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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): August 4, 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 August 4, 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 August 4, 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: August 4, 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
Second Quarter Ended July 2, 2016
Improved Operating Performance; Gross Margin Percentage Strengthens
LOS ANGELES (August 4, 2016) – Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its second quarter ended July 2, 2016.
Second Quarter 2016 Highlights
•
Second quarter revenues were $133.4 million
•
Net income was $3.9 million, or $0.34 per diluted share
•
Adjusted EBITDA for the quarter was $13.7 million
“We are pleased to report that Ducommun continued to show improved financial performance as a result of the many strategic initiatives undertaken this past year to reduce costs and streamline operations. At the same time, we have sharpened our focus on the key markets we serve and invested in attractive, long-term growth opportunities,” said Anthony J. Reardon, chairman, president and chief executive officer. “Revenue for the quarter was roughly flat sequentially, net of our Miltec and Pittsburgh divestitures, and we posted strong margins as well as solid bottom line results. Although our backlog and sales were slightly impacted by temporary program delays, we expect our improved performance to continue in the second half of 2016. We remain upbeat about our supply chain initiatives, our focus on both customers and shareholders, and our drive towards improving the Company’s balance sheet as well as top line growth.”
Second Quarter Results
Net revenues for the second quarter of 2016 were $133.4 million compared to $174.8 million for the second quarter of 2015. The net revenues decrease year-over-year was primarily due to the following:
•
$17.1 million lower revenues within the Company’s industrial end-use markets mainly due to the divestiture of the Pittsburgh operation in January 2016 and the closure of the Houston operation in December 2015; and
•
$25.8 million lower revenues within the Company’s military and space end-use markets mainly due to the divestiture of the Miltec operations in March 2016 and program cancellations and budget changes in the prior year; which impacted the Company’s fixed-wing and helicopter platforms and pushed out scheduled deliveries.
Net income for the second quarter of 2016 was $3.9 million, or $0.34 per diluted share, compared to net income of $1.8 million, or $0.16 per diluted share, for the second quarter of 2015. The increase in net income for the second quarter of 2016 compared to the second quarter of 2015 was primarily due to lower interest expense of $4.5 million and improved operating performance, partially offset by the effect of lower revenues.
Gross profit for the second quarter of 2016 was $26.2 million, or 19.6% of revenues, compared to gross profit of $31.2 million, or 17.8% of revenue, for the second quarter of 2015. The higher gross margin percentage was primarily due to total material costs as a percentage of sales decreasing 2% or $2.8 million year-over-year as a result of the Company’s ongoing supply chain initiatives, improved operating performance, and favorable product mix.
Operating income for the second quarter of 2016 was $7.3 million, or 5.4% of revenue, compared to $10.8 million, or 6.2% of revenue, in the comparable period last year. The decrease in operating income was primarily due to the effect of lower revenues.




Interest expense decreased to $1.9 million in the second quarter of 2016, compared to $6.4 million in the previous year’s second 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.
Adjusted EBITDA for the second quarter of 2016 was $13.7 million, or 10.3% of revenue, compared to $19.7 million, or 11.3% of revenue, for the comparable period in 2015.
During the second quarter of 2016, the Company generated $6.6 million of cash from operations compared to $14.1 million during the second quarter of 2015. The decrease in cash flow from operations was primarily due to higher inventories and other assets, partially offset by higher net income as a result of higher gross margin percentage in the current-year quarter.
The Company’s firm backlog as of July 2, 2016 was $537 million, which decreased $26 million sequentially, primarily due to a $28 million decrease in commercial aerospace backlog as a result of the timing of commercial aerospace orders.
Structural Systems
The Structural Systems segment net revenues for the current-year second quarter were $60.7 million, compared to $76.1 million for the second quarter of 2015. The lower net revenues were primarily due to the following:
•
$10.8 million decrease in military and space revenues mainly due to program cancellations and budget changes in the prior year which impacted scheduled deliveries on the Company’s fixed-wing and helicopter platforms; and
•
$4.6 million decrease in commercial aerospace revenue related to the timing of certain shipments on a large airframe platform and the wind down of a regional jet program.
Structural Systems segment operating income for the current-year second quarter was $4.7 million, or 7.8% of revenue, compared to operating income of $6.9 million, or 9.0% of revenue, for the second quarter of 2015. The decrease in operating income was primarily due to the effect of lower revenues.
Structural Systems segment Adjusted EBITDA was $6.5 million for the current quarter, or 10.7% of revenue, compared to $10.5 million, or 13.8% of revenue, for the comparable quarter in the prior year.
Electronic Systems
The Electronic Systems segment net revenues for the current-year second quarter were $72.7 million, compared to $98.8 million for the second quarter of 2015. The lower net revenues were primarily due to the following:
•
$17.1 million decrease in industrial revenues mainly due to the divestiture of the Pittsburgh operations in January 2016 and the closure of the Houston operation in December 2015; and
•
$15.0 million decrease in military and space revenue mainly due to the divestiture of the Miltec operation in March 2016 and program cancellations and budget changes in the prior year; which impacted scheduled deliveries on the Company’s fixed-wing and helicopter platforms;
•
Partially offset by $6.1 million increase in commercial aerospace revenue mainly due to added content with the Company’s existing customers.
Electronic Systems’ segment operating income for the current-year second quarter was $6.8 million, or 9.3% of revenue, compared to $7.7 million, or 7.8% of revenue, for the second quarter of 2015. The decrease in operating income was primarily due to the effect of lower revenues.
Electronic Systems segment Adjusted EBITDA was $10.5 million for the current-year quarter, or 14.4% of revenue, compared to $12.1 million, or 12.2% of revenue, for the comparable quarter in the prior year.
Corporate General and Administrative Expenses (“CG&A”)
CG&A expenses for the second quarter of 2016 were $4.2 million, or 3.2% of total Company revenue, compared to $3.7 million, or 2.1% of total Company revenue, for the comparable quarter in the prior year. The increase in CG&A expenses in the current year quarter was primarily due to higher compensation and benefit costs of $1.0 million partially offset by other cost reduction initiatives of $0.5 million.
Conference Call
A teleconference hosted by Anthony J. Reardon, the Company’s chairman, president and chief executive officer, and Douglas L. Groves, the Company’s vice president, chief financial officer and treasurer, will be held today, August 4, 2016 at 2:00 p.m. PT




(5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 844-239-5278 (international 574-990-1017) approximately ten minutes prior to the conference time. The participant passcode is 52428953. 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 52428953.
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, depreciation, amortization, stock-based compensation expense, gain on divestitures, and loss on extinguishment of debt).
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)
 
 
 
July 2,
2016
 
December 31,
2015
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
9,176

 
$
5,454

Accounts receivable, net
 
76,857

 
77,089

Inventories
 
127,589

 
115,404

Production cost of contracts
 
9,444

 
10,290

Other current assets
 
8,100

 
13,389

Assets held for sale
 
—

 
41,636

Total Current Assets
 
231,166

 
263,262

Property and Equipment, Net
 
97,243

 
96,551

Goodwill
 
82,554

 
82,554

Intangibles, Net
 
106,097

 
110,621

Deferred income taxes
 
282

 
324

Other Assets
 
2,957

 
3,769

Total Assets
 
$
520,299

 
$
557,081

Liabilities and Shareholders’ Equity
 
 
 
 
Current Liabilities
 
 
 
 
Current portion of long-term debt
 
$
12

 
$
26

Accounts payable
 
51,049

 
40,343

Accrued liabilities
 
35,921

 
36,458

Liabilities held for sale
 
—

 
6,780

Total Current Liabilities
 
86,982

 
83,607

Long-Term Debt, Less Current Portion
 
186,317

 
240,661

Deferred Income Taxes
 
24,399

 
26,528

Other Long-Term Liabilities
 
17,175

 
18,954

Total Liabilities
 
314,873

 
369,750

Commitments and Contingencies
 
 
 
 
Shareholders’ Equity
 
 
 
 
Common stock
 
112

 
111

Additional paid-in capital
 
76,199

 
75,200

Retained earnings
 
135,034

 
117,623

Accumulated other comprehensive loss
 
(5,919
)
 
(5,603
)
Total Shareholders’ Equity
 
205,426

 
187,331

Total Liabilities and Shareholders’ Equity
 
$
520,299

 
$
557,081





DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
July 2,
2016
 
July 4,
2015
 
July 2,
2016
 
July 4,
2015
Net Revenues
 
$
133,437

 
$
174,845

 
$
275,585

 
$
347,765

Cost of Sales
 
107,222

 
143,638

 
222,401

 
289,797

Gross Profit
 
26,215

 
31,207

 
53,184

 
57,968

Selling, General and Administrative Expenses
 
18,949

 
20,368

 
41,625

 
43,502

Operating Income
 
7,266


10,839


11,559


14,466

Interest Expense
 
(1,935
)
 
(6,446
)
 
(4,334
)
 
(13,107
)
Loss on Extinguishment of Debt
 
—

 
(2,842
)
 
—

 
(2,842
)
Other Income
 
—

 
1,510

 
—

 
1,510

Gain on Divestitures
 
—

 
—

 
18,815

 
—

Income Before Taxes
 
5,331

 
3,061

 
26,040

 
27

Income Tax Expense
 
1,470

 
1,279

 
8,629

 
218

Net Income (Loss)
 
$
3,861

 
$
1,782

 
$
17,411

 
$
(191
)
Earnings (Loss) Per Share
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
$
0.35

 
$
0.16

 
$
1.56

 
$
(0.02
)
Diluted earnings (loss) per share
 
$
0.34

 
$
0.16

 
$
1.55

 
$
(0.02
)
Weighted-Average Number of Common Shares Outstanding
 
 
 
 
 
 
 
 
Basic
 
11,155

 
11,062

 
11,127

 
11,012

Diluted
 
11,264

 
11,276

 
11,245

 
11,012

 
 
 
 
 
 
 
 
 
Gross Profit %
 
19.6
%
 
17.8
%
 
19.3
%
 
16.7
 %
SG&A %
 
14.2
%
 
11.6
%
 
15.1
%
 
12.5
 %
Operating Income %
 
5.4
%
 
6.2
%
 
4.2
%
 
4.2
 %
Net Income (Loss) %
 
2.9
%
 
1.0
%
 
6.3
%
 
(0.1
)%
Effective Tax Rate
 
27.6
%
 
41.8
%
 
33.1
%
 
807.4
 %




DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
%
Change
 
July 2,
2016
 
July 4,
2015
 
%
of Net  Revenues
2016
 
%
of Net  Revenues
2015
 
%
Change
 
July 2,
2016
 
July 4,
2015
 
%
of Net  Revenues
2016
 
%
of Net  Revenues
2015
Net Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
(20.2
)%
 
$
60,694

 
$
76,078

 
45.5
 %
 
43.5
 %
 
(15.8
)%
 
$
124,711

 
$
148,136

 
45.3
 %
 
42.6
 %
Electronic Systems
 
(26.3
)%
 
72,743

 
98,767

 
54.5
 %
 
56.5
 %
 
(24.4
)%
 
150,874

 
199,629

 
54.7
 %
 
57.4
 %
Total Net Revenues
 
(23.7
)%
 
$
133,437

 
$
174,845

 
100.0
 %
 
100.0
 %
 
(20.8
)%
 
$
275,585

 
$
347,765

 
100.0
 %
 
100.0
 %
Segment Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
4,730

 
$
6,870

 
7.8
 %
 
9.0
 %
 
 
 
$
7,454

 
$
9,008

 
6.0
 %
 
6.1
 %
Electronic Systems (1)
 
 
 
6,782

 
7,692

 
9.3
 %
 
7.8
 %
 
 
 
13,169

 
13,977

 
8.7
 %
 
7.0
 %
 
 
 
 
11,512

 
14,562

 
 
 
 
 
 
 
20,623

 
22,985

 
 
 
 
Corporate General and Administrative Expenses (1)(2)
 
 
 
(4,246
)
 
(3,723
)
 
(3.2
)%
 
(2.1
)%
 
 
 
(9,064
)
 
(8,519
)
 
(3.3
)%
 
(2.4
)%
Total Operating Income
 
 
 
$
7,266

 
$
10,839

 
5.4
 %
 
6.2
 %
 
 
 
$
11,559

 
$
14,466

 
4.2
 %
 
4.2
 %
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
$
4,730

 
$
6,870

 
 
 
 
 
 
 
$
7,454

 
$
9,008

 
 
 
 
Other Income (3)
 
 
 
—

 
1,510

 
 
 
 
 
 
 
—

 
1,510

 
 
 
 
Depreciation and Amortization
 
 
 
1,775

 
2,111

 
 
 
 
 
 
 
3,832

 
4,624

 
 
 
 
 
 
 
 
6,505

 
10,491

 
10.7
 %
 
13.8
 %
 
 
 
11,286

 
15,142

 
9.0
 %
 
10.2
 %
Electronic Systems
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
6,782

 
7,692

 
 
 
 
 
 
 
13,169

 
13,977

 
 
 
 
Gain on Divestitures (4)
 
 
 
—

 
—

 
 
 
 
 
 
 
18,815

 
—

 
 
 
 
Depreciation and Amortization
 
 
 
3,668

 
4,361

 
 
 
 
 
 
 
7,429

 
8,720

 
 
 
 
 
 
 
 
10,450

 
12,053

 
14.4
 %
 
12.2
 %
 
 
 
39,413

 
22,697

 
26.1
 %
 
11.4
 %
Corporate General and Administrative Expenses (1)(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
 
 
(4,246
)
 
(3,723
)
 
 
 
 
 
 
 
(9,064
)
 
(8,519
)
 
 
 
 
Gain on Divestitures (4)
 
 
 
—

 
—

 
 
 
 
 
 
 
(18,815
)
 
—

 
 
 
 
Depreciation and Amortization
 
 
 
33

 
42

 
 
 
 
 
 
 
70

 
84

 
 
 
 
Stock-Based Compensation Expense
 
 
 
985

 
837

 
 
 
 
 
 
 
1,985

 
2,461

 
 
 
 
 
 
 
 
(3,228
)
 
(2,844
)
 
 
 
 
 
 
 
(25,824
)
 
(5,974
)
 
 
 
 
Adjusted EBITDA
 
 
 
$
13,727

 
$
19,700

 
10.3
 %
 
11.3
 %
 
 
 
$
24,875

 
$
31,865

 
9.0
 %
 
9.2
 %
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
4,540

 
$
2,417

 
 
 
 
 
 
 
$
6,594

 
$
5,751

 
 
 
 
Electronic Systems
 
 
 
407

 
948

 
 
 
 
 
 
 
754

 
2,438

 
 
 
 
Corporate Administration
 
 
 
—

 
2

 
 
 
 
 
 
 
—

 
6

 
 
 
 
Total Capital Expenditures
 
 
 
$
4,947

 
$
3,367

 
 
 
 
 
 
 
$
7,348

 
$
8,195

 
 
 
 

(1)
Includes correction of an error for the three months ended April 2, 2016 related to a credit of general and administrative expenses being reflected in the Electronic Systems operating segment instead of Corporate General and Administrative Expenses of $0.7 million in the six months ended July 2, 2016 results. There was no impact to total consolidated operating income.
(2)
costs not allocated to either the Electronic Systems or Structural Systems operating segments.
(3)
Insurance recoveries related to property and equipment included as other income.
(4)
Includes gain on divestitures of the Pittsburgh and Miltec operations.