<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 1-8174
DUCOMMUN INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 95-0693330
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
111 West Ocean Boulevard, Suite 900, Long Beach, California 90802
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(Address of principal executive offices) (Zip Code)
(562) 624-0800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of October 2, 1999, there
were outstanding 9,907,663 shares of common stock.
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DUCOMMUN INCORPORATED
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at October 2, 1999 and
December 31, 1998 3
Consolidated Statements of Income for Three Months
Ended October 2, 1999 and October 3, 1998 4
Consolidated Statements of Income for Nine Months
Ended October 2, 1999 and October 3, 1998 5
Consolidated Statements of Cash Flows for Nine
Months Ended October 2, 1999 and October 3, 1998 6
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 17
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
October 2, December 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
Current Asssets:
Cash and cash equivalents $ 91 $ 9,066
Accounts receivable (less allowance for doubtful
accounts of $154 and $125) 17,747 19,680
Inventories 22,880 19,495
Deferred income taxes 4,073 4,449
Prepaid income taxes 363 1,283
Other current assets 3,157 2,437
--------- ---------
Total Current Assets 48,311 56,410
Property and Equipment, Net 43,277 41,145
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $6,824 and $5,468) 26,794 18,974
Deferred Income Taxes 128 --
Other Assets 777 675
--------- ---------
$ 119,287 $ 117,204
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 4) $ 1,518 $ 1,434
Accounts payable 6,633 7,445
Accrued liabilties 14,300 16,738
--------- ---------
Total Current Liabilities 22,451 25,617
Long-Term Debt (Note 4) 6,386 5,350
Deferred Income Taxes 1,714 1,714
Other Long-Term Liabilities 870 818
--------- ---------
Total Liabilities 31,421 33,499
--------- ---------
Commitments and Contingencies (Note 6)
Shareholders' Equity:
Common stock -- $.01 par value; authorized 35,000,000
shares; issued 10,419,463 shares in 1999 and
11,345,255 in 1998 104 113
Additional paid-in capital (Note 5) 45,587 60,419
Retained earnings 48,089 37,825
Less common stock held in treasury -- 511,800 shares
in 1999 and 931,762 shares in 1998 (Note 5) (5,914) (14,652)
--------- ---------
Total Shareholders' Equity 87,866 83,705
--------- ---------
$ 119,287 $ 117,204
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For Three Months Ended
-----------------------
October 2, October 3,
1999 1998
---------- ----------
<S> <C> <C>
Net Sales $ 37,218 $ 41,273
Operating Costs and Expenses:
Cost of goods sold 25,104 27,785
Selling, general and administrative expenses 6,101 6,163
-------- --------
Total Operating Costs and Expenses 31,205 33,948
-------- --------
Operating Income 6,013 7,325
Gain on Sale of Subsidiary -- 9,249
Interest Expense (105) (13)
-------- --------
Income Before Taxes 5,908 16,561
Income Tax Expense (2,238) (6,041)
-------- --------
Net Income $ 3,670 $ 10,520
======== ========
Earnings Per Share:
Basic earnings per share $ .36 $ .94
Diluted earnings per share .35 .90
Weighted Average Number of Common Shares
for Computation of Earnings Per Share:
Basic earnings per share 10,243 11,218
Diluted earnings per share 10,569 11,707
</TABLE>
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For Nine Months Ended
------------------------
October 2, October 3,
1999 1998
--------- ---------
<S> <C> <C>
Net Sales $ 108,225 $ 130,288
Operating Costs and Expenses:
Cost of goods sold 73,756 87,036
Selling, general and administrative expenses 17,312 21,144
--------- ---------
Total Operating Costs and Expenses 91,068 108,180
--------- ---------
Operating Income 17,157 22,108
Gain on Sale of Subsidiary -- 9,249
Interest Expense (259) (221)
--------- ---------
Income Before Taxes 16,898 31,136
Income Tax Expense (6,634) (12,017)
--------- ---------
Net Income $ 10,264 $ 19,119
========= =========
Earnings Per Share:
Basic earnings per share $ .99 $ 1.70
Diluted earnings per share .96 1.63
Weighted Average Number of Common Shares
for Computation of Earnings Per Share:
Basic earnings per share 10,342 11,225
Diluted earnings per share 10,665 11,728
</TABLE>
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For Nine Months Ended
-----------------------
October 2, October 3,
1999 1998
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 10,264 $ 19,119
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 5,011 4,352
Gain on sale of subsidiary -- (9,249)
Deferred income tax provision 248 1,663
Other 433 42
Changes in Assets and Liabilities, Net of Effects
From Acquisitions and Disposition:
Accounts receivable 3,190 164
Inventories (2,550) 3,069
Prepaid income taxes 956 2,650
Other assets (810) (952)
Accounts payable (1,029) (975)
Accrued and other liabilities (2,986) 2,297
-------- --------
Net Cash Provided by Operating Activities 12,727 22,180
-------- --------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (5,120) (9,329)
Proceeds from Sale of Subsidiary -- 17,250
Cash Payments Related to Sale of Subsidiary -- (1,143)
Acquisition of Businesses (10,096) (8,165)
Other -- 208
-------- --------
Net Cash Used in Investing Activities (15,216) (1,179)
-------- --------
Cash Flows from Financing Activities:
Net Repayment of Long-Term Debt (380) (716)
Purchase of Common Stock (6,200) (3,409)
Other 94 778
-------- --------
Net Cash Used in Financing Activities (6,486) (3,347)
-------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (8,975) 17,654
Cash and Cash Equivalents, Beginning of Period 9,066 2,156
-------- --------
Cash and Cash Equivalents, End of Period $ 91 $ 19,810
======== ========
Supplemental Disclosures of Cash Flows Information:
Interest Expense Paid $ 536 $ 338
Income Taxes Paid $ 6,575 $ 4,270
</TABLE>
See accompanying notes to consolidated financial statements.
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DUCOMMUN INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 1. The consolidated balance sheets, consolidated statements of income and
consolidated statements of cash flows are unaudited as of and for the
three months and nine months ended October 2, 1999 and October 3, 1998.
The financial information included in the quarterly report should be
read in conjunction with the Company's consolidated financial
statements and the related notes thereto included in its annual report
to shareholders for the year ended December 31, 1998.
Note 2. Certain amounts and disclosures included in the consolidated financial
statements required management to make estimates which could differ
from actual results.
Note 3. Earnings Per Share
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding in each period. Diluted earnings per share is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding plus any potential dilution
that could occur if stock options were exercised or converted into
common stock in each period. For the three months ended October 2, 1999
and October 3, 1998, income available to common stockholders was
$3,670,000 and $10,520,000, respectively. The weighted average number
of common shares outstanding for the three months ended October 2, 1999
and October 3, 1998 were 10,243,000 and 11,218,000 and the dilutive
shares associated with stock options were 326,000 and 489,000,
respectively. For the nine months ended October 2, 1999 and October 3,
1998, income available to common stockholders was $10,264,000 and
$19,119,000, respectively. The weighted average number of common shares
outstanding for the nine months ended October 2, 1999 and October 3,
1998 were 10,342,000 and 11,225,000 and the dilutive shares associated
with stock options were 323,000 and 503,000, respectively.
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Note 4. Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
------------------------
October 2, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Bank credit agreement $ 905 $ --
Term and real estate loans 4,293 4,635
Notes and other liabilities for acquisitions 2,706 2,149
------ ------
Total debt 7,904 6,784
Less current portion 1,518 1,434
------ ------
Total long-term debt $6,386 $5,350
====== ======
</TABLE>
The Company's bank credit agreement provides for a $40,000,000
unsecured revolving credit line with an expiration date of July 1,
2001. Interest is payable monthly on the outstanding borrowings based
on the bank's prime rate (8.25% per annum at October 2, 1999) 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 October 2, 1999). At October 2, 1999,
the Company had $39,095,000 of unused line of credit available. The
credit agreement includes fixed charge coverage and maximum leverage
ratios, and limitations on future dividend payments and outside
indebtedness.
Note 5. Shareholders' Equity
In July 1998 the Board of Directors authorized the repurchase of up
to $15,000,000 of its common stock. In January 1999 the Board of
Directors authorized the repurchase of up to an additional
$15,000,000 of its common stock. In the first nine months of 1999,
the Company repurchased 533,800 shares of common stock in the open
market for a total of approximately $6,200,000, or an average price
of $11.61 per share. In April 1999 the Company cancelled 953,762
shares of its treasury stock.
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<PAGE> 9
Note 6. Commitments and Contingencies
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major
supplier of chemical milling services for the aerospace industry.
Aerochem has been directed by California environmental agencies to
investigate and take corrective action for groundwater contamination
at its El Mirage, California facility (the "Site"). Aerochem expects
to spend approximately $1 million for future investigation and
corrective action at the Site, and the Company has established a
provision for such costs. However, the Company's ultimate liability
in connection with the Site will depend upon a number of factors,
including changes in existing laws and regulations, and the design
and cost of the construction, operation and maintenance of the
correction action.
In the normal course of business, Ducommun and its subsidiaries are
defendants in certain other litigation, claims and inquiries,
including matters relating to environmental laws. In addition, the
Company makes various commitments and incurs contingent liabilities.
While it is not feasible to predict the outcome of these matters, the
Company does not presently expect that any sum it may be required to
pay in connection with these matters would have a material adverse
effect on its consolidated financial position or results of
operations.
Note 7. Acquisitions and Divestiture
In April 1999, the Company acquired the capital stock of Sheet Metal
Specialties Company doing business as SMS Technologies Company
("SMS"), a privately held company based in Chatsworth, California,
for $10,096,000 in cash, net of cash acquired and payments of other
liabilities of SMS, and a $1,500,000 note. SMS is a manufacturer of
sub-assemblies for commercial and military aerospace applications.
Sales for the twelve-month period ended March 31, 1999 exceeded
$9,800,000.
In June 1998, the Company acquired the capital stock of American
Electronics, Inc. ("AEI") for $8,165,000 in cash and $1,900,000 in
notes and other liabilities. AEI is a leading manufacturer of
high-precision actuators, stepper motors, fractional horsepower
motors and resolvers principally for commercial and military space
applications.
The acquisitions of SMS and AEI were accounted for under the purchase
method of accounting and, accordingly, the operating results for SMS
and AEI 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 $14,805,000 and $5,268,000 of the excess
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<PAGE> 10
of cost over net assets acquired at October 2, 1999 and October 3,
1998, respectively. Such excess is being amortized on a straight-line
basis over fifteen years.
The acquisitions were funded from internally generated cash, notes
and other amounts payable to sellers, and borrowings under the
Company's credit agreement with its bank (see Financial Condition for
additional information).
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc., for $17,250,000 in cash. The
transaction resulted in an after-tax gain of $6,206,000, or $0.53 per
diluted share, which was recorded in the third quarter 1998 results.
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<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL STATEMENT PRESENTATION
The interim financial statements reflect all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of the Company,
necessary for a fair presentation of the results for the interim periods
presented.
ACQUISITIONS AND DIVESTITURE
In April 1999, the Company acquired the capital stock of Sheet Metal Specialties
Company doing business as SMS Technologies Company ("SMS"), a privately held
company based in Chatsworth, California, for $10,096,000 in cash, net of cash
acquired and payment of other liabilities of SMS, and a $1,500,000 note. SMS is
a manufacturer of sub-assemblies for commercial and military aerospace
applications. Sales for the twelve-month period ended March 31, 1999 exceeded
$9,800,000.
In June 1998, the Company acquired the capital stock of American Electronics,
Inc. ("AEI") for $8,165,000 in cash and $1,900,000 in notes and other
liabilities. AEI is a leading manufacturer of high-precision actuators, stepper
motors, fractional horsepower motors and resolvers principally for commercial
and military space applications.
The acquisitions of SMS and AEI were accounted for under the purchase method of
accounting and, accordingly, the operating results for SMS and AEI 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 $14,805,000 and $5,268,000 of the
excess of cost over net assets acquired at October 2, 1999 and October 3, 1998,
respectively. Such excess is being amortized on a straight-line basis over
fifteen years.
The acquisitions were funded from internally generated cash, notes and other
amounts payable to sellers, and borrowings under the Company's credit agreement
with its bank (see Financial Condition for additional information).
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc. ("3dbm") for $17,250,000 in cash. The
transaction resulted in an after-tax gain of $6,206,000, or $0.53 per diluted
share, which was recorded in the third quarter 1998 results.
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<PAGE> 12
RESULTS OF OPERATIONS
Third Quarter of 1999 Compared to Third Quarter of 1998
Net sales decreased 10% to $37,218,000 in the third quarter of 1999. The
decrease was due primarily to a reduction in the Company's sales of commercial
and military aftermarket products in its aircraft seating and electromechanical
switch businesses and lower sales for Boeing commercial aircraft and space
programs. Sales for Boeing aircraft were lower, principally because of lower
commercial aircraft production rates and what the Company believes are on-going
inventory reductions by Boeing and its major suppliers. Sales for space programs
continued to be lower due to timing differences in production scheduling. The
Company expects these factors to continue to adversely impact sales at least
through the fourth quarter of 1999.
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During the third quarters of 1999 and 1998, sales to Boeing were approximately
$9,912,000 and $11,514,000, respectively; sales to Lockheed Martin were
approximately $4,195,000 and $4,421,000, respectively; and sales to Raytheon
were approximately $2,426,000 and $2,928,000, respectively. The sales relating
to Boeing, Lockheed Martin and Raytheon are diversified over a number of
different commercial, military and space programs.
In October 1999 the Company announced that its AHF-Ducommun (AHF) subsidiary was
awarded a long-term follow-on contract to manufacture aluminum and titanium
parts for fuselage components assembled by Boeing-Wichita for B-737NG, 757, 767
and 777 aircraft. The contract covers deliveries through March 2004 for existing
work manufactured at AHF's Gardena, California facility. At projected delivery
rates, the contract is valued in excess of $75 million. In August 1999 the
Company announced that its Brice Manufacturing subsidiary had been selected by
European Leisure Group members LTU International Airways, Balair/CTA and
Sobelair to supply its B1000 economy class passenger seat for the airlines'
Boeing 767 fleet. The contract is valued at more than $4 million.
Gross profit, as a percentage of sales, remained relatively unchanged at 32.5%
for the third quarter of 1999 compared to 32.7% in 1998.
Selling, general and administrative expenses decreased to $6,101,000 in the
third quarter of 1999 compared to $6,163,000 for 1998. This decrease was
primarily the result of a reduction of personnel related costs partially offset
by higher goodwill amortization expense in 1999.
Interest expense increased to $105,000 in the third quarter of 1999 compared to
$13,000 for 1998. The increase in interest expense was primarily due to higher
debt levels and lower interest income from invested cash in 1999 compared to
1998, which was offset against interest expense.
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<PAGE> 13
Income tax expense decreased to $2,238,000 in the third quarter of 1999 compared
to $6,041,000 for 1998. The decrease in income tax expense was primarily due to
the decrease in income before taxes and $3,043,000 of income taxes related to
the gain on the sale of 3dbm, Inc. in August 1998.
Net income for the third quarter of 1999 was $3,670,000, or $0.35 per diluted
share, compared to $10,520,000, or $0.90 per diluted share, in 1998. Net Income
for the third quarter of 1998 included an after-tax gain of $6,206,000, or $0.53
per diluted share, from the sale of the capital stock of 3dbm, Inc.
Nine Months of 1999 Compared with Nine Months of 1998
Net sales decreased 17% to $108,225,000 in the first nine months of 1999. The
decrease was due primarily to a reduction in the Company's sales of commercial
and military aftermarket products in its aircraft seating and electromechanical
switch businesses, lower sales for Boeing commercial aircraft, lower sales for
space programs, and lower sales for certain commercial and military programs due
to a lack of titanium availability. Sales for Boeing aircraft were lower,
principally because of lower commercial aircraft production rates and what the
Company believes are on-going inventory reductions by Boeing and its major
suppliers. Sales for space programs continued to be lower due to timing
differences in production scheduling. Sales for certain commercial and military
programs were adversely affected by the lack of titanium availability. The
Company expects these factors to continue to adversely impact sales at least
through the fourth quarter of 1999.
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During the first nine months of 1999 and 1998, sales to Boeing were
approximately $30,308,000 and $37,148,000, respectively; sales to Lockheed
Martin were approximately $12,042,000 and $14,833,000, respectively; and sales
to Raytheon were approximately $6,928,000 and $8,578,000, respectively. The
sales relating to Boeing, Lockheed Martin and Raytheon are diversified over a
number of different commercial, military and space programs.
In October 1999 the Company announced that its AHF-Ducommun (AHF) subsidiary was
awarded a long-term follow-on contract to manufacture aluminum and titanium
parts for fuselage components assembled by Boeing-Wichita for B-737NG, 757, 767
and 777 aircraft. The contract covers deliveries through March 2004 for existing
work manufactured at AHF's Gardena, California facility. At projected delivery
rates, the contract is valued in excess of $75 million. In August 1999 the
Company announced that its Brice Manufacturing subsidiary had been selected by
European Leisure Group members LTU International Airways, Balair/CTA and
Sobelair to supply its B1000 economy class passenger seat for the airlines'
Boeing 767 fleet. The contract is valued at more than $4 million.
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<PAGE> 14
At October 2, 1999, backlog believed to be firm was approximately $121,800,000
compared to $138,200,000 at December 31, 1998. Approximately $29,000,000 of
backlog is expected to be delivered during 1999.
Gross profit, as a percentage of sales, was 31.8% for the first nine months of
1999 compared to 33.2% in 1998. This decrease was primarily the result of
changes in sales mix and nonvariable production costs spread over lower sales.
Selling, general and administrative expenses, as a percentage of sales, were
16.0% for the first nine months of 1999 compared to 16.2% in 1998. The decrease
in these expenses as a percentage of sales was primarily the result of a
reduction of personnel related costs partially offset by higher goodwill
amortization expense in 1999.
Interest expense increased to $259,000 in the first nine months of 1999 compared
to $221,000 for 1998. The increase in interest expense was primarily due to
higher debt levels and lower interest income from invested cash in 1999 compared
to 1998, which was offset against interest expense.
Income tax expense decreased to $6,434,000 in the first nine months of 1999
compared to $12,017,000 for 1998. The decrease in income tax expense was
primarily due to the decrease in income before taxes and $3,043,000 of income
taxes related to the gain on the sale of 3dbm, Inc. in August 1998.
Net income for the first nine months of 1999 was $10,264,000, or $0.96 per
diluted share, compared to $19,119,000, or $1.63 per diluted share, in 1998. Net
Income for the first nine months of 1998 included an after-tax gain of
$6,206,000, or $0.53 per diluted share, from the sale of the capital stock of
3dbm, Inc. in 1998.
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<PAGE> 15
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash flow from operating activities for the nine months ended October 2, 1999
was $12,727,000 compared to $22,180,000 for the nine months ended October 3,
1998. The decrease in cash flow from operating activities resulted principally
from lower net income, a reduction in accounts payable, accrued and other
liabilities, an increase in inventory and lower reductions in prepaid taxes,
partially offset by a reduction in accounts receivables. During the first nine
months of 1999, the Company spent $5,120,000 on capital expenditures, $6,200,000
to repurchase shares of the Company's common stock and repaid $380,000 of its
long-term debt. The Company continues to depend on operating cash flow and the
availability of its bank line of credit to provide short-term liquidity. Cash
from operations and bank borrowing capacity are expected to provide sufficient
liquidity to meet the Company's obligations during 1999. The Company's bank
credit agreement provides for a $40,000,000 unsecured revolving credit line with
an expiration date of July 1, 2001. At October 2, 1999, the Company had
$39,095,000 of unused line of credit available.
The Company spent $5,120,000 on capital expenditures during the first nine
months of 1999 and expects to spend approximately $7,000,000 in the aggregate
for capital expenditures in 1999. 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.
In July 1998 the Board of Directors authorized the repurchase of up to
$15,000,000 of its common stock. In January 1999 the Board of Directors
authorized the repurchase of up to an additional $15,000,000 of its common
stock. In the first nine months of 1999, the Company had repurchased 533,800
shares of common stock in the open market for a total of approximately
$6,200,000, or an average price of $11.61 per share. Repurchases will be made
from time to time on the open market at prevailing prices.
In April 1999, the Company acquired the capital stock of Sheet Metal Specialties
Company doing business as SMS Technologies Company ("SMS"), a privately held
company based in Chatsworth, California, for $10,096,000 in cash, net of cash
acquired and payments of other liabilities of SMS, and a $1,500,000 note. SMS is
a manufacturer of sub-assemblies for commercial and military aerospace
applications. Sales for the twelve-month period ended March 31, 1999 exceeded
$9,800,000. The acquisition of SMS was accounted for under the purchase method
of accounting. The acquisition was funded from internally generated cash, a note
payable to the seller and borrowings under the Company's credit agreement with
its bank.
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<PAGE> 16
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc., for $17,250,000 in cash. The transaction
resulted in an after-tax gain of $6,206,000, or $0.53 per diluted share, which
was recorded in the third quarter 1998 results.
In June 1998, the Company acquired the capital stock of American Electronics,
Inc. ("AEI") for $8,146,000 in cash and $1,900,000 in notes and other
liabilities. AEI is a leading manufacturer of high-precision actuators, stepper
motors, fractional horsepower motors and resolvers principally for commercial
and military space applications.
Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier of
chemical milling services for the aerospace industry. Aerochem has been directed
by California environmental agencies to investigate and take corrective action
for groundwater contamination at its El Mirage, California facility (the
"Site"). Aerochem expects to spend approximately $1 million for future
investigation and corrective action at the Site, and the Company has established
a provision for such costs. However, the Company's ultimate liability in
connection with the Site will depend upon a number of factors, including changes
in existing laws and regulations, and the design and cost of the construction,
operation and maintenance of the correction action.
In the normal course of business, Ducommun and its subsidiaries are defendants
in certain other litigation, claims and inquiries, including matters relating to
environmental laws. In addition, the Company makes various commitments and
incurs contingent liabilities. While it is not feasible to predict the outcome
of these matters, the Company does not presently expect that any sum it may be
required to pay in connection with these matters would have a material adverse
effect on its consolidated financial position or results of operations.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 will become effective for the
Company in 2001. The adoption of SFAS 133 is not expected to have a material
effect on the Company's financial position, results of operations or cash flow.
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<PAGE> 17
YEAR 2000
The Company has substantially completed, for its systems, a year 2000 date
conversion project to address necessary code changes, testing, and
implementation. Critical systems have been inventoried, assessed and tested for
Year 2000 compliance, and planning for contingencies has also been performed to
the extent feasible. The cost of this project is not expected to exceed
$225,000. The Company has evaluated both its products and its machinery and
equipment against Year 2000 concerns. As a result of these evaluations, the
Company is not currently aware of any significant exposure to contingencies
related to the Year 2000 issue as a result of its information systems software,
products, or machinery and equipment. The Company has completed all planned
evaluation and testing of material internal software applications, operating
systems, products and machinery and equipment. The Company also has conducted
communications with, and received responses from, third parties with which it
has a material relationship to attempt to determine their preparedness with
respect to Year 2000 issues and to analyze the risk to the Company in the event
any such third parties experience significant business interruptions as a result
of Year 2000 noncompliance. However, there can be no assurance that the systems
of the Company, or of other companies on which the Company's business or systems
rely, will be Year 2000 compliant or that any such failure to be Year 2000
compliant would not have an adverse effect on the Company's business or systems.
Maintenance or modification costs will be expensed as incurred, while the cost
of new software will be capitalized and amortized over the software's useful
life.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Any forward looking statements made in this Form 10-Q report involve risks and
uncertainties. The Company's future financial results could differ materially
from those anticipated due to the Company's dependence on conditions in the
airline industry, the level of new commercial aircraft orders, the production
rate for the Space Shuttle and other space programs, the level of defense
spending, competitive pricing pressures, technology and product development
risks and uncertainties, product performance, risks associated with acquisitions
and dispositions of businesses by the Company, increasing consolidation of
customers and suppliers in the aerospace industry, availability of raw materials
and components from suppliers, and other factors beyond the Company's control.
-17-
<PAGE> 18
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Inapplicable.
-18-
<PAGE> 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
The following exhibits are filed with this report.
(a) 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
-19-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUCOMMUN INCORPORATED
(Registrant)
By: /s/ James S. Heiser
------------------------------------
James S. Heiser
Vice President, Chief Financial
Officer and General Counsel
(Duly Authorized Officer of the
Registrant)
By: /s/ Samuel D. Williams
------------------------------------
Samuel D. Williams
Vice President and Controller
(Chief Accounting Officer of the
Registrant)
Date: October 27, 1999
-20-
<PAGE> 21
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-02-1999
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 17,901
<ALLOWANCES> 154
<INVENTORY> 22,880
<CURRENT-ASSETS> 48,311
<PP&E> 82,119
<DEPRECIATION> 38,842
<TOTAL-ASSETS> 119,287
<CURRENT-LIABILITIES> 22,451
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 87,762
<TOTAL-LIABILITY-AND-EQUITY> 119,287
<SALES> 108,225
<TOTAL-REVENUES> 108,225
<CGS> 73,756
<TOTAL-COSTS> 73,756
<OTHER-EXPENSES> 17,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259
<INCOME-PRETAX> 16,898
<INCOME-TAX> 6,634
<INCOME-CONTINUING> 10,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,264
<EPS-BASIC> .99
<EPS-DILUTED> .96
</TABLE>
