10-Q 1 a66520e10-q.txt FORM 10-Q QUARTERLY PERIOD ENDED SEPTEMBER 30,2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 1-8174 DUCOMMUN INCORPORATED ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 95-0693330 ------------------------------- ------------------ (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. 111 West Ocean Boulevard, Suite 900, Long Beach, California 90802 ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (562) 624-0800 ---------------------------------------------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] 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 September 30, 2000, there were outstanding 9,692,957 shares of common stock. 2 DUCOMMUN INCORPORATED FORM 10-Q INDEX Page ---- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 3 Consolidated Statements of Income for Three Months Ended September 30, 2000 and October 2, 1999 4 Consolidated Statements of Income for Nine Months Ended September 30, 2000 and October 2, 1999 5 Consolidated Statements of Cash Flows for Nine Months Ended September 30, 2000 and October 2, 1999 6 Notes to Consolidated Financial Statements 7 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 14 Item 3. Quantitative and Qualitative Disclosure About Market Risk 15 Part II. Other Information Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 -2- 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements DUCOMMUN INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
September 30, December 31, 2000 1999 ------------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 111 $ 138 Accounts receivable (less allowance for doubtful accounts of $477 and $153) 20,460 20,022 Inventories 31,705 26,347 Deferred income taxes 1,718 2,698 Prepaid income taxes 315 1,864 Other current assets 3,597 3,335 --------- --------- Total Current Assets 57,906 54,404 Property and Equipment, Net 46,701 44,689 Excess of Cost Over Net Assets Acquired (Net of Accumulated Amortization of $9,639 and $7,504) 39,550 41,895 Other Assets 1,287 814 --------- --------- $ 145,444 $ 141,802 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt (Note 4) $ 1,399 $ 1,496 Accounts payable 8,599 8,135 Accrued liabilities 14,670 14,911 --------- --------- Total Current Liabilities 24,668 24,542 Long-Term Debt, Less Current Portion (Note 4) 20,382 26,344 Deferred Income Taxes 2,174 2,174 Other Long-Term Liabilities 903 900 --------- --------- Total Liabilities 48,127 53,960 --------- --------- Commitments and Contingencies (Note 6) Shareholders' Equity: Common stock -- $.01 par value; authorized 35,000,000 shares; issued 9,712,357 shares in 2000 and 10,423,810 shares in 1999 97 104 Additional paid-in capital 36,655 45,597 Retained earnings 60,739 51,269 Less common stock held in treasury -- 19,400 shares in 2000 and 855,300 shares in 1999 (174) (9,128) --------- --------- Total Shareholders' Equity 97,317 87,842 --------- --------- $ 145,444 $ 141,802 ========= =========
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 --------------------------- September 30, October 2, 2000 1999 ------------- ---------- Net Sales $ 40,881 $ 37,218 Operating Costs and Expenses: Cost of goods sold 29,119 25,104 Selling, general and administrative expenses 5,355 5,582 Goodwill amortization expense 709 519 -------- -------- Total Operating Costs and Expenses 35,183 31,205 -------- -------- Operating Income 5,698 6,013 Interest Expense (408) (105) -------- -------- Income Before Taxes 5,290 5,908 Income Tax Expense (2,010) (2,238) -------- -------- Net Income $ 3,280 $ 3,670 ======== ======== Earnings Per Share: Basic earnings per share $ .34 $ .36 Diluted earnings per share .33 .35 Weighted Average Number of Common Shares Outstanding: Basic earnings per share 9,683 10,243 Diluted earnings per share 9,840 10,569
See accompanying notes to consolidated financial statements. -4- 5 DUCOMMUN INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
For Nine Months Ended -------------------------- September 30, October 2, 2000 1999 ------------- ---------- Net Sales $ 123,174 $ 108,225 Operating Costs and Expenses: Cost of goods sold 87,001 73,756 Selling, general and administrative expenses 17,364 15,956 Goodwill amortization expense 2,147 1,356 --------- --------- Total Operating Costs and Expenses 106,512 91,068 --------- --------- Operating Income 16,662 17,157 Interest Expense (1,387) (259) --------- --------- Income Before Taxes 15,275 16,898 Income Tax Expense (5,805) (6,634) --------- --------- Net Income $ 9,470 $ 10,264 ========= ========= Earnings Per Share: Basic earnings per share $ .98 $ .99 Diluted earnings per share .97 .96 Weighted Average Number of Common Shares Outstanding: Basic earnings per share 9,649 10,342 Diluted earnings per share 9,758 10,665
See accompanying notes to consolidated financial statements. -5- 6 DUCOMMUN INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For Nine Months Ended ------------------------- September 30, October 2, 2000 1999 ------------- ---------- Cash Flows from Operating Activities: Net Income $ 9,470 $ 10,264 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 6,579 5,011 Deferred income tax provision 980 248 Other 221 433 Changes in Assets and Liabilities, Net Accounts receivable (438) 3,190 Inventories (5,358) (2,550) Prepaid income taxes 1,549 956 Other assets (735) (810) Accounts payable 464 (1,029) Accrued and other liabilities (238) (2,986) -------- -------- Net Cash Provided by Operating Activities 12,494 12,727 -------- -------- Cash Flows from Investing Activities: Purchase of Property and Equipment (6,467) (5,120) Acquisition -- (10,096) -------- -------- Net Cash Used in Investing Activities (6,467) (15,216) -------- -------- Cash Flows from Financing Activities: Net Repayment of Long-Term Debt (6,059) (380) Purchase of Common Stock (174) (6,200) Other 179 94 -------- -------- Net Cash Used in Financing Activities (6,054) (6,486) -------- -------- Net Decrease in Cash and Cash Equivalents (27) (8,975) Cash and Cash Equivalents, Beginning of Period 138 9,066 -------- -------- Cash and Cash Equivalents, End of Period $ 111 $ 91 ======== ======== Supplemental Disclosures of Cash Flows Information: Interest Expense Paid $ 1,482 $ 536 Income Taxes Paid $ 2,540 $ 6,575
See accompanying notes to consolidated financial statements. -6- 7 DUCOMMUN INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. The consolidated balance sheets, consolidated statements of income and consolidated statements of cash flows are unaudited as of and for the three months and nine months ended September 30, 2000 and October 2, 1999. 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, 1999. Note 2. Certain amounts and disclosures included in the consolidated financial statements required management to make estimates which could differ from actual results. Note 3. Earnings Per Share Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in each period. Diluted earnings per share is computed by dividing income available to common shareholders plus income associated with dilutive stock options by the weighted average number of common shares outstanding plus any potential dilution that could occur if stock options were exercised or converted into common stock in each period. For the three months ended September 30, 2000 and October 2, 1999, income available to common shareholders was $3,280,000 and $3,670,000, respectively. The weighted average number of common shares outstanding for the three months ended September 30, 2000 and October 2, 1999 were 9,683,000 and 10,243,000 and the dilutive shares associated with stock options were 157,000 and 326,000, respectively. For the nine months ended September 30, 2000 and October 2, 1999, income available to common shareholders was $9,470,000 and $10,264,000, respectively. The weighted average number of common shares outstanding for the nine months ended September 30, 2000 and October 2, 1999 were 9,649,000 and 10,342,000 and the dilutive shares associated with stock options were 109,000 and 323,000, respectively. -7- 8 Note 4. Long-term debt is summarized as follows:
(In Thousands) --------------------------- September 30, December 31, 2000 1999 ------------- ------------ Bank credit agreement $16,300 $20,990 Term and real estate loans 3,806 4,175 Notes and other liabilities for acquisitions 1,675 2,675 ------- ------- Total debt 21,781 27,840 Less current portion 1,399 1,496 ------- ------- Total long-term debt $20,382 $26,344 ======= =======
In September 2000, the Company signed a new $100,000,000 revolving credit facility with a group of banks. The Company's bank credit agreement provides for a $100,000,000 unsecured revolving credit line with an expiration date of September 30, 2005. Interest is payable monthly on the outstanding borrowings based on the bank's prime rate (9.50% at September 30, 2000) plus a spread based on the leverage ratio of the Company calculated at the end of each fiscal quarter (0.00% at September 30, 2000). 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 (1.25% at September 30, 2000). At September 30, 2000, the Company had $83,667,000 of unused lines of credit, after deducting $16,300,000 of loans outstanding and $33,000 for an outstanding standby letter of credit. The credit agreement includes minimum interest coverage, maximum leverage, minimum EBITDA and minimum net worth covenants, an unused commitment fee based on the leverage ratio (0.25% per annum at September 30, 2000), and limitations on future dispositions of property, repurchases of common stock, outside indebtedness, capital expenditures and acquisitions. Note 5. Shareholders' Equity Since 1998, the Company's Board of Directors has authorized the repurchase of up to $30,000,000 of its common stock. During 1998 and 1999, the Company repurchased in the open market 1,809,062 shares of its common stock for a total of $24,066,000, and cancelled 953,762 shares of treasury stock. During the first nine months of 2000, the Company repurchased in the open market 19,400 shares of its common stock for a total of $174,000 and cancelled 855,300 shares of treasury stock. -8- 9 Note 6. Commitments and Contingencies Ducommun's subsidiary, Aerochem, Inc. ("Aerochem"), is a major supplier of chemical milling services for the aerospace industry. Aerochem has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at its El Mirage, California facility (the "Site"). Aerochem expects to spend approximately $1 million for future investigation and corrective action at the Site, and the Company has established a provision for such costs. However, the Company's ultimate liability in connection with the Site will depend upon a number of factors, including changes in existing laws and regulations, and the design and cost of the construction, operation and maintenance of the correction action. In October 1999, Com Dev Consulting Ltd. ("Com Dev") filed a complaint in the United States District Court against the Company and certain of its officers relating to the sale of the capital stock of 3dbm, Inc. ("3dbm") by the Company to Com Dev in August 1998. On February 3, 2000, the United States District Court dismissed the complaint without prejudice. On April 7, 2000, Com Dev filed another complaint in California Superior Court against the Company and certain of its officers relating to the sale of the capital stock of 3dbm by the Company to Com Dev. The Company intends to vigorously defend the matter. 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 7. 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. -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. 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. RESULTS OF OPERATIONS Third Quarter of 2000 Compared to Third Quarter of 1999 Net sales increased 10% to $40,881,000 in the third quarter of 2000. The increase was due primarily to sales in the third quarter of 2000 from the Parsons acquisition, as well as sales from the new contract at AHF-Ducommun for the C-17 fuselage panels, partially offset by lower sales for the Space Shuttle program and lower commercial and military aftermarket sales. Sales for space programs were lower due to timing differences in production scheduling. The Company expects reduced sales to space programs to continue to adversely impact sales at least through the fourth quarter of 2000. Excluding the Parsons acquisition, sales increased 1% in the third quarter of 2000 from the comparable period in 1999. The Company had substantial sales to Boeing, Raytheon and Lockheed Martin. During the third quarters of 2000 and 1999, sales to Boeing were approximately $15,082,000 and $9,912,000, respectively; sales to Raytheon were approximately $3,709,000 and $2,426,000, respectively; and sales to Lockheed Martin were approximately $3,239,000 and $4,195,000, respectively. The sales relating to Boeing, Raytheon and Lockheed Martin are diversified over a number of different commercial, space and military programs. Gross profit, as a percentage of sales, was 28.8% for the third quarter of 2000 compared to 32.5% in 1999. This decrease was primarily the result of changes in sales mix, pricing pressures from customers and production costs for new programs. Selling, general and administrative expenses, as a percentage of sales, were 13.1% for the third quarter of 2000 compared to 15.0% in 1999. The decrease in these expenses as a percentage of sales was -10- 11 primarily the result of higher sales volume and lower personnel costs partially offset by an increase in related variable period costs. Goodwill amortization expense, as a percentage of sales, was 1.7% in 2000, compared to 1.4% in 1999. The increase was primarily the result of higher goodwill amortization expense related to the Parsons acquisition in 1999. Interest expense increased to $408,000 in the third quarter of 2000 compared to $105,000 for 1999. The increase in interest expense was primarily due to higher debt levels. Income tax expense decreased to $2,010,000 in the third quarter of 2000 compared to $2,238,000 for 1999. The decrease in income tax expense was primarily due to the decrease in income before taxes. Cash paid for income taxes was $1,069,000 in the third quarter of 2000, compared to $1,595,000 in 1999. Net income for the third quarter of 2000 was $3,280,000, or $0.33 per diluted share, compared to $3,670,000, or $0.35 per diluted share, in 1999. The diluted earnings per share for 2000 include the benefit of a reduction of approximately 729,000 in average diluted shares outstanding as a result of the Company's stock repurchase program. Nine Months of 2000 Compared to Nine Months of 1999 Net sales increased 14% to $123,174,000 in the first nine months of 2000. The increase was due primarily to increased sales in the first nine months of 2000 from the SMS and Parsons acquisitions, as well as sales from the new contract at AHF-Ducommun for the C-17 fuselage panels, partially offset by lower sales for the Space Shuttle program and lower commercial and military aftermarket sales. Sales for space programs were lower due to timing differences in production scheduling. The Company expects reduced sales to space programs to continue to adversely impact sales at least through the fourth quarter of 2000. Excluding acquisitions, sales increased 3% in the first nine months of 2000 from the comparable period in 1999. The Company had substantial sales to Boeing, Raytheon and Lockheed Martin. During the first nine months of 2000 and 1999, sales to Boeing were approximately $44,355,000 and $30,308,000, respectively; sales to Raytheon were approximately $11,742,000 and $6,928,000, respectively; and sales to Lockheed Martin were approximately $9,711,000 and $12,042,000, respectively. The sales relating to Boeing, Raytheon and Lockheed Martin are diversified over a number of different commercial, space and military programs. At September 30, 2000, backlog believed to be firm was approximately $232,432,000 compared to $213,100,000 at December 31, 1999. Approximately $38,000,000 of backlog is expected to be delivered during 2000. In April 2000 the Company announced that its AHF-Ducommun subsidiary signed the largest contract in the Company's history with Boeing-Long Beach valued at $49,000,000 to produce fuselage skin panels for the C-17 aircraft. Performance under the contract began in the first quarter of -11- 12 2000 and is expected to continue through 2003. In addition, AHF-Ducommun signed an option contract with Boeing-Long Beach for the production of C-17 fuselage skin panels for the period 2003 - 2007. The option contract, if fully exercised by Boeing, is valued at $62,000,000. Gross profit, as a percentage of sales, was 29.4% for the first nine months of 2000 compared to 31.8% in 1999. This decrease was primarily the result of changes in sales mix, pricing pressures from customers and production costs for new programs. Selling, general and administrative expenses, as a percentage of sales, were 14.1% for the first nine months of 2000 compared to 14.7% in 1999. The benefits of higher sales volume were offset by increases in related variable costs and higher personnel costs. Goodwill amortization expense, as a percentage of sales, was 1.7% in 2000, compared to 1.3% in 1999. This increase was primarily the result of higher goodwill amortization expense related to the SMS and Parsons acquisitions in 1999. Interest expense increased to $1,387,000 in the first nine months of 2000 compared to $259,000 for 1999. The increase in interest expense was primarily due to higher debt levels. Income tax expense decreased to $5,805,000 in the first nine months of 2000 compared to $6,634,000 for 1999. The decrease in income tax expense was primarily due to the decrease in income before taxes and an effective income tax rate of 38% for 2000 compared to 39.3% for 1999. The decrease in the tax rate was primarily due to certain tax credits that became available to the Company. Cash paid for income taxes was $2,540,000 in the first nine months of 2000, compared to $6,575,000 in 1999. Net income for the first nine months of 2000 was $9,470,000, or $0.97 per diluted share, compared to $10,264,000, or $0.96 per diluted share, in 1999. Diluted earnings per share rose 1% on a year to year basis, despite a decline in net income, due to a reduction of approximately 907,000 in average diluted shares outstanding as a result of the Company's stock repurchase program. FINANCIAL CONDITION Liquidity and Capital Resources Cash flows from operating activities for the nine months ended September 30, 2000 was $12,494,000 compared to $12,727,000 for the nine months ended October 2, 1999. During the first nine months of 2000, the Company spent $6,059,000 to repay principal on its outstanding bank borrowings, promissory notes, and term and commercial real estate loans, $6,467,000 on capital expenditures and $174,000 to repurchase shares of the Company's common stock. 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. -12- 13 In September 2000, the Company signed a new $100,000,000 revolving credit facility with a group of banks. The Company's bank credit agreement provides for a $100,000,000 unsecured revolving credit line with an expiration date of September 30, 2005. Interest is payable monthly on the outstanding borrowings based on the bank's prime rate (9.50% at September 30, 2000) plus a spread based on the leverage ratio of the Company calculated at the end of each fiscal quarter (0.00% at September 30, 2000). 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 (1.25% at September 30, 2000). At September 30, 2000, the Company had $83,667,000 of unused lines of credit, after deducting $16,300,000 of loans outstanding and $33,000 for an outstanding standby letter of credit. The credit agreement includes minimum interest coverage, maximum leverage, minimum EBITDA and minimum net worth covenants, an unused commitment fee based on the leverage ratio (0.25% per annum at September 30, 2000), and limitations on future dispositions of property, repurchases of common stock, outside indebtedness, capital expenditures and acquisitions. The Company spent $6,467,000 on capital expenditures during the first nine months of 2000 and expects to spend less than $8,500,000 in the aggregate for capital expenditures in 2000. 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. In connection with the C-17 contract signed by the Company's AHF-Ducommun subsidiary, AHF-Ducommun is acquiring a 1,500-ton stretch press and a 5-axis CNC Torres router with a flexible pogo positioning system. AHF-Ducommun also is in the process of completing a 185,000 square foot building addition to support the C-17 contract as well as other off-load opportunities 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. During 1998 and 1999, the Company repurchased in the open market 1,809,062 shares of its common stock for a total of $24,066,000, and cancelled 953,762 shares of treasury stock. During the first nine months of 2000, the Company repurchased in the open market 19,400 shares of its common stock for a total of $174,000 and cancelled 855,300 shares of treasury stock. Repurchases will be made from time to time on the open market at prevailing prices. 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 -13- 14 liability in connection with the Site will depend upon a number of factors, including changes in existing laws and regulations, and the design and cost of the construction, operation and maintenance of the correction action. In October 1999, Com Dev Consulting Ltd. ("Com Dev") filed a complaint in the United States District Court against the Company and certain of its officers relating to the sale of the capital stock of 3dbm, Inc. ("3dbm") by the Company to Com Dev in August 1998. On February 3, 2000, the United States District Court dismissed the complaint without prejudice. On April 7, 2000, Com Dev filed another complaint in California Superior Court against the Company and certain of its officers relating to the sale of the capital stock of 3dbm by the Company to Com Dev. The Company intends to vigorously defend the matter. 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. FORWARD-LOOKING STATEMENTS AND RISK FACTORS Any forward-looking statements made in this Form 10-Q 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. -14- 15 Item 3. Quantitative and Qualitative Disclosure About Market Risk Not applicable. -15- 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings. Com Dev Consulting Ltd. has filed a complaint, against the Company and certain officers of the Company in connection with the sale of the capital stock of 3dbm by the Company to Com Dev in August 1998. See the Company's quarterly report on Form 10-Q for the period ended April 1, 2000. Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed with this report: 4.1 Credit Agreement dated September 29, 2000 among Ducommun Incorporated and the lenders referred to therein. 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter for which this report is filed. -16- 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DUCOMMUN INCORPORATED --------------------- (Registrant) By: /s/ James S. Heiser ------------------------------------ James S. Heiser Vice President, Chief Financial Officer And General Counsel (Duly Authorized Officer of the Registrant) By: /s/ Samuel D. Williams ------------------------------------ Samuel D. Williams Vice President and Controller (Chief Accounting Officer of the Registrant) Date: October 25, 2000 -17- 18 EXHIBIT INDEX Exhibit Number Description ------ ----------- 4.1 Credit Agreement dated September 29, 2000 among Ducommun Incorporated and the lenders referred to therein. 27 Financial Data Schedule