Company Quick10K Filing
Ducommun
Price44.30 EPS2
Shares12 P/E22
MCap522 P/FCF26
Net Debt220 EBIT30
TEV742 TEV/EBIT25
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-06-27 Filed 2020-07-30
10-Q 2020-03-28 Filed 2020-04-30
10-K 2019-12-31 Filed 2020-02-20
10-Q 2019-09-28 Filed 2019-10-30
10-Q 2019-06-29 Filed 2019-08-05
10-Q 2019-03-30 Filed 2019-05-06
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-29 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-07-01 Filed 2017-08-03
10-Q 2017-04-01 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-03-06
10-Q 2016-10-01 Filed 2016-11-03
10-Q 2016-07-02 Filed 2016-08-05
10-Q 2016-04-02 Filed 2016-05-09
10-K 2015-12-31 Filed 2016-03-14
10-Q 2015-10-03 Filed 2015-11-04
10-Q 2015-07-04 Filed 2015-08-05
10-Q 2015-04-04 Filed 2015-05-12
10-K 2014-12-31 Filed 2015-04-10
10-Q 2014-09-27 Filed 2014-10-27
10-Q 2014-06-28 Filed 2014-07-28
10-Q 2014-03-29 Filed 2014-04-28
10-K 2013-12-31 Filed 2014-02-27
10-Q 2013-09-28 Filed 2013-10-28
10-Q 2013-06-29 Filed 2013-08-05
10-Q 2013-03-30 Filed 2013-05-06
10-K 2012-12-31 Filed 2013-03-04
10-Q 2012-09-29 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-07
10-K 2011-12-31 Filed 2012-03-05
10-Q 2011-10-01 Filed 2011-11-07
10-Q 2011-07-02 Filed 2011-08-09
10-Q 2011-04-02 Filed 2011-05-02
10-K 2010-12-31 Filed 2011-02-22
10-Q 2010-10-02 Filed 2010-11-01
10-Q 2010-07-03 Filed 2010-08-02
10-Q 2010-04-03 Filed 2010-05-03
10-K 2009-12-31 Filed 2010-02-22
8-K 2020-07-30 Earnings, Exhibits
8-K 2020-05-06
8-K 2020-04-30
8-K 2020-04-20
8-K 2020-02-20
8-K 2019-12-20
8-K 2019-10-30
8-K 2019-10-07
8-K 2019-08-05
8-K 2019-06-26
8-K 2019-06-04
8-K 2019-05-06
8-K 2019-05-01
8-K 2019-02-28
8-K 2018-11-21
8-K 2018-11-05
8-K 2018-10-18
8-K 2018-08-06
8-K 2018-05-17
8-K 2018-05-14
8-K 2018-05-10
8-K 2018-05-02
8-K 2018-04-23
8-K 2018-02-28
8-K 2018-02-21

DCO 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Business Combinations
Note 3. Inventories
Note 4. Goodwill
Note 5. Accrued and Other Liabilities
Note 6. Long - Term Debt
Note 7. Employee Benefit Plans
Note 8. Indemnifications
Note 9. Income Taxes
Note 10. Contingencies
Note 11. Business Segment Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 4. Mine Safety Disclosures
Item 6. Exhibits
EX-10.18 dco-q2202010xqex1018.htm
EX-10.19 dco-q2202010xqex1019.htm
EX-10.20 dco-q2202010xqex1020.htm
EX-10.21 dco-q2202010xqex1021.htm
EX-10.22 dco-q2202010xqex1022.htm
EX-31.1 dco-q2202010xqex311.htm
EX-31.2 dco-q2202010xqxex312.htm
EX-32 dco-q2202010xqxex32.htm

Ducommun Earnings 2020-06-27

Balance SheetIncome StatementCash Flow
79063247431615802012201420172020
Assets, Equity
1951439139-13-652012201420172020
Rev, G Profit, Net Income
55305-20-45-702012201420172020
Ops, Inv, Fin

dco-20200627
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________________________________
FORM 10-Q
 _________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2020
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, if any, 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 21, 2020, the registrant had 11,683,483 shares of common stock outstanding.


Table of Contents
DUCOMMUN INCORPORATED AND SUBSIDIARIES
  Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 4.
Item 6.

2

Table of Contents
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)
 June 27,
2020
December 31,
2019
Assets
Current Assets
Cash and cash equivalents$70,828  $39,584  
Accounts receivable, net (allowance for credit losses of $1,318 and $1,321 at June 27, 2020 and December 31, 2019, respectively
67,518  67,133  
Contract assets122,877  106,670  
Inventories128,609  112,482  
Production cost of contracts7,351  9,402  
Other current assets4,548  5,497  
Total Current Assets401,731  340,768  
Property and equipment, net of accumulated depreciation of $169,721 and $162,920 at June 27, 2020 and December 31, 2019, respectively
113,765  115,216  
Operating Lease Right-of-Use Assets17,789  19,105  
Goodwill170,907  170,917  
Intangibles, Net131,224  138,362  
Deferred Income Taxes59  55  
Other Assets6,162  6,006  
Total Assets$841,637  $790,429  
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable$69,068  $82,597  
Contract liabilities27,082  14,517  
Accrued and other liabilities29,122  37,620  
Operating lease liabilities3,094  2,956  
Current portion of long-term debt7,000  7,000  
Total Current Liabilities135,366  144,690  
Long-Term Debt, Less Current Portion341,975  300,887  
Non-Current Operating Lease Liabilities16,155  17,565  
Deferred Income Taxes18,755  16,766  
Other Long-Term Liabilities19,779  17,721  
Total Liabilities532,030  497,629  
Commitments and Contingencies (Notes 8, 10)
Shareholders’ Equity
Common stock - $0.01 par value; 35,000,000 shares authorized; 11,683,131 and 11,572,668 shares issued and outstanding at June 27, 2020 and December 31, 2019, respectively
117  116  
Additional paid-in capital91,645  88,399  
Retained earnings225,573  212,553  
Accumulated other comprehensive loss(7,728) (8,268) 
Total Shareholders’ Equity309,607  292,800  
Total Liabilities and Shareholders’ Equity$841,637  $790,429  
See accompanying notes to Condensed Consolidated Financial Statements.
3

Table of Contents
Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share amounts)

 Three Months EndedSix Months Ended
 June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Net Revenues$147,309  $180,495  $320,784  $353,061  
Cost of Sales
114,641  142,430  251,312  279,302  
Gross Profit
32,668  38,065  69,472  73,759  
Selling, General and Administrative Expenses
21,982  24,461  45,160  47,307  
Restructuring Charges
661    661    
Operating Income10,025  13,604  23,651  26,452  
Interest Expense(3,721) (4,426) (7,967) (8,777) 
Income Before Taxes6,304  9,178  15,684  17,675  
Income Tax Expense1,214  1,363  2,664  2,388  
Net Income$5,090  $7,815  $13,020  $15,287  
Earnings Per Share
Basic earnings per share$0.44  $0.68  $1.12  $1.33  
Diluted earnings per share$0.43  $0.66  $1.10  $1.30  
Weighted-Average Number of Common Shares Outstanding
Basic11,665  11,513  11,638  11,475  
Diluted11,828  11,758  11,845  11,754  
See accompanying notes to Condensed Consolidated Financial Statements.
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Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
Three Months EndedSix Months Ended
June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Net Income$5,090  $7,815  $13,020  $15,287  
Other Comprehensive Income, Net of Tax:
Amortization of actuarial loss and prior service costs, net of tax of $59 and $51 for the three months ended June 27, 2020 and June 29, 2019, respectively, and $118 and $103 for the six months ended June 27, 2020 and June 29, 2019, respectively
188  170  378  340  
Change in unrealized gains and losses on cash flow hedges, net of tax of $31 and $5 for the three months ended June 27, 2020 and June 29, 2019, respectively, and $57 and $27 for the six months ended June 27, 2020 and June 29, 2019, respectively
76  (7) 162  (91) 
Other Comprehensive Income, Net of Tax264  163  540  249  
Comprehensive Income$5,354  $7,978  $13,560  $15,536  
See accompanying notes to Condensed Consolidated Financial Statements.
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Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(Dollars in thousands)

 Three Months EndedSix Months Ended
 June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Common Stock and Paid-in-Capital
Balance, Beginning of Period$89,936  $83,485  $88,515  $83,826  
Employee Stock Purchase Plan
—  —  1,112  —  
Stock Options Exercised
231  742  270  839  
Stock Awards Vested
—  —  (1) (1) 
Stock Repurchased Related to the Exercise of Stock Options and Stock Awards Vested(655) (2,075) (2,663) (3,976) 
Stock-Based Compensation
2,250  1,807  4,529  3,271  
Balance, End of Period91,762  83,959  91,762  83,959  
Retained Earnings
Balance, Beginning of Period220,483  187,564  212,553  180,356  
Net Income
5,090  7,815  13,020  15,287  
Adoption of ASC 842 Adjustment
—  —  —  (264) 
Balance, End of Period225,573  195,379  225,573  195,379  
Accumulated Other Comprehensive Loss
Balance, Beginning of Period(7,992) (7,271) (8,268) (7,357) 
Other Comprehensive Income, Net of Tax
264  163  540  249  
Balance, End of Period(7,728) (7,108) (7,728) (7,108) 
Total Stockholders’ Equity$309,607  $272,230  $309,607  $272,230  
See accompanying notes to Condensed Consolidated Financial Statements.

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Ducommun Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
Six Months Ended
June 27,
2020
June 29,
2019
Cash Flows from Operating Activities
Net Income$13,020  $15,287  
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization14,663  13,759  
Non-cash operating lease cost1,554  1,373  
Stock-based compensation expense4,529  3,271  
Deferred income taxes2,087  181  
Recovery of credit losses(3) (391) 
Other388  (297) 
Changes in Assets and Liabilities:
Accounts receivable(382) (1,145) 
Contract assets(16,207) (13,862) 
Inventories(16,127) (8,202) 
Production cost of contracts1,014  (1,161) 
Other assets1,139  473  
Accounts payable(14,063) 7,158  
Contract liabilities12,565  (3,962) 
Operating lease liabilities(1,391) (1,329) 
Accrued and other liabilities(6,176) (3,103) 
Net Cash (Used in) Provided by Operating Activities(3,390) 8,050  
Cash Flows from Investing Activities
Purchases of property and equipment(5,002) (7,566) 
Post closing cash received from the acquisition of Nobles Worldwide, Inc., net190    
Net Cash Used in Investing Activities(4,812) (7,566) 
Cash Flows from Financing Activities
Borrowings from senior secured revolving credit facility65,900  106,800  
Repayments of senior secured revolving credit facility(15,900) (104,300) 
Repayments of term loans(9,112) (6,000) 
Repayments of other debt(160) (65) 
Net cash paid upon issuance of common stock under stock plans(1,282) (3,138) 
Net Cash Provided by (Used in) Financing Activities39,446  (6,703) 
Net Increase (Decrease) in Cash and Cash Equivalents31,244  (6,219) 
Cash and Cash Equivalents at Beginning of Period39,584  10,263  
Cash and Cash Equivalents at End of Period$70,828  $4,044  
See accompanying notes to Condensed Consolidated Financial Statements.
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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 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”). 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. All 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, 2019 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, 2019. The financial information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.
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 and cash flows in accordance with GAAP for the periods covered by this Quarterly Report on Form 10-Q. The results of operations for the three and six months ended June 27, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020.
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 ends 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 forward loss reserves), 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.
Subsequent Event
On June 29, 2020, subsequent to our quarter ended June 27, 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment. There were no injuries, however, inventories and property and equipment in this leased facility were damaged. We have insurance coverage and expect the majority, if not all, of these items will be covered, less our deductible. However, the full financial impact cannot be estimated at this time as we are currently working with our insurance carrier to determine specific damages and coverage. Our Guaymas performance center is comprised of two buildings with an aggregate total of 62,000 square feet. The loss of production from the Guaymas performance center will be absorbed by our other existing performance centers.
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Supplemental Cash Flow Information
(In thousands)
Six Months Ended
June 27,
2020
June 29,
2019
Interest paid$6,114  $7,985  
Taxes paid$495  $3,389  
Non-cash activities:
     Purchases of property and equipment not paid$1,914  $3,671  
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:
(In thousands, except per share data)(In thousands, except per share data)
Three Months EndedSix Months Ended
 June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Net income$5,090  $7,815  $13,020  $15,287  
Weighted-average number of common shares outstanding
Basic weighted-average common shares outstanding11,665  11,513  11,638  11,475  
Dilutive potential common shares163  245  207  279  
Diluted weighted-average common shares outstanding11,828  11,758  11,845  11,754  
Earnings per share
Basic$0.44  $0.68  $1.12  $1.33  
Diluted$0.43  $0.66  $1.10  $1.30  
Potentially dilutive stock awards to purchase common stock, 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
 June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Stock options and stock units450  66  352  55  
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 and they are included as cash and cash equivalents. We also had interest rate cap hedge agreements for which the fair value of the interest rate cap hedge agreements was determined using pricing models that use observable market inputs as of the balance sheet date, a Level 2 measurement, however, those agreements expired during the three months ended June 27, 2020.
There were no transfers between Level 1, Level 2, or Level 3 financial instruments in the three months ended June 27, 2020.
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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, which 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, a hedge of a net investment in a foreign operation, or a derivative instrument that will not be accounted for using hedge accounting methods. As of June 27, 2020, we had no derivative instruments as all of our derivative instruments that were designated as cash flow hedges matured during the three months ended June 27, 2020.
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 hedge. 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. For the three and six months ended June 27, 2020, the impact of cash flow hedges in the respective periods were insignificant and all of our cash flow hedges matured during the three months ended June 27, 2020.
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 and the related revenue is recognized. Inventoried costs include raw materials, outside processing, direct labor and allocated overhead, adjusted for any abnormal amounts of idle facility 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.
Restructuring Charges
In May 2020, management approved and commenced a restructuring plan in the Structural Systems segment mainly to reduce headcount in response to the impact from the COVID-19 pandemic on the commercial aerospace demand outlook. We recorded an aggregate total of $0.7 million for severance and benefit costs which were charged to restructuring charges during the three months ended June 27, 2020.
Provision for Estimated Losses on Contracts
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.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, 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.
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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 when control of the promised goods is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods. We apply a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when or as the corresponding performance obligation is satisfied.
Each distinct promise to transfer products is considered an identified performance obligation for which revenue is recognized upon transfer of control of the products to our customer. The majority of our contracts have a single performance obligation as the promise to transfer the individual good is not separately identifiable from other promises in the contract and is, therefore, not distinct. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Orders for our products generally correspond to the production schedules of our customers and are supported with purchase orders with firm fixed price and firm delivery dates. Our customers have continuous control of the work-in-process and finished goods throughout the manufacturing process, as products are built to customer specifications with no alternative use, and there is an enforceable right to payment for work performed to date. As a result, we recognize revenue over time based on the extent of progress towards satisfaction of the performance obligation. The majority of our contracts are production-type contracts for which we have significant historical manufacturing experience. From time to time, we may enter into development type contracts which require more judgment to determine our total estimated costs at completion, including estimates of materials and labor costs to complete the contract. Revenue recognized is based on the cost-to-cost method as it best depicts the transfer of control to our customer which takes place as we incur costs. Under the cost-to-cost measure of progress, the extent of progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion. Revenues are recorded proportionally as costs are incurred.
We also have some contracts where we recognize revenue at a point in time upon transfer of control of the products to the customer. Point in time recognition was determined as the customer does not simultaneously receive or consume the benefits provided by our performance and the asset being manufactured has alternative uses to us.
Our manufacturing costs include materials, labor, and overhead. A component of materials costs is production cost of contracts. 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 a significant change in estimated costs at completion could affect the estimated gross profit recorded for our contracts, we review and update our estimated costs at completion on a regular basis. We recognize adjustments in estimated gross profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on gross profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it is identified. 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 June 27, 2020 and June 29, 2019.
Contract Assets and Contract Liabilities
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, a contract liability is created for the advance or progress payment.
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.
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Contract assets and contract liabilities from revenue contracts with customers are as follows:
(In thousands)
June 27,
2020
December 31,
2019
Contract assets$122,877  $106,670  
Contract liabilities$27,082  $14,517  
Remaining performance obligations are defined as customer placed purchase orders (“POs”) with firm fixed price and firm delivery dates. Our remaining performance obligations as of June 27, 2020 totaled $732.2 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 2021 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:
(In thousands)(In thousands)
Three Months EndedSix Months Ended
June 27
2020
June 29,
2019
June 27
2020
June 29,
2019
Consolidated Ducommun
Military and space$94,597  $77,189  $194,088  $150,886  
Commercial aerospace
40,418  91,988  104,268  180,456  
Industrial12,294  11,318  22,428  21,719  
Total$147,309  $180,495  $320,784  $353,061  
Electronic Systems
Military and space$68,021  $60,272  $141,150  $117,704  
Commercial aerospace11,635  17,670  26,492  34,034  
Industrial12,294  11,318  22,428  21,719  
Total$91,950  $89,260  $190,070  $173,457  
Structural Systems
Military and space$26,576  $16,917  $52,938  $33,182  
Commercial aerospace28,783  74,318  77,776  146,422  
Total$55,359  $91,235  $130,714  $179,604  
Recent Accounting Pronouncements
New Accounting Guidance Adopted in 2020
In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments” (“ASU 2020-03”), which provides clarity to, or address various specific issues, including modifications of debt instruments. The new guidance was effective upon issuance of this final accounting standards update. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In February 2020, the FASB issued ASU 2020-02, “Financial Statements - Credit losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Relating to Accounting Standards Update No. 2016-02, Leases (Topic 842)” (“ASU 2020-02”), which provides guidance on the measurement and requirements related to credit losses. The new guidance was effective upon issuance of this final accounting standards update. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Statements” (“ASU 2019-04”), which clarify, correct, and improve various aspects of the guidance in ASU 2016-01, ASU 2016-13, and ASU 2017-12. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which was our interim
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period beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements” (“ASU 2019-01”), which addresses various lessor implementation issues and clarifies that lessees and lessors are exempt from certain interim disclosure requirements associated with the adoption of ASC 842. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which was our interim period beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which should improve the effectiveness of fair value measurement disclosures by removing certain requirements, modifying certain requirements, and adding certain new requirements. The new guidance was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which was our interim period beginning January 1, 2020. Early adoption was permitted. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. ASU 2016-13 requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. The new guidance was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which was our interim period beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional guidance for a limited time for contracts that reference London Interbank Offered Rate (“LIBOR”), to ease the potential burden in accounting for, or recognizing the effects, of reference rate reform on financial reporting as a result of the cessation of LIBOR. The new guidance is effective at any time after March 12, 2020 but no later than December 31, 2022. We are evaluating the impact of this standard.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which removes certain exceptions and provides guidance on various areas of tax accounting. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, which will be our interim period beginning January 1, 2021. Early adoption is permitted. We are evaluating the impact of this standard.
In August 2018, the FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), which will remove disclosures that no longer are considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, which will be our interim period beginning January 1, 2021. Early adoption is permitted. We are evaluating the impact of this standard.

Note 2. Business Combinations
In October 2019, we acquired 100.0% of the outstanding equity interests of Nobles Parent Inc., the parent company of Nobles Worldwide, Inc. (“Nobles”), a privately-held global leader in the design and manufacturing of high performance ammunition handling systems for a wide range of military platforms including fixed-wing aircraft, rotary-wing aircraft, ground vehicles, and shipboard systems. Nobles is located in St. Croix Falls, Wisconsin. The acquisition of Nobles advances our strategy to diversify and offer more customized, value-driven engineered products with aftermarket opportunities.
The original purchase price for Nobles was $77.0 million, net of cash acquired, all payable in cash. We paid a gross total aggregate of $77.3 million in cash upon the closing of the transaction. Subsequent to the closing of the transaction, during the
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three months ended March 28, 2020, we received $0.2 million back from the seller which lowered the purchase price to $76.8 million, net of cash acquired. We allocated the gross purchase price of $77.1 million to the assets acquired and liabilities assumed at 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 estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Estimated
Fair Value
Cash$658  
Accounts receivable1,880  
Inventories2,866  
Other current assets288  
Property and equipment2,319  
Intangible assets37,200  
Goodwill34,850  
Other non-current assets675  
Total assets acquired80,736  
Current liabilities(2,187) 
Net non-current deferred tax liability(759) 
Other non-current liabilities(675) 
Total liabilities assumed(3,621) 
Total purchase price allocation$77,115  

Useful Life
(In years)
Estimated
Fair Value
(In thousands)
Intangible assets:
Customer relationships
15-16
$34,200  
Trade names and trademarks153,000  
$37,200  
The intangible assets acquired of $37.2 million were determined based on the estimated fair values using valuation techniques consistent with the income approach to measure fair value. The useful lives were estimated based on the underlying agreements or the future economic benefit expected to be received from the assets. The fair values of the identifiable intangible assets were estimated using several valuation methodologies, which represented Level 3 fair value measurements. The value for customer relationships was estimated based on a multi-period excess earnings approach, while the value for trade names and trademarks was assessed using the relief from royalty methodology.
The goodwill of $34.9 million arising from the acquisition is 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 Nobles acquisition, for tax purposes, is also deemed a stock acquisition and thus, the goodwill recognized is not deductible for income tax purposes except for $6.7 million of pre-acquisition goodwill that is tax deductible.
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 $0.8 million during 2019 and charged to selling, general and administrative expenses.
Nobles’ 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. Pro forma results of operations of the Nobles acquisition have not been presented as the effect of the Nobles acquisition was not material to our financial results.

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Table of Contents
Note 3. Inventories
Inventories consisted of the following:
(In thousands)
June 27,
2020
December 31,
2019
Raw materials and supplies$108,522