1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1998
OR
[ ] 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 I.R.S. Employer
incorporation or organization) Identification No.
111 West Ocean Boulevard, Suite 900, Long Beach, California 90802
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(Address of principal executive offices) (Zip Code)
(562) 624-0800
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(Registrant's telephone number, including area code)
23301 S. Wilmington Avenue, Carson, California 90745
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(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of April 4, 1998, there were
outstanding 7,469,768 shares of common stock.
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DUCOMMUN INCORPORATED
FORM 10-Q
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at April 4, 1998 and
December 31, 1997 2
Consolidated Statements of Income for Three Months
Ended April 4, 1998 and March 29, 1997 3
Consolidated Statements of Cash Flows for Three
Months Ended April 4, 1998 and March 29, 1997 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 4, December 31,
1998 1997
---------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,418 $ 2,156
Accounts receivable (less allowance for doubtful
accounts of $190 and $359) 18,598 19,189
Inventories 23,793 24,604
Deferred income taxes 4,466 4,612
Prepaid income taxes 877 2,877
Other current assets 2,783 2,053
---------------- --------------
Total Current Assets 53,935 55,491
Property and Equipment, Net 34,476 30,594
Deferred Income Taxes 380 380
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $5,153 and $4,832) 16,587 16,907
Other Assets 1,096 869
---------------- --------------
$ 106,474 $ 104,241
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 4) $ 809 $ 919
Accounts payable 9,066 9,024
Accrued liabilities 14,247 15,366
---------------- --------------
Total Current Liabilities 24,122 25,309
Long-Term Debt (Note 4) 4,740 4,884
Other Long-Term Liabilities 345 345
---------------- --------------
Total Liabilities 29,207 30,538
---------------- --------------
Commitments and Contingencies (Note 5)
Shareholders' Equity:
Common stock -- $.01 par value; authorized 12,500,000
shares; issued and outstanding 7,469,768 shares in 1998 and
7,454,198 in 1997 74 74
Additional paid-in capital 59,519 59,497
Retained earnings 17,674 14,132
---------------- --------------
Total Shareholders' Equity 77,267 73,703
---------------- --------------
$ 106,474 $ 104,241
================ ==============
See accompanying notes to consolidated financial statements.
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4
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Three Months Ended
---------------------------------------
April 4, 1998 March 29, 1997
----------------- ---------------
Net Sales $ 43,261 $ 35,305
----------------- ---------------
Operating Costs and Expenses:
Cost of goods sold 29,477 24,201
Selling, general and administrative expenses 7,698 6,365
----------------- ---------------
Total Operating Costs and Expenses 37,175 30,566
----------------- ---------------
Operating Income 6,086 4,739
Interest Expense (83) (201)
----------------- ---------------
Income Before Taxes 6,003 4,538
Income Tax Expense (2,461) (1,908)
----------------- ---------------
Net Income $ 3.542 $ 2,630
================= ===============
Earnings Per Share:
Basic earnings per share $ .47 $ .36
Diluted earnings per share .45 .33
Weighted Average Number of Common
Shares for Computation
of Earnings Per Share:
Basic earnings per share 7,463 7,307
Diluted earnings per share 7,885 7,904
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For Three Months Ended
--------------------------------
April 4, 1998 March 29, 1997
------------- --------------
Cash Flows from Operating Activities:
Net Income $ 3,542 $ 2,630
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 1,407 1,314
Deferred income tax provision 146 1,352
Other 55 --
Changes in Assets and Liabilities, Net
Accounts receivable 591 (2,135)
Inventories 811 (980)
Prepaid income taxes 2,000 --
Other assets (957) 279
Accounts payable 42 1,008
Accrued and other liabilities (1,119) (2,135)
--------- ---------
Net Cash Provided by Operating Activities 6,518 1,333
--------- ---------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (5,024) (1,820)
--------- ---------
Net Cash Used in Investing Activities (5,024) (1,820)
--------- ---------
Cash Flows from Financing Activities:
Net Repayment of Long-Term Debt (254) (83)
Other 22 34
--------- ---------
Net Cash Used in Financing Activities (232) (49)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 1,262 (536)
Cash and Cash Equivalents, Beginning of Period 2,156 571
--------- ---------
Cash and Cash Equivalents, End of Period $ 3,418 $ 35
========= =========
Supplemental Disclosures of Cash Flows Information:
Interest Expense Paid $ 104 $ 263
Income Taxes Paid $ 54 $ 350
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 1. The consolidated balance sheets, consolidated statements of income and
consolidated statements of cash flows are unaudited as of and for the
three months ended April 4, 1998 and March 29, 1997. The financial
information included in the quarterly report should be read in
conjunction with the Company's consolidated financial statements and the
related notes thereto included in its annual report to shareholders for
the year ended December 31, 1997.
Note 2. Certain amounts and disclosures included in the consolidated financial
statements required management to make estimates which could differ from
actual results.
Note 3. Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding in each period. Diluted earnings per share is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding plus any potential dilution that
could occur if stock options were exercised or converted into common
stock in each period. For the three months ended April 4, 1998 and March
29, 1997, income available to common stockholders was $3,542,000 and
$2,630,000, respectively. The weighted average number of common shares
outstanding for the three months ended April 4, 1998 and March 29, 1997
were 7,463,000 and 7,307,000 and the dilutive shares associated with
stock options were 422,000 and 597,000, respectively.
Note 4. Long-term debt is summarized as follows:
(In thousands)
----------------------------
April 4, December 31,
1998 1997
-------- ------------
Term and real estate loans $ 5,020 $ 5,181
Promissory notes related to acquisitions 529 622
-------- --------
Total debt 5,549 5,803
Less current portion 809 919
-------- --------
Long-term debt, less current portion $ 4,740 $ 4,884
======== ========
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The Company's bank credit agreement provides for a $40,000,000 unsecured
revolving credit line with an expiration date of July 1, 1999. Interest
is payable monthly on the outstanding borrowings based on the bank's
prime rate (8.50% per annum at April 4, 1998) minus 0.25%. A Eurodollar
pricing option is also available to the Company for terms of up to six
months at the Eurodollar rate plus a spread based on the leverage ratio
of the Company calculated at the end of each fiscal quarter (1.00% at
April 4, 1998). At April 4, 1998, the Company had $40,000,000 of unused
lines of credit available. The credit agreement includes fixed charge
coverage and maximum leverage ratios, and limitations on future dividend
payments and outside indebtedness.
The carrying amount of long-term debt approximates fair value based on
the terms of the related debt, recent transactions and estimates using
interest rates currently available to the Company for debt with similar
terms and remaining maturities.
Note 5. Contingencies
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier
of chemical milling services for the aerospace industry. Aerochem has
been directed by California environmental agencies to investigate and
take corrective action for groundwater contamination at its El Mirage,
California facility (the "Site"). Aerochem expects to spend
approximately $1 million for future investigation and corrective action
at the Site, and the Company has established a provision for such costs.
However, the Company's ultimate liability in connection with the Site
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 correction action.
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 or results of operations.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL STATEMENT PRESENTATION
- --------------------------------
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.
RESULTS OF OPERATIONS
- ---------------------
First Quarter of 1998 Compared to First Quarter of 1997
- -------------------------------------------------------
Net sales increased 23% to $43,261,000 in the first quarter of 1998. The
increase resulted from a broad-based increase in sales in most of the Company's
product lines due to improved industry conditions and new contract awards.
The Company had substantial sales to Boeing and Lockheed Martin. During the
first quarter of 1998 and 1997, sales to Boeing were approximately $11,396,000
and $8,098,000, respectively; and sales to Lockheed Martin were approximately
$4,736,000 and $4,134,000, respectively. The sales relating to Boeing and
Lockheed Martin are diversified over a number of different commercial, space and
military programs.
At April 4, 1998, backlog believed to be firm was approximately $168,200,000
compared to $148,000,000 at March 29, 1997 and $155,700,000 at December 31,
1997. Approximately $87,000,000 of the total backlog is expected to be delivered
during 1998.
Gross profit, as a percentage of sales, was 31.9% for the first quarter of 1998
compared to 31.5% in 1997. This increase was primarily the result of changes in
sales mix and economies of scale resulting from sales increases.
Selling, general and administrative expenses, as a percentage of sales, were
17.8% for the first quarter of 1998 compared to 18.0% in 1997. The decrease in
these expenses as a percentage of sales was primarily the result of higher sales
volume partially offset by an increase in related period costs.
Interest expense decreased approximately 59% to $83,000 in the first quarter of
1998 compared to $201,000 for 1997. The decrease in interest expense was
primarily due to lower debt levels.
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Income tax expense increased to $2,461,000 in the first quarter of 1998 compared
to $1,908,000 for 1997. The increase in income tax expense was primarily due to
the increase in income before taxes. Cash paid for income taxes was $54,000 in
the first quarter of 1998, compared to $350,000 in 1997.
Net income for the first quarter of 1998 was $3,542,000, or $0.45 diluted
earnings per share, compared to $2,630,000, or $0.33 diluted earnings per share,
in 1997.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources
- -------------------------------
Cash flow from operating activities for the first three months ended April 4,
1998 was $6,518,000, compared to $1,333,000 for the first quarter ended March
29, 1997. 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 1998.
The Company's bank credit agreement provides for a $40,000,000 unsecured
revolving credit line with an expiration date of July 1, 1999. At April 4, 1998,
the Company had $40,000,000 of unused lines of credit available. See Note 4 to
the Notes to Consolidated Financial Statements.
The Company spent $5,024,000 on capital expenditures during the first three
months of 1998 and expects to spend approximately $16,000,000 for capital
expenditures in 1998. The Company plans to make substantial capital expenditures
in 1998 primarily for manufacturing equipment and facilities to support
long-term aerospace structure contracts for both commercial and military
aircraft and space programs. These expenditures are expected to place the
Company in a favorable competitive position among aerospace subcontractors, and
to allow the Company to take advantage of the offload requirements from its
customers.
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier of
chemical milling services for the aerospace industry. Aerochem has been directed
by California environmental agencies to investigate and take corrective action
for groundwater contamination at its El Mirage, California facility (the
"Site"). Aerochem expects to spend approximately $1 million for future
investigation and corrective action at the Site, and the Company has established
a provision for such costs. However, the Company's ultimate liability in
connection with the Site will depend upon a number of factors, including changes
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10
in existing laws and regulations, and the design and cost of the construction,
operation and maintenance of the correction action.
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 or results of operations.
Any forward looking statements made in this Form 10-Q report involve risks and
uncertainties. The Company's future financial results could differ materially
from those anticipated due to the Company's dependence on conditions in the
airline industry, the level of new commercial aircraft orders, the production
rate for the Space Shuttle program, the level of defense spending, competitive
pricing pressures, technology and product development risks and uncertainties,
product performance, risks associated with acquisitions and dispositions of
businesses by the Company, increasing consolidation of customers and suppliers
in the aerospace industry, and other factors beyond the Company's control.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("SFAS 130"), and
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pension and Other Postretirement Benefits" ("SFAS 132"). SFAS 130, 131 and
132 will become effective for the Company in 1998. The adoption of SFAS 130, 131
and 132 is not expected to have a material effect on the Company's financial
statements.
The Company has commenced, for its systems, a year 2000 date conversion project
to address necessary code changes, testing, and implementation. Project
completion is planned for the beginning of 1999 at a cost that is not expected
to be material to the Company. The Company expects its year 2000 date conversion
project to be completed on a timely basis. However, there can be no assurance
that the systems of other companies on which the Company's systems rely also
will be timely converted or that any such failure to convert by another company
would not have an adverse effect on the Company's systems. Maintenance or
modification costs will be expensed as incurred, while the cost of new software
will be capitalized and amortized over the software's useful life.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
Inapplicable.
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12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this report
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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: April 28, 1998
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
APR-04-1998
3,418
0
18,788
190
23,793
53,935
68,386
33,910
106,474
24,122
0
0
0
74
77,193
106,474
43,261
43,261
29,477
29,477
7,698
0
83
6,003
2,461
3,542
0
0
0
3,542
.47
.45
