0001628280-22-011997 | 10-Q | XBRL Viewer

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Cover Page - shares	3 Months Ended
Cover Page - shares	Apr. 02, 2022	Apr. 26, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Apr. 02, 2022
Document Transition Report	false
Entity File Number	001-08174
Entity Registrant Name	DUCOMMUN INCORPORATED
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	95-0693330
Entity Address, Address Line One	200 Sandpointe Avenue, Suite 700
Entity Address, City or Town	Santa Ana
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92707-5759
City Area Code	657
Local Phone Number	335-3665
Title of 12(b) Security	Common Stock, $.01 par value per share
Trading Symbol	DCO
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		12,033,277
Amendment Flag	false
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Central Index Key	0000030305

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Current Assets
Cash and cash equivalents	$ 19,260	$ 76,316
Accounts receivable, net (allowance for credit losses of $791 and $1,098 at April 2, 2022 and December 31, 2021, respectively	82,804	72,261
Contract assets	187,171	176,405
Inventories	159,795	150,938
Production cost of contracts	7,862	8,024
Other current assets	8,783	8,625
Total Current Assets	465,675	492,569
Property and Equipment, Net of Accumulated Depreciation of $171,713 and $168,132 at April 2, 2022 and December 31, 2021, respectively	103,900	102,419
Operating Lease Right-of-Use Assets	38,860	33,265
Goodwill	203,694	203,694
Intangibles, Net	138,116	141,764
Other Assets	9,086	5,024
Total Assets	959,331	978,735
Current Liabilities
Accounts payable	74,842	66,059
Contract liabilities	37,841	42,077
Accrued and other liabilities	31,917	41,291
Operating lease liabilities	7,028	6,133
Current portion of long-term debt	7,000	7,000
Total Current Liabilities	158,628	162,560
Long-Term Debt, Less Current Portion	247,729	279,384
Non-Current Operating Lease Liabilities	32,917	28,074
Deferred Income Taxes	18,820	18,727
Other Long-Term Liabilities	13,531	15,388
Total Liabilities	471,625	504,133
Commitments and Contingencies
Shareholders’ Equity
Common Stock - $0.01 par value; 35,000,000 shares authorized; 12,032,945 and 11,925,087 shares issued and outstanding at April 2, 2022 and December 31, 2021, respectively	120	119
Additional Paid-In Capital	104,244	104,253
Retained Earnings	385,362	377,263
Accumulated Other Comprehensive Loss	(2,020)	(7,033)
Total Shareholders’ Equity	487,706	474,602
Total Liabilities and Shareholders’ Equity	$ 959,331	$ 978,735

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Accounts receivable, allowance for credit loss	$ 791	$ 1,098
Property and equipment, accumulated depreciation	$ 171,713	$ 168,132
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	35,000,000	35,000,000
Common stock, shares issued (in shares)	12,032,945	11,925,087
Common Stock, shares outstanding (in shares)	12,032,945	11,925,087

Condensed Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Income Statement [Abstract]
Net Revenues	$ 163,481	$ 157,151
Cost of Sales	131,006	124,051
Gross Profit	32,475	33,100
Selling, General and Administrative Expenses	23,352	22,490
Operating Income	9,123	10,610
Interest Expense	(2,402)	(2,806)
Other Income	3,000	0
Income Before Taxes	9,721	7,804
Income Tax Expense	1,622	1,109
Net Income	$ 8,099	$ 6,695
Earnings Per Share
Basic earnings per share (in dollars per share)	$ 0.68	$ 0.57
Diluted earnings per share (in dollars per share)	$ 0.66	$ 0.55
Weighted-Average Number of Common Shares Outstanding
Basic (in shares)	11,989	11,791
Diluted (in shares)	12,328	12,250

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Statement of Comprehensive Income [Abstract]
Net Income	$ 8,099	$ 6,695
Other Comprehensive Income, Net of Tax:
Amortization of actuarial loss and prior service costs, net of tax of $36 and $76 for the three months ended April 2, 2022 and April 3, 2021, respectively	110	245
Change in unrealized gains on cash flow hedges, net of tax of $1,509 and zero for the three months ended April 2, 2022 and April 3, 2021, respectively	4,903	0
Other Comprehensive Income, Net of Tax	5,013	245
Comprehensive Income	$ 13,112	$ 6,940

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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- Definition

Amount after tax and reclassification adjustments of other comprehensive income (loss).

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Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Statement of Comprehensive Income [Abstract]
Amortization of actuarial (loss) gain, tax	$ 36	$ 76
Unrealized gain (loss) on cash flow hedge, tax expense (benefit)	$ 1,509	$ 0

Condensed Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Loss
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		11,728,212
Beginning balance at Dec. 31, 2020	$ 329,334	$ 117	$ 97,090	$ 241,727	$ (9,600)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	6,695			6,695
Other comprehensive income, net of tax	245				245
Employee stock purchase plan (in shares)		31,580
Employee stock purchase plan	1,558		1,558
Stock options exercised (in shares)		17,872
Stock options exercised	610		610
Stock awards vested (in shares)		178,827
Stock awards vested	0	$ 2	(2)
Stock repurchased related to the exercise of stock options and stock awards vested (in shares)		(106,894)
Stock repurchased related to the exercise of stock options and stock awards vested	(6,005)	$ (1)	(6,004)
Stock-based compensation	3,133		3,133
Ending balance (in shares) at Apr. 03, 2021		11,849,597
Ending balance at Apr. 03, 2021	335,570	$ 118	96,385	248,422	(9,355)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		11,849,597
Beginning balance (in shares)		11,925,087
Beginning balance at Dec. 31, 2021	474,602	$ 119	104,253	377,263	(7,033)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	8,099			8,099
Other comprehensive income, net of tax	5,013				5,013
Employee stock purchase plan (in shares)		31,686
Employee stock purchase plan	1,386		1,386
Stock options exercised (in shares)		48,119
Stock options exercised	1,445	$ 1	1,444
Stock awards vested (in shares)		117,387
Stock awards vested	0	$ 1	(1)
Stock repurchased related to the exercise of stock options and stock awards vested (in shares)		(89,334)
Stock repurchased related to the exercise of stock options and stock awards vested	(4,429)	$ (1)	(4,428)
Stock-based compensation	1,590		1,590
Ending balance (in shares) at Apr. 02, 2022		12,032,945
Ending balance at Apr. 02, 2022	$ 487,706	$ 120	$ 104,244	$ 385,362	$ (2,020)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)		12,032,945

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Cash Flows from Operating Activities
Net Income	$ 8,099	$ 6,695
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and amortization	7,768	6,922
Non-cash operating lease cost	1,842	736
Stock-based compensation expense	1,590	3,133
Deferred income taxes	93	606
(Recovery of) provision for credit losses	(307)	18
Other	139	122
Changes in Assets and Liabilities:
Accounts receivable	(10,236)	(3,117)
Contract assets	(10,766)	(19,881)
Inventories	(8,857)	(9,064)
Production cost of contracts	(371)	(488)
Other assets	504	(369)
Accounts payable	8,540	8,192
Contract liabilities	(4,236)	(4,007)
Operating lease liabilities	(1,615)	(784)
Accrued and other liabilities	(11,038)	(12,069)
Net Cash Used in Operating Activities	(18,851)	(23,355)
Cash Flows from Investing Activities
Purchases of property and equipment	(4,825)	(4,542)
Proceeds from sale of assets	51	0
Net Cash Used in Investing Activities	(4,774)	(4,542)
Cash Flows from Financing Activities
Borrowings from senior secured revolving credit facility	0	20,000
Repayments of senior secured revolving credit facility	0	(25,000)
Repayments of term loans	(31,750)	(2,676)
Repayments of other debt	(83)	(84)
Net cash paid upon issuance of common stock under stock plans	(1,598)	(3,837)
Net Cash Used in Financing Activities	(33,431)	(11,597)
Net Decrease in Cash and Cash Equivalents	(57,056)	(39,494)
Cash and Cash Equivalents at Beginning of Period	76,316	56,466
Cash and Cash Equivalents at End of Period	$ 19,260	$ 16,972

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Description of Business

We are a leading global provider of innovative, value-added proprietary products and manufacturing solutions for high-performance products and high-cost-of failure applications used primarily in the aerospace and defense (“A&D”), industrial, medical and other industries (collectively, “Industrial”). Our operations are organized into two primary businesses: the Electronic Systems segment (“Electronic Systems”) and the Structural Systems segment (“Structural Systems”), each of which is a reportable operating segment. Electronic Systems designs, engineers and manufactures high-reliability electronic and electromechanical products used in worldwide technology-driven markets including A&D and Industrial end-use markets. Electronic Systems’ product offerings primarily range from prototype development to complex assemblies. Structural Systems designs, engineers and manufactures large, complex contoured aerostructure components and assemblies and supplies composite and metal bonded structures and assemblies. Structural Systems’ products are primarily used on commercial aircraft, military fixed-wing aircraft, and military and commercial rotary-wing aircraft. Both reportable operating segments follow the same accounting principles.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Ducommun Incorporated and its subsidiaries (“Ducommun,” the “Company,” “we,” “us” or “our”), after eliminating intercompany balances and transactions. The December 31, 2021 condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

Our significant accounting policies were described in Part IV, Item 15(a)(1), “Note 1. Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2021. The financial information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021.

In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state our condensed consolidated financial position, statements of income, comprehensive income, changes in shareholders’ equity, and cash flows in accordance with GAAP for the periods covered by this Quarterly Report on Form 10-Q. The results of operations for the three months ended April 2, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.

Our fiscal quarters typically end on the Saturday closest to the end of March, June and September for the first three fiscal quarters of each year, and on December 31 for our fourth fiscal quarter. As a result of using fiscal quarters for the first three quarters combined with leap years, our first and fourth fiscal quarters can range between 12 1/2 weeks to 13 1/2 weeks while the second and third fiscal quarters remain at a constant 13 weeks per fiscal quarter.

Certain reclassifications have been made to prior period amounts to conform to the current year’s presentation.

Use of Estimates

Certain amounts and disclosures included in the unaudited condensed consolidated financial statements require management to make estimates and judgments that affect the amounts of assets, liabilities (including contract liabilities), revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Subsequent Event

Subsequent to our quarter ended April 2, 2022, in April 2022, management approved and commenced a restructuring plan mainly to reduce headcount, consolidate facilities, write-down inventory, and impair long-lived assets to better position us for stronger performance. We currently anticipate this initiative will result in $10.0 million to $14.0 million in total pre-tax restructuring charges over the next 12 months. Of these charges, we estimate $4.0 million to be cash payments for employee separation and other facility consolidation related expenses, and $6.0 million to $10.0 million to be non-cash charges for the write-down of inventory and impairment of long-lived assets.

Supplemental Cash Flow Information


	(Dollars in thousands)
	Three Months Ended
	April 2, 2022		April 3, 2021
Interest paid	$	2,186	$	2,544
Taxes paid (refunded), net	$	10	$	(30)
Non-cash activities:
Purchases of property and equipment not paid	$	1,576	$	540

Earnings Per Share

Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding in each period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding, plus any potentially dilutive shares that could be issued if exercised or converted into common stock in each period.

The net income and weighted-average common shares outstanding used to compute earnings per share were as follows:


	(Dollars in thousands, except per share data)
	Three Months Ended
	April 2, 2022		April 3, 2021
Net income	$	8,099	$	6,695
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding	11,989		11,791
Dilutive potential common shares	339		459
Diluted weighted-average common shares outstanding	12,328		12,250
Earnings per share
Basic	$	0.68	$	0.57
Diluted	$	0.66	$	0.55

Potentially dilutive stock awards, as shown below, were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. However, these awards may be potentially dilutive common shares in the future.

(In thousands)

Three Months Ended

April 2,
2022

April 3,
2021

Stock options and stock units

Fair Value

Assets and liabilities that are measured, recorded or disclosed at fair value on a recurring basis are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value. Level 1, the highest level, refers to the values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant observable inputs. Level 3, the lowest level, includes fair values estimated using significant unobservable inputs.

We have money market funds and they are included as cash and cash equivalents. We also have forward interest rate swap agreements and the fair value of the forward interest rate swap agreements were determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2 measurement.

There were no transfers between Level 1, Level 2, or Level 3 financial instruments in the three months ended April 2, 2022.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid instruments purchased with original maturities of three months or less. These assets are valued at cost, which approximates fair value, and we classify as Level 1. See Fair Value above.

Derivative Instruments

We recognize derivative instruments on our condensed consolidated balance sheets at their fair value. On the date that we enter into a derivative contract, we designate the derivative instrument as a fair value hedge, a cash flow hedge, or a derivative instrument that will not be accounted for using hedge accounting methods. In November 2021, we entered into forward interest rate swap agreements, all with an effective date of January 1, 2024 (“Forward Interest Rate Swaps”) to manage our exposure to interest rate movements on a portion of our debt. As such, we have made the following cash flow hedging relationship elections to qualify for hedge accounting treatment related to the Forward Interest Rate Swaps as our current term loans mature before the expiration of the Forward Interest Rate Swaps: 1) Probability of forecasted transactions, and 2) Assessment of effectiveness. See Note 6. As of April 2, 2022, all of our derivative instruments were designated as cash flow hedges.

We record changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a cash flow hedge in other comprehensive income (loss), net of tax until our earnings are affected by the variability of cash flows of the underlying hedged item. We report changes in the fair values of derivative instruments that are not designated or do not qualify for hedge accounting in current period earnings. We classify cash flows from derivative instruments in the condensed consolidated statements of cash flows in the same category as the item being hedged or on a basis consistent with the nature of the instrument. Since the Forward Interest Rate Swaps are not effective until January 1, 2024, in both the three months ended April 2, 2022 and April 3, 2021, we only recorded the changes in the fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges in other long term assets, other long term liabilities, and other comprehensive income (loss) of $6.4 million and zero, respectively.

When we determine that a derivative instrument is not highly effective as a hedge, we discontinue hedge accounting prospectively. In all situations in which we discontinue hedge accounting and the derivative instrument remains outstanding, we will carry the derivative instrument at its fair value on our condensed consolidated balance sheets and recognize subsequent changes in its fair value in our current period earnings.

Inventories

Inventories are stated at the lower of cost or net realizable value with cost being determined using a moving average cost basis for raw materials and actual cost for work-in-process and finished goods. The majority of our inventory is charged to cost of sales as raw materials are placed into production. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle performance center expense, freight, handling costs, and wasted materials (spoilage) incurred. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The majority of our revenues are recognized over time, however, for revenue contracts where revenue is recognized using the point in time method, inventory is not reduced until it is shipped or transfer of control to the customer has occurred. Our ending inventory consists of raw materials, work-in-process, and finished goods.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, as reflected on the condensed consolidated balance sheets under the equity section, was comprised of cumulative pension and retirement liability adjustments, net of tax, and change in net unrealized gains and losses on cash flow hedges, net of tax.

Revenue Recognition

Our customers typically engage us to manufacture products based on designs and specifications provided by the end-use customer. This requires the building of tooling and manufacturing first article inspection products (prototypes) before volume manufacturing. Contracts with our customers generally include a termination for convenience clause.

We have a significant number of contracts that are started and completed within the same year, as well as contracts derived from long-term agreements and programs that can span several years. We recognize revenue under Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC 606”), which utilizes a five-step model.

The definition of a contract for us is typically defined as a customer purchase order as this is when we achieve an enforceable right to payment. The majority of our contracts are firm fixed-price contracts. The deliverables within a customer purchase order are analyzed to determine the number of performance obligations. At times, in order to achieve economies of scale and based on our customer’s forecasted demand, we may build in advance of receiving a purchase order from our customer. When that occurs, we would not recognize revenue until we have received the customer purchase order.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control is transferred and the performance obligation is satisfied. The majority of our contracts have a

single performance obligation as the promise to transfer the individual goods or services are highly interrelated or meet the series guidance. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

We manufacture most products to customer specifications and the product cannot be easily modified to satisfy another customer’s order. As such, these products are deemed to have no alternative use once the manufacturing process begins. In the event the customer invokes a termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs. For most of our products, we are building assets with no alternative use and have enforceable right to payment, and thus, we recognize revenue using the over time method.

The majority of our performance obligations are satisfied over time as work progresses. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion, also known as cost-to-cost plus reasonable profit) to determine progress. Our typical revenue contract is a firm fixed price contract, and the cost of raw materials could make up a significant amount of the total costs incurred. As such, we believe using the total costs incurred input method would be the most appropriate method. While the cost of raw materials could make up a significant amount of the total costs incurred, there is a direct relationship between our inputs and the transfer of control of goods or services to the customer.

Contract estimates are based on various assumptions to project the outcome of future events that can span multiple months or years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; and the performance of subcontractors.

As a significant change in one or more of these estimates could affect the progress completed (and related profitability) on our contracts, we review and update our contract-related estimates on a regular basis. We recognize such adjustments under the cumulative catch-up method. Under this method, the impact of the adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate.

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue.

Net cumulative catch up adjustments on gross profit recorded were not material for both the three months ended April 2, 2022 and April 3, 2021.

Payments under long-term contracts may be received before or after revenue is recognized. When revenue is recognized before we bill our customer, a contract asset is created for the work performed but not yet billed. Similarly, when we receive payment before we ship our products to our customer, a contract liability is created for the advance or progress payment. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.

We record provisions for the total anticipated losses on contracts, considering total estimated costs to complete the contract compared to total anticipated revenues, in the period in which such losses are identified. The provisions for estimated losses on contracts require us to make certain estimates and assumptions, including those with respect to the future revenue under a contract and the future cost to complete the contract. Our estimate of the future cost to complete a contract may include assumptions as to changes in manufacturing efficiency, operating and material costs, and our ability to resolve claims and assertions with our customers. If any of these or other assumptions and estimates do not materialize in the future, we may be required to adjust the provisions for estimated losses on contracts. The provision for estimated losses on contracts is included as part of contract liabilities on the condensed consolidated balance sheets. As of April 2, 2022 and December 31, 2021, provision for estimated losses on contracts were $3.3 million and $2.8 million, respectively.

Production cost of contracts includes non-recurring production costs, such as design and engineering costs, and tooling and other special-purpose machinery necessary to build parts as specified in a contract. Production costs of contracts are recorded to cost of sales using the over time revenue recognition model. We review the value of the production cost of contracts on a quarterly basis to ensure when added to the estimated cost to complete, the value is not greater than the estimated realizable value of the related contracts. As of April 2, 2022 and December 31, 2021, production cost of contracts were $7.9 million and $8.0 million, respectively.

Contract Assets and Contract Liabilities

Contract assets consist of our right to payment for work performed but not yet billed. Contract assets are transferred to accounts receivable when we bill our customers. We bill our customers when we ship the products and meet the shipping terms within the revenue contract. Contract liabilities consist of advance or progress payments received from our customers prior to the time

transfer of control occurs plus the estimated losses on contracts. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.

Contract assets and contract liabilities from revenue contracts with customers are as follows:


	(Dollars in thousands)
	April 2, 2022		December 31, 2021
Contract assets	$	187,171	$	176,405
Contract liabilities	$	37,841	$	42,077

The increase in our contract assets as of April 2, 2022 compared to December 31, 2021 was primarily due to a net increase of products in work in process in the current period.

The decrease in our contract liabilities as of April 2, 2022 compared to December 31, 2021 was primarily due to a net decrease of advance or progress payments received from our customers in the current period. We recognized $10.1 million of the contract liabilities as of December 31, 2021 as revenues during the three months ended April 2, 2022.

Performance obligations are defined as customer placed purchase orders (“POs”) with firm fixed price and firm delivery dates. Our remaining performance obligations as of April 2, 2022 totaled $767.1 million. We anticipate recognizing an estimated 70% of our remaining performance obligations as revenue during the next 12 months with the remaining performance obligations being recognized in the remainder of 2023 and beyond.

Revenue by Category

In addition to the revenue categories disclosed above, the following table reflects our revenue disaggregated by major end-use market:


	(Dollars in thousands)
	Three Months Ended
	April 2 2022		April 3, 2021
Consolidated Ducommun
Military and space	$	99,334	$	114,127
Commercial aerospace	54,075		35,377
Industrial	10,072		7,647
Total	$	163,481	$	157,151

Electronic Systems
Military and space	$	71,820	$	81,733
Commercial aerospace	15,574		9,724
Industrial	10,072		7,647
Total	$	97,466	$	99,104

Structural Systems
Military and space	$	27,514	$	32,394
Commercial aerospace	38,501		25,653
Total	$	66,015	$	58,047

Government Grant

In November 2021, we were awarded an Aviation Manufacturing Jobs Protection Program grant from the U.S. Department of Transportation (“AMJPP Grant”) of $4.0 million. As part of the award, we have to meet certain requirements over a six month performance period from November 15, 2021 to May 14, 2022. As of April 2, 2022, we have received $2.0 million, all during 2021, with the remaining $2.0 million included as other current assets and expected to be received during 2022. We recorded $1.8 million and $0.2 million as a reduction of cost of sales and selling, general and administrative expenses, respectively, during the three months ended April 2, 2022. Cumulative through the three months ended April 2, 2022, we have recorded $2.7 million and $0.3 million as a reduction of cost of sales and selling, general and administrative expenses, respectively. The remaining $1.0 million is included as accrued and other liabilities.

Recent Accounting Pronouncements

New Accounting Guidance Adopted in 2022

In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies reporting or provides clarification on various topics, including clarification that an entity should use the weighted-average share count from each quarter when calculating the year-to-date weighted-average share count. The new guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, which was our interim period beginning January 1, 2022. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional guidance for a limited time for contracts that reference London Interbank Offered Rate (“LIBOR”), to ease the potential burden in accounting for, or recognizing the effects, of reference rate reform on financial reporting as a result of the cessation of LIBOR. The new guidance is effective at any time after March 12, 2020 but no later than December 31, 2022. We have made the following elections related to our current cash flow hedging relationships as our current term loans mature before the expiration of the Forward Interest Rate Swaps: 1) Probability of forecasted transactions, and 2) Assessment of effectiveness. See Note 6.

Business Combinations

3 Months Ended

Apr. 02, 2022

Business Combination and Asset Acquisition [Abstract]

Business Combinations

In December 2021, we acquired 100.0% of the outstanding equity interests of Magnetic Seal LLC (f/k/a Magnetic Seal Corporation, “MagSeal”), a privately-held leading provider of high-impact, military-proven magnetic seals for critical systems in aerospace and defense applications, offering sealing solutions that are engineered to perform in high-speed, high-vibration, and other challenging environments. MagSeal is located in Warren, Rhode Island. The acquisition of MagSeal will continue to advance our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities.

The purchase price for MagSeal was $69.5 million, net of cash acquired, all payable in cash. We paid a gross aggregate of $71.3 million in cash upon the closing of the transaction. We allocated the preliminary gross purchase price of $71.3 million to the assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill.

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):


	Estimated Fair Value
Cash	$	1,821
Accounts receivable	2,093
Inventories	4,586
Other current assets	98
Property and equipment	482
Operating lease right-of-use assets	1,533
Intangible assets	30,100
Goodwill	32,864

Total assets acquired	73,577
Current liabilities	(869)

Other non-current liabilities	(1,408)
Total liabilities assumed	(2,277)
Total purchase price allocation	$	71,300


	Useful Life (In years)	Estimated Fair Value (In thousands)
Intangible assets:
Customer relationships	19	$	24,800
Backlog	2	600
Trade name	Indefinite	4,700
		$	30,100

The intangible assets acquired of $30.1 million were determined based on the estimated fair values using valuation techniques consistent with the income approach to measure fair value, which represented Level 3 fair value measurements. The useful lives were estimated based on the underlying agreements or the future economic benefit expected to be received from the assets. The value for customer relationships and backlog were estimated based on a multi-period excess earnings approach, while the value for trade name was assessed using the relief from royalty methodology. Inputs to the income approach models and other aspects of the allocation of the purchase price require judgment. The more significant inputs used in the customer relationships intangible asset valuation include (i) future revenue growth rates, (ii) projected gross margins, (iii) the customer attrition rate, and (iv) the discount rate.

The goodwill of $32.9 million arising from the acquisition is attributable to the benefits we expect to derive from expected synergies from the transaction, including complementary products that will enhance our overall product portfolio, opportunities within new markets, and an acquired assembled workforce. All the goodwill was assigned to the Structural Systems segment. The MagSeal acquisition, for tax purposes, is deemed an asset acquisition and thus, is deductible for income tax purposes.

Acquisition related transaction costs were not included as components of consideration transferred but have been expensed as incurred. Total acquisition-related transaction costs incurred by us were $0.9 million during 2021 and charged to selling, general and administrative expenses.

MagSeal’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment and were immaterial since the date of acquisition. Pro forma results of operations of the MagSeal acquisition have not been presented as the effect of the MagSeal acquisition was not material to our financial results.

Inventories

3 Months Ended

Apr. 02, 2022

Inventory Disclosure [Abstract]

Inventories

InventoriesInventories consisted of the following:


	(Dollars in thousands)
	April 2, 2022		December 31, 2021
Raw materials and supplies	$	134,990	$	125,334
Work in process	20,316		20,609
Finished goods	4,489		4,995


Total	$	159,795	$	150,938

Goodwill

3 Months Ended

Apr. 02, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

We perform our annual goodwill impairment test as of the first day of the fourth quarter. If certain factors occur, including significant underperformance of our business relative to expected operating results, significant adverse economic and industry trends, significant decline in our market capitalization for an extended period of time relative to net book value, a decision to divest individual businesses within a reporting unit, or a decision to group individual businesses differently, we may be required to perform an interim impairment test prior to the fourth quarter.

We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. The qualitative approach for potential impairment analysis to determine whether it is more likely than not that the fair value of a reporting unit was less than its carrying amount.

The quantitative approach for potential impairment analysis is performed by comparing the fair value of a reporting unit to its carrying value, including goodwill. Fair value is estimated by management using a combination of the income approach (which is based on a discounted cash flow model) and market approach. Management’s cash flow projections include significant judgments and assumptions, including the amount and timing of expected cash flows, long-term growth rates, and discount rates. The cash flows used in the discounted cash flow model are based on our best estimate of future revenues, gross margins,

and adjusted after-tax earnings. If any of these assumptions are incorrect, it will impact the estimated fair value of a reporting unit. The market approach also requires significant management judgment in selecting comparable business acquisitions and the transaction values observed and its related control premiums.

Our most recent goodwill impairment test of our Electronic Systems reporting unit as of the first day of the fourth quarter of 2021 was performed using a qualitative assessment and we determined it was not more likely than not that the fair value of the reporting unit was less than its carrying amount. Our most recent annual goodwill impairment test of our Structural Systems reporting unit as of the first day of the fourth quarter of 2021 was performed using a step one goodwill impairment test where the fair value of our Structural Systems reporting unit exceeded its carrying value by 72%. Thus, the respective goodwill amounts were not deemed impaired. While our business continues to be negatively impacted during the three months ended April 2, 2022 as a result of the COVID-19 pandemic, no material adverse factors/changes have occurred since the fourth quarter of 2021 that would require us to perform another qualitative or quantitative assessment. As such, for the first quarter of 2022, it was also not more likely than not that the fair values of the reporting units were less than their carrying amounts and thus, the respective goodwill amounts were not deemed to be impaired.

The carrying amounts of our goodwill were as follows:


	(Dollars in thousands)
	Electronic Systems		Structural Systems		Consolidated Ducommun
Gross goodwill	$	199,157	$	86,259	$	285,416
Accumulated goodwill impairment	(81,722)		—		(81,722)
Balance at December 31, 2021	$	117,435	$	86,259	$	203,694

Balance at April 2, 2022	$	117,435	$	86,259	$	203,694

Accrued and Other Liabilities

3 Months Ended

Apr. 02, 2022

Payables and Accruals [Abstract]

Accrued and Other Liabilities

Accrued and Other LiabilitiesThe components of accrued and other liabilities were as follows:


	(Dollars in thousands)
	April 2, 2022		December 31, 2021
Accrued compensation	$	14,774	$	24,391
Accrued income tax and sales tax	4,024		926



Other	13,119		15,974
Total	$	31,917	$	41,291

Long-Term Debt

3 Months Ended

Apr. 02, 2022

Debt Disclosure [Abstract]

Long-Term Debt

Long-term debt and the current period interest rates were as follows:


	(Dollars in thousands)
	April 2, 2022			December 31, 2021
Term loans	$	255,962		$	287,712




Total debt	255,962			287,712
Less current portion	(7,000)			(7,000)
Total long-term debt, less current portion	248,962			280,712
Less debt issuance costs - term loans	(1,233)			(1,328)
Total long-term debt, net of debt issuance costs - term loans	$	247,729		$	279,384
Debt issuance costs - revolving credit facility (1)	$	1,042		$	1,136
Weighted-average interest rate	3.37		%	3.27		%

(1) Included as part of other assets.

In December 2019, we completed the refinancing of a portion of our existing debt by entering into a new revolving credit facility (“2019 Revolving Credit Facility”) to replace the then existing revolving credit facility that was entered into in November 2018 (“2018 Revolving Credit Facility”) and entered into a new term loan (“2019 Term Loan”). The 2019 Revolving Credit Facility is a $100.0 million senior secured revolving credit facility that matures on December 20, 2024 replacing the $100.0 million 2018 Revolving Credit Facility that would have matured on November 21, 2023. The 2019 Term

Loan is a $140.0 million senior secured term loan that matures on December 20, 2024. We also have an existing $240.0 million senior secured term loan that was entered into in November 2018 that matures on November 21, 2025 (“2018 Term Loan”). The original amounts available under the 2019 Revolving Credit Facility, 2019 Term Loan, and 2018 Term Loan (collectively, the “Credit Facilities”) in aggregate, totaled $480.0 million.

The 2019 Term Loan bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as the London Interbank Offered Rate [“LIBOR”]) plus an applicable margin ranging from 1.50% to 2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to 1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. In addition, the 2019 Term Loan requires installment payments of 1.25% of the original outstanding principal balance of the 2019 Term Loan amount on a quarterly basis, on the last day of the calendar quarter. For the three months ended April 2, 2022, we made the required quarterly payment of $1.8 million.

The 2019 Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR) plus an applicable margin ranging from 1.50% to 2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to 1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. The undrawn portion of the commitment of the 2019 Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio. However, the 2019 Revolving Credit Facility does not require any principal installment payments.

The 2018 Term Loan bears interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR plus an applicable margin ranging from 3.75% to 4.00% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 3.75% to 4.00% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. In addition, the 2018 Term Loan required installment payments of 0.25% of the outstanding principal balance of the 2018 Term Loan amount on a quarterly basis.

Further, under the Credit Facilities, if we exceed the annual excess cash flow threshold, we are required to make an annual additional principal payment based on the consolidated adjusted leverage ratio. The annual mandatory excess cash flow payment is based on (i) 50% of the excess cash flow amount if the adjusted leverage ratio is greater than 3.25 to 1.0, (ii) 25% of the excess cash flow amount if the adjusted leverage ratio is less than or equal to 3.25 to 1.0 but greater than 2.50 to 1.0, and (iii) zero percent of the excess cash flow amount if the consolidated adjusted leverage ratio is less than or equal to 2.50 to 1.0. We did not exceed the annual excess cash flow threshold for 2021 and thus, no annual excess cash flow payment was required to be paid during the first quarter of 2022. As of April 2, 2022, we were in compliance with all covenants required under the Credit Facilities.

In conjunction with entering into the 2019 Revolving Credit Facility and the 2019 Term Loan, we drew down the entire $140.0 million on the 2019 Term Loan and used those proceeds to pay off and close the 2018 Revolving Credit Facility of $58.5 million, paid down a portion of the 2018 Term Loan of $56.0 million, paid the accrued interest associated with the amounts being paid down on the 2018 Revolving Credit Facility and 2018 Term Loan, paid the fees related to this transaction, and the remainder available for general corporate purposes. The $56.0 million pay down on the 2018 Term Loan paid all the required quarterly installment payments on the 2018 Term Loan until maturity.

However, since we were paying down on the term loans during the three months ended April 2, 2022, we were required to pay down on the 2019 Term Loan and 2018 Term Loan on a pro-rata basis and thus, we paid down $13.0 million and $17.0 million on the 2019 Term Loan and 2018 Term Loan, respectively, for an aggregate total pay down of $30.0 million.

The 2019 Term Loan and 2018 Term Loan were considered a modification of debt and thus, no gain or loss was recorded. Instead, the new fees paid to the lenders of $0.6 million were capitalized and are being amortized over the life of the 2019 Term Loan. The remaining debt issuance costs related to the 2018 Term Loan of $1.5 million as of the modification date will continue to be amortized over its remaining life.

The 2019 Revolving Credit Facility that replaced the 2018 Revolving Credit Facility was considered an extinguishment of debt except for the portion related to the creditors that were part of both the 2019 Revolving Credit Facility and the 2018 Revolving Credit Facility and in which case, it was considered a modification of debt. As a result, we expensed the portion of the unamortized debt issuance costs related to the 2018 Revolving Credit Facility that was considered an extinguishment of debt of $0.5 million. In addition, the new fees paid to the lenders of $0.5 million as part of the 2019 Revolving Credit Facility were capitalized and are being amortized over its remaining life. Further, the remaining debt issuance costs related to the 2018 Revolving Credit Facility of $1.1 million as of the modification date will also be amortized over its remaining life.

As of April 2, 2022, we had $99.8 million of unused borrowing capacity under the 2019 Revolving Credit Facility, after deducting $0.2 million for standby letters of credit.

The Credit Facilities were entered into by us (“Parent Company”) and guaranteed by all of our domestic subsidiaries, other than two subsidiaries that were considered minor (“Subsidiary Guarantors”). The Subsidiary Guarantors jointly and severally guarantee the Credit Facilities. The Parent Company has no independent assets or operations and therefore, no consolidating financial information for the Parent Company and its subsidiaries are presented.

In November 2021, we entered into derivative contracts, U.S. dollar-one month LIBOR forward interest rate swaps designated as cash flow hedges, all with an effective date of January 1, 2024, for an aggregate total notional amount of $150.0 million, weighted average fixed rate of 1.8%, and all terminating on January 1, 2031 (“Forward Interest Rate Swaps”). The Forward Interest Rate Swaps mature on a monthly basis, with fixed amount payer payment dates on the first day of each calendar month, commencing on February 1, 2024 through January 1, 2031. The Forward Interest Rate Swaps were deemed to be highly effective upon entering into the derivative contracts and thus, hedge accounting treatment was utilized. Since the Forward Interest Rate Swaps are not effective until January 1, 2024, we only recorded the changes in the fair value of the Forward Interest Rate Swaps. As such, we recorded the change in other long term assets, other long term liabilities, and other comprehensive income (loss) of $6.4 million for the three months ended April 2, 2022. See Note 1 for further information.

Indemnifications	3 Months Ended
Indemnifications	Apr. 02, 2022
Disclosure of Guarantees and Indemnifications [Abstract]
Indemnifications	Indemnifications We have made guarantees and indemnities under which we may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. Additionally, we indemnify our directors and officers to the maximum extent permitted under the laws of the State of Delaware and have a directors and officers insurance policy that may reduce our exposure in certain circumstances and may enable us to recover a portion of future amounts that may be payable, if any. Moreover, in connection with certain performance center leases, we have indemnified our lessors for certain claims arising from the performance center or the lease. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments we could be obligated to make. Historically, payments related to these guarantees and indemnities have been immaterial. We estimate the fair value of our indemnification obligations as insignificant based on this history and insurance coverage and have, therefore, not recorded any liability for these guarantees and indemnities in the accompanying condensed consolidated balance sheets.

Income Taxes	3 Months Ended
Income Taxes	Apr. 02, 2022
Income Tax Disclosure [Abstract]
Income Taxes	Income Taxes The provision for income taxes is determined using an estimated annual effective tax rate, which is generally less than the U.S. Federal statutory rate, primarily due to research and development (“R&D”) tax credits. Our effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as expected utilization of R&D tax credits, valuation allowances against deferred tax assets, recognition or derecognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. Also, excess tax benefits and tax detriments related to our equity compensation recognized in the condensed consolidated income statement could result in fluctuations in our effective tax rate period-over-period depending on the volatility of our stock price, number of restricted or performance stock units that vests, and stock options exercised during the period. We recognize deferred tax assets and liabilities, using enacted tax rates, for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating loss and tax credit carryovers. We record a valuation allowance against our deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized. When we establish or reduce our valuation allowances against our deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period when that determination is made. We recorded income tax expense of $1.6 million for the three months ended April 2, 2022 compared to $1.1 million for the three months ended April 3, 2021. The increase in income tax expense for the first quarter of 2022 compared to the first quarter of 2021 was primarily due to higher pre-tax income for the first quarter of 2022 compared to the first quarter of 2021 and lower discrete tax benefits recognized in the first quarter of 2022 for net tax windfalls related to stock-based compensation. The increase in income tax expense was partially offset by higher income tax benefits recognized in the first quarter of 2022 related to the U.S. Federal research and development tax credit. Our total amount of unrecognized tax benefits was $4.5 million and $4.4 million as of April 2, 2022 and December 31, 2021, respectively. If recognized, $2.7 million would affect the effective tax rate. We record interest and penalty charges, if any, related to uncertain tax positions as a component of tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charges as of April 2, 2022 and December 31, 2021 were not significant. As a result of statute of limitations set to expire in the fourth quarter of 2022, we expect decreases to our unrecognized tax benefits of approximately $0.7 million in the next twelve months. We file U.S. Federal and state income tax returns. We are subject to examination by the Internal Revenue Service (“IRS”) for tax years after 2017 and by state taxing authorities for tax years after 2016. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years. The Tax Cuts and Jobs Act of 2017 (“TCJA”), which was signed into U.S. law in December 2017, eliminated the option to immediately deduct research and development expenditures in the year incurred under Section 174 effective January 1, 2022. The amended provision under Section 174 requires us to capitalize and amortize these expenditures over five years (for U.S.-based research). Although there is proposed legislation to temporarily reinstate the current deduction of the expenditures after 2021 through 2025, we must consider the changes under the TCJA. As of April 2, 2022, we recorded an increase to current income taxes payable by approximately $2.6 million and a decrease to net deferred tax liabilities by a similar amount. We are monitoring legislation for any further changes to Section 174 and the impact to the financial statements in 2022.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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+ Details

Commitments and Contingencies	3 Months Ended
Commitments and Contingencies	Apr. 02, 2022
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	Commitments and Contingencies In December 2020, a representative action under California’s Private Attorneys General Act was filed against us in the Superior Court of California, County of San Bernardino. We received service of process of this complaint on January 28, 2021. The complaint alleges violations of California’s wage and hour laws relating to our current and former employees and seeks attorney’s fees and penalties. We vigorously refuted and defended these claims, and reached a tentative settlement of $0.8 million during the fourth quarter 2021, which is subject to court approval. Thus, we recorded accrued liabilities of $0.8 million as of December 31, 2021. We are awaiting final court approval and thus, the accrued liabilities amount remains unchanged at $0.8 million as of April 2, 2022. Structural Systems has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at our facilities located in El Mirage and Monrovia, California. Based on currently available information, we have established an accrual for its estimated liability for such investigation and corrective action of $1.5 million at both April 2, 2022 and December 31, 2021, which is reflected in other long-term liabilities on our condensed consolidated balance sheets. Structural Systems also faces liability as a potentially responsible party for hazardous waste disposed at landfills located in Casmalia and West Covina, California. Structural Systems and other companies and government entities have entered into consent decrees with respect to these landfills with the United States Environmental Protection Agency and/or California environmental agencies under which certain investigation, remediation and maintenance activities are being performed. Based on currently available information, we preliminarily estimate that the range of our future liabilities in connection with the landfill located in West Covina, California is between $0.4 million and $3.1 million. We have established an accrual for the estimated liability in connection with the West Covina landfill of $0.4 million as of both April 2, 2022 and December 31, 2021, which is reflected in other long-term liabilities on our condensed consolidated balance sheets. Our ultimate liability in connection with these matters will depend upon a number of factors, including changes in existing laws and regulations, the design and cost of construction, operation and maintenance activities, and the allocation of liability among potentially responsible parties. In June 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment. There were no injuries, however, property and equipment, inventories, and tooling in this leased facility were damaged. Our Guaymas performance center is comprised of two buildings with an aggregate total of 62,000 square feet. The loss of production from the Guaymas performance center is being absorbed by our other existing performance centers, however, we are in the process of re-establishing manufacturing capabilities in a different leased facility in Guaymas. A neighboring, non-related manufacturing facility, also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center. The cause of the fire is still undetermined and as such, there is no amount of loss that is probable and reasonably estimable at this time. If we are ultimately deemed to be responsible or partly responsible, it is possible we could incur a loss in excess of our insurance coverage limits, which could be material to our cash flow, liquidity, or financial results. Our insurance covers damage, up to a capped amount, to the facility, equipment, unfinished inventory, and other assets at replacement cost, finished goods inventory at selling price, as well as business interruption, third party property damage, and recovery related expenses caused by the fire, less our per claim deductible. The anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. The anticipated insurance recoveries in excess of net book value of the damaged operating assets and business interruption will not be recorded until all contingencies related to our claim have been resolved. During the year ended December 31, 2020, $0.8 million of revenue and $0.5 million of related cost of sales were reversed for revenue previously recognized using the over time method as the revenue recognition process for these items were deemed to be interrupted as a result of these inventory items being damaged. Also during the year ended December 31, 2020, we wrote off property and equipment and tooling with an aggregate total net book value of $7.1 million and inventory on hand of $3.4 million that were damaged by the fire. The related anticipated insurance recoveries were also presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact, with the anticipated insurance recoveries receivable included as part of other current assets on the condensed consolidated balance sheets. During the three months ended April 2, 2022, we received insurance recoveries of $3.0 million for business interruption and since the contingencies related to this amount are deemed to be resolved, we recorded this amount as other income. In addition, as of April 2, 2022, we have received $13.5 million of general insurance recoveries, all during 2020. The timing of and the remaining amounts of insurance recoveries, including for business interruption, are not known at this time. In the normal course of business, Ducommun and its subsidiaries are defendants in certain other litigation and claims, and receive certain demands and inquiries, in both cases, including but not limited to matters relating to environmental laws. In addition, Ducommun makes various commitments, grants indemnities, and incurs contingent liabilities in the ordinary course of business. While it is not feasible to predict the outcome of these matters, Ducommun 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 condensed consolidated financial position, results of operations or cash flows.

Business Segment Information

3 Months Ended

Apr. 02, 2022

Segment Reporting [Abstract]

Business Segment Information

We supply products and services primarily to the aerospace and defense industries. Our subsidiaries are organized into two strategic businesses, Electronic Systems and Structural Systems, each of which is a reportable operating segment.

Financial information by reportable operating segment was as follows:


	(Dollars in thousands) Three Months Ended
	April 2, 2022		April 3, 2021
Net Revenues
Electronic Systems	$	97,466	$	99,104
Structural Systems	66,015		58,047
Total Net Revenues	$	163,481	$	157,151
Segment Operating Income
Electronic Systems	$	9,411	$	12,491
Structural Systems	4,887		5,128
	14,298		17,619
Corporate General and Administrative Expenses (1)	(5,175)		(7,009)
Operating Income	$	9,123	$	10,610
Depreciation and Amortization Expenses
Electronic Systems	$	3,506	$	3,423
Structural Systems	4,203		3,440
Corporate Administration	59		59
Total Depreciation and Amortization Expenses	$	7,768	$	6,922
Capital Expenditures
Electronic Systems	$	1,696	$	624
Structural Systems	3,372		1,989
Corporate Administration	—		—
Total Capital Expenditures	$	5,068	$	2,613

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

Segment assets include assets directly identifiable to or allocated to each segment. Our segment assets are as follows:


	(Dollars in thousands)
	April 2, 2022		December 31, 2021
Total Assets
Electronic Systems	$	516,865	$	490,814
Structural Systems	413,955		408,118
Corporate Administration (1)	28,511		79,803
Total Assets	$	959,331	$	978,735
Goodwill and Intangibles
Electronic Systems	$	189,467	$	191,789
Structural Systems	152,343		153,669
Total Goodwill and Intangibles	$	341,810	$	345,458

(1)Includes assets not specifically identified to or allocated to either the Electronic Systems or Structural Systems operating segments, including cash and cash equivalents.

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

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+ Details

Summary of Significant Accounting Policies (Policies)	3 Months Ended
Summary of Significant Accounting Policies (Policies)	Apr. 02, 2022
Accounting Policies [Abstract]
Basis of Presentation	Basis of Presentation The unaudited condensed consolidated financial statements include the accounts of Ducommun Incorporated and its subsidiaries (“Ducommun,” the “Company,” “we,” “us” or “our”), after eliminating intercompany balances and transactions. The December 31, 2021 condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). Our significant accounting policies were described in Part IV, Item 15(a)(1), “Note 1. Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2021. The financial information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state our condensed consolidated financial position, statements of income, comprehensive income, changes in shareholders’ equity, and cash flows in accordance with GAAP for the periods covered by this Quarterly Report on Form 10-Q. The results of operations for the three months ended April 2, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022. Our fiscal quarters typically end on the Saturday closest to the end of March, June and September for the first three fiscal quarters of each year, and on December 31 for our fourth fiscal quarter. As a result of using fiscal quarters for the first three quarters combined with leap years, our first and fourth fiscal quarters can range between 12 1/2 weeks to 13 1/2 weeks while the second and third fiscal quarters remain at a constant 13 weeks per fiscal quarter.
Use of Estimates	Use of EstimatesCertain amounts and disclosures included in the unaudited condensed consolidated financial statements require management to make estimates and judgments that affect the amounts of assets, liabilities (including contract liabilities), revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Subsequent Event	Subsequent Event Subsequent to our quarter ended April 2, 2022, in April 2022, management approved and commenced a restructuring plan mainly to reduce headcount, consolidate facilities, write-down inventory, and impair long-lived assets to better position us for stronger performance. We currently anticipate this initiative will result in $10.0 million to $14.0 million in total pre-tax restructuring charges over the next 12 months. Of these charges, we estimate $4.0 million to be cash payments for employee separation and other facility consolidation related expenses, and $6.0 million to $10.0 million to be non-cash charges for the write-down of inventory and impairment of long-lived assets.
Earnings Per Share	Earnings Per Share Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding in each period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding, plus any potentially dilutive shares that could be issued if exercised or converted into common stock in each period.
Fair Value	Fair Value Assets and liabilities that are measured, recorded or disclosed at fair value on a recurring basis are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value. Level 1, the highest level, refers to the values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant observable inputs. Level 3, the lowest level, includes fair values estimated using significant unobservable inputs. We have money market funds and they are included as cash and cash equivalents. We also have forward interest rate swap agreements and the fair value of the forward interest rate swap agreements were determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2 measurement.
Cash and Cash Equivalents	Cash and Cash EquivalentsCash equivalents consist of highly liquid instruments purchased with original maturities of three months or less. These assets are valued at cost, which approximates fair value, and we classify as Level 1.
Derivatives Instruments	Derivative Instruments We recognize derivative instruments on our condensed consolidated balance sheets at their fair value. On the date that we enter into a derivative contract, we designate the derivative instrument as a fair value hedge, a cash flow hedge, or a derivative instrument that will not be accounted for using hedge accounting methods. In November 2021, we entered into forward interest rate swap agreements, all with an effective date of January 1, 2024 (“Forward Interest Rate Swaps”) to manage our exposure to interest rate movements on a portion of our debt. As such, we have made the following cash flow hedging relationship elections to qualify for hedge accounting treatment related to the Forward Interest Rate Swaps as our current term loans mature before the expiration of the Forward Interest Rate Swaps: 1) Probability of forecasted transactions, and 2) Assessment of effectiveness. See Note 6. As of April 2, 2022, all of our derivative instruments were designated as cash flow hedges. We record changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a cash flow hedge in other comprehensive income (loss), net of tax until our earnings are affected by the variability of cash flows of the underlying hedged item. We report changes in the fair values of derivative instruments that are not designated or do not qualify for hedge accounting in current period earnings. We classify cash flows from derivative instruments in the condensed consolidated statements of cash flows in the same category as the item being hedged or on a basis consistent with the nature of the instrument. Since the Forward Interest Rate Swaps are not effective until January 1, 2024, in both the three months ended April 2, 2022 and April 3, 2021, we only recorded the changes in the fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges in other long term assets, other long term liabilities, and other comprehensive income (loss) of $6.4 million and zero, respectively. When we determine that a derivative instrument is not highly effective as a hedge, we discontinue hedge accounting prospectively. In all situations in which we discontinue hedge accounting and the derivative instrument remains outstanding, we will carry the derivative instrument at its fair value on our condensed consolidated balance sheets and recognize subsequent changes in its fair value in our current period earnings.
Inventories	Inventories Inventories are stated at the lower of cost or net realizable value with cost being determined using a moving average cost basis for raw materials and actual cost for work-in-process and finished goods. The majority of our inventory is charged to cost of sales as raw materials are placed into production. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle performance center expense, freight, handling costs, and wasted materials (spoilage) incurred. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The majority of our revenues are recognized over time, however, for revenue contracts where revenue is recognized using the point in time method, inventory is not reduced until it is shipped or transfer of control to the customer has occurred. Our ending inventory consists of raw materials, work-in-process, and finished goods.
Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive Loss Accumulated other comprehensive loss, as reflected on the condensed consolidated balance sheets under the equity section, was comprised of cumulative pension and retirement liability adjustments, net of tax, and change in net unrealized gains and losses on cash flow hedges, net of tax.
Revenue Recognition	Revenue Recognition Our customers typically engage us to manufacture products based on designs and specifications provided by the end-use customer. This requires the building of tooling and manufacturing first article inspection products (prototypes) before volume manufacturing. Contracts with our customers generally include a termination for convenience clause. We have a significant number of contracts that are started and completed within the same year, as well as contracts derived from long-term agreements and programs that can span several years. We recognize revenue under Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC 606”), which utilizes a five-step model. The definition of a contract for us is typically defined as a customer purchase order as this is when we achieve an enforceable right to payment. The majority of our contracts are firm fixed-price contracts. The deliverables within a customer purchase order are analyzed to determine the number of performance obligations. At times, in order to achieve economies of scale and based on our customer’s forecasted demand, we may build in advance of receiving a purchase order from our customer. When that occurs, we would not recognize revenue until we have received the customer purchase order. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control is transferred and the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services are highly interrelated or meet the series guidance. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service. We manufacture most products to customer specifications and the product cannot be easily modified to satisfy another customer’s order. As such, these products are deemed to have no alternative use once the manufacturing process begins. In the event the customer invokes a termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs. For most of our products, we are building assets with no alternative use and have enforceable right to payment, and thus, we recognize revenue using the over time method. The majority of our performance obligations are satisfied over time as work progresses. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion, also known as cost-to-cost plus reasonable profit) to determine progress. Our typical revenue contract is a firm fixed price contract, and the cost of raw materials could make up a significant amount of the total costs incurred. As such, we believe using the total costs incurred input method would be the most appropriate method. While the cost of raw materials could make up a significant amount of the total costs incurred, there is a direct relationship between our inputs and the transfer of control of goods or services to the customer. Contract estimates are based on various assumptions to project the outcome of future events that can span multiple months or years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; and the performance of subcontractors. As a significant change in one or more of these estimates could affect the progress completed (and related profitability) on our contracts, we review and update our contract-related estimates on a regular basis. We recognize such adjustments under the cumulative catch-up method. Under this method, the impact of the adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. Net cumulative catch up adjustments on gross profit recorded were not material for both the three months ended April 2, 2022 and April 3, 2021. Payments under long-term contracts may be received before or after revenue is recognized. When revenue is recognized before we bill our customer, a contract asset is created for the work performed but not yet billed. Similarly, when we receive payment before we ship our products to our customer, a contract liability is created for the advance or progress payment. When a contract liability and a contract asset exist on the same contract, we report it on a net basis. We record provisions for the total anticipated losses on contracts, considering total estimated costs to complete the contract compared to total anticipated revenues, in the period in which such losses are identified. The provisions for estimated losses on contracts require us to make certain estimates and assumptions, including those with respect to the future revenue under a contract and the future cost to complete the contract. Our estimate of the future cost to complete a contract may include assumptions as to changes in manufacturing efficiency, operating and material costs, and our ability to resolve claims and assertions with our customers. If any of these or other assumptions and estimates do not materialize in the future, we may be required to adjust the provisions for estimated losses on contracts. The provision for estimated losses on contracts is included as part of contract liabilities on the condensed consolidated balance sheets. As of April 2, 2022 and December 31, 2021, provision for estimated losses on contracts were $3.3 million and $2.8 million, respectively. Production cost of contracts includes non-recurring production costs, such as design and engineering costs, and tooling and other special-purpose machinery necessary to build parts as specified in a contract. Production costs of contracts are recorded to cost of sales using the over time revenue recognition model. We review the value of the production cost of contracts on a quarterly basis to ensure when added to the estimated cost to complete, the value is not greater than the estimated realizable value of the related contracts. As of April 2, 2022 and December 31, 2021, production cost of contracts were $7.9 million and $8.0 million, respectively. Contract Assets and Contract Liabilities Contract assets consist of our right to payment for work performed but not yet billed. Contract assets are transferred to accounts receivable when we bill our customers. We bill our customers when we ship the products and meet the shipping terms within the revenue contract. Contract liabilities consist of advance or progress payments received from our customers prior to the time transfer of control occurs plus the estimated losses on contracts. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.
Recent Accounting Pronouncements	Recent Accounting Pronouncements New Accounting Guidance Adopted in 2022 In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies reporting or provides clarification on various topics, including clarification that an entity should use the weighted-average share count from each quarter when calculating the year-to-date weighted-average share count. The new guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, which was our interim period beginning January 1, 2022. The adoption of this standard did not have a material impact on our condensed consolidated financial statements. Recently Issued Accounting Standards In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional guidance for a limited time for contracts that reference London Interbank Offered Rate (“LIBOR”), to ease the potential burden in accounting for, or recognizing the effects, of reference rate reform on financial reporting as a result of the cessation of LIBOR. The new guidance is effective at any time after March 12, 2020 but no later than December 31, 2022. We have made the following elections related to our current cash flow hedging relationships as our current term loans mature before the expiration of the Forward Interest Rate Swaps: 1) Probability of forecasted transactions, and 2) Assessment of effectiveness. See Note 6.

Summary of Significant Accounting Policies (Tables)

3 Months Ended

Apr. 02, 2022

Accounting Policies [Abstract]

Schedule of Cash Flow, Supplemental Disclosures

Supplemental Cash Flow Information


	(Dollars in thousands)
	Three Months Ended
	April 2, 2022		April 3, 2021
Interest paid	$	2,186	$	2,544
Taxes paid (refunded), net	$	10	$	(30)
Non-cash activities:
Purchases of property and equipment not paid	$	1,576	$	540

Schedule of Weighted Average Number of Shares Outstanding Used to Compute Earnings Per Share

The net income and weighted-average common shares outstanding used to compute earnings per share were as follows:


	(Dollars in thousands, except per share data)
	Three Months Ended
	April 2, 2022		April 3, 2021
Net income	$	8,099	$	6,695
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding	11,989		11,791
Dilutive potential common shares	339		459
Diluted weighted-average common shares outstanding	12,328		12,250
Earnings per share
Basic	$	0.68	$	0.57
Diluted	$	0.66	$	0.55

Schedule of Weighted Average Number of Shares Outstanding Excluded from Computation of Diluted Earnings

(In thousands)

Three Months Ended

April 2,
2022

April 3,
2021

Stock options and stock units

Schedule of Contract with Customer, Asset and Liability

Contract assets and contract liabilities from revenue contracts with customers are as follows:


	(Dollars in thousands)
	April 2, 2022		December 31, 2021
Contract assets	$	187,171	$	176,405
Contract liabilities	$	37,841	$	42,077

Schedule of Disaggregation of Revenue

In addition to the revenue categories disclosed above, the following table reflects our revenue disaggregated by major end-use market:


	(Dollars in thousands)
	Three Months Ended
	April 2 2022		April 3, 2021
Consolidated Ducommun
Military and space	$	99,334	$	114,127
Commercial aerospace	54,075		35,377
Industrial	10,072		7,647
Total	$	163,481	$	157,151

Electronic Systems
Military and space	$	71,820	$	81,733
Commercial aerospace	15,574		9,724
Industrial	10,072		7,647
Total	$	97,466	$	99,104

Structural Systems
Military and space	$	27,514	$	32,394
Commercial aerospace	38,501		25,653
Total	$	66,015	$	58,047

Business Combinations (Tables)

3 Months Ended

Apr. 02, 2022

Business Combination and Asset Acquisition [Abstract]

Schedule of Business Acquisitions, by Acquisition

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):


	Estimated Fair Value
Cash	$	1,821
Accounts receivable	2,093
Inventories	4,586
Other current assets	98
Property and equipment	482
Operating lease right-of-use assets	1,533
Intangible assets	30,100
Goodwill	32,864

Total assets acquired	73,577
Current liabilities	(869)

Other non-current liabilities	(1,408)
Total liabilities assumed	(2,277)
Total purchase price allocation	$	71,300

Schedule of Finite-Lived and Indefinite-Lived Intangible Assets Acquired as Part of Business Combination


	Useful Life (In years)	Estimated Fair Value (In thousands)
Intangible assets:
Customer relationships	19	$	24,800
Backlog	2	600
Trade name	Indefinite	4,700
		$	30,100

Inventories (Tables)

3 Months Ended

Apr. 02, 2022

Inventory Disclosure [Abstract]

Schedule of Inventories

Inventories consisted of the following:


	(Dollars in thousands)
	April 2, 2022		December 31, 2021
Raw materials and supplies	$	134,990	$	125,334
Work in process	20,316		20,609
Finished goods	4,489		4,995


Total	$	159,795	$	150,938

Goodwill (Tables)

3 Months Ended

Apr. 02, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The carrying amounts of our goodwill were as follows:


	(Dollars in thousands)
	Electronic Systems		Structural Systems		Consolidated Ducommun
Gross goodwill	$	199,157	$	86,259	$	285,416
Accumulated goodwill impairment	(81,722)		—		(81,722)
Balance at December 31, 2021	$	117,435	$	86,259	$	203,694

Balance at April 2, 2022	$	117,435	$	86,259	$	203,694

Accrued and Other Liabilities (Tables)

3 Months Ended

Apr. 02, 2022

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities

The components of accrued and other liabilities were as follows:


	(Dollars in thousands)
	April 2, 2022		December 31, 2021
Accrued compensation	$	14,774	$	24,391
Accrued income tax and sales tax	4,024		926



Other	13,119		15,974
Total	$	31,917	$	41,291

Long-Term Debt (Tables)

3 Months Ended

Apr. 02, 2022

Debt Disclosure [Abstract]

Schedule of Long Term Debt

Long-term debt and the current period interest rates were as follows:


	(Dollars in thousands)
	April 2, 2022			December 31, 2021
Term loans	$	255,962		$	287,712




Total debt	255,962			287,712
Less current portion	(7,000)			(7,000)
Total long-term debt, less current portion	248,962			280,712
Less debt issuance costs - term loans	(1,233)			(1,328)
Total long-term debt, net of debt issuance costs - term loans	$	247,729		$	279,384
Debt issuance costs - revolving credit facility (1)	$	1,042		$	1,136
Weighted-average interest rate	3.37		%	3.27		%

(1) Included as part of other assets.

- Definition

Tabular disclosure of long-debt instruments or arrangements, including identification, terms, features, collateral requirements and other information necessary to a fair presentation. These are debt arrangements that originally required repayment more than twelve months after issuance or greater than the normal operating cycle of the entity, if longer.

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+ Details

Business Segment Information (Tables)

3 Months Ended

Apr. 02, 2022

Segment Reporting [Abstract]

Financial Information by Reportable Segment

Financial information by reportable operating segment was as follows:


	(Dollars in thousands) Three Months Ended
	April 2, 2022		April 3, 2021
Net Revenues
Electronic Systems	$	97,466	$	99,104
Structural Systems	66,015		58,047
Total Net Revenues	$	163,481	$	157,151
Segment Operating Income
Electronic Systems	$	9,411	$	12,491
Structural Systems	4,887		5,128
	14,298		17,619
Corporate General and Administrative Expenses (1)	(5,175)		(7,009)
Operating Income	$	9,123	$	10,610
Depreciation and Amortization Expenses
Electronic Systems	$	3,506	$	3,423
Structural Systems	4,203		3,440
Corporate Administration	59		59
Total Depreciation and Amortization Expenses	$	7,768	$	6,922
Capital Expenditures
Electronic Systems	$	1,696	$	624
Structural Systems	3,372		1,989
Corporate Administration	—		—
Total Capital Expenditures	$	5,068	$	2,613

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

Segment Assets

Our segment assets are as follows:


	(Dollars in thousands)
	April 2, 2022		December 31, 2021
Total Assets
Electronic Systems	$	516,865	$	490,814
Structural Systems	413,955		408,118
Corporate Administration (1)	28,511		79,803
Total Assets	$	959,331	$	978,735
Goodwill and Intangibles
Electronic Systems	$	189,467	$	191,789
Structural Systems	152,343		153,669
Total Goodwill and Intangibles	$	341,810	$	345,458

(1)Includes assets not specifically identified to or allocated to either the Electronic Systems or Structural Systems operating segments, including cash and cash equivalents.

Summary of Significant Accounting Policies - Narrative (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Apr. 02, 2022 USD ($) segment	Apr. 03, 2021 USD ($)	Dec. 31, 2021 USD ($)	Apr. 30, 2022 USD ($)	Nov. 15, 2021 USD ($)
Significant Accounting Policies [Line Items]
Number of reportable segments \| segment	2
Cash flow hedge, gain (loss)	$ 4,903	$ 0
Provision for loss on contracts	3,300		$ 2,800
Production cost of contracts	7,862		8,024
Contract liability revenue	10,100		10,100
Remaining performance obligation	767,100
Grants receivable					$ 4,000
Proceeds received from grants			$ 2,000
Grants receivable, current	2,000
Accrued and other liabilities	1,000
Cost of sales
Significant Accounting Policies [Line Items]
Government grant expense	1,800	2,700
Selling, General and Administrative Expenses
Significant Accounting Policies [Line Items]
Government grant expense	$ 200	300
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-04-03
Significant Accounting Policies [Line Items]
Remaining performance obligation, percentage	70.00%
Remaining performance obligation, period	12 months
Designated as Hedging Instrument
Significant Accounting Policies [Line Items]
Cash flow hedge, gain (loss)	$ 6,400	$ 0
Subsequent Event \| Severance and benefits \| April 2022 Restructuring Plan
Significant Accounting Policies [Line Items]
Expected restructuring costs				$ 4,000
Subsequent Event \| Minimum \| April 2022 Restructuring Plan
Significant Accounting Policies [Line Items]
Expected restructuring costs				10,000
Subsequent Event \| Minimum \| Other restructuring \| April 2022 Restructuring Plan
Significant Accounting Policies [Line Items]
Expected restructuring costs				6,000
Subsequent Event \| Maximum \| April 2022 Restructuring Plan
Significant Accounting Policies [Line Items]
Expected restructuring costs				14,000
Subsequent Event \| Maximum \| Other restructuring \| April 2022 Restructuring Plan
Significant Accounting Policies [Line Items]
Expected restructuring costs				$ 10,000

Summary of Significant Accounting Policies - Supplemental Cash Flow Items (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Supplemental Cash Flow Information [Abstract]
Interest paid	$ 2,186	$ 2,544
Taxes paid (refunded), net	10	(30)
Non-cash activities:
Purchases of property and equipment not paid	$ 1,576	$ 540

Summary of Significant Accounting Policies - Weighted Average Number of Shares Outstanding Used to Compute Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Accounting Policies [Abstract]
Net income	$ 8,099	$ 6,695
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding (in shares)	11,989	11,791
Dilutive potential common shares (in shares)	339	459
Diluted weighted-average common shares outstanding (in shares)	12,328	12,250
Earnings per share
Basic (in dollars per share)	$ 0.68	$ 0.57
Diluted (in dollars per share)	$ 0.66	$ 0.55

- Definition

The amount of net income (loss) for the period per each share of common stock or unit outstanding during the reporting period.

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+ Details

- Definition

The amount of net income (loss) for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.

+ References

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+ Details

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References

+ Details

Summary of Significant Accounting Policies - Weighted Average Number of Shares Outstanding Excluded from Computation of Diluted Earnings (Details) - shares shares in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Stock options and stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Stock options and stock units (in shares)	7	3

Summary of Significant Accounting Policies - Contract Assets and Liabilities (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Accounting Policies [Abstract]
Contract assets	$ 187,171	$ 176,405
Contract liabilities	$ 37,841	$ 42,077

Summary of Significant Accounting Policies - Disaggregated Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Disaggregation of Revenue [Line Items]
Revenue	$ 163,481	$ 157,151
Electronic Systems
Disaggregation of Revenue [Line Items]
Revenue	97,466	99,104
Structural Systems
Disaggregation of Revenue [Line Items]
Revenue	66,015	58,047
Military and space
Disaggregation of Revenue [Line Items]
Revenue	99,334	114,127
Military and space \| Electronic Systems
Disaggregation of Revenue [Line Items]
Revenue	71,820	81,733
Military and space \| Structural Systems
Disaggregation of Revenue [Line Items]
Revenue	27,514	32,394
Commercial aerospace
Disaggregation of Revenue [Line Items]
Revenue	54,075	35,377
Commercial aerospace \| Electronic Systems
Disaggregation of Revenue [Line Items]
Revenue	15,574	9,724
Commercial aerospace \| Structural Systems
Disaggregation of Revenue [Line Items]
Revenue	38,501	25,653
Industrial
Disaggregation of Revenue [Line Items]
Revenue	10,072	7,647
Industrial \| Electronic Systems
Disaggregation of Revenue [Line Items]
Revenue	$ 10,072	$ 7,647

- Definition

Amount, excluding tax collected from customer, of revenue from satisfaction of performance obligation by transferring promised good or service to customer. Tax collected from customer is tax assessed by governmental authority that is both imposed on and concurrent with specific revenue-producing transaction, including, but not limited to, sales, use, value added and excise.

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Reference 1: http://www.xbrl.org/2003/role/disclosureRef
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-URI http://asc.fasb.org/extlink&oid=6472922&loc=d3e499488-122856

+ Details

Business Combinations - Narrative (Details) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2021	Apr. 02, 2022
Business Acquisition [Line Items]
Goodwill	$ 203,694	$ 203,694	$ 203,694
Magnetic Seal Corporation
Business Acquisition [Line Items]
Percentage of outstanding common stock acquired	100.00%	100.00%
Purchase price of acquisition	$ 69,500
Intangible assets	30,100	$ 30,100
Goodwill	32,864	32,864
Acquisition related costs		900
Total purchase price allocation	$ 71,300	$ 71,300

Business Combinations - Fair Value of Assets and Liabilities Acquired (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Business Acquisition [Line Items]
Goodwill	$ 203,694	$ 203,694
Magnetic Seal Corporation
Business Acquisition [Line Items]
Cash		1,821
Accounts receivable		2,093
Inventories		4,586
Other current assets		98
Property and equipment		482
Operating lease right-of-use assets		1,533
Intangible assets		30,100
Goodwill		32,864
Total assets acquired		73,577
Current liabilities		(869)
Other non-current liabilities		(1,408)
Total liabilities assumed		(2,277)
Total purchase price allocation		$ 71,300

Business Combinations - Estimated Fair Value of Intangible Assets Acquired (Details) - Magnetic Seal Corporation $ in Thousands	1 Months Ended
	Dec. 31, 2021 USD ($)
Business Acquisition [Line Items]
Intangible assets	$ 30,100
Trade name
Business Acquisition [Line Items]
Indefinite-lived intangible assets	$ 4,700
Customer relationships
Business Acquisition [Line Items]
Useful Life (In years)	19 years
Finite-lived intangibles assets	$ 24,800
Backlog
Business Acquisition [Line Items]
Useful Life (In years)	2 years
Finite-lived intangibles assets	$ 600

Inventories (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Inventory Disclosure [Abstract]
Raw materials and supplies	$ 134,990	$ 125,334
Work in process	20,316	20,609
Finished goods	4,489	4,995
Total	$ 159,795	$ 150,938

Goodwill - Narrative (Details)	Dec. 31, 2021
Structural Systems
Goodwill [Line Items]
Percentage of fair value in excess of carrying amount	72.00%

Goodwill (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Goodwill [Line Items]
Gross goodwill		$ 285,416
Accumulated goodwill impairment		(81,722)
Goodwill [Roll Forward]
Goodwill	$ 203,694	203,694
Electronic Systems
Goodwill [Line Items]
Gross goodwill		199,157
Accumulated goodwill impairment		(81,722)
Goodwill [Roll Forward]
Goodwill	117,435	117,435
Structural Systems
Goodwill [Line Items]
Gross goodwill		86,259
Accumulated goodwill impairment		0
Goodwill [Roll Forward]
Goodwill	$ 86,259	$ 86,259

Accrued and Other Liabilities (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Payables and Accruals [Abstract]
Accrued compensation	$ 14,774	$ 24,391
Accrued income tax and sales tax	4,024	926
Other	13,119	15,974
Total	$ 31,917	$ 41,291

Long-Term Debt - Summary (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Debt Instrument [Line Items]
Long-term debt	$ 255,962	$ 287,712
Less current portion	(7,000)	(7,000)
Total long-term debt, less current portion	248,962	280,712
Less debt issuance costs	1,233	1,328
Total long-term debt, net of debt issuance costs - term loans	$ 247,729	$ 279,384
Weighted-average interest rate	3.37%	3.27%
Term loans
Debt Instrument [Line Items]
Long-term debt	$ 255,962	$ 287,712
Revolving credit facility
Debt Instrument [Line Items]
Less debt issuance costs	$ 1,042	$ 1,136

- Definition

Amount, after unamortized (discount) premium and debt issuance costs, of long-term debt. Includes, but not limited to, notes payable, bonds payable, debentures, mortgage loans and commercial paper. Excludes capital lease obligations.

+ References + Details

Long-Term Debt - Narrative (Details)			3 Months Ended
Long-Term Debt - Narrative (Details)	Dec. 20, 2019 USD ($)	Nov. 21, 2018	Apr. 02, 2022 USD ($) subsidiary	Apr. 03, 2021 USD ($)	Nov. 29, 2021 USD ($)	Nov. 30, 2018 USD ($)
Debt Instrument [Line Items]
Cash flow hedge, gain (loss)			$ 4,903,000	$ 0
Designated as Hedging Instrument
Debt Instrument [Line Items]
Cash flow hedge, gain (loss)			$ 6,400,000	$ 0
Interest Rate Swap
Debt Instrument [Line Items]
Notional amount					$ 150,000,000
Average fixed interest rate					1.80%
Credit Facilities
Debt Instrument [Line Items]
Debt amount	$ 480,000,000
New Credit Facilities
Debt Instrument [Line Items]
Number of subsidiaries that are not guarantors on debt \| subsidiary			2
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity	100,000,000
Fees paid to lenders to be capitalized	500,000
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024 \| Minimum
Debt Instrument [Line Items]
Commitment fee			0.175%
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024 \| Maximum
Debt Instrument [Line Items]
Commitment fee			0.275%
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024 \| LIBOR \| Minimum
Debt Instrument [Line Items]
Spread on variable rate			1.50%
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024 \| LIBOR \| Maximum
Debt Instrument [Line Items]
Spread on variable rate			2.50%
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024 \| Federal Funds Rate
Debt Instrument [Line Items]
Spread on variable rate			0.50%
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024 \| Eurodollar Rate
Debt Instrument [Line Items]
Spread on base rate			1.00%
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024 \| Base Rate \| Minimum
Debt Instrument [Line Items]
Spread on variable rate			0.50%
Revolving Credit Facility \| 2019 Revolving Credit Facility Due December 20, 2024 \| Base Rate \| Maximum
Debt Instrument [Line Items]
Spread on variable rate			1.50%
Revolving Credit Facility \| 2018 Revolving Credit Facility Maturing November 21, 2023
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity	100,000,000
Percentage of excess cash flow payment when leverage ratio is greater than 3.25		50.00%
Percentage of excess cash flow payment when leverage ratio is less than or equal to 3.25 but greater than 2.50		25.00%
Percentage of excess cash flow payment when leverage ratio is less than or equal to 2.50		0.00%
Repayments of lines of credit	58,500,000
Amortization of debt issuance costs	500,000
Debt issuance costs, line of credit arrangements	1,100,000
Revolving Credit Facility \| 2018 Term Loan
Debt Instrument [Line Items]
Fees paid to lenders to be capitalized	1,500,000
Revolving Credit Facility \| New Credit Facilities
Debt Instrument [Line Items]
Remaining borrowing capacity			$ 99,800,000
Outstanding standby letters of credit			200,000
Secured Debt
Debt Instrument [Line Items]
Repayments of lines of credit			30,000,000
Secured Debt \| 2019 Revolving Credit Facility Due December 20, 2024
Debt Instrument [Line Items]
Repayments of lines of credit			13,000,000
Secured Debt \| 2018 Revolving Credit Facility Maturing November 21, 2023
Debt Instrument [Line Items]
Repayments of lines of credit			$ 17,000,000
Secured Debt \| 2019 Term Loan Maturing December 20, 2024
Debt Instrument [Line Items]
Debt amount	$ 140,000,000
Prepayment amount of principal outstanding	1.25%
Proceeds from lines of credit	$ 140,000,000
Fees paid to lenders to be capitalized	600,000
Secured Debt \| 2019 Term Loan Maturing December 20, 2024 \| LIBOR \| Minimum
Debt Instrument [Line Items]
Spread on variable rate			1.50%
Secured Debt \| 2019 Term Loan Maturing December 20, 2024 \| LIBOR \| Maximum
Debt Instrument [Line Items]
Spread on variable rate			2.50%
Secured Debt \| 2019 Term Loan Maturing December 20, 2024 \| Federal Funds Rate
Debt Instrument [Line Items]
Spread on variable rate			0.50%
Secured Debt \| 2019 Term Loan Maturing December 20, 2024 \| Eurodollar Rate
Debt Instrument [Line Items]
Spread on base rate			1.00%
Secured Debt \| 2019 Term Loan Maturing December 20, 2024 \| Base Rate \| Minimum
Debt Instrument [Line Items]
Spread on variable rate			0.50%
Secured Debt \| 2019 Term Loan Maturing December 20, 2024 \| Base Rate \| Maximum
Debt Instrument [Line Items]
Spread on variable rate			1.50%
Secured Debt \| 2018 Term Loan
Debt Instrument [Line Items]
Debt amount						$ 240,000,000
Prepayment amount of principal outstanding		0.25%
Repayments of debt	$ 56,000,000
Secured Debt \| 2018 Term Loan \| LIBOR \| Minimum
Debt Instrument [Line Items]
Spread on variable rate		3.75%
Secured Debt \| 2018 Term Loan \| LIBOR \| Maximum
Debt Instrument [Line Items]
Spread on variable rate		4.00%
Secured Debt \| 2018 Term Loan \| Federal Funds Rate
Debt Instrument [Line Items]
Spread on variable rate		0.50%
Secured Debt \| 2018 Term Loan \| Eurodollar Rate
Debt Instrument [Line Items]
Spread on base rate		1.00%
Secured Debt \| 2018 Term Loan \| Base Rate \| Minimum
Debt Instrument [Line Items]
Spread on variable rate		3.75%
Secured Debt \| 2018 Term Loan \| Base Rate \| Maximum
Debt Instrument [Line Items]
Spread on variable rate		4.00%
Secured Debt \| New Term Loan Maturing December 20, 2024
Debt Instrument [Line Items]
Repayments of debt			$ 1,800,000

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Apr. 03, 2021	Dec. 31, 2021
Income Tax Disclosure [Abstract]
Income tax expense (benefit)	$ 1,622	$ 1,109
Unrecognized tax benefits	4,500		$ 4,400
Expected change in unrecognized tax benefits	2,700
Decrease in unrecognized tax benefits in next twelve months	700
Increase (decrease) in income taxes payable	$ 2,600

- Definition

Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.

+ References + Details

Commitments and Contingencies (Details) ft² in Thousands, $ in Thousands	3 Months Ended		12 Months Ended
	Apr. 02, 2022 USD ($)	Apr. 03, 2021 USD ($)	Dec. 31, 2020 USD ($)	Dec. 31, 2021 USD ($)	Jun. 29, 2020 ft² building
Loss Contingencies [Line Items]
Estimated litigation liability				$ 800
Revenue	$ 163,481	$ 157,151
Cost of sales	131,006	124,051
Damage from Facility Fire
Loss Contingencies [Line Items]
Loss contingency, receivable, proceeds	3,000
Structural Systems
Loss Contingencies [Line Items]
Revenue	66,015	$ 58,047
El Mirage and Monrovia, California \| Structural Systems
Loss Contingencies [Line Items]
Reserve for estimated liability	1,500			1,500
West Covina, California \| Structural Systems
Loss Contingencies [Line Items]
Reserve for estimated liability	400			400
West Covina, California \| Structural Systems \| Minimum
Loss Contingencies [Line Items]
Possible loss	400
West Covina, California \| Structural Systems \| Maximum
Loss Contingencies [Line Items]
Possible loss	3,100
Facility Fire In Guaymas, Mexico \| Damage from Facility Fire
Loss Contingencies [Line Items]
Number of buildings \| building					2
Real estate property (in sqft) \| ft²					62
Loss contingency, receivable, proceeds			$ 13,500
Facility Fire In Guaymas, Mexico \| Damage from Facility Fire \| Property, Plant and Equipment
Loss Contingencies [Line Items]
Carrying value of impaired assets			7,100
Facility Fire In Guaymas, Mexico \| Damage from Facility Fire \| Inventories
Loss Contingencies [Line Items]
Carrying value of impaired assets			3,400
Facility Fire In Guaymas, Mexico \| Damage from Facility Fire \| Revision of Prior Period, Reclassification, Adjustment
Loss Contingencies [Line Items]
Revenue			800
Cost of sales			$ 500
Accrued Liabilities
Loss Contingencies [Line Items]
Estimated litigation liability	$ 800			$ 800

Business Segment Information - Narrative (Details)	3 Months Ended
Business Segment Information - Narrative (Details)	Apr. 02, 2022 segment
Segment Reporting [Abstract]
Number of reportable segments	2

Business Segment Information - Financial Information by Reportable Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Segment Reporting Information [Line Items]
Net Revenues	$ 163,481	$ 157,151
Segment Operating Income	9,123	10,610
Depreciation and Amortization Expenses	7,768	6,922
Capital Expenditures	5,068	2,613
Operating Segments
Segment Reporting Information [Line Items]
Segment Operating Income	14,298	17,619
Segment Reconciling Items
Segment Reporting Information [Line Items]
Corporate General and Administrative Expenses	(5,175)	(7,009)
Corporate Administration
Segment Reporting Information [Line Items]
Depreciation and Amortization Expenses	59	59
Capital Expenditures	0	0
Electronic Systems
Segment Reporting Information [Line Items]
Net Revenues	97,466	99,104
Electronic Systems \| Operating Segments
Segment Reporting Information [Line Items]
Segment Operating Income	9,411	12,491
Depreciation and Amortization Expenses	3,506	3,423
Capital Expenditures	1,696	624
Structural Systems
Segment Reporting Information [Line Items]
Net Revenues	66,015	58,047
Structural Systems \| Operating Segments
Segment Reporting Information [Line Items]
Segment Operating Income	4,887	5,128
Depreciation and Amortization Expenses	4,203	3,440
Capital Expenditures	$ 3,372	$ 1,989

Business Segment Information - Segment Assets (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Dec. 31, 2021
Segment Reporting Information [Line Items]
Total Assets	$ 959,331	$ 978,735
Goodwill and Intangibles	341,810	345,458
Operating Segments \| Electronic Systems
Segment Reporting Information [Line Items]
Total Assets	516,865	490,814
Goodwill and Intangibles	189,467	191,789
Operating Segments \| Structural Systems
Segment Reporting Information [Line Items]
Total Assets	413,955	408,118
Goodwill and Intangibles	152,343	153,669
Corporate Administration
Segment Reporting Information [Line Items]
Total Assets	$ 28,511	$ 79,803

- Definition

Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.

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+ Details