<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 1-8174
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.
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 July 3, 1999, there were
outstanding 10,353,485 shares of common stock.
<PAGE> 2
DUCOMMUN INCORPORATED
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at July 3, 1999 and
December 31, 1998 3
Consolidated Statements of Income for Three Months
Ended July 3, 1999 and July 4, 1998 4
Consolidated Statements of Income for Six Months
Ended July 3, 1999 and July 4, 1998 5
Consolidated Statements of Cash Flows for Six
Months Ended July 3, 1999 and July 4, 1998 6
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 15
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security of Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
July 3, December 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
Current Asssets:
Cash and cash equivalents $ 1,065 $ 9,066
Accounts receivable (less allowance for doubtful
accounts of $132 and $125) 18,108 19,680
Inventories 22,059 19,495
Deferred income taxes 4,284 4,449
Prepaid income taxes 1,259 1,283
Other current assets 3,391 2,437
--------- ---------
Total Current Assets 50,166 56,410
Property and Equipment, Net 43,035 41,145
Excess of Cost Over Net Assets Acquired (Net of Accumulated
Amortization of $6,304 and $5,468) 27,462 18,974
Other Assets 687 675
--------- ---------
$ 121,350 $ 117,204
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 4) $ 1,539 $ 1,434
Accounts payable 7,523 7,445
Accrued liabilties 14,630 16,738
--------- ---------
Total Current Liabilities 23,692 25,617
Long-Term Debt (Note 4) 5,606 5,350
Deferred Income Taxes 1,714 1,714
Other Long-Term Liabilities 870 818
--------- ---------
Total Liabilities 31,882 33,499
--------- ---------
Commitments and Contingencies (Note 6)
Shareholders' Equity:
Commonstock -- $.01 par value; authorized 35,000,000
shares; issued 10,409,985 shares in 1999 and
11,345,255 in 1998 104 113
Additional paid-in capital (Note 5) 45,570 60,419
Retained earnings 44,419 37,825
Less common stock held in treasury -- 56,500 shares
in 1999 and 931,762 shares in 1998 (Note 5) (625) (14,652)
--------- ---------
Total Shareholders' Equity 89,468 83,705
--------- ---------
$ 121,350 $ 117,204
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For Three Months Ended
----------------------
July 3, July 4,
1999 1998
-------- --------
<S> <C> <C>
Net Sales $ 36,470 $ 45,754
Operating Costs and Expenses:
Cost of goods sold 24,878 29,774
Selling, general and administrative expenses 5,816 7,283
-------- --------
Total Operating Costs and Expenses 30,694 37,057
-------- --------
Operating Income 5,776 8,697
Interest Expense (129) (125)
-------- --------
Income Before Taxes 5,647 8,572
Income Tax Expense (2,258) (3,515)
-------- --------
Net Income $ 3,389 $ 5,057
======== ========
Earnings Per Share:
Basic earnings per share $ .33 $ .45
Diluted earnings per share .32 .43
Weighted Average Number of Common Shares
for Computation of Earnings Per Share:
Basic earnings per share 10,374 11,236
Diluted earnings per share 10,697 11,811
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For Six Months Ended
----------------------
July 3, July 4,
1999 1998
-------- --------
<S> <C> <C>
Net Sales $ 71,007 $ 89,015
Operating Costs and Expenses:
Cost of goods sold 48,652 59,251
Selling, general and administrative expenses 11,211 14,981
-------- --------
Total Operating Costs and Expenses 59,863 74,232
-------- --------
Operating Income 11,144 14,783
Interest Expense (154) (208)
-------- --------
Income Before Taxes 10,990 14,575
Income Tax Expense (4,396) (5,976)
-------- --------
Net Income $ 6,594 $ 8,599
======== ========
Earnings Per Share:
Basic earnings per share $ .63 $ .77
Diluted earnings per share .61 .73
Weighted Average Number of Common Shares
for Computation of Earnings Per Share:
Basic earnings per share 10,392 11,215
Diluted earnings per share 10,727 11,783
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For Six Months Ended
----------------------
July 3, July 4,
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 6,594 $ 8,599
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 3,495 2,857
Deferred income tax provision 165 348
Changes in Assets and Liabilities, Net
Accounts receivable 2,829 (2,537)
Inventories (1,729) 4,257
Prepaid income taxes 60 2,650
Other assets (954) (861)
Accounts payable (139) (444)
Accrued and other liabilities (2,656) (654)
-------- --------
Net Cash Provided by Operating Activities 7,665 14,215
-------- --------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (3,600) (7,309)
Acquisition (10,096) (8,146)
Other -- 194
-------- --------
Net Cash Used in Investing Activities (13,696) (15,261)
-------- --------
Cash Flows from Financing Activities:
Net Repayment of Long-Term Debt (1,139) (490)
Purchase of Common Stock (911) --
Other 80 259
-------- --------
Net Cash Used in Financing Activities (1,970) (231)
-------- --------
Net Increase in Cash and Cash Equivalents (8,001) (1,277)
Cash and Cash Equivalents, Beginning of Period 9,066 2,156
-------- --------
Cash and Cash Equivalents, End of Period $ 1,065 $ 879
======== ========
Supplemental Disclosures of Cash Flows Information:
Interest Expense Paid $ 452 $ 243
Income Taxes Paid $ 4,980 $ 2,165
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
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 six months ended July 3, 1999 and July 4, 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 July 3, 1999
and July 4, 1998, income available to common stockholders was
$3,389,000 and $5,057,000, respectively. The weighted average number of
common shares outstanding for the three months ended July 3, 1999 and
July 4, 1998 were 10,374,000 and 11,236,000 and the dilutive shares
associated with stock options were 323,000 and 575,000, respectively.
For the six months ended July 3, 1999 and July 4, 1998, income
available to common stockholders was $6,594,000 and $8,599,000,
respectively. The weighted average number of common shares outstanding
for the six months ended July 3, 1999 and July 4, 1998 were 10,392,000
and 11,215,000 and the dilutive shares associated with stock options
were 335,000 and 568,000, respectively.
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<PAGE> 8
Note 4. Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
---------------------
July 3, December 31,
1999 1998
------- ------------
<S> <C> <C>
Term and real estate loans $4,409 $4,635
Notes and other liabilities
for acquisitions 2,736 2,149
------ ------
Total debt 7,145 6,784
Less current portion 1,539 1,434
------ ------
Total long-term debt $5,606 $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 (8.00% per annum at July 3, 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 July 3, 1999). At July 3, 1999, the Company had
$40,000,000 of unused lines 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. As of July 3, 1999, the Company had repurchased 1,010,262
shares of common stock in the open market for a total of approximately
$15,563,000, or an average price of $15.40 per share. In April 1999 the
Company cancelled 953,762 shares of its treasury stock.
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
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<PAGE> 9
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. Acquisition
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 $8,146,000 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.
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 $14,955,000 and $5,268,000 of the excess of cost over
net assets acquired at July 3, 1999 and July 4, 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).
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<PAGE> 10
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.
ACQUISITION
- -----------
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 $8,146,000 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.
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 $14,955,000 and $5,268,000 of the
excess of cost over net assets acquired at July 3, 1999 and July 4, 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).
- 10 -
<PAGE> 11
RESULTS OF OPERATIONS
- ---------------------
Second Quarter of 1999 Compared to Second Quarter of 1998
- ---------------------------------------------------------
Net sales decreased 20% to $36,470,000 in the second 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, 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 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, notwithstanding the settling of a strike in April 1999 by
one of the Company's major titanium suppliers. 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 second quarters of 1999 and 1998, sales to Boeing were approximately
$9,887,000 and $14,238,000, respectively; sales to Lockheed Martin were
approximately $4,462,000 and $5,676,000, respectively; and sales to Raytheon
were approximately $2,136,000 and $2,539,000, respectively. The sales relating
to Lockheed Martin, Boeing and Raytheon are diversified over a number of
different commercial, military and space programs.
Gross profit, as a percentage of sales, was 31.8% for the second quarter of 1999
compared to 34.9% 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
15.9% for the second quarter of 1999 compared to 15.9% in 1998.
Interest expense increased to $129,000 in the second quarter of 1999 compared to
$125,000 for 1998. The increase in interest expense was primarily due to higher
debt levels.
Income tax expense decreased to $2,258,000 in the second quarter of 1999
compared to $3,515,000 for 1998. The decrease in income tax expense was
primarily due to the decrease in income before taxes.
Net income for the second quarter of 1999 was $3,389,000, or $0.32 per share,
compared to $5,057,000, or $0.43 per diluted share, in 1998.
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<PAGE> 12
Six Months of 1999 Compared with Six Months of 1998
- ---------------------------------------------------
Net sales decreased 20% to $36,470,000 in the second 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, 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 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, notwithstanding the settling of a strike in April 1999 by
one of the Company's major titanium suppliers. 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 six months of 1999 and 1998, sales to Boeing were approximately
$20,396,000 and $25,634,000, respectively; sales to Lockheed Martin were
approximately $7,847,000 and $10,412,000, respectively; and sales to Raytheon
were approximately $4,502,000 and $5,650,000, respectively. The sales relating
to Lockheed Martin, Boeing and Raytheon are diversified over a number of
different commercial, military and space programs.
At July 3, 1999, backlog believed to be firm was approximately $126,300,000
compared to $138,200,000 at December 31, 1998. Approximately $39,600,000 of
backlog is expected to be delivered during 1999.
Gross profit, as a percentage of sales, was 31.5% for the first six months of
1999 compared to 33.4% 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
15.8% for the first six months of 1999 compared to 16.8% in 1998. The decrease
in these expenses as a percentage of sales was primarily the result of a
reduction of personnel related costs.
Interest expense decreased to $154,000 in the first six months of 1999 compared
to $208,000 for 1998. The decrease in interest expense was primarily due to
lower debt levels.
Income tax expense decreased to $4,396,000 in the first six months of 1999
compared to $5,976,000 for 1998. The decrease in income tax expense was
primarily due to the decrease in income before taxes.
Net income for the first six months of 1999 was $6,594,000, or $0.61 per share,
compared to $8,599,000, or $0.73 per diluted share, in 1998.
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<PAGE> 13
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources
- -------------------------------
Cash flow from operating activities for the six months ended July 3, 1999 was
$7,665,000, compared to $14,215,000 for the six months ended July 4, 1998. The
decrease in cash flow from operating activities resulted principally from lower
net income, a reduction in 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 six months of 1999, the Company spent
$3,600,000 on capital expenditures, $911,000 to repurchase shares of the
Company's common stock and $1,139,000 to repay principal on its outstanding bank
borrowings, promissory notes, and 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 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 July 3, 1999, the Company had $40,000,000 of unused lines of
credit available. See Note 4 to the Notes to Consolidated Financial Statements.
The Company spent $3,600,000 on capital expenditures during the first six 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. As of July 3, 1999, the Company had repurchased 1,010,262 shares of
common stock in the open market for a total of approximately $15,563,000, or an
average price of $15.40 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 will be 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> 14
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 2000. 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.
YEAR 2000
- ---------
The Company has commenced, for its systems, a year 2000 date conversion project
to address necessary code changes, testing, and implementation. Critical systems
have been inventoried and assessed for Year 2000 compliance and the Company is
in the process of testing and planning for contingencies. Project completion is
planned for September 1999 at a cost that is not expected to exceed $200,000.
The Company expects its year 2000 date conversion project to be completed on a
timely basis. The Company is also evaluating both its products and its machinery
and equipment against Year 2000 concerns. As a result of these ongoing
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 anticipates
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<PAGE> 15
that by September 1999, all planned evaluation and testing of material internal
software applications, operating systems, products and machinery and equipment
will be completed without any material expenditures or other material diversions
of resources. The Company is currently working with 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. The Company expects to complete this review and
analysis and to determine the need for contingency planning in this regard by
September 1999. 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 in a timely manner 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 program, 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.
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<PAGE> 16
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Inapplicable.
- 16 -
<PAGE> 17
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 1999 annual meeting of the Company was held on May 5, 1999. At the
meeting, Robert C. Ducommun and Thomas P. Mullaney were elected as
directors of the Company to serve for three-year terms expiring at the
annual meeting in 2002. In the election of directors, the shareholder
vote was as follows: Robert C. Ducommun, For - 8,260,051, Abstain -
1,556,504; Thomas P. Mullaney, For - 8,257,270, Abstain - 1,559,285.
The directors whose terms of office continued after the annual meeting
are: Norman A. Barkeley, Joseph C. Berenato, H. Frederick Christie,
Kevin S. Moore, Richard J. Pearson and Arthur W. Schmutz.
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.
- 17 -
<PAGE> 18
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: July 27, 1999
- 18 -
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-03-1999
<CASH> 1,065
<SECURITIES> 0
<RECEIVABLES> 18,240
<ALLOWANCES> 132
<INVENTORY> 22,059
<CURRENT-ASSETS> 50,166
<PP&E> 80,794
<DEPRECIATION> 37,759
<TOTAL-ASSETS> 121,350
<CURRENT-LIABILITIES> 23,692
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 89,364
<TOTAL-LIABILITY-AND-EQUITY> 121,350
<SALES> 71,007
<TOTAL-REVENUES> 71,007
<CGS> 48,652
<TOTAL-COSTS> 48,652
<OTHER-EXPENSES> 11,211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> 10,990
<INCOME-TAX> 4,396
<INCOME-CONTINUING> 6,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,594
<EPS-BASIC> .63
<EPS-DILUTED> .61
</TABLE>
