Document


 
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 4, 2017
 
____________________________
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 4, 2017 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 4, 2017.






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 4, 2017
 
By:
/s/ Douglas L. Groves
 
 
 
Douglas L. Groves
 
 
 
Vice President, Chief Financial Officer and Treasurer


Exhibit


EXHIBIT 99.1
23301 Wilmington Avenue
 
https://cdn.kscope.io/57e1b49af4b3750cea6ed40a828b8dda-ducommun4ca01a02a01a05.jpg
Carson, CA 90745-6209
 
310.513.7200
 
www.ducommun.com
 
NEWS RELEASE

Ducommun Reports Results for the
First Quarter Ended April 1, 2017
Strong Cash Flow; Company on Track for Another Solid Year
LOS ANGELES (May 4, 2017) – Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its first quarter ended April 1, 2017.
First Quarter 2017 Highlights
Revenue was $136.3 million
Net income was $2.1 million, or $0.18 per diluted share
Adjusted EBITDA was $11.7 million
Cash flow from operations was $13.2 million
Net voluntary principal prepayments on credit facilities totaled $5 million
“Ducommun’s first quarter results reflect the demand dynamics of our various end-use markets at the start of what we expect to be a solid year ahead,” said Stephen G. Oswald, president and chief executive officer. “Net of divestitures, revenue was up slightly year-over-year, benefiting from an increase in defense shipments and solid sales across several large commercial platforms. We also paid down an additional $5 million of debt, more than doubled capital expenditures, after generating $13.2 million in cash from operations during the quarter.
“Even as we’ve accomplished a great deal these past twelve months - resulting in a more focused organization and improved cost structure - we see room for higher operating performance going forward. As I begin my new role, we are assessing all areas of the Company for new ways to streamline manufacturing, further increase margins, and enhance return on capital. This is a priority heading into the second half, and we have already hired select staff to focus on initiatives that will bolster Ducommun’s growth trajectory and strengthen bottom line results. For example, we have filled a new role in the Company to lead strategic initiatives that will drive inorganic growth and a higher level of strategic thinking. We are setting the stage to take the Company to the next level --  leveraging our people, technology expertise and the current attractive economic environment.”
First Quarter Results
Net revenue for the first quarter of 2017 was $136.3 million compared to $142.1 million for the first quarter of 2016. The net revenue decrease year-over-year was primarily due to the following:
$6.0 million lower revenue within the Company’s commercial aerospace end-use markets mainly due to the winding down of a regional jet program and the platform transition of a large aircraft program; and
$5.8 million lower revenue within the Company’s industrial end-use markets mainly due to the closure of one of the Company’s Tulsa operations in June 2016 and divestiture of the Company’s Pittsburgh operation in January 2016; partially offset by
$5.9 million higher revenue within the Company’s military and space end-use markets mainly due to the resumption of scheduled deliveries by the U.S. Department of Defense, which favorably impacted the Company’s helicopter and fixed-wing platforms, partially offset by the divestiture of the Company’s Miltec operation in March 2016.
Net income for the first quarter of 2017 was $2.1 million, or $0.18 per diluted share, compared to $13.6 million, or $1.21 per diluted share, for the first quarter of 2016. The decrease in net income year-over-year was primarily due to the following:





The prior year included a preliminary pretax gain on divestitures of the Company’s Pittsburgh and Miltec operations of $18.8 million; partially offset by
$6.8 million of lower income tax expense.
Gross profit for the first quarter of 2017 was $24.9 million, or 18.3% of revenue, compared to gross profit of $27.0 million, or 19.0% of revenue, for the first quarter of 2016. The decrease in gross margin percentage year-over-year was primarily due to unfavorable product mix.
Operating income for the first quarter of 2017 was $4.1 million, or 3.0% of revenue, compared to $4.3 million, or 3.0% of revenue, in the comparable period last year. The decrease in operating income was primarily due to the following:
Decrease in gross margin percentage as a result of unfavorable product mix; partially offset by
Lower selling, general and administrative expenses as a result of the divestiture of the Company’s Pittsburgh operation and closure of certain facilities.
Interest expense decreased to $1.6 million in the first quarter of 2017, compared to $2.4 million in the previous year’s first quarter, primarily due to a lower outstanding debt balance as a result of net voluntary principal prepayments on the Company’s credit facilities.
Adjusted EBITDA for the first quarter of 2017 was $11.7 million, or 8.6% of revenue, compared to $11.1 million, or 7.8% of revenue, for the comparable period in 2016.
During the first quarter of 2017, the Company generated $13.2 million of cash from operations compared to $5.5 million during the first quarter of 2016. The increase in cash flow from operations reflects a reduction in accounts receivable and higher deferred income taxes.
The Company’s firm backlog as of April 1, 2017 was $581 million compared to $600 million as of December 31, 2016, reflecting a $7 million decrease in the Company’s commercial aerospace backlog and a $13 million decrease in its military and space backlog, both due to timing of orders.
Structural Systems
Structural Systems segment net revenue for the current-year first quarter was $57.6 million, compared to $64.0 million for the first quarter of 2016. The year-over-year decrease was primarily due to a $7.2 million decline in commercial aerospace shipments as a result of the winding down of a regional jet program as well as the platform transition of a large aircraft program.
Structural Systems segment operating income for the current-year first quarter was $2.6 million, or 4.6% of revenue, compared to $2.7 million, or 4.3% of revenue, for the first quarter of 2016.
Structural Systems segment Adjusted EBITDA was $5.0 million for the current-year quarter, or 8.7% of revenue, compared to $4.8 million, or 7.5% of revenue, for the comparable quarter in the prior year.
Electronic Systems
Electronic Systems segment net revenue for the current-year first quarter was $78.7 million, compared to $78.1 million for the first quarter of 2016. The increase in revenue year-over-year was primarily due to the following:
$5.2 million higher revenue within the Company’s military and space end-use markets mainly due to the resumption of scheduled deliveries by the U.S. Department of Defense, which favorably impacted the Company’s fixed-wing and helicopter platforms, partially offset by the divestiture of the Company’s Miltec operation in March 2016; and
$1.2 million higher revenue within the Company’s commercial aerospace end-use markets mainly due to additional content with the Company’s existing customers; partially offset by
$5.8 million lower revenue in the Company’s industrial end-use markets mainly due to the closure of one of the Company’s Tulsa operations in June 2016 and the divestiture of the Company’s Pittsburgh operation in January 2016.
Electronic Systems’ segment operating income was $7.1 million, or 9.0% of revenue, for the first quarter of 2017 compared to $6.4 million, or 8.2% of revenue, for the comparable quarter in 2016. The increase in operating income was primarily due to lower selling, general and administrative expenses as a result of the divestiture of the Company’s Pittsburgh operation and closure of certain facilities.





Electronic Systems segment Adjusted EBITDA was $10.5 million for the quarter, or 13.4% of revenue, compared to $10.1 million, or 13.0% of revenue, for the comparable quarter in the prior year.
Corporate General and Administrative (“CG&A”) Expenses
CG&A expenses for the first quarter of 2017 were $5.6 million, or 4.1% of total Company revenue, compared to $4.8 million, or 3.4% of total Company revenue, for the comparable quarter in the prior year. The increase in CG&A expenses was primarily due to higher compensation and benefit costs of $1.1 million, partially offset by lower professional services fees.
Conference Call
A teleconference hosted by Stephen G. Oswald, the Company’s president and chief executive officer, and Douglas L. Groves, the Company’s vice president, chief financial officer and treasurer, will be held today, May 4, 2017 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 4551513. Mr. Oswald and Mr. Groves will be speaking on behalf of the Company and anticipate the call (including Q&A) to last approximately 45 minutes.
This call is being webcast 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 4551513.
About Ducommun Incorporated
Ducommun Incorporated delivers value-added 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
This press release and any attachments include “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, earnings guidance and any statements about the Company’s plans, strategies and prospects. The Company generally uses the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend” and similar expressions in this press release and any attachments to identify forward-looking statements. The Company bases these forward-looking statements on its current views with respect to future events and financial performance. Actual results could differ materially from those projected in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things: competition from other industry participants; the Company’s ability to continue to develop innovative new products and services and enhance its existing products and services, or the failure of its products and services to continue to appeal to the market; the effectiveness of the Company’s marketing and advertising programs; the Company’s ability to successfully make acquisitions or enter into joint ventures, including its ability to successfully integrate, operate or realize the projected benefits of such businesses; uncertainties related to a downturn in general economic conditions or consumer confidence; uncertainties regarding the satisfactory operation of the Company’s information technology or systems; the impact of existing and future laws and regulations; the impact of existing and future accounting standards and tax rules and regulations; the impact of the Company’s debt service obligations and restrictive debt covenants; and other risks and uncertainties, including those detailed from time to time in the Company’s periodic reports filed with the Securities and Exchange Commission. You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause the Company’s results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, the Company does not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this news release or to reflect the occurrence of unanticipated events or otherwise. Readers are advised to review the Company’s filings with the Securities and Exchange Commission (which are available from the SEC’s EDGAR database at www.sec.gov, at various SEC reference facilities in the United States and through the Company’s website).
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, 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. The Company discloses different non-GAAP financial measures in order to provide greater transparency and to help the Company’s investors to more meaningfully evaluate and compare Ducommun’s results to its previously reported results. The non-GAAP financial measures that the Company uses may not be comparable to similarly titled financial measures used by other companies.
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 1,
2017
 
December 31,
2016
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
7,114

 
$
7,432

Accounts receivable, net
 
71,623

 
76,239

Inventories
 
127,201

 
119,896

Production cost of contracts
 
11,052

 
11,340

Other current assets
 
10,589

 
11,034

Total Current Assets
 
227,579

 
225,941

Property and equipment, Net
 
104,868

 
101,590

Goodwill
 
82,554

 
82,554

Intangibles, net
 
99,364

 
101,573

Non-current deferred income taxes
 
286

 
286

Other assets
 
3,320

 
3,485

Total Assets
 
$
517,971

 
$
515,429

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

 
$
3

Accounts payable
 
63,313

 
57,024

Accrued liabilities
 
28,092

 
29,279

Total Current Liabilities
 
91,405

 
86,306

Long-term debt, less current portion
 
162,156

 
166,896

Non-current deferred income taxes
 
31,949

 
31,417

Other long-term liabilities
 
18,179

 
18,707

Total Liabilities
 
303,689

 
303,326

Commitments and contingencies
 
 
 
 
Shareholders’ Equity
 
 
 
 
Common stock
 
113

 
112

Additional paid-in capital
 
76,827

 
76,783

Retained earnings
 
143,402

 
141,287

Accumulated other comprehensive loss
 
(6,060
)
 
(6,079
)
Total Shareholders’ Equity
 
214,282

 
212,103

Total Liabilities and Shareholders’ Equity
 
$
517,971

 
$
515,429






DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
 
 
 
Three Months Ended
 
 
April 1,
2017
 
April 2,
2016
Net Revenues
 
$
136,297

 
$
142,148

Cost of Sales
 
111,370

 
115,179

Gross Profit
 
24,927

 
26,969

Selling, General and Administrative Expenses
 
20,827

 
22,676

Operating Income
 
4,100


4,293

Interest Expense
 
(1,593
)
 
(2,399
)
Gain on Divestitures
 

 
18,815

Income Before Taxes
 
2,507

 
20,709

Income Tax Expense
 
392

 
7,159

Net Income
 
$
2,115

 
$
13,550

Earnings Per Share
 
 
 
 
Basic earnings per share
 
$
0.19

 
$
1.22

Diluted earnings per share
 
$
0.18

 
$
1.21

Weighted-Average Number of Common Shares Outstanding
 
 
 
 
Basic
 
11,208

 
11,100

Diluted
 
11,495

 
11,240

 
 
 
 
 
Gross Profit %
 
18.3
%
 
19.0
%
SG&A %
 
15.3
%
 
16.0
%
Operating Income %
 
3.0
%
 
3.0
%
Net Income %
 
1.6
%
 
9.5
%
Effective Tax Rate
 
15.6
%
 
34.6
%





DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
 
 
 
Three Months Ended
 
 
%
Change
 
April 1,
2017
 
April 2,
2016
 
%
of Net  Revenues
2017
 
%
of Net  Revenues
2016
Net Revenues
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
(10.1
)%
 
$
57,575

 
$
64,017

 
42.2
 %
 
45.0
 %
Electronic Systems
 
0.8
 %
 
78,722

 
78,131

 
57.8
 %
 
55.0
 %
Total Net Revenues
 
(4.1
)%
 
$
136,297

 
$
142,148

 
100.0
 %
 
100.0
 %
Segment Operating Income
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
2,632

 
$
2,724

 
4.6
 %
 
4.3
 %
Electronic Systems
 
 
 
7,104

 
6,387

 
9.0
 %
 
8.2
 %
 
 
 
 
9,736

 
9,111

 
 
 
 
Corporate General and Administrative Expenses (1)
 
 
 
(5,636
)
 
(4,818
)
 
(4.1
)%
 
(3.4
)%
Total Operating Income
 
 
 
$
4,100

 
$
4,293

 
3.0
 %
 
3.0
 %
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
$
2,632

 
$
2,724

 
 
 
 
Depreciation and Amortization
 
 
 
2,352

 
2,057

 
 
 
 
 
 
 
 
4,984

 
4,781

 
8.7
 %
 
7.5
 %
Electronic Systems
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
7,104

 
6,387

 
 
 
 
Depreciation and Amortization
 
 
 
3,423

 
3,761

 
 
 
 
 
 
 
 
10,527

 
10,148

 
13.4
 %
 
13.0
 %
Corporate General and Administrative Expenses (1)
 
 
 
 
 
 
 
 
 
 
Operating loss
 
 
 
(5,636
)
 
(4,818
)
 
 
 
 
Depreciation and Amortization
 
 
 
7

 
37

 
 
 
 
Stock-Based Compensation Expense
 
 
 
1,822

 
1,000

 
 
 
 
 
 
 
 
(3,807
)
 
(3,781
)
 
 
 
 
Adjusted EBITDA
 
 
 
$
11,704

 
$
11,148

 
8.6
 %
 
7.8
 %
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
5,188

 
$
2,054

 
 
 
 
Electronic Systems
 
 
 
1,433

 
347

 
 
 
 
Corporate Administration
 
 
 

 

 
 
 
 
Total Capital Expenditures
 
 
 
$
6,621

 
$
2,401

 
 
 
 
(1)
Includes costs not allocated to either the Structural Systems or Electronic Systems operating segments.