<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 No. 1-8174
DUCOMMUN INCORPORATED
---------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 95-0693330
- ------------------------------ ------------------
<S> <C>
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
111 West Ocean Boulevard, Suite 900, Long Beach, California 90802-7901
- ------------------------------------------------------------ ------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (562) 624-0800
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- -------------------------------- ------------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange
</TABLE>
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. [ ]
<PAGE> 2
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $78,000,000 as of January 31, 2000.
The number of shares of common stock outstanding on January 31, 2000 was
9,568,510.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
(a) Annual Report to Shareholders (the "1999 Annual Report") for the year
ended December 31, 1999, incorporated partially in Part I and Part II hereof
(see Exhibit 13), and
(b) Proxy Statement for the 2000 Annual Meeting of Shareholders (the "2000
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 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.
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
During 1999, 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 717, 737,
737NG, 747, 757, 767 and 777. Foreign commercial aircraft programs include the
Airbus Industrie A330, A340 and A340-600 aircraft, Bombardier Business and
Regional Jets and Dash 8. Major military aircraft programs include the Boeing
C-17, F-15 and F-18, Lockheed Martin F-16 and C-130, various Sikorsky, Bell,
Boeing and Augusta 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, Kistler K-1 reusable launch vehicles, and
various telecommunications satellites.
In November 1999, Ducommun, through a wholly-owned subsidiary, acquired the
assets and assumed certain liabilities of Parsons Precision Products, Inc.
("Parsons"). In April 1999, Ducommun acquired the capital stock of Sheet Metal
Specialties Company ("SMS"). In August 1998, Ducommun sold the capital stock of
3dbm, Inc. ("3dbm"). In June 1998, Ducommun Technologies, Inc., a subsidiary of
Ducommun, acquired the capital stock of American Electronics, Inc. ("AEI").
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 complex components using stretch forming and thermal forming
processes and computer-controlled machining. Stretch forming is a process for
manufacturing large, complex
3
<PAGE> 4
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 three 5-axis numerically-controlled routers to provide
computer-controlled machining and inspection of complex parts up to 100 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.
In November 1999, Ducommun, through a wholly-owned subsidiary, acquired the
assets and assumed certain liabilities of Parsons. Parsons is a leading
manufacturer of complex titanium hot-formed subassemblies and components for
commercial and military aerospace applications. Parsons' management team
remained with the Company at its existing Parsons, Kansas facility and reports
through AHF-Ducommun Incorporated.
Brice Manufacturing Company, Inc.
Brice Manufacturing Company, Inc. ("Brice"), a subsidiary of Ducommun, 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.
In 1998, Brice introduced an original equipment manufacture ("OEM") 16G
aircraft seat. This new aircraft seat represents Brice's first major OEM
product.
Ducommun Technologies, Inc. (formerly Jay-El Products, Inc.)
Ducommun Technologies, Inc. ("DTI"), a subsidiary of Ducommun, 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. DTI
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 DTI for military applications are night vision
goggle-compatible.
DTI also develops, designs and manufactures microwave switches, filters and
other components used principally on commercial and military aircraft and
telecommunications
4
<PAGE> 5
satellites. DTI has developed several new products that apply its existing
microwave technology to nonaerospace markets, including the wireless
telecommunications industry.
In June 1998, DTI acquired the capital stock of AEI. AEI is a leading
manufacturer of high precision actuators, stepper motors, fractional horsepower
motors and resolvers principally for commercial and military space
applications.
MechTronics of Arizona Corp.
MechTronics is a leading manufacturer of mechanical and electromechanical
enclosure products for the defense electronics and commercial aviation 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.
In April 1999, Ducommun acquired the capital stock of SMS. SMS is a
manufacturer of subassemblies for commercial and military aerospace
applications. SMS remained at its existing Chatsworth, California facility and
reports through MechTronics of Arizona Corp.
3dbm, Inc.
In August 1998, Ducommun sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc. ("3dbm"). The Company sold 3dbm because
the level of investment required to ensure the long-term viability of 3dbm in
the wireless system infrastructure business was more than the Company was
willing to commit.
Defense and Space Programs
A major portion of sales is derived from United States government defense
programs and space programs. Approximately 31 percent of 1999 sales were related
to defense programs and approximately 11 percent of 1999 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.
Commercial Programs
Approximately 58 percent of 1999 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
5
<PAGE> 6
cancellation or deferral by airlines of purchases of ordered aircraft. The
Company's sales for commercial aircraft programs also could be affected by
changes in its customers' inventory levels and changes in its customers'
aircraft production build rates.
Major Customers
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During 1999, sales to Boeing were $40,310,000, or 28% of total sales; sales to
Lockheed Martin were $15,470,000, or 11% of total sales, and sales to Raytheon
were $10,138,000, or 7% of total sales. Sales to Boeing, Lockheed Martin and
Raytheon are diversified over a number of different commercial, military and
space 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, 1999, backlog believed to be firm was approximately
$213,100,000, compared to $138,200,000 at December 31, 1998. Approximately
$95,000,000 of total backlog is expected to be delivered during 2000.
Environmental Matters and Legal
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. Aerochem expects to spend approximately $1 million for future
investigation and corrective action for groundwater contamination at its El
Mirage location. However, the Company's ultimate liability in connection with
the contamination 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 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.
6
<PAGE> 7
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 2000.
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, 1999, the Company employed 1,202 persons.
Business Segment Information
The Company operates principally in only one business segment.
Information About Foreign and Domestic Operations and Export Sales
In 1999, 1998 and 1997, foreign sales to manufacturers worldwide were
$28,313,000, $29,007,000 and $29,978,000, 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 1999, 1998 and 1997. The Company had no sales to a foreign
country greater than 4.2% of total sales in 1999, 1998 and 1997.
The Company is not subject to any foreign currency risks since all sales
are made in United States dollars.
ITEM 2. PROPERTIES
The Company occupies approximately 17 facilities with a total office and
manufacturing area of over 956,000 square feet, including both owned and leased
properties. At December 31, 1999, facilities which were in excess of 60,000
square feet each were occupied as follows:
7
<PAGE> 8
<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 2001
Carson, California AHF-Ducommun 108,000 Owned
Carson, California Ducommun Technologies 117,000 2002
Phoenix, Arizona MechTronics 90,900 2006
Parsons, Kansas Parsons Precision Products 120,000 Owned
</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.
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
On October 25, 1999, Com Dev Consulting Ltd. ("Com Dev") filed a complaint,
which was subsequently amended on December 22, 1999, against Ducommun and
certain officers of the Company in the United States Court for the Central
District of California. The complaint alleged violation of the federal
securities laws, intentional misrepresentation, negligent misrepresentation,
unfair business practices and breach of contract in connection with the sale of
the capital stock of 3dbm by Ducommun to Com Dev in August 1998, and sought
unspecified general and punitive damages from the defendants. On February 3,
2000, the United States District Court dismissed the complaint without
prejudice. The Company intends to vigorously defend the matter if Com Dev
attempts to reassert its claims. While it is not feasible to predict the outcome
of this matter, the Company presently believes that the final resolution of the
matter will not have a material adverse effect on its consolidated financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
<PAGE> 9
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 12 of the 1999 Annual Report is incorporated herein by
reference. No dividends were paid during 1998 or 1999 (see Exhibit 13).
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Data" appearing on
page 12 of the 1999 Annual Report is incorporated herein by reference (see
Exhibit 13).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing on pages 13 through 16
of the 1999 Annual Report is incorporated herein by reference (see Exhibit 13).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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 PricewaterhouseCoopers LLP dated February
17, 2000, appearing on pages 17 through 27 of the 1999 Annual Report are
incorporated herein by reference (see Exhibit 13).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
9
<PAGE> 10
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 2000 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 and brief accounts of business experience during the past five
years. Executive officers do not serve for any specified terms, but are
typically elected annually by the Board of Directors of the Company or, in the
case of subsidiary presidents, by the Board of Directors of the respective
subsidiaries.
<TABLE>
<CAPTION>
Positions and Offices Other Business
Held With Company Experience
Name (Age) (Year Elected) (Past Five Years)
- ----------------------------- ----------------------------- ---------------------------
<S> <C> <C>
Joseph C. Berenato (53) President (1996), Chief Executive Vice President
Executive Officer (1997) (1995), Chief Operating
and Chairman of the Board Officer (1995-1996), and
(1999) Chief Financial Officer
(1991-1996) of the Company
Robert A. Borlet (59) Vice President, President of Ducommun
Manufacturing Operations Technologies, Inc. (1988-1999)
(1999)
James S. Heiser (43) Vice President (1990), --
Chief Financial Officer
(1996), General Counsel
(1988), Secretary (1987),
and Treasurer (1995)
Kenneth R. Pearson (64) Vice President-Human --
Resources (1988)
Michael W. Williams (45) Vice President, Corporate Vice President of
Development (1998) Operations at H.R.
Textron; operations
positions with Crane
Valve Group, ITT Corp. and
Parker Hannifin
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Positions and Offices Other Business
Held With Company Experience
Name (Age) (Year Elected) (Past Five Years)
- ----------------------------- ----------------------------- ---------------------------
<S> <C> <C>
Samuel D. Williams (51) Vice President (1991) and --
Controller (1988)
Jeffrey P. Abbott (48) President, Aerochem, Inc. Vice President of
(1998) Operations (1992-1997);
Executive Vice President
and General Manager
(1997-1998) of Aerochem
Paul L. Graham (55) President of Ducommun President of 3dbm, Inc.
Technologies, Inc. (1999) (1995-1998); President of
Com Dev Wireless Systems
(1998-1999)
Bruce J. Greenbaum (44) President of Brice --
Manufacturing Company, Inc.
(1994)
Robert B. Hahn (57) President of MechTronics of President of Aerochem,
Arizona Corp. (1997) Inc. (1987-1997)
Robert L. Hansen (46) President, AHF-Ducommun --
Incorporated (1989)
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Compensation of Executive Officers" in
the 2000 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 2000 Proxy Statement is incorporated herein by
reference.
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 2000 Proxy Statement is
incorporated herein by reference.
11
<PAGE> 12
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 1999 Annual Report, are
incorporated by reference in Item 8 of this report. Page numbers refer
to the 1999 Annual Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Income -- Years ended December 31, 17
1999, 1998 and 1997
Consolidated Balance Sheets -- December 31, 1999 and 1998 18
Consolidated Statements of Cash Flows -- Years ended December 31, 19
1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity -- Years 20
Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 22-26
Report of Independent Accountants 27
</TABLE>
2. Financial Statement Schedule
The following schedule for the years ended December 31, 1999, 1998 and
1997 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.
(b) Reports on Form 8-K
A report on Form 8-K dated November 23, 1999 was filed during the last
quarter of 1999 with respect to the acquisition of Parsons, reported
under Item 2 thereto.
12
<PAGE> 13
(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 Certificate of Amendment of Certificate of Incorporation
filed with the Delaware Secretary of State on May 27, 1998.
Incorporated by reference to Exhibit 3.2 to Form 10-K for the year
ended December 31, 1998.
3.3 Bylaws as amended and restated on January 26, 2000.
4.1 Fifth Amended and Restated Loan Agreement between Ducommun
Incorporated, as Borrower, and Bank of America National Trust and
Savings Association, as Bank, dated June 23, 1997. Incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended June
28, 1997.
4.2 First Amendment to Fifth Amended and Restated Loan Agreement
between Ducommun Incorporated, as Borrower, and Bank of America
National Trust and Savings Association, as Bank, dated as of
October 1, 1997. Incorporated by reference to Exhibit 4.2 to Form
10-K for the year ended December 31, 1997.
4.3 Second Amendment to Fifth Amended and Restated Loan Agreement
dated August 10, 1998. Incorporated by reference to Exhibit 10.1 to
the Form 10-Q for the quarter ended October 3, 1998.
4.4 Third Amendment to Fifth Amended and Restated Loan Agreement
dated February 11, 1999.
4.5 Fourth Amendment to Fifth Amended and Restated Loan Agreement
dated October 29, 1999.
4.6 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.
* 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.
* 10.2 1990 Stock Option Plan. Incorporated by reference to Exhibit
10.4 to Form 10-K for the year ended December 31, 1990.
13
<PAGE> 14
* 10.3 1994 Stock Incentive Plan, as amended May 7, 1998. Incorporated
by reference to Exhibit 10.3 to Form 10-K for the year ended December
31, 1997.
* 10.4 Form of Nonqualified Stock Option Agreement, for grants to
employees prior to January 1, 1999, 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 Nonqualified Stock option Agreement, for grants to
employees after January 1, 1999, under the 1994 Stock Incentive Plan
and the 1990 Stock Option Plan.
* 10.6 Form of Incentive Stock Option Agreement under the 1994 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.5 to Form 10-K
for the year ended December 31, 1996.
10.7 Form of Nonqualified Stock Option Agreement for nonemployee
directors under the 1994 Stock Incentive Plan.
* 10.8 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, 1999. All of the Key Executive Severance Agreements
are identical except for the name of the executive officer and the
date of the Agreement:
<TABLE>
<CAPTION>
Executive Officer Date of Agreement
----------------- -----------------
<S> <C>
Joseph C. Berenato November 4, 1991
Robert A. Borlet July 27, 1988
Bruce J. Greenbaum December 6, 1995
Robert B. Hahn July 27, 1988
Robert L. Hansen May 5, 1993
James S. Heiser July 27, 1988
Kenneth R. Pearson July 27, 1988
Michael W. Williams October 25, 1999
Samuel D. Williams June 21, 1989
</TABLE>
* 10.9 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. All of the Indemnity
Agreements are identical except for the name of the director or
officer and the date of the Agreement:
<TABLE>
<CAPTION>
Director/Officer Date of Agreement
---------------- -----------------
<S> <C>
Norman A. Barkeley July 29, 1987
Joseph C. Berenato November 4, 1991
Eugene P. Conese, Jr. January 26, 2000
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
Ralph D. Crosby, Jr. January 26, 2000
James S. Heiser May 6, 1987
Kenneth R. Pearson July 27, 1988
Michael W. Williams February 26, 1999
Samuel D. Williams November 11, 1988
H. Frederick Christie October 23, 1985
Robert C. Ducommun December 31, 1985
Kevin S. Moore October 15, 1994
Thomas P. Mullaney April 8, 1987
Richard J. Pearson October 23, 1985
Arthur W. Schmutz December 31, 1985
</TABLE>
* 10.10 Description of 2000 Executive Officer Bonus Arrangement.
* 10.11 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.
* 10.12 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.
* 10.13 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.
* 10.14 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.
10.15 Asset Purchase and Sale Agreement dated as of November 8, 1999
among Ducommun Incorporated, Ducommun Acquisition Corporation, Jordan
Industries, Inc., and Parsons Precision Products, Inc. Incorporated by
reference to Exhibit 2.1 to Form 8-K dated November 23, 1999.
11 Reconciliation of the Numerators and Denominators of the Basic
and Diluted Earnings Per Share Computations
13 1999 Annual Report to Shareholders (not deemed to be filed
except as previously incorporated by reference).
21 Subsidiaries of registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
- ----------
* Indicates an executive compensation plan or arrangement.
15
<PAGE> 16
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 23, 2000 By: /s/ Joseph C. Berenato
------------------------------------
Joseph C. Berenato
Chairman of the Board, 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 23, 2000 By: /s/ Joseph C. Berenato
------------------------------------
Joseph C. Berenato
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 23, 2000 By: /s/ James S. Heiser
------------------------------------
James S. Heiser
Vice President, Chief Financial
Officer, General Counsel,
Secretary and Treasurer
(Principal Financial Officer)
Date: February 23, 2000 By: /s/ Samuel D. Williams
------------------------------------
Samuel D. Williams
Vice President, Controller and
Assistant Treasurer
(Principal Accounting Officer)
16
<PAGE> 17
DIRECTORS
By: /s/ Norman A. Barkeley Date: February 23, 2000
------------------------------------
Norman A. Barkeley
By: /s/ Joseph C. Berenato Date: February 23, 2000
------------------------------------
Joseph C. Berenato
By: /s/ Eugene P. Conese, Jr. Date: February 23, 2000
------------------------------------
Eugene P. Conese, Jr.
By: /s/ Ralph D. Crosby, Jr. Date: February 23, 2000
------------------------------------
Ralph D. Crosby, Jr.
By: /s/ H. Frederick Christie Date: February 23, 2000
------------------------------------
H. Frederick Christie
By: /s/ Robert C. Ducommun Date: February 23, 2000
------------------------------------
Robert C. Ducommun
By: /s/ Kevin S. Moore Date: February 23, 2000
------------------------------------
Kevin S. Moore
By: /s/ Thomas P. Mullaney Date: February 23, 2000
------------------------------------
Thomas P. Mullaney
By: /s/ Richard J. Pearson Date: February 23, 2000
------------------------------------
Richard J. Pearson
By: /s/ Arthur W. Schmutz Date: February 23, 2000
------------------------------------
Arthur W. Schmutz
17
<PAGE> 18
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 17, 2000 appearing in the 1999 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)(2) 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.
PricewaterhouseCoopers LLP
Los Angeles, California
February 17, 2000
18
<PAGE> 19
DUCOMMUN INCORPORATED
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
SCHEDULE VIII
Column A Column B Column C Column D Column E
- ------------------------ ------------- --------------------------- -------------- -----------
Additions
---------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End of
Description of Period Expenses Accounts Deductions Period
- ------------------------ ------------- ----------- -------------- -------------- -----------
FOR THE YEAR ENDED DECEMBER 31, 1999
<S> <C> <C> <C> <C> <C>
Allowance for
Doubtful Accounts $ 125,000 $ 25,000 $ 39,000(c) $ 36,000(b) $ 153,000
FOR THE YEAR ENDED DECEMBER 31, 1998
Allowance for
Doubtful Accounts $ 359,000 $ 7,000 $ -- $ 194,000(a) $ 125,000
$ 47,000(b)
FOR THE YEAR ENDED DECEMBER 31, 1997
Allowance for
Doubtful Accounts $ 206,000 $ 290,000 $ -- $ 137,000(b) $ 359,000
</TABLE>
- -------------
(a) Collections on previously written off accounts.
(b) Write-offs on uncollectible accounts.
(c) Change in allowance for doubtful accounts related to acquisitions in 1999.
19
<PAGE> 20
EXHIBIT INDEX
(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 Certificate of Amendment of Certificate of Incorporation
filed with the Delaware Secretary of State on May 27, 1998.
Incorporated by reference to Exhibit 3.2 to Form 10-K for the year
ended December 31, 1998.
3.3 Bylaws as amended and restated on January 26, 2000.
4.1 Fifth Amended and Restated Loan Agreement between Ducommun
Incorporated, as Borrower, and Bank of America National Trust and
Savings Association, as Bank, dated June 23, 1997. Incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended June
28, 1997.
4.2 First Amendment to Fifth Amended and Restated Loan Agreement
between Ducommun Incorporated, as Borrower, and Bank of America
National Trust and Savings Association, as Bank, dated as of
October 1, 1997. Incorporated by reference to Exhibit 4.2 to Form
10-K for the year ended December 31, 1997.
4.3 Second Amendment to Fifth Amended and Restated Loan Agreement
dated August 10, 1998. Incorporated by reference to Exhibit 10.1 to
the Form 10-Q for the quarter ended October 3, 1998.
4.4 Third Amendment to Fifth Amended and Restated Loan Agreement
dated February 11, 1999.
4.5 Fourth Amendment to Fifth Amended and Restated Loan Agreement
dated October 29, 1999.
4.6 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.
* 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.
* 10.2 1990 Stock Option Plan. Incorporated by reference to Exhibit
10.4 to Form 10-K for the year ended December 31, 1990.
<PAGE> 21
* 10.3 1994 Stock Incentive Plan, as amended May 7, 1998. Incorporated
by reference to Exhibit 10.3 to Form 10-K for the year ended December
31, 1997.
* 10.4 Form of Nonqualified Stock Option Agreement, for grants to
employees prior to January 1, 1999, 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 Nonqualified Stock option Agreement, for grants to
employees after January 1, 1999, under the 1994 Stock Incentive Plan
and the 1990 Stock Option Plan.
* 10.6 Form of Incentive Stock Option Agreement under the 1994 Stock
Incentive Plan. Incorporated by reference to Exhibit 10.5 to Form 10-K
for the year ended December 31, 1996.
10.7 Form of Nonqualified Stock Option Agreement for nonemployee
directors under the 1994 Stock Incentive Plan.
* 10.8 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, 1999. All of the Key Executive Severance Agreements
are identical except for the name of the executive officer and the
date of the Agreement:
<TABLE>
<CAPTION>
Executive Officer Date of Agreement
----------------- -----------------
<S> <C>
Joseph C. Berenato November 4, 1991
Robert A. Borlet July 27, 1988
Bruce J. Greenbaum December 6, 1995
Robert B. Hahn July 27, 1988
Robert L. Hansen May 5, 1993
James S. Heiser July 27, 1988
Kenneth R. Pearson July 27, 1988
Michael W. Williams October 25, 1999
Samuel D. Williams June 21, 1989
</TABLE>
* 10.9 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. All of the Indemnity
Agreements are identical except for the name of the director or
officer and the date of the Agreement:
<TABLE>
<CAPTION>
Director/Officer Date of Agreement
---------------- -----------------
<S> <C>
Norman A. Barkeley July 29, 1987
Joseph C. Berenato November 4, 1991
Eugene P. Conese, Jr. January 26, 2000
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
Ralph D. Crosby, Jr. January 26, 2000
James S. Heiser May 6, 1987
Kenneth R. Pearson July 27, 1988
Michael W. Williams February 26, 1999
Samuel D. Williams November 11, 1988
H. Frederick Christie October 23, 1985
Robert C. Ducommun December 31, 1985
Kevin S. Moore October 15, 1994
Thomas P. Mullaney April 8, 1987
Richard J. Pearson October 23, 1985
Arthur W. Schmutz December 31, 1985
</TABLE>
* 10.10 Description of 2000 Executive Officer Bonus Arrangement.
* 10.11 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.
* 10.12 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.
* 10.13 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.
* 10.14 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.
10.15 Asset Purchase and Sale Agreement dated as of November 8, 1999
among Ducommun Incorporated, Ducommun Acquisition Corporation, Jordan
Industries, Inc., and Parsons Precision Products, Inc. Incorporated by
reference to Exhibit 2.1 to Form 8-K dated November 23, 1999.
11 Reconciliation of the Numerators and Denominators of the Basic
and Diluted Earnings Per Share Computations
13 1999 Annual Report to Shareholders (not deemed to be filed
except as previously incorporated by reference).
21 Subsidiaries of registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
- ----------
* Indicates an executive compensation plan or arrangement.
<PAGE> 1
EXHIBIT 3.3
As Amended January 26, 2000
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 111 West Ocean Boulevard, Suite 900, in the
City of Long Beach, 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.
2
<PAGE> 2
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 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:
3
<PAGE> 3
(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.
4
<PAGE> 4
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.
5
<PAGE> 5
(Sections 1(b) and (c) Amended 01/26/00)
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 eight (8) nor more than ten
(10) 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 ten (10) until changed within the limits specified in
Section 1(b) of 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
6
<PAGE> 6
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.
7
<PAGE> 7
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 otherwise, and receiving compensation therefor.
8
<PAGE> 8
(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
9
<PAGE> 9
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.
10
<PAGE> 10
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.
11
<PAGE> 11
(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,
12
<PAGE> 12
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.
13
<PAGE> 1
EXHIBIT 4.4
THIRD AMENDMENT TO FIFTH
AMENDED AND RESTATED LOAN AGREEMENT
This Third Amendment (the "Amendment") dated as of February 11, 1999, is
between Bank of America National Trust and Savings Association (the "Bank") and
Ducommun Incorporated, a Delaware corporation (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Fifth Amended and
Restated Loan Agreement dated as of June 23, 1997, as amended by a First
Amendment dated as of October 1, 1997 and a Second Amendment dated as of August
10, 1998 ("Second Amendment") (as amended, the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Paragraph 1.1 of the Agreement is hereby amended as follows:
(a) The following defined terms are added to Paragraph 1.1 of the
agreement, in the appropriate alphabetical sequence, to read as follows:
"`Letter of Credit' means any standby letter of credit
issued by the Bank pursuant to Paragraph 2.2 of this Agreement,
either as originally issued or as the same may from time to time
be supplemented, modified, amended, renewed or extended.
see `Letter of Credit Obligations' means at any time the sum
of (a) the Outstanding Letters of Credit, plus (b) the amount of
all unreimbursed drawings under all Letters of Credit.
see `Outstanding Letters of Credit' means, as of any date of
determination, the aggregate face amount of all Letters of Credit
outstanding on such date minus the aggregate amount, if any, paid
in cash by Bank under such Letters of Credit that has been
reimbursed by Borrower."
(b) In the definition of "Cash Flow," the phrase commencing with
the word "minus" on line 8 thereof is amended to read as follows:
". . . minus cash income taxes paid during that fiscal year,
excluding cash income taxes not exceeding $1,500,000 associated
with the capital gains realized from Borrower's sale of the 3dbm
subsidiary during fiscal year 1998, . . ."
(c) The definition of "Line of Credit" is amended to read as
follows:
"`Line of Credit' means the credit facility for Loans and
Letters of Credit described in Article 2 of this Agreement."
(d) In the definition of "Loan Documents," the phrase "the
Letters of Credit" is added immediately following the phrase "the
Guaranty."
(e) The definition of "Maximum Amount" is amended to read as
follows:
<PAGE> 2
"`Maximum Amount' means, as of any date of determination
thereof, the Line Commitment minus the Letter of Credit
Obligations."
(f) The definition of "Term of this Agreement" is amended to read
as follows:
"`Term of this Agreement' means the period commencing on the
Restatement Date and ending on the last date upon which no Loan
or other Obligation of Borrower to Bank remains unpaid, no Letter
of Credit remains outstanding, and Bank has no further commitment
hereunder to make the Line of Credit available to Borrower."
(g) In the definition of "Total Funded Debt," commencing at line
11 thereof, the phrase beginning with the words "Contingent Obligations" is
amended to read as follows:
". . . Contingent Obligations under any guaranties of the
obligations of any Person other than Borrower's Subsidiaries or
Affiliates, Outstanding Letters of Credit (minus Cash and Cash
Equivalents of Borrower and its Subsidiaries),. . ."
(h) The definition of "Total Outstandings" is amended to read as
follows:
"`Total Outstandings' means, as of any date of
determination, the sum of (a) all outstanding Loans and (b) the
Letter of Credit Obligations."
2.2 Paragraph 2.2 of the Agreement is amended in its entirety to read
as follows:
"2.2 Letters of Credit. Subject to the terms and conditions
hereof, at any time and from time to time from the Restatement Date through
the Banking Day immediately preceding the Termination Date, Bank shall
issue such Letters of Credit as Borrower may request, provided that, upon
giving effect to such Letter of Credit (i) Total Outstandings shall not
exceed the Line Commitment, and (ii) the Letter of Credit Obligations shall
not exceed $1,000,000 for standby Letters of Credit. Unless Bank otherwise
consents in writing, the term of any standby Letter of Credit shall not
exceed 24 months, and shall in no event in any case extend more than 12
months beyond the Termination Date. No Letter of Credit shall be issued
except to the extent reasonably necessary in the ordinary course of the
business of Borrower or its Subsidiaries, and no Letter of Credit shall be
issued in any event to support any workers' compensation obligation of
Borrower or its Subsidiaries. Unless otherwise agreed to by Bank, the face
amount of any Letter of Credit shall not be less than $25,000.
Borrower agrees:
(a) if there is a default under this Agreement, to immediately
prepay and make Bank whole for any outstanding Letters of Credit.
(b) the issuance of any Letter of Credit and any amendment to a
Letter of Credit is subject to Bank's written approval and must be in form
and content satisfactory to Bank and in favor of a beneficiary acceptable
to Bank.
(c) to sign Bank's form Application and Agreement for Standby
Letter of Credit with respect to each Letter of Credit.
(d) to allow Bank to automatically charge its checking account
for applicable fees, discounts, and other charges.
(e) to pay Bank a non-refundable fee equal to 1.50% per annum of
the outstanding undrawn amount of each standby Letter of Credit, payable
annually in advance, calculated on the basis of the face amount outstanding
on the day the fee is calculated.
(f) to pay to Bank the amount of any payment made or to be made
by Bank under any Letter of Credit, upon Bank's demand; and, if Borrower
fails to make any such payment, Bank may, but is not required to, without
notice to or the consent of Borrower, make a
<PAGE> 3
Loan in an aggregate amount equal to the amount paid by Bank on the
relevant Letter of Credit, whether or not the same would cause Total
Outstandings to exceed the Line Commitment (without waiving the obligation
of Borrower to reduce Total Outstandings to an amount less than or equal to
the Line Commitment) and, for this purpose, the conditions precedent set
forth in Article 8 and the amount limitations set forth in Paragraph 2.1
shall not apply. The proceeds of such Loan shall be paid to Bank to
reimburse it for the payment made by it under the Letter of Credit.
(g) Subject to the next sentence, a Letter of Credit may be
requested pursuant to this Paragraph 2.2 for the account of Borrower or for
the account of any Subsidiary of Borrower. To the extent that a Subsidiary
of Borrower is the account party under any Letter of Credit, Borrower
hereby guarantees the payment and performance of such Subsidiary with
respect to any Obligation of such Subsidiary relating to such Letter of
Credit, and agrees to deliver to Bank, duly executed and in form and
content acceptable to Bank, a duly executed continuing guaranty further
evidencing the foregoing guaranty, together with a resolution or other
evidence of the corporate authority of Borrower to execute, perform and
deliver such continuing guaranty.
2.3 In Paragraph 4.13 of the Agreement, the phrase ", or in connection
with the issuance of any Letter of Credit," is added in the third line of
said paragraph immediately following the word "Loan."
2.4 Paragraph 5.9 of the Agreement is amended in its entirety to read
as follows:
"5.9 Use of Proceeds. Use the proceeds of the Line of Credit for
the following purposes only: (i) for working capital purposes of
Borrower and its Subsidiaries, (ii) to issue Letters of Credit, (iii)
for other lawful corporate purposes in the ordinary course of
business, and (iv) to finance Permitted Acquisitions."
2.5 Paragraph 6.3 of the Agreement is amended by deleting the period
at the end of the paragraph and adding the following:
"; provided, further, however, that the amount of the following
transactions shall not be included in calculating the amount of
redemptions or repurchases of shares permitted under clause (c) of
this Paragraph 6.3: common stock repurchases that (i) occurred prior
to January 1, 1999 or (ii) are financed exclusively from balance sheet
cash derived from sources other than Loans under this Agreement."
2.6 All references to Letters of Credit in Paragraph 9.2 of the
Agreement, previously deleted pursuant to Paragraph 2.9 of the Second
Amendment, are hereby fully reinstated.
2.7 All references to Letters of Credit in Paragraph 10.8 of the
Agreement, previously deleted pursuant to Paragraph 2.10 of the Second
Amendment, are hereby fully reinstated.
3. Representations and Warranties. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that: (a) there is no event
which is, or with notice or lapse of time or both would be, a default under the
Agreement, (b) the representations and warranties in the Agreement are true as
of the date of this Amendment as if made on the date of this Amendment, (c) this
Amendment is within the Borrower's powers, has been duly authorized, and does
not conflict with any of the Borrower's organizational papers, and (d) this
Amendment does not conflict with any law, agreement, or obligation by which the
Borrower is bound.
4. Conditions. This Amendment will be effective when the Bank receives the
following items, in form and content acceptable to the Bank:
4.1 An amendment fee in the amount of $5,000.00.
4.2 An Instrument of Joinder, duly executed by Ducommun Technologies,
Inc., together with corporate resolutions authorizing such guaranty by
joinder, certified by their respective Secretary or Assistant Secretary.
<PAGE> 4
4.3 Evidence that the execution, delivery and performance of this
Amendment by the Borrower has been duly authorized.
5. Effect of Amendment. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of this
Amendment.
Bank of America National Trust
and Savings Association
By: /s/ J. Thomas Fagan
------------------------------------
J. Thomas Fagan
Vice President
Ducommun Incorporated
By: /s/ K. R. Pearson
------------------------------------
Kenneth R. Pearson
Vice President--Human Resources
and Assistant Secretary
By: /s/ J. S. Heiser
------------------------------------
James S. Heiser
Vice President, Treasurer,
Secretary, and
Chief Financial Officer
<PAGE> 1
EXHIBIT 4.5
FOURTH AMENDMENT TO FIFTH
AMENDED AND RESTATED LOAN AGREEMENT
This Fourth Amendment (the "Amendment") dated as of October 29, 1999, is
between Bank of America, N.A. (formerly known as Bank of America National Trust
and Savings Association) (the "Bank") and Ducommun Incorporated, a Delaware
corporation (the "Borrower"),
RECITALS
A. The Bank and the Borrower entered into a certain Fifth Amended and
Restated Loan Agreement dated as of June 23, 1997, as amended by a First
Amendment dated as of October 1, 1997, a Second Amendment dated as of August 10,
1998, and a Third Amendment dated as of February 11, 1999, (as amended, the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 In Paragraph 1.1 of the Agreement, the definition of "Permitted
Acquisition" is amended to add to the end of subparagraph (vii) thereof,
immediately following the word "Acquisition," the following:
", excluding from the calculation made under this subparagraph,
any Acquisition that (A) occurred prior to September 30, 1999 or
(B) is financed exclusively from balance sheet cash derived from
sources other than Loans under this Agreement and, after giving
effect to such Acquisition, no Loans are outstanding under this
Agreement."
2.2 In Paragraph 1.1 of the Agreement, the definition of "Termination
Date" is amended to read:
"`Termination Date' means July 1, 2002."
1
<PAGE> 2
2.3 The last phrase of subparagraph (c) of Paragraph 6.3 of the
Agreement, commencing with the words "provided further, however," is amended in
full to read as follows:
"; provided, further, however, that the amount of the following
transactions shall not be included in calculating the amount of
redemptions or repurchases of shares permitted under clause (c)
of this Paragraph 6.3: common stock repurchases that (i) occurred
prior to September 30, 1999, or (ii) are financed exclusively
from balance sheet cash derived from sources other than Loans
under this Agreement and, after giving effect to such redemptions
or repurchases, no Loans are outstanding under this Agreement."
3. Representations and Warranties. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that: (a) there is no event
which is, or with notice or lapse of time or both would be, a default under the
Agreement, (b) the representations and warranties in the Agreement are true as
of the date of this Amendment as if made on the date of this Amendment, (c) this
Amendment is within the Borrower's powers, has been duly authorized, and does
not conflict with any of the Borrower's organizational papers, and (d) this
Amendment does not conflict with any law, agreement, or obligation by which the
Borrower is bound.
4. Conditions Precedent. This Amendment will be effective when the Bank
receives the following items, in form and content acceptable to the Bank:
4.1 An amendment fee in the amount of $12,000.
4.2 Evidence that the execution, delivery and performance of this
Amendment by the Borrower has been duly authorized.
5. Conditions Subsequent. The Borrower agrees to deliver to Bank, within
five (5) days of the effective date of this Amendment, an Instrument of Joinder,
duly executed by Parsons Precision Products, Inc., together with corporate
resolutions authorizing such guaranty by joinder, certified by their respective
Secretary or Assistant Secretary. The Borrower acknowledges that the failure to
deliver these documents to the Bank within the time provided herein shall
constitute a default under the Agreement.
6. Effect of Amendment. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
(Signature page follows)
2
<PAGE> 3
This Amendment is executed as of the date stated at the beginning of this
Amendment.
Bank of America, N.A.
By: /s/ J. Thomas Fagan
------------------------------------
J. Thomas Fagan
Vice President
Ducommun Incorporated
By: /s/ K. R. Pearson
------------------------------------
Kenneth R. Pearson
Vice President--Human Resources
And Assistant Secretary
By: /s/ James S. Heiser
------------------------------------
James S. Heiser
Vice President, Treasurer,
Secretary, and
Chief Financial Officer
3
<PAGE> 1
EXHIBIT 10.5
DUCOMMUN INCORPORATED
STOCK OPTION AGREEMENT
This stock option agreement is made as of [date] (the "Effective Date"), between
DUCOMMUN INCORPORATED, a Delaware corporation (the "Corporation"), and [name]
("Option Holder").
R E C I T A L S
This stock option agreement is pursuant to the [plan name] (the "Plan"). This
stock option agreement DOES NOT represent an incentive stock option as defined
in Section 422A of the Internal Revenue Code. This stock option agreement
expires on [date] (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 $[price] 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 mean a corporation or other form of business entity
more than 50% of the voting shares of which is owned or controlled,
directly or indirectly, by the Corporation 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.
1
<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 [date]. On and
after [date], 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 [date], the Option Holder may purchase, by exercise of
this option, an additional one-fourth of such total number of shares. On and
after [date], the Option Holder may purchase, by exercise of this option, an
additional one-fourth of such total number of shares. On and after [date], 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. If the Option Holder dies while employed by the Corporation
or a Subsidiary, or while this option was exercisable by him in accordance
with paragraph (b) or (c) below after his retirement, permanent disability
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) by the
personal representative of the decedent or, by such person or persons as
shall have acquired the Option Holder's rights under this option by will or
by the laws of descent and distribution at any time (i) prior to the
Expiration Date, in the event the Expiration Date is not more than one year
following the date of death, or (ii) within such one year, in the event
that the Expiration Date is more than one year following such date of
death;
(b) Retirement or Permanent Disability. If the Option Holder retires
or becomes permanently disabled, 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 permanent
disability) at any time prior to the Expiration Date. As used herein,
"retirement" shall mean the date on which the Option Holder voluntarily
terminates his employment with the Corporation or a Subsidiary with the
permanent intention of not seeking other employment or becoming
self-employed except for part-time consulting; and "permanent disability"
shall mean the date on which the Option Holder has not worked or been able
to work due to physical or mental incapacity for a period of 180
consecutive days.
(c) Other Termination. If the employment of the Option Holder with the
Corporation or a Subsidiary is terminated for any reason other than by
death, permanent disability or retirement, 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 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 following 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 following the date
of such 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.
3
<PAGE> 4
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, 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 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.
7. Adjustments
(a) If the outstanding shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company 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 Company shall
spin-off, spin-out or otherwise distribute assets with respect to the
out-standing shares of Common Stock of the Company, an appropriate and
proportionate adjustment may be made in the discretion of the Committee, in (i)
the maximum number and kind of shares as to which options may be granted under
the Plan, (ii) the number and kind of shares subject to outstanding options, and
(iii) the exercise price for each share under outstanding options, without any
change in the aggregate purchase price or value applicable to the unexercised
portion of the outstanding options.
(b) In the event of the dissolution or liquidation of the Company, or
upon any merger, consolidation or reorganization of the Company with any other
corporations or entities as a result of which the Company is not the surviving
corporation, or upon the sale of all or substantially all of the assets of the
Company or the acquisition of more than 80% of the stock of the Company 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
optionee had been the owner of such shares as of the transaction date. Any
securities so substituted shall be subject to similar successive adjustments.
8. No Right to Continued Employment. Nothing in the Plan, in this stock
option agreement 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.
4
<PAGE> 5
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 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 stock option agreement 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 stock option agreement, not this option
nor any other rights and privileges granted hereby shall be transferred,
assigned, pledged or hypothecated in any way, whether by operation of law of
descent and distribution. Upon any attempt to so transfer, assign, pledge,
hypothecate or otherwise dispose of this stock option agreement, this option or
any other right or privilege granted hereby contrary to the provisions hereof,
this stock option agreement, this option and all of such rights and privileges
shall immediately become null and void.
13. Other Programs. Nothing contained in this stock option agreement 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
5
<PAGE> 6
no such amendment may adversely affect the Option Holder's rights
under this stock option agreement. 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.
DUCOMMUN INCORPORATED
By:
------------------------------------
President and CEO
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 10.7
DUCOMMUN INCORPORATED
STOCK OPTION AGREEMENT
This stock option agreement ("Agreement") is made as of [date] (the "Effective
Date"), between DUCOMMUN INCORPORATED, a Delaware corporation (the
"Corporation"), and [name] ("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 DOES NOT represent an incentive stock option as defined in
Section 422A of the Internal Revenue Code. This Option expires on [date] (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 $[price] 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.
3. Conditions to Exercise. The Option Holder may not purchase any shares by
exercise of this option unless the Option Holder shall have served as a director
of the Corporation until at least [date]. On and after [date], 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
1
<PAGE> 2
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
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 a director of the Corporation, except as follows:
(a) Death. If the Option Holder dies while a director of the
Corporation, or while this Option was exercisable by him in accordance with
paragraph (b) below, 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) by the personal representative of the
decedent, or by such person or persons as shall have acquired the Option
Holder's rights under this option by will or by the laws of descent and
distribution, 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.
2
<PAGE> 3
(b) Retirement or Other Termination. If the Option Holder retires,
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/her retirement) at any time prior to the Expiration Date. If the Option
Holder ceases to be a director of the Corporation for any reason other than
by death or retirement, 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 on which he ceased to be a director) 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 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 termination.
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.
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, spin-out or otherwise distribute assets with
respect to the outstanding shares of Common Stock of the Corporation, an
appropriate and proportionate adjustment may be made in the discretion of
the Board of Directors, in (i) the maximum number and kind of shares as to
which options may be granted under the Plan, (ii) the number and kind of
shares subject to outstanding options, and (iii) the exercise price for
each share under outstanding options, without any change in the aggregate
purchase price or value applicable to the unexercised portion of the
outstanding options.
(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.
3
<PAGE> 4
8. 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 matters
as the Corporation may deem desirable to assure compliance with all applicable
legal requirements.
9. 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.
10. Withholding. The Corporation may make such provisions as it may deem
appropriate for the withholding of any taxes which the Corporation determines it
is required to withhold in connection with this Agreement and the transactions
contemplated hereby, and the Corporation may require the Option Holder or other
person exercising this option to pay to the Corporation 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.
11. No Assignments. Neither this Agreement, nor this option, nor any other
rights and privileges granted hereby shall be transferred, assigned, pledged or
hypothecated in any way, whether by operation of law of descent and
distribution. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of this Agreement, this option or any other right or privilege
granted hereby contrary to the provisions hereof, this Agreement, this option
and all of such rights and privileges shall immediately become null and void.
12. 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 Agreement. Option Holder acknowledges receipt of a complete copy of
the Plan.
13. 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.
4
<PAGE> 5
14. 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.
DUCOMMUN INCORPORATED
By:
------------------------------------
President and CEO
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
5
<PAGE> 1
EXHIBIT 10.10
DUCOMMUN INCORPORATED
DESCRIPTION OF
2000 EXECUTIVE OFFICER BONUS ARRANGEMENT
The Ducommun Incorporated 2000 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 five 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 AND SUBSIDIARIES
RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF
THE BASIC AND DILUTED EARNINGS PER SHARE COMPUTATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Income Available to Common Stockholders $13,444,000 10,209,000 $1.32
=====
EFFECT OF DILUTIVE SECURITIES
Stock Options -- 309,000
----------- -----------
DILUTED EPS
Income Available to Common Stockholders
+ Assumed Conversions $13,444,000 $10,518,000 $1.28
=========== =========== =====
For the Year Ended December 31, 1998
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIC EPS
Income Available to Common Stockholders $23,693,000 11,149,000 $2.13
=====
EFFECT OF DILUTIVE SECURITIES
Stock Options - 469,000
----------- -----------
DILUTED EPS
Income Available to Common Stockholders
+ Assumed Conversions $23,693,000 $11,618,000 $2.04
=========== =========== =====
For the Year Ended December 31, 1997
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIC EPS
Income Available to Common Stockholders $14,297,000 11,037,000 $1.30
=====
EFFECT OF DILUTIVE SECURITIES
Stock Options - 829,000
----------- -----------
DILUTED EPS
Income Available to Common Stockholders
+ Assumed Conversions $14,297,000 $11,866,000 $1.20
=========== =========== =====
</TABLE>
Note: Share-related data have been adjusted for the 3-for-2 stock split in June
1998.
<PAGE> 1
EXHIBIT 13
DUCOMMUN INCORPORATED
ANNUAL REPORT
The following portions of Ducommun Incorporated and Subsidiaries 1999 Annual
Report are incorporated by reference in Items 5, 6, 7, and 8 of this report.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Selected Financial Data 12
Quarterly Common Stock Price Information 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-16
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 21-26
Report of Independent Accountants 27
</TABLE>
<PAGE> 2
SELECTED FINANCIAL DATA Ducommun Incorporated
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales $ 146,054 $ 170,772 $ 157,287 $ 118,357 $91,217
------------------------------------------------------------------
Gross Profit as a Percentage of Sales 31.7% 33.3% 32.0% 32.6% 33.0%
------------------------------------------------------------------
Operating Income 22,502 29,795 25,288 15,478 10,511
------------------------------------------------------------------
Operating Income as a Percentage of Sales 15.4% 17.4% 16.1% 13.1% 11.5%
------------------------------------------------------------------
Gain on Sale of Subsidiary -- 9,249 -- -- --
------------------------------------------------------------------
Income Before Taxes 21,892 38,919 24,653 14,325 6,941
Income Tax Expense (8,448) (15,226) (10,356) (4,040) (1,895)
------------------------------------------------------------------
Net Income $ 13,444 $ 23,693 $ 14,297 $ 10,285 $ 5,046
------------------------------------------------------------------
Earnings Per Share:
Income Before Gain on Sale of Subsidiary $ 1.28 $ 1.51 $ 1.20 $ .90 $ .59
Gain on Sale of Subsidiary -- .53 -- -- --
------------------------------------------------------------------
Diluted Earnings Per Share $ 1.28 $ 2.04 $ 1.20 $ .90 $ .59
------------------------------------------------------------------
Working Capital $ 29,862 $ 30,793 $ 30,182 $ 17,286 $11,247
Total Assets 141,802 117,204 104,241 95,814 80,974
Convertible Subordinated Debentures -- -- -- -- 24,263
Long-Term Debt Including Current Portion 27,840 6,784 5,803 10,290 12,845
Total Shareholders' Equity 87,842 83,705 73,703 59,188 24,588
</TABLE>
QUARTERLY COMMON STOCK PRICE INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------
High Low High Low High Low
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 14.94 $ 9.38 $ 23.33 $ 19.42 $ 16.83 $ 13.67
Second Quarter 12.75 8.75 23.50 18.94 19.59 15.75
Third Quarter 14.94 10.75 20.75 17.19 26.46 18.58
Fourth Quarter 10.88 8.75 18.75 13.13 25.79 19.17
</TABLE>
The common stock of the Company (DCO) is listed on the New York Stock Exchange.
On December 31, 1999, the Company had approximately 629 holders of record of
common stock.
12
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACQUISITIONS
In November 1999, the Company, through a wholly-owned subsidiary, acquired the
assets and assumed certain liabilities of Parsons Precision Products, Inc.
("Parsons") for $22,073,000 in cash. Parsons is a leading manufacturer of
complex titanium hot-formed subassemblies and components for commercial and
military aerospace applications. In April 1999, the Company acquired the capital
stock of Sheet Metal Specialties Company ("SMS") 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 subassemblies for commercial and military aerospace
applications. 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 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 Parsons, SMS and AEI were
accounted for under the purchase method of accounting. These acquisitions
accounted for approximately $30,086,000 and $5,628,000 of the excess of cost
over net assets acquired at December 31, 1999, and December 31, 1998,
respectively, and is being amortized on a straight-line basis over 15 to 20
years. The consolidated statements of income include the operating results for
Parsons, SMS and AEI since the dates of the acquisitions.
The acquisitions were funded from internally generated cash, notes and other
accounts 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 and
added complementary lines of business.
DISPOSITIONS
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc. ("3dbm"). The subsidiary was sold for
$17,250,000 in cash, resulting in a pretax gain of $9,249,000 on the sale and an
after-tax gain of $6,206,000, or $.53 per diluted share, which was recorded in
the third quarter of 1998. The Company sold 3dbm because the level of investment
required to ensure the long-term viability of 3dbm in the wireless systems
infrastructure business was more than the Company was willing to commit.
RESULTS OF OPERATIONS
1999 Compared to 1998 -- Net sales decreased 14% to $146,054,000 in 1999. The
decrease resulted primarily from 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. The acquisitions of
SMS and Parsons increased sales by approximately $7,624,000 in 1999. The
Company's mix of business was approximately 58% commercial, 31% military and 11%
space in 1999. Foreign sales increased to 19% of sales from 17% in 1998. The
Company did not have sales to any foreign country greater than 4.2% of total
sales in 1999 or 1998.
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During 1999 and 1998, sales to Boeing were $40,310,000 and $48,334,000,
respectively; sales to Lockheed Martin were $15,470,000 and $18,465,000,
respectively; and sales to Raytheon were $10,138,000 and $12,596,000,
respectively. At December 31, 1999, trade receivables from Boeing, Lockheed
Martin and Raytheon were $3,940,000, $1,906,000 and $1,819,000, respectively.
The sales and receivables relating to Boeing, Lockheed Martin and Raytheon are
diversified over a number of different commercial, space and military programs.
The Company's commercial business is represented on virtually all of
today's major commercial aircraft. During 1999, sales for Boeing aircraft were
lower, principally because of lower commercial aircraft production rates and
what the Company believes are ongoing inventory reductions by Boeing and its
major suppliers. Sales related to commercial business were approximately
$84,943,000, or 58% of total sales in 1999.
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. Sales related to
military programs were approximately $44,919,000, or 31% of total sales in 1999.
The C-17 program accounted for approximately $8,270,000 in sales in 1999.
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 and satellite programs.
Sales related to space programs were approximately $16,192,000, or 11% of total
sales in 1999.
At December 31, 1999, backlog believed to be firm was approximately
$213,100,000, compared to $138,200,000 at December 31, 1998. The backlog
increase from December 31, 1998 was due primarily to the award of follow-on
contracts by Lockheed Martin for the Space Shuttle program. These contracts,
valued in excess of $93,000,000 extend
13
<PAGE> 4
Ducommun Incorporated
the Company's scope of work through 2006. The Company also experienced backlog
growth at December 31, 1999 of approximately $29,000,000 from the acquisitions
of SMS and Parsons in 1999. Approximately $95,000,000 of the total backlog is
expected to be delivered during 2000.
Gross profit, as a percentage of sales, decreased to 31.7% in 1999 from
33.3% in 1998. This decrease was primarily the result of changes in sales mix,
pricing pressures from customers and nonvariable production costs spread over
lower sales.
Selling, general and administrative expenses, as a percentage of sales,
were 14.9% in 1999, compared to 15.0% in 1998.
Goodwill amortization expense, as a percentage of sales, was 1.4% in 1999,
compared to 0.8% in 1998. This increase was primarily the result of higher
goodwill amortization expense related to the SMS and Parsons acquisitions in
1999.
Interest expense increased 388% to $610,000 in 1999 primarily due to higher
debt levels in 1999 compared to 1998.
Income tax expense decreased to $8,448,000 in 1999, compared to $15,226,000
in 1998. The decrease in income tax expense was primarily due to the decrease in
income before taxes and a decrease of $3,043,000 of income taxes related to the
gain on the sale of 3dbm in 1998. Cash expended to pay income taxes decreased to
$8,170,000 in 1999, compared to $9,464,000 in 1998, primarily as a result of
taxes paid in 1998 on the gain on the sale of 3dbm.
Net income for 1999 was $13,444,000, or $1.28 diluted earnings per share,
compared to $23,693,000, or $2.04 diluted earnings per share, in 1998. Net
income for 1998 included an after-tax gain of $6,206,000, or $0.53 per diluted
share, on the sale of the capital stock of 3dbm.
1998 COMPARED TO 1997 -- Net sales increased 9% to $170,772,000 in 1998. The
increase resulted primarily from a broad-based increase in sales in most of the
Company's product lines due to outsourcing from prime contractors and first tier
subcontractors as well as new contract awards, partially offset by lower
commercial and military aftermarket sales. The net effect on sales of the
acquisition of AEI and the divestiture of 3dbm in 1998 compared to 1997 was a
decrease in sales of approximately $111,000 in 1998. The Company's mix of
business was approximately 60% commercial, 29% military and 11% space in 1998.
Foreign sales decreased to 17% of sales from 19% in 1997. Canada was the only
foreign country in which the Company had sales of 3.5% or more of total sales,
with sales of $6,173,000 in 1998 and $7,950,000 in 1997.
The Company had substantial sales to Boeing, Lockheed Martin and Raytheon.
During 1998 and 1997, sales to Boeing were $48,334,000 and $36,375,000,
respectively; sales to Lockheed Martin were $18,465,000 and $17,455,000,
respectively; and sales to Raytheon were $12,596,000 and $9,101,000,
respectively. At December 31, 1998, trade receivables from Boeing, Lockheed
Martin and Raytheon were $4,352,000, $1,891,000 and $1,752,000, respectively.
The sales and receivables relating to Boeing, Lockheed Martin and Raytheon are
diversified over a number of different commercial, space and military programs.
During 1998, commercial sales increased primarily as a result of increased
commercial aircraft build rates and new contract awards. Sales related to
commercial business were approximately $102,432,000, or 60% of total sales in
1998. Sales related to military programs were approximately $50,231,000, or 29%
of total sales in 1998. The C-17 program accounted for approximately $9,846,000
in sales in 1998. Sales related to space programs were approximately
$18,109,000, or 11% of total sales in 1998.
At December 31, 1998, backlog believed to be firm was approximately
$138,200,000, compared to $155,700,000 at December 31, 1997. The backlog
decrease from December 31, 1997 was due to product shipments in 1998 at a faster
rate than new business was awarded to replace it. However, the Company
experienced backlog growth principally in the Boeing 737, 777 and C-17 aircraft.
Gross profit, as a percentage of sales, increased to 33.3% in 1998 from
32.0% in 1997. This increase was primarily the result of changes in sales mix
and lower production costs.
Selling, general and administrative expenses, as a percentage of sales,
were 15.8% in 1998, compared to 15.9% in 1997.
Interest expense decreased 80% to $125,000 in 1998 primarily due to higher
interest income from invested cash in 1998 compared to 1997, which was offset
against interest expense.
Income tax expense increased to $15,226,000 in 1998, compared to
$10,356,000 in 1997. The increase in income tax expense was primarily due to
$3,043,000 of income taxes related to the gain on the sale of 3dbm and the
increase in income before taxes. Cash expended to pay income taxes increased to
$9,464,000 in 1998, compared to $4,932,000 in 1997, primarily as a result of
taxes paid on the gain on the sale of 3dbm.
Net income for 1998 was $23,693,000, or $2.04 diluted earnings per share,
compared to $14,297,000, or $1.20 diluted earnings per share, in 1997. Net
income for 1998 included an after-tax gain of $6,206,000, or $0.53 per diluted
share, on the sale of the capital stock of 3dbm.
14
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Liquidity and Capital Resources -- Cash flow from operating activities for 1999
was $18,462,000, compared to $25,172,000 in 1998. The decrease in cash flow from
operating activities resulted principally from a decrease in net income, an
increase in inventories and a decrease in accrued liabilities partially offset
by a reduction in trade receivables. During 1999, the Company spent $32,169,000
to purchase SMS and Parsons, $9,414,000 to repurchase shares of the Company's
common stock, $5,778,000 on capital expenditures and had net borrowings of
$19,556,000.
In November 1999, the Company, through a wholly-owned subsidiary, acquired
the assets and assumed certain liabilities of Parsons for $22,073,000 in cash.
Parsons is a leading manufacturer of complex titanium hot-formed subassemblies
and components for commercial and military aerospace applications. In April
1999, the Company acquired the capital stock of SMS 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 subassemblies for commercial and military
aerospace applications. In June 1998, the Company acquired the capital stock of
AEI for $8,165,000 in cash and $1,900,000 in 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 were funded from internally generated cash, notes and other
accounts payable to sellers and borrowings under the Company's credit agreement
with its bank. These acquisitions strengthened the Company's position in the
aerospace industry and added complementary lines of business.
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc. The subsidiary was sold for $17,250,000 in
cash, resulting in a pretax gain of $9,249,000 on the sale and an after-tax gain
of $6,206,000, or $.53 per diluted share, which was recorded in the third
quarter of 1998. The Company sold 3dbm, Inc. because the level of investment
required to ensure the long-term viability of 3dbm, Inc. in the wireless systems
infrastructure business was more than the Company was willing to commit.
The Company's bank credit agreement provides for a $40,000,000 unsecured
revolving credit line with an expiration date of July 1, 2002. At December 31,
1999, the Company had $19,010,000 of unused lines of credit, after deducting
$20,990,000 of loans outstanding.
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 2000.
Aggregate maturities of long-term debt during the next five years are as
follows: 2000, $1,496,000; 2001, $1,409,000; 2002, $22,365,000; 2003, $560,000;
2004, $2,010,000.
The Company expects to spend less than $16,000,000 for capital expenditures
in 2000. The Company believes that the ongoing subcontractor consolidation makes
acquisition an increasingly important component of the Company's future growth,
accordingly, the Company plans to continue to seek attractive acquisition
opportunities and to make substantial capital expenditures for manufacturing
equipment and facilities to support long-term aerospace structure contracts for
both commercial and military aircraft and space programs. 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
off-load requirements from its customers.
Since 1998, the Company's Board of Directors has authorized the repurchase
of up to $30,000,000 of its common stock. The Company repurchased in the open
market 931,762 shares of its common stock in 1998 for a total of $14,652,000 and
877,300 shares of its common stock in 1999 for a total of $9,414,000. In April
1999, the Company cancelled 953,762 shares of treasury stock.
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 corrective action.
Com Dev Consulting Ltd. ("Com Dev") has filed a complaint against the
Company and certain of its officers relating to the sale of the capital stock of
3dbm by the Company to Com Dev in August 1998. On February 3, 2000, the United
States District Court dismissed the complaint without prejudice. The Company
intends to vigorously defend the matter if
15
<PAGE> 6
Ducommun Incorporated
Com Dev attempts to reassert its claims. While it is not feasible to predict the
outcome of this matter, the Company presently believes that the final resolution
of the matter will not have a material adverse effect on its consolidated
financial position or results of operations.
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.
YEAR 2000
The Company has substantially completed its systems Year 2000 date conversion
project to address necessary code changes, testing, and implementation. Critical
systems were inventoried, assessed and tested for Year 2000 compliance, and the
Company has developed contingency plans to the extent feasible. The cost of this
project was approximately $224,000. The Company continues to evaluate 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. All
planned evaluation and testing of material internal software applications,
operating systems, products and machinery and equipment has been completed with
no material effect on the Company's operations and without any material
expenditures or other material diversions of resources. The Company continues to
work 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. However, there
can be no assurance that the systems of other companies on which the Company's
business or systems rely are Year 2000 compliant or that any failure to be Year
2000 compliant by another company would not have an adverse effect on the
Company's business or systems. To date the Company has not experienced any
significant Year 2000 problems.
FORWARD LOOKING STATEMENT AND RISK FACTORS
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 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.
16
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME Ducommun Incorporated
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net Sales $ 146,054 $ 170,772 $ 157,287
---------------------------------
Operating Costs and Expenses:
Cost of goods sold 99,725 113,929 106,967
Selling, general and administrative
expenses 21,791 25,603 23,748
Goodwill amortization expense 2,036 1,445 1,284
---------------------------------
Total Operating Costs and Expenses 123,552 140,977 131,999
---------------------------------
Operating Income 22,502 29,795 25,288
Interest Expense (610 (125) (635)
Gain on Sale of Subsidiary -- 9,249 --
---------------------------------
Income Before Taxes 21,892 38,919 24,653
Income Tax Expense (8,448 (15,226) (10,356)
---------------------------------
Net Income $ 13,444 $ 23,693 $ 14,297
=================================
Earnings Per Share:
Basic earnings per share $ 1.32 $ 2.13 $ 1.30
Diluted earnings per share 1.28 2.04 1.20
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 8
CONSOLIDATED BALANCE SHEETS Ducommun Incorporated
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 138 $ 9,066
Accounts receivable
(less allowance for doubtful accounts of
$153 and $125) 20,022 19,680
Inventories (Note 3) 26,347 19,495
Deferred income taxes (Note 11) 2,698 4,449
Prepaid income taxes 1,864 1,283
Other current assets 3,335 2,437
-----------------------
Total Current Assets 54,404 56,410
Property and Equipment, Net (Note 4) 44,689 41,145
Excess of Cost Over Net Assets Acquired
(Net of Accumulated Amortization
of $7,504 and $5,468) 41,895 18,974
Other Assets 814 675
-----------------------
$ 141,802 $ 117,204
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 6) $ 1,496 $ 1,434
Accounts payable 8,135 7,445
Accrued liabilities (Note 5) 14,911 16,738
-----------------------
Total Current Liabilities 24,542 25,617
Long-Term Debt, Less Current Portion (Note 6) 26,344 5,350
Deferred Income Taxes (Note 11) 2,174 1,714
Other Long-Term Liabilities 900 818
-----------------------
Total Liabilities 53,960 33,499
-----------------------
Commitments and Contingencies (Notes 10 and 12)
Shareholders' Equity (Note 7):
Common stock -- $.01 par value; authorized
35,000,000 shares; issued
10,423,810 shares in 1999 and
11,345,255 shares in 1998 104 113
Additional paid-in capital 45,597 60,419
Retained earnings 51,269 37,825
Less common stock held in treasury --
855,300 shares in 1999 and 931,762 shares in 1998 (9,128) (14,652)
-----------------------
Total Shareholders' Equity 87,842 83,705
-----------------------
$ 141,802 $ 117,204
=======================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS Ducommun Incorporated
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 13,444 $ 23,693 $ 14,297
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Depreciation and amortization 6,846 5,868 5,340
Deferred income tax provision 2,211 1,783 5,200
Gain on sale of subsidiary and other assets (163) (9,249) --
Changes in Assets and Liabilities,
Net of Effects
From Acquisitions and Disposition:
Accounts receivable 2,471 (1,798) (4,467)
Inventories (2,237) 4,313 (2,009)
Prepaid income taxes (545) 1,594 (2,877)
Other assets (891) (613) (429)
Accounts payable 60 (1,064) 681
Accrued and other liabilities (2,734) 645 (2,253)
--------------------------------
Net Cash Provided by Operating
Activities 18,462 25,172 13,483
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (5,778) (11,827) (7,629)
Acquisition of Businesses (32,169) (8,165) --
Proceeds from Sale of Subsidiary -- 17,250 --
Cash Payments Related to Sale of Subsidiary -- (1,143) --
Proceeds from Sale of Assets 310 233 --
--------------------------------
Net Cash Used in Investing Activities (37,637) (3,652) (7,629)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayment) of Long-Term Debt 19,556 (919) (4,487)
Purchase of Common Stock for Treasury (9,414) (14,652) --
Other 105 961 218
--------------------------------
Net Cash Provided by (Used in)
Financing Activities 10,247 (14,610) (4,269)
--------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents (8,928) 6,910 1,585
Cash and Cash Equivalents -- Beginning
of Year 9,066 2,156 571
--------------------------------
Cash and Cash Equivalents -- End of Year $ 138 $ 9,066 $ 2,156
================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest Expense Paid $ 745 $ 401 $ 720
Income Taxes Paid $ 8,170 $ 9,464 $ 4,932
</TABLE>
Supplemental Information for Non-Cash Investing and Financing Activities:
See Note 2 for non-cash investing activities related to the acquisition of
businesses.
See accompanying notes to consolidated financial statements.
19
<PAGE> 10
CONSOLIDATED STATEMENTS OF CHANGES IN Ducommun Incorporated
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained Total
Shares Common Paid-In Earnings Treasury Shareholders'
Outstanding Stock Capital (Deficit) Stock Equity
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 7,301,428 $ 73 $ 59,280 $ (165) $ -- $ 59,188
Stock options exercised 269,117 3 1,030 -- -- 1,033
Stock repurchased related to the
exercise of stock options (116,347) (2) (4,134) -- -- (4,136)
Income tax benefit related to the
exercise of nonqualified stock options -- -- 3,321 -- -- 3,321
Net Income -- -- -- 14,297 -- 14,297
----------------------------------------------------------------------
Balance at December 31, 1997 7,454,198 74 59,497 14,132 -- 73,703
Stock options exercised 198,550 2 981 -- -- 983
Stock repurchased related to the
exercise of stock options (55,562) -- (1,397) -- -- (1,397)
Income tax benefit related to the
exercise of nonqualified stock options -- -- 1,375 -- -- 1,375
Adjustment for stock split 3,748,069 37 (37) -- -- --
Common stock held in treasury (931,762) -- -- -- (14,652) (14,652)
Net Income -- -- -- 23,693 -- 23,693
----------------------------------------------------------------------
Balance at December 31, 1998 10,413,493 113 60,419 37,825 (14,652) 83,705
Stock options exercised 52,475 1 190 -- -- 191
Stock repurchased related to the
exercise of stock options (20,158) -- (277) -- -- (277)
Income tax benefit related to the
exercise of nonqualified stock options -- -- 193 -- -- 193
Common stock repurchased for treasury (877,300) -- -- -- (9,414) (9,414)
Treasury stock retired -- (10) (14,928) -- 14,938 --
Net Income -- -- -- 13,444 -- 13,444
----------------------------------------------------------------------
Balance at December 31, 1999 9,568,510 $ 104 $ 45,597 $ 51,269 $ (9,128) $ 87,842
======================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 original 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
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: Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding in each year. Diluted earnings per share is computed by dividing
income available to common shareholders plus income associated with dilutive
securities by the weighted average number of common shares outstanding plus any
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock in each year. In
1999, 1998 and 1997, income available to common shareholders was $13,444,000,
$23,693,000 and $14,297,000, respectively. In 1999, 1998 and 1997, the weighted
average number of common shares outstanding was 10,209,000, 11,149,000 and
11,037,000, respectively, and the dilutive shares associated with stock options
were 309,000, 469,000 and 829,000, respectively.
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.
Comprehensive Income: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 was effective for the Company
during 1998. This statement divides comprehensive income into net income and
other comprehensive income. The Company has no items of other comprehensive
income in any period presented and is consequently not required to report
comprehensive income.
Use of Estimates: Certain amounts and disclosures included in the consolidated
financial statements required management to make estimates that could differ
from actual results.
NOTE 2. ACQUISITIONS AND DISPOSITION
In November 1999, the Company, through a wholly-owned subsidiary, acquired the
assets and assumed certain liabilities of Parsons Precision Products, Inc.
("Parsons") for $22,073,000 in cash. Parsons is a leading manufacturer of
complex titanium hot-formed subassemblies and components for commercial and
military aerospace applications. In April 1999, the Company acquired the capital
stock of Sheet Metal Specialties Company ("SMS") 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 subassemblies for commercial and military aerospace
applications. 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 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 Parsons, SMS and AEI were accounted for under the
purchase method of accounting and, accordingly, the operating results for
Parsons, 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 $30,086,000
and $5,628,000 of the excess of cost over net assets acquired at December 31,
1999, and December 31, 1998, respectively, and is being amortized on a
straight-line basis over 15 to 20 years.
The following table presents unaudited pro forma consolidated operating
results for the Company for the years ended December 31, 1999 and December 31,
1998, as if the SMS and Parsons acquisitions had occurred as of the beginning of
the periods presented.
21
<PAGE> 12
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
(In thousands, except per share amounts) (Unaudited)
<S> <C> <C>
Net sales $ 159,838 $ 191,249
Net earnings 13,931 23,465
Basic earnings per share 1.36 2.10
Diluted earnings per share 1.32 2.02
</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 SMS and Parsons acquisitions been consummated at the beginning
of the periods presented, and should not be construed as representative of
future operating results.
In August 1998, the Company sold the capital stock of its wireless
communications subsidiary, 3dbm, Inc. The subsidiary was sold for $17,250,000 in
cash, resulting in a pretax gain of $9,249,000 on the sale and an after-tax gain
of $6,206,000, or $.53 per diluted share, which was recorded in the third
quarter of 1998.
NOTE 3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Raw materials and supplies $ 9,122 $ 7,081
Work in process 16,614 12,630
Finished goods 2,192 820
--------------------------
27,928 20,531
Less progress payments 1,581 1,036
--------------------------
Total $26,347 $19,495
==========================
</TABLE>
Work in process inventories include amounts under long-term fixed price
contracts aggregating $10,975,000 and $7,171,000 at December 31, 1999 and 1998,
respectively.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Range of
Estimated
DECEMBER 31, 1999 1998 Useful Lives
- ---------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Land $ 9,690 $ 9,560
Buildings and improvements 16,207 14,733 5-40 Years
Machinery and equipment 50,690 43,130 2-20 Years
Furniture and equipment 7,252 6,256 2-10 Years
Construction in progress 1,046 2,931
-----------------
84,885 76,610
Less accumulated depreciation and amortization 40,196 35,465
-----------------
Total $44,689 $41,145
=================
</TABLE>
Depreciation expense was $5,071,000, $4,423,000 and $4,056,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Accrued compensation $ 7,147 $ 8,357
Provision for environmental costs 2,111 2,135
Customer deposits 702 534
Accrued state franchise and sales tax 141 462
Other 4,810 5,250
-------------------------
Total $14,911 $ 16,738
=========================
</TABLE>
22
<PAGE> 13
NOTE 6. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Bank credit agreement $20,990 $ --
Term and real estate loans 4,175 4,635
Notes and other liabilities for acquisitions 2,675 2,149
-------------------------
Total debt 27,840 6,784
Less current portion 1,496 1,434
-------------------------
Total long-term debt $26,344 $ 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, 2002. Interest is
payable monthly on the outstanding borrowings based on the bank's prime rate
(8.50% at December 31, 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 December 31, 1999). At December 31, 1999, the
Company had $19,010,000 of unused lines of credit, after deducting $20,990,000
of loans outstanding. The credit agreement includes fixed charge coverage and
maximum leverage ratios, an unused commitment fee of .125%, and limitations on
future dividend payments and outside indebtedness.
The weighted average interest rate on borrowings outstanding was 7.09% and
6.73% at December 31, 1999 and 1998, 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: 2000, $1,496,000; 2001, $1,409,000; 2002, $22,365,000; 2003, $560,000;
2004, $2,010,000.
NOTE 7. SHAREHOLDERS' EQUITY
At December 31, 1999 and 1998, no preferred shares were issued or outstanding.
Since 1998, the Company's Board of Directors has authorized the repurchase
of up to $30,000,000 of its common stock. The Company repurchased in the open
market 931,762 shares of its common stock in 1998 for a total of $14,652,000 and
877,300 shares of its common stock in 1999 for a total of $9,414,000. In April
1999, the Company cancelled 953,762 shares of treasury stock.
NOTE 8. STOCK OPTIONS
The Company has three stock option or incentive plans. Stock awards may be made
to directors, officers and key employees under the stock plans on terms
determined by the Compensation Committee of the Board of Directors or, with
respect to directors, on terms determined by the Board of Directors. Stock
options have been and may be granted to directors, 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, 1999, options for 612,866 shares of
common stock were exercisable.
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with
the provisions of SFAS 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 value method prescribed by SFAS 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 SFAS 123, the Company's net income and earnings per share would be
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net Income:
As reported $ 13,444 $ 23,693 $ 14,297
Pro forma 12,851 23,150 14,032
Earnings per common share:
As reported:
Basic $ 1.32 $ 2.13 $ 1.30
Diluted 1.28 2.04 1.20
Pro forma:
Basic $ 1.26 $ 2.08 $ 1.27
Diluted 1.22 1.99 1.18
</TABLE>
23
<PAGE> 14
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 1999, 1998 and 1997, respectively: dividend yields of zero
percent; expected monthly volatility of 36.15, 29.17 and 30.62 percent;
risk-free interest rates of 4.88, 5.53 and 6.38 percent; and expected option
life of four years for 1999, 1998 and 1997. The weighted average fair value of
options granted during 1999, 1998 and 1997, for which the exercise price equals
the market price on the grant date, was $4.45, $10.02 and $4.99, respectively.
At December 31, 1999, 547,364 common shares were available for future
grants and 1,003,912 common shares were reserved for the exercise of outstanding
options. Option activity during the three years ended December 31, 1999 was as
follows:
<TABLE>
<CAPTION>
Weighted Average
Number Exercise Price of
Of Shares Options Outstanding
- -------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 1,278,488 4.093
Granted 97,500 14.600
Exercised (403,676) 2.559
Forfeited (51,525) 8.823
---------
Outstanding at December 31, 1997 920,787 5.614
Granted 206,450 21.283
Exercised (232,088) 4.237
Forfeited (14,624) 17.177
---------
Outstanding at December 31, 1998 880,525 9.479
Granted 200,000 12.593
Exercised (52,475) 3.626
Forfeited (24,138) 14.775
---------
Outstanding at December 31, 1999 1,003,912 6.841
=========
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable stock options:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number of Remaining Average Average
Range of Outstanding Contractual Exercise Number Exercise
Exercise Prices Options Life Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.333-$ 2.999 244,625 1.37 $ 2.506 244,625 $ 2.506
$ 3.000-$ 4.999 112,000 2.00 3.083 112,000 3.083
$ 5.000-$ 7.999 15,000 0.92 6.750 15,000 6.750
$ 8.000-$11.999 171,187 1.70 9.311 133,641 9.375
$12.000-$17.999 270,700 3.36 13.342 60,000 14.444
$18,000-$23,210 190,400 3.12 21.286 47,600 21.286
--------- -------
Total 1,003,912 2.36 $ 10.278 612,866 $ 6.841
========= =======
</TABLE>
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, 1999 and December 31, 1998
were $567,000 and $638,000, respectively, which are included in accrued
liabilities.
The Company 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, 1999, there were 132
current and retired employees and dependents eligible for such benefits.
Eligibility for additional employees to become covered by retiree health
benefits was terminated in 1988. The Company accrues postretirement health care
benefits over the period in which active employees become eligible for such
benefits. The accrued postretirement benefit cost under these plans is included
in accrued liabilities.
The components of net periodic postretirement benefits cost for these plans
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ -- $ 1 $ 1
Interest cost 87 92 103
Amortization of net transition obligation 84 84 84
Amortization of actuarial gain (18) (22) (22)
-------------------------
Net periodic postretirement benefit cost $ 153 $ 155 $ 166
=========================
</TABLE>
24
<PAGE> 15
The actuarial liabilities for these postretirement benefits are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Beginning obligation (January 1) $1,398 $1,481
Service cost - 1
Interest cost 87 92
Actuarial gain (106) (103)
Benefits paid (69) (73)
------ ------
Benefit obligation (December 31) 1,310 1,398
Unrecognized net transition obligation (487) (571)
Unrecognized prior service cost -- --
Unrecognized net gain 490 402
------ ------
Accrued benefit cost $1,313 $1,229
====== ======
</TABLE>
The accumulated postretirement benefit obligations at December 31, 1999 and
1998 were determined using an assumed discount rate of 7.75% and 6.75%,
respectively. For measurement purposes, an 8.0% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2000; the rate
was assumed to decrease gradually to 4.75% in the year 2009 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 postretirement benefit obligation
at December 31, 1999, by $300, and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year then
ended by $0.
NOTE 10. LEASES
The Company leases certain facilities and equipment for periods ranging from 1
to 6 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 1999, 1998 and 1997 was $3,487,000, $3,483,000 and $4,156,000,
respectively. Future minimum rental payments under operating leases having
initial or remaining noncancelable terms in excess of 1 year at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Lease Commitments
- --------------------------------------------------------------------------------
(In thousands)
<S> <C>
2000 $ 2,833
2001 2,117
2002 1,414
2003 809
2004 574
Thereafter 720
--------
Total $ 8,467
========
</TABLE>
NOTE 11. INCOME TAXES
The provision for income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current tax expense:
Federal $ 5,390 $11,355 $ 3,390
State 847 2,088 1,766
-------------------------------------
6,237 13,443 5,156
-------------------------------------
Deferred tax expense:
Federal 1,947 1,747 5,171
State 264 36 29
-------------------------------------
2,211 1,783 5,200
-------------------------------------
Income Tax Expense $ 8,448 $15,226 $10,356
=====================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Employment-related reserves $ 1,527 $ 2,077
Environmental reserves 741 751
Inventory reserves 787 1,289
Other 634 1,351
-------------------------
3,689 5,468
Depreciation (3,165) (2,733)
-------------------------
Net deferred tax assets $ 524 $ 2,735
=========================
</TABLE>
25
<PAGE> 16
The principal reasons for the variation from the customary relationship
between income taxes and income from continuing operations before income taxes
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes (net of federal benefit) 3.3 4.1 5.3
Goodwill amortization 2.2 0.5 1.2
Other (1.9) (0.5) 0.5
---------------------------
Effective Income Tax Rate 38.6% 39.1% 42.0%
===========================
</TABLE>
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 (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.
Com Dev Consulting Ltd. ("Com Dev") has filed a complaint against the
Company and certain of its officers relating to the sale of the capital stock of
3dbm by the Company to Com Dev in August 1998. On February 3, 2000, the United
States District Court dismissed the complaint without prejudice. The Company
intends to vigorously defend the matter if Com Dev attempts to reassert its
claims. While it is not feasible to predict the outcome of this matter, the
Company presently believes that the final resolution of the matter will not have
a material adverse effect on its consolidated financial position or results of
operations.
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 Boeing, Lockheed Martin and Raytheon.
During 1999, 1998 and 1997, sales to Boeing were $40,310,000, $48,334,000 and
$36,375,000, respectively; sales to Lockheed Martin were $15,470,000,
$18,465,000 and $17,455,000, respectively; and sales to Raytheon were
$10,138,000, $12,596,000 and $9,101,000, respectively. At December 31, 1999,
trade receivables from Boeing, Lockheed Martin and Raytheon were $3,940,000,
$1,906,000 and $1,819,000, respectively. The sales and receivables relating to
Boeing, Lockheed Martin and Raytheon are diversified over a number of different
commercial, space and military programs.
In 1999, 1998 and 1997, foreign sales to manufacturers worldwide were
$28,313,000, $29,007,000 and $29,978,000, respectively. The Company had no sales
to a foreign country greater than 4.2% of total sales in 1999, 1998 and 1997,
respectively. The amounts of revenue, profitability and identifiable assets
attributable to foreign operations are not material when compared with revenue,
profitability and identifiable assets attributed to United States domestic
operations during 1999, 1998 and 1997.
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------- ------------------------------------------------
Three months ended Dec 31 Oct 2 Jul 3 Apr 3 Dec 31 Oct 3 Jul 4 Apr 4
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and Earnings
Net Sales $ 37,829 $ 37,218 $ 36,470 $ 34,537 $ 40,484 $ 41,273 $ 45,754 $ 43,261
---------------------------------------------------------------------------------------------------
Gross Profit 11,860 12,114 11,592 10,763 13,591 13,488 15,980 13,784
---------------------------------------------------------------------------------------------------
Gain on Sale of Subsidiary -- -- -- -- -- 9,249 -- --
---------------------------------------------------------------------------------------------------
Income Before Taxes 4,994 5,908 5,647 5,343 7,783 16,561 8,572 6,003
Income Tax Expense (1,814) (2,238) (2,258) (2,138) (3,209) (6,041) (3,515) (2,461)
---------------------------------------------------------------------------------------------------
Net Income $ 3,180 $ 3,670 $ 3,389 $ 3,205 $ 4,574 $ 10,520 $ 5,057 $ 3,542
===================================================================================================
Earnings Per Share:
Basic $ .32 $ .36 $ .33 $ .31 $ .42 $ .94 $ .45 $ .32
Diluted $ .32 $ .35 $ .32 $ .30 $ .40 $ .90 $ .43 $ .30
</TABLE>
26
<PAGE> 17
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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States 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.
Los Angeles, California
February 17, 2000
27
<PAGE> 18
BOARD OF DIRECTORS
JOSEPH C. BERENATO
Chairman of the Board,
President and Chief Executive Officer,
Ducommun Incorporated
NORMAN A. BARKELEY
Chairman Emeritus
H. FREDERICK CHRISTIE
Consultant; Retired President
and Chief Executive Officer,
The Mission Group
(subsidiary of SCEcorp)
EUGENE P. CONESE, JR.
President and Chief Executive Officer,
Aero Capital LLC
RALPH D. CROSBY, JR.
President,
The Integrated Systems and
Aerostructures Sector of Northrop Grumman Corporation
ROBERT C. DUCOMMUN
Management Consultant
KEVIN S. MOORE
President,
The Clark Estates, Inc.
THOMAS P. MULLANEY
General Partner,
Matthews, Mullaney & Company
RICHARD J. PEARSON
Retired President and
Chief Operating Officer,
Avery Dennison Corporation
ARTHUR W. SCHMUTZ
Advisory Counsel,
Gibson, Dunn & Crutcher
OFFICERS
JOSEPH C. BERENATO
Chairman of the Board,
President and Chief Executive Officer
ROBERT A. BORLET
Vice President,
Manufacturing Operations
JAMES S. HEISER
Vice President, Chief Financial Officer,
General Counsel, Secretary and Treasurer
KENNETH R. PEARSON
Vice President, Human Resources
MICHAEL W. WILLIAMS
Vice President, Corporate Development
SAMUEL D. WILLIAMS
Vice President and Controller
MAJOR SUBSIDIARIES
JEFFREY P. ABBOTT
President,
Aerochem, Inc.
PAUL L. GRAHAM
President,
Ducommun Technologies, Inc.
BRUCE J. GREENBAUM
President,
Brice Manufacturing Company, Inc.
ROBERT B. HAHN
President,
MechTronics of Arizona Corp.
ROBERT L. HANSEN
President,
AHF-Ducommun Incorporated
COMMON STOCK
Ducommun Incorporated common stock is listed on the New York Stock Exchange
(Symbol DCO)
FORM 10-K
A copy of the Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, may be obtained by shareholders without charge by writing
to the Secretary of the Company
REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 522-6645
www.chasemellon.com
WORLD WIDE WEBSITE
www.ducommun.com
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
As of December 31, 1999, the active subsidiaries of the Company were:
Aerochem, Inc., a California corporation
AHF-Ducommun Incorporated, a California corporation
American Electronics, Inc., a California corporation
Brice Manufacturing Company, Inc., a California corporation
Ducommun Technologies, Inc., a California corporation
MechTronics of Arizona Corp., an Arizona corporation
Parsons Precision Products, Inc., a Kansas corporation
Sheet Metal Specialties Company, 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. 333-31777, 33-82164, 33-36415, 33-9383, 2-83732,
2-77309 and 2-64222) of Ducommun Incorporated of our report dated February 17,
2000 relating to the financial statements appearing in 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 dated February 17, 2000
relating to the financial statement schedule, which appears in Form 10-K.
PricewaterhouseCoopers LLP
Los Angeles, California
February 25, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 138
<SECURITIES> 0
<RECEIVABLES> 20,175
<ALLOWANCES> 153
<INVENTORY> 26,347
<CURRENT-ASSETS> 54,404
<PP&E> 84,885
<DEPRECIATION> 40,196
<TOTAL-ASSETS> 141,802
<CURRENT-LIABILITIES> 24,542
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 87,738
<TOTAL-LIABILITY-AND-EQUITY> 141,802
<SALES> 146,054
<TOTAL-REVENUES> 146,054
<CGS> 99,725
<TOTAL-COSTS> 99,725
<OTHER-EXPENSES> 23,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 610
<INCOME-PRETAX> 21,892
<INCOME-TAX> 8,448
<INCOME-CONTINUING> 13,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,444
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.28
</TABLE>
