Ducommun Incorporated

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2005

¨	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

(Exact name of registrant as specified in its charter)

Delaware

95-0693330

(State or other jurisdiction of

incorporation or organization)

I.R.S. Employer

Identification No.


23301 Wilmington Avenue, Carson, California		90745-6209
(Address of principal executive offices)		(Zip Code)

(310) 513-7280

(Registrant’s telephone number, including area code)

(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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). 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 July 2, 2005, there were outstanding 10,062,483 shares of common stock.

DUCOMMUN INCORPORATED

FORM 10-Q

INDEX


			Page
Part I.	Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets at July 2, 2005 and December 31, 2004	3

		Consolidated Statements of Income for Three Months Ended July 2, 2005 and July 3, 2004	4

		Consolidated Statements of Income for Six Months Ended July 2, 2005 and July 3, 2004	5

		Consolidated Statements of Cash Flows for Six Months Ended July 2, 2005 and July 3, 2004	6

		Notes to Consolidated Financial Statements	7 - 24

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25 - 42

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

	Item 4.	Controls and Procedures	43

Part II.	Other Information

	Item 1.	Legal Proceedings	44

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

	Item 4.	Submission of Matters to a Vote of Security Holders	46

	Item 6.	Exhibits and Reports on Form 8-K	46

Signatures			47

Exhibits

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PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

DUCOMMUN INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	July 2, 2005			December 31, 2004
Assets
Current Assets:
Cash and cash equivalents	$	7,475		$	158
Accounts receivable (less allowance for doubtful accounts of $253 and $333)		31,444			26,909
Inventories		50,398			50,460
Deferred income taxes		6,547			7,389
Prepaid income taxes		1,077			598
Other current assets		4,565			4,397

Total Current Assets		101,506			89,911
Property and Equipment, Net		52,941			54,984
Goodwill		57,201			57,201
Other Assets		2,504			2,457

	$	214,152		$	204,553

Liabilities and Shareholders’ Equity
Current Liabilities:
Current portion of long-term debt	$	—		$	1,200
Accounts payable		14,926			12,772
Accrued liabilities		30,166			30,552

Total Current Liabilities		45,092			44,524
Deferred Income Taxes		7,001			6,421
Other Long-Term Liabilities		2,117			2,117

Total Liabilities		54,210			53,062

Commitments and Contingencies
Shareholders’ Equity:
Common stock — $.01 par value; authorized 35,000,000 shares; issued 10,062,483 shares in 2005 and 10,042,116 shares in 2004		101			100
Additional paid-in capital		41,332			41,038
Retained earnings		120,626			112,470
Accumulated other comprehensive loss		(2,117	)		(2,117	)

Total Shareholders’ Equity		159,942			151,491

	$	214,152		$	204,553

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)

(Unaudited)


	For Three Months Ended
	July 2, 2005			July 3, 2004
Net Sales	$	61,998		$	57,383
Operating Costs and Expenses:
Cost of goods sold		47,866			43,242
Selling, general and administrative expenses		7,773			7,993

Total Operating Costs and Expenses		55,639			51,235

Operating Income		6,359			6,148
Interest Expense		(7	)		(76	)

Income Before Taxes		6,352			6,072
Income Tax Expense		(2,279	)		(1,765	)

Net Income	$	4,073		$	4,307

Earnings Per Share:
Basic earnings per share:	$	.40		$	.43
Diluted earnings per share:	$	.40		$	.42
Weighted Average Number of Common Shares Outstanding:
Basic		10,060			9,966
Diluted		10,161			10,191

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)

(Unaudited)


	For Six Months Ended
	July 2, 2005			July 3, 2004
Net Sales	$	125,810		$	115,630
Operating Costs and Expenses:
Cost of goods sold		100,083			91,075
Selling, general and administrative expenses		14,640			14,783

Total Operating Costs and Expenses		114,723			105,858

Operating Income		11,087			9,772
Interest Expense		(85	)		(214	)

Income Before Taxes		11,002			9,558
Income Tax Expense		(2,846	)		(3,020	)

Net Income	$	8,156		$	6,538

Earnings Per Share:
Basic earnings per share:	$	.81		$	.66
Diluted earnings per share:	$	.80		$	.64
Weighted Average Number of Common Shares Outstanding:
Basic		10,052			9,943
Diluted		10,191			10,205

See accompanying notes to consolidated financial statements.

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DUCOMMUN INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	For Six Months Ended
	July 2, 2005			July 3, 2004
Cash Flows from Operating Activities:
Net Income	$	8,156		$	6,538
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization		3,788			3,738
Deferred income tax provision/(benefit)		1,422			331
Income tax benefit related to the exercise of nonqualified stock options		66			286
Recovery of doubtful accounts		(80	)		(22	)
(Gain)/Loss on sale of assets		(6	)		33
Net increase/(reduction of) of warranty reserves		108			(13	)
Net (reduction of)/provision for contract cost overruns		(692	)		869
Changes in Assets and Liabilities:
Accounts receivable - (increase)		(4,455	)		(592	)
Inventories - decrease/(increase)		62			(6,996	)
Prepaid income taxes - (increase)/decrease		(479	)		1,217
Other assets - (increase)		(215	)		(122	)
Accounts payable - increase		2,154			16
Accrued and other liabilities - increase/(decrease)		198			(4,354	)

Net Cash Provided by Operating Activities		10,027			929

Cash Flows from Investing Activities:
Purchase of Property and Equipment		(1,747	)		(3,833	)
Proceeds from Sale of Assets		9			6

Net Cash Used in Investing Activities		(1,738	)		(3,827	)

Cash Flows from Financing Activities:
Net Repayment of Long-Term Debt		(1,200	)		(1,185	)
Net Cash Effect of Exercise Related to Stock Options		228			517

Net Cash Used in Financing Activities		(972	)		(668	)

Net Increase/(Decrease) in Cash and Cash Equivalents		7,317			(3,566	)
Cash and Cash Equivalents - Beginning of Period		158			3,832

Cash and Cash Equivalents - End of Period	$	7,475		$	266

Supplemental Disclosures of Cash Flow Information:
Interest Paid	$	32		$	150
Income Taxes Paid	$	2,208		$	2,118

See accompanying notes to consolidated financial statements.

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DUCOMMUN INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Summary of Significant Accounting Policies

Consolidation

The consolidated balance sheet is unaudited as of July 2, 2005 and the consolidated statements of income and the consolidated statements of cash flows are unaudited for the three months and six months ended July 2, 2005 and July 3, 2004. The consolidated financial statements include the accounts of Ducommun Incorporated and its subsidiaries (“Ducommun” or the “Company”), after eliminating inter-company balances and transactions. 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. The financial information included in the quarterly report should be read in conjunction with the Company’s consolidated financial statements and related notes thereto included in its annual report on Form 10-K for the year ended December 31, 2004.

Cash Equivalents

Cash equivalents consist of highly liquid instruments purchased with original maturities of three months or less. The cost of these investments approximates fair value.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery of products has occurred or services have been rendered. Revenue is recognized under long-term contracts on the same basis as other sale transactions.

Provision for Estimated Losses on Contracts

The Company records provisions for estimated losses on contracts in the period in which such losses are identified.

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Allowance for Doubtful Accounts

Inventories

Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, but do not include any selling, general and administrative expense. Costs under long-term contracts are accumulated into, and removed from, inventory on the same basis as other contracts. The Company assesses the inventory carrying value and reduces it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The Company’s customer demand is highly unpredictable, and can fluctuate significantly caused by factors beyond the control of the Company. The Company maintains an allowance for inventories for potentially excess and obsolete inventories and inventories that are carried at costs that are higher than their estimated net realizable values.

Property and Depreciation

Property and equipment, including assets recorded under capital leases, are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives and, in the case of leasehold improvements, over the shorter of the lives of the improvements or the lease term. The Company evaluates long-lived assets for recoverability, when significant changes in conditions occur, and recognizes impairment losses, if any, based upon the fair value of the assets.

Goodwill

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impairment may have occurred. Goodwill is tested for impairment utilizing a two-step method. In the first step, the Company determines the fair value of the reporting unit using expected future discounted cash flows and other market valuation approaches. If the net book value of the reporting unit exceeds the fair value, the Company would then perform the second step of the impairment test which requires allocation of the reporting unit’s fair value of all of its assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value being allocated to goodwill. The fair value of the goodwill is then compared to the carrying amount to determine impairment. An impairment charge will be recognized only when the implied fair value of a reporting unit, including goodwill, is less than its carrying amount.

Warranty Liability

The Company quantifies and records an estimate for warranty related costs for certain customer returns related to quality. These costs are based on current estimated repair costs.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Standards, No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Litigation and Commitments

In the normal course of business, the Company and its subsidiaries are defendants in certain litigation, claims and inquiries, including matters relating to environmental laws. In addition, the Company makes various commitments and incurs contingent liabilities. Management’s estimates regarding contingent liabilities could differ from actual results.

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Environmental Liabilities

Environmental liabilities are recorded when environmental assessments and/or remedial efforts are probable and costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or the Company’s commitment to a formal plan of action.

Accounting for Stock-Based Compensation

The Company has adopted only the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amended Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). In accordance with these pronouncements, the Company applies APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans based on the fair value method. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed by SFAS No. 123, the Company’s net income and earnings per share would be reduced to the pro forma amounts indicated below:


	(In thousands)
	Three Months Ended						Six Months Ended
	July 2, 2005			July 3, 2004			July 2, 2005			July 3, 2004
Net Income:
As reported	$	4,073		$	4,307		$	8,156		$	6,538
Less: Total expense determined under fair value accounting for all awards, net of tax		(236	)		(222	)		(465	)		(395	)

Pro forma	$	3,837		$	4,085		$	7,691		$	6,143

Earnings Per Common Share:
As reported:
Basic	$	.40		$	.43		$	.81		$	.66
Diluted		.40			.42			.80			.64
Pro forma:
Basic	$	.38		$	.41		$	.77		$	.62
Diluted		.38			.40			.75			.60

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These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years.

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 securities by the weighted average number of common shares outstanding plus any potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock in each period. For the three months ended July 2, 2005 and July 3, 2004, income available to common shareholders was $4,073,000 and $4,307,000, respectively. The weighted average number of common shares outstanding for the three months ended July 2, 2005 and July 3, 2004 were 10,060,000 and 9,966,000, respectively; the dilutive shares associated with stock options were 101,000 and 225,000, respectively. For the six months ended July 2, 2005 and July 3, 2004 income available to common shareholders was $8,156,000 and $6,538,000, respectively. The weighted average number of common shares outstanding for the six months ended July 2, 2005 and July 3, 2004 were 10,052,000 and 9,943,000; and the dilutive shares associated with stock options were 139,000 and 262,000, respectively. For the three months ended July 2, 2005 and July 3, 2004 the number of shares not included in the calculations because the impact would have been antidilutive was 266,000 and 28,000, respectively; and for the six months ended July 2, 2005 and July 3, 2004 the number of shares not included in the calculations because the impact would have been antidilutive was 248,000 and 28,000, respectively.

Comprehensive Income

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS No. 130”), requires that certain items such as foreign currency translation adjustments, unrealized gains and losses on certain investments in debt and equity securities and minimum pension liability adjustments be presented as separate components of shareholders’ equity. SFAS No. 130 defines these as items of other comprehensive income and as such must be reported in a financial statement that is displayed with the same prominence as other financial statements. Accumulated other comprehensive income, as reflected in the Consolidated Statements of Shareholders’ Equity, was

- 11 -

comprised of a minimum pension liability adjustment of $2,117,000, net of tax, at July 2, 2005 and December 31, 2004.

Recent Accounting Pronouncements

In December 2004, Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS No. 123R”), which finalized the new accounting rules for share-based compensation including stock options, restricted stock and performance based equity compensation, was issued. SFAS No. 123R is an amendment to FASB Statement No. 123 and supersedes APB Opinion No. 25. SFAS No. 123R will be effective for the Company in the first quarter of 2006. Beginning in January 1, 2006 all stock options or other equity-based awards to employees or directors that vest or become exercisable must be accounted for under SFAS No. 123R. Management is in the process of assessing the impact SFAS No. 123R will have on the Company’s consolidated financial statements.

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (“the Act”). For companies that pay income taxes on manufacturing activities in the U.S., the Act provides a deduction from taxable income equal to a stipulated percentage of qualified income from domestic production activities, which will be phased-in from 2005 through 2010. The Act also provides for a two-year phase-out of the existing extraterritorial income (“ETI”) exclusion now in place. The Company currently derives benefit from the ETI exclusion. The Act reduces the Company’s ETI exclusion for 2005 and 2006 to 80% and 60% of the otherwise allowable exclusion. No exclusion will be available in 2007 and beyond.

Under the guidance in FASB Staff Position No. FAS 109-1, the deduction for qualified domestic production activities will be treated as a “special deduction” as described in FASB Statement No. 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on our tax return.

In November 2004, Statement of Financial Accounting Standards No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4” (“SFAS No. 151”), was issued. The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 will become effective for the Company beginning in fiscal 2006. Management is in the process of assessing the impact SFAS No. 151 will have on the Company’s consolidated financial statements.

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Use of Estimates

Certain amounts and disclosures included in the consolidated financial statements required management to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Note 2.

Inventories

Inventories consist of the following:


	(In thousands)
	July 2, 2005		December 31, 2004
Raw materials and supplies	$	15,092	$	14,566
Work in process		39,364		41,239
Finished goods		1,003		1,265

		55,459		57,070
Less progress payments		5,061		6,610

Total	$	50,398	$	50,460

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Note 3.

Property and Equipment

Property and equipment consist of the following:


	(In thousands)
	July 2, 2005		December 31, 2004
Land	$	11,333	$	11,333
Buildings and improvements		28,745		28,629
Machinery and equipment		72,343		71,764
Furniture and equipment		12,526		12,512
Construction in progress		2,340		1,715

		127,287		125,953
Less accumulated depreciation and amortization		74,346		70,969

Total	$	52,941	$	54,984

Depreciation expense was $1,885,000 and $1,861,000 for the three months ended July 2, 2005 and July 3, 2004, respectively, and $3,788,000 and $3,738,000 for the six months ended July 2, 2005 and July 3, 2004, respectively.

Note 4.

Goodwill

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”) and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). Pursuant to the nonamortization provisions of SFAS No. 142, there was no goodwill amortization expense and no change in goodwill during the three month and six month periods ended July 2, 2005 and July 3, 2004.

Note 5.

Long-Term Debt

Long-term debt is summarized as follows:


	(In thousands)
	July 2, 2005		December 31, 2004
Bank credit agreement	$	—	$	800
Notes and other liabilities for acquisitions		—		400

Total debt		—		1,200
Less current portion		—		1,200

Total long-term debt	$	—	$	—

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The Company has entered into an Amended and Restated Credit Agreement with Bank of America, N.A., as Administrative Agent, Wachovia Bank, National Association, as Syndication Agent, and the other lenders named therein (the “Credit Agreement”). The Credit Agreement provides for an unsecured revolving credit line of $75,000,000 maturing on April 7, 2010. Interest is payable monthly on the outstanding borrowings at Bank of America’s prime rate (6.25% at July 2, 2005) plus a spread (0% to 0.50% per annum based on the leverage ratio of the Company) or, at the election of the Company, for terms of up to six months at the LIBOR rate plus a spread (1.00% to 1.75% per annum depending on the leverage ratio of the Company). The Credit Agreement includes minimum fixed charge coverage, maximum leverage and minimum net worth covenants, an unused commitment fee (0.25% to 0.40% per annum depending on the leverage ratio of the Company), and limitations on future dispositions of property, repurchases of common stock, dividends, outside indebtedness, and acquisitions.

Note 6.

Accrued Liabilities

Accrued liabilities consist of the following:


	(In thousands)
	July 2, 2005		December 31, 2004
Accrued compensation	$	11,820	$	9,970
Provision for environmental costs		4,494		4,469
Customer deposits		1,593		2,584
Accrued insurance costs		2,486		3,375
Accrued contract loss provisions		2,331		3,023
Accrued warranty reserves		1,836		1,728
Accrued state franchise and sales tax		3,042		3,365
Other		2,564		2,038

Total	$	30,166	$	30,552

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Note 7.

Shareholders’ Equity

The Company is authorized to issue five million shares of preferred stock. At July 2, 2005 and December 31, 2004, no preferred shares were issued or outstanding.

The Company did not repurchase any of its common stock during the six months ended July 2, 2005 and during the year ended December 31, 2004.

Note 8.

Stock Options

The Company has three stock option or incentive plans. Stock awards may be made to directors, officers and key employees under the stock plans on terms determined by the Compensation Committee of the Board of Directors or, with respect to directors, on terms determined by the Board of Directors. Stock options have been and may be granted to directors, officers and key employees under the stock plans at prices not less than 100% of the market value on the date of grant, and expire not more than ten years from the date of grant. The option price and number of shares are subject to adjustment under certain dilutive circumstances.

At July 2, 2005, 224,400 common shares were available for future grants and 919,838 common shares were reserved for the exercise of outstanding options.

Note 9.

Employee Benefit Plans

The Company has an unfunded supplemental retirement plan that was suspended in 1986, but which continues to cover certain former executives. The accumulated benefit obligations under the plan at July 2, 2005 and December 31, 2004 were $502,000 and $486,000, respectively, which are included in accrued liabilities.

The Company sponsors, for all of its employees, a 401(k) defined contribution plan under which employees can make annual voluntary contributions not to exceed the lesser of an amount equal to 25% of their compensation or limits established by the Internal Revenue Code. The Company generally provides a match equal to 50 percent of the employees’ contributions up to the first 4 percent of compensation, except for union employees who are not eligible to receive the match. The Company matching contributions for the three months ended July 2, 2005 and July 3, 2004 were approximately $170,000 and $186,000, respectively. The Company matching contributions for the six months ended July 2, 2005 and July 3, 2004 were approximately $335,000 and $360,000, respectively.

The Company provides postretirement benefits for a former executive of the Company. The accrued postretirement benefit cost under this plan is included in accrued liabilities.

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The components of net periodic postretirement benefits cost for this plan are as follows:


	(In thousands)
	Three Months Ended					Six Months Ended
	July 2, 2005		July 3, 2004			July 2, 2005		July 3, 2004
Service cost	$	—	$	—		$	—	$	—
Interest cost		7		18			15		36
Expected return on plan assets		—		—			—		—
Amortization of net transition obligation		—		27			—		48
Amortization of actuarial gain		—		(5	)		—		(10	)

	$	7	$	40		$	15	$	74

The Company has a defined benefit pension plan covering certain hourly employees of a subsidiary. Pension plan benefits are generally determined on the basis of the retiree’s age and length of service. Assets of the defined benefit plan are composed primarily of fixed income and equity securities.

The components of net periodic pension cost for this plan are as follows:


	(In thousands)
	Three Months Ended						Six Months Ended
	July 2, 2005			July 3, 2004			July 2, 2005			July 3, 2004
Service cost	$	154		$	127		$	308		$	253
Interest cost		151			156			303			312
Expected return on plan assets		(207	)		(182	)		(414	)		(363	)
Amortized losses		35			40			70			79

Net periodic pension cost	$	133		$	141		$	267		$	281

On December 31, 2004, the Company’s annual measurement date, and July 2, 2005, the accumulated benefits obligation, related to the defined benefit plan, exceeded the fair value of the plan assets. Such excess is referred to as an unfunded accumulated benefit obligation. In accordance with Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions,” the Company recognized a minimum pension liability at July 2, 2005 and December 31, 2004 of $2,117,000, net of tax, which decreased shareholders’ equity and is included in other long-term liabilities. This

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charge to shareholders’ equity represents a net loss not yet recognized as a pension expense. This charge did not affect reported earnings, and would be reversible if either interest rates increase or market performance and plan returns improve or contributions cause the pension plan to return to fully funded status. There were no charges during the three months and six months ended July 2, 2005 and July 3, 2004.

Amounts recognized in the statement of financial position consist of:


	(In thousands)
	Pension Benefits						Other Benefits
	July 2, 2005			December 31, 2004			July 2, 2005			December 31, 2004
Prepaid benefit cost	$	—		$	—		$	—		$	—
Accrued benefit cost		(1,606	)		(1,339	)		(663	)		(976	)
Accumulated other comprehensive income		2,742			2,742			—			—

Net amount recognized	$	1,136		$	1,403		$	(663	)	$	(976	)

The Company’s funding policy is to contribute cash to its pension plan so that the minimum contribution requirement established by government funding and taxing authorities are met. The Company plans to make no contribution to its pension plan in 2005.

Note 10.

Indemnifications and Warranty Liability

Indemnifications

The Company has made guarantees and indemnities under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. In connection with certain facility leases, the Company has indemnified its lessors for certain claims arising from the facility or the lease. The Company indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, the Company has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments the Company could be obligated to make.

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Historically, payments related to these guarantees and indemnities have been immaterial. The Company estimates the fair value of its indemnification obligations as insignificant based on this history and insurance coverage and has, therefore, not recorded any liability for these guarantees and indemnities in the accompanying consolidated balance sheets. However, there can be no assurances that the Company will not have any future financial exposure under these indemnification obligations.

Warranty Liability

The Company quantifies and records an estimate for warranty related costs for certain customer returns related to quality. These costs are based on current estimated repair costs.

The warranty liability at July 2, 2005 and December 31, 2004 was $1,836,000 and $1,728,000, respectively, and includes $1,768,000 at July 2, 2005 for product returns on the Apache blade program.

Information regarding the changes in the Company’s aggregate warranty liability is as follows for the three months ended July 2, 2005 and the year ended December 31, 2004:


	(In thousands)
	July 2, 2005			December 31, 2004
Warranty liability at beginning of period	$	1,728		$	1,759
Accruals for warranties during the period		138			64
Adjustments relating to pre-existing warranties		(30	)		(95	)

Warranty liability at end of period	$	1,836		$	1,728

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Note 11.

Leases

The Company leases certain facilities and equipment for periods ranging from 1 to 8 years. The leases generally are renewable and provide for the payment of property taxes, insurance and other costs relative to the property. Rental expense for the periods ended July 2, 2005 and July 3, 2004, was $1,422,000 and $1,441,000, respectively. Future minimum rental payments under operating leases having initial or remaining noncancelable terms in excess of one year at July 2, 2005, are as follows:


	(In thousands)
	Lease Commitments
2005	$	1,092
2006		2,183
2007		1,975
2008		1,024
2009		532
Thereafter		1,093

Total	$	7,899

Note 12.

Contingencies

The Ducommun AeroStructures, Inc. (“DAS”) facility located in El Mirage, California has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination. Based upon currently available information, the Company has established a provision for the cost of such investigation and corrective action of $1.5 million. However, the Company’s ultimate liability in connection with the contamination will depend upon a number of factors, including changes in existing laws and regulations, and the design and cost of the construction, operation and maintenance of the corrective action.

The Company’s subsidiary, Composite Structures, LLC (“Composite”), and several other companies have been ordered by a California environmental agency to investigate and clean up soil and groundwater contamination at its Monrovia, California facility. The Company does not presently expect that this matter will have a material adverse effect on its consolidated financial position or results of operation.

In December 2004, a California environmental agency issued an order to DAS and other companies and government entities which allegedly sent hazardous waste to a landfill in West Covina, California. The order directs DAS and the other companies and government entities to take over the closure and post-closure operation of the landfill and to take certain other actions. The Company, at this time, is unable to estimate reliably its future liability in connection with the landfill. Based on currently available information, the Company preliminarily estimates that the range of its future liability in connection with the landfill is between approximately $164,000 and $3.5 million. The Company has recorded a provision at the minimum amount of the range of approximately $164,000.

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In December 2004, the Orange County Water District filed a lawsuit against American Electronic, Inc. (“AEI”), a subsidiary of the Company, and other companies, to recover damages relating to contamination of groundwater within the District. The Company does not presently expect that this matter will have a material adverse effect on its consolidated financial position or results of operation.

On June 1, 2005, the Company was served with a summons and complaint in a lawsuit entitled United States of America ex rel Taylor Smith, Jeannine Prewitt and James Ailes v. The Boeing Company and Ducommun Inc., filed in the United States District Court for the District of Kansas. The lawsuit is a qui tam action brought against The Boeing Company (“Boeing”) and Ducommun on behalf of the United States of America for violations of the United States False Claims Act. The lawsuit alleges that Ducommun sold unapproved parts to the Boeing Commercial Airplanes-Wichita Division which were installed by Boeing in 32 aircraft ultimately sold to the United States government. The lawsuit seeks damages, civil penalties and other relief from the defendants for presenting or causing to be presented false claims for payment to the United States government. Although the amount of alleged damages are not specified, the lawsuit seeks damages in an amount equal to three times the amount of damages the United States government sustained because of the defendants’ actions, plus a civil penalty of $10,000 for each false claim made on or before September 28, 1999, and $11,000 for each false claim made on or after September 28, 1999, together with attorneys’ fees and costs. The Company, at this time, is unable to estimate what, if any, liability it may have in connection with the lawsuit.

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, results of operations or cash flows.

Note 13.

Major Customers and Concentrations of Credit Risk

The Company provides proprietary products and services to most of the prime aerospace and aircraft manufacturers. As a result, the Company’s sales and trade receivables are concentrated principally in the aerospace industry.

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sales to Lockheed Martin were $5,405,000 and $3,534,000, respectively. At July 2, 2005, trade receivables from Boeing, Raytheon and Lockheed Martin were $12,028,000, $2,152,000 and $3,049,000, respectively. The sales and receivables relating to Boeing, Raytheon and Lockheed Martin are diversified over a number of different commercial, space and military programs.

Note 14.

Business Segment Information

The Company supplies products and services to the aerospace industry. The Company’s subsidiaries are organized into two strategic businesses, each of which is a reportable operating segment. Ducommun AeroStructures, Inc., manufactures aerospace structural components and subassemblies. Ducommun Technologies, Inc., manufactures aerospace electromechanical components and subsystems. The accounting policies of the segments are the same as those of the Company, as described in Note 1, Summary of Significant Accounting Policies.

Financial Accounting Standards Board Statement No. 131, “Disclosures About Segments of an Enterprise and Related Information” (“SFAS No. 131”), establishes standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available and that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

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Financial information by reporting segment is set forth below:


	(In thousands)
	Three Months Ended						Six Months Ended
	July 2, 2005			July 3, 2004			July 2, 2005			July 3, 2004
Net Sales:
Ducommun AeroStructures, Inc.	$	42,656		$	37,550		$	86,499		$	77,076
Ducommun Technologies, Inc.		19,342			19,833			39,311			38,554

Total Net Sales	$	61,998		$	57,383		$	125,810		$	115,630

Segment Operating Income (1):
Ducommun AeroStructures, Inc.	$	4,785		$	4,861		$	8,252		$	6,636
Ducommun Technologies, Inc.		1,979			3,882			4,734			6,899

		6,764			8,743			12,986			13,535
Corporate General and Administrative Expenses		(405	)		(2,595	)		(1,899	)		(3,763	)

Total Operating Income	$	6,359		$	6,148		$	11,087		$	9,772

Depreciation and Amortization Expenses:
Ducommun AeroStructures, Inc.	$	1,572		$	1,520		$	3,158		$	3,050
Ducommun Technologies, Inc.		291			336			585			679
Corporate Administration		22			5			45			9

Total Depreciation and Amortization Expenses	$	1,885		$	1,861		$	3,788		$	3,738

Capital Expenditures:
Ducommun AeroStructures, Inc.	$	713		$	1,646		$	1,271		$	3,264
Ducommun Technologies, Inc.		437			147			437			422
Corporate Administration		22			147			39			147

Total Capital Expenditures	$	1,172		$	1,940		$	1,747		$	3,833

(1)	Before certain allocated corporate overhead.

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Segment assets include assets directly identifiable with each segment. Corporate assets include assets not specifically identified with a business segment, including cash.


	(In thousands)
	July 2, 2005		December 31, 2004
Total Assets:
Ducommun AeroStructures, Inc.	$	143,157	$	140,055
Ducommun Technologies, Inc.		50,853		51,586
Corporate Administration		20,142		12,912

Total Assets	$	214,152	$	204,553

Goodwill
Ducommun AeroStructures, Inc.	$	36,785	$	36,785
Ducommun Technologies, Inc.		20,416		20,416

Total Goodwill	$	57,201	$	57,201

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Ducommun designs, engineers and manufactures aerostructure and electromechanical components and subassemblies principally for the aerospace industry. Sales, diluted earnings per share, gross profit as a percent of sales, selling, general and administrative expense as a percent of sales, and the effective tax rate in the second quarter and six months of 2005 and 2004, respectively, were as follows:


	Second Quarter						Six Months
	2005			2004			2005			2004
Sales (in $000’s)	$	61,998		$	57,383		$	125,810		$	115,630
Diluted Earnings Per Share	$	.40		$	.42		$	.80		$	.64
Gross Profit % of Sales		22.8	%		24.6	%		20.4	%		21.2	%
SG&A Expense % of Sales		12.5	%		13.9	%		11.6	%		12.8	%
Effective Tax Rate		35.9	%		29.1	%		25.9	%		31.6	%

The Company manufactures components and assemblies principally for domestic and foreign commercial and military aircraft and space programs. The Company’s mix of military, commercial and space business in the second quarter and six months of 2005 and 2004, respectively, were approximately as follows:


	Second Quarter				Six Months
	2005		2004		2005		2004
Military	63	%	61	%	62	%	61	%
Commercial	33	%	35	%	35	%	35	%
Space	4	%	4	%	3	%	4	%

Total	100	%	100	%	100	%	100	%

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The Company is dependent on Boeing commercial aircraft, the C-17 aircraft and the Apache helicopter programs. Sales to these programs, as a percentage of total sales, for the second quarter and six months of 2005 and 2004, respectively, were approximately as follows:


	Second Quarter				Six Months
	2005		2004		2005		2004
Boeing Commercial Aircraft	14	%	17	%	14	%	19	%
Boeing C-17 Aircraft	13	%	13	%	12	%	13	%
Boeing Apache Helicopter	19	%	17	%	19	%	17	%
All Others	54	%	53	%	55	%	51	%

Total	100	%	100	%	100	%	100	%

Results of Operations

Second Quarter 2005 Compared to Second Quarter 2004

Net sales in the second quarter of 2005 were $61,998,000, compared to net sales of $57,383,000 for the second quarter of 2004. The Company’s mix of business in the second quarter of 2005 was approximately 63% military, 33% commercial, and 4% space, compared to 61% military, 35% commercial, and 4% space in the second quarter of 2004.

The Company had substantial sales, through both of its business segments, to Boeing, Raytheon and Lockheed Martin. During the second quarter of 2005 and 2004, sales to Boeing were $30,159,000 and $26,846,000, respectively; sales to Raytheon were $5,194,000 and $6,107,000, respectively; and sales to Lockheed Martin were $5,405,000 and $3,534,000, respectively. At July 2, 2005, trade receivables from Boeing, Raytheon and Lockheed Martin were $12,028,000, $2,152,000 and $3,049,000, respectively. The sales and receivables relating to Boeing, Raytheon and Lockheed Martin are diversified over a number of different commercial, space and military programs.

Military components manufactured by the Company are employed in many of the country’s front-line fighters, bombers, helicopters and support aircraft, as well as many sea-based vehicles. The Company’s defense business is widely diversified among military manufacturers and programs. Sales related to military programs were approximately $39,218,000, or 63% of total sales in the second quarter of 2005, compared to $34,929,000, or 61% of total sales in the second quarter of 2004. The increase in military sales in the second quarter of 2005 resulted principally from an increase in sales to the Apache helicopter program at Ducommun AeroStructrues, Inc. (“DAS”). The Apache helicopter program accounted for approximately $11,991,000 in sales in the second quarter of 2005, compared to $9,561,000

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in sales in second quarter of 2004. The C-17 program accounted for approximately $8,234,000 in sales in the second quarter of 2005, compared to $7,403,000 in sales in the second quarter of 2004.

The Company’s commercial business is represented on many of today’s major commercial aircraft. Sales related to commercial business were approximately $20,258,000 or 33% of total sales in the second quarter of 2005, compared to $20,080,000, or 35% of total sales in the second quarter of 2004. During the second quarter of 2005, commercial sales were higher, principally because of an increase in commercial aftermarket sales, partially offset by lower sales to the Boeing 737/737NG program. Sales to the Boeing 737/737NG program accounted for approximately $5,824,000 in sales in the second quarter of 2005, compared to $7,145,000 in sales in the second quarter of 2004.

In the space sector, the Company produces components for the expendable fuel tank which help boost the Space Shuttle vehicle into orbit. Components are also produced for a variety of unmanned launch vehicles and satellite programs. Sales related to space programs were approximately $2,522,000, or 4% of total sales in the second quarter of 2005, compared to $2,374,000, or 4% of total sales in the second quarter 2004. During the second quarter of 2005, sales related to space programs were higher due to higher sales for the Space Shuttle program.

Gross profit, as a percentage of sales, decreased to 22.8% in the second quarter of 2005 from 24.6% in the second quarter of 2004. The gross profit margin decrease was primarily the result of higher operating costs at Ducommun AeroStructures and Ducommun Technologies and changes in sales mix compared to the second quarter of 2004.

Selling, general and administrative expenses, as a percentage of sales, were 12.5% in the second quarter of 2005, compared to 13.9% in the second quarter of 2004, primarily because of the higher sales volume in second quarter of 2005.

Interest expense decreased to $7,000 in the second quarter of 2005, compared to $76,000 in the second quarter of 2004 primarily due to lower debt levels in 2005 compared to 2004.

Income tax expense increased to $2,279,000 in the second quarter of 2005, compared to $1,765,000 in the second quarter of 2004. The Company’s effective tax rate for the second quarter of 2005 was 35.9%, compared to 29.1% in the second quarter of 2004, the difference primarily attributable to higher research and development tax credits in 2004. The Company currently expects its effective tax rate for the full year 2005 to be in the range of 26 to 30 percent with significant fluctuations from

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quarter-to-quarter during the year. Cash expended to pay income taxes increased to $2,182,000 in the second quarter of 2005, compared to $2,025,000 in the second quarter of 2004.

Net income for the second quarter of 2005 was $4,073,000, or $0.40 diluted earnings per share, compared to $4,307,000, or $0.42 diluted earnings per share, in the second quarter of 2004.

Six Months of 2005 Compared to Six Months of 2004

Net sales in the first six months of 2005 were $125,810,000, compared to net sales of $115,630,000 for the first six months of 2004. The Company’s mix of business in the first six months of 2005 was approximately 62% military, 35% commercial, and 3% space, compared to 61% military, 35% commercial, and 4% space in the first six months of 2004.

The Company had substantial sales, through both its business segments, to Boeing, Raytheon and Lockheed Martin. During the first six months of 2005 and 2004, sales to Boeing were $58,452,000 and $54,645,000 respectively; sales to Raytheon were $11,442,000 and $13,756,000, respectively; and sales to Lockheed Martin were $9,771,000 and $6,879,000, respectively. At July 2, 2005, trade receivables from Boeing, Raytheon and Lockheed Martin were $12,028,000, $2,152,000 and $3,049,000, respectively. The sales and receivables relating to Boeing, Raytheon and Lockheed Martin are diversified over a number of different commercial, space and military programs.

Military components manufactured by the Company are employed in many of the country’s front-line fighters, bombers, helicopters and support aircraft, as well as many sea-based vehicles. The Company’s defense business is widely diversified among military manufacturers and programs. Sales related to military programs were approximately $77,925,000, or 62% of total sales in the first six months of 2005, compared to $70,726,000, or 61% of total sales in the first six months of 2004. The increase in military sales in the first six months of 2005 resulted principally from an increase in military sales at Ducommun Technologies and an increase in sales for the Apache helicopter program. In the first six months of 2005, the Apache helicopter program accounted for approximately $24,041,000 in sales, compared to $19,923,000 in sales in the first six months of 2004, and the C-17 program accounted for approximately $15,544,000 in sales, compared to $14,858,000 in sales in the first six months of 2004.

The Company’s commercial business is represented on many of today’s major commercial aircraft. During the first six months of 2005, sales related to commercial business were approximately $43,441,000, or 35% of total sales, compared to $40,242,000, or 35% in the first six months of 2004.

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During the six months of 2005, commercial sales were higher, principally because of an increase in commercial aftermarket sales, partially offset by lower sales to the Boeing 737/737NG program. The Boeing 737/737NG program accounted for approximately $11,947,000 in sales in the first six months of 2005, compared to $15,756,000 in sales in the first six months of 2004.

In the space sector, the Company produces components for the expendable fuel tanks which help boost the Space Shuttle vehicle into orbit. Components are also produced for a variety of unmanned launch vehicles and satellite programs. During the first six months of 2005, sales related to space programs were approximately $4,444,000, or 3% of total sales, compared to $4,662,000, or 4% of total sales, in the first six months of 2004.

At July 2, 2005, backlog believed to be firm was approximately $355,416,000, compared to $305,352,000 at December 31, 2004. The backlog increase from December 31, 2004 was primarily due to higher bookings than shipments, primarily for the Apache helicopter program, the C-17 program and the Boeing 737/737NG program. Approximately $104,000,000 of the total backlog is expected to be delivered during the remainder of 2005. Backlog at July 2, 2005 included approximately $122,000,000 of backlog for the Apache helicopter program, $42,000,000 of backlog for the C-17 program, $37,000,000 of backlog for the Space Shuttle program, and $27,000,000 of backlog for the 737/737NG program. Trends in the Company’s overall level of backlog, however, may not be indicative of trends in future sales because the Company’s backlog is affected by timing differences in the placement of customer orders and because the Company’s backlog tends to be concentrated in several programs to a greater extent than the Company’s sales.

Gross profit, as a percentage of sales, decreased to 20.4% in the first six months of 2005 from 21.2% in the first six months of 2004. This decrease was primarily the result of higher operating costs at Ducommun AeroStructures and Ducommun Technologies and changes in sales mix compared to the first six months for 2004.

Selling, general and administrative expenses, as a percentage of sales, were 11.6% in the first six months of 2005, compared to 12.8% in the first six months of 2004, primarily due to higher sales volume in the first six months of 2005.

Interest expense decreased to $85,000 in the first six months of 2005 compared $214,000 for the first six months of 2004. The decrease in interest expense was primarily due to lower debt levels in 2005 compared to 2004.

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Income tax expense decreased to $2,846,000 in the first six months of 2005, compared to $3,020,000 in the first six months of 2004. The Company’s effective tax rate for the first six months of 2005 was 25.9%, compared to 31.6% in the first six months of 2004. The effective tax rate in the first six months of 2005 benefited from reductions in income tax reserves established in prior periods and research and development tax credits. The reduction in income tax reserves resulted from the favorable resolution of tax audit examinations and the expiration of certain tax statutes of limitations in the first quarter of 2005. The Company currently expects its effective tax rate for the full year 2005 to be in the range of 26 to 30 percent with significant fluctuations from quarter-to-quarter during the year. Cash expended to pay income taxes increased to $2,208,000 in the first six months of 2005, compared to $2,118,000 in the first six months of 2004.

Net income for the first six months of 2005 was $8,156,000, or $0.80 diluted earnings per share, compared to $6,538,000, or $0.64 diluted earnings per share, in the first six months of 2004.

Financial Condition

Liquidity and Capital Resources

Net cash provided by operating activities for the first six months of 2005 was $10,027,000, compared to $929,000 for the first six months of 2004. Net cash provided by operating activities for the first six months of 2005 included $8,156,000 of net income, $3,788,000 of depreciation, a $1,422,000 deferred income tax provision, a $2,154,000 increase in accounts payable due to timing of payments of vendors invoices, partially offset by an increase in accounts receivable of $4,455,000, primarily due to higher sales and the timing of shipments and billings to customers, a net reduction of $692,000 in accrued contract loss provisions related to shipments made during the first six months of 2005, and an increase in prepaid income taxes of $479,000.

Net cash used in investing activities for the first six months of 2005 consisted primarily of $1,747,000 of capital expenditures.

Net cash used in financing activities in the first six months of 2005 of $972,000 included $1,200,000 of net repayments by the Company of principal on outstanding borrowings, partially offset by $228,000 of net cash received from the exercise of common stock options.

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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 the next twelve months.

The Company expects to spend less than $6,000,000 for capital expenditures in 2005. The Company believes that the ongoing subcontractor consolidation makes acquisitions an increasingly important component of the Company’s future growth. Accordingly, the Company plans to continue to seek attractive acquisition opportunities and to make substantial capital expenditures for manufacturing equipment and facilities to support long-term contracts for both commercial and military aircraft and space programs.

The Company has made guarantees and indemnities under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. In connection with certain facility leases the Company has indemnified its lessors for certain claims arising from the facility or the lease. The Company indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, the Company has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments the Company could be obligated to make. Historically, payments related to these guarantees and indemnities have been immaterial. The Company estimates the fair value of its indemnification obligations as insignificant based on this history and insurance coverage and has, therefore, not recorded any liability for these guarantees and indemnities in

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the accompanying consolidated balance sheets. However, there can be no assurances that the Company will not have any future financial exposure under these indemnification obligations.

As of July 2, 2005 the Company had the following categories of contractual obligations (in thousands):


			Payments due by period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Long-term debt	$	—	$	—	$	—	$	—	$	—
Operating leases		7,899		2,183		3,593		1,287		836
Minimum pension liabilities		2,117		—		2,117		—		—

Total	$	10,016	$	2,183	$	5,710	$	1,287	$	836

The DAS facility located in El Mirage, California has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination. Based upon currently available information, the Company has established a provision for the cost of such investigation and corrective action of $1.5 million. However, the Company’s ultimate liability in

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connection with the contamination will depend upon a number of factors, including changes in existing laws and regulations, and the design and cost of the construction, operation and maintenance of the corrective action.

The Company’s subsidiary, Composite Structures, LLC (“Composite”), and several other companies have been ordered by a California environmental agency to investigate and clean up soil and groundwater contamination at its Monrovia, California facility. The Company has recorded a provision for this matter and does not presently expect that the matter will have a material adverse effect on its consolidated financial position or results of operations.

In December 2004, the Orange County Water District filed a lawsuit against American Electronic, Inc. (“AEI”), a subsidiary of the Company, and other companies, to recover damages, relating to contamination of groundwater within the District. The Company has recorded a provision for this matter and does not presently expect that the matter will have a material adverse effect on its consolidated financial position or results of operations.

Off-Balance Arrangements

The Company’s off-balance sheet arrangements consist of operating leases.

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Critical Accounting Policies

Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations, and that require the use of subjective estimates based upon past experience and management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing our financial statements that management believes are the most dependent on the application of estimates and assumptions. For additional accounting policies, see Note 1 of “Notes to Consolidated Financial Statements.”

Revenue Recognition

Provision for Estimated Losses on Contracts

The Company records provisions for estimated losses on contracts in the period in which such losses are identified. The provisions for estimated losses on contracts require management to make certain estimates and assumptions, including with respect to the future revenue under a contract and the future cost to complete the contract. Management’s estimate of the future cost to complete a contract may include assumptions as to improvements in manufacturing efficiency and reductions in operating and material costs. If any of these or other assumptions and estimates are not recognized in the future, the Company may be required to record additional provisions for estimated losses on contracts.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses from the inability of customers to make required payments. The allowance for doubtful accounts is evaluated periodically based on the aging of accounts receivable, the financial condition of customers and their payment history, historical write-off experience and other assumptions. The determination of the allowance for doubtful accounts requires management to make estimates as to these and other factors on the ultimate realization of accounts receivable. These estimates

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historically have not resulted in material adjustments in subsequent periods when the estimates were adjusted to actual amounts.

Inventories

Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, but do not include any selling, general and administrative expense. Costs under long-term contracts are accumulated into, and removed from, inventory on the same basis as other contracts. The Company assesses the inventory carrying value and reduces it if necessary to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The Company’s customer demand is highly unpredictable, and can fluctuate significantly caused by factors beyond the control of the Company. The Company maintains an allowance for inventories for potentially excess and obsolete inventories and inventories that are carried at costs that are higher than their estimated net realizable values. If market conditions are less favorable than those projected by management, such as an unanticipated decline in demand not meeting expectations, inventory write-downs may be required.

Goodwill

The Company’s business acquisitions have typically resulted in goodwill, which affects the amount of possible impairment expense that the Company may incur. The determination of the value of goodwill requires management to make estimates and assumptions that affect the Company’s consolidated financial statements. The Company performs goodwill impairment tests on an annual basis in the fourth quarter and between annual tests, in certain circumstances, whenever events may indicate an impairment may have occurred. Goodwill is tested for impairment utilizing a two-step method. In the first step, the Company determines the fair value of the reporting unit using expected future discounted cash flows and other market valuation approaches. If the net book value of the reporting unit exceeds the fair value, the Company would then perform the second step of the impairment test which requires allocation of the reporting unit’s fair value of all of its assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value being allocated to goodwill. The fair value of the goodwill is then compared to the carrying amount to determine impairment. An impairment charge will be recognized only when the implied fair value of a reporting unit, including goodwill, is less than its carrying amount. In assessing the recoverability of the Company’s goodwill, management must make

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assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets. In the event that a goodwill impairment charge is required, it would adversely affect the operating results and financial condition of the Company. Goodwill at July 2, 2005 and December 31, 2004 was $57,201,000.

Recent Accounting Pronouncements

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production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 will become effective for the Company beginning in fiscal 2006. Management is in the process of assessing the impact SFAS No. 151 will have on the Company’s consolidated financial statements.

Additional Risk Factors

The Company’s business, financial condition, results of operations and cash flows may be affected by known and unknown risks, uncertainties and other factors. Any of these risks, uncertainties and other factors could cause the Company’s future financial results to differ materially from recent financial results or from currently anticipated future financial results. In addition to those noted elsewhere in this report, the Company is subject to the following risks and uncertainties:

Aerospace Markets Are Cyclical

The aerospace markets in which the Company sells its products are cyclical and have experienced periodic declines. The Company’s sales are, therefore, unpredictable and tend to fluctuate based on a number of factors, including economic conditions and developments affecting the aerospace industry and the customers served. Although the market for the Company’s products sold for new commercial aircraft production currently appears to be experiencing a slight improvement, any downturn in commercial aircraft production could have a negative impact on the Company’s business, financial condition and operating results.

Military and Space-Related Products Are Dependent Upon Government Spending

The Company estimates that, in the second quarter of 2005, approximately 67% of its sales were derived from military and space markets. These military and space markets are largely dependent upon government spending, particularly by the United States government. Changes in the levels of spending for military and space could improve or negatively impact the Company’s prospects in its military and space markets. Funding for the Space Shuttle program, in particular, is uncertain, and any reduction in production rates for the Space Shuttle program would adversely affect the Company.

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The Company Is Dependent on Boeing Commercial Aircraft, the C-17 Aircraft and Apache Helicopter Programs

The Company estimates that, in the second quarter 2005, approximately 14% of its sales were for Boeing commercial aircraft, 13% of its sales were for the C-17 aircraft, and 19% of its sales were for the Apache helicopter. The Company’s sales for Boeing commercial aircraft and the C-17 aircraft are principally for new aircraft production; and the Company’s sales for the Apache helicopter are principally for replacement rotor blades. Any significant change in production rates for these programs would have a material effect on the Company’s results of operations and cash flows. In addition, there is no guarantee that the Company’s current significant customers will continue to buy products from the Company at current levels. The loss of a key customer could have a material adverse effect on the Company. For example, the Company manufactures the spoilers for the Boeing 737NG aircraft (the “737 Spoilers”), which contributed approximately $13,870,000 to sales in 2004. The Company has been informed that a competitor has been awarded a contract to produce the 737 Spoilers. Although the precise timing and amount of any transition of work to the competitor is presently unknown, such a transition of work may occur as early as the end of 2006.

Terrorist Attacks May Adversely Impact the Company’s Operations

There can be no assurance that the current world political and military tensions, or the United States military actions, will not lead to acts of terrorism and civil disturbances in the United States or elsewhere. These attacks may strike directly at the physical facilities of the Company, its suppliers or its customers. Such attacks could have an adverse impact on the Company’s domestic and international sales, supply chain, production capabilities, insurance premiums or ability to purchase insurance, thereby adversely affecting the Company’s financial position, results of operations and cash flows. In addition, the consequences of terrorist attacks and armed conflicts are unpredictable, and their long-term effects upon the Company are uncertain.

The Company Is Experiencing Competitive Pricing Pressures

The aerospace industry is highly competitive and competitive pressures may adversely affect the Company. The Company competes worldwide with a number of United States and international companies that are larger than it in terms of resources and market share. The Company is experiencing competitive pricing pressures in both its DAS and DTI businesses. These competitive pricing pressures have had, and are expected to continue to have, a material adverse effect on the Company’s business, financial condition and operating results.

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The Company Faces Risks of Cost Overruns and Losses on Fixed-Price Contracts

The Company sells its products under firm, fixed-price contracts providing for a fixed price for the products regardless of the production costs incurred by the Company. As a result, manufacturing inefficiencies, start-up costs and other factors may result in cost overruns and losses on contracts. The cost of producing products also may be adversely affected by increases in the cost of labor, materials, outside processing, overhead and other factors. In many cases, the Company makes multiyear firm, fixed-price commitments to its customers, without assurance that the Company’s anticipated production costs will be achieved.

The Company’s Products and Processes Are Subject to Risks from Changes in Technology

The Company’s products and processes are subject to risks of obsolescence as a result of changes in technology. To address this risk, the Company invests in product design and development, and for capital expenditures. There can be no guarantee that the Company’s product design and development efforts will be successful, or that the amounts of money required to be invested for product design and development and capital expenditures will not increase materially in the future.

The Company Faces Risks Associated with Acquisitions and Dispositions of Businesses

A key element of the Company’s long-term strategy has been growth through acquisitions. The Company is continuously reviewing and actively pursuing acquisitions, including acquisitions outside of its current aerospace markets. Acquisitions may require the Company to incur additional indebtedness, resulting in increased leverage. Any significant acquisition may result in a material weakening of the Company’s financial position and a material increase in the Company’s cost of borrowings. Acquisitions also may require the Company to issue additional equity, resulting in dilution to existing stockholders. This additional financing for acquisitions may not be available on terms acceptable or favorable to the Company. Acquired businesses may not achieve anticipated results, and could result in a material adverse effect on the Company’s financial condition, results of operations and cash flows. The Company also periodically reviews its existing businesses to determine if they are consistent with the Company’s strategy. The Company has sold, and may sell in the future, business units and product lines, which may result in either a gain or loss on disposition.

The Company’s acquisition strategy exposes it to risks, including the risk that the Company may not be able to successfully integrate acquired businesses. The Company’s ability to grow by acquisition is dependent upon, among other factors, the availability of suitable acquisition candidates.

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Growth by acquisition involves risks that could have a material adverse affect on the Company’s business, financial condition and operating results, including difficulties in integrating the operations and personnel of acquired companies, the potential amortization of acquired intangible assets, the potential impairment of goodwill and the potential loss of key employees of acquired companies. The Company may not be able to consummate acquisitions on satisfactory terms or, if any acquisitions are consummated, to satisfactorily integrate these acquired businesses.

Goodwill Could Be Impaired in the Future

In assessing the recoverability of the Company’s goodwill at December 31, 2004, management was required to make certain critical estimates and assumptions. These estimates and assumptions, with respect to the Company’s DAS reporting unit, included that during the next several years DAS will make improvements in manufacturing efficiency, achieve reductions in operating costs, and obtain increases in sales and backlog. If any of these or other estimates and assumptions are not realized in the future, the Company may be required to record an impairment charge for the goodwill of DAS. The goodwill of DAS was $36,785,000 at December 31, 2004.

Significant Consolidation in the Aerospace Industry Could Adversely Affect the Company’s Business and Financial Results

The aerospace industry is experiencing significant consolidation, including among the Company’s customers, competitors and suppliers. Consolidation among the Company’s customers may result in delays in the award of new contracts and losses of existing business. Consolidation among the Company’s competitors may result in larger competitors with greater resources and market share, which could adversely affect the Company’s ability to compete successfully. Consolidation among the Company’s suppliers may result in fewer sources of supply and increased cost to the Company.

The Company’s Failure to Meet Quality or Delivery Expectations of Customers Could Adversely Affect the Company’s Business and Financial Results

The Company’s customers have increased, and are expected to increase further in the future, their expectations with respect to the on-time delivery and quality of the Company’s products. In many cases, the Company does not presently satisfy these customer expectations, particularly with respect to on-time delivery. If the Company fails to meet the quality or delivery expectations of its customers, this failure could lead to the loss of one or more significant customers of the Company.

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The Company’s Manufacturing Operations May Be Adversely Affected by the Availability of Raw Materials and Components from Suppliers

In some cases, the Company’s customers supply raw materials and components to the Company. In other cases, the Company’s customers designate specific suppliers from which the Company is directed to purchase raw materials and components. As a result, the Company may have limited control over the selection of suppliers and the timing of receipt and cost of raw materials and components from suppliers. The failure of customers and suppliers to deliver on a timely basis raw materials and components to the Company may adversely affect the Company’s results of operations and cash flows. In addition, the Company has experienced increases in lead times for, and a deterioration in the availability of, aluminum, titanium and certain other materials. These problems with raw material availability could have an adverse effect on the Company’s results of operations in the future.

Environmental Liabilities Could Adversely Affect the Company’s Financial Results

The Company is subject to various environmental laws and regulations. The Company is investigating and taking corrective action for groundwater contamination at its DAS subsidiary’s El Mirage, California site. The Company is also a potentially responsible party at certain sites at which it previously disposed of hazardous wastes or previously had manufacturing operations. There can be no assurance that future developments, lawsuits and administrative actions, and liabilities relating to environmental matters will not have a material adverse effect on the Company’s results of operations or cash flows.

The DAS chemical milling business uses various acid and alkaline solutions in the chemical milling process, resulting in potential environmental hazards. Despite existing waste recovery systems and continuing capital expenditures for waste reduction and management, at least for the immediate future, this business will remain dependent on the availability and cost of remote hazardous waste disposal sites or other alternative methods of disposal.

Product Liability Claims in Excess of Insurance Could Adversely Affect the Company’s Financial Results and Financial Condition

The Company faces potential liability for personal injury or death as a result of the failure of products designed or manufactured by the Company. Although the Company maintains product liability insurance, any material product liability not covered by insurance could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

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Damage or Destruction of the Company’s Facilities Caused by Earthquake or Other Causes Could Adversely Affect the Company’s Financial Results and Financial Condition

Although the Company maintains standard property casualty insurance covering its properties, the Company does not carry any earthquake insurance because of the cost of such insurance. Most of the Company’s properties are located in Southern California, an area subject to frequent and sometimes severe earthquake activity. Even if covered by insurance, any significant damage or destruction of the Company’s facilities could result in the inability to meet customer delivery schedules and may result in the loss of customers and significant additional costs to the Company. As a result, any significant damage or destruction of the Company’s properties could have a material adverse effect on the Company’s business, financial condition or results of operations.

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4.

Controls and Procedures

The Company’s chief executive officer and chief financial officer have concluded, based on an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(c)), that such disclosure controls and procedures were effective as of the end of the period covered by this report. No change in the Company’s internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting except as indicated below.

During the second quarter of 2005, the Company implemented a new Baan information system at one location of Ducommun AeroStructures, Inc. (“DAS”). Two other locations of DAS were utilizing the Baan information system prior to the second quarter of 2005. The Company is continuing to implement the Baan information system throughout DAS, and in that process, expects that there will be future material changes in internal control as a result of the implementation.

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PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

- 44 -

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

(c)

Issuer Purchases of Equity Securities For the Three Months Ended July 2, 2005


*Period*	Total Number of Shares (or Units) Purchased*	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicy Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs **
Month beginning April 03, 2005 and ending April 30, 2005	0	$	0.00	0	$	4,704,000
Month beginning May 01, 2005 and ending May 28, 2005	0	$	0.00	0	$	4,704,000
Month beginning May 29, 2005 and ending July 02, 2005	0	$	0.00	0	$	4,704,000
Total	0	$	0.00	0	$	4,704,000

*	All shares repurchased were made pursuant to stock-for-stock exercises of nonqualified stock options under the Company's stock option and stock incentive plans.

Since 1998, the Company's Board of Directors has authorized the repurchase of up to $30,000,000 of its common stock. From 1998 to 2001, the Company repurchased in the open market 1,918,962 shares of its common stock for a total of $25,296,000. A total of $4,740,000 remains available for share repurchase under the authorization which has no expiration date.

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Item 4.

Submission of Matters to a Vote of Security Holders

The 2005 Annual Meeting of Shareholders of the Company was held on May 4, 2005. At the meeting, the shareholders approved the election of Robert C. Ducommun as a director to serve for a two-year term ending in 2007, the election of Thomas P. Mullaney and Robert D. Paulson as directors to serve for three-year terms ending in 2008, and the ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent accountants for the fiscal year ending December 31, 2005. The shareholder vote on these matters was as follows:


	For	Withheld
Election of Robert C. Ducommun as a director for a two-year term expiring in 2007	8,501,991	79,390
Election of Thomas P. Mullaney as a director for a three-year term expiring in 2008	8,535,605	54,776
Election of Robert D. Paulson as a director for a three-year term expiring in 2008	8,571,681	18,700


	For	Against	Abstain
Ratification of Selection of PricewaterhouseCoopers LLP as the Company’s independent accountants for the fiscal year ending December 31, 2005	8,418,419	171,777	455

The directors whose terms of office continued after the 2005 Annual Meeting of Shareholders were Joseph C. Berenato, H. Frederick Christie, Eugene P. Conese, Jr., and Ralph D. Crosby, Jr.

Item 6.

Exhibits.


11		Reconciliation of Numerators and Denominators of the Basic and Diluted Earnings Per Share Computations.

31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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: August 1, 2005

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Reconciliation of Numerators and Denominators

EXHIBIT 11

DUCOMMUN INCORPORATED AND SUBSIDIARIES

RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF

THE BASIC AND DILUTED EARNINGS PER SHARE COMPUTATIONS


	For the Quarter Ended July 2, 2005
	Income (Numerator)		Shares (Denominator)	Per-Share Amount
Basic EPS
Income Available to Common Stockholders	$	4,073,000	10,060,000	$	0.40

Effect of Dilutive Securities
Stock Options		—	101,000

Diluted EPS
Income Available to Common Stockholders + Assumed Conversions	$	4,073,000	10,161,000	$	0.40


	For the Quarter Ended July 3, 2004
	Income (Numerator)		Shares (Denominator)	Per-Share Amount
Basic EPS
Income Available to Common Stockholders	$	4,307,000	9,966,000	$	0.43

Effect of Dilutive Securities
Stock Options		—	225,000

Diluted EPS
Income Available to Common Stockholders + Assumed Conversions	$	4,307,000	10,191,000	$	0.42


	For the Six Months Ended July 2, 2005
	Income (Numerator)		Shares (Denominator)	Per-Share Amount
Basic EPS
Income Available to Common Stockholders	$	8,156,000	10,052,000	$	0.81

Effect of Dilutive Securities
Stock Options		—	139,000

Diluted EPS
Income Available to Common Stockholders + Assumed Conversions	$	8,156,000	10,191,000	$	0.80


	For the Six Months Ended July 3, 2004
	Income (Numerator)		Shares (Denominator)	Per-Share Amount
Basic EPS
Income Available to Common Stockholders	$	6,538,000	9,943,000	$	0.66

Effect of Dilutive Securities
Stock Options		—	262,000

Diluted EPS
Income Available to Common Stockholders + Assumed Conversions	$	6,538,000	10,205,000	$	0.64

Certification of CEO

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Joseph C. Berenato, certify that:

I have reviewed this Quarterly Report of Ducommun Incorporated (the “registrant”) on Form 10-Q for the period ended July 2, 2005;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (defined in Exchange Act Rules 13a - 15(f) and 15d - 15(f)), for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is

reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2005

/s/ Joseph C. Berenato

Joseph C. Berenato

Chairman and Chief Executive Officer

Certification of CFO

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, James S. Heiser, certify that:

I have reviewed this Quarterly Report of Ducommun Incorporated (the “registrant”) on Form 10-Q for the period ended July 2, 2005;

reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2005

/s/ James S. Heiser

James S. Heiser

Vice President and Chief Financial Officer

Certification of CEO & CFO

Exhibit 32

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Ducommun Incorporated (the “Company”) on Form 10-Q for the period ending July 2, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Joseph C. Berenato, Chairman and Chief Executive Officer of the Company, and James S. Heiser, Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



By:		/s/ Joseph C. Berenato
		Joseph C. Berenato
		Chairman and Chief Executive Officer



By:		/s/ James S. Heiser
		James S. Heiser
		Vice President and Chief Financial Officer

Date: August 1, 2005

The foregoing certification is accompanying the Form 10-Q solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being filed as part of the Form 10-Q or as a separate disclosure document.