outstanding 7,316,8947,323,745 shares of common stock.
2
DUCOMMUN INCORPORATED
FORM 10-Q
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 29,June 28, 1997 and
December 31, 1996 3
Consolidated Statements of Income for Three Months
Ended March 29,June 28, 1997 and March 30,June 29, 1996 4
Consolidated Statements of Income for Six Months
Ended June 28, 1997 and June 29, 1996 5
Consolidated Statements of Cash Flows for ThreeSix
Months Ended March 29,June 28, 1997 and March 30,June 29, 1996 56
Notes to Consolidated Financial Statements 67 - 911
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 1312- 16
Item 3. Quantitative and Qualitative Disclosure About Market Risk 17
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 1418
Signatures 1519
-2-
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 29,June 28, December 31,
1997 1996
----------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3568 $ 571
Accounts receivable (less allowance for doubtful
accounts of $193$152 and $206) 16,85718,556 14,722
Inventories 23,57525,924 22,595
Deferred income taxes 4,0574,056 4,597
Other current assets 1,7071,557 1,850
-------- --------
Total Current Assets 46,23150,161 44,335
Property and Equipment, Net 27,88928,403 27,051
Deferred Income Taxes 4,7822,977 5,594
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $3,869$4,190 and $3,548) 17,87017,549 18,326
Other Assets 507587 508
-------- --------
$ 97,27999,677 $ 95,814
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 5) $ 1,1581,094 $ 1,117
Accounts payable 9,3519,021 8,343
Accrued liabilities 15,46415,859 17,589
-------- --------
Total Current Liabilities 25,97325,974 27,049
Long-Term Debt (Note 5) 9,0497,700 9,173
Other Long-Term Liabilities 405396 404
-------- --------
Total Liabilities 35,42734,070 36,626
-------- --------
Commitments and Contingencies (Note 6)
Shareholders' Equity:
Common stock -- $.01 par value; authorized 12,500,000
shares; issued and outstanding 7,316,8947,323,745 shares in 1997 and
7,301,428 shares in 1996
73 73
Additional paid-in capital 59,31459,389 59,280
Retained earnings (accumulated deficit) 2,4656,145 (165)
-------- --------
Total Shareholders' Equity 61,85265,607 59,188
-------- --------
$ 97,27999,677 $ 95,814
======== ========
See accompanying notes to consolidated financial statements.
-3-
4
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Three Months Ended
--------------------------------
MarchJune 28, 1997 June 29, 1997 March 30, 1996
-------------- --------------------------- -------------
Net Sales $35,305 $23,792
------- -------$ 39,384 $ 28,869
------------- -------------
Operating Costs and Expenses:
Cost of goods sold 24,201 15,58825,630 19,450
Selling, general and administrative expenses 6,365 6,240
------- -------7,216 5,803
------------- -------------
Total Operating Costs and Expenses 30,566 21,828
------- -------32,846 25,253
------------- -------------
Operating Income 4,739 1,9646,538 3,616
Interest Expense (201) (422)
------- -------(194) (275)
------------- -------------
Income Before Taxes 4,538 1,5426,344 3,341
Income Tax Expense (1,908) (432)
------- -------(2,664) (935)
------------- -------------
Net Income $ 2,6303,680 $ 1,110
======= =======2,406
============= =============
Earnings Per Share:
Primary $ .33.46 $ .19.35
Fully Diluted .33 .18.46 .31
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
for Computation of Earnings Per Share:
Primary 7,904 5,7567,937 6,922
Fully Diluted 7,920 7,3937,966 7,820
See accompanying notes to consolidated financial statements.
-4-
5
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Six Months Ended
--------------------------------
June 28, 1997 June 29, 1996
------------- -------------
Net Sales $ 74,689 $ 52,661
------------- -------------
Operating Costs and Expenses:
Cost of goods sold 49,831 35,038
Selling, general and administrative expenses 13,581 12,043
------------- -------------
Total Operating Costs and Expenses 63,412 47,081
------------- -------------
Operating Income 11,277 5,580
Interest Expense (395) (697)
------------- -------------
Income Before Taxes 10,882 4,883
Income Tax Expense (4,572) (1,367)
------------- -------------
Net Income $ 6,310 $ 3,516
============= =============
Earnings Per Share:
Primary $ .80 $ .55
Fully Diluted .79 .51
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
for Computation of Earnings Per Share:
Primary 7,921 6,370
Fully Diluted 7,959 7,839
See accompanying notes to consolidated financial statements.
-5-
6
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For ThreeSix Months Ended
--------------------------------
MarchJune 28, 1997 June 29, 1997 March 30, 1996
-------------- --------------------------- -------------
Cash Flows from Operating Activities:
Net Income $ 2,6306,310 $ 1,1103,516
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 1,314 1,2022,642 2,132
Deferred income tax provision 1,352 2843,158 655
Changes in Assets and Liabilities, Net
Accounts receivable (2,135) 443(3,834) (2,260)
Inventories (980) (2,040)(3,329) (2,892)
Other assets 279 24326 (281)
Accounts payable 1,008 2,249678 4,600
Accrued and other liabilities (2,135) (588)
------- -------(1,738) (955)
------------- -------------
Net Cash Provided by Operating Activities 1,333 2,684
------- -------4,213 4,515
------------- -------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (1,820) (973)
------- -------(3,329) (2,783)
Acquisition -- (8,000)
------------- -------------
Net Cash Used in Investing Activities (1,820) (973)
------- -------(3,329) (10,783)
------------- -------------
Cash Flows from Financing Activities:
Net RepaymentBorrowings (Repayments) of Long-Term Debt (83) (1,460)(1,496) 6,627
Cash Premium for Conversion of Convertible Subordinated Debentures -- (556)(609)
Other 34 (6)
------- -------109 (17)
------------- -------------
Net Cash Used in(Used in) Provided by Financing Activities (49) (2,022)
------- -------(1,387) 6,001
------------- -------------
Net Decrease in Cash and Cash Equivalents (536) (311)(503) (267)
Cash and Cash Equivalents at Beginning of Period 571 371
------- -------------------- -------------
Cash and Cash Equivalents at End of Period $ 3568 $ 60
======= =======104
============= =============
Supplemental Disclosures of Cash FlowFlows Information:
Interest Expense Paid $ 263459 $ 9101,108
Income Taxes Paid $ 3502,510 $ 400
Supplementary Information for Non-Cash Financing Activities:
During the first three months of 1996, the Company issued 844,282 new shares of
common stock upon conversion of $8,426,000968
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.
-5--6-
67
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 March 29,June 28, 1997 and March 30,June 29,
1996. 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, 1996.
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.
-6--7-
78
DUCOMMUN INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
(In thousands, except per share amounts)
For Three Months Ended
------------------------
March-----------------------------
June 28, June 29, March 30,
1997 1996
--------- ---------------------- -------------
Income for Computation of Primary
Earnings Per Share $ 2,630 $ 1,110$3,680 $2,406
Interest, Net of Income Taxes,
Relating to 7.75% Convertible
Subordinated Debentures -- 2181
Net Income for Computation of
Primary Earnings Per Share 2,630 1,1103,680 2,406
Net Income for Computation of
Fully Diluted Earnings Per Share 2,630 1,3283,680 2,407
Applicable Shares:
Weighted Average Common Shares
Outstanding for Computation of
Primary Earnings Per Share 7,307 5,3067,322 6,438
Weighted Average Common Equivalent
Shares Arising From:
7.75% convertible subordinated debentures -- 1,587888
Stock options:
Primary 597 450615 484
Fully diluted 613 500644 494
Weighted Average Common and Common
Equivalent Shares Outstanding for
Computation of Fully Diluted
Earnings Per Share 7,920 7,3937,966 7,820
Earnings Per Share:
Primary $ .33.46 $ .19.35
Fully diluted .33 .18.46 .31
-8-
9
DUCOMMUN INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
(In thousands, except per share amounts)
For Six Months Ended
--------------------------
June 28, June 29,
1997 1996
---------- ---------
Income for Computation of Primary
Earnings Per Share $6,310 $3,516
Interest, Net of Income Taxes,
Relating to 7.75% Convertible
Subordinated Debentures -- 443
Net Income for Computation of
Primary Earnings Per Share 6,310 3,516
Net Income for Computation of
Fully Diluted Earnings Per Share 6,310 3,959
Applicable Shares:
Weighted Average Common Shares
Outstanding for Computation of
Primary Earnings Per Share 7,315 5,903
Weighted Average Common Equivalent
Shares Arising From:
7.75% convertible subordinated debentures -- 1,439
Stock options:
Primary 606 467
Fully diluted 644 497
Weighted Average Common and Common
Equivalent Shares Outstanding for
Computation of Fully Diluted
Earnings Per Share 7,959 7,839
Earnings Per Share:
Primary $ .80 $ .55
Fully diluted .79 .51
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 establishes new standards for computing and presenting earnings per
share ("EPS"), and supersedes APB Opinion No. 15, "Earnings Per Share." SFAS
128 replaces the presentation of primary EPS with a presentation of basic EPS.
It also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. SFAS 128
becomes effective for the Company for the year ending December 31, 1997. Pro
forma resultsEPS for the second quarter of 1997 and 1996, and the first quartersix months of
1997 and 1996, assuming the application of SFAS 128 are as follows:
-7--9-
810
For Three Months Ended
------------------------
March----------------------
June 28, June 29, March 30,
1997 1996
--------- ----------------- --------
Basic earnings per share $ 0.36.50 $ 0.21.37
Diluted earnings per share 0.33 0.18.46 .31
For Six Months Ended
----------------------
June 28, June 29,
1997 1996
-------- --------
Basic earnings per share $ .86 $ .60
Diluted earnings per share .80 .51
Note 4. Acquisition
In June 1996, the Company acquired substantially all of the assets of
MechTronics of Arizona, Inc. ("MechTronics") for $8,000,000 in cash
and a $750,000 note. The Company may be required to make additional
payments through 1999, based on the future financial performance of
MechTronics. MechTronics is a leading manufacturer of 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 date of the acquisition.
Note 5. Long-term debt is summarized as follows:
(In thousands)
-------------------------
March 29,------------------------
June 28, December 31,
1997 1996
----------------- ------------
Bank credit agreement $ 3,5002,325 $ 4,000
Term and real estate loans 5,8045,597 5,294
Promissory notes related to acquisitions 903872 996
------- -------- ------------
Total debt 10,2078,794 10,290
Less current portion 1,1581,094 1,117
------- -------- ------------
Total long-term debt $ 9,0497,700 $ 9,173
======= ======== ============
-10-
11
In AprilJune 1997, the Company andamended its bank signed a commitment letter to
amend the Company's credit agreement. The amended credit agreement willto provide
for a $40,000,000 senior unsecured revolving credit line with an expiration
date of July 1, 1999. The amended credit agreement will replacereplaced the
Company's existingprior credit agreement which providesprovided for a $21,000,000 senior
unsecured revolving credit line. Interest is payable monthly on the
outstanding borrowings based on the bank's prime rate (8.50% at March 29,June
28, 1997) 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 -8-
9
calculated at
the end of each fiscal quarter.quarter (1.00% at June 28, 1997). At March 29,June 28,
1997, the Company had $17,158,000$37,333,000 of unused lines of credit, after
deducting $3,500,000$2,325,000 of loans outstanding and $342,000 for an
outstanding standby letter of credit which supports the estimated
post-closure maintenance cost of a former surface impoundment. The
credit agreement includes fixed charge coverage and maximum leverage
ratios, and limitations on future dividend payments and outside
indebtedness.
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. 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,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 such investigationthe construction, operation and correctivemaintenance of the correction
action.
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.
-9--11-
1012
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.
RESULTS OF OPERATIONS
FirstSecond Quarter of 1997 Compared to FirstSecond Quarter of 1996
Net sales increased 48%36% to $35,305,000$39,384,000 in the firstsecond quarter of 1997. The
increase resulted from a broad-based increase in sales in most of the Company's
product lines due to improved industry conditions and new contract awards, as
well as sales of $4,707,000 in the second quarter of 1997 from the MechTronics
acquisition completed in June 1996.
The Company had substantial sales to Lockheed Martin, Boeing, McDonnell Douglas
and Northrop Grumman. During the second quarter of 1997 and 1996, sales to
Lockheed Martin were approximately $4,424,000 and $2,329,000, respectively;
sales to Boeing were approximately $5,724,000 and $5,237,000, respectively;
sales to McDonnell Douglas were approximately $2,597,000 and $2,832,000,
respectively; and sales to Northrop Grumman were approximately $1,864,000 and
$2,490,000, respectively. The sales to Lockheed Martin are primarily related
to the Space Shuttle program. The sales relating to Boeing, McDonnell Douglas
and Northrop Grumman are diversified over a number of different commercial and
military programs.
Gross profit, as a percentage of sales, was 34.9% for the second quarter of
1997 compared to 32.6% in 1996. This increase was primarily the result of
changes in sales mix, economies of scale resulting from sales increases and
improvements in production efficiencies. The increase was partially offset by
higher production costs at MechTronics, which was acquired in June 1996.
Selling, general and administrative expenses, as a percentage of sales, were
18.3% for the second quarter of 1997 compared to 20.1% in 1996. The decrease
in these expenses as a percentage of sales was primarily the result of higher
sales volume partially offset by an increase in related period costs.
-12-
13
Interest expense decreased to $194,000 in the second quarter of 1997 compared
to $275,000 for 1996. The decrease in interest expense was primarily due to
lower debt levels.
Income tax expense increased to $2,664,000 in the second quarter of 1997
compared to $935,000 for 1996. The increase in income tax expense was
primarily due to the increase in income before taxes and an effective tax rate
of 42% in 1997 compared to 28% in 1996. From a cash flow perspective, however,
the Company continues to use its federal net operating loss carryforwards to
offset taxable income. Cash paid for income taxes was $2,160,000 in the second
quarter of 1997, compared to $568,000 in 1996.
Net income for the second quarter of 1997 was $3,680,000, or $0.46 per share,
compared to $2,406,000, or $0.31 per share, in 1996.
Six Months of 1997 Compared to Six Months of 1996
Net sales increased 42% to $74,689,000 in the first six months of 1997. The
increase resulted from a broad-based increase in sales in most of the Company's
product lines due to improved industry conditions and new contract awards, as
well as sales of $9,348,000 in the first six months of 1997 from the
MechTronics acquisition completed in June 1996.
The Company had substantial sales to Lockheed Martin, Boeing, McDonnell Douglas
and Northrop Grumman. During the first quartersix months of 1997 and 1996, sales to
Lockheed Martin were approximately $4,134,000$8,558,000 and $2,463,000,$4,800,000, respectively;
sales to Boeing were approximately $4,758,000$10,482,000 and $2,425,000,$7,662,000, respectively;
sales to McDonnell Douglas were approximately $3,340,000$5,937,000 and $2,700,000,$5,532,000,
respectively; and sales to Northrop Grumman were approximately $1,485,000$3,349,000 and
$1,878,000,$4,368,000, respectively. The sales to Lockheed Martin are primarily related
to the Space Shuttle program. The sales relating to Boeing, McDonnell Douglas
and Northrop Grumman are diversified over a number of different commercial and
military programs.
At March 29,June 28, 1997, backlog believed to be firm was approximately $148,000,000,
including $21,498,000 for space-related business,$153,500,000
compared to $92,500,000$117,400,000 at March 30,June 29, 1996 and $134,500,000 at December 31,
1996. Approximately $77,000,000$53,000,000 of the total backlog is expected to be
delivered during the second half of 1997.
Gross profit, as a percentage of sales, was 31.5%33.3% for the first quartersix months of
1997 compared to 34.5%33.5% in 1996. This decrease was primarily the result of
changes
in sales mix, as well as higher production costcosts at MechTronics, which was acquired in June 1996. The
decrease was partially offset by changes in sales mix, economies of scale
resulting from sales increases and improvements in production efficiencies.
-13-
14
Selling, general and administrative expenses, as a percentage of sales, were
18.0%18.2% for the first quartersix months of 1997 compared to 26.2%22.9% in 1996. The decrease in
these expenses as a percentage of sales was primarily the result of higher
sales volume partially offset by an increase in related period costs.
-10-
11
Interest expense decreased to $201,000$395,000 in the first quartersix months of 1997 compared
to $422,000$697,000 for 1996. The decrease in interest expense was primarily due to
the conversion of $15,837,000$24,263,000 of convertible subordinated debentures that were
outstanding at March 30, 1996.during the
first half of 1996 and lower debt levels.
Income tax expense increased to $1,908,000$4,572,000 in the first quartersix months of 1997
compared to $432,000$1,367,000 for 1996. The increase in income tax expense was
primarily due to the increase in income before taxes.taxes and an effective tax rate
of 42% in 1997 compared to 28% in 1996. From a cash flow perspective, however,
the Company continues to use its federal net operating loss carryforwards to
offset taxable income. Cash paid for income taxes was $350,000$2,510,000 in the first
quartersix months of 1997, compared to $400,000$968,000 in 1996.
Net income for the first quartersix months of 1997 was $2,630,000,$6,310,000, or $0.33$0.79 per share,
compared to $1,110,000,$3,516,000, or $0.18$0.51 per share, in 1996.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash flow from operating activities for the threefirst six months ended March 29,June 28,
1997 was $1,333,000.$4,213,000. 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 1997.
In AprilJune 1997, the Company andamended its bank signed a commitment letter to amend the
Company's credit agreement. The amended credit agreement willto provide for a
$40,000,000 senior unsecured revolving credit line with an expiration date of July 1,
1999. The amended credit agreement will replace the Company's existing
credit agreement which provides for a $21,000,000 senior unsecured revolving
credit line. Interest is payable monthly on the outstanding borrowings based
on the bank's prime rate (8.50% at March 29, 1997) minus 0.25%. A Eurodollar
pricing option is also available to the Company for terms of up to six months
at the Eurodollar rate plus a spread based on the leverage ratio of the Company
calculated at the end of each fiscal quarter. At March 29,June 28, 1997, the Company had $17,158,000$37,333,000 of unused lines of credit
after deducting $3,500,000 of loans
outstanding and $342,000 for an outstanding standby letter of credit which
supportsavailable. See Note 5 to the estimated post-closure maintenance cost for a former surface
impoundment. The credit agreement includes fixed charge coverage and maximum
leverage ratios, and limitations on future dividend payments and outside
indebtedness.Notes to Consolidated Financial Statements.
The Company spent $1,820,000$3,329,000 on capital expenditures during the first threesix
months of 1997 and expects to spend less than $11,000,000approximately $10,000,000 for capital
expenditures in 1997. The Company plans to make substantial capital
expenditures in 1997 primarily for numerically controlled routersplant, machinery and laser
scriber-related
-11-
12 equipment to support
long-term aerospace structure contracts for both commercial and military
aircraft. 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 offload requirements from its customers.
-14-
15
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,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
such investigationthe construction, operation and correctivemaintenance of the correction action.
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.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 establishes new standards for computing and presenting earnings per
share ("EPS"), and supersedes APB Opinion No. 15, "Earnings Per Share." SFAS
128 replaces the presentation of primary EPS with a presentation of basic EPS.
It also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. SFAS 128
becomes effective for the Company for the year ending December 31, 1997. Pro
forma resultsEPS for the second quarter of 1997 and 1996, and the first quartersix months
months of 1997 and 1996, assuming the application of SFAS 128 are as follows:
For Three Months Ended
------------------------
March----------------------
June 28, June 29, March 30,
1997 1996
--------- ----------------- --------
Basic earnings per share $ 0.36.50 $ 0.21.37
Diluted earnings per share 0.33 0.18.46 .31
-12--15-
1316
For Six Months Ended
---------------------
June 28, June 29,
1997 1996
-------- --------
Basic earnings per share $ .86 $ .60
Diluted earnings per share .80 .51
Any forward looking statements made in this Form 10-Q Report involve risks and
uncertainties. The Company's future financial results could differ materially
from those anticipated due to the Company's dependence on conditions in the
airline industry, the level of new commercial aircraft orders, the production
rate for the Space Shuttle 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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Item 3. Quantitative and Qualitative Disclosure About Market Risk
Inapplicable.
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18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 1997 annual meeting of the Company was held on May 7, 1997. At the
meeting, Joseph C. Berenato, Richard J. Pearson and Arthur W. Schmutz were
elected as directors of the Company to serve for three-year terms expiring at
the annual meeting in 2000. In the election of directors, the shareholder vote
was as follows: Joseph C. Berenato, For - 6,771,965, Abstain - 27,200; Richard
J. Pearson, For - 6,771,645, Abstain - 27,520; Arthur W. Schmutz, For -
6,770,354, Abstain - 28,811. The directors whose terms of office continued
after the annual meeting are: Norman A. Barkeley, H. Frederick Christie, Robert
C. Ducommun, Kevin S. Moore and Thomas P. Mullaney.
In addition, at the annual meeting the shareholders approved two amendments to
the 1994 Stock Incentive Plan. In approving an amendment of the 1994 Stock
Incentive Plan to increase by 350,000 the number of shares of common stock
available thereunder, the shareholder vote was as follows: For - 6,148,151,
Against - 597,203, Abstain - 53,811. In approving the amendment of the 1994
Stock Incentive Plan to include nonemployee directors of the Company as
eligible participants therein, the shareholder vote was as follows: For -
6,008,372, Against - 733,761, Abstain - 57,032.
Item 6. Exhibits and Reports on Form 8-K.
a)(a) The following exhibits are filed with this report
10.1 Fifth Amended and Restated Loan Agreement between
Ducommun Incorporated as Borrower and Bank of America
National Trust and Savings Association as Bank, dated
June 23, 1997
27 Financial Data Schedule
b)(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: AprilJuly 22, 1997
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