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8-K


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
____________________________
FORM 8-K
____________________________
 
 CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 9, 2016
 
____________________________
DUCOMMUN INCORPORATED
(Exact name of registrant as specified in its charter)
____________________________
 
Delaware
001-08174
 
95-0693330
(State or other jurisdiction
of incorporation)
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
23301 Wilmington Avenue, Carson, California
 
90745-6209
 
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (310) 513-7200
N/A
(Former name or former address, if changed since last report.)
____________________________
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 





Item 2.02
Results of Operations and Financial Condition.
Ducommun Incorporated issued a press release on May 9, 2016 in the form attached hereto as Exhibit 99.1.
 
Item 9.01
Financial Statements and Exhibits.
(d) Exhibits
 

Exhibit No.
Exhibit Title or Description
99.1
Ducommun Incorporated press release issued on May 9, 2016.





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 hereunto duly authorized.
 
 
 
DUCOMMUN INCORPORATED
(Registrant)
Date: May 9, 2016
 
By:
/s/ James S. Heiser
 
 
 
James S. Heiser
 
 
 
Vice President and General Counsel


Exhibit


EXHIBIT 99.1
23301 Wilmington Avenue
 
Carson, CA 90745-6209
 
310.513.7200
 
www.ducommun.com
 
NEWS RELEASE

Ducommun Reports Results for the
First Quarter Ended April 2, 2016
Gross Margins Rebound; Debt Reduced and Backlog Strong
LOS ANGELES (May 9, 2016) – Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its first quarter ended April 2, 2016.
First Quarter 2016 Highlights
•
First quarter revenue was $142.1 million
•
Net income was $13.6 million, or $1.21 per diluted share
•
Adjusted EBITDA for the quarter was $11.1 million
•
Backlog increased to $564 million
“Our 2016 first quarter results validate that Ducommun is taking the right steps to improve long-term operating performance,” said Anthony J. Reardon, chairman and chief executive officer. “Ongoing efficiency-enhancement efforts, along with supply chain initiatives, generated much higher gross margins -- both sequentially and year-over-year -- even in the face of lower defense spending. Our commercial aerospace backlog remains near record levels, and we continue to win new and expanded content on both commercial and military blue-chip platforms.
“In addition, we successfully completed the divestitures of our Pittsburgh and Miltec operations during the quarter, using net proceeds of $50 million to reduce debt to $190 million versus $280 million a year ago. With these transactions behind us, Ducommun is stronger and more focused on serving our core aerospace and defense markets with innovative electronic and structural solutions. We will continue to deleverage the Company’s balance sheet this year, unlocking shareholder value and reducing interest expense in tandem. Our focus on critical operational initiatives, margin enhancement, top-line growth, and cash flow generation are bearing fruit, and we expect these efforts to result in performance improvement in the quarters ahead.”
First Quarter Results
Net revenue for the first quarter of 2016 was approximately $142.1 million compared to $172.9 million for the first quarter of 2015. The net revenue decrease year-over-year was primarily due to the following:
•
Approximately $15.4 million lower revenue in the industrial end-use markets due to the divestiture of the Pittsburgh operation in January 2016 and the closure of the Houston operation in December 2015; and
•
Approximately $13.2 million lower revenue in the military and space end-use markets mainly due to the decrease in U.S. government defense spending and shifting spending priorities, which impacted the Company’s fixed-wing and helicopter platforms and pushed out scheduled deliveries of these products to customers.
Going forward, as a result of the closure of the Houston operation and divestitures of the Pittsburgh and Miltec operations during the first quarter of 2016, Electronic Systems revenue will be lower by approximately $20.0 million per quarter for the balance of 2016.
Net income for the first quarter of 2016 was approximately $13.6 million, or $1.21 per diluted share, compared to net loss of $(2.0) million, or $(0.18) per share, for the first quarter of 2015. The increase in net income for the first quarter of 2016 compared to a net loss for the first quarter of 2015 was primarily due to the pretax gain on divestitures of the Pittsburgh and Miltec operations of approximately $18.8 million and lower interest expense of $4.3 million.




Operating income for the first quarter of 2016 was approximately $4.3 million, or 3.0% of revenue, compared to $3.6 million, or 2.1% of revenue, in the comparable period last year. The increase in operating income was primarily due to improved operating efficiencies related to ongoing cost improvement initiatives that was partially offset by the impact of the divestiture of the Pittsburgh operation.
Interest expense decreased to approximately $2.4 million in the first quarter of 2016, compared to $6.7 million in the previous year’s first quarter, primarily due to a lower outstanding debt balance as a result of voluntary principal prepayments on the term loan and a lower average interest rate as a result of completing the refinancing of the Company’s debt in July 2015.
The Company recorded a pretax gain on divestitures of approximately $18.8 million for the first quarter of 2016 consisting of the divestitures of the Pittsburgh operation with a pretax gain of $18.3 million and the Miltec operation with a pretax gain of $0.5 million.
Adjusted EBITDA for the first quarter of 2016 was approximately $11.1 million, or 7.8% of revenue, compared to $12.2 million, or 7.0% of revenue, for the comparable period in 2015.
During the first quarter of 2016, the Company generated approximately $5.5 million of cash from operations compared to $3.5 million during the first quarter of 2015 primarily due to higher net income as a result of higher gross margins in the current-year quarter.
The Company’s firm backlog as of April 2, 2016 was approximately $564 million.
Structural Systems
The Structural Systems segment net revenue for the current-year first quarter was approximately $64.0 million, compared to $72.1 million for the first quarter of 2015. The lower net revenue was primarily due to the following:
•
An approximately $4.5 million decrease in military and space revenues mainly due to the decrease in U.S. government defense spending and shifting spending priorities which impacted scheduled deliveries on the Company’s fixed-wing and helicopter platforms; and
•
An approximately $3.5 million decrease in commercial aerospace revenue related to the wind down of a regional jet program.
Structural Systems segment operating income for the current-year first quarter was $2.7 million, or 4.3% of revenue, compared to operating income of $2.1 million, or 3.0% of revenue, for the first quarter of 2015. The increase in operating income was primarily due to improved operating efficiencies related to ongoing cost improvement initiatives.
Structural Systems segment Adjusted EBITDA was approximately $4.8 million for the current quarter, or 7.5% of revenue, compared to $4.7 million, or 6.5% of revenue, for the comparable quarter in the prior year.
Electronic Systems
The Electronic Systems segment net revenue for the current-year first quarter was approximately $78.1 million, compared to $100.9 million for the first quarter of 2015. The lower net revenue was primarily due to the following:
•
An approximately $15.4 million decrease as a result of the divestiture of the Pittsburgh operation in January 2016 and the closure of the Houston operation in December 2015; and
•
An approximately $8.7 million decrease in military and space revenue mainly due to the decrease in U.S. government defense spending and shifting spending priorities which impacted scheduled deliveries on the Company’s fixed-wing and helicopter platforms;
•
Partially offset by an approximately $3.9 million increase in the Company’s commercial aerospace revenue through added content with existing customers.
Electronic Systems’ operating income for the current-year first quarter was approximately $7.1 million, or 9.0% of revenue, compared to $6.3 million, or 6.2% of revenue, for the first quarter of 2015. The increase in operating income was primarily due to improved operating efficiencies related to on-going cost improvement initiatives that was partially offset by the divestiture of the Company’s Pittsburgh operation.
Electronic Systems segment Adjusted EBITDA was approximately $29.6 million for the current-year quarter, or 37.9% of revenue, compared to $10.6 million, or 10.6% of revenue, for the comparable quarter in the prior year. The increase was primarily due to an approximate $18.8 million pretax gain on divestitures of the Pittsburgh and Miltec operations in the first quarter of 2016.




Corporate General and Administrative Expenses (“CG&A”)
CG&A expenses for the first quarter of 2016 were approximately $5.5 million, or 3.9% of total Company revenue, compared to $4.8 million, or 2.8% of total Company revenue, for the comparable quarter in the prior year. CG&A expenses increased primarily due to one-time retirement charges of approximately $0.9 million in the first quarter of 2016, partially offset by $0.4 million in other cost reduction initiatives.
Conference Call
A teleconference hosted by Anthony J. Reardon, the Company’s chairman and chief executive officer, and Douglas L. Groves, the Company’s vice president, chief financial officer and treasurer, will be held today, May 9, 2016 at 2:00 p.m. PT (5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 877-786-6947 (international 530-379-4718) approximately ten minutes prior to the conference time. The participant passcode is 88658163. Mr. Reardon and Mr. Groves will be speaking on behalf of the Company and anticipate the meeting and Q&A period to last approximately 45 minutes.
This call is being webcast by Thomson Reuters and can be accessed directly at the Ducommun website at www.ducommun.com. Conference call replay will be available after that time at the same link or by dialing 855-859-2056, passcode 88658163.
About Ducommun Incorporated
Ducommun Incorporated delivers innovative manufacturing solutions to customers in the aerospace, defense and industrial markets. Founded in 1849, the Company specializes in two core areas -- Electronic Systems and Structural Systems -- to produce complex products and components for commercial aircraft platforms, mission-critical military and space programs, and sophisticated industrial applications. For more information, visit www.ducommun.com.
Forward Looking Statements
Statements contained in this press release regarding other than recitation of historical facts are forward-looking statements. These statements are identified by words such as “may,” “will,” “ begin,” “ look forward,” “expect,” “believe,” “intend,” “anticipate,” “should,” “potential,” “estimate,” “continue,” “momentum” and other words referring to events to occur in the future. These statements reflect the Company’s current view of future events and are based on its assessment of, and are subject to, a variety of risks and uncertainties beyond its control, including, but not limited to, the state of the world financial, credit, commodities and stock markets, and uncertainties regarding the Company, its businesses and the industries in which it operates, which are described in the Company’s filings with the Securities and Exchange Commission. The Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
Note Regarding Non-GAAP Financial Information
This release contains non-GAAP financial measures, including Adjusted EBITDA (which excludes interest expense, income tax expense (benefit), depreciation, amortization, stock-based compensation expense, and gain on divestitures).
The Company believes the presentation of these non-GAAP measures provide important supplemental information to management and investors regarding financial and business trends relating to its financial condition and results of operations. The Company’s management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
CONTACTS:
Douglas L. Groves, Vice President, Chief Financial Officer and Treasurer, 310.513.7224
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com
[Financial Tables Follow]





DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 
 
 
April 2,
2016
 
December 31,
2015
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
6,439

 
$
5,454

Accounts receivable, net
 
77,664

 
77,089

Inventories
 
127,080

 
115,404

Production cost of contracts
 
9,667

 
10,290

Other current assets
 
8,441

 
13,389

Assets held for sale
 
—

 
41,636

Total Current Assets
 
229,291

 
263,262

Property and Equipment, Net
 
95,602

 
96,551

Goodwill
 
82,554

 
82,554

Intangibles, Net
 
108,359

 
110,621

Deferred income taxes
 
353

 
324

Other Assets
 
3,215

 
3,769

Total Assets
 
$
519,374

 
$
557,081

Liabilities and Shareholders’ Equity
 
 
 
 
Current Liabilities
 
 
 
 
Current portion of long-term debt
 
$
19

 
$
26

Accounts payable
 
47,418

 
40,343

Accrued liabilities
 
42,496

 
36,458

Liabilities held for sale
 
—

 
6,780

Total Current Liabilities
 
89,933

 
83,607

Long-Term Debt, Less Current Portion
 
186,032

 
240,661

Deferred Income Taxes
 
25,052

 
26,528

Other Long-Term Liabilities
 
17,692

 
18,954

Total Liabilities
 
318,709

 
369,750

Commitments and Contingencies
 
 
 
 
Shareholders’ Equity
 
 
 
 
Common stock
 
111

 
111

Additional paid-in capital
 
75,269

 
75,200

Retained earnings
 
131,173

 
117,623

Accumulated other comprehensive loss
 
(5,888
)
 
(5,603
)
Total Shareholders’ Equity
 
200,665

 
187,331

Total Liabilities and Shareholders’ Equity
 
$
519,374

 
$
557,081





DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
 
 
 
Three Months Ended
 
 
April 2,
2016
 
April 4,
2015
Net Revenues
 
$
142,148

 
$
172,920

Cost of Sales
 
115,179

 
146,159

Gross Profit
 
26,969

 
26,761

Selling, General and Administrative Expenses
 
22,676

 
23,134

Operating Income
 
4,293


3,627

Interest Expense
 
(2,399
)
 
(6,661
)
Gain on Divestitures
 
18,815

 
—

Income (Loss) Before Taxes
 
20,709

 
(3,034
)
Income Tax Expense (Benefit)
 
7,159

 
(1,061
)
Net Income (Loss)
 
$
13,550

 
$
(1,973
)
Earnings (Loss) Per Share
 
 
 
 
Basic earnings (loss) per share
 
$
1.22

 
$
(0.18
)
Diluted earnings (loss) per share
 
$
1.21

 
$
(0.18
)
Weighted-Average Number of Common Shares Outstanding
 
 
 
 
Basic
 
11,100

 
10,964

Diluted
 
11,240

 
10,964

 
 
 
 
 
Gross Profit %
 
19.0
%
 
15.5
 %
SG&A %
 
16.0
%
 
13.4
 %
Operating Income %
 
3.0
%
 
2.1
 %
Net Income (Loss) %
 
9.5
%
 
(1.1
)%
Effective Tax (Benefit) Rate
 
34.6
%
 
(35.0
)%




DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
 
 
 
Three Months Ended
 
 
%
Change
 
April 2,
2016
 
April 4,
2015
 
%
of Net  Revenues
2016
 
%
of Net  Revenues
2015
Net Revenues
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
(11.2
)%
 
$
64,017

 
$
72,058

 
45.0
 %
 
41.7
 %
Electronic Systems
 
(22.5
)%
 
78,131

 
100,862

 
55.0
 %
 
58.3
 %
Total Net Revenues
 
(17.8
)%
 
$
142,148

 
$
172,920

 
100.0
 %
 
100.0
 %
Segment Operating Income
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
2,724

 
$
2,138

 
4.3
 %
 
3.0
 %
Electronic Systems
 
 
 
7,053

 
6,285

 
9.0
 %
 
6.2
 %
 
 
 
 
9,777

 
8,423

 
 
 
 
Corporate General and Administrative Expenses (1) 
 
 
 
(5,484
)
 
(4,796
)
 
(3.9
)%
 
(2.8
)%
Total Operating Income
 
 
 
$
4,293

 
$
3,627

 
3.0
 %
 
2.1
 %
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
$
2,724

 
$
2,138

 
 
 
 
Depreciation and Amortization
 
 
 
2,057

 
2,513

 
 
 
 
 
 
 
 
4,781

 
4,651

 
7.5
 %
 
6.5
 %
Electronic Systems
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
7,053

 
6,285

 
 
 
 
Gain on Divestitures (2)
 
 
 
18,815

 
—

 
 
 
 
Depreciation and Amortization
 
 
 
3,761

 
4,359

 
 
 
 
 
 
 
 
29,629

 
10,644

 
37.9
 %
 
10.6
 %
Corporate General and Administrative Expenses (1)
 
 
 
 
 
 
 
 
 
 
Operating loss
 
 
 
(5,484
)
 
(4,796
)
 
 
 
 
Gain on Divestitures (2)
 
 
 
(18,815
)
 
—

 
 
 
 
Depreciation and Amortization
 
 
 
37

 
42

 
 
 
 
Stock-Based Compensation Expense
 
 
 
1,000

 
1,624

 
 
 
 
 
 
 
 
(23,262
)
 
(3,130
)
 
 
 
 
Adjusted EBITDA
 
 
 
$
11,148

 
$
12,165

 
7.8
 %
 
7.0
 %
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
2,054

 
$
3,334

 
 
 
 
Electronic Systems
 
 
 
347

 
1,490

 
 
 
 
Corporate Administration
 
 
 
—

 
4

 
 
 
 
Total Capital Expenditures
 
 
 
$
2,401

 
$
4,828

 
 
 
 

(1)
Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
(2)
Includes gain on divestitures of the Pittsburgh and Miltec operations.