<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-1222
DUCOMMUN INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-0693330
- -------------------------------- ------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
</TABLE>
23301 South Wilmington Avenue, Carson, California 90745
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 513-7200
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of April 1, 1995, there
were outstanding 4,467,945 shares of common stock.
<PAGE> 2
DUCOMMUN INCORPORATED
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
April 1, 1995 and December 31, 1994 3
Consolidated Statements of Income for
Three Months Ended April 1, 1995 and
April 2, 1994 4
Consolidated Statements of Cash Flows
for Three Months Ended April 1, 1995
and April 2, 1994 5
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14-18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 1, December 31,
1995 1994
-------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 33 $ 8,483
Accounts receivable (less allowance for
doubtful accounts of $175 and $182) 10,754 9,923
Inventories 13,098 10,334
Other receivables 241 476
Deferred income taxes (Note 5) 2,209 2,469
Other current assets 702 615
-------- --------
Total Current Assets 27,037 32,300
Property and Equipment, Net 23,701 23,568
Deferred Income Taxes (Note 5) 8,344 8,310
Excess of Cost Over Net Assets Acquired
(Net of Accumulated Amortization
of $1,469 and $1,193) 19,156 14,693
Other Assets (Note 4) 1,173 981
-------- --------
$ 79,411 $ 79,852
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt
(Note 4) $ 3,939 $ 12,170
Accounts payable 4,252 3,725
Accrued liabilities 9,060 9,695
-------- --------
Total Current Liabilities 17,251 25,590
Long-Term Debt (Note 5) 17,151 9,743
Convertible Subordinated Debentures (Note 4) 28,000 28,000
Other Long-Term Liabilities 622 736
-------- --------
Total Liabilities 63,024 64,069
-------- --------
Commitments and Contingencies (Note 6)
Shareholders' Equity:
Common stock - $.01 par value;
authorized 12,500,000 shares; issued and
outstanding 4,467,945 shares in 1995
and 4,464,154 in 1994 45 45
Additional paid-in capital 31,223 31,234
Accumulated deficit (14,881) (15,496)
-------- --------
Total Shareholders' Equity 16,387 15,783
-------- --------
$ 79,411 $ 79,852
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For Three Months Ended
------------------------------
April 1, 1995 April 2, 1994
------------- -------------
<S> <C> <C>
Net Sales $20,622 $15,232
------- -------
Operating Costs and Expenses:
Cost of goods sold 14,447 10,977
Selling, general and administrative
expenses 4,439 2,779
------- -------
Total Operating Costs and Expenses 18,886 13,756
------- -------
Operating Income 1,736 1,476
Interest (881) (644)
------- -------
Income from Operations Before Taxes 855 832
Income Tax Expense (Note 5) (240) (284)
------- -------
Net Income $ 615 $ 548
======= =======
Earnings Per Share $ .13 $ .12
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
for Computation of Earnings Per Share 4,696 4,514
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For Three Months Ended
------------------------------
April 1, 1995 April 2, 1994
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 615 $ 548
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 1,080 810
Deferred income tax provision 226 233
Changes in Assets and Liabilities, Net
of Effects from Acquisitions:
Accounts receivable 277 529
Inventories 826 147
Other receivables (235) 16
Other current assets 76 86
Other assets (41) 13
Accounts payable (166) (641)
Accrued and other liabilities (2,116) (696)
------- -------
Net Cash Provided by
Operating Activities 542 1,045
------- -------
Cash Flows from Financing Activities:
Purchase of Property and Equipment (693) (323)
Acquisition of 3dbm (4,427) -
Other (37) -
------- -------
Net Cash Used in Investing Activities (5,157) (323)
------- -------
Cash Flows from Financing Activities:
Net Repayments of Long-Term Debt (3,824) (115)
Repurchase of Stock (11) -
------- -------
Net Cash Used in Financing Activities (3,835) (115)
------- -------
Net Increase (Decrease) in Cash and
Cash Equivalents (8,450) 607
Cash and Cash Equivalents at Beginning
of Period 8,483 534
------- -------
Cash and Cash Equivalents at End of Period $ 33 $ 1,141
======= =======
Supplemental Disclosures of Cash Flows
Information:
Interest Expense Paid $ 1,246 $ 1,146
Income Taxes Paid $ 75 $ 55
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
DUCOMMUN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 1. The consolidated balance sheets, consolidated
statements of income and consolidated statements of cash
flows are unaudited as of and for the three months ended
April 1, 1995 and April 2, 1994. The financial information
included in the quarterly report should be read in
conjunction with the Company's consolidated financial
statements and the related notes thereto included in its
annual report to shareholders for the year ended December
31, 1994.
Note 2. Earnings per common share is based on the weighted
average number of common and common equivalent shares
outstanding in each period. Common equivalent shares
represent the number of shares which would be issued
assuming the exercise of dilutive stock options, reduced by
the number of shares which would be purchased with the
proceeds from the exercise of such options. The
computations of earnings per share are as follows:
-6-
<PAGE> 7
DUCOMMUN INCORPORATED AND SUBSIDIARIES
Computation of Earnings Per Common and Common Equivalent Shares
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For Three Months Ended
------------------------
April 1, April 2,
1995 1994
-------- --------
<S> <C> <C>
Income for Computation of Primary
Earnings Per Share $ 615 $ 548
Interest, Net of Income Taxes, Relating
to 7 3/4% Convertible Subordinated
Debentures 390 360
Net Income for Computation of Primary
Earnings Per Share 615 548
Net Income for Computation of Fully
Diluted Earnings Per Share 1,005 908
Applicable Shares:
Weighted Average Common Shares Outstanding
for Computation of Primary Earnings Per Share 4,466 4,463
Weighted Average Common Equivalent Shares
Arising From:
7 3/4% convertible subordinated
debentures 2,806 2,806
Stock Options:
Primary 230 51
Fully diluted 251 89
Weighted Average Common and Common
Equivalent Shares Outstanding for
Computation of Fully Diluted Earnings
Per Share 7,523 7,358
Earnings Per Share:
Primary $ 0.13 $ 0.12
Fully diluted 0.13 0.12
</TABLE>
-7-
<PAGE> 8
Note 3. Acquisitions
In December 1994, Ducommun acquired the capital stock of Brice
Manufacturing Company, Inc. ("Brice") for $763,000 in cash and
$10,365,000 in notes and other contractual liabilities, subject to
adjustment based on a closing balance sheet. Under the terms of the
stock purchase agreement, Ducommun may be required to make additional
payments for each of the years 1995 to 1999, contingent upon Brice
achieving certain levels of financial performance. Any such payments
are generally capitalized as additional cost in excess of net assets
acquired. Brice is an after-market supplier of aircraft seating
products to many of the world's largest commercial airlines. Products
supplied by Brice include plastic and metal seat parts, overhauled and
refurbished seats, components for installation of in-flight equipment,
and other cabin interior components for commercial aircraft.
In December 1994, Ducommun's subsidiary, Jay-El Products, Inc.,
acquired substantially all of the assets and assumed certain
liabilities of Dynatech Microwave Technology, Inc. ("DMT"), for
$7,500,000 in cash, subject to adjustment based on a closing balance
sheet. DMT is being integrated with Jay-El Products. DMT manufactures
switches and other microwave components used on commercial and
military aircraft. DMT also has developed several new products that
apply its existing microwave technology to nonaerospace markets,
including the wireless communications field.
In January 1995, Ducommun acquired the capital stock of 3dbm,
Inc. for $4,780,000 in cash (of which $353,000 has been withheld with
respect to certain assets and potential liabilities of 3dbm) and
$1,000,000 in notes. Under the terms of the stock purchase agreement,
Ducommun may be required to make additional payments for each of the
years 1995 to 1997, contingent upon 3dbm achieving certain levels of
financial performance. 3dbm supplies microcell systems used in
cellular telephone networks, low-power television transmitters, and
microwave components and subsystems to both military and commercial
customers.
The acquisitions of Brice, DMT and 3dbm described above were
accounted for under the purchase method of accounting and,
accordingly, the operating results for Brice, DMT and 3dbm have been
included in the Consolidated Statements of Income since the dates of
-8-
<PAGE> 9
the respective acquisitions. The cost of the acquisitions has
been preliminarily allocated on the basis of the estimated fair value
of assets acquired and the liabilities assumed. This resulted in
approximately $16,469,000 of cost in excess of net assets acquired.
Such excess (which will increase for any future contingent payments)
is being amortized on a straight line basis over fifteen years.
Note 4. Long-term debt and convertible subordinated
debentures are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
-------------------------
Apr. 1, Dec. 31,
1995 1994
-------- --------
<S> <C> <C>
Bank credit agreement $ 14,450 $ 7,500
Term and real estate loans 3,927 4,048
Promissory notes related to
acquisitions 2,713 10,365
-------- --------
Total debt 21,090 21,913
Less current portion 3,939 12,170
-------- --------
Total long-term debt $ 17,151 $ 9,743
======== ========
7 3/4% Convertible subordinated
debentures due 2011 $ 28,000 $ 28,000
======== ========
</TABLE>
In January 1995, the Company and its bank amended the Company's
credit agreement. The amended credit agreement provides for
$5,500,000 working capital line of credit and a $12,450,000
acquisition term loan at April 1, 1995. The working capital line of
credit has an expiration date of July 15, 1996 and the acquisition
term loan has a December 31, 1998 expiration date. Interest is payable
monthly on the outstanding borrowings based on the bank's prime rate
plus 0.25% for the working capital line of credit and the bank's prime
rate plus 0.75% for the acquisition term loan. A Eurodollar pricing
option is also available to the Company for terms of up to six months
at the Eurodollar rate plus 2.0% for the working capital line of
credit and the Eurodollar rate plus 2.5% for the acquisition term
loan. The bank's prime rate at April 1, 1995 was 9.0%. At April 1,
1995, the Company had $3,158,000 of unused lines of credit, after
deducting $14,450,000 of loans outstanding for the acquisitions and
$342,000 for an outstanding standby letter of credit which supports
the estimated post-closure maintenance cost for a former surface
impoundment.
-9-
<PAGE> 10
Borrowings under the credit agreement are secured by most of
the assets of the Company and its subsidiaries. The credit agreement
includes minimum effective tangible net worth and earnings covenants,
debt to effective tangible net worth, fixed charge coverage and quick
ratios, and limitations on capital expenditures, future dividend
payments and outside indebtedness.
On December 6, 1994, the Company incurred $10,365,000 in notes
and other contractual liabilities to the former shareholders of Brice.
The Company paid $8,365,000 of these notes on January 3, 1995. Of the
remaining $2,000,000 of notes and contractual liabilities, $1,200,000
is subject to interest. Quarterly interest is payable at 7.75% per
annum. Principal is payable in installments which commenced on March
6, 1995 with final payment due in December 1999.
Interest is paid semiannually on the 7.75% convertible
subordinated debentures which are convertible into 2,805,611 shares of
common stock at a conversion price of $9.98 per share, and are subject
to a mandatory redemption of $2,000,000 per year from 1996 to 2010.
The Company currently holds sufficient debentures to satisfy the
redemption requirement through the year 2001.
Debt issuance costs related to the issuance of convertible debt
are being amortized over the term of the debt. Unamortized debt
issuance costs of $506,000 and $519,000 at April 1, 1995 and December
31, 1994, respectively, are included in Other Assets.
Aggregate maturities of long-term debt, together with sinking
fund payments required, during the next four years are as follows:
1995, $2,879,000; 1996, $6,243,000; 1997, $5,357,000; 1998,
$4,120,000; 1999, $209,000.
-10-
<PAGE> 11
Note 5. Income Taxes
The provision for income tax expense consists of the following:
<TABLE>
<CAPTION>
Apr. 1, Apr. 2,
(in thousands) 1995 1994
----------------------------------------------------------------
<S> <C> <C>
Current tax expense:
Federal $ 10 $ 6
State 4 45
-------- --------
14 51
-------- --------
Deferred tax expense:
Federal 226 257
State - (24)
-------- --------
226 233
-------- --------
Income Tax Expense $ 240 $ 284
======== ========
</TABLE>
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
Apr. 1, Dec. 31,
(in thousands) 1995 1994
----------------------------------------------------------------
<S> <C> <C>
Federal and state NOLs $ 14,871 $ 14,871
Credit carryforwards 1,127 1,113
Employment-related reserves 1,266 1,242
Inventory reserves 354 354
Other 729 1,025
-------- --------
18,347 18,605
Depreciation (2,644) (2,676)
-------- --------
Net deferred tax assets before
valuation allowance 15,703 15,929
Deferred tax assets valuation
allowance (5,150) (5,150)
-------- --------
$ 10,553 $ 10,779
======== ========
</TABLE>
At April 1, 1995, the Company had federal tax NOLs
totalling $43 million which expire in the years 1999 through 2004. The
Company had California tax NOLs totalling $3 million which expire in
the years 1995 through 1996. SFAS 109 requires that the tax benefit of
such NOLs be recorded, measured by enacted tax rates, as an asset to
the extent management assesses the utilization of such NOLs to be "more
likely than not." Management has determined that the income of the
Company will, more likely than not, be sufficient to realize the
recorded net deferred tax asset prior to the ultimate expiration of the
NOLs. Realization of the future tax benefits of NOLs is dependent on
the Company's ability to generate sufficient
-11-
<PAGE> 12
taxable income within the carryforward period. In assessing
the likelihood of utilization of existing NOLs, management considered
the historical results of operations of its operating subsidiaries,
including recently acquired operations, and the current economic
environment in which the Company operates. Management does not expect
and did not consider any material changes in trends or the
relationship between reported pretax income and federal and state
taxable income or material asset sales or similar non-routine
transactions in assessing the likelihood of realization of the
recorded net deferred tax asset.
Future levels of pretax income are dependent upon the extent
of defense spending and other government budgetary pressures, the
level of new aircraft orders by commercial airlines, production rate
requirements for the Space Shuttle program, growth in the Company's
cellular products business, general economic conditions, interest
rates, competitive pressures on sales and margins, price levels and
other factors beyond the Company's control. No assurance can be given
that sufficient taxable income will be generated for the realization
of the recorded deferred tax asset net of the valuation allowance.
The Company's ability to utilize $21 million of its NOLs is
subject to limitation. This limitation resulted from the changes in
the conversion price of the Company's convertible debt securities
following the distribution in 1988 of Arrow Electronics, Inc. stock to
the Company's shareholders. Management considered this limitation
when recording the Company's deferred tax asset. Furthermore, the
ability of the Company to utilize its NOLs would be subject to
additional significant limitation in the event of a "change of
ownership" as defined in the Internal Revenue Code. A "change of
ownership" could be caused by purchases or sales of the Company's
securities owned by persons or groups now or in the future having
ownership of 5% or more of the Company's outstanding common stock or
issuance by the Company of common stock (including shares that are
issuable on conversion of the debentures).
Note 6. Contingencies
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major
supplier of close tolerance chemical milling services for the
aerospace and aircraft industries. At Aerochem's facility located in
El Mirage, California, there have been indications that nitrates,
fluorides, metals and other contaminants may have entered the
groundwater in the vicinity of a percolation pond used by the former
owner of the facility. In early 1993, perchloroethylene and
trichloroethylene also were detected
-12-
<PAGE> 13
in the groundwater underlying the El Mirage facility and an
adjacent parcel of property. Aerochem has been directed by the
California Environmental Protection Agency and the Lahontan Region
Water Quality Control Board to perform additional groundwater
investigational work at the El Mirage facility to characterize the
vertical and horizontal extent of groundwater contamination, and to
conduct a pilot scale project for possible groundwater remediation.
Aerochem is in the process of implementing a work plan to characterize
the extent of groundwater contamination in accordance with the
agencies' directives. Based upon currently available information, the
Company has established a provision for the additional groundwater and
investigational work and pilot scale groundwater remediation project
directed by the agencies. Depending on the results of the groundwater
investigational work and pilot scale groundwater remediation project,
Aerochem may be required to perform soil and/or groundwater
remediation work at its El Mirage facility. The Company presently is
not able to estimate the cost of such remediation work.
Aerochem has been notified by the United States Environmental
Protection Agency ("EPA") that Aerochem and other generators of
hazardous waste disposed at the Casmalia Resources Hazardous Waste
Facility (the "Casmalia Site"), an inactive hazardous waste treatment,
storage and disposal facility, may be responsible for certain costs
associated with the cleanup and closure of the Casmalia Site.
Aerochem, together with certain other generators, is presently engaged
in negotiations with the EPA. Aerochem believes that any liability it
may incur in connection with the Casmalia Site will not be material,
because Aerochem contributed less than 1/4% of the total waste
disposed at the Casmalia Site and many other substantially larger
companies and governmental entities are involved at the Casmalia Site.
The Company has established a provision, based on currently available
information, for Aerochem's share of the estimated cost of cleanup and
closure of the Casmalia Site.
In the normal course of business, Ducommun and its subsidiaries
are defendants in certain other litigation, claims and inquiries,
including matters relating to environmental laws. In addition, the
Company makes various commitments and incurs contingent liabilities.
While it is not feasible to predict the outcome of these matters, the
Company does not presently expect that any sum it may be required to
pay in connection with these matters would have a material adverse
effect on its consolidated financial position or result of operations.
-13-
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL STATEMENT PRESENTATION
The interim financial statements reflect all adjustments,
consisting only of normal recurring adjustments, which are, in
the opinion of the Company, necessary for a fair presentation of
the results for the interim periods presented.
Acquisitions
In December 1994, the Company acquired the stock of Brice
Manufacturing Company, Inc. ("Brice"), and acquired the assets and
assumed certain liabilities of Dynatech Microwave Technology,
Inc. ("DMT") for approximately $11 million and $7.5 million,
respectively. In January 1995, the Company acquired the stock of
3dbm, Inc. ("3dbm") for approximately $5.8 million. Brice is an
after-market supplier of aircraft seating products supplied to
many of the world's largest commercial airlines. DMT is a
manufacturer of switches and other microwave components used on
commercial and military aircraft and in other nonaerospace
commercial applications. 3dbm is a supplier of microcell systems
used in cellular telephone networks, low-power television
transmitters and microwave components and subsystems to both
military and commercial customers.
These acquisitions were funded from internally generated cash,
notes payable to sellers and borrowings under the Company's
credit agreement with its bank (see Financial Condition for
additional information). These acquisitions, which are expected
to add annual revenues of approximately $25 million in the near
term, strengthen the Company's position in the aerospace
industry, add complementary lines of business and improve
utilization of existing manufacturing facilities and overhead
structure.
RESULTS OF OPERATIONS AND EFFECTS OF INFLATION
First Quarter 1995 Compared to First Quarter 1994
Net sales increased 35% to $20,622,000 in the first quarter of
1995. The increase was due primarily to sales from businesses
acquired in December 1994 and January 1995.
The Company had substantial sales to Martin Marietta, Northrop
Grumman, McDonnell Douglas and Boeing. During 1995 and 1994,
sales to Martin Marietta were $1,784,000 and $2,043,000,
respectively; sales to Northrop Grumman were $1,452,000 and
$747,000, respectively; sales to McDonnell Douglas were
$2,306,000 and $1,645,000, respectively; and sales to Boeing
-14-
<PAGE> 15
were $1,225,000 and $1,950,000, respectively. The sales to
Martin Marietta are related to the Space Shuttle program. The
sales relating to Northrop Grumman, McDonnell Douglas and Boeing
are diversified over a number of different commercial and
military programs.
At April 1, 1995, backlog believed to be firm was approximately
$85,700,000, including $24,223,000 for space-related business,
compared to $79,000,000 at April 2, 1994 and $84,800,000 at
December 31, 1994. Approximately $28,000,000 of the total
backlog is expected to be delivered during 1995.
Gross profit, as a percentage of sales, increased to 29.9% in
1995 from 27.9% in 1994. This increase was primarily the result
of changes in sales mix and lower fixed production costs,
partially offset by production inefficiencies resulting from
relocation of the DMT business, changes in customer
production schedules and the start of new production programs.
Selling, general and administrative expenses increased to
$4,439,000 or 21.5% of sales in 1995, compared to 18.2% of sales
for 1994. The increase in these expenses as a percentage of
sales was primarily the result of goodwill amortization and
period costs related to acquisitions and higher sales volume.
Interest expense increased to $881,000 in 1995 compared to
$644,000 in 1994 primarily due to higher debt levels caused by
acquisition financing.
As a result of adopting Statement of Financial Accounting
Standards No. 109 -- "Accounting for Income Taxes" ("SFAS 109")
in 1993, the Company was not able to utilize the benefit of its
net operating loss carryforwards to compute income tax expense
for financial reporting purposes. This resulted in income tax
expense of $240,000 and $284,000 in 1995 and 1994, respectively,
for financial reporting purposes. From a cash flow perspective,
however, the Company continues to use its federal and state
tax net operating loss carryforwards to offset taxable income.
Cash expended to pay income taxes was $75,000 in 1995, compared
to $55,000 in 1994. For further discussion relating to the
adoption of SFAS 109 by the Company, see Note 5 to the
consolidated financial statements.
Net income for the first quarter of 1995 was $615,000, or $0.13
per share, compared to $548,000, or $0.12 per share, in 1994.
-15-
<PAGE> 16
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash flow from operating activities for the first quarter of
1995 was $542,000 compared to $1,045,000 in the comparable period
of 1994. During the first quarter 1995 the Company had bank
borrowings of $5,500,000 of which $4,427,000 were used to
purchase 3dbm in January 1995. During the first quarter of 1995,
the Company also repaid $9,324,000 of principal on its
outstanding debt.
The Company continues to depend on operating cash flow and the
availability of its bank line of credit to provide short-term
liquidity. Cash from operations and bank borrowings capacity are
expected to provide sufficient liquidity to meet the Company's
obligations during 1995.
In January 1995, the Company and its bank amended the Company's
credit agreement. The amended credit agreement provides for
$5,500,000 working capital line of credit and a $12,450,000 acquisition
term loan at April 1, 1995. The working capital line of
credit has an expiration date of July 15, 1996 and the
acquisition term loan has a December 31, 1998 expiration date.
Interest is payable monthly on the outstanding borrowings based
on the bank's prime rate plus 0.25% for the working capital line
of credit and the bank's prime rate plus 0.75% for the
acquisition term loan. A Eurodollar pricing option is also
available to the Company for terms of up to six months at the
Eurodollar rate plus 2.0% for the working capital line of credit
and the Eurodollar rate plus 2.5% for the acquisition term loan.
The bank's prime rate at April 1, 1995 was 9.0%. At April 1,
1995, the Company had $3,158,000 of unused lines of credit, after
deducting, $14,450,000 of loans outstanding for the acquisitions
and $342,000 for an outstanding standby letter of credit which
supports the estimated post-closure maintenance cost for a
former surface impoundment.
Borrowings under the credit agreement are secured by most of the
assets of the Company and its subsidiaries. The credit agreement
includes minimum effective tangible net worth and earnings
covenants, debt to effective tangible net worth, fixed charge
coverage and quick ratios, and limitations on capital
expenditures, future dividend payments and outside indebtedness.
On December 6, 1994, the Company incurred $10,365,000 in notes
and other contractual liabilities to the former shareholders of
Brice. The Company paid $8,365,000 of these notes on January 3,
1995. Of the remaining $2,000,000 of notes and contractual
liabilities, $1,200,000 is subject to interest. Quarterly
interest is payable at 7.75% per annum. Principal is payable in
installments which commenced on March 6, 1995 with final payment
due in December 1999.
-16-
<PAGE> 17
Interest is paid semiannually on the 7.75% convertible
subordinated debentures which are convertible into 2,805,611
shares of common stock at a conversion price of $9.98 per share,
and are subject to a mandatory redemption of $2,000,000 per year
from 1996 to 2010. The Company currently holds sufficient
debentures to satisfy the redemption requirements through the
year 2001.
Aggregate maturities of long-term debt, together with sinking
fund payments required, during the next four years are as
follows: 1995, $2,879,000; 1996, $6,243,000; 1997, $5,357,000;
1998, $4,120,000; 1999, $209,000.
The Company spent $693,000 on capital expenditures during the
first quarter of 1995 and expects to spend less than $3,000,000
for capital expenditures in 1995.
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major
supplier of close tolerance chemical milling services for the
aerospace and aircraft industries. At Aerochem's facility
located in El Mirage, California, there have been indications
that nitrates, fluorides, metals and other contaminants may have
entered the groundwater in the vicinity of a percolation pond
used by the former owner of the facility. In early 1993,
perchloroethylene and trichloroethylene also were detected in the
groundwater underlying the El Mirage facility and an adjacent
parcel of property. Aerochem has been directed by the California
Environmental Protection Agency and the Lahontan Region Water
Quality Control Board to perform additional groundwater
investigational work at the El Mirage facility to characterize
the vertical and horizontal extent of groundwater contamination
and to conduct a pilot scale project for possible groundwater
remediation. Aerochem is in the process of implementing a work
plan to characterize the extent of groundwater contamination in
accordance with the agencies' directives. Based upon currently
available information, the Company has established a provision
for the additional groundwater and investigational work and pilot
scale groundwater remediation project directed by the agencies.
Depending on the results of the groundwater investigational work
and pilot scale groundwater remediation project, Aerochem may be
required to perform soil and/or groundwater remediation work at
its El Mirage facility. The Company presently is not able to
estimate the cost of such remediation work.
Aerochem has been notified by the United States Environmental
Protection Agency ("EPA") that Aerochem and other generators of
hazardous waste disposed in the Casmalia Resources Hazardous
Waste facility (the "Casmalia Site"), an inactive hazardous waste
treatment, storage and disposal facility, may be responsible for
certain costs associated with the cleanup and closure of the
Casmalia Site. Aerochem, together with certain
-17-
<PAGE> 18
other generators, is presently engaged in negotiations with the
EPA. Aerochem believes that any liability it may incur in
connection with the Casmalia Site will not be material, because
Aerochem contributed less than 1/4% of the total waste disposed
at the Casmalia Site and many other substantially larger
companies and governmental entities are involved at the Casmalia
Site. The Company has established a provision, based on
currently available information, for Aerochem's share of the
estimated cost of cleanup and closure of the Casmalia Site.
In the normal course of business, Ducommun and its subsidiaries
are defendants in certain other litigation, claims and inquiries,
including matters relating to environmental laws. In addition,
the Company makes various commitments and incurs contingent
liabilities. While it is not feasible to predict the outcome of
these matters, the Company does not presently expect that any sum
it may be required to pay in connection with these matters would
have a material adverse effect on its consolidated financial
position or result of operations.
-18-
<PAGE> 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A Financial Data Schedule is filed as Exhibit 27 with this
report.
During the quarter, the Company filed the following reports:
(a) Form 8-K dated January 13, 1995 describing under Item 2
the acquisition by Jay-El Products, Inc., a wholly-
owned subsidiary of Ducommun Incorporated, of
substantially all of the assets and assumption of
certain liabilities of Dynatech Microwave Technology,
Inc. on December 30, 1994.
(b) Form 8-K/A dated January 16, 1995 describing under Item
7 the financial statements, pro forma financial
information and exhibits not included with the filing
of Form 8-K dated December 20, 1994, regarding the
acquisition by Ducommun Incorporated of all of the
capital stock of J. Nelson Hoffman Manufacturing, Inc.,
d/b/a Brice Manufacturing Company, on December 6, 1994.
(c) Form 8-K/A dated March 15, 1995 describing under Item 7
the financial statements, pro forma financial
information and exhibits not included with the filing
of Form 8-K dated January 13, 1995.
-19-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
DUCOMMUN INCORPORATED
(Registrant)
By: /s/ Joseph C. Berenato
---------------------------
Joseph C. Berenato
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
(Duly Authorized Officer of
the Registrant)
By: /s/ Samuel D. Williams
----------------------------
Samuel D. Williams
Vice President and Controller
(Chief Accounting Officer of
the Registrant)
Date: April 24, 1995
-20-
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-01-1995
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 10,929
<ALLOWANCES> 175
<INVENTORY> 13,098
<CURRENT-ASSETS> 27,037
<PP&E> 52,340
<DEPRECIATION> 28,639
<TOTAL-ASSETS> 79,411
<CURRENT-LIABILITIES> 17,251
<BONDS> 45,151
<COMMON> 45
0
0
<OTHER-SE> 16,342
<TOTAL-LIABILITY-AND-EQUITY> 79,411
<SALES> 20,622
<TOTAL-REVENUES> 20,622
<CGS> 14,447
<TOTAL-COSTS> 14,447
<OTHER-EXPENSES> 4,439
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 881
<INCOME-PRETAX> 855
<INCOME-TAX> 240
<INCOME-CONTINUING> 615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 615
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
