Ducommun Reports Results For The Second Quarter Ended June 30, 2012

Ducommun Incorporated (NYSE:DCO) today reported results for its second quarter and the six months ended June 30, 2012.

Highlights
  • Net sales increased 71% to $184.7 million for the second quarter of 2012 versus the second quarter of 2011, including sales of $80.3 million from the acquisition of LaBarge, Inc. (“LaBarge”)
  • The Company reported net income of $5.5 million, or $0.52 per fully diluted share, for the second quarter of 2012, including a state tax benefit of $0.15 per fully diluted share
  • Adjusted EBITDA grew to $21.3 million in the second quarter of 2012 from $11.1 million in the second quarter of 2011
  • Cash flow from operations was $10.5 million in the second quarter 2012
  • Backlog as of June 30, 2012 was approximately $640 million

“Ducommun saw additional momentum this quarter driven by stronger operational performance, margin gains at Ducommun LaBarge Technologies and commercial aircraft demand,” said Anthony J. Reardon, chairman, president and chief executive officer. “Our earnings – excluding any tax adjustments – rose sequentially to $0.37 per share from $0.23 in the first quarter, and we generated $10.5 million in cash flow from operations. In addition, our backlog remains near record levels – testimony to the Company’s new business development activities and our diverse aerospace product portfolio, offsetting some near-term weakness in the industrial and natural resources end markets.

“Having largely integrated LaBarge and its operations to realize synergies and reduce costs, we are now focused on ensuring that sequential margin expansion continues – and bottom line results improve – within the current economic environment. More than ever, Ducommun’s customers are recognizing and appreciating the breadth of our offerings, thus providing opportunities for us to grow via increased technology content and more complex subassemblies. In the near term, commercial aerospace build rates remain robust, our military platforms are solid, and the Company’s backlog represents an attractive mix of programs across various end markets. We believe the second half of 2012 will bring a convergence of positive factors across our businesses, positioning Ducommun for stronger results and higher returns for our shareholders.”

Second Quarter Results

Sales for the second quarter of 2012 increased 71% to $184.7 million, compared with $108.0 million for the second quarter of 2011, reflecting $80.3 million in revenue from the acquisition of LaBarge. The Company reported net income of $5.5 million, or $0.52 per fully diluted share, compared with a net loss of $3.0 million, or $(0.28) per fully diluted share, for the comparable period last year. The second quarter 2012 results include a state tax benefit of $1.6 million, or $0.15 per fully diluted share. The second quarter 2011 results included pre-tax transaction-related expenses of $10.9 million ($7.8 million after tax, or $0.73 per fully diluted share); excluding transaction related expenses, net income for the second quarter 2011 was $4.8 million, or $0.45 per fully diluted share.

Adjusted EBITDA for the second quarter of 2012 increased to $21.3 million, or 11.6% of revenues, compared with $11.1 million, or 10.3% of revenues, for the comparable period last year.

The Company had an effective tax rate of 4.7% in the second quarter 2012, compared to an effective tax benefit of 27.9% in the second quarter 2011. The effective tax rate in the second quarter of 2012 benefitted from the LaBarge acquisition which allowed the Company to file state consolidated tax returns (“combined report”) in certain states. This lower tax rate reduced the Company’s tax provision by approximately $1.6 million.

Cash flow generated from operations during the second quarter of 2012 was $10.5 million, as compared to $2.4 million in the prior year’s second quarter. Excluding $10.1 million in transaction-related costs last year, the Company generated $12.5 million of cash flow from operations in the second quarter 2011.

Ducommun AeroStructures (DAS)

The DAS segment reported net sales for the second quarter of $76.9 million, compared with $76.6 million in the prior-year period. The segment realized higher sales of large commercial aircraft and military helicopter products, somewhat offset by lower sales of regional aircraft and military fixed wing products. Operating income for the 2012 second quarter was $7.6 million, or 9.9% of revenues, compared with $8.8 million, or 11.5% of revenues, for the prior-year period. Operating income in 2012 was impacted by a higher proportion of sales of lower margin products. Adjusted EBITDA was $9.8 million, or 12.8% of revenues, compared with Adjusted EBITDA of $11.3 million, or 14.8% of revenues, for the prior year period.

Ducommun LaBarge Technologies (DLT)

The DLT segment reported net sales for the second quarter of $107.8 million, compared with $31.5 million in the second quarter of 2011, reflecting sales of $80.3 million from the acquisition of LaBarge. Operating income for the second quarter of 2012 was $10.5 million, or 9.7% of revenues, compared with operating income of $2.7 million, or 8.6% of revenues, in the 2011 second quarter. Adjusted EBITDA was $15.1 million, or 14.3% of revenues, compared with Adjusted EBITDA of $3.9 million, or 12.2% of revenues, in the second quarter of 2011.

Corporate General and Administrative Expenses (CG&A)

CG&A expenses for the second quarter of 2012 were $4.0 million, or 2.2% of revenues, as compared with $14.2 million, or 13.1% of revenues, in the 2011 second quarter. CG&A was lower year-over-year primarily due to the reduction in transaction-related expenses of approximately $10.1 million from the LaBarge acquisition and from integration cost synergies. Excluding transaction-related expenses, CG&A for the second quarter 2011 would have been $4.1 million, or 3.8% of revenues.

Six Months Results

Sales for the first six months of 2012 increased 78% to $369.0 million, compared with $207.6 million for the first six months of 2011, reflecting $164.6 million in revenue from the acquisition of LaBarge. The Company reported net income of $7.9 million, or $0.75 per fully diluted share, compared with break-even, or $0.00 per fully diluted share, for the prior-year period, which included pre-tax transaction-related expenses of $12.3 million. The six month 2012 results include a $1.6 million, or $0.15 per fully diluted share, state tax benefit. Excluding transaction-related expenses, net income for the first six months of 2011 was $8.7 million, or $0.82 per fully diluted share.

Adjusted EBITDA for the first six months of 2012 increased to $40.4 million, or 10.9% of revenues, compared with $20.2 million, or 9.7% of revenues, for the comparable period last year.

The Company had an effective tax rate of 16.0% for the six months ended June 30, 2012, compared to an effective tax benefit of 60.0% for the six months ended July 2, 2011. The effective tax rate in 2012 benefitted from the LaBarge acquisition which allowed the Company to file state consolidated tax returns (“combined report”) in certain states. This lower tax rate reduced the Company’s tax provision by approximately $1.6 million.

Cash flow generated from operations during the first half of 2012 was $5.7 million, as compared to cash usage of $22.9 million during the prior year’s first six months. Excluding $11.5 million in transaction-related costs last year, the Company used $11.4 million of cash from operations in the first six months of 2011.

Ducommun AeroStructures (DAS)

The DAS segment reported net sales for the first six months of 2012 of $151.2 million, compared with $148.8 million in the prior-year period. The segment saw higher sales of large commercial aircraft and military products, somewhat offset by lower sales of regional aircraft and military fixed wing products. Operating income for the 2012 six month period was $14.2 million, or 9.4% of revenues, compared with $15.9 million, or 10.7% of revenues, for the prior-year period. Operating income in 2012 was impacted by a higher proportion of sales of lower margin products. Adjusted EBITDA was $18.5 million, or 12.2% of revenues, compared with Adjusted EBITDA of $20.9 million, or 14.1% of revenues, in the prior-year period.

Ducommun LaBarge Technologies (DLT)

The DLT segment reported net sales for the first six months of 2012 of $217.9 million, compared with $58.8 million in the prior-year period, reflecting sales of $164.6 million from the acquisition of LaBarge. Operating income for the six months of 2012 was $18.8 million, or 8.6% of revenues, compared with operating income of $4.8 million, or 8.2% of revenues, in 2011. Adjusted EBITDA was $28.2 million, or 13.0% of revenues, compared with Adjusted EBITDA of $6.8 million, or 11.6% of revenues, in the prior-year period.

Corporate General and Administrative Expenses (CG&A)

CG&A expenses for the first six months of 2012 were $7.1 million, or 1.9% of revenues, as compared with $19.1 million, or 9.2% of revenues, in 2011. CG&A was lower year-over-year primarily due to the reduction in transaction-related expenses of approximately $11.5 million from the LaBarge acquisition and integration cost synergies. Excluding transaction-related expenses, CG&A for the six months of 2011 would have been $7.6 million, or 3.7% of revenues.

Conference Call

A teleconference hosted by Anthony J. Reardon, the Company's chairman, president and chief executive officer, and Joseph P. Bellino, the Company's vice president and chief financial officer, will be held today, August 6, 2012 at 2:00 PM PT (5:00 PM ET) to review these financial results. To participate in the teleconference, please call 866-356-4441 (international 617-597-5396) approximately ten minutes prior to the conference time stated above. The participant passcode is 68037838. Mr. Reardon and Mr. Bellino will be speaking on behalf of the Company and anticipate the meeting and Q&A period to last approximately 45 minutes.

This call is being webcast by Thomson Reuters and can be accessed directly at the Ducommun website at www.ducommun.com. Conference call replay will be available after that time at the same link or by dialing 888-286-8010, passcode 98507534.

About Ducommun Incorporated

Founded in 1849, Ducommun Incorporated provides engineering and manufacturing services to the aerospace, defense, and other industries through a wide spectrum of electronic and structural applications. The company is an established supplier of critical components and assemblies for commercial aircraft and military and space vehicles as well as for the energy market, medical field, and industrial automation. It operates through two primary business units – Ducommun AeroStructures (DAS) and Ducommun LaBarge Technologies (DLT). Additional information can be found at www.ducommun.com.

Statements contained in this press release regarding other than recitation of historical facts are forward-looking statements. These statements are identified by words such as “may,” “will,” “ begin,” “ look forward,” “expect,” “believe,” “intend,” “anticipate,” “should,” “potential,” “estimate,” “continue,” “momentum” and other words referring to events to occur in the future. These statements reflect Company’s current view of future events and are based on its assessment of, and are subject to, a variety of risks and uncertainties beyond its control, including, but not limited to, the state of the world financial, credit, commodities and stock markets, any difficulties, delays or failure in, or unanticipated costs of, realizing the expected synergies of the LaBarge acquisition, and uncertainties regarding the Company, its businesses and the industries in which it operates, which are described in the Company’s filings with the Securities and Exchange Commission. The Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

[Financial Tables Follow]
     
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS)/INCOME
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
  2012     2011     2012     2011  
Sales and Service Revenues:
Product sales $ 177,140 $ 100,945 $ 354,642 $ 192,278
Service revenues   7,565     7,098     14,406     15,318  
Net Sales   184,705     108,043     369,048     207,596  
Operating Costs and Expenses:
Cost of product sales 142,542 81,542 286,945 156,381
Cost of service revenues 6,212 5,497 11,681 11,803
Selling, general and administrative expenses   21,939     23,597     44,551     37,746  
Total Operating Costs and Expenses   170,693     110,636     343,177     205,930  
Operating Income/(Loss) 14,012 (2,593 ) 25,871 1,666
Interest Expense   (8,234 )   (1,531 )   (16,473 )   (1,791 )
Income/(Loss) Before Taxes 5,778 (4,124 ) 9,398 (125 )
Income Tax (Expense)/Benefit   (271 )   1,151     (1,501 )   75  
Net Income/(Loss) $ 5,507   $ (2,973 ) $ 7,897   $ (50 )
Earnings Per Share:
Basic earnings/(loss) per share $ 0.52 $ (0.28 ) $ 0.75 $ -
Diluted earnings/(loss) per share $ 0.52 $ (0.28 ) $ 0.75 $ -
Weighted Average Number of Common
Shares Outstanding
Basic 10,582 10,536 10,565 10,531
Diluted 10,582 10,696 10,565 10,656
 
 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
   
(Unaudited)
June 30, December 31,
  2012     2011  
Assets
Current Assets:
Cash and cash equivalents $ 37,251 $ 41,449
Accounts receivable 100,279 96,174
Unbilled receivables 4,302 3,286
Inventories 159,303 154,503
Production cost of contracts 19,952 18,711
Deferred income taxes 12,245 12,020
Other current assets   11,975     14,648  
Total Current Assets 345,307 340,791
Property and Equipment, Net 99,443 98,477
Goodwill 161,940 163,845
Intangibles, Net 182,103 187,854
Other Assets   15,842     17,120  
$ 804,635   $ 808,087  
 
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 1,941 $ 1,960
Accounts payable 55,799 60,675
Accrued liabilities   50,914     53,823  
Total Current Liabilities 108,654 116,458
Long-Term Debt, Less Current Portion 389,317 390,280
Deferred Income Taxes 68,311 72,043
Other Long-Term Liabilities   24,993     25,022  
Total Liabilities   591,275     603,803  
Commitments and Contingencies
Shareholders' Equity:
Common stock 107 107
Treasury stock (1,924 ) (1,924 )
Additional paid-in capital 65,557 64,378
Retained earnings 156,945 149,048
Accumulated other comprehensive loss   (7,325 )   (7,325 )
Total Shareholders' Equity   213,360     204,284  
$ 804,635   $ 808,087  
 
 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(In thousands)
(Unaudited)
           
Three Months Six Months
June 30, July 2, June 30, July 2,
  2012     2011   Change   2012     2011   Change
Net Sales:
Ducommun AeroStructures $ 76,890 $ 76,575 0.4 % $ 151,177 $ 148,779 1.6 %
Ducommun LaBarge Technologies   107,815     31,468   242.6 %   217,871     58,817   270.4 %
Total Net Sales $ 184,705   $ 108,043   71.0 % $ 369,048   $ 207,596   77.8 %
 
Segment Operating Income (1)
Ducommun AeroStructures $ 7,574 $ 8,844 $ 14,165 $ 15,911
Ducommun LaBarge Technologies (5)   10,486     2,721     18,788     4,844  
18,060 11,565 32,953 20,755
Corporate General and Administrative Expenses (3)(5)   (4,048 )   (14,158 )   (7,082 )   (19,089 )
Total Operating Income/(Loss) $ 14,012   $ (2,593 ) $ 25,871   $ 1,666  
 
EBITDA (1)
Ducommun AeroStructures
Operating Income $ 7,574 $ 8,844 $ 14,165 $ 15,911
Depreciation and Amortization   2,241     2,472     4,297     5,029  
9,815 11,316 18,462 20,940
Ducommun LaBarge Technologies
Operating Income 10,486 2,721 18,788 4,844
Depreciation and Amortization   4,732     1,130     9,429     1,980  
15,218 3,851 28,217 6,824
Corporate General and Administrative Expenses (2)(3)
Operating Loss (4,048 ) (14,158 ) (7,082 ) (19,089 )
Depreciation and Amortization   30     4     81     8  
  (4,018 )   (14,154 )   (7,001 )   (19,081 )
EBITDA $ 21,015   $ 1,013   $ 39,678   $ 8,683  
 
Adjusted EBITDA
Acquisition-related transaction expenses (3)(4) $ 111 $ 10,076 $ 262 $ 11,476
Acquisition-related change-in-control compensation expenses (5)   217     -     433     -  
  328     10,076     695     11,476  
Adjusted EBITDA $ 21,343   $ 11,089   $ 40,373   $ 20,159  
 
 
Capital Expenditures:
Ducommun AeroStructures $ 1,829 $ 3,375 $ 4,286 $ 4,134
Ducommun LaBarge Technologies 2,012 788 4,449 1,475
Corporate Administration   5     131     28     194  
Total Capital Expenditures $ 3,846   $ 4,294   $ 8,763   $ 5,803  
 

(1)
 

Before certain allocated corporate overhead.

(2)

Includes approximately $0.1 million and $0.3 million of acquisition-related transaction expenses related to the LaBarge acquisition in the three months and six months ended June 30, 2012 and approximately $10.1 million and $11.5 million in the three months and six months ended July 2, 2011, respectively.

(3)

Certain expenses, previously incurred by the operating units, are now included in the corporate general and administrative expense as a result of the Company's organizational changes.

(4)

Includes investment banking, accounting, legal, tax and valuation expenses as a direct result of the LaBarge acquisition.

(5)

Includes approximately $0.2 million and $0.4 million of acquisition-related transaction costs resulting from a change-in-control provision for certain LaBarge key executives and employees arising in connection with the LaBarge acquisition in the three months and six months ended June 30, 2012 and $0 in 2011.

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