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): August 6, 2018
 
____________________________
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.)
 
 
 
 
200 Sandpointe Avenue, Suite 700, Santa Ana, California
 
92707-5759
 
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (657) 335-3665
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 6, 2018 in the form attached hereto as Exhibit 99.1.
 
Item 9.01
Financial Statements and Exhibits.
(d) Exhibits
 

Exhibit No.
Exhibit Title or Description






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 6, 2018
 
By:
/s/ Douglas L. Groves
 
 
 
Douglas L. Groves
 
 
 
Vice President, Chief Financial Officer and Treasurer


Exhibit


EXHIBIT 99.1
https://cdn.kscope.io/ab391db8fdfb63d0cdf1b16b3ab503de-dcologoandaddressa05.jpg
NEWS RELEASE

Ducommun Reports Results for the
Second Quarter Ended June 30, 2018
Restructuring Actions and Revenue Growth Drive Strong Margin Gains,
Solid Operating Cash Flow
SANTA ANA, California (August 6, 2018) – Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its second quarter ended June 30, 2018.
Second Quarter 2018 Highlights*
Revenue increased 9.9% to $154.8 million
Net income of $1.6 million, or $0.14 per diluted share
Adjusted net income of $4.2 million, or $0.37 per diluted share
Adjusted EBITDA of $18.7 million
Backlog of $823 million
“I am very pleased with the second quarter results as it demonstrated once again, the fact that Ducommun is on the road to improved financial performance, benefiting from numerous initiatives put in place since my arrival eighteen months ago,” said Stephen G. Oswald, chairman, president and chief executive officer. “Revenue rose 9.9% year-over-year, our backlog remains strong, and operating margins net of adjustments, expanded 100 basis points versus 2017's comparable period. Of particular note is the continued improvement in our structures’ adjusted operating margins, which nearly doubled sequentially from Q1. This was due to improved product mix, recent streamlining measures, strong operational leadership, and ongoing review and assessment of our customer portfolio and programs.
“Our company-wide restructuring program is on track to reduce total plant footprint roughly 16% this year and result in estimated savings of $14 million annually. At the same time, Ducommun’s robust backlog illustrates increasing demand for our narrowbody platforms and certain defense programs, supporting our growth momentum and positive view going forward. In addition, due to many initiatives already accomplished, the company believes it is well positioned for further long-term gains and increased shareholder value for our investors.”
*All financial statements in this report (and henceforth) recognize the implementation of the FASB Accounting Standards Codification Topic 606 (“ASC 606”), covering policies on revenue recognition. In some instances herein a reference is made to the prior ASC, Topic 605 (“ASC 605”), for comparative purposes. Please see the non-GAAP measures starting on page 7 herein and the Company’s Annual Report on Form 10-K and Form 10-Q filings with the Securities and Exchange Commission for further description of this change.
Second Quarter Results
Net revenue for the second quarter of 2018 was $154.8 million compared to $140.9 million for the second quarter of 2017. The year-over-year increase of 9.9% was due to the following:
$16.1 million higher revenue in the Company’s commercial aerospace end-use markets due to increased build rates which favorably impacted the Company’s large aircraft platforms; and
$0.2 million higher revenue in the Company’s military and space end-use markets; partially offset by
$2.4 million lower revenue in the Company’s industrial end-use markets.

1



Net income for the second quarter of 2018 was $1.6 million, or $0.14 per diluted share, compared to $3.8 million, or $0.33 per diluted share, for the second quarter of 2017. The year-over-year decrease was due to $5.4 million of restructuring charges recorded in the quarter ended June 30, 2018. The $5.8 million increase in gross profit was due to higher revenue that was partially offset by a $1.7 million increase in interest expense and $1.5 million higher selling, general and administrative expenses.
Gross profit for the second quarter of 2018 was $32.0 million, or 20.7% of revenue compared to gross profit of $26.3 million, or 18.6% of revenue, for the second quarter of 2017. The increase in gross margin percentage year-over-year was due to higher manufacturing volume and favorable product mix, partially offset by an increase in compensation and benefit costs and higher other manufacturing costs.
Operating income for the second quarter of 2018 was $5.6 million, or 3.6% of revenue, compared to $6.6 million, or 4.7% of revenue, in the comparable period last year. The year-over-year decrease was due to restructuring charges, partially offset by higher revenue.
Interest expense for the second quarter of 2018 was $3.8 million compared to $2.1 million in the comparable period of 2017. The year-over-year increase was due to a higher outstanding balance on the revolving credit facility, due to the acquisitions of Certified Thermoplastics Co., LLC on April 23, 2018 and Lightning Diversion Systems, LLC during the third quarter of 2017, and higher interest rates.
Adjusted EBITDA for the second quarter of 2018 was $18.7 million, or 12.1% of revenue, compared to $13.7 million, or 9.7% of revenue, for the comparable period in 2017, an increase of 36.3%.
During the second quarter of 2018, the Company generated $15.9 million of cash flow from operations compared to $3.0 million during the second quarter of 2017.
The Company’s backlog as of June 30, 2018 was $823 million compared to $726 million as of December 31, 2017, an increase of 13.3%.
Electronic Systems
Electronic Systems segment net revenue for the quarter ended June 30, 2018 was $84.5 million, compared to $81.8 million for the second quarter of 2017. The year-over-year increase was due to the following:
$5.4 million higher revenue within the Company’s commercial aerospace end-use markets due to increased build rates which favorably impacted the Company’s large aircraft platforms; partially offset by
$0.3 million lower revenue within the Company’s military and space end-use markets; and
$2.4 million lower revenue within the Company's industrial end-use markets.
Electronic Systems’ segment operating income was $8.7 million, or 10.3% of revenue, for the second quarter of 2018 compared to $8.9 million, or 10.9% of revenue, for the comparable quarter in 2017. The year-over-year decrease was due to restructuring charges, unfavorable product mix, and higher compensation and benefit costs, partially offset by favorable manufacturing volume.
Structural Systems
Structural Systems segment net revenue for the quarter ended June 30, 2018 was $70.3 million, compared to $59.1 million for the second quarter of 2017. The year-over-year increase was due to the following:
$10.7 million higher revenue within the Company’s commercial aerospace end-use markets due to higher build rates which favorably impacted the Company’s large aircraft platforms; and
$0.5 million higher revenue within the Company’s military and space end-use markets.
Structural Systems segment operating income for the quarter ended June 30, 2018 was $5.0 million, or 7.1% of revenue, compared to $2.1 million, or 3.6% of revenue, for the second quarter of 2017. The year-over-year increase was due to favorable product mix, favorable manufacturing volume, partially offset by higher compensation and benefit costs and restructuring charges.

2



Corporate General and Administrative (“CG&A”) Expenses
CG&A expenses for the second quarter of 2018 were $8.1 million, or 5.2% of total Company revenue, compared to $4.4 million, or 3.1% of total Company revenue, for the comparable quarter in the prior year. The year-over-year increase was due to higher compensation and benefit costs of $1.4 million, higher professional services fees of $1.2 million, which includes acquisition related costs of $0.3 million, and restructuring charges of $1.1 million.
Conference Call
A teleconference hosted by Stephen G. Oswald, 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 6, 2018 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 1293403. 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 1293403.
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, the Company’s restructuring plan 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: whether the anticipated pre-tax restructuring charges will be sufficient to address all anticipated restructuring costs, including related to employee separation, facilities consolidation, inventory write-down and other asset impairments; whether the expected cost savings from the restructuring will ultimately be obtained in the amount and during the period anticipated; whether the restructuring in the affected areas will be sufficient to build a more cost efficient, focused, higher margin enterprise with higher returns for the Company's shareholders; the impact of the Company’s debt service obligations and restrictive debt covenants; the Company’s end-use markets are cyclical; the Company depends upon a selected base of industries and customers; a significant portion of the Company’s business depends upon U.S. Government defense spending; the Company is subject to extensive regulation and audit by the Defense Contract Audit Agency; contracts with some of the Company’s customers contain provisions which give the its customers a variety of rights that are unfavorable to the Company; further consolidation in the aerospace industry could adversely affect the Company’s business and financial results; the Company’s ability to successfully make acquisitions, including its ability to successfully integrate, operate or realize the projected benefits of such businesses; the Company relies on its suppliers to meet the quality and delivery expectations of its customers; the Company uses estimates when bidding on fixed-price contracts which estimates could change and result in adverse effects on its financial results; the impact of existing and future laws and regulations; the impact of existing and future accounting standards and tax rules and regulations; environmental liabilities could adversely affect the Company’s financial results; cyber security attacks, internal system or service failures may adversely impact the Company’s business and operations; 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

3



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 [benefit] expense, depreciation, amortization, stock-based compensation expense, and restructuring charges).
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. We define backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and firm delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount disclosed herein is greater than the backlog amount disclosed under ASC 606. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues. Backlog in industrial markets tends to be of a shorter duration and is generally fulfilled within a three month period. As a result of these factors, trends in our overall level of backlog may not be indicative of trends in our future net revenues.
CONTACTS:
Douglas L. Groves, Vice President, Chief Financial Officer and Treasurer, 657.335.3665
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com
[Financial Tables Follow]

4




DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 
 
 
June 30,
2018
 
December 31,
2017
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
3,532

 
$
2,150

Accounts receivable, net
 
64,439

 
74,064

Contract assets
 
81,663

 

Inventories
 
95,244

 
122,161

Production cost of contracts
 
10,719

 
11,204

Other current assets
 
12,638

 
11,435

Total Current Assets
 
268,235

 
221,014

Property and equipment, Net
 
106,636

 
110,252

Goodwill
 
136,051

 
117,435

Intangibles, net
 
117,485

 
114,693

Non-current deferred income taxes
 
130

 
261

Other assets
 
3,356

 
3,098

Total Assets
 
$
631,893

 
$
566,753

Liabilities and Shareholders’ Equity
 
 
 
 
Current Liabilities
 
 
 
 
Accounts payable
 
$
71,660

 
$
51,907

Contract liabilities
 
15,164

 

Accrued liabilities
 
25,813

 
28,329

Total Current Liabilities
 
112,637

 
80,236

Long-term debt
 
231,159

 
216,055

Non-current deferred income taxes
 
19,947

 
15,981

Other long-term liabilities
 
18,149

 
18,898

Total Liabilities
 
381,892

 
331,170

Commitments and contingencies
 
 
 
 
Shareholders’ Equity
 
 
 
 
Common stock
 
114

 
113

Additional paid-in capital
 
81,331

 
80,223

Retained earnings
 
175,243

 
161,364

Accumulated other comprehensive loss
 
(6,687
)
 
(6,117
)
Total Shareholders’ Equity
 
250,001

 
235,583

Total Liabilities and Shareholders’ Equity
 
$
631,893

 
$
566,753


5



DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Net Revenues
 
$
154,827

 
$
140,938

 
$
305,282

 
$
277,235

Cost of Sales
 
122,799

 
114,669

 
246,499

 
225,961

Gross Profit
 
32,028

 
26,269

 
58,783

 
51,274

Selling, General and Administrative Expenses
 
21,194

 
19,646

 
40,521

 
40,399

Restructuring Charges
 
5,238

 

 
7,411

 

Operating Income
 
5,596


6,623


10,851


10,875

Interest Expense
 
(3,763
)
 
(2,059
)
 
(6,661
)
 
(3,804
)
Income Before Taxes
 
1,833

 
4,564

 
4,190

 
7,071

Income Tax Expense (Benefit)
 
242

 
741

 
(1
)
 
1,133

Net Income
 
$
1,591

 
$
3,823

 
$
4,191

 
$
5,938

Earnings Per Share
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.14

 
$
0.34

 
$
0.37

 
$
0.53

Diluted earnings per share
 
$
0.14

 
$
0.33

 
$
0.36

 
$
0.51

Weighted-Average Number of Common Shares Outstanding
 
 
 
 
 
 
 
 
Basic
 
11,394

 
11,237

 
11,370

 
11,253

Diluted
 
11,624

 
11,491

 
11,609

 
11,556

 
 
 
 
 
 
 
 
 
Gross Profit %
 
20.7
%
 
18.6
%
 
19.3
 %
 
18.5
%
SG&A %
 
13.7
%
 
13.9
%
 
13.3
 %
 
14.6
%
Operating Income %
 
3.6
%
 
4.7
%
 
3.6
 %
 
3.9
%
Net (Loss) Income %
 
1.0
%
 
2.7
%
 
1.4
 %
 
2.1
%
Effective Tax (Benefit) Rate
 
13.2
%
 
16.2
%
 
 %
 
16.0
%

6



DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
%
Change
 
June 30,
2018
 
July 1,
2017
 
%
of Net  Revenues
2018
 
%
of Net  Revenues
2017
 
%
Change
 
June 30,
2018
 
July 1,
2017
 
%
of Net  Revenues
2018
 
%
of Net  Revenues
2017
Net Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
19.0
%
 
$
70,325

 
$
59,112

 
45.4
 %
 
41.9
 %
 
18.6
%
 
$
138,372

 
$
116,687

 
45.3
 %
 
42.1
 %
Electronic Systems
 
3.3
%
 
84,502

 
81,826

 
54.6
 %
 
58.1
 %
 
4.0
%
 
166,910

 
160,548

 
54.7
 %
 
57.9
 %
Total Net Revenues
 
9.9
%
 
$
154,827

 
$
140,938

 
100.0
 %
 
100.0
 %
 
10.1
%
 
$
305,282

 
$
277,235

 
100.0
 %
 
100.0
 %
Segment Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
5,026

 
$
2,127

 
7.1
 %
 
3.6
 %
 
 
 
$
9,417

 
$
4,837

 
6.8
 %
 
4.1
 %
Electronic Systems
 
 
 
8,668

 
8,894

 
10.3
 %
 
10.9
 %
 
 
 
14,412

 
16,072

 
8.6
 %
 
10.0
 %
 
 
 
 
13,694

 
11,021

 
 
 
 
 
 
 
23,829

 
20,909

 
 
 
 
Corporate General and Administrative Expenses (1)
 
 
 
(8,098
)
 
(4,398
)
 
(5.2
)%
 
(3.1
)%
 
 
 
(12,978
)
 
(10,034
)
 
(4.3
)%
 
(3.6
)%
Total Operating Income
 
 
 
$
5,596

 
$
6,623

 
3.6
 %
 
4.7
 %
 
 
 
$
10,851

 
$
10,875

 
3.6
 %
 
3.9
 %
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
$
5,026

 
$
2,127

 
 
 
 
 
 
 
$
9,417

 
$
4,837

 
 
 
 
Depreciation and Amortization
 
 
 
2,618

 
2,307

 
 
 
 
 
 
 
4,934

 
4,659

 
 
 
 
Restructuring Charges
 
 
 
3,610

 

 
 
 
 
 
 
 
5,137

 

 
 
 
 
Inventory Purchase Accounting Adjustments
 
 
 
329

 

 
 
 
 
 
 
 
329

 

 
 
 
 
 
 
 
 
11,583

 
4,434

 
16.5
 %
 
7.5
 %
 
 
 
19,817

 
9,496

 
14.3
 %
 
8.1
 %
Electronic Systems
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
8,668

 
8,894

 
 
 
 
 
 
 
14,412

 
16,072

 
 
 
 
Depreciation and Amortization
 
 
 
3,683

 
3,439

 
 
 
 
 
 
 
7,315

 
6,862

 
 
 
 
Restructuring Charges
 
 
 
735

 

 
 
 
 
 
 
 
1,255

 

 
 
 
 
 
 
 
 
13,086

 
12,333

 
15.5
 %
 
15.1
 %
 
 
 
22,982

 
22,934

 
13.8
 %
 
14.3
 %
Corporate General and Administrative Expenses (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
 
 
(8,098
)
 
(4,398
)
 
 
 
 
 
 
 
(12,978
)
 
(10,034
)
 
 
 
 
Depreciation and Amortization
 
 
 
33

 
2

 
 
 
 
 
 
 
66

 
9

 
 
 
 
Stock-Based Compensation Expense
 
 
 
1,025

 
1,342

 
 
 
 
 
 
 
2,115

 
3,164

 
 
 
 
Restructuring Charges
 
 
 
1,061

 

 
 
 
 
 
 
 
1,187

 

 
 
 
 
 
 
 
 
(5,979
)
 
(3,054
)
 
 
 
 
 
 
 
(9,610
)
 
(6,861
)
 
 
 
 
Adjusted EBITDA
 
 
 
$
18,690

 
$
13,713

 
12.1
 %
 
9.7
 %
 
 
 
$
33,189

 
$
25,569

 
10.9
 %
 
9.2
 %
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
1,101

 
$
7,580

 
 
 
 
 
 
 
$
2,630

 
$
12,768

 
 
 
 
Electronic Systems
 
 
 
1,478

 
1,030

 
 
 
 
 
 
 
4,212

 
2,463

 
 
 
 
Corporate Administration
 
 
 
190

 
648

 
 
 
 
 
 
 
190

 
648

 
 
 
 
Total Capital Expenditures
 
 
 
$
2,769

 
$
9,258

 
 
 
 
 
 
 
$
7,032

 
$
15,879

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

7



DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP REVENUE AND OPERATING INCOME RECONCILIATION
(Unaudited)
(In thousands)
 
 
 
Three Months Ended
 
Six Months Ended
GAAP To Non-GAAP Net Revenues
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Total Ducommun Net Revenues
 
$
154,827

 
$
140,938

 
$
305,282

 
$
277,235

Effect of Adoption of ASC 606
 
45

 

 
(11,952
)
 

Adjusted Total Ducommun Net Revenues
 
$
154,872

 
$
140,938

 
$
293,330

 
$
277,235

 
 
 
 
 
 
 
 
 
Structural Systems Net Revenues
 
$
70,325

 
$
59,112

 
$
138,372

 
$
116,687

Effect of Adoption of ASC 606
 
(121
)
 

 
(5,681
)
 

Adjusted Structural Systems Net Revenues
 
$
70,204

 
$
59,112

 
$
132,691

 
$
116,687

 
 
 
 
 
 
 
 
 
Electronic Systems Net Revenues
 
$
84,502

 
$
81,826

 
$
166,910

 
$
160,548

Effect of Adoption of ASC 606
 
166

 

 
(6,271
)
 

Adjusted Electronic Systems Net Revenues
 
$
84,668

 
$
81,826

 
$
160,639

 
$
160,548


 
 
Three Months Ended
 
Six Months Ended
GAAP To Non-GAAP Operating Income
 
June 30,
2018
 
July 1,
2017
 
%
of Net  Revenues
2018
 
%
of Net  Revenues
2017
 
June 30,
2018
 
July 1,
2017
 
%
of Net  Revenues
2018
 
%
of Net  Revenues
2017
GAAP Operating income
 
$
5,596

 
$
6,623

 
 
 
 
 
$
10,851

 
$
10,875

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Operating income - Structural Systems
 
$
5,026

 
$
2,127

 
 
 
 
 
$
9,417

 
$
4,837

 
 
 
 
  Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Effect of Adoption of ASC 606
 
(1,792
)
 

 
 
 
 
 
(4,090
)
 

 
 
 
 
    Restructuring charges
 
3,610

 

 


 
 
 
5,137

 

 
 
 
 
    Inventory purchase accounting adjustments
 
329

 

 
 
 
 
 
329

 

 
 
 
 
      Adjusted operating income - Structural Systems
 
7,173

 
2,127

 
10.2
%
 
3.6
%
 
10,793

 
4,837

 
8.1
%
 
4.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Operating income - Electronic Systems
 
8,668

 
8,894

 
 
 
 
 
14,412

 
16,072

 
 
 
 
  Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Effect of Adoption of ASC 606
 
(760
)
 

 
 
 
 
 
(256
)
 

 
 
 
 
    Restructuring charges
 
735

 

 
 
 
 
 
1,255

 

 
 
 
 
      Adjusted operating income - Electronic Systems
 
8,643

 
8,894

 
10.2
%
 
10.9
%
 
15,411

 
16,072

 
9.6
%
 
10.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Operating loss - Corporate
 
(8,098
)
 
(4,398
)
 
 
 
 
 
(12,978
)
 
(10,034
)
 
 
 
 
  Adjustment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Restructuring charges
 
1,061

 

 
 
 
 
 
1,187

 

 
 
 
 
      Adjusted operating loss - Corporate
 
(7,037
)
 
(4,398
)
 

 

 
(11,791
)
 
(10,034
)
 
 
 
 
        Total adjustments
 
$
3,183

 
$

 


 


 
$
3,562

 
$

 
 
 
 
Adjusted operating income
 
$
8,779

 
$
6,623

 
5.7
%
 
4.7
%
 
$
14,413

 
$
10,875

 
4.9
%
 
3.9
%


8



DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP EARNINGS AND EARNINGS PER SHARE RECONCILIATION
(Unaudited)
(In thousands, except per share amounts)
 
 
 
Three Months Ended
 
Six Months Ended
GAAP To Non-GAAP Earnings
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
GAAP Net income
 
$
1,591

 
$
3,823

 
$
4,191

 
$
5,938

  Adjustments:
 
 
 
 
 
 
 
 
    Effect of adoption of ASC 606 (1)(2)
 
(2,109
)
 

 
(3,535
)
 

    Restructuring charges (2)
 
4,487

 

 
6,291

 

    Inventory purchase accounting adjustments (2)
 
273

 

 
273

 

      Total adjustments
 
2,651

 

 
3,029

 

Adjusted net income
 
$
4,242

 
$
3,823

 
$
7,220

 
$
5,938


 
 
Three Months Ended
 
Six Months Ended
GAAP Earnings Per Share To Non-GAAP Earnings Per Share
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
GAAP Diluted earnings per share (“EPS”)
 
$
0.14

 
$
0.33

 
$
0.36

 
$
0.51

  Adjustments:
 
 
 
 
 
 
 
 
    Effect of adoption of ASC 606 (1)(2)
 
(0.18
)
 

 
(0.30
)
 

    Restructuring charges (2)
 
0.39

 

 
0.54

 

    Inventory purchase accounting adjustments (2)
 
0.02

 

 
0.02

 

      Total adjustments
 
0.23

 

 
0.26

 

Adjusted diluted EPS
 
$
0.37

 
$
0.33

 
$
0.62

 
$
0.51

 
 
 
 
 
 
 
 
 
Shares used for adjusted diluted EPS
 
11,624

 
11,491

 
11,609

 
11,556

(1)
Net impact of adoption of ASC 606.
(2)
Includes effective tax rate of 17.0% for 2018 adjustments.

9



DUCOMMUN INCORPORATED AND SUBSIDIARIES
NON-GAAP BACKLOG BY REPORTING SEGMENT
(Unaudited)
(In thousands)
 
 
 
(In thousands)
 
 
June 30,
2018
 
December 31,
2017
Consolidated Ducommun
 
 
 
 
Military and space
 
$
323,234

 
$
277,429

Commercial aerospace
 
459,506

 
417,981

Industrial
 
40,217

 
31,068

Total
 
$
822,957

 
$
726,478

Structural Systems
 
 
 
 
Military and space
 
$
88,327

 
$
60,921

Commercial aerospace
 
395,245

 
361,586

Total
 
$
483,572

 
$
422,507

Electronic Systems
 
 
 
 
Military and space
 
$
234,907

 
$
216,508

Commercial aerospace
 
64,261

 
56,395

Industrial
 
40,217

 
31,068

Total
 
$
339,385

 
$
303,971



10