<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
[X] OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13
[ ] OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 0-1222
DUCOMMUN INCORPORATED
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-0693330
- ------------------------------ --------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
23301 South Wilmington Avenue, Carson, California 90745
- ------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 513-7200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
-----------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
<PAGE> 2
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $118 million as of January 31, 1997.
The number of shares of common stock outstanding on January 31, 1997 was
7,301,428.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
(a) Annual Report to Shareholders (the "1996 Annual Report") for
the year ended December 31, 1996, incorporated partially in Part I and Part II
hereof (see Exhibit 13), and
(b) Proxy Statement for the 1997 Annual Meeting of Shareholders
(the "1997 Proxy Statement"), incorporated partially in Part III hereof.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements in the Form 10-K and documents incorporated by
reference contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Any such forward-looking statements involve
risks and uncertainties. The Company's future financial results could differ
materially from those anticipated due to the Company's dependence on conditions
in the airline industry, the level of new commercial aircraft orders, the
production rate for the Space Shuttle program, the level of defense spending,
competitive pricing pressures, technology and product development risks and
uncertainties, and other factors beyond the Company's control.
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PART I
ITEM 1. BUSINESS
During 1996, Ducommun Incorporated ("Ducommun"), through its
subsidiaries (collectively, the "Company"), manufactured components and
assemblies principally for domestic and foreign commercial and military
aircraft and space programs. Domestic commercial aircraft programs include the
Boeing 737, 747, 757, 767 and 777 and the McDonnell Douglas MD-11, MD-80/90 and
MD-95. Foreign commercial aircraft programs include the Airbus Industrie A330
and A340, de Havilland Dash 8, and the Canadair Regional Jet. Major military
aircraft programs include the McDonnell Douglas C-17, F-15 and F-18, Lockheed
Martin F-16 and C-130, various Sikorsky, Bell and Boeing helicopter programs,
and advanced development programs. The Company is a subcontractor to Lockheed
Martin on the Space Shuttle external tank and a supplier of components for the
Space Shuttle Orbitor, as well as for Space Station Freedom. The Company
manufactures components for Atlas/Centaur, Delta and Titan expendable launch
vehicles and various telecommunications satellites. Through its 3dbm, Inc.
("3dbm") subsidiary, the Company also sells products for the wireless
telecommunications industry.
In December 1994, the Company acquired all of the capital stock of
Brice Manufacturing Company, Inc. ("Brice") and acquired substantially all of
the assets and assumed certain liabilities of Dynatech Microwave Technology,
Inc. ("DMT"). In January 1995, the Company acquired all of the capital stock of
3dbm. In June 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of MechTronics of Arizona, Inc. ("MechTronics").
Aerochem, Inc.
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major
supplier of close tolerance chemical milling services for the aerospace and
aircraft industries. Chemical milling removes material in specific patterns to
reduce weight in areas where full material thickness is not required. This
sophisticated etching process enables Aerochem to produce lightweight,
high-strength designs that would be impractical to produce by conventional
means. Jet engine components, wing leading edges and fuselage skins are
examples of products that require chemical milling.
Aerochem offers production-scale chemical milling on aluminum,
titanium, steel, nickel-base and super alloys. Aerochem also specializes in
very large and complex parts up to 50 feet long. Management believes that
Aerochem is the largest independent supplier of chemical milling services in
the United States. Many of the parts chemically milled by Aerochem are formed
and machined by AHF-Ducommun Incorporated.
AHF-Ducommun Incorporated
AHF-Ducommun Incorporated ("AHF"), another Ducommun subsidiary,
supplies aircraft and aerospace prime contractors with engineering,
manufacturing and testing of
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complex components using stretch forming and thermal forming processes and
computer-controlled machining. Stretch forming is a process for manufacturing
large, complex structural shapes primarily from aluminum sheet metal extrusions.
AHF has some of the largest and most sophisticated stretch forming presses in
the United States. Thermal forming is a metal working process conducted at high
temperature for manufacturing close tolerance titanium components. AHF designs
and manufactures the tooling required for the production of parts in both
forming processes. Certain components manufactured by AHF are machined with
precision milling equipment designed and constructed by AHF. AHF also employs
computer-aided design/manufacturing systems with three 5-axis gantry profile
milling machines and a 5-axis numerically-controlled router to provide
computer-controlled machining and inspection of complex parts up to 82 feet
long.
AHF has an integrated operation offering a broad range of
capabilities. From the design specifications of a customer, AHF is able to
engineer, manufacture, test and deliver the desired finished components. This
process depends on the skillful execution of several complex subtasks,
including the design and construction of special equipment. Management
believes that the ability of AHF to provide a full range of integrated
capabilities represents a competitive advantage.
Brice Manufacturing Company, Inc.
In December 1994, Ducommun acquired the capital stock of Brice
Manufacturing Company, Inc. ("Brice"). 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 entertainment
equipment, and other cabin interior components for commercial aircraft.
Management believes that Brice is the largest company in the United States
supplying airline seating and other cabin interior components exclusively for
the after-market.
Jay-El Products, Inc.
Ducommun's Jay-El Products, Inc. ("Jay-El Products") subsidiary
develops, designs and manufactures illuminated switches, switch assemblies and
keyboard panels used in many military aircraft, helicopter, commercial aircraft
and spacecraft programs, as well as ground support equipment and naval vessels.
Jay-El Products manufactures switches and panels where high reliability is a
prerequisite. Keyboard panels are lighted, feature push button switches, and
are available with sunlight readable displays. Some of the keyboard panels and
illuminated switches manufactured by Jay-El Products for military applications
are night vision goggle-compatible.
As a result of the acquisition of DMT in December 1994, Jay-El
Products develops, designs and manufactures microwave switches, filters and
other components used principally on commercial and military aircraft and
telecommunications satellites. DMT also has developed several new products
that apply its existing microwave technology to nonaerospace markets, including
the wireless telecommunications industry.
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MechTronics of Arizona Corp.
In June 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of MechTronics of Arizona, Inc., through a newly
formed subsidiary named MechTronics of Arizona Corp. ("MechTronics").
MechTronics is a leading manufacturer of mechanical and electromechanical
enclosure products for the defense electronics, commercial aviation and
communications markets. MechTronics has a fully integrated manufacturing
capability, including engineering, fabrication, machining, assembly, electronic
integration and related processes. MechTronics' products include sophisticated
radar enclosures, aircraft avionics racks and shipboard communications and
control enclosures.
3dbm, Inc.
In January 1995, Ducommun acquired the capital stock of 3dbm. 3dbm
develops, designs and manufactures high-power expanders, repeaters,
bi-directional amplifiers, microcells and other wireless telecommunications
hardware used in cellular telephone networks. 3dbm also designs and
manufactures on a limited basis microwave components and subsystems for both
military and commercial customers.
Defense and Space Programs
A major portion of sales is derived from United States government
defense programs and space programs. Approximately 38 percent of 1996 sales
were related to defense programs and approximately 10 percent of 1996 sales
were related to space programs. These programs could be adversely affected by
reductions in defense spending and other government budgetary pressures which
would result in reductions, delays or stretch-outs of existing and future
programs. In addition, many of the Company's contracts covering defense and
space programs are subject to termination at the convenience of the customer
(as well as for default). In the event of termination for convenience, the
customer generally is required to pay the costs incurred by the Company and
certain other fees through the date of termination.
Any substantial delay or suspension of production for the Space
Shuttle program would have a significant impact on the results of operations
for the Company.
Commercial Programs
Approximately 52 percent of 1996 sales were related to commercial
aircraft programs, and nonaerospace commercial applications. The Company's
commercial sales depend substantially on aircraft manufacturer's production
rates, which in turn depend upon deliveries of new aircraft. Deliveries of new
aircraft by aircraft manufacturers are dependent on the financial capacity of
the airlines and leasing companies to purchase the aircraft. Sales of
commercial aircraft could be affected as a result of changes in new aircraft
orders, or the cancellation or deferral by airlines of purchases of ordered
aircraft.
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Major Customers
The Company had substantial sales to Lockheed Martin, Boeing,
McDonnell Douglas and Northrop Grumman. During 1996, sales to Lockheed Martin
were $13,037,000, or 11.0% of total sales; sales to Boeing were $11,876,000,
or 10.0% of total sales; sales to McDonnell Douglas were $10,031,000, or 8.5%
of total sales; and sales to Northrop Grumman were $7,843,000, or 6.6% of total
sales. Sales to Lockheed Martin are primarily for the Space Shuttle program.
Sales to Boeing, McDonnell Douglas and Northrop Grumman are diversified over a
number of different commercial and military programs.
Competition
The Company competes with various companies, some of which are
substantially larger and have greater financial, technical and personnel
resources. The Company's ability to compete depends on the quality of goods
and services, competitive pricing and the ability to solve specific customer
problems.
Backlog
At December 31, 1996, backlog believed to be firm was approximately
$134,500,000, including $24,291,000 for space-related business, compared to
$92,600,000 at December 31, 1995. Approximately $74,000,000 of total backlog
is expected to be delivered during 1997.
Environmental Matters
Aerochem uses various acid and alkaline solutions in the chemical
milling process, resulting in potential environmental hazards. Despite
existing waste recovery systems and continuing capital expenditures for waste
reduction and management, at least for the immediate future, Aerochem will
remain dependent on the availability and cost of remote hazardous waste
disposal sites or other alternative methods of disposal.
The Aerochem facility located in El Mirage, California has been
directed by California environmental agencies to investigate and take
corrective action for groundwater contamination. Based upon currently
available information, the Company has established a provision for the cost of
such investigation and corrective action.
Ducommun's other subsidiaries are also subject to environmental laws
and regulations. However, the quantities of hazardous materials handled,
hazardous wastes generated and air emissions released by these subsidiaries are
relatively small.
The Company anticipates that capital expenditures will continue to be
required for the foreseeable future to upgrade and maintain its environmental
compliance efforts. The Company does not expect to spend a material amount on
capital expenditures for environmental compliance during 1997.
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In the normal course of business, Ducommun and its subsidiaries are
defendants in certain other litigation, claims and inquiries, including matters
relating to environmental laws. In addition, the Company makes various
commitments and incurs contingent liabilities. While it is not feasible to
predict the outcome of these matters, the Company does not presently expect
that any sum it may be required to pay in connection with these matters would
have a material adverse effect on its consolidated financial position or
results of operations.
Employees
At December 31, 1996, the Company employed 1,170 persons.
Business Segment Information
The Company operates in only one business segment.
Information About Foreign and Domestic Operations and Export Sales
In 1996, 1995 and 1994, foreign sales to manufacturers worldwide were
$21,155,000, $23,497,000 and $11,515,000, respectively.
The amounts of revenue, profitability and identifiable assets
attributable to foreign operations are not material when compared with the
revenue, profitability and identifiable assets attributed to United States
domestic operations during 1996, 1995 and 1994. Canada is the only country in
which the Company had sales of 4% or more of total sales, with sales of
$4,906,000, $4,518,000 and $5,944,000 in 1996, 1995 and 1994, respectively.
ITEM 2. PROPERTIES
The Company occupies approximately 14 facilities with a total office
and manufacturing area of over 812,000 square feet, including both owned and
leased properties. At December 31, 1996, facilities which were in excess of
60,000 square feet each were occupied as follows:
<TABLE>
<CAPTION>
Square Expiration
Location Company Feet of Lease
<S> <C> <C> <C>
El Mirage, California Aerochem 74,300 Owned
Orange, California Aerochem 76,200 Owned
Carson, California AHF-Ducommun 65,000 1999
Carson, California AHF-Ducommun 108,000 Owned
Carson, California Jay-El Products 117,000 1997
Phoenix, Arizona MechTronics 90,900 2006
</TABLE>
The Company's facilities are, for the most part, fully utilized,
although excess capacity exists from time to time based on product mix and
demand. Management believes that these properties are in good condition and
suitable for their present use.
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Although the Company maintains standard property casualty insurance
covering its properties, the Company does not carry any earthquake insurance
because of the cost of such insurance. Most of the Company's properties are
located in Southern California, an area subject to frequent and sometimes
severe earthquake activity.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information under the caption "Quarterly Common Stock Price
Information" on page 13 of the 1996 Annual Report is incorporated herein by
reference. No dividends were paid during 1995 or 1996 (see Exhibit 13).
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Data" appearing
on page 13 of the 1996 Annual Report is incorporated herein by reference (see
Exhibit 13).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing on pages
14 through 16 of the 1996 Annual Report is incorporated herein by reference
(see Exhibit 13).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data under the captions
"Consolidated Statements of Income," "Consolidated Balance Sheets,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of Changes in
Shareholders' Equity," and "Notes to Consolidated Financial Statements,"
together with the report thereon of Price Waterhouse LLP dated February 13,
1997, appearing on pages 17 through 28 of the 1996 Annual Report are
incorporated herein by reference (see Exhibit 13).
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
The information under the caption "Election of Directors" in the 1997
Proxy Statement is incorporated herein by reference.
Executive Officers of the Registrant
The following table sets forth the names and ages of all executive
officers of the Company (including subsidiary presidents), all positions and
offices held with the Company, their terms of office and brief accounts of
business experience during the past five years:
<TABLE>
<CAPTION>
Positions and Offices Other Business
Held With Company Experience
Name (Age) (Year Elected) (Past Five Years)
---------------------------- ---------------------------------- ------------------------------------
<S> <C> <C>
Norman A. Barkeley (67) Chairman of the Board (1989) Chief Executive Officer and
President (1988)
Joseph C. Berenato (50) President (1996) and Chief Executive Vice President
Executive Officer (1997) (1995), Chief Operating
Officer (1995), and Chief
Financial Officer (1991) of
the Company
James S. Heiser (40) Vice President (1990), --
Chief Financial Officer (1996),
General Counsel (1988),
Secretary (1987), and Treasurer
(1995)
Kenneth R. Pearson (61) Vice President-Human Resources --
(1988)
Samuel D. Williams (48) Vice President (1991), --
Controller (1988), and Assistant
Treasurer (1990)
</TABLE>
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<TABLE>
<CAPTION>
Positions and Offices Other Business
Held With Company Experience
Name (Age) (Year Elected) (Past Five Years)
---------------------------- ---------------------------------- ------------------------------------
<S> <C> <C>
Robert A. Borlet (56) President of Jay-El Products, --
Inc. (1988)
Michael J. DeMuro (52) President of MechTronics of President of MechTronics of
Arizona Corp. (1996) Arizona, Inc. prior to
acquisition by Ducommun
Paul L. Graham (52) President of 3dbm, Inc. President of Dynatech
(1995) Microwave Technology, Inc.
(1992-1994); previously,
general and senior management
at TRW, Titan Sesco, Vector
General, Hughes and Raytheon
Bruce J. Greenbaum (41) President of Brice Manufacturing President and/or General
Company, Inc. (1994) Manager of Brice during five
years prior to acquisition by
Ducommun
Robert B. Hahn (53) President of Aerochem, Inc. --
(1987)
Robert L. Hansen (43) President, AHF-Ducommun --
Incorporated (1989)
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Compensation of Executive Officers"
in the 1997 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 1997 Proxy Statement is incorporated
herein by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Election of Directors" contained in
the paragraph immediately following the table in the 1997 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Ducommun
Incorporated and subsidiaries, included in the 1996 Annual
Report, are incorporated by reference in Item 8 of this report.
Page numbers refer to the 1996 Annual Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Income - Years ended December 31, 17
1996, 1995 and 1994
Consolidated Balance Sheets - December 31, 1996 and 1995 18
Consolidated Statements of Cash Flows - Years ended December 31, 19
1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity - Years 20
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements 21-27
Report of Independent Accountants 28
</TABLE>
2. Financial Statement Schedule
The following schedule for the years ended December 31, 1996,
1995 and 1994 is filed herewith:
Schedule VIII - Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because they are not
applicable, not required, or the information has been otherwise
supplied in the financial statements or notes thereto.
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(b) Reports on Form 8-K
During the last quarter of 1996, no reports on Form 8-K were
filed.
(c) Exhibits
3.1 Restated Certificate of Incorporation filed with the
Delaware Secretary of State on May 29, 1990. Incorporated by
reference to Exhibit 3.1 to Form 10-K for the year ended
December 31, 1990.
3.2 Bylaws as amended and restated on October 19, 1996.
4.1 Fourth Amended and Restated Loan Agreement dated May
16, 1996 between Ducommun and Bank of America NT&SA ("Bank").
Incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarter ended June 29, 1996.
4.2 First Amendment to Fourth Amended and Restated Loan
Agreement dated as of June 27, 1996 between Ducommun and Bank.
Incorporated by reference to Exhibit 10.2 to Form 10-Q for the
quarter ended June 29, 1996.
4.3 Second Amendment to Fourth Amended and Restated Loan
Agreement dated as of December 18, 1996 between Ducommun and
Bank.
4.4 Conversion Agreement dated July 22, 1992 between
Ducommun and the holders of the 9% Convertible Subordinated
Notes due 1998. Incorporated by reference to Exhibit 1 to Form
8-K dated July 29, 1992.
4.5 Loan and Security Agreement dated December 1, 1992
between AHF-Ducommun Incorporated ("AHF"), a subsidiary of
Ducommun, and CIT Group/Equipment Financing, Inc., as amended.
The Company will furnish a copy of such agreement to the
Securities and Exchange Commission upon request.
4.6 Standing Loan Agreement dated December 17, 1993
between AHF and Bank. The Company will furnish a copy of such
agreement to the Securities and Exchange Commission upon
request.
4.7 Security Agreements and Promissory Notes dated March
7, 1996 and December 30, 1966 between AHF and Aerochem, Inc., a
subsidiary of Ducommun, and General Electric Capital Corp. The
Company will furnish a copy of such agreements to the Securities
and Exchange Commission upon request.
* 10.1 1981 Stock Incentive Plan as amended and restated
March 21, 1990. Incorporated by reference to Exhibit 10.2 to
Form 10-K for the year ended December 31, 1989.
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* 10.2 1990 Stock Option Plan. Incorporated by reference to
Exhibit 10.4 to Form 10-K for the year ended December 31, 1990.
* 10.3 1994 Stock Incentive Plan. Incorporated by reference
to Exhibit 10.4 to Form 10-K for the year ended December 31,
1994.
* 10.4 Form of Nonqualified Stock Option Agreement under the
1994 Stock Incentive Plan, the 1990 Stock Option Plan and the
1981 Stock Incentive Plan. Incorporated by reference to Exhibit
10.5 to Form 10-K for the year ended December 31, 1990.
* 10.5 Form of Incentive Stock Option Agreement under the
1994 Stock Incentive Plan.
* 10.6 Form of Key Executive Severance Agreement entered
with nine current executive officers of Ducommun or its
subsidiaries. Incorporated by reference to Exhibit 10.7 to Form
10-K for the year ended December 31, 1989.
* 10.7 Form of Indemnity Agreement entered with all
directors and officers of Ducommun. Incorporated by reference
to Exhibit 10.8 to Form 10-K for the year ended December 31,
1990.
* 10.8 Description of 1997 Executive Officer Bonus
Arrangement.
* 10.9 Directors' Deferred Compensation and Retirement Plan,
as amended October 29, 1993. Incorporated by reference to
Exhibit 10.9 to Form 10-K for the year ended December 31, 1993.
* 10.10 Ducommun Incorporated Executive Retirement Plan dated
May 5, 1993. Incorporated by reference to Exhibit 10.2 to Form
10-Q for the quarter ended July 3, 1993.
* 10.11 Ducommun Incorporated Executive Compensation Deferral
Plan dated May 5, 1993. Incorporated by reference to Exhibit
10.3 to Form 10-Q for the quarter ended July 3, 1993.
* 10.12 Ducommun Incorporated Executive Compensation Deferral
Plan No. 2 dated October 15, 1994. Incorporated by reference
to Exhibit 10.12 to Form 10-K for the year ended December 31,
1994.
11 Computation of Income (Loss) Per Common and Common
Equivalent Share
13 1996 Annual Report to Shareholders (not deemed to be
filed except as previously incorporated by reference).
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21 Subsidiaries of Registrant
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule
___________________
* Indicates an executive compensation plan or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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
Date: February 24, 1997 By: /s/ Joseph C. Berenato
-----------------------------------------
Joseph C. Berenato
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been duly signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Date: February 24, 1997 By: /s/ James S. Heiser
-----------------------------------------
James S. Heiser
Vice President, Chief Financial Officer,
General Counsel, Secretary and Treasurer
(Principal Financial Officer)
Date: February 24, 1997 By: /s/ Samuel D. Williams
-----------------------------------------
Samuel D. Williams
Vice President, Controller and
Assistant Treasurer
(Principal Accounting Officer)
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DIRECTORS
By: /s/ Norman A. Barkeley Date February 24, 1997
----------------------------- ----------------------
Norman A. Barkeley
By: /s/ Joseph C. Berenato Date February 24, 1997
----------------------------- ----------------------
Joseph C. Berenato
By: /s/ H. Frederick Christie Date February 24, 1997
----------------------------- ----------------------
H. Frederick Christie
By: /s/ Robert C. Ducommun Date February 24, 1997
----------------------------- ----------------------
Robert C. Ducommun
By: /s/ Kevin S. Moore Date February 24, 1997
----------------------------- ----------------------
Kevin S. Moore
By: /s/ Thomas P. Mullaney Date February 24, 1997
----------------------------- ----------------------
Thomas P. Mullaney
By: /s/ Richard J. Pearson Date February 24, 1997
----------------------------- ----------------------
Richard J. Pearson
By: /s/ Arthur W. Schmutz Date February 24, 1997
----------------------------- ----------------------
Arthur W. Schmutz
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Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of Ducommun Incorporated
Our audits of the consolidated financial statements referred to in our report
dated February 13, 1997 appearing on page 28 of the 1996 Annual Report to
Shareholders of Ducommun Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
Los Angeles, California
February 13, 1997
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DUCOMMUN INCORPORATED
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE VIII
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Description of Period Expenses Other Accounts Deductions Period
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996
Allowance for
Doubtful Accounts $ 366,000 $ 28,000 $ - $ 188,000(c) $ 206,000
Deferred Tax Assets
Valuation Allowance $2,433,000 $ - $ - $ 665,000(f) $ -
$1,768,000(g)
FOR THE YEAR ENDED DECEMBER 31, 1995
Allowance for
Doubtful Accounts $ 182,000 $ 216,000 $ 13,000(a) $ 45,000(c) $ 366,000
Deferred Tax Assets
Valuation Allowance $5,150,000 $ - $ - $2,717,000(e) $2,433,000
FOR THE YEAR ENDED DECEMBER 31, 1994
Allowance for
Doubtful Accounts $ 314,000 $ - $ 11,000(a) $ 143,000(c) $ 182,000
Deferred Tax Assets
Valuation Allowance $9,962,000(b) $ - $ - $4,812,000(d) $5,150,000
</TABLE>
(a) Collections on previously written off accounts.
(b) Per adoption of Statement of Financial Accounting Standards No. 109.
(c) Write-offs on uncollectible accounts.
(d) Change in valuation allowance due to reevaluation of realizability of
future income tax benefit occasioned by the acquisitions of Brice and
DMT.
(e) Change in valuation allowance due to reevaluation of realizability of
future income tax benefit occasioned by the acquisition of 3dbm.
(f) Change in valuation allowance due to reevaluation of realizability of
future income tax benefit occasioned by the acquisition of MechTronics.
(g) Change in valuation allowance due to reevaluation of realizability of
future income tax benefit.
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EXHIBIT 3.2
As Amended October 19, 1996
BYLAWS
OF
DUCOMMUN INCORPORATED
ARTICLE I
Offices
Section 1. Registered Office. The Registered Office of Ducommun
Incorporated (hereinafter called the Corporation) in the State of Delaware
shall be at 32 Loockerman Square, Suite L-100, in the City of Dover 19901,
County of Kent, and the name of the Registered Agent in charge thereof shall be
Prentice-Hall Corporation System, Inc.
Section 2. Principal Office. The principal office for the
transaction of business of the Corporation shall be 23301 South Wilmington
Avenue, in the City of Carson, County of Los Angeles, State of California. The
Board of Directors has full power and authority to change said principal office
from one location to another, whether within or outside said City, County or
State, by amendment of this Section 2.
Section 3. Other Offices. The Corporation may also have an office
or offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors may from time to time determine as the
business of the Corporation may require.
ARTICLE II
Stockholders
Section 1. Annual Meetings. The Annual Meeting of Stockholders
shall be held at 9:00 o'clock a.m. Pacific Time on the first Wednesday of May
each year, if not a legal holiday, in which case the annual meeting shall be
held on the next business day following, or on such other date as shall be
designated by the Board of Directors, for the purpose of electing Directors and
for the transaction of such other business as may be brought before the
meeting. If such annual meeting is not held, or the Directors are not elected
thereat, Directors may be elected at a special meeting held for that purpose,
and it shall be the duty of the Chairman of the Board of Directors, the
President, any Executive Vice President, any Senior Vice President, any Vice
President or the Secretary, upon the demand of any stockholder entitled to
vote, to call such special meeting.
Section 2. Special Meetings. Special meetings of the stockholders
for any purpose or purposes may be called at any time by the Board of Directors
or by a majority of the members of the Board of Directors.
Section 3. Notice of Meetings. Except as otherwise required by
law, notice of meetings of stockholders, annual or special, shall be given to
stockholders entitled to vote thereat
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by the Secretary or an Assistant Secretary or other person charged with that
duty not less than ten (10) nor more than sixty (60) days before the date of
any such meeting. Such notice may be printed, typewritten, or in handwriting,
and may be given to any stockholder either personally or by sending a copy of
the notice through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the Corporation or supplied by him to the Corporation
for the purpose of notice. Except as otherwise expressly required by law, no
publication of any notice of a meeting of the stockholders shall be required.
Every notice of a meeting of the stockholders shall state the place, date and
hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called.
Section 4. Place of Meetings. All meetings of the stockholders
shall be held at the principal office of the Corporation in the State of
California or at such other place within or without the State of Delaware as
the Board of Directors may from time to time designate.
Section 5. Quorum. A quorum at any meeting of the stockholders
shall consist of stockholders holding a majority of the voting power of the
shares of this Corporation outstanding and entitled to vote thereat,
represented either in person or by proxy, except as otherwise specifically
provided by law or in the Certificate of Incorporation. In the absence of a
quorum, any meeting of stockholders may be adjourned from time to time by the
vote of a majority of the voting stock, the holders of which are either present
in person or represented by proxy thereat. The stockholders present at a
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
Section 6. Adjournments. When a meeting is adjourned for thirty
(30) days or more, notice of the adjourned meeting shall be given as in the
case of the original meeting, but when a meeting is adjourned for less than
thirty (30) days it is not necessary to give any notice of the time and place
of the adjourned meeting or of the business to be transacted thereat other than
by announcement at the meeting at which the adjournment is taken. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
noticed.
Section 7. Organization. The Chairman of the Board of Directors,
or, in his absence, the President, or in the absence of the Chairman of the
Board of Directors and the President, the Executive Vice President, a Senior
Vice President or a Vice President shall call meetings of stockholders to
order, and shall act as Chairman of such meetings. In the absence of the
Chairman of the Board of Directors, the President, the Executive Vice
President, any Senior Vice President and the Vice Presidents, the stockholders
shall appoint a Chairman for such meeting. The Secretary of the Corporation
shall act as Secretary at all meetings of the stockholders, but in the absence
of the Secretary at any meeting of the stockholders, the presiding officer may
appoint any person to act as Secretary of the meeting.
Section 8. Voting
(a) Each stockholder shall, at each meeting of the
stockholders, be entitled to vote in person or by proxy each share or
fractional share of the stock of the Corporation having voting rights on the
matter in question and which shall have been held by him and registered in his
name on the books of the Corporation:
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(i) on the date fixed pursuant to ARTICLE II,
Section 11 of these Bylaws as the record date for the
determination of stockholders entitled to notice of and
to vote at such meeting, or
(ii) if no such record date shall have been so
fixed, then (a) at the close of business on the day next
preceding the day on which notice of the meeting shall
be given, or (b) if notice of the meeting shall be
waived, at the close of business on the day next
preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation
shall not be entitled to vote. Persons holding in a fiduciary capacity stock
of the Corporation shall be entitled to vote such stock so held. A person
whose stock is pledged shall be entitled to vote such stock, unless in the
transfer by the pledger on the books of the Corporation he shall have expressly
empowered the pledgee to vote thereon, in which case only the pledgee, or his
proxy, may represent such stock and vote thereon. Stock having voting power
standing of record in the names of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by the
entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions
of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the
stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized and delivered to the Secretary of the meeting; provided,
however, that no proxy shall be voted or acted upon after three years from its
date unless said proxy shall provide for a longer period. The attendance at
any meeting of a stockholder who may theretofore have given a proxy shall not
have the effect of revoking the same unless he shall in writing so notify the
Secretary of the meeting prior to the voting of the proxy. At any meeting of
the stockholders all matters, except as otherwise provided in the Certificate
of Incorporation, these Bylaws or bylaw, shall be decided by the vote of
majority in voting interest of the stockholders present in person or by proxy
and entitled to vote thereat and thereon, a quorum being present. The vote at
any meeting of the stockholders on any question need not be by ballot, unless
so directed by the Chairman of the meeting. On a vote by ballot each ballot
shall be signed by the stockholder voting, or by his proxy, if there be such
proxy, and it shall state the number of shares voted.
Section 9. Inspectors of Election. In advance of any meeting of
stockholders, the Board of Directors may appoint inspectors of election to act
at such meeting or any adjournment thereof. If inspectors of election be not
so appointed, the Chairman of any such meeting may make such appointment at the
meeting. The number of inspectors shall be either one or three.
Section 10. Consent of Absentees. The transactions of any meeting
of stockholders, either annual or special, however called and noticed, shall be
as valid as though had at a meeting duly held after regular call and notice, if
a quorum be present either in person or by proxy, and if, either before or
after the meeting, each of the stockholders entitled to vote, not present in
person or by proxy, signs a written waiver of notice. All such waivers shall
be filed with the corporate records or made a part of the minutes of the
meeting. Attendance of a person at a meeting of stockholders shall constitute
a waiver of notice of such meeting, except when the stockholder attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.
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Section 11. Record Date and Closing Stock Books. The Board of
Directors may fix a record date for the determination of the stockholders
entitled to notice of and to vote at any meeting of stockholders, or for the
determination of the stockholders entitled to receive any dividend or
distribution or any allotment of rights, or to exercise rights in respect to
any change, conversion or exchange of shares. The record date so fixed shall
not be more than sixty (60) nor less than ten (10) days before the date of any
such meeting, nor more than sixty (60) days prior to any other action. When a
record date is so fixed, only stockholders who are such of record on that date
are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution, or allotment of rights, or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date. The Board of Directors may close the books
of the Corporation against transfers of shares during the whole or any part of
a period not more than sixty (60) days prior to the date of a stockholders'
meeting, the date when the right to any dividend, distribution, or allotment of
rights vests, or the effective date of any change, conversion or exchange of
shares. A determination of stockholders entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of such meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 12. Conduct of Meetings. The Chairman of the Board of
Directors shall have complete authority to establish rules of conduct governing
all meetings of stockholders. These rules may include, but shall not be
limited to, rules related to attendance, questions from the audience and
similar matters. Notwithstanding the above, the nomination at any meeting of
stockholders of any person to serve as a Director shall not be valid unless (i)
the nomination of such person has been approved by resolution of the Board of
Directors of the Corporation, or (ii) notice of the nomination of such person
has been delivered to the Secretary of the Corporation not less than 120 days
prior to the date of the meeting of stockholders.
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(Section 1(c) Amended 10/19/96)
ARTICLE III
Board of Directors
Section 1(a). Powers. The corporate powers, business and property of
this Corporation shall be exercised, conducted and controlled by a Board of
Directors. In addition to the powers and authorities expressly conferred upon
it by these Bylaws, the Board may exercise all such powers and do all such
lawful acts and things as are not by statute or by these Bylaws directed or
required to be exercised or done by the stockholders. Directors need not be
stockholders.
Section 1(b). Minimum and Maximum Number. The authorized number of
Directors of this Corporation shall be not less than six (6) nor more than
eight (8) until changed by an amendment of this Bylaw; the exact number of
Directors shall be fixed, within the limits specified in this Section 1(b), by
a Bylaw or amendment thereof to be numbered as Section 1(c).
Section 1(c). Exact Number of Directors. The exact number of
Directors of this Corporation is eight (8) until changed within the limits
specified in Section 1(b) or this ARTICLE III by a bylaw duly adopted amending
this Section 1(c).
Section 2. Vacancies. In case of a vacancy in the Directors
through death, resignation, disqualification, or other cause, the remaining
Directors, though less than a quorum, by affirmative vote of a majority
thereof, or the sole remaining Director, may elect a successor or successors to
hold office for the unexpired portion of the term of the Director whose place
shall be vacant, and until the election of his successor.
Section 3. Place of Meeting. The Directors may hold their
meetings and have an office and keep the books of the Corporation in such place
or places within or without the State of Delaware as the Board may from time to
time determine.
Section 4(a). Regular Meetings. By resolution and notice thereof to
all the Directors at the time in office, the Board of Directors may provide
that regular meetings of said Board shall be held at stated intervals and at a
place to be fixed in such resolution. In case such regular meetings are
provided for, it shall not be necessary to give notice of any such meetings, or
of the business to be transacted. A meeting of the Board of Directors may be
held without notice immediately after the Annual Meeting of Stockholders.
Section 4(b). Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman or the Board of Directors, the
President, any two Vice Presidents, any two Directors, or by the sole remaining
Director. Written notice of the time and place of special meetings shall be
delivered personally to each Director or sent to each Director by mail or other
form of written communication, charges prepaid, addressed at his business
address or his residence address, as either may be shown upon the records of
the Corporation, or if not so shown, or not readily ascertainable, at the
principal office of the Corporation. In case such notice is delivered
personally it shall be delivered at least twenty-four hours prior to the time
of the holding of the meeting. In case such notice is sent by TWX, Telex, or
Telegram, it shall be transmitted or delivered to the telegraph company nearest
to the principal office of the Corporation at least
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twenty-four hours prior to the time of the holding of the meeting. In case
such notice is mailed, it shall be deposited in the United States mail at least
sixty hours prior to the time of the holding of the meeting. Except where
otherwise required by law or by these Bylaws, notice of the purpose of a
special meeting need not be given. Notice of any meeting of the Board of
Directors shall not be required to be given to any Director who shall have
waived such notice and such notice shall be deemed to have been waived by any
Director who is present at such meeting.
Section 5. Quorum. A majority of the authorized number of
Directors shall constitute a quorum for the transaction of business, but if at
any meeting of the Board there shall be less than a quorum present, a majority
of those present may adjourn the meeting from time to time. Every act or
decision done or made by a majority of the Directors present at a meeting duly
held at which a quorum is present shall be regarded as the act of the Board of
Directors, unless a greater number be required by law or by the Certificate of
Incorporation.
Section 6. Action Without Meeting. Any action required or
permitted to be taken by the Board of Directors may be taken without a meeting
if all members of the Board shall individually or collectively consent in
writing to such action and such written consent or consents shall be filed with
the minutes of the proceedings of the Board. Such action by written consent
shall have the same force and effect as a unanimous vote of the Directors.
Section 7. Compensation of Directors. Unless otherwise provided
by the Certificate of Incorporation, the Board of Directors shall have
authority to fix the compensation of Directors. Directors may be paid a fixed
sum for attendance at each meeting of the Board of Directors and may be paid a
stated compensation for serving as Directors. Directors may also be paid their
expenses, if any, for attending each meeting of the Board of Directors. No
payments to Directors shall preclude any Director from serving the Corporation
in any other capacity and receiving compensation therefor.
Section 8. Presiding Officers. At all meetings of the Board of
Directors, the Chairman of the Board of Directors, or, in his absence, the
President of the Corporation, or in the absence of the Chairman of the Board of
Directors and the President, a Chairman chosen by the Directors present shall
preside.
Section 9. Election of Officers. At the first meeting of the
Board of Directors each year (at which a quorum shall be present) held next
after the Annual Meeting of Stockholders, the Board of Directors shall proceed
to the election of the Officers of the Corporation.
Section 10. Committees of the Board of Directors. The Board of
Directors may by resolution appoint an Executive Committee and other
committees. Such Executive Committee and other committees shall be composed of
two or more members of this Board of Directors and shall have such powers as
may be expressly delegated to them by resolution of the Board of Directors,
except that no such committee shall have the power to amend the Certificate of
Incorporation, to adopt an agreement of merger or consolidation, to recommend
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, to recommend to the stockholders the
dissolution of the Corporation or a revocation of a dissolution, or to adopt,
amend or repeal Bylaws. The Executive Committee, if there shall be one, shall
have the right and authority to declare dividends. The Board of Directors
shall have the authority to fix the compensation of members of the committees
for attending committee meetings.
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Section 11. Advisory Directors. The Board of Directors may elect
one or more Advisory Directors who shall have such powers and perform such
duties as the Directors shall assign to them. Advisory Directors shall, upon
election, serve until the next Annual Meeting of Stockholders. Advisory
Directors shall receive notice of all meetings of the Board of Directors in the
same manner and at the same time as the Directors. They shall attend such
meetings in an advisory capacity, but shall not cast a vote or be counted to
determine a quorum. Any Advisory Director may be removed, either with or
without cause, by a majority of the Directors. The Advisory Directors shall
not receive any stated compensation for their services as Advisory Directors,
but by resolution of the Board of Directors a fixed fee and expenses of
attendance may be allowed for attendance at each meeting. Nothing herein shall
be construed to preclude any Advisory Director from serving the Corporation in
any other capacity as an officer, agent or other- wise, and receiving
compensation therefor.
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(New Section 9 Added 10/21/92)
ARTICLE IV
Officers
Section 1. Officers. The Officers of the Corporation shall be a
President, a Secretary and a Treasurer, who shall be elected by the Directors
at their first meeting after the Annual Meeting of Stockholders, and who shall
hold office until their successors are elected and qualify. The Board of
Directors may also elect at its discretion a Chairman of the Board, one or more
Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice
Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other Officers as the business of the Corporation may
require. The Chairman of the Board, if there shall be such an officer, and the
President must be members of the Board of Directors. So far as is permitted by
law any two or more offices may be held by the same person.
Section 2(a). Chairman of the Board. The Chairman of the Board of
Directors, if there shall be such an officer, shall preside at meetings of the
stockholders and of the Board of Directors, and shall perform such other
duties, in major policy areas or otherwise, consistent with his office, as may
be assigned to him by the Board of Directors.
Section 2(b) Vice Chairman of the Board. The Vice Chairman of the
Board of Directors, if there shall be such an officer, shall, during any period
when so requested by the Chairman of the Board of Directors or during the
absence of the Chairman of the Board of Directors or his inability to act, have
the powers and perform the duties of the Chairman. The vice Chairman shall
perform such other duties consistent with his office as from time to time may
be assigned to him by the Board of Directors.
Section 3. President. The President shall be the chief executive
officer of the Corporation. Subject to the control of the Board of Directors,
he shall have general executive powers concerning, and active management and
supervision over, the property, business and affairs of the Corporation and its
several officers. He shall have the powers and shall perform the duties
usually incident to the office of President and, during any period when so
requested by the Chairman of the Board of Directors, or during the absence of
the Chairman and the Vice Chairman of the Board of Directors or the inability
of both to act, shall also have the powers and perform the duties of the
Chairman of the Board of Directors. The President shall perform such other
duties consistent with his office as from time to time may be assigned to him
by the Board of Directors.
Section 4(a). Executive Vice President. The Executive Vice
President(s), if there shall be such an officer, shall, subject to such powers
as shall be assigned to him from time to time by the Board of Directors or by
the President, have such managerial responsibility and authority and shall
exercise such supervisory powers as shall be assigned to him from time to time
by the Board of Directors or by the President. He shall exercise the functions
of the President during the absence or disability of the President.
Section 4(b). Senior Vice President. The Senior Vice President(s)
shall exercise general supervision over and have executive control of such
departments of the Corporation's business and shall have such powers and
discharge such duties as may be assigned to him from time to time by
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the Board of Directors. The Senior Vice President, as designated by the Board
of Directors, shall exercise the functions of the President during the absence
or disability of the President and the Executive Vice President.
Section 4(c). Vice Presidents. The Vice Presidents shall exercise
general supervision over and have executive control of such departments of the
Corporation's business and shall have such powers and discharge such duties as
may be assigned to each of them from time to time by the Board of Directors.
The Vice Presidents in order of their rank, or if not ranked, as designated by
the Board of Directors, shall exercise the functions of the President during
the absence or disability of the President, the Executive Vice President and
the Senior Vice President.
Section 5. Secretary. The Secretary shall issue due notice to
stockholders and Directors in accordance with these Bylaws and as required by
law, shall record all the proceedings of the meetings of the stockholders and
Directors in a book to be kept for that purpose, shall have charge of the
corporate seal, shall keep or cause to be kept a share register of stockholders
of the Corporation, and shall make such reports and perform such other duties
as are incident to his office, or assigned to him by the Board of Directors.
Section 6. Assistant Secretary. The Assistant Secretaries shall,
in the absence or disability of the Secretary, perform the duties and exercise
the power of the Secretary.
Section 7. Treasurer. The Treasurer shall have the custody of all
monies and securities of the Corporation and shall keep regular books of
account. He shall disburse the funds of the Corporation in payment of the just
demands against the Corporation, or as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Board of Directors from time to time, as may be required of him, an account
of all his transactions as Treasurer and of the financial condition of the
Corporation.
Section 8. Assistant Treasurer. The Assistant Treasurer shall, in
the absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer.
Section 9. General Counsel. The General Counsel shall provide
legal advice to the Corporation, render legal opinions as necessary in
connection with the business of the Corporation, exercise general supervision
over the legal affairs of the Corporation and perform such other duties as
assigned to him by the Board of Directors.
Section 10. Duties. Except as otherwise provided in this Section,
the said Officers shall have all the usual powers and shall perform all the
usual duties incident to their respective offices and shall, in addition,
perform such other duties as shall be assigned to them from time to time by the
Board of Directors.
Section 11. Delegation of Duties. In the absence or disability of
any Officer of the Corporation, the Board of Directors may, subject to the
provisions of this Section, delegate his powers and duties to any other
Executive Officer, or to any Director, during such absence or disability, and
the person so delegated shall, for the time being, be the Officer whose powers
and duties he so assumes.
Section 12. Vacancies. A vacancy in any office existing at any time
may be filled by the Directors at any regular or special meeting.
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Section 13. Other Officers. The Board of Directors may appoint such
other Officers and agents as it shall deem necessary or expedient, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
Section 14. Salaries. The salaries of all Officers of the
Corporation shall be approved by the Board of Directors.
Section 15. Bonds. The Board of Directors may require any and all
Officers, respectively, to give a bond for the faithful performance of their
respective duties in such sum as said Board of Directors may determine, such
bond to be executed by a reliable surety company, but the expense of obtaining
the same shall be borne by the Corporation.
Section 16. Representation of Shares of Other Corporations. The
President or any Vice President and the Secretary or any Assistant Secretary of
this Corporation are authorized to vote, represent and exercise on behalf of
this Corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this Corporation. The
authority herein granted to said Officers to vote or represent on behalf of
this Corporation any and all shares held by this Corporation in any other
corporation or corporations may be exercised either by such Officers in person
or by any person authorized so to do by proxy or power of attorney duly
executed by said Officers.
Section 17. Removal of Officers. Any Officer may be removed at any
time by the affirmative vote of a majority of the Board of Directors.
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(Section 5 of Article V deleted in its entirety 10/18/96)
ARTICLE V
Certificates of Stock
Section 1. Form and Execution of Certificate. The certificates of
shares of stock of the Corporation shall be in such form as shall be approved
by the Board of Directors. All certificates shall be signed by the President
or a Vice President, and by the Secretary or an Assistant Secretary or by the
Treasurer or an Assistant Treasurer; provided, however, that if any such
certificate is countersigned by a transfer agent other than the Corporation or
its employee, or by a registrar other than the Corporation or its employee, the
signatures of such President or Vice President and of such Secretary or
Assistant Secretary or Treasurer or Assistant Treasurer may be facsimiles.
Section 2. Certificates to be Entered. All certificates shall be
consecutively numbered and the names in which they are issued, the number of
shares and the date of issue shall be entered in the Corporation's books.
Section 3. Transfer of Shares. Shares shall be transferred only
on the books of the Corporation by the holder thereof, in person or by his
attorney, upon the surrender and cancellation of certificates for a like number
of shares.
Section 4. Regulations. The Board of Directors shall have power
and authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock, and
may appoint a transfer agent or transfer agents and a registrar or registrars
of transfers, and may require all stock certificates to bear the signature of
any such transfer agent and registrar of transfers.
ARTICLE VI
Seal
The Board of Directors shall provide a corporate seal, which shall be
in the form of a circle and shall bear the name of the Corporation in words and
figures showing that it was incorporated in the State of Delaware in the year
1970.
ARTICLE VII
Indemnification
Section 1. Indemnification of Directors and Officers. The
Corporation shall, to the fullest extent permitted by law, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
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criminal, administrative or investigative (including without limitation any
action by or in the right of the Corporation) by reason of the fact that he is
or was a Director or Officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that he
had reasonable cause to believe that his conduct was unlawful. The right of
indemnity provided herein shall not be exclusive, and the Corporation may
provide indemnification to any person, by agreement or otherwise, on such terms
and conditions as the Board of Directors may approve. Any agreement for
indemnification of any Director, Officer, employee or other person may provide
indemnification rights which are broader or otherwise different from those set
forth herein.
Section 2. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this ARTICLE.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall commence on January 1, and
end on December 31 of each year.
ARTICLE IX
Amendments
These Bylaws may be adopted, amended or repealed by the vote of
stockholders as set forth in the Certificate of Incorporation. Subject to the
right of stockholders to adopt, amend or repeal Bylaws, Bylaws may be adopted,
amended or repealed by the Board of Directors.
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EXHIBIT 4.3
SECOND AMENDMENT
TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
This SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AGREEMENT
("Second Amendment"), dated as of December 18, 1996, is made by Ducommun
Incorporated, a Delaware corporation (the "Borrower"), and Bank of America
National Trust and Savings Association (the "Bank"), with reference to the
following facts:
RECITALS
A. This Second Amendment amends that certain Fourth Amended
and Restated Loan Agreement dated as of May 16, 1996, by and between Borrower
and Bank, which was previously amended by a First Amendment dated as of June
27, 1996 (the "Loan Agreement"). Capitalized terms used herein and not
otherwise defined shall have the meanings set forth for such terms in the Loan
Agreement.
B. Borrower has requested and Bank, subject to certain matters
set forth herein, has agreed, to amend the Loan Agreement (i) to confirm Bank's
agreement to release Bank's security interest in any and all Collateral that
secures the Obligations, (ii) to change certain interest and loan fee
provisions, and (iii) to delete certain restrictions on Borrower's Capital
Expenditures. Borrower and Bank desire to amend the Loan Agreement as set
forth herein to reflect such agreements.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants and
benefits contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Borrower and Bank hereby
agree as follows:
1. RELEASE OF COLLATERAL AND RELATED AMENDMENTS TO LOAN
AGREEMENT
1.1 Release of Security Interest. Bank hereby
releases any security interest evidenced by or created under any Collateral
Document to the extent that such security interest secures an Obligation under
any Loan Document. Bank agrees that it shall promptly (and in no event later
than 45 days after the date Bank signs this Second Amendment) execute and
deliver to Borrower such UCC Termination Statements and other documents as are
reasonably requested by Borrower to evidence such release. The foregoing
release does not affect any security interest in favor of Bank that secures
obligations owing to Bank that are not evidenced by the Loan Documents,
including that certain real estate secured loan by Bank to AHF Ducommun.
-1-
<PAGE> 2
1.2 Related Amendments. To reflect the foregoing
release of the Bank's security interest in the Collateral, the Loan Agreement
is amended as follows:
a. Section 1.1 of the Loan Agreement is amended to delete
the definition of the terms "Collateral" and "Collateral Documents" in their
entirety.
b. Section 1.1 of the Loan Agreement is further amended to
delete the words "the Collateral Documents" in the third line of the
definition of the term "Loan Documents."
c. Sections 4.9, 5.10, 5.15, 9.1(i) and 10.11(a) of the
Loan Agreement are deleted in their entirety and left intentionally blank.
d. Section 5.11 of the Loan Agreement is amended to delete
the words "and of each of the Collateral Documents" in the third line
thereof.
e. Section 5.13 of the Loan Agreement is amended and
restated in its entirety to read as follows:
"5.13 Notice of Location Change. Promptly notify Bank,
in writing, of the occurrence of any change in the location of, or
the addition of, any branch office, any field office, any warehouse
or any other place of business of Borrower or any Subsidiary;
provided, however, that no such notification shall be required if
the change, together with any other change since the Restated
Closing Date, would not in the aggregate involve Property with a
book value or fair market value, whichever is higher, in excess of
$200,000."
f. Subsection (n) of Section 6.6 of the Loan Agreement is
amended to add the word "Additional" to the beginning thereof.
g. Subsection (e) of Section 9.1 of the Loan Agreement is
amended to delete the words "or has taken or is taking such other actions as
might materially adversely affect the Collateral," in the 25th through 27th
lines thereof.
h. The last sentence of Section 10.9 of the Loan Agreement
is amended and restated in its entirety to read as follows:
"Any obligation or liability of Borrower to any Indemnitee under
this Section 10.9 shall survive the expiration or termination of
this Agreement and the
-2-
<PAGE> 3
repayment of all Loans and the payment and performance of all other
Obligations owed to Bank."
i. Subsection (a) of Section 10.10 of the Loan Agreement
is amended to delete the words "shall not be secured by the Collateral
Documents, and" in the 37th and 38th lines thereof.
j. Subsection (c) of Section 10.11 of the Loan Agreement
is amended to delete the words "any Collateral held by Bank" in the 13th
line thereof.
k. Section 10.13 is amended to delete clause (e) thereof.
Section 10.13 of the Loan Agreement is further amended to insert the word
"and" immediately before clause (d) thereof and to delete the word "and"
immediately following clause (d) thereof.
l. Section 10.16 of the Loan Agreement is amended in its
entirety to read as follows:
"10.16 Governing Law. Except to the extent otherwise provided
therein, each Loan Document shall be governed by, and construed and
enforced in accordance with, the local Laws of California."
2. ADDITIONAL AMENDMENTS TO LOAN AGREEMENT.
2.1 The Loan Agreement is further amended as follows:
a. The definition of the term "IBOR Rate Spread" is
amended in its entirety to read as follows:
""IBOR Rate Spread" means, with respect to any Revolving Loan,
1.50% for the period from the Restated Closing Date though August
31, 1996, and at all times thereafter, the IBOR Rate Spread shall
be equal to the percentage set forth below opposite Borrower's
Leverage Ratio as of the last day of the fiscal quarter most
recently ended for the related Spread Period:
<TABLE>
<CAPTION>
Percentage Leverage Ratio
---------- --------------
<S> <C>
1.00% Less than 1.05 to 1:00
1.25% Equal to or greater than 1.05 to 1:00
but less than 1.20 to 1.00
1.50% Equal to or greater than 1.20 to 1.00 but less than 1.51 to 1.00
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C>
1.75% Equal to or greater than 1.51 to 1.00
but less than or equal to 1.61 to 1.00
</TABLE>
b. The definition of the term "Reference Rate Spread" is
amended in its entirety to read as follows:
""Reference Rate Spread" means, with respect to any
Revolving Loan, minus .25%."
c. Section 3.2(b) of the Loan Agreement is deleted in its
entirety and left intentionally blank.
d. Subsection (a) of Section 3.3 of the Loan Agreement is
amended in its entirety to read as follows:
"(a) In the period from the Restated Closing Date through
September 30, 1996, Borrower shall pay to Bank a commitment
fee equal to .25% per annum times the average daily
difference between the Line A Commitment and the Total Line
A Outstandings. At all times after September 30, 1996
through the Revolver Termination Date, the Borrower shall
pay to Bank a commitment fee equal to the "specified
percentage" (as defined below) per annum times the average
daily difference between the Line A Commitment and the
Total Line A Outstandings. As used in the preceding
sentence, "specified percentage" shall be equal to (i)
.125% as long as the Total Line A Outstandings are less
than or equal to $10,000,000 as of the last day of the
fiscal quarter for which the commitment fee is due, and
(ii) .20% as long as the Total Line A Outstandings are
greater than $10,000,000 as of the last day of the fiscal
quarter for which the commitment fee is due. Such
commitment fee shall be payable quarterly in arrears within
5 Banking Days after the end of each calendar quarter,
commencing with the quarter ending June 30, 1996. Bank
shall use its best efforts to notify Borrower of the amount
of the commitment fee so payable prior to each fee payment
date, but failure of Bank to do so shall not excuse payment
of such fee when payable.
e. Section 6.14 of the Loan Agreement is deleted in its
entirety and left intentionally blank.
3. REPRESENTATIONS AND WARRANTIES.
Borrower makes the following representations and warranties to Bank
as of the date hereof, which representations and warranties shall survive the
execution, termination or expiration of this Second Amendment and shall
continue in full force and effect until the full
-4-
<PAGE> 5
and final satisfaction and discharge of all Obligations of Borrower to Bank
under the Loan Agreement and the other Loan Documents:
3.1 Reaffirmation of Prior Representations and
Warranties. Borrower hereby reaffirms and restates as of the date hereof all
of the representations and warranties made by Borrower in the Loan Agreement
and the other Loan Documents, except to the extent such representations and
warranties specifically relate to an earlier date.
3.2 No Default. No Default or Event of Default,
breach or failure of condition has occurred and is continuing under any of the
Loan Documents.
3.3 Due Execution. The execution, delivery and
performance of this Second Amendment and any instruments, documents or
agreements executed in connection herewith (collectively, the "Second Amendment
Documents") are within the powers of Borrower and its Subsidiaries that are a
party thereto, have been duly authorized by all necessary action, and do not
contravene any law or the certificate of incorporation or bylaws of Borrower or
any such Subsidiary, result in a breach of, or constitute a default under, any
contractual restriction, indenture, trust agreement or other instrument or
agreement binding upon Borrower or any such Subsidiary.
3.4 No Further Consent. The execution, delivery and
performance of this Second Amendment and each of the other Second Amendment
Documents do not require any consent or approval not previously obtained of any
stockholder, beneficiary or creditor of Borrower or any of its Subsidiaries.
3.5 Binding Agreement. This Second Amendment and each
of the other Second Amendment Documents constitute the legal, valid and binding
obligation of Borrower or its Subsidiaries as are party thereto and are
enforceable against Borrower and any such Subsidiary in accordance with their
terms, except as such enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws or equitable principles relating to
or limiting creditors' rights generally.
4. CONDITIONS PRECEDENT.
The effectiveness of this Second Amendment is subject to the
satisfaction of each of the following conditions precedent:
4.1 Documentation. Borrower shall have delivered or
caused to be delivered to Bank, at Borrower's sole cost and expense, the
following, each of which shall be in form and substance satisfactory to Bank:
a. two counterpart executed originals of this Second
Amendment;
-5-
<PAGE> 6
b. an original executed Consent and Reaffirmation of
Guarantors; and
c. evidence that the execution, delivery and
performance by the Borrower (and any guarantor) of this Second Amendment and
any instrument or agreement required under this Second Amendment have been
duly authorized.
4.2 No Defaults. All of Borrower's representations
and warranties contained herein shall be true and correct on and as of the date
of execution hereof and no Default or Event of Default shall have occurred and
be continuing under any of the Loan Documents, as modified hereby.
4.3 No Adverse Change. There shall have occurred no
material adverse change in the condition of the Borrower or its Subsidiaries
(financial or otherwise).
5. MISCELLANEOUS.
5.1 Costs and Expenses. Borrower agrees to pay all
costs, expenses, attorneys' fees, search fees, filing and recordation fees and
all other charges and expenses incurred by the Bank in connection with (1) the
negotiation, preparation, delivery and execution of this Second Amendment and
the Second Amendment Documents, including without limitation, the Bank's (i)
attorneys' fees and costs (including allocated costs of in-house counsel) and
(ii) out-of-pocket filing fees and recording charges, and (2) carrying out the
terms of this Second Amendment and the Second Amendment Documents, whether
incurred before or after the effective date hereof (including those associated
with the release of Bank's security interest in the Collateral).
5.2 Effect of Amendment. Except as provided in this
Second Amendment, all of the terms and conditions of the Loan Agreement shall
remain in full force and effect.
5.3 Counterparts. This Second Amendment may be
executed in counterparts and any party may execute any counterpart, each of
which shall be deemed to be an original and all of which, taken together, shall
be deemed to be one and the same document. The execution hereby by any party
shall not become effective until this Second Amendment is executed by all
parties hereto.
5.4 Prior Agreements. This Second Amendment contains
the entire agreement between Bank and Borrower with respect to the subject
matters hereof, and all
-6-
<PAGE> 7
prior negotiations, understandings and agreements with respect thereto are
superseded by this Second Amendment.
This Second Amendment is executed as of the date stated at the
beginning of this Second Amendment.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By ___________________________________
___________________________________
[Printed Name and Title]
DUCOMMUN INCORPORATED
By ___________________________________
___________________________________
[Printed Name and Title]
-7-
<PAGE> 1
EXHIBIT 10.5
DUCOMMUN INCORPORATED
STOCK OPTION AGREEMENT
This stock option agreement ("Option") is made as of ______ (the "Effective
Date"), between DUCOMMUN INCORPORATED, a Delaware corporation (the
"Corporation"), and ____________ ("Option Holder").
R E C I T A L S
This Option is being granted pursuant to the 1994 Stock Incentive Plan (the
"Plan"). This Option is intended to qualify as an incentive stock option
("Incentive Stock Option") as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). This Option expires on
__________________ (the "Expiration Date").
A G R E E M E N T S
1. Grant. The Corporation hereby grants to the Option Holder the
right and option to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate of ____ shares of the Common Stock at
the purchase price of $______ per share, being 100% of the fair market value of
the Common Stock on the date the option is granted, exercisable from time to
time in accordance with the provisions of this Agreement until the close of
business on the Expiration Date.
2. Definitions. Unless the context clearly indicates otherwise,
and subject to the terms and conditions of the Plan as the same may be amended
from time to time, the following terms, when used in this stock option
agreement, shall have the meanings set forth in this Section 2.
"Common Stock" shall mean the Common Stock, $.01 par value, of
the Corporation or such other class of shares or other securities as
may be applicable pursuant to the provisions of Section 7 of this
stock option agreement.
"Subsidiary" shall have the meaning ascribed to that term under
Section 424(f) of the Code, and which is designated by the Committee
for participation in the Plan by the key employees thereof.
"Committee" shall mean the Compensation Committee of the Board
of Directors of the Corporation, or if there is no such committee
acting, the Board of Directors of the Corporation.
<PAGE> 2
3. Conditions to Exercise. The Option Holder may not
purchase any shares by exercise of this option unless the Option Holder shall
have remained in the employ of the Corporation and/or a Subsidiary until at
least ________________. On and after _______________, the Option Holder may
purchase, by exercise of this option, an aggregate of not more than one-fourth
of the total number of shares subject to this option. On and after
______________, the Option Holder may purchase, by exercise of this option, an
additional one-fourth of such total number of shares. On and after
_____________, the Option Holder may purchase, by exercise of this option, an
additional one-fourth of such total number of shares. On and after
________________, until this option expires, the Option Holder may purchase, by
exercise of this option, all or any part of the shares subject to this option.
Provided, however, that until this option expires, the Option Holder may
purchase, by exercise of this option, all or any part of the shares subject to
this option at any time after a "Change in Control" of the Corporation has
occurred. For purposes of this stock option agreement, a "Change in Control"
of the Corporation shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed conclusively to have occurred if (i) a tender offer shall be
made and consummated for the ownership of 25% or more of the outstanding voting
securities of the Corporation, (ii) the shareholders of the corporation approve
that the Corporation be merged or consolidated with another corporation and as
a result of such merger or consolidation less than 75% of the outstanding
voting securities of the surviving or resulting corporation shall be owned in
the aggregate by the former shareholders of the Corporation, other than
affiliates (within the meaning of the Exchange Act) of any party to such merger
or consolidation, as the same shall have existed immediately prior to such
merger or consolidation, (iii) the shareholders of the Corporation approve that
the Corporation sell, lease, exchange or transfer substantially all of its
assets to another corporation, entity or person which is not a wholly-owned
subsidiary, (iv) a person, as defined in Sections 13(d) and 14(d) (as in effect
on the date hereof) of the Exchange Act, shall acquire 25% (or in the case of
The Clark Estates, Inc., 30%) or more of the outstanding voting securities of
the Corporation (whether directly, indirectly, beneficially or of record), (v)
the shareholders of the Corporation approve a plan or proposal for the
liquidation or dissolution of the Corporation, or (vi) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the
Corporation's shareholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the period. For purposes hereof, ownership of voting
securities shall take into account and shall include ownership as determined by
applying the provisions of Rule 13d-3 (as in effect on the date hereof) under
the Exchange Act. A sale or other change in control of any Subsidiary of the
Corporation by which the Option Holder is employed shall not be deemed a Change
in Control of the Corporation for purposes of this Agreement.
2
<PAGE> 3
4. Exercise by the Option Holder. This Option may be exercised
solely by the Option Holder, except as provided in Section 5 below in the event
of the Option Holder's death.
5. Termination. This Option shall terminate if and when the
Option Holder shall cease to be an employee of the Corporation or a Subsidiary,
except as follows:
(a) Death or Permanent Disability. If the Option Holder dies
or becomes permanently disabled (within the meaning of Section
22(e)(3) of the Code) while employed by the Corporation or a
Subsidiary, or while this Option was exercisable by him in accordance
with paragraph (b) below after his retirement or the termination of
his employment other than for cause, this Option may be exercised (for
not more than the number of shares as to which the Option Holder might
have exercised this Option at the time of such death or permanent
disability) at any time (i) prior to the Expiration Date, in the event
the Expiration Date is not more than one year from the date of death,
or (ii) within such one year, in the event that the Expiration Date is
more than one year from such date of death;
(b) Retirement or Other Termination. If the Option Holder
retires or if his employment with the Corporation or a Subsidiary is
terminated for any reason other than by death or permanent disability,
this Option may be exercised (for not more than the number of shares
as to which the Option Holder might have exercised this Option on the
date of his retirement or the date on which his employment was
terminated) at any time (i) prior to the Expiration Date in the event
the Expiration Date is not more than three months from the date of
such retirement or termination, or (ii) within such three-month
period, in the event that the Expiration Date is more than three
months from the date of such retirement or termination of employment;
provided, however, that if the Option Holder is dismissed for cause,
of which the Committee shall be the sole judge, this Option shall
terminate forthwith.
The Committee may determine that, for the purpose of the Plan, the Option
Holder while on a leave of absence will be considered as still in the employ of
the Corporation or a Subsidiary, provided that if any such leave of absence
exceeds 90 days and the Option Holder's right to reemployment is not guaranteed
either by statute or express written contract, such Option Holder shall cease
to be an employee of the Corporation or a Subsidiary on the 91st day of such
leave, and provided that this Option shall be exercisable during a leave of
absence only as to the number of shares as to which it was exercisable at the
commencement of such leave of absence.
6. Method of Exercise. A person electing to exercise this Option
shall deliver to the Secretary of the Corporation prior to the Expiration Date
a written notice of such election and of the number of shares such person has
elected to purchase and shall at the time of exercise tender the full purchase
price of the shares such person has elected to purchase.
3
<PAGE> 4
7. Adjustments
(a) If the outstanding shares of Common Stock of the
Corporation are increased, decreased, or converted into or exchanged for a
different number or kind of shares or securities of the Corporation through
recapitalization (other than the conversion of convertible securities according
to their terms), reclassification, stock dividend, stock split or reverse stock
split, an appropriate and proportionate adjustment shall be made, or if the
Corporation shall spin-off or otherwise distribute assets with respect to the
out-standing shares of Common Stock of the Corporation, an appropriate and
proportionate adjustment may be made in the discretion of the Committee, in (i)
the number and kind of shares subject to this Option, and (ii) the exercise
price for each share under this Option, without any change in the aggregate
purchase price or value applicable to the unexercised portion hereof.
(b) In the event of the dissolution or liquidation of the
Corporation, or upon any merger, consolidation or reorganization of the
Corporation with any other corporations or entities as a result of which the
Corporation is not the surviving corporation, or upon the sale of all or
substantially all of the assets of the Corporation or the acquisition of more
than 80% of the stock of the Corporation by another corporation or entity,
there shall be substituted for each of the shares of Common Stock then subject
to the Plan the number and kind of shares of stock, securities or other assets
which would have been issuable or payable in respect of or in exchange for such
Common Stock then subject to the Plan, as if the Option Holder had been the
owner of such shares as of the transaction date. Any securities so substituted
shall be subject to similar successive adjustments.
(c) Notwithstanding anything to the contrary herein, no
adjustment shall be made under subsections (a) or (b) of this Section 7 without
the prior written consent of the Option Holder to the extent such adjustment
would result in this Option being treated as other than an Incentive Stock
Option.
8. No Right to Continued Employment. Nothing in the Plan, in this
Option or in any other instrument executed pursuant thereto shall confer upon
the Option Holder any right to continue in the employ of the Corporation or any
Subsidiary of the Corporation or shall interfere in any way with the right of
the Corporation or any such Subsidiary to at any time terminate the employment
of the Option Holder with or without cause.
9. Legal Requirements. No shares issuable upon the exercise of
this Option shall be issued or delivered unless and until, in the opinion of
counsel for the Corporation, all applicable requirements of federal and state
law and of the Securities and Exchange Commission pertaining to the issuance
and sale of such shares and any applicable listing requirements of any national
securities exchange on which shares of the same class are then listed, shall
have been fully complied with. In connection with any such issuance or
transfer, the person acquiring the shares shall, if requested by the
Corporation, give assurances satisfactory to counsel to the Corporation in
respect of such
4
<PAGE> 5
matters as the Corporation or any Subsidiary of the Corporation may deem
desirable to assure compliance with all applicable legal requirements.
10. No Rights as a Shareholder. Neither the Option Holder nor any
beneficiary or other person claiming under or through the Option Holder shall
have any right, title or interest in or to any shares of Common Stock allocated
or reserved for the purpose of the Plan or subject to this Agreement except as
to such shares of Common Stock, if any, as shall have been issued or
transferred to such person.
11. Withholding. The Corporation or any Subsidiary of the
Corporation may make such provisions as it may deem appropriate for the
withholding of any taxes which the Corporation or such Subsidiary determines it
is required to withhold in connection with this Option and the transactions
contemplated hereby, and the Corporation or any such Subsidiary may require the
Option Holder or other person exercising this Option to pay to the Corporation
or such Subsidiary in cash any amount or amounts which may be required to be
paid as withheld taxes in connection with any exercise of this Option or any
other transaction contemplated hereby as a condition to the exercise of this
Option and issuance of shares of the Common Stock.
12. No Assignments. Neither this Option nor any other rights and
privileges granted hereby shall be transferred, assigned, pledged or
hypothecated in any way, other than by will or by operation of laws of descent
and distribution. Upon any attempt to so transfer, assign, pledge, hypothecate
or otherwise dispose of this Option or any other right or privilege granted
hereby contrary to the provisions hereof, this Option and all of such rights
and privileges shall immediately become null and void.
13. Other Programs. Nothing contained in this Option shall affect
the right of the Option Holder to participate in and receive benefits under and
in accordance with the then current provisions of any pension, insurance,
profit-sharing or other employee benefit plan or program of the Corporation or
of any Subsidiary of the Corporation.
14. The Plan. The Option hereby granted is subject to, and the
Corporation and Option Holder agree to be bound by all of the terms and
conditions of the Plan as the same may be amended from time to time in
accordance with the terms thereof, but no such amendment may adversely affect
the Option Holder's rights under this Option. Option Holder acknowledges
receipt of a complete copy of the Plan.
15. Consideration. The consideration for the rights and benefits
conferred on Option Holder by this Option are the services rendered by the
Option Holder after and not before the grant of this Option.
16. Applicable Law. This Option has been granted as of the
effective date set forth above at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
5
<PAGE> 6
DUCOMMUN INCORPORATED
By: ____________________________________
CEO and President
By: ____________________________________
Secretary
____________________________________
Option Holder
By his or her signature, the spouse of the Option Holder hereby agrees to be
bound by all the terms and conditions of this written stock option agreement.
____________________________________
Spouse of Option Holder
6
<PAGE> 1
EXHIBIT 10.8
DUCOMMUN INCORPORATED
DESCRIPTION OF
1997 EXECUTIVE OFFICER BONUS ARRANGEMENT
The Ducommun Incorporated 1997 Executive Officer Bonus Arrangement
(the "Arrangement") is designed to reward achievement of annual operating plan
objectives in order to build profitability and provide competitive compensation
levels. The Arrangement contains a formula- based incentive plan driven by
sales, net income, cash flow and return on asset performance in excess of
established thresholds. The participants in the Arrangement are the five
Ducommun corporate officers and the six subsidiary presidents.
The Arrangement provides for bonus awards ranging from 0 to 100% of
annual base salary depending on position. The targeted bonus award under the
Arrangement is half of the maximum bonus eligibility for each individual.
Bonus awards are based on a combination of total corporate performance and on
individual performance of executive officers. The subsidiary presidents are
also measured based upon the financial performance of their operating units.
All awards are subject to the approval of the Compensation Committee of the
Board of Directors.
<PAGE> 1
EXHIBIT 11
DUCOMMUN INCORPORATED
Computation of Earnings Per Common and Common Equivalent Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------
Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Income From Operations for Computation
of Primary Earnings Per Share $10,285 $ 5,046 $ 2,204
Interest, Net of Income Taxes, Relating to
7-3/4% Convertible Subordinated Debentures 222 1,354 (A)
Income From Continuing Operations for
Computation of Fully Diluted Earnings
Per Share 10,507 6,400 2,204
Net Income for Computation of Primary
Earnings Per Share $10,285 $ 5,046 $ 2,204
Net Income for Computation of Fully
Diluted Earnings Per Share $10,507 $ 6,400 $ 2,204
Applicable Shares
Weighted Average Common Shares Outstanding for
Computation of Primary Earnings Per Share 6,594 4,500 4,463
Weighted Average Common Equivalent
Shares Arising From:
7-3/4% convertible subordinated debentures 712 2,431 (B)
Stock options:
Primary 514 342 112
Fully Diluted 609 427 (B)
Weighted Average Common and Common Equivalent
Shares Outstanding for Computation of Fully
Diluted Earnings Per Share 7,915 7,358 4,575
Earnings Per Share
Primary $1.45 $1.04 $0.48
Fully Diluted 1.33 0.87 0.48
</TABLE>
A. Excludes interest, net of income taxes, relating to 7-3/4% convertible
subordinated debentures because their common stock equivalents shares are
antidilutive.
B. Excludes common stock equivalents relating to 7-3/4% convertible
subordinated debentures and common stock options which are antidilutive for
1994.
<PAGE> 1
EXHIBIT 13
DUCOMMUN INCORPORATED
ANNUAL REPORT
The following portions of Ducommun Incorporated and Subsidiaries 1996 Annual
Report are incorporated by reference in Items 5, 6, 7, and 8 of this report.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Selected Financial Data 13
Quarterly Common Stock Price Information 13
Management's Discussion and Analysis of Financial Condition 14-16
and Results of Operations
Consolidated Statements of Income 17
Consolidated Balance Sheets 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of Changes in Shareholders' Equity 20
Notes to Consolidated Financial Statements 21-27
Report of Independent Accountants 28
</TABLE>
<PAGE> 2
SELECTED FINANCIAL DATA Ducommun Incorporated
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996(A) 1995(A) 1994(A) 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales $ 118,357 $ 91,217 $ 61,738 $ 64,541 $ 67,445
-------------------------------------------------------------------------
Gross Profit as a Percentage of Sales 32.6% 33.0% 28.8% 26.8% 26.0%
-------------------------------------------------------------------------
Income:
Income from Continuing Operations
Before Taxes, Extraordinary Item and
Cumulative Effect of Accounting Change $ 14,325 $ 6,941 $ 3,177 $ 3,427 $ 2,611
Income Tax Expense (4,040) (1,895) (973) (1,199) (187)
Extraordinary Item, Net of Income Taxes -- -- -- -- 636
Cumulative Effect of Accounting Change -- -- -- 8,000 --
-------------------------------------------------------------------------
Net Income $ 10,285 $ 5,046 $ 2,204 $ 10,228 $ 3,060
=========================================================================
Earnings Per Share:
Income Before Extraordinary Item and
Cumulative Effect of Accounting Change $ 1.33 $ .87 $ .48 $ .48 $ .66
Extraordinary Item, Net of Income Taxes -- -- -- -- .09
Cumulative Effect of Accounting Change -- -- -- 1.09 --
-------------------------------------------------------------------------
Fully Diluted Earnings Per Share $ 1.33 $ .87 $ .48 $ 1.57 $ .75
=========================================================================
Working Capital $ 17,286 $ 11,247 $ 6,710 $ 11,744 $ 9,873
Total Assets 95,814 80,974 79,852 55,290 49,694
Convertible Subordinated Debentures -- 24,263 28,000 28,000 28,000
Long-Term Debt Including Current Portion 10,290 12,845 21,913 4,529 6,600
Total Shareholders' Equity 59,188 24,588 15,783 13,585 3,347
Cash Dividends Per Share -- -- -- -- --
</TABLE>
(A) - See Note 2 to the consolidated financial statements for discussion of
acquisitions.
QUARTERLY COMMON STOCK PRICE INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------ ------------------
HIGH LOW HIGH LOW HIGH LOW
<S> <C> <C> <C> <C> <C> <C>
First Quarter $14.13 $9.50 $6.25 $4.69 $4.25 $2.75
Second Quarter 14.88 12.88 7.75 5.75 5.38 3.88
Third Quarter 18.38 12.38 10.25 7.19 4.75 4.13
Fourth Quarter 24.38 16.63 10.50 8.88 5.00 4.19
</TABLE>
The common stock of the Company (DCO) is listed on the New York Stock
Exchange. On December 31, 1996, the Company had approximately 749 holders of
record of common stock.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACQUISITIONS In June 1996, the Company acquired substantially all of the assets
of MechTronics of Arizona, Inc. ("MechTronics") for $8,000,000 in cash and a
$750,000 note. MechTronics is a leading manufacturer of mechanical and
electromechanical enclosure products for the defense electronics, commercial
aviation and communications markets. In January 1995, the Company acquired the
capital stock of 3dbm, Inc. ("3dbm") for $4,780,000 in cash and $400,000 in
notes. 3dbm supplies high-power expanders, microcells and other wireless
telecommunications hardware used in cellular telephone networks, and microwave
components and subsystems to both military and commercial customers. In December
1994, the Company 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. Brice is an after-market supplier of aircraft seating
products to many of the world's largest commercial airlines. In December 1994,
the Company's subsidiary, Jay-El Products, Inc. ("Jay-El Products"), acquired
substantially all of the assets of Dynatech Microwave Technology, Inc. ("DMT"),
for $7,500,000 in cash. DMT manufactures switches and other microwave components
used on commercial and military aircraft, and in wireless telecommunications
equipment.
The 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
strengthened the Company's position in the aerospace industry, added
complementary lines of business and improved utilization of existing
manufacturing facilities and overhead structure.
RESULTS OF OPERATIONS 1996 Compared to 1995 - Net sales increased 30% to
$118,357,000 in 1996. The increase resulted from a broad-based increase in sales
in most of the Company's product lines due to improved industry conditions and
new contract awards, as well as sales from the MechTronics acquisition completed
in June 1996. The Company's mix of business was approximately 52% commercial,
38% military and 10% space in 1996. Foreign sales decreased to 18% of total
sales in 1996 from 26% in 1995. Canada is the only foreign country in which the
Company had sales of 4% or more of total sales, with sales of $4,906,000 in 1996
and $4,518,000 in 1995.
The Company had substantial sales to Lockheed Martin, Boeing, McDonnell
Douglas and Northrop Grumman. During 1996 and 1995, sales to Lockheed Martin
were $13,037,000 and $8,163,000, respectively; sales to Boeing were $11,876,000
and $5,215,000, respectively; sales to McDonnell Douglas were $10,031,000 and
$9,516,000, respectively; and sales to Northrop Grumman were $7,843,000 and
$9,623,000, respectively. At December 31, 1996, trade receivables from Lockheed
Martin, Boeing, McDonnell Douglas and Northrop Grumman were $1,541,000,
$1,436,000, $989,000 and $647,000, respectively. The sales and receivables
relating to Lockheed Martin were primarily for the Space Shuttle program. The
sales and receivables relating to Boeing, McDonnell Douglas and Northrop Grumman
are diversified over a number of different commercial and military programs.
The Company's commercial business is represented on virtually all of
today's major commercial aircraft. During 1996, commercial sales increased
primarily as a result of increased commercial aircraft build rates, new contract
awards and increased airline seat refurbishment projects, as well as sales from
the MechTronics acquisition.
Military components manufactured by the Company are employed in many of
the country's front-line fighters, bombers, helicopters and support aircraft, as
well as many land and sea-based vehicles. During 1996, military sales increased
primarily as a result of new contract awards, as well as sales from the
MechTronics acquisition. The Company's defense business is widely diversified
among military manufacturers and programs and, with the exception of the C-17
program which accounted for approximately $5,978,000 in sales in 1996, the
cancellation of any individual program is not expected to have a significant
impact on the Company's operations.
In the space sector, the Company produces components for the expendable
fuel tanks which help boost the Space Shuttle vehicle into orbit. Components are
also produced for a variety of unmanned launch vehicles. Sales related to space
programs were approximately $11,544,000, or 10% of total sales in 1996. Any
substantial delay or suspension of production for the Space Shuttle program
would have a significant impact on the results of operations for the Company.
<PAGE> 4
Ducommun Incorporated
At December 31, 1996, backlog believed to be firm was approximately
$134,500,000, including $24,291,000 for space-related business, compared to
$92,600,000 at December 31, 1995. Backlog growth has been concentrated
principally in the Boeing 777 and 737-700/800 and the McDonnell Douglas C-17.
Approximately $74,000,000 of the total backlog is expected to be delivered
during 1997.
Gross profit, as a percentage of sales, decreased to 32.6% in 1996 from
33.0% in 1995. This decrease was primarily the result of higher production costs
at MechTronics, which was acquired in June 1996.
Selling, general and administrative expenses as a percentage of sales
decreased to 19.6% compared to 21.5% of sales in 1995. The decrease in these
expenses as a percentage of sales was primarily the result of higher sales
volume partially offset by an increase in related period costs.
Interest expense decreased approximately 68% to $1,153,000 in 1996
primarily due to the conversion of $24,263,000 of convertible subordinated
debentures that were outstanding at December 31, 1995.
Income tax expense increased to $4,040,000 in 1996 compared to
$1,895,000 for 1995. The increase in income tax expense was primarily due to the
increase in income before taxes. From a cash flow perspective, however, the
Company continued to use its federal net operating loss carryforwards to offset
taxable income. Cash expended to pay income taxes was $1,759,000 in 1996,
compared to $555,000 in 1995. In 1997, for financial reporting purposes, the
Company anticipates that its financial statements will reflect an effective tax
rate of approximately 40%, versus 28% in 1996. From a cash flow perspective,
however, in 1997, the Company expects to be able to continue to use its federal
net operating loss carryforwards to offset taxable income. At December 31, 1996,
the Company had federal tax NOLs totaling approximately $16,000,000.
Net income for 1996 was $10,285,000, or $1.33 per share, compared to
$5,046,000, or $0.87 per share, in 1995.
1995 Compared to 1994 -- Net sales increased 48% to $91,217,000 in 1995. The
increase was due primarily to sales from businesses acquired in December 1994
and January 1995, and increased offload work for aircraft structural components
from prime contractors and major subcontractors. The Company's mix of business
was approximately 55% commercial, 36% military and 9% space in 1995. Foreign
sales increased to 26% of total sales in 1995 from 19% in 1994. The increase in
foreign sales was primarily the result of higher sales to foreign customers from
the acquired businesses. Canada is the only foreign country in which the Company
had sales of 5% or more of total sales in 1995 and 1994.
The Company had substantial sales to Lockheed Martin, Northrop Grumman,
McDonnell Douglas and Boeing. During 1995 and 1994, sales to Lockheed Martin
were $8,163,000 and $9,454,000, respectively; sales to Northrop Grumman were
$9,623,000 and $7,696,000, respectively; sales to McDonnell Douglas were
$9,516,000 and $7,540,000, respectively; and sales to Boeing were $5,215,000 and
$5,685,000, respectively. At December 31, 1995, trade receivables from Lockheed
Martin, Northrop Grumman, McDonnell Douglas and Boeing were $1,562,000,
$1,210,000, $768,000 and $629,000, respectively. The sales and receivables
relating to Lockheed Martin are primarily for the Space Shuttle program. The
sales and receivables relating to Northrop Grumman, McDonnell Douglas and Boeing
are diversified over a number of different commercial and military programs.
The Company's commercial business is represented on virtually all major
commercial aircraft. During 1995, the Company experienced an increase in
commercial sales primarily as a result of increased offload work for aircraft
structural components from prime contractors and major subcontractors, and sales
from acquisitions made in 1994 and 1995.
Military components manufactured by the Company are employed in many of
the country's front-line fighters, bombers, helicopters and support aircraft, as
well as many land and sea-based vehicles. The Company's defense business is
widely diversified among military manufacturers and programs. The C-17 program
accounted for approximately $4,904,000 in sales in 1995.
In the space sector, the Company produces components for the expendable
fuel tanks which help boost the Space Shuttle vehicle into orbit. Components are
also produced for a variety of unmanned launch vehicles. Sales related to space
programs in 1995 decreased 20% to $8,457,000, due to the timing of the
introduction of new super lightweight expendable fuel tanks.
At December 31, 1995, backlog believed to be firm was approximately
$92,600,000, including $26,000,000 for space-related business, compared to
$84,800,000 at December 31, 1994.
<PAGE> 5
Gross profit, as a percentage of sales, increased to 33.0% in 1995 from
28.8% in 1994. This increase was primarily the result of changes in sales mix,
economies of scale resulting from sales increases and improvements in production
efficiencies. The increase was partially offset by production inefficiencies
resulting from the relocation of the DMT business in the first quarter of 1995,
higher production costs at 3dbm, changes in customer production schedules and
the start of new production programs.
Selling, general and administrative expenses increased to $19,572,000,
or 21.5% of sales in 1995, compared to 19.7% 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 $507,000 of debt
conversion expense related to the conversion of $6,252,000 of convertible
subordinated debentures.
Interest expense increased 44.7% to $3,570,000 in 1995 primarily due to
higher debt levels caused by acquisition financing.
The Company had income tax expense of $1,895,000 and $973,000 in 1995
and 1994, respectively, for financial reporting purposes. The increase in income
tax expense was primarily due to the increase in income before taxes. This
increase was partially offset by the decrease in the valuation allowance due to
the Company's reevaluation of the realizability of tax benefits from future
operations. From a cash flow perspective, however, the Company continued to use
its federal net operating loss carryforwards to offset taxable income. Cash
expended to pay income taxes was $555,000 in 1995, compared to $123,000 in 1994.
Net income for 1995 was $5,046,000, or $0.87 per share, compared to
$2,204,000, or $0.48 per share, in 1994.
FINANCIAL CONDITION Liquidity and Capital Resources -- Cash flow from operating
activities for 1996 was $18,047,000, of which $6,691,000 was used to purchase
property and equipment, and $8,000,000 was used in the acquisition of
MechTronics in June 1996. At December 31, 1996 the Company had bank borrowings
of $4,000,000. During 1996, the Company repaid $2,555,000 of principal on its
outstanding bank borrowings, promissory notes, term and commercial real estate
loans.
The Company continues to depend on operating cash flow and the
availability of its bank line of credit to provide short-term liquidity. Cash
from operations and bank borrowing capacity are expected to provide sufficient
liquidity to meet the Company's obligations during 1997.
Aggregate maturities of long-term debt during the next five years are
as follows: 1997, $1,117,000; 1998, $4,850,000; 1999, $634,000; 2000, $414,000;
2001, $446,000.
The Company spent $6,691,000 on capital expenditures during 1996 and
expects to spend approximately $11,000,000 for capital expenditures in 1997. The
Company plans to make substantial capital expenditures for
numerically-controlled routers and laserscriber related equipment to support
long-term aerospace structure contracts for both commercial and military
aircraft. These expenditures are expected to place the Company in a favorable
competitive position among aerospace subcontractors, and to allow the Company to
take advantage of the offload requirements from its customers.
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier
of chemical milling services for the aerospace industry. Aerochem has been
directed by California environmental agencies to investigate and take corrective
action for groundwater contamination at its El Mirage, California facility.
Based upon currently available information, the Company has established a
provision for the cost of such investigation and corrective action.
In the normal course of business, Ducommun and its subsidiaries are
defendants in certain other litigation, claims and inquiries, including matters
relating to environmental laws. In addition, the Company makes various
commitments and incurs contingent liabilities. While it is not feasible to
predict the outcome of these matters, the Company does not presently expect that
any sum it may be required to pay in connection with these matters would have a
material adverse effect on its consolidated financial position or results of
operations.
Any forward looking statements made in this Annual Report involve risks
and uncertainties. The Company's future financial results could differ
materially from those anticipated due to the Company's dependence on conditions
in the airline industry, the level of new commercial aircraft orders, the
production rate for the Space Shuttle program, the level of defense spending,
competitive pricing pressures, technology and product development risks and
uncertainties, and other factors beyond the Company's control.
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME Ducommun Incorporated
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net Sales $ 118,357 $ 91,217 $ 61,738
Operating Costs and Expenses:
Cost of goods sold 79,732 61,134 43,953
Selling, general and administrative expenses 23,147 19,572 12,141
---------------------------------------------
Total Operating Costs and Expenses 102,879 80,706 56,094
---------------------------------------------
Operating Income 15,478 10,511 5,644
Interest Expense (1,153) (3,570) (2,467)
---------------------------------------------
Income Before Taxes 14,325 6,941 3,177
Income Taxes Expense (Note 11) (4,040) (1,895) (973)
---------------------------------------------
Net Income $ 10,285 $ 5,046 $ 2,204
=============================================
Earnings Per Share:
Primary $ 1.45 $ 1.04 $ .48
Fully Diluted 1.33 .87 .48
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
CONSOLIDATED BALANCE SHEETS Ducommun Incorporated
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------
(amounts in thousands, except per share amounts)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 571 $ 371
Accounts receivable (less allowance for doubtful accounts of $206 and $366) 14,722 13,828
Inventories (Note 3) 22,595 13,362
Deferred income taxes (Note 11) 4,597 5,090
Other current assets 1,850 1,151
----------------------
Total Current Assets 44,335 33,802
Property and Equipment, Net (Note 4) 27,051 23,011
Deferred Income Taxes (Note 11) 5,594 6,451
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $3,548 and $2,323) 18,326 16,697
Other Assets 508 1,013
----------------------
$ 95,814 $ 80,974
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 6) $ 1,117 $ 3,910
Accounts payable 8,343 4,917
Accrued liabilities (Note 5) 17,589 13,728
----------------------
Total Current Liabilities 27,049 22,555
Long-Term Debt (Note 6) 9,173 8,935
Convertible Subordinated Debentures (Note 6) -- 24,263
Other Long-Term Liabilities 404 633
----------------------
Total Liabilities 36,626 56,386
----------------------
Commitments and Contingencies (Notes 2, 10 and 12)
Shareholders' Equity (Note 7):
Common stock -- $.01 par value; authorized 12,500,000 shares; issued
and outstanding 7,301,428 shares in 1996 and 4,852,281 in 1995 73 49
Additional paid-in capital 59,280 34,989
Accumulated deficit (165) (10,450)
----------------------
Total Shareholders' Equity 59,188 24,588
----------------------
$ 95,814 $ 80,974
======================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS Ducommun Incorporated
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 10,285 $ 5,046 $ 2,204
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and amortization 4,473 4,382 3,117
Deferred income tax provision 2,014 934 712
Other (186) 44 51
Changes in Assets and Liabilities, Net of Effects
from Acquisitions:
Accounts receivable 1,826 (3,413) 1,475
Inventories (4,105) (1,651) 1,280
Other assets (636) (581) 760
Accounts payable 2,310 (166) (701)
Accrued and other liabilities 2,066 3,491 1,517
------------------------------------
Net Cash Provided by Operating Activities 18,047 8,086 10,415
------------------------------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (6,691) (2,501) (1,219)
Acquisition of Businesses (8,000) (4,427) (8,263)
Other -- 34 3
------------------------------------
Net Cash Used in Investing Activities (14,691) (6,894) (9,479)
------------------------------------
Cash Flows from Financing Activities:
Net (Repayment) Borrowings of Long-Term Debt (2,555) (9,068) 7,019
Cash Premium for Conversion of Convertible Subordinated Debentures (609) (258) --
Other 8 22 (6)
------------------------------------
Net Cash (Used in) Provided by Financing Activities (3,156) (9,304) 7,013
------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 200 (8,112) 7,949
Cash and Cash Equivalents at Beginning of Year 371 8,483 534
------------------------------------
Cash and Cash Equivalents at End of Year $ 571 $ 371 $ 8,483
====================================
Supplemental Disclosures of Cash Flow Information:
Interest Expense Paid $ 1,553 $ 3,719 $ 2,508
Income Taxes Paid $ 1,759 $ 555 $ 123
</TABLE>
Supplementary Information for Non-Cash Financing Activities:
During 1996, the Company issued 2,417,205 new shares of common stock upon
conversion of $24,263,000 of its outstanding 7.75% convertible subordinated
debentures. During 1995, the Company issued 374,446 new shares of common stock
upon conversion of $3,737,000 of its outstanding 7.75% convertible subordinated
debentures.
See accompanying notes to consolidated financial statements.
<PAGE> 9
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Ducommun Incorporated
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
SHARES COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL DEFICIT EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 4,462,608 $ 45 $ 31,240 $ (17,700) $ 13,585
Stock options exercised 5,000 -- 9 -- 9
Stock repurchased (3,454) -- (15) -- (15)
Net Income -- -- -- 2,204 2,204
------------------------------------------------------------------------
Balance at December 31, 1994 4,464,154 45 31,234 (15,496) 15,783
Stock options exercised 20,125 -- 68 -- 68
Stock repurchased (6,444) -- (46) -- (46)
Common stock issued upon conversion
of outstanding 7.75% convertible
subordinated debentures 374,446 4 3,733 -- 3,737
Net Income -- -- -- 5,046 5,046
------------------------------------------------------------------------
Balance at December 31, 1995 4,852,281 49 34,989 (10,450) 24,588
Stock options exercised 43,200 -- 156 -- 156
Stock repurchased (11,258) -- (147) -- (147)
Common stock issued upon conversion
of outstanding 7.75% convertible
subordinated debentures 2,417,205 24 24,100 -- 24,124
Income tax benefit related to the exercise
of non-qualified stock options -- -- 182 -- 182
Net Income -- -- -- 10,285 10,285
------------------------------------------------------------------------
Balance at December 31, 1996 7,301,428 $ 73 $ 59,280 $ (165) $ 59,188
========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ducommun Incorporated
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation -- The
consolidated financial statements include the accounts of the Company and its
subsidiaries, after eliminating significant intercompany balances and
transactions.
Cash Equivalents -- Cash equivalents consist of highly liquid instruments
purchased with maturities of three months or less.
Revenue Recognition -- Revenue, including sales under fixed price contracts, is
recognized upon shipment of products or when title passes based on the terms of
the sale. The effects of revisions in contract value or estimated costs of
completion are recognized over the remaining terms of the agreement. Provisions
for estimated losses on contracts are recorded in the period identified.
Inventory Valuation -- Inventories are stated at the lower of cost or market.
Cost is determined based upon the first-in, first-out method. Costs on fixed
price contracts in progress included in inventory represent accumulated
recoverable costs less the portion of such costs allocated to delivered units
and applicable progress payments received.
Property and Depreciation -- Property and equipment, including assets recorded
under capital leases, are recorded at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives ranging
from 2 to 40 years and, in the case of leasehold improvements, over the shorter
of the lives of the improvements or the lease term.
Income Taxes -- Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns.
Excess of Costs Over Net Assets Acquired -- The cost of acquired businesses in
excess of the fair market value of their underlying net assets is amortized on
the straight line basis over periods ranging from 15 to 40 years. The Company
assesses the recoverability of cost in excess of net assets of acquired
businesses by determining whether the amortization of this intangible asset over
its remaining life can be recovered through future operating cash flows.
Environmental Liabilities -- Environmental liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and costs can be
reasonably estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study or the Company's commitment to a formal plan
of action.
Earnings Per Share -- Earnings per common share is based on the weighted average
number of common and common equivalent shares outstanding in each year. Common
equivalent shares represent the number of shares which would be issued assuming
the exercise of dilutive stock options, reduced by the number of shares which
would be purchased with the proceeds from the exercise of such options. For 1996
and 1995, shares associated with convertible securities have been included in
the weighted average number of shares outstanding. For 1994, shares associated
with convertible securities have not been included in the weighted average
number of shares outstanding since their inclusion would have an antidilutive
effect.
Stock-Based Compensation -- Compensation cost attributable to stock option and
similar plans is recognized based on the difference, if any, between the closing
market price of the stock on the date of grant over the exercise price of the
option. The Company has not issued any stock options with an exercise price less
than the closing market price of the stock on the date of grant.
Use of Estimates -- Certain amounts and disclosures included in the consolidated
financial statements required management to make estimates which could differ
from actual results.
NOTE 2. ACQUISITIONS
In June 1996, the Company acquired substantially all of the assets of
MechTronics of Arizona, Inc. ("MechTronics") for $8,000,000 in cash and a
$750,000 note. The Company may be required to make additional payments through
1999, based on the future financial performance of MechTronics. MechTronics is a
leading manufacturer of mechanical and electromechanical enclosure products for
the defense electronics, commercial aviation and communications markets.
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In January 1995, the Company acquired the capital stock of 3dbm, Inc.
("3dbm") for $4,780,000 in cash and $400,000 in notes. The Company may be
required to make additional payments through 1997, based on the future financial
performance of 3dbm. 3dbm supplies high power expanders, microcells and other
wireless telecommunications hardware used in cellular telephone networks, and
microwave components and subsystems to both military and commercial customers.
In December 1994, the Company 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. The Company may be required to make
additional payments through 1999, based on the financial performance of Brice.
Brice is an after-market supplier of aircraft seating products to many of the
world's largest commercial airlines.
In December 1994, the Company's subsidiary, Jay-El Products, Inc.
("Jay-El Products"), acquired substantially all of the assets of Dynatech
Microwave Technology, Inc. ("DMT"), for $7,500,000 in cash. DMT manufactures
switches and other microwave components used on commercial and military aircraft
and in wireless telecommunications equipment.
The following table presents unaudited pro forma consolidated operating
results for the Company for the years ended December 31, 1996 and December 31,
1995, as if the MechTronics acquisition had occurred as of the beginning of the
periods presented, and the unaudited pro forma consolidated operating results
for the Company for the year ended December 31, 1994, as if the Brice and DMT
acquisitions had occurred as of the beginning of the period. Pro forma results
for 1995 and 1994, assuming the acquisition of 3dbm at the beginning of the
respective periods, would not have been materially different from the Company's
historical results for the periods presented.
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales $125,762 $107,424 $ 80,582
Net income 10,166 5,294 3,132
Earnings per share 1.31 .90 .62
</TABLE>
The unaudited pro forma consolidated operating results of the Company
are not necessarily indicative of the operating results that would have been
achieved had the acquisitions been consummated at the beginning of the periods
presented, and should not be construed as representative of future operating
results.
The acquisitions of MechTronics, 3dbm, Brice and DMT described above
were accounted for under the purchase method of accounting and, accordingly, the
operating results for MechTronics, 3dbm, Brice and DMT have been included in the
Consolidated Statements of Income since the dates of the respective
acquisitions. The cost of the acquisitions was allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed. These
acquisitions accounted for approximately $17,718,000 and $14,864,000 of the
Excess of Cost Over Net Assets Acquired at December 31, 1996 and December 31,
1995, respectively. Such excess (which will increase for any future contingent
payments) is being amortized on a straight line basis over fifteen years.
NOTE 3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ----------------------------------------------------------
(in thousands)
<S> <C> <C>
Raw materials and supplies $ 7,173 $ 3,377
Work in process 14,841 9,353
Finished goods 631 647
-----------------------
22,645 13,377
Less progress payments 50 15
-----------------------
Total $22,595 $13,362
=======================
</TABLE>
Work in process inventories include amounts under long-term fixed price
contracts aggregating $7,537,000 and $5,631,000 at December 31, 1996 and 1995,
respectively.
<PAGE> 12
Ducommun Incorporated
Note 4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- --------------------------------------------------------------
(in thousands)
<S> <C> <C>
Land $ 4,235 $ 4,869
Buildings and improvements 12,607 11,196
Machinery and equipment 34,613 32,186
Furniture and equipment 4,309 3,913
Construction in progress 2,626 1,047
-----------------------
58,390 53,211
Less accumulated depreciation
and amortization 31,339 30,200
-----------------------
Total $27,051 $23,011
=======================
</TABLE>
Depreciation expense was $3,410,000, $3,252,000 and $2,961,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Note 5. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ---------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accrued compensation $ 7,803 $ 5,225
Accrued interest 151 569
Customer deposits 2,542 1,323
Provision for environmental costs 1,870 1,742
Accrued state franchise and sales tax 648 339
Other 4,575 4,530
-----------------------
Total $17,589 $13,728
=======================
</TABLE>
NOTE 6. LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED DEBENTURES
Long-term debt and convertible subordinated debentures are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- --------------------------------------------------------------
(in thousands)
<S> <C> <C>
Bank credit agreement $ 4,000 $ 8,100
Term and real estate loans 5,294 3,559
Promissory notes related to
acquisitions 996 1,186
-----------------------
Total debt 10,290 12,845
Less current portion 1,117 3,910
-----------------------
Total long-term debt $ 9,173 $ 8,935
=======================
7.75% Convertible subordinated
debentures due 2011 $ -- $24,263
=======================
</TABLE>
In 1996, the Company converted $24,263,000 principal amount of its
7.75% convertible subordinated debentures. The Company paid cash of $609,000 for
the conversions.
In December 1996, the Company and its bank amended the Company's credit
agreement. The amended credit agreement provides for a $21,000,000 unsecured
revolving credit line with an expiration date of July 1, 1998. Interest is
payable monthly on the outstanding borrowings based on the bank's prime rate
(8.25% at December 31, 1996) minus 0.25%. A Eurodollar pricing option is also
available to the Company for terms of up to six months at the Eurodollar rate
plus a spread based on the leverage ratio of the Company calculated at the end
of each fiscal quarter (1.00% at December 31, 1996). At December 31, 1996, the
Company has $16,658,000 of unused lines of credit, after deducting $4,000,000 of
loans outstanding and $342,000 for an outstanding standby letter of credit which
supports the estimated post-closure maintenance cost for a former surface
impoundment. The credit agreement includes fixed charge coverage and maximum
leverage ratios, and limitations on future dividend payments and outside
indebtedness.
The weighted average interest rate on borrowings outstanding was 7.50%
and 7.98% at December 31, 1996 and 1995, respectively.
The carrying amount of long-term debt approximates fair value based on
the terms of the related debt, recent transactions and estimates using interest
rates currently available to the Company for debt with similar terms and
remaining maturities.
Aggregate maturities of long-term debt during the next five years are
as follows: 1997, $1,117,000; 1998, $4,850,000; 1999, $634,000; 2000, $414,000;
2001, $446,000.
NOTE 7. SHAREHOLDERS' EQUITY
At December 31, 1996 and 1995, no preferred shares were issued or outstanding.
NOTE 8. STOCK OPTIONS
The Company has three stock option or incentive plans. Stock awards may be made
to officers and key employees under the stock plans on terms determined by the
Compensation Committee of the Board of Directors. Stock options have been and
may be granted to officers and key employees under the stock plans at prices not
less than 100% of the market value on the date of grant, and expire not more
than ten years from the date of grant. The option price and number of shares are
subject to adjustment under certain dilutive circumstances. At December 31,
1996, options for 596,404 shares of common stock were exercisable.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has adopted Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"). In accordance with the
provisions of FAS 123, the Company applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans and does not recognize compensation expense for its stock-based
compensation plans based on the fair market value method prescribed by FAS 123.
If the Company had elected to recognize compensation expense based upon the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed by FAS 123, the Company's net income and earnings per
share would be reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C>
Net income:
As reported $ 10,285 $ 5,046
Pro forma 10,101 5,036
Earnings per common share:
As reported:
Primary $ 1.45 $ 1.04
Fully diluted 1.33 .87
Pro forma:
Primary 1.42 1.04
Fully diluted 1.30 .87
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: dividend yields of zero percent;
expected monthly volatility of 31.75 and 30.83 percent; risk-free interest rates
of 6.33 and 6.36 percent; and expected life of four years for both periods. The
weighted average fair value of options granted during 1996 and 1995 for which
the exercise price equals the market price on the grant date was $4.85 and
$2.74, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of employee stock options.
At December 31, 1996, 57,001 common shares were available for future
grants and 852,325 common shares were reserved for the exercise of options.
Option activity during the three years ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
NUMBER PRICE OF OPTIONS
OF SHARES OUTSTANDING
- -----------------------------------------------------------
<S> <C> <C>
Outstanding at
January 1, 1994 703,300 $ 3.667
Granted 35,000 4.875
Exercised (5,000) 1.875
Forfeited (21,225) 3.754
-------
Outstanding at
December 31, 1994 712,075 $ 3.712
Granted 49,200 7.904
Exercised (20,125) 3.373
Forfeited (23,625) 4.174
-------
Outstanding at
December 31, 1995 717,525 $ 3.995
Granted 181,000 14.094
Exercised (43,200) 3.635
Forfeited (3,000) 8.875
-------
Outstanding at
December 31, 1996 852,325 $ 6.140
=======
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable stock options:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
OUTSTANDING REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 1.875 -- $ 4.99 625,325 3.6313 $ 3.713 592,306 $ 3.694
$ 5.000 -- $ 9.99 36,000 3.4320 7.201 9,000 7.201
$ 10.000 -- $19.75 191,000 4.3721 13.886 2,500 10.125
------- -------
Total 852,325 3.7889 603,806 3.773
======= =======
</TABLE>
<PAGE> 14
Ducommun Incorporated
NOTE 9. EMPLOYEE BENEFIT PLANS
The Company has an unfunded supplemental retirement plan that was suspended in
1986, but which continues to cover certain former executives. The accumulated
benefit obligations under the plan at December 31, 1996 and December 31, 1995
were $688,000 and $721,000, respectively, which are included in accrued
liabilities.
The Company also provides certain health care benefits for retired
employees. Employees become eligible for these benefits if they meet minimum age
and service requirements, are eligible for retirement benefits and agree to
contribute a portion of the cost. As of December 31, 1996, there were 153
current and retired employees eligible for such benefits. Eligibility for
additional employees to become covered by retiree health benefits was terminated
in 1988.
The Company accrues post-retirement health care benefits over the
period in which active employees become eligible for such benefits. The
components of periodic expenses for these post-retirement benefits are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995
- -----------------------------------------------------
(in thousands)
<S> <C> <C>
Service cost $ 1 $ 1
Interest cost 49 64
Amortization of net transition
obligation 84 84
Net amortization and deferral 9 21
--------------
Net periodic post-retirement
benefit costs $143 $170
==============
</TABLE>
The actuarial liabilities for these post-retirement benefits are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $ 488 $ 666
Fully eligible active plan
participants 131 129
Other active plan participants 18 10
-----------------
Total 637 805
Unrecognized net transition
obligation (740) (824)
Unrecognized prior service cost -- (28)
Unrecognized net gain 322 220
-----------------
Accrued post-retirement
benefit cost $ 219 $ 173
=================
</TABLE>
The accumulated post-retirement benefit obligations at December 31,
1996 and 1995 were determined using an assumed discount rate of 7.50% and 7.25%,
respectively. For measurement purposes, a 10% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1997; the rate was
assumed to decrease gradually to 5.5% in the year 2006 and remain at that level
thereafter over the projected payout period of the benefits.
A 1% increase in the assumed annual health care cost trend rate would
increase the present value of the accumulated post-retirement benefit obligation
at December 31, 1996 by $1,700, and the aggregate of the service and interest
cost components of net periodic post-retirement benefit cost for the year then
ended by $100.
The Company provides a retirement benefit to the Company's Chairman and
former Chief Executive Officer. The components of periodic expenses for this
post-retirement benefit are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995
- ------------------------------------------------------
(in thousands)
<S> <C> <C>
Service cost $173 $155
Interest cost 48 34
Amortization of prior service cost 25 25
--------------
Net periodic cost $246 $214
==============
</TABLE>
The actuarial liabilities for this post-retirement benefit are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ---------------------------------------------------------
(in thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested active plan participant $ 848 $ 605
Unrecognized prior service cost -- (25)
Unrecognized net gain (loss) (26) (4)
-----------------
Accrued cost $ 822 $ 576
=================
</TABLE>
The accrued cost under this plan is included in accrued liabilities.
NOTE 10. LEASES
The Company leases certain facilities and equipment for periods ranging from 1
to 10 years. The leases generally are renewable and provide for the payment of
property taxes, insurance and other costs relative to the property. Rental
expense in 1996, 1995 and 1994, was $3,890,000, $3,550,000, and $2,910,000,
respectively. Future minimum rental payments under operating leases having
initial or remaining noncancelable terms in excess of one year and related
income from a noncancelable sublease at December 31, 1996 are as follows:
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
LEASE SUBLEASE NET
COMMITMENTS COMMITMENTS COMMITMENTS
- --------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
1997 $ 3,424 $ 80 $ 3,344
1998 2,110 -- 2,110
1999 1,641 -- 1,641
2000 1,023 -- 1,023
2001 661 -- 661
Thereafter 2,400 -- 2,400
---------------------------------------
Total $11,259 $ 80 $11,179
=======================================
</TABLE>
NOTE 11. INCOME TAXES
The provision for income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current tax expense:
Federal $ 735 $ 210 $ 10
State 1,291 751 251
----------------------------------------
2,026 961 261
----------------------------------------
Deferred tax expense:
Federal 2,230 845 1,079
State (216) 89 (367)
----------------------------------------
2,014 934 712
----------------------------------------
Income Tax Expense $ 4,040 $ 1,895 $ 973
========================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- -----------------------------------------------------------------
(in thousands)
<S> <C> <C>
Federal NOLs $ 5,470 $ 11,538
Credit carryforwards 1,587 1,197
Employment-related reserves 2,196 1,691
Environmental reserves 610 511
Inventory reserves 1,353 748
Other 1,434 952
--------------------------
12,650 16,637
Depreciation (2,459) (2,663)
--------------------------
Net deferred tax assets before
valuation allowance 10,191 13,974
Deferred tax assets valuation
allowance -- (2,433)
--------------------------
Net deferred tax asset $ 10,191 $ 11,541
==========================
</TABLE>
The decrease in the valuation allowance is primarily due to the
Company's reevaluation of the realizability of income tax benefits from future
operations including acquisitions consummated in 1996 and 1995. As a result, the
carrying value of the net deferred tax asset was increased by $2,433,000, of
which $665,000 was allocated to reduce goodwill arising from the acquisition of
MechTronics and $1,768,000 was recognized as a current period tax benefit. In
1995, the carrying value of the net deferred tax asset was increased by
$2,717,000, of which $1,155,000 was allocated to reduce goodwill arising from
the acquisition of 3dbm and $1,562,000 was recognized as a current period tax
benefit.
The principal reasons for the variation from the customary relationship
between income taxes and income before income taxes are as follows:
<PAGE> 16
Ducommun Incorporated
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal
income tax rate 35.0% 35.0% 35.0%
State income taxes 5.6 6.2 6.2
(net of federal benefit)
Goodwill amortization 2.1 4.5 1.1
Benefit of net operating
loss carryforwards
and carrybacks (12.3) (24.4) (12.0)
Alternative minimum tax -- 3.0 3.7
Debt conversion 1.4 2.9 --
Other (3.6) .1 (3.4)
-----------------------------------
Effective Income Tax Rate 28.2% 27.3% 30.6%
===================================
</TABLE>
At December 31, 1996, the Company had federal tax NOLs totaling
approximately $16 million which expire in the years 2003 and 2004. At December
31, 1996, the Company had federal tax credits totaling approximately $1,511,000
of which approximately $483,000 expire in the years 1997 through 2003. At
December 31, 1996, the Company had state tax credits totaling approximately
$76,000 of which approximately $57,000 expire in the years 2003 and 2004.
NOTE 12. CONTINGENCIES
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier of
chemical milling services for the aerospace industry. Aerochem has been directed
by California environmental agencies to investigate and take corrective
action for groundwater contamination at its El Mirage, California facility.
Based upon currently available information, the Company has established a
provision for the cost of such investigation and corrective action.
In the normal course of business, Ducommun and its subsidiaries are
defendants in certain other litigation, claims and inquiries, including matters
relating to environmental laws. In addition, the Company makes various
commitments and incurs contingent liabilities. While it is not feasible to
predict the outcome of these matters, the Company does not presently expect that
any sum it may be required to pay in connection with these matters would have a
material adverse effect on its consolidated financial position or results of
operations.
NOTE 13. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company provides proprietary products and services to most of the prime
aerospace and aircraft manufacturers. As a result, the Company's sales and trade
receivables are concentrated principally in the aerospace industry.
The Company had substantial sales to Lockheed Martin, Boeing, McDonnell
Douglas and Northrop Grumman. During 1996, 1995 and 1994, sales to Lockheed
Martin were $13,037,000, $8,163,000 and $9,454,000, respectively; sales to
Boeing were $11,876,000, $5,215,000 and $5,685,000, respectively; sales to
McDonnell Douglas were $10,031,000, $9,516,000 and $7,540,000, respectively; and
sales to Northrop Grumman were $7,843,000, $9,623,000 and $7,696,000,
respectively. At December 31, 1996, trade receivables from Lockheed Martin,
Boeing, McDonnell Douglas and Northrop Grumman were $1,541,000, $1,436,000,
$989,000 and $647,000, respectively. The sales and receivables relating to
Lockheed Martin are primarily for the Space Shuttle program. The sales and
receivables relating to Boeing, McDonnell Douglas, and Northrop Grumman are
diversified over a number of different commercial and military programs.
In 1996, 1995 and 1994, foreign sales to manufacturers worldwide were
$21,155,000, $23,497,000 and $11,515,000, respectively. Canada is the only
country in which the Company had sales of 4% or more of total sales, with sales
of $4,906,000, $4,518,000 and $5,944,000 in 1996, 1995 and 1994, respectively.
<PAGE> 17
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996
-------------------------------------------------------
Three months ended Dec 31 Sep 28 Jun 29 Mar 30
- -------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Sales and Earnings:
Net Sales $ 35,918 $ 29,778 $ 28,869 $ 23,792
--------------------------------------------------------
Gross Profit 11,469 9,533 9,419 8,204
--------------------------------------------------------
Income Before Taxes 5,627 3,815 3,341 1,542
Income Tax Expense (1,605) (1,068) (935) (432)
--------------------------------------------------------
Net Income $ 4,022 $ 2,747 $ 2,406 $ 1,110
========================================================
Earnings Per Share:
Primary $ .51 $ .35 $ .35 $ .19
Fully Diluted $ .51 $ .35 $ .31 $ .18
<CAPTION>
1995
---------------------------------------------------------
Three months ended Dec 31 Sep 30 Jul 1 Apr 1
- --------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Sales and Earnings:
Net Sales $ 23,314 $ 24,080 $ 23,201 $ 20,622
---------------------------------------------------------
Gross Profit 8,434 8,142 7,332 6,175
---------------------------------------------------------
Income Before Taxes 2,502 2,237 1,347 855
Income Tax Expense (694) (584) (377) (240)
---------------------------------------------------------
Net Income $ 1,808 $ 1,653 $ 970 $ 615
=========================================================
Earnings Per Share:
Primary $ .36 $ .34 $ .20 $ .13
Fully Diluted $ .29 $ .27 $ .18 $ .13
</TABLE>
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Ducommun Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Ducommun Incorporated and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Los Angeles, California
February 13, 1997
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
As of December 31, 1996, the active subsidiaries of Ducommun were:
Aerochem, Inc., a California corporation
AHF-Ducommun Incorporated, a California corporation
Brice Manufacturing Company, Inc., a California corporation
Jay-El Products, Inc., a California corporation
MechTronics of Arizona Corp., an Arizona corporation
3dbm, Inc., a California corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-36415, 33-9383, 2-83732, 2-77309 and 2-64222)
of Ducommun Incorporated of our report dated February 13, 1997 appearing on
page 28 of the Annual Report to Shareholders which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference
of our report on the Financial Statement Schedule, which appears on page 17 of
this Form 10-K.
Price Waterhouse LLP
Los Angeles, California
February 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 571
<SECURITIES> 0
<RECEIVABLES> 14,928
<ALLOWANCES> 206
<INVENTORY> 22,595
<CURRENT-ASSETS> 44,335
<PP&E> 58,390
<DEPRECIATION> 31,339
<TOTAL-ASSETS> 95,814
<CURRENT-LIABILITIES> 27,049
<BONDS> 9,577
0
0
<COMMON> 73
<OTHER-SE> 59,115
<TOTAL-LIABILITY-AND-EQUITY> 95,914
<SALES> 118,357
<TOTAL-REVENUES> 118,357
<CGS> 79,732
<TOTAL-COSTS> 79,732
<OTHER-EXPENSES> 23,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,153
<INCOME-PRETAX> 14,325
<INCOME-TAX> 4,040
<INCOME-CONTINUING> 10,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,285
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.33
</TABLE>
