-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rg/EzeV4JyBR2cGTSoExAbWowk9yyoPufSVE0QBG+ofQem2LUzaaBBxzkqEU5hNN NE3j4toEgnUZWa84m4K88w== 0000892569-97-001091.txt : 19970423 0000892569-97-001091.hdr.sgml : 19970423 ACCESSION NUMBER: 0000892569-97-001091 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970422 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUCOMMUN INC /DE/ CENTRAL INDEX KEY: 0000030305 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 950693330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08174 FILM NUMBER: 97585018 BUSINESS ADDRESS: STREET 1: 23301 S WILMINGTON AVE CITY: CARSON STATE: CA ZIP: 90745 BUSINESS PHONE: 3105137200 10-Q 1 QUARTERLY REPORT FOR THE QUARTER ENDED 3/29/1997 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 29, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 0-1222 DUCOMMUN INCORPORATED ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 95-0693330 - ------------------------------- ------------------ (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. 23301 South Wilmington Avenue, Carson, California 90745 - -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (310) 513-7200 ---------------------------------------------------- (Registrant's telephone number, including area code) N/A --------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of March 29, 1997, there were outstanding 7,316,894 shares of common stock. 2 DUCOMMUN INCORPORATED FORM 10-Q INDEX
Page ---- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets at March 29, 1997 and December 31, 1996 3 Consolidated Statements of Income for Three Months Ended March 29, 1997 and March 30, 1996 4 Consolidated Statements of Cash Flows for Three Months Ended March 29, 1997 and March 30, 1996 5 Notes to Consolidated Financial Statements 6 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
-2- 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements DUCOMMUN INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
March 29, December 31, 1997 1996 --------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 35 $ 571 Accounts receivable (less allowance for doubtful accounts of $193 and $206) 16,857 14,722 Inventories 23,575 22,595 Deferred income taxes 4,057 4,597 Other current assets 1,707 1,850 -------- -------- Total Current Assets 46,231 44,335 Property and Equipment, Net 27,889 27,051 Deferred Income Taxes 4,782 5,594 Excess of Cost Over Net Assets Acquired (Net of Accumulated Amortization of $3,869 and $3,548) 17,870 18,326 Other Assets 507 508 -------- -------- $ 97,279 $ 95,814 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt (Note 5) $ 1,158 $ 1,117 Accounts payable 9,351 8,343 Accrued liabilities 15,464 17,589 -------- -------- Total Current Liabilities 25,973 27,049 Long-Term Debt (Note 5) 9,049 9,173 Other Long-Term Liabilities 405 404 -------- -------- Total Liabilities 35,427 36,626 -------- -------- Commitments and Contingencies (Note 6) Shareholders' Equity: Common stock -- $.01 par value; authorized 12,500,000 shares; issued and outstanding 7,316,894 shares in 1997 and 7,301,428 in 1996 73 73 Additional paid-in capital 59,314 59,280 Retained earnings (accumulated deficit) 2,465 (165) -------- -------- Total Shareholders' Equity 61,852 59,188 -------- -------- $ 97,279 $ 95,814 ======== ========
See accompanying notes to consolidated financial statements. -3- 4 DUCOMMUN INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
For Three Months Ended -------------------------------- March 29, 1997 March 30, 1996 -------------- -------------- Net Sales $35,305 $23,792 ------- ------- Operating Costs and Expenses: Cost of goods sold 24,201 15,588 Selling, general and administrative expenses 6,365 6,240 ------- ------- Total Operating Costs and Expenses 30,566 21,828 ------- ------- Operating Income 4,739 1,964 Interest Expense (201) (422) ------- ------- Income Before Taxes 4,538 1,542 Income Tax Expense (1,908) (432) ------- ------- Net Income $ 2,630 $ 1,110 ======= ======= Earnings Per Share: Primary $ .33 $ .19 Fully Diluted .33 .18 Weighted Average Number of Common and Common Equivalent Shares Outstanding for Computation of Earnings Per Share: Primary 7,904 5,756 Fully Diluted 7,920 7,393
See accompanying notes to consolidated financial statements. -4- 5 DUCOMMUN INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For Three Months Ended -------------------------------- March 29, 1997 March 30, 1996 -------------- -------------- Cash Flows from Operating Activities: Net Income $ 2,630 $ 1,110 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 1,314 1,202 Deferred income tax provision 1,352 284 Changes in Assets and Liabilities, Net Accounts receivable (2,135) 443 Inventories (980) (2,040) Other assets 279 24 Accounts payable 1,008 2,249 Accrued and other liabilities (2,135) (588) ------- ------- Net Cash Provided by Operating Activities 1,333 2,684 ------- ------- Cash Flows from Investing Activities: Purchase of Property and Equipment (1,820) (973) ------- ------- Net Cash Used in Investing Activities (1,820) (973) ------- ------- Cash Flows from Financing Activities: Net Repayment of Long-Term Debt (83) (1,460) Cash Premium for Conversion of Convertible Subordinated Debentures -- (556) Other 34 (6) ------- ------- Net Cash Used in Financing Activities (49) (2,022) ------- ------- Net Decrease in Cash and Cash Equivalents (536) (311) Cash and Cash Equivalents at Beginning of Period 571 371 ------- ------- Cash and Cash Equivalents at End of Period $ 35 $ 60 ======= ======= Supplemental Disclosures of Cash Flow Information: Interest Expense Paid $ 263 $ 910 Income Taxes Paid $ 350 $ 400 Supplementary Information for Non-Cash Financing Activities: During the first three months of 1996, the Company issued 844,282 new shares of common stock upon conversion of $8,426,000 of its outstanding 7.75% convertible subordinated debentures.
See accompanying notes to consolidated financial statements. -5- 6 DUCOMMUN INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. The consolidated balance sheets, consolidated statements of income and consolidated statements of cash flows are unaudited as of and for the three months ended March 29, 1997 and March 30, 1996. The financial information included in the quarterly report should be read in conjunction with the Company's consolidated financial statements and the related notes thereto included in its annual report to shareholders for the year ended December 31, 1996. Note 2. Certain amounts and disclosures included in the consolidated financial statements required management to make estimates which could differ from actual results. Note 3. Earnings per common share computations are based on the weighted average number of common and common equivalent shares outstanding in each period. Common equivalent shares represent the number of shares which would be issued assuming the exercise of dilutive stock options, reduced by the number of shares which would be purchased with the proceeds from the exercise of such options. -6- 7 DUCOMMUN INCORPORATED AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES (In thousands, except per share amounts)
For Three Months Ended ------------------------ March 29, March 30, 1997 1996 --------- --------- Income for Computation of Primary Earnings Per Share $ 2,630 $ 1,110 Interest, Net of Income Taxes, Relating to 7.75% Convertible Subordinated Debentures -- 218 Net Income for Computation of Primary Earnings Per Share 2,630 1,110 Net Income for Computation of Fully Diluted Earnings Per Share 2,630 1,328 Applicable Shares: Weighted Average Common Shares Outstanding for Computation of Primary Earnings Per Share 7,307 5,306 Weighted Average Common Equivalent Shares Arising From: 7.75% convertible subordinated debentures -- 1,587 Stock options: Primary 597 450 Fully diluted 613 500 Weighted Average Common and Common Equivalent Shares Outstanding for Computation of Fully Diluted Earnings Per Share 7,920 7,393 Earnings Per Share: Primary $ .33 $ .19 Fully diluted .33 .18
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 establishes new standards for computing and presenting earnings per share ("EPS"), and supersedes APB Opinion No. 15, "Earnings Per Share." SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS 128 becomes effective for the Company for the year ending December 31, 1997. Pro forma results for the first quarter of 1997 and 1996, assuming the application of SFAS 128 are as follows: -7- 8
For Three Months Ended ------------------------ March 29, March 30, 1997 1996 --------- --------- Basic earnings per share $ 0.36 $ 0.21 Diluted earnings per share 0.33 0.18
Note 4. Acquisition In June 1996, the Company acquired substantially all of the assets of MechTronics of Arizona, Inc. ("MechTronics") for $8,000,000 in cash and a $750,000 note. The Company may be required to make additional payments through 1999, based on the future financial performance of MechTronics. MechTronics is a leading manufacturer of mechanical and electromechanical enclosure products for the defense electronics, commercial aviation and communications markets. The acquisition of MechTronics was accounted for under the purchase method of accounting. The consolidated statements of income include the operating results for MechTronics since the date of the acquisition. Note 5. Long-term debt is summarized as follows:
(In thousands) ------------------------- March 29, December 31, 1997 1996 --------- ------------ Bank credit agreement $ 3,500 $ 4,000 Term and real estate loans 5,804 5,294 Promissory notes related to acquisitions 903 996 ------- -------- Total debt 10,207 10,290 Less current portion 1,158 1,117 ------- -------- Total long-term debt $ 9,049 $ 9,173 ======= ========
In April 1997, the Company and its bank signed a commitment letter to amend the Company's credit agreement. The amended credit agreement will provide for a $40,000,000 senior unsecured revolving credit line with an expiration date of July 1, 1999. The amended credit agreement will replace the Company's existing credit agreement which provides for a $21,000,000 senior unsecured revolving credit line. Interest is payable monthly on the outstanding borrowings based on the bank's prime rate (8.50% at March 29, 1997) 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 -8- 9 calculated at the end of each fiscal quarter. At March 29, 1997, the Company had $17,158,000 of unused lines of credit, after deducting $3,500,000 of loans outstanding and $342,000 for an outstanding standby letter of credit which supports the estimated post-closure maintenance cost of a former surface impoundment. The credit agreement includes fixed charge coverage and maximum leverage ratios, and limitations on future dividend payments and outside indebtedness. The carrying amount of long-term debt approximates fair value based on the terms of the related debt and estimates using interest rates currently available to the Company for debt with similar terms and remaining maturities. Note 6. Contingencies Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier of chemical milling services for the aerospace industry. Aerochem has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at its El Mirage, California facility. Based upon currently available information, the Company has established a provision for the cost of such investigation and corrective action. In the normal course of business, Ducommun and its subsidiaries are defendants in certain other litigation, claims and inquiries, including matters relating to environmental laws. In addition, the Company makes various commitments and incurs contingent liabilities. While it is not feasible to predict the outcome of these matters, the Company does not presently expect that any sum it may be required to pay in connection with these matters would have a material adverse effect on its consolidated financial position or results of operations. -9- 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL STATEMENT PRESENTATION The interim financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of the Company, necessary for a fair presentation of the results for the interim periods presented. RESULTS OF OPERATIONS First Quarter 1997 Compared to First Quarter 1996 Net sales increased 48% to $35,305,000 in the first quarter of 1997. The increase resulted from a broad-based increase in sales in most of the Company's product lines due to improved industry conditions and new contract awards, as well as sales from MechTronics which was acquired in June 1996. The Company had substantial sales to Lockheed Martin, Boeing, McDonnell Douglas and Northrop Grumman. During the first quarter of 1997 and 1996, sales to Lockheed Martin were approximately $4,134,000 and $2,463,000, respectively; sales to Boeing were approximately $4,758,000 and $2,425,000, respectively; sales to McDonnell Douglas were approximately $3,340,000 and $2,700,000, respectively; and sales to Northrop Grumman were approximately $1,485,000 and $1,878,000, respectively. The sales to Lockheed Martin are primarily related to the Space Shuttle program. The sales relating to Boeing, McDonnell Douglas and Northrop Grumman are diversified over a number of different commercial and military programs. At March 29, 1997, backlog believed to be firm was approximately $148,000,000, including $21,498,000 for space-related business, compared to $92,500,000 at March 30, 1996 and $134,500,000 at December 31, 1996. Approximately $77,000,000 of the total backlog is expected to be delivered during 1997. Gross profit, as a percentage of sales, was 31.5% for the first quarter of 1997 compared to 34.5% in 1996. This decrease was primarily the result of changes in sales mix, as well as higher production cost at MechTronics, which was acquired in June 1996. Selling, general and administrative expenses, as a percentage of sales, were 18.0% for the first quarter of 1997 compared to 26.2% in 1996. The decrease in these expenses as a percentage of sales was primarily the result of higher sales volume partially offset by an increase in related period costs. -10- 11 Interest expense decreased to $201,000 in the first quarter of 1997 compared to $422,000 for 1996. The decrease in interest expense was primarily due to the conversion of $15,837,000 of convertible subordinated debentures that were outstanding at March 30, 1996. Income tax expense increased to $1,908,000 in the first quarter of 1997 compared to $432,000 for 1996. The increase in income tax expense was primarily due to the increase in income before taxes. From a cash flow perspective, however, the Company continues to use its federal net operating loss carryforwards to offset taxable income. Cash paid for income taxes was $350,000 in the first quarter of 1997, compared to $400,000 in 1996. Net income for the first quarter of 1997 was $2,630,000, or $0.33 per share, compared to $1,110,000, or $0.18 per share, in 1996. FINANCIAL CONDITION Liquidity and Capital Resources Cash flow from operating activities for the three months ended March 29, 1997 was $1,333,000. The Company continues to depend on operating cash flow and the availability of its bank line of credit to provide short-term liquidity. Cash from operations and bank borrowing capacity are expected to provide sufficient liquidity to meet the Company's obligations during 1997. In April 1997, the Company and its bank signed a commitment letter to amend the Company's credit agreement. The amended credit agreement will provide for a $40,000,000 senior unsecured revolving credit line with an expiration date of July 1, 1999. The amended credit agreement will replace the Company's existing credit agreement which provides for a $21,000,000 senior unsecured revolving credit line. Interest is payable monthly on the outstanding borrowings based on the bank's prime rate (8.50% at March 29, 1997) 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. At March 29, 1997, the Company had $17,158,000 of unused lines of credit, after deducting $3,500,000 of loans outstanding and $342,000 for an outstanding standby letter of credit which supports the estimated post-closure maintenance cost for a former surface impoundment. The credit agreement includes fixed charge coverage and maximum leverage ratios, and limitations on future dividend payments and outside indebtedness. The Company spent $1,820,000 on capital expenditures during the first three months of 1997 and expects to spend less than $11,000,000 for capital expenditures in 1997. The Company plans to make substantial capital expenditures in 1997 for numerically controlled routers and laser scriber-related -11- 12 equipment to support long-term aerospace structure contracts for both commercial and military aircraft. These expenditures are expected to place the Company in a favorable competitive position among aerospace subcontractors, and to allow the Company to take advantage of the offload requirements from its customers. Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier of chemical milling services for the aerospace industry. Aerochem has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at its El Mirage, California facility. Based upon currently available information, the Company has established a provision for the cost of such investigation and corrective action. In the normal course of business, Ducommun and its subsidiaries are defendants in certain other litigation, claims and inquiries, including matters relating to environmental laws. In addition, the Company makes various commitments and incurs contingent liabilities. While it is not feasible to predict the outcome of these matters, the Company does not presently expect that any sum it may be required to pay in connection with these matters would have a material adverse effect on its consolidated financial position or results of operations. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 establishes new standards for computing and presenting earnings per share ("EPS"), and supersedes APB Opinion No. 15, "Earnings Per Share." SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS 128 becomes effective for the Company for the year ending December 31, 1997. Pro forma results for the first quarter of 1997 and 1996, assuming the application of SFAS 128 are as follows:
For Three Months Ended ------------------------ March 29, March 30, 1997 1996 --------- --------- Basic earnings per share $ 0.36 $ 0.21 Diluted earnings per share 0.33 0.18
-12- 13 Any forward looking statements made in this Form 10-Q Report involve risks and uncertainties. The Company's future financial results could differ materially from those anticipated due to the Company's dependence on conditions in the airline industry, the level of new commercial aircraft orders, the production rate for the Space Shuttle program, the level of defense spending, competitive pricing pressures, technology and product development risks and uncertainties, and other factors beyond the Company's control. -13- 14 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a) The following exhibits are filed with this report 27 Financial Data Schedule b) No reports on Form 8-K were filed during the quarter for which this report is filed. -14- 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DUCOMMUN INCORPORATED (Registrant) By: /s/ James S. Heiser -------------------------------------------- James S. Heiser Vice President, Chief Financial Officer and General Counsel (Duly Authorized Officer of the Registrant) By: /s/ Samuel D. Williams -------------------------------------------- Samuel D. Williams Vice President and Controller (Chief Accounting Officer of the Registrant) Date: April 22, 1997 -15- EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-29-1997 35 0 17,050 193 23,575 46,231 60,067 32,178 97,279 25,973 0 0 0 73 61,779 97,279 35,305 35,305 24,201 24,201 6,365 0 201 4,538 1,908 2,630 0 0 0 2,630 0.33 0.33
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