DCO 10-Q

Ducommun Inc /De/ (DCO)

10-Q 2022-08-04 For: 2022-07-02

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Added on April 09, 2026

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Delaware						95-0693330
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

200 Sandpointe Avenue, Suite 700, Santa Ana, California						92707-5759
(Address of principal executive offices)						(Zip code)


			Page
PART I. FINANCIAL INFORMATION



	Item 1.	Financial Statements (unaudited)	3

		Condensed Consolidated Balance Sheets as of July 2, 2022 and December 31, 2021	3

		Condensed Consolidated Statements of Income for the Three and Six Months Ended July 2, 2022 and July 3, 2021	4

		Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended July 2, 2022 and July 3, 2021	5

		Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended July 2, 2022 and July 3, 2021	6

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 2, 2022 and July 3, 2021	7

		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

	Item 4.	Controls and Procedures	34

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	34

	Item 1A.	Risk Factors	35

	Item 4.	Mine Safety Disclosures	35

	Item 6.	Exhibits	36

Signatures			39


	July 2, 2022		December 31, 2021
Assets
Current Assets
Cash and cash equivalents	$	37,519	$	76,316
Accounts receivable, net (allowance for credit losses of $649 and $1,098 at July 2, 2022 and December 31, 2021, respectively	84,307		72,261
Contract assets	182,544		176,405
Inventories	164,191		150,938
Production cost of contracts	5,963		8,024

Other current assets	10,302		8,625

Total Current Assets	484,826		492,569
Property and Equipment, Net of Accumulated Depreciation of $175,465 and $168,132 at July 2, 2022 and December 31, 2021, respectively	105,360		102,419
Operating Lease Right-of-Use Assets	38,134		33,265
Goodwill	203,407		203,694
Intangibles, Net	134,478		141,764

Other Assets	12,843		5,024
Total Assets	$	979,048	$	978,735
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	83,161	$	66,059
Contract liabilities	36,721		42,077
Accrued and other liabilities	39,647		41,291
Operating lease liabilities	7,175		6,133
Current portion of long-term debt	7,000		7,000

Total Current Liabilities	173,704		162,560
Long-Term Debt, Less Current Portion	246,074		279,384
Non-Current Operating Lease Liabilities	32,391		28,074
Deferred Income Taxes	16,967		18,727
Other Long-Term Liabilities	13,367		15,388
Total Liabilities	482,503		504,133
Commitments and Contingencies (Notes 8, 10)
Shareholders’ Equity
Common Stock - $0.01 par value; 35,000,000 shares authorized; 12,067,868 and 11,925,087 shares issued and outstanding at July 2, 2022 and December 31, 2021, respectively	121		119

Additional Paid-In Capital	106,301		104,253
Retained Earnings	389,509		377,263
Accumulated Other Comprehensive Income (Loss)	614		(7,033)
Total Shareholders’ Equity	496,545		474,602
Total Liabilities and Shareholders’ Equity	$	979,048	$	978,735


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net Revenues	$	174,198	$	160,192	$	337,679	$	317,343
Cost of Sales	139,556		123,410		270,562		247,461
Gross Profit	34,642		36,782		67,117		69,882
Selling, General and Administrative Expenses	24,185		23,690		47,537		46,180
Restructuring Charges	2,703		—		2,703		—
Operating Income	7,754		13,092		16,877		23,702
Interest Expense	(2,656)		(2,857)		(5,058)		(5,663)


Other Income	—		—		3,000		—
Income Before Taxes	5,098		10,235		14,819		18,039
Income Tax Expense	951		1,812		2,573		2,921
Net Income	$	4,147	$	8,423	$	12,246	$	15,118
Earnings Per Share
Basic earnings per share	$	0.34	$	0.71	$	1.02	$	1.28
Diluted earnings per share	$	0.34	$	0.69	$	0.99	$	1.23
Weighted-Average Number of Common Shares Outstanding
Basic	12,070		11,878		12,029		11,834
Diluted	12,333		12,248		12,337		12,248


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net Income	$	4,147	$	8,423	$	12,246	$	15,118
Other Comprehensive Income, Net of Tax:
Amortization of actuarial loss and prior service costs, net of tax of $35 and $77 for the three months ended July 2, 2022 and July 3, 2021, respectively and $71 and $153 for the six months ended July 2, 2022 and July 3, 2021, respectively	111		245		221		490

Change in unrealized gains on cash flow hedges, net of tax of $777 and zero for the three months ended July 2, 2022 and July 3, 2021, respectively and $2,286 and zero for the six months ended July 2, 2022 and July 3, 2021, respectively	2,523		—		7,426		—
Other Comprehensive Income, Net of Tax	2,634		245		7,647		490
Comprehensive Income	$	6,781	$	8,668	$	19,893	$	15,608


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Shares Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2020	11,728,212	$	117	$	97,090	$	241,727	$	(9,600)	$	329,334
Net income	—	—		—		6,695		—		6,695
Other comprehensive income, net of tax	—	—		—		—		245		245
Employee stock purchase plan	31,580	—		1,558		—		—		1,558
Stock options exercised	17,872	—		610		—		—		610
Stock awards vested	178,827	2		(2)		—		—		—
Stock repurchased related to the exercise of stock options and stock awards vested	(106,894)	(1)		(6,004)		—		—		(6,005)
Stock-based compensation	—	—		3,133		—		—		3,133
Balance at April 3, 2021	11,849,597	118		96,385		248,422		(9,355)		335,570
Net income	—	—		—		8,423		—		8,423
Other comprehensive income, net of tax	—	—		—		—		245		245

Stock options exercised	13,655	—		510		—		—		510
Stock awards vested	65,181	1		(1)		—		—		—
Stock repurchased related to the exercise of stock options and stock awards vested	(33,626)	—		(1,887)		—		—		(1,887)
Stock-based compensation	—	—		2,609		—		—		2,609
Balance at July 3, 2021	11,894,807	$	119	$	97,616	$	256,845	$	(9,110)	$	345,470

Balance at December 31, 2021	11,925,087	$	119	$	104,253	$	377,263	$	(7,033)	$	474,602
Net income	—	—		—		8,099		—		8,099
Other comprehensive income, net of tax	—	—		—		—		5,013		5,013
Employee stock purchase plan	31,686	—		1,386		—		—		1,386
Stock options exercised	48,119	1		1,444		—		—		1,445
Stock awards vested	117,387	1		(1)		—		—		—
Stock repurchased related to the exercise of stock options and stock awards vested	(89,334)	(1)		(4,428)		—		—		(4,429)
Stock-based compensation	—	—		1,590		—		—		1,590
Balance at April 2, 2022	12,032,945	120		104,244		385,362		(2,020)		487,706
Net income	—	—		—		4,147		—		4,147
Other comprehensive income, net of tax	—	—		—		—		2,634		2,634

Stock options exercised	33,093	—		1,029		—		—		1,029
Stock awards vested	42,962	1		(1)		—		—		—
Stock repurchased related to the exercise of stock options and stock awards vested	(41,132)	—		(2,025)		—		—		(2,025)
Stock-based compensation	—	—		3,054		—		—		3,054
Balance at July 2, 2022	12,067,868	$	121	$	106,301	$	389,509	$	614	$	496,545


	(Dollars in thousands)
	Six Months Ended
	July 2, 2022		July 3, 2021
Interest paid	$	4,540	$	5,132
Taxes paid, net	$	1,790	$	1,584
Non-cash activities:
Purchases of property and equipment not paid	$	2,761	$	1,567


	(Dollars in thousands, except per share data)				(Dollars in thousands, except per share data)
	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net income	$	4,147	$	8,423	$	12,246	$	15,118
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding	12,070		11,878		12,029		11,834
Dilutive potential common shares	263		370		308		414
Diluted weighted-average common shares outstanding	12,333		12,248		12,337		12,248
Earnings per share
Basic	$	0.34	$	0.71	$	1.02	$	1.28
Diluted	$	0.34	$	0.69	$	0.99	$	1.23


	Estimated Fair Value
Cash	$	1,821
Accounts receivable	2,093
Inventories	4,546
Other current assets	98
Property and equipment	482
Operating lease right-of-use assets	1,533
Intangible assets	30,100
Goodwill	32,577

Total assets acquired	73,250
Current liabilities	(907)

Other non-current liabilities	(1,408)
Total liabilities assumed	(2,315)
Total purchase price allocation	$	70,935


	Useful Life (In years)	Estimated Fair Value (In thousands)
Intangible assets:
Customer relationships	19	$	24,800
Backlog	2	600
Trade name	Indefinite	4,700
		$	30,100


	December 31, 2021		Six Months Ended July 2, 2022								July 2, 2022
	Balance		Charges		Cash Payments		Non-Cash Payments		Change in Estimates		Balance
Severance and benefits	$	—	$	2,399	$	(948)	$	—	$	—	$	1,451

Property and equipment impairment due to restructuring	—		304		—		(304)		—		—
Inventory write down	—		528		—		(528)		—		—
Ending balance	$	—	$	3,231	$	(948)	$	(832)	$	—	$	1,451


	(Dollars in thousands)
	Electronic Systems		Structural Systems		Consolidated Ducommun
Gross goodwill	$	199,157	$	86,259	$	285,416
Accumulated goodwill impairment	(81,722)		—		(81,722)
Balance at December 31, 2021	$	117,435	$	86,259	$	203,694
Purchase price allocation refinements	—		(287)		(287)
Balance at July 2, 2022	$	117,435	$	85,972	$	203,407


	(Dollars in thousands) Three Months Ended				(Dollars in thousands) Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net Revenues
Electronic Systems	$	109,732	$	102,797	$	207,198	$	201,901
Structural Systems	64,466		57,395		130,481		115,442
Total Net Revenues	$	174,198	$	160,192	$	337,679	$	317,343
Segment Operating Income
Electronic Systems	$	13,610	$	14,375	$	23,021	$	26,866
Structural Systems	1,265		5,592		6,152		10,720
	14,875		19,967		29,173		37,586
Corporate General and Administrative Expenses (1)	(7,121)		(6,875)		(12,296)		(13,884)
Total Operating Income	$	7,754	$	13,092	$	16,877	$	23,702
Depreciation and Amortization Expenses
Electronic Systems	$	3,484	$	3,426	$	6,990	$	6,849
Structural Systems	4,356		3,501		8,559		6,941
Corporate Administration	58		59		117		118
Total Depreciation and Amortization Expenses	$	7,898	$	6,986	$	15,666	$	13,908
Capital Expenditures
Electronic Systems	$	2,943	$	1,277	$	4,639	$	1,901
Structural Systems	2,486		2,567		5,858		4,556
Corporate Administration	—		—		—		—
Total Capital Expenditures	$	5,429	$	3,844	$	10,497	$	6,457


	(Dollars in thousands)				(Dollars in thousands)
	Three Months Ended				Six Months Ended
	July 2 2022		July 3, 2021		July 2 2022		July 3, 2021
Consolidated Ducommun
Military and space	$	106,680	$	113,008	$	206,014	$	227,135
Commercial aerospace	57,067		37,577		111,142		72,954
Industrial	10,451		9,607		20,523		17,254
Total	$	174,198	$	160,192	$	337,679	$	317,343

Electronic Systems
Military and space	$	80,187	$	80,755	$	152,007	$	162,488
Commercial aerospace	19,094		12,435		34,668		22,159
Industrial	10,451		9,607		20,523		17,254
Total	$	109,732	$	102,797	$	207,198	$	201,901

Structural Systems
Military and space	$	26,493	$	32,253	$	54,007	$	64,647
Commercial aerospace	37,973		25,142		76,474		50,795
Total	$	64,466	$	57,395	$	130,481	$	115,442


	(Dollars in thousands)
	July 2, 2022		December 31, 2021
Raw materials and supplies	$	138,637	$	125,334
Work in process	21,556		20,609
Finished goods	3,998		4,995


Total	$	164,191	$	150,938


	(Dollars in thousands)
	July 2, 2022			December 31, 2021
Term loans	$	254,212		$	287,712




Total debt	254,212			287,712
Less current portion	(7,000)			(7,000)
Total long-term debt, less current portion	247,212			280,712
Less debt issuance costs - term loans	(1,138)			(1,328)
Total long-term debt, net of debt issuance costs - term loans	$	246,074		$	279,384
Debt issuance costs - revolving credit facility (1)	$	947		$	1,136
Weighted-average interest rate	3.80		%	3.27		%


	Three Months Ended										Six Months Ended
			(Dollars in thousands)				% of Net Revenues						(Dollars in thousands)				% of Net Revenues
	Change		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021		Change		July 2 2022		July 3, 2021		July 2 2022		July 3, 2021
Consolidated Ducommun
Military and space	$	(6,328)	$	106,680	$	113,008	61.2	%	70.5	%	$	(21,121)	$	206,014	$	227,135	61.0	%	71.6	%
Commercial aerospace	19,490		57,067		37,577		32.8	%	23.5	%	38,188		111,142		72,954		32.9	%	23.0	%
Industrial	844		10,451		9,607		6.0	%	6.0	%	3,269		20,523		17,254		6.1	%	5.4	%
Total	$	14,006	$	174,198	$	160,192	100.0	%	100.0	%	$	20,336	$	337,679	$	317,343	100.0	%	100.0	%

Electronic Systems
Military and space	$	(568)	$	80,187	$	80,755	73.1	%	78.6	%	$	(10,481)	$	152,007	$	162,488	73.4	%	80.5	%
Commercial aerospace	6,659		19,094		12,435		17.4	%	12.1	%	12,509		34,668		22,159		16.7	%	11.0	%
Industrial	844		10,451		9,607		9.5	%	9.3	%	3,269		20,523		17,254		9.9	%	8.5	%
Total	$	6,935	$	109,732	$	102,797	100.0	%	100.0	%	$	5,297	$	207,198	$	201,901	100.0	%	100.0	%

Structural Systems
Military and space	$	(5,760)	$	26,493	$	32,253	41.1	%	56.2	%	$	(10,640)	$	54,007	$	64,647	41.4	%	56.0	%
Commercial aerospace	12,831		37,973		25,142		58.9	%	43.8	%	25,679		76,474		50,795		58.6	%	44.0	%
Total	$	7,071	$	64,466	$	57,395	100.0	%	100.0	%	$	15,039	$	130,481	$	115,442	100.0	%	100.0	%


	(Dollars in thousands, except per share data) Three Months Ended										(Dollars in thousands, except per share data) Six Months Ended
	July 2, 2022			% of Net Revenues		July 3, 2021			% of Net Revenues		July 2, 2022			% of Net Revenues		July 3, 2021			% of Net Revenues
Net Revenues	$	174,198		100.0	%	$	160,192		100.0	%	$	337,679		100.0	%	$	317,343		100.0	%
Cost of Sales	139,556			80.1	%	123,410			77.0	%	270,562			80.1	%	247,461			78.0	%
Gross Profit	34,642			19.9	%	36,782			23.0	%	67,117			19.9	%	69,882			22.0	%
Selling, General and Administrative Expenses	24,185			13.9	%	23,690			14.8	%	47,537			14.1	%	46,180			14.5	%
Restructuring Charges	2,703			1.5	%	—			—	%	2,703			0.8	%	—			—	%
Operating Income	7,754			4.5	%	13,092			8.2	%	16,877			5.0	%	23,702			7.5	%
Interest Expense	(2,656)			(1.6)	%	(2,857)			(1.8)	%	(5,058)			(1.5)	%	(5,663)			(1.8)	%

Other Income	—			—	%	—			—	%	3,000			0.9	%	—			—	%

Income Before Taxes	5,098			2.9	%	10,235			6.4	%	14,819			4.4	%	18,039			5.7	%
Income Tax Expense	951			nm		1,812			nm		2,573			nm		2,921			nm
Net Income	$	4,147		2.4	%	$	8,423		5.3	%	$	12,246		3.6	%	$	15,118		4.8	%

Effective Tax Rate	18.7		%	nm		17.7		%	nm		17.4		%	nm		16.2		%	nm
Diluted Earnings Per Share	$	0.34		nm		$	0.69		nm		$	0.99		nm		$	1.23		nm


	July 2, 2022		December 31, 2021
Boeing	5.3	%	3.5	%
GD	5.2	%	4.0	%

Northrop	10.2	%	10.9	%
Raytheon	13.4	%	17.8	%
Spirit	1.8	%	0.7	%


	(Dollars in millions)
	July 2,			December 31,
	2022			2021
Total debt, including long-term portion	$	254.2		$	287.7
Weighted-average interest rate on debt	3.80		%	3.27		%
Term Loans interest rate	3.50		%	3.22		%

Cash and cash equivalents	$	37.5		$	76.3
Unused Revolving Credit Facility	$	99.8		$	99.8


Date: August 4, 2022	By:	/s/ Stephen G. Oswald
		Stephen G. Oswald
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 4, 2022	By:	/s/ Christopher D. Wampler
		Christopher D. Wampler
		Vice President, Chief Financial Officer, Controller and Treasurer
		(Principal Financial and Principal Accounting Officer)