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 March 30, 1996
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 0-1222
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.
23301 South Wilmington Avenue, Carson, California 90745
- ------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(310) 513-7200
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(Registrant's telephone number, including area code)
N/A
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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 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 March 30, 1996, there
were outstanding 5,709,526 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 March 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income for Three Months Ended
March 30, 1996 and April 1, 1995 4
Consolidated Statements of Cash Flows for Three Months
Ended March 30, 1996 and April 1, 1995 5
Notes to Consolidated Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 30, December 31,
1996 1995
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 60 $ 371
Accounts receivable (less allowance for doubtful
accounts of $266 and $366) 13,385 13,828
Inventories 15,402 13,362
Deferred income taxes (Note 6) 5,049 5,090
Other current assets 1,284 1,151
------- -------
Total Current Assets 35,180 3,802
Property and Equipment, Net 23,184 23,011
Deferred Income Taxes (Note 6) 6,208 6,451
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $2,599 and $2,323) 16,567 16,697
Other Assets (Note 5) 856 1,013
------- -------
$81,995 $80,974
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 5) $ 4,244 $ 3,910
Accounts payable 7,166 4,917
Accrued liabilities 13,054 13,728
------- -------
Total Current Liabilities 24,464 22,555
Long-Term Debt (Note 5) 7,141 8,935
Convertible Subordinated Debentures (Note 5) 15,837 24,263
Other Long-Term Liabilities 435 633
------- -------
Total Liabilities 47,877 56,386
------- -------
Commitments and Contingencies (Notes 7)
Shareholders' Equity:
Common stock -- $.01 par value; authorized 12,500,000
shares; issued and outstanding 5,709,526 shares in 1996
and 4,852,281 in 1995 57 49
Additional paid-in capital 43,401 34,989
Accumulated deficit (9,340) (10,450)
------- -------
Total Shareholders' Equity 34,118 24,588
------- -------
$81,995 $80,974
======= =======
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Three Months Ended
------------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
Net Sales $23,792 $20,622
------- -------
Operating Costs and Expenses:
Cost of goods sold 15,588 14,447
Selling, general and administrative expenses 6,240 4,439
------- -------
Total Operating Costs and Expenses 21,828 18,886
Operating Income 1,964 1,736
Interest Expense (422) (881)
------- -------
Income Before Taxes 1,542 855
Income Tax Expense (Note 6) (432) (240)
------- -------
Net Income $ 1,110 $ 615
======= =======
Earnings Per Share:
Primary $ .19 $ .13
Fully Diluted .18 .13
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
for Computation of Earnings Per Share:
Primary 5,756 4,696
Fully Diluted 7,393 7,523
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
For Three Months Ended
------------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
Cash Flows from Operating Activities:
Net Income $ 1,110 $ 615
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 1,202 1,080
Deferred income tax provision 284 226
Changes in Assets and Liabilities, Net
of Effects from 3dbm Acquisition:
Accounts receivable 443 277
Inventories (2,040) 826
Other assets 24 (200)
Accounts payable 2,249 (166)
Accrued and other liabilities (588) (2,116)
------- -------
Net Cash Provided by Operating Activities 2,684 542
------- -------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (973) (693)
Acquisition of 3dbm - (4,427)
Other - (37)
------- -------
Net Cash Used in Investing Activities (973) (5,157)
------- -------
Cash Flows from Financing Activities:
Net Repayment of Long-Term Debt (1,460) (3,824)
Cash Premium for Conversion of Convertible Subordinated Debentures (556) -
Other (6) (11)
------- -------
Net Cash Used in Financing Activities (2,022) (3,835)
------- -------
Net Decrease in Cash and Cash Equivalents (311) (8,450)
Cash and Cash Equivalents at Beginning of Period 371 8,483
------- -------
Cash and Cash Equivalents at End of Period $ 60 $ 33
======= =======
Supplemental Disclosures of Cash Flow Information:
Interest Expense Paid $ 910 $ 1,246
Income Taxes Paid $ 400 $ 75
Supplementary Information for Non-Cash Financing Activities:
During the first quarter of 1996, the Company issued 844,282 new shares of
common stock upon conversion of $8,426,000 of its outstanding 7.75% convertible
subordinated debentures.
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 March 30, 1996 and April 1, 1995. 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, 1995.
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. Earnings per common share computations are based on the weighted
average number of common and common equivalent shares outstanding in
each period. Common equivalent shares represent the number of shares
which would be issued assuming the exercise of dilutive stock
options, reduced by the number of shares which would be purchased
with the proceeds from the exercise of such options. For 1996 and
1995, shares associated with convertible securities have been
included in the weighted average number of shares outstanding. The
computations of earnings per share are as follows:
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
(In thousands, except per share amounts)
For Three Months Ended
----------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
Income for Computation of Primary
Earnings Per Share $1,110 $ 615
Interest, Net of Income Taxes,
Relating to 7.75% Convertible
Subordinated Debentures 218 390
Net Income for Computation of
Primary Earnings Per Share 1,110 615
Net Income for Computation of
Fully Diluted Earnings Per Share 1,328 1,005
Applicable Shares:
Weighted Average Common Shares
Outstanding for Computation of
Primary Earnings Per Share 5,306 4,466
Weighted Average Common Equivalent
Shares Arising From:
7.75% convertible subordinated
debentures 1,587 2,806
Stock Options:
Primary 450 230
Fully diluted 500 251
Weighted Average Common and Common
Equivalent Shares Outstanding for
Computation of Fully Diluted
Earnings Per Share 7,393 7,523
Earnings Per Share:
Primary $ .19 $ .13
Fully diluted .18 .13
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Note 4. Acquisition
In January 1995, Ducommun acquired the capital stock of 3dbm, Inc.
("3dbm") for $4,780,000 in cash (of which $353,000 was withheld with
respect to certain assets and potential liabilities of 3dbm) and
$400,000 in notes. 3dbm supplies high-power expanders, microcells
and other wireless communications hardware used in cellular telephone
networks, and microwave components and subsystems to both military
and commercial customers.
Note 5. Long-term debt and convertible subordinated debentures are summarized
as follows:
(In thousands)
---------------------------------
March 30, 1996 December 31, 1995
-------------- -----------------
Bank credit agreement $ 6,475 $ 8,100
Term and real estate loans 3,928 3,559
Promissory notes related to equipment
acquisitions 982 1,186
------- -------
Total debt 11,385 12,845
Less current portion 4,244 3,910
------- -------
Total long-term debt $ 7,141 $ 8,935
======= =======
7.75% Convertible subordinated
debentures due 2011 $15,837 $24,263
======= =======
During the first quarter of 1996, the Company converted $8,426,000
principal amount of its 7.75% convertible subordinated debentures.
The Company paid cash of $556,000 in the first quarter of 1996 and
$66,000 in April 1996 for the conversion. The conversions reduced
interest expense by approximately $326,000 in the first quarter of
1996.
Interest is paid annually on the 7.75% convertible subordinated
debentures which, as of March 30, 1996, were convertible into
1,586,874 shares of common stock at a conversion price of $9.98 per
share, and are subject to mandatory redemption of $2,000,000 per year
from 1996 to 2010. The convertible subordinated debentures are
presently callable by the Company at par. During the second quarter
of 1996, the Company intends to begin calling its 7.75% convertible
subordinated debentures.
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Debt issuance costs related to the issuance of convertible debt are
being amortized over the term of the debt. Unamortized debt issuance
costs of $252,000 and $403,000 at March 30, 1996 and December 31,
1995, respectively, are included in Other Assets.
The carrying amount of long-term debt and convertible subordinated
debentures 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 6. Income Taxes
The provision for income tax expense consists of the following:
(in thousands)
-------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
Current tax expense:
Federal $ 18 $ 10
State 130 4
---- ----
148 14
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Deferred tax expense:
Federal 249 226
State 35 -
---- ----
284 226
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Income Tax Expense $432 $240
==== ====
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Deferred tax assets (liabilities) consist of the following:
(in thousands)
--------------------------------
March 30, 1996 Dec. 31, 1995
-------------- -------------
Federal and State NOLs $11,485 $11,538
Credit carryforwards 1,215 1,197
Employment-related reserves 1,348 1,691
Inventory reserves 751 748
Other 1,410 1,352
------- -------
16,209 16,526
Depreciation (2,519) (2,552)
------- -------
Net deferred tax assets before
valuation allowance 13,690 13,974
Deferred tax assets valuation
allowance (2,433) (2,433)
------- -------
Net deferred tax asset $11,257 $11,541
======= =======
At March 30, 1996, the Company had federal tax NOLs totalling $33
million which expire in the years 1999 through 2004. SFAS 109
requires that the tax benefit of such NOLs be recorded, measured by
enacted tax rates, as an asset to the extent management assesses the
utilization of such NOLs to be "more likely than not." Management
has determined that the income of the Company will, more likely than
not, be sufficient to realize the recorded deferred tax asset prior
to the ultimate expiration of the NOLs. Realization of the future
tax benefits of NOLs is dependent on the Company's ability to
generate sufficient taxable income within the carryforward period.
In assessing the likelihood of utilization of existing NOLs,
management considered the historical results of operations of its
operating subsidiaries, including acquired operations, and the
current economic environment in which the Company operates.
Management does not expect and did not consider any material future
changes in trends or the relationship between reported pretax income
and federal and state taxable income or material asset sales or
similar non-routine transactions in assessing the likelihood of
realization of the recorded deferred tax asset.
Future levels of pretax income are dependent upon the extent of
defense spending and other government budgetary pressures, the level
of new aircraft orders by commercial airlines, production rate
requirements for the Space Shuttle program, general economic
conditions, interest rates, competitive pressures on sales and
margins, price levels and other factors beyond the Company's control.
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The ability of the Company to utilize its NOLs could be subject to
significant limitation in the event of a "change of ownership" as
defined in the Internal Revenue Code. A "change of ownership" could
be caused by purchases or sales of the Company's securities owned by
persons or groups now or in the future having ownership of 5% or more
of the Company's outstanding common stock or issuance by the Company
of common stock (including shares that are issuable on conversion of
the debentures).
Note 7. 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. Based upon currently
available information, the Company has established a provision for
the cost of such investigation and corrective action.
Aerochem has been notified by the United States Environmental
Protection Agency that Aerochem and other generators of hazardous
waste disposed at the Casmalia Resources Hazardous Waste Facility in
California (the "Casmalia Site"), an inactive hazardous waste
treatment, storage and disposal facility, may be responsible for
certain costs associated with the cleanup and closure of the Casmalia
Site. Aerochem contributed less than 1/4 of 1% of the total waste
disposed of at the Casmalia Site and many other substantially larger
companies and governmental entities are involved at the Casmalia
Site. The Company has established a provision, based on currently
available information, for Aerochem's share of the estimated cost of
cleanup and closure of the Casmalia Site.
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 AND EFFECTS OF INFLATION
First Quarter 1996 Compared to First Quarter 1995
- -------------------------------------------------
Net sales increased 15% to $23,792,000 in the first quarter of 1996. The
increase was primarily due to increased off-load work for aircraft structural
components from prime contractors and major subcontractors. The Company also
experienced an increase in sales related to space programs in the first quarter
of 1996.
The Company had substantial sales to Lockheed Martin, Northrop Grumman,
McDonnell Douglas and Boeing. During 1996 and 1995, sales to Lockheed Martin
were approximately $2,463,000 and $2,248,000, respectively; sales to Northrop
Grumman were approximately $1,878,000 and $2,392,000, respectively; sales to
McDonnell Douglas were approximately $2,700,000 and $2,306,000, respectively;
and sales to Boeing were approximately $1,456,000 and $1,225,000, respectively.
The sales to Lockheed Martin are primarily related to the Space Shuttle
program. The sales relating to Northrop Grumman, McDonnell Douglas and Boeing
are diversified over a number of different commercial and military programs.
At March 30, 1996, backlog believed to be firm was approximately $92,500,000,
including $25,984,000 for space-related business, compared to $85,700,000 at
April 1, 1995 and $92,600,000 at December 31, 1995. Approximately $43,000,000
of the total backlog is expected to be delivered during 1996.
Gross profit, as a percentage of sales, was 34.5% for the first quarter of 1996
compared to 29.9% in 1995. This increase was primarily the result of change in
sales mix, economies of scale resulting from sales increases and improvements
in production efficiencies.
Selling, general and administrative expenses increased to $6,240,000, or 26.2%
of sales in 1996, compared to 21.5% of sales for 1995. The increase in these
expenses as a percentage of sales was primarily the result of period costs
related to higher sales volume and $567,000 of debt conversion
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expense related to the conversion of convertible subordinated debentures during
the first quarter of 1996.
Interest expense decreased 52% to $422,000 in 1996 primarily due to the
conversion of $12,163,000 of convertible subordinated debentures since November
1995 and lower debt levels.
The increase in income tax expense was primarily due to the increase in income
before taxes. The Company continues to use it federal net operating loss
carryforwards to offset taxable income. Cash expended to pay income taxes was
$400,000 in 1996, compared to $75,000 in 1995. For further discussion relating
to the income taxes, see Note 6 to the consolidated financial statements.
Net income for 1996 was $1,110,000, or $0.18 per share, compared to $615,000,
or $0.13 per share, in 1995.
FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Cash flow from operating activities for the three months ended March 30, 1996
was $2,684,000, of which $973,000 was used to purchase property and equipment.
During the first quarter of 1996, the Company reduced its long-term debt by
$1,460,000. The Company also issued 844,282 new shares of common stock upon
conversion of $8,426,000 of its outstanding 7.75% convertible subordinated
debentures.
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 1996.
During the first quarter of 1996, the Company converted $8,426,000 principal
amount of its 7.75% convertible subordinate debentures. The Company paid cash
of $556,000 in the first quarter of 1996 and $66,000 in April 1996 for the
conversions. The conversions reduced interest expense by approximately
$326,000 in the first quarter of 1996.
Interest is paid semiannually on the 7.75% convertible subordinated debentures
which, as of March 30, 1996, were convertible into 1,586,874 shares of common
stock at a conversion price of $9.98 per share, and are subject to mandatory
redemption of $2,000,000 per year from 1996 to 2010. The convertible
subordinated debentures are presently callable by the Company at par. On April
19, 1996, the Company
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announced that it intends to call for redemption in May 1996 $8,000,000 of its
outstanding 7.75% convertible subordinated debentures.
The Company spent $973,000 on capital expenditures during the first quarter of
1996 and expects to spend less than $5,000,000 for capital expenditures in
1996.
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. Based upon currently available information, the Company has
established a provision for the cost to such investigation and corrective
action.
Aerochem has been notified by the United States Environmental Protection Agency
that Aerochem and other generators of hazardous waste disposed at the Casmalia
Resources Hazardous Waste Facility in California (the "Casmalia Site"), an
inactive hazardous waste treatment, storage and disposal facility, may be
responsible for certain costs associated with the cleanup and closure of the
Casmalia Site. Aerochem contributed less than 1/4 of 1% of the total waste
disposed of at the Casmalia Site and many other substantially larger companies
and governmental entities are involved at the Casmalia Site. The Company has
established a provision, based on currently available information, for
Aerochem's share of the estimated cost of cleanup and closure of the Casmalia
Site.
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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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 27
A Financial Data Schedule is filed as Exhibit 27 with this report.
b) Reports on Form 8-K
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/ JOSEPH C. BERENATO
------------------------------------------------
Joseph C. Berenato
President, Chief Operating Officer
and Chief Financial Officer
(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 23, 1996
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5
1,000
3-MOS
DEC-31-1996
JAN-01-1996
MAR-30-1996
60
0
13,651
266
15,402
35,180
53,986
30,802
81,995
24,464
15,837
0
0
57
34,061
81,995
23,792
23,792
15,588
21,828
0
0
422
1,542
432
1,110
0
0
0
1,110
0.19
0.18
