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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________________________________
FORM 10-Q
 _________________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2023
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 001-08174
 _________________________________________________________
DUCOMMUN INCORPORATED
(Exact name of registrant as specified in its charter)
 _________________________________________________________
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)
Registrant’s telephone number, including area code: (657335-3665
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value per share DCONew York Stock Exchange
 _________________________________________________________
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 whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ¨Accelerated filer x
Non-accelerated filer ¨Smaller reporting company ¨
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
As of July 26, 2023, the registrant had 14,569,589 shares of common stock outstanding.


DUCOMMUN INCORPORATED AND SUBSIDIARIES
  Page
PART I. FINANCIAL INFORMATION
Forward Looking Statements
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 4.
Item 5.
Item 6.

2


FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be preceded by, followed by or include words such as “could,” “may,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “expect,” “would,” or similar expressions. These statements are based on the beliefs and assumptions of our management at the time such statements are made. Generally, forward-looking statements include information concerning our possible or assumed future actions, events or results of operations. Forward-looking statements specifically include, without limitation, the information in this Form 10-Q regarding: future sales, earnings, cash flow, revenue recognition, uses of cash and other measures of financial performance, projections or expectations for future operations, including costs to complete contracts, goodwill impairment evaluations, useful life of intangible assets, unrecognized tax benefits and effective tax rate, environmental remediation costs, insurance recoveries, industry trends and expectations, including ramp up times for build rates, our plans with respect to restructuring activities, capital expenditures, completed acquisitions, future acquisitions and dispositions and expected business opportunities that may be available to us.
Although we believe that the expectations reflected in the forward-looking statements are based on reasonable assumptions, these forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. We cannot guarantee future results, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All written and oral forward-looking statements made in connection with this Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the “Risk Factors” contained within Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”).
There can be no assurance that other factors will not affect the accuracy of these forward-looking statements or that our actual results will not differ materially from the results anticipated in such forward-looking statements. While it is impossible to identify all such factors, some factors that could cause actual results to differ materially from those estimated by us include, but are not limited to, those factors or conditions described under Risk Factors contained within Part I, Item 1A of our Form 10-K and the following:
our ability to manage and otherwise comply with our covenants with respect to our outstanding indebtedness;
our ability to service our indebtedness;
our acquisitions, business combinations, joint ventures, divestitures, or restructuring activities may entail certain operational and financial risks;
the cyclicality of our end-use markets and the level of new commercial and military aircraft orders;
industry and customer concentration;
production rates for various commercial and military aircraft programs;
the level of U.S. Government defense spending;
compliance with applicable regulatory requirements and changes in regulatory requirements, including regulatory requirements such as Cybersecurity Maturity Model Certification (“CMMC”), applicable to government contracts and sub-contracts;
further consolidation of customers and suppliers in our markets;
product performance and delivery;
start-up costs, manufacturing inefficiencies and possible overruns on contracts;
increased design, product development, manufacturing, supply chain and other risks and uncertainties associated with our growth strategy to become a supplier of higher-level assemblies;
our ability to manage the risks associated with international operations and sales;
economic and geopolitical developments and conditions, including supply chain issues and rising interest rates;
environmental, social, and governance (“ESG”) developments and related impact;
pandemics, such as the COVID-19 pandemic, significantly impacting the global economy and most significantly, the commercial aerospace end-use market;
disasters, natural or otherwise, damaging or disrupting our operations;
3

unfavorable developments in the global credit markets;
our ability to operate within highly competitive markets;
technology changes and evolving industry and regulatory standards;
possible goodwill and other asset impairments;
the risk of environmental liabilities;
the risk of cyber security attacks or not being able to detect such attacks; and
litigation with respect to us.
We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this Form 10-Q. We do not undertake any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, except as required by law.
4

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ducommun Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except share and per share data)
 July 1,
2023
December 31,
2022
Assets
Current Assets
Cash and cash equivalents$22,806 $46,246 
Accounts receivable, net of allowance for credit losses of $1,062 and $589 at July 1, 2023 and December 31, 2022, respectively
95,382 103,958 
Contract assets189,836 191,290 
Inventories204,465 171,211 
Production cost of contracts5,536 5,693 
Other current assets11,098 8,938 
Total Current Assets529,123 527,336 
Property and Equipment, Net of Accumulated Depreciation of $179,698 and $171,507 at July 1, 2023 and December 31, 2022, respectively
111,357 106,225 
Operating Lease Right-of-Use Assets36,759 34,632 
Goodwill244,575 203,407 
Intangibles, Net174,987 127,201 
Other Assets21,953 22,705 
Total Assets$1,118,754 $1,021,506 
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable$82,992 $90,143 
Contract liabilities31,719 47,068 
Accrued and other liabilities38,111 48,820 
Operating lease liabilities8,165 7,155 
Current portion of long-term debt6,250 6,250 
Total Current Liabilities167,237 199,436 
Long-Term Debt, Less Current Portion271,460 240,595 
Non-Current Operating Lease Liabilities30,260 28,841 
Deferred Income Taxes12,231 13,953 
Other Long-Term Liabilities15,423 12,721 
Total Liabilities496,611 495,546 
Commitments and Contingencies (Notes 9, 11)
Shareholders’ Equity
Common Stock - $0.01 par value; 35,000,000 shares authorized; 14,569,589 and 12,106,285 shares issued and outstanding at July 1, 2023 and December 31, 2022, respectively
146 121 
Additional Paid-In Capital199,526 112,042 
Retained Earnings413,657 406,052 
Accumulated Other Comprehensive Income8,814 7,745 
Total Shareholders’ Equity622,143 525,960 
Total Liabilities and Shareholders’ Equity$1,118,754 $1,021,506 
See accompanying notes to Condensed Consolidated Financial Statements.
5

Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share amounts)
 Three Months EndedSix Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net Revenues$187,320 $174,198 $368,511 $337,679 
Cost of Sales
147,198 139,556 291,622 270,562 
Gross Profit
40,122 34,642 76,889 67,117 
Selling, General and Administrative Expenses
30,348 24,185 56,573 47,537 
Restructuring Charges
4,769 2,703 8,939 2,703 
Operating Income5,005 7,754 11,377 16,877 
Interest Expense(5,735)(2,656)(9,954)(5,058)
Other Income4,059  7,945 3,000 
Income Before Taxes3,329 5,098 9,368 14,819 
Income Tax Expense955 951 1,763 2,573 
Net Income$2,374 $4,147 $7,605 $12,246 
Earnings Per Share
Basic earnings per share$0.18 $0.34 $0.59 $1.02 
Diluted earnings per share$0.17 $0.34 $0.58 $0.99 
Weighted-Average Number of Common Shares Outstanding
Basic13,403 12,070 12,799 12,029 
Diluted13,599 12,333 13,075 12,337 
See accompanying notes to Condensed Consolidated Financial Statements.
6

Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
Three Months EndedSix Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net Income$2,374 $4,147 $7,605 $12,246 
Other Comprehensive Income, Net of Tax:
Amortization of actuarial losses and prior service costs, net of tax of $14 and $35 for the three months ended July 1, 2023 and July 2, 2022, respectively and $27 and $71 for the six months ended July 1, 2023 and July 2, 2022, respectively
41 111 83 221 
Change in net unrealized gains on cash flow hedges, net of tax of $968 and $777 for the three months ended July 1, 2023 and July 2, 2022, respectively and $306 and $2,286 for the six months ended July 1, 2023 and July 2, 2022, respectively
3,116 2,523 986 7,426 
Other Comprehensive Income, Net of Tax3,157 2,634 1,069 7,647 
Comprehensive Income$5,531 $6,781 $8,674 $19,893 
See accompanying notes to Condensed Consolidated Financial Statements.
7

Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(Dollars in thousands)
 Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Balance at December 31, 202111,925,087 $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 plan31,686 — 1,386 — — 1,386 
Stock options exercised48,119 1 1,444 — — 1,445 
Stock awards vested117,387 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, 202212,032,945 120 104,244 385,362 (2,020)487,706 
Net income— — — 4,147 — 4,147 
Other comprehensive income, net of tax— — — — 2,634 2,634 
Stock options exercised33,093 — 1,029 — — 1,029 
Stock awards vested42,962 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, 202212,067,868 $121 $106,301 $389,509 $614 $496,545 
Balance at December 31, 202212,106,285 $121 $112,042 $406,052 $7,745 $525,960 
Net income— — — 5,231 — 5,231 
Other comprehensive income, net of tax— — — — (2,088)(2,088)
Employee stock purchase plan26,833 — 1,307 — — 1,307 
Stock options exercised25,561 — 737 — — 737 
Stock awards vested173,249 2 (2)— —  
Stock repurchased related to the exercise of stock options and stock awards vested(100,224)(1)(5,479)— — (5,480)
Stock-based compensation— — 2,717 — — 2,717 
Balance at April 1, 202312,231,704 122 111,322 411,283 5,657 528,384 
Net income— — — 2,374 — 2,374 
Other comprehensive income, net of tax— — — — 3,157 3,157 
Issuance of common stock in public offering, net of issuance costs2,300,000 23 85,084 — — 85,107 
Stock options exercised1,771 — 70 — — 70 
Stock awards vested54,814 1 (1)— —  
Stock repurchased related to the exercise of stock options and stock awards vested(18,700)— (1,142)— — (1,142)
Stock-based compensation— — 4,193 — — 4,193 
Balance at July 1, 202314,569,589 $146 $199,526 $413,657 $8,814 $622,143 
See accompanying notes to Condensed Consolidated Financial Statements.

8

Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
Six Months Ended
July 1,
2023
July 2,
2022
Cash Flows from Operating Activities
Net Income$7,605 $12,246 
Adjustments to Reconcile Net Income to
Net Cash (Used in) Provided by Operating Activities:
Depreciation and amortization15,943 15,666 
Non-cash operating lease cost2,953 3,582 
Inventory write down and property and equipment impairment due to restructuring843 832 
Stock-based compensation expense8,117 5,190 
Deferred income taxes(2,056)(4,117)
Provision for (recovery of) credit losses473 (449)
Recognition of insurance recoveries(3,886) 
Other444 382 
Changes in Assets and Liabilities:
Accounts receivable12,252 (11,597)
Contract assets1,454 (6,139)
Inventories(21,243)(13,821)
Production cost of contracts(401)879 
Other assets343 (136)
Accounts payable(8,177)15,674 
Contract liabilities(15,349)(5,356)
Operating lease liabilities(2,471)(2,930)
Accrued and other liabilities(6,591)(3,788)
Net Cash (Used in) Provided by Operating Activities(9,747)6,118 
Cash Flows from Investing Activities
Purchases of property and equipment(10,919)(9,068)
Proceeds from sale of assets 51 
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired(114,353) 
Post closing cash received from the acquisition of Magnetic Seal LLC, net 365 
Net Cash Used in Investing Activities(125,272)(8,652)
Cash Flows from Financing Activities
Borrowings from senior secured revolving credit facility133,500  
Repayments of senior secured revolving credit facility(99,700) 
Repayments of term loans(3,125)(33,500)
Repayments of other debt(165)(168)
Proceeds from issuance of common stock in public offering, net of issuance costs85,107  
Net cash paid upon issuance of common stock under stock plans(4,038)(2,595)
Net Cash Provided by (Used in) Financing Activities111,579 (36,263)
Net Decrease in Cash and Cash Equivalents(23,440)(38,797)
Cash and Cash Equivalents at Beginning of Period46,246 76,316 
Cash and Cash Equivalents at End of Period$22,806 $37,519 
See accompanying notes to Condensed Consolidated Financial Statements.
9

Ducommun Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Summary of Significant Accounting Policies
Description of Business
We are a leading global provider of innovative, value-added proprietary products and manufacturing solutions for high-performance products and high-cost-of failure applications used primarily in the aerospace and defense (“A&D”), industrial, medical and other industries (collectively, “Industrial”). Our operations are organized into two primary businesses: the Electronic Systems segment (“Electronic Systems”) and the Structural Systems segment (“Structural Systems”), each of which is a reportable operating segment. Electronic Systems designs, engineers and manufactures high-reliability electronic and electromechanical products used in worldwide technology-driven markets including A&D and Industrial end-use markets. Electronic Systems’ product offerings primarily range from prototype development to complex assemblies. Structural Systems designs, engineers and manufactures large, complex contoured aerostructure components and assemblies and supplies composite and metal bonded structures and assemblies. Structural Systems’ products are primarily used on commercial aircraft, military fixed-wing aircraft, and military and commercial rotary-wing aircraft. Both reportable operating segments follow the same accounting principles.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of Ducommun Incorporated and its subsidiaries (“Ducommun,” the “Company,” “we,” “us” or “our”), after eliminating intercompany balances and transactions. The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).
Our significant accounting policies were described in Part IV, Item 15(a)(1), “Note 1. Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The financial information included in this Quarterly Report on Form 10-Q (“Form 10-Q”) should be read in conjunction with the 2022 Form 10-K.
In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state our condensed consolidated financial position, statements of income, comprehensive income, changes in shareholders’ equity, and cash flows in accordance with GAAP for the periods covered by this Form 10-Q. The results of operations for the three and six months ended July 1, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.
Our fiscal quarters typically end on the Saturday closest to the end of March, June and September for the first three fiscal quarters of each year, and on December 31 for our fourth fiscal quarter. As a result of using fiscal quarters for the first three quarters combined with leap years, our first and fourth fiscal quarters can range between 12 1/2 weeks to 13 1/2 weeks while the second and third fiscal quarters remain at a constant 13 weeks per fiscal quarter.
Certain reclassifications have been made to prior period amounts to conform to the current year’s presentation.
Use of Estimates
Certain amounts and disclosures included in the unaudited condensed consolidated financial statements require management to make estimates and judgments that affect the amounts of assets, liabilities (including contract liabilities), revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
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Supplemental Cash Flow Information
(Dollars in thousands)
Six Months Ended
July 1,
2023
July 2,
2022
Interest paid$9,529 $4,540 
Taxes paid, net$10,038 $1,790 
Non-cash activities:
     Purchases of property and equipment not paid$1,291 $2,761 
Earnings Per Share
Basic earnings per share are 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 by the weighted-average number of common shares outstanding, plus any potentially dilutive shares that could be issued if exercised or converted into common stock in each period.
The net income and weighted-average common shares outstanding used to compute earnings per share were as follows:
(Dollars in thousands,
except per share data)
(Dollars in thousands,
except per share data)
Three Months EndedSix Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net income$2,374 $4,147 $7,605 $12,246 
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding13,403 12,070 12,799 12,029 
Dilutive potential common shares196 263 276 308 
Diluted weighted-average common shares outstanding13,599 12,333 13,075 12,337 
Earnings per share
Basic$0.18 $0.34 $0.59 $1.02 
Diluted$0.17 $0.34 $0.58 $0.99 
Potentially dilutive stock awards, as shown below, were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. However, these awards may be potentially dilutive common shares in the future.
(In thousands)(In thousands)
Three Months EndedSix Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Stock options and stock units111 99 56 42 
Fair Value
Assets and liabilities that are measured, recorded or disclosed at fair value on a recurring basis are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value. Level 1, the highest level, refers to the values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant observable inputs. Level 3, the lowest level, includes fair values estimated using significant unobservable inputs.
We have money market funds which are included as cash and cash equivalents. We also have forward interest rate swap agreements and the fair value of the forward interest rate swap agreements was determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2 measurement.
There were no transfers between Level 1, Level 2, or Level 3 financial instruments in the three months ended July 1, 2023.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid instruments purchased with original maturities of three months or less. These assets are valued at cost, which approximates fair value, and we classify as Level 1. See Fair Value above.
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Derivative Instruments
We recognize derivative instruments on our condensed consolidated balance sheets at their fair value. On the date that we enter into a derivative contract, we designate the derivative instrument as a fair value hedge, a cash flow hedge, or a derivative instrument that will not be accounted for using hedge accounting methods. In November 2021, we entered into forward interest rate swap agreements with an aggregate notional amount of $150.0 million, all with an effective date of January 1, 2024 (“Forward Interest Rate Swaps”) to manage our exposure to interest rate movements on a portion of our debt. As such, at the time we entered into the Forward Interest Rate Swaps, there was a high probability of forecasted interest payments on our debts occurring and the swaps are highly effective in offsetting those interest payments and therefore, we elected to apply cash flow hedge accounting. In July 2022, as a result of refinancing all our existing debt, which allows borrowing based on a Secured Overnight Financing Rate (“SOFR”), we were required to complete an amendment of the Forward Interest Rate Swaps from One Month London Interbank Offered Rate (“LIBOR”) to One Month Term SOFR (“Amended Forward Interest Rate Swaps”), which occurred on the same day. After the transition of the Forward Interest Rate Swaps and debt to SOFR was completed, we determined the hedging relationship was still highly effective as of the amendment date. See Note 7. As of July 1, 2023, all of our derivative instruments were designated as cash flow hedges.
We record changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a cash flow hedge in other comprehensive income (loss), net of tax until our earnings are affected by the variability of cash flows of the underlying hedged item. We report changes in the fair values of derivative instruments that are not designated or do not qualify for hedge accounting in current period earnings. We classify cash flows from derivative instruments in the condensed consolidated statements of cash flows in the same category as the item being hedged or on a basis consistent with the nature of the instrument. Since the Amended Forward Interest Rate Swaps are not effective until January 1, 2024, we only record the changes in fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges. As such, during the three months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $3.1 million and $2.5 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. During the six months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $1.0 million and $7.4 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes.
When we determine that a derivative instrument is not highly effective as a hedge, we discontinue hedge accounting prospectively. In all situations in which we discontinue hedge accounting and the derivative instrument remains outstanding, we will carry the derivative instrument at its fair value on our condensed consolidated balance sheets and recognize subsequent changes in its fair value in our current period earnings.
Inventories
Inventories are stated at the lower of cost or net realizable value with cost being determined using a moving average cost basis for raw materials and actual cost for work-in-process and finished goods. The majority of our inventory is charged to cost of sales as raw materials are placed into production. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle performance center expense, freight, handling costs, and wasted materials (spoilage) incurred. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The majority of our revenues are recognized over time, however, for revenue contracts where revenue is recognized using the point in time method, inventory is not reduced until it is shipped or transfer of control to the customer has occurred. Our ending inventory consists of raw materials, work-in-process, and finished goods.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income, as reflected on the condensed consolidated balance sheets under the equity section, was comprised of cumulative pension and retirement liability adjustments, net of tax, and change in net unrealized gains and losses on cash flow hedges, net of tax.
Revenue Recognition
Our customers typically engage us to manufacture products based on designs and specifications provided by the end-use customer. This requires the building of tooling and manufacturing first article inspection products (prototypes) before volume manufacturing. Contracts with our customers generally include a termination for convenience clause.
We have a significant number of contracts that are started and completed within the same year, as well as contracts derived from long-term agreements and programs that can span several years. We recognize revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), which utilizes a five-step model.
The definition of a contract for us is typically defined as a customer purchase order as this is when we achieve an enforceable
12

right to payment. The majority of our contracts are firm fixed-price contracts. The deliverables within a customer purchase order are analyzed to determine the number of performance obligations. In addition, at times, in order to achieve economies of scale and based on our customer’s forecasted demand, we may build in advance of receiving a purchase order from our customer. When that occurs, we would not recognize revenue until we have received the customer purchase order.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control is transferred and the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services are highly interrelated or met the series guidance. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
We manufacture most products to customer specifications and the product cannot be easily modified for another customer. As such, these products are deemed to have no alternative use once the manufacturing process begins. In the event the customer invokes a termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs. For most of our products, we are building assets with no alternative use and have enforceable right to payment, and thus, we recognize revenue using the over time method.
The majority of our performance obligations are satisfied over time as work progresses. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion, also known as cost-to-cost plus reasonable profit) to measure progress. Our typical revenue contract is a firm fixed price contract, and the cost of raw materials could make up a significant amount of the total costs incurred. As such, we believe using the total costs incurred input method would be the most appropriate method. While the cost of raw materials could make up a significant amount of the total costs incurred, there is a direct relationship between our inputs and the transfer of control of goods or services to the customer.
Contract estimates are based on various assumptions to project the outcome of future events that can span multiple months or years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; and the performance of subcontractors.
As a significant change in one or more of these estimates could affect the progress completed (and related profitability) on our contracts, we review and update our contract-related estimates on a regular basis. We recognize such adjustments under the cumulative catch-up method. Under this method, the impact of the adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate.
The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue.
Net cumulative catch up adjustments on gross profit recorded were not material for both the three and six months ended July 1, 2023 and July 2, 2022.
Payments under long-term contracts may be received before or after revenue is recognized. When revenue is recognized before we bill our customer, a contract asset is created for the work performed but not yet billed. Similarly, when we receive payment before we ship our products to our customer and have met the shipping terms, a contract liability is created for the advance or progress payment. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.
We record provisions for the total anticipated losses on contracts, considering total estimated costs to complete the contract compared to total anticipated revenues, in the period in which such losses are identified. The provisions for estimated losses on contracts require us to make certain estimates and assumptions, including those with respect to the future revenue under a contract and the future cost to complete the contract. Our estimate of the future cost to complete a contract may include assumptions as to changes in manufacturing efficiency, operating and material costs, and our ability to resolve claims and assertions with our customers. If any of these or other assumptions and estimates do not materialize in the future, we may be required to adjust the provisions for estimated losses on contracts. The provision for estimated losses on contracts is included as part of contract liabilities on the condensed consolidated balance sheets. As of July 1, 2023 and December 31, 2022, provision for estimated losses on contracts were $6.8 million and $3.9 million, respectively.
Production cost of contracts includes non-recurring production costs, such as design and engineering costs, and tooling and other special-purpose machinery necessary to build parts as specified in a contract. Production costs of contracts are recorded to cost of sales using the over time revenue recognition model. We review the value of the production cost of contracts on a quarterly basis to ensure when added to the estimated cost to complete, the value is not greater than the estimated realizable value of the related contracts. As of July 1, 2023 and December 31, 2022, production cost of contracts were $5.5 million and $5.7 million, respectively.
13

Contract Assets and Contract Liabilities
Contract assets consist of our right to payment for work performed but not yet billed. Contract assets are transferred to accounts receivable when we bill our customers. We bill our customers when we ship the products and meet the shipping terms within the revenue contract. Contract liabilities consist of advance or progress payments received from our customers prior to the time transfer of control occurs plus the estimated losses on contracts. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.
Contract assets and contract liabilities from revenue contracts with customers are as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Contract assets$189,836 $191,290 
Contract liabilities$31,719 $47,068 
The decrease in our contract assets as of July 1, 2023 compared to December 31, 2022 was primarily due to a net decrease of products in work in process in the current period.
The decrease in our contract liabilities as of July 1, 2023 compared to December 31, 2022 was primarily due to a net decrease of advance or progress payments received from our customers in the current period. We recognized $23.0 million of the contract liabilities as of December 31, 2022 as revenues during the six months ended July 1, 2023.
Performance obligations are defined as customer placed purchase orders (“POs”) with firm fixed price and firm delivery dates. Our remaining performance obligations as of July 1, 2023 totaled $916.7 million. We anticipate recognizing an estimated 70% of our remaining performance obligations as revenue during the next 12 months with the remaining performance obligations being recognized in the remainder of 2024 and beyond.
Revenue by Category
In addition to the revenue categories disclosed above, the following table reflects our revenue disaggregated by major end-use market:
(Dollars in thousands)(Dollars in thousands)
Three Months EndedSix Months Ended
July 1
2023
July 2,
2022
July 1
2023
July 2,
2022
Consolidated Ducommun
Military and space$95,887 $106,680 $192,327 $206,014 
Commercial aerospace
78,247 57,067 151,297 111,142 
Industrial13,186 10,451 24,887 20,523 
Total$187,320 $174,198 $368,511 $337,679 
Electronic Systems
Military and space$71,772 $80,187 $145,099 $152,007 
Commercial aerospace22,166 19,094 42,764 34,668 
Industrial13,186 10,451 24,887 20,523 
Total$107,124 $109,732 $212,750 $207,198 
Structural Systems
Military and space$24,115 $26,493 $47,228 $54,007 
Commercial aerospace56,081 37,973 108,533 76,474 
Total$80,196 $64,466 $155,761 $130,481 
Government Grant
In November 2021, we were awarded an Aviation Manufacturing Jobs Protection Program grant from the U.S. Department of Transportation (“AMJPP Grant”) of $4.0 million. As part of the award, we had to meet, and did complete, certain requirements over a six month performance period from November 2021 to May 2022. As of December 31, 2022, we had received the entire $4.0 million grant balance, $2.0 million of which was received during 2021 and the remainder during 2022. We recorded no
14

reduction to cost of sales or selling, general and administrative expenses during the three and six months ended July 1, 2023. We recorded $0.9 million and $2.7 million as a reduction of cost of sales during the three and six months ended July 2, 2022, respectively, and $0.1 million and $0.3 million as a reduction of selling, general, and administrative expenses during the three and six months ended July 2, 2022, respectively. As of December 31, 2022, the requirements under the AMJPP Grant were completed and the entire $4.0 million awarded were received and thus, we also recorded the entire aggregate total of $3.6 million and $0.4 million as a reduction of cost of sales and selling, general and administrative expenses, respectively.
Recent Accounting Pronouncements
Recently Issued Accounting Standards
In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock” (“ASU 2023-03”), which amends or supersedes various SEC paragraphs within the Accounting Standards Codification to conform to past SEC announcements and guidance issued by the SEC. ASU 2023-03 does not provide any new guidance so there is no transition or effective date. ASU 2023-03 did not have a material impact on our condensed consolidated financial statements.
In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”), which defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. Since we adopted ASU 2020-04 during 2022, ASU 2022-06 will not have a material impact on our condensed consolidated financial statements. See Note 7.

Note 2. Business Combinations
BLR Aerospace, L.L.C. Acquisition
On April 25, 2023, we acquired 100.0% of the outstanding equity interests of BLR Aerospace, L.L.C. (“BLR”), a privately-held leading provider of aerodynamic systems that enhance the productivity, performance, and safety of rotary and fixed-wing aircraft on commercial and military platforms. BLR is located in Everett, Washington. The acquisition of BLR adds to our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities.
The initial purchase price for BLR was $115.0 million, net of cash acquired, all payable in cash, subject to adjustments for working capital. We paid a gross aggregate of $117.0 million in cash upon the closing of the transaction. We allocated the preliminary gross purchase price of $117.0 million to the assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill.
The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Estimated
Fair Value
Cash$2,656 
Accounts receivable4,149 
Inventories12,011 
Other current assets891 
Property and equipment2,632 
Operating lease right-of-use assets874 
Intangible assets55,500 
Goodwill41,168 
Total assets acquired119,881 
Current liabilities(2,145)
Other non-current liabilities(727)
Total liabilities assumed(2,872)
Total purchase price allocation$117,009 
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Useful Life
(In years)
Estimated
Fair Value
(In thousands)
Intangible assets:
Technology23$35,600 
Customer relationships
10-22
15,000 
Trade name184,900 
$55,500 
The intangible assets acquired of $55.5 million were preliminarily determined based on the estimated fair values using valuation techniques consistent with the income approach to measure fair value, which represented Level 3 fair value measurements. The useful lives were estimated based on the underlying agreements or the future economic benefit expected to be received from the assets. The values for technology and trade name were assessed using the relief from royalty methodology, while the value for customer relationships was estimated based on a multi-period excess earnings approach. Inputs to the income approach models and other aspects of the allocation of the purchase price require judgment. The more significant inputs used in the technology intangible asset valuation include (i) projected revenue, (ii) technology decay rate, and (iii) the discount rate. The more significant inputs used in the customer relationships intangible asset valuation include (i) future revenue growth rates, (ii) projected earnings before interest, taxes, and amortization (“EBITA”), (iii) the customer attrition rates, and (iv) the discount rate.
The goodwill of $41.2 million arising from the acquisition is preliminarily attributable to the benefits we expect to derive from expected synergies from the transaction, including complementary products that will enhance our overall product portfolio, opportunities within new markets, and an acquired assembled workforce. All the goodwill was assigned to the Structural Systems segment. The BLR acquisition, for tax purposes, is deemed an asset acquisition and thus, the goodwill recognized is deductible for income tax purposes.
Acquisition related transaction costs were not included as components of consideration transferred but have been expensed as incurred. Total acquisition-related transaction costs incurred by us were $0.5 million and $1.3 million during the three and six months ended July 1, 2023, respectively, and charged to selling, general and administrative expenses.
BLR’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment and were immaterial since the date of acquisition. Pro forma results of operations of the BLR acquisition have not been presented as the effect of the BLR acquisition was not material to our financial results.
Magnetic Seal LLC Acquisition
In December 2021, we acquired 100.0% of the outstanding equity interests of Magnetic Seal LLC (f/k/a Magnetic Seal Corporation, “MagSeal”), a privately-held leading provider of high-impact, military-proven magnetic seals for critical systems in aerospace and defense applications, offering sealing solutions that are engineered to perform in high-speed, high-vibration, and other challenging environments. MagSeal is located in Warren, Rhode Island. The acquisition of MagSeal continued the advancement our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities.
The original purchase price for MagSeal was $69.5 million, net of cash acquired, all payable in cash. We paid a gross aggregate of $71.3 million in cash upon the closing of the transaction. Subsequent to the closing of the transaction, during the three months ended July 2, 2022, as part of finalizing the working capital adjustment, we received $0.4 million back from the seller which lowered the purchase price to $69.1 million, net of cash acquired. We allocated the final gross purchase price of $70.9 million to the assets acquired and liabilities assumed at their estimated fair values. The estimated fair value of the assets acquired included $30.1 million of intangible assets, $4.5 million of inventories, $2.1 million of accounts receivable, $1.5 million of operating lease right-of-use assets, $0.5 million of property and equipment, $0.1 million of other current assets, and $2.3 million of liabilities assumed. The excess of the purchase price over the aggregate fair values of the net assets acquired and liabilities assumed of $32.6 million was recorded as goodwill. The intangible assets acquired were comprised of $24.8 million for customer relationships, $0.6 million for backlog, and $4.7 million for trade name, and were assigned an estimated useful life of 19 years, two years, and indefinite, respectively. All the goodwill was assigned to the Structural Systems segment. The MagSeal acquisition, for tax purposes, was deemed an asset acquisition and thus, the goodwill recognized was deductible for income tax purposes.
MagSeal’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment and were immaterial since the date of acquisition. Pro forma results of operations of the MagSeal acquisition have not been presented as the effect of the MagSeal acquisition was not material to our financial results.
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Note 3. Restructuring Activities
Summary of 2022 Restructuring Plan
In April 2022, management approved and commenced a restructuring plan that will better position us for stronger performance. The restructuring plan will mainly reduce headcount and consolidate facilities. As a result of this restructuring plan, we analyzed the need to write-down inventory and impair long-lived assets, including operating lease right-of-use assets. During the three and six months ended July 1, 2023, we recorded total charges of $4.8 million and $8.9 million, respectively. Cumulative through the six months ended July 1, 2023, we recorded aggregate total charges of $15.6 million ($0.5 million of which was recorded as cost of sales). As of July 1, 2023, we estimate the remaining amount of charges related to this initiative will be $5.0 million to $8.0 million in total pre-tax restructuring charges through 2023. Of these charges, we estimate $4.0 million to $6.0 million to be cash payments for employee separation and other facility consolidation related expenses, and $1.0 million to $2.0 million to be non-cash charges for impairment of long-lived assets.
In the Electronics Systems segment, we recorded charges (reversals) of $2.4 million, zero, and $(0.2) million during the three months ended July 1, 2023, for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring reversals, respectively. We recorded charges (reversals) of $4.1 million, $0.1 million, and $(0.1) million during the six months ended July 1, 2023, for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring (reversals), respectively. Cumulative through the six months ended July 1, 2023, we recorded total charges for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring reversals of $7.6 million, $0.4 million, and $(0.1) million, respectively.
In the Structural Systems segment, we recorded $1.6 million, $0.4 million, and $0.5 million during the three months ended July 1, 2023 for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring charges, respectively. We recorded $3.3 million, $0.7 million, and $0.8 million during the six months ended July 1, 2023, for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring charges, respectively. Cumulative through the six months ended July 1, 2023, we recorded total charges for inventory write down that was classified as cost of sales, severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, impairment of property and equipment that was classified as restructuring charges, and other restructuring charges of $0.5 million, $4.9 million, $1.2 million, $0.3 million, and $0.8 million, respectively.
Our restructuring activities during the six months ended July 1, 2023 were as follows (in thousands):
December 31, 2022Six Months Ended July 1, 2023July 1, 2023
BalanceChargesCash PaymentsNon-Cash PaymentsChange in EstimatesBalance
Severance and benefits$2,799 $7,402 $(5,184)$ $ $5,017 
Property and equipment accelerated depreciation due to restructuring 844  (844)  
Other 693 (693)   
Ending balance$2,799 $8,939 $(5,877)$(844)$ $5,017 
The restructuring activities accrual for severance and benefits of $5.0 million as of July 1, 2023 was included as part of accrued and other liabilities.

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Note 4. Inventories
Inventories consisted of the following:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Raw materials and supplies$178,571 $143,495 
Work in process22,395 23,799 
Finished goods3,499 3,917 
Total$204,465 $171,211 

Note 5. Goodwill
We perform our annual goodwill impairment test as of the first day of the fourth quarter. If certain factors occur, including significant underperformance of our business relative to expected operating results, significant adverse economic and industry trends, significant decline in our market capitalization for an extended period of time relative to net book value, a decision to divest individual businesses within a reporting unit, or a decision to group individual businesses differently, we may be required to perform an interim impairment test prior to the fourth quarter.
We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. The qualitative approach for potential impairment analysis to determine whether it is more likely than not that the fair value of a reporting unit was less than its carrying amount.
The quantitative approach for potential impairment analysis is performed by comparing the fair value of a reporting unit to its carrying value, including goodwill. Fair value is estimated by management using a combination of the income approach (which is based on a discounted cash flow model) and market approach. Management’s cash flow projections include significant judgments and assumptions, including the amount and timing of expected cash flows, long-term growth rates, and discount rates. The cash flows used in the discounted cash flow model are based on our best estimate of future revenues, gross margins, and adjusted after-tax earnings. If any of these assumptions are incorrect, it will impact the estimated fair value of a reporting unit. The market approach also requires significant management judgment in selecting comparable business acquisitions and the transaction values observed and its related control premiums.
No material adverse factors/changes have occurred since the fourth quarter of 2022 that would require us to perform another qualitative or quantitative assessment. As such, for the second quarter of 2023, it was also not more likely than not that the fair values of the reporting units were less than their carrying amounts and thus, the respective goodwill amounts were not deemed to be impaired.
On April 25, 2023, we completed the acquisition of BLR. The excess of the purchase price over the preliminary aggregate fair values of the net assets was recorded as goodwill. See Note 2 for further information.
The carrying amounts of our goodwill were as follows:
(Dollars in thousands)
Electronic
Systems
Structural
Systems
Consolidated
Ducommun
Gross goodwill$199,157 $85,972 $285,129 
Accumulated goodwill impairment(81,722) (81,722)
Balance at December 31, 2022$117,435 $85,972 $203,407 
Goodwill from acquisition during the period 41,168 41,168 
Balance at July 1, 2023$117,435 $127,140 $244,575 

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Note 6. Accrued and Other Liabilities
The components of accrued and other liabilities were as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Accrued compensation$28,091 $28,785 
Accrued income tax and sales tax4,361 10,478 
Other5,659 9,557 
Total$38,111 $48,820 

Note 7. Long-Term Debt
Long-term debt and the current period interest rates were as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Term loans$245,312 $248,438 
Revolving credit facility33,800  
Total debt279,112 248,438 
Less current portion(6,250)(6,250)
Total long-term debt, less current portion272,862 242,188 
Less debt issuance costs - term loans(1,402)(1,593)
Total long-term debt, net of debt issuance costs - term loans$271,460 $240,595 
Debt issuance costs - revolving credit facility (1)
$2,013 $2,265 
Weighted-average interest rate7.38 %4.36 %
(1) Included as part of other assets.
In July 2022, we completed a refinancing of all our existing debt by entering into a new term loan (“2022 Term Loan”) and a new revolving credit facility (“2022 Revolving Credit Facility”). The 2022 Term Loan is a $250.0 million senior secured loan that matures on July 14, 2027. The 2022 Revolving Credit Facility is a $200.0 million senior secured revolving credit facility that matures on July 14, 2027. The 2022 Term Loan and 2022 Revolving Credit Facility, collectively are the new credit facilities (“2022 Credit Facilities”).
The 2022 Term Loan bears interest, at our option, at a rate equal to either (i) Term Secured Overnight Financing Rate (“Term SOFR”) plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio. Interest payments are typically paid either on a monthly or quarterly basis, depending on the interest rate selected, on the last business day each month or quarter. In addition, the 2022 Term Loan requires quarterly amortization payments of 0.625% during year one and year two, 1.250% during year three and year four, and 1.875% during year five of the original outstanding principal balance of the 2022 Term Loan amount, on the last business day each quarter. The required quarterly amortization payments began in the fourth quarter of 2022.
The 2022 Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) Term SOFR plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio. Interest payments are typically paid on a quarterly basis, on the last business day each quarter. The undrawn portion of the commitment of the 2022 Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio, typically paid on a quarterly basis, on the last business day each quarter. However, the 2022 Revolving Credit Facility does not require any principal installment payments.
In conjunction with the closing of the 2022 Credit Facilities, we utilized the entire $250.0 million of proceeds from the 2022 Term Loan plus our existing cash on hand to pay off our entire debt balance outstanding of $254.2 million under our prior credit facilities (described below).
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In December 2019, we completed the refinancing of a portion of then our existing debt by entering into a new revolving credit facility (“2019 Revolving Credit Facility”) to replace the then existing revolving credit facility that was entered into in November 2018 (“2018 Revolving Credit Facility”) and entered into a new term loan (“2019 Term Loan”). The 2019 Revolving Credit Facility was a $100.0 million senior secured revolving credit facility that would have matured on December 20, 2024 and replaced the $100.0 million 2018 Revolving Credit Facility that would have matured on November 21, 2023. The 2019 Term Loan was a $140.0 million senior secured term loan that would have matured on December 20, 2024. We also had a then existing $240.0 million senior secured term loan that was entered into in November 2018 that would have matured on November 21, 2025 (“2018 Term Loan”). The original amounts available under the 2019 Revolving Credit Facility, 2019 Term Loan, and 2018 Term Loan (collectively, the “Existing Credit Facilities”) in aggregate, totaled $480.0 million at that time.
The 2019 Term Loan bore interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as the London Interbank Offered Rate [“LIBOR”]) plus an applicable margin ranging from 1.50% to 2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to 1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. In addition, the 2019 Term Loan required amortization payments of 1.25% of the original outstanding principal balance of the 2019 Term Loan amount on a quarterly basis, on the last day of the calendar quarter.
For the three months ended July 1, 2023 and July 2, 2022, we made the required quarterly amortization payments on the 2022 Term Loan and 2019 Term Loan of $1.6 million and $1.8 million, respectively. For the six months ended July 1, 2023 and July 2, 2022, we made the required quarterly amortization payments on the 2022 Term Loan and 2019 Term Loan of $3.1 million and $3.5 million, respectively.
The 2019 Revolving Credit Facility bore interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR) plus an applicable margin ranging from 1.50% to 2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to 1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. The undrawn portion of the commitment of the 2019 Revolving Credit Facility was subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio. However, the 2019 Revolving Credit Facility did not require any principal installment payments.
The 2018 Term Loan bore interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR plus an applicable margin ranging from 3.75% to 4.00% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 3.75% to 4.00% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. In addition, the 2018 Term Loan required amortization payments of 0.25% of the outstanding principal balance of the 2018 Term Loan amount on a quarterly basis.
Further, under the then Existing Credit Facilities, if we exceeded the annual excess cash flow threshold, we were required to make an annual additional principal payment based on the consolidated adjusted leverage ratio. The annual mandatory excess cash flow payment was based on (i) 50% of the excess cash flow amount if the adjusted leverage ratio was greater than 3.25 to 1.0, (ii) 25% of the excess cash flow amount if the adjusted leverage ratio was less than or equal to 3.25 to 1.0 but greater than 2.50 to 1.0, and (iii) zero percent of the excess cash flow amount if the consolidated adjusted leverage ratio was less than or equal to 2.50 to 1.0. We did not exceed the annual excess cash flow threshold for 2021 and thus, no annual excess cash flow payment was required to be paid during the first quarter of 2022.
In conjunction with entering into the 2019 Revolving Credit Facility and the 2019 Term Loan, we used the $140.0 million of proceeds from the 2019 Term Loan to pay off and close the 2018 Revolving Credit Facility of $58.5 million, paid down a portion of the 2018 Term Loan of $56.0 million, paid the accrued interest associated with the amounts being paid down on the 2018 Revolving Credit Facility and 2018 Term Loan, paid the fees related to this transaction, and used the remainder for general corporate purposes. The $56.0 million pay down on the 2018 Term Loan paid all the required quarterly amortization payments on the 2018 Term Loan until maturity.
However, since we were paying down on the term loans during the three months ended April 2, 2022, we were required to pay down on the 2019 Term Loan and 2018 Term Loan on a pro-rata basis and thus, we paid down $13.0 million and $17.0 million on the 2019 Term Loan and 2018 Term Loan, respectively, for an aggregate total pay down of $30.0 million. During the three months ended July 1, 2023 and July 2, 2022, we made no other voluntary prepayments on our term loans.
As of July 1, 2023, we had $166.0 million of unused borrowing capacity under the 2022 Revolving Credit Facility, after deducting $0.2 million for standby letters of credit.
As of July 1, 2023, we were in compliance with all covenants required under the 2022 Credit Facilities.
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The 2022 Term Loan was considered a modification of debt for some lenders and an extinguishment of debt for other lenders, and thus, a loss of $0.2 million was recorded related to the extinguishment. In addition, the new fees incurred of $0.8 million were capitalized and will be amortized over the life of the 2022 Term Loan. Further, the remaining debt issuance costs related to the 2019 Term Loan and 2018 Term Loan of $1.0 million as of the modification date will be amortized over the life of the 2022 Term Loan, using the effective interest method.
The 2022 Revolving Credit Facility that replaced the 2019 Revolving Credit Facility was considered a modification of debt except for the portion related to the creditor that is no longer a part of the 2022 Revolving Credit Facility and in which case, it was considered an extinguishment of debt. As a result, we expensed the portion of the unamortized debt issuance costs related to the 2019 Revolving Credit Facility that was considered an extinguishment of debt of $0.1 million. In addition, the new fees incurred of $1.7 million as part of the 2022 Revolving Credit Facility were capitalized and will be amortized over the life of the 2022 Revolving Credit Facility. Further, the remaining debt issuance costs related to the 2019 Revolving Credit Facility of $0.8 million as of the modification date will also be amortized over the life of the 2022 Revolving Credit Facility.
The 2022 Credit Facilities were entered into by us (“Parent Company”) and guaranteed by all of our domestic subsidiaries, other than two subsidiaries that were considered minor (“Subsidiary Guarantors”). The Subsidiary Guarantors jointly and severally guarantee the 2022 Credit Facilities. The Parent Company has no independent assets or operations and therefore, no consolidating financial information for the Parent Company and its subsidiaries is presented.
On April 25, 2023, we completed the acquisition of BLR. The initial purchase price for BLR was $115.0 million, net of cash acquired, all payable in cash. We paid a gross aggregate of $117.0 million in cash upon the closing of the transaction. We utilized the 2022 Revolving Credit Facility to complete the acquisition. See Note 2 for further information.
On May 18, 2023, we completed a public stock offering of our common stock resulting in net proceeds of $85.1 million. We utilized the net proceeds plus cash on hand to pay down $85.2 million on the 2022 Revolving Credit Facility. See Note 8 for further information.
In November 2021, we entered into derivative contracts, U.S. dollar-one month LIBOR forward interest rate swaps designated as cash flow hedges, all with an effective date of January 1, 2024, for an aggregate total notional amount of $150.0 million, weighted average fixed rate of 1.8%, and all terminating on January 1, 2031 (“Forward Interest Rate Swaps”). The Forward Interest Rate Swaps mature on a monthly basis, with fixed amount payer payment dates on the first day of each calendar month, commencing on February 1, 2024 through January 1, 2031. The Forward Interest Rate Swaps were deemed to be highly effective upon entering into the derivative contracts and thus, hedge accounting treatment was utilized. Since the Amended Forward Interest Rate Swaps (as defined below) are not effective until January 1, 2024, we only record the changes in fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges. As such, during the three months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $3.1 million and $2.5 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. During the six months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $1.0 million and $7.4 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. See Note 1 for further information.
In July 2022, as a result of completing a refinancing of our existing debt, we were required to complete an amendment of the Forward Interest Rate Swaps (“Amended Forward Interest Rate Swaps”). The Forward Interest Rate Swaps were based on U.S. dollar-one month LIBOR and were amended to be based on one month Term SOFR as borrowings using LIBOR are no longer available under the 2022 Credit Facilities. Since this was an amendment of just the reference rate as a result of the cessation of LIBOR, utilizing the guidance under ASU 2020-04, we determined the Amended Forward Interest Rate Swaps as of the amendment date to continue to be highly effective. The Amended Forward Interest Rate Swaps weighted average fixed rate is 1.7%, as a result of the difference between U.S. dollar-one month LIBOR and one month Term SOFR.

Note 8. Shareholders’ Equity
On May 18, 2023, we completed a public stock offering of 2.3 million shares of our common stock at $40.00 per share, for gross proceeds of $92.0 million. The common stock offering was made under our effective shelf registration statement. We incurred aggregate total out of pocket stock offering related fees of $6.9 million, resulting in net proceeds of $85.1 million. As such, we recorded an increase to common stock at par value of less than $0.1 million with the remaining amount as an increase to additional paid-in capital of $85.1 million. The public stock offering net proceeds along with cash on hand were used to pay down $85.2 million on the 2022 Revolving Credit Facility that was drawn on and utilized to complete the acquisition of BLR. See Note 2 and Note 7 for further information.

21

Note 9. Indemnifications
We have made guarantees and indemnities under which we may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. Additionally, we indemnify our directors and officers to the maximum extent permitted under the laws of the State of Delaware and have a directors and officers insurance policy that may reduce our exposure in certain circumstances and may enable us to recover a portion of future amounts that may be payable, if any. Moreover, in connection with certain performance center leases, we have indemnified our lessors for certain claims arising from the performance center or the lease.
The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to applicable statutes of limitations. The majority of guarantees and indemnities do not provide any limitations on the maximum potential future payments we could be obligated to make. Historically, payments related to these guarantees and indemnities have been immaterial. We estimate the fair value of our indemnification obligations as insignificant based on this history and insurance coverage and have, therefore, not recorded any liability for these guarantees and indemnities in the accompanying condensed consolidated balance sheets.

Note 10. Income Taxes
The provision for income taxes is determined using an estimated annual effective tax rate, which is generally less than the U.S. Federal statutory rate, primarily due to research and development (“R&D”) tax credits. Our effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as expected utilization of R&D tax credits, valuation allowances against deferred tax assets, recognition or derecognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. Also, excess tax benefits and tax detriments related to our equity compensation recognized in the condensed consolidated income statement could result in fluctuations in our effective tax rate period-over-period depending on the volatility of our stock price, number of restricted or performance stock units that vests, and stock options exercised during the period. We recognize deferred tax assets and liabilities, using enacted tax rates, for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating loss and tax credit carryovers.
We record a valuation allowance against our deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized. When we establish or reduce our valuation allowances against our deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period when that determination is made.
We recorded income tax expense of $1.0 million for both three months ended July 1, 2023 and July 2, 2022. The increase in income tax expense for the second quarter of 2023 compared to the second quarter of 2022 was due to higher discrete income tax expense primarily related to changes in other deferred tax assets and lower net tax windfalls related to stock-based compensation recognized in the second quarter of 2023 compared to the second quarter of 2022. The increase in income tax expense was partially offset by lower pre-tax income for the second quarter of 2023 compared to the second quarter of 2022.
We recorded income tax expense of $1.8 million for the six months ended July 1, 2023 compared to $2.6 million for the six months ended July 2, 2022. The decrease in income tax expense for the six months ended July 1, 2023 compared to the six months ended July 2, 2022 was primarily due to lower pre-tax income in the six months ended July 1, 2023 compared to the six months ended July 2, 2022. The decrease in income tax expense was partially offset by higher income tax expense related to non-deductible book compensation expenses and higher discrete income tax expense primarily related to changes in other deferred tax assets recognized in the six months ended July 1, 2023 compared to the six months ended July 2, 2022.
Our total amount of unrecognized tax benefits was $5.5 million and $4.9 million as of July 1, 2023 and December 31, 2022, respectively. If recognized, $2.8 million would affect the effective tax rate. We record interest and penalty charges, if any, related to uncertain tax positions as a component of tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charges as of July 1, 2023 and December 31, 2022 were not significant. As a result of statute of limitations set to expire in the fourth quarter of 2023, we expect decreases to our unrecognized tax benefits of approximately $0.7 million in the next twelve months.
We file U.S. Federal and state income tax returns. We are subject to examination by the Internal Revenue Service (“IRS”) for tax years after 2018 and by state taxing authorities for tax years after 2017. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.

22

Note 11. Commitments and Contingencies
In December 2020, a representative action under California’s Private Attorneys General Act was filed against us in the Superior Court for the State of California, County of San Bernardino. We received service of process of this complaint in January 2021. The complaint alleges violations of California’s wage and hour laws relating to our current and former employees and seeks attorney’s fees and penalties. We vigorously refuted and defended these claims, and reached a tentative settlement of $0.8 million during the fourth quarter 2021, which was subject to court approval. Thus, we recorded accrued liabilities of $0.8 million as of December 31, 2021. During the second quarter of 2022, additional factual information was identified resulting in an increase in the amount of the tentative settlement to $0.9 million. Therefore, we recorded an additional accrued liabilities of $0.1 million for a total accrued liabilities amount of $0.9 million as of the end of the second quarter of 2022 which remained unchanged as of December 31, 2022 as we were awaiting final court approval of this settlement. We received final court approval and paid the $0.9 million in January 2023.
Structural Systems has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at our facilities located in El Mirage and Monrovia, California. Based on currently available information, we have established an accrual for its estimated liability for such investigation and corrective action of $1.5 million at both July 1, 2023 and December 31, 2022, which is reflected in other long-term liabilities on our condensed consolidated balance sheets.
Structural Systems also faces liability as a potentially responsible party for hazardous waste disposed at landfills located in Casmalia and West Covina, California. Structural Systems and other companies and government entities have entered into consent decrees with respect to these landfills with the United States Environmental Protection Agency and/or California environmental agencies under which certain investigation, remediation and maintenance activities are being performed. Based on currently available information, we preliminarily estimate that the range of our future liabilities in connection with the landfill located in West Covina, California is between $0.4 million and $3.1 million. We have established an accrual for the estimated liability in connection with the West Covina landfill of $0.4 million as of both July 1, 2023 and December 31, 2022, which is reflected in other long-term liabilities on our condensed consolidated balance sheets. Our ultimate liability in connection with these matters will depend upon a number of factors, including changes in existing laws and regulations, the design and cost of construction, operation and maintenance activities, and the allocation of liability among potentially responsible parties.
In June 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment. There were no injuries, however, property and equipment, inventories, and tooling in this leased facility were damaged. Our Guaymas performance center was severely damaged and was comprised of two buildings with an aggregate total of 62,000 square feet. The loss of production from the Guaymas performance center was absorbed by our other existing performance centers, however, we have reestablished and are in the process of ramping up our manufacturing capabilities in a different leased facility with 117,000 square feet in Guaymas. A neighboring, non-related manufacturing facility, also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center. The cause of the fire is still undetermined and as such, there is no amount of loss that is probable and reasonably estimable at this time.
Our insurance covers damage, up to a capped amount, to the facility, equipment, unfinished inventory, and other assets at replacement cost, finished goods inventory at selling price, as well as business interruption, third party property damage, and recovery related expenses caused by the fire, less our per claim deductible. The anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. The anticipated insurance recoveries in excess of net book value of the damaged operating assets and business interruption will not be recorded until all contingencies related to our claim have been resolved. During the year ended December 31, 2020, $0.8 million of revenue and $0.5 million of related cost of sales were reversed for revenue previously recognized using the over time method as the revenue recognition process for these items were deemed to be interrupted as a result of these inventory items being damaged. Also during the year ended December 31, 2020, we wrote off property and equipment and tooling with an aggregate total net book value of $7.1 million and inventory on hand of $3.4 million that were damaged by the fire. The related anticipated insurance recoveries were also presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact, with the anticipated insurance recoveries receivable included as part of other current assets on the condensed consolidated balance sheets.
The insurance claim for damages to our operating assets and business interruption was deemed final and closed by our insurance company during the three months ended July 1, 2023. During the three months ended July 1, 2023 and July 2, 2022, we received insurance recoveries of $3.8 million and zero, respectively, with $2.1 million and $1.7 million for business interruption and property and equipment damage, respectively, and recognized as other income. During the six months ended July 1, 2023 and July 2, 2022, we received insurance recoveries of $3.8 million and $3.0 million, respectively. The $3.8 million of insurance recoveries received during the six months ended July 1, 2023 was for business interruption and property and equipment damage of $2.1 million and $1.7 million, respectively, and recognized as other income. The $3.0 million received during the six months ended July 2, 2022 was for business interruption, and was recognized as other income. Cumulatively, as
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of July 1, 2023, we have received insurance recoveries in aggregate total of $23.7 million, with $7.5 million for business interruption and $16.2 million for damages to property and equipment, inventories, and tooling. Further, all insurance recovery amounts received related to this claim have been recognized up to the amount of net book value loss and presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact, with the remaining amounts recognized as other income in our condensed consolidated statements of income when the contingencies were deemed resolved.
On April 29, 2023, a fire damaged a relatively small portion of one of our performance centers in our Structural Systems reporting segment. There were no injuries, however, subsequent to the fire, we determined that some property and equipment in this company owned facility were damaged. Our insurance covers damage, up to a capped amount, to the property and equipment at replacement cost, as well as business interruption and recovery related expenses caused by the fire, less our per claim deductible. There was a loss of production in this damaged portion of the performance center for a short period of time but did not result in significant disruption to customer delivery schedules. Production in this damaged portion has since resumed. The anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. The anticipated insurance recoveries in excess of net book value of the damaged operating assets and business interruption will not be recorded until all contingencies related to our claim have been resolved. During the three months ended July 1, 2023, we wrote off property and equipment with an aggregate total net book value of $0.2 million. In addition, during the three months ended July 1, 2023, we received insurance recoveries of $0.3 million (which was net of our deductible of $0.1 million) and thus, such insurance recoveries were also presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact. The amount of the insurance recoveries received in excess of the loss on operating assets was deemed a contingent gain and since the gain contingencies were deemed resolved, the $0.1 million was recorded as other income during the three months ended July 1, 2023.
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, Ducommun makes various commitments and incurs contingent liabilities in the ordinary course of business. While it is not feasible to predict the outcome of these matters, Ducommun 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 condensed consolidated financial position, results of operations or cash flows.

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Note 12. Business Segment Information
We supply products and services primarily to the aerospace and defense industries. Our subsidiaries are organized into two strategic businesses, Electronic Systems and Structural Systems, each of which is a reportable operating segment.

Financial information by reportable operating segment was as follows:
(Dollars in thousands)
Three Months Ended
(Dollars in thousands)
Six Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net Revenues
Electronic Systems$107,124 $109,732 $212,750 $207,198 
Structural Systems80,196 64,466 155,761 130,481 
Total Net Revenues$187,320 $174,198 $368,511 $337,679 
Segment Operating Income (1)
Electronic Systems$9,528 $13,610 $19,539 $23,021 
Structural Systems5,385 1,265 10,130 6,152 
14,913 14,875 29,669 29,173 
Corporate General and Administrative Expenses (2)
(9,908)(7,121)(18,292)(12,296)
Total Operating Income$5,005 $7,754 $11,377 $16,877 
Depreciation and Amortization Expenses
Electronic Systems$3,561 $3,484 $7,059 $6,990 
Structural Systems4,335 4,356 8,767 8,559 
Corporate Administration58 58 117 117 
Total Depreciation and Amortization Expenses$7,954 $7,898 $15,943 $15,666 
Capital Expenditures
Electronic Systems$1,923 $2,943 $3,774 $4,639 
Structural Systems4,111 2,486 7,241 5,858 
Corporate Administration    
Total Capital Expenditures$6,034 $5,429 $11,015 $10,497 
(1)The results for the three and six months ended July 1, 2023 include BLR’s results of operations which have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment. See Note 2.
(2)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.

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Segment assets include assets directly identifiable to or allocated to each segment. Our segment assets are as follows:
(Dollars in thousands)
 July 1,
2023
December 31,
2022
Total Assets
Electronic Systems$532,832 $543,298 
Structural Systems (1)
541,872 410,565 
Corporate Administration (2)
44,050 67,643 
Total Assets$1,118,754 $1,021,506 
Goodwill and Intangibles
Electronic Systems$177,858 $182,501 
Structural Systems (1)
241,704 148,107 
Total Goodwill and Intangibles$419,562 $330,608 
(1)On April 25, 2023, we acquired 100.0% of the outstanding equity interests of BLR for an initial purchase price of $115.0 million, net of cash acquired. We allocated the preliminary gross purchase price of $117.0 million to the assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill. See Note 2.
(2)Includes assets not specifically identified to or allocated to either the Electronic Systems or Structural Systems operating segments, including cash and cash equivalents.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Ducommun Incorporated (“Ducommun,” “the Company,” “we,” “us” or “our”) is a leading global provider of engineering and manufacturing services for high-performance products and high-cost-of failure applications used primarily in the aerospace and defense (“A&D”), industrial, medical and other industries (collectively, “Industrial”). We differentiate ourselves as a full-service solution-based provider, offering a wide range of value-added products and services in our primary businesses of electronics, structures and integrated solutions. We operate through two primary business segments: Electronic Systems and Structural Systems, each of which is a reportable segment.
COVID-19 Pandemic Impact on Our Business
The COVID-19 pandemic had a significant impact on our overall business during the prior year three and six months ended July 2, 2022. As a result of the COVID-19 pandemic, precautionary measures were instituted by governments and businesses to mitigate its spread, including the imposition of travel restrictions, quarantines, shelter in place directives, and shutting down of non-essential businesses.
The COVID-19 pandemic and the resulting inflation, rising interest rates, supply chain issues, and other events including the war in Ukraine have contributed and continues to contribute to a general slowdown in the global economy and most significantly, the commercial aerospace end-use market. While both major large aircraft manufacturers, The Boeing Company (“Boeing”) and Airbus SE, have announced increases in build rates for 2023, the ramp up is slower than expected and below pre-pandemic levels. In its 2022 Annual Report on Form 10-K, Boeing indicated that domestic travel continues to recover from the lingering effects of the COVID-19 pandemic and will recover before international travel. However, the pace of the commercial market recovery remains impacted by government restrictions related to COVID-19, especially China. While the full extent and impact of the COVID-19 pandemic cannot be reasonably estimated with certainty at this time, in the prior year, COVID-19 had a significant impact on our business, the businesses of our customers and suppliers, as well as our results of operations and financial condition, and such lingering effects could have a material adverse impact on our business, results of operations and financial condition for 2023 and beyond.
Second quarter 2023 recap:
Net revenues of $187.3 million
Net income of $2.4 million, or $0.17 per diluted share
Adjusted EBITDA of $26.1 million, or 13.9% of net revenues
Non-GAAP Financial Measures
Adjusted earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, Guaymas fire related expenses, insurance recoveries related to loss on operating assets, insurance recoveries related to business interruption, and inventory purchase accounting adjustments (“Adjusted EBITDA”) were $26.1 million and $24.1 million for the three months ended July 1, 2023 and July 2, 2022, respectively.
When viewed with our financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information that clarifies and enhances the understanding of the factors and trends affecting our past performance and future prospects. We define this measure, explain how it is calculated and provide a reconciliation of this measure to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Quarterly Report on Form 10-Q (“Form 10-Q”), are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.
We use Adjusted EBITDA as a non-GAAP operating performance measure internally as a complementary financial measure to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:
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It does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
It does not reflect changes in, or cash requirements for, our working capital needs;
It does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
It is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
It does not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and
Other companies in our industry may calculate Adjusted EBITDA differently from us, limiting its usefulness as a comparative measure.
As a result of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our condensed consolidated financial statements contained in this Form 10-Q.
Even with the limitations above, we believe that Adjusted EBITDA is useful to an investor in evaluating our results of operations as this measure:
Is widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
Helps investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and
Is used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.
The following financial items have been added back to or subtracted from our net income when calculating Adjusted EBITDA:
Interest expense may be useful to investors for determining current cash flow;
Income tax expense may be useful to investors because it represents the taxes which may be payable for the period and the change in deferred taxes during the period, and may reduce cash flow available for use in our business;
Depreciation may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations;
Amortization expense may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights;
Stock-based compensation may be useful to our investors for determining current cash flow;
Restructuring charges may be useful to our investors in evaluating our core operating performance;
Guaymas fire related expenses may be useful to our investors in evaluating our core operating performance;
Other fire related expenses may be useful to our investors in evaluating our core operating performance;
Insurance recoveries related to loss on operating assets (property and equipment, inventories, and other assets) may be useful to our investors in evaluating our core operating performance;
Insurance recoveries related to business interruption may be useful to our investors in evaluating our core operating performance; and
Purchase accounting inventory step-ups may be useful to our investors as they do not necessarily reflect the current or on-going cash charges related to our core operating performance.
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Reconciliations of net income to Adjusted EBITDA and the presentation of Adjusted EBITDA as a percentage of net revenues were as follows:
(Dollars in thousands)(Dollars in thousands)
Three Months EndedSix Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net income$2,374 $4,147 $7,605 $12,246 
Interest expense5,735 2,656 9,954 5,058 
Income tax expense955 951 1,763 2,573 
Depreciation3,932 3,610 7,672 7,197 
Amortization4,022 4,288 8,271 8,469 
Stock-based compensation expense (1)
5,036 3,600 8,117 5,190 
Restructuring charges (2)
4,769 3,231 8,939 3,231 
Guaymas fire related expenses1,880 998 3,348 1,955 
Other fire related expenses477 — 477 — 
Insurance recoveries related to loss on operating assets(1,677)— (5,563)— 
Insurance recoveries related to business interruption(2,160)— (2,160)(3,000)
Inventory purchase accounting adjustments766 637 766 1,274 
Adjusted EBITDA$26,109 $24,118 $49,189 $44,193 
% of net revenues13.9 %13.8 %13.3 %13.1 %
(1) The three and six months ended July 1, 2023 included $0.8 million and $1.2 million, respectively, and both the three and six months ended July 2, 2022 included $0.5 million of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.
(2) Both the three and six months ended July 2, 2022 included $0.5 million of restructuring charges that were recorded as cost of sales.
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Results of Operations
Second Quarter of 2023 Compared to Second Quarter of 2022
The following table sets forth net revenues, selected financial data, the effective tax rate and diluted earnings per share:
(Dollars in thousands, except per share data)
Three Months Ended
(Dollars in thousands, except per share data)
Six Months Ended
July 1,
2023
%
of Net  Revenues
July 2,
2022
%
of Net  Revenues
July 1,
2023
%
of Net  Revenues
July 2,
2022
%
of Net  Revenues
Net Revenues$187,320 100.0 %$174,198 100.0 %$368,511 100.0 %$337,679 100.0 %
Cost of Sales147,198 78.6 %139,556 80.1 %291,622 79.1 %270,562 80.1 %
Gross Profit40,122 21.4 %34,642 19.9 %76,889 20.9 %67,117 19.9 %
Selling, General and Administrative Expenses30,348 16.2 %24,185 13.9 %56,573 15.4 %47,537 14.1 %
Restructuring Charges4,769 2.5 %2,703 1.5 %8,939 2.4 %2,703 0.8 %
Operating Income5,005 2.7 %7,754 4.5 %11,377 3.1 %16,877 5.0 %
Interest Expense(5,735)(3.1)%(2,656)(1.6)%(9,954)(2.7)%(5,058)(1.5)%
Other Income4,059 2.2 %— — %7,945 2.1 %3,000 0.9 %
Income Before Taxes3,329 1.8 %5,098 2.9 %9,368 2.5 %14,819 4.4 %
Income Tax Expense955 nm951 nm1,763 nm2,573 nm
Net Income$2,374 1.3 %$4,147 2.4 %$7,605 2.1 %$12,246 3.6 %
Effective Tax Rate28.7 %nm18.7 %nm18.8 %nm17.4 %nm
Diluted Earnings Per Share$0.17 nm$0.34 nm$0.58 nm$0.99 nm
nm = not meaningful
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Net Revenues by End-Use Market and Operating Segment
Net revenues by end-use market and operating segment during the fiscal three and six months ended July 1, 2023 and July 2, 2022, respectively, were as follows:
Three Months EndedSix Months Ended
(Dollars in thousands)% of Net Revenues(Dollars in thousands)% of Net Revenues
ChangeJuly 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
ChangeJuly 1
2023
July 2,
2022
July 1
2023
July 2,
2022
Consolidated Ducommun
Military and space$(10,793)$95,887 $106,680 51.2 %61.2 %$(13,687)$192,327 $206,014 52.2 %61.0 %
Commercial aerospace21,180 78,247 57,067 41.8 %32.8 %40,155 151,297 111,142 41.1 %32.9 %
Industrial2,735 13,186 10,451 7.0 %6.0 %4,364 24,887 20,523 6.7 %6.1 %
Total$13,122 $187,320 $174,198 100.0 %100.0 %$30,832 $368,511 $337,679 100.0 %100.0 %
Electronic Systems
Military and space$(8,415)$71,772 $80,187 67.0 %73.1 %$(6,908)$145,099 $152,007 68.2 %73.4 %
Commercial aerospace3,072 22,166 19,094 20.7 %17.4 %8,096 42,764 34,668 20.1 %16.7 %
Industrial2,735 13,186 10,451 12.3 %9.5 %4,364 24,887 20,523 11.7 %9.9 %
Total$(2,608)$107,124 $109,732 100.0 %100.0 %$5,552 $212,750 $207,198 100.0 %100.0 %
Structural Systems
Military and space$(2,378)$24,115 $26,493 30.1 %41.1 %$(6,779)$47,228 $54,007 30.3 %41.4 %
Commercial aerospace18,108 56,081 37,973 69.9 %58.9 %32,059 108,533 76,474 69.7 %58.6 %
Total$15,730 $80,196 $64,466 100.0 %100.0 %$25,280 $155,761 $130,481 100.0 %100.0 %
Net revenues for the three months ended July 1, 2023 were $187.3 million, compared to $174.2 million for the three months ended July 2, 2022. The year-over-year increase was primarily due to the following:
$21.2 million higher revenues in our commercial aerospace end-use markets due to higher build rates on large aircraft platforms and other commercial aerospace platforms; partially offset by
$10.8 million lower revenues in our military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms and various missile platforms.
Net revenues for the six months ended July 1, 2023 were $368.5 million, compared to $337.7 million for the six months ended July 2, 2022. The year-over-year increase was primarily due to the following:
$40.2 million higher revenues in our commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms and large aircraft platforms, partially offset by lower build rates on rotary-wing aircraft platforms; partially offset by
$13.7 million lower revenues in our military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms, various missile platforms, and military rotary-wing aircraft platforms, partially offset by higher build rates on other military and space platforms.
Net Revenues by Major Customers
A significant portion of our net revenues are from our top ten customers as follows:
Three Months EndedSix Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Boeing Company8.0 %6.5 %7.8 %6.8 %
General Dynamics Corporation3.1 %6.0 %4.3 %5.6 %
Northrop Grumman Corporation6.4 %5.7 %5.8 %6.2 %
Raytheon Technologies Corporation14.3 %21.9 %15.3 %21.3 %
Spirit AeroSystems Holdings, Inc.5.7 %6.1 %6.4 %5.0 %
Viasat, Inc.4.9 %4.8 %5.2 %4.2 %
Total top ten customers (1)
56.5 %61.5 %57.4 %60.3 %
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(1)Includes The Boeing Company (“Boeing”), General Dynamics Corporation (“GD”), Northrop Grumman Corporation (“Northrop”), Raytheon Technologies Corporation (“Raytheon”), Spirit AeroSystems Holdings, Inc. (“Spirit”), and Viasat, Inc. (“Viasat”) for the three and six months ended July 1, 2023 and July 2, 2022. Raytheon Technologies Corporation changed its name to RTX Corporation effective July 17, 2023.
Boeing, GD, Northrop, Raytheon, Spirit, and Viasat represented the following percentages of total accounts receivable:
 July 1,
2023
December 31,
2022
Boeing6.1 %3.8 %
GD3.4 %3.4 %
Northrop5.2 %13.0 %
Raytheon11.8 %16.3 %
Spirit0.7 %1.0 %
Viasat7.8 %10.3 %
The net revenues and accounts receivable from Boeing, GD, Northrop, Raytheon, Spirit, and Viasat are diversified over a number of commercial, military and space programs and were generated by both operating segments.
Gross Profit
Gross profit consists of net revenues less cost of sales. Cost of sales includes the cost of production of finished products and other expenses related to inventory management, manufacturing quality, and order fulfillment. Gross profit as a percentage of net revenues increased year-over-year with the three months ended July 1, 2023 of 21.4%, compared to the three months ended July 2, 2022 of 19.9% primarily due to favorable product mix and favorable manufacturing volume.
Gross profit as a percentage of net revenues increased year-over-year with the six months ended July 1, 2023 of 20.9%, compared to the six months ended July 2, 2022 of 19.9% primarily due to favorable manufacturing volume, partially offset by unfavorable other manufacturing costs and unfavorable product mix.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased $6.2 million year-over-year in the three months ended July 1, 2023 compared to the three months ended July 2, 2022 primarily due to higher compensation and benefits costs of $4.1 million, a portion of which was related to the BLR acquisition, and higher other general and administrative expenses of $1.9 million, a portion of which was related to the BLR acquisition.
SG&A expenses increased $9.0 million year-over-year in the six months ended July 1, 2023 compared to the six months ended July 2, 2022 primarily due to higher compensation and benefits costs of $4.7 million, a portion of which was related to the BLR acquisition, higher other general and administrative expenses of $2.4 million, a portion of which was related to the BLR acquisition, and higher professional services fees of $2.0 million, mainly due to the BLR acquisition.
Restructuring Charges
Restructuring charges increased $2.1 million and $6.2 million year-over-year in the three and six months ended July 1, 2023, compared to the three and six months ended July 2, 2022, respectively, primarily due to the restructuring plan that was approved and commenced in April 2022 that is expected to better position us for stronger performance. See Note 3 for further information.
Interest Expense
Interest expense increased $3.1 million and $4.9 million year-over-year in the three and six months ended July 1, 2023 compared to the three and six months ended July 2, 2022, respectively, primarily due to higher interest rates and a higher outstanding debt balance.
Income Tax Expense
We recorded income tax expense of $1.0 million for both three months ended July 1, 2023 and July 2, 2022. The increase in income tax expense for the second quarter of 2023 compared to the second quarter of 2022 was due to higher discrete income tax expense primarily related to changes in other deferred tax assets and lower net tax windfalls related to stock-based compensation recognized in the second quarter of 2023 compared to the second quarter of 2022. The increase in income tax expense was partially offset by lower pre-tax income for the second quarter of 2023 compared to the second quarter of 2022.
We recorded income tax expense of $1.8 million for the six months ended July 1, 2023 compared to $2.6 million for the six months ended July 2, 2022. The decrease in income tax expense for the six months ended July 1, 2023 compared to the six months ended July 2, 2022 was primarily due to lower pre-tax income in the six months ended July 1, 2023 compared to the six months ended July 2, 2022.
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The decrease in income tax expense was partially offset by higher income tax expense related to non-deductible book compensation expenses and higher discrete income tax expense primarily related to changes in other deferred tax assets recognized in the six months ended July 1, 2023 compared to the six months ended July 2, 2022.
Our total amount of unrecognized tax benefits was $5.5 million and $4.9 million as of July 1, 2023 and December 31, 2022, respectively. If recognized, $2.8 million would affect the effective tax rate. We record interest and penalty charges, if any, related to uncertain tax positions as a component of tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charges as of July 1, 2023 and December 31, 2022 were not significant. As a result of statute of limitations set to expire in the fourth quarter of 2023, we expect decreases to our unrecognized tax benefits of approximately $0.7 million in the next twelve months.
We file U.S. Federal and state income tax returns. We are subject to examination by the Internal Revenue Service (“IRS”) for tax years after 2018 and by state taxing authorities for tax years after 2017. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.
Net Income and Earnings per Share
Net income and earnings per share for the three months ended July 1, 2023 were $2.4 million, or $0.17 per diluted share, compared to $4.1 million, or $0.34 per diluted share, for the three months ended July 2, 2022. The decrease in net income for the three months ended July 1, 2023 compared to the three months ended July 2, 2022 was primarily due to higher SG&A expenses of $6.2 million, higher interest expense of $3.1 million, and higher restructuring charges of $2.1 million, partially offset by higher gross profit of $5.5 million and higher other income of $4.1 million.
Net income and earnings per share for the six months ended July 1, 2023 were $7.6 million, or $0.58 per diluted share, compared to $12.2 million, or $0.99 per diluted share, for the six months ended July 2, 2022. The decrease in net income for the six months ended July 1, 2023 compared to the six months ended July 2, 2022 was primarily due to higher SG&A expenses of $9.0 million, higher restructuring charges of $6.2 million, and higher interest expense of $4.9 million, partially offset by higher gross profit of $9.8 million and higher other income of $4.9 million.
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Business Segment Performance
We report our financial performance based upon the two reportable operating segments: Electronic Systems and Structural Systems. The results of operations differ between our reportable operating segments due to differences in competitors, customers, extent of proprietary deliverables and performance. The following table summarizes our business segment performance for the three and six months ended July 1, 2023 and July 2, 2022:
Three Months EndedSix Months Ended
%(Dollars in thousands)% of Net Revenues%(Dollars in thousands)% of Net Revenues
ChangeJuly 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
ChangeJuly 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net Revenues
Electronic Systems(2.4)%$107,124 $109,732 57.2 %63.0 %2.7 %$212,750 $207,198 57.7 %61.4 %
Structural Systems24.4 %80,196 64,466 42.8 %37.0 %19.4 %155,761 130,481 42.3 %38.6 %
Total Net Revenues7.5 %$187,320 $174,198 100.0 %100.0 %9.1 %$368,511 $337,679 100.0 %100.0 %
Segment Operating Income
Electronic Systems$9,528 $13,610 8.9 %12.4 %$19,539 $23,021 9.2 %11.1 %
Structural Systems5,385 1,265 6.7 %2.0 %10,130 6,152 6.5 %4.7 %
14,913 14,875 29,669 29,173 
Corporate General and Administrative Expenses (1)
(9,908)(7,121)(5.3)%(4.1)%(18,292)(12,296)(5.0)%(3.6)%
Total Operating Income$5,005 $7,754 2.7 %4.5 %$11,377 $16,877 3.1 %5.0 %
Adjusted EBITDA
Electronic Systems
Operating Income$9,528 $13,610 $19,539 $23,021 
Other Income222 — 222 — 
Depreciation and Amortization3,561 3,484 7,059 6,990 
Restructuring Charges2,071 1,284 3,945 1,284 
15,382 18,378 14.4 %16.7 %30,765 31,295 14.5 %15.1 %
Structural Systems
Operating Income5,385 1,265 10,130 6,152 
Depreciation and Amortization4,335 4,356 8,767 8,559 
Restructuring Charges2,612 1,947 4,908 1,947 
Guaymas fire related expenses1,880 998 3,348 1,955 
Other fire related expenses477 — 477 — 
Inventory Purchase Accounting Adjustments766 637 766 1,274 
15,455 9,203 19.3 %14.3 %28,396 19,887 18.2 %15.2 %
Corporate General and Administrative Expenses (1)
Operating Loss(9,908)(7,121)(18,292)(12,296)
Depreciation and Amortization58 58 117 117 
Stock-Based Compensation Expense (2)
5,036 3,600 8,117 5,190 
Restructuring Charges86 — 86 — 
(4,728)(3,463)(9,972)(6,989)
Adjusted EBITDA$26,109 $24,118 13.9 %13.8 %$49,189 $44,193 13.3 %13.1 %
Capital Expenditures
Electronic Systems$1,923 $2,943 $3,774 $4,639 
Structural Systems4,111 2,486 7,241 5,858 
Corporate Administration— — — — 
Total Capital Expenditures$6,034 $5,429 $11,015 $10,497 
(1)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
(2)The three and six months ended July 1, 2023 included $0.8 million and $1.2 million, respectively, and both the three and six months ended July 2, 2022 included $0.5 million of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.
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Electronic Systems
Electronic Systems net revenues in the three months ended July 1, 2023 compared to the three months ended July 2, 2022 decreased $2.6 million primarily due to the following:
$8.4 million lower revenues in our military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms and various missile platforms; partially offset by
$3.1 million higher revenues in our commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms.
Electronic Systems net revenues in the six months ended July 1, 2023 compared to the six months ended July 2, 2022 increased $5.6 million primarily due to the following:
$8.1 million higher revenues in our commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms; partially offset by
$6.9 million lower revenues in our military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms and military rotary-wing aircraft platforms, partially offset by higher build rates on other military and space platforms.
Electronic Systems segment operating income in the three months ended July 1, 2023 compared to the three months ended July 2, 2022 decreased $4.1 million primarily due to unfavorable product mix and unfavorable manufacturing volume.
Electronic Systems segment operating income in the six months ended July 1, 2023 compared to the six months ended July 2, 2022 decreased $3.5 million primarily due to unfavorable product mix and higher restructuring charges, partially offset by favorable manufacturing volume.
Structural Systems
Structural Systems net revenues in the three months ended July 1, 2023 compared to the three months ended July 2, 2022 increased $15.7 million primarily due to the following:
$18.1 million higher revenues in our commercial aerospace end-use markets due to higher build rates on large aircraft platforms and other commercial aerospace platforms; partially offset by
$2.4 million lower revenues in our military and space end-use markets due to lower build rates on various missile platforms and military fixed-wing aircraft platforms, partially offset by higher build rates on military rotary-wing platforms.
Structural Systems net revenues in the six months ended July 1, 2023 compared to the six months ended July 2, 2022 increased $25.3 million primarily due to the following:
$32.1 million higher revenues in our commercial aerospace end-use markets due to higher build rates on large aircraft platforms and other commercial aerospace platforms; partially offset by
$6.8 million lower revenues in our military and space end-use markets due to lower build rates on various missile platforms, military fixed-wing aircraft platforms, and military rotary-wing aircraft platforms.
The Structural Systems segment operating income in the three months ended July 1, 2023 compared to the three months ended July 2, 2022 increased $4.1 million primarily due to favorable product mix and favorable manufacturing volume, partially offset by unfavorable other manufacturing costs.
The Structural Systems segment operating income in the six months ended July 1, 2023 compared to the six months ended July 2, 2022 increased $4.0 million primarily due to favorable manufacturing volume and favorable product mix, partially offset by unfavorable other manufacturing costs and higher restructure charges.
On April 25, 2023, we acquired 100.0% of BLR Aerospace L.L.C. (“BLR”). The initial purchase price for BLR was $115.0 million, net of cash acquired, all payable in cash. We paid a gross aggregate of $117.0 million in cash upon the closing of the transaction. BLR’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition and is a part of the Structural Systems segment. See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
In June 2020, a fire severely damaged our performance center in Guaymas, Mexico. We have insurance coverage and up to a capped amount, expect these items will be covered, less our deductible. The full financial impact cannot be estimated at this time as we are currently working with our insurance carriers to determine the cause of the fire. The loss of production from the Guaymas performance center was being absorbed by our other existing performance centers, however, we have reestablished and are in the process of ramping up our manufacturing capabilities in a different leased facility in Guaymas. A neighboring, non-related manufacturing facility, also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center. The cause of the fire is still undetermined and as such, there is no amount of loss that is probable and reasonably estimable at this time. If we are ultimately
35

deemed to be responsible or partly responsible, it is possible we could incur a loss in excess of our insurance coverage limits, which could be material to our cash flow, liquidity, or financial results. See Note 9 and Note 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
On April 29, 2023, a fire damaged a relatively small portion of one of our performance centers in our Structural Systems reporting segment. Our insurance covers damage, up to a capped amount, to the property and equipment at replacement cost, as well as business interruption and recovery related expenses caused by the fire, less our per claim deductible. There was a loss of production in this damaged portion of the performance center for a short period of time but did not result in significant disruption to customer delivery schedules. Production in this damaged portion has since resumed. See Note 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Corporate General and Administrative (“CG&A”) Expenses
CG&A expenses increased $2.8 million for the three months ended July 1, 2023 compared to the three months ended July 2, 2022 primarily due to higher compensation and benefits costs of $2.7 million, a portion of which was related to the acquisition of BLR.
CG&A expenses increased $6.0 million for the six months ended July 1, 2023 compared to the six months ended July 2, 2022 primarily due to higher compensation and benefits costs of $4.4 million, a portion of which was related to the acquisition of BLR, and higher professional services fees of $1.3 million, mainly due to the BLR acquisition.
Backlog
We define backlog as customer placed purchase orders (“POs”) and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount disclosed below is greater than the remaining performance obligations amount disclosed in Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues. Backlog in industrial markets tends to be of a shorter duration and is generally fulfilled within a three month period. As a result of these factors, trends in our overall level of backlog may not be indicative of trends in our future net revenues.
The increase in backlog was primarily in the military and space end-use markets and commercial aerospace end-use markets. $677.0 million of total backlog is expected to be delivered over the next 12 months. The following table summarizes our backlog as of July 1, 2023 and December 31, 2022:
(Dollars in thousands)
ChangeJuly 1,
2023
December 31,
2022
Consolidated Ducommun
Military and space$37,013 $494,367 $457,354 
Commercial aerospace14,618 464,710 450,092 
Industrial(2,279)51,095 53,374 
Total$49,352 $1,010,172 $960,820 
Electronic Systems
Military and space$7,918 $369,500 $361,582 
Commercial aerospace(25,193)100,397 125,590 
Industrial(2,279)51,095 53,374 
Total$(19,554)$520,992 $540,546 
Structural Systems
Military and space$29,095 $124,867 $95,772 
Commercial aerospace39,811 364,313 324,502 
Total$68,906 $489,180 $420,274 

36

Liquidity and Capital Resources
Available Liquidity
Total debt, the weighted-average interest rate, cash and cash equivalents and available credit facilities were as follows:
(Dollars in millions)
July 1,December 31,
20232022
Total debt, including long-term portion$279.1 $248.4 
Weighted-average interest rate on debt7.38 %4.36 %
Term Loans interest rate6.69 %4.24 %
Cash and cash equivalents$22.8 $46.2 
Unused Revolving Credit Facility$166.0 $199.8 
In July 2022, we completed a refinancing of all our existing debt by entering into a new term loan (“2022 Term Loan”) and a new revolving credit facility (“2022 Revolving Credit Facility”). The 2022 Term Loan is a $250.0 million senior secured loan that matures on July 14, 2027. The 2022 Revolving Credit Facility is a $200.0 million senior secured revolving credit facility that matures on July 14, 2027. The 2022 Term Loan and 2022 Revolving Credit Facility, collectively are the new credit facilities (“2022 Credit Facilities”). In conjunction with the closing of the 2022 Credit Facilities, we utilized the entire $250.0 million of proceeds from the 2022 Term Loan plus our existing cash on hand to pay off our entire debt balance outstanding of $254.2 million under our prior credit facilities. At the same leverage ratio, the interest rate spread in the 2022 Credit Facilities is lower than the interest rate spread under our prior credit facilities. Interest payments are typically paid either on a monthly or quarterly basis, depending on the interest rate selected, on the last business day each month or quarter. In addition, the 2022 Term Loan requires quarterly amortization payments of 0.625% during year one and year two, 1.250% during year three and year four, and 1.875% during year five of the original outstanding principal balance of the 2022 Term Loan amount, on the last business day each quarter. Further, the undrawn portion of the commitment of the 2022 Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio, typically paid on a quarterly basis, on the last business day each quarter. However, the 2022 Revolving Credit Facility does not require any principal installment payments. As of July 1, 2023, we were in compliance with all covenants required under the 2022 Credit Facilities. See Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
We made the mandatory quarterly amortization payments under our existing term loans during the three months ended July 1, 2023 and July 2, 2022 of $1.6 million and $1.8 million, respectively. We made no voluntary prepayments on our term loans during both three months ended July 1, 2023 and July 2, 2022.
In April 2022, management approved and commenced a restructuring plan that will position us for stronger performance. The restructuring plan will mainly reduce headcount and consolidate facilities. As a result of this restructuring plan, we analyzed the need to write-down inventory and impair long-lived assets, including operating lease right-of-use assets. As of July 1, 2023, we estimate the remaining amount of charges related to this initiative to be $5.0 million to $8.0 million in total pre-tax restructuring charges through 2023. Of these charges, we estimate $4.0 million to $6.0 million to be cash payments for employee separation and other facility consolidation related expenses, and $1.0 million to $2.0 million to be non-cash charges for impairment of long-lived assets. On an annualized basis, we anticipate these restructuring actions will result in total cost savings of $11.0 million to $13.0 million. See Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
In November 2021, we entered into derivative contracts, U.S. dollar-one month LIBOR forward interest rate swaps designated as cash flow hedges, all with an effective date of January 1, 2024, for an aggregate total notional amount of $150.0 million, weighted average fixed rate of 1.8%, and all terminating on January 1, 2031 (“Forward Interest Rate Swaps”). The Forward Interest Rate Swaps mature on a monthly basis, with fixed amount payer payment dates on the first day of each calendar month, commencing on February 1, 2024 through January 1, 2031. See Note 1 and Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
In July 2022, as a result of completing a refinancing of our existing debt, we were required to complete an amendment of the Forward Interest Rate Swaps (“Amended Forward Interest Rate Swaps”). The Forward Interest Rate Swaps were based on U.S. dollar-one month LIBOR and were amended to be based on one month Term SOFR as borrowings using LIBOR are no longer available under the 2022 Credit Facilities. The Amended Forward Interest Rate Swaps weighted average fixed rate is 1.7%, as a result of the difference between U.S. dollar-one month LIBOR and one month Term SOFR. See Note 1 and Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
On April 25, 2023, we completed the acquisition of BLR. The initial purchase price for BLR was $115.0 million, net of cash
37

acquired, all payable in cash. We paid a gross aggregate of $117.0 million in cash upon the closing of the transaction. We utilized the 2022 Revolving Credit Facility to complete the acquisition. See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
On May 18, 2023, we completed a public stock offering of our common stock resulting in net proceeds of $85.1 million. The stock offering net proceeds along with cash on hand were used to pay down $85.2 million on the 2022 Revolving Credit Facility that was drawn on and utilized to complete the acquisition of BLR. See Note 2, Note 7, and Note 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
We expect to spend a total of $18.0 million to $20.0 million for capital expenditures in 2023 financed by cash generated from operations, principally to support new contract awards in Electronic Systems and Structural Systems. As part of our strategic plan to become a supplier of higher-level assemblies and win new contract awards, additional up-front investment in tooling will be required for newer programs which have higher engineering content and higher levels of complexity in assemblies.
We believe the ongoing aerospace and defense subcontractor consolidation makes acquisitions an increasingly important component of our future growth. We will continue to make prudent acquisitions and capital expenditures for manufacturing equipment and facilities to support long-term contracts for commercial and military aircraft and defense programs.
We monitor our asset base, including the market dynamics of the properties we own, and we may sell such properties and/or enter into sale-leaseback transactions. Such transactions would provide cash for various capital deployment options.
We continue to depend on operating cash flow and the availability of our 2022 Credit Facilities to provide short-term liquidity. Cash generated from operations and bank borrowing capacity is expected to provide sufficient liquidity to meet our obligations during the next twelve months from the date of issuance of these financial statements.
Cash Flow Summary
Net cash used in operating activities for the six months ended July 1, 2023 was $9.7 million, compared to net cash provided by operating activities of $6.1 million for the six months ended July 2, 2022. The net cash used in operating activities during the first six months of 2023 was mainly due to higher inventories, lower contract liabilities, lower accounts payable, lower accrued and other liabilities, and lower net income, partially offset by lower accounts receivable.
Net cash used in investing activities was $125.3 million for the six months ended July 1, 2023, compared to $8.7 million in the six months ended July 2, 2022. The higher net cash used in investing activities during the first six months of 2023 compared to the prior year period was mainly due to payments for the acquisition of BLR and higher purchases of property and equipment.
Net cash provided by financing activities was $111.6 million for the six months ended July 1, 2023, compared to a net cash used in financing activities of $36.3 million for the six months ended July 2, 2022. The higher net cash provided by financing activities during the first six months of 2023 was mainly due to $85.1 million net proceeds from the issuance of common stock in a public offering and $33.8 million net borrowings under the revolving credit facility, partially offset by the voluntary $30.0 million pay down on term loans in the prior year six months ended July 2, 2022.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of operating and finance leases not recorded as a result of the practical expedients utilized, right of offset of industrial revenue bonds and associated failed sales-leasebacks on property and equipment, and indemnities, none of which we believe may have a material current or future effect on our financial condition, liquidity, capital resources, or results of operations.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires estimation and judgment that affect the reported amounts of net revenues, expenses, assets and liabilities. For a description of our critical accounting policies, please refer to “Critical Accounting Policies” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Annual Report on Form 10-K. There have been no material changes in any of our critical accounting policies during the three months ended July 1, 2023.
Recent Accounting Pronouncements
See “Part I, Item 1. Ducommun Incorporated and Subsidiaries—Notes to Condensed Consolidated Financial Statements—Note 1. Summary of Significant Accounting Policies—Recent Accounting Pronouncements” for further information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our main market risk exposure relates to changes in U.S. interest rates on our outstanding long-term debt. At July 1, 2023, we had total borrowings of $279.1 million under our 2022 Credit Facilities.
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The 2022 Term Loan bears interest, at our option, at a rate equal to either (i) Term Secured Overnight Financing Rate (“Term SOFR”) plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio.
The 2022 Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) Term SOFR plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio.
A hypothetical 10% increase or decrease in the interest rate would have an immaterial impact on our financial condition and results of operations.

Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”) have conducted an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), and concluded that such disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended July 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II. OTHER INFORMATION

Item 1. Legal Proceedings
See Note 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for a description of our legal proceedings.

Item 1A. Risk Factors
See Part I, Item 1A of our Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2022 for a discussion of our risk factors. There have been no material changes during the three months ended July 1, 2023 to the risk factors disclosed in our Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.

Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
39

Item 6. Exhibits
Exhibit
No.        Description
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.
40


Exhibit
No.        Description
Executive OfficerDate of Agreement
Laureen S. GonzalezSeptember 20, 2022
Suman B. MookerjiMay 2, 2018
Jerry L. RedondoJanuary 23, 2017
Rajiv A. TataJanuary 24, 2020
Christopher D. WamplerJanuary 23, 2017

41

Exhibit
No.        Description
10.27    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:
Director/OfficerDate of Agreement
Richard A. BaldridgeMarch 19, 2013
Shirley G. DrazbaOctober 18, 2018
Robert C. DucommunDecember 31, 1985
Dean M. FlattNovember 5, 2009
Laureen S. GonzalezSeptember 20, 2022
Jay L. HaberlandFebruary 2, 2009
Sheila G. KramerJune 1, 2021
Suman B. MookerjiApril 27, 2023
Stephen G. OswaldJanuary 23, 2017
Jerry L. RedondoOctober 1, 2015
Samara A. StryckerDecember 30, 2021
Rajiv A. TataJanuary 24, 2020
Christopher D. WamplerJanuary 1, 2016
101.INS    Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
101.SCH    Inline XBRL Taxonomy Extension Schema
101.CAL    Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF    Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB    Inline XBRL Taxonomy Extension Label Linkbase
101.PRE    Inline XBRL Taxonomy Extension Presentation Linkbase
104    Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
___________________
* Indicates an executive compensation plan or arrangement.

42

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)
Date: August 3, 2023By: /s/ Stephen G. Oswald
 Stephen G. Oswald
 Chairman, President and Chief Executive Officer
 (Principal Executive Officer)
Date: August 3, 2023By: /s/ Suman B. Mookerji
 Suman B. Mookerji
 Senior Vice President, Chief Financial Officer, Controller and Treasurer
 (Principal Financial and Principal Accounting Officer)


43

EXHIBIT 31.1
Certification of Principal Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Stephen G. Oswald, certify that:
1.I have reviewed this Quarterly Report of Ducommun Incorporated (the “registrant”) on Form 10-Q for the period ended July 1, 2023;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f), and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 3, 2023

/s/ Stephen G. Oswald
Stephen G. Oswald
Chairman, President and Chief Executive Officer


EXHIBIT 31.2
Certification of Principal Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Suman B. Mookerji, certify that:
1.I have reviewed this Quarterly Report of Ducommun Incorporated (the “registrant”) on Form 10-Q for the period ended July 1, 2023;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 3, 2023

/s/ Suman B. Mookerji
Suman B. Mookerji
Senior Vice President, Chief Financial Officer, Controller and Treasurer


EXHIBIT 32
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Ducommun Incorporated (the “Company”) on Form 10-Q for the period ending July 1, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen G. Oswald, Chairman, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By:/s/ Stephen G. Oswald
Stephen G. Oswald
Chairman, President and Chief Executive Officer
August 3, 2023

In connection with the Quarterly Report of Ducommun Incorporated (the “Company”) on Form 10-Q for the period ending July 1, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Suman B. Mookerji, Senior Vice President, Chief Financial Officer, Controller and Treasurer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By:/s/ Suman B. Mookerji
Suman B. Mookerji
Senior Vice President, Chief Financial Officer, Controller and Treasurer
August 3, 2023


The foregoing certification is accompanying the Form 10-Q solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being filed as part of the Form 10-Q or as a separate disclosure document.

v3.23.2
Cover Page - shares
6 Months Ended
Jul. 01, 2023
Jul. 26, 2023
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jul. 01, 2023  
Document Transition Report false  
Entity File Number 001-08174  
Entity Registrant Name DUCOMMUN INCORPORATED  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 95-0693330  
Entity Address, Address Line One 200 Sandpointe Avenue, Suite 700  
Entity Address, City or Town Santa Ana  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 92707-5759  
City Area Code 657  
Local Phone Number 335-3665  
Title of 12(b) Security Common Stock, $.01 par value per share  
Trading Symbol DCO  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   14,569,589
Amendment Flag false  
Document Fiscal Year Focus 2023  
Document Fiscal Period Focus Q2  
Current Fiscal Year End Date --12-31  
Entity Central Index Key 0000030305  
v3.23.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jul. 01, 2023
Dec. 31, 2022
Current Assets    
Cash and cash equivalents $ 22,806 $ 46,246
Accounts receivable, net of allowance for credit losses of $1,062 and $589 at July 1, 2023 and December 31, 2022, respectively 95,382 103,958
Contract assets 189,836 191,290
Inventories 204,465 171,211
Production cost of contracts 5,536 5,693
Other current assets 11,098 8,938
Total Current Assets 529,123 527,336
Property and Equipment, Net of Accumulated Depreciation of $179,698 and $171,507 at July 1, 2023 and December 31, 2022, respectively 111,357 106,225
Operating Lease Right-of-Use Assets 36,759 34,632
Goodwill 244,575 203,407
Intangibles, Net 174,987 127,201
Other Assets 21,953 22,705
Total Assets 1,118,754 1,021,506
Current Liabilities    
Accounts payable 82,992 90,143
Contract liabilities 31,719 47,068
Accrued and other liabilities 38,111 48,820
Operating lease liabilities 8,165 7,155
Current portion of long-term debt 6,250 6,250
Total Current Liabilities 167,237 199,436
Long-Term Debt, Less Current Portion 271,460 240,595
Non-Current Operating Lease Liabilities 30,260 28,841
Deferred Income Taxes 12,231 13,953
Other Long-Term Liabilities 15,423 12,721
Total Liabilities 496,611 495,546
Commitments and Contingencies (Notes 9, 11)
Shareholders’ Equity    
Common Stock - $0.01 par value; 35,000,000 shares authorized; 14,569,589 and 12,106,285 shares issued and outstanding at July 1, 2023 and December 31, 2022, respectively 146 121
Additional Paid-In Capital 199,526 112,042
Retained Earnings 413,657 406,052
Accumulated Other Comprehensive Income 8,814 7,745
Total Shareholders’ Equity 622,143 525,960
Total Liabilities and Shareholders’ Equity $ 1,118,754 $ 1,021,506
v3.23.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jul. 01, 2023
Dec. 31, 2022
Statement of Financial Position [Abstract]    
Accounts receivable, allowance for credit loss $ 1,062 $ 589
Property and equipment, accumulated depreciation $ 179,698 $ 171,507
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 35,000,000 35,000,000
Common stock, shares issued (in shares) 14,569,589 12,106,285
Common stock, shares outstanding (in shares) 14,569,589 12,106,285
v3.23.2
Condensed Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Income Statement [Abstract]        
Net Revenues $ 187,320 $ 174,198 $ 368,511 $ 337,679
Cost of Sales 147,198 139,556 291,622 270,562
Gross Profit 40,122 34,642 76,889 67,117
Selling, General and Administrative Expenses 30,348 24,185 56,573 47,537
Restructuring Charges 4,769 2,703 8,939 2,703
Operating Income 5,005 7,754 11,377 16,877
Interest Expense (5,735) (2,656) (9,954) (5,058)
Other Income 4,059 0 7,945 3,000
Income Before Taxes 3,329 5,098 9,368 14,819
Income Tax Expense 955 951 1,763 2,573
Net Income $ 2,374 $ 4,147 $ 7,605 $ 12,246
Earnings Per Share        
Basic earnings per share (in dollars per share) $ 0.18 $ 0.34 $ 0.59 $ 1.02
Diluted earnings per share (in dollars per share) $ 0.17 $ 0.34 $ 0.58 $ 0.99
Weighted-Average Number of Common Shares Outstanding        
Basic (in shares) 13,403 12,070 12,799 12,029
Diluted (in shares) 13,599 12,333 13,075 12,337
v3.23.2
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Statement of Comprehensive Income [Abstract]        
Net Income $ 2,374 $ 4,147 $ 7,605 $ 12,246
Other Comprehensive Income, Net of Tax:        
Amortization of actuarial losses and prior service costs, net of tax of $14 and $35 for the three months ended July 1, 2023 and July 2, 2022, respectively and $27 and $71 for the six months ended July 1, 2023 and July 2, 2022, respectively 41 111 83 221
Change in net unrealized gains on cash flow hedges, net of tax of $968 and $777 for the three months ended July 1, 2023 and July 2, 2022, respectively and $306 and $2,286 for the six months ended July 1, 2023 and July 2, 2022, respectively 3,116 2,523 986 7,426
Other Comprehensive Income, Net of Tax 3,157 2,634 1,069 7,647
Comprehensive Income $ 5,531 $ 6,781 $ 8,674 $ 19,893
v3.23.2
Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Statement of Comprehensive Income [Abstract]        
Amortization of actuarial (loss) gain, tax $ 14 $ 35 $ 27 $ 71
Unrealized gain on cash flow hedge, tax expense (benefit) $ (968) $ (777) $ (306) $ (2,286)
v3.23.2
Condensed Consolidated Statements of Changes in Shareholders' Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Beginning balance (in shares) at Dec. 31, 2021   11,925,087      
Beginning balance at Dec. 31, 2021 $ 474,602 $ 119 $ 104,253 $ 377,263 $ (7,033)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net Income 8,099     8,099  
Other comprehensive income, net of tax 5,013       5,013
Employee stock purchase plan (in shares)   31,686      
Employee stock purchase plan 1,386   1,386    
Stock options exercised (in shares)   48,119      
Stock options exercised 1,445 $ 1 1,444    
Stock awards vested (in shares)   117,387      
Stock awards vested 0 $ 1 (1)    
Stock repurchased related to the exercise of stock options and stock awards vested (in shares)   (89,334)      
Stock repurchased related to the exercise of stock options and stock awards vested (4,429) $ (1) (4,428)    
Stock-based compensation 1,590   1,590    
Ending balance (in shares) at Apr. 02, 2022   12,032,945      
Ending balance at Apr. 02, 2022 487,706 $ 120 104,244 385,362 (2,020)
Beginning balance (in shares) at Dec. 31, 2021   11,925,087      
Beginning balance at Dec. 31, 2021 474,602 $ 119 104,253 377,263 (7,033)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net Income 12,246        
Other comprehensive income, net of tax 7,647        
Ending balance (in shares) at Jul. 02, 2022   12,067,868      
Ending balance at Jul. 02, 2022 496,545 $ 121 106,301 389,509 614
Beginning balance (in shares) at Apr. 02, 2022   12,032,945      
Beginning balance at Apr. 02, 2022 487,706 $ 120 104,244 385,362 (2,020)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net Income 4,147     4,147  
Other comprehensive income, net of tax 2,634       2,634
Stock options exercised (in shares)   33,093      
Stock options exercised 1,029   1,029    
Stock awards vested (in shares)   42,962      
Stock awards vested 0 $ 1 (1)    
Stock repurchased related to the exercise of stock options and stock awards vested (in shares)   (41,132)      
Stock repurchased related to the exercise of stock options and stock awards vested (2,025)   (2,025)    
Stock-based compensation 3,054   3,054    
Ending balance (in shares) at Jul. 02, 2022   12,067,868      
Ending balance at Jul. 02, 2022 $ 496,545 $ 121 106,301 389,509 614
Beginning balance (in shares) at Dec. 31, 2022 12,106,285 12,106,285      
Beginning balance at Dec. 31, 2022 $ 525,960 $ 121 112,042 406,052 7,745
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net Income 5,231     5,231  
Other comprehensive income, net of tax (2,088)       (2,088)
Employee stock purchase plan (in shares)   26,833      
Employee stock purchase plan 1,307   1,307    
Stock options exercised (in shares)   25,561      
Stock options exercised 737   737    
Stock awards vested (in shares)   173,249      
Stock awards vested 0 $ 2 (2)    
Stock repurchased related to the exercise of stock options and stock awards vested (in shares)   (100,224)      
Stock repurchased related to the exercise of stock options and stock awards vested (5,480) $ (1) (5,479)    
Stock-based compensation 2,717   2,717    
Ending balance (in shares) at Apr. 01, 2023   12,231,704      
Ending balance at Apr. 01, 2023 $ 528,384 $ 122 111,322 411,283 5,657
Beginning balance (in shares) at Dec. 31, 2022 12,106,285 12,106,285      
Beginning balance at Dec. 31, 2022 $ 525,960 $ 121 112,042 406,052 7,745
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net Income 7,605        
Other comprehensive income, net of tax $ 1,069        
Ending balance (in shares) at Jul. 01, 2023 14,569,589 14,569,589      
Ending balance at Jul. 01, 2023 $ 622,143 $ 146 199,526 413,657 8,814
Beginning balance (in shares) at Apr. 01, 2023   12,231,704      
Beginning balance at Apr. 01, 2023 528,384 $ 122 111,322 411,283 5,657
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net Income 2,374     2,374  
Other comprehensive income, net of tax 3,157       3,157
Issuance of common stock in public offering, net of issuance costs (in shares)   2,300,000      
Issuance of common stock in public offering, net of issuance costs 85,107 $ 23 85,084    
Stock options exercised (in shares)   1,771      
Stock options exercised 70   70    
Stock awards vested (in shares)   54,814      
Stock awards vested 0 $ 1 (1)    
Stock repurchased related to the exercise of stock options and stock awards vested (in shares)   (18,700)      
Stock repurchased related to the exercise of stock options and stock awards vested (1,142)   (1,142)    
Stock-based compensation $ 4,193   4,193    
Ending balance (in shares) at Jul. 01, 2023 14,569,589 14,569,589      
Ending balance at Jul. 01, 2023 $ 622,143 $ 146 $ 199,526 $ 413,657 $ 8,814
v3.23.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Cash Flows from Operating Activities    
Net Income $ 7,605 $ 12,246
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:    
Depreciation and amortization 15,943 15,666
Non-cash operating lease cost 2,953 3,582
Inventory write down and property and equipment impairment due to restructuring 843 832
Stock-based compensation expense 8,117 5,190
Deferred income taxes (2,056) (4,117)
Provision for (recovery of) credit losses 473 (449)
Recognition of insurance recoveries (3,886) 0
Other 444 382
Changes in Assets and Liabilities:    
Accounts receivable 12,252 (11,597)
Contract assets 1,454 (6,139)
Inventories (21,243) (13,821)
Production cost of contracts (401) 879
Other assets 343 (136)
Accounts payable (8,177) 15,674
Contract liabilities (15,349) (5,356)
Operating lease liabilities (2,471) (2,930)
Accrued and other liabilities (6,591) (3,788)
Net Cash (Used in) Provided by Operating Activities (9,747) 6,118
Cash Flows from Investing Activities    
Purchases of property and equipment (10,919) (9,068)
Proceeds from sale of assets 0 51
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired (114,353) 0
Post closing cash received from the acquisition of Magnetic Seal LLC, net 0 365
Net Cash Used in Investing Activities (125,272) (8,652)
Cash Flows from Financing Activities    
Borrowings from senior secured revolving credit facility 133,500 0
Repayments of senior secured revolving credit facility (99,700) 0
Repayments of term loans (3,125) (33,500)
Repayments of other debt (165) (168)
Proceeds from issuance of common stock in public offering, net of issuance costs 85,107 0
Net cash paid upon issuance of common stock under stock plans (4,038) (2,595)
Net Cash Provided by (Used in) Financing Activities 111,579 (36,263)
Net Decrease in Cash and Cash Equivalents (23,440) (38,797)
Cash and Cash Equivalents at Beginning of Period 46,246 76,316
Cash and Cash Equivalents at End of Period $ 22,806 $ 37,519
v3.23.2
Summary of Significant Accounting Policies
6 Months Ended
Jul. 01, 2023
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Description of Business
We are a leading global provider of innovative, value-added proprietary products and manufacturing solutions for high-performance products and high-cost-of failure applications used primarily in the aerospace and defense (“A&D”), industrial, medical and other industries (collectively, “Industrial”). Our operations are organized into two primary businesses: the Electronic Systems segment (“Electronic Systems”) and the Structural Systems segment (“Structural Systems”), each of which is a reportable operating segment. Electronic Systems designs, engineers and manufactures high-reliability electronic and electromechanical products used in worldwide technology-driven markets including A&D and Industrial end-use markets. Electronic Systems’ product offerings primarily range from prototype development to complex assemblies. Structural Systems designs, engineers and manufactures large, complex contoured aerostructure components and assemblies and supplies composite and metal bonded structures and assemblies. Structural Systems’ products are primarily used on commercial aircraft, military fixed-wing aircraft, and military and commercial rotary-wing aircraft. Both reportable operating segments follow the same accounting principles.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of Ducommun Incorporated and its subsidiaries (“Ducommun,” the “Company,” “we,” “us” or “our”), after eliminating intercompany balances and transactions. The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).
Our significant accounting policies were described in Part IV, Item 15(a)(1), “Note 1. Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The financial information included in this Quarterly Report on Form 10-Q (“Form 10-Q”) should be read in conjunction with the 2022 Form 10-K.
In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state our condensed consolidated financial position, statements of income, comprehensive income, changes in shareholders’ equity, and cash flows in accordance with GAAP for the periods covered by this Form 10-Q. The results of operations for the three and six months ended July 1, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.
Our fiscal quarters typically end on the Saturday closest to the end of March, June and September for the first three fiscal quarters of each year, and on December 31 for our fourth fiscal quarter. As a result of using fiscal quarters for the first three quarters combined with leap years, our first and fourth fiscal quarters can range between 12 1/2 weeks to 13 1/2 weeks while the second and third fiscal quarters remain at a constant 13 weeks per fiscal quarter.
Certain reclassifications have been made to prior period amounts to conform to the current year’s presentation.
Use of Estimates
Certain amounts and disclosures included in the unaudited condensed consolidated financial statements require management to make estimates and judgments that affect the amounts of assets, liabilities (including contract liabilities), revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Supplemental Cash Flow Information
(Dollars in thousands)
Six Months Ended
July 1,
2023
July 2,
2022
Interest paid$9,529 $4,540 
Taxes paid, net$10,038 $1,790 
Non-cash activities:
     Purchases of property and equipment not paid$1,291 $2,761 
Earnings Per Share
Basic earnings per share are 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 by the weighted-average number of common shares outstanding, plus any potentially dilutive shares that could be issued if exercised or converted into common stock in each period.
The net income and weighted-average common shares outstanding used to compute earnings per share were as follows:
(Dollars in thousands,
except per share data)
(Dollars in thousands,
except per share data)
Three Months EndedSix Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net income$2,374 $4,147 $7,605 $12,246 
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding13,403 12,070 12,799 12,029 
Dilutive potential common shares196 263 276 308 
Diluted weighted-average common shares outstanding13,599 12,333 13,075 12,337 
Earnings per share
Basic$0.18 $0.34 $0.59 $1.02 
Diluted$0.17 $0.34 $0.58 $0.99 
Potentially dilutive stock awards, as shown below, were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. However, these awards may be potentially dilutive common shares in the future.
(In thousands)(In thousands)
Three Months EndedSix Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Stock options and stock units111 99 56 42 
Fair Value
Assets and liabilities that are measured, recorded or disclosed at fair value on a recurring basis are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value. Level 1, the highest level, refers to the values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant observable inputs. Level 3, the lowest level, includes fair values estimated using significant unobservable inputs.
We have money market funds which are included as cash and cash equivalents. We also have forward interest rate swap agreements and the fair value of the forward interest rate swap agreements was determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2 measurement.
There were no transfers between Level 1, Level 2, or Level 3 financial instruments in the three months ended July 1, 2023.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid instruments purchased with original maturities of three months or less. These assets are valued at cost, which approximates fair value, and we classify as Level 1. See Fair Value above.
Derivative Instruments
We recognize derivative instruments on our condensed consolidated balance sheets at their fair value. On the date that we enter into a derivative contract, we designate the derivative instrument as a fair value hedge, a cash flow hedge, or a derivative instrument that will not be accounted for using hedge accounting methods. In November 2021, we entered into forward interest rate swap agreements with an aggregate notional amount of $150.0 million, all with an effective date of January 1, 2024 (“Forward Interest Rate Swaps”) to manage our exposure to interest rate movements on a portion of our debt. As such, at the time we entered into the Forward Interest Rate Swaps, there was a high probability of forecasted interest payments on our debts occurring and the swaps are highly effective in offsetting those interest payments and therefore, we elected to apply cash flow hedge accounting. In July 2022, as a result of refinancing all our existing debt, which allows borrowing based on a Secured Overnight Financing Rate (“SOFR”), we were required to complete an amendment of the Forward Interest Rate Swaps from One Month London Interbank Offered Rate (“LIBOR”) to One Month Term SOFR (“Amended Forward Interest Rate Swaps”), which occurred on the same day. After the transition of the Forward Interest Rate Swaps and debt to SOFR was completed, we determined the hedging relationship was still highly effective as of the amendment date. See Note 7. As of July 1, 2023, all of our derivative instruments were designated as cash flow hedges.
We record changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a cash flow hedge in other comprehensive income (loss), net of tax until our earnings are affected by the variability of cash flows of the underlying hedged item. We report changes in the fair values of derivative instruments that are not designated or do not qualify for hedge accounting in current period earnings. We classify cash flows from derivative instruments in the condensed consolidated statements of cash flows in the same category as the item being hedged or on a basis consistent with the nature of the instrument. Since the Amended Forward Interest Rate Swaps are not effective until January 1, 2024, we only record the changes in fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges. As such, during the three months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $3.1 million and $2.5 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. During the six months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $1.0 million and $7.4 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes.
When we determine that a derivative instrument is not highly effective as a hedge, we discontinue hedge accounting prospectively. In all situations in which we discontinue hedge accounting and the derivative instrument remains outstanding, we will carry the derivative instrument at its fair value on our condensed consolidated balance sheets and recognize subsequent changes in its fair value in our current period earnings.
Inventories
Inventories are stated at the lower of cost or net realizable value with cost being determined using a moving average cost basis for raw materials and actual cost for work-in-process and finished goods. The majority of our inventory is charged to cost of sales as raw materials are placed into production. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle performance center expense, freight, handling costs, and wasted materials (spoilage) incurred. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The majority of our revenues are recognized over time, however, for revenue contracts where revenue is recognized using the point in time method, inventory is not reduced until it is shipped or transfer of control to the customer has occurred. Our ending inventory consists of raw materials, work-in-process, and finished goods.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income, as reflected on the condensed consolidated balance sheets under the equity section, was comprised of cumulative pension and retirement liability adjustments, net of tax, and change in net unrealized gains and losses on cash flow hedges, net of tax.
Revenue Recognition
Our customers typically engage us to manufacture products based on designs and specifications provided by the end-use customer. This requires the building of tooling and manufacturing first article inspection products (prototypes) before volume manufacturing. Contracts with our customers generally include a termination for convenience clause.
We have a significant number of contracts that are started and completed within the same year, as well as contracts derived from long-term agreements and programs that can span several years. We recognize revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), which utilizes a five-step model.
The definition of a contract for us is typically defined as a customer purchase order as this is when we achieve an enforceable
right to payment. The majority of our contracts are firm fixed-price contracts. The deliverables within a customer purchase order are analyzed to determine the number of performance obligations. In addition, at times, in order to achieve economies of scale and based on our customer’s forecasted demand, we may build in advance of receiving a purchase order from our customer. When that occurs, we would not recognize revenue until we have received the customer purchase order.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control is transferred and the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services are highly interrelated or met the series guidance. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
We manufacture most products to customer specifications and the product cannot be easily modified for another customer. As such, these products are deemed to have no alternative use once the manufacturing process begins. In the event the customer invokes a termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs. For most of our products, we are building assets with no alternative use and have enforceable right to payment, and thus, we recognize revenue using the over time method.
The majority of our performance obligations are satisfied over time as work progresses. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion, also known as cost-to-cost plus reasonable profit) to measure progress. Our typical revenue contract is a firm fixed price contract, and the cost of raw materials could make up a significant amount of the total costs incurred. As such, we believe using the total costs incurred input method would be the most appropriate method. While the cost of raw materials could make up a significant amount of the total costs incurred, there is a direct relationship between our inputs and the transfer of control of goods or services to the customer.
Contract estimates are based on various assumptions to project the outcome of future events that can span multiple months or years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; and the performance of subcontractors.
As a significant change in one or more of these estimates could affect the progress completed (and related profitability) on our contracts, we review and update our contract-related estimates on a regular basis. We recognize such adjustments under the cumulative catch-up method. Under this method, the impact of the adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate.
The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue.
Net cumulative catch up adjustments on gross profit recorded were not material for both the three and six months ended July 1, 2023 and July 2, 2022.
Payments under long-term contracts may be received before or after revenue is recognized. When revenue is recognized before we bill our customer, a contract asset is created for the work performed but not yet billed. Similarly, when we receive payment before we ship our products to our customer and have met the shipping terms, a contract liability is created for the advance or progress payment. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.
We record provisions for the total anticipated losses on contracts, considering total estimated costs to complete the contract compared to total anticipated revenues, in the period in which such losses are identified. The provisions for estimated losses on contracts require us to make certain estimates and assumptions, including those with respect to the future revenue under a contract and the future cost to complete the contract. Our estimate of the future cost to complete a contract may include assumptions as to changes in manufacturing efficiency, operating and material costs, and our ability to resolve claims and assertions with our customers. If any of these or other assumptions and estimates do not materialize in the future, we may be required to adjust the provisions for estimated losses on contracts. The provision for estimated losses on contracts is included as part of contract liabilities on the condensed consolidated balance sheets. As of July 1, 2023 and December 31, 2022, provision for estimated losses on contracts were $6.8 million and $3.9 million, respectively.
Production cost of contracts includes non-recurring production costs, such as design and engineering costs, and tooling and other special-purpose machinery necessary to build parts as specified in a contract. Production costs of contracts are recorded to cost of sales using the over time revenue recognition model. We review the value of the production cost of contracts on a quarterly basis to ensure when added to the estimated cost to complete, the value is not greater than the estimated realizable value of the related contracts. As of July 1, 2023 and December 31, 2022, production cost of contracts were $5.5 million and $5.7 million, respectively.
Contract Assets and Contract Liabilities
Contract assets consist of our right to payment for work performed but not yet billed. Contract assets are transferred to accounts receivable when we bill our customers. We bill our customers when we ship the products and meet the shipping terms within the revenue contract. Contract liabilities consist of advance or progress payments received from our customers prior to the time transfer of control occurs plus the estimated losses on contracts. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.
Contract assets and contract liabilities from revenue contracts with customers are as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Contract assets$189,836 $191,290 
Contract liabilities$31,719 $47,068 
The decrease in our contract assets as of July 1, 2023 compared to December 31, 2022 was primarily due to a net decrease of products in work in process in the current period.
The decrease in our contract liabilities as of July 1, 2023 compared to December 31, 2022 was primarily due to a net decrease of advance or progress payments received from our customers in the current period. We recognized $23.0 million of the contract liabilities as of December 31, 2022 as revenues during the six months ended July 1, 2023.
Performance obligations are defined as customer placed purchase orders (“POs”) with firm fixed price and firm delivery dates. Our remaining performance obligations as of July 1, 2023 totaled $916.7 million. We anticipate recognizing an estimated 70% of our remaining performance obligations as revenue during the next 12 months with the remaining performance obligations being recognized in the remainder of 2024 and beyond.
Revenue by Category
In addition to the revenue categories disclosed above, the following table reflects our revenue disaggregated by major end-use market:
(Dollars in thousands)(Dollars in thousands)
Three Months EndedSix Months Ended
July 1
2023
July 2,
2022
July 1
2023
July 2,
2022
Consolidated Ducommun
Military and space$95,887 $106,680 $192,327 $206,014 
Commercial aerospace
78,247 57,067 151,297 111,142 
Industrial13,186 10,451 24,887 20,523 
Total$187,320 $174,198 $368,511 $337,679 
Electronic Systems
Military and space$71,772 $80,187 $145,099 $152,007 
Commercial aerospace22,166 19,094 42,764 34,668 
Industrial13,186 10,451 24,887 20,523 
Total$107,124 $109,732 $212,750 $207,198 
Structural Systems
Military and space$24,115 $26,493 $47,228 $54,007 
Commercial aerospace56,081 37,973 108,533 76,474 
Total$80,196 $64,466 $155,761 $130,481 
Government Grant
In November 2021, we were awarded an Aviation Manufacturing Jobs Protection Program grant from the U.S. Department of Transportation (“AMJPP Grant”) of $4.0 million. As part of the award, we had to meet, and did complete, certain requirements over a six month performance period from November 2021 to May 2022. As of December 31, 2022, we had received the entire $4.0 million grant balance, $2.0 million of which was received during 2021 and the remainder during 2022. We recorded no
reduction to cost of sales or selling, general and administrative expenses during the three and six months ended July 1, 2023. We recorded $0.9 million and $2.7 million as a reduction of cost of sales during the three and six months ended July 2, 2022, respectively, and $0.1 million and $0.3 million as a reduction of selling, general, and administrative expenses during the three and six months ended July 2, 2022, respectively. As of December 31, 2022, the requirements under the AMJPP Grant were completed and the entire $4.0 million awarded were received and thus, we also recorded the entire aggregate total of $3.6 million and $0.4 million as a reduction of cost of sales and selling, general and administrative expenses, respectively.
Recent Accounting Pronouncements
Recently Issued Accounting Standards
In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock” (“ASU 2023-03”), which amends or supersedes various SEC paragraphs within the Accounting Standards Codification to conform to past SEC announcements and guidance issued by the SEC. ASU 2023-03 does not provide any new guidance so there is no transition or effective date. ASU 2023-03 did not have a material impact on our condensed consolidated financial statements.
In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”), which defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. Since we adopted ASU 2020-04 during 2022, ASU 2022-06 will not have a material impact on our condensed consolidated financial statements. See Note 7.
v3.23.2
Business Combinations
6 Months Ended
Jul. 01, 2023
Business Combination and Asset Acquisition [Abstract]  
Business Combinations Business Combinations
BLR Aerospace, L.L.C. Acquisition
On April 25, 2023, we acquired 100.0% of the outstanding equity interests of BLR Aerospace, L.L.C. (“BLR”), a privately-held leading provider of aerodynamic systems that enhance the productivity, performance, and safety of rotary and fixed-wing aircraft on commercial and military platforms. BLR is located in Everett, Washington. The acquisition of BLR adds to our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities.
The initial purchase price for BLR was $115.0 million, net of cash acquired, all payable in cash, subject to adjustments for working capital. We paid a gross aggregate of $117.0 million in cash upon the closing of the transaction. We allocated the preliminary gross purchase price of $117.0 million to the assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill.
The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Estimated
Fair Value
Cash$2,656 
Accounts receivable4,149 
Inventories12,011 
Other current assets891 
Property and equipment2,632 
Operating lease right-of-use assets874 
Intangible assets55,500 
Goodwill41,168 
Total assets acquired119,881 
Current liabilities(2,145)
Other non-current liabilities(727)
Total liabilities assumed(2,872)
Total purchase price allocation$117,009 
Useful Life
(In years)
Estimated
Fair Value
(In thousands)
Intangible assets:
Technology23$35,600 
Customer relationships
10-22
15,000 
Trade name184,900 
$55,500 
The intangible assets acquired of $55.5 million were preliminarily determined based on the estimated fair values using valuation techniques consistent with the income approach to measure fair value, which represented Level 3 fair value measurements. The useful lives were estimated based on the underlying agreements or the future economic benefit expected to be received from the assets. The values for technology and trade name were assessed using the relief from royalty methodology, while the value for customer relationships was estimated based on a multi-period excess earnings approach. Inputs to the income approach models and other aspects of the allocation of the purchase price require judgment. The more significant inputs used in the technology intangible asset valuation include (i) projected revenue, (ii) technology decay rate, and (iii) the discount rate. The more significant inputs used in the customer relationships intangible asset valuation include (i) future revenue growth rates, (ii) projected earnings before interest, taxes, and amortization (“EBITA”), (iii) the customer attrition rates, and (iv) the discount rate.
The goodwill of $41.2 million arising from the acquisition is preliminarily attributable to the benefits we expect to derive from expected synergies from the transaction, including complementary products that will enhance our overall product portfolio, opportunities within new markets, and an acquired assembled workforce. All the goodwill was assigned to the Structural Systems segment. The BLR acquisition, for tax purposes, is deemed an asset acquisition and thus, the goodwill recognized is deductible for income tax purposes.
Acquisition related transaction costs were not included as components of consideration transferred but have been expensed as incurred. Total acquisition-related transaction costs incurred by us were $0.5 million and $1.3 million during the three and six months ended July 1, 2023, respectively, and charged to selling, general and administrative expenses.
BLR’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment and were immaterial since the date of acquisition. Pro forma results of operations of the BLR acquisition have not been presented as the effect of the BLR acquisition was not material to our financial results.
Magnetic Seal LLC Acquisition
In December 2021, we acquired 100.0% of the outstanding equity interests of Magnetic Seal LLC (f/k/a Magnetic Seal Corporation, “MagSeal”), a privately-held leading provider of high-impact, military-proven magnetic seals for critical systems in aerospace and defense applications, offering sealing solutions that are engineered to perform in high-speed, high-vibration, and other challenging environments. MagSeal is located in Warren, Rhode Island. The acquisition of MagSeal continued the advancement our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities.
The original purchase price for MagSeal was $69.5 million, net of cash acquired, all payable in cash. We paid a gross aggregate of $71.3 million in cash upon the closing of the transaction. Subsequent to the closing of the transaction, during the three months ended July 2, 2022, as part of finalizing the working capital adjustment, we received $0.4 million back from the seller which lowered the purchase price to $69.1 million, net of cash acquired. We allocated the final gross purchase price of $70.9 million to the assets acquired and liabilities assumed at their estimated fair values. The estimated fair value of the assets acquired included $30.1 million of intangible assets, $4.5 million of inventories, $2.1 million of accounts receivable, $1.5 million of operating lease right-of-use assets, $0.5 million of property and equipment, $0.1 million of other current assets, and $2.3 million of liabilities assumed. The excess of the purchase price over the aggregate fair values of the net assets acquired and liabilities assumed of $32.6 million was recorded as goodwill. The intangible assets acquired were comprised of $24.8 million for customer relationships, $0.6 million for backlog, and $4.7 million for trade name, and were assigned an estimated useful life of 19 years, two years, and indefinite, respectively. All the goodwill was assigned to the Structural Systems segment. The MagSeal acquisition, for tax purposes, was deemed an asset acquisition and thus, the goodwill recognized was deductible for income tax purposes.
MagSeal’s results of operations have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment and were immaterial since the date of acquisition. Pro forma results of operations of the MagSeal acquisition have not been presented as the effect of the MagSeal acquisition was not material to our financial results.
v3.23.2
Restructuring Activities
6 Months Ended
Jul. 01, 2023
Restructuring and Related Activities [Abstract]  
Restructuring Activities Restructuring Activities
Summary of 2022 Restructuring Plan
In April 2022, management approved and commenced a restructuring plan that will better position us for stronger performance. The restructuring plan will mainly reduce headcount and consolidate facilities. As a result of this restructuring plan, we analyzed the need to write-down inventory and impair long-lived assets, including operating lease right-of-use assets. During the three and six months ended July 1, 2023, we recorded total charges of $4.8 million and $8.9 million, respectively. Cumulative through the six months ended July 1, 2023, we recorded aggregate total charges of $15.6 million ($0.5 million of which was recorded as cost of sales). As of July 1, 2023, we estimate the remaining amount of charges related to this initiative will be $5.0 million to $8.0 million in total pre-tax restructuring charges through 2023. Of these charges, we estimate $4.0 million to $6.0 million to be cash payments for employee separation and other facility consolidation related expenses, and $1.0 million to $2.0 million to be non-cash charges for impairment of long-lived assets.
In the Electronics Systems segment, we recorded charges (reversals) of $2.4 million, zero, and $(0.2) million during the three months ended July 1, 2023, for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring reversals, respectively. We recorded charges (reversals) of $4.1 million, $0.1 million, and $(0.1) million during the six months ended July 1, 2023, for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring (reversals), respectively. Cumulative through the six months ended July 1, 2023, we recorded total charges for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring reversals of $7.6 million, $0.4 million, and $(0.1) million, respectively.
In the Structural Systems segment, we recorded $1.6 million, $0.4 million, and $0.5 million during the three months ended July 1, 2023 for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring charges, respectively. We recorded $3.3 million, $0.7 million, and $0.8 million during the six months ended July 1, 2023, for severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, and other restructuring charges, respectively. Cumulative through the six months ended July 1, 2023, we recorded total charges for inventory write down that was classified as cost of sales, severance and benefits that were classified as restructuring charges, accelerated depreciation of property and equipment that was classified as restructuring charges, impairment of property and equipment that was classified as restructuring charges, and other restructuring charges of $0.5 million, $4.9 million, $1.2 million, $0.3 million, and $0.8 million, respectively.
Our restructuring activities during the six months ended July 1, 2023 were as follows (in thousands):
December 31, 2022Six Months Ended July 1, 2023July 1, 2023
BalanceChargesCash PaymentsNon-Cash PaymentsChange in EstimatesBalance
Severance and benefits$2,799 $7,402 $(5,184)$— $— $5,017 
Property and equipment accelerated depreciation due to restructuring— 844 — (844)— — 
Other— 693 (693)— — — 
Ending balance$2,799 $8,939 $(5,877)$(844)$— $5,017 
The restructuring activities accrual for severance and benefits of $5.0 million as of July 1, 2023 was included as part of accrued and other liabilities.
v3.23.2
Inventories
6 Months Ended
Jul. 01, 2023
Inventory Disclosure [Abstract]  
Inventories InventoriesInventories consisted of the following:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Raw materials and supplies$178,571 $143,495 
Work in process22,395 23,799 
Finished goods3,499 3,917 
Total$204,465 $171,211 
v3.23.2
Goodwill
6 Months Ended
Jul. 01, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill Goodwill
We perform our annual goodwill impairment test as of the first day of the fourth quarter. If certain factors occur, including significant underperformance of our business relative to expected operating results, significant adverse economic and industry trends, significant decline in our market capitalization for an extended period of time relative to net book value, a decision to divest individual businesses within a reporting unit, or a decision to group individual businesses differently, we may be required to perform an interim impairment test prior to the fourth quarter.
We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. The qualitative approach for potential impairment analysis to determine whether it is more likely than not that the fair value of a reporting unit was less than its carrying amount.
The quantitative approach for potential impairment analysis is performed by comparing the fair value of a reporting unit to its carrying value, including goodwill. Fair value is estimated by management using a combination of the income approach (which is based on a discounted cash flow model) and market approach. Management’s cash flow projections include significant judgments and assumptions, including the amount and timing of expected cash flows, long-term growth rates, and discount rates. The cash flows used in the discounted cash flow model are based on our best estimate of future revenues, gross margins, and adjusted after-tax earnings. If any of these assumptions are incorrect, it will impact the estimated fair value of a reporting unit. The market approach also requires significant management judgment in selecting comparable business acquisitions and the transaction values observed and its related control premiums.
No material adverse factors/changes have occurred since the fourth quarter of 2022 that would require us to perform another qualitative or quantitative assessment. As such, for the second quarter of 2023, it was also not more likely than not that the fair values of the reporting units were less than their carrying amounts and thus, the respective goodwill amounts were not deemed to be impaired.
On April 25, 2023, we completed the acquisition of BLR. The excess of the purchase price over the preliminary aggregate fair values of the net assets was recorded as goodwill. See Note 2 for further information.
The carrying amounts of our goodwill were as follows:
(Dollars in thousands)
Electronic
Systems
Structural
Systems
Consolidated
Ducommun
Gross goodwill$199,157 $85,972 $285,129 
Accumulated goodwill impairment(81,722)— (81,722)
Balance at December 31, 2022$117,435 $85,972 $203,407 
Goodwill from acquisition during the period— 41,168 41,168 
Balance at July 1, 2023$117,435 $127,140 $244,575 
v3.23.2
Accrued and Other Liabilities
6 Months Ended
Jul. 01, 2023
Payables and Accruals [Abstract]  
Accrued and Other Liabilities Accrued and Other LiabilitiesThe components of accrued and other liabilities were as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Accrued compensation$28,091 $28,785 
Accrued income tax and sales tax4,361 10,478 
Other5,659 9,557 
Total$38,111 $48,820 
v3.23.2
Long-Term Debt
6 Months Ended
Jul. 01, 2023
Debt Disclosure [Abstract]  
Long-Term Debt Long-Term Debt
Long-term debt and the current period interest rates were as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Term loans$245,312 $248,438 
Revolving credit facility33,800 — 
Total debt279,112 248,438 
Less current portion(6,250)(6,250)
Total long-term debt, less current portion272,862 242,188 
Less debt issuance costs - term loans(1,402)(1,593)
Total long-term debt, net of debt issuance costs - term loans$271,460 $240,595 
Debt issuance costs - revolving credit facility (1)
$2,013 $2,265 
Weighted-average interest rate7.38 %4.36 %
(1) Included as part of other assets.
In July 2022, we completed a refinancing of all our existing debt by entering into a new term loan (“2022 Term Loan”) and a new revolving credit facility (“2022 Revolving Credit Facility”). The 2022 Term Loan is a $250.0 million senior secured loan that matures on July 14, 2027. The 2022 Revolving Credit Facility is a $200.0 million senior secured revolving credit facility that matures on July 14, 2027. The 2022 Term Loan and 2022 Revolving Credit Facility, collectively are the new credit facilities (“2022 Credit Facilities”).
The 2022 Term Loan bears interest, at our option, at a rate equal to either (i) Term Secured Overnight Financing Rate (“Term SOFR”) plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio. Interest payments are typically paid either on a monthly or quarterly basis, depending on the interest rate selected, on the last business day each month or quarter. In addition, the 2022 Term Loan requires quarterly amortization payments of 0.625% during year one and year two, 1.250% during year three and year four, and 1.875% during year five of the original outstanding principal balance of the 2022 Term Loan amount, on the last business day each quarter. The required quarterly amortization payments began in the fourth quarter of 2022.
The 2022 Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) Term SOFR plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio. Interest payments are typically paid on a quarterly basis, on the last business day each quarter. The undrawn portion of the commitment of the 2022 Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio, typically paid on a quarterly basis, on the last business day each quarter. However, the 2022 Revolving Credit Facility does not require any principal installment payments.
In conjunction with the closing of the 2022 Credit Facilities, we utilized the entire $250.0 million of proceeds from the 2022 Term Loan plus our existing cash on hand to pay off our entire debt balance outstanding of $254.2 million under our prior credit facilities (described below).
In December 2019, we completed the refinancing of a portion of then our existing debt by entering into a new revolving credit facility (“2019 Revolving Credit Facility”) to replace the then existing revolving credit facility that was entered into in November 2018 (“2018 Revolving Credit Facility”) and entered into a new term loan (“2019 Term Loan”). The 2019 Revolving Credit Facility was a $100.0 million senior secured revolving credit facility that would have matured on December 20, 2024 and replaced the $100.0 million 2018 Revolving Credit Facility that would have matured on November 21, 2023. The 2019 Term Loan was a $140.0 million senior secured term loan that would have matured on December 20, 2024. We also had a then existing $240.0 million senior secured term loan that was entered into in November 2018 that would have matured on November 21, 2025 (“2018 Term Loan”). The original amounts available under the 2019 Revolving Credit Facility, 2019 Term Loan, and 2018 Term Loan (collectively, the “Existing Credit Facilities”) in aggregate, totaled $480.0 million at that time.
The 2019 Term Loan bore interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as the London Interbank Offered Rate [“LIBOR”]) plus an applicable margin ranging from 1.50% to 2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to 1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. In addition, the 2019 Term Loan required amortization payments of 1.25% of the original outstanding principal balance of the 2019 Term Loan amount on a quarterly basis, on the last day of the calendar quarter.
For the three months ended July 1, 2023 and July 2, 2022, we made the required quarterly amortization payments on the 2022 Term Loan and 2019 Term Loan of $1.6 million and $1.8 million, respectively. For the six months ended July 1, 2023 and July 2, 2022, we made the required quarterly amortization payments on the 2022 Term Loan and 2019 Term Loan of $3.1 million and $3.5 million, respectively.
The 2019 Revolving Credit Facility bore interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR) plus an applicable margin ranging from 1.50% to 2.50% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 0.50% to 1.50% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. The undrawn portion of the commitment of the 2019 Revolving Credit Facility was subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio. However, the 2019 Revolving Credit Facility did not require any principal installment payments.
The 2018 Term Loan bore interest, at our option, at a rate equal to either (i) the Eurodollar Rate (defined as LIBOR plus an applicable margin ranging from 3.75% to 4.00% per year or (ii) the Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] the Eurodollar Rate plus 1.00%) plus an applicable margin ranging from 3.75% to 4.00% per year, in each case based upon the consolidated total net adjusted leverage ratio, typically payable quarterly. In addition, the 2018 Term Loan required amortization payments of 0.25% of the outstanding principal balance of the 2018 Term Loan amount on a quarterly basis.
Further, under the then Existing Credit Facilities, if we exceeded the annual excess cash flow threshold, we were required to make an annual additional principal payment based on the consolidated adjusted leverage ratio. The annual mandatory excess cash flow payment was based on (i) 50% of the excess cash flow amount if the adjusted leverage ratio was greater than 3.25 to 1.0, (ii) 25% of the excess cash flow amount if the adjusted leverage ratio was less than or equal to 3.25 to 1.0 but greater than 2.50 to 1.0, and (iii) zero percent of the excess cash flow amount if the consolidated adjusted leverage ratio was less than or equal to 2.50 to 1.0. We did not exceed the annual excess cash flow threshold for 2021 and thus, no annual excess cash flow payment was required to be paid during the first quarter of 2022.
In conjunction with entering into the 2019 Revolving Credit Facility and the 2019 Term Loan, we used the $140.0 million of proceeds from the 2019 Term Loan to pay off and close the 2018 Revolving Credit Facility of $58.5 million, paid down a portion of the 2018 Term Loan of $56.0 million, paid the accrued interest associated with the amounts being paid down on the 2018 Revolving Credit Facility and 2018 Term Loan, paid the fees related to this transaction, and used the remainder for general corporate purposes. The $56.0 million pay down on the 2018 Term Loan paid all the required quarterly amortization payments on the 2018 Term Loan until maturity.
However, since we were paying down on the term loans during the three months ended April 2, 2022, we were required to pay down on the 2019 Term Loan and 2018 Term Loan on a pro-rata basis and thus, we paid down $13.0 million and $17.0 million on the 2019 Term Loan and 2018 Term Loan, respectively, for an aggregate total pay down of $30.0 million. During the three months ended July 1, 2023 and July 2, 2022, we made no other voluntary prepayments on our term loans.
As of July 1, 2023, we had $166.0 million of unused borrowing capacity under the 2022 Revolving Credit Facility, after deducting $0.2 million for standby letters of credit.
As of July 1, 2023, we were in compliance with all covenants required under the 2022 Credit Facilities.
The 2022 Term Loan was considered a modification of debt for some lenders and an extinguishment of debt for other lenders, and thus, a loss of $0.2 million was recorded related to the extinguishment. In addition, the new fees incurred of $0.8 million were capitalized and will be amortized over the life of the 2022 Term Loan. Further, the remaining debt issuance costs related to the 2019 Term Loan and 2018 Term Loan of $1.0 million as of the modification date will be amortized over the life of the 2022 Term Loan, using the effective interest method.
The 2022 Revolving Credit Facility that replaced the 2019 Revolving Credit Facility was considered a modification of debt except for the portion related to the creditor that is no longer a part of the 2022 Revolving Credit Facility and in which case, it was considered an extinguishment of debt. As a result, we expensed the portion of the unamortized debt issuance costs related to the 2019 Revolving Credit Facility that was considered an extinguishment of debt of $0.1 million. In addition, the new fees incurred of $1.7 million as part of the 2022 Revolving Credit Facility were capitalized and will be amortized over the life of the 2022 Revolving Credit Facility. Further, the remaining debt issuance costs related to the 2019 Revolving Credit Facility of $0.8 million as of the modification date will also be amortized over the life of the 2022 Revolving Credit Facility.
The 2022 Credit Facilities were entered into by us (“Parent Company”) and guaranteed by all of our domestic subsidiaries, other than two subsidiaries that were considered minor (“Subsidiary Guarantors”). The Subsidiary Guarantors jointly and severally guarantee the 2022 Credit Facilities. The Parent Company has no independent assets or operations and therefore, no consolidating financial information for the Parent Company and its subsidiaries is presented.
On April 25, 2023, we completed the acquisition of BLR. The initial purchase price for BLR was $115.0 million, net of cash acquired, all payable in cash. We paid a gross aggregate of $117.0 million in cash upon the closing of the transaction. We utilized the 2022 Revolving Credit Facility to complete the acquisition. See Note 2 for further information.
On May 18, 2023, we completed a public stock offering of our common stock resulting in net proceeds of $85.1 million. We utilized the net proceeds plus cash on hand to pay down $85.2 million on the 2022 Revolving Credit Facility. See Note 8 for further information.
In November 2021, we entered into derivative contracts, U.S. dollar-one month LIBOR forward interest rate swaps designated as cash flow hedges, all with an effective date of January 1, 2024, for an aggregate total notional amount of $150.0 million, weighted average fixed rate of 1.8%, and all terminating on January 1, 2031 (“Forward Interest Rate Swaps”). The Forward Interest Rate Swaps mature on a monthly basis, with fixed amount payer payment dates on the first day of each calendar month, commencing on February 1, 2024 through January 1, 2031. The Forward Interest Rate Swaps were deemed to be highly effective upon entering into the derivative contracts and thus, hedge accounting treatment was utilized. Since the Amended Forward Interest Rate Swaps (as defined below) are not effective until January 1, 2024, we only record the changes in fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges. As such, during the three months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $3.1 million and $2.5 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. During the six months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $1.0 million and $7.4 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. See Note 1 for further information.
In July 2022, as a result of completing a refinancing of our existing debt, we were required to complete an amendment of the Forward Interest Rate Swaps (“Amended Forward Interest Rate Swaps”). The Forward Interest Rate Swaps were based on U.S. dollar-one month LIBOR and were amended to be based on one month Term SOFR as borrowings using LIBOR are no longer available under the 2022 Credit Facilities. Since this was an amendment of just the reference rate as a result of the cessation of LIBOR, utilizing the guidance under ASU 2020-04, we determined the Amended Forward Interest Rate Swaps as of the amendment date to continue to be highly effective. The Amended Forward Interest Rate Swaps weighted average fixed rate is 1.7%, as a result of the difference between U.S. dollar-one month LIBOR and one month Term SOFR.
v3.23.2
Shareholders’ Equity
6 Months Ended
Jul. 01, 2023
Equity [Abstract]  
Shareholders’ Equity Shareholders’ EquityOn May 18, 2023, we completed a public stock offering of 2.3 million shares of our common stock at $40.00 per share, for gross proceeds of $92.0 million. The common stock offering was made under our effective shelf registration statement. We incurred aggregate total out of pocket stock offering related fees of $6.9 million, resulting in net proceeds of $85.1 million. As such, we recorded an increase to common stock at par value of less than $0.1 million with the remaining amount as an increase to additional paid-in capital of $85.1 million. The public stock offering net proceeds along with cash on hand were used to pay down $85.2 million on the 2022 Revolving Credit Facility that was drawn on and utilized to complete the acquisition of BLR. See Note 2 and Note 7 for further information.
v3.23.2
Indemnifications
6 Months Ended
Jul. 01, 2023
Disclosure of Guarantees and Indemnifications [Abstract]  
Indemnifications Indemnifications
We have made guarantees and indemnities under which we may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. Additionally, we indemnify our directors and officers to the maximum extent permitted under the laws of the State of Delaware and have a directors and officers insurance policy that may reduce our exposure in certain circumstances and may enable us to recover a portion of future amounts that may be payable, if any. Moreover, in connection with certain performance center leases, we have indemnified our lessors for certain claims arising from the performance center or the lease.
The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to applicable statutes of limitations. The majority of guarantees and indemnities do not provide any limitations on the maximum potential future payments we could be obligated to make. Historically, payments related to these guarantees and indemnities have been immaterial. We estimate the fair value of our indemnification obligations as insignificant based on this history and insurance coverage and have, therefore, not recorded any liability for these guarantees and indemnities in the accompanying condensed consolidated balance sheets.
v3.23.2
Income Taxes
6 Months Ended
Jul. 01, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for income taxes is determined using an estimated annual effective tax rate, which is generally less than the U.S. Federal statutory rate, primarily due to research and development (“R&D”) tax credits. Our effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as expected utilization of R&D tax credits, valuation allowances against deferred tax assets, recognition or derecognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. Also, excess tax benefits and tax detriments related to our equity compensation recognized in the condensed consolidated income statement could result in fluctuations in our effective tax rate period-over-period depending on the volatility of our stock price, number of restricted or performance stock units that vests, and stock options exercised during the period. We recognize deferred tax assets and liabilities, using enacted tax rates, for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating loss and tax credit carryovers.
We record a valuation allowance against our deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized. When we establish or reduce our valuation allowances against our deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period when that determination is made.
We recorded income tax expense of $1.0 million for both three months ended July 1, 2023 and July 2, 2022. The increase in income tax expense for the second quarter of 2023 compared to the second quarter of 2022 was due to higher discrete income tax expense primarily related to changes in other deferred tax assets and lower net tax windfalls related to stock-based compensation recognized in the second quarter of 2023 compared to the second quarter of 2022. The increase in income tax expense was partially offset by lower pre-tax income for the second quarter of 2023 compared to the second quarter of 2022.
We recorded income tax expense of $1.8 million for the six months ended July 1, 2023 compared to $2.6 million for the six months ended July 2, 2022. The decrease in income tax expense for the six months ended July 1, 2023 compared to the six months ended July 2, 2022 was primarily due to lower pre-tax income in the six months ended July 1, 2023 compared to the six months ended July 2, 2022. The decrease in income tax expense was partially offset by higher income tax expense related to non-deductible book compensation expenses and higher discrete income tax expense primarily related to changes in other deferred tax assets recognized in the six months ended July 1, 2023 compared to the six months ended July 2, 2022.
Our total amount of unrecognized tax benefits was $5.5 million and $4.9 million as of July 1, 2023 and December 31, 2022, respectively. If recognized, $2.8 million would affect the effective tax rate. We record interest and penalty charges, if any, related to uncertain tax positions as a component of tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charges as of July 1, 2023 and December 31, 2022 were not significant. As a result of statute of limitations set to expire in the fourth quarter of 2023, we expect decreases to our unrecognized tax benefits of approximately $0.7 million in the next twelve months.
We file U.S. Federal and state income tax returns. We are subject to examination by the Internal Revenue Service (“IRS”) for tax years after 2018 and by state taxing authorities for tax years after 2017. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.
v3.23.2
Commitments and Contingencies
6 Months Ended
Jul. 01, 2023
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
In December 2020, a representative action under California’s Private Attorneys General Act was filed against us in the Superior Court for the State of California, County of San Bernardino. We received service of process of this complaint in January 2021. The complaint alleges violations of California’s wage and hour laws relating to our current and former employees and seeks attorney’s fees and penalties. We vigorously refuted and defended these claims, and reached a tentative settlement of $0.8 million during the fourth quarter 2021, which was subject to court approval. Thus, we recorded accrued liabilities of $0.8 million as of December 31, 2021. During the second quarter of 2022, additional factual information was identified resulting in an increase in the amount of the tentative settlement to $0.9 million. Therefore, we recorded an additional accrued liabilities of $0.1 million for a total accrued liabilities amount of $0.9 million as of the end of the second quarter of 2022 which remained unchanged as of December 31, 2022 as we were awaiting final court approval of this settlement. We received final court approval and paid the $0.9 million in January 2023.
Structural Systems has been directed by California environmental agencies to investigate and take corrective action for groundwater contamination at our facilities located in El Mirage and Monrovia, California. Based on currently available information, we have established an accrual for its estimated liability for such investigation and corrective action of $1.5 million at both July 1, 2023 and December 31, 2022, which is reflected in other long-term liabilities on our condensed consolidated balance sheets.
Structural Systems also faces liability as a potentially responsible party for hazardous waste disposed at landfills located in Casmalia and West Covina, California. Structural Systems and other companies and government entities have entered into consent decrees with respect to these landfills with the United States Environmental Protection Agency and/or California environmental agencies under which certain investigation, remediation and maintenance activities are being performed. Based on currently available information, we preliminarily estimate that the range of our future liabilities in connection with the landfill located in West Covina, California is between $0.4 million and $3.1 million. We have established an accrual for the estimated liability in connection with the West Covina landfill of $0.4 million as of both July 1, 2023 and December 31, 2022, which is reflected in other long-term liabilities on our condensed consolidated balance sheets. Our ultimate liability in connection with these matters will depend upon a number of factors, including changes in existing laws and regulations, the design and cost of construction, operation and maintenance activities, and the allocation of liability among potentially responsible parties.
In June 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment. There were no injuries, however, property and equipment, inventories, and tooling in this leased facility were damaged. Our Guaymas performance center was severely damaged and was comprised of two buildings with an aggregate total of 62,000 square feet. The loss of production from the Guaymas performance center was absorbed by our other existing performance centers, however, we have reestablished and are in the process of ramping up our manufacturing capabilities in a different leased facility with 117,000 square feet in Guaymas. A neighboring, non-related manufacturing facility, also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center. The cause of the fire is still undetermined and as such, there is no amount of loss that is probable and reasonably estimable at this time.
Our insurance covers damage, up to a capped amount, to the facility, equipment, unfinished inventory, and other assets at replacement cost, finished goods inventory at selling price, as well as business interruption, third party property damage, and recovery related expenses caused by the fire, less our per claim deductible. The anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. The anticipated insurance recoveries in excess of net book value of the damaged operating assets and business interruption will not be recorded until all contingencies related to our claim have been resolved. During the year ended December 31, 2020, $0.8 million of revenue and $0.5 million of related cost of sales were reversed for revenue previously recognized using the over time method as the revenue recognition process for these items were deemed to be interrupted as a result of these inventory items being damaged. Also during the year ended December 31, 2020, we wrote off property and equipment and tooling with an aggregate total net book value of $7.1 million and inventory on hand of $3.4 million that were damaged by the fire. The related anticipated insurance recoveries were also presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact, with the anticipated insurance recoveries receivable included as part of other current assets on the condensed consolidated balance sheets.
The insurance claim for damages to our operating assets and business interruption was deemed final and closed by our insurance company during the three months ended July 1, 2023. During the three months ended July 1, 2023 and July 2, 2022, we received insurance recoveries of $3.8 million and zero, respectively, with $2.1 million and $1.7 million for business interruption and property and equipment damage, respectively, and recognized as other income. During the six months ended July 1, 2023 and July 2, 2022, we received insurance recoveries of $3.8 million and $3.0 million, respectively. The $3.8 million of insurance recoveries received during the six months ended July 1, 2023 was for business interruption and property and equipment damage of $2.1 million and $1.7 million, respectively, and recognized as other income. The $3.0 million received during the six months ended July 2, 2022 was for business interruption, and was recognized as other income. Cumulatively, as
of July 1, 2023, we have received insurance recoveries in aggregate total of $23.7 million, with $7.5 million for business interruption and $16.2 million for damages to property and equipment, inventories, and tooling. Further, all insurance recovery amounts received related to this claim have been recognized up to the amount of net book value loss and presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact, with the remaining amounts recognized as other income in our condensed consolidated statements of income when the contingencies were deemed resolved.
On April 29, 2023, a fire damaged a relatively small portion of one of our performance centers in our Structural Systems reporting segment. There were no injuries, however, subsequent to the fire, we determined that some property and equipment in this company owned facility were damaged. Our insurance covers damage, up to a capped amount, to the property and equipment at replacement cost, as well as business interruption and recovery related expenses caused by the fire, less our per claim deductible. There was a loss of production in this damaged portion of the performance center for a short period of time but did not result in significant disruption to customer delivery schedules. Production in this damaged portion has since resumed. The anticipated insurance recoveries related to losses and incremental costs incurred are recognized when receipt is probable. The anticipated insurance recoveries in excess of net book value of the damaged operating assets and business interruption will not be recorded until all contingencies related to our claim have been resolved. During the three months ended July 1, 2023, we wrote off property and equipment with an aggregate total net book value of $0.2 million. In addition, during the three months ended July 1, 2023, we received insurance recoveries of $0.3 million (which was net of our deductible of $0.1 million) and thus, such insurance recoveries were also presented within the same financial statement line item in the condensed consolidated statements of income resulting in no net impact. The amount of the insurance recoveries received in excess of the loss on operating assets was deemed a contingent gain and since the gain contingencies were deemed resolved, the $0.1 million was recorded as other income during the three months ended July 1, 2023.
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, Ducommun makes various commitments and incurs contingent liabilities in the ordinary course of business. While it is not feasible to predict the outcome of these matters, Ducommun 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 condensed consolidated financial position, results of operations or cash flows.
v3.23.2
Business Segment Information
6 Months Ended
Jul. 01, 2023
Segment Reporting [Abstract]  
Business Segment Information Business Segment Information
We supply products and services primarily to the aerospace and defense industries. Our subsidiaries are organized into two strategic businesses, Electronic Systems and Structural Systems, each of which is a reportable operating segment.

Financial information by reportable operating segment was as follows:
(Dollars in thousands)
Three Months Ended
(Dollars in thousands)
Six Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net Revenues
Electronic Systems$107,124 $109,732 $212,750 $207,198 
Structural Systems80,196 64,466 155,761 130,481 
Total Net Revenues$187,320 $174,198 $368,511 $337,679 
Segment Operating Income (1)
Electronic Systems$9,528 $13,610 $19,539 $23,021 
Structural Systems5,385 1,265 10,130 6,152 
14,913 14,875 29,669 29,173 
Corporate General and Administrative Expenses (2)
(9,908)(7,121)(18,292)(12,296)
Total Operating Income$5,005 $7,754 $11,377 $16,877 
Depreciation and Amortization Expenses
Electronic Systems$3,561 $3,484 $7,059 $6,990 
Structural Systems4,335 4,356 8,767 8,559 
Corporate Administration58 58 117 117 
Total Depreciation and Amortization Expenses$7,954 $7,898 $15,943 $15,666 
Capital Expenditures
Electronic Systems$1,923 $2,943 $3,774 $4,639 
Structural Systems4,111 2,486 7,241 5,858 
Corporate Administration— — — — 
Total Capital Expenditures$6,034 $5,429 $11,015 $10,497 
(1)The results for the three and six months ended July 1, 2023 include BLR’s results of operations which have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment. See Note 2.
(2)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
Segment assets include assets directly identifiable to or allocated to each segment. Our segment assets are as follows:
(Dollars in thousands)
 July 1,
2023
December 31,
2022
Total Assets
Electronic Systems$532,832 $543,298 
Structural Systems (1)
541,872 410,565 
Corporate Administration (2)
44,050 67,643 
Total Assets$1,118,754 $1,021,506 
Goodwill and Intangibles
Electronic Systems$177,858 $182,501 
Structural Systems (1)
241,704 148,107 
Total Goodwill and Intangibles$419,562 $330,608 
(1)On April 25, 2023, we acquired 100.0% of the outstanding equity interests of BLR for an initial purchase price of $115.0 million, net of cash acquired. We allocated the preliminary gross purchase price of $117.0 million to the assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill. See Note 2.
(2)Includes assets not specifically identified to or allocated to either the Electronic Systems or Structural Systems operating segments, including cash and cash equivalents.
v3.23.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jul. 01, 2023
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of Ducommun Incorporated and its subsidiaries (“Ducommun,” the “Company,” “we,” “us” or “our”), after eliminating intercompany balances and transactions. The December 31, 2022 condensed consolidated balance sheet data was derived from audited financial statements, but does not contain all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).
Our significant accounting policies were described in Part IV, Item 15(a)(1), “Note 1. Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). The financial information included in this Quarterly Report on Form 10-Q (“Form 10-Q”) should be read in conjunction with the 2022 Form 10-K.
In the opinion of management, all adjustments, consisting of recurring accruals, have been made that are necessary to fairly state our condensed consolidated financial position, statements of income, comprehensive income, changes in shareholders’ equity, and cash flows in accordance with GAAP for the periods covered by this Form 10-Q. The results of operations for the three and six months ended July 1, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.
Our fiscal quarters typically end on the Saturday closest to the end of March, June and September for the first three fiscal quarters of each year, and on December 31 for our fourth fiscal quarter. As a result of using fiscal quarters for the first three quarters combined with leap years, our first and fourth fiscal quarters can range between 12 1/2 weeks to 13 1/2 weeks while the second and third fiscal quarters remain at a constant 13 weeks per fiscal quarter.
Use of Estimates Use of EstimatesCertain amounts and disclosures included in the unaudited condensed consolidated financial statements require management to make estimates and judgments that affect the amounts of assets, liabilities (including contract liabilities), revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Earnings Per Share
Earnings Per Share
Basic earnings per share are 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 by the weighted-average number of common shares outstanding, plus any potentially dilutive shares that could be issued if exercised or converted into common stock in each period.
Fair Value
Fair Value
Assets and liabilities that are measured, recorded or disclosed at fair value on a recurring basis are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine the fair value. Level 1, the highest level, refers to the values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant observable inputs. Level 3, the lowest level, includes fair values estimated using significant unobservable inputs.
We have money market funds which are included as cash and cash equivalents. We also have forward interest rate swap agreements and the fair value of the forward interest rate swap agreements was determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2 measurement.
Cash and Cash Equivalents Cash and Cash EquivalentsCash equivalents consist of highly liquid instruments purchased with original maturities of three months or less. These assets are valued at cost, which approximates fair value, and we classify as Level 1.
Derivative Instruments
Derivative Instruments
We recognize derivative instruments on our condensed consolidated balance sheets at their fair value. On the date that we enter into a derivative contract, we designate the derivative instrument as a fair value hedge, a cash flow hedge, or a derivative instrument that will not be accounted for using hedge accounting methods. In November 2021, we entered into forward interest rate swap agreements with an aggregate notional amount of $150.0 million, all with an effective date of January 1, 2024 (“Forward Interest Rate Swaps”) to manage our exposure to interest rate movements on a portion of our debt. As such, at the time we entered into the Forward Interest Rate Swaps, there was a high probability of forecasted interest payments on our debts occurring and the swaps are highly effective in offsetting those interest payments and therefore, we elected to apply cash flow hedge accounting. In July 2022, as a result of refinancing all our existing debt, which allows borrowing based on a Secured Overnight Financing Rate (“SOFR”), we were required to complete an amendment of the Forward Interest Rate Swaps from One Month London Interbank Offered Rate (“LIBOR”) to One Month Term SOFR (“Amended Forward Interest Rate Swaps”), which occurred on the same day. After the transition of the Forward Interest Rate Swaps and debt to SOFR was completed, we determined the hedging relationship was still highly effective as of the amendment date. See Note 7. As of July 1, 2023, all of our derivative instruments were designated as cash flow hedges.
We record changes in the fair value of a derivative instrument that is highly effective and that is designated and qualifies as a cash flow hedge in other comprehensive income (loss), net of tax until our earnings are affected by the variability of cash flows of the underlying hedged item. We report changes in the fair values of derivative instruments that are not designated or do not qualify for hedge accounting in current period earnings. We classify cash flows from derivative instruments in the condensed consolidated statements of cash flows in the same category as the item being hedged or on a basis consistent with the nature of the instrument. Since the Amended Forward Interest Rate Swaps are not effective until January 1, 2024, we only record the changes in fair value of the derivative instruments that were highly effective and that were designated and qualified as cash flow hedges. As such, during the three months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $3.1 million and $2.5 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes. During the six months ended July 1, 2023 and July 2, 2022, we recorded the unrealized gain (loss) to other comprehensive income (loss) of $1.0 million and $7.4 million, respectively, and the associated change to other current assets, other assets, and deferred income taxes.
When we determine that a derivative instrument is not highly effective as a hedge, we discontinue hedge accounting prospectively. In all situations in which we discontinue hedge accounting and the derivative instrument remains outstanding, we will carry the derivative instrument at its fair value on our condensed consolidated balance sheets and recognize subsequent changes in its fair value in our current period earnings.
Inventories
Inventories
Inventories are stated at the lower of cost or net realizable value with cost being determined using a moving average cost basis for raw materials and actual cost for work-in-process and finished goods. The majority of our inventory is charged to cost of sales as raw materials are placed into production. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle performance center expense, freight, handling costs, and wasted materials (spoilage) incurred. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. The majority of our revenues are recognized over time, however, for revenue contracts where revenue is recognized using the point in time method, inventory is not reduced until it is shipped or transfer of control to the customer has occurred. Our ending inventory consists of raw materials, work-in-process, and finished goods.
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income
Accumulated other comprehensive income, as reflected on the condensed consolidated balance sheets under the equity section, was comprised of cumulative pension and retirement liability adjustments, net of tax, and change in net unrealized gains and losses on cash flow hedges, net of tax.
Revenue Recognition
Revenue Recognition
Our customers typically engage us to manufacture products based on designs and specifications provided by the end-use customer. This requires the building of tooling and manufacturing first article inspection products (prototypes) before volume manufacturing. Contracts with our customers generally include a termination for convenience clause.
We have a significant number of contracts that are started and completed within the same year, as well as contracts derived from long-term agreements and programs that can span several years. We recognize revenue under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), which utilizes a five-step model.
The definition of a contract for us is typically defined as a customer purchase order as this is when we achieve an enforceable
right to payment. The majority of our contracts are firm fixed-price contracts. The deliverables within a customer purchase order are analyzed to determine the number of performance obligations. In addition, at times, in order to achieve economies of scale and based on our customer’s forecasted demand, we may build in advance of receiving a purchase order from our customer. When that occurs, we would not recognize revenue until we have received the customer purchase order.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control is transferred and the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services are highly interrelated or met the series guidance. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
We manufacture most products to customer specifications and the product cannot be easily modified for another customer. As such, these products are deemed to have no alternative use once the manufacturing process begins. In the event the customer invokes a termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs. For most of our products, we are building assets with no alternative use and have enforceable right to payment, and thus, we recognize revenue using the over time method.
The majority of our performance obligations are satisfied over time as work progresses. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion, also known as cost-to-cost plus reasonable profit) to measure progress. Our typical revenue contract is a firm fixed price contract, and the cost of raw materials could make up a significant amount of the total costs incurred. As such, we believe using the total costs incurred input method would be the most appropriate method. While the cost of raw materials could make up a significant amount of the total costs incurred, there is a direct relationship between our inputs and the transfer of control of goods or services to the customer.
Contract estimates are based on various assumptions to project the outcome of future events that can span multiple months or years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; and the performance of subcontractors.
As a significant change in one or more of these estimates could affect the progress completed (and related profitability) on our contracts, we review and update our contract-related estimates on a regular basis. We recognize such adjustments under the cumulative catch-up method. Under this method, the impact of the adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate.
The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue.
Net cumulative catch up adjustments on gross profit recorded were not material for both the three and six months ended July 1, 2023 and July 2, 2022.
Payments under long-term contracts may be received before or after revenue is recognized. When revenue is recognized before we bill our customer, a contract asset is created for the work performed but not yet billed. Similarly, when we receive payment before we ship our products to our customer and have met the shipping terms, a contract liability is created for the advance or progress payment. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.
We record provisions for the total anticipated losses on contracts, considering total estimated costs to complete the contract compared to total anticipated revenues, in the period in which such losses are identified. The provisions for estimated losses on contracts require us to make certain estimates and assumptions, including those with respect to the future revenue under a contract and the future cost to complete the contract. Our estimate of the future cost to complete a contract may include assumptions as to changes in manufacturing efficiency, operating and material costs, and our ability to resolve claims and assertions with our customers. If any of these or other assumptions and estimates do not materialize in the future, we may be required to adjust the provisions for estimated losses on contracts. The provision for estimated losses on contracts is included as part of contract liabilities on the condensed consolidated balance sheets. As of July 1, 2023 and December 31, 2022, provision for estimated losses on contracts were $6.8 million and $3.9 million, respectively.
Production cost of contracts includes non-recurring production costs, such as design and engineering costs, and tooling and other special-purpose machinery necessary to build parts as specified in a contract. Production costs of contracts are recorded to cost of sales using the over time revenue recognition model. We review the value of the production cost of contracts on a quarterly basis to ensure when added to the estimated cost to complete, the value is not greater than the estimated realizable value of the related contracts. As of July 1, 2023 and December 31, 2022, production cost of contracts were $5.5 million and $5.7 million, respectively.
Contract Assets and Contract Liabilities
Contract assets consist of our right to payment for work performed but not yet billed. Contract assets are transferred to accounts receivable when we bill our customers. We bill our customers when we ship the products and meet the shipping terms within the revenue contract. Contract liabilities consist of advance or progress payments received from our customers prior to the time transfer of control occurs plus the estimated losses on contracts. When a contract liability and a contract asset exist on the same contract, we report it on a net basis.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
Recently Issued Accounting Standards
In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock” (“ASU 2023-03”), which amends or supersedes various SEC paragraphs within the Accounting Standards Codification to conform to past SEC announcements and guidance issued by the SEC. ASU 2023-03 does not provide any new guidance so there is no transition or effective date. ASU 2023-03 did not have a material impact on our condensed consolidated financial statements.
In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”), which defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. Since we adopted ASU 2020-04 during 2022, ASU 2022-06 will not have a material impact on our condensed consolidated financial statements.
v3.23.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jul. 01, 2023
Accounting Policies [Abstract]  
Schedule of Cash Flow, Supplemental Disclosures Supplemental Cash Flow Information
(Dollars in thousands)
Six Months Ended
July 1,
2023
July 2,
2022
Interest paid$9,529 $4,540 
Taxes paid, net$10,038 $1,790 
Non-cash activities:
     Purchases of property and equipment not paid$1,291 $2,761 
Schedule of Weighted Average Number of Shares Outstanding Used to Compute Earnings Per Share The net income and weighted-average common shares outstanding used to compute earnings per share were as follows:
(Dollars in thousands,
except per share data)
(Dollars in thousands,
except per share data)
Three Months EndedSix Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net income$2,374 $4,147 $7,605 $12,246 
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding13,403 12,070 12,799 12,029 
Dilutive potential common shares196 263 276 308 
Diluted weighted-average common shares outstanding13,599 12,333 13,075 12,337 
Earnings per share
Basic$0.18 $0.34 $0.59 $1.02 
Diluted$0.17 $0.34 $0.58 $0.99 
Schedule of Weighted Average Number of Shares Outstanding Excluded from Computation of Diluted Earnings Potentially dilutive stock awards, as shown below, were excluded from the computation of diluted earnings per share because their inclusion would have been anti-dilutive. However, these awards may be potentially dilutive common shares in the future.
(In thousands)(In thousands)
Three Months EndedSix Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Stock options and stock units111 99 56 42 
Schedule of Contract with Customer, Asset and Liability Contract assets and contract liabilities from revenue contracts with customers are as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Contract assets$189,836 $191,290 
Contract liabilities$31,719 $47,068 
Schedule of Disaggregation of Revenue In addition to the revenue categories disclosed above, the following table reflects our revenue disaggregated by major end-use market:
(Dollars in thousands)(Dollars in thousands)
Three Months EndedSix Months Ended
July 1
2023
July 2,
2022
July 1
2023
July 2,
2022
Consolidated Ducommun
Military and space$95,887 $106,680 $192,327 $206,014 
Commercial aerospace
78,247 57,067 151,297 111,142 
Industrial13,186 10,451 24,887 20,523 
Total$187,320 $174,198 $368,511 $337,679 
Electronic Systems
Military and space$71,772 $80,187 $145,099 $152,007 
Commercial aerospace22,166 19,094 42,764 34,668 
Industrial13,186 10,451 24,887 20,523 
Total$107,124 $109,732 $212,750 $207,198 
Structural Systems
Military and space$24,115 $26,493 $47,228 $54,007 
Commercial aerospace56,081 37,973 108,533 76,474 
Total$80,196 $64,466 $155,761 $130,481 
v3.23.2
Business Combinations (Tables)
6 Months Ended
Jul. 01, 2023
Business Combination and Asset Acquisition [Abstract]  
Schedule of Business Acquisitions, by Acquisition
The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Estimated
Fair Value
Cash$2,656 
Accounts receivable4,149 
Inventories12,011 
Other current assets891 
Property and equipment2,632 
Operating lease right-of-use assets874 
Intangible assets55,500 
Goodwill41,168 
Total assets acquired119,881 
Current liabilities(2,145)
Other non-current liabilities(727)
Total liabilities assumed(2,872)
Total purchase price allocation$117,009 
Schedule of Finite-Lived and Indefinite-Lived Intangible Assets Acquired as Part of Business Combination
Useful Life
(In years)
Estimated
Fair Value
(In thousands)
Intangible assets:
Technology23$35,600 
Customer relationships
10-22
15,000 
Trade name184,900 
$55,500 
v3.23.2
Restructuring Activities (Tables)
6 Months Ended
Jul. 01, 2023
Restructuring and Related Activities [Abstract]  
Schedule of Restructuring Activities
Our restructuring activities during the six months ended July 1, 2023 were as follows (in thousands):
December 31, 2022Six Months Ended July 1, 2023July 1, 2023
BalanceChargesCash PaymentsNon-Cash PaymentsChange in EstimatesBalance
Severance and benefits$2,799 $7,402 $(5,184)$— $— $5,017 
Property and equipment accelerated depreciation due to restructuring— 844 — (844)— — 
Other— 693 (693)— — — 
Ending balance$2,799 $8,939 $(5,877)$(844)$— $5,017 
v3.23.2
Inventories (Tables)
6 Months Ended
Jul. 01, 2023
Inventory Disclosure [Abstract]  
Schedule of Inventories Inventories consisted of the following:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Raw materials and supplies$178,571 $143,495 
Work in process22,395 23,799 
Finished goods3,499 3,917 
Total$204,465 $171,211 
v3.23.2
Goodwill (Tables)
6 Months Ended
Jul. 01, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Goodwill The carrying amounts of our goodwill were as follows:
(Dollars in thousands)
Electronic
Systems
Structural
Systems
Consolidated
Ducommun
Gross goodwill$199,157 $85,972 $285,129 
Accumulated goodwill impairment(81,722)— (81,722)
Balance at December 31, 2022$117,435 $85,972 $203,407 
Goodwill from acquisition during the period— 41,168 41,168 
Balance at July 1, 2023$117,435 $127,140 $244,575 
v3.23.2
Accrued and Other Liabilities (Tables)
6 Months Ended
Jul. 01, 2023
Payables and Accruals [Abstract]  
Schedule of Accrued Liabilities The components of accrued and other liabilities were as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Accrued compensation$28,091 $28,785 
Accrued income tax and sales tax4,361 10,478 
Other5,659 9,557 
Total$38,111 $48,820 
v3.23.2
Long-Term Debt (Tables)
6 Months Ended
Jul. 01, 2023
Debt Disclosure [Abstract]  
Schedule of Long Term Debt
Long-term debt and the current period interest rates were as follows:
(Dollars in thousands)
July 1,
2023
December 31,
2022
Term loans$245,312 $248,438 
Revolving credit facility33,800 — 
Total debt279,112 248,438 
Less current portion(6,250)(6,250)
Total long-term debt, less current portion272,862 242,188 
Less debt issuance costs - term loans(1,402)(1,593)
Total long-term debt, net of debt issuance costs - term loans$271,460 $240,595 
Debt issuance costs - revolving credit facility (1)
$2,013 $2,265 
Weighted-average interest rate7.38 %4.36 %
(1) Included as part of other assets.
v3.23.2
Business Segment Information (Tables)
6 Months Ended
Jul. 01, 2023
Segment Reporting [Abstract]  
Schedule of Financial Information by Reportable Segment
Financial information by reportable operating segment was as follows:
(Dollars in thousands)
Three Months Ended
(Dollars in thousands)
Six Months Ended
 July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Net Revenues
Electronic Systems$107,124 $109,732 $212,750 $207,198 
Structural Systems80,196 64,466 155,761 130,481 
Total Net Revenues$187,320 $174,198 $368,511 $337,679 
Segment Operating Income (1)
Electronic Systems$9,528 $13,610 $19,539 $23,021 
Structural Systems5,385 1,265 10,130 6,152 
14,913 14,875 29,669 29,173 
Corporate General and Administrative Expenses (2)
(9,908)(7,121)(18,292)(12,296)
Total Operating Income$5,005 $7,754 $11,377 $16,877 
Depreciation and Amortization Expenses
Electronic Systems$3,561 $3,484 $7,059 $6,990 
Structural Systems4,335 4,356 8,767 8,559 
Corporate Administration58 58 117 117 
Total Depreciation and Amortization Expenses$7,954 $7,898 $15,943 $15,666 
Capital Expenditures
Electronic Systems$1,923 $2,943 $3,774 $4,639 
Structural Systems4,111 2,486 7,241 5,858 
Corporate Administration— — — — 
Total Capital Expenditures$6,034 $5,429 $11,015 $10,497 
(1)The results for the three and six months ended July 1, 2023 include BLR’s results of operations which have been included in our condensed consolidated statements of income since the date of acquisition as part of the Structural Systems segment. See Note 2.
(2)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
Schedule of Segment Assets Our segment assets are as follows:
(Dollars in thousands)
 July 1,
2023
December 31,
2022
Total Assets
Electronic Systems$532,832 $543,298 
Structural Systems (1)
541,872 410,565 
Corporate Administration (2)
44,050 67,643 
Total Assets$1,118,754 $1,021,506 
Goodwill and Intangibles
Electronic Systems$177,858 $182,501 
Structural Systems (1)
241,704 148,107 
Total Goodwill and Intangibles$419,562 $330,608 
(1)On April 25, 2023, we acquired 100.0% of the outstanding equity interests of BLR for an initial purchase price of $115.0 million, net of cash acquired. We allocated the preliminary gross purchase price of $117.0 million to the assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill. See Note 2.
(2)Includes assets not specifically identified to or allocated to either the Electronic Systems or Structural Systems operating segments, including cash and cash equivalents.
v3.23.2
Summary of Significant Accounting Policies - Narrative (Details)
3 Months Ended 6 Months Ended 12 Months Ended
Jul. 01, 2023
USD ($)
Jul. 02, 2022
USD ($)
Jul. 01, 2023
USD ($)
segment
Jul. 02, 2022
USD ($)
Dec. 31, 2022
USD ($)
Dec. 31, 2021
USD ($)
Nov. 30, 2021
USD ($)
Significant Accounting Policies [Line Items]              
Number of reportable segments | segment     2        
Cash flow hedge, gain (loss) $ 3,100,000 $ 2,500,000 $ 1,000,000 $ 7,400,000      
Provision for loss on contracts (6,800,000)   (6,800,000)   $ (3,900,000)    
Production cost of contracts 5,536,000   5,536,000   5,693,000    
Contract liability revenue     23,000,000        
Remaining performance obligation 916,700,000   916,700,000        
Grants receivable             $ 4,000,000
Proceeds received from grants         4,000,000 $ 2,000,000  
Government grant expense $ 0   $ 0        
Cost of sales              
Significant Accounting Policies [Line Items]              
Government grant expense   900,000   2,700,000 3,600,000    
Selling, General and Administrative Expenses              
Significant Accounting Policies [Line Items]              
Government grant expense   $ 100,000   $ 300,000 $ 400,000    
Interest Rate Swap              
Significant Accounting Policies [Line Items]              
Notional amount             $ 150,000,000
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-07-02              
Significant Accounting Policies [Line Items]              
Remaining performance obligation, percentage 70.00%   70.00%        
Remaining performance obligation, period 12 months   12 months        
v3.23.2
Summary of Significant Accounting Policies - Supplemental Cash Flow Items (Details) - USD ($)
$ in Thousands
6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Supplemental Cash Flow Information [Abstract]    
Interest paid $ 9,529 $ 4,540
Taxes paid, net 10,038 1,790
Non-cash activities:    
Purchases of property and equipment not paid $ 1,291 $ 2,761
v3.23.2
Summary of Significant Accounting Policies - Weighted Average Number of Shares Outstanding Used to Compute Earnings Per Share (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Apr. 01, 2023
Jul. 02, 2022
Apr. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Accounting Policies [Abstract]            
Net income $ 2,374 $ 5,231 $ 4,147 $ 8,099 $ 7,605 $ 12,246
Weighted-average number of common shares outstanding            
Basic weighted-average common shares outstanding (in shares) 13,403   12,070   12,799 12,029
Dilutive potential common shares (in shares) 196   263   276 308
Diluted weighted-average common shares outstanding (in shares) 13,599   12,333   13,075 12,337
Earnings per share            
Basic (in dollars per share) $ 0.18   $ 0.34   $ 0.59 $ 1.02
Diluted (in dollars per share) $ 0.17   $ 0.34   $ 0.58 $ 0.99
v3.23.2
Summary of Significant Accounting Policies - Weighted Average Number of Shares Outstanding Excluded from Computation of Diluted Earnings (Details) - shares
shares in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Stock options and stock units        
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]        
Stock options and stock units (in shares) 111 99 56 42
v3.23.2
Summary of Significant Accounting Policies - Contract Assets and Liabilities (Details) - USD ($)
$ in Thousands
Jul. 01, 2023
Dec. 31, 2022
Accounting Policies [Abstract]    
Contract assets $ 189,836 $ 191,290
Contract liabilities $ 31,719 $ 47,068
v3.23.2
Summary of Significant Accounting Policies - Disaggregated Revenue (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Disaggregation of Revenue [Line Items]        
Revenue $ 187,320 $ 174,198 $ 368,511 $ 337,679
Electronic Systems        
Disaggregation of Revenue [Line Items]        
Revenue 107,124 109,732 212,750 207,198
Structural Systems        
Disaggregation of Revenue [Line Items]        
Revenue 80,196 64,466 155,761 130,481
Military and space        
Disaggregation of Revenue [Line Items]        
Revenue 95,887 106,680 192,327 206,014
Military and space | Electronic Systems        
Disaggregation of Revenue [Line Items]        
Revenue 71,772 80,187 145,099 152,007
Military and space | Structural Systems        
Disaggregation of Revenue [Line Items]        
Revenue 24,115 26,493 47,228 54,007
Commercial aerospace        
Disaggregation of Revenue [Line Items]        
Revenue 78,247 57,067 151,297 111,142
Commercial aerospace | Electronic Systems        
Disaggregation of Revenue [Line Items]        
Revenue 22,166 19,094 42,764 34,668
Commercial aerospace | Structural Systems        
Disaggregation of Revenue [Line Items]        
Revenue 56,081 37,973 108,533 76,474
Industrial        
Disaggregation of Revenue [Line Items]        
Revenue 13,186 10,451 24,887 20,523
Industrial | Electronic Systems        
Disaggregation of Revenue [Line Items]        
Revenue $ 13,186 $ 10,451 $ 24,887 $ 20,523
v3.23.2
Business Combinations - Narrative (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Apr. 25, 2023
Dec. 16, 2021
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Dec. 31, 2022
Dec. 31, 2021
Business Acquisition [Line Items]              
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired       $ 69,100      
Goodwill     $ 244,575   $ 244,575 $ 203,407  
BLR Aerospace, LLLC              
Business Acquisition [Line Items]              
Percentage of outstanding common stock acquired 100.00%            
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired $ 115,000            
Payments to acquire business 117,000            
Intangible assets 55,500            
Goodwill 41,168            
Acquisition related costs     $ 500   $ 1,300    
Total purchase price allocation 117,009            
Inventories 12,011            
Accounts receivable 4,149            
Operating lease right-of-use assets 874            
Property and equipment 2,632            
Other current assets 891            
Liabilities assumed 2,872            
BLR Aerospace, LLLC | Customer relationships              
Business Acquisition [Line Items]              
Finite-lived intangibles $ 15,000            
Magnetic Seal Corporation              
Business Acquisition [Line Items]              
Percentage of outstanding common stock acquired             100.00%
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired   $ 69,500          
Payments to acquire business   71,300          
Intangible assets   30,100          
Goodwill   32,600          
Cash acquired from acquisition       400      
Total purchase price allocation       $ 70,900      
Inventories   4,500          
Accounts receivable   2,100          
Operating lease right-of-use assets   1,500          
Property and equipment   500          
Other current assets   100          
Liabilities assumed   2,300          
Magnetic Seal Corporation | Trade name              
Business Acquisition [Line Items]              
Indefinite-lived intangible assets   4,700          
Magnetic Seal Corporation | Customer relationships              
Business Acquisition [Line Items]              
Finite-lived intangibles   24,800          
Useful life (in years)             19 years
Magnetic Seal Corporation | Backlog              
Business Acquisition [Line Items]              
Finite-lived intangibles   $ 600          
Useful life (in years)             2 years
v3.23.2
Business Combinations - Fair Value of Assets and Liabilities Acquired (Details) - USD ($)
$ in Thousands
Jul. 01, 2023
Apr. 25, 2023
Dec. 31, 2022
Business Acquisition [Line Items]      
Goodwill $ 244,575   $ 203,407
BLR Aerospace, LLLC      
Business Acquisition [Line Items]      
Cash   $ 2,656  
Accounts receivable   4,149  
Inventories   12,011  
Other current assets   891  
Property and equipment   2,632  
Operating lease right-of-use assets   874  
Intangible assets   55,500  
Goodwill   41,168  
Total assets acquired   119,881  
Current liabilities   (2,145)  
Other non-current liabilities   (727)  
Total liabilities assumed   (2,872)  
Total purchase price allocation   $ 117,009  
v3.23.2
Business Combinations - Estimated Fair Value of Intangible Assets Acquired (Details) - BLR Aerospace, LLLC
$ in Thousands
Apr. 25, 2023
USD ($)
Business Acquisition [Line Items]  
Intangible assets $ 55,500
Technology  
Business Acquisition [Line Items]  
Useful Life (In years) 23 years
Finite-lived intangibles $ 35,600
Customer relationships  
Business Acquisition [Line Items]  
Finite-lived intangibles $ 15,000
Customer relationships | Minimum  
Business Acquisition [Line Items]  
Useful Life (In years) 10 years
Customer relationships | Maximum  
Business Acquisition [Line Items]  
Useful Life (In years) 22 years
Trade name  
Business Acquisition [Line Items]  
Useful Life (In years) 18 years
Finite-lived intangibles $ 4,900
v3.23.2
Restructuring Activities - Narrative (Details) - USD ($)
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Dec. 31, 2022
Restructuring Cost and Reserve [Line Items]          
Restructuring charges $ 4,769,000 $ 2,703,000 $ 8,939,000 $ 2,703,000  
Cost of Sales 147,198,000 $ 139,556,000 291,622,000 $ 270,562,000  
Severance and benefits          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges     7,600,000    
Property and equipment accelerated depreciation due to restructuring          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges     400,000    
Other restructuring          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges     (100,000)    
Restructuring Plan, 2022          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges 4,800,000   8,939,000    
Cumulative restructuring charges     15,600,000    
Cost of Sales     500,000    
Restructuring reserve 5,017,000   5,017,000   $ 2,799,000
Restructuring Plan, 2022 | Severance and benefits          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges     7,402,000    
Restructuring reserve 5,017,000   5,017,000   2,799,000
Restructuring Plan, 2022 | Property and equipment accelerated depreciation due to restructuring          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges     844,000    
Restructuring reserve 0   0   0
Restructuring Plan, 2022 | Other restructuring          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges     693,000    
Restructuring reserve 0   0   $ 0
Electronic Systems | Restructuring Plan, 2022 | Severance and benefits          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges 2,400,000   4,100,000    
Electronic Systems | Restructuring Plan, 2022 | Property and equipment accelerated depreciation due to restructuring          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges 0   100,000    
Electronic Systems | Restructuring Plan, 2022 | Other restructuring          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges (200,000)   (100,000)    
Structural Systems | Restructuring Plan, 2022 | Severance and benefits          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges 1,600,000   3,300,000    
Other restructuring charges     4,900,000    
Structural Systems | Restructuring Plan, 2022 | Property and equipment accelerated depreciation due to restructuring          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges 400,000   700,000    
Other restructuring charges     1,200,000    
Structural Systems | Restructuring Plan, 2022 | Property and equipment impairment due to restructuring          
Restructuring Cost and Reserve [Line Items]          
Other restructuring charges     300,000    
Structural Systems | Restructuring Plan, 2022 | Other          
Restructuring Cost and Reserve [Line Items]          
Other restructuring charges     500,000    
Structural Systems | Restructuring Plan, 2022 | Other restructuring          
Restructuring Cost and Reserve [Line Items]          
Restructuring charges 500,000   800,000    
Other restructuring charges     800,000    
Minimum | Restructuring Plan, 2022          
Restructuring Cost and Reserve [Line Items]          
Expected restructuring costs 5,000,000   5,000,000    
Minimum | Restructuring Plan, 2022 | Severance and benefits          
Restructuring Cost and Reserve [Line Items]          
Expected restructuring costs 4,000,000   4,000,000    
Minimum | Restructuring Plan, 2022 | Property and equipment impairment due to restructuring          
Restructuring Cost and Reserve [Line Items]          
Expected restructuring costs 1,000,000   1,000,000    
Maximum | Restructuring Plan, 2022          
Restructuring Cost and Reserve [Line Items]          
Expected restructuring costs 8,000,000   8,000,000    
Maximum | Restructuring Plan, 2022 | Severance and benefits          
Restructuring Cost and Reserve [Line Items]          
Expected restructuring costs 6,000,000   6,000,000    
Maximum | Restructuring Plan, 2022 | Property and equipment impairment due to restructuring          
Restructuring Cost and Reserve [Line Items]          
Expected restructuring costs $ 2,000,000   $ 2,000,000    
v3.23.2
Restructuring Activities - Other Restructuring Activities (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Restructuring Reserve [Roll Forward]        
Charges $ 4,769 $ 2,703 $ 8,939 $ 2,703
Restructuring Plan, 2022        
Restructuring Reserve [Roll Forward]        
Beginning balance     2,799  
Charges 4,800   8,939  
Cash Payments     (5,877)  
Non-Cash Payments     (844)  
Change in Estimates     0  
Ending balance 5,017   5,017  
Severance and benefits        
Restructuring Reserve [Roll Forward]        
Charges     7,600  
Severance and benefits | Restructuring Plan, 2022        
Restructuring Reserve [Roll Forward]        
Beginning balance     2,799  
Charges     7,402  
Cash Payments     (5,184)  
Non-Cash Payments     0  
Change in Estimates     0  
Ending balance 5,017   5,017  
Property and equipment accelerated depreciation due to restructuring        
Restructuring Reserve [Roll Forward]        
Charges     400  
Property and equipment accelerated depreciation due to restructuring | Restructuring Plan, 2022        
Restructuring Reserve [Roll Forward]        
Beginning balance     0  
Charges     844  
Cash Payments     0  
Non-Cash Payments     (844)  
Change in Estimates     0  
Ending balance 0   0  
Other        
Restructuring Reserve [Roll Forward]        
Charges     (100)  
Other | Restructuring Plan, 2022        
Restructuring Reserve [Roll Forward]        
Beginning balance     0  
Charges     693  
Cash Payments     (693)  
Non-Cash Payments     0  
Change in Estimates     0  
Ending balance $ 0   $ 0  
v3.23.2
Inventories (Details) - USD ($)
$ in Thousands
Jul. 01, 2023
Dec. 31, 2022
Inventory Disclosure [Abstract]    
Raw materials and supplies $ 178,571 $ 143,495
Work in process 22,395 23,799
Finished goods 3,499 3,917
Total $ 204,465 $ 171,211
v3.23.2
Goodwill (Details) - USD ($)
$ in Thousands
6 Months Ended
Jul. 01, 2023
Dec. 31, 2022
Goodwill [Line Items]    
Gross goodwill   $ 285,129
Accumulated goodwill impairment   (81,722)
Balance at December 31, 2022 $ 244,575 203,407
Goodwill from acquisition during the period 41,168  
Balance at July 1, 2023 244,575 203,407
Electronic Systems    
Goodwill [Line Items]    
Gross goodwill   199,157
Accumulated goodwill impairment   (81,722)
Balance at December 31, 2022 117,435 117,435
Goodwill from acquisition during the period 0  
Balance at July 1, 2023 117,435 117,435
Structural Systems    
Goodwill [Line Items]    
Gross goodwill   85,972
Accumulated goodwill impairment   0
Balance at December 31, 2022 127,140 85,972
Goodwill from acquisition during the period 41,168  
Balance at July 1, 2023 $ 127,140 $ 85,972
v3.23.2
Accrued and Other Liabilities (Details) - USD ($)
$ in Thousands
Jul. 01, 2023
Dec. 31, 2022
Payables and Accruals [Abstract]    
Accrued compensation $ 28,091 $ 28,785
Accrued income tax and sales tax 4,361 10,478
Other 5,659 9,557
Total $ 38,111 $ 48,820
v3.23.2
Long-Term Debt - Schedule of Long Term Debt (Details) - USD ($)
$ in Thousands
Jul. 01, 2023
Dec. 31, 2022
Debt Instrument [Line Items]    
Long-term debt $ 279,112 $ 248,438
Less current portion (6,250) (6,250)
Total long-term debt, less current portion 272,862 242,188
Total long-term debt, net of debt issuance costs - term loans $ 271,460 $ 240,595
Weighted-average interest rate 7.38% 4.36%
Term loans    
Debt Instrument [Line Items]    
Long-term debt $ 245,312 $ 248,438
Less debt issuance costs - term loans (1,402) (1,593)
Debt issuance costs - revolving credit facility 1,402 1,593
Revolving credit facility    
Debt Instrument [Line Items]    
Long-term debt 33,800 0
Less debt issuance costs - term loans (2,013) (2,265)
Debt issuance costs - revolving credit facility $ 2,013 $ 2,265
v3.23.2
Long-Term Debt - Narrative (Details)
1 Months Ended 3 Months Ended 6 Months Ended
May 18, 2023
USD ($)
Apr. 25, 2023
USD ($)
Jul. 14, 2022
USD ($)
Jul. 31, 2022
USD ($)
Dec. 31, 2019
USD ($)
Nov. 30, 2018
USD ($)
Jul. 01, 2023
USD ($)
Jul. 02, 2022
USD ($)
Apr. 02, 2022
USD ($)
Jul. 01, 2023
USD ($)
subsidiary
Jul. 02, 2022
USD ($)
Dec. 31, 2022
USD ($)
Nov. 30, 2021
USD ($)
Debt Instrument [Line Items]                          
Outstanding balance             $ 271,460,000     $ 271,460,000   $ 240,595,000  
Repayments of secured debt                   3,125,000 $ 33,500,000    
Cash flow hedge, gain (loss)             3,100,000 $ 2,500,000   1,000,000 7,400,000    
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired               69,100,000          
Proceeds from issuance of common stock in public offering, net of issuance costs                   $ 85,107,000 0    
BLR Aerospace, LLLC                          
Debt Instrument [Line Items]                          
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired   $ 115,000,000                      
Payments to acquire business   $ 117,000,000                      
Interest Rate Swap                          
Debt Instrument [Line Items]                          
Notional amount                         $ 150,000,000
Average fixed interest rate     1.70%                   1.80%
Credit Facilities                          
Debt Instrument [Line Items]                          
Debt amount         $ 480,000,000                
New Credit Facilities                          
Debt Instrument [Line Items]                          
Number of subsidiaries that are not guarantors on debt | subsidiary                   2      
Secured Debt                          
Debt Instrument [Line Items]                          
Repayments of secured debt                 $ 30,000,000        
Secured Debt | 2022 Term Loan Maturing July 14, 2027                          
Debt Instrument [Line Items]                          
Debt amount       $ 250,000,000                  
Spread on base rate (as a percent)       0.00%                  
Repayments of debt             1,600,000     $ 3,100,000 3,500,000    
Proceeds from term loan                   250,000,000      
Outstanding balance             254,200,000     254,200,000      
Loss on extinguishment of debt     $ 200,000                    
Fees paid to lenders to be capitalized     800,000                    
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | Debt Instrument, Quarterly Prepayment, Year One and Year Two                          
Debt Instrument [Line Items]                          
Prepayment amount of principal outstanding (as a percent)       0.625%                  
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | Debt Instrument, Quarterly Prepayment, Year Three and Year Four                          
Debt Instrument [Line Items]                          
Prepayment amount of principal outstanding (as a percent)       1.25%                  
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | Debt Instrument, Quarterly Prepayment, Year Five                          
Debt Instrument [Line Items]                          
Prepayment amount of principal outstanding (as a percent)       1.875%                  
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | SOFR                          
Debt Instrument [Line Items]                          
Spread on base rate (as a percent)       1.00%                  
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | SOFR | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)       1.375%                  
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | SOFR | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)       2.375%                  
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | Federal Funds Rate                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)       0.50%                  
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | Base Rate | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)       0.375%                  
Secured Debt | 2022 Term Loan Maturing July 14, 2027 | Base Rate | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)       1.375%                  
Secured Debt | 2019 Term Loan Maturing December 20, 2024                          
Debt Instrument [Line Items]                          
Debt amount         $ 140,000,000                
Prepayment amount of principal outstanding (as a percent)         1.25%                
Repayments of debt               1,800,000   $ 3,100,000 $ 3,500,000    
Proceeds from term loan         $ 140,000,000                
Repayments of secured debt                 13,000,000        
Secured Debt | 2019 Term Loan Maturing December 20, 2024 | LIBOR | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   1.50%      
Secured Debt | 2019 Term Loan Maturing December 20, 2024 | LIBOR | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   2.50%      
Secured Debt | 2019 Term Loan Maturing December 20, 2024 | Federal Funds Rate                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   0.50%      
Secured Debt | 2019 Term Loan Maturing December 20, 2024 | Eurodollar Rate                          
Debt Instrument [Line Items]                          
Spread on base rate (as a percent)                   1.00%      
Secured Debt | 2019 Term Loan Maturing December 20, 2024 | Base Rate | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   0.50%      
Secured Debt | 2019 Term Loan Maturing December 20, 2024 | Base Rate | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   1.50%      
Secured Debt | 2018 Term Loan                          
Debt Instrument [Line Items]                          
Debt amount           $ 240,000,000              
Prepayment amount of principal outstanding (as a percent)           0.25%              
Repayments of debt         56,000,000                
Repayments of secured debt                 $ 17,000,000        
Secured Debt | 2018 Term Loan | LIBOR | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)           3.75%              
Secured Debt | 2018 Term Loan | LIBOR | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)           4.00%              
Secured Debt | 2018 Term Loan | Federal Funds Rate                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)           0.50%              
Secured Debt | 2018 Term Loan | Eurodollar Rate                          
Debt Instrument [Line Items]                          
Spread on base rate (as a percent)           1.00%              
Secured Debt | 2018 Term Loan | Base Rate | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)           3.75%              
Secured Debt | 2018 Term Loan | Base Rate | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)           4.00%              
Secured Debt | Other instruments                          
Debt Instrument [Line Items]                          
Repayments of secured debt             0 $ 0          
Revolving Credit Facility | 2022 Term Loan Maturing July 14, 2027                          
Debt Instrument [Line Items]                          
Outstanding standby letters of credit             200,000     $ 200,000      
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027                          
Debt Instrument [Line Items]                          
Line of credit facility, maximum borrowing capacity $ 85,200,000     $ 200,000,000                  
Fees paid to lenders to be capitalized     1,700,000                    
Remaining borrowing capacity             $ 166,000,000     $ 166,000,000      
Proceeds from issuance of common stock in public offering, net of issuance costs $ 85,100,000                        
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027 | Minimum                          
Debt Instrument [Line Items]                          
Commitment fee                   0.175%      
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027 | Maximum                          
Debt Instrument [Line Items]                          
Commitment fee                   0.275%      
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027 | SOFR                          
Debt Instrument [Line Items]                          
Spread on base rate (as a percent)                   1.00%      
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027 | SOFR | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   1.375%      
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027 | SOFR | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   2.375%      
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027 | Federal Funds Rate                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   0.50%      
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027 | Base Rate | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   0.375%      
Revolving Credit Facility | 2022 Revolving Credit Facility Due July 14, 2027 | Base Rate | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   1.375%      
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024                          
Debt Instrument [Line Items]                          
Line of credit facility, maximum borrowing capacity         100,000,000                
Amortization of debt issuance costs     100,000                    
Debt issuance costs, line of credit arrangements     800,000                    
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024 | Minimum                          
Debt Instrument [Line Items]                          
Commitment fee                   0.175%      
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024 | Maximum                          
Debt Instrument [Line Items]                          
Commitment fee                   0.275%      
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024 | LIBOR | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   1.50%      
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024 | LIBOR | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   2.50%      
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024 | Federal Funds Rate                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   0.50%      
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024 | Eurodollar Rate                          
Debt Instrument [Line Items]                          
Spread on base rate (as a percent)                   1.00%      
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024 | Base Rate | Minimum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   0.50%      
Revolving Credit Facility | 2019 Revolving Credit Facility Due December 20, 2024 | Base Rate | Maximum                          
Debt Instrument [Line Items]                          
Spread on variable rate (as a percent)                   1.50%      
Revolving Credit Facility | 2018 Revolving Credit Facility Maturing November 21, 2023                          
Debt Instrument [Line Items]                          
Line of credit facility, maximum borrowing capacity         100,000,000                
Percentage of excess cash flow payment when leverage ratio is greater than 3.25           50.00%              
Percentage of excess cash flow payment when leverage ratio is less than or equal to 3.25 but greater than 2.50           25.00%              
Percentage of excess cash flow payment when leverage ratio is less than or equal to 2.50           0.00%              
Repayments of lines of credit         $ 58,500,000                
Revolving Credit Facility | 2018 Revolving Credit Facility Maturing November 21, 2023 | 50% of Excess Cash Flow Amount                          
Debt Instrument [Line Items]                          
Adjusted leverage ratio, minimum           3.25              
Revolving Credit Facility | 2018 Revolving Credit Facility Maturing November 21, 2023 | 25% of Excess Cash Flow Amount                          
Debt Instrument [Line Items]                          
Adjusted leverage ratio, minimum           2.50              
Adjusted leverage ratio, maximum           3.25              
Revolving Credit Facility | 2018 Revolving Credit Facility Maturing November 21, 2023 | 0% of Excess Cash Flow Amount                          
Debt Instrument [Line Items]                          
Adjusted leverage ratio, maximum           2.50              
Revolving Credit Facility | 2018 Term Loan                          
Debt Instrument [Line Items]                          
Fees paid to lenders to be capitalized     $ 1,000,000                    
v3.23.2
Shareholders’ Equity (Details)
$ / shares in Units, shares in Millions, $ in Millions
May 18, 2023
USD ($)
$ / shares
shares
Revolving Credit Facility  
Line of Credit Facility [Line Items]  
Sale of stock, number of shares issued in transaction | shares 2.3
Sale of stock price (in dollars per share) | $ / shares $ 40.00
Sale of stock, consideration received on transaction $ 92.0
Payments of stock issuance costs 6.9
Net proceeds from sale of stock 85.1
Increase in common stock, at par value 0.1
Increase in additional paid in capital 85.1
2022 Revolving Credit Facility  
Line of Credit Facility [Line Items]  
Repayments of lines of credit $ 85.2
v3.23.2
Income Taxes (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Dec. 31, 2022
Income Tax Disclosure [Abstract]          
Income tax expense (benefit) $ 955 $ 951 $ 1,763 $ 2,573  
Unrecognized tax benefits 5,500   5,500   $ 4,900
Expected change in unrecognized tax benefits 2,800   2,800    
Decrease in unrecognized tax benefits in next twelve months $ 700   $ 700    
v3.23.2
Commitments and Contingencies (Details)
ft² in Thousands, $ in Thousands
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Jan. 31, 2023
USD ($)
Jul. 01, 2023
USD ($)
Jul. 02, 2022
USD ($)
Jul. 01, 2023
USD ($)
Jul. 02, 2022
USD ($)
Dec. 31, 2020
USD ($)
Jan. 22, 2023
ft²
Dec. 31, 2022
USD ($)
Dec. 31, 2021
USD ($)
Jun. 29, 2020
ft²
building
Loss Contingencies [Line Items]                    
Estimated litigation liability     $ 900   $ 900       $ 800  
Payment for legal settlement $ 900                  
Revenue   $ 187,320 174,198 $ 368,511 337,679          
Cost of sales   147,198 139,556 291,622 270,562          
Loss contingency, receivable, proceeds   300                
Loss contingency, property and equipment write off   200                
Loss contingency, deductions from proceeds   100                
Property, Plant and Equipment                    
Loss Contingencies [Line Items]                    
Loss contingency, receivable, proceeds     1,700              
Damage from Facility Fire                    
Loss Contingencies [Line Items]                    
Loss contingency, receivable, proceeds   3,800 0              
Business Interruption                    
Loss Contingencies [Line Items]                    
Loss contingency, receivable, proceeds   2,100                
Structural Systems                    
Loss Contingencies [Line Items]                    
Revenue   80,196 64,466 155,761 130,481          
El Mirage and Monrovia, California | Structural Systems                    
Loss Contingencies [Line Items]                    
Reserve for estimated liability   1,500   1,500       $ 1,500    
West Covina, California | Structural Systems                    
Loss Contingencies [Line Items]                    
Reserve for estimated liability   400   400       $ 400    
West Covina, California | Structural Systems | Minimum                    
Loss Contingencies [Line Items]                    
Possible loss   400   400            
West Covina, California | Structural Systems | Maximum                    
Loss Contingencies [Line Items]                    
Possible loss   $ 3,100   3,100            
Facility Fire In Guaymas, Mexico                    
Loss Contingencies [Line Items]                    
Real estate property (in sqft) | ft²             117      
Loss contingency, receivable, proceeds       3,800 3,000          
Aggregate loss proceeds       23,700            
Facility Fire In Guaymas, Mexico | Damage from Facility Fire                    
Loss Contingencies [Line Items]                    
Number of buildings | building                   2
Real estate property (in sqft) | ft²                   62
Loss contingency, receivable, proceeds         3,000          
Facility Fire In Guaymas, Mexico | Damage from Facility Fire | Property, Plant and Equipment                    
Loss Contingencies [Line Items]                    
Carrying value of impaired assets           $ 7,100        
Facility Fire In Guaymas, Mexico | Damage from Facility Fire | Inventories                    
Loss Contingencies [Line Items]                    
Carrying value of impaired assets           3,400        
Facility Fire In Guaymas, Mexico | Damage from Facility Fire | Revision of Prior Period, Reclassification, Adjustment                    
Loss Contingencies [Line Items]                    
Revenue           800        
Cost of sales           $ 500        
Facility Fire In Guaymas, Mexico | Business Interruption                    
Loss Contingencies [Line Items]                    
Loss contingency, receivable, proceeds       2,100            
Aggregate loss proceeds       7,500            
Facility Fire In Guaymas, Mexico | Property, Equipment, Inventories And Tooling                    
Loss Contingencies [Line Items]                    
Loss contingency, receivable, proceeds         1,700          
Aggregate loss proceeds       $ 16,200            
Accrued Liabilities                    
Loss Contingencies [Line Items]                    
Estimated litigation liability     900   $ 900       $ 800  
Additional accrued liabilities     $ 100              
v3.23.2
Business Segment Information - Narrative (Details)
6 Months Ended
Jul. 01, 2023
segment
Segment Reporting [Abstract]  
Number of reportable segments 2
v3.23.2
Business Segment Information - Financial Information by Reportable Segment (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2023
Jul. 02, 2022
Jul. 01, 2023
Jul. 02, 2022
Segment Reporting Information [Line Items]        
Net Revenues $ 187,320 $ 174,198 $ 368,511 $ 337,679
Segment Operating Income (1) 5,005 7,754 11,377 16,877
Depreciation and Amortization Expenses 7,954 7,898 15,943 15,666
Capital Expenditures 6,034 5,429 11,015 10,497
Operating Segments        
Segment Reporting Information [Line Items]        
Segment Operating Income (1) 14,913 14,875 29,669 29,173
Segment Reconciling Items        
Segment Reporting Information [Line Items]        
Corporate General and Administrative Expenses (9,908) (7,121) (18,292) (12,296)
Corporate Administration        
Segment Reporting Information [Line Items]        
Depreciation and Amortization Expenses 58 58 117 117
Capital Expenditures 0 0 0 0
Electronic Systems        
Segment Reporting Information [Line Items]        
Net Revenues 107,124 109,732 212,750 207,198
Electronic Systems | Operating Segments        
Segment Reporting Information [Line Items]        
Segment Operating Income (1) 9,528 13,610 19,539 23,021
Depreciation and Amortization Expenses 3,561 3,484 7,059 6,990
Capital Expenditures 1,923 2,943 3,774 4,639
Structural Systems        
Segment Reporting Information [Line Items]        
Net Revenues 80,196 64,466 155,761 130,481
Structural Systems | Operating Segments        
Segment Reporting Information [Line Items]        
Segment Operating Income (1) 5,385 1,265 10,130 6,152
Depreciation and Amortization Expenses 4,335 4,356 8,767 8,559
Capital Expenditures $ 4,111 $ 2,486 $ 7,241 $ 5,858
v3.23.2
Business Segment Information - Segment Assets (Details) - USD ($)
$ in Thousands
3 Months Ended
Apr. 25, 2023
Jul. 02, 2022
Jul. 01, 2023
Dec. 31, 2022
Segment Reporting Information [Line Items]        
Total Assets     $ 1,118,754 $ 1,021,506
Goodwill and Intangibles     419,562 330,608
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired   $ 69,100    
BLR Aerospace, LLLC        
Segment Reporting Information [Line Items]        
Outstanding equity interests acquired (as a percent) 100.00%      
Payments for acquisition of BLR Aerospace L.L.C., net of cash acquired $ 115,000      
Payments to acquire business $ 117,000      
Operating Segments | Electronic Systems        
Segment Reporting Information [Line Items]        
Total Assets     532,832 543,298
Goodwill and Intangibles     177,858 182,501
Operating Segments | Structural Systems        
Segment Reporting Information [Line Items]        
Total Assets     541,872 410,565
Goodwill and Intangibles     241,704 148,107
Corporate Administration        
Segment Reporting Information [Line Items]        
Total Assets     $ 44,050 $ 67,643

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